Sunday, October 26, 2008

Down For The Count, "The whole system is contracting"

Down For The Count

"The whole system is contracting"

By Mike Whitney

Go To Original

"The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men (who) felt no responsibility to the nation." From the 1945 UK Labour manifesto Let Us Face The Future

There are signs that the credit crunch is easing. Interbank lending in dollars has fallen for a ninth straight day. The various indicators of stress in the market--Libor, the TED spread, and the Libor-OIS spread--are all gradually returning to normal, but the damage to the broader economy has been substantial. Major corporations have had to stretch their credit lines just to get the money they need to cover routine operating expenses and a lot of retailers have not been able to get funding for their inventories for the holiday season, so they'll either have to hire fewer workers or simply shut their doors for Christmas. Also, corporate defaults have increased as businesses have been unable to turn over their short-term debt. According to Fitch Ratings, the "crisis will cut growth in credit this year by 50 percent as financial firms reduce leverage, investors' appetite for risk declines, and the worldwide economy slows." When credit is less available, there's less business activity and the economy slows. Unemployment goes up and quarterly earnings go down. It's a vicious circle that starts with speculation and ends in panic. The financial system has to reestablish its equilibrium by purging the excessive credit that developed through low interest rates and lax lending standards. Financial institutions everywhere are in the process of deleveraging which is putting downward pressure on the main stock indexes and creating turmoil in the currency markets.

The US Treasury and Federal Reserve are now underwriting the entire financial system. The free market has been abandoned altogether. Everything from commercial paper to money markets is now backed by the "full faith and credit of the United States". Without that explicit government guarantee, the credit markets would still be frozen and the system would crash. But government guarantees do not address the real problem, which is toxic assets that must be accounted for and written down. All it does is take hundreds of billions of dollars in mortgage-backed garbage onto the nation's balance sheet and undermine the creditworthiness of the United States. Eventually, foreign central banks will see the folly of this maneuver and refuse to buy more US debt. When that happens, there will be a run on the dollar and a major dislocation in the bond market. Then, the financial system will grind to a standstill once again.

Secretary of the Treasury Henry Paulson's $125 billion capital "giveaway" to nine of the country's largest banks has helped to calm the credit markets, but it won't last. The "real economy" is beginning to stumble and the stock market is gyrating more wildly than anytime in history. Wall Street is consumed with fear and investors are ducking out the exits as fast as their feet will carry them. According to the New York Times, the banks probably won't even use Paulson's money to extend loans to consumers and businesses (as intended), but will hoard it to make sure they are sufficiently capitalized when their mortgage-backed assets are downgraded. Even worse, the banks may use the money to gobble up smaller local and regional banks. On Tuesday's Jim Lerher News Hour, New York Times journalist Andrew Ross Sorkin put it like this: "The other thing that some of them may do with that money is go out and make acquisitions and buy other banks, (which) means that you will not be getting this money into your pocket anytime soon....I think the larger issue is the economy and these banks, in terms of lending, are not going to start lending real money until the economy turns."

Paulson knows what the banks are up to; after all, these are his friends. The truth is, the $125 billion was not given to the banks to soften the effects of the recession or increase lending. It was given to make the strong banks even stronger so they could monopolize the industry. Paulson's real plan is "more consolidation" and less competition, or as economist Michael Hudson says, "Big fish eat little fish". The Treasury Secretary is using his authority to reward his friends rather than doing what is best for the country.

In the last few weeks, the broader economy has deteriorated faster than anytime in the last 70 years. That's why Fed chief Ben Bernanke has given the nod to another stimulus package of $150 to $300 billion dollars. The gears are rusting in place and the desperation in Washington is palpable. Calculated Risk web site provided a transcript of a conference call by MSC Industrial Supply (MSC) which summed up the prevailing mood in today's business world:

MSC: "In the last several weeks, customers' sentiment has turned dramatically downwards. Here are a few of the things we have recently heard and I'll quote a few of them. One quote is our new orders are down substantially in the last few weeks. Another is that corporate has told us to reduce inventory. What we have also heard is make due with what you have. And finally, another quote is capital expenditures are on hold. Customers are concerned about the economy and the lack of available credit. They're reducing inventories, orders, and order size and there has been a trend toward deferring capital expenditures..."

MSC: "David, we view this time as unprecedented in history. The economy is undergoing a huge change, how that is going to shake out all remains to be seen, but I think what is important to know is it's a huge change that, frankly, no one had a chance to see coming, so we than specifically in our customer base there is a tremendous amount of fear that is gripping customers and evidenced by what we have seen the last couple of weeks in October, almost buying paralysis, that is really the way that we think about it, and frankly, in speaking with so many customers what we see happening.... What is has happened here with the credit crisis is while the economy was by no means booming, it was kind of rolling along and we almost think that what typically would have taken six, seven, eight, 9, 12 months to start to come down happened almost literally overnight." (Calculated Risk)

Events are now unfolding so quickly, they're impossible to follow. But this much is clear, the wheels have fallen off the cart. The Fed has lost control of the system. On Monday, Bernanke announced the creation of the Money Market Investor Funding Facility (MMIFF), which will provide $550 billion in liquidity to U.S. money market investors. It is another in a long list of steps to try to provide liquidity to a system that is burning through trillions of dollars of credit via the deleveraging of hedge funds and asset downgrades. Of course, the Fed does not really have the money it has committed. It will have to expand its balance sheet, issue more Treasurys, and hope that foreign central banks do not see that the US financial system is headed for the rocks.

"It is essential we preserve the foundations of democratic capitalism,'' Bush bellowed on Monday.

All that's left of the free market is the threadbare rhetoric of our lame duck President. The world's biggest creditor is now the most ardent defender of market fundamentalism.

Last week, banks borrowed a record $437 billion per day, topping the previous week's $420 billion per day a week earlier. Hundreds of banks cannot meet their capital requirements without regular low interest loans from the Federal Reserve. The banking system is in shambles. The FDIC needs to determine which banks can be saved and which need to be shut down, otherwise the insolvent banks will use the money they get from the Treasury on risky bets to dig their way out of bankruptcy. Without restrictions on how they can issue credit, many of the banks will engage in the same reckless behavior and speculation that brought on the current calamity.

92 year old Anna Schwartz, who co-authored "A Monetary History of the United States" with Milton Friedman, said in a recent Wall Street Journal interview that Paulson and Bernanke "should not be recapitalizing firms that should be shut down." Rather, "firms that made wrong decisions should fail.... By keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis." At the same time, they have not alleviated the uncertainty among lenders "that would-be borrowers have the resources to repay them." This is the very heart of the matter; the distrust will remain until the bankrupt institutions are shut down and confidence is restored. The good banks have to be strengthened, the bad banks have to be closed, deposits have to be insured, foreclosures have to be reduced (to stabilize home prices), and consumers need immediate stimulus (including food stamps, extended unemployment insurance, infrastructure spending and aid to states) to rev up the economy. All of these have to be done as quickly as possible to avoid further damage to the economy and greater personal suffering. According to an estimate by the UNs International Labour Organisation (ILO) "Twenty million jobs will disappear by the end of next year as a result of the impact of the financial crisis on the global economy...Construction, real estate, financial services, and the auto sector are most likely to be hit, according to the ILO's estimate which is based on International Monetary Fund projections for the world economy." It could be worse if the Bernanke and Paulson botch the rescue.

The FDIC's Sheila Bair has been the one "bright light" in the ongoing financial train-wreck. She has done a first-rate job of closing "sick" banks and renegotiating mortgages. Last week, Bair blasted Paulson for focusing all his attention on the banks and financial institutions instead of homeowners, many of who are now facing foreclosure. In an article in the Wall Street Journal, she said: "We're attacking it (the crisis) at the institution level as opposed to the borrower level, and it's the borrowers that are defaulting. That is what's causing the distress at the institution level...So why not tackle the borrower problem?"

Unlike Paulson, Bair seems to grasp that the hemorrhaging in the financial sector cannot be stopped unless the rate of foreclosures is slowed and housing prices stabilize. The FDIC chief has taken a sensible approach to the crisis by writing down the face-value of mortgages and putting homeowners in conventional 30-year fixed rate loans that make it possible for them to avoid foreclosure. According to Bloomberg, "(Bair) now has the authority to offer loan guarantees that could encourage modifications by mortgage-servicing companies in an effort to avert foreclosures. The new financial rescue plan "allows the government to set standards for mortgage changes and offer guarantees for loans that meet the standards." This gets to the root of the larger problem which is stopping the slide in housing prices so that the mortgage-backed securities market can normalize.

The actions of the Fed, the Treasury and the FDIC are likely to cost in excess of $2 trillion. That does not include the trillions in market capitalization that are wiped out by plummeting home and stock prices. Nor does it include the incalculable suffering from rising unemployment, falling living standards, and personal hardship. Eventually, the Fed's emergency measures will result in higher taxes, soaring deficits and slower growth. As America's "consumer-based" economy flags and the recession deepens, capital will flee US Treasurys and securities and create a funding crisis. This may be hard to imagine now that the dollar is strengthening and US Treasurys appear to be in great demand, but the handwriting is already on the wall.

Brad Setser explains the dollar's surprising reversal in his latest blog-entry: "The dollar's rise since July is part of a reversal in longstanding investment trends that prevailed during years of plentiful borrowing, strong growth and low financial-market volatility. "Essentially, every large trade that built up a head of steam in the go-go years has blown up or is in the process of blowing up," wrote Alan Ruskin, chief international strategist at RBS Greenwich Capital, in a report to clients. "That goes for almost every asset class."(Brad Setsers Blog)

The recent surge in US Treasurys is also misleading, much of it having to do with terrified investors that are dumping their shares in stocks, mutual funds and hedge funds for the perceived safety of US debt. Foreign investors, however, seem to be losing their enthusiasm for Treasurys as America's future continues to darken.

The net foreign purchases of long term securities in August was a mere $14 billion following an even more dismal $8.6 billion in July; not nearly enough to meet $55 billion per month the US needs to balance its consumption of foreign goods. Even worse, the purchases of long-term US securities "went negative" by for foreign private investors (by $8.8 billion) which means that the dollar is being artificially propped up by foreign central banks to avert a disorderly unwinding of the currency.

Foreign investors and central banks are no longer providing the capital to support the US $700 billion current account deficit. They have lost confidence in America's ability to bounce back from the credit crisis which has swept through the financial system and is now hammering away at the broader economy. That means the demand for US debt will fall and the prospect of hyperinflation will grow. Even if the dollar is able to weather the storm ahead (and the nation can avoid a funding crisis) the massive deficits brought on by Bernanke's "emergency" spending spree will force interest rates upwards and tighten credit even more. As Michael Panzer, author of "Financial Armageddon" says:

"While the U.S. may not suffer from a funding crisis in the immediate future, the voracious money-raising appetite will make life much more difficult for the private sector, in the sense that, they will be 'crowding out' increasingly desperate borrowers who will find their options are more and more limited."

The Fed now faces the daunting task of trying to maintain America's dominant place in the global system while the economy contracts, deficits skyrocket and the pillars of US-style capitalism come crashing to earth.

The Grand Merger!

The Grand Merger!

By Rev. Richard Skaff

Go To Original

Not every wrong, or even every violation of the law, is a crime.” Michael Mukasey, US Attorney General saying former justice Department staffers won’t be criminally prosecuted for politicizing hiring practices.

In the last forty years the boundaries between government and corporation have been slowly eroding. However, in the last eight years and during the reign George W. Bush, the process has accelerated tenfold and was taken into new levels that have never been seen in the history of this nation.

In addition, this administration has successfully and systematically dismantled the bill of rights, our civil liberties, as well as our financial, personal and national sovereignty.

While George W. Bush was talking about the US as a unilateral superpower, he was behind the scenes dismantling this superpower and rendering it into a broke, weak and ailing tiger that will be forced to join the new world order instead of being the world order.

Lawlessness in government has become the rule of the land. Loyalty to the party superseded the loyalty to the country, which is a déjà vu phenomenon in the archives of fascism. The stench of our political sewage system has contaminated our nation and the world. Mendacity became truth, and manipulation became intelligence and virtue.

Macchiavellian politics has reached new height of deception, corruption, and propaganda. Our supreme court became politicized with unscrupulous appointees who were co-opted to implement the new laws for the new world order. Our intelligence agencies have been methodically politicized and corrupted for many years to a point of no return. Cash became GOD!

Ralph McGeehee a 25 year veteran of the Central Intelligence Agency enlightened us with this following paragraph from his 1983 book “Deadly Deceits,” which edifies a familiar pattern of deception that we have witnessed but we never understood. He stated the following about the CIA:

“The CIA is not an intelligence agency. In fact, it acts largely as an anti-intelligence agency, producing only that information wanted by policymakers to support their plans and suppressing information that does not support those plans. As the covert action arm of the president, the CIA uses disinformation, much of it aimed at the U.S. public, to mold opinion. It employs the gamut of disinformation techniques from forging documents to planting and discovering “communist” weapons caches. But the major weapon in its arsenal of disinformation is the “intelligence” it feeds to policymakers.

Instead of gathering genuine intelligence that could serve as the basis for reasonable policies, the CIA often ends up distorting reality, creating out of the whole cloth “intelligence” to justify policies that have already been decided upon. Policymakers leak this “intelligence” to the media to deceive us all and gain our support.” [1].

The resurrection of governmental intervention, and the rise of corporate socialism.

Lawlessness in government and in capitalism combined with bogus wars based on fake intelligence, and a colossal disinformation campaign have led our nation into this current financial abyss. Whether this crisis is contrived or not, the public will suffer the consequences.

Will people learn from their mistakes and rise up in revolt to throw out their elected officials. Probably not! The masses always prefer wily and brutal leaders who will lead them into the Promised Land, will act on their behalf, and will do the thinking for them. Critical thinking is a frightening phenomenon, because with it comes decision making, action and responsibility. However, the cost for this acquiescence is great and long lasting, resulting in a lifetime of serfdom.

The critical questions to ask next are the following:

Has the current financial crisis achieved its goal of consolidating further the wealth in the hands of the few, and succeeded in creating the neo-super financial corporations that extend their global tentacles worldwide, in order to exploit, indebt, impoverish and suffocate the life out of every nation?

Was this crisis also designed to cause the final merger of the new hybrid beasts of the half politician-intelligence operative and the half CEO who will operate the super-corporation?

Does this financial meltdown target the final consolidation of government and corporation creating a new era of corporate socialism that will dominate the world for the years to come?

Did the deliberate assassination of the dollar by our leaders will help create a novel currency that will connect the world closer than ever, and will befit the new order?

On November 15, 2008 George W. Bush will be hosting a major economic summit in Washington, which will mark the renewal of a Bretton Woods like system that will attempt to rectify the power of the United States as a leader for the new world global monetary affairs, or will reduce it to a regular player in a new global establishment.

The summit will allegedly set up a new system of rules, institutions, and procedures that regulate the international monetary system, and determining a new currency as the neo-reserve currency of the world. This new currency might replace the hyperinflated and ailing dollar that was deliberately murdered by the moles in the Bush administration through financing of illegitimate wars and profligate spending.

The economic summit will include many world leaders with a special invitation to China and India to help the Anglo-American establishment resolve the financial crisis they created with unscrupulous accounting practices, disinformation to the public, gambling with other people’s money, cheating, lying, lawlessness, unaccountability, resulting in a capitalist system that has gone awry.

By Rev. Richard Skaff, Journalist and author of "The Human Manifesto."

References:

1. R. W. McGeehee-1983. Deadly Deceits: My 25 years in the CIA.
Sheridan Square publications Inc. N.Y. New York, 10013

2. Associated Press, October 22, 2008. World leaders to meet on economy in Washington

Chinese Yuan, the World's New Reserve Currency

Chinese Yuan, the World's New Reserve Currency

By Mike Whitney

Go To Original

Things are getting worse. On Friday morning, futures trading was halted for the first time ever after futures plunged more than 5 percent. The sell-off came after another 500-plus down day on the Dow followed by steep declines in equities markets across Europe and Asia. Japan's benchmark index, the Nikkei, slipped more than 9.5 percent after Toyota and Samsung reported disappointing earnings. The news was equally bad in Europe where shares were battered across the continent on fears of a global recession. Since September, $16 trillion has been erased from global stock market value. Losses in the US--where the financial turmoil originated--have been much smaller than other, more vulnerable markets. The Dow is down less than 40 percent from its peak of 14,000, whereas Hong Kong, Poland and China have all tumbled more than 60 percent. Its a bloodbath.

The Chicago Board Options Exchange Volatility Index, "the Fear Index", surged to 79.13 on Friday, the highest in its 18-year history, while the Dow clawed its way back from 500 points down to a 312 point loss on the day. The massive blow-off in stocks is mainly the result of ongoing deleveraging among the hedge funds which are dumping shares in at a record pace to cover the dwindling value of their asset base. According to the New York Times: "Hedge funds lost an estimated $180 billion during the last three months and some are near collapse. Investors are demanding their money back, and Wall Street is bracing for a shake-out in the $1.7 trillion industry." If a large fund, like Citadel, goes down, it will create a black hole in the financial system, similar to the loss of Lehman Bros. and, once again, the US Treasury will have to come to the rescue by providing a multi-billion dollar taxpayer bailout.

The dislocations caused by the unwinding of the hedge funds creates the possibility that US markets will have to be closed while assets are dumped on the market. New York University Professor Nouriel Roubini summed it up like this:

"Policy makers may soon be forced to close financial markets as the panic selling accelerates.
Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. There is a free fall as most investors are rapidly deleveraging and we are on the verge of a a capitulation collapse. What matters now is only flows - rather than stocks and fundamentals - and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife. There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game.

We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies. So it is time to think about more radical policy actions and government interventions." (Nouriel Roubini's Global EconoMonitor)

The stock market rout has triggered gigantic swings in the currency markets, too. The dollar has surged 16 percent against the euro in a matter of weeks while every other currency in the world has steadily lost ground, excluding the yen. The sudden fall in commodities and the unwinding of dollar-based bets in foreign capitals has bolstered the dollar and made US Treasurys the preferred "flight to safety" investment.

The volatility is causing problems everywhere, particularly where foreign companies must pay back loans in dollars which have risen steeply in relation to their own currencies. Emerging "commodities based" markets are getting clobbered. The stronger dollar also threatens to make it harder on US exports which have been the one economic bright spot in recent months. If present trends continue, then foreign governments will have to allocate more of their reserves to prop up their own currencies which will make it even more difficult for the US to fund its current account deficit as well as the Treasury's expanding balance sheet. In other words, these violent and unprecedented currency swings foreshadow a funding crisis looming just ahead as credit is drained from the financial system and capital becomes even scarcer. For now the dollar is flying high, but the future is looking grimmer by the day.

The financial crisis is wringing credit from the system and pushing prices downward across the board. No asset class has been spared, including gold which posted its biggest one week loss in 28 years and has plummeted from $1,040 in March to $734 at Friday's market close.

Oil has also been hammered by speculative bets made by the hedge funds which are now forced to sell their positions to cover downgrades on their mortgage-backed assets. The erratic movement in oil prices makes it possible to see the real destructive power of the unregulated market, particularly the opaque buying and selling by the hedge funds. In just 14 months oil went from $70 to $145 and back to $67 again on Friday. Wall Street speculators drove up prices with money they borrowed from the investment banks and delivered a knockout blow to the US consumer. The Fed played a critical role in this "gaming the system" by providing the low interest credit that created burgeoning profits for the investment class and falling living standards for everyone else.

Now that the currency bubble has popped, its effects are being felt worldwide. Countries that benefited from the high commodities prices are now getting slammed everywhere from Russia to the Persian Gulf. Ethanol producers are facing bankruptcy if things do not turnaround in the next 12 months. As the Wall Street Journal notes:

"The tragedy of the second bubble is that it has left the economy in a weaker position to ride out the housing slump and credit panic. The American consumer has been whipsawed with $4 dollar gas and food inflation, while entire industries have been put on the edge of bankruptcy. Detroit's auto makers have spent the last year taking down their truck and SUV assembly lines while gearing up to make hybrids and electric cars, even as their cash flow has been ravaged. Their new investments are based on the expectation that oil will stay high permanently, but will the market for hybrids exist if oil is $50 a barrel?

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent." (Wall Street Journal)

The effects of low interest rates and credit contagion are not limited to "bottom line" considerations. As Marketwatch's Thomas Kostigen points out, monetary policy can be a death sentence for poor people across the planet who are invariably it biggest victims:


"The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die.

Already, since food prices began to rise 100 million more people have been pushed into poverty, according to the World Bank, with as many as two billion on the verge of disaster. Almost half the world's population, let's remember, live on less than $2.50 per day. Millions die annually of hunger and starvation, and more than a billion do not have access to fresh water.

These numbers are poised to rise dramatically with population growth, dwindling natural resources and higher consumer prices across all goods and services. So as the stock market tumbles and the world economy falters, it's important to remember that it's more than financial losses we are talking about, it's the loss of life.

And increasingly it isn't just people in far-off places around the world who are succumbing to such extreme hardships. Note this: Job losses in the state of Indiana have caused the child poverty rate there to spike 29% since 2000. The wealth gap in the United States and around the world is at record levels -- and it has serious consequences.

The Organization for Economic Cooperation and Development reported this week that the gap between the rich and the poor is getting bigger around the world, and that the U.S. is experiencing the biggest dichotomy.

We are experiencing the largest wealth gap in history. Further erosion of the economic floor will only send more people plunging into destitution.

This is why it's so important to fix the economic crisis -- now.

We're all linked." (MarketWatch)

The Bush administration has called for an economic summit to be held by the 20 largest economies sometime after the presidential elections. US and EU officials are hoping to stitch together another Bretton Woods wherein control of the global economic system was delivered to those same nations. It's likely, however, that the outcome will turn out considerably different than anticipated. Already, under China's leadership, 12 Asian nations have agreed to set up an 80-billion-dollar fund to protect their economies from currency-runs, capital flight or other financial disruptions. China has the world's largest reserves at $1.9 trillion followed by Japan at more than $1 trillion. Clearly the two richest nations will set the agenda and play a central role in deciding how best to deal with the global recession.

The November summit in Washington could produce some unwelcome surprises which were hinted at by Thailand's Deputy Prime Minister, Olarn Chaipravat, who told Bloomberg News: ,

"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world."

Surely, the present financial malaise which has its roots in Wall Street and at the Federal Reserve, has demonstrated that the dollar must be replaced as the world's "reserve currency" and that America must be deposed as the de facto steward of the global economic system. Leadership implies responsibility and the US must be held to account for its failings. It's time for a change.

US federal appeals court stays

US federal appeals court stays Troy Davis execution

By Kate Randall
Go To Original

A federal appeals court in Atlanta, Georgia issued a stay of execution on Friday for death row prisoner Troy Anthony Davis. The ruling by the 11th Circuit Court of Appeals halts, at least temporarily, Davis's execution that had been scheduled for 7 p.m., Monday, October 27.

The ruling by the court's three-judge panel is the latest chapter in the struggle by Troy Davis, his attorneys, and supporters to clear his name and spare his life in connection with the August 1989 murder of Mark MacPhail, an off-duty police officer in Savannah, Georgia.

In Friday's ruling the judges stated, "Upon thorough review of the record, we conclude that Davis has met the burden for a stay of execution." The stay came 10 days after the US Supreme Court denied without comment an appeal by Davis, clearing the way for the execution that has now been stayed.

The preponderance of evidence points to Troy Davis's innocence. There is no physical evidence connecting him to the crime, and seven of the nine witnesses who originally testified against him have since recanted their testimony. Davis, now 40, has been incarcerated for close to two decades, and has faced imminent execution on three occasions.

Statements of the witnesses who have now recanted make clear that their testimony was in many cases obtained under police coercion. The state's key witness against Davis, Sylvester "Redd" Coles, could face prosecution if Davis is cleared of the crime and has a vested interest in pointing the finger at him.

The potential state-sponsored murder of an individual who is very likely innocent has provoked outrage both in the US and internationally, and the campaign for his exoneration has won widespread support.

Rallies on Thursday organized by Amnesty International to protest Davis's impending execution were held in Atlanta and in 14 other cities in the US and Europe. The 27-member European Parliament issued a statement on Wednesday condemning the execution and the US practice of capital punishment in general.

Earlier this week, Davis's attorneys had asked the appeals court for permission to pursue another round of litigation in federal court on claims he is innocent. The Davis defense has never been able to present the new evidence in his case on appeal. The stay issued by the 11th Circuit Court of Appeals, however, is conditional and does not guarantee that Davis will be granted a new trial.

The Antiterrorism and Effective Death Penalty Act of 1996, enacted under the Clinton administration, requires that death row prisoners obtain authorization from an appeals court before another habeas corpus lawsuit can be filed. The 11th Circuit stressed that Davis must meet the "stringent requirements" to pursue another round of appeals.

Defense attorney Jason Ewart commented on the court's ruling, "This is the first step toward a court hearing to consider the new evidence—something we have been asking for almost a decade now." Davis's lawyers must file a legal brief on their arguments to the 11th Circuit within 15 days, and the state attorney general's office then has 10 days to respond.

Since Troy Davis's 1991 conviction, the Georgia Department of Corrections has scheduled a total of three dates for his execution by lethal injection at the Georgia Diagnostic and Classification Prison in Jackson, including next Monday's that has now been stayed.

On July 16, 2007, the Georgia State Board of Pardons and Paroles issued a 90-day stay of execution less than 24 hours before Davis's scheduled execution, set for 7 p.m., July 17. The board said it would "not allow an execution to proceed in this state unless and until its members are convinced that there is no doubt as to the guilt of the accused."

On September 23, 2008, the US Supreme Court issued a stay of execution less than two hours before he was to be put to death. The court did not take any action at that time on his appeal.

Three weeks later, on October 14, the high court justices denied Davis's appeal, without comment and without a written dissent, paving the way for his October 27 execution. Their refusal to hear the case exposed the reactionary character of this body and its support for capital punishment. The court could not muster the votes of four of the nine justices, including among its so-called liberal wing—the minimum required to force a hearing of an appeal.

Earlier this year, in mid-April, the Supreme Court upheld the use of lethal injection as a death penalty procedure. That ruling paved the way for a renewed round of executions, which had been on hold pending the court's decision. Since then, 28 condemned prisoners have been sent to their deaths throughout the US, and 22 more executions are scheduled between now and mid-March 2009.

According to the Death Penalty Information Center, as of January 1, 2008, there were 3,309 inmates on death rows across the US. Like Troy Davis, they have languished in prison for years. Since 1973, 130 death row inmates have been released, having been either acquitted, pardoned or had the charges against them dropped. The average number of years between these individuals being sentenced to death and their exoneration was nine-and-a-half years.

Troy Davis's sister, Martina Correia, and his mother, Virginia Davis, were packing for the trip to death row in Jackson for Troy's execution when they received the news that he had been granted a stay.

Correia told the Atlanta Journal Constitution, "He deserves to be free. He at least doesn't deserve to die for something he didn't do." She spoke to Troy on the phone following the court's announcement. "To all the people around the world working hard and fighting for him, he wants to say thank you and this fight has to continue," she said.

Signs of slowdown spiral around the world $16.3 trillion in stock value lost since Sept. 1

Signs of slowdown spiral around the world

$16.3 trillion in stock value lost since Sept. 1; some brokers fear more drops

By Steven Mufson and Blaine Harden

Go To Original

Pessimism about the global economy deepened yesterday as fresh evidence of a worldwide slowdown showed up in feeble corporate profit reports from Asia, sinking commodities prices, and a scramble by emerging economies to prop up their sagging currencies and avert credit defaults.

The signs of trouble popped up around the globe. Japanese giants Sony and Toyota, as well as South Korea's Samsung, the world's largest maker of memory chips, flat-screen televisions and liquid crystal displays, posted weakened profits and sales outlooks. Toyota's quarterly sales fell for the first time in seven years. Britain reported its first economic contraction since 1992.

Gloom about economic growth translated to low expectations for oil consumption. The Organization of the Petroleum Exporting Countries yesterday announced a cut of 1.5 million barrels a day in output — a move that still failed to arrest the slide in crude prices. Meanwhile, copper prices fell to a three-year low.

Investors around the world fled stocks and rushed to the relative safety of the U.S. dollar by pouring money into 30-year Treasury bonds, a refuge in times of uncertainty. That drove down the value of foreign currencies, from the ruble to the rupee and the zloty to the peso, forcing central banks to spend billions of dollars to prevent even further deterioration. The turmoil in currency markets threatened to reorder trade relations and complicate recovery efforts.

'New stage'
"I think we're moving into a new stage," said Simon Johnson, former chief economist at the International Monetary Fund and now a professor at the Massachusetts Institute of Technology. "There is the danger of ever-widening spheres of disruption."

The IMF stepped up its efforts to contain the expanding crisis, agreeing to a $2.1 billion rescue program with Iceland, whose financial meltdown triggered big losses for German and British banks. Belarus, Pakistan, Hungary and Ukraine have also asked the IMF for emergency loans.

Once again, fear gripped many of the world's stock markets yesterday. Japan's Nikkei index plunged 9.6 percent; India's benchmark index dropped 11 percent; Brazil's Bovespa index fell 6.9 percent; and Germany's DAX index fell to its lowest level since May 2005.

In Japan, bellwether companies led the way down. Sony, the world's second-largest consumer electronics company, fell 12 percent after its weak preliminary earnings report, in which it also sharply cut its profit forecast. Canon, the world's biggest maker of digital cameras, dropped 9 percent. Korea's Kospi index was down 20 percent for the week; Samsung fell 14 percent yesterday alone. In India, television news channels called it a "black Friday" as bearish investors were undeterred by the run-up to the most auspicious Hindu festival of good fortunes, Diwali, which is Tuesday.

Skittishness
While the fall in U.S. markets was less pronounced — the Dow Jones industrial average fell 3.59 percent — there were continuing signs of investor skittishness here, too. For instance, premiums on borrowing by most corporations remained prohibitively high.

Since Sept. 1, about $16.3 trillion worth of global stock market value has been erased. Although a drop in oil prices has put more money into the hands of consumers worldwide, analysts fear that the shrinking size of stock portfolios and falling house values will constrain consumer spending anyway.

Tobias Levkovich, a Citigroup equity strategist, said lower gasoline prices would act like a more than $150 billion stimulus for U.S. consumers. But that could be more than offset by a shrinking sense of wealth, especially among the top 20 percent of wage earners, who account for the bulk of equity investments and 40 percent of consumer spending.

Also, at the corporate level, there are already indications of fewer purchases of software, telecommunications equipment and services, and computer hardware. On Thursday, Microsoft predicted recessionary pressures in the months ahead and said it would slow hiring and cut expenses, particularly costs associated with data centers.

Lower consumer and corporate spending in the United States is likely to ripple around the world. "The global turmoil has had an indirect knock-down effect on India," Duvvuri Subbarao, the governor of the Reserve Bank of India, said at a news conference at which he lowered India's growth projection to 7.5 percent for this year. "Consequently, trade for emerging economies is becoming difficult."

Brokers in Asia warned that this could be just the beginning of steep declines in the stock prices of major companies that depend on exports to the United States and Europe for much of their profit. "If Sony's earnings are that bad, other firms' earnings could also be considerably grim, and this is alarming investors ahead of earnings reports next week," Tsuyoshi Segawa, an equity strategist at Shinko Securities, told the Kyodo news service in Tokyo.

Japanese companies' plight has been exacerbated by the resurgent yen, which rose faster against the dollar in the past week than it has in the past 10 years. The currency's value is rapidly eroding the competitiveness of Japanese exports, which were already plummeting due to collapsing demand in the United States and Europe.

Other nations' currencies have the opposite problem. India's rupee fell to a record low against the dollar. The Polish zloty and Hungarian forint had their biggest weekly declines. Mexico bought $13.1 billion of pesos to keep the currency from falling further; it has had its worst decline since the country's "tequila crisis" of 1994, when the United States put together a rescue package.

The falling currencies are a sign that investors are losing confidence in those countries, and it makes their imports more expensive.

The South Korean government has injected $130 billion into the country's banks, but that failed this week to stabilize markets or prop up the country's currency. Stocks have fallen about 35 percent this month, and the won continues to be the worst-performing major currency in the world, down about 35 percent against the dollar this year.

Entwined global economy
Much of the decline in the won and in Korean shares has been triggered by foreign investors pulling their money out of the country's stock market. Foreign ownership of Korean stocks has fallen to less than 30 percent after peaking at about 42 percent four years ago, according to the Yonhap News Agency.

The deceleration of the world economy has also brought the summertime spike in commodity prices to a sudden end, an illustration of how entwined the global economy is. A credit squeeze can lead to a drop in U.S. spending, which can curb demand for Chinese exports, which can curtail demand for commodities.

Freeport-McMoRan Copper & Gold, whose exports go into everything from residential and commercial construction to electronics to automobiles, earlier this week slashed its 2008 earnings forecast to $6.15 per share from $8.50 per share because of plummeting copper prices. They have dropped more than 50 percent since June, mostly because of curtailed demand from China, the largest consumer of copper.

'China is the gorilla'
Freeport doesn't export directly to China, but China consumes more than one-quarter of the world's copper supply, and a slowdown there has dampened world prices.

"When you look at worldwide supply and demand, China is the gorilla," said Charles Bradford, metals analyst at Soleil Securities. "Near term, it looks like there is no bottom to the [metals] markets."

China has also trimmed the importation of other materials that have fueled its spectacular run of growth. Bradford noted that ocean freight rates for iron ore from Brazil to China are down to $12 per ton today from about $108 last May.

Brazil illustrates how indiscriminate the financial crisis has been in claiming victims. Unlike many nations, Brazil's economy is relatively balanced, and its foreign borrowings have been relatively modest. Yet the country has still been squeezed by recent events. On Thursday, it eliminated its tax on foreign investments to remove an obstacle to capital inflows and bolster its currency, which has dropped 17.5 percent against the dollar this month.

But if emerging economies are hoping for assistance, they might have to wait while industrialized countries wrestle with their own problems.

In Europe, investors were starting to digest the reality of the economic slowdown. The news that Britain is on the brink of recession contributed to a 5 percent drop on the London stock market. The pound dropped to $1.58, the first time it has dipped below $1.60 in five years.

"This figure is worse than we expected, with the slowdown spreading right across the economy," said Richard Lambert, director general of the Confederation of British Industry. Manufacturing, construction and retail were all hit.

"This is the day the recession became real," said David Cameron, the leader of the opposition Conservative Party. "We will get through this, but we need change to support small businesses; we need change to bring a more balanced economy."

Prime Minister Gordon Brown said he wanted the help of other countries. "This is a global financial recession, and we're fighting it every way we know how, working with other countries, trying to get the banks moving here in Britain," he said.

They Did It On Purpose: The Housing Bubble & Its Crash were Engineered by the US Government, the Fed & Wall Street

They Did It On Purpose: The Housing Bubble & Its Crash were Engineered by the US Government, the Fed & Wall Street

By Richard C. Cook

Go To Original

During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.

When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.

In 2001 the frequency of White House visits by Alan Greenspan increased.

Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.

Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.

The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.

According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed

Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.

Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.

Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.

Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.

Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.

Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.

George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.

Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq .

ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.

State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.

In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.

The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.

Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.

The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.

The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings.

The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.

Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.

As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.

The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election.

The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.

Most major retail chains began to close stores and lay off employees even as the Christmas season approached.

The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is www.richardccook.com. Comments or requests to be added to his mailing list may be sent to EconomicSanity@gmail.com. Also see a series of his speeches on YouTube at http://www.youtube.com/user/GracchusJones.

How Banks Push Troubled Borrowers Deeper Into Debt

How Banks Push Troubled Borrowers Deeper Into Debt

By Brad Stone

Go To Original

Brenda Jerez hardly seems like the kind of person lenders would fight over.

Three years ago, she became ill with cancer and ran up $50,000 on her credit cards after she was forced to leave her accounting job. She filed for bankruptcy protection last year.

For months after she emerged from insolvency last fall, 6 to 10 new credit card and auto loan offers arrived every week that specifically mentioned her bankruptcy and, despite her poor credit history, dangled a range of seemingly too-good-to-be-true financing options.

"Good news! You are approved for both Visa and MasterCard -- that's right, 2 platinum credit cards!" read one buoyant letter sent this spring to Ms. Jerez, offering a $10,000 credit limit if only she returned a $35 processing fee with her application.

"It's like I've got some big tag: target this person so you can get them back into debt," said Ms. Jerez, of Jersey City, who still gets offers, even as it has become clear that loans to troubled borrowers have become a chief cause of the financial crisis. One letter that arrived last month, from First Premier Bank, promoted a platinum MasterCard for people with "less-than-perfect credit."

Singling out even struggling American consumers like Ms. Jerez is one of the overlooked causes of the debt boom and the resulting crisis, which threatens to choke the global economy.

Using techniques that grew more sophisticated over the last decade, businesses comb through an array of sources, including bank and court records, to create detailed profiles of the financial lives of more than 100 million Americans.

They then sell that information as marketing leads to banks, credit card issuers and mortgage brokers, who fiercely compete to find untapped customers -- even those who would normally have trouble qualifying for the credit they were being pitched.

These tailor-made offers land in mailboxes, or are sold over the phone by telemarketers, just ahead of the next big financial step in consumers' lives, creating the appearance of almost irresistible serendipity.

These leads, which typically cost a few cents for each household profile, are often called "trigger lists" in the industry. One company, First American, sells a list of consumers to lenders called a "farming kit."

This marketplace for personal data has been a crucial factor in powering the unrivaled lending machine in the United States. European countries, by contrast, have far stricter laws limiting the sale of personal information. Those countries also have far lower per-capita debt levels.

The companies that sell and use such data say they are simply providing a service to people who are likely to need it. But privacy advocates say that buying data dossiers on consumers gives banks an unfair advantage.

"They get people who they know are in trouble, they know are desperate, and they aggressively market a product to them which is not in their best interest," said Jim Campen, executive director of the Americans for Fairness in Lending, an advocacy group that fights abusive credit and lending practices. "It's the wrong product at the wrong time."

Compiling Histories

To knowledgeable consumers, the offers can seem eerily personalized and aimed at pushing them into poor financial decisions.

Like many Americans, Brandon Laroque, a homeowner from Raleigh, N.C., gets many unsolicited letters asking him to refinance from the favorable fixed rate on his home to a riskier variable rate and to take on new, high-rate credit cards.

The offers contain personal details, like the outstanding balance on his mortgage, which lenders can easily obtain from the credit bureaus like Equifax, Experian and TransUnion.

"It almost seems like they are trying to get you into trouble," he says.

The American information economy has been evolving for decades. Equifax, for example, has been compiling financial histories of consumers for more than a century. Since 1970, use of that data has been regulated by the Federal Trade Commission under the Fair Credit Reporting Act. But Equifax and its rivals started offering new sets of unregulated demographic data over the last decade -- not just names, addresses and Social Security numbers of people, but also their marital status, recent births in their family, education history, even the kind of car they own, their television cable service and the magazines they read.

During the housing boom, "The mortgage industry was coming up with very creative lending products and then they were leaning heavily on us to find prospects to make the offers to," said Steve Ely, president of North America Personal Solutions at Equifax.

The data agencies start by categorizing consumers into groups. Equifax, for example, says that 115 million Americans are listed in its "Niches 2.0" database. Its "Oodles of Offspring" grouping contains heads of household who make an average of $36,000 a year, are high school graduates and have children, blue-collar jobs and a low home value. People in the "Midlife Munchkins" group make $71,000 a year, have children or grandchildren, white-collar jobs and a high level of education.

Profiling Methods

Other data vendors offer similar categories of names, which are bought by companies like credit card issuers that want to sell to that demographic group.

In addition to selling these buckets of names, data compilers and banks also employ a variety of methods to estimate the likelihood that people will need new debt, even before they know it themselves.

One technique is called "predictive modeling." Financial institutions and their consultants might look at who is responding favorably to an existing mailing campaign -- one that asks people to refinance their homes, for example -- and who has simply thrown the letter in the trash.

The attributes of the people who bite on the offer, like their credit card debt, cash savings and home value, are then plugged into statistical models. Those models then are used for the next round of offers, sent to people with similar financial lives.

The brochure for one Equifax data product, called TargetPoint Predictive Triggers, advertises "advanced profiling techniques" to identify people who show a "statistical propensity to acquire new credit" within 90 days.

An Equifax spokesman said the exact formula was part of the company's "secret sauce."

Data brokers also sell another controversial product called "mortgage triggers." When consumers apply for home loans, banks check their credit history with one of the three credit bureaus.

In 2005, Experian, and then rivals Equifax and TransUnion, started selling lists of these consumers to other banks and brokers, whose loan officers would then contact the customer and compete for the loan.

At Visions Marketing Services, a company in Lancaster, Pa., that conducts telemarketing campaigns for banks, mortgage trigger leads were marketing gold during the housing boom.

"We called people who were astounded," said Alan E. Geller, chief executive of the firm. "They said, 'I can't believe you just called me. How did you know we were just getting ready to do that?' "

"We were just sitting back laughing," he said. In the midst of the high-flying housing market, mortgage triggers became more than a nuisance or potential invasion of privacy. They allowed aggressive brokers to aim at needy, overwhelmed consumers with offers that often turned out to be too good to be true. When Mercurion Suladdin, a county librarian in Sandy, Utah, filled out an application with Ameriquest to refinance her home, she quickly got a call from a salesman at Beneficial, a division of HSBC bank where she had taken out a previous loan.

The salesman said he desperately wanted to keep her business. To get the deal, he drove to her house from nearby Salt Lake City and offered her a free Ford Taurus at signing.

What she thought was a fixed-interest rate mortgage soon adjusted upward, and Ms. Suladdin fell behind on her payments and came close to foreclosure before Utah's attorney general and the activist group Acorn interceded on behalf of her and other homeowners in the state.

"I was being bombarded by so many offers that, after a while, it just got more and more confusing," she says of her ill-fated decision not to carefully read the fine print on her loan documents.

Data brokers and lenders defend mortgage triggers and compare them to offering a second medical opinion.

"This is an opportunity for consumers to receive options and to understand what's available," said Ben Waldshan, chief executive of Data Warehouse, a direct marketing company in Boca Raton, Fla.

Among its other services, according to its Web site, Data Warehouse charges banks $499 for 2,500 names of subprime borrowers who have fallen into debt and need to refinance.

Representatives of these data firms argue that their products merely help lenders more carefully pair people with the proper loans, at their moment of greatest need. The onus is on the banks, they say, to use that information responsibly.

"The whole reason companies like Experian and other information providers exist is not only to expand the opportunity to sell to consumers but to mitigate the risk associated with lending to consumers," said Peg Smith, executive vice president and chief privacy officer at Experian. "It is up to the bank to keep the right balance."

Decrease in Mailings

In today's tight credit world, the number of these kinds of credit offers is falling rapidly. Banks mailed about 1.8 billion offers for secured and unsecured loans during the first six months of this year, down 33 percent from the same period in 2006, according to Mintel Comperemedia, a tracking firm.

Countrywide Financial, one of the most aggressive companies in the selling of subprime loans during the housing boom, says it sent out between six million and eight million pieces of targeted mail a month between 2004 and 2006. That is in addition to tens of thousands of telemarketing phone calls urging consumers to either refinance their homes or take out new loans.

Even with the drop-off over the last year in such mailings, lenders continue to be eager customers for refined data on consumers, say people at banks and data companies. The information on consumers has become so specific that banks now use it not just to determine whom to aim at and when, but what specifically to say in each offer.

For example, unsolicited letters from banks now often state what each person's individual savings might be if a new home loan or new credit card replaced their existing loan or card.

Peter Harvey, chief executive of Intellidyn, a consulting company based in Hingham, Mass., that helps banks with their targeted marketing, says the industry's newest challenge is to personalize each offer without appearing too invasive.

He describes one marketing campaign several years ago that crossed the line: a bank purchased satellite imagery of a particular neighborhood and on each envelope that contained a personalized credit offer, highlighted that recipient's home on the image.

The campaign flopped. "It was just too eerie," Mr. Harvey said.

Are You Ready for the Worst the Economy Has to Offer?

Are You Ready for the Worst the Economy Has to Offer?

By James Howard Kunstler

Go To Original

It's fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that "the worst is over" (maybe… we hope… fingers crossed… hail Mary full of grace… et cetera). The cluelessness would be funny if it didn't involve a world-changing catastrophe. All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you. As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That's what the $700-billion bail-out (excuse me, "rescue plan") and all its associated ventures are about.

To switch metaphors, let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts cancelled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction.

And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story -- the New Prometheus -- is yet another apt narrative to inform us what we have done. We have "played" with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think. Perhaps, in some countries (maybe the USA, if we're lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment "products" that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments). I think it has already begun with the inquisitors summoning the shifty Dick Fuld of Lehman Brothers -- but there are hundreds of other characters like him out there, who scored untold millions of dollars in activities that were simply grand swindles. I wouldn't be surprised if, eventually, Treasury Secretary Hank Paulson found himself in the dock to answer how come, when he ran Goldman Sachs, there was a special unit in the company dedicated to short-selling the very mortgage-backed securities that another unit in the company was so busy pawning off to every pension fund on God's green earth.

Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval -- revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history.

Anyway, prosecution through the courts, while perhaps satisfying the hunger for justice (or, more particularly, revenge), is not a productive economic activity. So, the question begs itself again: what will we do? Under the best circumstances we will reorganize our society and economy at a lower level of energy use (and probably a lower scale of governance, too). The catch is, it will have to be a whole lot lower. I think we'll be very lucky fifty years from now to have a few hours a day of electricity to do things with.

The energy story and its hand-maiden, the climate change situation, are both lurking out there beyond the immediate spectacle of the financial fiasco. Both these things imply pretty strongly that the economic relations currently unraveling will not be rebuilt -- not the way they were before, or even close to it. The best outcome will be societies that can practice small-scale "process-intensive" organic agriculture and equally small-scale process-intensive modes of manufacture in the context of very local sociopolitical networks. An accompanying hope is that we can remain civilized in the process. Personally, while I recognize the appeal (to others, not me) of the "singularity" narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bullshit fantasy that has zero chance of occurring, given our stark predicament.

But returning to the short term, or "the present," shall we say, there is the matter of how the US gets through the election and then the first months of a new government, even while the larger fiasco continues. While I believe Obama would make a much better president than the addled old mad dog Mr. McCain has become, I feel sorry for anyone who is placed nominally "in charge" of things this coming year. The best a President Obama can do is offer some reassurance to a public that is totally unprepared for the convulsion now upon us. Mr. Obama will certainly not have "money" to "spend" on any of the promised social support programs that have been endlessly debated. But he could clearly articulate the reality we're facing, and ask not necessarily for "sacrifice," as the common plea goes, but for something more and better: for bravery and resolute spirit, for intelligence and resilience, for kindness and generosity -- among a people long unused to consorting with the better angels of their nature. He's already begun to set the example by appearing in public with his sleeves rolled up. The change that has been in the air all year -- that Mr. Obama has talked so much about -- is coming in a bigger dose than anyone expected. I hope we're ready to get with the program.

James Kunstler, the author of The Long Emergency: Surviving the Converging Catastrophes of the 21st Century, World Made By Hand, and three books about suburbs and cities: The Geography of Nowhere, Home From Nowhere, and The City in Mind: Notes on the Urban Condition.

Job Losses Accelerate, Signaling Deeper Distress

Job Losses Accelerate, Signaling Deeper Distress

By Neil Irwin and Michael S. Rosenwald

Go To Original

Employers are moving to aggressively cut jobs and reduce costs in the face of the nation's economic crisis, preparing for what many fear will be a long and painful recession.

The labor market has been weak all year, with a slow drip of workers losing their jobs each month. But the deterioration of the job market is now emerging as a driver of economic distress, according to a wide range of data and anecdotal reports from corporate America.

In September, there were more mass layoffs -- instances in which employers slashed 50 or more jobs at one time -- than in any month since September 2001, the Labor Department said yesterday. And nearly half a million Americans have filed new claims for unemployment benefits in each of the past four weeks, the highest rate of such claims since just after the terrorist attacks seven years ago.

Anecdotal reports suggest that the hemorrhaging in the job market has only begun. Companies that announced plans this week to cut jobs include Internet company Yahoo (1,500 positions), pharmaceutical company Merck (7,200), National City bank (4,000) and Comcast, the cable company (300).

The weakening employment outlook is part of the reason that investors have become more fearful of a deep, prolonged recession -- fears that led to yet another miserable day on Wall Street yesterday, with the Dow Jones industrial average down 514 points, or 5.7 percent.

"The customers I've spoken to are all living under a sense of fear," said Paul Villella, chief executive of HireStrategy, a Reston company that matches employers and workers. "They have very limited visibility into the future and have a great degree of uncertainty, so they just want to sit steady and be conservative in hiring."

Villella and others who work with employers said that for many companies, the pullback in hiring is not a direct result of tightening credit. Rather, firms simply don't know whether their own customers will be affected by the financial crisis; as a result, they want to hold their breath and delay hiring decisions until they have a better sense of the future.

The nation has shed jobs every month this year, but at a slower overall pace than in past economic downturns. The slide accelerated in late summer, with declines similar to those in past recessions. Last month, employers shed 159,000 jobs, the most this year and more than the average number of monthly job losses in the terrible labor markets of 2001 and 2002.

More obscure indicators monitored by economists at the Federal Reserve and in the private sector also show an inflection point in late summer. For example, employers had 214,000 fewer job openings in August than in July, according to a Labor Department report. Over the past year, the number of openings dropped by a more modest average of 74,000 per month.

Indeed, many companies are imposing hiring freezes. Such moves don't often get the kind of headlines that layoffs do, but because they shrink the number of places people can turn to for jobs, they still hurt the economy.

VMware, a Palo Alto, Calif., software company, is one firm that has curbed hiring. Earlier this week, after reporting third-quarter earnings that beat Wall Street's expectations, VMware told analysts on a conference call that despite a 32 percent jump in revenue, a "hiring pause" had been imposed for all jobs except critical ones.

"We are just being conservative," VMware spokeswoman Mary Ann Gallo said yesterday.

The nation's unemployment rate was 6.1 percent last month, not astronomical by historical standards. But the rate was up from 5 percent in April, and many forecasters now expect it to hit 7 percent or more by the end of this downturn.

The construction and manufacturing sectors have been losing jobs for more than a year. But lately, job losses have begun or accelerated in a wide range of other fields. Retailers, stung by less consumer spending, cut 87,000 jobs in the three months ended in September. Employment services shed 100,000 positions in that span, reflecting the fact that companies are slashing temporary jobs. The leisure and hospitality industry cut 51,000 jobs, as people had less money to stay in hotels and eat in restaurants.

In the greater Los Angeles area, Manpower, one of the nation's largest temp agencies, has noticed a steady increase in job seekers since early September. Paul Holley, a spokesman for the company, said there are more applicants for fewer openings and better-qualified candidates seeking work.

What's particularly noteworthy, Holley said, is what's happening in Phoenix. Job applications have held steady, but since September more applicants have had backgrounds in general labor and warehouse distribution. That's unusual because warehouse and logistics jobs usually hold steady in the fall to support retailing for holiday shopping.

Randstad USA, another large temp agency, reports that job applications are up in the Tucson area and that the firm is even getting inquires from people who still have jobs. "In general, a lot of people seem to be insecure about their current jobs even if they are still employed," said Emily Cline, Randstad's area vice president for Tucson.

As reports of layoffs continue to pile up around the country, executives at Randstad said they have noticed a shift in psychology among job seekers.

"Employees are much more willing to work extra hours and to take on additional duties to enhance job security and improve their employability," said Eric Buntin, managing director for marketing and operations at Randstad. "In a changing market, they know that's a valuable resource."

They are also willing to make less money, even as the cost of living goes up. Cline said some call center jobs that were paying $9 an hour in the Tucson area last year are now paying $8.50. "Their option becomes to take the job or not have the job," she said.

With workers losing their leverage to negotiate raises, there could be greater downward pressure on wages, which in turn could drive down overall economic growth. Workers are already having a hard time getting raises; inflation-adjusted pay for non-managerial workers fell 1.9 percent in the year ended in September, according to the Labor Department.

EPA weakens new lead rule after White House objects

EPA weakens new lead rule after White House objects

Renee Schoof

Go To Original

After the White House intervened, the Environmental Protection Agency last week weakened a rule on airborne lead standards at the last minute so that fewer polluters would have their emissions monitored.

The EPA on Oct. 16 announced that it would dramatically reduce the highest acceptable amount of airborne lead from 1.5 micrograms of lead per cubic meter to 0.15 micrograms. It was the first revision of the standard since EPA set it 30 years ago.

However, a close look at documents publicly available, including e-mails from the EPA to the White House Office of Management and Budget, reveal that the OMB objected to the way the EPA had determined which lead-emitting battery recycling plants and other facilities would have to be monitored.

EPA documents show that until the afternoon of Oct. 15, a court-imposed deadline for issuing the revised standard, the EPA proposed to require a monitor for any facility that emitted half a ton of lead or more a year.

The e-mails indicate that the White House objected, and in the early evening of Oct. 15 the EPA set the level at 1 ton a year instead.

According to EPA documents, 346 sites have emissions of half a ton a year or more. Raising the threshold to a ton reduced the number of monitored sites by 211, or more than 60 percent.

The EPA also required states to place monitors in areas with populations of 500,000 or more. But the Natural Resources Defense Council, an environmental group that pushed for tougher lead standards to protect public health, said that a single monitor in a large city was different from a monitor placed near a plant.

"We don't expect the urban monitors to be effective to get the hot spots that the site-specific monitors can get," said Gina Solomon, an NRDC scientist and a professor of medicine at the University of California at San Francisco. "The monitoring network has a lot of gaps in it."

Airborne lead can be inhaled, but the main way people are exposed is when they ingest it from contaminated soil — for example, when children play in a contaminated area and put dirty hands to their mouths.

The EPA originally estimated that at the half-ton annual emissions cutoff, it would need from 150 to 600 monitors, said EPA spokeswoman Cathy Milbourn.

Under the final rule with the 1-ton cutoff, the requirement will be 135 site-specific monitors and 101 urban monitors in areas of 500,000 or more people, she said. There are 133 monitors now.

Milbourn said that EPA Administrator Stephen Johnson set the requirement for monitoring at sites that emit 1 ton or more of lead a year because it was "an approach that would reduce the burden to states but would still assure monitoring around those sources" that might violate the air-quality standard.

The Battery Council International, a trade group that represents U.S. lead battery makers and recyclers, told the EPA in public comments in August that the proposed half-ton threshold was "unjustifiably low."

Milbourn said that state and local officials should monitor any site they think might violate the new EPA standard.

"In other words, states may go beyond the minimum monitoring requirements," and EPA will help them identify sources that emit less than a ton per year but still might produce amounts of lead in the air that are higher than the rule allows, she said.

Lead in the air was greatly reduced three decades ago when the government ordered it removed from gasoline, but it is still emitted by lead smelters, cement plants and steel mills.

Scientific studies have found that lead is dangerous at much lower levels in the human body than previously thought. The studies show that children's nervous systems are especially vulnerable, and that lead exposure can result in IQ loss and damage to many internal systems.