Nouriel Roubini's Global EconoMonitor

2009 U.S. Economic Outlook: Q1 2009 Update

RGE Monitor’s team of analysts is in the process of producing updates to the RGE Monitor 2009 Global Economic Outlook published in January 2009.  The updated global outlook will be released for RGE clients in the first half of April.

Today we discuss some elements of the U.S. economic outlook.

Before putting 2008 behind us, it is worth taking one last look at economic activity in the last quarter of the year.  As RGE Monitor forecasted, the contraction in real U.S. GDP in Q4 2008 (-6.2%) was the most severe since the early 1980s and pushed yearly growth for 2008 down to 1.1%.

The U.S. is most likely only half way through a severe recession.  RGE Monitor is forecasting four quarters of negative growth in 2009 and a yearly real GDP contraction of around 4%.  The fiscal stimulus package passed in February 2009 will not be large enough to bring aggregate demand back on a path of positive growth before Q1 2010.  In other words, even if the second derivative of economic growth were to turn positive throughout 2009, which would mean that the pace of contraction will progressively slow, the contraction will stay with us at least until the end of 2009.

The contraction in output throughout this recession will result in cumulative output losses of 6%, making this the sharpest output loss in post-war U.S. history.  Though RGE projects positive growth – year over year – for 2010, growth will remain significantly below potential and job losses will continue well into 2010.  RGE expects that the NBER will put the official end to the recession around mid-2010.  However, growth might very well be subdued for years to come.

Personal Consumption

A shopped-out and debt-burdened U.S. consumer lost his resilience and started to give up in the third quarter of 2008, when for the first time in almost two decades, personal consumption contracted.  With personal consumption making up for over two-thirds of aggregate demand, the outlook for the U.S. consumer is at the center of the dynamics that will play out in the real economy in 2009.

Personal consumption will continue to contract quite sharply throughout 2009 as a result of negative wealth effects from housing and equity market losses, the disappearance of home equity withdrawal starting the second half of 2008, mounting job losses, tighter credit conditions and high debt servicing ratios (the debt to income ratio went from 70% in the 1990s, to 100% in 2000 to 140% now).  This structural – as opposed to cyclical – retrenchment of the U.S. consumer will result in a painful rebalancing in the economy that will raise the savings rate above 8% and a cumulative contraction of personal consumption close to US$600bn throughout the duration of the recession.

Housing Sector

The fourth year of housing recession – and the worst housing recession since the Great Depression – is well on course.

Total housing starts have plunged from the 2.3 million seasonally adjusted annual rate (SAAR) peak of January 2006 all the way to the 466 thousand SAAR of January 2009 (the last data point available), an all time low for the time series that started in January 1959.  Single-family starts built for sale are down 81% from their Q1 2006 peak (since seasonally adjusted data is not available, we performed our own seasonal adjustment).

On the demand side, new single-family home sales are down 76% from their July 2005 peak.  Both demand and supply of homes are therefore still falling very sharply which does not bode well for inventories.  Inventories are the mortal enemy of prices for any goods-producing sector, including housing.

The sharp and unprecedented fall of starts might not have reached a bottom yet.  In this economy-wide recession, weakness on the demand side of housing is bound to persist and we believe that supply will have to fall further, given the great wave of foreclosures that is adding to the excess of supply in the market.

We believe that home prices will not bottom out until the middle of 2010.  Our target is a 38% peak to trough (so far prices have fallen over 27% from the peak) but given the worsening conditions on the real side of the economy, we see a meaningful chance for over-correction that would bring prices down 44% from the peak reached in the first half of 2006 (Case-Shiller is the reference index for these predictions.)

Labor Market

The pace of lay-offs and rise in the unemployment rate reveal the combined impact of financial crisis and reduced demand on firms, forcing them to cut 4.4 million jobs from the beginning of the recession in December 2007 through February 2009.  The pace of job losses will continue in to be strong in H1 2009 and will ease only in H2 2009.  We expect job losses to continue through early 2010 as firms restructure and cut costs amid deflationary pressures.  The unemployment rate will touch 9% by mid-2009 and close to 9.9% by 2009-end.  The long-term unemployment rate – that includes part-time as well as discouraged workers – reached a record high of 14.8% in February 2009; we expect this figure to rise significantly through the cycle.

Capital Expenditure

Given that contraction in consumer spending and downturn in exports expected until early 2010, firms will witness a sharp fall in sales in the coming quarters.  As exports and consumer spending fell more than expected in Q4 2008, firms are also running high inventory levels.  Therefore, they will have to work out the inventories of unsold goods before they can increase production and capex plans, though this will be challenging as sales continue to plunge at a faster rate.  As a result, inventory drawdown at the wholesale, factory and retail levels will remain large, especially in early 2009, thus reducing the inventory contribution to GDP growth.  The global supply chain and manufacturing activity in export markets especially in EU and Japan will also remain subdued in 2009.  Due to these factors, the ongoing contraction in industrial production will gain pace in the coming months and will continue through most of 2009.  This will accentuate the decline in employment and labor work hours in the manufacturing sector leading to a fall in capacity utilization from close to 75% in Q4 2008 to below 68% by 2009-end through most of 2010.  Continued excess capacity will thus add to deflationary pressures in the economy.The blow to earnings along with continued credit constrains and sluggish demand recovery will lead to double-digit contraction in business investment throughout 2009 with some weakness even in early 2010.


While the slump in industrial production and contraction in consumer spending led to a sharp reduction in imports from mid-2008 on, exports started contracting at a faster rate in late 2008 as the global economy worsened. As a result, the contribution of net exports to GDP growth which had been positive since Q1 2007 turned into a negative 0.5% in Q4 2008.  In 2009, we expect this trend to persist – the downturn in global manufacturing activity and even greater slowdown in consumer spending in some countries than in the U.S. will lead exports to contract sharply, including to major export markets like the EU and Japan as well as recent high export growth markets in emerging Asia and Latin America.  As recovery of the rest of the world in most cases will lag the U.S. recovery, again with downside risks, exports will continue to decline in double-digits through the rest of 2009 and will remain very weak even in 2010.

Also, low oil prices and sluggish domestic demand and activity will lead imports to contract in double-digits through most of 2009, containing risks to the trade deficit. Imports though will contract less than exports.  While the ‘Buy American’ clause in the fiscal stimulus package will restrict the import of iron and construction related materials for government infrastructure projects, imports might still get a small boost especially if low and middle-income households getting tax cuts spend them on imported goods.  On the other hand, as more and more countries around the world implement fiscal stimulus packages, boosting infrastructure spending and tax cuts for consumers, U.S. exports might also get a boost.  However, most of the import/export dynamics related to the fiscal stimulus will depend on the trends in savings rate in the U.S. and globally as well as the protectionist clauses in the stimulus packages.

U.S. Dollar Outlook

After a brief rally in risky assets earlier this year, the dollar has resumed its safe haven status once more.  Dollar shortages for funding needs and deleveraging of cross-border USD-denominated liabilities is also still providing juice for the dollar against G10 currencies (except yen and Swiss franc).  Against the euro, the U.S. dollar will likely remain strong in the near-term on expected ECB rate cuts, intensifying Eastern European financial turmoil and Eurozone sovereign credit risk.  Against the yen, the U.S. dollar will likely stay around 100 yen in the near-term as markets focus on Japan’s deteriorating economic fundamentals.  The dollar will re-test its 2008 highs against other G10 and emerging market currencies but could back down on the expansion of U.S. quantitative easing to government debt.  In general, the dollar will benefit in the short-term from U.S. government interventions if they appear to put the U.S. ahead of the curve in fighting recession.  By the same token, any scent of increased Treasury borrowing needs on top of already all-time high levels of issuance could turn investors’ noses up at the dollar in the long-term.

Outlook for Treasuries

Rising sovereign default risk and market dilution due to increased issuance will frequently plague the Treasury market in 2009, but the lack of safer alternatives during turmoil in private sector asset markets will keep benchmark yields low on average for the rest of the year. Except for a short flirtation above 3% on February 19, the 10-year Treasury yield has remained below 3% and will largely stay there if the Fed buys Treasuries to lower long-term interest rates.


U.S. inflation will remain below the 2% comfort zone for the rest of 2009 – likely posting a negative rate for the year – and probably most of 2010 as well, barring a commodity supply crunch due to production cuts and investment delays.  Though consumer inflation expectations and breakeven inflation rates in TIPS have moved up, the low resource utilization and large stock of excess homes means the risk of technical deflation turning into genuine deflation has not gone away.

Core inflation will be slower to budge but even it has succumbed to the growing slack in labor and product markets, sliding to 1.7% y/y in January while headline inflation has already flattened.  The housing glut will weigh on owner’s equivalent rent, the largest portion of core CPI.  Steep discounts by retailers trying to lure in shoppers besieged by rising unemployment and falling household wealth will keep a lid on inflation in consumer discretionary items, such as apparel and automobiles.  Falling import prices and producer price deflation throughout the production chain suggests further downward pressure on consumer prices is in the pipeline.  Upward pressure may be seen in healthcare costs, public funding for which was cut by the last administration.

Credit Losses Still Ahead

RGE Monitor estimates suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion.  The U.S. banking sector is exposed to half of that figure, or $1.8 trillion.  Even with the original federal bailout funds from last fall, the capital backing the banks’ assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole.

Two important parts of Geithner’s Financial Stability plan are (i) “stress testing” banks to separate viable institutions from bankrupt ones and (ii) establishing an investment fund with private and public money to purchase bad assets.  These are necessary steps towards a healthy financial sector.

According to Nouriel Roubini, unfortunately, the plan won’t solve our financial woes because it assumes that the system is solvent, while nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume.

Fiscal Policy

Amidst the liquidity trap, a lot of hopes have been placed on the $787 billion fiscal stimulus package to prevent the contraction in GDP growth in 2009.  However, our analysis suggests that in spite of being well-targeted, less than one-third of the tax cuts for households will be spent (and leakages via imports will occur) with the rest saved, used to pay off debt or spent only with a lag when economic uncertainty diminishes given that households face sharp erosion of wealth, slower compensation growth and tighter borrowing conditions.  Even tax incentives for firms will be largely ineffective in stimulating hiring or investment in new capital amidst the ongoing contraction of domestic and global demand and sluggish recovery in 2010 along with tight credit conditions for businesses.

Transfers for states many of which are in recession with large deficits and severe financing crunch will help funding government needs as well as unemployment insurance, infrastructure and public services.  But given the time lags in transferring funds from the federal to state and local governments and our estimates for state fiscal deficits for 2009-10, we believe states will need additional federal funding by mid-2009.

Also, in spite of having high multiplier effects, over 55% of government spending will impact the economy after 2009-10.  Since large spending on infrastructure, renewable energy, technology, health care and education will rightly boost the potential growth in the long-run, these expenditures should have been part of a recovery package in 2010 rather than a stimulus package.

Given that the GDP growth contraction will be most severe in Q4 2008 and Q1 2009, the stimulus is certainly not that ‘timely’.  Also, starting in Q3 2008 when the economy fell off the cliff until early 2010, we forecast that private demand will decline by over $1 trillion. We estimate that out of the $787 billion fiscal package, only around $364 billion of stimulus will actually kick-in during 2009-10, thus being insufficient to offset the contraction in private demand.  The stimulus will not be sufficient to lead to positive GDP growth in H2 2009 or prevent below potential growth in 2010.  Moreover, banking sector recapitalization, unclogging the credit markets and greater measures to reduce foreclosures are necessary conditions to restart private demand.  For the impact of individual stimulus measures on the economy and on GDP growth rate during 2009 and 2010 see U.S. Fiscal Stimulus Package: High Fiscal Cost For Little Bang For Buck?

On a quarterly basis, many households will receive tax credits from tax filing, some shovel-ready infrastructure projects will start at the federal and state levels, and states will use federal transfers to fund immediate needs in education, Medicaid, transport and unemployment benefits – these factors might temporarily boost spending in Q2 and Q3 2009.  But as the impact fades and private demand fails to recover, the economy will weaken again starting Q4 2009 until mid-2010 – thus leading to a W-shaped stimulus effect, just like during Q2 and Q3 2008.  In fact, much of the impact on growth in 2009-10 will come from automatic stabilizers such as unemployment benefits, food stamps, Medicaid, and transfers to states.  Therefore, the stimulus should have allocated more funds to these sources and cut back spending on several government projects that have high short-run fiscal costs but impact growth only in the long run.

While bank bailouts and stimulus spending are already raising the budget deficit, need for additional funds for these two sources and also to deal with foreclosures will continue to put pressure on government spending during 2009-10.  The actual deficit is veiled by the fact that costs borne for Fannie and Freddie are not included in the budget, and funds for banks via TARP and the additional $700 billion that President Obama proposed in his FY2010 budget are accounted in the budget based on the present value of the expected future earnings from investment in the banks, estimates which are again subject to risk.

Taming the Foreclosure Problem

The over-correction in home prices will increase the number of homeowners with negative equity from close to 12 million currently and add to the foreclosures and excess overhang of houses.  Treasury measures to tackle the housing crisis by stimulating home demand by buying MBSs and reducing mortgage rates will become less effective as households facing wealth erosion, job losses and tighter credit lending standards step back from taking a mortgage or purchasing a home.  As such, mounting job losses will make defaults and foreclosures more likely in the coming months.  The Obama administration recently emphasized on supply side measures to reduce foreclosures in the Homeowner Affordability and Stability Plan.  For an analysis of the plan, see: Obama’s Homeowner Affordability and Stability Plan: A Band-Aid for the Foreclosure Crisis?

While this plan improves on the shortcomings of previous government programs, especially by increasing monetary incentives for lenders and servicers and the governing sharing the cost of modifying the mortgagees with lenders, the refinancing plans laid out and the funds allocated are still inadequate.  The plan helps only homeowners facing ‘temporary’ difficulty in making monthly payments due to falling home prices and short-term liquidity crunch due to the recession while ignoring bigger problems of the current crisis – those with negative equity and who cannot afford to make payments in ‘any’ scenario.  The plan reduces monthly interest payments by extending mortgage maturity and reducing interest rate but keeps principal reduction only as the last resort, thereby just delaying the risk of re-default or foreclosure which runs as high as 45-55%.

However, the bill currently being debated in the Congress to allow bankruptcy courts to modify mortgage terms for homeowners in bankruptcy while giving legal protection to lenders and servicers from lawsuits might help increase lender and borrower participation.  There have been other proposals to adopt an across-the-board mandatory program to reduce foreclosures rather than voluntary and case-by case approaches tried so far.  Such a measure would reduce the principal for ‘qualifying’ homeowners with negative equity using some parameter (by the extent of home price decline according to zip code as suggested by many is an attractive option) and refinance the loan at a fixed interest rate with the government sharing this cost with lenders (greater than what is under the current program), and the government also offering guarantees to share the cost of default or profit from future home appreciation.  For more on the proposals for mortgage modification, see: U.S. Housing Sector Far From Bottoming Out Needs Greater Government Intervention

Monetary Policy

With inflation rendered a moot concern by the prolonged recession and anemic recovery ahead for the U.S., the Federal Reserve will keep benchmark interest rates where they are for the next 2 years and focus on its plethora of alternative monetary policy tools.  Aside from direct loans to various ailing financial institutions and an alphabet soup of passive lending facilities, the Fed has resorted to quantitative easing by purchasing private sector assets.  Should Treasury yields shoot above 3% and stay there, the Fed may also purchase public U.S. debt.  The Fed balance sheet shrank in January and February due to the end of year-end funding demand and a decline in foreign central bank demand for dollar funding. The shrinkage should prove temporary if the Fed keeps buying MBS (and possibly Treasuries) and implements TALF and MMIFF.  The resulting increase in assets and deposit liabilities will more than offset further decline in foreign central banks’ use of the currency swap lines.

RGE clients: Stay tuned for a much more detailed and thorough analysis of the U.S. and global economy in our forthcoming RGE Monitor 2009 Global Economic Outlook update.

84 Responses to “2009 U.S. Economic Outlook: Q1 2009 Update”

PeteCAMarch 11th, 2009 at 10:05 am

From last thread …Gotta’ tell you though. If I was going to be tempted to make a little profit out of a bear market rally, it sure wouldn’t be while the Libor is rising again. That ought to tell anyone that there’s something stinky and fishy in this market movement. Looks a lot more like a “pump and dump” – as someone observed earlier.PeteCA

HayesMarch 11th, 2009 at 10:19 am

one of the dynamics that has characterized this crisis is steeper and faster market moves faster. I am watching Shapiro testify ( link )– her comments on M2M – no suspension but significant modification so that assets don’t get marked to zero or unreasonably low levels. She preached transparency but I smell manipulation of these values to shore up the banks.Market is meandering today –

JoelMarch 11th, 2009 at 12:49 pm

I agree, also.The fact that bank stocks are (were?) moving up en masse while Citigroup leaks a ridiculous internal memo about supposed profits in the first 2 months of this year is very suspicious. Citigroup, who has received 10’s of billions of dollars in taxpayer money plus a direct line to the Fed, is essentially on life support. Since there is very little accountability of where this aid money has gone in these financial institutions, declaring a profit is almost meaningless. The fact is, Citigroup has been a bottomless pit exceeded only by AIG.One can hope the Bernanke andGeithner have not been involved in this in any way are not entertaining thoughts of trying to influence the market by promoting the image of U.S. banks and insurance companies in the face of disastrous international economic fundamentals.

SoftwarengineerMarch 11th, 2009 at 10:12 am

AMERICANS HOARDING THEIR CASHLOL. I’ve heard this as a reason the economy is in the stinkers.Haven’t these economic seers ever gone to a grocery store and bought vegetables and fruit, let alone meat, lately? And the reduction in oil price hasn’t lowered the massive food prices much either.Property taxes are on a 3 year average in my county, so as home prices recently plummet as high as -50% in Seattle; property taxes are currently killing Seattle, i.e. [approximately $4000/yr]. The other money drains no one talks about….people have given up looking for work and/or took P/T paper routes to fill in for their old job. If they don’t have a job with health insurance; they fork out for it or cross their fingers…..Utilities and cable get 5-10% yearly raises too; yet our pay is like stagnant.The overpopulation growth is chronically out of control and job competition is horrifyingly fierce; for the few jobs left. Now we want to add even more overpopulation to help fix it?

PeteCAMarch 11th, 2009 at 10:21 am

“And the reduction in oil price hasn’t lowered the massive food prices much either.”I’m with you! It’s definitely true at our local supermarkets. The food prices never came down. I think the grocery stores took the opportunity to maintain the raised food prices once they happened – so they can keep higher profit margins (or cover other losses).PeteCA

GuestMarch 11th, 2009 at 10:47 am

Very true on the food prices. I have seen the prices in my grocery store go up over the last month or so. Here’s a good one too – A few weeks ago, I noticed my car insurance bill was significantly higher. I called my agent’s office and the girl said to me that the premiums have gone up. I asked “Why?”. She said “inflation”. I laughed.

CahillMarch 11th, 2009 at 11:00 am

My cable bill went up by 25% last month, I just laughed and cancelled. I need to read more anyways.

IrritableGuestMarch 11th, 2009 at 2:26 pm

The extras on my home phone bill have been increased twice in the past year, so I finally cancelled one of them. That one feature will now save $78 per year. Might nix the other feature soon, too, saving another $108. Completely agree on the food prices. And our private health insurance uses each new year to hike the monthly fees and increase the deductible. An extra $61/mo. Where does it end?

MarkMarch 11th, 2009 at 3:39 pm

Yeah, my car insurance went up by about 20%. I did have a slight mishap, but that doesn’t square with this much of a bump up in premiums.I suppose that it’s to help pay for more and more non-insured (though insurance in my state is mandatory) and or people going to other (cheaper) insurance companies.Fortunately my cycling offsets the costs of my car insurance. One day I fully expect that I won’t be driving my car anymore (too expensive).Dumped cable some time back.And I’m not really hurting: I was forced to start downsizing 8 years ago. Can only imagine how those newly equated to downsizing in the current economic climate are feeling…Mark

GuestMarch 11th, 2009 at 5:01 pm

Well I’m one of the down-sizing newbies. It’s weird getting used to it. I live in a very wealthy area where it’s like bizzaro world in a bubble. People here still seem oblivious to what’s happening. So at times I feel jealous b/c I know that the super-wealthy aren’t hurting, and I’m hurting alot. I also feel bored – no trips, no eating out, no entertainment, etc. Having to worry about getting meals on the table is new to me. I was poor as a child, but it’s a lot more stressful as an adult. I’m trying to keep positive, but deep down I’m depressed. I was never wealthy by any stretch, but I know I’ve been spoiled the past several years. Now I’m having to unspoil myself. I know it’s ultimately good for me to gain these frugal habits. However, it does suck having to work your butt off every day with nothing to show for it other than a rented roof over my head and not having an empty tummy.

MarkMarch 11th, 2009 at 7:21 pm

I went through a couple of bouts of huge losses in income: first time (1997) was about a 50% cut (wife lost her job); the second was another chunk (2001; had to survive on savings and unemployment). After doing huge adjustments out of necessity (no credit card debt, only mortgage and a car loan), I then came to view it as a long-term issue (my then wife didn’t seem convinced- lost her too! though she now “gets it”).I understand that 2/3rds of the world’s population lives on $3/day or less. I got to see a pretty good dose of reality on a recent trip to Manila (as a guest more than a ‘tourist’). Philippine exports are down something like 41%. If anyone thinks that the following will get better, guess again:Poverty and the Fancy Corporate Headquarters in ManilaLoved the people there!Someone from work told me the other day that he realized that he didn’t have it so bad after he saw someone in a wheel chair going down the sidewalk, in the rain!What you need to know: Food, Shelter and Water (with love of course!) Health is something that we do have some control of.Even Jim Rogers is promoting the importance of farming. If I were younger I’d be all over it…Mark

AnonymousMarch 13th, 2009 at 7:21 am

Mark,My community is a bizzaro world – alternate reality too.Seems like a total disconnect from what I read.The question I have is ”will the shoe drop on them too ?”

HayesMarch 11th, 2009 at 12:09 pm

grocers work off of percentages – higher prices equate to more profit $ – in addition with higher prices (in an environment of lower costs) the grocer has more leverage to extract inside monies from the manufacturers.From the manufacturer’s perspective unless share is threatened there is no reason for them to lower prices – even if share is threatened they will promote before reducing.Store brands operate on a price gap basis from the branded products with the retailer generally managing that gap. In the event the retailer can negotiate lower costs from its store brand manufacturers (due to lower inputs) there is little incentive to pass on to the consumer unless they want to take share from the brands.With all of this talk of deflation – the basics such as food, taxes, service charges etc. don’t appear to be participating –

GuestMarch 11th, 2009 at 12:26 pm

It’s funny when I walk into a local convenience gas station that I frequently go to and I buy a bottled water and candy bar for $5 dollars, there is certainly no deflation there except I almost feel redeemed when I notice almost no one is buying anything in the gas station. Merchants are very reluctant to lower their prices because the businesses are so efficient that there’s little room to mark down unless the owner and workers take a significant pay cut, who wants to give themselves pay cuts.I cut my cable and land line off.

GuestMarch 11th, 2009 at 2:30 pm

That reminds me, I was in a RiteAid and a local grocery store the other day. I thought I’d pick up a chocolate bar while I was there, as the ones at the convenience store out in the county where we’re at are a bit pricey. Surprisingly, their prices were the same or more than the convenience store! Equally as surprising, the gas prices out where we’re at are .10 cheaper than in town. Once upon a time, it used to be the other way around.

GuestMarch 11th, 2009 at 1:14 pm

Right – the only deflation I’ve really seen is if I want to buy clothes, shoes, clutter crap for the house, etc. – nothing I NEED to buy. Oh, and my rent was lowered by $50/mo. I’m still in one of the highest rent areas in the country, and a 2.8% rent deduction doesn’t help when my household income has been reduced by over 30%.

PeteCAMarch 11th, 2009 at 10:18 am

To add to Prof Roubini’s comments above, let me again re-post this comment from John Hussman this week …”The course of defending the bondholders of insolvent institutions is not sustainable. Do the math. The collateral behind private market debt is being marked down by easily 20-30%. That debt represents about 3.5 times GDP. That implies collateral losses on the order of 70-100% of GDP, which itself is $14 trillion. Unless Congress is actually willing to commit that amount of public funds to defend the bondholders of mismanaged financials so they can avoid any loss, this crisis simply cannot be addressed through bailouts. Bondholders have to take losses. Debt has to be restructured. There is no other option – but the markets are going to suffer interminably until our leaders figure that out.”To repeat. The potential losses in the system are MUCH higher even than Prof Roubini is estimating above in his commentary. Same goes for Europe. The western banking system is not just insolvent. It’s completely underwater.At this stage the choice is either to let these big banking institutions go bankrupt – and handle the problem through losses to the bond holders. Or alternatively to see the collapse of economies such as the USA, UK, Spain, Ireland and elsewhere.Note that Bernanke said this week that he will NOT allow the Wall St big banks to go under – fearing a calamity in the world of CDS and OTC derivatives.There are no easy outs for the Gov’t at this stage. And it’s optimistic for Prof Roubini to simply refer to this downturn as a recession.PeteCA

HayesMarch 11th, 2009 at 10:53 am

London Banker’s perspective from an earlier thread is that it will be economic collapse in the US and Europefurther to the M2M discussion – while not overtly suspending it they will alter the rules to allow the collateral to be marked more favorably – (it won’t work but it will delay)

DMHMarch 11th, 2009 at 11:21 am

It is beginning to look more and more like the Obama Administration and the Fed are resigned to a long and severe L-shaped recession that avoids an outright collapse and Mad Max while buying time to gradually unwind the tangled web we wove.

Edward GreenbergMarch 11th, 2009 at 12:00 pm

“At this stage the choice is either to let these big banking institutions go bankrupt – and handle the problem through losses to the bond holders. Or alternatively to see the collapse of economies such as the USA, UK, Spain, Ireland and elsewhere.”A bit simplistic, no?I can think of two classes of bondholders, off the cuff, that I would not want to see abandoned; pension plans and foreign banks that are members of or with connection to the EEC.The discussion really does need to turn a discriminating eye towards the liabilities in question before offering any further perscriptions on what to do – the operative word being “before.”

GuestMarch 11th, 2009 at 12:31 pm

The bottom line no matter how badly investor mentality tries to frighten everyone is the bond holders have the equity(fictitious equity) to lose and no one I repeat no one else does. It’s simple arithmetic.

PeteCAMarch 11th, 2009 at 1:18 pm

Unfortunately, pension plans are going to get socked here. I think that’s probably unavoidable. Hate to see it happen, but those bonds they bought were never really AAA in the first place. All the lawsuits in the worlds can’t change that now.PeteCA

methinksMarch 11th, 2009 at 1:53 pm

These comments belie the fierce struggle going on within the ruling elite about how to proceed. This quote along with an article from Global Research might help:”The fundamental point is, of course, that it is now clear to all but the militantly unreflective that Obama can – perhaps – save the Real economy or – perhaps – save Finance (i.e. Bank bond- and shareholders), but certainly not both. The increasing, but still relatively gentle, criticism of Stiglitz, Krugman and their ilk is owing to the fact that it is becoming all too clear that Obama is still unwilling to engage Finance in what might turn out to be the greatest intramural fight capitalism has ever seen”.”The Upcoming Political Crisis in Washington”

AnonymousMarch 11th, 2009 at 2:41 pm

I thought I read on this blog that wiping out the bondholders politically is not doable because they are comprised mainly of Saudi, other Arab states and Chinese. Anyone have any insight on this? Thanks

GuestMarch 11th, 2009 at 3:35 pm

It’s politically not doable because the PTB that own these contracts are well connected and extremely powerful. It doesn’t matter who they are per say just realize their political influence is far greater than any of ours. Just watch Bill Gross come on CNBC and dare the government to not make his investments whole – it’s to the point of being threatening and that’s on CNBC imagine what goes on behind closed doors the threats that get made.

MarkMarch 11th, 2009 at 4:02 pm

Funny, those hating socialism will end up destroying this country (USA). That’s the tug-o-war that’s been building for a LONG time; it was inevitable that this climax occurred.The weight of socialism overseen by a big bloated government will collapse due to inefficiencies, while un-bridled capitalism will result in over-efficient destruction of the environment.More than any time in history mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray that we have the wisdom to choose correctly. – Woody AllenReady, set, go!Mark

REDMarch 11th, 2009 at 4:29 pm

One easy way out is for bondholders to reduce debt by 50%, but for interest rates to double. BROADLY SPEAKINGThis way they don’t suffer any decrease in revenue, but debtors feel they have more equity in the assets they own.Simple fix in theory

GuestP VTMarch 12th, 2009 at 1:11 pm

Did I read somewhere that the Prof has suggested simply voiding sub-prime contracts and rewriting all mortgage debt within that class? Why not void, as well, all contracts securing credit default swaps on the basis of a variety of fraud. This would relieve underwriters and save the tax payer much liability.

HayesMarch 11th, 2009 at 10:59 am

Schapiro (Chair of the SEC) just admitted she does not understand the mechanics of the Ultra ETFs – but has assigned some staff to look into their mechanics. e.g. the SKF ultra short financial ETF hedges using CDS

FEDupMarch 11th, 2009 at 11:01 am

RGE analyst’s 2009 U.S. Economic Outlook is far too conservative: once all the new tax hikes by the states begin along with fear of job loss, increasing foreclosures and bankruptcies and decreasing financial markets, the resulting panic will paralyze consumer spending leading to a scenario far worse than anticipated.

JimovisionMarch 11th, 2009 at 2:08 pm

Great article – thanks for sharing.It piqued my interest to see The Corporation, and I was happy to find it available and well seeded on BitTorrent:

It’s Hare’s latest contribution to the public awareness of “corporate psychopathy.” He appeared in the 2003 documentary The Corporation, giving authority to the film’s premise that corporations are “sociopathic” (a synonym for “psychopathic”) because they ruthlessly seek their own selfish interests — “shareholder value” — without regard for the harms they cause to others, such as environmental damage.

Looking forward to watching it…

MorbidMarch 11th, 2009 at 11:43 am

I find the Professor an interesting mixture of Pessimism (looking for what can go wrong) and Optimism (looking for positive meaningful solutions/outcomes). He attracts those that do not fear speaking out loud significant concerns when they arise.From my vantage point at this time in history, he is too optimistic for my tastes because I like to take into consideration potential paranormal, acausal events – that DARK SIDE of reality that can influence our world. For example the change in the Platonic months as we move into Aquarius, certain prophecies about the coming Apocalypse, the paranormal, acausal BLACK SWAN stuff, etc. Given his ancestral background I would believe that the Professor has a psychic connection to the dark premonitions that underline many of our modern fears.

GuestMarch 11th, 2009 at 1:02 pm

Ha, ha, ha. I agree. Morbid, you have achieved your name sake. Congratulations! Now go look for the three horsemen comming over the horizon.

WAWAWAMarch 11th, 2009 at 11:48 am

I hear some expert projecting recovery by 2010 or so. My question is “what will be the catalyst for recovery/growth?”I do not see any catalyst, if you do please bring it to my attention.

GuestMarch 11th, 2009 at 1:06 pm

Catalyst will have to be another big government spend package and write downs for mortgages. Will it happen by 2010? Most people with influence to make this happen are far from living the impact of the (mild) depression. It takes a while for the pain of the ordeal to reach the elite class, particullarly when they are adept at rationalizing thier excessive life styles.

HayesMarch 11th, 2009 at 12:41 pm

Dimon speaking to the Chamber of Commerce – says he likes M2M – but then says it needs to be changed -The set up is in – no suspension but a redesign that will be tantamount to a suspension – he’s using pension plans as an example and blames M2M for the demise of company sponsored pension plans.So my guess is they are going to say keep M2M for transparency and then they’ll modify the rules that will give the banksters the ability to mark to whatever they want to – while the “unsuspecting” public will be fed by the news media that there is transparency.

HayesMarch 11th, 2009 at 12:56 pm

what’s a term (perhaps a propaganda technique) that describes a person who says one thing to get people on side when the intent is to do the opposite e.g. We support mark to market (because investors like it) when in fact the intent is to re write the rules in such a way that it will essentially suspend it.Perhaps sleight of hand is the best description???

AfAMarch 11th, 2009 at 1:25 pm

To Deceive: To cause to believe what is not true; mislead.M2M or Mark2Morgue … the rule of thumb is: “It’s the Cash Flow, stupid”When an event requiring a party to honor it’s obligations to a counterparty, marking is meaningless.

GuestMarch 11th, 2009 at 2:45 pm

con artistcon manswindlersynonyms for deceive: beguile, bluff, cozen, delude, dupe, fool, gull, have, hoax, hoodwink, humbug, misguide, misinform, mislead, snow, string along, take in, trickRelated Words: cheat, chisel, defraud, fleece, gyp, hustle, rook, swindlePersonally, I like “doublespeak”.

paul94611March 11th, 2009 at 4:51 pm

The bottom line is that Tier II and Tier III assets are not marked to market as it is, let alone those “assets” held off the balance sheet. So the whole conversation concerning M2M is a smoke screen.The real basis for the M2M discussion is in determining solvency and equity requirements for the banks since the metric for the “stress test” only includes Tier I assets.Anyone interested in looking at this issue from the viewpoint of a defunct institution just needs to look at WaMu and how it juggled assets between classes as the market for their securities dried up and values fell.

Mark A. GoldmanMarch 11th, 2009 at 1:04 pm

Dr. Roubini comments on how bad things are going to get if government does everything right. But from my vantage point I don’t see any chance that the government will do everything right or even anything right. There just isn’t the political will. Everything’s a compromise. And I don’t think Roubini has it right on what needs to be done… all he offers are a few policy changes that would require competent administration. But who is available to manage and carry out such changes with any degree of integrity. Ordinary citizens will not have confidence in the economy if they can’t see themselves as economically secure and the government is not addressing that at all. They are steeped in technicalities rather than seeing what they might do to make people intimately experience some sense of economic security. For example, what will the government do to prevent homelessess, hunger, malnutrition, and desease. There is no political will to do what needs to be done. Why are we at war? Why do we have troops in hundreds of sights around the world? Why do we support Israel no matter what it does? You can’t successfully run a country if your policies lack intellectual integrity and you persist with so much hypocrisy. It just doesn’t inspire confidence.

GuestMarch 11th, 2009 at 1:30 pm

It’s pretty obvious the government is run by insiders our votes are meaningless. The dollar is God and those who have it have ultimate voting rights.

PeteCAMarch 11th, 2009 at 1:22 pm

I always enjoyed the term that the Contrary Investor uses for some of these front men on Wall Street.Carnival barkers. :-)PeteCA

plongka10March 11th, 2009 at 2:37 pm

PeteSo can you believe there can be any reconciliation while the DTCC continues to exist? I think Deep Capture should be required reading. I’m sure the majority of people are unaware how deep the rabbit hole of corruption is in Wall Street. It’s why I am so incredulous that people continue to support the market by participating.

GuestMarch 11th, 2009 at 1:40 pm

Just as London Banker was saying a few days ago…Ron Paul: Obama Foreign Policy Identical To Bush

PeteCAMarch 11th, 2009 at 2:01 pm

Picking up on a posting that was on one of the threads a day or two ago. News …————————–A total of 283 publicly traded US companies including many high-profile firms are at high risk of defaulting on their debt payments, Moody’s Investors Service said Tuesday.Moody’s newly created “Bottom Rung” includes companies known to be in distress including automakers General Motors and Chrysler, but also corporate icons such as Eastman Kodak and American Airlines parent AMR Corp.The financial rating firm said the list represents “the lowest-rated US non-financial speculative-grade companies, as a tool to help investors discern which companies are under the most stress at a time of tight credit markets and global economic weakness.”The list does not include all firms with a low or speculative credit rating, but indicates those with a higher risk of default on their debt payments.Moody’s expects around 14.5 percent of all speculative-grade firms to default by November, up from a default rate of 4.4 percent at the end of 2008.For the Bottom Rung firms, the estimated default rate over the next 12 months is more than 45 percent, according to Moody’s.———————-PeteCA

PeteCAMarch 11th, 2009 at 2:06 pm

methinks said: “”The fundamental point is, of course, that it is now clear to all but the militantly unreflective that Obama can – perhaps – save the Real economy or – perhaps – save Finance (i.e. Bank bond- and shareholders), but certainly not both”—————–The real issue debate before Americans today is simple. It’s the big one at this stage.1. How do we completely disband our current banking system AND the Fed?2. What should we replace it with?I make no bones about the seriousness of these actions. But that is literally where we stand, regardless of the lack of proper action from the administration and Congress.PeteCA

GuestMarch 11th, 2009 at 3:29 pm

I hear there are anti-FED demonstrations going in places like Seattle of course no media coverage.

GuestMarch 11th, 2009 at 2:11 pm

Geithner’s CharadeDithering on the Edge of the AbyssBy MIKE WHITNEYThe good news is that Obama’s economics team understands the fundamental problem with the banks and knows what needs to be done to fix it. The bad news is that Bernanke, Summers and Geithner all have close ties to the big banks and refuse to do what’s necessary. Instead, they keep propping up failing institutions with capital injections while concocting elaborate strategies for purchasing the banks’ bad assets through backdoor transactions. It’s all very opaque, despite the cheery public relations monikers they slap on their various “rescue” plans. This charade has gone on for more than a month while unemployment has continued to soar, the stock market has continued to plunge, and the country has slipped deeper into economic quicksand.Paul Krugman summed up the administration’s response in Friday’s column, “The Big Dither”:“There’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern….Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets … are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away. …What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions.”Krugman is right about the “dithering” but wrong about the toxic waste. Geithner and Bernanke know exactly what these assets are worth — pennies on the dollar. That’s why Geithner has avoided taking $5 or $10 billion of these mortgage-backed securities (MBS) and putting them up for public auction. That would be the reasonable thing to do and it would remove any doubt about their true value. But the Treasury Secretary won’t do that because it would just draw attention to the fact that the banking system is insolvent; the vaults are full of nothing but garbage loans that are defaulting at a record pace. Instead, Geithner has cooked up a plan for a “public-private partnership” which will provide up to $1 trillion in funding for private equity and hedge funds to purchase toxic assets from the banks. The Treasury will offer low interest “non recourse” loans (with explicit government guarantees against any potential loss) to qualified investors. If the hedge funds or private equity firms don’t turn a profit in three years, they simply return the assets to the Treasury and get their money back. In essence, Geithner’s plan provides a lavish subsidy to private industry on an totally risk free investment. It’s a sweetheart deal.At the same time, the plan achieves Geithner’s two main objectives; it gives the banks the chance to scrub their balance sheets of junk mortgages and it also allows them to keep the present management-structure in place. The $1 trillion taxpayer giveaway to the hedge funds is just another treat tossed to Geithner’s real constituents– Wall Street speculators.Unfortunately, markets don’t like uncertainty, which is why Geithner’s circuitous plan has put traders in a frenzy. Wall Street has gone from scratching its head in bewilderment, to a stampede for the exits. In the last month alone, the stock market has plummeted 18 per cent, indicating ebbing confidence in the political leadership. Geithner is now seen as another glorified bank lobbyist like his predecessor, Paulson, who is in way over his head. His lack of clarity has only added to the widespread sense of malaise. Markets require transparency and details, not obfuscation, gibberish and Fed-speak. Geithner is putting the interests of the banks before those of the country. The “public private partnership” is just a convoluted way of avoiding the heavy-lifting of rolling up the banks, wiping out shareholders, separating the bad assets, and replacing management. The same is true of Bernanke’s Term Asset-Backed Securities Loan Facility (TALF) which is another futile attempt to restart Wall Street’s failed credit-generating mechanism, securitization.It was securitization (which is the conversion of pools of mortgages into securities) which got us into this mess to begin with. It doesn’t do any good to restore an inherently crisis-prone system that only works properly when the market is going up. There are more efficient ways to recapitalize the banks than the PPP, just as there are better ways to promote consumer spending than the TALF. Treasury should be looking into debt relief, jobs programs and higher wages. There are solutions that do not involve artificially low interest rates, government subsidies for toxic waste or lavish handouts to hedge funds. They simply require a commitment to rebuild the economy on sound principles of hard work, productivity and fair distribution of the the profits.Even industry cheerleaders, like the Wall Street Journal, are skeptical of Bernanke’s TALF and have denounced it as just another boondoggle.There is another part of Geithner’s plan that is even more troubling. After the banks sell their dodgy assets to the hedge funds, what will they do with the money? Consumers are retrenching, so the pool of creditworthy customers will remain small. And businesses are trying to work off existing inventory, so they won’t be borrowing to increase investment or retool anytime soon. If the opportunities for lending dry up, the banks will be forced to seek unconventional means for generating profits. My guess is the banks will put a large portion of their money into hedge funds for commodities speculation, which will push the price of oil, natural gas and other raw materials into the stratosphere just like they did last year when oil shot up to $147 bbl. The banks really have no choice; 65 percent of their business was securitized investments. That door has been slammed shut for good.“Too Big to Fail”?The Financial Times economics editor Martin Wolf warned in Friday’s column of the dangers of our present course. He said:”If large institutions are too big and interconnected to fail… then talk of maintaining them as “commercial” operations… is a sick joke. Such banks are not commercial operations; they are expensive wards of the state and must be treated as such.The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both.”Citigroup is now officially a “ward of the state” although CEO Pandit and his band of pirates are still allowed to collect their paychecks and hang out by the water cooler. Citi’s survival depends on the reluctant generosity of the US taxpayer who is now its biggest shareholder. The mega-bank has slumped from $58 per share to $1 per share in less than 2 years. It’s now more expensive to buy a grande latte at Starbucks than it is to buy three shares of Citi…and, at least with the Starbucks, the buyer gets a buzz on. There’s no upside to the Citi deal. It’s a dead loss.Wolf is correct to draw attention to the myth of “too big to fail”. In fact, the Kansas Federal Reserve President, Thomas Hoenig made the same point in a PDF released this week:”We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. … We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed the basic shortcomings and, in some cases, the insolvent position of these institutions.We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.”Hoenig and Wolf are smart enough to know that the problem is not as simple as it sounds. They know that the largest financial institutions are lashed together in a net of complex counterparty contracts–mainly credit default swaps (CDS) — which run into tens of trillions of dollars, and, that if one player is allowed to default, it could pull all of the others down the elevator shaft along with it. The problem could be resolved with proper regulation which would force all CDS onto a regulated exchange so that government watchdogs could make sure that they are sufficiently capitalized to pay off whatever claims are levied against them. But, so far, no one in Congress has taken the initiative to propose the necessary regulation. Thus, the taxpayer continues to pay off hundreds of billions of dollars of insurance claims against AIG, which was so grossly under-capitalized, it couldn’t meet its own obligations. The AIG fiasco provides a window into the real motivation behind financial engineering and the alphabet-soup of complex debt-instruments. Wall Street knew that the fastest way to fatten the bottom line was to circumvent minimum capital requirements and expand leverage to unsustainable levels. In other words, a system of debt-fueled capitalism with only specks of capital. It worked beautifully, until it didn’t.Nobel prize-winning economist, Myron Scholes, who helped invent a model for pricing options, added his voice to the growing chorus of angry reformers who think the CDS market should be scrapped altogether. According to Bloomberg News: Scholes said “regulators need to ‘blow up or burn’ over-the-counter derivative trading markets to help solve the financial crisis. The markets have stopped functioning and are failing to provide pricing signals… The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over.” (Bloomberg)Treasury and the Fed have taken the position that they will not fix the system until they are forced at gunpoint. This is a prescription for disaster, not just because of growing public frustration or the free-falling stock markets, but because the banks are just the tip of the iceberg. The other non bank financial institutions are brimming with mortgage-backed sludge that will require emergency treatment, too. MarketWatch gives us a glimpse of the magnitude of the problem in last week’s article “Banks fall out of bed, Citi shares under a buck”:”Market strategist Ed Yardeni’s latest research shows that…..80.6%, or $7.4 trillion, of the assets held by the S&P financials companies were Level 2,” he said in a research report. Level 2 assets are so-called mark-to-model, which are carried at a value based on assumptions, not true market prices.”What does “Level 2 assets” mean? It means that the financial giants are short on liquid assets–like cash or US Treasuries — and loaded with sketchy mortgage-backed paper to which they have arbitrarily assigned a value that no one in their right mind would ever pay. The entire US financial system, including the pension funds and insurance companies, is one debt-bloated time bomb that is set to blow at any minute.Surprisingly, Bernanke thinks he can simply wave his wand and restart the moribund credit markets. That’s what the TALF is all about. The problem is that even if the Fed buys all of the AAA securities held by the respective financial institutions, (most of them are non banks) that’s still only accounts for 20 per cent of the bad paper on the books. Here’s what Tyler Durden said on Zero Hedge web site:”Unfortunately for Geithner, who apparently did not read too deeply into the data, the bulk of the $1 trillion decline in securitizations came from home equity lending and non agency RMBS (Residential Mortgage Backed Securities), which reflect the “non-conforming” mortgage market, i.e. the subprime, alt-A and jumbo origination, loans which are the cause for the credit crisis, and which are rated far below the relevant AAA level. The truly unmet market, which the Treasury is addressing is at best 20% of the revised total amount.”That leaves Geithner and Bernanke with few good choices. Either they expand TALF to include crappy AA (and lower) graded securities–putting the taxpayer at even greater risk–or they devise some totally new lending facility that will bypass the financial institutions altogether and issue credit directly to consumers and small businesses. There is no third option.The problem with the TALF is that it ignores the new economic reality, that consumer demand has collapsed from the massive losses in home equity and retirement accounts. When credit markets froze last year, housing values dropped sharply raising havoc with household balance sheets and forcing a radical change in spending habits. That cutback in spending created a negative feedback loop to the financial sector which made it impossible to re-inflate the credit bubble. The ultimate size of the financial system will be determined, to a large extent, by the capacity of people to borrow again, which depends on many factors including job security, savings, and optimism about the future. Needless to say, the growing worry over a 1930s-type Depression will not help to lift spirits or improve the chances for a speedy recovery. That said, there are positive steps the administration can take now to restore confidence in the markets. These measures fall under three main headings; debt reduction (forgiveness), regulation and accountability. Confidence is not built on inspiring oratory or personal charisma, but concrete actions to reestablish a rules-based system that penalizes crooks and fraudsters. Recovery isn’t possible without a strong commitment to these basic changes.

GuestMarch 11th, 2009 at 3:03 pm

The markets have stopped functioning and are failing to provide pricing signals… The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over.”

This seems to be a reasonable solution that goes to the heart of an otherwise impenetrable problem. So, what specific countries/agencies are in a position to make this happen?

GuestMarch 11th, 2009 at 3:27 pm

This would require a sacrifice of power by the biggest and most powerfully wealthy people around the globe. 10 dollars says they would rather plunder economies of the world to create a system of slavery. It’s come down to a choice between poverty and slavery for the masses or a sacrifice by the wealthy on their claims to artificial asset values – who’s going to win?

GuestMarch 11th, 2009 at 3:52 pm

Depends on how angry the masses become. They might win in the short run, but there’s still the long run to deal with. Guess we’ll see.

GuestMarch 11th, 2009 at 6:30 pm

First the masses need to be fully aware of this and need to undertand it, at least to some extent. And I get the impression that most people are not and do not. At best, the masses listen to mainstream media which is full of idiot puppets. If and when the masses finally get it, it may be too late. If not, then my money is on the masses.

GuestMarch 11th, 2009 at 3:50 pm

Nobel hero Paul Krugman’s problem, which translates to our problem, is that he has to come up with a column every week which spreads his vast “intelligence” thinner and thinner as the months drag on. Reminds me a little of how Sydney Smith once described Macaulay: ”He not only overflowed with learning, but stood in the slop.”

GuestMarch 11th, 2009 at 3:55 pm

Bloomberg headline: Dimon Says Banking System Can Be Saved If Corporate `Vilification’ Stops“Hey, can’t we all just get along?”

GuestMarch 11th, 2009 at 4:06 pm

We all know that giant banking corporations are in fact philanthropic noble champions of all that is pure and good. In other words bend over to the tune of 10 trillion and tell me how much you love me, it might hurt a little bit but I give good luvin!

PeterJBMarch 11th, 2009 at 4:06 pm

“The real issue debate before Americans today is simple. It’s the big one at this stage.1. How do we completely disband our current banking system AND the Fed?2. What should we replace it with?I make no bones about the seriousness of these actions. But that is literally where we stand, regardless of the lack of proper action from the administration and Congress.PeteCA@ PeteCA on 2009-03-11 14:06:16Your concern should be THE priority but as I have posted previously, it is too early to identify the trends that will form ‘the-other-side’ or future and until we see these trends and, more importantly, acknowledge and name the future, the design of the structure of the socio-economic systems for the next Epoch of men, will remain impossible to detail, for most. An Effect can be named and thus seen whereupon a Cause not yet an Effect, can only be felt.You are aware that today’s global political, leadership, financial priority is to restore the ‘status quo’ and such attempts are mere fantasy but fossils of a “faith-based” system which will be easily forgotten except in historical libraries. But by these insane and unlearned actions of little and mortal men, ie by so doing, relegates the “Real economy” to the back burner to fend for itself; it will and nicely too. But, a very serious mistake… indeed and one that will be, like debt, paid for in fullHo hum

HayesMarch 11th, 2009 at 4:08 pm

Dimon Says System Can Be Saved If ‘Vilification’ EndsBy Elizabeth HesterMarch 11 (Bloomberg) — Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said the U.S. can rescue its banking system by the end of the year if officials start cooperating and stop the “vilification” of corporate America.“If we act like a dysfunctional family and we don’t finish these things and we’re forever debating them, I think this will go on for several years,” Dimon, 52, said at a conference hosted by the U.S. Chamber of Commerce in Washington. “It’s completely up to us at this point.” what Dimon Jim is saying is that criticizing the perpetrators of the greatest theft in history is dysfunctional with the implication that those who challenge the Wall Street thieves will be responsible for prolonging this crisis.Could it be that he is trying to cast the American public in the role of a victim of abuse where the victim is blamed while the abuser is absolved.

GuestMarch 11th, 2009 at 4:20 pm

Dimon is like my first husband. And like my first husband, I can’t even take him for all he’s got in a divorce, because he’s got nothing. Except for his ability to turn the tables and make himself out to be the misunderstood victim.

PeterJBMarch 11th, 2009 at 4:34 pm

From xymphora, I find his comment here most refreshing and pregnant with hope:”Remember the quote from John Perry Barlow: “The Internet treats censorship as a malfunction and routes around it.” The fact that governments have been so corrupted is going to require a similar routing around by the legion of decent and moral people. Twelfth Bough (found on Kenny’s Sideshow) has some preliminary suggestions. The bad guys need us to play along with their insanity. If we opt out, we take away the ground from beneath them. “Ho hum

MarkMarch 11th, 2009 at 4:44 pm

Exactly!“You never change anything by fighting the existing. To change something, build a new model and make the existing obsolete.” – Buckminster FullerMark

JPMarch 11th, 2009 at 5:35 pm

In December 2008, I terminated an employee for not doing her job. She was “always busy” but very little work got done. If I was on vacation, she would come in late and leave early. It was not uncommon that 20+ hours per week were spent on non-business related internet usage (updating facebook, instant messaging, etc. – I used spyware to document it). It took 8 months to fully document her behavior and our conversations about changing said behavior so that her dismissal would be bullet-proof from a legal standpoint.On the day I terminated her employment, I informed her that it was a termination for performance and that I would not consider it gross misconduct so that she could collect unemployment. I was being nice.Between unemployment and now the employer COBRA premium subsidy (costing me $298 per month), she will get about $2,374 per month of benefits ($13.65 per hour) which is 63% of her working compensation. There is NO incentive for her to get a job unless it pays substantially more than $13.65 per hour. Would you take a 40 hour per week job for $18/hour when you can do whatever your want and get paid the equivalent of $13.65?I had to work twice as hard for two months while finding a replacement. I am currently training said replacement so my business is still a “person short” in capacity. As an employer, my unemployment insurance premiums went up. The government hasn’t told me how much they went up, but I am estimating about $50 per month…indefinitely. I am estimating that the whole fire and rehire will cost about $30,000 out of pocket.Why doesn’t the government reward businesses who hire someone with cash payments? Why is the fired employee rewarded with a 63% of her compensation to sit at home and watch TV and work part time for cash in the grey economy? I think it creates an incentive to get fired so you can take a year off on the backs of the taxpayers.The system is clearly providing a disincentive for people to work hard to keep their jobs. I’ll guarantee that if losing your job meant that you lived in a van down by the river, you’d do whatever it takes to keep your job. More importantly, if you lost your job, you’d have a clear incentive to find work at whatever pay.

MarkMarch 11th, 2009 at 8:04 pm

Sorry, but you are emotionally charged and a bit over-simplified here.Unemployment, if you haven’t had to endure it before, is no wonderland. You have to file regularly AND you have no idea when you’re actually going to get a job, as the “benefits” slowly tick away. Future stability is constrained to a very small window.For me I was collecting unemployment (only time in my life) and busy figuring out how to sell my house, in case I was not able to land a job to cover my mortgage (which was not very high). I can’t speak for your ex employee. Yes, there are schmucks out there; they can exist as employees OR employers.Oh, I WAS able to land a job that allowed me to keep my house and pay my bills (for myself and my then wife, who wasn’t really earning anything [just some stipends]). The job was just a bit over $13/hr. I wasn’t proud, I had to do something: first was slashing ALL fat out of the budget. Going from $38/hr to $13/hr is a big drop. But now I’m glad that I’ve ratcheted down, as this will help me to eventually become my own boss.Mark

GuestMarch 11th, 2009 at 5:39 pm

I am not an Idiolog. After reading arguments from both sides keynesians and others, I still haven’t been able to reach a conclusion that which strategy is correct going forward big spending or cutting spending in present situation. Any to the point explanation would be appreciated.

MarkMarch 11th, 2009 at 8:06 pm

ANY ideology that isn’t centered on sustainability is doomed. I would therefore inform you that you will not find any solution among the “leading” ideologies.Mark