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Martin Wolf’s Seven Principles of Financial Regulation

In his most recent excellent column Martin Wolf presents his seven principles of financial regulation. In this column Wolf cites a recent paper I wrote where I presented ten fundamental issues in reforming financial regulation and supervision. I am very sympathetic to Wolf’s seven principles that in many ways are consistent with the views that I have presented.

One crucial set of issues that is left open – and one that Willem Buiter and Wolf have briefly touched upon in previous remarks – is the difficult one of “quis custodiet ipsos custodes?” or “who will regulate the regulators?”. I.e. how to ensure that we have a system where the regulators are not effectively captured by the financial industry that they regulate? How to ensure that financial innovation is not always a step ahead of regulation via regulatory arbitrage? And how to ensure that the regulators have the necessary skills and expertise to correctly implement the appropriate regulations and supervision?

Let ponder further these difficult questions… While the recent financial crisis suggest that self-regulation and market discipline and internal risk management and reliance only on principles rather than rules does not work (see similar views of Buiter that “Self-regulations means no regulation” and similar arguments by Martin Wolf), the issue remains open of how to ensure that the appropriate new rules that folks such as Wolf, Buiter, myself and others are suggesting are actually implemented without further regulatory arbitrage and regulatory capture of the regulators (the “quis custodiet ipsos custodes?” or “who will regulate the regulators?” problem).

This is a most difficult question about which I don’t have yet a simple answer but on which I will soon provide my views. I am sure that Wolf and Buiter have also been pondering further this crucial open issue. And certainly in his latest column Wolf starts to address this crucial issue even if the answers he provides to it are not yet fully complete. Hopefully the ongoing debate on the appropriate regulation and supervision of the financial market will soon provide some additional answers to this most difficult and still open question.

And here is the excellent column by Martin Wolf:

Seven habits finance regulators must acquire By Martin Wolf Published: May 6 2008 19:52 | Last updated: May 6 2008 19:52 “Simply stated, the bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the market place.” Paul Volcker, April 8 2008

Paul Volcker is the giant among contemporary central bankers, both literally and figuratively. He it was who had the moral courage to crush inflation as chairman of the Federal Reserve between 1979 and 1987. When Mr Volcker speaks, people listen. What he had to tell the economic club of New York last month was well worth listening to. His summation, cited above, was so devastating, because so true. Mr Volcker noted that this crisis is not unique. On the contrary, “today’s financial crisis is the culmination, as I count them, of at least five serious breakdowns of systemic significance in the past 25 years – on the average one every five years. Warning enough that something rather basic is amiss.” Those who do not heed such warnings are fated to suffer something yet worse. So what is to be done? There is a part of me – quite a large part, in fact – that says: “Forget regulation: it will never work. Apart from normal laws against fraud, let the financial system live and die by the laws of competitive markets. If businesses fail, let them simply go down, with all their shareholders, customers and employees. Meanwhile, we will remind users constantly of the dangers.” I suspect this approach might give us a better financial system than the one we have today. But it is one we cannot have because governments will not dare let us, as experience with Northern Rock and Bear Stearns has reminded us. The public, governments feel, must be protected from banks and banks must be protected from themselves. Finance is deemed far too important to be left to the market. Given this, regulation will need to be radically reconsidered, unless, as Mr Volker points out, we are comfortable with a substantial financial crisis every five years or so. However great the lobbying power of the financial sector, it will surely be unable to preserve a licence to commit havoc on such a scale, particularly when, as he also remarks, “it is hard to argue that the new system has brought exceptional benefits to the economy generally”. So far tighter regulation is desirable in the longer-run interests of the industry itself, let alone the public’s. What, then, should such regulation look like? Here I would like to analyse what I see as the fundamental issues. I am influenced in doing so by an excellent recent paper* from Nouriel Roubini of New York University’s Stern Business School. So here are seven principles of regulation. I call them the seven “Cs”. First, coverage. Perhaps the most obvious lesson is the dangers of regulatory arbitrage: if the rules required certain capital requirements, institutions shifted activities into off-balance-sheet vehicles; if rules operated restrictively in one jurisdiction, activities were shifted elsewhere; and if certain institutions were more tightly regulated, then activities shifted to others. Regulatory coverage must be complete. All leveraged institutions above a certain size must be inside the net. Second, cushions. Equity capital is the most important cushion in the financial system. Also helpful is subordinated debt. If Bear Stearns had had larger equity capital, the authorities might not have needed to rescue it. Capital requirements must be the same across the entire financial system, against any given class of risks. But there must also be greater attention to the adequacy of that other cushion: liquidity. Third, commitment. The originate-and-distribute model has, it is now clear, a huge drawback: originators do not care sufficiently about the quality of loans they plan to offload on to others. They do not, in Warren Buffett’s phrase, have “skin in the game”. That makes for sloppy, if not irresponsible or even fraudulent lending. Originators should be required, therefore, to hold equity portions of securitised loans.

Fourth, cyclicality. Existing rules are pro-cyclical. Capital evaporates in bad times, as a result of write-offs, thereby forcing c
ontraction of lending, worsening the economic slowdown and further impairing assets. Mark-to-market accounting, though inherently desirable, has a similar effect. One solution could be to differentiate between target levels of capital and a lower minimum level. Institutions that have minimum capital in bad times would only be required to aim for the higher target level over an extended period. Fifth, clarity. Lack of information, asymmetric information and uncertainty are inherent in financial activities. These are why they are vulnerable to swings in collective mood. The transactions-orientated financial system is particularly vulnerable, because information has to flow freely across arms-length markets. So a big challenge is to generate as much clarity as is possible. One issue is the calamitous recent role of the rating agencies and the conflicts of interest under which they operate. Sixth, complexity. Excessive complexity is a significant source of lack of clarity. It is particularly damaging, as we have seen, to the originate-and-distribute model, because markets in complex securitised products may, at times, seize up, forcing central banks to become “market makers of last resort”, with all the difficulties this entails. One possibility then is to insist that all derivatives be traded on exchanges. Seventh, compensation. On this I can do no better than quote Mr Volcker: “In the name of properly aligning incentives, there are enormous rewards for successful trades and for loan originators. The mantra of aligning incentives seems to be lost in the failure to impose symmetrical losses – or frequently any loss at all – when failures ensue.” Whether regulators can do anything effective is unclear. That this is a challenge is not. John Maynard Keynes wrote of an eighth “c”. He argued that “when the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill done”. He had a point. Features of a casino will always be present in a financial system that performs the essential functions of guarding people’s savings and allocating them where they can do most good. Regulation will always be highly imperfect. But an effort must still be made to improve it. * Nouriel Roubini “Ten Fundamental Issues in Reforming Financial Regulation and Supervision in a World of Financial Innovation and Globalization” martin.wolf@ft.com

82 Responses to “Martin Wolf’s Seven Principles of Financial Regulation”

GuestMay 7th, 2008 at 2:11 pm

Well, it is final-Obama vs. McCain. Maybe this is what spooked wall street…3:03 Obama gets support of 4 new superdelegates: report

GuestMay 7th, 2008 at 2:17 pm

@JMaShould be rubbing your hands. Volatility starting to spike, TED at trough heading up from here. Good reversals today in Dow and Hang Seng. Now ride it AND when you\’re at 80% of highs, sell. Go to cash. Don\’t invest again in this market. Your blood pressure and longeveity will thank you.

GuestMay 7th, 2008 at 2:25 pm

Bond yields barely budging into stock sell-off, this could spell big trouble for stocks looking ahead!

Play OnMay 7th, 2008 at 2:28 pm

US uses 7.3 biilion barrels of oil a year. Oil price 1/1/08 $95Oil price 5/7/08 $123$28 X 7.3=$204.4 billion in higher energy costs since start of yearAnd the stimulus was only $175 billion. So much for the stimulus being a stimulus. It has been eviscerated by the the higher oil prices.

GuestMay 7th, 2008 at 2:34 pm

consumer credit, obama, FNM, Oil at $124, Treasuries & cc,auto,student paper at discount, housing. Straw — camelback.

K J FoehrMay 7th, 2008 at 2:55 pm

Hallelujah brothers and sisters!It is May and they are going away – finally! This will be the best night’s sleep I have had in over two weeks!Good luck to all, and let the good times roll for the long suffering shorts!p.s. IMO, the eye of the storm has passed. It’s time to fasten your seatbelts again, next stop: VIX over 20 again.p.s.s. The consumer is down for the count.excerpt\"Consumer credit increased by $15.3 billion for the month to $2.56 trillion, the biggest monthly rise since November, the Federal Reserve said today in Washington. In February, credit rose by $6.5 billion, previously reported as an increase of $5.2 billion. The Fed\’s report doesn\’t cover borrowing secured by real estate, such as home-equity loans. Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.\" http://www.bloomberg.com/apps/news?pid=20601087&sid=aSN4AbFYIoCc&refer=home

AlessandroMay 7th, 2008 at 3:07 pm

Looks like the wiser among the suckers are out the door. And today\’s utter bloodbath among the financials makes the bull\’s case even weaker.

JuvenalMay 7th, 2008 at 3:14 pm

Noted — and I add, \"rara avis in terris nigroque simillima cycno\" like men in high places with honor, integrity, capacity. Those few wise counselors who emulate high character bind to your soul with hoops of steel.

GuestMay 7th, 2008 at 3:20 pm

Remember this too, credit card rates run about 19% vs HELOC rates of 6%. Concumers are being driven to the cliff…

GloomyMay 7th, 2008 at 3:24 pm

APOCALYPSE NOW?The Fed\’s measure of consumer borrowing, which does not include any debt secured by real estate such as mortgages or home equity loans, stood at a record $2.558 trillion in March.

JuvenalMay 7th, 2008 at 3:25 pm

These seven C principles added to the other 3 (character, creditworthiness, collateral) make an even ten. I\’ll carve them into each finger, and into those of my servants so we will never forget again. Wear them like placardies, ringlets of wool about our ears, prayerboxes on a crown, tether laces wound about the forearm. Man is so fickle, so short-sighted that without daily reminders, brandings in his flesh, or encumbering articles about his person, he soon forgets nearly everything of value. Foremost are guiding principles and duty to create and preserve for future generations.

GuestMay 7th, 2008 at 3:30 pm

Some more great news:4:26 Crocs swings to first-quarter loss4:26 Futures Movers: Oil ends atop $123, up almost 10% in four sessions4:24 Hovnanian begins follow-on offering of 14 mln class A shares

GuestMay 7th, 2008 at 3:36 pm

Some more:4:34 [HANS] Hansen Natural shares tumbled 14% to $30.49 in late trading4:32 [SVN] Sun-Times not curing NYSE non-compliance, expects delisting

GloomyMay 7th, 2008 at 3:36 pm

IT\’S A MYSTERY!!!!May 7 (Bloomberg) — U.S. stocks declined the most in a month, led by financial shares, on concern new disclosure requirements for investment banks will limit their profits. Merrill Lynch & Co. and Lehman Brothers Holdings Inc. sent brokerages and lenders to their biggest tumble since March after the Securities and Exchange Commission said it will require Wall Street firms to disclose capital and liquidity levels. “The market is obviously worried about what will be disclosed,\’\’ said Janna Sampson, co-chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC, which oversees about $1.4 billion. “From an investor\’s perspective, you want to know the firm you are invested in has a strong capital standing. Why these firms wouldn\’t disclose this data is a mystery.\’\’ http://www.bloomberg.com/apps/news?pid=20601087&sid=aG7ApsRFN80A&refer=home

GuestMay 7th, 2008 at 3:43 pm

I am sure Hillary will use this to breed anger…4:39 Tranoscean\’s first-quarter net profit jumps, topping $1 billion4:38 Devon Energy generates 15% profit growth on higher output

MedicMay 7th, 2008 at 3:50 pm

Gloomy,I bet that Ms. Sampson is also mystified by the following:1. Light switches2. Click pens3. The \"thumb\" trick4. Remote controlsWho gives these people jobs? She can\’t even begin to lie effectively – clearly she does not work for the government.Remember, buy the gold when it goes under $800 – the rocket ride up after that should be fun – unless you don\’t have any.

AnonVMay 7th, 2008 at 3:54 pm

@ MedicI have been watching gold am looking to buy for my first time. Is it the physical metal or stocks? Where is best to buy safely?

AfAMay 7th, 2008 at 4:02 pm

Any information on the volume of purchases of May VIX 25 Calls? If it is true and that some people have some inside knowledge, that would be a catastroph!

MedicMay 7th, 2008 at 4:32 pm

@ AnonV Physical metal is my recommendation for a couple of reasons: 1. You can keep some on hand for use if the monetary system becomes severely impaired or hyperinflation occurs. If you want something you can trade easily or barter for goods / services, then I recommend silver coins. Buy them and keep them safe but close. They can be purchased from a dealer such as Kitco. Gold will be harder to trade in the same scenario – think about it like having too large a denomination of cash – not everyone will accept it. 2. Cash is unlikely to hold its value as the government moves to correct huge deficits and debts. Metals (IMHO) will remain a source of value as they are not the currency of a single nation, but instead accepted by all nations. If you are not an experienced buyer, you will likely be better served by purchasing from a reputable metals dealer than a local dealer you have no experience with. And, as always, free advice is always worth what you pay for it. Do your own research and make own decisions based on what you and your family need and can tolerate for risks. I may be wrong (it has happened a few million times), but I may be right and if I am this may be a viable option for trying to hold onto your savings.

GuestMay 7th, 2008 at 5:00 pm

On Regulators:\"And what\’s needed is for you to learn all things: both the unshaken heart of persuasive Truth and the opinions of mortals,in which there\’s nothing that can truthfully be trusted at all.\"http://verbewarp.blogspot.com/2005/08/mares-that-carry-me-as-far-as-longing.htmlFrom almost 3000 years ago. Says it all.No, the roots of a necessary financial system will be found in Buckminster Fuller\’s notion of \’ephemeralization\" which to some degree, is economically practiced in areas within Asia. What MUST be done, is to permit bankers from chocking the financial, monetary and economic flows of the real economy at their will and convenience, and leveraging the real economy in unabated speculation. The Central Banker system must be abolished, a priori.Man cannot be trusted, a priori and power and money corrupt, a priori, and therefore any / all system(s) must be automated. It is the Regulatory apparatus that must be regulated; Should not be difficult; after all, the USA was originally a Republic, Yes?(Due to the same Principles as stated herein)Ho humPeterJB

AfAMay 7th, 2008 at 5:06 pm

If I understood well, the major reason why XLF lost almost 4% today is because of the SEC new regulation. I quote \"U.S. Stocks Decline on Concern SEC Plan Will Hurt Broker Profit.\"i.e. if A=B and C=D, then A=DNow, being a little bit more transparent and telling truth is a deadful sin? Or is it that the market really believes in the \"far from sight, far from heart\" rule when it comes to losses?@ Gloomy, I agree with you that March increase in consumers borrowing is an additional hint on what is waiting down the road. I wonder how the April numbers would look like? Anyway, that explains why VISA et al have beaten the earning estimates. People are making month ends meet, facing rising oil and food prices, decreasing home values, car insurances, credit card interests and fees … by drawing on their credit card accounts.

GuestMay 7th, 2008 at 5:13 pm

Correction – with apologies\"What MUST be done, is to permit bankers from chocking the financial, monetary and economic flows of the real economy at their will and convenience, and leveraging the real economy in unabated speculation. The Central Banker system must be abolished, a priori.\"Should read:\"What MUST be done, is to **prohibit** bankers from chocking the financial, monetary and economic flows of the real economy at their will and convenience, and leveraging the real economy in unabated speculation. The Central Banker system must be abolished, a priori.\"PeterJB

SuecrisMay 7th, 2008 at 5:52 pm

@AnonV – In the past 3 years I have purchased quite a lot of both gold and silver, which I had delivered to my home (keep meaning to get a safe deposit box). I ordered them from APMEX. I figure the large denomination of the gold will mean I\’ll have to take one coin at a time to the local coin shop and sell it for whatever it\’s going for that day (Weimar $5,000-$10,000?) and then rush around buying food and fuel and whatever else I can that same day, before the money loses value. Then in a few weeks or a month I\’ll repeat the process.

RalphMay 7th, 2008 at 10:41 pm

\"When is LEH going bankrupt?\"Not until September 29th I\’m afraid. So hang in there.

K J FoehrMay 7th, 2008 at 10:46 pm

@AfA on 2008-05-07 01:46:16 “Just to give an example, I was shocked when I learned that running candidates for presidency are allowed to raise money from companies/lobbyists/interest groups. I mean, you don\’t need to be a conspiracy theorist to see the insanity how ridiculous the conflict of interest the president is under between serving voters or his/her campain financing lobbyists.”“At the federal level, the primary source of campaign funds is individuals; political action committees are a distant second. Contributions from both are limited. These regulated donations are often referred to as hard money. Corporations and trade unions are prohibited from contributing directly to a candidate\’s campaign.”http://en.wikipedia.org/wiki/Campaign_finance_in_the_United_StatesFrom Obama’s web site, “This campaign is about building a different kind of politics. We don\’t take money from Washington lobbyists or special-interest political action committees. Instead, our broad base of individual donors ensures that this campaign answers to no one but the people.”https://donate.barackobama.com/page/contribute/standard?source=mainnavObama has received donations from a reported 1.5 million people, more than any other candidate in history. The average amount is about $100. Therefore, he is farther removed from the moneyed special interests than any candidate in recent decades. He will truly be a president for the people, IMO.I believe Barack Obama is a once in a generation leader. After watching many debates and candidate campaign appearances for many hours on CSPAN and commercial TV, and after reading Barack Obama’s two book “The Audacity of Hope” and “Dreams from My Father”, I have come to the conclusion that he clearly stands head-and-shoulders above the other candidates for president. In my opinion, he is an exceptional individual, like no one I have seen running for president since Bobby Kennedy in 1968. As a result, I believe Barack would be a truly transformational president. With his vision and leadership, he would refocus our country to the betterment of people instead of corporations and moneyed special interests.And because of his bi-racial and multi-national heritage, he is uniquely qualified to heal our 200 plus year racial divide, and to restore our image in the world.But most importantly he is smart, very smart. And he is wise, with a vision that is rare and sorely needed in our government.Perhaps you have given up on hope, but many others have not, and as Obama has said, nothing ever changes unless there is first hope and a belief that it can be changed.

GuestMay 7th, 2008 at 11:17 pm

KJ you know these guys…JFK, Martin Luther King, Malcom,almost got Reagan,Abe Lincoln and on and onif he is REALLY brave to change thingshe needs more than just hope-kevlar lined with dragon skin pads-wish him the best of luck

AfAMay 7th, 2008 at 11:53 pm

@ KJFHope.As I said, I\’m tempted to believe that Obama is a true leader, but the system corrupts (as I saw his reaction against his old \"friend\" Write; It might be intelligence but not integrity) I said I lost hope in the system (presidency and government) but I didn\’t lost hope in People around me, people like yourself, my family… (I didn\’t want to reflect a pessimistic personality, which is I am not). How to say? Take it as contingency planning. If he turns out to be the leader we all wish for than it will be a good surprise, otherwise …I hope your hope comes true.

Octavio RichettaMay 8th, 2008 at 12:25 am

An excellent complement to the professor\’s post. So the CC is over? Think again. Latest from PIMCO which is in line with GS latest views and a few lessons from Japan.http://www.pimco.com/LeftNav/Global+Markets/Japan+Credit+Perspectives/2008/Japan+Credit+Perspectives+April+2008.htmI am now at the hearth of the Florida housing bubble. I Don\’t know what to say. It all feels very plastic and unreal. Like it is all on borrowed time and money. Lots of German tourists at South Beach, not upscale, just common folk. Lot\’s of people driving flashy cars you can tell were financed via either MEW or a rich/heloc boyfriend. Lot\’s of middle eastern looking fellows driving bery bery bery upscale cars that were most likely bought cash. Lot\’s of ladies on skimpy clothing looking for sugar daddies. As the great line from the Argentinean movie the Nine Queens says: \"my dear friend the example I just gave you goes to prove that the bottle neck is not the lack of ^&^res but the lack of investors\".It is the start of the slow season i n Florida but even correcting for that business is very slow despite the tourists.BTW, AfA:\"i.e. if A=B and C=D, then A=D\" This does not follow. Please fix!

AfAMay 8th, 2008 at 12:37 am

@ OR\"i.e. if A=B and C=D, then A=D\" This does not follow. Please fix!I was refering to the logic behind Blommberg\’s, and apparently the markets, article title \"U.S. Stocks Decline on Concern SEC Plan Will Hurt Broker Profit.\"How could it be that more reporting transparence may lead to lower profits?Anyhow, good to hear from you. Hope you enjoy your trip!

K J FoehrMay 8th, 2008 at 12:40 am

Written by AfA on 2008-05-07 23:53:02“As I said, I\’m tempted to believe that Obama is a true leader, but the system corrupts (as I saw his reaction against his old \"friend\" Write; It might be intelligence but not integrity)”I disagree, I think Obama did demonstrate integrity in the way he handled Wright. His first reaction was to give Wright the benefit of the doubt and distance himself from the comments without turning his back on him. But after Wright’s later narcissistic and disrespectful display, Obama did the right thing and severed his ties with Wright and criticized him and his comments very forcefully.It was interesting to me that Obama was criticized for not throwing Wright under the bus immediately when the video clips first surfaced, but W’s loyalty to friends and associates, even when they were in trouble, was always touted as a noble quality.“I hope your hope comes true.”Me too, for the sake of people in America and all around the world.

GuestMay 8th, 2008 at 1:13 am

Its funny to read sometimes journalists complain about how Americans love spending and shopping and how they need to cut down shopping on credit. For the first, the U.S. government certainly has known that credit is too easy to obtain. For the second, if credit had not been so easy to obtain, the U.S. capitalistic system would have crashed years ago. For the third, the second provides the reason to the first.

AnonymousMay 8th, 2008 at 5:45 am

I read both Nouriel\’s blog and peoples\’ messages here all the time, but, for lack of time, do not post too frequently myself.Taking everything into account, the data has tended to surprise ever so modestly to the upside. With regard to this, I recommend reading Paul Kasriel (northerntrust.com) and Nouriel\’s comments on the Q1 GDP figures. Also, the guys from ECRI had an article published on cnnfn.com as to why we are certainly in a recession — they say that, in the future it is likely that when all the data is revised and revised again, we will see that the economy (real GDP) sharnk in either q4 2007, in q1 2008, or in both quarters. Furthermore, further declines in GDP cannot be ruled out. (They say the employment data is rather suggestive of an economy (gdp, production) that is shrinking.)Also, if you read paul kasriel\’s analysis (again on northerntrust.com) of the april employment figures, you will see that the report was substantially weaker than the financial media (cnbc, for example) interpreted it as being. The report was suggestive of further declines in employment in upcoming months.Now for some more fundamental analysis …Through the combination of traditional (rate cuts) with bail outs and more novel means of injecting liquidity into the system the Fed has probably prevented — for the time being — a total collapse of the American, and then world, financial system. THe economy is in a recession.The living standards of working people in the US (and not only) are deteriorating, and the rate of deterioration is set to acelerate somewhat.However, there is little doubt that, by the beginning/middle part of 2009 the latest, the economy (real GDP) will start growing again (though the rate of growth may well be low.) This is not shaping up as the Great Depression.The official unemployment rate will probably increase another 1%, from 5 to 6. As bad as this is, it is not a depression-type figure.But the longer-term (2-3 years) outlook is very grim, indeed.A return of the US to growth, combined with and generated partially by, a maintenance of very low interest rates (2% fed funds — this is not going to be increased before mid 2009, and probably later) will mean inflation.Inflation is already a problem. Oil at 123 dollars a barrel, food prices increasing in the US by 5% just in the first three months of the year.Given the evident intent of the \"leaders\" of the US in attacking Iran, as well as supply-demand factors, more upside in oil can be expected over the next couple of years.In other words, in 2-3 years, inflation will be higher than it is now. The Fed will be caught in a trap partially of its own making. Translation: it will tighten alot (in 2010-2011 the latest) and the economy will tank big time.From a global-historic perspective, the US is evidently in decline. THe capitalist system as a whole is now showing in myriad ways (ex: the whole financial crisis, the speculator-driven surges in food prices leading to riots all over the world) that it is outmoded.There is going to be a revolution in the US within the next 5 years, and probably sooner.Things have gotten so bad that I would venture to say that this prediction is not \"reaching\" at all, but is eminently logical and \"conservative.\"

GuestMay 8th, 2008 at 7:25 am

Anonymous on 2008-05-08 05:45:38There is going to be a revolution in the US within the next 5 years, and probably sooner.Things have gotten so bad that I would venture to say that this prediction is not \"reaching\" at all, but is eminently logical and \"conservative.\"I take the further you think about it the more you are bound to draw that conclusion.

Prt1stAskQLaterMay 8th, 2008 at 7:40 am

It\’s been good questions (so far) …Moody\’s Investors President Steps Downhttp://online.wsj.com/article/SB121020384798775195.html?mod=googlenews_wsjPrint First Ask Questions Later.

ptmMay 8th, 2008 at 7:51 am

AfA on 2008-05-07 23:53:02 & K J Foehr on 2008-05-08 00:40:35Let\’s say for the sake of argument that Obama wins. To minimize the fallout of our looming bad debt he must: * Have a honest government that informs the public as to the true condition of our national economy. * End bank accounting secrecy and enforce an \"open book\" policy with all banks. * Identify insolvent banks, declare bankruptcy, or nationalized the banks. * Either let investors take the losses. (This means that our money market, savings, and pension funds will, to one degree or another, evaporate since our money managers purchased these CDOs & CDSs for high returns.) or nationalize the losses. * Educate the public in basic macroeconomic issues and provide leadership that will be accountable for money creation at the Federal and banking levels. * Lead us into collectively tighten our belts and move on with life.Do you think this will happen? Me either, then we must be prepared for the alternative…

GloomyMay 8th, 2008 at 7:56 am

A WHO\’S WHO OF THE INSOLVENTWho Has More Level 3 Assets Than Capital?Bennet Sedacca May 07, 2008 4:48 pm A list of ten companies with this hard to sell \"asset.\" New accounting rules allow for trading assets to be divided into three levels. Level One assets are the most liquid assets and therefore the easiest to price. They make up less than a quarter of most firms\’ assets. Level Two assets make up the majority of firms\’ assets but rely heavily on the firms\’ assumptions about things such as interest rates because they are far less liquid than Level One assets; according to regulatory filings by the five largest U.S. brokers and largest money center banks, there are more than $4 trillion in Level Two assets on their balance sheets. Finally, Level Three assets are the least liquid of the firms\’ trading assets and therefore are valued using what are called \"unobservable inputs.\" Level Three assets include real estate, mortgage-backed securities, private equity investments and possibly even \"undertakings of great advantage, but nobody to know what they are\" (cf. South Sea Bubble).The three magic words that make an asset a Level 3 asset are \"no observable inputs.\" What this means is that not only are they hard to price, but nearly impossible to sell.Recently there\’s been such deterioration in all types of mortgages that more and more assets are finding their way into this category. Also, this is the first time insurance companies have made the list. I think the list will continue to grow.Ten companies now have more Level 3 assets than capital. In order they are (as a % of total shareholder equity:1) Bear Stearns (BSC): 313.97%2) Morgan Stanley (MS): 234.88%3) Merrill Lynch (MER): 225.4%4) Goldman Sachs (GS): 191.56%5) Lehman (LEH): 171.18%6) Fannie Mae (FNM): 161.48%7) Northwest Air (NWA): 142.02%8) Citigroup (C): 125.06%9) Prudential (PRU): 119.36%10) Hartford (HIG): 108.52%So now we have insurance companies joining the party. Yes, the contagion is spreading and no, it\’s not over. Not even close. C just had to pay 8.5% for $2 billion in preferreds. One of these days, there will be no takers.http://www.minyanville.com/articles/index.php?a=17068

AlessandroMay 8th, 2008 at 8:01 am

Here it comes the municipal subprime put:\"Vallejo, California, Residents Foresee Cuts as Bankruptcy LoomsBy Michael B. Marois and William Selway – May 8 (Bloomberg) — As Vallejo, California\’s home prices plunged, the once-humming Navy town on the north edge of the San Francisco Bay seemed like a good place to settle down, said Tim Medrow, a manager at a store that sells floor and bathroom tiles.Then came the city council meeting Tuesday night, when elected leaders voted to turn Vallejo into the largest California city to declare bankruptcy. “It\’s crippling the city,\’\’ said Medrow, 32. “It\’s already feast or famine. And it\’s only going to get worse now.\’\’Vallejo, with a population of 117,000, is being squeezed by declining home sales that have rippled through its economy, cutting into the taxes it relies on from local retailers and home owners. It has been pushed to the breaking point, city officials say, by union contracts with firefighters and police it can\’t afford or renegotiate.\"

GloomyMay 8th, 2008 at 8:07 am

Fed Chooses Wall Street Over Main StreetMr Practical May 07, 2008 1:15 pm Saving big banks a costly proposition for middle class. “It took from 1914 until November 2007 for the Federal Reserve to accumulate $800 billion worth of Treasury debt. It has taken from December 17 to the end of April for the Fed to divest itself of $260 billion of this portfolio, a decrease of one-third. In its place, it has placed AAA-rated mortgages. At the current swap rate, the Federal Reserve System will be out of Treasury debt in December of 2008. But by adding car loans to the list of eligible paper, the Fed will most likely greatly accelerate this.” – Economist Gary NorthTo the average person this is gibberish. Perhaps this is why the Fed is able to do what it\’s doing: slowly nationalize the banking system. The stabilization that everyone is giddy about has its cost. The private market, with the encouragement of the Federal Reserve, has manufactured vast debt that cannot be repaid. Banks used up their capital long ago, so the Fed has to take those bad loans away from them and give them capital back. Stabilization is not a working banking system. When you hear all the CEOs of Wall-Street say the crisis is nearing an end, it has no implication for a working banking system that will create more credit. The Fed adds a new twist everyday. Now it\’s going to pay interest on reserves banks must keep at the Fed. This will allow the Fed to expand its balance sheet even more and buy even more bad loans from banks. Again, this isn\’t a positive: It illustrates just how bad things are.By the way, it\’s the U.S. taxpayer that will be picking up a good portion of this interest they will now pay to banks. Chairman Ben Bernanke has been given high marks for saving the system. But just what are we saving? The average person does not understand that what they are really saving is the bankers and Wall Street at the expense of the middle-class standard of living. A devalued dollar of 50% hurts the middle class much more than a 50% decline in the stock market. Why not let a failed system fail, thus re-distributing savings and income back to the middle class? Of course, everyone will suffer but in the long run that will happen anyway and saving the system will disproportionally hurt the middle class more. The system is broken. Every action by the Fed says so. Those that anticipate a shallow recession still do not understand this. The credit crunch has barely begun affecting the real economy. We\’re in the very early stages of this process and the government wants to boil the proverbial toad (the middle class) as slowly as possible. Risk is very high. http://www.minyanville.com/articles/S-tax-nationalization-interest-stabilization-citizen/index/a/17062

GuestMay 8th, 2008 at 10:16 am

Funny, this news rallied sstocks from the abyss…11:09 Fannie Mae, Freddie Mac shares dive in Thursday trading

AnonymousMay 8th, 2008 at 11:56 am

@ KJFI share guest\’s concerns about the potential for a violent end to Obama\’s candidacy, or if elected, presidency. In fact, if a \"unity\" ticket is forced on BHO as it was on JFK after a hard fought to the convention floor battle with LBJ, I predict that it will be President HRC within 2 years. Perhaps it will be a small plane \"accident\" as with Wellstone and Kennedy Jr. Perhaps it will be a madman who dies of a brain tumor soon after. These things still happen with uncanny regularity in the USA.After all, the same people implicated in the earlier assassinations are still holding power but now have much, much more at stake because of the crimes and failures of the past eight years.Nonetheless, I agree that Obama is perhaps America\’s last hope for change without revolution and violence.

GuestMay 8th, 2008 at 12:33 pm

$2 more just came off S&P earnings estimates for \’08 adn $3 came off for \’09 so that is probably why stocks are rallying! LOLOL

Play OnMay 8th, 2008 at 1:28 pm

If you went to the moon 5/8/07 and came back today and you saw at oil at $123 you might have the right to ask: Are we fighting Iran in the Middle East? Forget about what you hear on the news and think we might just be fighting Iran for real!

GuestMay 8th, 2008 at 2:46 pm

oh, i was wrong. not easy money policy. it is cheap money policy aka toilet paper policy.

AlessandroMay 8th, 2008 at 2:55 pm

See Mish on the Vallejo bankruptcy. For those who wonder what are the distortions of easy money that ultimately bring down a city look at the addendum with the salaries of firemen and policemen. And the unions didn\’t accept salary cuts! Outrageous!\"City of Vallejo\’s $100K-plus EarnersDuring the calendar year 2007, there were 292 City of Vallejo employees who had total gross wages of $100,000 or more. Find out who they were, what departments they worked for and how much they made by searching that database below.The data was provided by the City of Vallejo\’s Finance Department.\" http://globaleconomicanalysis.blogspot.com/2008/05/hardball-in-vallejo-no-balls-in-dc.html

GuestMay 8th, 2008 at 2:57 pm

The House has approved sending states $15 billion to buy and fix up foreclosed properties. The vote Thursday was 239-188 to approve the bill, which most Republicans opposed. It would provide loans and grants to areas hit hardest by the housing crisis. Supporters say the legislation will prevent neighborhoods around foreclosed homes from sliding into blight.The measure is separate from a broader housing package to provide $300 billion in refinanced mortgages for struggling homeowners. The House was expected to vote on that bill later Thursday.President Bush has threatened to veto both measures. He says Democrats\’ housing proposals reward lenders and speculators instead of helping homeowners.

AlessandroMay 8th, 2008 at 3:03 pm

Visual representation of the FED swap-o-rama game. Remember that the assets on the FED balance sheet are what backs the dollar. Now 50% of dollars are backed by MBS of various kind and soon more dollar will be backed by ABS (including unsecured credit card debt!). Everything is rigorously rated AAA. BTW Vallejo debt was rated A just days ago…\"Stock of Treasury securities at the FedThe graph below plots the US Federal Reserve\’s stock of \"uncommitted Treasury securities\", defined as Treasury securities held outright less securities lent to dealers. The graph starts in December 2007, just prior to the announcement of the TAF program.As of April 30, the Fed\’s uncommitted stock of Treasuries was $382B, just under half of its December 5 stock. The Fed recently announced a $50B expansion of the TAF program, and a widening of acceptable collateral for its TSLF program. Assuming the Fed sterilizes the extra TAF funding (very likely) and that the $200B pledged to TSLF is now fully exploited (likely), the Fed\’s stock of uncommitted Treasuries will soon be $275.5B. Just over 64% of the Fed\’s stock of Treasury\’s will have been exhausted since the Fed began its unconventional lending programs in December.Data are taken from H.41 Factors Affecting Reserve Balances\"http://interfluidity.powerblogs.com/posts/1210271081.shtml

K J FoehrMay 8th, 2008 at 3:17 pm

DJ AIG 1Q Loss/Shr $3.09 >AIGAIG 1Q Rev $14B Vs $30.6B >AIGAIG 1Q Loss/Shr $3.09 Vs EPS $1.58 >AIGAmerican Intl Group 1Q Loss $7.81B >AIGAIG Announces Offerings Of Common Stk And Equity Units For An Aggregate Of $7.5 BSKF trading higher AH

tutterfrutMay 8th, 2008 at 3:19 pm

@AlessandroBernanke\’s salary is only 185,000$/year as chairman of the Fed. Seems low compared to some firemen. But then again, chairman of the Fed is maybe only a part-time job…and he only risks burning his reputation…

AlessandroMay 8th, 2008 at 3:30 pm

AIG take another monster hit due to derivatives.Thanks God the financial crisis and the recession are already over, otherwise that could sound as a big problem, a problem as big as $50tn…

Free TibetMay 8th, 2008 at 3:51 pm

Written by Alessandro on 2008-05-08 15:03:01This has been bothering me for a long time. If the Fed has both MBS (never mind ABS) & Treasuries on its balance sheet, what is the difference in those securities? A good answer might be, “ a couple of basis points”. Right? But then, if that is the only difference why won’t that spread close? In the case of a further erosion of the toxics, will we expect the Fed to mark to market? Myself, if that happened I’d be struck dumb!

K J FoehrMay 8th, 2008 at 3:51 pm

S&P Cuts AIG Rtg One Notch To \’AA-\’; All Rtgs On Watch Neg>AIGUPDATE: AIG Swings To 1Q Loss; To Raise $12.5B In Capital American International Group Inc. (AIG) announced plans to raise $12.5 billion in capital as the insurance giant posted its second-consecutive large quarterly loss on $9.11 billion in charges on its credit-default swaps and recorded $6.09 billion of investment losses. AIG, the latest in a string of companies to turn to the capital markets to bolster capital reserves, said, \"The weak U.S. housing market, the disruption in the credit markets, as well as equity market volatility, had a substantial adverse effect\" on results. The insurance company reported a net loss of $7.81 billion, or $3.09 a share, compared with year-earlier net income of $4.13 billion, or $1.58 a share. The mean per-share loss estimate of analysts polled by Thomson Reuters was 76 cents. \"While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations,\" said Chief Executive Martin Sullivan. Still, the write-downs weren\’t nearly as bad as some feared. Friedman, Billings Ramsey & Co. analyst Bijan Moazmi estimated write-downs on AIG\’s derivatives portfolio could reach $12.1 billion. The company said it would raise capital first through a $7.5 billion common stock and equity-linked offering. That would be followed by an offering of \"high equity content fixed income securities.\" AIG had a market capitalization of $110.19 billion at the close of trading Thursday. In addition to the first-quarter write-downs and investment losses, AIG also cut the value of shareholder equity by $6.82 billion, reflecting unrealized investment depreciation. AIG\’s combined ratio, the ratio of premiums earned to benefits paid, rose to 96.9% from 87.5%. Looking forward, the company said it is \"confident that, although present economic conditions are difficult, AIG\’s unmatched competitive advantages, strong brand, and unmatched global franchise position it extremely well for the future.\" AIG has multiple exposures to the housing crisis. Its financial-products unit manages its derivatives portfolio of credit default swaps written on collateralized debt obligations backed by residential mortgages. In 2007, it took an $11.5 billion write-down in the value of that portfolio. The write-downs affect net but not operating income as an unrealized loss.

AlessandroMay 8th, 2008 at 3:55 pm

Mish has a clean and concise explanation of the non-concept of economic/fiscal stimulus. Just in case there is still someone on the board who has hopes about the possible second half rebound.\"Economic Stimulus NonsenseThe entire concept of a \’stimulus plan\’ is complete nonsense. The government cannot, and does not, create additional resources. It can only take money from \’A\’ and shift it to \’B\’ , either via confiscation (taxes), borrowing, or printing.In the first two instances, money goes from one pocket into another, in the latter case, the entire money stock loses value to the extent that additional money is printed. Not one of these cases results in an economic gain. On the contrary, this artificial redistribution hampers the flow of scarce resources to where they are needed most, and thus delays economic recovery.\"http://globaleconomicanalysis.blogspot.com/2008/05/tax-rebates-robbing-peter-to-pay-paul.html

Widows OrphansMay 8th, 2008 at 4:17 pm

All the confidence men are out in force lying to market participants. Greenspan \"worst is over\", Thain \"easing of credit crisis\", Buffet\’s RE CEO \"housing has bottomed\" while Buffet does a soap opera. ISN\’T THIS THE REAL SOAP OPERA?Meanwhile Financials are panicky again, ABX index is tanking again, ECB/US intervention is propping dollar (US cuts, ECB holds: dollar should drop), Gold (despite IMF and other shadow players suppressing it) is rising, Retail is tanking (in the face of stimulus checks), inflation IS NOT moderating. Banks are still tightening lending standards, and there is no pass-down of interest rate cuts.Paint it up, boys: lipstick on a pig is still just pretty porkchops.I would love front row seats when these gamesters hit the pearly gates and try to argue eloquently, vehemently but full of error to mitigate their lives\’ judgments.

ptmMay 8th, 2008 at 4:36 pm

sam on 2008-05-08 14:47:29 – Would appreciate comments on this. Thank you. http://www.shadowstats.com/article/292 HYPERINFLATION SPECIAL REPORT, Issue Number 41, April 8, 2008, Inflationary Recession Is in Place, Banking Solvency Crisis Has Opened First Phase of Monetary Inflation, Hyperinflationary Depression Remains Likely As Early As 2010.I did not realize that John Williams had un-locked the article for general viewing. This article changed my mind about the role of inflation and made everyone think about the possibility of hyperinflation. His basic points are:* Since the beginning of the Federal Reserve in 1913, we have had 95 years of relentless inflation, but inflation seen in the last 35 years dwarfs the previous 60 years.* The eleven administrations that succeeded FDR\’s new deal have been terrified of revisiting a Great Depression to the point that they have allowed the dollar to lose ~98% of its 1913 value.* That a vast (~550 trillion) ball of international debt has been created on the back of the American consumer, especially in the area corrupt mortgage originations.* That today\’s Fed is firmly committed to saving the system at the expense of inflation.* That we suffer from a structural inability to grow out of this newly created debt.* And finally, as inflation continues its relentless path, it will lead to hyperinflation by 2010.Subsequent posts on this forum support Williams\’ points. For example, GSM on 2008-05-07 07:44:08 posted about Hells\’ blog http://suddendebt.blogspot.com/2008/05/lifestyle-jobs.html showing the structural inability for our country to grow out of this debt. And Gloomy on 2008-05-08 08:07 posted http://www.minyanville.com/articles/S-tax-nationalization-interest-stabilization-citizen/index/a/17062 showing the Feds commitment to monetizing (nationalizing) the debt. And so on.

ptmMay 8th, 2008 at 4:46 pm

On Williams\’ HYPERINFLATION SPECIAL REPORTOne more point I failed to make:* Deflation is thought of as the only path to a Great Depression, but hyperinflation is a second path to a Great Depression.

YankeeMay 8th, 2008 at 5:00 pm

\"So now we have insurance companies joining the party. Yes, the contagion is spreading and no, it\’s not over. Not even close. C just had to pay 8.5% for $2 billion in preferreds. One of these days, there will be no takers.http://www.minyanville.com/articles/index.php?a=17068Written by Gloomy on 2008-05-08 07:56:48\"FVCK! Talk me off the proverbial ledge!YANKEE works for one of the 2 new entries of screwed companies. I am feeling less secure. If insurance companies take a dive, my whole state is screwed.

GuestMay 8th, 2008 at 5:58 pm

Bush says he\’ll veto foreclosure relief legislationhttp://www.latimes.com/business/la-fi-housing8-2008may08,0,5072674.storyWASHINGTON — President Bush declared Wednesday that he would veto the foreclosure relief legislation under consideration in Congress, surprising Democrats who believed that they had administration support for key portions of the bills. In brief remarks after meeting with congressional Republicans, Bush issued his veto threat, complaining that the legislation would \"reward speculators and lenders.\"Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said, \"the notion that this helps lenders is bizarre.\"

GuestMay 8th, 2008 at 6:09 pm

YANKEE works for one of the 2 new entries of screwed companies. I am feeling less secure. If insurance companies take a dive, my whole state is screwed.Written by Yankee on 2008-05-08 17:00:27You work for the HIG in CT?

samMay 8th, 2008 at 6:33 pm

Written by ptm on 2008-05-08 16:36:52 Thanks. I sent the shadowstats article to a trusted retired Investment banker and entrepeneur, he wrote back. It is a remote possiblity. The more likely scenerio is an externally imposed set of standards on us by the IMF (it may be unofficial) combined with a sell off of our good industries and assets. I don\’t see a great bust ahead, I see U.S. citizens adjusting to a much lower global standard of living, and I see the premier U.S. companies being bought up and controlled by foreigners. The middle class in the U.S. is going to be redefined as we move away from consumerism. It will be some local professionals with highly specialized skills, and it will be people with good international skiills.The biggest shift will be a move to \"family centric\" lifestyles. A lot of the low wage jobs will go away, so mom will stay home, skip the second car, take care of granny, the kinds that stay at home rather than getting their own place, and focus on cost reductions. Dad will stay at work, but will have to really expand his skills. The two big places for cost reduction are \"doubling up\" on housing, and reducing the number of cars. It is back to the 50\’s. It also means MASSIVE reductions in the use of energy. I see the downsizing of jobs here continuing particularly in jobs that use energy,but provide little that could not be provided at home. A lot of service industries will disappear.It will require us to be more of a \"brokerage\" based market, following a CISCO or NIKE type model. I would think that fast food restaurants, for example, are looking at a depression. so, what do you think PTM?

AfAMay 8th, 2008 at 7:56 pm

Written by JP on 2008-05-06 20:52:23\"I did get a response from my Congressperson from that letter I wrote about holding the Federal Government to the same accounting standards as public companies. It’s so funny because the response tries not to be. I’ll retype it and post it for a good laugh.\"Still waiting for the laugh ..

samMay 8th, 2008 at 8:25 pm

Investors should foreclose on troubled lender Fannie Maehttp://www.marketwatch.com/news/story/time-investors-foreclose-troubled-lender/story.aspx?guid={86BDFCDF-3FC2-43FB-9EB1-DD4E72B74739}&siteid=yahoomy

GuestMay 8th, 2008 at 8:39 pm

US navy is re-activating its 4th fleet to monitor the caribbeansyesterday Russia expel US military attacheshttp://www.cusns.navy.mil/fourth_fleet.htmman i smell carbide, sulphurthis will end well…..for the elites

MedicMay 8th, 2008 at 8:41 pm

Yankee,Deep breath. You saw this coming. You have planned. You will be OK. Get active and start thinking about your next moves. You are not alone.

GuestMay 8th, 2008 at 9:38 pm

a lot of Veneuz oil goes to chinaand straits of panama is relatively easy to defendi say wow… we have just been shown our future directions

ptmMay 8th, 2008 at 10:25 pm

sam on 2008-05-08 18:33:44 – so, what do you think PTM?I like the way your trusted-retired-Investment-banker-and-entrepreneur thinks. We could use more of his analysis on this forum. I will try to answer his points.A)It is a remote possibility. If he means Great Depression, I hope he is right. 2010-2011 is a long way and many things can happen. Nevertheless, the basic problem is vast debt remediation and the behavior of the Federal Reserve. We can be confident the Fed will continue its monetary gymnastics through 2008 and I think we all can agree where we will be by the end of 2008 with an extra ~$3 trillion in M3 – solid recession and significant inflation – stagflation. The big unknown is how will the extra recessionary effects exacerbate the current seven percent home equity loan delinquency; the 14%, 60-day past due mortgage payments; the one million plus homes in foreclosure and the other three million empty houses; the 10-13 million homes that have mortgage balances greater than their value; and the 25% of automobile loans that are an average $4,300 under water? Will, in fact, those 10-13 million homes default by the end of 2008 or early 2009?B)The more likely scenario is an externally imposed set of standards on us by the IMF (it may be unofficial) combined with a sell off of our good industries and assets. This may be true in a banana republic where other nations can use a carrot and stick approach, but who has got the carrot that trumps ~550 trillion in debt? Also, I do not understand how the IMF is separate from the system we already have in place? It appears to be the Fed, IMF, & ECBs working together to take us down the inflation road. Forgiving a bad debt directly removes money from a bank account, but inflation delays the debt repayment problem and preserves the majority of wealth. C)I don\’t see a great bust ahead. Again I hope he is correct. But I think Williams\’ point is that inflation is an impossible tightrope walk. Or said another way, it\’s not a linear function. At some unknown point, inflation will cross a threshold and run out-of-control. It\’s happened at least twice before and has been precipitated by foreign investment flight-to-safety.D)I see U.S. citizens adjusting to a much lower global standard of living, and I see the premier U.S. companies being bought up and controlled by foreigners. This is a key point. We could end the crises now if the US government were to allow the SWFs to buy US companies. But my guess is the government will not allow it. It would destroy or sovereignty and usher in a global corporate era in exchange for a deep recession rather than a great depression.E)The middle class in the U.S. is going to be redefined as we move away from consumerism. I think he means we not be able to afford fru-fru in a recession/depression. I agree.F)It will be some local professionals with highly specialized skills. Yup, that what Dmitry Orlov told us what happened in the Russian economic collapse.G)and it will be people with good international skills. Not sure what he means by this.H)The biggest shift will be a move to \"family centric\" lifestyles. A lot of the low wage jobs will go away, so mom will stay home, skip the second car, take care of granny, the kinds that stay at home rather than getting their own place, and focus on cost reductions. Dad will stay at work, but will have to really expand his skills. The two big places for cost reduction are \"doubling up\" on housing, and reducing the number of cars. It is back to the 50\’s. It also means MASSIVE reductions in the use of energy. Dmitry Orlov said, with a certain amount of pride, that Russians easily adapted to this imposed lifestyle while Americans will find it bery difficult.I)I see the downsizing of jobs here continuing particularly in jobs that use energy, but provide little that could not be provided at home. A lot of service industries will disappear. It will require us to be more of a \"brokerage\" based market, following a CISCO or NIKE type model. I would think that fast food restaurants, for example, are looking at a depression. I guess my last point is a question. If this scenario is not a great depression, then what is?

GuestMay 8th, 2008 at 10:45 pm

Written by ptm on 2008-05-08 16:36:52tell that to all delusional deflationists. all they care about is deflation. they don\’t think inflation exist or matter at all. they live in this dream world or in denial.