BLS Non-Farm Payroll Survey: smoke, mirrors, bias and outright falsehoods

Ilargi at The Automatic Earth
Drowning by the numbers
No doubt there are people who see this week's BLS Non-Farm Payroll survey as "not good, but not all that bad either". They can point for instance to the fact that the 85,000 jobs lost according to the report is much better than the 800,000 jobs lost back in March 2009.

The Wall Street Journal puts it like this: ”Even though the payroll number was worse than expected, the data reflects an improvement in the jobs market.”.

But unfortunately, this is all smoke, mirrors, bias and outright falsehood. The Household part of the monthly BLS survey mentions 465,000 lost jobs. 647,000 full time jobs left the building. But that's not even remotely where the true problem lies.

The reason why unemployment, as per the Household survey, stayed at 10% and "only" 85,000 jobs are reported MIA in the Payroll survey can be found in the labor force numbers. From November to December 2009, the "persons not in the labor force" category went up by 843,000 (over 1 million when not seasonally adjusted), and now stands at 83,865,000. The vast majority of those singing off, i.e. not actively looking for work, are people who can't see any jobs anywhere in their environment. The worse the economy gets, the fewer people are counted as unemployed. It’s a lovely invention, but it's also am awfully perverted one.

That is also true for seasonal adjustments in other categories. It’s estimated that that actual initial claims numbers may be double what's reported, simply because the models used are too rigid to take into account present economic conditions. A similar idea is true for continuing claims. Michael Widner at Stifel, Nicolaus says:

”We could conceivably have nearly 11 million people collecting unemployment and see the data reported as a 3.something million figure."

U6 unemployment is up. Average and median unemployment duration is up on all counts. The amount of people without a job for more than half a year is soaring, and these people now form 40% (6.1 million) of the total unemployed. The employment to population ratio fell to 58.2%, the lowest in at least 27 years. The national payroll level went from 130.8 million in 2000 to 130.9 million today. 100,000 jobs added for the 13 million people who were added to the "available" labor pool. In other words, 13 million unemployed were added.

Extended benefits and Emergency Unemployment Compensation, the two programs set up for the long-time jobless, are bursting through their seams. A slight decrease in initial and continuing jobless claims may seem to indicate something positive, but the reality is that people don't leave these programs because they find jobs, but because they've exhausted their benefits and are forced into extended and emergency programs. There are strong suggestions that the latter grew by some 43% in just the past month.

And though we've seen no mention of it this week, we haven't forgotten that the BLS "owes" us the 824,000 jobs they "forgot" to count till March 2009.

No matter where you stand, no matter what you see the economy doing in 2010, it should be clear to everyone who can read by now that reporting on unemployment in the US is a god-forsaken mess, strongly biased towards what pleases Washington, i.e. numbers much lower than the real ones. That said, while many citizens may still be fooled by the official data, you can bet that Washington knows perfectly well what the real numbers are, and many hours of backroom meetings are dedicated to the topic. How much of that reflects genuine care for constituencies, and how much mere worry about election numbers, we’ll leave up to you to ponder.

The same mentality that leads to the severely distorted jobs numbers speaks loudly from the AIG files, that increasingly question Tim Geithner role in the $100+ billion handed to Goldman Sachs et al as 100% compensation for lost credit default swaps wagers. And that, predictably, leads to calls for the resignation of Geithner.

But we've seen similar calls for Ben Bernanke and Larry Summers to resign. And they're still there. Moreover, what difference would it make to remove one of them and leave the others be where they are? If you don't clean up for real, why bother? It becomes just another silly game that way, doesn't it?

Reminds me of a man named Travis Bickle, who said some 35 years ago:

"All the animals come out at night - whores, skunk pussies, buggers, queens, fairies, dopers, junkies, sick, venal. Someday a real rain will come and wash all this scum off the streets."

Jim Sinclair: "This Is It!"

Jim Sinclair
This is not a dress rehearsal.

This is the real thing, and has been since you received the email titled "This Is It!"

Take a look at the following list of news topics:

-Tishman Real Estate to miss payment on a commercial loan of over $5 billion on a massive New York apartment complex, the 2nd largest default in commercial real estate loans in history.
-California declares an economic emergency.
-Employment figures stink.
-Apartment vacancies hit record highs.
-Foreclosures are setting new records.
-Consumer credit in the US drops a record $17.5 billion.

All of this is what we have gotten from OTC derivatives and a financial industry bailout of unprecedented proportion.

QE MUST go to Infinity. Talk about the Fed draining is an insult even to Mr. Fred’s intelligence.

The US dollar is toast. Gold is headed to $1650 – $1764 now.

Remember, at $1764 1,000,000 mineable ounces of gold in production will have a gross worth $1,764,000,000.

That is real money. That is honest money.

Girls aged 12 and 14 hold up bank in Ohio

The U.S. unemployment rate among those 16 to 19 years is almost thirty percent.

Telegraph
The young girls walked into a branch of 1st National Bank in Cincinnati, Ohio and handed a note to the cashier demanding money. According to police the note implied the girls would harm employees if the money was not given to them. They did not appear to have any weapons.

Staff complied and the girls walked out with a bag full of money. They then evaded an extensive police search which included a helicopter and sniffer dogs. One of the girls was described as heavy set, around 5 feet 4 inches tall, and was wearing a hooded top and blue jeans.

The other was said to be second thin, around 5 feet tall and wearing a baseball cap. Local police released a grainy black-and-white surveillance photograph of one of the alleged bank robbers.

The robbery took place at 3.20pm on Tuesday and the girls were seen leaving on foot and heading for a nearby housing estate.

Consumer Credit in U.S. Drops Record $17.5 Billion

Vincent Del Giudice
Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.

Treasury two-year notes gained the most in three weeks after the Labor Department said today that companies reduced payrolls in December by 85,000 workers after adding 4,000 a month earlier. The unemployment rate held at 10 percent.

Stocks, Yields

Two-year Treasury yields dropped below 1 percent, to 0.97 percent at 4:52 p.m. in New York, from 1.02 percent late yesterday.

Revolving debt, such as credit cards, plunged by a record $13.7 billion in November, the Fed’s statistics showed. Non- revolving debt, including loans for autos and mobile homes, declined by $3.8 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

Auto sales in the U.S. climbed in November to a seasonally adjusted annual rate of 10.92 million, up from 10.45 million in October. The pace increased to 11.23 million in December, the strongest since 14.09 million in August, when Americans took advantage of government incentives.

Consumer Spending

Consumer spending increased in November for the sixth time in seven months as Americans took advantage of discounts during the holidays, Commerce Department figures showed Dec. 23. Faster growth in sales and improvement in households’ balance sheets depends on job creation.

“U.S. consumer credit quality remains under considerable stress due to persistently weak labor market conditions,” said Michael Dean, managing director at Fitch Ratings. A report from Fitch on Jan. 5 showed delinquent balances on credit cards at a record level.

At American Express Co., defaults and delinquencies fell to 2009 lows. AmEx was the only one of the “Big 6” credit-card issuers to post November declines in write-offs and delinquencies, the New York-based lender said in a Dec. 15 regulatory filing.

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the largest U.S. lender needs to reduce the loss rate on credit cards, which ranked highest among the nation’s six biggest card companies in November. Bank of America’s card defaults are “still very high,” Moynihan, 50, said.

‘Significant Bubble’

“As an industry, we over-lent and customers over-borrowed, and that led to a fairly significant bubble,” Moynihan said Jan. 4 in an interview on Bloomberg Television in Raleigh, North Carolina. “We have to help lead the economic recovery. At the same time, we have to be responsible lenders.”

Banks have responded by tightening credit standards, for consumers and companies. Fed Governor Elizabeth Duke said in a Jan. 4 speech that total loans on banks’ books fell at an annual rate of more than 11 percent in the third quarter. While banks are reducing lines of credit and tightening lending standards, small businesses are also losing their business relationships with banks as firms fail, merge or reduce their loan portfolios, Duke said.

Broken Relationships

“When existing lending relationships are broken, time may be required for other banks to establish and build such relationships, allowing lending to resume,” Duke said.

Britt Beemer, chairman of consumer polling firm America’s Research Group, said in a Dec. 21 interview that if lenders weren’t cutting customer spending limits and rejecting more credit-card applications, holiday sales would have been stronger.

December same-store sales climbed 3 percent, the biggest gain since April 2008, Retail Metrics Inc. said yesterday in an e-mailed statement.

401k Confiscation Dead Ahead

Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says
Jeff Plungis
U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said.

Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute, which represents the mutual-fund industry, said in the report.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today.

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

Senator Herb Kohl, chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds.

Representative George Miller, a California Democrat, is advocating legislation to require more disclosure about 401(k) fees paid by investors. The Education and Labor Committee, which Miller leads, approved a bill requiring more disclosure about fees in June.

The ICI survey was based on a telephone survey of 3,000 households from Nov. 20 to Dec. 20 and had a sampling error of plus or minus 1.8 percent.

U.S. metropolitan areas with jobless rates above 15% increased in November

Cable News Network
The number of U.S. metropolitan areas with jobless rates above 15% increased in November, according to government figures released Tuesday, despite the biggest one-month drop in the national rate in more than three years.

The Labor Department said 17 of 372 metropolitan areas surveyed suffered unemployment rates of at least 15% last month, up from 15 metro areas in October.

National unemployment improved to a seasonally adjusted 10% in November from the 26-year high of 10.2% hit in October. The rate had climbed for 12 out of the previous 13 months before November. Economists surveyed by Briefing.com expect the national rate to edge up to 10.1% when the Labor Department releases its December jobs report Friday.

Three areas in Michigan posted jobless rates higher than 15%, including Detroit. The city wrecked by the collapse of the auto industry continued to lead the nation's areas of 1 million people or more with the highest unemployment rate in November at 15.4%.

California's Inland Empire, including Riverside, San Bernardino and Ontario, ranked second to Detroit among larger areas with an unemployment rate of 14.2% in November.

El Centro, Calif., held its place as the metropolitan area with the highest unemployment rate at 29.2%, down from an upwardly revised 31.9% in October.

The second highest rate was in Yuma, Ariz., at 21.1%, a drop from 23.3% in October.

Jobless rates were higher than 10% in 125 metropolitan areas in November, up from 123 in October.

Overall, 143 cities in the Labor Department report had unemployment rates above the non-seasonally adjusted national figure of 9.4%, while 229 reported jobless rates below it.

The three metro areas with the lowest unemployment rates in November were all in North Dakota, with Bismarck at 3.4%, followed by Fargo and Grand Forks at 3.7%.

Large cities with the lowest jobless rates were New Orleans and the Washington, D.C. metro areas, each at 6.1%. Oklahoma City followed close behind with an unemployment rate of 6.4%.

U.S. employers slash 85,000 jobs in December

Reuters
U.S. employers unexpectedly cut 85,000 jobs in December, government data showed on Friday, cooling optimism on the labor market's recovery and keeping pressure on President Barack Obama.

KEY POINTS: * The Labor Department said November payrolls were revised to show the economy actually added 4,000 jobs in that month rather than losing 11,000 as initially reported. With revisions to October, however, the economy lost 1,000 more jobs than previously estimated over the two months. * The unemployment rate was unchanged at 10 percent in December.* Analysts polled by Reuters had expected nonfarm payrolls to be unchanged last month and the unemployment rate to edge up to 10.1 percent. * High unemployment is one of the toughest domestic challenges facing Obama. The administration's success in getting people back to work will shape prospects for Obama's own political future.

More than 1 in 6 Tennesseans on food stamps

wkrn.com
More and more Tennesseans are turning to food stamps to make ends meet. Nearly 1,186,000 Tennesseans, or more than one in six residents, currently receive some kind of food stamp assistance and the number continues to climb.

At the start of each month, the lines are always long at the Department of Human Services' family assistance office just north of downtown. News 2 caught up with Kathy Bruce while she waited in line on Monday.

Her husband suffered a massive heart attack two weeks ago and will be out of work for the next two months. "We can't live on my paycheck alone so I thought we could at least get help with food," she told News 2. "When you are down and out, you are willing to go to any lengths to get what you need."

For Amanda Higgins and her 16-month-old son, food stamps are their sole means of support.

"[Food stamps are] extremely important," she told News 2. "My son has got to have milk, my son has to have rice, snacks, all the things to eat, and so do I, you can see I am a pretty thin person."

The staggering 1,186,000 Tennesseans on food stamps today is some 300,000 more than just two years ago. Between mid-2007 and mid-2009, the number of people receiving assistance grew 66%.

Residents can apply for food stamps at the facility located at 1000 2nd Avenue North or on the Department of Human Services' Web site.

100 Items to Disappear First

We're getting close to collapse...
thepowerhour.com
100 Items to Disappear First
1. Generators (Good ones cost dearly. Gas storage, risky. Noisy...target of thieves; maintenance etc.)
2. Water Filters/Purifiers
3. Portable Toilets
4. Seasoned Firewood. Wood takes about 6 - 12 months to become dried, for home uses.
5. Lamp Oil, Wicks, Lamps (First Choice: Buy CLEAR oil. If scarce, stockpile ANY!)
6. Coleman Fuel. Impossible to stockpile too much.
7. Guns, Ammunition, Pepper Spray, Knives, Clubs, Bats & Slingshots.
8. Hand-can openers, & hand egg beaters, whisks.
9. Honey/Syrups/white, brown sugar
10. Rice - Beans - Wheat
11. Vegetable Oil (for cooking) Without it food burns/must be boiled etc.,)
12. Charcoal, Lighter Fluid (Will become scarce suddenly)
13. Water Containers (Urgent Item to obtain.) Any size. Small: HARD CLEAR PLASTIC ONLY - note - food grade if for drinking.
14. Mini Heater head (Propane) (Without this item, propane won't heat a room.)
15. Grain Grinder (Non-electric)
16. Propane Cylinders (Urgent: Definite shortages will occur.
17. Survival Guide Book.
18. Mantles: Aladdin, Coleman, etc. (Without this item, longer-term lighting is difficult.)
19. Baby Supplies: Diapers/formula. ointments/aspirin, etc.
20. Washboards, Mop Bucket w/wringer (for Laundry)
21. Cookstoves (Propane, Coleman & Kerosene)
22. Vitamins
23. Propane Cylinder Handle-Holder (Urgent: Small canister use is dangerous without this item)
24. Feminine Hygiene/Haircare/Skin products.
25. Thermal underwear (Tops & Bottoms)
26. Bow saws, axes and hatchets, Wedges (also, honing oil)
27. Aluminum Foil Reg. & Heavy Duty (Great Cooking and Barter Item)
28. Gasoline Containers (Plastic & Metal)
29. Garbage Bags (Impossible To Have Too Many).
30. Toilet Paper, Kleenex, Paper Towels
31. Milk - Powdered & Condensed (Shake Liquid every 3 to 4 months)
32. Garden Seeds (Non-Hybrid) (A MUST)
33. Clothes pins/line/hangers (A MUST)
34. Coleman's Pump Repair Kit
35. Tuna Fish (in oil)
36. Fire Extinguishers (or..large box of Baking Soda in every room)
37. First aid kits
38. Batteries (all sizes...buy furthest-out for Expiration Dates)
39. Garlic, spices & vinegar, baking supplies
40. Big Dogs (and plenty of dog food)
41. Flour, yeast & salt
42. Matches. {"Strike Anywhere" preferred.) Boxed, wooden matches will go first
43. Writing paper/pads/pencils, solar calculators
44. Insulated ice chests (good for keeping items from freezing in Wintertime.)
45. Workboots, belts, Levis & durable shirts
46. Flashlights/LIGHTSTICKS & torches, "No. 76 Dietz" Lanterns
47. Journals, Diaries & Scrapbooks (jot down ideas, feelings, experience; Historic Times)
48. Garbage cans Plastic (great for storage, water, transporting - if with wheels)
49. Men's Hygiene: Shampoo, Toothbrush/paste, Mouthwash/floss, nail clippers, etc
50. Cast iron cookware (sturdy, efficient)
51. Fishing supplies/tools
52. Mosquito coils/repellent, sprays/creams
53. Duct Tape
54. Tarps/stakes/twine/nails/rope/spikes
55. Candles
56. Laundry Detergent (liquid)
57. Backpacks, Duffel Bags
58. Garden tools & supplies
59. Scissors, fabrics & sewing supplies
60. Canned Fruits, Veggies, Soups, stews, etc.
61. Bleach (plain, NOT scented: 4 to 6% sodium hypochlorite)
62. Canning supplies, (Jars/lids/wax)
63. Knives & Sharpening tools: files, stones, steel
64. Bicycles...Tires/tubes/pumps/chains, etc
65. Sleeping Bags & blankets/pillows/mats
66. Carbon Monoxide Alarm (battery powered)
67. Board Games, Cards, Dice
68. d-con Rat poison, MOUSE PRUFE II, Roach Killer
69. Mousetraps, Ant traps & cockroach magnets
70. Paper plates/cups/utensils (stock up, folks)
71. Baby wipes, oils, waterless & Antibacterial soap (saves a lot of water)
72. Rain gear, rubberized boots, etc.
73. Shaving supplies (razors & creams, talc, after shave)
74. Hand pumps & siphons (for water and for fuels)
75. Soysauce, vinegar, bullions/gravy/soupbase
76. Reading glasses
77. Chocolate/Cocoa/Tang/Punch (water enhancers)
78. "Survival-in-a-Can"
79. Woolen clothing, scarves/ear-muffs/mittens
80. Boy Scout Handbook, / also Leaders Catalog
81. Roll-on Window Insulation Kit (MANCO)
82. Graham crackers, saltines, pretzels, Trail mix/Jerky
83. Popcorn, Peanut Butter, Nuts
84. Socks, Underwear, T-shirts, etc. (extras)
85. Lumber (all types)
86. Wagons & carts (for transport to and from)
87. Cots & Inflatable mattress's
88. Gloves: Work/warming/gardening, etc.
89. Lantern Hangers
90. Screen Patches, glue, nails, screws,, nuts & bolts
91. Teas
92. Coffee
93. Cigarettes
94. Wine/Liquors (for bribes, medicinal, etc,)
95. Paraffin wax
96. Glue, nails, nuts, bolts, screws, etc.
97. Chewing gum/candies
98. Atomizers (for cooling/bathing)
99. Hats & cotton neckerchiefs
100. Goats/chickens

From a Sarajevo War Survivor:
Experiencing horrible things that can happen in a war - death of parents and friends, hunger and malnutrition, endless freezing cold, fear, sniper attacks.

1. Stockpiling helps. but you never no how long trouble will last, so locate near renewable food sources.

2. Living near a well with a manual pump is like being in Eden.

3. After awhile, even gold can lose its luster. But there is no luxury in war quite like toilet paper. Its surplus value is greater than gold's.

4. If you had to go without one utility, lose electricity - it's the easiest to do without (unless you're in a very nice climate with no need for heat.)

5. Canned foods are awesome, especially if their contents are tasty without heating. One of the best things to stockpile is canned gravy - it makes a lot of the dry unappetizing things you find to eat in war somewhat edible. Only needs enough heat to "warm", not to cook. It's cheap too, especially if you buy it in bulk.

6. Bring some books - escapist ones like romance or mysteries become more valuable as the war continues. Sure, it's great to have a lot of survival guides, but you'll figure most of that out on your own anyway - trust me, you'll have a lot of time on your hands.

7. The feeling that you're human can fade pretty fast. I can't tell you how many people I knew who would have traded a much needed meal for just a little bit of toothpaste, rouge, soap or cologne. Not much point in fighting if you have to lose your humanity. These things are morale-builders like nothing else.

8. Slow burning candles and matches, matches, matches.

GM sales down 30 percent for the year

Image via Wikipedia

pacific.bizjournals.com
Toyota sales in December rose to 187,860 from 141,949 a year earlier. For all of 2009, sales fell to 1.8 million from 2.2 million in 2008. Lexus sales were down 17 percent for the year.

Honda sold 1.15 million vehicles in 2009, down from 1.42 in 2008.

For Detroit, the numbers were worse. General Motors sales were down 30 percent for the year. Ford was off 15 percent. Chrysler sales plunged 36 percent and the company sold fewer than 1 million vehicles for the first time since 1962.

Subaru, Kia and Hyundai were the only automakers to report sales gains in 2009. Each set new sales records.

Over the Christmas holiday a nasty thing happened

Matt Taibbi
Fannie, Freddie, and the New Red and Blue

It has become conventional wisdom, perhaps even cliche, to pin the origins of the credit crisis on the big banks or, AIG or even the practice of financial modeling. Certainly, these actors have received the most play in the media, and have now endured the focus of populist ire for more than a year. We now think that the analysis leading commentators to focus blame on these entities is fatally flawed.

via Origins of an American Kleptocracy | zero hedge.

Over the Christmas holiday a nasty thing happened: Tim Geithner’s Treasury Department decided to lift the cap on aid to the Government-Sponsored Entities, Fannie Mae and Freddie Mac, apparently in response to Obama administration fears that the two agencies would become insolvent. The cap was raised from $200 billion on each and government backstopping of the mortgage market will apparently now extend into infinity for at least three years, through 2012.

The move has already inspired a mini-firestorm, with several outlets delving deeply into the recent history of the GSEs and uncovering some disturbing new facts. Chief among those were an analysis of the GSEs by a former chief credit officer of Fannie named Edward Pinto, who found that Fannie and Freddie routinely mismarked subprime or Alt-A (a sort of purgatory class of nonprime risky mortgage, resting between subprime and prime) mortgages as prime. The Wall Street Journal explains:

In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.

This is a damning fact and if true certainly supports the Journal claim that the GSE actions were a “principal cause of the financial crisis.” But having established this, the Journal then goes in this direction:

Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.

Sometimes I’m amazed at the speed with which highly provocative information like this GSE business can be converted into distracting propaganda in this country. In the right hands Pinto’s analysis of the GSEs — just like the revelations in the past few years about practices at AIG, Moody’s, Countrywide, Goldman Sachs, the Fed, and, hell, let’s add the offices of Senator Chris Dodd — would have been a starting point for a deeper investigation into a financial system that is clearly a complex and intimate symbiosis of state and private corruption.

For what we’ve learned in the last few years as one scandal after another spilled onto the front pages is that the bubble economies of the last two decades were not merely monstrous Ponzi schemes that destroyed trillions in wealth while making a small handful of people rich. They were also a profound expression of the fundamentally criminal nature of our political system, in which state power/largess and the private pursuit of (mostly short-term) profit were brilliantly fused in a kind of ongoing theft scheme that sought to instant-cannibalize all the wealth America had stored up during its postwar glory, in the process keeping politicians in office and bankers in beach homes while continually moving the increasingly inevitable disaster to the future.

That is a terrible story and it is also sort of a taboo story, since we don’t really have a system of media now that is willing or even able to digest that dark and complicated truth. Instead, our media — which has always been at best an inadvertent accomplice to these messes — is basically set up to take every revelation about the underlying truth and split it down the middle, feeding half to one side of the political spectrum and one half to the other, where the actual point is then burned up in the useless smoke of a blame game.

The essentially complicit nature of the two ruling political parties was in this way covered up for decades, as the crimes of the Democrats were greedily consumed as entertainment by the Limbaugh crowd while the crimes of the Bushies became hot-selling t-shirts and bumper stickers for the Air America listenership. The abiding mutual hatred the red/blue groups shared consistently prevented any kind of collective realization about the structure of the overall scheme.

What worries me is that we’re now reverting to the same old pattern with the financial crisis story. We’re starting to see fault lines develop, where one side blames the government while another side blames Wall Street for the messes of the last two decades. The side blaming the government tends to belong to the free-marketeer class and divines in safety-net purveyors like the GSEs and in the Fed’s money-printing fundamental corruptions of the capitalist ideal, while the side blaming the bankers tends to belong to the left-liberal tradition that focuses on greed and seeming absence of community conscience among the CEO class as primary corruptors of the social contract.

In the former view the government is to blame for punting on its oversight responsibilities and for corrupting the financial bloodstream with market-altering guarantees, while in the latter view the bankers are at fault for lobbying the politicians to make exactly the same moves. The antigovernment folks like to focus on the irresponsible (and typically low-income or minority) home-borrower and their political allies in Washington as chief villains, while the anti-banker crowd looks at the massive personal profits and outsized influence of the executive class and waves the Cui bono? stick in that direction.

Both sides are right and both sides are wrong. I know that sounds like pox-on-both-their-houses pundit sophistry. But the point is that if you focus on one side and not the other, you miss the entire point. That’s why I get freaked out when I see an important story like this GSE thing come out, and have it be immediately accompanied by arguments that “market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system,” as though the irresponsibility of the government agency precluded similar (and, I might add, intimately related) abuses on the private side.

I mean, really — market observers were unaware of the number of subprime mortgages infecting the system? Are we to understand that nobody caught on when outstanding mortgage debt grew by $3.7 trillion between 2003 and 2005, nearly equaling the entire value of all American real estate in the year 1990? They didn’t notice when subprime mortgages went from 3% of all mortgage lending in 1997 to 20% of the market in 2003? They didn’t notice when the volume of Alt-A loans and home equity loans surged through the early part of last decade?

Now I know that that’s not what Peter Wallison of the Journal is saying here; he’s saying that even if the market saw that increase in subprime loans, even those numbers were understated thanks to Fannie and Freddie’s deceptions. But the inference that the market was hoodwinked by the GSEs is absurd. It was plain to most everyone in the financial services industry that there was a bubble going on last decade, that something deeply fucked up was going on with the mortgage markets — just as it was plain to everyone in the late nineties that something was wrong with the stock markets, when companies like Theglobe.com with annual sales under $5 million could have a $5 billion stock valuation.

Everyone was involved in the mortgage scam. At the lender level the deceptions were myriad; liar’s loans, fraudulent income documentation, negative amortization loans, HELOCs, etc. The rush to get as many loans written as possible and then get those hot potatoes moved to the next sucker in the line was furious and extended from coast to coast, sinking one lender after another in Ponzoid debt and indictments.

Then there were the countless deceptions that emerged from the securitization process, the bad math that allowed banks like Goldman to do $474 million mortgage deals where the average equity in the home was just 0.71 percent, and sell 93% of that deal as investment grade paper.

Are we really to believe that the people who did those deals didn’t know what total crap they were selling? That the people who used CDO-squareds to magically turn BBB investments into AAA investments didn’t know how nuts that was?

There were the ratings agencies, who accepted all that bad math and slapped AAA ratings on crap mortgage-backed securities in exchange for the continued largess of the banks upon whom they were financially dependent — the same ratings agencies that later sputtered and coughed up bullshit my-dog-ate-my-homework excuses for mismarking mortgages, with the Moody’s revelation that a computer error caused them to misapply AAA ratings to billions’ worth of MBS being the comic low point.

Then further along in the chain you had crooks like the folks at AIG, who took advantage of the basic nonexistence of derivatives regulation to issue billions in guarantees for these mortgage investments that they had never had any intention of paying off, to say nothing of actually having the ability to do so. And of course underwriting the entire enterprise was the implicit guarantee of Alan Greenspan’s Fed, which made it known time and time again that its modus operandi was to refuse to recognize the existence of bubbles until after they blew up, at which point it would rush in and clean up the mess, bailing out all the chief actors out with easy money.

Everyone had a hand in the bubble, from the congressmen who killed regulatory initiatives to the regulators who snoozed at the wheel to the GSEs to the Fed to the banks to the ratings agencies to the lenders. I don’t think it’s really controversial to say that, but it does seem like there’s an argument brewing about what that across-the-board complicity means.

My own personal feeling is that our recent bubbles weren’t much different than pyramid scams and lotteries; they’re the handiwork of an essentially regressive and deeply cynical political organization that systematically hoovers up taxes and investment money mainly from middle-class suckers, where it eventually gets eaten in short-term cashouts and mostly blown on sports cars and tropical vacations and eye jobs for the trophy wives of Wall Street executives. Crackonomics: take literally all the spare money from four square city blocks and turn it into one tricked-out Escalade.

For me the basic dynamic of the mortgage bubble is some Ivy League dickwad hawking a billion dollars of securitized subprime mortgages to a pension fund, and then Hobie-sailing off into the sunset with a bonus after they all blow up. Of course my seeing it that way might have a lot to do with my own personal psychological prejudices, and I get that some other person with different hangups might choose to focus on Barney Frank deciding to “roll the dice on home ownership” with the GSEs.

But what I don’t see is how anybody can say that all of this happened because Fannie and Freddie rigged the game to get Mexicans in homes, and then the banks and the ratings agencies just reacted organically to the corrupted market and helped the bubble along through no fault of their own. That’s just another (albeit more convincing) version of the early attempt to pin the disaster on the Community Reinvestment Act, which in turn is just another way of playing the red-blue blame game, which in turn is missing the point.

This GSE story is a big one, but if it gets used as a path back to a “The Market Reacted Rationally” version of history, we’re screwed. It has to be looked at as an important part of a diabolical whole, a symbiotic scheme in which the banks and the state were irreversibly intertwined in an enterprise that on both sides was never about market economics, but crime. Because otherwise… the diversionary notion that one side or the other is wholly to blame is part of what makes the whole scam possible.

p.s. Just to get this out of the way, I love Zero Hedge, and Marla Singer has been really nice to me personally. I just don’t completely agree with this particular thing. I don’t see any reason why focusing blame on the banks and the ratings agencies and AIG was “fundamentally flawed,” because, well, shit, they were to blame. The fact that Fannie and Freddie now get to jump in the pigpen with them doesn’t change that for me.

I think in the end what we’re going to find is that all the relevant actors had their own motivations for getting involved in the bubble. Two and now three presidential administrations let the Fed overheat the economy for political reasons that should be obvious. Alan Greenspan, hell, he did it because he loves seeing himself on magazine covers and wanted to keep getting invited to the right Manhattan parties. There were congressmen that converted the expansion of cheap credit into low-income votes. The bankers and lenders went along because the system of compensation on Wall Street is fucked and rewards short-term thinking while ignoring long-term consequences.

To me all of these people were equally guilty of making bad decisions to benefit themselves in the here and now at the expense of the whole in the future. When it comes to bubbles, It Takes a Village, and blaming the whole mess on the “socialist” aims of a pair of government agencies seems off base — particularly since the Randian protocapitalists running the banks benefited every bit as much from this socialism as actual homeowners, and perhaps even more, when one considers that homeowners get foreclosed upon, while bonuses are forever.

Gerald Celente on Fox Business: 2010 Market Trends

Famed trends researcher Gerald Celente gives his take on what to expect for 2010.

China's 2010 Gold Rush

Adrian Ash, Editor, Bullion Vault

Owning gold is more often an end-in-itself than as an investment vehicle...the aim of accumulation, not the means...

THE COLLAPSE in India's gold demand during 2007-09 might seem good reason to question the fundamental strength of gold buying worldwide.

After all, if the world's No.1 gold buyers can't keep up with record-high gold prices, who can...?

But the plain fact, as BullionVault first forecast in spring 2009, is that China has overtaken India as the number one private gold buyer this year. The typical Chinese New Year gold rush has already begun (thanks in part to 3% discounts at major retailers), and robust demand looks likely to continue through 2010 if not beyond.

Full-year 2009 private demand in mainland China could outstrip India, the former No.1 buyer, by one quarter if not one third. Short of a (very unlikely) collapse in Q4 demand, full-year private gold buying – including jewelry and retail investment – is set to have grown 10% from 2008's record in volume terms, rising 26% by value to equal $13.5 billion or more.

On recent trends, that would equate to more than 2.0% of China's famously massive household savings (up from 1.0% ten years ago) and account for almost one ounce in every eight sold worldwide.




Basis the GFMS consultancy's data (published by the World Gold Council), physical gold purchases by mainland Chinese households in 2009 was already running 19% ahead of India's private demand for Q1-Q3.

Given China's continued economic growth (certain to hit Beijing's 8% target according to the Chinese Academy of Social Sciences) – let alone the surge in money-supply and credit growth over and above GDP (put at 23 and 27 percentage points respectively by Deutsche Bank) – private gold consumption in Q4 most likely remained very robust. Whereas India's private gold off-take during Oct-Dec. continued to shrink in the face of record-high prices. Indian bank and wholesale dealers have reported below-market bids from their clients throughout the autumn. Comments from the Bombay Bullion Association put Q4 imports 54% lower from 2008's already disastrous finish.

Fourth-quarter Chinese consumption should be in the range of 116 tonnes (if it adds 37% to Q1-Q3 volume, as per the 5-year average) to 128 tonnes or more (if Q4 tops Q3 by volume, as it has each year since 2004). Running total to end-Sept. was 315 tonnes. Likely to finish full-year at 431-443 tonnes.

India's private demand, in contrast, ran 45% below 2008 levels during the first 9 months of the year, most notably depressed during Q1 (down 83% from Q1 08, with Indian investors becoming physical dis-hoarders on GFMS's data; overall, India was a net exporter of gold for the first time since the Depression according to market historian Timothy Green). Applying the 5-year average ratio of Q4 demand to Q1-Q3 figures (27% added to 264 tonnes), full-year private off-take would come in at 336 tonnes, the lowest total since at least 1991 on GFMS's data.

India's full-year imports (it has virtually no domestic mining output) are forecast at 370-380 tonnes says the Bombay Bullion Association. They have not been below 400 tonnes per year since at least 1997 according to the Indian Bullion Market Association.

It is impossible to predict the outlook for gold-buying in mainland China next year, but this decade's drivers for Western gold investment – credit excess and miserable returns to cash – also apply in China, with bells on.

The People's Bank cut its benchmark rate from 7.5% to 5.3% in Dec. 2008, and has left it there since. Inflation in the cost of living was officially reported at minus 1.1% across the first 3 quarters, but real rates were negative in H2 2004 and again in at the turn of 2007-8. Some analysts are forecasting 4.0% inflation for 2010, and either way, commercial rates have been so attractive this year that new credit growth was CNY295 billion in Nov., equal to $43 billion. That was down from 2009's monthly average of $130bn, but took full-year credit growth to the equivalent of $1.35 trillion, equal to 27% of GDP.

Pitched against this rampant credit excess, gold's quasi-religious and auspicious appeal in Chinese culture – as a solid, tangible, intrinsically valuable store of wealth – will only have grown. Most significantly, and in sharp contrast to Indian demand, private Chinese buying has grown as the price has risen (gold has than tripled against the Yuan since retail price controls were lifted in 2001).

That might suggest gold is just another bull-market asset for China's increasingly wealthy and capital-rich middle classes. But owning the metal is most often viewed more as an end-in-itself than as an investment vehicle; it's the aim of accumulation, not the means.

Given this last decade's average 15% annual gains for US-Dollar investors – plus the outlook for sub-zero real interest rates, struggling equity dividends, and the danger of sharply higher bond yields (i.e. falling bond prices) as the Treasury attempts to finance a new record deficit – might the Chinese approach to gold investment start to take hold in the West...?

Bank Runs May Now Become Illegal

In addition to the current administration proposal to authorize "Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes", note the more chilling reaction to Huffington's Move Your Money campaign:

New regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to...[change] the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets."

The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen.

Bank runs have become illegal.

"This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law."

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