Wake The President

By Simon Johnson, co-author 13 Bankers

Most days we can coast along, confident that tomorrow will be much like yesterday.  On a very few days we need to look hard at the news headlines, click through to read the whole story, and then completely change a large chunk of how we thought the world worked.  Today is such a day.

Everything you knew or thought you believed about the European economy – and the eurozone, which lies at its heart – was just ripped up by financial markets and thrown out of the proverbial window.

While you slept, there was a fundamental repricing of risk in financial markets around Europe – we’ll see shortly about the rest of the world.  You may see this called a “panic” and the term conveys the emotions involved, but do not be misled – this is not a flash in a pan; financial markets have taken a long hard view at the fiscal and banking realities in Europe.  They have also looked long and hard into the eyes – and, they think, the souls – of politicians and policymakers, including in Washington this weekend.

The conclusion: large parts of Europe are no longer “investment grade” – they are more like “emerging markets”, meaning higher yield, more risky, and in the descriptive if overly evocative term: “junk”.

This is not now about Greece (with 2 year yields reported around 20 percent today) or Portugal (up 7 basis points) or even Spain (2 year yields up 27 basis points; wake up please) or even Italy (up 6 basis points).  This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.

This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone.  It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?

It is also, crucially, about stabilizing the macroeconomic situation without resorting to more unconditional bailouts.  Bankers are pounding tables all across Europe, demanding that governments buy out their position – or bring in the IMF to do the same.  We again find ourselves approaching the point when the financial sector will scream: rescue us all or face global economic collapse.

The White House did not see this coming – and the Treasury’s attention was elsewhere.  The idea that we can leave this to the Europeans to sort out is an idea of yesterday.  Today is very different and much more scary.

President Obama is wide awake and working hard.  Someone please tell him what is really going on.

231 responses to “Wake The President

  1. Come on Simon, its just some mild instability across Europe, that will quickly lead to the next stage in the radical redistribution of resources from the poor to the rich that we’ve already experienced in the UK. Europe has always managed to keep a cool head in a crisis. I’m sure this wont get nasty and even though huge cadres of professional “economists” fail to see this coming, and are now standing naked on the stage continuing to pretend to be in charge, I’m sure they’ll turn the lead into gold this time.

    http://www.timesonline.co.uk/tol/news/world/us_and_americas/article7106889.ece

    “Asleep at the wheel” doesnt quite capture it does it.

  2. C’mon Simon;
    Do you propose Obama the become the savior of the financial world? The tea baggers would have a field day running an effigy of our president up the nearest and furthest flagpoles across the nation. I can see the headlines now ” Obama rescues world while America goes broke” Be real Simon, he has little option but to watch as this shakes out. I wouldn’t favor bailing them out . Maybe China could step in if it ever wants to see its money

  3. E. Barandiaran

    Simon, without any logical argument from your first paragraphs you jump to the “conclusion”:
    “This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone. It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?”

    I think you’re wrong. Investors never expect anything good from politicians –they pray to God for them to be quiet. They start to worry when they see that politicians are going to do something –as they can see now and therefore they take a break to decide what to do with their money. They hope that the Obamas of this world stay quiet –but they know that bad people don’t stay quiet forever. They hope that the Obamas sleep at 3.30 am and no Hillary wakes up. They are afraid of politicians –and indeed they are afraid of those advising politicians to do more stupid things.

  4. Simon with all due respect where does one draw the line? The world cannot continue to go on spending binges with money they don’t have. The IMF can’t save Greece, nor should they. This is terrible economics whats going to happen in the US when we add another 12 trillion to national debt and the boomers hit the system? It will be total collapse ushering in one world currency right on schedule.

  5. Same old IMF gobbledygook. Restless rentiers demanding higher returns. No doubt the ECB can just keep printing money, taking in PIIGs bonds as collateral. Maybe it can exchange with the Fed for securitized mortgage drek? Don’t bother to wake the President for this. He can’t even understand what’s happening over here.

    Don’t forget the CDS bets on this soverign debt have transferred all the risk to some water district in Minneapolis and a gaggle of municipal pension funds. What’s the point of worrying when we have Goldman hard at work disbursing the risk?

    Besides, doesn’t the Financial Reform Bill solve all these problems? You would think so, listening to the crowing from Administration flunkies.

  6. Finally the world including the US face the prospect of swallowing a very bitter pill. Keynes had it wrong. You just can’t spend your way out of trouble without having to pay the piper somewhere else down the road. Hundreds of billions pumped into banks in the US and billions of Euro’s in Europe and yet few meaningful jobs created.

    Like a scene out of Oliver Twist, “Please sir, may I have some more” is not going to cut it. Brown might as well begin packing up Downing Street and Merkel walks a tight rope with one misstep and its say hello to Dante’s Inferno.

    The masses will no longer tolerate any bailouts on the backs of the tax payer as they have had enough. Trichet, Merkel and others are like deer caught in a car’s headlights with no where to run. As the current mantra is that no one should ever be too big to fail, Greece could well take advice from Argentina and default rather than prolong the agony.

    Things in the US are heading in the wrong direction and considering the hundreds of billions used to prop up the banks on the back of the tax payer, what have we really accomplished other than treading water if even that? We still have spotty transparency, back room deals, deficits that will never be paid off and many in Washington pointing their fingers everywhere in the hope of laying blame at someone else’s doorstep.

    By all means wake the President, but first he has to tidy his own financial house while distancing himself from Wall Street. Yes Simon, this is about fundamental structure, but not only of the Eurozone. Rather this is going to have to involve all partners on each side of both the Atlantic and Pacific.

  7. Bring our Army back from Iraq and send them to ‘divest’ any and all CDO’s/CDS’s post Commodities Future ‘Reform’ Act of 2000. Shove that paper….with the point of a bayonet.

  8. Oh and look Greece just banned short selling for 2 months!

  9. I hate to agree with Simon on this one and sound like Chicken Little…but there is a major financial tremor going thru the heart of the once shining Euro Zone today…and Greece is just the hairline crack we are seeing, the tip of the iceberg so to speak…if left unchecked this contagion could very well spread to all of Europe which threatens to unravel the whole United States of Europe concept…the German people and their leaders have a very crucial and difficult decision to make…save Greece and Portugal and maybe salvage what’s left of the Euro Zone…or let the chips fall where it may and start all over again…the problem if they let Greece default and go down, no one can guarantee the financial impact worldwide ( a double dip recession or worse? ) will be manageable or can be contained…we’re into uncharted waters here…and all bets are off if Greece defaults – which is getting more likely by the minute

  10. Re: George, “Europe has always managed to keep a cool head in a crisis?” As an Italian I could only hope that you are being sarcastic. Of course many banks will be able to turn an enormous profit in this situation, that is not the point. This current crisis only goes to prove how carelessly the Euro was adopted. It reminds me of Churchill’s statement that the US will always do the right thing after it has exhauted all other possibilites. We Europeans will always do the wrong thing and once again look for an American solution. We never seem to get it right.

  11. Dear Mr. Johnson,
    Your quote :

    “The White House did not see this coming – and the Treasury’s attention was elsewhere. The idea that we can leave this to the Europeans to sort out is an idea of yesterday. Today is very different and much more scary.”

    I may be wrong so let me ask you : Are you seriously saying that the USA should now ‘help’ Europe because Europe cannot help itself? After your unregulated finance sector caused all this crap in the first place?

    Because if you do, you have some nerve. I believe the Jewish word is ‘Gotspe’.

    Kind regards,

    Rob.

  12. american patriot

    And at the Heart of this is GOLDMAN SACHS and the CORRUPT FEDERAL RESERVE.

    You all might want to ake a look at the trends Institute and what they are forecasting for the U.S.

    TOTAL COLLAPS……….

  13. As long as the people of the world are held hostage by the creditors through bailout demands on their governments, we will continue to lurch from crises to crises. Bankers will never have an incentive to conduct valid underwriting, as long as we bail them out.

    Time to begin discharging the debt. Only then will the creditors begin to exercise due diligence when making loans.

    Time to return to Glass-Steagall, time to adopt the Volker rule and separate proprietary trading form the banks.

  14. If I understand what a CDS is
    – you don’t need to own the thing being “insured”
    – it can be insured many times over

    So people who were astute enough to take out a CDS on Greece (before premiums on them went through the roof) could (in the event of a Greek default) be between them all be owed an amount of money that might not exist. Who is underwriting all these CDS’s ? AIG again ?
    Who exactly will pony up all the money ? Or will the USA have to bailout the sellers of the CDS’s so Hank Paulson’s friends at GS can be paid first ?

    I really thought that if no other reform had happened, someone would by now have outlawed a CDS unless it was treated like real insurance.
    That is
    – underwritten with real money
    – sold only to the bond holder
    – 1 bond, one policy, no more

    Jeez, what a mess.

    And why should it stop at Greece. There’s money to be made in this game, so why not go for Portugal next ? The astute investors have tried to beat the market by getting in early so they are probably already looking past Portugal. It’s not about betting on “which country might die” but “which is weak enough that we can kill it with a sustained attack”.
    And as the UK learnt at the hands of Soros, the market will win.

    IMHO Greece should default and leave the Euro, then come back as a low cost tourism destination / manufacturer with the Drachma in 5 years.

  15. Stunning piece! Absolutely no analysis, just a rant.
    Why is this fundamental?
    Why can’t this be handled within the Eurozone?
    Why is this not just another overnight fuss when people are reminded that Europe has a long hard slog ahead?
    The autor may be correct, but he doesn’t bother to give us any reason to think so.

  16. Really? The United States is any better off? The world is a changing and the little people like me are going to get squeezed into service to the rich all over the world.

  17. Radical changes in prosperity among key european nations leading to political instability, extremist ideaology and worse? Never!

    I can confirm – I was being sarcastic Not sure what Churchill would have made of all this, but I can imagine him reaching for the bottle quicker than ever…

  18. D. Christopher Leonard

    The point seems to be that the key powerful states in the EU (Germany, France) were most eager to expand the eurozone, make cross-border investments more facile, and present a ‘unified’ bloc economically to both the Us, and Asia. But they didn’t like compromises in their own sovereignty. Now that the chickens have come home to roost, it obliges Germany, France and the other stronger states to underwrite Greece (and, potentially, Italy, Spain, and Portugal). The U.S. is also obliged to pay attention and to participate because U.S. financial institutions (e.g. Goldman Sachs) helped to disguise the Greek financial problems for its own benefit. State otherwise, everybody enjoys trans-national capitalism, globalization for its opportunities, but accepts no responsibility for its failures (whether in the name of sovereignty, prudence, fiscal conservatism – all of which end up looking like national chauvanism).
    Finally, it ought to be noted that Germany saw no problem throwing money at Osties for a decade to ward off social unrest, now the EU as a whole wil have to pony up the resources for Greece as ‘austerity’ programs will likely topple governments – not just in Greece (as an aside, this is just what Italy needs – a collapse of the current regime)

  19. “The White House did not see this coming – and the Treasury’s attention was elsewhere.”

    SJ saw it coming. He predicted serious problems in the Eurozone in at least one of his online MIT lectures very early on in the crisis.

  20. Simon,

    I would give exactly the opposite advice: Since the U.S. Secretary of the Treasury isn’t going to be able to do anything about fractures in the Eurozone, and since whatever solutions the Europeans arrive at are bound to be (extremely) painful, the smarter course is for the U.S. to maintain, to the greatest extent possible, a discrete public silence on these issues. And, in fact, it really is up to the Europeans, not the Americans, to figure out what the Eurozone and the EU really mean.

  21. Obama knows what’s going on. Half of his administration is filled with bankers and financial gurus. He’s owned by the money men that delivered his campaign victory. You can’t simultaneously say he’s a very smart man, and then say he doesn’t know what’s going on. Everybody paying any attention at all knows what’s about to happen.

  22. From the Times article:
    Republicans today accused SEC officials of being “preoccupied with other distractions” when they should have been overseeing the growing problems in the financial system.
    They seem to have conveniently forgotten the SEC was hamstrung under Republicans, Bush, especially.
    “You get what you pay for.” (I read that in an economics article somewhere.)

  23. No Craig, Simon is not proposing Barack Obama bail out Europe. He is saying that, with many of America’s “too big to fail” financial institutions heavily invested on the world market, the crisis in Europe will drag down the U.S. economy, and possibly bring those same banks to their knees. He is thus advocating for preparedness and planning, instead of knee-jerk reactionism meant to score political points and secure donor money for the next election.

  24. Think the next step is to rip the American Investment bankers out of the EU and then regulate them in the USA..Back to Glass Stegeall…We have given them a liscense to steal and they have taken it to Greece and beyond…Cut the crap and break up the big guys–let them choose banking or IB–no bailouts unless they pay for it…the GOP is raking in the Wall Street donations..no wonder they continue to block debate..

  25. Morgantheaxe

    Realistic valuation is never ever a bad thing. That is why I saw the Republicans screaming and getting their way about mark to market as the dagger in the heart of our own long term stability. In addition, when you have the leading investment entity on wall st., Goldman, selling its own customers its own investments they knew were garbage just to protect their own pocket book you know the era of investment is just about over. If you can’t trust your own broker to sell you something that isn’t dog feces out of his own portfolio then why invest? Frankly, I see the re-assesment in Europe as welcome news that there might be somewhere in the world that a person can look to for possible investments that aren’t entirely someones fiction.

  26. What is happening is a game where the politicians try to project confidence, with the hope of calming markets and averting or postponing a crisis. Planning for the possibility of default is verboten because planning makes default more likely. But this lack of preparation makes default worse if it comes.

  27. Actually, Keynes had it right. Spending is the answer. It stimulates AD, which leads to investments, to employment, to the multiplier, to meaningful job creation. The problem isn’t the spending; it is the HOW the spending is structured. Pumping billions into the banking system can hardly be described as spending. For spending to take place money must reach the hands of consumers who then turn around and spend it. Putting the money in the bank is like saving, a withdrawal from the circular flow of income, particularly as the banks aren’t lending. So, Keynes was indeed correct. I agree with the rest of your post.

  28. If that is the case, then I would hope that this time we have the good sense to allow the affected financial institutions the opportunity to either fail or bail themselves out…

  29. I fully agree with Simon. Greece is now playing the role in Europe that Lehman was playing some years ago in USA. The sovereign debt crisis will get worse and bond vigilantes could move on to even bigger economies like the United States. The crisis in Greece will create a domino effect in Europe initially and then in the whole word.

  30. “Republicans today accused SEC officials of being “preoccupied with other distractions” when they should have been overseeing the growing problems in the financial system.”

    They nailed Martha Stewart, didn’t they? Credit where credit is due.

    And what about Bernie … OK … bad example.

  31. 100’s of billions?
    LOL
    Think in terms of trillions.
    The Fed handed out trillions before Obama had won the election.

  32. there comes a time when corrupt institutions that benefit the few, steal from the many, and cause much more harm than good be allowed to fail. well our system of finance has been that for years. over and over the bankers make loans they shuldn’t. then the central bankers say we face doom unless we bail them out.
    Well time to face doom, get rid of all these corrupt institutions, punish those that deserve it, and through some people to the mob.

    these problems don’t happen overnight. why aren’t these events priced into the equation oif stocks. if the banks/investment banks did their job not only woulodn’t this have happened, but we wouldn’t have seen the rocket of stocks going up world wide. they trade us into the bubble, then cry when it bursts, and they shouldn’t have gotten us there anyway.

  33. Google Ron Paul if you would like to even begin to understand what is going on.

    Peace

  34. But Argentina also devalued the currency, and got their financial house more or less in order. Otherwise a Greek default would be prologue to more of the same, and another default down the road.

  35. From what I gather, low interest rates set by the central banks drove the CDSs market. Pension funds seeking a few basis points more in yield resorted to buying AAA-rated tranches (mislead into believing these tranches were as secure as U.S. treasury notes). The result is these pension funds have had their treasuries raided by the financiers. In seeking a few more basis points of yield some pension funds have lost 20-80% (?) of their value.

    The issue then is do taxpayers backstop the losses in these pension funds through government bailouts — thereby tacitly approving the raid on pension funds by the financiers — or do the pension funds write off their losses.

    The economist Michael Hudson says “junk economics” has lead the world to this state of affairs. It strikes me as entirely common sense when Hudson states — debt cannot be repaid when the debtor does not have the ability to repay the debt. — From what I can tell, the structural change he advocates is that this debt should be written down when the debtor does not have the ability to repay.

    Hudson says politicians have abdicated their responsibility in leading public discourse on political-economy. Focusing rather on social issues (eg, crime, punishment, immigration, abortion, creation science, gun control, gay rights, tax repudiation.) This has created a cognitive dissonance in society as a whole. While allowing the oligarchy and rentiers to do business in a lawless (deregulated) environment.

    The core reform that Hudson seems to be advocating is that the rentier-class needs to be taxed. The tax burden needs to be shifted from labour, the vast majority of people who work for a living, to taxing the rents on property (including real estate, capital gains, corporate profit).

    Is this too radical a prescription?

  36. DCL … I liked the challenge you proposed in a previous comment on the human capacity for “imagination”

  37. Christopher Cox was the proverbial fox in charge of the hen house. A dyed in the wool anti-regulation ideologue, it was his job to put everyone to sleep and let business do what it does best. We see the result.

  38. Simon,
    We should question the value of government bailouts, which are inevitably done while governments are defensive and therefore biased when thinking about the issues leading to the crisis. In the case of Greece, it seems that lying, cheating, stealing and overspending are at the heart of it. The bailout is unlikely to change any of this, even though we hope for better behaviour. Bailouts without fundamental and enforceable reform lead to more of the same–self-fuelling and contagious irresponsibility driven by self-interest.

  39. I wondered what you meant about rentier class. There are certainly property taxes paid as part of residence rents right now. And there are taxes paid by businesses of all sorts located in shared buildings. What happens locally if there is any added tax burden on residential or commercial rental units, all that tax burden is passed on from the owners to the renters. The “rentiers,” if I’m right, have an easy way to slough off that burden, but it isn’t good for the economy. Residential and commercial units begin to go empty. Capital gains are taxed as well, but there are plenty of loopholes (local tax breaks if not national) in order to attract jobs/businesses to this locale or that.

  40. Simon: Bring in Max Keiser.

  41. TEAly mcBAGger

    Yeah. Europeans are Stupid and always do the wrong thing.

  42. >>The tea baggers would have a field day running an >>effigy of our president up the nearest and furthest >>flagpoles across the nation.

    Craig, so what? I think this small minority seems larger than it actually is due to its shrill braying vitriol.

  43. Tippy, Ellen, what are you talking about? Renters themselves paying a tax?

    Don’t pin it on us renters if we lucked out not holding a real estate bag. The dance had to end sometime.

  44. Canucklehead

    We are seeing the death of European Socialism happen before our eyes.

    Greek/European leadership is “third world” rather than “out of this world”. They are busy trying to administer a solution to a Greek problem rather than managing a Greek crisis. They think their opinions and talking points mean something. The schmuck president of the EU sends out a call for a meeting and uses boilerplate that infers Greece may not need EU support.

    You can’t make a silk purse out of a pig’s ear. Nobody is listening.

    Germany can (and should) bail on the euro; print “marks” to re-liquify their banking system; purge the leadership of the TBTF Germany banking system and be back in business as a world leader in short order. They would have the high ground. No other country can position itself like that for the future. Properly managed, Germany can dominate while others pontificate about the price of CDOs in Greece…

  45. Canada has something called tranfer payments. Also known as equalization payments. This means in the Canadian confederation, wealthier provinces subsidize the public goods of so-called have not provinces.

    For example, for decades oil-rich Alberta chaffed at having to fund Newfoundland-Labrador (which was poor due to the collapse of the East Coast cod fishery). But things do eventually come full circle. Newfoundland-Labrador is developing its offshore oil reserves and seems to be on track to becoming a wealthy province and a contributor to equalization payments.

    It seems to me the German objection to bailing out other countries in the EU is somewhat akin to an objection to equalization payments that take place within the Canadian confederation. Perhaps over time the EU will evolve to where there is a mechanism for “equalization payments”.

    However, I am sympathetic to German taxpayers who are refusing to bailout rent-seeking banking practices.

  46. The cost of the post-Lehman financial meltdown was
    recently estimated by the Bank of England at 200 trillion $. How much will this one cost ?

  47. Poor Martha,
    I would love for her to strap a sign around
    her neck that says:

    and I went to jail for what?????

    And stroll in front of GS all day……..

  48. I think there is quite a lot going on w/ the CDS’s. They definitely need regulation – if not elimination.

    I like your proposal above on CDS as a starting point.

    If Greece defaults, then you know the speculators will just move on to Portugal, Spain, Italy, etc. The world financial system is broken and in need of reform – one would have thought that the US example back in 2008-09 would have been enough of a wake up call, what with Bear, Lehman, and all the rest.

  49. This is a good question. I will need to think about this. It will take time before I can start to acquire a more informed opinion.

    In Vancouver Canada where I live, many people have their retirement invested in their homes. According to Hudson, taxing property prevents housing bubbles and makes housing affordable. This gets very confusing when retirees benefit from housing bubbles. There might be a housing bubble in Vancouver (although some economists have disputed this). This past year the average price for a single-family home here reached for the first time $1 million. Paying 50% of your income for rent, or 65% of your income to service a mortgage is not uncommon here.

    The whole issue of taxation is interesting. Hudson’s point is that in the United States 80% of the wealth is owned by 1% of the population. So the tax burden for public goods (or lack there of) has been shifted on to the vast majority of people who work for a living and create this wealth.

  50. “No doubt the ECB can just keep printing money, taking in PIIGs bonds as collateral.”

    Actually, that’s part of the problem – the ECB has strongly signalled a contractionary (real) monetary policy. They have contributed to the debt crisis by engaging in policies that increase the real value of debt at a time when debtors can ill afford to pay creditors, and when aggregate demand is suffering severely. We hear a great deal about Greece’s profligate ways – and rightly so. But what of Spain?

    Let’s take off our 20/20 hindsight glasses:

    http://news.bbc.co.uk/2/hi/business/7257999.stm

    Yes, Spain was running a large SURPLUS in 2007. Indeed, the EU could deal with just a little bit MORE monetization, since they’re suffering significant disinflation right now, and their nominal growth is well below trajectory.

    Concomitant with a modest amount of monetization, we need to see commitment to fiscal stability – which means cutting FUTURE public consumption. The same is true for the US, and the most important component of this is FUTURE obligations, which primarily consists of Medicare, Medicaid, Social Security – which exceeds by two orders of magnitude the problem with pork. At the municipal level, the problem is pensions. In Greece, the problem is the public payroll and pensions.

    There is a serious question of intergenerational equity here – by cutting future consumption, do we cut (in some way) the benefits being granted to current retirees (which were not fully funded and were guaranteed an 8% growth rate on investments by… themselves), or cut benefits for future retirees while forcing future retirees (current workers) to pay higher taxes to cover the debts of current retirees.

    The bond market is sending a very strong message – if governments cannot commit to future fiscal consistency, then they will punish currencies and try to get central banks to raise rates (which hurts growth/demand, and income, and actually makes the fiscal situation worse). The ECB is more than happy to oblige.

  51. I’m a Max Keiser fan :)

  52. Pragmatist, I presume we must all welcome you to this blog? If you read the author’s posts on Greece and the eurozone over the last year, you will see the analysis and his reasoning.

  53. Renters and — rentiers — are entirely different. Try google for a definition. First learned of this concept after joining Baseline :)

  54. Dan, property taxes are part of your rent. If your landlord hasn’t boosted your rent citing rising taxes, then it hasn’t happened during your tenure. A couple of ways the real estate bubble impinges: (1) if you happen to live in a building purchased in the last decade, your building can go into default and you find yourself homeless without benefit of seeing the disaster unfold; (2) the mortgage tax deduction favors owners, not renters — I don’t know if landlords have a mortgage deduction if they make a profit from us; but the system is stacked against us in that way.
    Whatever is being discussed, tax lawyers are needed to clarify (which they won’t, not without a big fee). Taxation on capital gains is a whole other issue, on a par in significance with off-shore PO boxes that collect multimillions and pay zero tax to US. International competitiveness and all that.

  55. ‘You can’t simultaneously say he’s a very smart man, and then say he doesn’t know what’s going on.’

    CHECKMATE! But I hope he knows exactly what is going on and with a cunning plan, he throws all the bad guys in jail. The End.

  56. Carol Bautista

    hello,but we don’t have loonies here like palin,beck,limbaugh,wilson,Arizona,orthmann,perry shooting Cayote!,and we in Europe have BRAINS,that’s why we are proud of President Obama.we are sometimes disgused to it’s brainless constituents who attacs their intellectual President aside from grace and civility!
    And we don’t have birthers either!Imagine accusing their president,of so many fabricated lies.President Obama in the noble sense of the word was truly born in classy Hawaii,yet here are still loonies who can’t accept the truth!But anyway we adore and respect Presdent Obama here in Europe because he has a lot of good brains.
    You’vegot nothing,only imbeciel morons.

  57. Rentiers are those who collect rents, either from property or investments; Google confirms this. It’s not so clear what it means in re banks, whose entire modus operandi seems to involve the “rents” spun off from what other people have or do. So taxing banks themselves might be different than taxing the individuals using Tax Form 1040.

  58. Yes, the Euro-zone is under a immense speculative attack, and no doubt certain parties have bet billions on certain outcomes that they may have had a hand in…and likely will walk away with immense profit at taxpayer expense. Deja-vu eh?

    This article says Barclay’s is estimating hundreds of billons of euros are needed to bail out Greece and Portugal:

    http://www.eurointelligence.com/article.581+M5e9fd8450a5.0.html

    So what really happened here – this is the gist of what I hear – please correct:

    1 Greece wanted to join the EU but had financial issues
    2 Goldman Sachs (and what about JP Morgan Chase – never hear about them???) helped set up some kind of mechanism to hide excess Greek debt
    3 Then bet against that same debt using CDS

    Some next steps:

    How about the TBTF banks such as Goldman, Citi, JPM Chase, etc around the world get broken up into small parts just like was done with Standard Oil?

    How about breaking apart the functions of banks so that one arm can never create a AAA rated crap security and the other arm bet against that same piece of ….?

    While US TBTF banks seem to be particularly morally (and perhaps financially) bankrupt these days, no doubt other similar size banks internationally should also be subject to similar regulation.

    Perhaps TBTF banks are saying, “Right, how are you going to get us to agree to this?” Well, I don’t think a global depression is in your interest either…and that is where the world is headed if and when we all loose confidence in the system. Lots of gold under mattresses I guess is what is coming. Not good for banks.

  59. “I wondered what you meant about rentier class.”

    Taxing “rentiers” is something entirely different from taxing renters who do not own property. It’s not entirely clear to me what Hudson means by taxing “property”. The concept is not limited to owning land.

    Anyone want to give this a try? What does Hudson mean when he advocates taxing “property”.

  60. Carol Bautista

    tea baggers are just a bunch of imbeciel brainless morons.They can’t even explain why they are protesting on Taxes,which is the lowest sinced President Obama came to office!They are empty shells of intellect.They are the KKK in disguise.
    Anyway Americans love to drink coffee not tea,it’s poison!

  61. “Even a U-shaped recovery is an optimistic letter….”

    http://tinyurl.com/38aj76b”

  62. Those people you so rightly label as “brainless” don’t represent the majority of Americans but are given extensive media coverage, leading one to think they do. However, there’s nothing like kicking an American when he’s down…..so…..Europe is on its own. Solve your own problems.

  63. Carol well put, as an American, I couldn’t have said it better.

  64. Mr Johnson wrote:

    “President Obama is wide awake and working hard. Someone please tell him what is really going on.”

    Is Greek aid only forestalling an inevitable reckoning?

    Apr. 28, 2010 – Globe & Mail – excerpts

    ” The result will be a haircut for the banks and other institutions that loaded up on high-yielding bonds… You’re going to have a constant drip, drip, drip of bad news coming out of these economies,…Even a U-shaped recovery is an optimistic letter…”

  65. I think anyone going by “TEAly mcBAGger” was clearly being sarcastic – that is, obviously Europeans do many things right, just the Tea-bagger mindset is Europe is stupid by nature.

    Being an American I have to say for the reasons you list it’s pretty embarrassing…

  66. FYI, chess was an import from Iran or India; Persian word for chess is shatranj, Portuguese Xadrez; the king (shah) –
    So “checkmate” means “shah mat” (or mort, dead). Source “How English Became English” by Henry Hitchings, 2008, page 73. Who this Shah?

  67. I think Hudson includes taxing off-shore PO boxes as taxing property owned by the rentier class.

  68. wow! what planet are you from? you are from a planet huh?

  69. Some retirees do great for long-living decade upon decade thanks to guarantees, while other retirees watch blood-sweat-and-tears-created 401(k)s go up in smoke — go down in smoke. Do retirees consider the fairness among these strokes of fate? We consider fairness between the coal miner and the coal owner; do we consider the same among the boomer generation? Will we?

  70. Yes, I seem to recall that 1916 and 1939 were particularly excellent examples of European cool in a crisis, where you had to come to the rescue of the much more unsophisticated and excitable Americans. In recent times that steely European nerve was seen at work cleaning up that late unpleasantness in the Balkans.

    It’s about time you all grew up over there, took care of your own problems and provided for your own mutual defense–we Americans are beyond tired of carrying your water for you and paying for your safety while you do aught but sneer at us.

  71. You’d best be careful or many of us “liberal” Americans will be coming to Europe in busloads. We too are fed up with the loonies.

  72. Traveling Soul

    What do you mean by the euro being “adopted carelessly”? It took almost 50 years to come into being if you look at the history of the European Union. Would you say that the 97,000 pages of the “aqui communautaire” is careless? I think the EU goes to extraordinary lengths to regulate and standardize. Let’s not forget the role good ole Goldman Sachs has played in Greek’s problems.

  73. April. 28, 2010 10:15AM EDT

    “As the crisis went beyond government paper to hit Greek and Portuguese bonds today, OECD Secretary General Angel Gurria likened the troubles to the Ebola virus.

    “It’s not a question of the danger of contagion,” he told Bloomberg Television. “Contagion has already happened. This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”

    http://tinyurl.com/2b48h2k

  74. I will add here, these $1 million single-family homes in Vancouver are typically a renovated 1800 SF house on a 25′ X 120′ lot (or some minor variation). For people who purchased 30 years ago they are doing fine. The value is in the land and not in the house itself. For younger people and first time home buyers, entering this market is challenging. Hudson’s point is people entering this market are — debt serfs — to the banks. He has a point.

  75. Let’s just hope that the “tangled web” (Sir Walter Scott) that snagged Martha might snag at least one low life at Goldman.

  76. Great comment. It seems to me that your comments go straight to the heart of the matter: the financial crisis of 2008 was more about speculation than it was real loss of value. Essentially, the world’s industrialized economies have been puffed up on speculative price bubbles in almost every sector. People are now starting to ask the right questions: like what true value do derivatives and other like products add to an economy? is homeownership for as many as possible a more important than structural stability? has globalization help or hurt world markets? The bottom line: we cannot continue our bubble economies. They look good on a balance sheet but numbers don’t mean anything.

  77. i suspect obama and his folks cannot take a public position vis a vis international financial matters until they have taken a strong public position on us financial sector

    public remarks about europe might be political self-injury

  78. As an American I have to only partly agree with you Carol. We do have a bunch of loonies but they are the minority in America. Remeber that our President was elected by a very large majority. And we thank our Euro-Friends for the resoect they show our President. Some of our own could take lessons in your graces.

  79. Gosh All Mighty! It turns out German politicians are just as provincial as American politicians. Even American cliches apply: “All politics is local.” Beware of provincial elections. And so it goes….

  80. That $200T is not the cost to the government. It’s the cost to the economy of the whole. And most of that $200T is not money in hand lost – it is money the banks had assumed was going to come in over time and now is not. It also represents structurally lost value in the whole economy (and that is not isolated to any one country). As for Keynes, I agree with Tony on part of his answer that propping up the banks was not what Keynes had in mind when considering stimulative spending by governments. I am not convinced, however, that the current debts of world governments allows for any more massive spending. Additionally, I think we need to start addressing underlying problems instead of symptoms. And the underlying problem here is the same it has always been in massive financial runs: speculation. Basically, the housing crisis made people realize that financial products like derivatives aren’t worth dick and add no value to an economy. In a way, industrialized economies have been experiencing what I would describe as “private sector inflation” over the years. Massive over-speculation and over-leveraging have basically put dollars into the market that shouldn’t have been there in the first place. Now, those dollars are evaporating because of wholescale repricing (and my thought is that most of the repricing is pretty accurate). The unfortunate part is that the repricing has a multiplier effect because those who relied on their investments (doctors, lawyers, union workers with pension investments tied up in real estate and stocks) as retirement savings or collateral on lines of credit now will face a massive come back to earth. This has two devastating effects on an economy: 1, the collective GDP goes down because collectively, people don’t hold as much wealth and 2, because they are losing their lines of credit, they will not be able to buy things, which will hammer supply-sides and eventually countries. The sad part is that there is really not much to be done except for cultural change regarding materialism and lifestyles. Collectively, the industrialized world needs to consume less and focus on building things of real value.

  81. Ouch…

  82. Simon: “Bankers are pounding tables all across Europe, demanding that governments buy out their position – or bring in the IMF to do the same.

    I say let the chips fall where they may. No more moral hazards. Let’s get to the “new normal” as soon as possible, AND let’s “stop the looting and start prosecuting.”

    NO BAILOUTS
    NO BAILOUTS
    NO BAILOUTS

  83. Canucklehead

    I don’t think Greek corruption equates to provincial equalization payments. Greece has been getting EU equalization payments since they joined the EU.

    This bailout for corruption is decidedly different.

    Tippy, the EU meeds stability. Bailing out Greece doesn’t get them there. Re-trenchment is in the cards.

  84. You don’t even make sense. You describe crazy people and throw in a state first of all. Second of all we have a voice and thoughts, that’s why we express them i this country. If you want our President, take him as he’s more socialist and fit for European style governing. (i.e. you don’t want to work and pay others not to). good luck!

  85. Sandy:

    If it’s drawn with crayons it’s not economic information. Why do you go political when a federal agency doesn’t do it’s job. Why can’t they be lazy, stupid, uneducated people like the governments and states have been churning out for decades. What you forget is we’ve paid so it should be the best. Except affirmative action and political correctness have dictated our leaders. The times are changing and we’ll see who leads the sheep. Wait until you lose your house, home, unemployment and are living on the streets to ask why they didn’t do their job. It’s not politics, it’s laziness and lack of accountability on every level!!!

  86. Us ole fogies in the Confederacy got misty eyed at your reference to the late unpleasantness. Thanks!

  87. Also I believe Keynes indicated that during good times governments should not be engaging in deficit spending, unlike the model that has been followed by the US and members of the EU. From Wikipedia, the Keynes page…

    Deficit spending is not Keynesianism.[citation needed] Keynesianism recommends counter-cyclical policies to smooth out fluctuations in the business cycle.[citation needed] An example of a counter-cyclical policy is raising taxes to cool the economy and to prevent inflation when there is abundant demand-side growth, and engaging in deficit spending on labor-intensive infrastructure projects to stimulate employment and stabilize wages during economic downturns.

  88. Well, like it or not, the SEC is an agency with defined and limited jurisidiction. Some Chairpersons have sought to exert more or less of it, but it’s doubtful that it extends to “overseeing the growing problems in the ‘financial system'”. When we’re done we’ll have scapegoated every actor in this drama. Maybe that’s as it should be, since it seems that few if any got it right.

  89. As i write this word, Goldman Sachs is bett’n on Europe to fail, which in turn is causing it to fail…you might want to remove these guys from society, like now, you ding bats!

  90. Dear Simon, the tern ‘International Community’ is general understood to mean the USA; a community of one. If you are attempting to discuss ‘the ability and willingness of the international community to restructure government debt’ that must mean the ability of the USA to restructure government debt. I realize you don’t mean US government debt, you mean European debt. Thank you, we don’t need US help. We recognize that a country whose own house is in such disarray cannot possibly assist. It’s a case of ‘take my advice; I’m not using it any more’. US advice is not worth the time to take.

    I cannot imagine any banksters, as you claim, ‘pounding tables all across Europe’, demanding of government. Such tactics may work in New York. They don’t work here.

    Finally, ‘the idea that we can leave this to the Europeans to sort out’ is NOT an idea of yesterday. It’s a fact of life. You don’t live here. You don’t get to speak. Our issues are ours. Please be silent as we are busy at present. If you think your private capital holders has superior rights to our citizens please think again. Take risks in our economies as you wish but please prepare yourself beforehand. You are foreigners here, and will always be.

  91. Jeez, I guess European journalists must be as disreputable as our MSM when they scream about the European lunatic “fringe.” Read “The Times,” “The Telegraph,” “The Economist.” Britain has its Nationalist Party, Sweden has the Pirate’s Party, and the Dutch, their Party for Freedom. I don’t think for one minute that the European fringe represents all Europeans. Speaking of civility, have you ever watched the British Parliament in action? We don’t have “football” brawls than end in spectator death here either.

  92. WalterJesseSmith

    Well, aside from all the distracting jabber about tea baggers and other loonies, in the US and elsewhere, the issue of whether the US President will “wake up” to Europe’s banking & finance disaster comes down to one question above all others: how much would a complete collapse of the Eurozone impact US investors, and what would it cost the US gov’t to buffer that collapse in such a way as to favor US investors? This is only a variation of the question answered by all the bailouts in the US over the last few years. It has little to do with security, the national economy of any nation anywhere, or even political stability. The US government has reduced itself to the clerks dealing the cards at the global poker game. Chatter about the dealers all you want. But the dealers will come and go. The games will go on.

  93. In a recent conversation with Kaiser Wilhelm, I learned that the eastern front is advancing and the western is crumbling, while an insane amount of pontificating is occuring on huffpo.

    When the bottom falls out, at least the demand for oil will disappear enough to cause certain enemies of mankind to be unable to fund further terrorific malefactions.

    I remain your obedient and devoted …. Chicken Little

  94. The Europeans have the same basic issues as Americans-too many greedy people at the top. For the life of me I can’t understand why Goldman Sachs, AIG banks in Luxenbourg, Geneva, Greece etc. aren’t prosecuted as Ponzi schemers. They make gazillions off multi layer’s of little people investing in crap they dump into an economy and then claim ignorance of how they did it. The money doesn’t trickle down. It trickles up into their billion dollar yachts and Lambhourgini’s. Crooks in governments help them by not regulating because they have a vested interest in their greed. Frankly, I think its time for a worldwide French style revolution- La GUILLOTINE; LA GUILLOTINE! in every country raped by these truly dispicable scoundrels.

  95. An American solution?? Haha! They’re broker than everyone. Their doomsday clock is already 1 minute past 12. Just look at California. It makes Greece look like Eldorado…

  96. when talking about the different retirement plans i.e.
    defined and 401(k)s you must learn why 401(k)s came into being,when corporations where allowed to not fully fund defined retirement plans by Congress so in their words to be more competitive in the newly created globization scams forceed on to americans.During the early 1980’s when lots of large companys where targets of takeovers their employee retirement plans where not protected billoins were cashed in leaving those employees with no retirement coverage,so wall street steps in with a great PLAN!
    save with a 401k you’ll be worth millions when you retire.The problem? The foxes of wall street were watching your money,charging huge hidden fee’s,selling you worthless funds to power your account it all out there to learn how badly americans have been screwed

  97. Really, Jim? Political correctness and Affirmative Action is responsible for deregulating the financial industry and ultimately causing the near collapse of the world economy? Really?

    I could have sworn it was Reagan.

  98. For economic prudence, learn from India.

    Narayanan
    http://www.chapter18.wordpress.com

  99. Felix Salmon on Nouriel Roubini on Greece:

    http://blogs.reuters.com/felix-salmon/2010/04/28/roubini-on-greece/

    Very good.

    “The least bad course of action for Greece, in Nouriel’s eyes, is some kind of coercive yet orderly debt restructuring, which keeps the face value of the debt unchanged but which reduces coupons and pushes out maturities. And an exit from the euro. Alternatively, the ECB steps in and cuts interest rates so low that the euro gets pushed down towards parity with the dollar, which would accomplish something similar without nearly as much pain.

    One member of the audience, though, had a really good question: what happens to the European system of sovereign guarantees of interbank lending? When those sovereign guarantees aren’t worth much any more, Euribor is likely to spike, since suddenly there’s a lot more credit risk involved in interbank lending. And there are hundreds of trillions of euros of debt contracts linked to Euribor, which could suddenly get very expensive and take control of short-term interest rates out of the hands of the ECB.”

    Salmon has this right: If the ECB doesn’t step up to the plate, all h3ll is going to break loose. The easiest transition would be for the ECB to devalue the Euro partly, for creditor nations to negotiate a partial haircut, and for the ECB to do whatever it takes to support short term direct lending (and to state very very clearly ahead of time that it intends to do this to avoid a run against interbank lending). In essence, what the Fed (eventually) did with buying short term paper in the US when Libor hit the roof.

    Of course, many will criticize the Fed for its interventions (which I will differentiate from the fact that it intervened without attaching strings) – those are the individuals who _want_ to see the system implode, and who _want_ a global depression.

  100. APR 28, 2010 11:15 AM – Reuters – Felix Salmon – excerpts

    “One of the most interesting things about the status quo post-downgrade is that no one seems to have a clue what the base-case scenario is. Are the markets still expecting Greece to get bailed out, but adding on an ever-increasing yield premium to account for the possibility that it won’t be? Are they, like panelist James McCaughan, expecting an orderly debt restructuring later this year, with an effective haircut in the 20-40% range? They certainly don’t seem to be expecting anything worse than that — Greece’s bonds are trading at high yields, yes, but not at distressed levels, and there’s still room to lose a lot of money on those 2-year bonds if they end up defaulting.

    My feeling is that the base case is one of muddling through for the next 2-3 years, with Greece scrounging up enough money from the EU and IMF to avoid a default, and Europe’s banks meanwhile staying profitable enough thanks to the ECB’s monetary policy that they build up their solvency for when the inevitable default does occur a few years down the road.

    But it’s not clear that the markets are going to let that happen.

    Even a massive IMF bailout, which is probably the best-case scenario for Greece right now, wouldn’t suffice to bring yields back down to their pre-crisis levels.

    I covered emerging market sovereign bonds for many years, but I’ve never seen anything like this…….”

    http://blogs.reuters.com/felix-salmon/

  101. Which of the World Wars did you fight in? Just curious.

  102. re @ Barbara…I don’t think it’s fair to blame Keynes for the problems these heavily indebted countries (PIIGS)…Keynes never suggested spending hard earned treasure on bailing banks who bet irresponsibly on casino grade “investments” such as CDO’s; CDS’s; derivatives; and other modern, but highly toxic financial instruments (weapons of mass destructions as Buffett calls it)…what Keynes strongly favored was spending on infrastructure which benefits society as a whole both short and long term, the boring stuff: roads, bridges, highways, nationl parks, dams, railroads, maybe high speed broadband (though not available back then), schools and much needed hospitals specially in rural America…these are still worthwhile investments today as it was back in Keynes days…besides the U.S. is in no position to bail out anyone outside it’s own borders..with over 10 Trillion Dollars in debt…that is not going to happen…only China nowadays can entertain thoughts of being the lender of last resorts..the Chinese have been religiously saving for the past 30 or so years…while the rest of the world (US, Europe & Japan) have been on a shopping spree during that time period…we’re pretty well maxed out at this point

  103. Let’s put ourselves in the shoes of educated Greeks who understand their situation entirely and live their country.

    In those shoes, it seems to me that they would not simply bite the bullet and move to default, but move their as expeditiously as possible to start fresh and let their country over time regain its footing.

    Yes in these shoes, we’d be aware of disappointing others, but just as individuals dragged inexorably into bankruptcy by exigent circumstances we’d be too concerned with our survival to care about impact on others?

    More objectively, as James Simon have hinted at; this might end up best course for world as well?

  104. Greece and the Eurozone are under attack by financial terrorists

  105. Exactly, he needs to tell Wall Street and Congress who controls the power grid.

  106. Hey Carol B. and Company – if you like him so much, please invite him to move over there. Furthermore we don’t want the USA to turn into Europe – otherwise we would all move there. Keep what you have, and we can keep what we have. And for all those who want to see the USA follow the steps of Europe, please save yourself some time and move there!

  107. More specifically, he is arguing for:

    “…the ability and willingness of the international community to restructure government debt in an orderly manner…” and “…stabilizing the macroeconomic situation without resorting to more unconditional bailouts…”

    Notice that he specifically argues against unconditional bailout. Obviously everything is completely out of whack. Noone knows what anything is worth. The bulk of the western world is awash in debt that can never be repaid. So, everything needs to be revalued. That is going to make for a lot of unhappy people. Anyone want the job?

  108. O.k. now I understand, don’t mis·in·ter·pret my checkmate though. Barack rules, I would love to meet him in person, play basketball, drink a beer, have sex with his wive etc. etc.

  109. Well, Greece as Greece is smaller than Argentina that defaulted without uncontrolled descent in to civil strife. It was ugly enough, however. Add Portugal and it still feels financially manageable – whatever the impact to pride may be. Get Spain and Italy involved and it will be a full-blown catastrophe. I say let the US try to support the Iberian peninsula, have Germany, Holland and France do what they can for Italy, and cut Greece loose.

  110. re @ Anonymous…too late…the U.S. is already following Europe’s footsteps in many areas of governance…that train has already left the station…so you might as well stay here and enjoy the nicer scenery and wait for “Europe to arrive” at a local bank, school or hospital near you…it will be here sooner than you think…

  111. Are we going to have to come over and bail you guys out again? Twice last century plus a standing army for the last 55 years of the same time period. Enough already. Evolve or go extinct.

  112. keep the tea party, the bigotry, fox channel, the ignorance, the GOP, the racism, the financial terrorist of wall street, your subprime mortgages

    keep them all there

    just don’t spread them to the rest of the world

  113. Keynes was never wronger, as in ‘in the long run we are all dead’. Posterity never dies. This short sightedness caused the problem. Our kids and theirs and theirs have this millstone. The banks have us over the barrel and capitalism died because we didn’t have the entrails to send in the receivers. Ultimately big spending leads to devaluation or unbridled inflation. That would get our kids kids off the hook. Maybe that’s it.

  114. Let’s call that train back to the station and send it to the scrap yard. Remeber the Constitution people? WAKE UP or see your freedom flushed down the toilet…

  115. Paragraph 6 sums it all up very neatly. Trouble is there is no time to sort out thse complex problems before Euro collapses and perhaps drags the world economy deeper nto crisis with it.

  116. The lack of oversight at the SEC was not a bug, it was a feature of the Bush economic “plan”, and they (administration officials and lawmakers)did everything within their power to block any form of responsibility and accountability. They even went as far as blocking efforts by states to bring some sanity to the “he who dies with the most toys wins” subprime mortgage boom.

    This article http://www.scribd.com/doc/9421535/Collateral-Damage-Part-2-The-Subprime-Crisis-and-the-Terrorist-Attacks-on-September-11-200126122008
    ties many of the misdeeds against the American people neatly together:

    pg. 11
    “…. the Bush administration employed a little-used 1863 law to annul all state antipredatory-lending laws and, if that wasn’t enough, to block states from enforcing their own consumer protection laws in suits against national banks. Thus, when Spitzer tried to open an investigation into discriminatory mortgage lending in New York, the administration actually filed a federal lawsuit to block it. These interventions were so extreme and so unprecedented that the attorneys general and the banking superintendents of all fifty states came together to oppose the rulings unanimously. But to no avail.”

    It only gets worse from there:

    “The Federal bank regulators also made a supporting array of changes that facilitated the national banks move into the subprime market.
    ….they had determined the “Government in Sunshine Act” to be inapplicable to their regulatory and enforcement meetings. Review meetings were subsequently held behind closed doors, with minutes inaccessible to the public. Regulatory authority over the national banks was entrusted to the Comptroller of the Currency: Eugene (Gene) Ludwig (1998-2005) and John C. Dugan (2005-2010). Dugan came to position from private practice (Covington & Burling) but prior to that served in the Department of the Treasury from 1989 to 1993, where he was responsible for the Savings and Loan clean-up. Similarly, Eugene Ludwig was the head of the Resolution Trust Corporation, which “handled 747 failed savings banks and disposed of more than $450 billion in assets.” The S&L clean-up involved protection and ‘financial forgiveness’ for a number of lower level intelligence operatives and up to 22 S&L’s associated with the CIA”

    And from there it only gets dirtier and dirtier. If you decide to read the article you will see how none of this was an accident. How it was for the benefit of those who benefited with every action of the Bush admin – the top 1% and the dirty dictators and tyrants who we deemed to be “friends”, and all of it at the expense of the American people.

    As for the SEC and its brand of enforcement:

    pg. 4
    “At the Securities and Exchange Commission (“SEC”), the Office of Risk management had been reduced to an office of one by February of this year. From 2005, the number of SEC enforcement division personnel was cut by 146 from 1338 to 1192 in 2007. In 2004, the SEC reduced the capital requirements for the largest Wall Street investment banks. The SEC was given insufficient oversight authority over the credit rating agencies when Congress adopted the Credit Rating Agencies Reform Act of 2006. And as Chairman Cox has recently and correctly testified, Congress also failed to give the SEC adequate supervisory powers over Wall Street Investment Bank Holding companies with the passage of the Gramm Leach Bliley Act. Congress also has failed to regulate the credit and other derivative instruments which in some instances are “Toxic Waste” to the financial system. Meanwhile, the Federal Reserve and banking regulators examinations failed to identify and rectify unsound lending and banking practices at institutions such as IndyMac, Washington Mutual (“WaMu”), Countrywide, and Citigroup. Often these practices developed as lenders sold loans they had originated, or were able to protect against credit risks through credit derivatives, thereby eliminating any “skin in the game.” As these unsound practices grew, the regulators also failed to ensure there was adequate capital in financial institutions that had taken on and retained excessive risks.”
    …..
    “Punishment for misrepresentation and fraud over the years had never exceeded the benefits, and most executives responsible for the previous two decades of crises landed comfortably after all was said and done

    Without the transparency, oversight and accountability that the system requires – and politicians seem unwilling and unable to provide, we are doomed to more S7L scandals, BCCIs, RTCs, Enrons, and the upcoming gold crisis http://www.gata.org/node/8052 and crash of the Euro, as described in this article.

    For all I know, what is happening to our economy now may be exactly what Bush the Father orchestrated for the Russian economy in the early 90s:

    “Given that these same individuals covertly financed the collapse of the ruble in 1991 using these same funds, and then orchestrated the buy-out of key Russian industries for pennies on the dollar, this analysis provides evidence that a similar gambit is being made for the takeover of key U.S. industries.”

    Karma?

  117. Quite.

  118. SpanishInquisition

    ok, so we’ve got the global economy invested $500+ trillion in derivate bets, the global GDP is ~ $40 trillion. Can you say “margin call”? Do the math.

  119. Goldman Sachs created transactions that allowed Greece to structure their debts so as to hit certain metrics at defined times. It was a big waste of money (fees) and effort on the part of the Greek government, but I think we should respect that the Greece is a democracy and it was the legitmate representatives of the Greek people who entered into these arrangements. Austerity in this context seems to be nothing more than living within a nation’s means, including that credit that they can convince investors is prudently lent. Not sure why toppling a government is going to change this equation much going forward.

  120. structurequity

    That national entities are at the beck and call of profiteers is always in play but that now profiteers can both sell short and long with the statistical and analytical vision that short comes along soon. A question is ripe for the asking. How sustainable is this for mankind?

  121. Can this Euro Zone implosion get any scarier? Read on, if you really have the stomach for this…Stephen King could not envision a scarier story than what’s happening over there…hope it stays over there…

    April 27, 2010 | 8:21 pm

    Economist Nouriel Roubini, the famed Dr. Doom of the global financial crisis, doesn’t need much of a push to wax pessimistic. So the news Tuesday that Greece’s credit rating had been cut to junk status was like pitching him a softball right down the middle.

    At a panel at the Milken Institute Global Conference in Beverly Hills, Roubini worried that Greece’s financial woes — and more important, the deepening fiscal problems of its European neighbors Portugal and Spain — could batter global credit markets, disrupt the economic recovery and potentially tear apart the 11-year-old European monetary union.

    “The reality is that what has happened in the last few months is the first test of the viability of the European market” and the euro currency, Roubini said, adding that the possibility of the European monetary union coming apart is “significantly rising.”

    His comments came after Standard & Poor’s downgraded Greece and also lowered Portugal’s credit rating. The moves intensified fears of financial “contagion” in Europe as the continent’s weakest economies struggle with debilitating debt loads and turn outward for help. Greece last week formally asked for a $60-billion bailout from the rest of Europe and the International Monetary Fund.

    Investors dumped bonds of Greece, Portugal, Spain and Ireland on Tuesday, driving yields up. European stock markets were hammered, and the selling spread to the U.S. as well. The Dow Jones industrial average slumped 213 points, or 1.9%, to close at 10,991.

    Roubini focused much of his concern on Spain, which in some ways is more troubled than Greece, he said. Spain’s unemployment rate, for example, is 20%, twice that of Greece. Both Spain and Portugal, he said, are uncompetitive in the international economy and will require a host of structural reforms.

  122. This has all the earmarks of a mash-up of information, and not very sensible at that.

  123. I have an idea. I was reading a humorous quote by Harry Reid of Nevada. He called “W” Bush “a loser and a liar”. So I was thinking since Bush caused a large deal of the mess we are dealing with now with the banks, by putting incompetents in to run the regulatory agencies, we can change his name. From now on instead of calling him “W” we can call the “loser and a liar” Bush—-“Double L”

  124. C’mon, guys. This is not the time for Americans and Europeans to be squabbling among themselves. This financial crisis is a world-wide problem of historic proportions. The crisis is caused by late stage capitalism, which always places a plethora of riches in the hands of a few, who can no longer find a place to profitably invest their money. So all kinds of scams and crooked financial schemes emerge with the illusory promise of profitable investment.

    There are solutions to this common problem, involving active governmental intervention. But people of all nations have to get over their differences and demand it. Otherwise, we and our children are all going to suffer.

  125. James Gornick

    Far-fetched; Simon, you and many others that take the the time to bring so many concerns… “They have also looked long and hard into the eyes – and, they think, the souls – of politicians and policymakers, including in Washington this weekend.

    The conclusion: large parts of Europe are no longer “investment grade” – they are more like “emerging markets”, meaning higher yield, more risky, and in the descriptive if overly evocative term: “junk” (Simon).

    Here are a few deeper thoughts to ponder. See if the concept theorems actually give meaning to all of these articles throughout the many months and in this blog from the bloggers from this community…

    An order of Consequentiality of Oppression Economics is in the considerations provide the parameters is the limiting factor of the EU(s) and many other countries authority to inflict this merited suffering in the form of legally administered punishment of social confinement and a continued move towards a one world order oppression as has been written by many before me that is now coming to pass.

    Thus the desert of the offender being the human population of that confinement metric whom occupies the countries that are meeting first with these debt collapses are the canaries in the mine.

    Are these the canaries the ones necessary to set the standard for the next recession or to lead to the the push for a greater government world order. Are they not a sufficient test and grounds for the condition to justify legal punishment of debts gone wrong.

    I argue that my theory is at least as successful as others that the match was lit when the human seeker was through history, and from the beginning of creation, in pursuit of consuming and wanting things.

    The problem with this motivation; at what cost are the human condition willing to endure the oppression of deceit and social decay of an orderly society based upon owning no debt to any man, other than the debt of friendship…

    Coming up with a whole new metric of debt restructure and forgiveness and to structure Oppressive social confinement as ultimate punishments is a serious questions that is the questions that is actually on the table for the world at the current moment…

    Far-fetched, Not Any More…

    When Taking “I am” out of The Equation, Prepare for the many Hardships for all Countries Around The World….

    Get involved and make your Votes count, Now more then Ever Before…

    James

  126. Yeah.

    The world economy was humming along just fine until the day that Obama was sworn in. He took his first breath as President and melted all the glaciers, knocked over that oil rig in the Gulf of Mexico and made poor Tiger Woods’ private, personal text messages appear on TV.

    This is all true. Go look it up on foxnews.con

  127. Prior to World War 1 & 2 slick American bankers and captains of industry pretty much dominated the world economy. They manipulated the financial markets the same way Goldman Sachs & AIG and the rest of OUR Wall St crooks are doing. Their shenanighans caused a ripple effect throughout world economies triggering the Great Depression resulting in the deaths of millions of people. This no laughing matter. Lets hope the Chinese’ understand that their survival depend on the American taxpayer. Otherwise we might have to fight the Commies if we don’t pay back the money OUR Wall Streeter ponzi schemer’s owe them.

  128. Oh Carol,

    Please recall that Europe boasts a long long history of fascicts, skinheads, nazis, gypsy-haters, bigotry, holocaust-deniers, etc. right up to the present day.

    You have your nutties like the US does. I think maybe that yours have better table manners – they do manage to look more reasonable, even as they are just as awful. Must be that European education!

    You could even say that there good manners of your nutties makes them more dangerous. No one would ever elect Glenn Beck; Europe on the other hand did elect Jorg Haider, Le Pen, etc. As as aside, when Haider turn ‘funny’, that was a good one! He really let a few skinheads down on that one he did.

    BT

  129. James Gornick

    Sandi:

    Quick note for the Goldman Sachs Market Maker SEC as I had watched play out the other day.

    I was asked to define once, what is a market maker. This is what I called the system then and what I still consider it now.

    A Market Maker is one of a deceiver bringing illusion’s of connecting risk speculators to the table of the world of the commodities of whatever the market maker has stated in the world has a value. The value is pegged by the true supply and demand and this is measured by the amount of who shows up on each side to put in their orders respectively.

    I repeat and underline; they are a deceiver. This is and always will be the greatest of the stumbling blocks for all of congress and the world to try to regulate and pass sweeping laws upon.

    Reason mostly is behind the fact, this practice has been in place from the start of man in making markets from bartering, the problem was when greed came in and the word of “Scheme”, “Deceive”, and last “Ponzi” that all know so well now.

    You see, I could introduce the real player is the devil himself is the market and greed and the temptation to make everyone think to want the so called American Dream or whatever the Country the individual may live.

    This is the problem that causes the role for the run away inflation growth metric to oppression confinement though I have been trying to get the academia world to start to study and bring to talk about with the economic intellectual circles, solutions from this perspective, if it truly holds merit…

    Far-fetched, Not Any More…

    James Gornick

  130. I fart in your general directions, you stupid Americans.

  131. Politics is about timing, trends and tipping points. As you notice, Obama never follows a jab with a punch, regarding banks. Yesterday was another jab and the window is soon shut. A great leader intent on major change regarding banks could HAVE it in 2010. The fact that we don’t should tell you something. He’s sticking with the guys he jumped in bed with when the crisis hit. He bends fro time to time and snaps back to cautious.

  132. Look to America for a solution? Lay off the Grappa pal.

  133. Whoosh; all this money talk is hurting my head. Maybe we can throw all the Wall Street bums in the hoosecow and send my stingy sister to run the place. She knows a thing or two about cutting cunsumption. She can take $10 dollars worth of legal coupons to the grocery store and come back with $300 worth of stuff. She absolutely will not loan anybody money. One time a boy friend asked her to loan him fifty cents toward buying a pack of cigarettes, that was 30 yrs ago and she still mentions the nerve of the guy.

  134. You’re on the right path – if it wasn’t Reagan, it was certainly Bush the Elder and his friends in “intelligence” and what would later become the Carlyle group:

    “For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush’s last year in office, but it may not be completed until he has left the White House.” Fed facing IMF investigation, Gabor Steingart, 06/26/2008,
    …..
    Attempts by all 50 State regulators to prevent those changes were stopped by President Bush, who directed the Department of Justice to intercede on behalf of the large national banks and help them gain access to those mortgage markets. This legal action was again spearheaded by John D. Hawke, who invoked “a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative.”
    …..
    “10. Attempts by Congress to more tightly control Fannie Mae’s and Freddie Mac’s creation of financial derivatives without full disclosure were halted by a targeted lobbyist campaign authorized by Bush appointees to Freddie Mac. The individual responsible for that campaign – David Moffett – was the International Treasury VP at Security Pacific Bank in 1991, when George H.W. Bush and Alan Greenspan used that bank (San Diego and Washington offices) for its 1991 bond operation. He would move on to the Carlyle Group once his public career was ended by the ensuing scandal at Freddie Mac.

    11. With national banks given rights to compete in the mortgage market, and Fannie Mae and Freddie Mac allowed to absorb the large majority of the risk…(they) took the exceedingly lucrative up front transactional profits at the retail level and dumped the risk on Fannie and Freddie. Fannie and Freddie, which were not under any regulatory control for their accounting practices, hid the risk in poor documentation of securities. The audit failures discovered in 2004 were widely publicized for illegally spreading reported income over time to maximize executive bonuses, but buried in the findings was the more significant but de-emphasized conclusion that the value of financial assets were incorrectly reported in terms of risk. A large number of executives within Freddie and Fannie had significant U.S. intelligence backgrounds, or were directly connected to the 1991 bond deals.

    In the simplest terms, these were the Presidential appointments that were required to endorse the growth of the subprime holdings.

    -The top compliance officer of Fannie Mae prior to the exposure of the accounting irregularities wasdefended U.S. officials in the BCCI scandal, who created the evidentiary “wall” between the CIA and FBI that hampered FBI investigation of “Al Quaeda,” and who got a key witness (who could have exposed the ‘terrorist’ operations as a U.S. owned false flag operation) deported and released from custody. (It almost none other than Jamie Gorelick – the very same lawyer who begs the question – why does someone with such strong and lasting involvement with U.S. intelligence, and absolutely no financial background – take on a major regulatory role at Fannie Mae?)

    Upon her departure, she was replaced by Beth A. Wilkinson, former general counsel for Army Intelligence & Special Operations 1987 to 1991; and prosecutor and special counsel in the prosecution of Timothy McVeigh and Terry Nichols – the Oklahoma City bombers. (The Alfred B. Murrah Federal Building was –coincidentally -where the investigation records into the CIA/Mena drug operations were being stored.)

    -H. Patrick Swygert – also on the Board of Fannie Mae – was a long standing member of the CIA External Advisory Council;
    ……
    12.

    With Fannie and Freddie deliberately absorbing bad paper and hiding risk, the debt insurers (AIG) also deliberately hid risk, distorting reports to the SEC over three years from 2005 to 2007.

    It is important to understand that AIG has significant ‘protection’ from oversight because of its key role in U.S. intelligence operations – so when one asks how a company can avoid regulatory reaction over a period of three years, the answer flashes by in a ‘nod and a wink”

    I’m not one for conspiracy theories and such, but this well-researched and sourced document reads like a good spy novel with stolen WWII gold, toppled dictators and economies, terrorism, and top-secret government involvement in some of the biggest scandals of this generation. And don’t forget market manipulation and economic collapses. The common thread in much of this story is the involvement of the Bush dynasty. Well worth a read.

  135. Perhaps lovingthebigisland would like to acquaint themselves with history a little more closely.

    WW1 began in 1914 not 1916 and the Americans didn’t join the British in either WW1 or WW2 until they had made a fortune supplying both sides with the weaponry to conduct that war.

    It is also worth pointing out that the careless behaviour of Wall Street in 1929 was also to blame for creating the fertile circumstances for the election of Hitler in 1933 in Germany.

    That is of course not to mention that the current crisis began in the USA essentially due to a wholesale lack of regulation of banks and credit rating agencies by the Americans.

    Note that traditional European countries that have not embraced American style reforms, like Spain, have suffered no banking crisis. Their problems stem from your economic collapse.

  136. That's Mr. Imbeciel Morons.

    Having socialist Europeans “love” obama is all the more reason to throw bam out. You can love him and he could be “intellectual” with grace and civility, but modeling the US into european socialist state is the death nail for the world economy. Germans have the only repectable work force in Europe and when their politicians pony up money for Greece, let alone Spain and Portugal, they will find themselves looking for new jobs. But don’t worry Obama will come to the rescue with those flashy new $100.00 bills hot off the printing press.

  137. James Gornick

    Par4:

    Wine will never be the answer my friend… Plus I don’t like to drink to often…

    Learning the true depths of what it’s really all about. It can mean more freedom in the end not only for yourself, but for many others if we can get it right and include what has been missing for years and that would be “God’s Natural Laws of Social Order”…

    Good ideas are accepted over time like a fine wine…

    America does hold solutions as long as it does not introduce further steps towards an oppressive one world order type movement, we will be alright…

    James

  138. “Radical changes in prosperity……..extremist ideology and worse?Never!”

    Dear George, you know strictly nothing about that don’t you?

  139. I’ve said it before, I’ll say it again: the most destructive terrorists in the world don’t wear towels and live in the middle east. They wear Armani and live in the Hamptons.

  140. So honest, no BS question: what most likely happens now? I want as many realistic possibilities as you guys can come up with.

  141. I plagarized this from Wikipedia – I don’t think Jim really understands socialism. “Socialists generally share the view that capitalism unfairly concentrates power and wealth among a small segment of society that controls capital and derives its wealth through a system of exploitation by Wall Street crooks (emphasis added).

  142. Carol…I am an American that does not belong to any of the groups you mentioned:-) I agree with you that we definately have our loonies here in America but saying that Europe does not have their fair share of idiots is just plain crazy. You guys even have a Loony Party that was established in 1983! Point is that we all have our crazies and in America we proudly give them way too much limelight! Our bad. Just know that these people are on the fringe and the majority of American’s do not support their way of thinking. As you know, the majority of our country elected President Obama and we are very proud of his accomplishments to date. Stay tuned…more great things from America to come!

  143. valerie Gagnon

    Ya dear Tippy,
    Not just “oil-rich” Alberta is paying massive amounts to Newfoundland (English). Quebec (French) and Ontario (English) are and have always been the province’s major creditors. And Canada is trodding on very shaky political grounds because of it.

    Take it from a French Canadian who would like to see Newfoundland and it’s sisters, striped of it’s federal political power in a heart beat.

  144. Not me, but this is hghly likely to happen whether Mr. Obama takes a lead or not. We created moral hazard by bailing these folks out over here two years ago, now they will expect to be bailed out over there, all the while ignoring the fact that they have brought this on themselves. So goes an unfettered free market, free from the constraints of Government Regulation. anyone care to wake Adam Smith (and punch his lights out)?

  145. Which is why I recoil when I start hearing conservative deficit hawks spout about how if we’d only listened to Keynes we’d be alright . . . . all the while running up deficits in good times . . . .

  146. Simon, what now? China’s in trouble too, right? Is there going to be anyone left standing?

  147. James – I agree with some of what your’re saying; except you can’t blame everything on the Devil. The Wall Streeters are just a bunch of greedy white boys. Now if you want to talk about the Devil; just remember this- it’s easier for a camel to get through the eye of a needle than for a rich man to get to Heaven. After all, capitalism might not work if all that pesky Bible stuff is true. Perhaps our only consolation is that these boys and their insatiable greed will touch the Devine.

  148. Blankfein wins humanitarian award, divorces his wife and runs off to Greece with Sarah Palin. Blankfein purchases a small municipality outside Athens. Palin runs for a nationwide office in Greece but fails because the Greek electorate cannot except her extreme obesity after gorging herself on Feta cheese.

  149. @ re: 3 – D my 2 cents:

    best case scenario – rapid rescue packages from rest of Euro Zone countries with strict austerity measures to adhere to by the debtor nations…markets start to stabilize after everyone takes a major hit, banks, govern,ents, investors, IMF..then massive rioting follows in all major cities affected by these measures

    worst case scenario – no rescue package forthcoming or too little,too late…markets go into a tailspin not just in Europe, but Asia, South America and U.S. then this could be the trigger for dreaded big “D” (Depression) we have been able to dodge so far…then riots in major centers affected, but this time not only in Europe as everyone takes an even bigger financial hit like we’ve never seen before…now that our financial umbilical cords are so intertwined thanks to high tech & internet and the TBTF banks that got us into this mess to begin with…

    …sorry I see no Hollywood-happy ending in this calamity in the making…this has been brewing for decades now…the overspending/overborrowing on everyone’s part – governments, greedy investors, consumers, companies, TBTF banks, unions…there is plenty of blame to go around…Greece is just the benign looking thread that gets pulled first from the international financial fabric we all inhabit…and it is starting to unravel befor our collective eyes

  150. re @ 3 – D – for your answer, see my posting below…have a nice day!

  151. A wake-up call for the euro – Not the dollar! This should explain Europe’s ,living beyond their means – their unholistic belligerent “Central Bank” thoughtlessness! #1) Their exporting countries; #2) They kept rates low to long; #3) They priced themselves out of the Global Market; #4) Check out the {EURUSD=X} index from the Euro’s inception versus the US Dollar 2/1999 -(present)4/2010: Conversion ratio—1999=(1:1)dollar…2001 hits low against dollar=~$0.83…2002 starts move up $0.87…2008 hits high (note date?)$1.60…4/26/2010 @ =~$1.32!!! Answer? Please let me reiterate – the United States didn’t cause or create the Eurozone’s woes,they brought it upon themselves trying to be the next world’s next hegemony bringing to many slugs along for the free-ride.

  152. James Gornick

    Angry:

    In the game of Chess…

    This would be called Check Mate…

    You are 100% correct!

    Your statements as the “Creator” whom goes also by “I am” has no equal and as you stated, “it’s easier for a camel to get through the eye of a needle than for a rich man to get to Heaven”…

    This is why the temptation to create the need to want the dream of consumption within this earth is the creation of the very nature of the support of the theorem of the oppression theorem and what leads many towards this end.

    If there be a Devil, then he would certainly bring many towards this one world order of direction as it seems so right and an solution that saves so many.

    Does it really?

    Your closer to all the answers than you may think… Keep on praying and knowing the door only opens in one direction now, and this is the hope that is given for all of us too know and all other things really don’t matter.

    Debt forgiveness and other things are great as long as we don’t have to make a pack or sign our souls over to the devil that’s within the fine print of the deal.

    Far-fetched, I think Angry may have hit upon an important fact…

    James

  153. He’s not offering an analysis here, he’s engaging in chaos-breeding rhetoric. This is propaganda that is meant to make markets die and entire countries seize up. Bravo Simon Johnson. You honor the memory of Albert Schlageter.

  154. Fascinating, fascinating, fascinating. Now I am so happy I was not born in the boomers’ generation and gone through 50 years of quiet!

    Ah, if only my grandparents could know that I witnessed a financial meltdown, too!

  155. Kitten, you are one for conspiracy theories and such, so the disclaimer looks silly. There’s no shame in it you know; we’ve reached a point where those who dismiss the conspiracy(ies) are far more suspect than those who engage them.

  156. Well aren’t you a little ray of sunshine! *Nobody* expects the sunshine.

  157. Peter – Ted Turner was right; Americans are dumb. We have a tendency to engage in altering world history to fit our lofty notions of superiority and smartness above any body else’s. Call it patriotism or vanity; but I doubt if too many Americans ever read books about the Great Depression; much less know anything about our pivotal role in it. We lie so well to ourselves that we sometimes believe our own BS. Americans are good most of the time; but can be very bad when we’re bad. Perhaps we love ourselves too much. Peter – Be careful, your kind of talk might P off the Glenn Beck smart Alec’s.

  158. Re: @ EllenD____Memo: Ironically the greatest “Chess Player’s” in the world are “Russian”,and they love their “vodka straight up”! Stimuates the organic imagination.

  159. Hahahaha, thanks Ted, i enjoyed that one.

  160. Re: @ btraven____Good point. Secondly, what gives these countries the right to allow their citizens – retirement at ~”Fifty Years Old” too begin with? This is a big time problem in America today, where they piggy-back pensions upon pensions, and still are able to retire at “Fifty-Five Years Old”. Pathetic! Socialism really stinks,quite literally,…!

  161. THE OVERWHELMING MAJORITY OF AMERICANS do not pursue the false talking points and ridiculous arguments of the far right led by Rush Limbaugh and Faux News. I won’t speak for others but I will say that Obama has disappointed (mostly domestically) on some occasions by being too centrist in his actions. I was hoping for real change, not simply better compromises, but I’ll take what I have gotten thus far.

  162. Fee-fi-fo-fum,I smell the blood of an Englishman,Be he alive,or be he dead,I’ll have his bones to grind my ($$$) bread. What does this tell me? First,we as American’s have the “Great Pond” to save us from the Eropean’s. Secondly, there’s a scent of blood in the air,soon to be on the streets from all the naysayers – which tells me the “Bread $$$$ Market’s” have hit bottom. Be it next week or tommorrow,the horses are back in the stable. Thanks Simon,and please for “America’s Sake Keep up the Good Digging”

  163. Not to worry. GS and the other Wall Street IBs are already way short these bonds.

    They are accomplished croupiers when it comes to low finance.

  164. James Gornick

    Uncle Billy Cunctator

    You bring Albert Schlageter to the theater of discussion.

    A Hero within his own country, but one that stood upon Communism. Oppression in modern times is actually a form of true capitalism with a true twist of socialism when you peer deeper into the fibers of the connections of the dependency now of all the nations upon one another to really be able to consume at much higher levels; more than ever before in the history of man.

    Is this where you are pointing towards with Professor Johnson? Are you saying the solutions are no longer possible from my posts or his continued blogs?

    If this is the case…

    I would be one to disagree…

    James

  165. Try reading some history books. The rise of the German Reich under Hitler was the result of punitive monetary damages after WWI, by a petulant bunch of little boys running Europe. Sheesh! I bought 13 Bankers on Amazon yesterday. I hope it doesn’t look like this left-wing liberal rant that I see running in this muck. The most troubling aspect of where we seem to be headed can be summed up as “read some of the drivel on this blog.” Then, sit back and wonder how we’ll survive. There isn’t a politician on either side of the pond that can do anything well besides sucking up to power. Guess I should have kept that gold after all.

  166. Oh, puleeeeze! “You don’t live here. You don’t get to speak.” I beg your pardon? Europe has non-stop advice for America, most of it steeped in a sneering visage that verifies the holier-than-thou we’ve all come to expect from the crumbling decay of the Old World. Europe perfected the Oligarchy as the answer to the need for invisible Socialism. You have succeeded, now you fall. But you’re still too perfect for us to keep up with you.
    This won’t be fun for anyone, America included.

  167. And to boot in the EU there is no political downside to taking on Goldman, the local banks would be in favor of them being taken down a peg or two since they horned in on the local banks good thing. The story about GS and swaps hiding the Greek debt has not fully played out, I suspect the Euro zone could ban GS from business there.

  168. “President Obama is wide awake and working hard. Someone please tell him what is really going on.”
    ———————————————

    Yes Simon, he is wide awake and working hard at doing the same thing his predecessor did before him.

    I.E.- making sure that he does everything within his power to transfer as much wealth as possible to the Oligarchs.

    At what point are you going to realize that he knows exactly what’s going on and he’s doing exactly what he’s being told to do?

    This isn’t about Socialism, it’s about Corporatism.

    This isn’t about Democrats and Republicans or Liberals and Conservatives. It’s about money and power and control.

    Everything else is just bread and circus.

  169. Canucklehead

    Stephen, you haven’t put your best foot forward. You should try again but first take it out of your mouth.

    All agree that we will have heard the voice of Europe when Germany speaks. Any other voice is simply noise.
    Germany will speak on May 9th. Until then we will be in a holding pattern.

  170. “We again find ourselves approaching the point when the financial sector will scream: rescue us all or face global economic collapse.”

    The only way we bring an end to this behavior is to call their bluff. The financial sector with the power to play this game needs to be put out of business by their own recklessness. If you must, promise them foodstamps.

  171. Brad Thrasher

    Sir Winston Churchill did say, “You can always trust the Americans to do the right thing; after they’ve tried everything else.”

    The trick is knowing when to listen and follow.

    I’m very skeptical about more corporate welfare for bankers. As Ben Stein said on Sunday, “We need the grownups in the room. It’s time for the boys to jump in their Ferarri’s and leave Wall Street Vrooom, vroom.”

  172. Actually, wine might be part of the answer. I’ve had some great wine in Greece that I’ve rarely seen exported. And I don’t mean Retsina.

  173. Brad Thrasher

    Yes it’s true. It’s all America’s fault. After all, we’re the only one’s who accept responsibility.

  174. Harry Reid is a dimwit and his opinions about just about anything are nowhere in demand in this country. He will be replaced. He can say whatever he wants about Bush or anyone else, but the fact is that the Fed and Congress are to blame for this fiasco. Bush, in FACT, did warn everyone in 2005 that this is where we were headed. Absolutely no one wanted to hear it – they were too busy with their heads down in the punch bowl, trying to “FLIP That HOUSE!!” And, the Fed was loathe to shut the spigots off and p!ss off that many Congressmen in one day. This was all pure politics and remains that way. Grow up and listen to what’s going on. You obviously haven’t been doing your homework.

  175. The perfect power monger, after all. The thought of being leader of the world is what really drives him. He’ll probably dump our Constitution and try to give power over to the UN, and then want to become head of that. And we, being the dumb@sses that we are, will probably fawn all the way there about the magical charisma that is Nobama. You people smoke too much of something.

  176. Oh for heavens sake, Peter, I am so sick of this bogus argument. I’ve lived in England long enough now to have heard this trotted out over and over. World War I was ‘won’ single-handedly by Britain. Nazi Germany was the Americans’ fault because of our bad bankers / insular government. World War II was won single-handedly by the Brits and the austerity period and pretty much everything else that didn’t go your way up until about 1980 was due to those egregiously unfair loans from those big American baddies. Why can’t you just take responsibility for the fact that your inept governments – wedded to unbearably stupid political theories – totally cocked everything up for about half of the twentieth century. Stop blaming everyone else. After all, if you’d have followed President Wilson’s advice, you might weild something more than a peripheral and diminishing influence.

  177. Bingo!
    Not just California.
    Also, Illinois, Florida, Michigan, New Jersey, etc.
    What we’re seeing in the EU is a prelude to what we’re going to see in the US.
    Riots in Athens?
    We have students boycotting classes in Newark.
    The riots will follow.
    Just wait and then watch.

  178. Not the U.S., but parts of the U.S., like California and Illinois.

  179. Nicely said.

  180. Martha went to jail because she’s a woman; the GS men won’t go to jail (or even suffer very much), because they are men.

  181. The last time Europe went belly up economically, Hitler and Mussolini seized power.

  182. Sadly true.

  183. “First,we as American’s have the “Great Pond” to save us from the European’s.” ?

    The “Great Pond” didn’t keep us from being engulfed by World War II.

  184. I think the Big Boys at Goldman Sachs will survive (cockroaches will outlast us all, they say).

  185. Ummm … I though Quebec was right up there along with Newfoundland-Labrador among Alberta red necks.

    Danny Williams rocks !!!

  186. Commentariat

    Your comment is so incoherent that I don’t actually know what you are trying to say, but it is clear that your “theory” is some sort of fever dream.

  187. Americans should not be blamed if the rest of the world wants to emulate everything “American” so badly…from Hollywood…to high tech…to fast food…to pop music…and now to high finance…but American aversion to big government in the last 30 or so years brought us massive deregulation from Reagn to Clinton in many industries from airlines to finance…in some areas deregulation worked brilliantly like in the airline industry…the last 20 years has been a bonanza for most travelers in terms of affordability (though a steady increase in flight cancellations have been a nightmare)…but the most devastating effect of deregulation has been in the area of finance…the emergence of the shadow banking industry (which is totally out of anybody’s radar screen) and its abuses coupled with TBTF banks’ shenanigans and bad/fraudulent bets can be directly traced to the massive deregulation in the U.S. during the last 30 or so years..and it was the American banks aggressive efforts (and quite successful) to convince other countries to also open up and deregulate their banks with similar disastrous results we are now seeing and it has now engulfed the entire world…remember most of the world thought that the Americans had all the smarts (Rubin, Summers, Paulson, Bernanke, Greenspan, now Geithner – btw all Goldman Sachs alum) and all the bright answers with regards to managing finances…if the world only knew…

  188. I want to make one thing clear.

    Simon is doing very important work here. And I have great admiration for what he’s doing, IMO he’s a very brave and intelligent man.

    But anyone who thinks our current President means well is sadly mistaken. As it’s obvious that he isn’t the least bit interested in doing anything other than what benefits his money Masters.

    He’s got a lot of company in Washington, in that regard.

    Bush was a Corporatist masquerading as a conservative Republican.

    Obama is a Corporatist masquerading as a liberal Democrat.

    Their end game is the same. They’re both nothing more than lackeys.

    I just hate to see someone like Simon pleading his case against the masters to a house servant who is in reality no different than the house servant who preceded him.

  189. Re: @ b.nimble_____The British,period! The “Bank of England”,and Barclays plc were the catalyst? Deregulation didn’t help the american consumer with the airline’s. It was the government subsidies betrothed them backdoor,or better said under the publics nose,as they’ve done religiously for decades.Now,back to the bloody British and how they brought too the american shores the ,”Great One Arm Plastic Bandid” called the ATM. Need I say more? PS. This all started with W. Woody Wilson the “Noble Peace Prize President”?

  190. Re: @ starlight_____There’s nothing to be sad about,its part of the cycle of life. Please,and let us not forget Mr. James Kwak. :^)

  191. Re: @ starlight_____ Did we have the enemy running amuck on our shores? Thank “God” for that big pond of sanctuary. Although today – no pond is sufficient.

  192. Canucklehead

    Tippy, you don’t sound very knowledgeable about Canada. Did you grow up under a tarp?

  193. JohnnyBoy,
    Yes, When “W” Bush fingered Christopher Cox to head the SEC (Securities and Exchange Commission), and “W” Bush fingered James Lockhart to head FHFA (Federal Housing Finance Agency), and “W” Bush fingered John C Dugan as head of OCC (Office of Comptroller of the Currency) he sure did warn everyone where we’re headed. JohnnyBoy, go back to your Glenn Beck/Sarah Palin sewer hole.

  194. Someone needs to explain to me why rating agencies “opinion” regarding anything is worth anything anymore. So slashing the credit rating of countries in Europe mean what to whom exactly?

  195. People wake up and smell the bs…alll of this, just like several other events in world history, is merely an experiment as the self proclaimed “masters of the universe” work out another economic equation…this is why they want a “one world government”…now if something happens to one country in the EU, every one else feels the effects. say no to the NWO

  196. Let’s face facts, when the dust finally settles, some new srain of financial derivative will exist, debt will be de-recognised and balance sheets will look respectable, governments will once again take a back seat and the masters of the universe will tell us how the game is played prior to the next banking crisis, about 20 yrs from now, approx.

  197. I haven’t read the other 196 responses above me, and I doubt that many will read this one. But here’s my opinion. The EC was a bad idea from the start. A few good things couples with immense potential problems, as we now see. What is different now is that the plutocrats in the various countries (read financial and government elites in this case) have now met their possible Waterloo. Lots of posturing (for voters), lots of handwringing. Lots of indecision (trying for Occums Razor at a crucial moment in the global economy when it probably doesn’t exist. What likely needs to happen is the the finance ministers from all EC nations need to meet and decide who stays and who is cut loose. There are problems for all, either way, but likely Spain, Greece, Portugal, Ireland, and maybe Italy, will have to go. Of course that doesn’t leave much, but then maybe everyone should just give up the idea and form a transitional currency valued as the respective economic positions dictate. Then each should reistitute its old currency or at least one that they can control as individual countries, indexed on the basis of the relationship between the new currency and the intermediate/euro. Then the IMF, perhaps with additional assistance from the broader community of nations, can step in and provide assistance. The Euro makes this difficult, because of the central bank issues and the variances between economies.

    However, by belief is that this will substantially collapse like a house of cards. If you think that American politician will vote to throw its weakened economy into the fray with no resources available, this won’t happen. And, actually, I believe that is right. Yes, we will suffer anyway, because a problem like this will weaken the dollar, will discourage trade, and will create other inestimable problems, but, we need to be concentrated on resourcing, somehow, our sputtering economy.

    Heck, we can’t even agree on financial reform, although readers here have a very good idea of what is necessary there. What hasn’t been discussed here recently is what to do about our long term deficits. I suspect, because of the recent meeting (on C-Span) at Petersen, that will be the next topic. In June 26, a Saturday, there will be a televised national conversation (20 city simulcast), co-sponsored by Petersen Institute, to discuss the possible ways in which to address the long term deficit. They say that everything, from the tax code to the military budget, will be on the table. It should be fascinating to hear and see what happens and how this impacts the President’s newly appointed commission.

  198. The oligarchy are too busy jockeying with each other for top dog to pull together under one “New World Order”. Stop giving credence to it. It gives way too much credit to men simply not capable of that level of coordination.

  199. While I’m a far reach from an economist, it’s seemed to me for a while now that the Euro was a crappy idea while the EU consists of multiple sovereign nations. It seems it can only work by unifying the EU under a single government. Do that or toss the idea out seem like the only real options.

    I guarantee you the one thing that won’t be on the table for US financial reform is anything that clamps down on bank bailouts or bankster lifestyles. You know, the kind of things that should be FIRST on the list.

  200. Anonymous:

    If you’ve misread my sarcasm, I take responsibility for that. If you’re saying I know strictly nothing about this for other reason, I’d be interested to hear what those are.

    In my view the Europe vs. America debate on here is ironic and worrying… leaving the politics of bailouts aside, this Is Not a europe vs. america issue, and if framed as such even by people who read this blog then it becomes even more certain that we’ve lost.

    G

  201. My last comment was meant as a compliment, not to be disrespectful. I do admire Barack Obama a lot. Coolest President ever… he inherited so much crap from Bush and Cheney.

  202. Obama = Intelligence? OMG… are we in trouble.

    The fact is, children, no one man or group is right or wrong in the current economic situation.

    We are suffering from a deserved lack of economic confidence, which, unfortunately, in the current monetary system does not work… period.

    The world’s economy is principled on ‘the transaction,’ and “the transaction” has taken the place of all the gold or diamonds or whatever solid, investment grade material to which you would like to pin your star.

    Because confidence in the entire system of abstract money is waning, the system is imploding and is shrinking geometrically.

    What will happen?

    Well… that depends on how many of you out there, the little people like me, continue to use this economic construct to which we have sworn our allegiance for so many decades.

    Good luck all… go out and transact…

  203. @ earle,florida

    I no longer know what your point is.

    Are you talking about immigration or the European economy?

  204. I had to laugh (or gasp) when Alan Greenspan admitted he had been wrong for 40 years about the investment banks self-regulating.

    Gee, and he got paid big bucks all during those 40 years when he was dead wrong.

    And he was idolized as some sort of guru, when in fact, he was just WRONG … . WRONG …. WRONG….

  205. “the next banking crisis, about 20 yrs from now, approx.”

    I give it 10 years.

  206. @ LarryP

    I see Simon doing more than “pleading his case against the masters to a house servant [Obama]” — I see him enlightening many other people in addition to all of us.

  207. Re: @ Theodosis_____Your reading straight out of the history books,designed,and implimented to herd the innocent with biased writing’s,and commissioned authors regarding the domino effects too those unknowingly playing straight into the perpetrators web of deceit,postulating this quasi-phenomenon. Yes,the world is indeed flat – a giant circuit board,thats layered with alternate paths of resistance,but the wise guys have mapped the trail with less resistance long ago leaving the general public stuck in a static feed-loop of diffusion. Finally, we all have freedom of thought,and should look no futher than our own great individual minds too differentiate the “Plain Truth” founded on “Common Sense”,and go into survival mode. Sounds selfish,but a necessary moral-call in times of fractured-stress.

  208. Re: @ starlight____Excuse me,…didn’t you reference, “being engulfed by the WW11″ as your first relpy. Secondly,Europe’s money problems aren’t ours,however the English alays seem to bring America into the fray. Yes,I know the Brit’s don’t belong to the Eurozone,but the stench of association cast a wide net. Don’t read to much into it? PS.I certainly wasn’t talking immigration, for I myself have “Five” nationalities – that makes me a true “American Mongrel”,I guess?

  209. Re: @ rickC____Dear Rick,when you get the answer please pass it on to me. Confused in Florida???

  210. Re: @ starlight___Yes,the economy ,and politic’s are all relative. “a scent of blood in the air,soon to be on the streets”, refers only to the economy firming-up (stabilizing). The “bottom is in”, says implicitly that the financial markets have weathered the (eurozone’s financial crises) storm.:^)

  211. Well said Joan,

    The media depicts Americans in a negative light. I want the world to know that 1) the vast majority of Americans go about their lives far from the spotlight of the media. 2) We do good deeds and they are not made public. These wall street guys parading in front of these senate committee meetings are part of a high finance organization that treats the finances of main street like a casino. The vast majority of Americans are generous beyond measure, treasure family and friends and go about their lives working and paying their bills without asking for a bailout. Because guess what, the American homeowner didn’t get bailed out, he got foreclosed on. If you are the unfortunate soul who lost his job and owned a home with a mortgage, you got forclosed on why, because wall street protects bondholders, thats why.

  212. Loving the Big Island – Hallelujah! With a sweet side of Aloha~

  213. It becomes interesting to note that James Fenimore Cooper Society Website, states that James Fenimore Cooper in his book The Bravo “equated “aristocracy” with “corporations,” and looked into Europe’s past to caution against a future America ruled by “a soulless corporation.” Sensing urgency, Cooper repeatedly warned his country men of the threat of business aristocracy. Had he belonged to a later generation he would have called this peril capitalism.”

    Until Treasury Secretary Paulson declared a worldwide financial crisis and put himself as the head of its solution, I though all consspiracy theorists were crazy. The I remembered how Sen. Barry Goldwater predicted an economic conspiracy 60 years ago. Now, having lost most of my life savings, I am a die-hard conspiracy therorist. Read my blog: “Was Goldwater right in predicting an Ecomonic conspiracy?” at http://pragmaticstatistic.blogspot.com/2009/04/was-goldwater-right-in-predicting.html

  214. You assume way too much. You assume that because I have a good memory for the last ten years, somehow aligns me with some political entity or party. Your grasp of current events and history are equally dismal. I was a continuous critic of Bush’s unwillingness to veto the slush bucket Congress during his tenure. That doesn’t mean I won’t defend what he DID do right.
    April 2001: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”
    May 2002: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)
    January 2003: Freddie Mac announces it has to restate financial results for the previous three years.
    September 2003: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations. (Franklin Raines – assistor-general to B. Hussein Nobama)
    September 2003: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.
    October 2003: Fannie Mae discloses $1.2 billion accounting error. (you know – the one that got all the liberals in charge there big bonuses. all they got was a hand-slap for being a little TOO greedy…)
    February 2004: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

    The list goes on and on and is public record. So, stop whining and trying to shift blame because your dog is losing the dogfight. If Nobama wanted to bring “change” he could have. He hasn’t and won’t. He looks just like George W, except for all his criminal friends, and his love of taxes. Just wait – Congress won’t be able to find any way to keep the nation from bankruptcy without huge, new taxes – for YOU. George’s friends may turn out to be criminals too, but don’t change the subject when the fire gets close.

  215. 1. The POTUS and Congress will ignore all of it and wring their hands over the “over-reaching” legislation in Arizona about illegal aliens (without mentioning the home invasions, kidnappings, Mexican drug lord gangfights in the streets, etc).
    2. We’ll (Congress) wring our hands over stupid legislation to “control” risk in the system (yeah, right) and do the wrong thing…AGAIN.
    3. The Euro will sink, slowly, making the dollar look good, so we’ll print a lot more, making the price of gold look like it’s going up – but it’s not – it’s just acknowledging inflation of the currency.
    4. The other markets around the world will try to ignore all of it and they’ll go on a joyride of ups and downs, all accompanied by showman-like hand-wringing.
    5. Congress will “discover” the Value Added Tax and we’ll probably implement another STUPID idea created and perfected by Europe.
    6. Corporate earnings will stagnate in real dollars but inflation will continue to be a cancer consuming its host.
    7. Then, we have the next big crash. And then police states around the world try to protect their sugar daddies in power and the meltdown begins.
    Summary: approximate timeframe to roll all this out – 8 years.

  216. Actually, it will probably not weaken the dollar, but make it look good by comparison. Stick 20 type A jocks in a room with 4 women – have them all be fairly ugly, but one is passably tolerable. They’ll be all over her like jackals. Introduce one better looking woman into the room and watch them all desert the previous one and compete for the new one. It’s not about value – it’s about comparisons. The dollar will look better, believe it or not, as money leaves the sinking ships of EURO and clings to the dollar (TIPS) for “safety.” LOL! Safety…

  217. Shakespeare got there first:

    “O what a tangled web we weave
    when first we practice to deceive.”

    Measure for Measure

  218. I actually like that “Double L”, instead of “double U”

    Course it was not just “double L” – all his cronies and friends in the corptocracy, not to mention quite a few Dems who went along with it all…

  219. and well said Jerry, I know it may only make up 2% of global GDP and has a small voice in terms of global politics / banking, however, Mr Obama may like to take a closer look at Australia’s [banking] regulatory framework when he visits them 2H’10. Now there was a ‘soft landing’ to write home about 2007-09.

  220. Re: @ JohnnyBoy___Yea! America’s got spirit awashed in soul,and nobody beats that combo! So we play the blues for a year or two, well definitly come out “Standing Taller”!

  221. I do not think the President or the government needs a wakeup call. The people need one. The herd is politically unconscious.

  222. Too little too late :-(

  223. I agree that China’s commercial real estate market will blow-up in the near future. The James Chanos video makes a compelling argument. God help them.

    http://www.charlierose.com/view/interview/10960

    “James Chanos, President, Kynikos Associates. He is the man who predicted the Enron downfall and now predicting a housing bubble in China”

  224. “I know it’s crooked, but it’s the only game in town.”

  225. robert barnes

    Wealthy countries have high taxes.

    The Bush-Cheney tax cuts have to be paid. There is no way around it. Two wars, the doughnut hole drug plan and the tax cuts must be payed for. There is no such thing as a free lunch. Truth among lies.

    Poor america! Look around at the decay in the cities. It has been there for decades. It’s only getting worse and then look at the hidden poverty in the countryside. Towns with no employment. People who can not afford the so called american dream.

    Proud poverty. Just getting by. Pension systems that go broke and leave nothing to retire on. 401-k plans that will never produce enough income to live on. Poverty in the making.

    When a free clinic happens on a weekend in any part of the country the doctors and nurses are overloaded with normal americans who have not seen a doctor for years. Too poor to see a doctor or dentist.

    Wealthy countries have high taxes. They rarely have any thing as I have described above. Europe does not have these problems because they have social systems that prevent things these problems from becomming as bad as poor america! They pay taxes. The system workes. No excuses. No grover nordquist types or teaparty extremists.
    Fair taxes paying for a working social system and no poverty!

    Wealthy countries have high taxes. I lived in one for almost 30 years I know the difference first hand there and in poor america.

  226. robert barnes

    Wealthy countries have high taxes.

    They also have a much lower crime rate and very few of the murders as we have in poor america.

    Is that a social system difference or a mentality difference? Who knows, maybe both.

  227. Wealthy countries have high taxes.

    Europe will have less problem cutting back to pay off debt. Much less problem than poor america.
    People in europe have learned to live with less are wealthier and will adjust much better than poor america.
    European social systems are up and running where as poor america has little to fall back on. Social systems are weak and taxes too low with too many holes for americans to fall into when things get bad.

    And then there is the crime rate that is much higher than in europe. Crime, all those guns, lack of social systems and no jobs. That looks like a lot of problems and poverty for years to come in poor america.

  228. Wealthy countries pay high taxes.

    American rating agencies have nothing more to say in europe. They are regarded as worthless and incompetent after their performance with the wall street mafia.

    Europe will have its own rating agencies that are regulated and competent. S&P and the like have lost any respect they may have had and will not be given an other chance to make any more problems.
    Poor incompetent america.

  229. Right on !

    30 million canadians must be doing something right along side their functioning national healthcare system.

    Any real problems like wall street in Canada?

    I think not and wonder why. How about proper real regulation! Poor america falls all over its self trying to right the ship and Canada sails on with its banking system in tact, running and competent.

    Rich countries pay high taxes – that’s a fact!

    Poor america.

  230. Jaffo Terr

    People in America have a choice.

    They can choose to be rich.

    They can choose to start a hedge fund and create dynastic wealth.

    Not like in the slave states of Europe.

    If someone feels too poor to go on, they can throw themselves off of a tax-funded bridge.

    It’s their choice.