Wednesday, May 13, 2009

Zandar's Crystal Ball

The only two Republicans who make a lick of sense are the brother of the worst President ever, and the daughter of the guy who failed miserably to try to replace the worst President ever.

Naturally, nobody in the party will ever listen to them.

First They Came For Tyler Durden...

While I'm no economist, a lot of the blogs I read on a regular basis are econ blogs: Atrios, Roubini, Krugman, CalcRisk, Bonddad, Big Picture, and Baseline Scenario are all excellent sources of serious economic analysis. But the one blog that has really been a great source of inside dirt on the banks has been Zero Hedge, run by the mysterious "Tyler Durden".

The great thing about the internet is that it makes information the great equalizer for the powerless. None of the economists that run these blogs are billionaires, but all of them saw this train wreck coming well before it happened. Reading their posts made me aware that America was headed for economic disaster, and none of them believe in this V-shaped recovery scenario that the markets are currently pushing.

That's why I'm not shocked to see that the banks are pushing back on the bear blogs, starting with an assault on Zero Hedge by Merrill Lynch. The attack on Durden comes as Merrill Lynch, now part of Bank of America, is trying to eliminate all traces of Merrill's ex-chief economist David Rosenberg, whose bearish predictions in 2008 were deadly accurate.
Yesterday Zero Hedge's anonymous lead blogger, who goes by the name Tyler Durden, received a Digital Millennium Copyright Act Takedown Notice for six posts in which he cites Merrill Lynch reports authored by Rosenberg or his staff. The reports are indeed proprietary—but for journalists and bloggers, their widespread distribution has long been a helpful way to decode movements in the markets. "It's their prerogative to impugn that there has been infringment," Durden told me. "But there are intangibles. Rosenberg is leaving the company and is soon to be replaced by someone who has a slightly more upbeat feel."

As a journalist, I've never had any trouble getting the contents of a report for a story I was working on. Indeed, press officials at banks have often seemed pleased or at least placated by the attribution that comes with citing their reports in a story. That said, James Ledbetter, The Big Money's editor, was turned down last October when he asked for this Web site to be added to a weekly distribution list of the Rosenberg report. "Our goal is to keep it proprietary for our clients," he was told by Merrill Lynch media relations. The reports can sometimes be tough for media to subscribe to (as opposed to making requests on a one-off basis).

Rosenberg's reports are different than those of the typical investment bank economist. The bearish, even cynical reports issued from his desk have been serving as a rallying cry for financial bloggers who don't believe that the economy is recovering as fast as financial cable networks, the mainstream media, the Obama administration, and, indeed, the investment banks themselves seem to suggest. "I would imagine that they would not be too happy with this kind of stuff floating around, especially the fact that he got more bearish towards the end of his tenure," said Durden.

Now BoA/Merrill is bringing in the copyright goons to attack anyone who has Rosenberg's information up, because after all, it's all about the appearance of solvency these days.

Our entire financial system runs on faith, and the keepers of that faith have been exposed as trillion dollar scam artists. The internet and econ bloggers have gone a long way towards getting the truth out to you. I try to follow as nothing more than a concerned American, given the power to try to make a difference. Forewarned is forearmed in this economy.

Guess Merrill should add me to the list. Rosenberg's reports are all over the web. But they went after Zero Hedge for a reason: the bear bloggers were right, and the multi-billion dollar trading giants were wrong. Payback is a bitch.

Never forget that. Oh, and Rosenberg? He's now chief economist at Toronto's Gluskin Sheff + Associates, and will continue to distribute his famed Rosenberg Report.

And the truth will set you free. Or, in this case, save you a few trillion.

Obama Changes His Mind On Detainee Photos

The President is now going to fight to block the release of more Abu Ghraib-sytle photos of detainees undergoing interrogation.

President Obama met with White House counsel Greg Craig and other members of the White House counsel team last week and told them that he had second thoughts about the decision to hand over photographs of detainee abuse to the ACLU, per a judge's order, and had changed his mind.

The president "believes their release would endanger our troops," a White House official says, adding that the president "believes that the national security implications of such a release have not been fully presented to the court."

At the end of that meeting, the president directed Craig to object to the immediate release of the photos on those grounds. In an Oval Office meeting with Iraq Commander General Ray Odierno, the president told him of his decision to argue against the release of the photographs.

The move is a complete 180. In a letter from the Justice Department to a federal judge on April 23, the Obama administration announced that the Pentagon would turn over 44 photographs showing detainee abuse of prisoners in Afghanistan and Iraq during the Bush administration.

The photographs are part of a 2003 Freedom of Information Act request by the ACLU for all information relating to the treatment of detainees -- the same battle that led to President Obama's decision to release memos from the Bush Justice Department's Office of Legal Counsel providing legal justifications for brutal interrogation methods, many of which the International Committee of the Red Cross calls torture.

"The reversal is another indication of a continuance of the Bush administration policies under the Obama administration," ACLU attorney Amrit Singh told ABC News. "President Obama's promise of accountability is meaningless, this is inconsistent with his promise of transparency, it violates the government's commitment to the court. People need to examine these abusive photographs, but also the government officials need to be held accountable."

It's unclear what step the White House will now take, whether the administration will challenge the release in appellate court with new arguments or whether it will take the case to the Supreme Court.

Nice. Obama has determined there's nothing to gain from this politically and everything to lose, which means the photos themselves must be very, very damning evidence against the Bush torture regime. The photos are apparently so inflammatory that Obama has no choice but to adopt Bush legal arguments and prevent the photos from coming out.

Somebody convinced Obama to change his mind on this. Who was it? Is this the White House response to Nancy Pelosi/Jane Harman's troubles, and Obama is buckling to the CIA? Is this the price the White House had to pay for a new commander in Afghanistan, and he's buckling to the Military? Surely he's not caving in to Cheney and the Republicans on this, is he?

Or is this a combination of the above? There's a reason Obama decided to do the wrong thing once again, and I'd like to know what it is.

Yet More Bad Economic News

On top of everything else this morning, turns out retail sales are continuing to tank.
Sales at U.S. retailers fell for a second straight month in April as cash-strapped consumers held back on some purchases, according to a government report on Wednesday that dealt a blow to hopes the economy was beginning to improve.

The Commerce Department said total retail sales slipped 0.4 percent after falling by 1.3 percent in March. Excluding motor vehicles and parts, sales dipped 0.5 percent in April, compared to a 1.2 percent decline the prior month.

Economists had expected retail sales to be flat in April.

While the pace of decline in retail sales slowed from the prior month, the report dampened expectations of a quick end to the nation's deep recession.

"I would say the likelihood is growing that second quarter consumption in the U.S. is going to be negative," said Robert Blake, senior currency strategist at State Street Global Markets in Boston.

Gosh Robert, you think? With unemployment rising and people scared to make big ticket purchases because they don't know if they'll have a job six months from now, you think that would have a negative effect on consumer spending?

Go figure.

Branding The Enemy

While I first mentioned this last month, if there was ever any doubt as to which side of the GOP is firmly in charge (the lunatic fringe or the moderates), the answer is firmly the lunatic fringe. The RNC was threatening to bring up a resolution to brand the Democratic Party as the "Democrat Socialist" Party. At the time, I welcomed the insanity:
Oh please, please, please let them do this. While the Democrats are confronting the crumbling economy and weighing the questions of torture, the environment, our continuing wars, and the general instability of the world, let the Republican Party ignore all that and instead take up the crucial subject of discussing whether or not Republicans should officially have to refer to the Dems as Socialist poopyheads.
Well, ask and ye shall receive:
A member of the Republican National Committee told me Tuesday that when the RNC meets in an extraordinary special session next week, it will approve a resolution rebranding Democrats as the “Democrat Socialist Party.”

When I asked if such a resolution would force RNC Chairman Michael Steele to use that label when talking about Democrats in all his speeches and press releases, the RNC member replied: “Who cares?”

Which pretty much sums up the attitude some members of the RNC have toward their chairman these days.

Steele wrote a memo last month opposing the resolution. Steele said that while he believes Democrats “are indeed marching America toward European-style socialism,” he also said in a (rare) flash of insight that officially referring to them as the Democrat Socialist Party “will accomplish little than to give the media and our opponents the opportunity to mischaracterize Republicans.”

Two other resolutions — to urge Republican lawmakers to reject earmarks and to commend them for opposing “bailouts and reckless spending bills” — are also on the agenda, but language that would have denounced Sen. Arlen Specter, a Republican turned Democrat, and Republican Sens. Olympia Snowe and Susan Collins for voting for President Obama’s stimulus package has been dropped.

Steele didn’t want the special session to be held at all. The RNC will hold its regular summer meeting in July, and all matters could have waited until then. But the special session is being viewed by some in the party as a “comeuppance” for Steele and an implied criticism of his performance and behavior in his first 100 days in office.
The lunatics are truly in charge of the asylum now. The civil war in the GOP is truly on. Michael Steele has lost control of the party, and it has descended into anarchy.

This is now their solution to America's many problems: officially calling Democrats "Socialists."


Bonus Points For Being Wrong

The Obama administration is taking on bank bonuses for the entire financial industry, not just bailed out banks.
The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.

Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.

While this is certainly controversial, it's the following chart that actually is pretty mind boggling:

Which if I'm reading this chart correctly, with total bonuses pretty much matching the chart of average bonuses, it means the number of actual people making those bonuses hasn't really changed in years, and that number is roughly equal to 200,000 people.

It's those 200,000 people who are raking in bonuses totalling tens of billions of dollars. Since your bonus was only as good as your last year, you have every incentive to make that bonus as high as possible by selling as many financial products as possible. The "boiler room" mentality ruled Wall Street for decades and still does. To be good enough to make that list of 200,000 you had to be the best, otherwise you're just another wage slave.

And let's remember Pareto's 80-20 rule applied here: 80% of the bonuses were earned by the top 20% of the bonus earners. In a year like 2006 where $34 billion in bonuses were given out, Pareto tells us the top 40,000 bigwigs would have averaged $680,000, the top 8,000 titans would have avereaged out about $2.7 million each, and the cream of the crop, the top 1,600 financial geniuses, would have made out to the tune of ten million plus.

The true Masters of the Universe? The roughly 320 executives with Chief and Officer in their job titles? Those guys were pulling in $43.5 million a piece. The various CEOs and whatnot, the guys running the show? About 64 of them, Pareto's Law puts their take at $174 million each.

So yeah. Greed ruled. And it ruled us right into the ground. The more risk they took, the richer they got, the worse things got for the rest of us.

Absolutely. Change the system, Obama.

I'm Not Wild About Harry

Harry Reid has a big problem, as Steve Benen points out:
In a Senate where the Democratic caucus now stands at 59 votes, this is just ridiculous.

As Senate Majority Leader Harry Reid (D-Nev.) moves to ease a backlog of executive branch nominations, he suggested on Tuesday that he does not have the votes to bring up President Barack Obama's pick to run the Department of Justice's Office of Legal Counsel.

"Right now we're finding out when to do that," Reid said, responding to a question about the status of Indiana University law professor Dawn Johnsen's nomination to the Justice post. "We need a couple Republican votes until we can get to 60."

Let's acknowledge at the outset that allowing a shrinking Senate minority to mandate 60 votes for confirmation is itself absurd. No president in American history has had to deal with this kind of obstructionism to put together the team he wants, staffing relatively unknown administration posts. It's obstructionism on an unprecedented scale and it's an unsustainable way for the political process to operate.

Let's also take a moment to note that Johnsen is an exceptional nominee, who is unquestionably qualified, and clearly deserves confirmation.

That said, what kind of show is Harry Reid running here? His caucus has 59 members, and Sen. Dick Lugar of Indiana, a conservative Republican, has already endorsed Johnsen's nomination. We have Democratic senators who won't even let the president's choice for the OLC get a vote because she's pro-choice?

No Steve, Harry Reid is letting Dawn Johnsen's nomination die on the vine because she's going to be kicking over rocks and shining light in on torture investigations and who knew what when.

Both Democrats and Republicans are right to fear her. That is why you see both Democrats and Republicans filibustering her and they will continue to do so. Her views on abortion are a complete smokescreen and always have been.

Harry's dragging his feet on Dawn Johnsen because he's being told to do so. Odds are pretty good Nancy Pelosi's current predicament has everything to do with Dawn Johnsen's predicament.

Reaping The Whirlwind

Couple of thoughts on this story:
Democrats charged Tuesday that the CIA has released documents about congressional briefings on harsh interrogation techniques in order to deflect attention and blame away from itself.

“I think there is so much embarrassment in some quarters [of the CIA] that people are going to try to shift some of the responsibility to others — that’s what I think,” said Sen. Carl Levin (D-Mich.), who sat on the Senate Intelligence Committee and was briefed on interrogation techniques five times between 2006 and 2007.

Illinois Sen. Dick Durbin, the No. 2 Democrat in the Senate, said he finds it “interesting” that a document detailing congressional briefings was released just as “some of the groups that have been responsible for these interrogation techniques were taking the most criticism.”

Asked whether the CIA was seeking political cover by releasing the documents, Intelligence Committee Chairwoman Dianne Feinstein (D-Calif.) said: “Sure it is.”

The CIA has long been on the receiving end of harsh rebukes from Congress — on intelligence failures leading up to the war in Iraq, on secret prisons abroad and on the harsh interrogation techniques used on terrorism suspects. But with the release of records showing that it briefed members of Congress along the way, the CIA has effectively put lawmakers on the defensive.

Intelligence officials insist it wasn’t intentional and have not taken responsibility for publicly releasing the documents.
1) Sow the wind, reap the whirlwind.

2) Sowing the wind in this case was abosolutely necessary.

3) Democrats will be hurt by this investigation.

4) Republicans should probably stop pointing and laughing at Nancy Pelosi. Some of them are going to be next.

5) The hell is Leon Panetta doing during all this?

Fore-Closing In On A Problem

Three important notes on this morning's StupidiNews foreclosure story:
The lion's share of April's filings were ones in the early stages of the process, such as notices of default, according to James Saccacio, RealtyTrac's CEO.

Bank repossessions actually fell 11% for the month, compared with March. That's due, according to Saccacio, to the many legislative and company moratoriums that have prevented the foreclosure process from starting on delinquent loans.

Because fewer loans entered the process in past months, there had been fewer getting all the way to repossession. But now that those moratoriums are over, the volume of foreclosure filings is increasing.

"It's likely that we'll see a corresponding spike in [repossessed properties] as these loans move through the foreclosure process over the next few months," Saccacio said in a prepared statement.

In other words, these foreclosures are new, not just delayed ones from late 2008. These are second-wave foreclosures, ones spawned by rising unemployment and adjusting mortgage options. These will continue to rise. There will not be a recovery in the housing market soon. That V-shaped recovery is a myth.

That's not happening. Numbers both yesterday and today show home prices are continuing to drop sharply and foreclosures continue to rise. There's no bottom in the housing market in sight, let alone one coming in the next six weeks.

On to point two:

Ten states accounted for 75% of all foreclosure activity, and they fell generally into two categories: one-time bubble markets and the rust belt. California, which easily outpaced every other state with with 96,560 filings. Other hard-hit former boom towns were Florida (64,588), Nevada (16,266) and Arizona (16,244).

Those rust belts towns with the most filings were Illinois (13,647), Ohio (12,324) and Michigan (10,830). Georgia (11,521), Texas (11,314) and Virginia (6,254) filled out the rest of the top 10 list.

In other words, there's a lot more foreclosures to come outside California, Nevada, Florida, and Arizona. States that have been rocked by unemployment like Indiana, North and South Carolina, Alaska, and Oregon will be the new source of growing foreclosure numbers in 2009 and well into 2010. That means home prices will be dropping in cities like Charlotte, Indianapolis, Charleston, Portland and Anchorage. While there may be slight improvements in the most ravaged cities like Las Vegas, San Bernardino, Miami and Detroit, there are plenty of other cities that will feel this second wave of foreclosure action.

The final point may be the scariest:

The loss of home values put many more mortgage borrowers underwater, meaning they owe more on their loans than their homes are worth. That increases foreclosure rates in two ways: Underwater borrowers have no home equity to draw on should to pay for unexpected expenses such as big medical bills or major car or home repairs. That's makes them more likely to miss payments. And when home values fall far below mortgage balances, homeowners often walk away from their loans.

"There has been much more 'deed-in-lieu-of foreclosure' activity lately," said Sharga. This is a transaction in which borrowers simply tell their banks that they're not going to pay their mortgage and hand back their keys, and deeds, to their lenders.

"People are making the rational financial decision to walk away from underwater homes," he said.
More and more Americans will mail in their keys to the bank, aka "jingle mail", and walk away from their underwater homes. One in five homeowners are now underwater on their mortgages, and that number will soon reach one in four. This is a disaster for our economy. Back in February 2008, Roubini predicted as many as 10 to 15 million homeowners would take the jingle mail route that would blow up the system. It turned out that there were plenty of other possible triggers that exploded into the economic disaster of 2008, but the jingle mail time bomb is still out there. And the banks, already insolvent, will not survive the detonation when millions of homeowners stick them with the bills.

What that means is the V-shaped recovery that the stock markets are betting on is not only not going to happen, but we're in for another economic disaster period and soon. Don't buy the happy-face recovery talk.

The worst is still to come.


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