Friday, February 13, 2009
Which Stimulus Programs Have the Most Bang for the Buck?
An article by economist James K. Galbraith contains a chart - based on information from Moody's and congressional testimony - showing the most bang for the buck from government stimulus programs:
What a dollar of stimulus puts back into the economy when spent on...
(Click here for full image).
Of course, there will be a fierce debate about whether there is the money for any stimulus program, when the government has already run up huge obligations for which it cannot pay.
And of course, if there is a stimulus plan, people will argue as to who should receive the stimulus based on ideology (For example, Galbraith is liberal, so he argues for liberal causes).
I'm not going to weigh in on any of these questions. I'm just sharing the info presented in the chart.
Thursday, February 12, 2009
Government Considering Buying Up Bad Alt-A Mortgages
The government is considering buying up millions of the mortgages itself, and then allowing the homeowners to refinance on better terms.
Given that the coming tidal wave of Alt-A mortgage defaults could be devastating to our already-depressed economy, I'm not opposed to the idea.
Of course, America is broke, and we don't have the money.
On the other hand, the funds would come from money already approved by Congress for the bailout, and would not represent new commitments.
It's smarter than most of the idiotic things the government is doing with taxpayer money. At least it would actually help some people, and might help to mitigate one of the many sources of the crisis.
True, it rewards those that made poor decisions, and penalizes the rest of us. But if the government insists on skinning the taxpayers to give bailouts, at least it may be a better use of money than, say, forking it over to wealthy bankers.
Update: Mish slams the proposal.Economist on Geithner Plan: "If [It] Does Not Involve Wiping Out the Shareholders and Sending the Bank Executives Packing, Then He Has Ripped Us Off.”
PhD economist Dean Baker has the best quote of the day regarding Treasury Secretary Geithner's new plan for the banks:
We don't have to follow the individual trades to know whether the taxpayers are being ripped off. We just need to ask some more basic questions like "How much will this thing cost?" If the answer is anywhere much more than zero -- as Geithner suggested it will be -- and we still see that bank stocks carry significant value and bank executives continue to hold on to their high-paying jobs, then we will know that we have been had.The basic point is extremely simple. We have a large number of bankrupt banks. We have a public interest in keeping the banks functioning, but we have zero public interest in giving taxpayer dollars to bank shareholders or to the executives that wrecked the banks they ran.
Geithner can design as complex a dog and pony show as he wants, but if his plan takes up hundreds of billions of taxpayer dollars and does not involve wiping out the shareholders and sending the bank executives packing, then he has ripped us off.
Wells Fargo Is Effectively Insolvent
Two smart and meticulous financial analysts - Reggie Middleton and Mish - argue that Wells Fargo is insolvent.
In yesterday's update to his June 11, 2008 analysis, Reggie shows that the lion's share of Wells Fargo's assets are in mortgages in the California, Florida and Arizona markets, which are all tanking. He concludes:
Wells Fargo has an impaired balance sheet. Marking mortgage assets ANYWHERE near what they are worth results in insolvency.
Mish, who has also been covering Wells for a long time, wrote on February 2nd that Wells is drowning in loan defaults, and has hidden staggering amounts of toxic losses off of its balance sheets, just like Citigroup:
[Despite its claim that it is saving mortgages by reworking their terms,] 30% of Wells Fargo's reworked mortgage loans are 90 days past due or longer, one year after loan modification. ***
Wells Fargo claims it is "well capitalized". Is it? By what measure? What is hidden off its balance sheet that we do not know enough about? Can anyone believe what any financial institution says when it is perfectly clear all these games are being played?
It's not just Citigroup and Bank of America that are in trouble . . . other big banks like Wells Fargo are also on the ropes.
JP Morgan is by far the largest holder of derivatives, and thus has tremendous exposure.
Nearly Two-Thirds Of Americans Want Investigations of Bush Torture and Spying Programs
A new poll by USA Today finds that:
Close to two-thirds of those surveyed said there should be investigations into allegations that the Bush team used torture to interrogate terrorism suspects and its program of wiretapping U.S. citizens without getting warrants.
While only 38% of those polled want a criminal investigation, with another 24% preferring an independent panel, the numbers calling for prosecutions would soar once people realize facts such as:
Indeed, a growing list of Congress members are endorsing either congressional or Justice Department investigations into Bush administration wrongdoings. See this, this, this, this and this.
Congress, the White House and the Department of Justice cannot ignore the American people's hunger for truth and justice forever.
Wednesday, February 11, 2009
Where The Jobs Are - Employment Tips for the Depression
Leading trend forecaster Gerald Calente gave some tips for where to look for work and what areas students should study to prepare for the future. This is especially relevant because Calente is convinced that we are going into the worst depression of all-time. So these jobs may not only be recession-proof, they may also be depression-proof.
Specifically, Calente says:
- Health care jobs will be plentiful. Even in bad financial times, people need to see the doctor. Any health care related profession is a good area to be in, especially elder care-related jobs
- Alternative energy will be a growth field, especially for engineers [my comment: energy efficiency - including the reduction of energy loss across power lines - will probably also become a hot area]
- Anything which helps people save money will be in demand
How to Solve the Toxic Asset Problem: Give Them to Bank Executives as Bonuses
James Kwak has the best idea I've heard this week: solve the toxic asset problem by give those assets to bank executives as bonuses.
As Kwak writes:
Why not say that all bank compensation above a baseline amount - say, $150,000 in annual salary - has to be paid in toxic assets off the bank’s balance sheet? Instead of getting a check for $10,000, the employee would get $10,000 in toxic assets, at their current book value. . . . That would get the assets off the bank’s balance sheet, and into the hands of the people responsible for putting them there - at the value that they insist they are worth . . . think about the incentives: talented people will flow to the companies that are valuing their assets the most realistically (since inflated valuations translate directly into lower compensation), which will give companies the incentive to be realistic in their valuations.Of course, there's an argument that the executives' base salary should be paid in toxic assets as well. Since these fatcats don't seem to be motivated to run their companies well so as to save the economy and the people, maybe having their own salaries on the line will motivate them. But if you believe that is too harsh, at least demand that their bonuses be paid in this way.
Update: Apparently, Credit Suisse is already doing this.
Share this idea with your elected officials in Washington.
Now THAT'S Depressing: "Depression Will Last 23-26 Years"
I have previously written about Martin Armstrong, the controversial market analyst who correctly predicted the 1987 crash, the top of the Japanese market, and many other market events. Many market timers think that Armstrong is one of the very best. On the other hand, he's in jail for fraud and an alleged Ponzi scheme. So I'm not sure whether Armstrong is a genius or a crank.
Armstrong has just written a cheery essay called "The Coming Great Depression. Why Government Is Powerless". In it, Armstrong forecasts:
We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past and will make the same mistakes that every politician has made before them.
Leading economist Marc Faber has previously said that this will be worse than the Great Depression (indeed, he said yesterday “With the stimulus package the government is proposing, I think the depression will last longer"), and Faber's been calling for a slump lasting for somewhere between 2 and 15 years.
So I've steeled myself for a bumpy ride.
But 23-26 years is so long that it makes me laugh. Indeed, just as with warnings about killer asteroids, I'm filing it in the "oh come on, I've got enough on my plate already" folder.
Note: For more on market forecasting, see Do Elliot Wave and Other Predictive Stock Indicators Work?
The Neighbor and the Cop
Two recent conversations show me how widespread the rage is at the elite who have driven our country into a ditch.
The Cop
Last night, I spoke with a cop at my local burrito place. He was furious at the bankers and the politicians who have gotten us into this financial mess, and was hungry for knowledge as to how we got here.
When we talked about budget cuts, he explained that his local police force had less officers than they should have. But he was really talking to me man-to-man, telling me of his rage for his and his family's situation.
Rather than being a defender of the powers-that-be, the cop seemed like he would have been willing to join in a protest against them.
The Neighbor
My neighbor is extremely pro-business, pro-corporation and anti-labor. She worked for many years for giant corporations, and has largely adopted their mindset. So I would have assumed that she would try to defend the big banks.
However, she is furious at the banks and bankers for their looting and manipulation. She is pissed that the bailouts are going to the big banks, and that the government is just making things worse for the economy.
She sounds more like a populist than an advocate for big business.
The Bottom Line
These two stories illustrate the fact that people from all walks of life, all professions, and all backgrounds are mad-as-hell at what's going on.
Leading trend forecaster Gerald Calente says that Americans are so mad that they will launch another American revolution, starting with revolts against property and school taxes.
Tuesday, February 10, 2009
Leading Liberal Economists Call for Bank Nationalization
4 leading liberal PhD economists are calling for nationalization of American banks:
- Nobel economist Joseph Stiglitz
- Nobel economist Paul Krugman
However, Obama has said that he will not nationalize banks.
Larry Summers: Fox Guarding The Henhouse
Lawrence Summers is the head of Obama's National Economic Council, and as such oversees much of Obama's economic policy.
Summers has a reputation in developing countries for being a nasty guy, having said - as chief economist for the World Bank - that third world countries were "underpolluted".
But more importantly, Summers is the guy responsible for:
- Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins
- Ensuring that derivatives were not regulated, and that AIG could operate as a giant hedge fund
- Repealing New Deal era legislation which separated investment banks from commercial banks, insurers and stock brokers, and which kept companies from becoming "too big to fail"
As a 1999 New York Times article entitled "Congress Passes Wide-Ranging Bill Easing Bank Laws" quotes Summers as saying:
''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This historic legislation will better enable American companies to compete in the new economy.''
In other words, Summers is one of the main guys who got us into this mess. Expecting him to really shake up the financial system is like asking the fox to guard the henhouse.
Economic Crisis: The Blind Leading the Blind
There are certainly people who are intentionally pushing various bailout and stimulus schemes for personal profit (see this, this and this).
But many in Congress are simply ignorant about how we got into this mess . . . so they cannot possibly figure out how to help us out of it. Ron Paul has repeatedly said this, as have many others. Financial writer Paul Kedrosky says Congress is so clueless that it needs a remedial course in basic finance.
Congressman Paul Kanjorski honestly expressed this fact when he said:
Ya know, we're not any geniuses in economics or finances... We're representatives of people. We ought to take our time, but let the people know this is a very difficult struggle.
Somebody threw us into the middle of the Atlantic Ocean without a life raft and we're trying to determine what's the closest shore and whether there's any chance in the world to swim that far. We. Don't. Know.
But at least economists know what's going on, and are properly advising Congress, right?
Unfortunately, mainstream economists themselves understand neither the cause of or the solution to the crisis.
It is truly the blind leading the blind.
Unfortunately, the truth about how we got in this mess and how to get out of it will not be understood - let alone discussed - for several more years.
China Tips Toward Deflation
The world-wide plunge into deflation is accelerating, and will soon hit China.
Specifically, analysts polled by the Dow Jones Newswires forecast that China will head into negative 2.6% inflation.
In the short-term, the world will sink deeper into deflation. At some point, however, in a year, or 2 or 10, the number of dollars printed will almost certainly lead to hyperinflation.
FBI Believed that Bombs Were Used on 9/11
On 9/11, the FBI believed that bombs were involved in the attacks.
How do I know that?
Because, according to the FBI's website:
Following the massive terrorist attacks against New York and Washington, the FBI dedicated 7,000 of its 11,000 Special Agents and thousands of FBI support personnel to the PENTTBOM investigation. "PENTTBOM" is short for Pentagon, Twin Towers Bombing.
Indeed, the FBI told a reporter for USA Today that FBI agents believed there were bombs in the Twin Towers.
Similarly, the Washington Post believed that bombs were involved, as reflected in a September 21, 2001 article containing the following phrase:
In the hours after Tuesday's bombings . . . .
Many firefighters and policemen also said there were bombs in the Twin Towers.
And perhaps "the premiere collapse expert in the country", who 9/11 Commissioner Timothy Roemer referred to as a "very, very respected expert on building collapse", the head of the New York Fire Department's Special Operations Command and the most highly decorated firefighter in its NYFD history, who had previously "commanded rescue operations at many difficult and complex disasters, including the Oklahoma City Bombing, the 1993 World Trade Center Bombing, and many natural disasters worldwide" thought that the collapse of the South Tower was caused by bombs, because the collapse of the building was too even to have been caused by anything else (pages 5-6).
But surely experts have since proven that no bombs were involved. Right?
In fact, structural engineers, architects, scientists and demolition experts and other high-level experts have examined the evidence and think that there were bombs.
Even the former head of the Fire Science Division of the government agency which claims that the World Trade Centers collapsed due to fire, who is one of the world’s leading fire science researchers and safety engineers, a Ph.D. in mechanical engineering (Dr. James Quintiere) doesn't bevelieve an adequate investigation into 9/11 has been conducted. He has called for an independent review of the World Trade Center Twin Tower collapse investigation. "I wish that there would be a peer review of this," he said, referring to the NIST investigation. "I think all the records that NIST has assembled should be archived. I would really like to see someone else take a look at what they've done; both structurally and from a fire point of view. ... I think the official conclusion that NIST arrived at is questionable."
Monday, February 9, 2009
Investment Advice | 2-9-09
Here's a round up of what investment advisors are saying today:
- Marc Faber is bullish on Asian stocks for a near-term bounce:
- "A 30% rebound? So the tactic or strategy here if you want to be invested in asian equities, I mean, with the yields that high it seems like a good time to get in and hold stocks, specially the ones that pay you and pay you well to hold them.
MARC FABER: Yes, sure. Actually I said that asian markets are better valued than the US markets and I also pointed out that now you are paid to wait here in Asia. I don`t think there is an huge downside risk, I think there is upside potential.
Don`t forget that from the November 20 low, even the S&P 500 Index managed to rally 27% between November 23 and January 6 and many shares like mining companies, you take Newmont Mining, it was a 21 dollars and it went to 45, DryShips was at 3 and went to 15, you will have huge volatility in this environment of ultra low interest rates.
It doesn`t mean that the global economy will heal anytime soon specially given the government interventions that will in my opinion prolong the crisis and not solve it at all.
What would be the catalyst for that 30% upside you mentioned?
MARC FABER: First of all we have fallen dramatically and markets have become oversold, in particular we have to talk about commodities because that is probably the most oversold market of any, but secondly the global economy fell of a cliff between September and January of this year, in the last 4 months and the news is universally very bad.
But don`t forget when the news were very good in 2007 the market peaked out, so on bad news you can reach a temporary bottom and also I believe we have this tremendous downside momentum in the global economy, in other words we fell of a cliff and the news will remain bad but maybe not as bad as in the last 4 months and then the goldilocks crowd that is always around us and will never give up, no matter what, they will say “now, see, the global economy is improving so lets buy”.
I am not a great believer that there is going to be a great economic improvement but I believe that market participants that are always bullish because they have been conditioned to be always bullish over the last 25 years, they will push markets up. - Jim Rogers likes Brazil:
"What is happening now is good for the fundamentals of raw materials so, all those countries that produce stuff , like Brazil that is a reasonably well managed country now, are going to do much better than the others.". And see this.
I am not commenting on who - if anyone - I think is right and who I think is wrong, but only summarizing what some of the top advisors are saying. In addition, you should check the links to make sure that the information contained herein is accurate, and to read any price or timing recommendations (concerning when to buy, sell, or short) of the advisors.
I am not an investment advisor and this should not be taken as investment advice.
Senator: “We’ve Seen Money Go Out The Back Door Of This Government Unlike Any Time In The History Of Our Country . . . Nobody Knows" Where It Went
A senator has revealed that - even today - congress is as much in the dark about the financial bailouts as the American people.
Specifically, Senator Dorgan said:
“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”This isn't surprising, given that the official overseer of the TARP bailout program said that even she can't find the answers to these questions, and that the government has no coherent plan and is taking the wrong actions in response to the financial crisis.
Don't worry, though ... U.S. taxpayers are only on the hook for a mere $9.7 Trillion Dollars so far. And I'm sure that everything is being done for the best of reasons - isn't it?
Why Gold Might Soar . . . Even In a Depression
Conventional wisdom is that gold does well during periods of inflation and poorly during periods of deflation.
Since we are in a deflationary environment - indeed a depression - that means we should stay away from gold, right?
Well, there is some evidence that gold may do well during the later stages of deflation.And the wealthy are buying gold as a safe haven asset.
And many credible people are saying that the economic crisis could cause widespread unrest. Unrest drives the price of gold up.
In addition, in an interview with Bloomberg, Eric Sprott - who manages $4.5 billion in assets, and correctly predicted in March of 2008 a "systemic financial meltdown” - is predicting that the depression which he says we are just beginning could drive the price of gold up to $2,000/ounce.
Sprott argues that the worsening crisis could cause a failure of treasury auctions, which would drive the price of gold sharply higher.
Sprott currently recommends buying gold bullion and stocks, and shorting the entire equity market.
Sprott is clearly a goldbug at this point in time:
“I believe no matter what environment you’re in - deflation or inflation - people will run to gold,” Sprott said. “Gold is proving exactly what we all would have expected, that in almost any environment, it’s a go-to asset.”Of course, the government could seize gold at any time, as FDR did during the Great Depression. And there are many who say that the gold market is rigged. So diversification is always important.
Note: I am not an investment advisor and this should not be taken as investment advice.
Leading Economist Says True Purpose of Bank Rescue Plans is "A Massive Redistribution of Wealth to the Bank Shareholders and Their Top Executives"
Leading PhD economist Dean Baker minces no words in slamming the bailouts, the "bad bank" proposal, and the mainstream media's dishonest reporting on the financial crisis.
As Baker says in a new article:
Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives.***Is this how government is supposed to work?
The point of buying the bad assets is to pay too much, so that the banks can get enough money to stay solvent. ***
It would be nice if the [Washington] Post and the rest of the media would report honestly on the bank bailout and stop trying to conceal plans for a massive redistribution of wealth to the bank shareholders and their top executives.
Sunday, February 8, 2009
WTO Chief Joins Others in Warning of Crash-Induced Unrest
The head of the World Trade Organization is warning of financial crash-induced unrest.
As quoted by AFP:
He joins many others in warning that the economic crisis could lead to food riots, unrest or even revolution, including:The global economic crisis could trigger political unrest equal to that seen during the 1930s, the head of the World Trade Organization (WTO) said in a German newspaper interview Saturday.
"The crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time," Pascal Lamy told the Die Welt newspaper.***
"This crisis weighs heavily on politics and puts peace in danger," he said.
- The head of the International Monetary Fund
- Senator Christopher Dodd
- Leading economist Nouriel Roubini
- Top trend researcher Gerald Calente
Saturday, February 7, 2009
Top Counter-Terrorism Experts Question 9/11
Counter-terrorism experts presumably have some insight into terrorism, right?
In fact, numerous high-level counter-terrorism experts question the government's investigation of - and explanation for - 9/11.
For example:
- Former chief of the CIA's Bin Laden unit said the 9/11 Commission "was a whitewash and a lie from top to bottom"
- Terrell (Terry) E. Arnold was the number 2 counter-terrorism official at the U.S. State Department, and is one of the world's leading experts on terror. Arnold served as the Deputy Director, Office of Counter-Terrorism and Emergency Planning, at the U.S. State Department. He is also the former Chairman of the Department of International Studies at the National War College. Arnold is skeptical of the government's explanation for 9/11
- Bogdan Dzakovic was a 14-year counter-terrorism expert in the Security Division of the Federal Aviation Administration. Dzakovic was Team Leader of the FAA's Red (Terrorism) Team, which conducted undercover tests on airport security through simulated terrorist attacks. Dzakovic said about the 9/11 Commission:
"The best I could say about it is they really botched the job by not really going into the real failures. … At worst, I think the 9/11 Commission Report is treasonous."
- Edward L. Peck, former Deputy Director to the White House Task Force on Terrorism , is calling for a new investigation into 9/11
- John Loftus, former Federal Prosecutor, Office of Special Investigations, U.S. Department of Justice under Presidents Jimmy Carter and Ronald Reagan; former U.S. Army Intelligence officer, and currently a widely-sought media commentator on terrorism and intelligence services questions the government's version of 9/11
- Col. David Hunt, MA, is an expert in Special Operations, Counter Terrorism and Intelligence Operations. Hunt says that the Able Danger program was real, and that high-level White House officials were briefed about the 9/11 terrorists - including Mohamed Atta - before 9/11
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