February 2009 Archives

Army of the Unemployed

By John Batchelor on February 28, 2009 4:24 PM | 12 Comments

Calculated Risk Identifies the Threat.

Not housing starts, not housing sales, not retail sales, not even the plunging stock market headed from down 50% toward down 66% from October 07 high. The threat is the unemployment number skyrocketing (blue), and the acceleration of the year over year change employment rate (red). The acceleration in both directions is thrilling if you are, like me, excited by catastrophes, dystopian romances of apocalypse, and just generally a fan of end of the world movies. What we see here is a Grapes of Wrath (Rage) scenario headed to Bladerunner (Rain) on its way to Soylent Green (Bones). The Obama administration budget proposal is Condition Rage, with enough class warfare to entice the poll numbers to favor the war on money and investing and corporations. It is an easy success to speak against the rich, and to demand that the rich pay their fair share. This does not answer the problem, it just frames

it. The markets shrug at the President's rhetoric. This is a worldwide collapse, and the ability of the US to manage the crisis is limited to not significant. The unemployed are an army. The army is at first spontaneous and rankless, but then it quickly finds leadership and voices; and the army in the US will find the army in Germany and Britain and Taiwan and Mexico and so forth. Then we will have a global rising. How long will it take? I found a quote last evening from the Baseline Scenario prodigy that I really like. "...it always takes longer than you think; but when it happens, it always happens faster than you can imagine." Look at the chart (right) on US unemployment, and consider this tale from Germany right now.

The Market Not Bottoming.

In case you avoided TV and the web the last hours, there is this chart from CR on the market sell-off, comparing the '29 crash (of the Dow) with the bear markets of 73-74, 02-04 and 08-09 (SPX). Long way below.

The 400 Enemies of the State

By John Batchelor on February 27, 2009 12:02 PM | 4 Comments

The Obama Administration Budget Targets the Enemies of the State.

They are identified by class and income but not by name, however the IRS knows their names, and so does the White House and the Congress. Why can't we have the names. And the crime? They are the 400 wealthiest individual taxpayers in the United States of America, and the crime is that they are getting richer while the rest of us are not rich.

According to the Internal revenue Service, the

Nation's top 400 taxpayers made more than $263

million on average in 2006, but paid income taxes

at the lowest rate in the 15 years in which these

data have been reported. In constant dollars, the

average income of the top 400 taxpayers nearly

quadrupled since 1992.

The Obama administration -- following FDR's genius rhetoric denouncing the "economic royalists," and following many well-known politicians before and since (William Jennings Bryan, Huey Long, Henry Wallace, Harry Truman, Adlai Stevenson, Dwight Eisenhower, LBJ, Richard Nixon, George H.W. Bush, Jimmy Carter, Walter Mondale) -- understands implicitly that class warfare works for polls, votes and media. Declaring war on the richest 400 is a guaranteed battle-cry. We are the Persians, and the swollen, ruthless, superhuman ranks of the lazy rich will not stand. The next development is that we want the names. The Forbes list is not exactly the same, though it would be close. We have watched a celebration of the rich since at least 1987 and the stock market crash at the Dow 2000 level. Now the sea change. The rich are to be castigated, pilloried, smeared and exiled. It worked for Huey Long so well that FDR feared the gifted scoundrel right up until the day a crank shot him down at Baton Rouge and ended what would have been a presidential contestant. The Obama team will find energy and applause in the war on the rich, and on wealth, and on plutocrats and top hats and the banking elite, and the White House, suffering the morbid markets, will be mightily tempted to redouble the rhetoric. Go to it, guys. It works. Check 1789 in Paris. Check 1848 in Berlin and Vienna. Check 1905 in Petersburg. Enemies of the State. Wreckers. Gougers. Mob rule. Levellers. Dictatorship of the Proletariat. Engineer's Conspiracy. War on the kulak (right, from 1934 Ukraine, the war already started in the new budget targeting wealthy farms). But most of all, denounce the "economic royalists" and the plutocratic pirates and their predatory dupes.

"If you underestimate the problem..."

By John Batchelor on February 26, 2009 11:43 PM | 4 Comments

Tim Geithner Calls In NPR Fan Club to Bolster His Status.

Adam Davidson, a chatty, aimless, soft talking NPR schmoozer, was called at the very last moment to do a phone interview with Tim Geithner on Wednesday 25, and it is just posted on the NPR site for the truly committed worriers. The conversation is educational not because of what Geithner imparts but because of his evasive, repetitive, scripted, defensive, opaque, rhetorical style. Geithner talks as if he is being watched. And he is. His PR flack was in the room as he talked on the phone, and it is reported, by NPR's on the scene reporter during the interview, that the PR flack ran around frantically shoving notes in front of Geithner as he talked, to keep him on script. This explains why Geithner uses the metaphor "cloud of uncertainty" as if he was clearing his throat. Davidson is a flabby interviewer, a gossipy, gee-whiz guy, reaching to simplify and to make cosy the conversation. Geithner does not fall for it, he stays vague, scripted, pedantic and routinely condescending in a patient father style. Given that Charlie Rangel thinks that Geithner rides a Razor scooter to work, and others think he looks 12 years-old, there seems a confusion of roles. The most telling part of the interview is not illuminating but instead filled with windy, cautious, balanced, inert, inoffensive, management language:

"...if you underestimate the problem

if you do too little too late

if you don't move aggressively enough

if you're not open and honest about trying to assess the true cost of this

then you will face a deeper long lasting crisis

and our judgment is that the necessary response is to try to bring more confidence

more transparency to the strength of the system

to try to make sure we make capital available where it is necessary to get credit flowing again

and to try and provide the kind of direct support that is necessary to get the credit markets flowing again..."

Citi Deal Announced Sort Of.

The day after Geithner's popcorn soft interview, Citibank says that is has reached a deal with the Treasury to allow the taxpayers to invest yet more into the zombie bank. The US now moves from owning 8% of the bank to owning 40% of the bank. Of note, moving from preferred shares to common shares, the people will not get paid a dividend. The board wil be rebuilt, but the usual suspect Vikram Pandit is to stay in his job as chief of the zombie. The market will shrug. Nothing impresses. It is that "cloud of uncertainty." It's raining. Hard rain. And my trader source tells me that next week's nonfarm payrolls will be a test of the SPX floor of 750. A day the market doesn't go down is a good day, that's what's left for the Obama administration to measure their policy. And for Tim Geithner? When do you know you have moved too little, too late, too nonaggressively, not openly, not honestly? Dow at 6900? 6000? I have no idea. Until and if "the credit flows again," any number is possible, and no solution will work.

Waiting for Tim and Charlie

By John Batchelor on February 25, 2009 5:25 PM | 16 Comments

At the White House Fiscal Responsibility Summit on Monday 23.

A seemingly small detail about Treasury Secretary Tim Geithner and Chair Ways and Means Charlie Rangel that I mention in the Daily Beast piece I posted today is the center of interest to more than one of my most discerning readers. At the White House on Monday, at the bipartisan Congressional leader confab, the 60 or so members were divided into working groups with special topics. The White House assigned places (this means Rahm Emanuel assigned places). The tax group was led by the facilitators Tim Geithner and Economic Adviser chief Christina Romer. It included senior politicians who are regarded as bipartisan suspects on the upcoming budget negotiation, such as Olympia Snowe, Jon Kyl, Max Baucus, Nydia Velasquez and Charlie Rangel. The conversation was random, wide-ranging and then focused when Charlie Rangel addressed Tim Geithner. Rangel lectured Geithner in front of the other politicians and the onlooking from Brookings and other think tanks. This is the detail that worries those who hear it with concerns about the Treasury stability. Tax policy is ahead of us. The White House needs Rangel to write the tax increases and revenue transfers it need to ell its plan to the voters. Maybe it will come to nothing. But right now the Obama administration has as much friction with its Democratic side as it does with the shut out throwing GOP. Waiting for Tim and Charlie to start throwing tax hikes across the table at each other. The speech yesterday (Mrs. Clinton is right in front of the President's head, and Tim Geithner sits beside her) was invigorating, but it all depends upon revenue and right now there isn't much.

How Bad Can It Get?

Treasury announces that the stress test begins now and will conclude for the 19 largest banks sometime in April. Because a thorough outside stress test of the assets and debts and obligations of a big bank can take up to a year, Treasury will use the bank officials to measure the bank portfolio. The fox apprentice will examine the fox books. And then pass it onto the Fed. And the grade will not be pass or fail. More like, you have six months to get yourself healthy and how much do you needs? Treasury already admits that the 19 banks cannot pass the test if the recession continues through 2010, unemployment goes to 10%, and housing prices fall 29%. In sum, the banks are insolvent now for what is ahead, and may be insolvent now for what is here. Meanwhile, the markets will not wait and neither will the consumers, retailers, employers who fill the stores with what consumers buy. It can get much, much worse than anyone remembers. Why is this man smiling? The Obama team needs huge tax revenue receipts. From where? Mrs. Pelosi pushed though another half a billion in spending today. See a post from Calculated Risk:

Timothy Leary of Geithner writes:
Something like 92% of American Retailers that had been in business in 1929, were bankrupt by 1933.
Just to give you a glimpse of your past and present danger.
Timothy Leary of Geithner | 02.25.09 - 4:40 pm | #

And below a notice for radio audiences in New York City for April 3, 1933: another crisis, and another type of Treasury Secretary:

Comet Harbingers War, Famine, Pestilence, Death

By John Batchelor on February 24, 2009 8:21 PM | 6 Comments

Or the Birth of Kings.

What's your choice? Comet Lulin reaches its closest approach to the planet this evening, at 38 million miles, about the same time the President addresses the nation about the financial crisis and the responses so far by the Obama administration. The President will use dramatic language to illustrate portentous times: "The weight of this crisis will not determine the destiny of this nation." Since the last time the President spoke to the prime time audience, the market is down 1000 points and the mood is decidedly Wagnerian. There is anecdotal evidence that the White House economic team is in disarray, or in denial, or is generally disconnented, disorderly and unfocused. Reports coming to me over the last two weeks point to more chos and decline of the markets and the national confidence. The President is in an untidy situation, since whatever cheering he does tonight will wear off by Thursday and Friday close. Any rally is a sucker's rally. We broke support at 750 on the SPX, and that has meaning. There is air below to the 450-600 level. That is ugly, inevitable, in fact market savvy, because we must test the prior support, and the prior resistance, in order to stabilize. The raging question of the moment is nationalization of the big banks. My sources tell me that the question is answered. The market says nationalization is already achieved, and what is needed now is for the Treasury and White House to quit stalling and move. Nouriel Roubini joins with Martin Wolf, Charlie Gasparino, Calculated Risk, Naked Capitalism and many more to urge swift action, to nationalize temporarily, shed the junk, and sell the good bits private. Lots of good bits that will bring premium. What is the bad stuff that won't have any buyers for some time? See example below.

Citi Toxic Asset from Naked Capitalism.

No White House pep talk can solve this ruin, and the Treasury is pushing our money into the bank that owns this folly. The TARP, the stimulus bill, the stress test, pulling Ben Bernankes's beard, nothing can solve this but time and laughter. And there are likely hundreds of these ludicrous schemes, and everyone of them paid millions in bonuses to the genius bankers who fashioned them.

Now consider this observation from a reader in comments:

I have a personal anecdote about Citi and the difficulty of spotting how bad their loans actually are. I'm involved with a $300 million condo-hotel development in the Caribbean. Citi has the whole loan (i.e., they didn't securitize or otherwise sell participations in the loan). Even now, we expect the hotel needs at least another $100 million to finish construction and open (we are no longer under any delusions that more than a handful of buyers will close on the condo portion of the condo-hotel). So, in other words, Citi is $275M into this project, and it's not certain that the completed hotel will even be worth the extra $100M required to complete and open. Hence, one might plausibly value this $275M loan at zero (i.e., a complete write off). I cannot imagine any stress test would uncover what a huge loss is on the way in the next 12 months. In fact, this loan has not even been pawned off to the nonperforming/distressed debt/workout section of Citi because the interest reserves make it "seem" like the loan is still performing, not to mention that completely out of date pro formas make it "seem" like (i) equity will come in to finish the project and (ii) condo sales will pay down a huge part of the principal once construction is complete. This scenario must be present in a large number of Citi loans, especially in their somewhat active foreign development divisions. Citi must be so far from solvent that it's not even funny. Only hyperinflation in the dollar could ever make it possible for the borrowers to pay back some of these loans. I'd bet that the sooner we face reality on some of these loans and just halt future fundings, the less money the taxpayers are going to lose. As it is, it's almost too late. Too bad for the US taxpayer.

The Comet.

Do you want to change your vote for what Comet Lulin harbingers? The fifth horseman is fear? Louisiana's Bobby Jindal will deliver the GOP's response after the President's remarks. He calls the President's stimulus plan "irresponsible." Right now, this seems generous. The Obama administration maintaining Citibank and Bank of America one more day is delusional.

Gabriel Over The White House

By John Batchelor on February 23, 2009 10:13 PM | 4 Comments

The Banks Do Not Have A Bottom.

With no end in sight to the financial crisis worldwide, with Citibank and Bank of America both zombies, with the markets selling off more than 15% since the President's prime time press conference of February 10, with the EU in a panic over unstable banks in the west and lifeless economies in the east, with no recognizable end to the decline in housing prices here or in Europe, it is time to leap into the mood of the nation in March 1933 at the depth of the Great Depression. On Tuesday March 7, King Kong, the greatest leading man of all times, opened at Radio City Music Hall and Rialto in New York and a star was born. Fay Rae, playing a good girl down on her luck for a meal, so accepting the lunatic proposal from a movie producer to set sail for Skull Island, was entirely believable and sympathetic to the pinched, desperate audiences of 10,000 at a sitting. Less credible to the audiences that month was the idea of a benevolent or competent political leadership. Hollywood recognized the opportunity, and provided a fantasy at the close of the month that fed the national longing. A swift melodrama, "Gabriel Over the White House," opened on March 31 at the Capitol Theater in New York and was immediately praised by critics and audiences as "very interesting."

Archangel Gabriel and the President.

The vivid Walter Huston is President Jasper Hammond, who is a wastrel and hack until he cracks up his car and almost dies. In recovery, the Archangel Gabriel appears to him to inspire him to lead the people righteously. The President springs to action, firing his quibbling, cynical Secretary of State, Arthur Byron playing Jasper Brooks, and then junking the whole back-stabbing Cabinet. The Congress moves to impeach and remove the President from office, but the President ambushes the Capital and takes dictatorial powers. An army of a million unemployed men are marching on Washington, and the Dictator/President rushes to Baltimore to confront them heroically. Gangsters kill the charismatic leader of the unemployed, and eventually turn their guns on the White House. The President's secretary, Franchot Tone, leads a counter strike against the gangsters that restores law. The President takes to the airwaves to declare a better day and that the nations who owe the United States money for war debts must pay up rather than spend billions on building armies and navies for war. The President/Dictator is successful in every endeavor but is suddenly flattened by a heart attack that kills him. His extra time on Earth since the car crash was well spent. Death calls him away.

Archangel Gabriel and President Obama.

And if the President was given thirty days, or ninety days, extra on Earth, between now and when the plot ends, would he entertain the half-measures, evasions, blame-shifting, illusions, far-fetched promises that have been the daily conversation of the administration since the prime time press conference of February 10? Would he schmooze with the master bankers (right on February 13, the President and JP Morgan boss Jamie Dimon, who just cut his dividend by 87%) and their kindred of Cain who triggered this ruin with their ruthlessness and ignorance? The markets do not have partisan opinions. Below 750 on the SPX is air. We are going to test 600 and then 450. Car crash dead ahead. The army of the employed swells and marches. Bullets at the White House. Time to call in debts from our allies and adversaries. There is either a global solution, or there is no solution. Gabriel, that is your cue.

Taxes As Far As You Can See

By John Batchelor on February 21, 2009 11:10 PM | 19 Comments

The Obama Administration Announces Tax Hikes on Saturday.

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The WSJ and other papers are featuring the Obama administrations creative presentation that it can cut the deficit to a mere $533 billion in 2011 (getting ready for re-election) as long as it raises taxes on the rich and the economy recovers and no additional disasters fall on Yankee Doodle. The rich is defined here as "families earning over $250k." Taxes as far as you can see on the people who pay most of the taxes. The plan also aims to raise the margin rate on the hedge fund team profits from 15% to 35% (and higher). There is language about universal healthcare. The President addresses a joint session of Congress in prime time on Tuesday 24 to boost the stimulus bill (right) and to pitch shared sacrifice. A three hankie speech of tears. The screaming and wailing and other sounds of grief will begin Monday morning and continue through the week. We have a theme. Obama the tax-in-chief. The explanation offered by David Axelrod is that they talked about this during the campaign. (Detail: the campaign did not much talk about tax hikes after the day the music died, the day Lehman failed, September 14, which was a major reason Mr. Obama was successful in November.) Does the market rally at the news that taxes are going up in 2011? Does the market welcome the clues for universal healthcare? Is there celebration at the idea that the hedge funds have just lost their identity. And what to do with the Obama team presumption that there is a recovery by 2011? That means they will call it a recovery and make a campaign on illusions. It is a plan.

Dr. Doom Delivers.

And what does the President say of Nouriel Roubini's sober measure in Tunku Varadarajan's interview in wsj.com? The Roubini and collective recommendation is to nationalize the banks now and get through the ugliness. Because otherwise we will have to do it later, get the ugliness anyway, and we will be much poorer and more discouraged.

"Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step."

Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.

"So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they're stronger! Nationalization -- or 'temporary receivership,' if you like, if the N-word is a political liability -- is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up."

Bank of America Plays It For Laughs

By John Batchelor on February 20, 2009 11:44 PM | 2 Comments

Ken Lewis Is the Gift Who Keeps On Giving.

Heidi Moore's wonderful Deal Journal at the Wall Street Journal online published a memo that is not a send-up from the completely disconnected and doomed Ken Lewis, boss of the doomed Bank of America, sent to his flacks, cronies, serfs and creditors today in order to demonstrate that he calls grown-ups with the infantilizing "teammates." There is no reason to annotate this folly. Lewis's behavior at the House and Senate testimony the week of 9-13 February was, according to Heidi Moore, a "near meltdown." Except for the soft Southern accent, Lewis is an unsprung bear trap. You will recall that the villain Dick Fuld called and called to the Lewis home that last weekend before the music died, and at one point Mrs. Ken Lewis answered the phone and remarked, "Dick, if Ken wants to speak to you, he'll call you." And that was the end of Lehman Brothers. Now these are the last days of Ken Lewis and his Marie Antoinette doll spouse. From this memo, he is likely sleepless or narcotized or both and spends every moment on his mobile phone or his blackberry making demands of servants. This is a recognizable tale. St. Petersburg, the Tsar's household, 1916. All denial, all delusion, a sentimental self-demolition.

Memo From BofA's Lewis: Rough Week for Stock, Good Week for Business

Posted by Deal Journal

Bank of America's shares hit an intraday low of $3.19 a share today, a level not seen since August 2, 1984, when the bank traded at $3.17 a share. Chief Executive Kenneth Lewis is having his own difficulties over his bank's acquisition of Merrill Lynch. It must be time for some morale building, and to that effect, here is a memo Lewis sent out to his staff today:

Rough week for stock, good week for business

To my teammates:

Public debate on the subject of potentially nationalizing some banks continues to put great pressure on our stock. And yet, our company continues to be profitable. I see no reason why a company that is profitable, with capital and liquidity levels that are very strong, and that continues to lend actively, should be considered for nationalization. Speculation about nationalization is based on a lack of understanding of our bank's financial position as well as a lack of appreciation for the adverse ramifications for our customers and the economy.

Bank of America does not need any further assistance today, and I am confident we will not need any further assistance in the future. I believe our company has more than enough capital, liquidity and earnings power to make it through this downturn on our own from here on out.

There is no question that the recession is continuing to worsen and that rising credit costs will continue to put great pressure on our ability to generate earnings. But here's the good news: Your hard work is producing results in businesses all across the company.

While I can't divulge any specific financial results mid-quarter, I can tell you that activity in our trading business continues to be vastly improved over last quarter. The corporate debt markets are showing some signs of thawing in both high yield and high grade, and we're already seeing some benefits in the market of our combination with Merrill Lynch, in terms of winning mandates to raise capital for new and existing clients. And Merrill Lynch Financial Advisors posted nearly a half billion dollars in CD sales in the first four weeks these products were available to their clients.

On the retail side, our customer satisfaction scores are up at a time when others are down. Our brand, which took a beating in January, strengthened in early February, as customers gave us high marks for trustworthiness and perception that money is safe with us. In the first week of February, our Go America, Save! promotion boosted CD sales 18% and IRA sales 10% over the prior week. We extended our industry record this week for number of active mobile banking customers, surpassing the 2 million mark. And this week, a consortium of banks, including Bank of America, launched the Help With My Credit campaign to raise awareness of the different ways credit card issuers can assist customers in managing their financial obligations.

I am really encouraged by what we're seeing in our home lending business. The mortgage boom is so intense we actually pulled down some advertising for a brief period to give our teams a chance to catch up to the volume, but they are running at full tilt now and processing record volumes. Our decision to acquire Countrywide has put us in a great position to capitalize on the surge in this business. This is a very positive story as we lead up to the launch of our new Bank of America Home Loans brand in April.

Yesterday, I met with a group of about a hundred of our top leaders to discuss what's going on in the businesses and listen to their thoughts and concerns. We talked about the great challenges we're all facing in the marketplace. But we also talked about how encouraging it is to work with such strong teammates, to have the trust and support of our customers and clients, and to have the position in our markets that we do.

As we concluded the meeting, I told them that we have a clear challenge in front of us: to prove the cynics and the critics wrong. I know we can do that - in fact, I think we're doing it now, in the work each of you is doing every day, and the business results you're putting up on the board.

Thank you for that. Let's keep the momentum going.
Ken

Bankers Go To Jail

By John Batchelor on February 20, 2009 12:32 AM | 5 Comments

Andrew Cuomo Subpoenas Bank of America's Ken Lewis.

The opera builds and builds around significant characters with potent motives to misbehave on a national scale. NY State Attorney General Andrew Cuomo pursues the argument that Ken Lewis colluded with John Thain to conceal the facts of Merrill's beggarly condition from the public during the Bank of America purchase of Merrill in December 2008. What Andrew Cuomo actually pursues is the decision either to run for the U.S. Senate against the appointed Kirsten Gillenbrand, or to challenge quixotic accidental Governor David Paterson in the Democratic primary next year. What Andrew Cuomo wants is the presidency. Therefore the fair assumption is that he will go after Paterson and Albany. And the surest way to Albany is to walk over the broken reputations and trashed fortunes of Ken Lewis and John Thain and their kindred of Cain. Will delivering the heads of Lewis and Thain be enough for the Democratic nomination of 2016? Yes.

FDR and the Bankers.

The two most critical heads that FDR delivered as governor of New York were Bernard K. Marcus and Saul Singer, president and vice president of the Bank of the United States. Late 1930, rumors about the bank made for long lines around the branches in New York. On December 11, the bank closed its doors, beggaring or wiping out tens of thousands -- the worst failure in the country till that date. Late June, 1931, the trial was closing with Marcus and Singer convicted of misapplying $8 million and wrecking the bank. Judge George L. Donnellan lectured them, "I believe it was greed..." and then sentenced them to Sing SIng for three to six years. Singer's son Herbert was given three months to three years. The public jeered and cat-called. After sentencing, the bankers ate egg and cheese sandwiches in the Tombs. Their appeals delayed their fate for two years but did not erase their crimes from the public memory. March 1933, FDR ascended from Albany to Washington, passing an Emergency Banking Act in his first week. FDR's first fireside chat made a pointed reference to Marcus and Singer: "Some of our bankers have shown themselves either incompetent or dishonest in their handling of people's funds. They had used the money entrusted to them in speculations and unwise loans..."

Sing Sing.

Two weeks after FDR passed the Emergency Banking Act that began the rebuilding of the crooked and broken banking system, Marcus and SInger their appeals exhausted, took the train from Grand Central to Ossining along with two deputy sheriffs. They took a 25 cent taxi ride to the prison, paid for by the bankers, and reached Sing Sing at 5 PM. The clerk John McCue entered Singer in the books: 51 years old, home in Larchmont, turning over $22.60. Saul Singer, 42, from West 77th Street in Manhattan, gave over $22.55. Both men were asked, "To what do you attribute your criminal act?" Both answered, "I am here to do my time." Marcus also handed over his large gold signet ring. Their first meal in prison grays was corned-beef hash, sliced cheese, corn cake, bread, tea and milk.

Lewis and Thain.

It is too much to much to hope that Ken Lewis and John Thain could ever be obliged to take a train to Ossining and eat corn bread alongside other crimnals. Still, Andrew Cuomo surely knows that anything close to the headline-dominating popular prosecution and humiliation of Marcus and Singer would aggrandize him. The public wants the spectacle. No one in America can find votes or profit in defending the bankers. They are everyone's villains. Marcus and Singer helped to carry FDR to the White House. Lewis and Thain can help carry Cuomo as well.

BNP Roaring

By John Batchelor on February 18, 2009 11:53 PM | 9 Comments

British National Party Preaches Protectionism to Hosannahs.

The news that the sad, unemployed people of the old fishing village Grimsby in the north of England are grumbling at the foreigners in town, who work cheaply at the Elf Total refinery, pointed my best labor correspondent and then eventually me to the BNP website to learn what the British brownshirts are about. The financial crisis is the BNP's fertility. Celebrating protectionist labor policies is the way the BNP is promoting itself while bashing the heroically hypocritical Labor and the Tory crybabies. The BNP wants all the foreigners turned out, wants all the jobs in the hands of "real" Brits, wants political punch in Parliament. The BNP rising was an idle ambition during the boom, but now it is likely inevitable. Why? Because the facts are with the party that cries, "Britain for Britains!" ("Some 9 percent of the workforce is now from outside the EU -- up from 5.3 percent in 1997. According to the Migrationwatch study, the number of UK nationals working in other EU countries is approximately 286,000 as against some 1,172,000 workers born in the EU currently working in the UK.") The fresh strength of the party is that every voter believes what it says. Two years ago, Gordon Brown boasted he would protect British job. Now the only job he has the savvy to fight to protect is his own. Gordon Brown, Alistair Darling, David Cameron are all on the wrong side of the argument on protectionism:

Gordon Brown called it" the greatest threat to the world today", whilst his Chancellor Alistair Darling told the Commons "it is very, very important we don't have protectionism". Tory leader David Cameron, and Liberal Democrat finance spokesman Vince Cable, nod their heads sagely in agreement while Lord Mandelson wags his finger at British workers shivering in the snow as they protest at their jobs being taken by imported cheap labour, telling them "we must not retreat into economic protectionism".

But the British National Party says that is exactly what we should be doing. Protectionism simply means protecting British firms and jobs from cheap foreign imports and cheap foreign labour. It means imposing tariffs on the imports that put British workers on the dole, and banning multinationals like Total Oil from bringing in foreign workers to undercut British workers in their own country.

Mr. Obama's Trip to Ottawa Will Strengthen the BNP.

The "Buy America" mandate in the stimulus bill just signed into law by the President has profoundly reinforced the BNP message. French President Sarkozy demanding French supremacy in trade, in employment, in finances, also supports BNP. All the bad news in the EU banks supports BNP, since there are no good answers, and the BNP provides the satisfyingly simple rage: "Foreigners get out!" Is an "America First" mania coming our way? Already here, and we have just started the spiral downward. Will America turn on the Chinese labor, the Latino labor, the India labor? Yes. Already.

No Suicide Notes In A Depression

By John Batchelor on February 17, 2009 7:41 PM | 12 Comments

Winter 2009.

My best UAW source sends along a sobering story from Detroit of a 53 year-old laid-off, disabled GM worker, Timothy H. Regan, who quietly gave away all his possessions and waited in his recliner in his empty apartment for the knock of the eviction notice from the court. When it came in late January, Tim quietly went out the window. There was no note. In fact, the eviction servers did not realize Tim had jumped. They cleaned out what was left into a dumpster and only gradually understood that the sirens were because Tim was dead below. Unmarried, well-liked, unassuming Tim lost his job on a Black Thursday in 2006 and quietly ran out of money, healthcare, time and explanations. His family members loved him and left him alone. The silent sadness contains a mystery. No note. Why no note?

Winter 1933

I have mentioned before the three odd stories if suicides without notes from the winter of 1933: The first was Merrill D. King, 45, president of the Rex Paper Company of Kalamazoo,

Michigan, was returning from a business trip in Havana, flying on Eastern Air Transport from Miami, bound for Newark, New Jersey. Thirty miles from Charleston, over the Edisto RIver at 800 feet, King got out of his seat and went for the door. The pilot, G.L Pomeroy, and other passengers saw King struggling to open the door, and called out for him to stop. King forced the door despite the air pressure and went out wordlessly. Another passenger reported later that on the bus ride to the Miami airport, King had asserted that he had "lost everything," and that he was suffering extreme headaches. Mr. King left a wife and three children. When notified, his widow said she knew of no "unusual business worries," and that he had not been in poor health. The second suicide without a note was March 1, 1933, when a 35 year-old New York City worker at the furnaces, complaining that he couldn't keep his family on $30 a month, climbed over the catwalk, said, "So long, Mike" to his mate, and leaped into the 400 degree furnace. The third was on February 28, 1933, when a sugar salesman returned from luncheon to his office at 99 Wall Street and climbed over the guard rail and leaped from 31 floors. I include two other noteless suicides in 1933, in Great Britain: The first was Phillip Henry Chetwynd, 27, graduate of New College, Oxford, a barrister in the City, the only child of a widow and a late Royal Navy captain, who one afternoon in early November 1933 stood alone on the Piccadilly station platform watching a train chug to a stop. The engineer told the court that he saw this tall young man throw his umbrella aside and leap directly under the slowing locomotive. No note was found. No romance mentioned. No debts, with two trust fund paying him six hundred pounds a year. The court ruled death by temporary insanity. One fellow commented, "He was trying to get work, but in the city, that's pulling a dead horse." The second suicide was a widow, 54, who was found dead in her bed in a bedsitter. No note. Her chin was wrapped in the style of the time to fight off a double chin. Death by overdose of a sleeping sedative. Her banker attested she was stable with comfortable money in a local account and income from Canada. There was a romance, a man who had gone on to North America, but no foul play. The corner ruled it death by accident, but everyone shrugged and asked again, "Are you sure there was no problem with money?"

No Notes.

What does it means that none of these very different people -- varied class, age, geography, occupation -- left a note? A colleague reminds me that the Romans committed suicide in order to regain honor. I cannot see a pattern. One moment the man or woman is there, and then he or she is gone. Is it like a virus? Can it strike anyone? Do many feel it, do many think about it and almost do it, and yet just a few act? There have been many suicides related to Bernie Madoff's crimes. Are the Madoff-related suicides different than Tim Regan's? Tim Regan's careful, thoughtful, silent preparation is haunting. He helped give away his treadmill the morning of his death. He unscrewed the window so that he could get out quickly. He left no wallet, no cell phone, no laptop, no debts. No notes. What to think when you watch someone you know who is out of work, or who is about to lose his or her job, go out in the morning looking for work, or security, or a new direction? Is there a question to ask? "Are you okay today?" Tim Regan didn't complain. His pal Darby said afterward, "We were supposed to go to a hockey game..."

Chula Vista

By John Batchelor on February 16, 2009 10:50 PM | 11 Comments

Those Missing Trillions.

The magical Calculated Risk features a video tale from Jim the Realtor in Chula Vista, south of San Diego, that illustrates the scale of the missing money. And why it is believable that

the eight fool big banks may all be insolvent before the Four Horseman are done with the planet. With Jim the droll and crack wise realtor, we visit a block of $1.4 and $1.6 million homes that are bland, tidy, swollen with Toll Brothers extravagance, and laid out on the rolling naked hills of San Diego County just north of the border. All seems normal and upbeat until Jim stops at two foreclosed haciendas that most resemble the other bustling mansions. The first is 4300 square feet (right), and resembles a series of children's blocks all assembled to be a house for grownups. There is an abandoned fish pond in the front walk. The interior has been stripped by the fled owners (below). Jim keeps saying, "This is $585k." Walking through it, you wonder why anyone would buy it for anything. But then you realize that the rest of the block has million dollar plus mortgages. The scale of real estate crisis. The whole neighborhood is underwater. It is junk. The people are paying their monthly mortgages -- and Jim said 8 of the neighbors have $1 million dollar paper on their houses -- while nearby

is a ruin that wrecks all value. Next door to one ruin is another -- 5300 sq. feet at $889k. It is also grim, stripped, abandoned, with a hole in the backyard that was supposed to be a pool or a cabana. Jim reminds us that this whole neighborhood is beneath the flight path to the San Diego airport, and that several planes have passed overhead. Not pleasant to consider that it is easy to count at least $10m of completely never to be recovered house debt. Debt that is now a burden to rich people. Banks passed those mortgages along where they were rolled into the sausages that were sold around the world. And smart guy built derivatives to represent the sausage; and you coul buy and sell both sides. All this is now part of the toxic waste that has wrecked the banking system worldwide and made Citi and BofA and major EU banks insolvent. Those missing trillions all began in the empty smokey skies and shrub brush hills and beige stucco rancheros of Chula Vista.

Buy Canada

By John Batchelor on February 15, 2009 11:52 PM | 5 Comments

Smoot Hawley Creature Stalks the Planet.

Spoke Sunday 15 with Bernard Simon, Financial Times, at Toronto re the Chrysler and GM crisis talks with UAW over health care for pensioners and concessions that the car companies need to continue viability. The Canadian government is alarmed and pro-active re the fragile condition of GM and Chrysler. More cars are manufactured in Canada than in Michigan, all car companies not just the two in trouble, and any severe change at GM or Chrysler will be blow to the Canadian workforce. In the course of the conversation, Simon Constable and I asked Bernard Simon about the "Buy America" mandate in the stimulus bill about to be signed by President Obama. Bernard Simon reported that it is a major concern to Canada PM Stephen Harper at Ottawa (right) and will be a focus in conversation this Thursday when President Obama makes his first trip to Canada. We can be sure that the steel dispute will be a loud debate on Canadian TV and American cable coverage of the President's visit. So

far the Administration is unconvincing that it can manage the mandate in the bill that the President will sign tomorrow. Bernard Simon then told us that he had already heard "Buy Canada" talk in Ottawa. Aha! Simon Constable and I jumped on this seemingly rhetorical detail, because it is evidence that in conversations not for TV that Canada is rehearsing the retaliation for the stimulus bill. Canada is the number 1 trading partner with the US. America sells more steel to Canada than Canada sells to the US. And yet the House bil, written secretly by Nancy Pelosi, included the "Buy America" mandate, and Congressman Jim Oberstar was adamant that it must survive the conference. It did. Now the game becomes "Buy Canada."

Where Else?

Spoke also Sunday 15 to Mary Kissel, Wall Street Journal, in Tokyo, re the sad state of the Japan economy, the crushing collapse of the GDP, worst since 1974-75, and we asked after the protectionism creature in Japan and East Asia. Mary Kissel rejoined, "They can't fight

back. They need to export and export to America. If Japan or China retaliates, it's economy will sink." The sinking is well underway. However Simon Constable and I accepted Mary Kissel's measurement for now. For now. (We also shuddered at the prospect that China devalues the yuan to keep jobs, because that would be a global trade war nuke.) Also we noted that we are hearing too many anecdotes of protectionist rhetoric to pretend that it is not a problem. Russia PM Putin mentioned "Buy Russia" about combine harvesters; France President Sarkozy mentioned "Buy France" about cars and car parts. Egypt has raised tariffs on sugar imports. The EU has raised tariffs against imported China manufactured screws. The Smoot Hawley creature is restless. Everyone is watching. Rebecca Christie, Bloomberg, told us Sunday 15, as she was just back from the meeting, that all of the G-7 ministers conveyed their alarm about the stimulus bill mandate to the new Treasury Secretary Geithner. And while the public statements were unruffled, the private statements were that the new US administration has erred and best correct. Tim Geithner (below) was not consoling, instead continuing to speak in generalities, platitudes, goals, his customary term paper summary style. Mention that we heard nothing comforting fro any of the professionals on Sunday 15 that the Geithner style is effective to the markets or to the allies. One whispered remark to us about Geithner and foreign officials was "They think he's a grad student."

Geithner Problem

By John Batchelor on February 14, 2009 4:48 PM | 10 Comments

Suddenly Tim Geithner Is The Problem In Rome.

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The Tim Geithner flop on Tuesday 10 at his Treasury maiden speech that was to roll out the Obama administration recovery plan -- the metaphor of the three-legged stool -- is now the weak seam in the American government that will be attacked and opened by U.S. rivals. Jim McTague identifies the twin errors made by Geithner in his first weeks in Jim's pithy column this weekend in Barron's, the tax fraud errors in his confirmation hearings, and especially the Treasury speech: "But Geithner delivered none of the promised thunder. The all-important asset piece of the plan was "conceptually hollow," moans a financial executive. The old adage is that the Street abhors uncertainty. Geithner served a three-course meal of the stuff." Those twin errors are fixed and have given everyone doubts about the credibility of the Obama financial team. However it is what happens next that will tell the tale, and it may have already done at the G-7 meeting in Rome starting Saturday 14 (above). Geithner was challenged by the other ministers to comment upon the "Buy American" mandate in the stimulus package just passed by the Democrats, and his response, as characterized in the Wall Street Journal, looks to be obfuscation and repetition of the concern (my ital):

The comments come as some countries, including Germany, have expressed concern about protectionist tendencies following a "Buy American" provision in the U.S. government's $787 billion economic stimulus package that requires that purchases for infrastructure spending come from the U.S. Mr. Geithner said the stimulus plan will create a foundation for an economic recovery. The French government's plan to lend auto makers €6 billion in exchange for a pledge not to cut jobs has also raised concerns about a slide towards economic nationalism.

The ministers can only have shaken their heads in despair. Can Geithner answer a question straight? Does he have more than goals? The "Buy American" mandate is an attack on G-7 trade. Is Geithner reading the reports from the WTO? Joe Sternberg, Asia Wall Street Journal, told me last eve in San Francisco, Friday 13, that a Shanghai paper is stating boldly that the Americans are looking to raise tariffs. In Seoul, Joe was told by savvy Korean officials, "What are they doing in Congress? Don't they know what Smoot Hawley did?" If this alarm is commonplace in East Asia, then it is a panic in Europe. And Geithner's response is to explain nothing. Jim McTague states correctly that what markets despise, and run from, is uncertainty. Tim Geithner is Mr. Uncertainty.

Trillion Dollar Valentine's Special

By John Batchelor on February 13, 2009 9:33 PM | 3 Comments

Tonight's Special Broadcast from KSFO San Francisco.

Speaking with members of my financial and political roundtables tonight re the grim week on

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the stock market, off 5%, in the face of the President's prime time presser, the Tim Geithner speech of vagueness and the pushing through of a helter-skelter stimulus package with Democratic votes and the cooperation of three fragile Republicans, Susan Collins and Olympia Snowe of Maine and the elderly Arlen Specter of Pennsylvania (right the House and Senate conference earlier this week). The final vote for the conference bill in the House was very close to the original rejection by the GOP in January, 246-183. All 176 Republicans voted no to the pork, and this time 7 Blue Dogs joined them, making the bipartisan vote the "no" vote. On the Senate side, the vote is being held open for Sherrod Brown to fly back form his mother's funeral memorial in order to cast the deciding 61st vote. The stimulus bill is now entirely a Democratic contraptions. The markets and the polls show uniform doubt, worry, incredulity, annoyance, rejection, distrust, impatience. It was not a good week for the economy, and it was a worse week for the new administration, capped by the Judd Gregg abandoment of Commerce and the GOP rejection of the President's charm offensive. Then again, Nancy Pelosi was a clear winner.

What Passed For Good News.

Stocks Unable to Get Traction

The markets were in free fall all week; the Baddie Bankers of Fools (right)were casually insincere and condescending before Congress, so what passed for good news came at the close with a sober announcement that JP Morgan Chase and Citigroup will suspend foreclosures for an indefinite period. Am sure this cheers those folk up who are six months behind in their mortgages, can't find a place to rent, are trying to keep the children in school and their jobs in place, and now they learn they wont be out on March 1. Good news? More of this to follow, when it looks positive that it isn't worse.

Schedule for Friday 13 February KSFO.

600P Pacific Time: Jim McTague, Barron's re the Geithner speech and the market lack of respect for the $1 trillion stimulus bill. Stocks Unable to Get Traction

611P: Charles Gasparino, CNBC, re the testimony of the eight CEOs of the big money center banks on Capitol Hill.

620P: Ken Silverstein, Harper's, re the strange jaunt of David Plouffe, Obama campaign manager, to Baku, Azerbaijan, to meet with the long-time strongman, son of the long-time strongman, Aliyev.

761P: Jed Babbin, Human Events, re the Geithner speech, the $1 trillion stimulus vote in the House.

642P: Major Garrett, Fox News, re the stimulus package.

651P: Stimulus surprise.

705: Geoffrey Fowler, Wall Street Journal, re the Berkeley Buddhist Temple and the Brunch Bunch.

715P: Harold Holzer, author, "In Lincoln's Hand," re a Smithsonian collection of Lincoln hand-written documents reproduced and annotated.

725: Joseph Sternberg, Asia Wall Street Journal, re the Koreans and their upset with the "Buy America" mandates in the stimulus bill.

734P: Bill Roggio, Long War Journal, re Afghanistan, the Shadow Army, and the martyr attack in Kabul.

745P: Henry Miller, Hoover Institution, re the stimulus bill and no stimulus for R&D, re the mysterious non transparency of China reporting on H5N1.

754P: Lou Ann Hammond, Carlist.com, re the Chrysler failure Valentine's Weekend

Note from Tom Donlon

Below a thoughtful, helpful note from Barron's Editorial Editor Tom Donlon re the question of the so-called Long Depression from the Panic of 1873 until perhaps as late as 1897. The newspaper editorialists were uniformly fretful about class rivalry, labor unrest, strikes, unionizing, mobs, violence and the Gilded Age indifference of the great fortunes. The politics of the period were dominated by the Republican Party ruling through Congress with an imperial confidence, even with the interruptions of the split terms of Buffalo big man Grover Cleveland.

You ought to reconsider the history of the period 1873 to 1897. It was a period of declining prices and increasing productivity never achieved before or since. Labor in the U.S. grew cheaper because of mass immigration, but everything else shrunk in price and expanded in availability to match the decline in wages. Energy grew cheaper because of mass coal-mining and cheap transportation, transportation grew cheaper because of cheap coal and technological improvement of steam engines and steel-making, steel grew cheaper because of cheap coking coal and cheap transportation, grain grew cheaper because of mass production, new farm machinery and cheap transportation, etc., etc. The great industrial fortunes were made in that period. Not just in America, but in England, Germany, France and Italy. It's also the period when compulsory education was introduced, which set the stage for the advances of the 20th century.

Regards,

Gregg and the Lawyers

By John Batchelor on February 12, 2009 11:56 PM | 4 Comments

Writing for the Daily Beast Tonight.

The sudden running away of Judd Gregg ("Oops, I made a mistake...") from the Commerce nomination is one of those Washington stories that makes for fun speculation. I passed the

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evening happily writing my thoughts and will post them tomorrow or soon enough, however what is left over is the puzzle as to what a strange ceremony we have with regard the executive branch. Congress doesn't make that much sense, but the idea that you get to elect (and reelect) a human to represent a region at least stands up to logic. Representative government. But when it comes to the executive branch, what is the thinking of Cabinet posts? We have to pretend that the secretary is well-educated for the job? And that his or her appointment demonstrates a thoughtful result? These are patronage jobs, everyone of them. Not about civil service, but rather about civil plunder. Commerce and HHS are the two big plumbs, but Homeland has become a sinkhole of favoritism. This was less obviously a problem during the Wall Street boom 1988-2008, when the Dow went from 1900 to 13,000, and a civil service job in the hilariously sweaty and traffic-choked District was regarded as a booby prize or, for the homegrown, as going to work at the plant. But now, with the global downturn, with what I now routinely call the Great Depression, the Remake, the patronage jobs in Washington look miraculous. Healthcare, vacations, low workload, much opportunity to move to other departments and up, long breaks for retraining and seminars, and opportunity to moonlight and consult either during or after you network to the right budget line. There will be demands on the jobs. The layoffs among the elite are just starting. We are shedding 500k jobs per month and accelerating. The Wall Street Journal features a bulletin that the economist warlocks who were heretofore projecting recovery in the third quarter are now hedging that there may not be recovery until 2010. At the present rate, we will be down another four million jobs. Overmuch? Let's kitchensink the crisis. We are accelerating downward at the same rate as in the gritty recession of 1974-75. That decline stopped suddenly. We shall see. Soon.

All The Lawyers.

Why those Washington patronage jobs may suddenly be fought for is the news that Thursday was Black Thursday with massive layoffs at many famous firms and lots of medium and

small firms. Lawyers and staff. Sweeping. And positions are being eliminated for summer interns. These are the well-educated, the jumbo mortgages, the private school bills and vacation travelers and new car buyers. Grapes of Wrath time for them, heaping the kids and the Macbooks into the SUV and heading like the Joads to DC to call on Commerce, HHS, and Homeland. Maybe bunk in with the brother's family or a rented house. Job search. Those Commerce jobs have great healthcare, and there are fewer cars on the road now, no one driving aimlessly, no shopping or hank-panky. The lawyers in search of a place to hide out during the storm. Maybe they can try politics (Gregg's job looks easy, just say yes and no goofily and randomly and make statements that you don't believe), I hear there are openings every two years and that the competition is hodge-podge. The sharpest observation I found today was again posted on the Calculated Risk site, a lawyer watching for the reaper:

Josh writes:
I'm in this hated profession and monitoring this stuff for my firm.

The layoffs and salary freezes and bonus reductions all started last year, so today was just a really bad day in the profession among many merely bad days.

The real news in my mind today was that a Philly firm (Wolf Block) reduced associate salaries by 10%.

There were freezes up to now, but no affirmative reductions that I know of.

I check Calculated Risk and Mish and Naked Capitalism and Minyanville a few times a day at work, and feel much better for it. Our firm (150 or so employees total) is determined to roll with the punches for the clients who pay us. They have budget problems, we have budget problems.

We'll see if other firms follow suit with the salary cuts. I suspect quite a few will.

Like everything else in this country, the biggest problem in the dynamic is debt. Law students often take on huge debts for school, and then have to go to private practice regardless of their original intent in order to earn enough to pay their debts.

Probably about the same problem as every other area in the U.S. where kids are lured into debt with false promises of riches and happiness.
Josh | 02.12.09 - 11:31 pm | #

Zombie Bankers

By John Batchelor on February 11, 2009 11:58 PM | 7 Comments

The Gang of Eight Were Unconvincing Before the People's House.

My best Congress source tells me that the eight CEOS of the eight banking houses (Goldman Sachs's Lloyd C. Blankfein; J.P. Morgan Chase's James Dimon; Bank of New York Mellon's Robert P. Kelly; Bank of America's Ken Lewis; State Street's Ronald E. Logue; Morgan Stanley's John Mack; Citigroup's Vikram Pandit, and Wells Fargo's John Spumpf) were unconvincing, condescending, irritating and insincere today, and that most of the Democratic members struggled with the fact. It was the

Democrats overwhelmingly who voted for the original TARP program on September 29 and then again on October 3, 2008. The Republicans in the meeting today sat by and watched the questioners squirm and the questioned pontificate and bloviate. Not a good day for the Republic if clarity and candor are the aim. The facts are that at least two of the bankers at the table of eight today area leaders of zombie banks. Citigroup is insolvent. Bank of America is insolvent. Both are being kept alive artificially with Federal Reserve power and Treasury maneuvers. How long can they be kept stumbling around like creatures from the Night of the Living Dead? No one has given a firm date but a good guess is about 6 months. We can either nationalize them now and take over their assets to be administered by the FDIC -- polite terminology, let the failure happen -- or we can nationalize them later. I am told that Citi and BofA cannot survive. We are delaying the inevitable. Why? There is not a clear answer. The Obama administration seems to believe that the banks are too big to let fail, and that their failure would create a death spiral, or perhaps just a hostile swoon by the public. We will likely know before the year is done.

Bank of America's No Good, Very Bad, Awful Day.

Ken Lewis of Bank of America did not suffer fools happily today when taunted and derided by the congress members. But today is nothing like the bad day that follows because of the breaking news story in the Wall Street Journal that last December Merrill, Lynch contrived to pay out fortunes to more than 850 executives. And that Bank of America knew about the pay outs before it closed the deal to buy Merrill. The facts are stark, all laid out by the enterprising New York State Attorney General Andrew Cuomo, who says he aims to investigate the more this "disturbing news." Fourteen executives were paid collectively $289 million. One hundred and forty-nine were paid collectively $289 million. And six hundred and ninety-six were paid $1 million each. This from a firm that lost in the fourth quarter more than $27 billion. Plunder, greed, folly. Every dollar of that money came from the U.S. Congress, from the TARP monety voted so eagerly by the Democrats of the 110th Congress and distributed so purposelessly by the conniving and obtuse Treasury Secretary Hank Paulson.

Ken Lewis Snapping.

The acerbic and witty Heidi Moore, Wall Street Journal, was a live bloger today at the gang of eight hearings, and she was dead on savagely smart the whole seven hours. Her many good moments for me (and we will discuss her day on the show Sunday 15) came to this at approximately 4 pm, with Ken Lewis struggling to stay civil.

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3:58: Lewis is getting dangerously close to snapping. He says that Bank of America has a 10.6% Tier 1 capital ratio. He draws himself up and says something along the lines of "We made money in 2007. We made money in 2008. We didn't lose money as some banks across the world did. That you would ask that question to me is...amazing."
4 pm: The Rep. asks if the banks would consider being nationalized. Lewis, who is impatient, says "Are you talking to me?" in his best, though unwitting, DeNiro impression. That draws laughter from spectators, but he is genuinely indignant at being asked: "Absolutely not. I don't know why you would ask the question." Pandit says he will do everything he can to prevent nationalization.

Mr. Market

By John Batchelor on February 10, 2009 6:19 PM | 7 Comments

"We will make mistakes."

Treasury Secretary Timothy Geithner's remarks to the media did not please Mr. Market, did not answer critical questions about the Treasury and Federal Reserve plans to capitalize the failed banks, did not clarify the White House's position about what it will do for the mortgages at risk, the mortgages already in failure and the whole of the housing market going forward. The three-legged stool was on stage, but there was just an outline of the metaphor. Mr. Market needs the facts to seek out the advantages of found inefficiencies. That is financial capitalism. Without details, what we got from Mr. Geithner is a heavy-handed scold who is light on his feet and on substance. Also, Mr. Geithner was drearily clear that he will make "mistakes."

"...We will have to adapt our program as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted...."

Not a bountiful beginning. Mistakes such as today's puffy restatement of goals without a visible plan to achieve the goals? S&P off 5% with Asian and European sell-offs to follow? You only get one chance to make a first impression. The word on the Street right now is that the Obama administration has "squandered" its first, best chance to take command. "Squandered." A word that leads quickly to "lost." The pithy Larry Kudlow is reported to have declared that Geithner "bombed." The sagacious and diplomatic Martin Wolf, Financial Times, who worried with me and Simon Constable on Sunday 8 that the White House might go too timidly and diffusely into the crisis, writes at this time that the Geithner plan is "sketchy" and will invariably "fail." Martin Wolf is also blunt and dramatic about the moment:

Has Barack Obama's presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

Absent Certainty.

Heeding Mr. Wolf's recommendation, I will not contemplate failure for the moment. It is safer to say that what the lack of certainty from Treasury means is that, for the present, private money will stay away from the government aims to rescue the banks with an aggregator or bad bank - will stay far away from the government aims. The Wall Street Journal " writer suggests dryly that "private-public partnerships" don't work well. How do we know this? Because that is one of the lessons of the New Deal. When FDR's programs got involved in private enterprise, such as the school-marmish National Recovery Act, the willy-nilly gold confiscation and gold price fixing, the random public dole for men who would go to the woods and dig out swamps for $1/day, and the cunning Social Security that was fashioned to blunt Huey Long's popular genius of "Share Our Wealth," - when all those government plans were tried, the private investment capital either hid or fled just because it couldn't tell what the goofy, random, condescending government geniuses would try next. Government intervention scares away private capital. And when all those New Deal schemes and more failed, what was left was a new trough in 1936 and four more years of deflation, joblessness, rootless despair, low birth rate, the lost decade of the 1930s. The deflation and joblessness are already here. Despair and anger and birth dearth to follow -- if this is the Lost Decade 2. Are we fighting the last global financial war?

Zombie Banks

By John Batchelor on February 9, 2009 8:07 PM | 3 Comments

Night of the Living Dead Banks in San Francisco.

Spoke to San Francisco Monday evening 9 February (see podcast) in substitution on the Brian Sussman Show, 6-8 pm Pacific Time daypart, and was happy to bring on the

political and financial team to comment on the President's prime time press conference and the imminent speech by the Treasury Secretary Geithner re the banks. The droll investigation of the evening was if the US policy now imitates the "Zombie Banks" of Japan in the 1990s -- neither alive nor allowed to die, preying on the living economy for more than a decade.. McTague, Task, Tamny and Constable all said affirmative. A bad bank that the SU believes will attract private investment seems fantastic, but the details are in the devil of the morning.

"Night of the Living Dead Banks" Special KSFO-AM San Francisco.

600P Pacific Time Victor Davis Hanson, Hoover, re the Obama press conference, re Iran and the bailout.

612P: Jim McTague, Barron's, re the President's reference to transprency and the possible missing trillions form the bank books, to be revealed in due time.

620P: Bob Davis, Wall Street Journal, re IMF managing director Dominique Strauss-Kahn declaring in Malaysia that the world is already in a depression and that massive new amounts are needed to support failed states.

635P: Margaret Hoover, FNC, re the President ignoring the argument by Amity Schlaes in "Forgotten Man," that FDR's New Deal expermentation prolonged and deepened the downturn.

647P: Bill Whalen, Hoover, re Meg Whitman announcing for California governor re what is in the stimulus bill for Arnold Schwarzenegger.

651P: Aaron Task, Yahoo Finance, re the market response to the Obama and Geithner remarks.

705P: John Tamny, RealClearMarkets.com, Simon Constable, Dow Jones News Wire, re Tim Geithner's press conference in the morning re the bad bank, or the "Zombie Bank," resembling Japan in the 1990s.

720P: Mary Kissel, Wall Street Journal, re the Australia wildfires, the TV bldg fire in Bejing, the Kevin Russ prime ministry in Oz.

735P: Michael Vlahos, author, "Fighting Identity," re the President's remarks re Afghanistan, Iran, Pakistan, Taliban.

750P: Bob Zimmerman, author, "Universe in a Mirror," re NEO 1999 RQ36 projected as possible earth collision in the late 22nd century, re Comet Lulin as augur of war, famine, pestilence, death.

"Public Assistance Is A Privilege, Not A Right."

By John Batchelor on February 8, 2009 10:55 AM | 10 Comments

The Bank Plan Delayed Until Tuesday 10.

Wall Street Journal rumors of news that the Obama administration bank rescue plan announcement has been delayed until Tuesday in order to avoid stepping on the melodrama

of the stimulus package voting in the Senate. Meanwhile Reuters publishes a quote that is third-hand from Tim Geithner as he addressed the Democratic retreat last Thursday 5, "Public assistance is a privilege, not a right." The only way to interpret this strange, pugnacious, pithy, confrontational, scolding, disdainful, condescending remark is that SecTreasury Geithner is about to treat the big banks as his welfare clients. There will be rules. There will be discipline. There will be punishment. The welfare bankers. Figure it will be more difficult to try any of the following in the open: first-class travel, $87k rugs, Bespoke, even luxury car services and liquor bills. Certainly corporate gifts are out along with trainers, gyms, clubs, golf, special friends and retirement. The welfare bankers travel to Washington this week on public transportation. By next year, we send a jitney to pick them up from the bus station, and they all stay at Fort Myers in unused BOQs. And mess with them other GIs, except the gang in uniform is not on public dole.. And by next year, the welfare rules should have spread to the law firms and their entertaining and brainless power-dressers (right).

Three-Legged Stool In Place.

Nothing about the preliminary report changes the original big metaphor of a three-legged stool. One leg is the bad banking plan to collect and administer all the bad loan portfolios and other junk on the bank books. A second leg is the home mortgage bailout, perhaps as much as guaranteeing that no one pays more than 38% of monthly income on a mortgage of a primary residence. The third leg is the stimulus package now in the Senate. The Obama administration is duly concerned with the Senate vote. It needs 60 votes to get it to conference with the House bill.

What Risk?

The global markets upticked last week in goofy anticipation that the stool was in place. With the delay, expect noise and selling. None of this is profound. The prices below are from the most traded stocks at FDR's inauguration in March, 1933. The uptick was euphoria, gaming, modest volume, lots of money on the sidelines. The market would bear market rally often for the next few years till it sold off again in 1936. Gloom is a squatter. Right now, the only time that truly matters, eyes are on the Asian markets and commodities. Expecting noise. Speaking to the pithy, bearish Jim Rogers at Singapore on Sunday 8, tonight, midnight Eastern Time. Just now: wonderful wit and smarts from traders posting on CR while watching for the Asia open:

non-TARP haiku writes:
"gotta wonder if this is all a pretext by o for a hard shift to the left later - not like that's a bad thing"

I doubt the market is going to be keen on this uncertainty. I thought last week's rally was based on securing legislation this weekend and a strong speech from Geithner on Monday. In one of the articles linked from the previous thread, it sounded like the Geithner speech might be moved to Tuesday...

O's gotta do what he's gotta do, but the contrast between what appears to be his approach and the old "get it done before Asian markets open Sunday" is pretty stark.
non-TARP haiku | 02.07.09 - 11:44 pm | #

Elvis writes:
"The issue is whether this and additional stimuli can give us something like 1935 economic performance, as opposed to something like 1932 economic performance without this or other stimulus packages.
joe shmoe"

History of depressions repeat themselves. We are very 1930 right now. Only 11 years to go (although a strong bull stock market should show up in about 4 years). But, WW III will not take 11 years. I give it 5 years at best.
Elvis | 02.08.09 - 12:03 am | #

Anonymous writes:
Mr. Market is very neurotic these days. He reads this and he might shed many points on Monday.
Anonymous | 02.08.09 - 12:12 am | #

KR writes:
I was watching the Monkeys for a least a season before i learned they were miming. I felt dumb. I have never trusted people on TV since.
KR | 02.08.09 - 1:11 am | #

O.C. Games the Senate

By John Batchelor on February 7, 2009 10:56 PM | 3 Comments

Calculated Risk Concerns Itself with the Senate Stimulus Homebuyer Perk.

"...The Senate has apparently kept the $15,000 homebuyer tax credit in the stimulus package.
The tax credit is 10% of the purchase price up to $15,000. The tax credit is for one year (from

date of enactment). The credit is available for both new and existing home purchases. This is for primary residences only, and the home must be owner occupied for two years after purchase. There is no income cap (the $7,500 tax credit had an income cap of $150,000 per year). Unlike the $7,500 tax credit, the new credit does not have to be repaid over time. The credit is limited each year to the amount of taxes paid in any one year (with the $7,500 tax credit, buyers received the entire credit and a refund if the $7,500 was greater than taxes for the year) Buyers can split the $15,000 into two separate tax credits to be taken in successive years...

This is less compelling to me -- another twisted homeowner gift that will be gamed and distorted by sharp guys and cool-blooded bankers -- then the hilarious and helpful comments on the site to the news of this %15k bribe from the gods and how it is likely to be used by the beauties of O.C.:

mattdog writes:  God, I would hate to be an IRS auditor charged with enforcing this monstrosity. mattdog | 02.07.09 - 3:11 pm | #

azurite writes:  And who's going to be checking to make sure it's owner-occupied? azurite | 02.07.09 - 3:21 pm | #

Beaver writes:  Beaver the Mover in OC, CA here....  selfishly, I love this plan.....wealthier people moving means my income is stimulated....Yeah!!! I've been lonely to long!   anecdotally, I am starting to receive inquiries from people, who have been fiscally conservative, and are now ready to move up from a $450,000.00 home in OC, Ca to a $600,000.00 home in OC...they are moving up to give their children a backyard, etc.  They believe that the loss they will incur on thier current residence will be more than opffset by the lowered price on the "buy" side of their transaction...I saw this same thought process occur last year with wealthy people downsizing, but, this is new to see middle class people "upsizing" for traditional (not speculative) reasons...  It has been about 18 months since I have seen much activity in this marketsegment.....  also, I have started to see people selling their $460,000 condos in OC and taking jobs out of state in Arizona and Texas where they can purchase a much bigger and much cheaper house and remain employed....these people are selling their home at a loss and not "walking away" ...   my estimating appointments have increased significantly in '09 versus '08........  much of the homesale volume last year was in low priced short sales and fc's, and, those people do not use movers.....as the higher priced homes become distress sales, I believe I will see an increase in people "moving up" within OC and these people will use a mover.....   a $15,000.00 tax credit will only be able to be used by a person who actually has equity and/or cash to use for the purchase of a new home...it will not benefit the foreclosure/short sale/pulled oput tons of MEW seller, and, morally, I think this is just peachy.... Beaver | 02.07.09 - 3:30 pm | #

This last post is the compelling intel. Folk are selling their condos in O.C., moving to a cheaper state and market, such as AZ, and living large. This way, they are not under pressure to sell for higher, and can in fact sell for lower and move on. Smart. Also, this poster is a moving company, and he sees people trading up in O.C. into the distressed big house sales in O.C.. The Senate gift will encourage horse and house trading. Not what the senators have in mind but fun. The truth is that government interference into any private market not only distorts the market but has wonderful unintended consequences. The savvy well-to-do trading up from ranchero to hacienda to pleasure dome is not about "putting people back to work," but it is about capitalism, even under the helter-slkelter scrutiny of the federal commanders.

.

A.Q. Khan Walks Free

By John Batchelor on February 6, 2009 9:09 PM | 6 Comments

Pakistan Releases the Nuke Pirate.

News that the Zardari government in Islamabad has released the nuke guru A.Q. Khan is a clue to the catastrophe in Afghanistan. Khan was the fall guy for the ISI's (secret police)

proliferation racket in the 1990s. Pakistan's ISI (right frmr ISI chief Mahmud Ahmed) stole the nuclear fuel technology it needed from Europe, and then the ISI bought the nuclear weapon technology it needed from North Korea. Because the US needed Pakistan to fight the Russians in Afghanistan, Washington looked the other way. The ISI created the Taliban that drove the Russians out, and then the ISI built the nukes it needed to test in 1998 (below, in stop action of the mountain location of the underground test) and intimidate India. The ISI is a faux Brit war clan. It also runs the opium trade in Afghanistan that threatens Russia's Central Asia republics. The ISI is as smart, dangerous, secure and malevolent as any gang on the planet. Zardari released Khan to appease the ISI. My best signals source says that it will not work. The ISI controls the Taliban and the drug trade. It will not allow the CENTCOM/NATO surge against the Taliban. The ISI has cut off the supply lines to the Khyber Pass. And now the Russians have moved in on Kyrgyzstan and cut off the NATO air routes into Afghanistan. Why was Khan released at this time? Because the ISI is in charge of Pakistan and Afghanistan, and there is no credible response from Washington. Another less politic way of saying this is, the ISI does not fear "smart power." Game over.

Does the Obama Administration Know?

The President's order is to make peace with Tehran. It is the priority, and every other envoy comes second. Afghanistan will be tossed aside, so will Iraq and the Gulf. The Obama administration says that war is out. Going forward, only soft power, or what they call "smart

power." This plan means that the ISI can have its nukes, its drug deals, its Taliban. The plan also means that the Obama administration means to leave the Gulf and the region. How soon? Within the first term, and much of it may be clear by 2010 -- if all goes well. There is the problem that an appeased Tehran is not a contained Tehran. And that the Taliban means to eat Afghanistan while the Karzai brothers work the drug trade with the ISI. It is the Great Game. The Obama team now enters the game with the usual sense of superiority and cleverness. Richard Holbrooke (right) is special envoy to Pakistan and India. A smart man, he is also an immodest man. Meanwhile, Chris Hill, recently of the appeasement of North Korea, is the new US ambassador to Baghdad, with order to assist special envoy Dennis Ross's embassy to Tehran.

What Can Go Wrong?

Appeasement is stalling. Britain and France started appeasing Hitler in 1933; also started appeasing the Japanese as they ravaged China in 1932. It delayed the four horseman, did not stop the worst. There is also the question if appeasement makes the Devils stronger than they would be if confronted immediately.

Bottom Is Well Below

By John Batchelor on February 5, 2009 11:02 PM | 10 Comments

The President Loses Message Discipline.

Congress disposes, the president proposes. It is a rule in Washington, and Mr. Obama's popularity, freshness, youth, zeal, charm, IT staff, are not enough to change the rules

established this last century since Congress took back the power from TR. The stimulus package is in trouble. After a week of bloviating and chest-thumping, the Senate has added pork to the pork for a bill in the $900 billion range, and the public is not amused. Rasmussen polling shows that support for the hog farm has collapsed from 43 to 37 % since the House vote. There is worse news. The Senate GOP resembles uniformity in its opposition to the pork. Blue State Republican Susan Collins of Maine and Red State Democrat Ben Nelson of Nebraska are leading a compromising gang of 20 that is excoriated by the Democrats as uncooperative. Worse still: John McCain seems to have remembered tax cuts. In all, the stimulus package is sagging under its own hoggishness in the Senate, and the esteemed princes met late into Thursday evening to speak of the fate of the nation and eat fresh cookies (right). The House Democrats watch cross-armed, declaring that they will not accept any cuts. Mr. Obama tried a spontaneous address tonight in order to recount his woes, aired on the Fox and CNN cables, and now schedules a prime time press conference on Monday 9 in order to promote this confusion as the essential third leg of his stool of Big Bang recovery. No one is much listening. The President has lost message discipline. He attacks tax cuts. The GOP attacks pork. My best information at this time is that the President knows there is no way out. What he may not see yet is that the stimulus package failure on Capitol Hill -- the breakdown of comity in his first weeks in office -- is not the bottom of the crisis. The bottom is well below us. The job loss has just started.

March 1933.

The steel operations index topped at 130 in the summer of 1929, and after a sell-off was hovering at 95 when Herbert Hoover signed Smoot Hawley in June 1930. By February

1933, the steel operations index was below 10. Steel is the way they kept score ( and may still be). There was no economy left the last days of Hoover, while the nation waited for FDR to depart Hyde Park for the inauguration on March 4. Two days earlier, Merrill D. King, 45, president of the Rex Paper Company of Kalamazoo, Michigan, was returning from a business trip in Havana, flying on Eastern Air Transport from Miami, bound for Newark, New Jersey. Thirty miles from Charleston, over the Edisto RIver at 800 feet, King got out of his seat and went for the door. The pilot, G.L Pomeroy, and other passengers saw King struggling to open the door, and called out for him to stop. King forced the door despite the air pressure and went out wordlessly. Another passenger reported later that on the bus ride to the Miami airport, King had asserted that he had "lost everything," and that he was suffering extreme headaches. Mr. King left a wife and three children. When notified, his widow said she knew of no "unusual business worries," and that he had not been in poor health. Sudden suicide of a working man was a commonplace mystery for the readers of the day. On March 1, 1933, a 35 year-old New York City worker at the furnaces, complaining that he couldn't keep his family on $30 a month, climbed over the catwalk, said, "So long, Mike" to his mate, and leaped into the 400 degree furnace. On February 28, 1933, a sugar salesman returned from luncheon to his office at 99 Wall Street and climbed over the guard rail and leaped from 31 floors. No notes in any of these cases. The bottom doesn't have suicide notes. (On Thursday, March 2, 1933, with the nation in crisis waiting for FDR, with most banks closed, with 30% unemployed and a quarter of all arable land for winter wheat left unplanted because there was no credit for seed, tt did have King Kong -- an anti-hero for a deeply troubled age, playing in theaters that could hold 10,000 simultaneously.)

Big Bang Banking

By John Batchelor on February 4, 2009 11:26 PM | 12 Comments

Rumour of the President's Three-Part Plan to Restore Credit.

The Financial Times has floated a three part plan that is said to resemble what the Obama administration is preparing as the Big Bang that will right the markets. This is Tim

Geithner's work, and he wants to get it published as soon as possible to begin the adjustments and agitprop. It is described with the metaphor of a three-legged stool. The first leg is the remaking of the American banking system: a combination of recapitalization, segregating the bad assets into a form of a bad bank that is capitalized with $100 billion and a ten to one leverage with the Federal Reserve backing, and all sorts of guidelines, mandates, diktats of how much has to be made available for credit, how much execs can be paid (that was today's salary/bonus cap presser (right)), and how risk is to be managed. In sum, the first leg is to turn US banking into crypto-utility companies that work as semi-governmental regulated handmaidens. Citigroup Power, Light, Gas and Cash. The second leg is mortgages. The notion is to guarantee all family occupied mortgaged properties so that the owner has no more than a 38% monthly payment. Yes, this will be giving money to the rich whose houses are underwater, and it will be giving money to those who financed like crazy people. That is the plan. And the plan is international, according to a Canadian analyst. What starts here will go global, with bad banks in every land, with mortgages supported everywhere with a formula that is politically acceptable:

A series of "Bad" banks will be created in virtually all countries, led by the U.S. and Germany, to mop up and hold all the bad debts now held by financial institutions. These assets may never amount to much, but taking them off the bankers' books should eliminate their fears about meeting capital ratios as their debts devalue and their customers go under. This is designed to unfreeze credit again.
Washington is going to bail out all homeowners in the United States. The U.S. government will guarantee all residential mortgages involving owner-occupants, including mortgages which are dramatically higher than the value of the underlying property.
In return for removing mortgage loan credit risk, Washington will require banks to stretch out principal repayments to owner-occupants so that they do not exceed, on a monthly basis, more than 38% of family or owner incomes. When values or incomes go up, presumably, adjustments will be made. This will provide a floor to property values, a form of welfare to the unemployed and another unfreezing of bank credit.

Third Leg of the Stool.

The Obama team argues that the third leg is the stimulus package in Congress that has now grown to $900 billion in the Senate amendment voting. It is now a super pig. The President has lost control of his own Democratic Majority. He told Charlie Gibson on Tuesday "there

are no earmarks in the bill," which was a foolish and untrue remark. The President is now holding so-called one-on-one meetings with Senate doubters, chiefly Republicans such as Olympia Snowe (right), Susan Collins and John McCain. Ben Nelson the Democrat also requires attention. The disgreement is gigantic. Collins and Snowe want $100 billion out. Ben Nelson wants $50 billion out and a rewrite. And McCain, whose position is likely the conservative core of the GOP in the Senate, wants a rewrite into a tax cutting bill that will have a cost well under $500 billion. None of this is logical or predictable yet, because the President is not yet negotiating with his own Senate side. The stimulus bill is an incoherent mess because it is built upon a hog farm of Democratic ambitions. Seventeen Republican senators (below) stood behind the podium and made it clear that the stimulus package does not have the votes. If this is the President's plan, the stool will not stand.

"Buy American"

By John Batchelor on February 3, 2009 11:32 PM | 20 Comments

The President Has a No Good, Very Bad, Awful Day.

Tom Daschle's dopey fiasco dominated the media chat rooms, especially after the President slipped into slang, "I screwed up." Yet nothing of sad-sack Daschle is memorable in

comparison to the ominous thunder of the EU and the Canadians because of the "Buy American" clause in the stimulus bill. The protectionism clause is the reason the President has a no good, very bad, awful day. The Canadians are at the battlements now. The surprise of the day was the that the EU went to battle stations, too. EU officials asserted a direct threat at the Congress: "We would look at all our options, including a WTO case, if 'Buy American' passes." The President was chatting with all the major TV anchors at the same time the EU grousers peppered the European media, and the President made an effort to find a position that could calm the furies. Reading the ABC transcript, with Charlie Gibson's folksy approach not exactly pinning down the issue, there is more confusion than clarity:

CHARLES GIBSON: A couple of quick questions. There are "Buy America" provisions in this bill. A lot of people think that could set up a trade war, cost American jobs. You want them out?

PRESIDENT OBAMA: I want provisions that are going to be a violation of World Trade Organization agreements or in other ways signal protectionism. I think that would be a mistake right now. That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe.

CHARLES GIBSON: What's in there now? Do you think that does that? Do you want it out?

PRESIDENT OBAMA: I think we need to make sure that any provisions that are in there are not going to trigger a trade war.

Now Everyone Is Perplexed.

The President's own party, the President's Speaker of the House, the President's Senate

leadership, as well as the President's mighty union allies, along with the not inconsiderable weight of U.S. Steel (right), are the mob that is behind the "Buy American" mandate. Not a spontaneous mob. IPhoned up, networked, deep-benched, well-armed with cash and PACs. The "Buy American" caveat wasn't just scratched in late in the day with a ballpoint. This is about steel and iron works in several Blue states, and it is about cash money -- the difference between joblessness, stock multiples and survival till 2012. No one raised a hand at the "Buy American" language when the President visited the Hill the day before the House vote. The GOP kept away from all of it. This is a Democratic clause. So who is the President talking to when he says of the bill, "...I think we need to make sure..." that the bill doesn't start a "trade war?" Wasn't the time "to make sure" sometime before the bill went to the House floor for a vote? Why is the President telling the TV audience that he is worried about trade war? Has he spoken with Mitch McConnell and Chuck Grassley, both of whom talk against the "Buy American?" But the GOP isn't the problem. Is he taking calls from Brussels? From Ontario? Is he calling Harry Reid?

War War War War.

Trade war prepares war war war war. The enmites of Europe from June 1930 onward were because of the Smoot Hawley tariff bill and the immediate retaliation by Germany, Britain, France and the other majors against the US and against each other. You can see it in the headlines. On the day that Smoot Hawley passed the Senate by 44-42, the German Rheinish and Westphalian iron works cut their prices and wages, and the Germans cut their export prices across the board 10%. On the week the Germans cut the steel prices and wages, mid June 1930, the Nazis won the polling in Prussia. Do Hitler and his incoherent, jingoist National Socialism Party get a leg up to without the joblessness and despair of 1930-1936? Does Hitler risk sending his horse-drawn and under-armed Wehrmacht into the Rhineland (below) in 1936 unless he knows that France and England, with vastly more numerous and powerful armies and navies, are too beggared and fragile to respond? Trade war is an invitation to chauvinism, tribalism, aggression, the well-known four horseman.

Canada Goes to War

By John Batchelor on February 2, 2009 5:27 PM | 33 Comments

The Obama Administration Confronts Millions of Angry Maple Leafs.

There is no humor in the sharp words between Canada and the United States over the "Buy American" mandate in the hog farm of a stimulus package passed 244-188 last week in the

House and now certain to grow fatter in the Senate. The mandate was clear that the construction projects funded by the $820 billion must buy steel and iron products from American producers. Canada has gone to battle stations. The facts are in Canada's favor. Not only is Canada our No. 1 trading partner across a peaceable open border, but also we export more in steel to Canada than Canada exports steel to us. And US Steel, a prime lobbyist for the stimulus package, owns mills on both sides of the border. So why is the Congress inciting Canada? Because it is solid jingoist politics for the blue industrial states to preach "Buy American" in order to get the Blue team and the independents behind the hog farm. The President has slated his first foreign trip to Canada this month, Now Canada, at war with us, has told the White House that the steel barriers must be negotiated away first, before Mr. Obama is welcome.

Trade War Goes Global.

What is now apparent to every major financial enterprise is that the US and Canada are part of the global trade war that is well-launched between former partners and allies. Gordon Brown fretted at Davos a few days back about what he called financial protectionism, that is, developed states favoring their own banks with bailouts and preferential shares and job protection. It is already in place and will grow worse until and if banks are allowed to fail and new institutions rise from the ruins. But industrial and consumer trade barriers are the major threat. Why? Because of what happened in June 1930, the infamous Smoot Hawley Act that raised tariff barriers in the United States, the richest and most commercially significant nation at the time. Smoot Hawley was a protectionist monster that destroyed the global markets of the 1930s.

How?

It was steel that started it. The steel index topped at about 135 in the summer of 1929 and plunged to 60 by November 1929 after the stock break; by the summer of 1930 it had

recovered to 95, about the levels of 1928 before the blow off of '29. Then Smoot Hawley, and it never recovered. Same thing for the 25 industrial stocks. Topping at 469 in the summer of 1929, it plunged to 240 in November 1929, then recovered to trade between 330 and 300 in 1930. Then Smoot Hawley, and it never recovered, diving to 40 by the winter of 1933. Did they know at the time that Smoot Hawley was poison? Yes, they knew the risk. Two days before the vote in the Senate, the German steel cartel in the Rhineland moved to cut prices of steel and to cut the wages of the workers to compensate. Germany was ready to use cheap steel to battle with the US tariffs and so were the other European powers. The vote in the Senate on Friday June 10 was 44-42, very close, with all the industrial states of the East and Midwest in favor, all the farm states of the South and West against. It wasn't until Herbert Hoover was certain to sign the bill into law, on June 16-17 (below), that the stock market broke down and confirmed the worldwide beggar-thy-neighbor trade war had started. Within four years, Germany need all of the Rhineland for steel for itself and needed Lebensraum to offset the fall in trade.

O Canada.

Canada can retaliate immediately by filing a complaint at the WTO and then looking for excuses to buy elsewhere or to preaching "Buy Canada" in its own legislation. Right now, the Canadians are stunned. We are at war, and they are not ready to fight. Can the Obama administration call off the contest? No. But it can delay it.

The Bomb Now

By John Batchelor on February 1, 2009 10:43 PM | 11 Comments

Nuclear Weapons Are the Solution to a Problem that Doesn't Exist Right Now.

Spoke Sunday February 1 with the precise Stephen Younger, author "The Bomb: A New History," re the 64 years since the Trinity test at Los Alamos July 16, 1945 and how nuclear weaponeering has adapted to the profound political twists of the Cold War and after. Steve

Younger spent his life's work at Los Alamos in R&D, and is now a Woodrow Wilson fellow. He aimed to write a book that could be acceptable to the censors (because of his security classification) and can be read by everyone. Nuclear proliferation is the most threatening news these days, with the Pakistan and North Korea proliferators selling the technology of enrichment and bomb-making and warhead building to rogue states such as Iraq, Iran, Syria, Libya, Saudi Arabia, and reportedly Sudan, Venezuela, Zimbabwe and more (South Africa and Myanmar are not excluded). However the challenge I learned from Steve Younger was not the rogues, since they build crude and derivative bombs, but rather the superstates of America and Russia and China and how they think about their weapons. The two categories of targets for superstates are called countervalue and counterforce. These categories are divided into soft targets, hard targets, and superhard targets. The US, according to Steve Younger, only has counterforce

targetting. A counterforce soft target would be an Army base of an Air Force base, which is best attacked with multiple small weapons rather than one large bang. A counterforce hard target would be a bunker unde a government building, siuch as the facilities said to be under the White House or the Pentagon. A superhard target is rare, and when I brought up what I'd heard about a city built under the Ural mountains, Steve said he could not speak to it. At the same time, our adversaries the Russians are said to have countervalue targetting, which is a remnant of the Cold War (right, the Russian nuclear weapon museum in Moscow). Soft countervalue targets are cities and ports and rivers. Hard countervalue targets are Washington buildings and other government centers. What this means today, with thousands of weapons in both camps still in place, is that America can wipe out Russia's ability to destroy our cities, and that Russia is defenseless from an American strike, whether it comes first or last. Our nukes are for a scenario that does not now exist. At the same, our nukes are not for a problem that does exist, which is the rogues (or the PRC) launching false flag operations.

Nukes in the 21st Century.

Steve Younger identifies five strategic positions for the status of nuclear weapons by the superstates in this century. Abolitionist, which is obvious, and may be the intent of the new Obama administration. Minimalist, which is to keep several hundred warheads that provide deterrence but not victory. Maximalist, which is "never met a weapons system we didn't like," and approximates the present status of nuclear forces as the US upgrades and Russia tries to compensate for its weak research and long short-changing of its rocket and bomber forces. (Did you know the reason there has been weak demand on uranium mines the last twenty years, and why the price has fallen so low, is because so much material is available from decommissioned nuke weapons in Russia and the US?) And then there is what Steve Younger calls the moderate position, which is two thousand weapons a side, all upgraded and locked and loaded, all counterforce weapons.

India and Pakistan.

None of these credible positions speak to the nightmare scenario of the countervalue targetting in place by the sworn blood enemies of Pakistan and India.

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