Last Call

Over at Zero Hedge, Tyler Durden asks the multi-trillion dollar question:  Is the Fed insolvent? (emphasis mine):

So here is the crux of the issue: the only way to deal with a mark-to-market of the Fed currently is to embrace monetization. It is no longer a question of semantics, of who promised what: it is the only mechanical way by which the Fed can dig itself out of a capital deficiency. With GSE delinquencies exploding, and with the Fed (and Congress) singlehandedly facilitating imprudent lender policy by allowing ever more borrowers to become deliquent without consequences, the MBS delinquency rate will likely hit 10% over the next 6-12 months. At that moment, someone will ask the Fed: "what is the true basis of your capital account?" And when the Fed is forced to justify a valid response, is when monetizaton will begin.

Since the market deals in expectation absolutes, all it would take for rates to breach the inflection point black swan and commence going up, is the mere possibility of open monetization.

What we hope to show with this exercise is that no course of action, even the one currently employed by the Fed, can continue in perpetuity: you can't have infinitely low housing rates in an environment of exploding delinquencies, as even more MBS are onboarded on the taxpayer's balance sheet. The reality is that inflationary conerns will come to a fore, and have a material impact on rates, the second all these speculations are voiced in a more reputable arena. At that point the game will be up; the Fed's attempt to continue the status quo will be over, and the relentless rise up in rates will begin, culminating with the long-awaited Minsky moment. 

As for the timing of this development? We will join the Bob Janjuah camp on this one. While few have the guts to take the money printer head on, doing so early is certainly suicidal. Yet with each passing day, all those who are fully aware that the Fed's course is one of self-destruction, grow bolder, until finally one day a new class of investors - the Fed vigilantes will emerge, looking for cheap opportunities to make a killing (think ABX) on the other side of the "Fed trade", which ultimately will lead to a systemic catharsis of unprecedented proportions.

At that point neither gold, nor lead will be in any way useful. Beta and gamma radiation will make sure of that. 

The question is not if, but when the Fed goes under.  When does the Minsky moment arrive?

Indeed, the Minsky moment has become a fashionable catch phrase on Wall Street. It refers to the time when over-indebted investors are forced to sell even their solid investments to make good on their loans, sparking sharp declines in financial markets and demand for cash that can force central bankers to lend a hand.

So what happens when there's no Federal Reserve to backstop the markets as The Counterparty Of Last Resort(tm)...because it's the Federal Reserve itself that's getting destroyed in the markets, because everybody's heading for the exits?  Tyler's thinking before the end of the year.

Something tells me we're going to find out sooner rather than later.  And when it does...

Zandar's Thought Of The Day

Mark Halperin is a gigantic, turgid douchebag.  His opener in his Time article this week:

Who would have thought that one of Barack Obama's biggest missteps as President would be repeating some of the bad habits of George W. Bush? No single factor was more instrumental in Obama's 2008 victory than his pledge to completely reverse the nation's course once in the White House. Instead, over the past year, Obama has mimicked some of Bush's most egregious blunders, leading to much of the political predicament in which the present decider finds himself today.

Just...God.  I don't have the strength to slog through this idiocy either.  After one year, one lousy year, Halperin's already throwing out the worse than Bush card.  Obama has problems, but the ones that Halperin names are so...not...the actual problems...that it makes me want to just scream. 

Sully's right.  Halperin's article is 100% bullshit Village hackery.  He really is consistently the worst actual journalist in the Village, outside of the occasional Chuck Todd nadir.

The Long Road Back

Don Peck's piece in The Atlantic on the lingering effects of the Great Recession is definitely worth a read.

The economy now sits in a hole more than 10 million jobs deep—that’s the number required to get back to 5 percent unemployment, the rate we had before the recession started, and one that’s been more or less typical for a generation. And because the population is growing and new people are continually coming onto the job market, we need to produce roughly 1.5 million new jobs a year—about 125,000 a month—just to keep from sinking deeper.

Even if the economy were to immediately begin producing 600,000 jobs a month—more than double the pace of the mid-to-late 1990s, when job growth was strong—it would take roughly two years to dig ourselves out of the hole we’re in. The economy could add jobs that fast, or even faster—job growth is theoretically limited only by labor supply, and a lot more labor is sitting idle today than usual. But the U.S. hasn’t seen that pace of sustained employment growth in more than 30 years. And given the particulars of this recession, matching idle workers with new jobs—even once economic growth picks up—seems likely to be a particularly slow and challenging process.

The construction and finance industries, bloated by a decade-long housing bubble, are unlikely to regain their former share of the economy, and as a result many out-of-work finance professionals and construction workers won’t be able to simply pick up where they left off when growth returns—they’ll need to retrain and find new careers. (For different reasons, the same might be said of many media professionals and auto workers.) And even within industries that are likely to bounce back smartly, temporary layoffs have generally given way to the permanent elimination of jobs, the result of workplace restructuring. Manufacturing jobs have of course been moving overseas for decades, and still are; but recently, the outsourcing of much white-collar work has become possible. Companies that have cut domestic payrolls to the bone in this recession may choose to rebuild them in Shanghai, Guangzhou, or Bangalore, accelerating off-shoring decisions that otherwise might have occurred over many years.

New jobs will come open in the U.S. But many will have different skill requirements than the old ones. “In a sense,” says Gary Burtless, a labor economist at the Brookings Institution, “every time someone’s laid off now, they need to start all over. They don’t even know what industry they’ll be in next.” And as a spell of unemployment lengthens, skills erode and behavior tends to change, leaving some people unqualified even for work they once did well.

Ultimately, innovation is what allows an economy to grow quickly and create new jobs as old ones obsolesce and disappear. Typically, one salutary side effect of recessions is that they eventually spur booms in innovation. Some laid-off employees become entrepreneurs, working on ideas that have been ignored by corporate bureaucracies, while sclerotic firms in declining industries fail, making way for nimbler enterprises. But according to the economist Edmund Phelps, the innovative potential of the U.S. economy looks limited today. In a recent Harvard Business Review article, he and his co-author, Leo Tilman, argue that dynamism in the U.S. has actually been in decline for a decade; with the housing bubble fueling easy (but unsustainable) growth for much of that time, we just didn’t notice. Phelps and Tilman finger several culprits: a patent system that’s become stifling; an increasingly myopic focus among public companies on quarterly results, rather than long-term value creation; and, not least, a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering. None of these problems is likely to disappear quickly. Phelps, who won a Nobel Prize for his work on the “natural” rate of unemployment, believes that until they do disappear, the new floor for unemployment is likely to be between 6.5 percent and 7.5 percent, even once “recovery” is complete.

It’s likely, then, that for the next several years or more, the jobs environment will more closely resemble today’s environment than that of 2006 or 2007—or for that matter, the environment to which we were accustomed for a generation. Heidi Shierholz, an economist at the Economic Policy Institute, notes that if the recovery follows the same basic path as the last two (in 1991 and 2001), unemployment will stand at roughly 8 percent in 2014.

“We haven’t seen anything like this before: a really deep recession combined with a really extended period, maybe as much as eight years, all told, of highly elevated unemployment,” Shierholz told me. “We’re about to see a big national experiment on stress.” 

In other words, should Obama be a two-term President, we will spend those years simply digging ourselves out of this hole.

And that's hoping nothing worse happens.  Should we trip into a secondary "double-dip" recession later this year (or more likely next year) all bets are off.  The simple fact of the matter is that the economic disaster created over the late Clinton and Bush years will end up defining my generation.  We will not end up better off than our parents, a great many of us.

Republicans are already responding to this.  "Nobody should help you, and you shouldn't have to help anyone else.  If you can't make it, then you have the duty to stop dragging those who can make it down."  That has a lot of appeal to folks who are scared, angry, and looking for someone to take it out on.

2010 will decide which view America comes out of this mess with:  Stand together and work together, or everyone for himself.  The winner will most likely end up defining my generation for a long time to come.

Decade Of Retrograde

 President Obama stated his case for health care refrom today at Arcadia U. in Pennsylvania, that the GOP had almost ten years under Bush to come up with their own health care plan and did...nothing.

Speaking at Arcadia University in Glenside, PA, Obama first talked about people "in Washington who respond to every issue, every decision, every debate, no matter how important it is, with the same question. Well, what does this mean for the next election?"

"They're obsessed," he said, "with the sport of politics."

You want people in Washington to spend a little less time worrying about our jobs, and a little more time worrying about your jobs.

He also stressed that "we've been talking about health care for nearly a century," and "we have failed to meet this challenge during periods of prosperity, and also during periods of decline."

"If not now when? If not us, who?" Obama asked.

The President also took the opportunity to hit Republicans: "I got all my Republican colleagues out there saying 'No, no, no, we want to focus on things like costs.' You had 10 years. What happened? What were you doing?"

Making the banks and the insurance companies and the drugmakers tons of money at taxpayer expense, of course.  Meanwhile, Republicans like Sen. John Cornyn vow to repeal health care reform when it passes.

Sen. John Cornyn (R-TX) said in a press briefing at the Ronald Reagan Republican Center today that his party will offer repeated points of order on the Senate floor challenging the legitimacy of budget reconciliation items in a package of fixes to the Senate-passed health care bill. He said his candidates in competitive races from California to Florida "should and will run on" repealing the legislation.

Cornyn, chairman of the National Republican Senatorial Committee, said Democrats may want to pass the measure and move on, but the GOP will keep pressing at it to "make sure that health care is the No. 1 issue that the election is won or lost by" in the fall.

On the merits of the bill, the GOP will tell voters in ads and campaign mailers the health care plan's benefits kick in far down the line, while tax increases on the wealthy begin right away, Cornyn said. He detailed an NRSC tally sheet listing all the Democrats who have said health care reform would lower costs.

"Every [GOP] candidate who is running a campaign in November 2010, that will be one of the first questions and the first ads that will want to ask, 'Are your health care costs lower now by virtue of passing this health care bill?' I think the answer to that will be no, they are not," he said.

You do that, Cornyn.  Run on repealing the elimination of pre-existing conditions.  Run on giving the insurance companies the ability to continue 20%, 40%, 60% premium hikes on Americans.  Run on taking away coverage on millions of your fellow Americans.  That'll work.

Lt. Dan Is Feeling Randy

The newest Survey USA poll out today for Kentucky's Senate seat has both Lt. Gov. Dan Mongiardo and Rand Paul enjoying comfortable double digit leads over respective primary opponents AG Jack Conway and State Speaker Trey Grayson.

Paul is up 42-27% over Grayson, while Mongiardo is up an even larger 45-27%.  Both polls have 19% undecided however, so it's still not a done deal for either man.

The most interesting part is the general matchup.  It has the Republican only up 43-42%.  In a year where the GOP supposedly rules and the Dems are doomed in a red state, this one's neck and neck.  Older Kentuckians prefer the Democrat, but those 35-49 prefer the Republican slightly.  Young voters are evenly split on this one, which is surprising.

However, it's pretty damn obvious at this point that Kentucky Republicans are deadly serious about putting up Rand Paul in November, but Dems are even more serious it seems about Lt. Dan being the man.  Here in Boone and Kenton counties I've seen a lot of Mongiardo and Paul signs up, but not Grayson or Conway.

Mongiardo's opposition research team better be on the ball.  Paul's will be, and Lt. Dan has quite a few imperfections.  On the other hand, it won't take much to convince folks that Paul's a nutbar.  We'll see how this rolls out.  The Dems are doing a lot better than I thought they would be doing at this point.

Bunning's retirement means incumbency and voting records in Congress on HCR and the stimulus won't factor in at all.  If the bum's already being thrown out, who will KY voters turn to in order to replace him?

And I Have Oceanfront Property In Kansas Up On Ebay

Steven D caught this BBC article this morning and he doesn't buy it either.

Greece's financial crisis is unlikely to spread to other eurozone countries with high debt levels, the head of the International Monetary Fund has said.

IMF managing director Dominique Strauss-Kahn said "there's no reason" to expect that Spain and Portugal would also need to call for external support. 

Yep, no reason at all to think the Greek Fire will spread.  Everything's fine in Europe.  Just give us a second to lock it down, we're fine here.  How are you?  Steven D:

But Steven, you say. Aren't you cherry picking here? Well, maybe. The again, maybe not. Look at this article in Huffington Post about the prescience of the IMF from last summer:

The International Monetary Fund has made the cautiously optimistic prediction that the global recession is coming to an end. Given the organization's history of poor predictions, that just might mean the world should prepare for even worse times ahead. [...] 

In 2003, the General Accounting Office put out a report declaring that IMF's primary forecasting tool, its "World Economic Outlook," had a poor track record of forecasting global financial crises. The IMF, the congressional auditors said, had only been able to predict 15 of the 134 recessions that had occurred in 87 developing countries from 1991 through 2001 successfully. That makes for an 11 percent success rate.

Eleven freaking percent? That's the IMF's success rate at predicting future economic outcomes around the world? You and I can do better picking American football games against the point spread by just flipping a coin. Maybe the IMF economists and financial experts should give that method a shot. I will tell you this. If I were a betting man I'd bet against European stocks today. Especially financial ones.

The man has a salient point there.  I'm betting the Greek Fire spread far and wide, and it's going to cause a hell of a lot of damage before it's through.

And A Massa Mom's Barbecue, Part 2

The Eric Massa (D-NY) retirement from the House story is now officially into "pretty damn weird" territory.

We're getting a bit more details on just what the complaints against soon-to-be-ex-Rep. Eric Massa were about. On Massa's weekly radio show he explained his side of the alleged incident of sexual harassment and went on to suggest that the timing of recent events was part of a plan by Democratic leaders to force him out of the House to pave the way for passing health care reform.

And from there ... well, I guess the highlights would include the cursing match with Rahm and Massa's story of walking in on his Navy bunkmate masturbating back in the early 1980s and how that led to a misunderstanding and the bunkmate requesting different quarters. And then somewhat above and beyond the call of duty descriptions of best practices for sharing a bed with a staffer when you're on the road and the hotel room only has one bed. (One sleeps under the covers, one over.)

The whole show sounds at once genuine, completely disjointed and confused, somewhat endearing and also totally bizarre. For a good bit of the conversation (the first 25 minutes or so is an impassioned monologue) the topic was whether or not Massa should stay in Congress, cut back his hours and declare himself an independent.

Roll Call reports the story here. And you can listen to the interview itself here (jump to about 5 minutes in). 

Oh, and it gets worse.  Here's the real story behind the story:

Now, in the radio interview, Massa says he only realized that this was an effort to push him out of the House when he woke up in the early hours of Sunday morning and started reading recent press and blog coverage of the events of his resignation and particularly the fact that his departure reduces the number of votes required to pass health care reform. "Now they've gotten rid of me and it'll pass," he says.

Massa also very directly accuses Steny Hoyer of lying when he said that he discussed with the matter directly with Massa.

By the end of the show, Massa is saying that passing Health Care Reform via reconciliation will tear the country apart and that the only way to stop it from passing is to get his story (presumably the alleged plan to force him out of Congress) on to Fox News to let the public know what the Democrats will do to get the bill passed. 

This is a meltdown of Greek tragedy proportions here.  And you can absolutely count on the Wingers to adopt Massa as their newest martyr for their battle against the dark forces of Maximum Leader Obama.  Massa is correct however:  Pelosi only needs 216 votes to pass the Senate version of HCR through the House now with Massa gone.

[UPDATE 3:21 PM] And Massa gets his wish:  a full hour on Glenn Beck on Tuesday.  Ton of salt, meet earth.

Through The Looking Glass On This One

Tim Burton's Alice In Wonderland had an even bigger weekend opening than Avatar.

It clearly becomes the biggest 3D bow ever and the best March release ever and the highest grossing movie of 2010 with $41 million on Friday and $44.3 million on Saturday. Remember, those higher priced 3D tickets make all the difference. Even so, the Tim Burton-directed, Johnny Depp-starring fantasy flick had the biggest 3D release of all time. Of its 3,728 North American locations this weekend, its total domestic 3D count is 2,063, plus 180 Imax 3D engagements. That helped the pic post a $116.3M opening weekend with numbers  blowing away Avatar's first Fri-Sat-Sun. IMAX on Friday had the biggest day in their history with $4.3M for Alice. The IMAX weekend take of $11+M also is a record for the big screen company. Overseas, Alice shot to #1 almost everywhere after opening day and date in 40 territories beginning Wednesday. Disney narrowly avoided a boycott overseas when UK and other exhibitors were angered by the studio's plans to shorten the theatrical-to-DVD window from 16 weeks to just 12 weeks.

Saw this one myself in 3-D  It's a decent film, I thought Avatar was a better movie.  Johnny Depp manages to steal huge chunks of the film, and those he doesn't, the Cheshire Cat and March Hare do.

Like I was telling friends, the best part of the movie for me was the 3-D trailer for Tron Legacy.

Salesman In Chief

President Obama takes to the road this week to Philadelphia today and St. Louis mid-week trying to sell health care reform to the American people.

Obama's pitch in Philadelphia, along with a stop in St. Louis Wednesday, comes as the president begins an all-out effort to pass his health care proposals. Though his plan has received only modest public support, Obama has implored lawmakers to show political courage and not let a historic opportunity slip away. 

Despite staunch Republican opposition, Democratic leaders are cautiously optimistic they can pass a bill without GOP votes. 

"I think the trend is in the right direction because people see that the status quo is absolutely broken," Rep. Chris Van Hollen, D-Md., said Sunday on CNN's "State of the Union". 

Party leaders are narrowing in on a strategy that calls for House Democrats to go along with a health care bill the Senate passed in December. Obama would sign it into law, but senators would promise to make numerous changes on issues that have concerned House Democrats. Because Senate Democrats lost the 60-seat majority needed to stop GOP filibusters with the Massachusetts Senate race, the changes would have to be made under rules that require only simple majority votes. 

That strategy would put lawmakers on way to meet Obama's goal of Congress passing a health care bill by March 18, when he leaves on a trip to Indonesia and Australia. White House spokesman Robert Gibbs said Obama would sign a bill "shortly thereafter." 

But full Democratic support is far from certain. Some party moderates are uneasy about the cost of the $1 trillion bill and its language on abortion, and some House Democrats are suspicious of whether their Senate colleagues would follow through on promises to work out the differences in the bills. 

"The Senate has given us a lot of reason not to trust them," Rep. Jason Altmire, D-Pa., said on Fox News Sunday. "There has to be some certainty that the Senate is going to follow through on their part." 

Over 200 House bills died in the Senate since January 2009.  Altmire has a very, very valid point.  But a lot has to happen for this to get going by March 18, just ten days away.

Still, Obama needs to do this.  He has to make the hard sell right now.  We know he's capable of it, but so much as usual depends on the Village gatekeepers actually letting him speak rather than simply telling America what they think Obama actually said.

They don't have a very good record on that.

Proof Of Life

Nobody seems to know if the Pakistanis have actually captured American-born Al Qaeda spokesman Adam Gadahn or what.

The U.S. hasn’t confirmed the arrest of Adam Gadahn, the U.S.-born spokesman for the al-Qaeda terrorist network, Federal Bureau of Investigation spokesman William Carter said.


The FBI is getting reports of an individual “with a similar-sounding name,” Carter said in an e-mail. “However, we are checking with Pakistani authorities to confirm one way or the other.”

Pakistani intelligence officers arrested Gadahn in Karachi, the Associated Press reported, citing two Pakistani officers who participated in the operation and a government official. Gadahn also goes by the aliases of Yahya Majadin Adams and Azzam al- Amriki, AP said.

Gadahn in 2006 became the first American to be charged with treason since the World War II era, according to the Justice Department. Authorities announced a $1 million reward for information leading to Gadahn’s arrest or conviction when announcing his indictment four years ago. The charge of treason carries a maximum penalty of death. 

So he is, he's not, we don't know.  Doesn't look particularly good for whoever in the Obama administration leaked this without confirmation to the AP, and it especially doesn't look good for our Pakistani "allies".  The AP should probably have checked a little harder for confirmation itself, but that's how leaks work.

Jon Chait Versus The Stupid Politico

Seems I'm not the only person with a problem with Mike Allen's crew as Jon Chait patiently does Allen's job for him, explaining Kent Conrad's logic on reconciliation succinctly because apparently Mike Allen isn't capable or willing to do it himself.

Perhaps suspecting that further explanation was required, Conrad proceeded to write a Washington Post op-ed laying out the distinction one more time:

Reconciliation is not being considered for passing comprehensive health-care reform. Major health-care reform legislation passed the Senate without reconciliation on Christmas Eve. If the House now passes that legislation, it can go immediately to President Obama's desk to be signed into law. What the president and others have suggested is that, after the House acts, reconciliation could then be used to pass a much smaller "fixer" bill to allow for modifications to the comprehensive bill that will have passed under regular order.

When I read the op-ed, I figured it had to be totally redundant. What sentient being who's following this closely could not understand it by now? I give you Politico's Mike Allen, writing Saturday:

When Senate Budget Committee Chairman Kent Conrad (D-N.D.) made this confusing argument last week on “Face the Nation,” we weren’t sure he was being deliberately disingenuous. It was, in fact, spin. Now, he’s made the same case in a similarly obtuse WashPost op-ed, “Reconciliation is not an option for health-care reform.” Don’t misread it: It’s an Alice-in-Wonderland argument FOR the use of reconciliation as part of the recipe for getting comprehensive health reform to the president’s desk

Confusing? Obtuse? Does Conrad need to stop by Politico's offices with a picture book and some finger puppets? I understand perfectly well how intelligent people who don't follow this debate closely might not catch on to the distinction. But this is what Mike Allen does all day -- and, as I understand it, much of the night and the wee hours of the morning as well. How can anybody still not understand this? I'm at a loss here. Look, there's an endless list of topics I don't understand at all. I went through an entire semester of pre-Calculus in high school and was never able to understand what a function is. I still don't. It's a complicated subject and I was a lazy student. But this reconciliation distinction is easy, and Mike Allen is (legendarily) not lazy. So, what the hell is going on here?

I'm gonna go with "Mike Allen's trying to sink health care reform by being dense on purpose."  If you haven't noticed, there's a distinct reason why 55% of Americans want to start completely over on health care, because quite a few Americans believe that the Health Care Reform bills contain either costs or items that simply don't exist.

Like a lot of Villagers have discovered, selling this plan requires them to explain the plan fairly, and it's much easier to simply attack it or mislead about it.  It also opens up the Villagers to the Dirty F'ckin Hippie charge, which none of them are willing to be stuck with.  Gotta be "fair and balanced" after all.

StupidiNews!

• Kathryn Bigelow becomes the first woman to win the Best Director Oscar for "The Hurt Locker" as the film picked up six awards.
• U.S. troops are withdrawing from Haiti, leaving behind much misery still for Haitians to deal with.
• VP Joe Biden arrives in Jerusalem today to try to jumpstart Middle East peace talks.
• Twenty-six banks have failed in the US so far this year, on pace to break last year's 140.
• Fixing science and math education in the US is possible, but will take more money, according to the National Science Foundation.