Financial topics

[Trevor]

The late surge by Mr. Brown appeared to catch Democrats by surprise, causing them to scramble in the last week and a half of the campaign and hastily schedule an appearance by Mr. Obama with Ms. Coakley on Sunday afternoon.

“Understand what’s at stake here, Massachusetts,” Mr. Obama said in his speech that day, repeatedly invoking Mr. Kennedy’s legacy. “It’s whether we’re going forwards or backwards.” He all but pleaded with voters to support Ms. Coakley, to preserve his agenda.

As voters went to the polls, Robert Gibbs, the White House press secretary, made it clear that the president was “not pleased” with the situation Ms. Coakley found herself in. “He was both surprised and frustrated,” Mr. Gibbs said.

Although the race has riveted the nation largely because it was seen as contributing to the success or defeat of the health care bill, the potency of the issue for voters here was difficult to gauge. That is because Massachusetts already has near-universal health coverage, thanks to a law passed when Mitt Romney, a Republican, was governor.

http://www.nytimes.com/2010/01/20/us/po ... ction.html

This was exactly 2 years ago, and look what has happened since: Health care has been passed even though the one state that had universal health care gave a clear mandate against its passage, and now the former governor of Massachusetts who was responsible for its passage is the leading Republican contender.

Let's see if Gingrich surges and overtakes Romney as Brown overtook Coakley in a late surge exactly two years ago. I agree with Carl - that's a key element as to whether GD timelines will be met.

I've read what has happened with health care in Massachusetts and that should be a strong warning about what would happen if it was undertaken nationally. Of course, Obama has the X-er nihilism and disregard of any ideas but his own, so he's going to get it through, come what may. I remember the website where you were supposed to report if anyone was saying anything "fishy" about the health care bill.

I

[John]

Mauldin on Greece and Europe:
Staring into the Abyss


I used to make fun of John Mauldin for his ridiculously Pollyannaish
newsletters, in order not to turn off his investor clients who pay him
huge sums in fees. But Mauldin has really come around. His latest
newsletter is the best summary of the situation in Greece and Europe
that I've seen. He discusses all the options very clearly and in
detail, showing why each one leads to disaster. If you have a half
hour available, it's well worth the time reading it.

http://www.investorsinsight.com/blogs/t ... abyss.aspx

The fact that Mauldin is writing about these things shows how much the
common outlook has changed. There was a time not long ago when it
violated CNBC's utterly ridiculous policy to utter the word
"Depression" on the air, since that would piss off financial
institution advertisers. Those times are gone.

The only thing wrong with the newsletter is that he ends with a list
of "solutions" to the problem, all of which are fatuous and
ridiculous. After his lengthy description of the problems, he can't
possibly believe that this new set of Pollyannaish ideas are relevant.
But you don't want to turn off your clients.

John

[Trevor]

Yep, I'm hearing the word "Depression" hovering around more and more as well, especially since it seems like investors have walked out of the Greek debt talks. Of course, it does seem like the people in charge have come up with a "solution" of sorts: make sure the public believes that it's the other guy's fault.

Even the White House is now admitting that unemployment is going to remain high and economic growth week through 2012.

[Marc]

While I feel it's still hard to say exactly what the precise financial outcome will be of the Greek sovereign-debt mess, I am thinking that there's a significant chance that some sort of Greek default will be allowed to happen this year, but with some sort of government-backed credit-default swaps to be created which are placed on top of existing Greek credit-default swaps. In other words, a kind of "CDS-squared" is created courtesy of the IMF, the ECB, and other actors which especially include the Fed. It is possible that there could be can-kicking on all this, however, until after the US Presidential election (and other key national elections) have taken place for understandable reasons. A similar financial courtesy may also quietly be in the works for the other PIIGS nations. And, all of this may be done in a highly complex way that helps to obfuscate the paper trail in all of this (which could lead to things like "CDS-cubed" and even much higher levels of layers of obfuscation). —Best regards, Marc

[John]

Dear Marc,

> While I feel it's still hard to say exactly what the precise
> financial outcome will be of the Greek sovereign-debt mess, I am
> thinking that there's a significant chance that some sort of Greek
> default will be allowed to happen this year, but with some sort of
> government-backed credit-default swaps to be created which are
> placed on top of existing Greek credit-default swaps. In other
> words, a kind of "CDS-squared" is created courtesy of the IMF, the
> ECB, and other actors which especially include the Fed. It is
> possible that there could be can-kicking on all this, however,
> until after the US Presidential election (and other key national
> elections) have taken place for understandable reasons. A similar
> financial courtesy may also quietly be in the works for the other
> PIIGS nations. And, all of this may be done in a highly complex
> way that helps to obfuscate the paper trail in all of this (which
> could lead to things like "CDS-cubed" and even much higher levels
> of layers of obfuscation). —Best regards, Marc

In my opinion, there's no way this is going to work again. There are
too many people willing to call "bullshit." Investors will not invest
in European bonds as things stand (except for German bonds), and
they're certainly not going to be willing to invest in CDOs backed by
them.

What I see is that things are moving very rapidly now. The Europeans
are desperately looking for a way to kick the can down the road again,
but things are moving too fast for that to work.

The Mauldin article begins with this quote: "The crisis takes a much
longer time coming than you think, and then it happens much faster
than you would have thought, and that's sort of exactly the Mexican
story. It took forever and then it took a night." – Rudiger Dornbusch

I feel a "quickening" going on. Events have been spinning slowly,
but they're spinning faster and faster, creating more and more
centripetal force, so much so that the Europeans can no longer
hold onto the ball. (Wow. What a horrible sentence.)

Anyway, I'll be very very surprised if the ball can be kicked
past March 20.

John

[John]

As anyone who reads my web site knows, I'm always very contemptuous of
politicians and mainstream media because of the crap that comes out of
their mouths, so I have to say how impressed I am with Newt Gingrich
because of two things he did this week: He stuck it to Juan Williams
over the racist crap, and he stuck it to John King over the feminist
crap. Something like this had to happen sooner or later, since
the old, outdated 60s concepts had to change, and Gingrich's putdowns
may signal that the change is near.

John

[aedens]

As anyone who reads my web site knows, I'm always very contemptuous of
politicians and mainstream media because of the crap that comes out of
their mouths, so I have to say how impressed I am with Newt Gingrich
because of two things he did this week: He stuck it to Juan Williams
over the racist crap, and he stuck it to John King over the feminist
crap. Something like this had to happen sooner or later, since
the old, outdated 60s concepts had to change, and Gingrich's putdowns
may signal that the change is near.

John

John I cannot disagree with conveyance of your report.
Still to be repaired is some thoughts many Americans and
the Swiss wants resolved also.

"The moralizers provide intellectual support for a country that allows its infrastructure
to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently
dubious proceedings. They fund a nation that tolerates – or rather, causes – regular
crises in the global financial system that it manages. A country whose underclass enjoys neither
the benefits of an adequate education, nor a halfway functional healthcare system; a country
whose economic system is increasingly inclined to overconsumption, and in which saving and investing
have increasingly become alien concepts, a situation that has undoubtedly been one of the
driving forces behind the current recession, with all its catastrophic consequences for the whole
world." WEGELIN & CO.
I would add this issue runs Global. It is more than a American issue and the Swiss observation.
I understand there conveyance and truly many Americans understand the larger dialog at hand
and it takes Individuals also to garner change not Washington's cargo cult.

[Marc]

Thanks, John and Aedens, for the perspectives here. As I was kicking around with Trevor, I do agree with him that a financial collapse, when it arrives, will occur relatively quickly, although we both feel that it may play out over a 12-to-18-month timeframe. The contrarian in me, in regards to the financial situation, was especially looking at the "Obama factor," to whom I was thinking would heroically try just about anything (perhaps coupled with attacking Iran, of course) to secure his re-election. Any further can-kicking on the European financial crisis, I agree, will be very tough to do. But, at the least, what I can say is that all this has been intellectually stimulating to debate, and I do acknowledge that an economic collapse could come sooner than later. The year 2012 will quite possibly be one for the history books. Thanks again! —Best regards, Marc

[OLD1953]

In the US, the jails have become a weird sort of minimal welfare crossed with a major profit center for US business and a huge source of employment. Adding prisoners and guards for the excess jail population over the percentage in jail in 1932 provides an enormous bump in unemployment. The wikipedia article is as good as any:
http://en.wikipedia.org/wiki/Incarcerat ... ted_States
Though it does not show the numbers per capita historically. Population in the US was about 122 million in 1930, vs less than 250,000 in jail thus .2% were jailed, population in 2010 was about 309 million, about 2,300,000 were incarcerated, thus .75% were jailed. About three times that number were on probation, which adds up to that 2% figure you often hear misquoted as "jailed", actually it's "under control of court authorities". This is truly big business. It is very difficult to add up the number of corrections officers, parole officers, court officers, private security guards, judges, bailifs, lawyers, homeland security and others that are part of the US system, it is certainly several million persons, but an exact number would take a long time to run down, and would be very fuzzy because of the fuzzy boundaries between private security and public. So many US prisons are private institutions now and run for profit, that the number you get will be flavored by the person adding it up. It would be difficult to get a figure under 5%, and equally difficult to get a figure over 10% total employed or restrained by public and private security combined, but that's a pretty broad range. If you really are concerned about growth of government, this is the place to start looking.

My point is that reducing corrections officers and those incarcerated to the level of 1930 would jump unemployment by at least a percent and a half, and reducing other security forces to the same 1930 level would cause a much larger jump. And just MHO, prisons are not really that much of an infrastructure investment, there's no payback. Security is a major stimulus hidden under the clarion of "necessity". A large part of this has to be considered malinvestment.

To clarify my position on "stimulus", quantative easing is no longer something I am willing to consider as effective stimulus to the economy. Banks have made all the loans they are willing to make, unless the FED sets up a direct loan bank to business there is no way to get significant money from QE into the economy. Given the opposition to that practice, I don't think it will happen. So the FED is tied up in terms of effective stimulus, unless they get creative, in which case I'd have to re-evaluate.

While Obama is working up jobs bills, he's cutting elsewhere so this isn't stimulus, it's just shifting spending and jobs. It may be more effective spending, and that's something worthy of discussion, the cost of a single soldier may well be equivalent to three others working on a dam somewhere, but in the end it really is just shifting money around.

Signs of the times:

http://www.postchronicle.com/news/break ... 6951.shtml
http://www.tmz.com/2012/01/16/oj-simpson-foreclosure/

And if you read this one, put down the coffee first.

http://www.nationalledger.com/politics- ... 6888.shtml

[Trevor]

As anyone who reads my web site knows, I'm always very contemptuous of
politicians and mainstream media because of the crap that comes out of
their mouths, so I have to say how impressed I am with Newt Gingrich
because of two things he did this week: He stuck it to Juan Williams
over the racist crap, and he stuck it to John King over the feminist
crap. Something like this had to happen sooner or later, since
the old, outdated 60s concepts had to change, and Gingrich's putdowns
may signal that the change is near.

John

One reason I think he'll be able to do something in the confines of the Clash of Civilizations is because Gingrich is familiar with Generation Theory. Granted, i don't think he's aware of Generational Dynamics, but it still means he has some idea of what we're about to go through. Since all our fourth turnings have ended in total war, it'll likely happen again.

What they're doing is Europe won't work much longer and I think many in the European government are already aware of that. However, what else can they do? Not doing anything will put them on the same road and make them look bad to the public, in addition to holding their breath and praying that some kind of miracle comes along.