swaps

Five Ways the Global Economy Is Rebounding

Good comments, both pro and con, regarding this post.
With oil prices plunging it is hard for me to point out that I just got through re-watching Running on Empty. If we are at peak oil, with production soon to decline while world demand rises, the price of oil will soar once again.

But the thoughtful scholars in this documentary point out that long term the loss of cheap fossil fuel will reverse globalization as we are forced to look for closer sources for our food and products. This will be inevitable. As one put it, the 2,000 mile Caesar salad from California to Toronto (or was it Quebec) will be over.

They rightly point out the whole American mantra of ever expanding growth was an illusion totally fostered by cheap fossil energy. It is impossible to have an ever expanding economy within a finite system, which the earth truly is.

We will all be led to this final reality, kicking and screaming - me included - but the global economy will disintegrate into local and some regional economies, not unlike a few centuries ago.

Sure, there will always be some long- range trade or "globalization", as evidenced in the ancient spice trading routes that cut through northern Africa.

But really, as energy becomes more precious how much longer can we fly in apples from New Zealand and truck potatoes from Idaho to Maine? Wal-Mart - which the documentary notes along with Costco and other big chains - totally destroyed local and regional transportation networks, which will have to be rebuilt.

But this will play out over decades so for now I guess you can make your global investment plays. It took a few hundred years before Rome totally realized it no longer really existed.

Dan

There's No Way to Go Back to Business as Usual

It took Rome a few hundred years to actually recede into oblivion and I suspect we may too.

But there is no question our fiat money, consumption oriented dream world is just that...an illusion. Reality requires that we work productively, save more than we disperse. But we have been cleverly brainwashed into this new paradigm which made a lot of us feel comfortable in a belief we had never had it so good. But a very few people were accumulating incredible amounts of money and power as we dreamed along.

But now the big accumulators are really wealthy and the best of them have used their dream money to gain control of hard assets, whether a Colorado hideway or a coastal estate.

But this frantic shoveling of money into the banks is hopeless because it only tries to plub the holes in their balance sheet. On another board someone alleged HUD claims illegal aliens in the U. S. alone got a few million fraudulent loans. Banks cannot loan to a disappearing middle class that is strapped and now subject to really tough lending standards. And I suspect a few middle class people have realized that borrowing for consumption is not the way to permanent prosperity. They may stop applying for loans.

The only stable society may be a nation of mostly cottage farmers who grow their own food and have a little business or job on the side. But its not very exciting. Just realistic.

Who We Should Blame for This Crisis

This is dead on. Everyone shares in the blame.
But am I missing something. What about the foreign countries - both governments and foreign banks and foreign investors = who loaded up on mortgages that were going to go to 13 percent and make them richer. They were not the lenders but the ones who bought up the originators' toxic waste.

Ireland's Ailing Banking Sector

I have a few shares of AIB bought earlier this year after it tanked. Several different analysts in different media said it was good buy and was not involved in subprime. Of course, it tanked even more in recent months. It is barely breaking even. So I should do more due diligence than rely on several apparently unrelated experts who agree. And not be sentimental about ancestral Ireland, which now has a half million African and Mideast foreigners there as resident workers. But then the globalists hate individuality.

I bought a few shares of IRL around two years ago, and then added some more earlier this year. So this is further proof that international diversity has to be more carefully thought out and executed.

I will continue to hold both and will add to both in the future to cost average. But no more money goes in right away.

One thing I found interesting in New Ireland's annual report was that it did not list major shareholders. It simply said all shares were held by Cede, the clearing house trust that holds all shares presumably, which is a scary thought. We really do not seem to own our shares. We have a claim on them. Sometimes I wonder what if our benificent government would resolve some future economic calamity by turning everyone's shares held in CEDE to some foreign creditor with claims on the nation and its inhabitants. But that is off topic.

Did Crony Capitalism Lead to Wachovia's $54B Bailout?

Wachovia, WAMU were like large beached whales caught in the outgoing tide.

So bigger whales farther out in the deeper water are taking over their fallen brothers (or sisters, Diane).

But what is the point of creating ever bigger whales, any one of which has the expanded capacity to do even greater harm than the smaller ones they absorbed?

Let's change metaphors now and call these bigger whales in the deeper water ships. How long can these ships continue to take on water before they sink too?

As I have said before, one of the major trends causing the financial calamity - other than fraud and unbridaled greed- is that the investment-bank led destruction of jobs through foreign outsourcing, combined with deliberately open borders to bring in cheap foreign labor, has caused wage stagflation.

But the usury system requires ever inflating wages so that borrowers can keep up with usury payments. Otherwise, the lenders would eventually soak up all the money. That is the role of the "inflation fighting Fed": to continually inflate money supply. It has done so admirably, driving the value of a dollar down to a nickle since 1913. (Don't argue that government causes inflation because it could not do so unless the privately-owned Fed accomodates guvmint and prints the money that the government then borrows, agreeing to pay back interest. Ralistically, the government turned over the money printing operation to the central bank.).

The banking system needs inflation to keep the system running.
But the current wage stagflation has hit that need head on and it was the banks that are caving in, due to the resulting deflation.

The Fed can inflate all it wants and pump that into the lenders - but it does no good. The borrowers wallets have to be inflated and they aren't. so banking appears to be doomed ala 1929 - 1933.

Bank A is not loaning to Bank B because Bank A knows that when Bank B gives the money to Company C to build inventory, Company C's customers can't get money from Bank D to buy the product because of tighter lending standards, so Company C won't be able to pay back to Bank B who will not be able to pay back Bank A.

The situation is so simple to figure out. And impossible to solve without the entire economy shrinking its balance sheets, with all the accompanying pain.

Entering the Endgame for Monetary Policy

Yeah, this is hopeless. The $700 billion bailout is a tiny pinky finger stuck into a dike that already has a hole the size of a basketball.
In Friday's Denver Post Jeff Wilson of Wilson Advisory alleges the total value of all derivatives is $600 trillion. Excluding those, he says the total U S wealth is $57 trillion. If only 10 percent of the derivatives go bad, you can do the math.

The End of Supervised Entities - Now What About Swaps?

The debacle we are experiencing also proves that regulators don't even regulate what they are supposed to.
In Friday's Denver Post Jeff Wilson alleges the total value of all derivatives is $600 trillion. Excluding those, the estimated total wealth of the U. S. is $57 trillion. If 10 percent of the derivatives go bad, you do the math.

The Calm Before the Storm?

The bailout is like trying to put a finger into a dike that has a hole the size of a basketball.
Jeff Wilson of Wilson Advisory alleges in the Friday Denver Post that there isn't enough money to solve the toxic debt mess. He says the total value of all derivatives is $600 trillion. If only 10 percent go bad, that still exceeds the total U. S. wealth - excluding derivatives - of $57 trillion. The greedy brainiacs have killed the golden goose.

An Alternative Bailout Proposal

Heres the alternate plan I posted at the NY Times (if they accepted it) and the Denver Post.
Swaps

Congress should not gallop ahead at full speed to fix in 48 hours a problem that has been building for years.
Paulson and the government until now have favored funneling the money into the top, instead of starting at the bottom.
Amounts from $300 to $1,200 were given away as a tax refund. The government giveth.
But I calculate the $700 billion bailout Paulsen requests for Wall Street comes out to $9,333 - before interest - for each of the roughly 75 million tax paying households in the U. S. Of course, the cost for the previous takeovers and bailouts swell the per household tax bill even higher.
Why not have Congress give the $9,333 instead to each house hold, with the restriction it could be used to only pay down debt or save in a financial institution or one of the identified financial services stocks. People in debt would repay lenders, which would help both. And people not in debt would invest savings or stock in the financial system, helping to build liquidity. The savings or investment would be restricted from withdrawal for at least five years, for stability. Financial systems that can't be helped by this plan because they are too far gone would be allowed to go bankrupt under the cleansing mechanism of Darwinian free market forces.
Congress has to realize the current $700 billion mess is just the latest in a series of crises still to come. That is how it has been playing out all year.

What Should a Banking Crisis Bill Really Look Like?

Here's the plan I posted at the NY Times and Denver Post
Swaps
Congress should not gallop ahead at full speed to fix in 48 hours a problem that has been building for years.
Paulson and the government until now have favored funneling the money into the top, instead of starting at the bottom.
Amounts from $300 to $1,200 were given away as a tax refund. The government giveth.
But I calculate the $700 billion bailout Paulsen requests for Wall Street comes out to $9,333 - before interest - for each of the roughly 75 million tax paying households in the U. S. Of course, the cost for the previous takeovers and bailouts swell the per household tax bill even higher.
Why not have Congress give the $9,333 instead to each house hold, with the restriction it could be used to only pay down debt or save in a financial institution or one of the identified financial services stocks. People in debt would repay lenders, which would help both. And people not in debt would invest savings or stock in the financial system, helping to build liquidity. The savings or investments would be restricted from cashing in for at least five years, to keep liquidity in the system. Financial systems that can't be helped by this plan because they are too far gone would be allowed to go bankrupt under the cleansing mechanism of Darwinian free market forces.
Congress has to realize the current $700 billion mess is just the latest in a series of crises still to come. That is how it has been playing out all year.

We've Crossed the Line from Capitalism to Socialism

If all financial companies become "agents of the government" that would be more closer to communism than socialism. The alleged ownership by the governmentment and not proxy capitalists is communism, as opposed to national socialism, under which owners are told by the government how to use their business.

I would agree that the intervention is so massive that the bias is toward inflation, except that the deflation of asset classes is so massive I wonder if there is a chance for equilibrium overall. The deflation of assets is really starting to kick in. The free falling market was paralleling the free falling real estate, no question.

One of Obama's big supporters has been Soros, who is on record favoring communitarianism, his code for socialism. He thinks, now that he has made a pile, everyone else should be under socialism.

And now that the investment banking crowd have made their pile the last few years, they are throwing the business to the communitarians too. There will be fewer people coming along to catch up with them.

Ban on Short Selling Could Have Negative Consequences for Options Market

Who cares? The situation is now so unbalanced and dangerous that marginal trading strategies derived from basic buy and sell are the least of our worries for maintaining.. An option is a form of a derivative. Obviously the financial elites do not understand derivatives very well.

If You Think the Dow Did Well Today, You're Wrong

Interesting comparison. I guess the people who knocked the posting of this comparison should share their deepest thoughts with us instead of just putting up a shallow put down. Save the trash talk for your vaunted ping pong prowess.

L.A. Times Former Staffers: Zell's Takeover a 'Classic Grift'

This is an interesting post and the plaintiffs make an interesting argument.
But our court system is biased toward, shall we say, capital and not people when it comes to business.

Retrieving Flagrant Bonuses Could Address Moral Hazard Issue

Huge bonuses are a huge carrot stick. The shareholders never complained about most of the profit going to the employees year after year. Stock rating agencies never complained about money going out the door instead of into reserves in an industry that periodically self destructs.

Fraud and deception is just part of America's moral compass and we should fight wars to impose our moral compass on others.

One way to combat this is to abolish the CPA profession and replace it with insurance. Insurance companies would insure a company from failure. Their tough look at the books would impose more discipline, until these bankruptcy insurance firms begin competing more and more for premiums, which would inevitably lead to fraud and corruption even there.

Greed. It's really what's for dinner. Exhorbitant bonuses have always been part of the greed accept by America's moral compass.