77 Comments

1. wildernesscalling:

Yes all the same, the next round will be the tipper? the good book says it has to get even worse yet!!!

Jan 8, 2009 - 4:29 pm 2. Tony:

But in this case its unclear what has fundamentally changed in the ways of doing business.

It might even be less clear than that, it might be more like the situation when Willard pulls into that besieged firebase in “Apocalypse Now.”

Willard: Hey soldier, do you know who’s in command here?
Soldier: Ain’t you?

Jan 8, 2009 - 4:31 pm 3. Gordon:

The most discouraging thing is that people like Frank and Dodd, who promoted Fanny and Freddie and took their money, are now supposedly going to fix this mess. They should be in jail for betraying the public trust with their favorable mortgages and lobbyists’ largesse. The monkeys are still running the zoo.

Change in management indeed! Lack of confidence? You bet! And except for a noble few, the Repubs went right along with it.

Jan 8, 2009 - 5:14 pm 4. what is occupation:

with any luck the recession will cause the illegal aliens of BOTH europe and the usa to go home

Jan 8, 2009 - 5:59 pm 5. Bob Murphy:

“Industrial sentiment”?
Is it all in the Europeans’ heads as usual?
They’ve been avoiding the hard cultural and economic questions and their concomitant solutions for so long that the closet is full of unresolved monsters and they’re rattling at the door trying to get out.
The euro-weenies were hoping they’d stay bottled up until their postmodern secularist boomers died of old age and left it to the next generation that they failed to sire.:)
Oh, shucks. Payback is here and they have no way out.

Jan 8, 2009 - 6:30 pm 6. evan:

There was a long bubble around the world – in China, the Gulf, parts of the US, India, Spain, etc. This bubble allowed hundreds of millions of people to escape poverty, which is difficult not to applaud. But during bubbles – which are unavoidable at times of rapid but highly uncertain changes in technology – a lot of mistakes get made. Eventually, there comes a time when the trash has to be taken out.

Historically, this was accomplished through a depression, which lasted about two years before we moved on. But first in the early 1930s in America and now, it seems, in a lot of places, there is a demand that the government “do something,” anything, even though the government has no idea what the mistakes were (investors and entrepreneurs have to discover that one risk taken at a time), even though the government is driven by corruption and vote-buying rather than efficiency, and even though the government has no long-term incentive to think about the economy ten years from now.

This would be an ordinary crash – painful but brief – if it were not for the mistaken belief that the government can fix “the economy” if only it finds the right button to push. In fact, “the economy” is the constantly changing reaction of six billion people to their differing and also constantly changing goals and possibilities. It cannot be fixed as if it were a broken washing machine. The government will, in the course of discovering this, push a thousand wrong buttons. It will loosen monetary policy, it will tighten monetary policy, it will bail out this industry and not that one, it will void these contracts but not those, thus making every investor’s and entrepreneur’s job considerably harder by clouding his future. Individuals have to be allowed to work their way through this, but that will never be in the self-interest of politicians.

We could do the entire global economy a favor by raising money to send all the politicians and all the eager regulators on vacation for twelve months, and just leave things alone. That would end the uncertainty – not just about where the mistakes are but, critically, about what the government is going to do next – and allow the mess to be cleaned up.

Jan 8, 2009 - 6:38 pm 7. Andrew X:

How many people over the past few years have had trouble buying gifts for people? How many of us have fallen back on gift cards because we just don’t know what to get people?

Why is this? Is it because, if your loved one really wants something that is in a price range that you can get for them….. well…. they already have it?

So, what if we as individuals are generally reaching a saturation point. If we want it and do not yet have it, we probably WON’T buy it, because it is out of range and will probably stay that way, or we really don’t want it that much.

On a parallel course of thought, what happens when BILLIONS of dollars of 1990 value in classified ads suddenly becomes virtually zero with Craigslist?

And if three channels of TV was OK, 30 is much better, 300 is better than that. Is 500 or 800 better than 300? At that point, who cares? 300 works for me, and 800 is a pain in the ass. Let’s throw DVD, Wii, and Pay per view, and Internet in that mix. I now need 500 more channels?

Or, am I now….. done? There’s nowhere left to go. That product is “complete”.

This is ‘Star Trek’ economics, that I have always wondered about. Namely, if our matter transformers can give us ANY THING that we want…. why the hell would anyone work? If we really have saturated ourselves with stuff, who is going to buy the stuff we are all producing, or supposed to be? If things we used to pay for become free (or close to it), what happens to all that wealth that used to be tied up it’s production, especially if that wealth should be re-invested in…… making stuff we have no real interest in buying? Because we are “done”?

I’m considering that what we are seeing today is far deeper than just debt and Fannie Mae and all. It is a profound upheaval in the very nature of economics brought about by the Internet and by a saturation point in product availability.

I have now exhausted my limited economic knowledge in these conjectures. Anyone else want to chime in?

Jan 8, 2009 - 6:59 pm 8. I'm Just Plain Dumb:

All of this is the sound of winds of war I fear.

Jan 8, 2009 - 7:00 pm 9. NahnCee:

Europe – without the expense of keeping up their own military, researching and developing their own drugs, or inventing their own internet — are going bankrupt.

Boo hoo.

Let ‘em eat cake.

Jan 8, 2009 - 7:26 pm 10. geoffgo:

Wasn’t too long ago, we’d have hanged Dodd and Frank on a public gallows. Now, they just retire at $150K+ per year for life, along with all their medical needs being paid for with taxpayer money.

It becomes ever more difficult to see a way out of this mess absent real violence, no?

Jan 8, 2009 - 8:27 pm 11. peterike:

Europe may find that sooner than expected their “paradise” has gone broke. If they are smart, they will start saving money by tossing out immigrants on the dole. Why not? A lot of Europeans will soon be grateful for the dead-end jobs that “Europeans won’t do.”

They will now.

But I don’t think Europe will be smart. Not yet. It will have to get horribly bad before the desiccated self-haters that run the place will do anything that smacks even slightly of “racism.” Oh my my.

Well we’re all going to learn that there are a lot worse things than “racism” or “bigotry” out there to worry about. Europe may come out the other end of this severely beaten up, but better for it.

Jan 8, 2009 - 8:34 pm 12. RWE:

I think that the economic problems were revealed by the Mortgage Meltdown but not really caused by it.

It all goes back to the Design Margin concept. When you have so many people collectively demanding more out of “the system” than they are willing to put into it – Unions, the Legal Industry, special interest groups, private firms, voting blocks, foreign countries with their hands out – sooner or later you run out of margin.

The decades of the Community Reinvestment Act certainly explain the Mortgage Meltdown, but that was combined with everything else. The CRA was driven by the Civil Rights Movement. The droves of home buying speculators were enabled by the breakdown in loan standards pursed by special interest groups under the CRA but also driven by the fact that government tax policies discourage true investment in industrial capabilities in favor of get rich schemes by flipping houses. Those house-flipping shows on TV were enabled by the need to fill up dozens of channels on TV with something other than Gilligan’s Island reruns. The Peace movement wants the military cut back but also marches to call for us to Save Darfur. And the Whales. And so on and so on.

By all rights, leaders should stand up and say “Cut the crap! Medicare and Social Security will have to be cut, so get used to it! If you drive a car then you have voted for more oil drilling! Reverse racism is still racism! And get a job, you lazy bums!”

But instead we get “Here is some more crap. With new improved flavoring to make it taste better.”

Jan 8, 2009 - 8:43 pm 13. James:

I suspect that hard times don’t develop character so much as reveal it. If Social Security gets cut, pension funds go bust, and so on–will most of us figure out how to make do, or try to find someone to blame?
When I think about that question, I remember a bumper-sticker I saw some years back: “Prosperity is my birthright.” Then I worry.

Jan 8, 2009 - 9:21 pm 14. Doug:

Nationwide Inquiry on Bids for Municipal Bonds
The authorities have been investigating what appears to be collusion in the multibillion-dollar municipal bonds market.

Average Mortgage Rate Hits 5%, Lowest in Decades

Jan 8, 2009 - 9:57 pm 15. Doug:

“By all rights, leaders should stand up and say “Cut the crap! Medicare and Social Security will have to be cut, so get used to it! If you drive a car then you have voted for more oil drilling! Reverse racism is still racism! And get a job, you lazy bums!””
—
Instead, the imprudent and unprofitable will be rewarded @ the expense of the prudent and profitable.

Jan 8, 2009 - 9:59 pm 16. buddy larsen:

several above had mentioned ‘demand’ as being in short supply. Maybe world society (its uber brain) is handing itself over to central government so it can get out of the rut whereby competition creates better & cheaper stuff to the point of satiation & ennui. Government will stifle that competition, goods & services will fall in quality and rise in price, demand will come back stronger in a poorer world. think of the old movies on TCM –the B&Ws from the 30s & 40s. Everybody was poor and happy! The young secretary –maybe Irene Dunn or Norma Shearer –was plumb tickled pink when she finally got that new Easter bonnet out of layaway down at Macy’s. It was like a new car of today. Well, maybe not today, maybe 2007.

Anyhoo, it’s easy to imagine a rice farmer in southeast Asia just at the point of trading his ox in on a John Deere when all of a sudden *poof*. Woops!

Jan 8, 2009 - 10:37 pm 17. Unsk:

Peterike- right on cue to back up your point- it’s reported that today a German Government bond auction failed – Ouch! Already?

How is the Messiah going to conjure up a trillion dollar bailout with over a 2 trillion dollar deficit if bond auctions are already failing? Lookout – higher interest rates ahead.

Btw – The ADP jobs report for December says that the US private sector lost 693,000 jobs in December.

Jan 8, 2009 - 10:42 pm 18. bob:

I’m thinking of trading my John Deere in on an ox.

Jan 8, 2009 - 11:04 pm 19. buddy larsen:

well, you can eat an ox, that’s for sure. Might play hell next Spring but will get ya thru the winter.

Jan 8, 2009 - 11:31 pm 20. Doug:

al-Bob just likes to dream that he still has his Deere.

Jan 8, 2009 - 11:40 pm 21. bob:

Buddy, did you ever see the movie “The Immigrants”?

Hard to find these days, but the old Scandinavian immigrants were tough. In one scene, the guy is trying to make it back to the homestead, gets caught in a blizzard, and his son is freezing. He keeps his head, kills the ox with a knife jab to the back of the neck, guts the ox, and puts his son in the body cavity, and leaves him there overnight. Next morning he treks back and gets the kid, who is alive, but a little caked in ox blood.

Jan 9, 2009 - 12:12 am 22. Contrarian:

Unsk-

If the Messiah cannot borrow the funds through treasury bond auctions, then the printing presses will be running overtime and that means serious inflation (picking up from our discussion last night). Helicopter Ben (our illustrious FED chairman) got his nickname for comments he once made about dropping cash by helicopters as one way to prime the pump. Keep an eye in the sky!

Jan 9, 2009 - 12:38 am 23. Karen:

bob, I never want to have to be that tough. But I wouldn’t mind going back to a time where you were thrilled to be getting a hat out of layaway. Sometimes I regret I wasn’t born in the 1920s instead of the 1950s because, while that generation had no shortage of hardships, I think our future could be more ox blood than Easter bonnet. When was the best time to be alive? It can’t be now, can it? Just before the bottom drops out of everything?

Jan 9, 2009 - 12:45 am 24. bob:

Don’t know, Karen. Was reading the other day though, that an optimist is one that thinks she’s made out of star dust, while a pessimist thinks he’s made out of recycled nuclear material.

“The best of times, the worst of time”….

Jan 9, 2009 - 1:06 am 25. bob:

I think that should have read “recycled nuclear waste” I blieve the quote was.

Jan 9, 2009 - 1:08 am 26. Doug:

The Best of Times)
My umpteenth ad for one of my favorite flicks.
Taft being my home-town’s twin.

Jan 9, 2009 - 1:31 am 27. Doug:

The Best of Times
sorry, screwed up that link.

Jan 9, 2009 - 1:35 am 28. buddy larsen:

Yep, our parts is fifteen and a half billion years old already –there was a big bang and ever since time has just flown –

yep –i did see that Bob –i think Max von Sydow was in it. the perfect scandahoovian –seedy, depressed, red-eyed, drunk –

Jan 9, 2009 - 1:36 am 29. bob:

Here It Is

Emigrants, not Immigrants.

Jan 9, 2009 - 1:45 am 30. bob:

It takes Karl Rove to try to get the truth out there, as the world is taken over by myth making. Myth making in the bad sense.

President Bush Tried To Rein In Fannie and Freddie

When the real culprits are Barney Franks, Dodd, the democrats and etal.

Now we’ve got the same crew to ‘clean up the mess’.

Jan 9, 2009 - 2:02 am 31. buddy larsen:

yep –all those folks needlessly worried about such as the auto da fe’s of Alberto Gonzales and Scooter Libby signaling the coming of an era of criminalized politics. Turns out we don’t have that after all, and in fact we don’t even have criminalized crime anymore. Wonder what changed?

Jan 9, 2009 - 2:35 am 32. Dave:

Hello There Larsen: Wuz afraid you had jumped off the basement.

Do you think the defecation has encountered the oscillation?

I figure we will pull through okay in spite of Obama’s most sincere efforts to help PROVIDED there is no Smoot-Hawley-Hall this time.

I’ll lay you $5 to a sackful of doughnut holes
that what ails Europe is that the EU is so
mercantilist that they have a permanent de facto equivalent of S-H-H in operation.

So much for trivia. Now for my revelation du jour; Did you know that a sportswriter
coined the sobriquet “Slinging Sammy” because of young Mr Baugh’s ability to throw a baseball?????!!!!!!!! He was playing shortstop fer the Horned Frogs at the time.
Learn something every eulogy you know.

Jan 9, 2009 - 3:56 am 33. Doug:

– Trial Lawyer Bonanza -

Jan 9, 2009 - 4:11 am 34. RWE:

Bob:

Aw, that farmer got the idea from “The Empire Strikes Back.”

The Emigrants was an old movie but the Lucas story happened a long time ago and far, far away.

Jan 9, 2009 - 5:41 am 35. joe buzz:

Just finished reading “October Sky” last night. Way better that the movie btw. Hickam Sr. a non-union Repub. coal miner responds to JFK’s ‘59-60 campaign promises to feed everybody in West Virgina by stating that “we dont need the government taking care of us”…

Jan 9, 2009 - 6:49 am 36. Jay:

The only people who believe in a European nation are the folks running the bureaucracies. Italy has moved right. They let Alitalia fail. Ordinay Germans and ordinary French citizens do not see themselves the way the EU gang do.
I am amazed to read how so many economists have accepted the idea that “stimulation” will somehow stop the deleveraging from the bubbles.
I read that one Oregon senator objects to the tax rebates for businesses and instead wants to build high speed rail. From where to where??
Our government is corrupt and idiotic. Same holds for the British government.
Hatred and fear is rising here and in Europe but I do not know how it will play out.

Jan 9, 2009 - 7:05 am 37. buddy larsen:

Buzz, them Appalachians did it again last November –rejected BambiWorld. Good on ‘em -for every Rob’t Byrd there’s a Chuck Yeager or two. Re Italy, Rome just elected an honest-to-goodness ree-form conservative. Well, they led the way into the hellhole –i guess that would be the on-time train tunnel –maybe they’ll lead the way out. Ancient Roman Republic would’ve been a good model for the post-WW2 world thought George Patton but the NYTimes disagreed. Dave, right, it does no good to jump out a one-story window –yer still busted only now with skint elbows to boot. Didn’t know that about Sammy Baugh but do know that the way he threw long made everybody search for an explanation as to why the same ball on the same flight path as anybody else’s was an acknowledged thing of special beauty the way SB threw it.

Jan 9, 2009 - 7:33 am 38. buddy larsen:

The Telegraph, London
Thursday, January 8, 2009

Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or “paper” proxies.

Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. “People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,” he said, referring to exchange trade funds listed in London, New York, and other bourses.

“They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands,” he said.

Jan 9, 2009 - 8:08 am 39. buddy larsen:

i’m sorry –that was in answer to dave’s q about whether or not the excrement is coming into contact with the fan. Begs a question –is that a ‘fan’ as in a device for moving air, or would that be a ‘fan’ as in ‘a fan of good government’? (note: The usual method of resolving such an ambig, that is to refer to context, is as you will plainly agree rather spectacularly useless in the present case.)

Jan 9, 2009 - 8:17 am 40. LFMayor:

If there’s a renewed run on precious metals, maybe I SHOULD buy those BHO commemorative coins that Montel Williams is hawking.

At the least perhaps I can use them as talismans to open doors at food pantries and free clinics in the near future…

Jan 9, 2009 - 11:08 am 41. buddy larsen:

As for as reaching bottoms & such, USA mkts are already up 15% plus since the November bottoms. Sure, it’s a bear market rally, so says everybody. Meantime some mtrls & mtrls-moving things have nearly doubled since November. And gold, which the gazillions of new fiat dollars promises to vault into the stratosphere, remains in a years long trading range of around $750 to $850. Againg “everybody says” gold “must break out to” $1000, $2000, “any day now”. Another, related conventional wisdom, our new 400% debt-to-GDP ratio means much higher interest rates “any day now”. well, with all these inevitables, one wonders why global & domestic investors are not making them come true now, as mkts are wont to be be MacBeth-like about the inevitable “If it were done…then…well it were done quickly…”

What may be happening instead can best be gleaned from these two essays, the JR Nyquist of August 2006, from the time of the previous Iranian proxy war on Israel and thus now truly prescient and timely both, and the John Reilly from last October, during the middle of the financial collapse and the presidential campaign.

If one arranges the Reilly economic thesis against the Nyquist political backdrop, one can see a glimmer of an explanation of today’s state of the nation. As well to be seen is the first principle for any great nation wanting to hold the world together in relative peace: do not weaken your military power. Expense cutting there, for USA now, will in all liklihood not be expense cutting at all –the costs will accrue (at unlimited interest) on the national balance sheet’s deferred maintenance line.

That notorious line where unit costs log time, silently becoming unpayable (often because there is no one to pay, at which point it dawns that the deferrals weren’t ‘pricey’ at all, but ‘priceless’ –OIW not expense but capital).

Jan 9, 2009 - 11:11 am 42. buddy larsen:

In the meantime, while we wait with either baited or bated breath for regular arrivals of myriad incoming interim denouements, we could remember GK Chesterton’s advice:

We must learn to love life without ever trusting it.

Jan 9, 2009 - 11:26 am 43. Leo Linbeck III:

This is an interesting graph:

http://upload.wikimedia.org/wikipedia/en/2/20/US_Historical_Inflation_Ancient.svg

As you can see, the pre-1950 period was basically about inflation followed by deflation followed by inflation, etc. Each of the spikes were relatively short in duration, but pretty severe (although not really hyperinflation). If you look over this entire period, it looks like total price inflation was pretty low (you can tell because the blue area looks to be about equal to the red area, maybe slightly higher).

Starting in 1950, the curve looks quite different. It could be the result of an international monetary standard (the Bretton Woods System, which started in 1944-5. It was the first time that all of the developed world had a unified system of money, at least since Roman times. There was a big, long burst of inflation in the 1970s, perhaps because Bretton Woods collapsed, and its gold based standard was replaced by a system where the US dollar is the reserve currency of the world. The US government was also on an expansionist tear, and soon figured out that as “banker to the world,” it could print all the money it wanted to spend. That era came to an end with Paul Volcker (on the monetary side) and Ronald Reagan (on the fiscal side). Since then there has been steady and modest inflation

So, when you look at this graph, two extreme hypotheses about the future come immediately to mind:

1. We have really figured out how to manage monetary policy, so future inflation is not likely to be a problem. This is Bernanke’s view, as I understand it. The argument here is that when growth restarts and inflation picks up, interest rates will rise, the Fed will jack up the discount rate, and all of the money they pushed out will be pulled back.

2. We’re heading into a really nasty deflationary period that will correct the over-inflation of the past 30-40 years. This is the meltdown scenario, leading to a run on gold, firearms, canned goods, and oxen (not necessarily in that order).

I’m guessing that #1 is closer to what will happen. Our ability to process and react to monetary information is quite remarkable, and since most “money” is really electrons, we just need a lot of really fast computers and networks. But it’s just a guess.

One thing, however, is certain: government efforts to “stimulate” the economy will only make matters worse, because it will lower the increases in productivity that are the actual drivers of recovery.

But not to worry: the guys proposing this “stimulus” are really smart.

L3

Jan 9, 2009 - 11:47 am 44. slade:

Does that mean Summers is facing his fall?

Jan 9, 2009 - 12:36 pm 45. buddy larsen:

I’m sure he plans to spring this winter

Jan 9, 2009 - 12:45 pm 46. Jim Nicholas:

I would like to believe that our present economic problems stem from the actions of persons who ought to be fired for incompetence or punished for unethical or criminal behavior. I would not be happy about such a situation, but it would give me a sense that some control were possible in the future.

However, it seems to me that many very smart persons have lost fortunes because they did not foresee the consequences of their financial decisions. Even if we grant that we are experiencing the outcome of the acts of irresponsible and self-serving legislators, still this was public information. Why could so many of these very smart persons have failed to use this public information to save their own fortunes?

It leads to the very uncomfortable idea that the economy is like the weather, a chaotic system in which predictions become totally unreliable in a short period. If such is the case, then not only do our present financial decision-makers not know what they are doing but also no one else could predictably do any better.

Maybe hope is all we have, which is, of course, no protection from disaster.

Best wishes,

Jim

Jan 9, 2009 - 12:56 pm 47. slade:

Volatile little sucker isn’t he? If not careful, he’ll bring the bears out of their post (pre?) inaugural hibernation.

Jan 9, 2009 - 1:05 pm 48. slade:

a chaotic system in which predictions become totally unreliable in a short period

That must explain why I am hearing so many analysts sound unreasonably chirpy about a second quarter bull run.

Jan 9, 2009 - 1:16 pm 49. whiskey:

Civil War in Europe is inevitable.

There is enough money for benefits, mostly welfare and unemployment, for Muslim immigrants, but not natives.

Natives have nothing to fall back on, so expect a civil war over who gets paid.

It’s as simple as that.

Jan 9, 2009 - 1:29 pm 50. Jrod:

Jim,
Michael Lewis of “Liar’s Poker” fame had a good article on Conde Nast’s Portfolio.com website last month. It is an entertaining read. Besides that, I think he gets very close to the heart of the matter:

You can’t really tell someone that you asked him to lunch to let him know that you don’t think of him as evil. Nor can you tell him that you asked him to lunch because you thought that you could trace the biggest financial crisis in the history of the world back to a decision he had made. John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street’s first public corporation. He ignored the outrage of Salomon’s retired partners. (“I was disgusted by his materialism,” William Salomon, the son of the firm’s founder, who had made Gutfreund C.E.O. only after he’d promised never to sell the firm, had told me.) He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.’s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn’t, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

No partnership, for that matter, would have hired me or anyone remotely like me. Was there ever any correlation between the ability to get in and out of Princeton and a talent for taking financial risk?

Jan 9, 2009 - 1:43 pm 51. slade:

Speaking of black boxes:

The federal investigation that prompted Gov. Bill Richardson of New Mexico to withdraw his nomination as commerce secretary offers a rare glimpse into a long-simmering investigation of possible bid-rigging, tax evasion and other wrongdoing throughout the municipal bond business.

Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year.

…

One of the three, CDR Financial Products, of Beverly Hills, Calif., is at the heart of the federal investigation in New Mexico. Investigators there are looking at how CDR Financial came to be selected as the “swap adviser” for a $1.5 billion program — called Governor Richardson’s Investment Program, or GRIP — to raise money for road and rail construction in New Mexico.

CDR Financial and its founder, David Rubin, gave $100,000 to two of Governor Richardson’s political action committees in 2003 and 2004, and the company earned $1.5 million for advising GRIP in 2004.

ABC News reports:

Financial records show the Obama campaign got more than $30,000 from California financier David Rubin, the target of an investigation into donations and possible “pay-to-play” deals involving New Mexico Gov. Bill Richardson, Obama’s pick for commerce secretary.

Draw your own conclusions, but end of the day, Gov Richardson seems to have partied with the wrong player. The point being that timing the market bottom is small potatoes compared to the tangled web that seems to unravel daily before our eyes – not to mention the “shovel ready” projects for litigators that threaten to dwarf whatever Main Street job creation emerges from fiscal stimulus – from class action lawsuits to recover 401K/IRA losses to Madoff lawsuits to tort reform to labor reform. The Democrats have a Big Tent.

Jan 9, 2009 - 2:44 pm 52. buddy larsen:

TS Eliot today would change it to: “This is the way the world ends: Not with a whim but a banker.”

Jan 9, 2009 - 2:45 pm 53. buddy larsen:

a dozen deep & wide & rotten Democrat corruption scandals and nobody knew because the national corp of crack MSM investigative reporters were busy entrapping Sarah Palin’s children’s classmate’s friends up in Alaska

Jan 9, 2009 - 2:57 pm 54. slade:

Robert Rubin resigned from CitiGroup and Minnesota will now be represented by Senator Al Franken, aka Stuart Smalley, presumably an act of reprisal from George Soros for Coleman exposing the Oil for Food scandal. What a surreal turn of the screw. And the Big Voice upthread watches Jerry Springer!!!

Jan 9, 2009 - 3:20 pm 55. Al_Batross:

“a saturation point in product availability” – Andrew X:

A very interesting point.
From my economics lessons many years ago, I just about recall the Law of Diminishing Returns, the moral version of which is the Question of How Much is Enough ?
As a society, we in the developed world had More Than Enough in the late 1980s, which was when we should have had a decent recession, which would by now be well behind us. We did not have that recession because governments and financial institutions around the world wanted to keep the party going and keep themselves in jobs.
While thinking about how bad a recession would be for them then, governments and financial institutions were not considering how bad it would in the future when the music simply had to stop, as it now has. All they were doing was priming the economy for an even greater fall.
In a decent 1989 recession, some businesses, cities, ways of doing things, even some entire industries would have gone to the wall, but many others would have adapted and survived. Most importantly, new technologies and industries would have emerged, in a manner similar to those of the 1930s, as the world recovered from the Crash of 1929.
We can only guess at the positive changes which might have been, as we now find ourselves in a deeper global recession than we might have had in the late 1980s, with a significantly higher global population than we had in then and, arguably, a more unstable global political environment, with internal instability becoming the flavour of the decade. We are also largely dependent on the same old forms of energy and, which is much worse, largely the same old sources.
Regarding immigration policies, Spain became even more reckless as the warning bells rang louder, and even as recently as December 08 the UK agreed to import 5,000 halal butchers from Pakistan, which seems to me further evidence, if any were needed, that Labour is The Party of Islam.
I can only speculate as to how bad it will get, but I do agree about the potential value of getting one’s own ox. Or water-buffalo, or milk-camel, depending on location. And remember, if you must get a goat, zero-grazing is a the only way to be a good neighbour.

Jan 9, 2009 - 3:59 pm 56. buddy larsen:

maybe Soros objected to Coleman’s treatment of Saddam’s butt-punk, Gorgeous George Galloway?

Jan 9, 2009 - 4:59 pm 57. slade:

Two-man plays don’t present the “necessary and sufficient” conditions to support this FUBAR period of history. So while I am sure GGG played more than a walk-on role, the pivot guy – in the case of Coleman – seems to be Mark Malloch Brown, Kofi Annan’s Deputy and right-hand man neck-deep in Oil for Food (see Sean Hannity et al).

Fortunately I have more snow to shovel. Actually I blow it out a gas-powered carbon-spewing vent. Feels good.

Jan 9, 2009 - 5:11 pm 58. slade:

Here ya go, Buddy:

Too many pieces finish too long after the end. – Igor Stravinski

I’m at an end but the piece just keeps unwinding.

Jan 9, 2009 - 5:17 pm 59. Old Chief:

After much observation, I have decided that when otherwise bright people appear to be doing something obviously stupid, it is not because they are stupid. It is because they have goals not made public. The cover goal may be stupid, but it is publicly acceptable. The real purpose is quite clever, but not publicly acceptable.

Example? Disarming the people in order to reduce crime is demonstrably stupid; indeed, counterproductive. The folks advocating general disarmament are not stupid. Therefore, they have another purpose other then the stated one.

Another? Yielding to the demands of terrorists just gets you more terrorism. You can easily name several other examples.

What could that be? I just wonder.

So, spending 2.8 trillion dollars (or whatever the number is today) to ’stimulate’ the economy is obviously stupid. One does not correct the ravages of excessive debt by going into more debt. What could be the real purpose?

My theory is that the Chicago Way is to move very large amounts of money around very fast, distributing it in a way to secure the future of selected politicians, and guaranteeing that political power remains in the hands of selected groups. We, the people, will be distracted by razzle-dazzle and never know what happened to our money, or our freedom.

You will only slowly come to realize that you are poorer and more enslaved. The politicians will then call for a new, improved program which will lead to more poverty and less freedom.

Obama will make Madoff look like a picker. Hell, he will make FDR, who installed the biggest Ponzi scheme of them all, “Social Security,” look like a piker.

Then, everybody will get the government they deserve.

Jan 9, 2009 - 6:46 pm 60. Unsk:

Old Chief I believe you’ve got it! Them trillions sloshing around allow for much to be grifted by the right democrat hands.

It occurs to me that to a Marxist like Obama, deflation is a public good. It destroys private equity in those private ownership in those capitalist institutions like your home, your private property and your business, and paves the way for the dictatorship of the elites.

Jan 9, 2009 - 9:24 pm 61. buddy larsen:

that’s right –everybody loses something, but guess who loses the fruit of life’s labor and the power of independence –yes, the boojwah –Lenin’s hated bourgeoisie.

Jan 9, 2009 - 10:27 pm 62. buddy larsen:

a slo-mo ‘night of the long knives’, ball rolling since the middle of 2006, when it became likely that the Dems would take congress. culminating with exposure of the coming scandals all in one rush before inauguration, with the blow-off collapse of future enemy, the civil-rights power structure of wealthy jewish charities. maybe it’s not the communists tho –maybe its the nazis. we won’t see any triumphal parades down Fifth Avenue tho –too much 2nd Amendment.

Jan 9, 2009 - 10:44 pm 63. buddy larsen:

All silliness aside, this is is historical fact.

And bulging with implication. The little guy, the yeoman, the freeholder, should no longer analyze his world’s technicals & fundamentals (that is, the right & wrong), but only what the Royal Court is likely to next decree.

Out with the library, in with the tea leaves.

Jan 10, 2009 - 9:04 am 64. slade:

The real crime is how much of that short selling was underwritten by the big five investment houses.

Jan 10, 2009 - 9:25 am 65. buddy larsen:

Cramer says they were shorting their own stock –that is, selling it to me & slade at the same time they were shorting &leaking rumors to drive it down even more. How many of those rinse repeat cycles can you do during a two week 70% price crash? Well, a lot, the figures show it –those are about ten times normal short volume percentages. Talk about self-dealing. this is a whole new universe of it. It’s sickening –to do this to the fundamental national capital exchange in full knowledge that its successful operation depends inordinately on trust and confidence –and in full knowledge of how fragile and rare such attributes will always in the natural order be. We need perp walks.

Jan 10, 2009 - 10:22 am 66. buddy larsen:

Poor old stupid Babyface Nelson, using guns and getaway cars to rob a bank. All he needed to do was get a job there and click on an icon.

Hell you can even keep your job –crime is legal now. The word’s finally getting out –look at default rates across the board.

Christ amighty. what are we gonna do?

Jan 10, 2009 - 10:35 am 67. Unsk:

Buddy: We need perp walks.

Absolutely, but we all know we won’t get them because the perps are in full control now.

Your line that the national capital exchange’s “successful operation depends inordinately on trust and confidence” is a concept that eludes many. That is why the left’s successful attack on not only the financial sector’s financial safeguards, but on general ethics and morals will be so difficult to counterattack and rebuild from.

Jan 10, 2009 - 10:37 am 68. slade:

Perp Walks – d@mn straight.

I thought I was making progress in my Kubler-Ross 5-step program but I’m back at step 1 again. The problem, as I see it, is that the regulatory agents aren’t smart enough. We’ll get a boatload of anal cr@p we don’t need while the big leaks just get bigger.

Plus a weekly/monthly dose of “we’re all in this together” cheerleader speeches from Washington. Democrats always – always – (did I say always) – overplay the populist angle. They will again.

Jan 10, 2009 - 10:40 am 69. elfman:

6. evan….

VERY well said!

Jan 10, 2009 - 10:44 am 70. slade:

Chuck Schumer has publicly stated that “clawbacks” will be part of the new administration’s recovery package.

A “clawback” (also called “recapture”) is a contractual provision whereby a company may be required to pay back all or part of a development subsidy, such as a grant, loan or tax break, if it fails to fulfill its responsibilities required by the subsidy agreement or program.

That is probably the only avenue of redress that is available.

But it’s not a bad time to be in the litigation business.

As the pieces just keep unravelling.

Jan 10, 2009 - 10:50 am 71. buddy larsen:

yep –you start out to drain the swamp, realize you’ve really screwed up when you find yourself up to yer ass in alligators, then while you’re being et it dawns on you that the whole mess is about idolatry which the ancient wisdom specifically warned you against but you didn’t listen and so now getting et is in fact the least of your problems as you’re quite likely on your way to hell for eternity.

Fooey.

Jan 10, 2009 - 11:45 am 72. slade:

Yeah but will we know when we get there?

I am feeling sick, as in sinking. I expect 2009 to be slow to miserable followed by a 2010 recovery that will inch along for ten years at dramatically reduced velocity and volume. And that brass ring was so close. Too much information, I know. Carry on troops.

If I hear that phrase “infrastructure spending stimulus” one more time, I gonna do something that involves a ready shovel.

I think the Jerry Springer troll affected me. Such anger coupled with such confused thinking.

Long slog indeed.

Jan 10, 2009 - 12:29 pm 73. buddy larsen:

Did you look at that John Reilly piece, slade? It has a bullish nugget in it –something about rates of change –long moves in short time, due to the net and all. IOW the second derivative pulling up alongside the first as universal real-time communication flattens the er, ah, time/space continuum. Throws off a possibility that long slogs –long duration slogs –have already become artifacts. I know, i know –this is more of the ‘this time it’s different’ notion that lurks in every change and almost axiomatically creates its antithesis. but it might help account for why a world which should be overjoyed in its new material condition is instead suffused with angst & anxiety.

Jan 10, 2009 - 2:39 pm 74. slade:

No, buddy, I follow (most of) the links but I missed that one. Intriguing suggestion though – the global communication network bringing acceleration closer to velocity. The OECD countries would have to lead again – obviously – which raises the question of drag coefficients. In my simple world view, the Long War took a toll on general equanimity. I don’t see much of a future for geo-strategic policies premised on long-term kinetic warfare.

Jan 10, 2009 - 3:23 pm 75. tomw:

Helicopter Ben (our illustrious FED chairman) got his nickname for comments he once made about dropping cash by helicopters as one way to prime the pump. Keep an eye in the sky!
…………..

Problem is, he’s dropping the money while it is still in 100-bill packets, with steel bands and wooden end protectors. Small bales, one might say. Maybe the sky *is* falling…
I, for one, want the “money-bale umbrella” concession, for sure it will be lucrative and a real product, no?

Can one of the perfessors makin’ comments ’splain to me how it is that with 1)falling stock markets, 2)terrible bank interest rates, 3)sinking home values does it make ANY sense at all to pump money into the economy? It just makes all of the above WORSE!
My home is down, my stock (401k) is down, my certificate is down and they want to INFLATE to make money worth *LESS* ?!?
I don’t get it. Everything I worked for for the past 40 years is turning to worthless cr*p. And at my age, my job prospects will be limited to “Would you like frys with that?”
As the phrase goes, “We’re screwed.” Me, anyway.

tom

Jan 10, 2009 - 5:26 pm 76. Unsk:

Obama ’s plan is out! The all knowing all caring Messiah has done it again!

Not.

His plan is only a “framework” to be fleshed out by Nancy and Harry.

He just voted present again. He’ll let Nancy and Harry take the responsibility (blame) and he’ll take the credit if there is any to go around. How nice to know that Nancy and Harry have been given carte blanche. The devil is in the details and we know the fun details they can come up with. Ace of Spades has a report that some of his economic advisors were not too impressed with the Messiah and his ideas. The sacrilege!

Nancy has already trotted out several far left ideas like of course higher taxes on the “Rich”, but she needn’t worry. The Messiah’s plan is very politically correct even with it’s paucity of real substance.

The only thing she has to worry about in the plan is the “Business incentive” tax relief section. This tax relief is aimed at only the construction, manufacturing, retail , leisure and hospitality industries because (they admit this) they are heavily unionized, employ mostly low and moderate income workers, and lots and lots of black and hispanics. (Also illegals which they failed to mention somehow).

They also target the Energy, education, health and infrastructure with spending stimulus with of course no detail as to what that means. I guess the Nancy and Harry know what to do there.

There is a “State Fiscal Relief” section to make sure the state government workers are taken care of, of course. And what would it be without the unspecified section of “Protecting the Vulnerable”. Lots of goodies can be thrown at that.

And finally the “Making Work Pay Tax Cut”. If you are reading this blog regularly, this is not for you, or as promised for 95% of all workers. This is of course for low and moderate income people of unspecified (of course) means.

All and all a huge (755 billion) goodie bag for the favored special interest / Democrat constituencies and no one else. With absolutely no detail. I am absolutely positive the economy is going to recover with this pile of crap! Charles Schwab said so because the Obama advisors are all so smart! Even though they give us no smart details and Nancy and Harry are invited to load this turkey up with every Leftist give a way in the book.

Jan 10, 2009 - 9:34 pm 77. Unsk:

From Cianfrocco at Redstate on the stimulus plan:

“There’s a very strong assumption at work here, that the Obama stimulus plan will *in itself* relieve the uncertainty that is driving consumers to save rather than spend.

There’s no acknowledgment whatsoever that consumers are responding to the challenging economic environment by increasing their savings rates, and that this will continue for a long time. There’s an implicit assumption that this recession does not feature a fundamental change in the pattern of consumer demand, and this is an enormous error.”

This plan does not recognize that people around the world are scared shitless, and are adjusting their behavior accordingly. Consumers and investors. As a result, the plan has nothing to stimulate employers to hire in this financial collapse or investors to invest in any venture that has the slightest amount of risk.

I can’t see how the market is going to have much confidence in this plan. I am very concerned that the market is going to demand much higher returns on government bonds very shortly than the present close to zero rates, and as a result the real rate of interests will be very high, lowering returns on investment in an already risky environment. This plan is more likely to be a drag on the economy than a stimulus.

Jan 11, 2009 - 9:30 am

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