GH

The Enron Loophole

Good start, Vinny, but you need to dig deeper. The Farm Bill's clauses that supposedly re-enable the CFTC to do its job, in fact put all sorts of limits and hurdles in its path. It was, in short, a con to fool those who were trying to attack this problem. That's why it got a veto-proof majority: because it doesn't materially change anything.

Play the entire C-Span video of the hearing again. Listen carefully to all the testimony. It will be the best 2 hours and 18 minutes you'll spend this year.

Another Fed-Induced Bubble?

The CFTC's investigation is window dressing - a con. It is run by Bush appointees who are protecting Big Oil.

The FTC is the only body left with the power to uncover the oil price manipulation being committed by the investment banks - chiefly G-S, but also M-S and others. Uncover, but only the CFTC has the potential to be given the authority to stop it - and the recent Farm Bill didn't do that, it needs its old powers back that were stripped by Phil Gramm's "Enron Loophole" in 2000.

American Airlines Cutting Jobs and Routes - Discount Days Over?

One other note: don't extrapolate too far from AMR. There is a reason new start-up airlines like JetBlue are making money while ancient airlines like AMR are losing it. AMR is a dinosaur that is stuck with lots of obsolete gas-hog aircraft.

My money is on CPA.

American Airlines Cutting Jobs and Routes - Discount Days Over?

Mark,

I enjoy your articles, I think you're one of the saner voices. But beware: don't equate fuel with energy. It's a subset. You've got the tail wagging the dog.

Increased kerosene (= jet fuel) prices will definitely have all the effects you describe. But the U.S. consumer, in particular business people, have been flying far too cheaply for decades. This is a bad trend which will now reverse. Tele-commuting will ascend.

Increased diesel (= truck and ship fuel) prices will definitely cause general increases, especially in food prices. But the U.S. consumer has been buying things from all over the world instead of produced here, for decades. This was a bad trend which will now reverse. Eating local will now ascend.

Natural gas is the one direct connection between escalating fuel prices, and increased energy prices. That commodity (along with crude, and energy in general) is about to return to the pre-Enron, pre-Amaranth mode: the Farm Bill will be passed over Bush's veto and will return to the CFTC the powers it had before Bush & Co. crippled it in 2000.

Your scenarios will play out, but don't forget to take into account that the status quo has vast power to resist change - and will expend all of it in trying to do so.

Poole, Paulson, Bernanke on Bailouts and Bank Failures

"Things we don't need".

OK, so where are the next few years of high school graduates supposed to find employment?

Only Tax Cuts Will Work in the Long Run

Short of ridiculous levels like 90%, the "Tax Cuts Are Good" mantra has no defensible basis economically. Money spent in government programs largely moves from one taxpayer to another.

In contrast, consider the $850 billion the U.S. sent abroad to buy oil in the last three years. It is the same, financially and economically, as a "tax" paid to some other country that has conquered ours. Some of it flowed back into the U.S. economy via investment, but a large part of it stayed abroad and did us no good.

If you want to repair the U.S. economy, develop alternative energy sources that do not consume any finite resources, and keep U.S. money here at home: wind, wave, solar, and geothermal. Taxpayer money spent to accelerate the transition to these energy sources will in turn accelerate our economy faster than any other mechanism you can name.

Many European countries, who had no oil of their own to hide the problem, figured this out over a decade ago and are already well on the road to energy independence. Every year they are reducing the "energy tax" they pay to the oil exporting countries.

Dear Ben and George: Time to Do Something

Since you propose spending taxpayer money anyway, I propose instead a more beneficial approach: for the next two years (say), a temporary federal agency can simply buy all foreclosed owner-occupied properties at well-documented owner cost, and auction them at a reserve price of 75% of said cost. If the reserve price isn't bid, the home is instead destroyed (recycling as much of the content as possible), and the lot cleared, thoroughly cleaned up, and auctioned. This directly attacks the current housing over-supply, as well as creating (temporary) jobs doing the demolition, recycling, and clearing. It has myriad positive effects, and few negative ones.

The Dow Hates Bush?

"The inflation-adjusted value of the January 2001 Dow in today's dollars is about 12,200; today's level is unambiguously higher."

As of today's close, it's below the Jan 01 level.

The Bushies broke Iraq and New Orleans (and dozens of other things). Now "W" wants to help fix the economy. No thanks.

Recession? Maybe; Crisis? I Don't Think So

Accrued Interest:

Yes, it will cause a crisis - it IS causing a crisis - and I will tell you why, in detail.

We all agree that the U.S. real estate market was a bubble that has burst. When bubbles burst, prices drop farther than they should, faster than they should. The tech stock bubble that burst 6 years ago brought pain to a lot of investors, even postponed some retirements, but didn't generate widespread damage to personal or corporate credit, or involve the biggest financial element of most people's lives (their homes). The real estate bubble was vastly bigger and more pervasive - and that is what will turn this recession into a crisis.

You mentioned the crisis criteria of innocent people being affected? I give you "Buy to Let". Many of the speculators bought homes with tiny money down, and rented them out to defray some of the mortgage payments, planning to flip them at a higher price before their teaser mortgage rate escalated. When their equity went negative they defaulted and ran, leaving the mortgage company to service the needs of their utterly innocent renters. Our local (big northern city) newspaper has regular stories of renters begging mortgage companies to fix leaky roofs and broken furnances, as sub-freezing temperatures put their health and even lives at risk.


In what were the hottest areas (such as CA, FL, and NV), residential real estate prices have passed the tipping point at which negative equity creates a feedback loop, causing price drops to enter free fall. The effects are working backward through time: by the end of 2008, people will be affected who are rock-solid risks and put 10% down on a home in *2005*. Your scenario that these "normal" borrowers can simply ignore the falling prices and keep paying their mortgage bill every month neglects the fact that with negative equity, homeowners can no longer do things they would otherwise routinely do, on which parts of our economy depend:
* refinance, to adjust their cash flow to changing personal conditions, such as paying for college tuition
* get a home equity loan, to start a business or support one through a tough period
* get a home improvement loan
This exacerbates the pain in local businesses of all kinds, enhancing the feedback loop. Homeowners who lose their jobs as the local recession deepens aren't be able to take job offers in healthier regions because they can't afford to sell their house at a loss - and may be forced to solve that problem by walking away from their mortgage, further enhancing the feedback loop.


And so it spreads across the nation:

- Already in many areas, unusual levels of commercial real estate are sitting empty and unsaleable because of vanished liquidity and fear of recession.

- Unemployment is rising... feeding into the real estate problem.

- Consumer discretionary product companies are projecting lower earnings... which will feed into the unemployment problem.

Who is next to be sucked into the whirlpool? Maybe those with money in supposedly safe constant-$1 money market funds. Yes, many MM funds are exposed to CDOs! They're already collecting on bond insurance to stay at $1.00. How long can the insurers keep funding them? We don't know... but look at the stock charts of Ambac and MBIA, and the fact that Warren Buffet just started a bond insurance company that won't touch SIVs, for clues.


The question should be, at what point will this crisis be addressed by government, and through what mechanisms will it ultimately be brought under control? On 9/11, Bush ran and Cheney hid, doing nothing useful. Their next crisis was Katrina - and much of New Orleans is still uninhabitable. So much for this administration's competence in crises. My sympathies go to the administration coming to power in January 2009. It is clear to me that by the time they begin, they will have an unambiguous mandate for action.

2007 Market Review: Things May Be Better Than They Seem

"When the new president enacts laws barring these illegal immigrants..."

Such shallow thinking! Why would some new law(s) be more effective than the ones that already exist?

Concerns over illegal immigrants exist primarily in the minds of a small group of xenophobes that Republicans are trying to motivate to vote - the same ploy as same-sex marriages in 2004. There will be no significant changes in this regard for the simple reason that the so-called illegal immigrants are a crucial part of the U.S. economy. We are talking about 15 million employed people, all of whom are paying taxes including social security, and providing fundamental services at extremely low cost. Without them the economy would founder and the candidates all know it. Demand an actual immigration policy from any candidate and you'll hear "border enforcement" - a completely safe policy because it's manifestly impossible.

California's Sate of Fiscal Emergency Coming Soon to a Theatre Near You

The solution is simple, and has been used before by other states and cities with consistent succes. It's called a "surtax", and it's simply a temporary tax increase.

Oh no, horrors, we can _never_ increase taxes!

Look, the money has to come from somewhere, CA can't print it, and as Kunst points out if they borrow it they drive their own interest rates up. The fiscally responsible thing to do is get it from the people to whom you are providing services; in other words, raise the price for living in CA.

Either that, or start selling assets.

Alan 'Not-Me' Greenspan Strikes Again

Apparently you don't understand how those corrupted by power lie. It's simple. When he says "Not major", he means "I can fill in anything but the word major". Such as: MASSIVE or DOMINANT or TOTALLY TO BLAME.

Yet Another Problem with Mortgage-Backed Securities

Terrific piece of investigative reporting, Thomas!

As European Central Bank Holds Rates, Inflation is Non-Existent in the U.S.

Great article! You totally nailed it!

Shortages, Inflation and Withering Credit: What's in Store for the First Half of 2008

Don't complain about short-term thinking if you keep electing Republicans. You "conservatives" laughed at Jimmy Carter when he put solar panels on the White House and funded projects to develop U.S. oil shale 30 years ago. We'd be better off now if people like you had appreciated his long-term thinking. But no, you'd rather be pandered to by liars who spend trillions trying unsuccessfully to conquer foreign oil instead of developing homegrown alternatives to it.