Warren No Peace

Obama's choice of avowed bigot Pastor Rick Warren for his invocation has raised a couple of excellent responses from the Left, like Kos and John Aravosis.

Markos makes an excellent point, that goes far beyond the Warren controversy.

Obama wouldn't be out there making perhaps the strongest statement in support of gays and lesbians by a president (though he's still not technically one, I know) if it wasn't for the sturm and drang this choice generated. It is precisely this backlash that has forced Obama to clearly affirm his commitment to equality. And it will be continued pressure that will force him to do the right thing on the issue.

If we shut up, he'll take the path of least resistance. And that path of least resistance is kowtowing to the conservative media, the clueless punditocracy, and bigots like Warren.

First off, Markos is correct. The sad lesson we're learning is that we're not going to get squat, any of us, gay or straight, if we don't beat the crap out of our elected officials on a regular basis.

I'm in total agreement with the both of them, of course. In the end, Obama is a politician. Politicians make calcuated political manuevers all the time, it's what they do. Obama's no different in that respect. Nobody ends up President who isn't a political animal, through and through.

I like the guy. But "better than Bush" is not acceptable. Not after the sheer level of damage wrought to our country, damage that will take decades if not longer to recover from. Obama is being held to a higher standard, fair or not. The situation dictates that he absolutely has to be, or America isn't going to make it. Period. The pressure on him is crushing. But he ran for the office and was elected, knowing full well all the work that has to be done for the good of the country right now.

So yes, when Obama or any other politician makes such a crude, stupid move, they get called on it...as they should.

Get To Dah Choppah!

Roubini vs. Helicopter Ben's Zero Interest Rate Policy (ZIRP)!

Round One.

Fight!

The Fed decision to cut the target for the Fed Funds rate to the 0% to 0.25% range is just underwriting what was already obvious and happening in reality: While the target Fed Funds was until Tuesday still 1%, in the last few weeks--following the massive increase in liquidity by the Fed--the actual Fed Funds was already trading at a level literally close to 0%.

So the Fed just formalized what had already been happening for weeks now, i.e., that the Fed Funds rate was already zero and that the Fed had already moved to quantitative and qualitative easing (QE) in the form of a massive increase in the monetary base and aggressive use of monetary policy to reduce short-term and long-term market rates that are stubbornly high in a sign that the credit crunch is severe and worsening.

I predicted early in 2008 that the Fed Funds rate "would be closer to 0% than to 1%" in the midst of a severe recession. Now, 12 months into this severe recession--a recession that will last at least another 12 months (if not, as is possible, much longer)--the Fed Funds rate is already down to 0% (the beginning of the zero-interest-rate-policy, or ZIRP, for the U.S.) and the Fed has moved into uncharted unorthodox monetary policy as a severe stag-deflation is taking place.

And, as predicted by me over a month ago, the Fed is now committed to keep the Fed Funds rate close to zero for a long time (as a way to push lower long term Treasury yields); purchasing agency debt and agency MBS in massive amounts; and even considering purchasing long-term Treasuries as a way to push lower long-term government bond yields that are already falling sharply.

More aggressive policy actions may be undertaken by the Fed as a severe credit crunch shows no signs of relenting. In a 2002 speech on deflation, Ben Bernanke spoke even of helicopter drops of money, monetizing fiscal deficits and even buying equities.

The latter actions have already been partially undertaken: The Fed is effectively already monetizing U.S. fiscal deficits as the purchase of markets assets is financed with the Fed printing presses rather than the TARP program. And now, with the Fed considering the purchase of long-term Treasuries, such monetization of deficits will be made more formal.

Also, since the TARP has been turned into a program to recapitalize financial institutions (and thus boost their capital and market value), the U.S. has already effectively intervened indirectly in the equity market (by partially nationalizing a good part of the financial system). Once the Fed starts to buy the long-term Treasuries financing the TARP program, this indirect Fed purchase of U.S. equities will be even clearer.

While Fed actions to reduce mortgage rates--via purchases of agency debt and agency MBS--are partially successful as long-term mortgage rates are falling, most of the Fed purchases of private assets have been so far limited to very high-grade securities.

Thus, the gap between the yield on high-grade commercial paper purchased by the Fed and the one that the Fed is not purchasing is sharply rising; ditto for the gap between agency MBS and private label MBS. Also, while long-term Treasury yields are sharply falling, the spread of corporate bonds--both high-yield and high-grade--relative to Treasuries remains huge as a sign of a severe credit crunch.

Thus, as a next step, the Fed may be soon forced to walk down the credit curve and start buying private short-term and long-term securities with lower credit ratings. That would mean the Fed will take on even more credit risk than it is already taking on today while purchasing illiquid private assets. But desperate times lead to desperate actions by desperate policy makers.

Not good. In other words, the Fed plan is this:

1. Lower interest rates to zero.
   
2. Make shit up as we go along and hope it works.
   
3. Profit!

Which is a friggin' great plan, if, you know, you're not the central bank of the largest economy on Earth.

We're currently on Step 2 up there. We'll be there for quite some time.

More Tortured Logic

Via BooMan, we discover the NY Times Editorial Board has a problem with people who torture.

Most Americans have long known that the horrors of Abu Ghraib were not the work of a few low-ranking sociopaths. All but President Bush’s most unquestioning supporters recognized the chain of unprincipled decisions that led to the abuse, torture and death in prisons run by the American military and intelligence services.

Now, a bipartisan report by the Senate Armed Services Committee has made what amounts to a strong case for bringing criminal charges against former Defense Secretary Donald Rumsfeld; his legal counsel, William J. Haynes; and potentially other top officials, including the former White House counsel Alberto Gonzales and David Addington, Vice President Dick Cheney’s former chief of staff.

That's no joke, folks, when the Gray Lady is calling for criminal charges against cabinet members. The Senate report itself is pretty damning.

"The abuse of detainees in U.S. custody cannot simply be attributed to the actions of 'a few bad apples' acting on their own," the report states. "The fact is that senior officials in the United States government solicited information on how to use aggressive techniques, redefined the law to create the appearance of their legality, and authorized their use against detainees."

The report is the most direct refutation to date of the administration's rationale for using aggressive interrogation tactics -- that inflicting humiliation and pain on detainees was legal and effective, and helped protect the country. The 25-member panel, without one dissent among the 12 Republican members, declared the opposite to be true.

The administration's policies and the resulting controversies, the panel concluded, "damaged our ability to collect accurate intelligence that could save lives, strengthened the hand of our enemies, and compromised our moral authority."

The panel drew from congressional testimony and official documents, many of which were previously released during a nearly two-year probe. While many of the underlying facts were known, the report represented the most significant attempt by Congress to assess one of the defining controversies of the Bush presidency.

"These policies are wrong and must never be repeated," McCain said in a statement.

Rumsfeld seems to get the most of the criticism and deservedly so. Of course, he denies everything and blames Congress for even daring to investigate this sort of thing.

Rumsfeld, who served as defense secretary from 2001 to 2006, rejected the report's conclusions and said it was the committee, particularly Levin, that had sullied the nation's image.

"It's regrettable that Senator Levin has decided to use the committee's time and taxpayer dollars to make unfounded allegations against those who have served our nation," said Keith Urbahn, an aide to Rumsfeld. He accused Levin of pursuing a politically motivated "false narrative" that is "unencumbered by the preponderance of the facts."

So the real question is will Bush pardon these assholes on the way out the door? I think it's a distinct possibility, because come January 20, the Democrats will have the leverage needed to start some real fireworks.

Besides, I'm thinking Senate Armed Services Committee chair Carl Levin, Michigan's senior Senator, may be looking for a little payback for the GOP at this point.

Dear America:

"Obama's crackpot 'green energy' plan? Are you kidding? Every President since Johnson has tried and failed miserably to get us off foreign oil. He's crazy, I tell you! TAXES! TAXES! JOB LOSS! BLAH BLAH BLOOGITY BLAH TAAAAAAAAAXES! HE MIGHT CAUSE A RECESSION!"

--Arthur Laffer, Wall Street Journal

Merry Christmas, You Unionized Bastards

Looks like the White House might now get around to a bailout decision before Christmas Day.

The White House and the Treasury are deep into negotiations with General Motors and Chrysler over reorganization plans that could result in freeing up more than $14 billion in emergency loans to keep the companies afloat through the first quarter of 2009, according to industry executives and a senior administration official.

The Bush administration appears to want an agreement with the automakers before Dec. 25. It was unclear, however, when all of the particulars might be worked out, said the senior official, who spoke on the condition of anonymity because of the delicate nature of the negotiations.

But the official indicated that the administration was inclined to do more than just keep G.M. and Chrysler alive until President-elect Barack Obama takes office, saying, “Giving them enough money to limp along doesn’t solve anything.”

In the negotiations, the Treasury secretary, Henry M. Paulson Jr., is effectively taking on the role of “auto czar,” which was envisioned in the carmakers rescue bill written by the White House and Congressional Democrats and approved by the House but blocked by Senate Republicans.

In the days since the White House said it would step in to prevent the collapse of G.M. and Chrysler, Treasury officials have been poring over detailed financial data in a meticulous exercise that one G.M. executive likened to “putting on the aqualung” and diving deep into the companies’ books.

One has to wonder if Citigroup, AIG, and the rest of the financials that quietly took hundreds of billions had anybody dive into THEIR books before they got any cash.

As one commenter said yesterday, "...I definitely lean towards survival of the fittest and seeing that they brought this on themselves in many ways. Bailing out might help (might!), but so would better practices and less waste." That's true. But my gut feeling is that the damage is done, and that the US auto industry won't be around in a couple of years in any form. I honestly forsee Big Three plants broken up, sold to foreign companies and liquidated. There may not be anything Obama can do to save them short of nationalizing the industry. I doubt even Obama is willing to make UAW workers into Federal employees.

As I've said, America in early 2011 is going to look a lot different from America early 2008.

StupidiNews!

• Obama's choice of Pastor Rick Warren to give the invocation at the inauguration is not going over well.
• An FBI informant claims Illinois Governor Rod Blagojevich was a mob bookie in the 80's.
• Treasury says a New York City bank is really an Iranian front company.
• Obama's planned stimulus package may exceed $850 billion.
• How do you make money selling used digital property?

30 Days Of Night

Chrysler is furloughing all US plants for 30 days as of the last shift on Friday. The interesting reason behind the shutdown? No credit for people to buy cars.

"Chrysler dealers confirmed to the company at a recent meeting at its headquarters, that they have many willing buyers for Chrysler, Jeep and Dodge vehicles but are unable to close the deals, due to lack of financing," the carmaker said in an announcement. "The dealers have stated that they have lost an estimated 20% to 25% of their volume because of this credit situation."

Auto sales have been hit hard by tight credit and the struggling economy. Overall auto sales in the United States were down 37% last month compared with November 2007. Chrysler's situation was especially bad. Its sales dropped 47%.

Chrysler's financing arm, Chrysler Financial, has tightened lending terms for buyers and earlier this year, it announced it would no longer offer leases.

Remember, just over two months ago, the President assured us that everything was fine, and the recession was just all in our heads. Chrysler's all but done, as is GM. An entire American industry is now on the brink and the government has pledged trillions and trillions of dollars to fix the problem over the last nine weeks or so. Trillions.

It will not be the last industry facing extinction. America a few years from now is going to be a very different place, like the difference between 1928 and 1932. We're going to have to reinvent our entire economy from scratch. Many of the old industries and jobs they represent will vanish for good over the next few years.

Our consumer consumption economy is dying before our eyes. What will replace it? That is Obama's true test...and Bush's true legacy of disaster.

You Think I'm Depressing?

I'm not depressing. Now, James Boyce is depressing.

It will start with the housing market which will, once again, be determined by issues like the number of people living in a market, incomes and rental prices.

How far will housing prices fall? To the historical mean, which is another 20-40% down, depending on where you live. This graph is shocking for two reasons. One, how it disproves the basic belief that a house is a good investment, it's not. And second, how we should have seen a correction in 2002, but post 9/11, all we saw was a bubble. Currently prices are down 20% from the top that was shown in this graph, but clearly, they still have a long way to go.

Will housing prices return to historical averages? Yes. But what's going to happen first? Here's the view of Whitney Tilson who was on 60 Minutes on Sunday and one of the few who predicted the mortgage disaster.

"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."

The housing bubble will deflate slowly, unfortunately for our recovery because now people are just pulling their houses instead of selling at a loss. "I'll wait till the market comes back" you here but it's not coming back, any more than lightbulbs.com stock is going to be worth $100 a share anytime again ever.

In real dollar terms, in our lifetime, housing prices will never be what they were in 2005 and 2006. They may never even get within 25% of that false peak. In the next 100 years.

Problem is, I don't see anything wrong with his logic.

Dear America:

"There's no such thing as a moderate Republican. A moderate Republican is a liberal."

--Rush Limbaugh

(And people wonder why the Dems are in charge now.)

Da Troof

Balloon Juice's John Cole on the GOP and Obama's patriotism:

In fact, an argument could be made that questioning the Obama’s patriotism was the only growth industry of the last twelve months.

Nuff respect due.

Zandar's Thought Of The Day

1000 posts. I think I shall call Dad.

Man Of The Year

Time Mag's Man of the Year of course is Barry. No brainer, even for these guys.

Score that as follows: one imploding economy, one deteriorating war in an impossible region and two versions of Armageddon — the bang of loose nukes and the whimper of environmental collapse. That's just for starters; we'll hear the unabridged version shortly.

But first, there is a bit of business to be dealt with, having to do with why you are reading this story in this magazine at this time of the year. It's unlikely that you were surprised to see Obama's face on the cover. He has come to dominate the public sphere so completely that it beggars belief to recall that half the people in America had never heard of him two years ago — that even his campaign manager, at the outset, wasn't sure Obama had what it would take to win the election. He hit the American scene like a thunderclap, upended our politics, shattered decades of conventional wisdom and overcame centuries of the social pecking order. Understandably, you may be thinking Obama is on the cover for these big and flashy reasons: for ushering the country across a momentous symbolic line, for infusing our democracy with a new intensity of participation, for showing the world and ourselves that our most cherished myth — the one about boundless opportunity — has plenty of juice left in it.

In the Lord Voldemort category of "great but terrible things" that qualify a person for runner-up, we have Sarah Palin (for destroying the GOP) Hammerin' Hank Paulson (for destroying the economy), Chinese film director Zhang Yimou (for the terribly great Beijing Olympics opening orgy) and French President Sarkozy (for being terribly, terribly great at being French.)

Go fig.

StupidiNews!

• NASA scientists warn that 2 trillion tons of polar ice is melting at a much faster rate.
• A federal appeals court in New York has struck down yet another part of the PATRIOT Act as unconstitutional.
• More than nine out of ten Illinois voters say embattled Governor Rod Blagojevich must go.
• OPEC ministers are meeting to consider a record supply cut to boost oil prices above $75.
• The Bush administration continues to try to block the release of the NSA's internal arguments over wiretapping.

Zero Hour

The Fed has cut the chief lending rate to zero.

The Federal Reserve cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Treasury notes rallied in anticipation the Fed will buy the securities to force borrowing costs for consumers and companies lower. Nine rate cuts in the prior 14 months and $1.4 trillion in emergency lending have failed to reverse the economic downturn.

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the Fed is ready to expand the program. The central bank said it continues to weigh the potential benefits of buying longer-term Treasury securities.

And the liquidity trap closes with a ghastly, echoing crunch, like something out of an Edgar Allen Poe story. We're in uncharted territory here. The other half of the Fed policy, just as expected, is to magically invent a crapload of money. Officially, the Fed has today signaled that the Japan Scenario is on.

The Bank of Japan has been the only major central bank in modern times to mix a policy of steep rate reductions with quantitative easing, or the strategy of injecting more reserves into the banking system than needed to keep the target interest rate at zero.

Japan’s central bank kept its main rate at zero from 2001 to 2006 while flooding the banking system with extra cash to encourage lending, spur growth and overcome deflation. The abundant funds failed to prompt lending by commercial banks, which expanded their reserves at the central bank almost nine times by early 2004.

So there we are. And much like Japan, the cure will be far worse than the disease. The Fed is turning on the faucet full blast in a desperate effort to stave off a deflationary depression spiral. But Japan's already high personal savings rate and low personal debt contributed mightily to their eventual freedom, it just took a decade to do it.

We have no such reserves to fall back on. Everything the Fed has tried so far has failed. We're down to the last card in the deck now, zero rate and unlimited fiat money. When this too fails to turn around the economy, what then?

We're now officially a third world economy.

Just Another Bit Of Good Housing News

...or not.

New U.S. housing starts and permits plunged to record lows in November, as long-standing problems in the housing market continued to weigh on the U.S. economy, a Commerce Department report showed on Tuesday.

Housing starts fell 18.9 percent to a seasonally adjusted annual rate of 625,000 units from 771,000 units in October.

That was much less than the 740,000 starts Wall Street analysts expected to see for November.

New building permits, which give a sense of future home construction, plummeted 15.6 percent to 616,000 units from 730,000 units in October.

That was also much below Wall Street analyst estimates of 700,000.

That's a massive drop in numbers even from just October. The bad part is if housing starts pick up faster than housing prices do...it will depress prices even further. I don't see how that could happen other than housing companies jumping the gun and building early 2009 in order to "get in on the ground floor of the new housing recovery".

It doesn't make any logical sense. Then again, the US economy has been operating on that whole "lack of logical sense" thing for the last several years, especially in housing. If people see these record low new housing starts and permits as the bottom of the market rather than a price-based bottom (which is still nowhere in sight), things could get even worse in the housing market.

American consumers aren't that dumb, are they?