Second

Deleveraging. A global fashion.
Stock exchange in Saudi-Arabia opened today. Down 8% at the open.

Good Morning all.

<a href="http://cryptogon.com/?p=4637>Enjoy

Unless you're Australian. Then, I guess, not so much.

Human Head. Wow. Is that what we would call unintended consequences?

It should have added, "can you loan us a buck? 10 billion?"

I have to admit this is pretty bad:

"Coogee Bay Hotel in Sydney 'served human faeces in ice cream'"

Coogee Bay Hotel in Sydney 'served human faeces in ice cream' | News.com.au

But hardly earth shattering stuff.

Nostrovia,

I just now paid $2.79.9 at the Costco in Oxnard. But it must be stressed that for years we've been indoctrinated that core CPI ex food & energy is the correct measure of inflation thus lower gas prices re not deflationary.

Jas,

I agree with your commodities insight, beware books written by investment bankers about natural resources or anything for that matter. I read Twilight in the Desert and found the data very unsubstantial/undecipherable In addition, I never bought Boone Pickens 87 million in supply and 87 million in demand. It seemed to me a efficient market wouldn't supply more oil than it could sell.

Jas,

Inflationistas will not be convinced by facts. They really believe the Gov't can print money. They also forget that MV is equivalent to PQ. V is for Velocity. How fast are them loans flyin' off the shelf these days? What?! They're not?! Hmmm...seems that V thingy is DEcelerating.

And debt blowing up? All going to money heaven?

But as I said. Facts don't matter to inflationistas. Because Gov't can "print" money. OK. Peace out.

Nostrovia,

--
"I just now paid $2.79.9 at the Costco in Oxnard. But it must be stressed that for years we've been indoctrinated that core CPI ex food & energy is the correct measure of inflation thus lower gas prices re not deflationary."

Rob Dawg,

If rents and gasoline go below 2005Q3 by 2009Q3 then do you agree that YoY CPI will negative? I agree that CPI YoY was positive for 2005Q3-2008Q3 period, but a sharp deceleration from Sep'08 onwards will lead to OUTRIGHT DEFLATION in headline CPI. That is my point and nothing else. Are USG and Fed going to stop falling rents and falling gas prices, or falling many other prices?

Jas

Student loan fugitives
When faced with unaffordable monthly payments and relentless creditors, some see leaving the country as their only way out.

Students escape loan debt by living overseas - Oct. 24, 2008

$160,000 for a masters in music?

Hmnnn. Put $160,000 in the bank and you have your entire retirement funded.

Re: student loan fugitives:

Chris (who doesn't want his last name used) graduated with about $160,000 in student loan debt with a master's degree in music.

I think I see the problem.

Rob Dawg,

Jas

Agreed on all points. As noted elsewhere the new administration will be introducing new programs. Okay, technically a repeat of the FDR administration will be making the same mistakes but you get my point. The next bubble is infrastructure. Govt will be the economic engine of only resort. The bubble will be taxation, crushing, pervasive taxation which as we all know will dampen economic recovery more than the projects will stimulate. Te "beauty" is that this way the govt gets to pick winners, get real results from printing money and there's no hedging against it to avoid paying.

With a fed's fund rate going below 1 next week, you would think the way out of the housing crisis would be to lend money to people on a 1 to 3 year ARM, however the rates on the three year ARM( I can't even find a 1 yr arm on bankrate)are higher than the 30yr fixed.

The banks, even with access to cheap money are a bunch of self-serving idiots . They could do their part to lessen the housing impact, by making these products available. I guess our bailout money is going to their bonus pool instead of helping the economy directly. I believe this is called Voodoo economics.

Some good news?

Asian and European leaders said Saturday they have reached a broad consensus on ways to deal with the global financial meltdown and will present their views at a crisis summit next month in Washington.

this is what we got going.
Fujiwhara effect - Wikipedia, the free encyclopedia
instead of tropical cyclone insert economy.
wish the hurricane center could take over this cat 5 mess.

I have heard of students with financially unviable degrees getting into enormous debt, and I want to know, why didn't the financial aid office do something about this? Oh, wait, it's because universities don't care about students but do care about having lots of nice architecture and sports stadia and stuff. The more money they suck in, the better.

I predict that both medical care and tuition will deflate.

rent_to_own:

Coming from Virginia as I do, I hope this doesn't mean what it does for so many people who have used that expression.

I wholeheartedly believe that there are certain fundamental rights that the Supreme Court should protect; of course, this floor is always subject to interpretation. Whereas most people would agree that race should be a protected class, of course, there is tremendous disagreement when it comes to areas such as sexual orientation or handicap status. Therein lies the beauty of the Constitution. Nevertheless, I still believe that for the most part, these changes should originate from the legislative branches, theoretically closer to the people, than the judicial or the executive branches.

My "states rights" beliefs primarily involve the states' abilities to protect its citizens under is general "police powers" under the Tenth Amendment without being preempted by federal law. A perfect example would be the predatory lending or usury laws that states enacted to protect its citizens from unsavory lenders. Unfortunately, the trend over the past two decades is that national uniformity should trump states rights, so the courts ruled these states laws preempted by their federal "equivalents."

I think that the beauty of the system of federalism created in 1789 was that states were allowed to become "laboratories" of innovation. Furthermore, the same concerns do not every state in the same manner. A state that sets usury limits at 20% should not have its citizens subjected to 35% just because South Dakota is willing to whore itself out to Capital One.

But to me, the biggest problem of the reliance on the federal government as a protector of rights or an enforcer of all laws, is that it "disenfranchises" individuals. Whereas common individuals can effect change on a local level somewhat easily (perhaps showing up at a community hearing or the lunch-counter boycott), at the federal level, the voice of the common citizen is dwarfed by corporate dollars as well as a byzantine rules and regulations.

lawyerliz,
How about lawyer hourly rates? No deflation there?

Everything is deflating... I think this is quite a surprise to most of the board sentiment... was it 6-12 months ago there was a lot of argument re: inflation v. deflation.

To be honest I thought the inflation argument made sense due to the whole "we can print money". I see the same arguments are occurring. Or there were some people who said, first deflation, than inflation. Good call, but how do you know when the inflation will occur? Oh wait, probably monetary base expansion, Fed St Louis charts, etc. etc. and they are showing massive signs of an inflation attempt?

Gaby--the hurricane center can only try to predict and warn. It is up to the citizens to get out of the way and the authorities to facilitate this. (They do a good job in Fla; lots of practice.)

NOAA can't do anything about where the hurricanes go or how strong they are. At least NOAA people try their best; can't say the other govt authorities have properly warned the citizenry and in fact still aren't.

Local Brevard fishwrapper rejoicing that home sales are up--prices down 24%yoy. They actually said that people are pulling their money out of the mkt to buy homes. It may even be true. They are now sorta affordable, tho they have further down to go.

Remember months of yore when the ppt or whatever was fighting to keep a 12 handle on the dow? Seems sooo long ago.

Thanks for the comments re college and loans. have been researching for article I'm writing for a revised parental look at college and paying for it.

Just insane.

And no, I won't be plagiarizing. But examples of $160k for music degree is just unbelievable.

Persecuted Comrade Anonymouse writes:

My sister has 2 masters: violin performance and music theory. I think her tuition for 4 years graduate was under $50,000, most of it payed by scholarships. There's something wacky about that $160k figure.

It probably did not all go to tuition. Wonder what else he has to show for it?

--
NSA, Comrade,

Thanks. BTW, do you work for NSA? I worked on NSA technology contracts in my very first job. You can bet that I looked after the US taxpayers.

Yes, I am the real American.

Jas

I think her tuition for 4 years graduate was under $50,000, most of it payed by scholarships. There's something wacky about that $160k figure.

Just like with every other discipline, not everyone gets scholarships.

dryfly, are you around?

I am seeing that growers are running up pretty big tabs with their suppliers this year and hoping for decent markets. Water issues and solvency issues have supposedly cut the number of acres in production in many crops too.

A family member in the midwest said that growers are having to prepay for their seed and fertilizer for next year and prices are on the moon. Any idea how accurate or wide spread that is?

To be honest I thought the inflation argument made sense due to the whole "we can print money".

They can't, but they aren't, at least not nearly enough. We don't know what average leverage is, but 20:1 is probably conservative. If that falls to a more traditional 10:1 the base money supply would have to double. But in the past year it's gone from 820 billion to 900 billion: 10%. The Fed is reasonably being rather cautious in its printing because nobody has any idea what the leverages are in the shadow banking system and because different measures of money are inflating and deflating at different rates. If the Fed inflated by 100% and we only needed 20% that would be catastrophe too. But at present it seems they're undershooting.

If my prediction of total hedge fund implosion by December is right then there may not be much the Fed can do. The Fed's printing method can't print faster than the Federal government spends, and that's not enough to backfill the money deficit from a complete collapse of the hedge fund industry in 2 months.

--
"Okay, technically a repeat of the FDR administration will be making the same mistakes but you get my point. The next bubble is infrastructure. Govt will be the economic engine of only resort. The bubble will be taxation, crushing, pervasive taxation which as we all know will dampen economic recovery more than the projects will stimulate."

Rob Dawg,

Thank you, brother!

Jas

--
"In one word, how people are feeling -- Scary!"

Reported on Faux Business Knows.

Jas

YLSP,

4H and FFA.

It is somewhat amazing to me what people are willing to pay for a college education these days, and then they treat their time in college like a second infancy.

Shoot. College costs these days may be less than care during the first infancy.

The other day, I looked at the current costs for my old high school. About fell off my chair.

From WSJ - Calpers Sells Stock to Raise Cash for Obligations

The nation's largest public pension fund, known as Calpers, is unloading stocks in a falling market to make sure it has enough cash to meet its obligations.

The pressures come as the California Public Employees' Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners. The giant fund's predicament is another sign of how the market selloff is tightening the screws on pension funds nationwide. Many other pension funds have similar partnerships and could also confront liquidity strains.

Members of the board investment committee at Calpers held a closed-door session on Monday and discussed ways to raise more cash, according to people familiar with the matter. The issue was brought to the attention of the committee after members of the investment staff expressed concern, a person with knowledge of the matter said.

Typically, Calpers keeps less than 2% of its assets in cash, but the recent demands have forced it to raise that level.

"Calpers receives more than enough cash from employers and members to cover its monthly benefit obligations" to retirees and other beneficiaries, a Calpers spokeswoman said Friday.

Under normal conditions, pension funds count on some private-equity partners to distribute investment gains, while pensions owe some partners more capital. During the recent market selloff, however, distributions have dried up while capital calls continue. That's created a mismatch and a cash strain.

Since the credit markets have tightened up and real estate and alternative investments aren't very liquid, Calpers has been compelled to sell off stocks to raise large sums quickly. Those sales are turning paper losses into realized losses.

Calpers said it had $188.8 billion under management as of Wednesday, down 21% from the end of June. The fund, which said it had about 63% of its assets in global stocks at the end of August, has been punished severely by the stock-market selloff.

Critics say that some of Calpers's troubles are of its own making. The pension fund is the main investor in a partnership that is expected to lose much of its nearly $1 billion investment in LandSource, a venture that owns thousands of acres of undeveloped residential land north of downtown Los Angeles and that filed for bankruptcy protection in June.

The pension fund also has been without two of its top leaders, the chief executive officer and chief investment officer, since they resigned at midyear. The fund has been operating with interim people in those key positions.

Calpers initially tried to fill the CIO spot first, but without any luck. A former fund official said that candidates were reluctant to take the job while the permanent CEO position remained vacant. Calpers is now focusing on landing a CEO first, recently hired a search firm and hopes to have its new leader in place by December, people familiar with the matter say. The fund intends to have a CIO by no later than February.

Anne Stausboll, a politically well-connected attorney and the former California chief deputy treasurer, is serving as interim CIO. She appears to be the only top Calpers official vying for the CEO job, according to people familiar with the situation. She doesn't have the investment experience that is common for a CIO of a large fund, which critics say puts Calpers at a further disadvantage during this particularly severe market crisis.

"Calpers's investment office is being capably managed by our interim CIO and her team of seasoned investment professionals," the spokeswoman said.

Calpers counts 1.6 million former and current public employees as members whose benefits are contractually guaranteed. If the fund suffers large investment losses, it has little choice but to hit up employers -- such as cities and counties -- to increase their contributions. Calpers recently indicated plans to raise the contribution level starting in 2010 and 2011, unless the recent investment losses can be reversed. The fund estimates that employers would have to pay an additional 2% to 4% of their payroll to Calpers if the June fiscal year ends with returns of negative 20%, which the fund recently hit.

Some here like to parrot McCain's rant about Obama raising taxes--if you have the money, you should be paying--it is patriotic to support your government. Obama wants to raise the taxes on those that had theirs foolishly (maliciously) lowered. If that means you, congrats, you're better off than most of your countrymen.

And to call him socialist after Bushco and Paulson ransomed the banks, insurers and money marketers is ludicrous. Building strawmen is how you start convincing others to buy your house of cards.

--
"Hi Jas Jain. I saw a few days ago that you were kind enough to post your various PUT option portfolio for all to see. They appeared to be mostly if not all in the "tech" / NASDAQ types that blew up 8 years ago. Are those still the biggest "tulips" at this point or are there greener pastures for new position PUT options in other areas? You mention commodities today - are those fertilizer companies that ran up early this year good candidates to go down further? Thank you."

bartman,

That was only the tech part of my puts portfolio. Over time, my put portfolio was loaded with Hopebuilders, Consumers (SBUX (sucks!), GM, BA, GE, etc.), Fraudentials (the largest part, by far, during Oct’07) and, lastly, the Techs. During 2000-2003 I was overwhelmingly short Silly.con Valley tech Scams (my term for what dopes call stocks). Some time during mid-1990s the so-called stock market was turned into the Scam Market (a term I coined in July 1998).

There are well known lags in the economy and different sectors do the worst before, during and after the beginning of a recession. After we have been in a recession for several months techs take the hardest on the chin. TECHS ARE HIGHLY CYCLICAL! They are growth Scams only in the minds of CNBC propagandists and dopes.

Jas

Bond Girl --

It is somewhat amazing to me what people are willing to pay for a college education these days, and then they treat their time in college like a second infancy.

I think it usually has something to do with who is actually paying for the education...

Human Head --

Nice link. Love the Clockwork Orange graphic in the site's banner.

The solution is obvious, of course: The government just needs to guarantee everyone's brokerage account...

To be honest I thought the inflation argument made sense due to the whole "we can print money". I see the same arguments are occurring. Or there were some people who said, first deflation, than inflation. Good call, but how do you know when the inflation will occur? Oh wait, probably monetary base expansion, Fed St Louis charts, etc. etc. and they are showing massive signs of an inflation attempt?

I was in the deflation camp. Went into five year CDs and cash in June of '07.

I've watched the Fed closely for signs of printing and haven't seen any until recently. As a result, I've put about 4% into inflation hedges (PCZ, COP, E). I'll probably add more as things play out.

Some of the things that concern me:

• The Federal Reserve is now directly monetizing debt other than Treasuries. They have made out-right purchases of GSE debt and are starting to directly lend via the ABCP market.
• I'm worried about the acceleration in the growth in the US Governments debt and contingent liabilities (FRE/FNM, FDIC, PBGC, FHA, etc). The FRE/FNM guarantee could set US up for a run. The Fed's "test" purchase of GSE debt may have been to backstop any run.
• The US Treasury swap of debt for debt (TARP, FRE/FNM) means that if long term rates rise the US may end up with a negative carry. The high US public debt burden and politicians aversion to taxes (any taxes) puts a limit on how high the Fed could raise short term rates without pushing the US into default.

YLSP:

Congrats on the nb. And the other is at a great age.

What I read is that you're ultimately saying that the greatest input that you can have is through much larger involvement with the kids. Taking an auto course together is a good example, since it's of practical benefit to both of you and still lets you spend time together.

As to scouts, I actually have bought into it, despite the sexual orientation thing. I think that that will eventually change and don't want to bring down a decent structure on one issue. Have seen a first hand situation that frankly wouldn't have happened with other groups and am in accordingly. But the key is that I'm actually doing it with the boys as a leader and can have an input.

Sports leagues depend on the leaders and yes, some are poison but you have to actually talk to those involved.

FFA and 4-H? Concur. Of course, I'm in a rural area and they are huge here.

Bond Girl --

The pressures come as the California Public Employees' Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners.

Um.... I'm sorry, but is the WSJ saying that Calpers is facing MARGIN CALLS?

(I mean, how else do you describe being forced to sell into a declining market because the market is declining?)

"Buy Halliburton"

Nope. Not Halliburton. Not under Obama. New president, new cronies. Ugh.

Remember when public education sufficed to prepare students for good-paying jobs in the workforce?

I got into an excellent discussion the other day with a friend that the American academic-industrial complex has been just as instrumental to the decline of American standard of living as its financial and military complex.

Just like the financial gurus created new models that they believed could adequately manage risk, these academic entrepreneurs peddled new and holistic teaching methods and regimens that they claimed would make students more prepared for workforce.

Instead of systemic collapse, we have systemic decay.

I've been warning about CalPERS for over a year. There's a reason they can't fill the CEO and CIO positions. CalPERS is liquidating profitble positions because they are covering investment calls not as the article states fund payouts to retirees. The 21% is realized loses not the true extent of actual losses. Good thing in 2006 they decided to bump real estate investment from 6% to 9% of portfolio eh?

Article is not very specific what the nature of their "obligations" are....

Article is not very specific what the nature of their "obligations" are.... - Bond Girl

Perhaps this excerpt I saved will give you a hint:

Calif. Pension Fund Shifts Away From Stocks, Bonds
By Michael Liedtke
Associated Press
Sunday, December 23, 2007; Page F02
SAN FRANCISCO -- The California Public Employees' Retirement System will sell more than $20 billion in stocks and bonds as the largest U.S. public pension fund aims for higher returns from venture capital, commodities, real estate and several other investment options.

Oh yeah, Rob Dawg too.

Nostrovia,

--
“Jas the "real American"? He hates democracy. I guess if you're concerned only with personal wealth you don't have much use for democracy.”

oneworldcurrency yogi,

Let me first apologize to the rest. This is f—ing idiocy!

Democracy = Domination of Money, all you born-and-bred American dopes and Americanized dopes born elsewhere. Yes, that is why I am NOT a born-and-bred American dope, or even Americanized dope, because I don’t think that democracy is anywhere close to being the best political system. The current system of democracy in America (it has changed a lot over the past 220 years) is close to the worst political systems. It will take America down.

Hey, how many books on democracy have you read? I have read almost all serious books on the subject. I may be crazy, but I am not poorly read as almost all born-and-bred American dopes I have known, and know of, are. Ignorance about political systems is rampant in America and India.

Jas

What is the ideal political system, Jas?

Working for 20 years in higher education has instilled in me a fine appreciation of the immaturity and general un-inquisitiveness of today's college student body. Our "best and brightest" can barely put together a sentence in English.

Students haven't been encouraged to ask questions. I speak for myself, but getting through middle-school and high-school was only about "going to the best college", and "proving that I had the ability to learn" instead of "having a keen interest in certain subject matters". Once I got to college it was the same thing, with the attitude, "if you get a degree you'll have proven that you are able to learn and are smart and you'll get a job".

Now I'm in the workforce and have some experience... hey now I know where to ask questions! I'm an engineer... but did I have any engineering experience when I got to college... no... so how do I know what to question and what I need better understanding at?

Now that I'm in the workforce, I'd say my approach to my college education was a mistake, but at the time in college it was a way for me to build up my "social" and "emotional" q. This should happen a lot sooner to children in America! By the time I got to college I was completely burned out of "learning", as education was looked at as the only path to getting a "good job".

Seriously if tuition costs are like this in the future I'm going to retire and get into some type of family business endeavor or encourage them get a job in an area they like and stay at home if possible. Our college system is a joke, probably because our country is full of b&bds!

How much wealth was lost in the past decades from arms races and military deployments to foreign countries? Why did the US have to deploy to Lebanon/Bosnia/wherever else because instability required intervention?

I'm sure Pavel would have an interesting perspective on this, but Pax Americana and dollar hegemony are two sides of the same coin. An implicit understanding of BW2 was that the US would maintain the status quo in the emerging markets in exchange for them financing our standard of living. "Full faith and credit" actually means something when national leaders have actually experienced regime changes.

The 18 year old from Paducah didn't fight in Lebanon for his mother's First Amendment rights. He fought to maintain her material standard of living.

--
"I never understood why deflation was "so bad" or why 3% inflation is "so necessary", as it does not make sense to my analytical reasoning (I'm an engineer)."

DK,

Shalom from a fellow engineer before I retired. I understand exactly the answer to your query. I plan to write an editorial – WHY and How Feds Fight Deflation – soon. You will not be disappointed.

Jas

My my, how times change.

(Nov 2007)

“This should put to rest the myth regarding the financial soundness of public pension funds. CalPERS is a good example of a fully funded system with most of our plans at 100 percent funding level,” said Rob Feckner, President of the CalPERS Board of Administration.

CalPERS, with more than $250 billion in assets, is the largest public pension fund in the U.S.

“CalPERS is a good example of a fully funded system with most of our plans at 100 percent funding level,” said Rob Feckner, President of the CalPERS Board of Administration. (Nov 2007)

68% as of Oct 10, 2008. Leverage and mark to market are bitches on the way down.

That's funny. When that article was published, the rating agencies were in full attack mode about the UAAL of public pension systems.

If you are employed and make [under] 50k/yr, the govt. will absorb your loans, rendering them null.

Talk about political pandering that would have drastic unintended consequences.

Because the rational employee would factor the loan forgiveness as part of compensation, he would be willing to accept a lower nominal salary. The employer sees this, and consequently, only offers the lower salary.

Unfortunately, the employer's motivations would affect all employees, and thus stagnate salaries.

If you think education is expensive, try ignorance

Jas Jain wrote

"
Democracy = Domination of Money, all you born-and-bred American dopes and Americanized dopes born elsewhere."

i believe you overstate your case

democracy, as practiced in USA... like free markets and capitalism,,, as practiced in the USA...

is a jungle , lacking needed regulation and moral restraint

but it doesnt have to be that way

the problem is extremism

democracy, as currently practiced, is not necessarily the worst political system contrary to your implications

democracy as practiced is probably the 10th worst system as practiced, just ahead of nearly all the dozen or so other systems that have been practiced over 10,000 years.

--
“What is the ideal political system, Jas?”

Bond Girl,

Depends upon the Beliefs and the Habits of the population. A military/theological dictatorship is ideal for Americans of to-day. That is what happens when a population is BRED into dopes-for-life. I am sorry, a political system that promotes Greenspan, Bush, Bernanke & Paulson to the top power has to be among the most rotten. These people are EGOMANIACS more than Saddam Hussein and closing in on Herr Hitler. I say, crucify them all as an example to future egomaniacs with so much power over people’s lives. How did we get so stupid to allow few men to have so much power?! Democracy my ass!! You have been turned economic slaves, you born-and-bred dopes.

Bond Prince,

Jas

PS: For the first time in a very long time I asked my son to take profits in a part of his 02/2036 UST STRIPS (when it was up more than 50% on Thursday morning since he bought in Dec’06).

These are banks I have not seen mentioned yet:

Marshall & Isley
Fifth Third
Regions Financial
BB&T
Synovus
Sovereign

So what happens to those that don't make it?
Citizen Clyde | 10.25.08 - 11:58 am | #

Clyde,
I have HEARD that BB&T is relatively clean.

ERISA

Although the PBGC was created by ERISA, for 90%+ of policymakers, ERISA is seen through the lens of health benefits and preemption of state laws.

A music major with 160K in student debt. Crazy, but from the lender's prospective. I can't blame the student. Take the cash, worry later.

When I finished medical training, I was 220K in the hole (@11%) but I'd like to think I was a better risk.

More dumb lending.

Unit 472 wrote in the previous thread

"The entire housing bubble was in response to government meddling in the market....You mandate banks make credit available to people further down the income ladder and, presto, subprime is born."

"entire" you say?

i challenge you to show me the law, regulation or executive directive that required or induced mortgage originators to loan money based on liar loan statements or to people determined to be at an inordinately higher risk to default.

i blame the government for much of what has happened but i have seen little in the way of convincing evidence that the government forced wall street to bundle and securitize loans into complex and exotic instruments. Wall street demanded more mortgages to bundle and securitze.

loan originators and banks did not have to hold loans on their books and received enticing origination fees.

these and other factors including low FF rate drove the reckless loan originations.

CRA did not require loans to those not qualified. CRA required that banks could not red-line an entire neighborhood, refusing to loan to qualified individuals because statistically their neighbors may be less than cherry risks.

Misean - You can type ERISA but not explain why you see it as a problem?

<a href="http://www.reuters.com/article/ousiv/idUSPEK4365020080917?sp=true>Similar article, one month ago...
Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
...
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

"The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations," he said.

This was reposted numerous times, same thing with latest commentary...

Sidenote, has anyone seen or heard from CSC since the hedgy bailed while singing 'Legalize It'?

Inflation (to me) is dead until the average joe sees either wages increase, a return to lax credit or repeated stimulus checks in the mail.

Unfortunately, the US is probably not going to lead the world out of this particular downturn. There isn't any engines for growth left in the US economy.

My bet is that China will fall the farthest but also be the first to come out of this downturn. That could mean that Joe the Plumber may see rising prices (especially in food and energy) but no real increase in pay.

@JAS

Ref:1

"PS: For the first time in a very long time I asked my son to take profits in a part of his 02/2036 UST STRIPS (when it was up more than 50% on Thursday morning since he bought in Dec’06)."

Ref2:

"Jas, what happens to your deflation when China and Arabia stop lending?"

I started nibbling at TBT on Friday. Evidently your support of bonds is also conditional. I would like your opinion on a restated ref#2:

Jas, what happens to your STRIPS when China and Arabia stop lending?

ova,

"Misean - You can type ERISA but not explain why you see it as a problem?"

"ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty."

U.S. Department of Labor - Find It By Topic - Health Plans -
ERISA

ERISA. Mark to Myth only so much longer. Trillions in Defined Benefit Plans (DBP). PFGC can cover them like FDIC can cover WF. MTM is a FASB rule and SEC rule for banks. ERISA is law.

Nostrovia,

I suppose if EU-Asia were going to damage American interests they wouldn't do so on our soil? You'd think they would've pushed Bush to travel over there... instead of having a summit in DC.

What else is going to happen but a financial mafia hit?

Also, let's make sure we differentiate between poor investment decisions, and poor outcomes from investment made due to sound decisions. It may be a great decision to take a family vacation and drive to Yosemite, but getting in a car accident on the way home might be a poor outcome ("We never should have taken that vacation.") I think if a pension plan decided to forego all investment in assets which ever had a bad outcome, they would be constrained to only invest in Treasury bills.

I would imagine if they understood what they were investing in, this situation would emerge in their stress tests.

This same defense could be used for the investment banks we are bailing out.

Unit472 at 12:32

in your most recent post you state a number of factors that contributed to the mortgage mess and other problems

i dont disagree with anything on your list as a factor.

my only point was in the previous thread, when you attributed the "entire" or even the majority of the cause to tax law and consumer loan interest deductions related to helocs and other gov policy... is to miss half of the equation.

as i said before. yes i fault government...and i do on several fronts..fed interest rates, lack of oversight and more

the private sector is complicit and intertwined in the bad and even criminal behavior in which the government stands accused.

while we disagree, some, i appreciate your constructive response.

If the U.S. runs a trade deficit (technically, current account deficit), it is an accounting identity that foreigners are acquiring enough USD assets to finance that deficit.

3) Emerging economies eliminate the monetary (e.g. pegs, dirty floats) and structural (e.g. tariffs) that prevent free markets from correcting trade deficits. No more purchasing US debt to finance current account and fiscal deficits.

One of the dirty little accounting secrets that allowed Clinton to balance the budget was the reliance on short term debt.

The US government is sitting on the largest adjustable rate mortgage in the history of the world.

riwoodsman --

They may be selling a bit more due to the fact that past PE investments have not been harvested at the same rate as had been anticipated. Even so, this is essentially just an allocation from public equity (stocks) to private equity.

Your description makes sense only if the performance of the "past PE investments" is unrelated to the broader market downturn.

Except... uh... whoops.

Of course, you're welcome to spin this however you'd like.

Right. So they "may be selling a bit more" because "past PE investments" have not performed as "anticipated", but I am the one doing the spinning?

Hilarious.

riwoodsman,

"CalPERS would have been selling public equities to fund the private equity capital calls no matter what the stock market was doing. The fact that they're doing it when the stock market is low is purely coincidental."

No it is not. ERISA. It's like a margine call from Hell. DBP's executives have a FIDUCIARY RESPONSIBILITY under ERISA.

From April 08...check it:

CalPERS Executive Change Reports Prompt Comments

The fiduciarialy responsible have left the building. Why?!?!?

Nostrovia,

P.S. I happen to think CalPERS also made poor investment decisions, but that is a pointless discussion, because anyone can always claim that the poor outcomes actually came from good decisions.

Apparently, CalPERS entered into deals where they are forced to inject cash into some PE venture at regular intervals, and to liquidate as needed to make the injections.

How that differs, fundamentally, from making interest payments on a loan invested in the market is obviously beyond my simple mind.

Hey, that money in Calpers is not public money. Unless I get some too.

Ask anyone who works for the government why they work there and they will say "pension". I always chuckle to myself.

AllenM,

A flood out of $'s would be deflationary. Just more shite sent to money heaven. See, cuz you forget that a $ is a claim to something...with interest. $ buh bye...claim WITH INTEREST buh bye. That whole with interest thing is bigger than the claim.

Nostrovia,

i challenge you to show me the law, regulation or executive directive that required or induced mortgage originators to loan money based on liar loan statements or to people determined to be at an inordinately higher risk to default.

Old subject, Community Reinvestment Act

Also, for everyone's edification, the USA is a republic, not a democracy.

The discourse deteriorates on weekends.

mock,

We're cool totally bra.

As an anarchist, you know I can't agree with taxation...but the shite we have now overwhelms that discussion.

Nostrovia,

Progressive taxation was at over 80% from Roosevelt through Kennedy, topping out at 91% . Yet that period saw some of the strongest growth in US history in combination with the fairest distribution of wealth. OTOH the low marginal rates from 1987 on have seen weak growth, in spite of staggering bubbles, and breathtaking income inequality.

The evidence indicates highly progressive tax rates are good.

Rob Dawg,

http://www.usdoj.gov/olc/2008/state-conducted-lotteries101608.pdf

The US Justice Dept just ruled that long-term leases of state lotteries violates federal law. Not good news for California.

Bond Girl,
If only the FHWA/DOT would man up and force the same issue with the "sale" of public roads to private interests for the purposes of tolling.

Fair Economist,

"Progressive taxation was at over 80% from Roosevelt through Kennedy, topping out at 91% . Yet that period saw some of the strongest growth in US history in combination with the fairest distribution of wealth. OTOH the low marginal rates from 1987 on have seen weak growth, in spite of staggering bubbles, and breathtaking income inequality.

The evidence indicates highly progressive tax rates are good."

F*cking A dude...that's just stupid. First of all, that top % wasn't paid much...as those making that much in the 60's were paying cap gains not income. As to the 91% in the 70's, perhaps you've heard of tax shelters, which funnelled money into non-productive persuits, like time shares?

Oh yeah, and then there's the whole gold window thingy.

Dude you're smarter than that statement.

Nostrovia,

volker and others

heres some info from over at BIG PICTUR Rithhotz blog

"It was the lenders themselves who were pressing the GSEs to buy these loans. The private sector lenders were pursuing this market due to fatter potential profits

These facts don't stop the pundits; nor does an apparent lack of understanding of the actual causes of the housing boom/bust and the credit crisis. Their cognitive dissonance has also prevented them from acknowledging the role deregulation had in these events.

... Consider this Federal Reserve Board data, compiled by McClathcy. It shows that:

* More than 84% of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83% of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA;
* Only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
* Mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

CRA did not cause this mess

Your description makes sense only if the performance of the "past PE investments" is unrelated to the broader market downturn.

Nemo, others:

There is a difference between a margin call and a capital call.

Margin call = you made a leveraged bet, and the loan money is already out in the investment.

Capital call = PE company (say VC) raises a fund of $2 Billion to go find opportunities. Calpers commits as a limited partner to, say, $500M.

The VC fund does not take the money up front, nor does it commit all the money to initial investments. As opportunities are found, the VC issues a capital call to the limited partner. During the tech meltdown, the fund sizes were renegotiated on the fly. I have no doubt this will happen to the PE folks as well.

Two notes to the above: "New opportunities" might well be committing more money to an existing investment. There are limits as to how much more can be committed to an existing bet.

Also, the "renegotiation" is also a statement about compensation to the PE managers, since it lowers the carry.

Reading between the lines on the CALPERS news item: They are getting capital calls, so they need to now deliver on the commitments from the past. Since they are large and powerful, they might well be telling the PE firms to lower the fund sizes as well, reducing any future commitment.

jmho. Correct as necessary.

"lawyerliz writes:
I have heard of students with financially unviable degrees getting into enormous debt, and I want to know, why didn't the financial aid office do something about this? Oh, wait, it's because universities don't care about students but do care about having lots of nice architecture and sports stadia and stuff. The more money they suck in, the better.

I predict that both medical care and tuition will deflate."

In a way, they do care; but they're in lowered-expectation "it-can't-be-helped" mode, because resources are so tight.

The richest, like Stanford, offer significant help because, well, they can. Stanford is rich, rich, rich -- and now offers free tuition for any student whose family income is under $100K, sliding scale for $100-250K. But you should see their bloody trust fund. They could bail out the State of California and still have enough left to build a whole new campus.

Will tuitions deflate? I'm really not sure. I am sure that they could stop increasing. Public olleges in prime bubble areas like California and New York -- and together, you're talking 55-60 million people in those two states alone -- have had trouble attracting faculty and retaining staff because the payment is so low relative to the standard of living is so low. A tenure-track prof at my university (I work for one) starts at about $55K with no experience. In a place where, until recently, houses sold for $650K and up. If housing prices go down, and rents, salaries can be frozen and no one will kick.

But the real reason for the rise in tuition, the one and immutable reason which affects certainly the University of California system and other prestigious public university systems, is reduced state support. The state of California contributes less than 30 percent of the UC operating budget, and it used to be a lot, lot, more. Up into the '60s, UC tuition was essentially free.

As state support decreased, tuition increased. Burden shifts from society to the individual. And you can make an argument that this is a good thing; but if society needs well-educated people in certain disciplines, it had better damned well make sure that enough people who want to do those things can afford the university -- and by "afford" I mean, be able to practically take a low-paid teaching job after graduation without worrying about paying off $40 or $80K in loans.

"We need a Jas thread please so that I can ignore it. Thank you."

I had been thinking (until this thread)... either Jas has mellowed, or I'm becoming desensitized.

Cute cartoon - now if only banks had to bear the same sort of scrutiny to garner our lended deposits.

On another note - construction of a brand new branch of Wachovia is steadily making progress in my neck of the woods.

First of all, that top % wasn't paid much...as those making that much in the 60's were paying cap gains not income. As to the 91% in the 70's, perhaps you've heard of tax shelters, which funnelled money into non-productive persuits, like time shares?

Sure, I know about all that stuff. Real capital gains taxes are hard to measure, because they include a tax on phantom inflationary income on the principal. They were certainly lower that 91% - but a lot higher than current rates. During the high tax period, up to 70% of long term gains could be excluded from tax - but if half the gains were from inflationary illusion, that's excluding about 40% of real gains, leaving an effective tax rate around 55%.

And yes, there was lots of tax sheltering going on. My dad did lots of apartment deals. But, factually, we did better with all that going on in a high tax regime than we have done in a low tax regime. Nobody could say that a high tax regime is without disadvantages; but those are apparently outweighed by a low tax regime's tendency to skew wealth and favor accumulation of money wealth in excess of that justified by the real economy.

So, weeks of garbage, laundry, recyc all done, what'd I miss?

Dang. There are too many people making sense here I can't be a counterpointer.

OK, I can disagree on the IMF, way up the board. Too small to make any difference, never designed for a global crisis, only has $200b available, and that was designed for instances or subregional BOP problems. The big game was up when White and Morgenthau gutted the scale and reach provisions.

What we're looking at is a globalized set of cluster munitions and charges all going off at once. Fuses are still burning, and Mr Shadow is coming.

CC

Fair Economist,

"Nobody could say that a high tax regime is without disadvantages; but those are apparently outweighed by a low tax regime's tendency to skew wealth and favor accumulation of money wealth in excess of that justified by the real economy."

I shall respectfully disagree with you here.

You're aware of my theory, and I of your's.

And I was a bit harsh at the "your smarter than this" statement. Apollogies.

Nostrovia,

mock turtle writes:
Volker the Viking

CRA has been around since for nearly 2 decades

didnt cause a problem till when???

please show me a sentence or para in the act that requires liar loans

ive looked and find no such requirement nor legislation

You may have looked, you may have read but you certainly do not understand.

Anonymous- Thank you for that. Very inspiring.

DEATH CROSS in gold?

http://jessel.100megsfree3.com/gold.png

Pay off in event of systemic collapse only?

let me be crystal clear: If you make less than a quarter of a million dollars a year – which includes 98% of small business owners – you won't see your taxes increase one single dime

"However, your 401K will be fair game in my administration but it won't matter much because it will be worthless"

Going to look at a short sale. I must have called 6 agents from the Co. that owns it before I get 1 to pickup. Screening the calls methinks or just out of the biz.

The dollar hegemony is over.

I agree with AllenM that dollar hegemony will be over, but I don't think it will happen as suddenly as he thinks, and I don't think it will happen using bond guy's method #1. I think it will happen with the second part of method#2, specifically: a global collapse in trade and U.S. demand collapsing faster.

Just my guess.

El Cliffo- If that's true, I did miss that and I apologize to BH

"What is the greenback’s sustainable value?"

Japan and Europe should decide whether they want to fund their own military or not if they start pushing against the dollar too hard.

There are benefits to all with the current arrangement.

Why doesn't anyone see AllenM's loss of dollar hegemony = deflation?

$'s = claims = claims + INTEREST! For chrisakes!

Claims going T up = claims + interest going T up. Which is worth more?!?!?!?!?!??!!?

Chrissakes,

Nostrovia,

BH- better to be stupid and keep your mouth shut, than open it and prove it

News flash...

You ain't getting saved by anyone because it's not possible. Not even "The Savior" can make trillions of dollars of empty promises come true.

SGF at 138

you make a good point

Ya'll don't understand.

peace out.

Nostrovia,