Thursday, May 14, 2009

If you don't look down, you can walk on air

Last week’s unemployment claims were up substantially; reversing a one week "trend" of slight improvement. The number of people filing continuing claims increased at an even faster rate making the outlook for jobs especially gloomy. And something really gloomy: people going back to school for retraining can expect to take a 15-20% cut in pay on average from their previous job; if and increasingly it’s a big if; if they can find a job in their new field.

One of the many crisis’s trying to elbow its way to the front the pack, among the host of things trying to bring down civilization is a potential wave of defaults from bond insurers. It’s worse than just the people who hold bonds not getting paid if they go bad. The failure of the insurer of an otherwise good bond usually puts the bond into default and can trigger the bankruptcy of the original issuer of bonds starting yet another wave of collapses.

And the Federal Government is on the hook for covering a lot of these bonds because of risk sharing agreements; not that they have much choice given the potential damage. Cities, states, municipalities and an alphabet soup of government service districts that have issued trillions in bonds and need to be issuing new bonds to aid the recovery. The crisis is of course driving up the interest rates these local government agencies must pay.

It all comes back to the millions of formally middle class factory workers who are now unemployed and will stay unemployed under current trade policies. Declining revenue, increased need for services, abandoned properties coming off the tax rolls and on and on and on. Nothing has been done to break the cycle; pundits keep talking about a bottom, but a bottom is not in the offing. The insane Republican trade policies leftover from Reagan/Bush/Clinton/Bush are still in place and still yanking the bottom out from under us. Maybe if we don’t look down, maybe we can walk on air like in the cartoons.

Wednesday, May 13, 2009

Pigman derivatives

The markets were down today on reports that retail sales are down still more and total unemployment is continuing up. There was a major bit of good news from the Obama Adm. but Wall Street may not be smart enough to see it as good news or they may even see it as bad news for them.

Obama is moving to curtail the trading of credit derivatives with Treasury Sec. Geithner asking Congress for quick approval of a whole host of regulations and restrictions. The most significant are a ban on "dark" market trading, requiring trading to be done on regulated exchanges and restricting the creation of these instruments to companies who can actually post capital reserves to cover losses. As it is, Mike Malloy could sell derivatives linked to any event such as whether the Pigman would explode on the air. Such bets are sold for as little as a fraction of a cent on the dollar. It’s all profit unless there is suddenly a large mushroom cloud of pork parts, then MMCorp will need a government bailout.

These practices are largely responsible for the current banking collapse. Any regulation of these abominations should effectively end them. Only "standardized" contracts would be regulated; that’s the ones that are issued by a third party for no legitiment reason. Contracts written for the purpose of insurance between two companies would not be affected. Contracts issued just to gamble would effectively become illegal since there is no way the companies running these ponzi schemes would ever meet the capital requirements to trade hundreds of trillions of dollars worth of these contracts.

There is no indication of what will be done with the 1000 trillion dollars or so of these contracts that may be floating around but it is possible that they will simply become worthless overnight. This would be bad news for some GM bond holders that were counting on forcing GM into Bankruptcy and then cashing their Credit Derivative Contracts.

If Obama really makes this happen; it will be the first real indication that we may get our country back. I may even change my ring tone to "Happy Days Are Here Again" instead of the "funeral march". Of course, the rest of the economy still needs to be restructured but this move is a real start.

Tuesday, May 12, 2009

Republican fireball

The Social Security Board of Trustees has come out with a report sharply cutting the time until Social Security and Medicare will run out of money. Republicans will be coming out of the woodwork to say "We told you Socialist Security wouldn’t work, you should have put your money into the stock market... well, err, you should have invested in real estate... well, err, you should have gotten rich like we did on ‘no bid’ government contracts."

The truth is that Republicans have so hollowed out the economy that we can’t support everybody anymore. Millions are homeless and millions more will become homeless even will the rosiest outlook for the economy. Many elderly live on 3 weeks food a month including food bank handouts and heat is a luxury in a lifestyle that does not have luxuries. The Republican solution for the Social Security problem is to (wait for it) cut benefits.

Many college graduates are so saddled with debt that even if they find a job in their field they not able to live anything like a middle class lifestyle. This can be even worse for the trade school graduate who may go back to be retrained multiple times as their jobs continue to be out-sourced.

Even airline pilots are not immune from this trap. Once a glamorous and high paying job; we now learn that new pilots who find themselves working for a commuter airline are paid so little and must repay such huge student loans that the result is that they often net as little as 15,000 a year. When you fly, you are often putting your life in the hands of people who make less than an newly hired burger manufacturing technician.

The airlines are no longer attracting the best and the brightest nor are they plowing the payroll savings back into training either. NTSB testimony about the recent commuter plane crash in New York state showed numerous problems. The flight crew did not appear to have any idea how the deicing system worked; turning it on too early and leaving it on continuously; so that it only kept the mechanism itself ice free and allowed ice to buildup on the rest of the wings. They also appeared unaware that with ice on the plane that you should turn off the auto pilot and determine the true handling characteristics of the plane. They were apparently either not properly trained or not adequately drilled on what procedures to follow to avoid a stall or how to get out of one.

The Republican solution to all our problems is to cut taxes that the rich Republicans pay; to zero if necessary; coupled with corporate deregulation. The economic equivalent of retracting the flaps and pulling back on the yoke in a stall; the fireball is not far away.

Monday, May 11, 2009

DOJ to crack down on Bloated Parasites

The Stock market was down significantly today and the corporate news readers promptly blamed this on the announcement from the DOJ that they will do away with the Bush Crime Family policy of not enforcing the Antitrust laws under any circumstances. A DOJ spokesman linked our current economic crisis in part to this practice. Although really; Not enforcing the Antitrust laws is a practice dating back to day one of the Reagan Adm. and ever since, including Clinton.

We needed to have bigger companies to compete with foreign corporations so that jobs would stay in America. (yeah, that Clinton) The corporate news readers went on to speculate; there was no pretense of it being anything but speculation but it was included in the news anyway; that likely targets of the DOJ were companies like Google and Intel. No mention of the TOO BIG TO FAIL banks that have in fact put all of us straight in the crapper.

Will Obama’s Adm. go after these bloated parasites under the Antitrust laws? Is this why the Stress Tests of the Banks were allowed to come to an ineffectual end? The Stress Tests given to the banks have inspired no confidence among impartial observers who point out that the test didn’t bother to consider the differing nature of each banks loan portfolio or business model. It appears that it was designed to come up with a capital requirement number less than the remaining TARP funds rather than any true assessment of the banks’ conditions.

The test even allows for banks to have a 25 to 1 debt to net capital ratio. This is much like the ratio allowed the Investment Banks (that no longer exist) where any relatively minor crisis will make them run out of cash. Remember that the Investment Banks (that no longer exist) didn’t cash your checks or make your credit cards work at the store. These guys running out of cash is a far more serious matter.

But really the banks are only maintaining the fiction of solvency by not marking to market. If forced to acknowledge the real value of the "toxic assets" now on their books, all of the big banks would have to close their doors. The Government’s test accepted the banks version of what their assets are worth without question. Then there is the commercial real-estate market; the test didn’t allow for significant bank losses in that area even though experts are predicting that we’ve only seen the tip of the iceberg.

So the question remains: what will Obama do about the large banks? If they were treated like the S&L’s of the 80’s a lot of very wealthy Americans would suddenly become middle class when their bonds are declared worthless. People who bought S&L bonds that became worthless were mostly middle class retirees that became destitute. Ever wonder why the very rich invest in low yielding bank bonds rather than the Stock Market like they tell us to do with our Social Security? They expect the Government to bail THEM out. Now that’s REAL SOCIAL SECURITY.