Nouriel Roubini's Global EconoMonitor

Bloomberg: Roubini Predicts U.S. Losses May Reach $3.6 Trillion

From Bloomberg:

U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.

President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.

Bank of America Corp., the largest U.S. bank by assets, posted a quarterly loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds. Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, and plans to split in two under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base eroded by the credit crisis.

‘Bankrupt’ System

“The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Europe, it’s the same thing.”

Stocks in Europe, Canada and Brazil dropped yesterday on speculation government efforts to shore up the financial industry will fail to stem the deepening global recession. The U.K.’s Royal Bank of Scotland Group Plc said it expects to post a loss of as much as 28 billion pounds ($41 billion) for 2008 and the government got ready to raise its stake in the lender.

Oil prices will trade between $30 and $40 a barrel all year, Roubini predicted.

“I see commodities falling overall another 15-20 percent,” Roubini said. “This outlook for commodity prices is beneficial for oil importers, it’s going to imply that economic recovery might occur faster, but from the point of view of oil exporters, this will be very negative.”

Oil has tumbled 77 percent from its July high of $147.27 as the global economy sinks into recession, straining the budgets of crude exporters. Saudi Arabia, Oman and Dubai, the second- largest sheikdom in the United Arab Emirates, have said they will post budget deficits this year.

Crude oil for February delivery fell to $32.70, down 10.4 percent from last week’s close and the lowest since Dec. 19, on the New York Mercantile Exchange today. The contract traded at $33.37 a barrel at 10:45 a.m. London time.

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168 Responses to “Bloomberg: Roubini Predicts U.S. Losses May Reach $3.6 Trillion”

ConcernedInSantaFeJanuary 21st, 2009 at 4:49 pm

Employment loss in the U.S. is at a watershed moment; small businesses, which employ about 45 percent of the workforce, are nearing crisis and insolvency, but have so far remained an unacknowledged gorilla in the room. Large corporations have sizable assets and portfolios from which to borrow for funding to remain in business long after they’ve hit a negative income cycle. Small businesses have no such options available to them. They also have not enjoyed the extraordinary publicity and government focus of large employers because individually each business is a small fish.We talk about losses from such companies as G.M. or Ford, with some 5-8millions of consumers hinging upon their failure; someone needs to start thinking about bottom-up restructuring of economics; the pyramid won’t stand without its broad base of individual consumers, 40 percent of whom are employed in organizations small enough to remain under the radar.As problematic as having Wall Street shut down large sectors of its business interests, any remaining interests on Wall Street will fail no matter what is done to shore them up without a healthy consumer base. Recovery will prove to be mostly impossible lacking this most critical segment of economy.

JLarkinJanuary 21st, 2009 at 8:08 am

Has anyone been following Peter Schiff’s advice? If you invested in commodities and foreign blue chips, you’re almost as bad off as S&P 500. All assets are down, cash is still king. Sounds like Nouriel foresees more of the same in 2009.If the banking system is insolvent, then shouldn’t the banks be taken over? Not sure I understand why Nouriel supports more money for banks. He seems to have reversed his position that govt buying the toxic assets is a bad idea, now he is in favor of getting the toxic stuff off their books.

SoftwarengineerJanuary 21st, 2009 at 11:59 am

IMAGINE HOW BAD THE ECONOMY WOULD BE IF ALL BUSINESSES MANAGED THE WAY OUR BANKS DOWe would have been a banana republic decades ago.How come the banks always get bailouts first and yet job creation is either some green technology, that will take like two decades to develop, is a centerpiece of the Obama bailout plan and too late to help anyway?I think this country is still addicted to the very credit solutions that are destroying the economy; that’s why we’ve gotten lazy and don’t develop industrial base anymore [we just borrow and live off our kids’ money].I see in this week’s Newsweek that engineers and teachers degrees are plummetting (-6% and -2%), yet business degrees are increasing….lolWhat good is business without domestic manufacturing?Why do we keep bailing out more borrowing? Its like paying the wolf to eat more chickens in the henhouse.

GuestJanuary 21st, 2009 at 1:03 pm

Slowly bought into gold in the fall of 2007 with an overall average price of $850/oz. Was real happy at $1,000/oz, but did not believe MA that it would top out at $1,100/oz. Was real sad when it hit $720 a month ago. Now that it is bouncing around $850, I’m just glad I got out of the stock market when I did.I think the most difficult part of this is to grasp the concept that the value of gold is constant over the medium and long term (which is probably why MA hates it) and that we are seeing the value of the dollar go down, up, and down again. In times like these it is crazy to work an investment for a few percentage points when the fundamentals are in such flux. I’m sticking to gold come high water and Hell; and they will come.

g AntonJanuary 21st, 2009 at 1:32 pm

Good plan–stick with it. The US government has been manipulating the gold market to protect their rotten dollar and their sale of government securities.. Perhaps Obama will stop government manipulation of financial markets, and even if he doesn’t, as the dollar falls and the deficit grows, it will become harder and harder to manipulate the markets (the crooks in the last administration were really good at this manipulation and were able to enlist other governments to aid and abet them–I doubt that Obama’s people share their energy and expertise.).

amacflyJanuary 22nd, 2009 at 9:15 am

Gold’s value is controlled/manipulated by the Rothchild’s in London, not the US Govt. They are also the major owners of the NY Fed, along with the Rockerfellers, Morgans, Warburgs et al, which means that the control our financial system. Gold will fall to around $650-600 oz, giving the next great entry point for those with worries about eventual hyperinflation.I’d also like to suggest that Timmy the tax cheat didn’t pay his SS bill because he was smart enough to know it is a mad(off) ponzi scheme destined to fail. Being made to pay into something he can clearly see the death of is an affront to his intelligence.

economicminorJanuary 21st, 2009 at 8:25 am

Here we go

Obama Has No Quick Fix for Banks By EDMUND L. ANDREWSPublished: January 20, 2009WASHINGTON —Even before they have settled into their new jobs, President Obama’s economic team faces an acute crisis in the nation’s banking system that has no easy answers and that they are not yet prepared to address.The president’s advisers watched most banking shares fall sharply on Tuesday, reinforcing what Obama officials have known for weeks: that their most urgent financial problem is an immense new wave of losses at banks and other lending institutions that threatens to further cripple their ability to resume normal lending.But when Timothy F. Geithner, the president’s nominee to be the Treasury secretary, appears before the Senate Finance Committee on Wednesday for his confirmation hearing, he is not expected to have a detailed plan ready.While Mr. Obama’s top advisers view the black hole in bank balance sheets as one of their most pressing problems, they cautioned that they would not be pressured into announcing a plan before they had carefully thought through all the options. Instead, they are scrutinizing an array of solutions, each of which has pitfalls and poses its own risks and dangers.Obama officials are almost certain to intertwine help to the banks with Mr. Obama’s goal of providing up to $100 billion for reducing home foreclosures. The two goals are not necessarily in conflict. Subsidizing loan modifications so that people can keep their homes could relieve banks of the steep losses associated with foreclosures and also prevent further erosions in bank asset values by putting a floor under home prices. “Mortgages are still the underlying problem, and I really think we need to address that problem head-on,” said Christopher Mayer, vice dean at the Columbia University School of Business. “The foreclosure stuff is just trying not to have even bigger losses in mortgages than we have so far.”Administration officials said they were determined not to repeat the mistakes of former President George W. Bush’s Treasury secretary, Henry M. Paulson Jr., who sold Congress on an elaborate strategy for shoring up banks and then shifted to an entirely different approach before he even got started.Industry analysts said the Obama administration’s challenge would be to help banks get rid of severely devalued mortgage assets on their balance sheets — from nonperforming subprime mortgages to pools of mortgages and derivatives — without wasting taxpayer money or rewarding banks for bad practices.If policy makers were even remotely honest, analysts said, they would force banks to take huge write-downs and insist on a high price in return for taking bailout money. For practical purposes, that could mean nationalization or partial nationalization for many banks.One main difference between the options under consideration is how transparent the government would be about the ultimate costs to taxpayers and whether banks would be required to reveal the true magnitude of their likely losses.The ultimate taxpayer cost could be very high. A new analysis from the Congressional Budget Office suggests that the taxpayer costs are highest when the government’s asset purchases involve opaque transactions that are difficult to understand.When Mr. Paulson first pleaded with Congress to approve the $700 billion bailout program, known officially as the Troubled Asset Relief Program, he argued that the government might eventually recoup its entire investment because it would be able to resell its holdings when financial markets recovered.But the Congressional Budget Office, analyzing the program’s $247 billion in bailout payments through December, estimated that taxpayers would end up absorbing $64 billion or 26 percent of that bill.The nonpartisan Congressional agency estimated that taxpayers had already lost 53 percent of the government’s $40 billion investment in American International Group, the giant insurance company that had been insuring tens of billions of dollars in junk mortgage-backed securities against default. As part of the rescue, the government helped A.I.G. buy back billions in mortgage securities that it had insured.As the new Obama economic team pondered a new approach, one alternative, though an unlikely one, would be to revive Mr. Paulson’s original idea of buying troubled assets through an auction process. The potential virtue of auctions is that they could get closer to establishing a true market value for the assets.But the drawback is that many of the securities are so arcane and complex that they are unlikely to generate the volume of bidding needed to establish a real market price.A second approach, which Mr. Paulson had already used in a second round of bailouts for Citigroup and Bank of America, is to “ring-fence” the bad assets by providing federal guarantees against losses, and separating the assets from the rest of a bank’s balance sheet.The virtue of that approach is that it costs relatively little money up front, because the government is essentially providing insurance coverage.The danger is that the potential cost to taxpayers of federal guarantees can be even less transparent than other approaches. As a result, the final costs to taxpayers could be huge. Indeed, the guarantees would put the government in the same business that led to immense losses from mortgage-backed securities: credit-default swaps.In its recent report, the Congressional Budget Office estimated the $20 billion that the Treasury spent in November to guarantee $306 billion of toxic assets by Citigroup will cost taxpayers $5 billion — a 26 percent subsidy.William Seidman, a former chairman of the Federal Deposit Insurance Corporation who was closely involved with the bailout of savings-and-loan institutions in the 1990s, said the government should simply take control of the banks it tries to rescue. “When we did things like this, we took the banks over,” Mr. Seidman. “This is a huge, undeserved gift to the present shareholders.”One big difference between today and the 1990s is that the government back then was seizing entire failed institutions. On paper, at least, the banks in trouble today are still viable.That leaves the third and increasingly talked-about approach — have the government buy up the toxic assets and put them into a government-financed “bad bank” or an “aggregator bank.”The immediate virtue of the bad bank is that the remaining “good bank” would have a clean balance sheet, unburdened by the uncertainty of future losses from bad loans and securities.Richard Berner, chief economist at Morgan Stanley, described the “bad bank” strategy as the “least bad” of available options. The main advantage, Mr. Berner said, was that the government would have to decide how much it was willing to pay for the toxic assets. In turn, that would make it easier for the public to figure out whether the government was overpaying.Banks may not want that kind of openness, because accurately valuing the toxic assets could force many to book big losses, admit their insolvency and shut down.Stephen Labaton contributed reporting.

Jason BJanuary 21st, 2009 at 11:17 am

There would not be enough bids for the arcane securities because they are worthless. Anything the public pays for them is too much.

GuestJanuary 21st, 2009 at 8:39 am

A few things your new bosses same as the old bosses are not discussing while they cynically use your fool-me-again-and-again hope against you who have swallowed the sucker-bait:Cutting the 90% of “defense” spending that is actually going for USA offense abroad – not on protecting our country at home – is not being discussed.Altering the monopoly that undergirds and enables all the other monopolies – Land monopoly – the backbone of rule by the rich – is not being discussed.Sane restriction of private inheritance of stratospheric overfortune – the other backbone of rule by the rich – is not being discussed.Removing the power to issue debt and reap the interest from doing so from private hands – is not being discussed.Forbidding the extreme inequality of wealth and power that caused this crisis and causes every crisis – is not being discussed.WAKE UP.Stop praying, stop hoping, stop wishing, stop whining, stop trusting authority, stop relying on bandaids when a tourniquet is needed, stop pretending the parts of reality you don’t want to face don’t exist.Stop pasting your own guilt onto everybody who did not grab off others like you did or do. Stop your hypocritical, hubrist, arrogant, elitist references to HARD-WORKING HUMAN PEOPLE as “sheeple”, “the masses”, “Joe 6pack”.We are WORKING PEOPLE. We WORK HARD. SOCIETY HAS NO RIGHT TO WITHOLD JOBS FROM US SO WE CAN’T EAT AND HAVE SHELTER.Stop dreaming you posters on this board have the first clue about what the root cause of all this madness is. YOUR CONFUSIONS AND IGNORANCES ARE PART OF THE PROBLEM. You are helping obfuscate the fact that only solving extreme inequality can help us – unless you are saying that clearly and constantlyin EVERY discussion.HARDWORKING PEOPLE have been sacrificing for decades, Mr. snakeoil obama.GO ASK YOUR IN-BED-ED BANKSTER BUDDIES WHO THREW YOU A BIG PARTY YESTERDAY TO START SACRIFICING FOR THIS COUNTRY.I PLEDGE TO GIVE YOU NO MORE OF MY LABOR FOR FREE, SO SHOVE YOUR “TIME FOR EVERYBODY TO SACRIFICE AND VOLUNTEER” CRAP WHERE THE SUN DON’T SHINE, YOU TOTAL SHYSTER!

MorbidJanuary 21st, 2009 at 1:52 pm

Are you an idiot? This is of no help.Limit birthing humans – that helps a lot.It’s the anti-Bloom measure that is needed.

GuestJanuary 21st, 2009 at 9:33 am

The bankster buddies are going to take as much money as they can to survive the period after themoney is not worth anything. They have their goldstash. The hardworking guest is right. The system is a giant con. The system would work if the financier gamblers were controlled by the government. Problem is they are the government!!!

GuestJanuary 21st, 2009 at 2:47 pm

This guy/gal has it right. Extreme inequality is at the root of this crisis and all capitalist crises.There are a lot of people here who want to solve this problem while protecting their privilege and leaving everything intact. All you do is talk in circles, while limiting the solutions and the parameters of the debate.And you re-post articles from the talking mouths who have a serious interest in things remaining just as they are.Stop thinking like Americans and start thinking about humanity.

economicminorJanuary 21st, 2009 at 10:28 am

Kerry hit the nail on the head concerning the banking system and got no real response. He even called them Zombie Banks. No one really seemed to care. There was no reaction by anyone.It appears to me that Geithner will be confirmed. Most Senators have little comprehension of the issues facing the country. Or they don’t care and are just going thru the motions because that is their job. To go thru the motions. They don’t care that Geithner knowingly and willingly cheated on his taxes. Which never came out when he was confirmed as NY FED governor.Oh well, business as usual until the entire system fails… Change never happens with out some crisis making other choices impossible. We are on the fast road to change. To bad the Senate doesn’t know. They still think we can patch the system up.Well Widen of Oregon is asking some good questions. Maybe there is a glimmer of hope that realization is finally dawning upon some.

MorbidJanuary 21st, 2009 at 1:56 pm

Glimmer of HopeExtinction of the human species is the only glimmer of hope I can see for this planet. Then maybe, like after the extinction of the dinosaurs, a new and more superior species may arise.Bend over and kiss your *ssess goodbye folks.More Bloom

GuestJanuary 21st, 2009 at 2:55 pm

Stop flattering yourself. Do you honestly believe these snakes in Washington don’t know what’s going on? Only you do.They know enough to want to keep it from the American people.

GuestJanuary 21st, 2009 at 9:06 am

“What a wonderful place the world would be, if everyone were as pleasant as the guy who’s trying to skin you.””The truth will set you free, but first it will piss you off.”

GuestJanuary 21st, 2009 at 9:35 am

Professor Roubini,The solution that is being touted around seems to be that the value of the home loans could be reduced so that the foreclosures can be avoided. In my opinion, this is the wrong solution. The market needs certainty and the best path to certainty is to find the bottom. In other words, I believe that by writing down the mortgages, this economic crisis would turn into a depression. If the risky mortgages start failing six months later (at least a good percentage of modified mortgages should) then the crisis and the bottom will only be prolonged. So, what we might witness is a wave upon another of this tsunami of foreclosures. At this point, rather than superman like action, the congress needs serious critical thought. Throwing money can be a solution at problems but is not always the solution. Policies can backfire and I believe this one would. Once the crisis prolongs into the third year, then we are already talking along the lines of depression. And the key is to get through the crisis as the market forces deem fit so that a recovery can take place rather than delaying and prolonging the recession.Personally I would be open to Obama’s fiscal stimulus precisely because the multiplier effect does supposedly have an effect on the GDP. It would also create jobs for the people most in need. But what is also needed is confidence and certainty in the market. The most unviable banks, hoever big they are, need to fail and only the sound ones need to be restored. It might be painful, but when systems get corrupted and outdated, recreation is needed. Unless the FED embraces the fact that it can hurt in the short-term to benefit in the long-term, the recession is likely to carry on….whether parallels will be drawn with depression, or Japanese-style L-shaped recession. And it could be something worse than both as well, there is no precise precedent for the current crisis.

AnonymousJanuary 23rd, 2009 at 2:37 am

US has never been willing to make short term sacrifices for long term benefits. We need a savings incentive program, higher interest rates to encourage savings and provide investment capital not borrowed from China,Japan and saudi.Government needs to cut expenditures by 15% this year. Congress and staffers reduce their salaries just like their constituents. Nobody will listen to Obama and his ilk preaching to us from their gilded castles and wearing their 2,000 suits. Respect for your fellow citizens

GuestJanuary 21st, 2009 at 9:36 am

10:30 a.m.Volker: Bank rescue will cost several trillion dollarsHow the hell did the people “in charge” of the banking sector every let it get to this?? Where are the protests??? What the hell is wrong with Joe 6 pack? Are they that dumb that this can go on right under their noses, with their money being stolen from them, and that is ok in the name of patriotism??? This country is doomed!

GuestJanuary 21st, 2009 at 12:21 pm

Another member of the anglo-american Pilgrims Society as well, if I remember correctly. He’s just another biggie siding with the interests of those fraction few families at the top whose interests are diametrically opposed to the interests of billions of working people all over the globe.

HayesJanuary 21st, 2009 at 9:43 am

They just introduced Geithner’s family and now he just testified it’s a national security issue. The significance of this appointment is far reaching. If if he is appointed America will have lost what’s left of its innocence and all trust will be gone.

GuestJanuary 21st, 2009 at 9:51 am

to paraphrase a book I read at one time “put your trust not in man, but in God” meaning if we don’t follow the principles of how to properly treat (love) each other, then the evil ways of man will rule and eventually destroy us.

GuestJanuary 21st, 2009 at 3:20 pm

All humans who aren’t YOU, right? Wow. You were so smart to get yourself born before you came along to help outlaw future humans.Are you busy campaigning for pay justice, so everyone can finally get the education that stops over-reproduction by the poorest – who reproduce out of necessity for families to survive?

AnonymousJanuary 23rd, 2009 at 2:39 am

Totally agree and I have lost all respect for Obama and congress. This man, Geithner, should be led to a cell.

GuestJanuary 21st, 2009 at 9:46 am

There is absolutely no excuse for not tracking every dollar of TARP and all bailouts/loans and until this is taken seriously, the system will not significantly change for the masses and pay inequality will continue. It doesn’t exactly inspire confidence in the system when many of the same people who were in power before and during this economic and financial meltdown are still there!

GuestJanuary 21st, 2009 at 10:54 am

Tell me, with the old Clinton crowd and the old Fed crowd — Podesta/Soros, Axelrod, Emanuel, Summers, Holder, Hilliary, Shapira, Volcker/Roosa, Napolitano (raging feminist, abortion clinic protector, Jewish Scholarship winner, Arizona Governor open border pusher and now Director of Homeland Security walking in the shoes of Pyro Reno replacing Zionist Chertoff), Orszag (transferring from the Congressional Budget Office to director of the Office of Management and Budget), Bernanke and his Fed governors with Chair Friedman and Dimon at the NYFed, Obama appointment Ronald A. Klain (a former lobbyist for various corrupt organizations such as Fannie Mae and an industry group seeking help with asbestos lawsuits, plus a drug maker under federal investigation as CHIEF OF STAFF to the Vice President) – tell me that anything has changed.

GuestJanuary 21st, 2009 at 12:03 pm

Oh yes, things have indeed changed.We now have the first black Pres. No one can say we are a white supremacist society anymore.And he will deliver us to the glorious land of wealth, with Oprah’s help.

GuestJanuary 21st, 2009 at 12:33 pm

Most of us will be happy if he delivers you peace, justice and the rule of law – all the above are better than wealth

GuestJanuary 21st, 2009 at 3:22 pm

you forgot that rotten apple dennis blair – obama’s pick for 2nd in Intelligence. the guy is a real piece of work.

economicminorJanuary 21st, 2009 at 10:08 am

On an earlier blog, there was some who thought that Brazil might be a place of safety and growth.I disagreedHere is a piece by Morgan Stanley that has the facts to back up what I said.

BrazilGrowth CollapsesJanuary 21, 2009By Marcelo Carvalho | Sao PaoloRecent data show that Brazil’s economy has come to a sudden stop. In fact, several activity indicators during 4Q08 display the worst decline on record. We reaffirm our below-consensus forecast for real GDP growth of 0% in 2009. This has been much more pessimistic than the consensus view. But in 3-6 months from now, we suspect that some will start to wonder whether our forecast sounds too optimistic. In turn, recent extraordinary growth data pave the way for the COPOM to embark on a monetary easing cycle this week on January 21. We are calling for a 50bp rate cut, but cannot rule out a more aggressive cut (75 or even 100bp) in light of a sharp growth downturn……………………….Bottom LineBrazil’s growth collapsed in 4Q08, with several activity indicators displaying the worst decline on record. We reaffirm our below-consensus forecast for zero real GDP growth in 2009. This remains much more pessimistic than the consensus view. But in a few months from now, our forecast might sound too optimistic to some. In turn, economic weakness should pave the way for the COPOM to start cutting rates this week.

MAJanuary 21st, 2009 at 10:40 am

Eco minor…What I’ve read about Brazil leaves me to believe that they are “PRIMED FOR” an economic revolution.That means in the coming future. Not what 4Q08! Nor based on 0% GDP 2009What I speculate with Brazil is that they have all the right pieces in place.They have massive resources.They have a large lower class. (aka “slave” labor force)They have massive “USEFUL” infrastructure shortfalls.Those 3 together lead to good debt spending. When/if they start public works projects, they can be paving roads, creating factories, etc… (rather then building “transit museums” like us.)Now consider your source.Morgan “upped the odds on $200 oil” Stanley. Now consider this… Who did well in 4Q08, and who is set for a productive 2009? Who didn’t see their economy come to a halt???Now on top of that… consider this: Many times, brokers work to sway pricing to their buying/selling advantage! (no kidding… seriously? Ya don’t think?) To follow the saying: “We’re advising hold, (which means we’re selling. (keep that price up for us)), We’re advising sell, (so we can buy cheap), We’re advising Buy, (so we can hold and watch the value go up)I’m just trying to stay ahead of the curve. I can’t help but see Brazil’s “POTENTIAL”.Miss America

BobJanuary 21st, 2009 at 10:14 am

So Mr. Roubini … how about an update on your forecast of a ‘U’ shaped recovery? Are we ultimately headed for a depression?Shela Blair dismissed your comments that banks are insolvent on CNBC. Care to comment! How about Obama having one of his administration staff (Blair) not being forthcoming with the public?Can you now see that both parties blow the same smoke at the taxpayers? People are not seeing ‘Change’ and we are less than 24 hours into this!The general public is continuing to lose faith in our politicians. Can you blame them?

AnonymousJanuary 21st, 2009 at 1:27 pm

Roubini said the banking system is “effectively” insolvent. In Bair’s opinion, there’s nothing to worry about because the government will save the system. She’s the one who came up with the idea of a government “aggregator bank” which would force the taxpayers to take all the “toxic” mortgage-backed securities off the banks’ books. The concept is similar to the EPA using taxpayer money to clean up dangerous waste left over from a chemical manufacturing facility that was never inspected nor disciplined by regulators.

methinksJanuary 21st, 2009 at 3:10 pm

What Americans never fully grasp is that Blair, Obama, etc.., do not represent them or even give a damn about them. They serve the system and the owners of capital.If you think their solution will include you, to the detriment of the aforementioned, you are reading the wrong books.

PeteCAJanuary 21st, 2009 at 10:26 am

Derivatives Crisis LoomingThe waters of insolvency are now lapping at the doorsteps of Citigroup and Bank of America. This by itself is already a serious problem. BoA is a major holder of financial derivatives – collapse of this bank would be disastrous (a tsunsami compred to the loss of Lehman). But the real underlying problem is deeper and even more grave. If Citi and BoA are at risk, then Goldman and JPM cannot be far from danger either. J. P. Morgan is the epicenter of the derivatives world for the entire planet. A collapse of JPM means a collapse of the entire American financial system. The Fed knows this – and is scared to death about the possibility. That is why there has been no end to the bailouts, rescues, and shuffling of bad assets.So we now are staring into the face of the most complex problem facing the global financial system – how can we have the enormous derivatives system of Credit Default Swaps and Interest Rate Swaps built upon banks that are in immediate danger of going under? Simple answer … we can’t. Something has to give – and very likely the scheme of financial engineering devised by the Fed is itself now in danger of collapsing.Some would propose that the solution is simply to zero out all the derivatives trades – especially the “hidden” trades in the OTC (Over The Counter) markets. But it’s not that easy. The US banks have largely been sellers of these agreements, taking advantage of the situation when the financial world was rosy. If all the derivatives trades are simply folded (without settlement), then that will mean enormous losses in other parts of the global banking system. In effect, the US would transfer its banking disaster to the UK, Europe, and other countries (on top of the losses that have already been transmitted). Hardly an acceptable solution.The problem is real. And it is on our doorstep now.My Comment: Watch for an emergency meeting of the central banks in 2009 to try to resolve this issue. Certainly such a meeting has to involve the USA, UK and Europe. Quite likely other countries may participate. But it is clear that no simple and amicable agreement can be hammered out. There must be winners and losers.While the new Obama team has some inkling of the economic crisis facing America, it’s doubtful they have full comprehension of the dangers posed by the global derivatives markets. Very likely there is no-one in the new administration who could even put together a set of summary briefing charts that would capture the problem in a way that the President could comprehend. It is one thing to face a danger that can be understood – but much harder still to deal with risks that can barely be described.PeteCA

MAJanuary 21st, 2009 at 10:54 am

PeteCA…They know.They comprehend.It’s the lies that are hard. …and they know that the other side of these deals know the same (or close to) things. Which make the lying and sidestepping even harder.That is why they stick with the devil they know. (that’s why hey all stick with the devil they know)That money’s already been spent. The monopoly money piles (that covered the skim up) are now depleting and exposing the fact that the financial systems’s “skim” has long ago spent the real money that existed. (but, those piles of monopoly money actually have “value” because everyone’s playing with the monopoly money now. …and now it’s a matter of seeing just how much each country has, and what they can back it with to turn it into legitimate tender.)Miss America

GuestJanuary 21st, 2009 at 11:13 am

Miss America and PeteCA are discussing the crux of the dilemma. The professor has to chime in on the Credit Default Swaps and the rest of the Derivatives. We know that JPMorgan and Bank of America has large derivative exposures. Why arethe policymakers not discussing the real disease?Miss America and PeteCA are on target!Thank you for your sage contributions!

MAJanuary 21st, 2009 at 12:37 pm

I’ve read and re-read PeteCA postings for the past couple of years. (He’s been here a long time!) Many of his posts from prior years have been so spot on (and I’ve re-read lots of his old posts recently) which is why I suggest him as a must read on your scroll through the blog.Just my opinion.MA

Henry in SeattleJanuary 22nd, 2009 at 11:35 pm

PeteCA is one level-headed thinker.He reasons clearly and writes in a fashion a non-economist can kind of understand. I wish he can occasionally repost some of his advice for newcomers to see.Thank you again, Pete.

PeteCAJanuary 21st, 2009 at 1:20 pm

I took a little break over Christmas and New Years to try to think about what’s really going on. I think a lot of people who read this blog have a pretty good idea of the deeper underlying problems facing the USA (and the world). The big question is … where is this taking us? Right now I’m hitting the derivatives issue again, because it’s the elephant in the middle of the room. It’s possible that Obama could start to sort out this banking mess, if it wasn’t for the awful pile-up in the global derivatives markets. As it is, we’ve got all our major banks sitting on the verge of bankruptcy, and something like 2,000-3,000 hedge funds that could go bust. How on earth do you support a derivatives bubble with this kind of mess going on??? I just can’t believe the folks in Washington DC let this situation accumulate as long as they did.PeteCA

PeterJBJanuary 21st, 2009 at 1:58 pm

“The big question is … where is this taking us?”@PeteCAYes, indeed, and, it is the only question that we should be considering.Ho hum

MorbidJanuary 21st, 2009 at 2:22 pm

Bank of America Leads The WAY!What a fitting epitaph for this mess.The fellow who suggested a Jubilee a few months ago seems the way out. Of course, like PeteCA noticed – it would mean tanking the rest of the world. So what, it is now coming down to an ECONOMIC WAR – with WWW III not far behind I am sure.

CharlesJanuary 21st, 2009 at 4:13 pm

PeteCA and MA positions on the CDS problem are supported by IRA.From The Institutional Risk Analyst at″Unless and until Chairman Bernanke and the other regulator are willing to tame the CDS tiger, there will be no success in bringing stability to the US banking system or foreign banking markets. And the longer Bernanke & Co refuse to say an emphatic “no” to Goldman Sachs (NYSE:GS), JPMorganChase (NYSE:JPM) and the other CDS dealers, the financial crisis affecting global banking institutions will continue to worsen. Making this change may force GS and other dealers into mergers or liquidations, but such is the cost of reform. The US economy can live without the major Sell Side dealer firms, but we cannot survive without commercial banks, insurance companies and commercial companies, all of which are targets for the CDS Mafia and the unlimited leverage that they use as weapons against us all to generate speculative gains. We have the power to fix this aspect of the financial crisis immediately, but do our leaders have the courage and the vision to close down this reckless, speculative market before it destroys what remains of our economy? “- Charles

2centsJanuary 21st, 2009 at 10:27 am

I’ve been listening to Tim Geithner’s confirmation hearing. First, I’m appalled that this guy is even being considered for any job in the government let alone as a senior cabinet member! I’m further shocked by Paul Volcker’s endorsement after listening to Tim’s own accounting of his mistakes.If you listen to the Obama administration’s argument that he is brilliant and the only one that should run the Treasury. Then you listen to Tim say that in hindsight it was all obvious and that he had multiple written warnings about how to handle his IMF income. So Obama say’s he’s smart, while Tim says he was stupid! Gee Tim I think you have snowed someone big time!In my opinion, if Tim was a used car salesman, I wouldn’t even bother to look at anything on his lot! What a joke that this guy is even being considered!Of other note, Tim did lay out Obama’s 4 point recovery plan. Basically, it’s main thrust is to resurrect the previous financial regime of credit, credit and of course even more credit! Oh, points 2-4 involve healthcare and energy reforms, government fiscal discipline and financial regulatory reform. Add this to the hinted at corporate and middle class tax cuts and you gotta think that Disney imagineers are at work here. They are selling Tomorrowland via a road through Fantasyland!

economicminorJanuary 21st, 2009 at 10:34 am

They keep talking about credit.They don’t get it. Credit to and insolvent customer is pouring money down a rat hole to be used as bedding. It does NOTHING positive at the expense of more interest and debt owed by someone else.What is it going to take to wake these people up?Geithner says they need to put together as system where as the taxpayer can understand the risks we are taking…. He is a joker! One from a Batman comic.

aerial viewJanuary 21st, 2009 at 10:55 am

The main reason this problem and solution is confounding and counter intuitive to us is because it presupposes that the taxpayer’s interest is of paramount importance: it is not and is and always will be secondary (which in this case means last) to the finances of the elite: their corporations have rights far beyond the rest of us and as I have said so many times before: our govt will do ANYTHING and EVERTHING to preserve the status quo!

economicminorJanuary 21st, 2009 at 4:42 pm

av, we are the payees of all the paper they hold and just like the goose that laid the golden eggs, killing us leaves them with nothing valuable. Ghost towns and slums and a lot of anger.Their positions only make sense in a stupid ignoramous context.I guess they never learned to share when playing in the sand box as kids.

2centsJanuary 21st, 2009 at 10:48 am

Update…Jim Bunning laid it all on the line! He called Geithner on the carpet and said exactly what needed to be said. I’m astounded Obama has even let Tim go before the committee this is a complete embarrassment for the citizens of the US!

MAJanuary 21st, 2009 at 11:00 am

I’m a huge Bunning fan!As a former ML baseball player, (and pitcher, as was I (only minors though)), he stands as my sample that baseball paves the way for America. (there will be a post on the parallels come openning day)Miss America

JimmyTheBankerJanuary 21st, 2009 at 11:06 am

He was probably given a beach house in Tahiti to lay into him publicly. They will chuckle about the “show” tonight over a Cavasia and a Cuban at Jameson’s…

GuestJanuary 21st, 2009 at 11:56 am

@ JimmyYour brilliance is astounding … it’s easy to see that you have found your niche in the banking industry!

JimmyTheBankerJanuary 21st, 2009 at 12:00 pm

You could only wish my brilliance was watching over your money guest! Not one of my several hundred clients around the country is out of/going out of business and all investment monies have been in bonds and cash since August of last year.

2centsJanuary 21st, 2009 at 12:27 pm

@ JimmyLet’s see, you stand there and whip up a stupid comment about Bunning being paid off to lay into Geithner without any proof to support your drivel. Then you ignore the hard facts of confirmed and acknowledged documents stating that Geithner was informed as to his obligations towards paying his taxes. Furthermore, we now have a fellow employee who warned and discussed with him at the time that he was not properly paying his taxes!

JimmyTheBankerJanuary 21st, 2009 at 12:37 pm


trenticleJanuary 21st, 2009 at 4:49 pm

I got the point immediately, Jimmy. Geithner is part of the “millionaire’s club”, one of the boys. Individual banks make up the Federal Reserve Banking System. So, its easy to see how only a name and a face have changed. The policy of borrowing our way out of debt will stand. Now banks will get our money to buy up devalued real assets. The American people are stuck paying for it (twice) and getting nothing.

MorbidJanuary 21st, 2009 at 2:30 pm

Jim Bunning’s The MAN!Of course he is used to playing on a baseball DIAMOND! Something precious – unlike the shit morass of Congress.

2centsJanuary 21st, 2009 at 11:53 am

Update…Holy $hit Bunning is back at it. He produced one of Geithner’s actual signed statements at the IMF stating that he acknowledged that he was grossed up for his SS/Medicare taxes and that he was responsible for remitting those himself. Furthermore, Bunning states that he actually spoke with an IMF employee who worked alongside Geithner and had specifically discussed the fact that Geithner was not paying his taxes and that he was in serious error! This is unbelievable! This guy has basically said he is at most stupid but not deceitful. Now we have independent input to say that no he is actually deceitful! This is unbelievable! We need to hear more from this IMF employee!This confirmation needs to be buried. We need someone with a modicum of honesty and trust. Let Tim open a used car lot!

MAJanuary 21st, 2009 at 12:50 pm

@ 0.02I didn’t read JTB’s comment the same way.It sounded like sarcasm? I could be wrong?Anyhow, Keep the updates coming (as I cannot watch the hearings at work).I agree they should bury him for the purpose of image (and JUSTICE)… but keep him around as your best criminal source.Just my opinion.MA

JimmyTheBankerJanuary 21st, 2009 at 1:07 pm

MA-you are correct sir. That is the bad part about blogging, facial expressions are sadly missed!

2centsJanuary 21st, 2009 at 12:49 pm

Update…John Kyl has also laid into Geithner (he got the house in Tahiti next to Bunning’s) and he is repeatedly pressing him about his unconscionable failure to pay his 2001 and 2002 taxes even after knowing of his mistakes. Clearly, Kyl has hit a nerve and made Geithner ‘dance’ around his answer. Geithner was not ever willing to give Kyl a direct answer to his question! I fully suspect that with Kyl’s persistence and Bunning’s admission of a fellow IMF employee having discussed Geithner’s stupidity at the time of the missed payments and the fact that he was under oath, that Geithner is dead meat! I think Geithner just hung himself!

2centsJanuary 21st, 2009 at 1:06 pm

IMO it’s absolutely stupid of Obama to go forward with Geithner. He will continually be reminded of this warning sign at every deviation from ideal financial recovery as long as Geithner is at the helm! Trust me, this mess is not going to follow any sort of ideal recovery. Obama is better to shed this monkey now rather than deal with it later when it will become a 800 pound gorilla!I fully want to see Obama succeed, because the country absolutely needs for him to. Unfortunately, each decision big and small has an overall effect on the ultimate outcome.Let’s see how smart Obama is?

MorbidJanuary 21st, 2009 at 2:36 pm

Talking About Monkeys – Check This OutIt takes care of all problems

devils advocateJanuary 21st, 2009 at 10:34 am

Nouriel:Dubai-ers are listening to you intently, especially after:-your announcement of $3.6 Trillions Debt Loss to US banks and companies!-your announcement that the American and Euro banks are bankrupt!(no wonder the price of gold is rising despite your bearishness on the precious metal)—————–no one has addressed the potential for “don’t pay off debt and taxes” to overwhelm all policies:people seeing that not paying their mortgages pays off in a better deal…and seeing commercials that say “Have credit card debt?” – we’ll negotiate a betterdeal for you (I am not saying there aren’t pitfall in this, such as losing your home … but then you could rent)why pay debt? -don’t, and cut a dealplus: why pay taxes? (I pay mine and am not recommending this)…but people may be asking this as they see Tim G. become Treasurerif this grows, we could be facing another huge problem

PeteCAJanuary 21st, 2009 at 1:24 pm

Devils Adv: One possible response from angry taxpayers in the USA is a tax revolt. If people get mad enough, they can sure do it. That’s why Pres Obama’s leadership is critical in this situation. If people get mad and don’t cooperate, the system will go into anarchy. Obama is directly saying in his inauguration address that he wants people to get their heads down and work to fix the system. How will this work out – we’ll just have to see. It is not going to be an easy fix.PeteCA

MorbidJanuary 21st, 2009 at 2:46 pm

Stop Paying Taxes@PeteCA,I live in Northern California. I have decided to stop all with holding for taxes to CA because the governor has decided to not rebate refunds – of which I typically get because I over with hold in order to avoid penalties.PS I know – I am at the far end of reality.

CahillJanuary 21st, 2009 at 4:18 pm

@ MorbidJust be sure to file your taxes, that is where you can get into trouble. File but don’t pay and that is CA’s problem.

GuestJanuary 21st, 2009 at 10:47 am

Instead of 2 million people showing up to see some guy take some oath he even screwed up, 2 million people should be stroming these BULLSHIT hearings!! Then I think theses idiots mught get the message-we have it all wrong in the US…sales of people magazine and watchers of ET holywood confirm this. Mezmarize the sheeple with celebrety and stealing what is theres is a cake-walk!.

DocBergJanuary 21st, 2009 at 1:15 pm

Do not be too concerned about the fumbling over the oath of office. The last president who really took it seriously was probably Grover Cleveland, though Warren Harding is looking better by the day.

GuestJanuary 21st, 2009 at 10:52 am

What a bizzare banking world we have. I recently talked to my mortgage broker about refinancing, and told him my goal is to get my 6.25% mortgage down below 5.0%. He called me back and said I should wait, as the best he could do right now is 5.25%, and he thinks it will go lower. He said that since I have been current on my mortgage payments since the loan was originated 7 years ago, I would be unable to qualify for the 4.0% refinancings be made available to those who are currently in default on their mortgage payments. No wonder the banking system and the economy are upside down!

HayesJanuary 21st, 2009 at 10:53 am

as posted yesterday – the word in the IMF back in late 2001 was that Tim was interviewing on Wall Street but didn’t make the cut thereby taking the position of Director of the Policy Development and Review Department at the IMF

GuestJanuary 21st, 2009 at 11:14 am

Why do we see the $34,000 speck in Geithner’s eye, but do not notice the logs in the eyes of Hilliary (Vince Foster’s death and the Rose Law firm and the missing furniture and other White House property [see “Final Days”]) and Holder’s (Marc Rich who absconded to Switzerland with billions)? A diversion from the rest of the junked-up trash?

Little SaverJanuary 21st, 2009 at 11:45 am

Perhaps because it’s impossible for common sense people to accept a Treasury cheater as head of the (our) Treasury.

slfJanuary 21st, 2009 at 12:12 pm

For the same reason why we see the $50B Madoff ripoff, but not the $700B Paulson ripoff. For the same reason why we see Madoff as a Ponzi, but not Social Security.It’s the oldest magician trick in the book. Focus the people’s attention on the unimportant stuff (wave your hands in a flourish, toss some confetti & glitter, distract them with a flashy assistant), and you can get away with just about anything.

MorbidJanuary 21st, 2009 at 2:51 pm

We are a FAILED SpeciesSorry to repeat this refrain – but it fits.The Creator will have to find another rung on the ladder that leads to higher consciousness.

GuestJanuary 21st, 2009 at 3:05 pm

We are a species who cannot even begin to know themselves or what they are…as long as we condemn oursleves to suffering the oppression and deprivation resulting from having wealthpower giants.The nicest dog in the world will turn killer-vicious when starved and beaten and kicked and neglected.The best person will, too.We cannot know our real nature under such cruel conditions as the mightymighty overpayunderpay system inflicts upon us.Aim the blame where it belongs.

GuestJanuary 21st, 2009 at 11:37 am

MINNEAPOLIS (AP) ―Click to enlargeThomson Reuters says analysts were expecting earnings of 22 cents per share.AP1 of 1ClosenumSlides of totalImages Related LinksRead The Latest Business NewsRead The Latest Minnesota NewsU.S. Bancorp on Wednesday reported a 72 percent drop in earnings in the final three months of last year — its eighth-straight quarterly profit decline — as credit costs and securities losses climbed.For the fourth quarter of 2008, the Minneapolis-based bank reported net income applicable to common shareholders of $260 million, or 15 cents per share, down from $927 million, or 53 cents per share, a year earlier.Analysts polled by Thomson Reuters, on average, were expecting earnings of 22 cents per share.Results suffered as the company set aside $1.27 billion during the quarter to cover bad loans. This compares with a loan loss provision of just $225 million in the fourth quarter of 2007, and $748 million in the third quarter of last year.

GuestJanuary 21st, 2009 at 11:38 am

There were no cameras yesterday pointed at the scenes taking place in the houses and apartments where the half a million families live who lost their jobs last month. There were no cameras showing the homeless in shelters, the lines at the food banks, the dire poverty on the poorest counties in the nation, still American Indian reservations. There were no cameras pointed at lack, only at talking heads and ostentatious display of wealthpower changing hands. Presidents are news on teevee. Worried, hungry families are made invisible – paid lip service when they do manage to get in the picture.Obama’s oratory deeply sickens me. His preacherman cadence is revolting. Witnessing the diabolic hoodwinking of crowds of sincere people causes me actual pain. The media-led zenith-adoration of this crafty politician cuts like a knife. Imperialism has been given a facelift. The blade of class warfare is being twisted in deeper. Martin Luther King Jr. spins in his grave with Tom Jefferson.And Holy Mary Mother of God is beside herself with grief for our errors, for the sorry state of our ethics, for our continuing failure to recognize that the Golden Rule is nothing less than our roadmap to survival…and for our lack of rational, steep, and necessary skepticism in the face of all the dirty facts that trot themselves out daily while we just endlessly catalogue and critique them.Aren’t we just so PRECIOUS.A question for the Christians: What is the one thing Jesus talked about more than anything else in his ministry, by far? What does examination of the scriptures show is the issue that predominates in Jesus’ teaching? What is the issue He focused on, addressed, highlighted, drew attention to – more than any other issue?Answer: the plight of the poor….which is brought to you by: the overpayunderpay system: the insanity no-think no-survival game of all simply grab all you can get.When we could have fairpay and have no poor and no struggle. Heaven on Earth.Inherit the Kingdom of Heaven means; Grow up and become the god of your own life. Grow up and become the global emperor of your own life. That’s what it means to inherit the Kingdom of Heaven. Jesus Christ wouldn’t tell you to go follow a Christ – he’d tell you to go be a Christ.If there was a 1% chance that there is a bomb under your chair, you’d get off your chair and check it out, wouldn’t you?Guess what. There is a 100% chance there is a nuclear bomb under your bed. There is a 100% chance your feet are standing on every country on the globe.When will we see how very simple it is? You have to divide the pie by just shares – shares no bigger and no smaller than people contribute TO the pie by their own work. Nothing but work makes up that pie, therefore only work deserves pie – or fights are guaranteed.If you give out bigger pieces of pie than equal the contribution made, you must now reduce the size of everyone else’s pieces. This CHEATS people. You have just created cheaters and cheated. This violates the Golden Rule. You have just ensured injury to some, and injury is retaliated. You have just set in motion the juggernaut to grind humanity under its wheels. The game of all go for all you can get and never mind calculating what fairshare even IS – is unwinnable. period. end of story. Pay un-justice is material inequality is your problem. it is everyone’s problem.wake up and smell the uranium.wake up and smell the rats in your government.wake up and remove the MOTIVE for all crime.use law to get rid of the opportunity for anyone to have overfortune.use teaching pay justice to everyone to get the law.If you give the biggest chunk of nature’s bounty to just a few – make it legal that it’s just THEIRS because because because nobody knew to object to such stupid law and reject such bad nonsense, such comatose irrationality – you are giving the biggest pays legally for people having done no work of their own. so everybody who is working has to work, to contribute, and then accept their earnings MINUS the part that was given for the no-work things, like the free-gratis ownership of what was given to ALL. Land. The benefits of all the knowledge generations of people before us dug up and left for us to use. The benefits delivered not by today’s wealthy but by all the works of men and women who came before us. These are common property by rights of nature. No authority exists to consign everyone’s birthright shares to a few – no authority EVER existed that had any such right.We saw it as blindingly obvious and self-evident at one time, that no man created the gifts of nature, so despite our un-self-selected, un-self-made-or-granted, unequal gifts won in the birth lottery, we all inherited nature’s gifts of land, air, water, minerals, resources… in equal shares, with equal rights to our share of the bounty. Mother nature – her birth is uncontrollable. She is a program to provide for all the future humans…who either are or are not going to be allowed to EXERCISE and ENJOY the equal rights that ARE THEIRS, depending on whether WE come to our senses or not.Why do a few here and now have the right to all the future humans’ place to put their feet? Why don’t your ownership rights die when you die?What are we thinking? Are we thinking at all? What are we telling ourselves? Are we so deep in the pure fantasy we’ll never wipe away the dreamfog? Can people hop out of their various mental grooves and discuss the fundamental misconceptions we’re functioning under? Can we abandon our most cherished, most integrated mistakes?Are we going to make Jesus a Great Teacher, or not?A teacher is only made great by having great students.How long will we continue the starving to starve so we can have our game of all grab all?If the teevee news and newspapers and radio had been honestly, fully, and without bias telling the working people what was going on back when these very people still in charge were making and changing the rules, the people would never have allowed the carnage to take place in the first place. Yet this board continues to insist the blame must be shared by people who would have STOPPED those who DID know and DID pull this off – if they, the people, hadn’t been prevented from knowing what was going on.

GuestJanuary 21st, 2009 at 1:04 pm

you make some very good points and do get at the heart of the matter; unfortunately, those is charge don’t have a heart; however, I would love to put you and Obama in a room together to work out a new fairer system and achieve some of your noble goals. While many of us are acutely aware of these same issues, the real question is what type of sustainable and efficient actions can we take to enact changes without being thrown in jail or losing our home, assets and freedom?

MorbidJanuary 21st, 2009 at 2:58 pm

Pay, Always PAY!I repeat what I posted some months ago,

A wise man will extend this lesson to all parts of life, and know that it is always the part of prudence to face every claimant and pay every just demand on your time, your talents, or your heart. Always pay; for first or last you must pay your entire debt. Persons and events may stand for a time between you and justice, but it is only a postponement. You must pay at last your own debt. If you are wise you will dread a prosperity which only loads you with more. Benefit is the end of nature. But for every benefit which you receive, a tax is levied. He is great who confers the most benefits. He is base,—and that is the one base thing in the universe,—to receive favors and render none. In the order of nature we cannot render benefits to those from whom we receive them, or only seldom. But the benefit we receive must be rendered again, line for line, deed for deed, cent for cent, to somebody. Beware of too much good staying in your hand. It will fast corrupt and worm worms. Pay it away quickly in some sort. [i][b]Compensation (1841)[/i][/b], Emerson, §33.

GMeliJanuary 21st, 2009 at 11:50 am

Do you know what it takes to become a surgeon in this country?It’s amazing that the people who run and steer the US financial System are masters at History but lack training or vision to help a financial system that does not work.We need MD’s on this mission, not lawyers and lawyers and more lawyers.Someone who knows what artery to cut and when to cut it.

GuestJanuary 21st, 2009 at 11:51 am

Professor! Please comment on the postings of PeteCA and Miss America in this thread. They are telling us the crux of the matter and what will happen in the near future. “Derivative Crisis Looming” by PeteCA

MAJanuary 21st, 2009 at 12:57 pm

Nouriel has postulated quite a bit on Derivs. Go to the archives. Go month by month and read the titles. It’ll take you 15 minutes to go through all the past years titles.His statments from a year ago are no less informative today. (and if past performance tells us anything, we will likely see some more of those predictions fro 07/08 coming around the corner soon.)Do yurself a favor and read some of his old stuff.MA

MAJanuary 21st, 2009 at 2:37 pm

I hope that did not read Obnoxiously??? I really meant that. There really is a lot of intellectual gold in the archives.I pick dates that similar actions happened on, and go back to those blogs.It’s good reading.MA

GUESTJanuary 21st, 2009 at 11:53 am

FIVE TRILLION-CAN YOU SAY NATIONAL INSOLVENCY?”Conversely, credit losses may turn out to be even larger than we estimate: if instead of aU-shaped recession that is over by the end of 2009, the US recession were to last wellinto 2010 and turn out to be a Japanese style L-shaped recession, total loan and especiallysecurities losses would end up being much larger than our benchmark of $3.6 trillion,potentially as high as $5 trillion.”

GuestJanuary 21st, 2009 at 12:05 pm

Any actual terrorist who wanted to break america wouldn’t even have to stage an actual incident. They could easily break this country completely with the costs of responding to false threats that are never even planned to materialize.did geithner actually use the term national security in his testimony? seriously?

JimmyTheBankerJanuary 21st, 2009 at 12:18 pm

You folks may as well get over this Geithner thing. It is nothing more than a show for the public and when it is over, he will be welcomed to the club with open arms.

economicminorJanuary 21st, 2009 at 12:58 pm

at least he (Obama) can speak about issues that matter. Whether anything actually changes will have to be seen. He says that his administration will unblock the Freedom of Information Act.At least there is an appearance of openness so far which is better than the last guys.

2centsJanuary 21st, 2009 at 1:03 pm

IMO it’s absolutely stupid of Obama to go forward with Geithner. He will continually be reminded of this warning sign at every deviation from ideal financial recovery as long as Geithner is at the helm! Trust me, this mess is not going to follow any sort of ideal recovery. Obama is better to shed this monkey now rather than deal with it later when it will become a 800 pound gorilla!I fully want to see Obama succeed, because the country absolutely needs for him to. Unfortunately, each decision big and small has an overall effect on the ultimate outcome.Let’s see how smart Obama is?

PeterJBJanuary 21st, 2009 at 2:25 pm

“At least there is an appearance of openness so far which is better than the last guys.”@ economicminor on 2009-01-21 12:58:59I seem to recall the same from Mr Benanke just moments prior to him shutting up the FedRes hermatically.The essence of socio-economics is that there are two economies; the real economy and the secondary economy, the latter commonly known as Wall Street and the former, aka Main Street.”Leadership” that is to say, the collective incompetents, are in pursuit of a ‘status quo’ fix for the secondary economy, financed (again /still) by the real economy, but this time, funded well from the future of the real economy (read: your grandchildren).Interestingly, as we must never forget that there are NO mainstream institutional “economists” that know anything about economics (they and the talking-heads just mouth technical opines that are totally worthless and unfounded, in the hope that someone calls to give them a job boost) – it should be noted that the real economy is not responding to the electric proddings by the cowboy elite.What does this mean? It means that this round of “leadership” are finished as the socio-economic critical mass (real economy)which is driving the new epoch and defining the future that is approaching, is ignoring the self-serving throes of ‘extremis’ by the has-been elite.It is over. There is indeed Justice.Ho hum

GuestJanuary 21st, 2009 at 4:35 pm

My estimations are also that their time has come and gone. Mine is not just because the modus of operendi for the financial system will no longer provide profits for the elites who were running it. Their business plan is not viable going forward. To much debt on the lower classes. Their plan was finite, it was not possible to build an inverted debt pyramid that forever got bigger and bigger. What amazes me is that they could not see this very obvious flaw in their plan. In the end, they have nothing as all they hold are pieces of paper that are no longer viable tender. Did they really think that people would just lie down and give up?

GuestJanuary 21st, 2009 at 12:24 pm

1:20 p.m.Obama freezes salaries of senior White House staffWhat about making all of them pay social security tax now?

CMJanuary 21st, 2009 at 12:39 pm

Stocks trying hard to reverse the January downtrend! Again, $21.58 is the battle line. We break above that an we have a new uptrend…

Octavio RichettaJanuary 21st, 2009 at 12:42 pm

Ok, Ok, I get it, Timmy will get confirmed; I realized that in the wee hours of this morning (see my post in the previous thread). However, make sure you watch this.,C,BAC,XLF,MS,JPM,^DJIWhalen doesn’t appear to be totally objective about Timmy, but he makes some excellent points, including bringing to the table a couple of names of people who could probably do a better job.

G MeliJanuary 21st, 2009 at 12:48 pm

Everyday, thousands of intruders hack vital records within government and financial institutions. Their intention is to RETRIEVE data and information for their personal advantage.On the contrary is intention to be one of INSTALLATION of false data and information into these vital systems. World financial commerce can be disrupted causing a cascading loss of confidence the world has never seen.G Meli

HayesJanuary 21st, 2009 at 12:50 pm

In the final questions to Geithner – a Senator asked the same question until G answered it – he then said to G, because you are under oath you will have an opportunity to review you answer when you supply the written response… The question was did it ever occur to you after the audit that you made a simliar “mistake” in your taxes in 2001/2002? Geithner avoided answering but finally said no.It is interesting that more often than not, it’s the lie that does someone in as opposed to what they lied about.

GuestJanuary 21st, 2009 at 12:51 pm

Treasury secretary nominee tells Senate panel he’ll justify their trust in him if confirmed despite tax mess”I swear mommy, I will NEVER do it again”

Octavio RichettaJanuary 21st, 2009 at 12:58 pm

So we’ve moved again! from to to http://www.whitehouse.govChange? Really? let’s get the list started:1. Skin color: White to black.2. Party in control: GOP to Democrat3. Joe and Hillary moved from the legislative to the executive branch.4.Timmy moved from the NY FED to the treasury.5. Larry moved from Harvard, to limbo, to the white House.6. Rubin moved from Citi, to limbo, and possible to the White House soon.

GuestJanuary 21st, 2009 at 1:11 pm

The whole moral frame work in the US has deteriorated to the point of the inmates running the asylum-it is not just Washington. Here are a couple of tidbits for you…”2 Teens Face Assault Charges In Nursing Home Abuse””Church Finance Director Charged With Embezzlement”

GuestJanuary 21st, 2009 at 1:20 pm

Stock running now. New uptrend trying to be established. Dow reclaims 8000 and the transports have reclaimed 3000. The markets like Timmy…at least for now

economicminorJanuary 21st, 2009 at 1:42 pm

What’s wrong with the FED that they never checked him out before making him a governor?The picture that Tim painted to me was someone who was of faith. Blind faith that Keynesian economic theory is never questioned. To him, it is the rule. How the system functions. There is little questioning in him about whether it will work, only which button to push and what lever to pull.He really thinks that this is a credit problem. He and the administration just need to figure out how to get the banks to lend more money…. He doesn’t have a clue to whom… it is the small businesses and the credit cards and the auto dealers that need people to borrow more to keep the wheels of the economy from freezing up… irregardless of the facts that it is an insolvency crisis. Debt is already to high to service…. He is a zealot as are most of the financial wizards of today.It is no wonder to me that we are in a crisis. And it isn’t one of confidence. Although I have no confidence but the reason is because TPTB are ignorant ideologues with no common sense and their only purpose is to keep the system on their track of impoverishing the productive class and enriching the elite class.And the tax cuts to the middle class…. $11 per week… What? ……. What is that going to do? And the support of over priced housing, over priced in comparison to declining incomes and the answer is? Refi the loans so the people can continue to make payments… Yet the losses are growing and their efforts are pitifully small in comparison to the declining values and declining incomes…I go back to a proposal I had months ago. Just take the trillion dollars and give it equally to all of us, we pay off our bills and spend the rest and the economy is much healthier than the way they are doing it. The federal debt is the same but the underlying consumer insolvency is ameliorated considerably.

JimmyTheBankerJanuary 21st, 2009 at 1:53 pm

Economicminor, one little flaw in the scenario IMHO. The flood of cash and subsequent spending spree would launch hyper-inflation which would just reduce the purchasing power of the money we had. Back to square one except now, we have very high interest rates and then, the cycle begins to repeat itself. The only way out of this mess is to increase savings so banks have cheap core funding available to lend while at the same time, the consumer pays down debt and then and only then, can they borrow once more launching us back on our way to economic prosparity.

MAJanuary 21st, 2009 at 1:56 pm

IMO – a good deal of Hyper inflation has been (and can continue to be) held in check through contagion.MA

JimmyTheBankerJanuary 21st, 2009 at 2:03 pm

Agreed MA, there is just as much/ or more money being destroyed through evaporation as is being thrown at the system, thus the disinflationary spiral we are in, but that can’t last. Once losses are done, they are done and the bar gets reset meanwhile, the money presses continue to run 24/7, that will be the danger point for the launch of hyper-inflation IMHO. You could not pay me enough to be HanknBen when the economy starts to recover.

economicminorJanuary 21st, 2009 at 2:30 pm


“Once losses are done, they are done and the bar gets reset”

Isn’t that the problem? When you are talking about the size of the debt pyramid we are under, once the spiral started, there is no way to stop it as far as I can determine.So the when the losses are done….. this is a lot of loss to be done away with.Have you seen this graph?Total Debt to GDPAren’t we on the same marry go round as before (1930’s) except with more debt hidden and more debt on the books?So again, is there any other way to solve this other than paying down the largest portion of this debt, consumer household debt? Where did the insolvency start? Where is it getting worse? Where is the bottom when more and more jobs are going away with the declining velocity of money?

JimmyTehBankerJanuary 21st, 2009 at 1:25 pm

Doctor copper very ill, down 4% today. This combined with the housing data today point to further weakness ahead. By the way, talk about “trust” issues, walls thief was estimating 30% growth for the S&P companies from Q4 2007 to Q4 2008. Well, they were off just a wee-bit. Estimates now stand at a DROP of 28% from Q4 2007. Only off by about 60%…not bad LOLOLOLOL

GuestJanuary 21st, 2009 at 2:05 pm

You were not kidding CM! We are going to recover all of yesterday’s losses! Are we back to the old days of +-5% swing days?

GuestJanuary 21st, 2009 at 1:59 pm

WIRED MAGAZINE: 17.02Tech Biz : PeopleClive Thompson on How More Info Leads to Less KnowledgeBy Clive Thompson 01.19.09Is global warming caused by humans? Is Barack Obama a Christian? Is evolution a well-supported theory?You might think these questions have been incontrovertibly answered in the affirmative, proven by settled facts. But for a lot of Americans, they haven’t. Among Republicans, belief in anthropogenic global warming declined from 52 percent to 42 percent between 2003 and 2008. Just days before the election, nearly a quarter of respondents in one Texas poll were convinced that Obama is a Muslim. And the proportion of Americans who believe God did not guide evolution? It’s 14 percent today, a two-point decline since the ’90s, according to Gallup.What’s going on? Normally, we expect society to progress, amassing deeper scientific understanding and basic facts every year. Knowledge only increases, right?Robert Proctor doesn’t think so. A historian of science at Stanford, Proctor points out that when it comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases.He has developed a word inspired by this trend: agnotology. Derived from the Greek root agnosis, it is “the study of culturally constructed ignorance.”As Proctor argues, when society doesn’t know something, it’s often because special interests work hard to create confusion. Anti-Obama groups likely spent millions insisting he’s a Muslim; church groups have shelled out even more pushing creationism. The oil and auto industries carefully seed doubt about the causes of global warming. And when the dust settles, society knows less than it did before.”People always assume that if someone doesn’t know something, it’s because they haven’t paid attention or haven’t yet figured it out,” Proctor says. “But ignorance also comes from people literally suppressing truth—or drowning it out—or trying to make it so confusing that people stop caring about what’s true and what’s not.”After years of celebrating the information revolution, we need to focus on the countervailing force: The disinformation revolution. The ur-example of what Proctor calls an agnotological campaign is the funding of bogus studies by cigarette companies trying to link lung cancer to baldness, viruses—anything but their product.Think of the world of software today: Tech firms regularly sue geeks who reverse-engineer their code to look for flaws. They want their customers to be ignorant of how their apps work.Even the financial meltdown was driven by ignorance. Credit-default swaps were designed not merely to dilute risk but to dilute knowledge; after they’d changed hands and been serially securitized, no one knew what they were worth.Maybe the Internet itself has inherently agnotological side effects. People graze all day on information tailored to their existing worldview. And when bloggers or talking heads actually engage in debate, it often consists of pelting one another with mutually contradictory studies they’ve Googled: “Greenland’s ice shield is melting 10 years ahead of schedule!” vs. “The sun is cooling down and Earth is getting colder!”As Farhad Manjoo notes in True Enough: Learning to Live in a Post-Fact Society, if we argue about what a fact means, we’re having a debate. If we argue about what the facts are, it’s agnotological Armageddon, where reality dies screaming.Can we fight off these attempts to foster ignorance? Despite his fears about the Internet’s combative culture, Proctor is optimistic. During last year’s election, campaign-trail lies were quickly exposed via YouTube and transcripts. The Web makes secrets harder to keep.We need to fashion information tools that are designed to combat agnotological rot. Like Wikipedia: It encourages users to build real knowledge through consensus, and the result manages to (mostly) satisfy even people who hate each other’s guts. Because the most important thing these days might just be knowing what we know.

HayesJanuary 21st, 2009 at 2:06 pm

the comment I made about the final senator who questioned Guithner – If I can find the clip – it is very telling – for him to remind him that he is under oath suggests he (the Senator) may have the answer to the question he was asking.

economicminorJanuary 21st, 2009 at 2:37 pm

And you are thinking?That maybe Geithner has broken the law twice. Once in tax evasion and a second time in not telling the truth to the Senate committee?Tim clearly admitted that he signed the papers for the IMF showing he was fully aware of his obligation and then just didn’t pay it. And never thought a thing about NOT paying it until he was caught.Interesting defense!This isn’t why I don’t like him. I don’t think he understands the real problems of what is going down. You can’t solve a problem you don’t understand. It is that simple for me. Being a tax cheat just shows that he is no different than most of those he was suppose to supervise as a fed governor and didn’t. So I guess I don’t like him for 2 reasons.

HayesJanuary 21st, 2009 at 2:58 pm

the line of questioning by the Senator was very much like that of a prosecutor – either a bluff or a setup IMHO – he must have asked the same question five times over and Timmy boy (like with most of his responses) was evasive – until finally he said no – that’s when Senator brought up the under oath thing and reconsider your statement in when you submit your written responses.In terms of his performance – he was less than impressive – clearly a puppet who has been groomed for years

GuestJanuary 21st, 2009 at 2:52 pm

I don’t care that he stole through deductions: I don’t care about his family: I don’t care how “smart” he is: I do care that he is the New York Federal Reserve Bank’s man in the U.S. Treasury, that he will continue the flow of taxpayer money by the trillions into the coffers of Goldman Sachs and the investment bankers. I’m concerned that the U.S. Treasury is controlled by a private cartel of international bankers with a 90-year record of bailout and inflation extortion through flooding the money supply — the Federal Reserve System — a “money power that preys upon the Nation in times of peace and conspires against it in time of adversity.”It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes.” William Jennings Bryan

CMJanuary 21st, 2009 at 2:49 pm

See um running Hayes!! This is silly, plain silly. Yesterday was the end of the world, today, all the bears are hibernating?

GuestJanuary 21st, 2009 at 2:35 pm

Can everybody be rich?The world average pay per hour, if you also pay housewives and students [who also work] is US$40 an hr, US$100,000 a year, US$200,000 per family [with 2 working adults and no student] – so, yes, everyone can be rich, if by rich you mean US$40 an hour [after overheads, before tax].World annual income is US$300 trillion, there are about 3 billion workers, including housewives and students. World income is from Sprout and Weaver, international distribution of income 1960-1987, kyklos, v45, 1992, pp237-258, compounded with global inflation since 1987.What counts is distribution of pay.At the moment we have super-super-extreme pay injustice – pay from 100,000 times average to 10,000th of average, with 99% underpaid, 90% paid between 100th and 10,000th of average pay per hour – between 40c and 0.4c an hour.If world wealth was a swimming pool one metre deep, our pool is 98% up in a thin needle going up 100,000 metres, and 90% of the pool between 1cm and 0.1mm deep – pool almost completely drained – pool almost all up in the needle.This is not good even for the 1% overpaid, because honey attracts bears – a lot of honey, and very hungry bears – the overpay is finite and the attacks on it are ceaseless, so all heaps of overpay fall in time – as we see from history – every empire has fallen, every plutocracy – if one person takes the goods of 1000, he gains merely 1000 times what he can use, and loses 1000 friends and gains 1000 enemies – endless war – pay injustice is theft, theft of money which buys just about everything, and is also social standing, political power – so theft of money is the greatest injury, which causes the greatest anger, resentment and violence.Obviously you can make a community in which everyone works very unhappy, without destroying wealth [workproducts], just by extreme misdistribution – that is what we have – everyone works, broadly speaking – production is plenty: US$100,000 worth of workproducts a year per worker – and very unhappy, relatively, just by supersuperextreme misdistribution.THIS CAN BE FIXED easily by giving everyone equal shares of a 1% per month increase in money supply – the inflation effect automatically lowers overpay, and the equal share lifts underpay – in this way, money is restored to the earners of it, danger to the overpaid of overpay amidst underpay is reduced, danger of righteous anger of the underpaid is reduced. Further, the equal distribution of deceased estates over 1 (or even ten) million US dollars to every person on earth – and the overfortunes would be re-spread to rightful earners gently, without taking anything off living persons, without shocks to the economies.The State built on injustice cannot stand – a Roman saying – thus it is impossible to be a patriot without pursuit of justice, since the state self-destructs without justice. The purpose of government is justice – James Madison, founding father of America – again, because: no justice, no state, no peace, no order, no happiness.Violence [war and weaponry] and pay injustice have increased for 3000 years, since the beginning of trading and nonperishable wealth, and we now have 60 times PDC [planet death capability].Happiness has been declining 1% ever 30 years for 3000 years – too slowly to notice, but it means that a return to pay justice, equality would mean 100 times more happiness – people don’t realize how much has slipped away.If a government took 90% of aftertax income off 90% of people and gave it all to 1%, that would cause loss of 81% of national happiness by loss of 81% of wealth [90% x 90% = 81%] plus the violence, which would get to everyone, rich and poor, plus the overpower of the 1%, plus the waste and destruction by the violence – lifting the 81% loss of happiness up to 99% – and we humans in reality have far worse pay injustice than this extreme pay injustice – so we can be 100 times happier: far less violence, troubles, problems, stresses, griefs, horrors, terrors, tyranny, slavery, wageslavery, wars, etc.Plus 100 times faster progress, because 90% of the scientists we have are tied up in the consequences of the violence, in the military-industrial complex, the hospitals, government, universities, legal system, etc, and 90% of the scientists we could have are too poor to become scientists.Why have we stuck with pay injustice so long? – everyone thinks that more money is always better – it isn’t, because individual contribution is limited, and so there is a point where income gets into being overpay, causing underpay, causing violence, causing misery – the more overpaid, the more people are after the money – empires plunder and then get plundered – plutocracies get killed in revolutions – and then there is crime, which is just small war – kidnappings, assassinations, etc.All the money equals all the workproducts equals all the work – if no one works, no workproducts, and the money is worth nothing – twice as much work, twice as much workproducts, and the money is worth twice as much – if there are one trillion dollars, then a dollar buys a trillionth of the workproducts, however much or little the workproducts are – the dollar automatically ‘expands and contracts’ to cover always one trillionth of the workproducts.If the money is halved, each dollar covers twice as much workproduct.And people are paid all the money – always someone has the money – so overpay means getting more workproducts than the person did work, meaning others have to get less out than they put in by making workproducts – theft.There are many legal thefts in our present system – not only conquering, which is still legal because we have no world government (and a world government while overpayunderpay exists could be the worst nightmare), but also many others.Since both overpay and underpay are miserable, it is clear what we should do for happiness and peace, safety and security.We have super-super-extreme pay injustice, pay justice causes happiness, so we can be super-super-extremely happier – but no one cares.If you show this to people, they won’t get very, very excited – they won’t get excited at all.Apparently people want to be unhappy, or don’t want to be happy – fair enough, whatever people choose.Or they are asleep in some way, unable to take it in.They think it can’t be true, forgetting that all good ideas have to come some time in time – and plenty of good ideas have come along, like mastery of fire, and having insurance.Yes. Everybody can be rich.And everybody is GOING to be rich. Or our species won’t be here anymore. Oh, yes: equality IS going to prevail: one way or the other.Again: This plan I offer you does not propose interfering with any of the myriad thefts in human economic systems at present, except by preventing these thefts from accumulating endlessly. In brief, it does this by either 1. Distributing a 1% increase of money supply per month equally to every human, or 2. Distributing deceased estates over US$1 million equally among every human, or 3. both. (Or, by any other system/method that has greater advantages in low bureaucracy, low social upheaval factor, etc, than these – if anybody comes up with any.)These 2 steps correct for all injustices in our economic systems, but do so indirectly. Why not directly aim at eliminating the thefts I describe? Because, for one thing, attempting to prohibit each legal theft would be futile. It would be futile partly because the primary, omnipresent legal theft is found in the very nature of transaction itself and occurs with or WITHOUT human agency (the two things exchanged are not of equal workvalue, so every transaction contains a fair exchange plus a big or small drop of automatic, unavoidable transfer of wealth from earner to non-earner) …and partly because there exist hundreds more legal thefts than I have illuminated, and partly because more/new legal thefts will endlessly be hatched to game the system until the motivating reason for doing so and the capability to do so are eliminated. Also, legal theft is not the entire picture, and this indirect method of re-a-justicing the wealth is the only efficient corrective mechanism that counters for ALL economic systems’ errors/flaws/injustices.This plan ALONE succeeds even if the land monopoly that is the origin of all monopolies is never exposed and dealt with and this plan ALONE succeeds even if the private bankers keep the license to create debt and reap the conjured profits off lending the people’s money to the people at interest. No other plan that I am aware of can do what this plan does, and it works without creating shocks to the economies. This is the world’s ONLY no-downside plan for global happiness.The two steps in more detail:1. A 1% increase per month in the global money supply, going equally, directly, freely, electronically to every living human being, children included, one account per person. The inflation effect will reduce overpays, the money effect will reduce underpays, and it does so without the cost of assessing fortunes. This method is not perfectly efficient in reducing overpay, but it is very easy and quick to reduce underpay. A 1% per month inflation will make a 1% imbalance, which will adjust, as the underpaid spend more, generating more supply. It is gentle enough to avoid any economic social shocks, and works because the inflation effect reduces overfortunes MORE than the equal share increases them, while it reduces underfortunes LESS than the equal share increases them. The weakness in this is that the overpaid can inflation-proof their fortunes to some extent, especially if the idea is implemented nationally not globally. This approach is easy and quick to set up, it immediately relieves underpay stress and pressures and violence at the bottom. It is the lowest possible, most indirect interference with the overpaid. A regular inflation is very much less inconvenient than an irregular one. The fact is, governments and banks are ALREADY increasing the money supply – only at present they are giving the money increase to the banks to suck more money off people through loans. Inflation devalues everyone’s money. It is a sneaky tax, forcing people to borrow, and in effect making them pay interest to buy back their own money.2. Making inheritance public instead of private. This will make the overpay shower gently down on humanity over three generations. It takes no self-earnings from living persons, and it reverses the perpetual concentration of wealth and political power in fewer and fewer hands. It counters effectively the natural tendency of money to concentrate unjustly, violently. Yes, making inheritance public instead of private means (almost) a 100% inheritance tax. We are preventing inequality of fortunes from growing to infinity by shovelling overfortunes into underfortunes. We know money automatically, unjustly concentrates endlessly, so any sensible species will introduce a counter to that. The simplest way is having every human being have one account (which governments will be happy to open since it means money coming into the country) into which the estates of deceased persons over US$1 million are distributed equally, electronically, directly, immediately, automatically. Private heirs can share the first US$1 million, (if we choose not to completely eradicate free gratis money). Parents would have trusteeship of children’s accounts till some suitable age, say 10. (This will give parents good reason to teach economic sense before the date children take over responsibility for their own funds!) This method is low-impact, yet totally effective. It doesn’t take away overfortunes from living persons, yet it will move humanity from extreme injustice and violence to near perfect pay justice and non-violence in just three generations – the time it takes for all the overfortunes to die.To make a difference, you have to go back to the root: the extreme range of wealthpower. You need justice for happiness peace safety. You need freedom from individuals having superpower compared to others. Were the founding fathers wrong when they thought that wealth concentration would mean the end of democracy and freedom? “The rich get richer and the poor get poorer” means that the rich are literally getting more and more per unit of work and the poor are getting less and less per unit of work. Do the rich get richer and the poor get poorer? – ie, does money [power] ceaselessly, automatically drift from earners to nonearners or not? Are there very rich and very poor? Is the amount of work people do proportional to their wealth or poverty? Obviously not – so we know there is injustice, inequality in money and power. As long as a few have most money they are going to have most power, and history is going to be what they decide will happen, and the people will be pawns and cannonfodder in that game.NO ONE does more than twice as much work per hour as the least-hard working person [assuming real slackers get noticed and fired] – and yet pay per hour ranges from 1 to 1,000,000,000 – someone gets paid a billion times as much per hour as the least paid.Our purpose is to stop people getting killed…is to maximize human happiness – and that means to maximize human freedom – and that requires as little as possible overpay and underpay – ie, as little as possible theft of earnings, which confers overpower on the thief [power to control and manipulate others] whoever he is, and confers underpower on the robbed. There is theft, there is legal theft, there is hyper-extreme overpay and underpay. Market forces do not distribute money and power in proportion to work – market forces do the opposite: work drifts one way and money drifts the other. We can retain all the advantages of market forces, of private property, of free market AND correct for the ceaseless automatic unjust thieving drift of money and power. We leave all the capitalist mechanisms alone and we merely establish a figure for the most one person can deserve to be paid by warrant of their contribution to society by their own work – and spread the overfortune among the underpaid…like taking water that has pooled and re-spraying it over the crop…and thus provide a counterbalance to the ceaseless automatic drift of wealth and power away from the people to a tiny few. If we DON’T do this, there will always be a very few somebody’s who are going to continue to make happen what they want to happen, which involves the sacrifice of any and all who stand in the way of their monomania for money and power.

GuestJanuary 21st, 2009 at 5:55 pm

2. Making inheritance public instead of privateIt’s time for you to lead by example.Please report all your financial data to this board, and we will decide what portion you will be allowed to keep for yourself.Snap to it, tovarich!

GuestJanuary 21st, 2009 at 7:44 pm

This is it exactly! Extreme pay injustice is at the root of all poverty and depression, just like slavery was abolished eventually we’ll find a way to abolish this clever subtle form of slavery. No one should have a billion times more than another it destroys a society! We can find ways to create incentive to work hard without having to accept poverty, poverty is not a necessary consequence of a free system like they tell us all, it’s a bogus lie!

CharlesJanuary 21st, 2009 at 2:41 pm

PeteCA and MA positions on the CDS problem are supported by IRA.From The Institutional Risk Analyst at″Unless and until Chairman Bernanke and the other regulator are willing to tame the CDS tiger, there will be no success in bringing stability to the US banking system or foreign banking markets. And the longer Bernanke & Co refuse to say an emphatic “no” to Goldman Sachs (NYSE:GS), JPMorganChase (NYSE:JPM) and the other CDS dealers, the financial crisis affecting global banking institutions will continue to worsen. Making this change may force GS and other dealers into mergers or liquidations, but such is the cost of reform. The US economy can live without the major Sell Side dealer firms, but we cannot survive without commercial banks, insurance companies and commercial companies, all of which are targets for the CDS Mafia and the unlimited leverage that they use as weapons against us all to generate speculative gains. We have the power to fix this aspect of the financial crisis immediately, but do our leaders have the courage and the vision to close down this reckless, speculative market before it destroys what remains of our economy? “- Charles

hazletonJanuary 21st, 2009 at 2:58 pm

Goldman Sachs was one of Obama’s highest contributors. If he double crosses them, I wouldn’t want to be in his shoes.

CMJanuary 21st, 2009 at 2:57 pm

Yesterday was nothing more than a suck-out day to rape the hedge funds forced to liquidate to the elite trading force funded by the Fed. This was the double bottom and now we rally. After FDR was sworn in during the 30’s, stocks roared ahead 70%.

CaponeJanuary 21st, 2009 at 4:25 pm

yes the market rallied after FDR was sworn in 75%. small difference, the indices were already down 70 or 80 % from the highs when FDR was sworn in !

GuestJanuary 21st, 2009 at 3:03 pm

4:02 p.m.[STX] Seagate Q2 net loss $1.02 a share vs profit of 73cIf Apple misses, its all over tomorrow. I think the number was already released to the “special people” and that is why stocks soared to day.

GuestJanuary 21st, 2009 at 3:04 pm

“Stocks steer a broad market comeback after Tuesday’s heavy losses as analysts find silver lining in Obama’s stimulus plans”What a crock of crap!

GuestJanuary 21st, 2009 at 3:38 pm

Banking system is insolvent, no one is spending money and stocks go up because of a speech, wow speeches may be the way to solve this problem, it would be cheaper for sure. Has anything else changed for the good or is this the only good news for the rally.

ex VRWCJanuary 21st, 2009 at 4:01 pm

OK, lets roll this idea. Flame away!The Real Estate Readjustment RebateMany economists and politicians are calling for mortgage modification programs of various kinds. The reasoning behind these programs is that home mortgage writedowns and debt overhang will continue to be a drag on the banking sector and the economy until house prices bottom. Therefore they are in effect attempts to stop the housing bubble correction or accelerate it. All of these programs share traits. They all:-Propose that US Government funds be used to reduce mortgage principal amounts, either temporarily or permanently-Propose that banks write down the value of mortgages, with the government also sharing some of the costs-Seek to keep people in their homesThe plans differ in their ideas of who takes the cost, and how much the homeowner might owe when the home is sold, as well as on other details. But all of the plans basically ask the government to benefit two groups – insolvent homeowners and insolvent banks. There are many problems with this approach. It ushers in moral hazard. It provides stimulus to those who are barely making it, which is not likely to spill over into the real economy as much as it could.The Real Estate Readjustment Rebate proposed here is an attempt to target the home value problem from a different perspective. The reasoning is that if Federal Stimulus is being proposed to correct these problems, it should be targeted at both the good borrowers as well as the bad, it should be targeted at the worst hit areas, and it should be targeted at correcting imbalances. The basic points of this plan are:-Each locale in the US will establish a percentage decline, peak to trough, that it’s residential real estate market is projected to endure. This decline should be tied to the long term pre-bubble home price trendline.- For each household, a stimulus will be applied, in the form of a government check or tax rebate, in the amount of a percentage of the current valuation of the residence or commercial dwelling they live in (be it a home or an apartment) equivalent to this peak to trough adjustment. For a $250,000 home in Phoenix where the market has dropped 30% will receive a $75,000 stimulus. It does not matter what the home was sold for, or what kind of mortgage is on the home, the stimulus is entirely based on valuation.- If the home has one or more mortgages, the stimulus must be applied to the mortgages as part of an adjustment, and the mortgage lenders expected to share some portion of the cost of the adjustment. A modified mortgage will be created for the adjusted value.- If the home has no mortgage or the stimulus amount pays the mortgage off, the excess stimulus money belongs to the household to do with what they please.- If the resident is a renter, the stimulus amount is shared between renter and landlord, reflecting the renters’ contribution to the landlord’s ownership of the property.- If there is a landlord or property owner and no renter, the percentage of the stimulus after the bank’s share accrues to the bank, allowing the home to be sold for less. Or, optionally, these situations could be targeted toward first time homeowners.This plan has several advantages. It targets solvent and insolvent homeowners and renters alike. The solvent are likely to wisely use or invest their stimulus, reflecting their already frugal lifestyle. This should help constrain a mass return to rampant consumerism. The insolvent get a chance to adjust to the new lower valuations with some chance of establishing a better financial future. The plan is also designed to target the worst hit communities with the most stimulus, where the local governments are likely to be facing the most fiscal stress. The plan also attempts to set home prices to their pre-bubble trendline, thereby attempting to establish the ‘right’ price for the home. The plan is also easy to apply on a uniform basis, and can use existing property tax valuations as its basis.This is not meant to advocate government dollars as the answer to the home valuation problem. It is unclear whether more government stimulus is really doable with the current deficit and the current Treasury market situation. The main reason I propose this is because I believe, if we hell bent on stimulus, it should not just be targeted at the insolvent, but instead should target the economy at large. This plan I believe does a better job of that than any I have heard up to now, because it targets the home debt overhang problem but ties a more powerful general stimulus to the solution.Thoughts? As I said, flame away!

GuestJanuary 26th, 2009 at 7:32 am

The Real Estate Readjustment Rebatean interesting idea. Unfortunately it would be billed as a give away to the wealthy and would never fly in Washington (where thinking out of the box is never allowed).your idea , certainly wouldn’t make winners and losers, nor reward those that made poor finacnial decision over thos that didn’t.But we all know that is exactly the opposite of what Washington politoc’s are about. They ARE about deciding “winners and losers” and have been probably forever.Look at what they are proposing in this Stumulus packege now. Typical “targeted tacx cuts” to those they deem winners. Spending that is mostly “bail outs” to state and local governments! ( did I read right that only $30Billion of the proposed $500billion in spending was going for REAL infrastructure building?).Typical Washington politics, when we need REAl change.Let me start by saying I not only voted for President Obama, but I also donated to his campaign. I am a long time liberal democrat as well.But the “stimulus” plan that the democrats in congress are putting together seems nothing more than typical Washington bloat and special interest deals. Unfortunately our President seems willing to go along with it, instead of forging a “new direction” for our politics. I was/am hoping for better.Our nation is in a tough place. Our national leaders have already attempted to help wall St with the TARP program.Now we need those same leaders to help our Main St. instead we see the typical “targeted Tax breaks” and special interest spending that we’ve seen from BOTH side of the political isle, year after year.I HOPE for the sake of us all, that President Obama really does forge a “new way”.This stimulus needs to be no more than the $700 Billion that was used for wall St.Half should be tax cuts, but not selected tax cuts that congress decides who wins and loses, but tax cuts across the board.Those that propose a cutting of the Payroll (social security) tax for the rest of the year make a lot of sense to me. I believe it would cost around $350Billion to start it april1 until the end of 2009.It would put money in EVERY workers pocket (3.2-3.8%) AND be a tax cut for ALL business that have employees of the same amount. As a business owner I can tell you it WILL help keep people employed.The spending should be simple and easy. not a bunch of things congress can’t get passed on their own (energy conversion, etc) or money to bail out states/local governments. That only keeps state workers employed frankly. We need to spend the money on REAL projects to rebuild our nation and put REAL people to work.$350Bilion for Infrastructure improvements in every county in America. The money to be spent based on Population of the counties. Roads, bridges, Water plants, sewer plants, Schools. And projects that work will start within 6 months of the bill passing. These are real “bricks and mortar” projects that Americans can use for 15-20 years.Any states that do not appropriate the money correctly will be subject to losing it to another state that WILL.The politicians (on both sides) don’t seem to really understand what is happening in our nation today. They seem to want to continue “business as usual” even though this is NOT a usual time.President Obama, needs to make the break now and change how business is done in Washington, for the good of our nation.NOW is the timeLead MR. President, show us that you DO understand what is happening to our nation and that you will forge a new way for us all.

AlterthoughtJanuary 22nd, 2009 at 8:05 pm

Here is a simple solution: roll back the expanded FDIC coverage, pay off deposits in insolvent banks with t-bills issued into treasury direct accounts, and let these insolvent banks’ remaining creditors sort things out in bankruptcy court.Why should bank creditors expect *any* sort of taxpayer assistance!?