Saturday, February 27, 2010

Los Angeles on the Financial Brink


Grim news from Los Angeles: The Chief Administrative Officer's report begins with
"The city is facing a budget crisis unlike any it has ever experienced … The enormity of our current fiscal crisis forces the City to take swift action now and lay out a financial plan for the future."
Government-as-normal has become impossible to run in LA. Double-digit declines in revenues, untouchable commitments to pensions and policing, 11% unemployment with the attendant municipal services required to carry people through, all these and more combine to provide a premonition of troubles to come in cities that were just trying to keep people happy and well-served even if it meant spending a bit extra to do it.

You probably don't want to own any municipal bonds for US cities. More fundamentally, you may want to think twice about what it will be like to live in one in a few years.

Taxpayers are now in the mortgage business

...because a private sector lender can only lose money when rates are 5%. Read Maxed-Out Mama's analysis (scroll down to Feb 24):
So this explains why almost all mortgage origination is going through federal programs.... To write prime mortgages I want 5.9-6%, and I really want it NOW, and no, I'm not swimming in these waters. Also, they have to be prime. I want 10% down, I want it in cash from the borrower, I want a housing inspection and MY appraisal, I want very good credit aside from exigencies, I want employment stability, I want housing stability, I want the borrower to have savings on hand for two months mortgage payments after closing, I want a record of the borrower saving, I want owner occupied, I want total mortgage payments 38% or under, and not out of range with comparable rents, I want mortgage insurance to 80% - in short, I don't want to write any mortgages in this market. I do not approve of screwing borrowers, and why should such a borrower pay me 6% for money when he can get it for 5% on the GSE market? The only ethical thing to do is pack my borrowers a lunch and send them down the road to inflict the losses on the taxpayers. As a taxpayer, I have mixed feelings about that....
The US economy is all just propped up on an eroding foundation of tax revenues. Folks, this can not end well.

Saturday, February 20, 2010

Rolling Stone Magazine on Goldman Sachs


Matt Taibbi writes a colorful and searing account of how Goldman Sachs fleeces its clients and the American taxpayer in the midst of the financial meltdown.

Taibbi likens the period since the crisis began to the Newman/Redford movie The Sting and describes various classic con artist schemes
  • the Swoop and Squat, where GS gets cash from the beleaguered party that it has lent money to and thereby forces it into a liquidity crisis, and stays whole when that party goes under.
  • the Dollar Store Scam, where GS dresses up like a conservative commercial bank and is instantly eligible for free money from the Fed which it can then lend back to the government at T bill interest. Borrow for free, lend risk free for interest, all paid for by taxpayers.
  • the Pig in the Poke, where the crap investments in mortgages get upgraded to investment-grade by virtue of taxpayer backing and some convenient rule-changes by regulators.
  • the Rumanian Box, where GS is given "billions if not trillions" in loan guarantees, cash and artificial upgrades of its investment ratings, then hangs on to the cash, motivating the federal government to throw even more money at GS in an effort to get them to put the money into circulation through loans. GS hangs on to it all, and pays bonuses because it is making so much and risking/losing nothing.
  • the Big Mitt, where all the big players are consulted on how to stay whole despite holding the most toxic and worthless loans, at taxpayer expense, and without the taxpayer being aware of the price he will have to pay or the timing of the big new favors being granted. Knowing they would be made whole, the big players bought MORE of the toxic crap, at pennies on the dollar.
  • the Wire, where (as in The Sting) GS uses its position and the information that comes across its desk in the normal course of business to make bets in the direction that it knows the market will move based on what its largest customers are doing. Push up the price of the oil futures that your big customer will buy, by buying first and selling to him at the higher price. 76% of GS revenue comes from trading; GS uses a flash trading system to act in the market fractions of a second faster than big trades that it knows are coming.
  • the Reload, where the con gets his victim a second time by telling him he can recoup what was lost in the previous scam. Governments attempting to reinflate a bubble that should never have been encouraged in the first place, and Wall Street acting in its own interests rather than the interests of Main Street, set the stage for the Reload last fall.
Let's end this summary with a quote from Taibbi's article:
Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money.

Saturday, February 13, 2010

Thought for the day

Envy is the consuming desire to have everyone else as unsuccessful as you are.

Frederick Buechner

Upstart political party recommends scrapping Carbon Capture

The Province of Alberta is blessed with natural resources and (by Canadian standards) a relatively free-market attitude towards politics and economics.

In part due to the successful efforts of activist organizations to label Alberta's oil sands as "Dirty Oil" because its development footprint is insufficiently photogenic, the politicians of this province have already implemented carbon taxes and carbon capture & storage (CCS) initiatives in an attempt to create some green credentials for the province. When goofy US jurisdictions move to bar imports of crude derived from the oil sands, Alberta can say "Why? We are already taxing the emissions and are planning to capture and sequester the carbon dioxide. What are YOU doing?"

(As an aside, if anyone tries to tell me the Oil Sands represent Dirty Oil I respond "You are mistaken, it is actually Oily Dirt.")

In the provincial budget that was presented on Feb 9, the Conservative government included $100 million for this year's component of the CCS program, (down from $300 million previously planned) along with some redirection of money so that the burgeoning health care deficits could be covered. The plan remains to spend more than we make.

A new political party on the provincial scene named the Wildrose Alliance has gone public with a critique of the budget that includes scrapping the CCS initiatives altogether.

My half-wise prediction is that in 2010, around the world, when politicians have to make choices about where to slosh politically-tuned subsidies, they will be paralyzed in the area of Carbon Capture, Bio Fuels, Alternative Energy and Climate Change activities. Do they go with what was increasingly popular through the first decade of this century, the green path? Or do they acknowledge that the tide seems to be turning in favor of the skeptics and pragmatists?

Economic reality will prevail in the long run, but it is not hard to imagine some well-meaning politician figuring he can kill two birds with one stone by making CCS a centerpiece of stimulus spending, kind of a 21st Century Hoover Dam project. You could argue from ideology as to whether Hoover Dam was a make-work project or not, but the twin realities of its hydro power and Lake Mead's water management benefits are inarguable. CCS on the other hand involves a lot of real work to achieve climate benefits that are literally not measurable, if indeed they exist at all.

The rock to one side of politicians is that their economies are broke. Alberta is less broke than most jurisdictions, but its spending plans are not sustainable unless oil revenues continue to grow. The hard place on the other side of politicians is the need to get elected. In the past the most reliable way to get elected has been to promise expensive new benefits to enough voters to win the support of the media and a plurality of ballots, while being vague about where the money will come from.

If we are witnessing the rebirth of reality-based consumer attitudes, voters are beginning to see how stupid it is to be spending money we don't have on programs that create no value.

In this scenario CCS will come under increasing taxpayer scrutiny. Personally I think that unless CO2 is being used for tertiary oil recovery, there is no value in capturing, compressing, moving and injecting it. You? Your mileage may vary depending on your ideology.

If you were a politician, which side of this issue would you come down on? Spend money you don't have? Or risk being tarred with the brush of AGW alarmist criticism?

Which one will get you elected? Which one is actually wise?

Friday, February 12, 2010

Alert Levels Around the Globe

The English are feeling the pinch in relation to recent terrorist threats and have raised their security level from "Miffed" to "Peeved." Soon, though, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940 when tea supplies all but ran out. Terrorists have been re-categorized from "Tiresome" to a "Bloody Nuisance." The last time the British issued a "Bloody Nuisance" warning level was during the great fire of 1666.

The Scots raised their threat level from "Pissed Off" to "Let's get the Bastards." They don't have any other levels. This is the reason they have been used on the frontline in the British army for the last 300 years.

The French government announced yesterday that it has raised its terror alert level from "Run" to "Hide." The only two higher levels in France are "Collaborate" and "Surrender." The rise was precipitated by a recent fire that destroyed France 's white flag factory, effectively paralysing the country's military capability.

It's not only the French who are on a heightened level of alert. Italy has increased the alert level from "Shout loudly and excitedly" to "Elaborate Military Posturing." One more level remains: "Ineffective Combat Operations."

The Germans also increased their alert state from "Disdainful Arrogance" to "Dress in Uniform and Sing Marching Songs." They also have one higher level: "Invade a Neighbour."

Belgians, on the other hand, are all on holiday as usual, and the only threat they are worried about is NATO pulling out of Brussels.

The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.

Americans meanwhile are carrying out pre-emptive strikes on all of their allies, just in case.

New Zealand has also raised its security levels – from "baaa" to "BAAAA!" Due to continuing defence cutbacks (the air force being a squadron of spotty teenagers flying paper aeroplanes and the navy some toy boats in the prime minister's bath), New Zealand only has one more level of escalation, which is "I hope Australia will come and rescue us."

Australia, meanwhile, has raised its security level from "No worries" to "She'll be right, mate." Two more escalation levels remain, "Crikey! I think we'll need to cancel the barbie this weekend" and "The barbie is cancelled." So far no situation has ever warranted use of the final escalation level.

Canadians are deeply concerned, but would never say so, lest we offend those who were already planning to blow us up.

[Casey Research!]

Monday, February 01, 2010

A couple of takes on the 72 virgins concept

Here is a photo, and (unrelated) a possible interpretation of the idea that a terrorist operating on behalf of the religion of peace gets 72 virgins for his troubles.

What if an imam told the would-be terrorist that there was good news and bad news regarding the 72 virgins?

The good news is, yes they are there as promised, perfumed, veiled, ready and waiting for you.
The bad news is that after you have finished with the first virgin, The Big Guy transforms you, and there you are, perfumed, veiled, ready and waiting for the next blowed-up-good terrorist to arrive. 72 dead terrorists later, you and The Big Guy can call it square.