Police machine gun, New York CIty
Ilargi: Well, it doesn't take much, nor long, to get from the biggest corporate -industrial- bankruptcy right back to suspicious slash illegal slash criminal behavior, does it? As a matter of fact, says Greg Palast, that behavior starts right at that bankruptcy, with the Obama administration demanding workers hand over their pensions funds in exchange for -worthless- GM stock. It's against the law. It's called the Employee Retirement Income Security Act.
So is -or should be, who knows anymore?- what the NY Post says AIG is doing: "AIG is trying to seize a $490 million charitable endowment -- and claw back $27 million it already awarded to New York charities -- to pay executive bonuses". $180 billion hasn't toned those bozo's down one single decibel.
Christopher Cox actively hindered his staff at the SEC from doing their work, something he actively denied for a long time. Let's see the criminal charges. Yeah, sure.
A commission will investigate what caused the crisis. Obama plans to get tough on Wall Street, which pledges to push right back. Guess who'll win that one? Come on guys, it's just a show, and all it takes is for you to believe it long enough for everything you have to be stolen from under your lazy asses.
Celente is right: this is Mussolini's fascism, a country ruled by its corporate interests. And those are not the same as your interests. And in case you don't think it'll happen to you, make no mistake: a government that even so much as tries to get away with stealing its citizens' pensions is capable of just about anything.
"The rule of law" is a term that exists to keep a check on those who govern. Wiki: "The rule of law, also called supremacy of law, is a general legal maxim according to which decisions should be made by applying known principles or laws, without the intervention of discretion in their application. This maxim is intended to be a safeguard against arbitrary governance."
It's safe to say that the rule of law means little these days.
Grand Theft Auto: How Stevie the Rat bankrupted GM
by Greg Palast
Screw the autoworkers. They may be crying about General Motors' bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won't spoil Jamie Dimon's day. Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders - led by Morgan and Citibank - expect to get back 100% of their loans to GM, a stunning $6 billion. The way these banks are getting their $6 billion bonanza is stone cold illegal.
I smell a rat. Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar' - the man who essentially ordered GM into bankruptcy this morning. When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name. But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi.
Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replace by GM stock. The percentage may be 17% of GM's stock - or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock. Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash - from a company that can't pay for auto parts or worker eye exams.
So what's wrong with seizing workers' pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it's illegal. In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can't seize workers' pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that's because they are the same thing: workers give up wages in return for retirement benefits.
The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as "fiduciaries." Here's the law, Professor Obama, as described on the government's own web site under the heading, "Health Plans and Benefits." "The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits." Every business in America that runs short of cash would love to dip into retirement kitties, but it's not their money any more than a banker can seize your account when the bank's a little short. A plan's assets are for the plan's members only, not for Mr. Dimon nor Mr. Rubin.
Yet, in effect, the Obama Administration is demanding that money for an elderly auto worker's spleen should be siphoned off to feed the TARP babies. Workers go without lung transplants so Dimon and Rubin can pimp out their ride. This is another "Guantanamo" moment for the Obama Administration - channeling Nixon to endorse the preventive detention of retiree health insurance. Filching GM's pension assets doesn't become legal because the cash due the fund is replaced with GM stock. Congress saw through that switch-a-roo by requiring that companies, as fiduciaries, must "...act prudently and must diversify the plan's investments in order to minimize the risk of large losses."
By "diversify" for safety, the law does not mean put 100% of worker funds into a single busted company's stock. This is dangerous business: The Rattner plan opens the floodgate to every politically-connected or down-on-their-luck company seeking to drain health care retirement funds. Pensions are wiped away and two connected banks don't even get a haircut? How come Citi and Morgan aren't asked, like workers and other creditors, to take stock in GM?
As Butch said to Sundance, who ARE these guys? You remember Morgan and Citi. These are the corporate Welfare Queens who've already sucked up over a third of a trillion dollars in aid from the US Treasury and Federal Reserve. Not coincidentally, Citi, the big winner, has paid over $100 million to Robert Rubin, the former US Treasury Secretary. Rubin was Obama's point-man in winning banks' endorsement and campaign donations (by far, his largest source of his corporate funding).
With GM's last dying dimes about to fall into one pocket, and the Obama Treasury in his other pocket, Morgan's Jamie Dimon is correct in saying that the last twelve months will prove to be the bank's "finest year ever." Which leaves us to ask the question: is the forced bankruptcy of GM, the elimination of tens of thousands of jobs, just a collection action for favored financiers?
And it's been a good year for Señor Rattner. While the Obama Administration made a big deal out of Rattner's youth spent working for the Steelworkers Union, they tried to sweep under the chassis that Rattner was one of the privileged, select group of investors in Cerberus Capital, the owners of Chrysler. "Owning" is a loose term. Cerberus "owned" Chrysler the way a cannibal "hosts" you for dinner. Cerberus paid nothing for Chrysler - indeed, they were paid billions by Germany's Daimler Corporation to haul it away. Cerberus kept the cash, then dumped Chrysler's bankrupt corpse on the US taxpayer. ("Cerberus," by the way, named itself after the Roman's mythical three-headed dog guarding the gates Hell. Subtle these guys are not.)
While Stevie the Rat sold his interest in the Dog from Hell when he became Car Czar, he never relinquished his post at the shop of vultures called Quadrangle Hedge Fund. Rattner's personal net worth stands at roughly half a billion dollars. This is Obama's working class hero. If you ran a business and played fast and loose with your workers' funds, you could land in prison. Stevie the Rat's plan is nothing less than Grand Theft Auto Pension. It doesn't make it any less of a crime if the President drives the getaway car.
by Michael Moore
I write this on the morning of the end of the once-mighty General Motors. By high noon, the President of the United States will have made it official: General Motors, as we know it, has been totaled. As I sit here in GM's birthplace, Flint, Michigan, I am surrounded by friends and family who are filled with anxiety about what will happen to them and to the town. Forty percent of the homes and businesses in the city have been abandoned. Imagine what it would be like if you lived in a city where almost every other house is empty. What would be your state of mind?
It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh -- and that wouldn't start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation.
Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes.
So here we are at the deathbed of General Motors. The company's body not yet cold, and I find myself filled with -- dare I say it -- joy. It is not the joy of revenge against a corporation that ruined my hometown and brought misery, divorce, alcoholism, homelessness, physical and mental debilitation, and drug addiction to the people I grew up with. Nor do I, obviously, claim any joy in knowing that 21,000 more GM workers will be told that they, too, are without a job.
But you and I and the rest of America now own a car company! I know, I know -- who on earth wants to run a car company? Who among us wants $50 billion of our tax dollars thrown down the rat hole of still trying to save GM? Let's be clear about this: The only way to save GM is to kill GM. Saving our precious industrial infrastructure, though, is another matter and must be a top priority. If we allow the shutting down and tearing down of our auto plants, we will sorely wish we still had them when we realize that those factories could have built the alternative energy systems we now desperately need. And when we realize that the best way to transport ourselves is on light rail and bullet trains and cleaner buses, how will we do this if we've allowed our industrial capacity and its skilled workforce to disappear?
Thus, as GM is "reorganized" by the federal government and the bankruptcy court, here is the plan I am asking President Obama to implement for the good of the workers, the GM communities, and the nation as a whole. Twenty years ago when I made "Roger & Me," I tried to warn people about what was ahead for General Motors. Had the power structure and the punditocracy listened, maybe much of this could have been avoided. Based on my track record, I request an honest and sincere consideration of the following suggestions:
1. Just as President Roosevelt did after the attack on Pearl Harbor, the President must tell the nation that we are at war and we must immediately convert our auto factories to factories that build mass transit vehicles and alternative energy devices. Within months in Flint in 1942, GM halted all car production and immediately used the assembly lines to build planes, tanks and machine guns. The conversion took no time at all. Everyone pitched in. The fascists were defeated.
We are now in a different kind of war -- a war that we have conducted against the ecosystem and has been conducted by our very own corporate leaders. This current war has two fronts. One is headquartered in Detroit. The products built in the factories of GM, Ford and Chrysler are some of the greatest weapons of mass destruction responsible for global warming and the melting of our polar icecaps. The things we call "cars" may have been fun to drive, but they are like a million daggers into the heart of Mother Nature. To continue to build them would only lead to the ruin of our species and much of the planet.
The other front in this war is being waged by the oil companies against you and me. They are committed to fleecing us whenever they can, and they have been reckless stewards of the finite amount of oil that is located under the surface of the earth. They know they are sucking it bone dry. And like the lumber tycoons of the early 20th century who didn't give a damn about future generations as they tore down every forest they could get their hands on, these oil barons are not telling the public what they know to be true -- that there are only a few more decades of useable oil on this planet. And as the end days of oil approach us, get ready for some very desperate people willing to kill and be killed just to get their hands on a gallon can of gasoline.
President Obama, now that he has taken control of GM, needs to convert the factories to new and needed uses immediately.
2. Don't put another $30 billion into the coffers of GM to build cars. Instead, use that money to keep the current workforce -- and most of those who have been laid off -- employed so that they can build the new modes of 21st century transportation. Let them start the conversion work now.
3. Announce that we will have bullet trains criss-crossing this country in the next five years. Japan is celebrating the 45th anniversary of its first bullet train this year. Now they have dozens of them. Average speed: 165 mph. Average time a train is late: under 30 seconds. They have had these high speed trains for nearly five decades -- and we don't even have one! The fact that the technology already exists for us to go from New York to L.A. in 17 hours by train, and that we haven't used it, is criminal. Let's hire the unemployed to build the new high speed lines all over the country. Chicago to Detroit in less than two hours. Miami to DC in under 7 hours. Denver to Dallas in five and a half. This can be done and done now.
4. Initiate a program to put light rail mass transit lines in all our large and medium-sized cities. Build those trains in the GM factories. And hire local people everywhere to install and run this system.
5. For people in rural areas not served by the train lines, have the GM plants produce energy efficient clean buses.
6. For the time being, have some factories build hybrid or all-electric cars (and batteries). It will take a few years for people to get used to the new ways to transport ourselves, so if we're going to have automobiles, let's have kinder, gentler ones. We can be building these next month (do not believe anyone who tells you it will take years to retool the factories -- that simply isn't true).
7. Transform some of the empty GM factories to facilities that build windmills, solar panels and other means of alternate forms of energy. We need tens of millions of solar panels right now. And there is an eager and skilled workforce who can build them.
8. Provide tax incentives for those who travel by hybrid car or bus or train. Also, credits for those who convert their home to alternative energy.
9. To help pay for this, impose a two-dollar tax on every gallon of gasoline. This will get people to switch to more energy saving cars or to use the new rail lines and rail cars the former autoworkers have built for them.
Well, that's a start. Please, please, please don't save GM so that a smaller version of it will simply do nothing more than build Chevys or Cadillacs. This is not a long-term solution. Don't throw bad money into a company whose tailpipe is malfunctioning, causing a strange odor to fill the car.
100 years ago this year, the founders of General Motors convinced the world to give up their horses and saddles and buggy whips to try a new form of transportation. Now it is time for us to say goodbye to the internal combustion engine. It seemed to serve us well for so long. We enjoyed the car hops at the A&W. We made out in the front -- and the back -- seat. We watched movies on large outdoor screens, went to the races at NASCAR tracks across the country, and saw the Pacific Ocean for the first time through the window down Hwy. 1. And now it's over. It's a new day and a new century. The President -- and the UAW -- must seize this moment and create a big batch of lemonade from this very sour and sad lemon.
Yesterday, the last surviving person from the Titanic disaster passed away. She escaped certain death that night and went on to live another 97 years. So can we survive our own Titanic in all the Flint Michigans of this country. 60% of GM is ours. I think we can do a better job.
GM: America's Favorite Abusive Husband
Man, it's sweet to be a corporation like GM in America. Only in this country would a corporation's executives have the nerve to close factories and relocate them to Mexico to exploit cheap labor, systematically work to suppress public mass transit and fuel-efficient vehicles, shelter its revenues from taxation in multiple offshore havens, and still crawl to the government weeping and crying when it needs money. Not only that, but the government will hand GM another bailout check with taxpayer money without asking for anything in return, effectively socializing the investment's risk whilst privatizing the profit...again.
And if there is no profit -- if GM continues to bleed money because it failed to come up with a compelling business model for the new millennium -- the taxpayers are simply out of luck. That likelihood is summarized in a one-sentence mid-story throwaway in the New York Times: "Whether that investment will ever be recovered is still an open question." Oh, okay. No big deal. At least another enormous investment into a corporation that appears to be hemorrhaging from every orifice will protect American jobs...right?The company will also have to shed 21,000 union workers and close 12 to 20 factories, steps that most analysts thought could never be pushed through by a Democratic president allied with organized labor.
He hits me because he loves me. I don't listen. He's just trying to teach me a lesson. These abusive steps could maybe have been called reactionary, or defensive, had GM not been shipping jobs to Mexico since 1935, and continues to develop plans to build more cars overseas in the midst of these bailouts. GM's plan always focuses on the bottom line i.e. whatever saves the corporation the most money whilst maximizing profits for a very small circle of people. Their last priorities are job security and unions.Forty percent of the company's 6,000 dealers will close, the workers' union will be forced to finance half of its $20 billion health care fund with stock of uncertain value in the restructured G.M., and bondholders, including many retirees, will be forced to take stock worth 10 cents for every dollar they lent the company.
At what point will Americans stop lying about how they got their black eyes and start blaming these giant corporations? Corporations like GM get to throw out their union contracts when they file for bankruptcy, effectively providing them with significantly more protection than the average American receives while filing for bankruptcy.
If an abusive corporation tries to skip town without paying your pension, the Pension Benefit Guarantee Corp. (PBGC), foots the bill. The PBGC was established by Congress in 1974 to insure corporate pensions, but only covers employees up to $45,000 a year (most workers receive far less). According to the Communication Workers of America union website, "[s]o many corporations have rushed into bankruptcy that now the PBGC is running its own deficit of $23.3 billion."
According to the Times, Lawrence Summers explains that President Obama had to decide between "a laissez-faire, uncontrolled bankruptcy, which would have had an enormous cost," or a "controlled process," in which the goal was to make sure that the auto companies not only restructured, but were not overburdened with debt. Overburdened with debt? Isn't that the definition of bankruptcy? The government doesn't rush in to save Sally when she files for bankruptcy. A trustee seizes Sally's assets and divides them between her creditors unless Sally committed fraud (like hiding her money in tax havens). Then she's in real trouble.
Why do corporations get special treatment that isn't afforded to average Americans? If the American people weren't already keenly aware that the idea of a free market doesn't really exist, this latest statement from Summers should really persuade them. The whole concept of Milton Friedman's unregulated Capitalism rests on the idea that laissez-faire economics is the only fair way to let good businesses thrive and bad businesses fail. Government interference in the form of bailout and the restructuring of monopolies is "bad for business."
Suddenly, laissez-faire is blasé. It's last year, so over. Lawrence is essentially arguing for Corporate Socialism. We need strong regulation (but only during the bailout process)! We need to share the wealth (but only with taxpayer money and only if corporations benefit)! What an awesome deal! If only taxpayers got the same offer.
Banks Preparing 'Renewed Push' Against Derivatives Regulation This Week
According to the New York Times, lobbyists for the nation’s largest banks “plan to make a renewed push on Capitol Hill this week” against proposals to regulate derivatives. Derivatives, of course, played a key role in dragging down some of the financial sector’s giants — particularly AIG — and the Obama administration is working to create a system that would remove some of the opacity from derivatives markets.
Despite their contributing in a big way to the economic crisis, the Times noted just how quickly the banks mobilized to protect derivatives:
As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions…Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives…The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.
The Wall Street Journal wrote that the banks are currently “being careful not to publicly oppose any rules.” However, this week a group of banks and money managers “plan to release a letter to the Federal Reserve Bank of New York and other U.S. and overseas regulators to help fend off some rules proposed by the Obama administration that seek to control trading in the derivatives market.”
Financial groups are also voicing opposition to a proposal aimed at creating new authorities for unwinding complex financial institutions. They are pushing back against calls for a single banking regulator, and criticizing the administration’s plan for merging and reforming some of the oversight agencies. In short, the bank’s won’t publicly oppose any of the regulatory reforms, but are privately opposing just about every one.
Rep. Collin Peterson (D-MN), for one, is peeved at the amount of deference Congress has shown to the big banks. “The banks run the place,” he said. “I will tell you what the problem is — they give three times more money than the next biggest group.” And indeed, the banking lobby has managed to derail legislation at an alarming pace. Some sort of regulatory reform is almost certain to occur in the not too distant future, but if the banks can water it down and create loopholes then the opportunity to make meaningful changes will have been wasted.
AIG Charity Grab
Bids To Claw Back Grants To Pay Bonuses
Insurance giant AIG is trying to seize a $490 million charitable endowment -- and claw back $27 million it already awarded to New York charities -- to pay executive bonuses, The Post has learned. The endowment, called Starr International Foundation, is run by former AIG chairman Hank Greenberg, and has given millions to the Sept. 11 Memorial and Museum, Citymeals and other local groups. At issue is a legal conundrum that started in the 1970s, when Greenberg was building AIG into the world's largest insurance empire, and wanted a way to reward his executives off the books.
He and several co-founders set up their own offshore piggy bank -- unaffiliated with AIG ownership -- and seeded it with their own stock shares that would pay dividends and build up nest eggs and bonuses for retiring executives. The separate company, Starr International Co., worked well for decades. But in 2005, Greenberg was pushed out of AIG in a boardroom coup, foreshadowing AIG's collapse. Greenberg closed his piggy bank for any future bonuses beyond 2005, though AIG executives who had vested by that point can collect when they turn 65.
The rest of the AIG shares held by Starr International Co. -- about 290 million -- were transferred to a charitable subsidiary, Starr International Foundation. AIG said it's entitled to the whole pot of stock going back to 2005, when it was worth about $20 billion. A year ago, it was worth nearly $11 billion, until AIG's recent collapse. At Friday's close, the shares were worth $490 million. AIG says it has the right to seize the stock because Greenberg set up the company specifically for company employees. The insurer says in a legal filing that it needs the foundation's money "for the exclusive purpose of being distributed to AIG employees in the future." AIG intends to go to trial in federal court June 15.
AIG lawyers said in documents it would seek not just the shares still left in the foundation's coffers, but the shares the foundation already cashed out in the past three years to raise $27 million in grant money. That money went to groups like the Sept. 11 Museum ($1 million), Seedco ($500,000) and Citymeals ($250,000). AIG didn't return calls by The Post about how the seizure and potential clawbacks of assets would impact charities. Greenberg declined to comment. AIG has stuck by its previous statement that it needs the charity's assets "so the company can attract and retain top employees to manage the business, preserve and restore stockholder value and ultimately repay taxpayers."
Legal experts say that if AIG wins its case, it would have the right to sue to claw back some of the $27 million already awarded to charities. The government owns nearly 80 percent of AIG due to the Treasury's $70 billion cash infusion and loans for up to $85 billion. Rep. Brad Sherman (D-Calif.), who has often grilled AIG in congressional probes, said that if AIG wins the money from the foundations and other charities, "it should go to taxpayers, not for bonuses."
In Cox Years at the SEC, Policies Undercut Action
The five enforcement officials caught a morning Acela train bound for Washington. Based at the New York office of the Securities and Exchange Commission, the team was seeking agency approval to impose tens of millions of dollars in fines on a drug company, Biovail, which had allegedly used the crash of a truck hauling depression medicine to cover up financial losses.
But when the group arrived at SEC headquarters on that winter day early last year, it was barred from the room where the commission was meeting, according to a person familiar with the case. Chairman Christopher Cox and his colleagues reviewed the case inside. When the doors opened, the enforcement officials learned the commission had knocked down the penalty to a small fraction of what they had sought. The outcome, though discouraging to the team, was not a complete surprise, sources said. After Cox became SEC chairman in mid-2005, he adopted practices that undermined the enforcement division's efforts to investigate cases of corporate wrongdoing and punish those involved, according to interviews with 19 current and former SEC officials.
During Cox's tenure, investigators who wanted to subpoena documents or compel interviews faced an increasingly cumbersome process to win the commission's approval for each case, according to current and former agency officials. Cox also required enforcement officials to see the commissioners before approaching a company about a civil settlement. In several high-profile cases, when SEC lawyers were ready to ask the commission to authorize lawsuits or approve settlements, Cox postponed the decisions at the last minute, leaving cases unresolved for months, the sources said. At times, as in the Biovail case, the commission eventually weakened the sanctions sought by the enforcement division.
This is the legacy Mary Schapiro inherited when she replaced Cox as chairman this year. Among her first acts, Schapiro freed enforcement officials from getting commission approval before negotiating settlements with companies and established an accelerated process for authorizing subpoenas and depositions. She speaks frequently of taking the "handcuffs" off of the enforcement division. This effort is central to Schapiro's strategy for rebuilding the SEC and ensuring it has a dominant voice in the emerging debate on overhauling the nation's regulatory system. Since the 1930s, the agency has been the top cop on Wall Street and the primary regulator of financial markets, requiring that firms play fair and give investors honest, timely information.
But a backlog of financial crime cases continues to slow the enforcement division as Schapiro tries to turn more of the agency's attention to abuses linked to the financial crisis, SEC officials said. The agency is still working to reinvigorate its dispirited enforcement ranks. As grounds for the policies he adopted, Cox cited efficiency and ensuring that commissioners had the chance to review cases. Cox said in a recent interview that he had taken steps that made clear that "corporate penalties are an important part of the agency's enforcement arsenal."
But former enforcement lawyers said the practices had a chilling effect. Several cases, they said, were scaled back or dropped because of anticipated resistance from the commission. "The presentation of cases is the culmination of the investigative process. When that process is interrupted, delayed or denied, it can't help but have a negative impact on the people who conduct those investigations," said James T. Coffman, a former assistant director of the enforcement division. "Clearly some people wonder, 'If they don't want these kinds of cases, why should I bother doing them even though they're very important?' "
Most former and current SEC officials spoke on condition of anonymity because they were discussing confidential legal matters or were not authorized by the agency to comment. But in a report last month, the Government Accountability Office, after interviewing many enforcement lawyers, concluded that the SEC penalty policies in 2006 and 2007 "led to less vigorous pursuit of corporate penalties, may have made penalties less punitive in nature and could have compromised the quality of settlements." During Cox's tenure, penalties imposed on companies fell 84 percent, from $1.59 billion in 2005 to $256 million in 2008.
Cox's predecessor as chairman, William Donaldson, had pursued hefty penalties against companies accused of wrongdoing, often despite dissent from other commissioners. But when Cox took office, there was a growing concern within government and the financial industry that the United States was losing business to less-regulated markets overseas, and Cox wanted to achieve consensus among the commissioners. One commissioner, Paul Atkins, was particularly skeptical about corporate penalties. He argued that these ultimately were shouldered by shareholders -- the very people most frequently hurt by fraud -- and he often asked for more time to review cases.
"It's important that commissioners have a fair opportunity to fully understand the cases before they vote on them," Cox said in the interview. Cox defended his enforcement credentials and pointed to the agency's aggressive pursuit last year of financial firms that misled investors into buying the exotic bonds called auction rate securities. Billions of dollars were returned to investors. Cox also said he took an important step to modernize the enforcement division and speed cases by introducing a new case-management system. He said staff turnover during his tenure decreased, and he noted that the number of cases brought by the commission has stayed level.
But within months of Cox's appointment, tensions surfaced between the chairman and the enforcement division. Lawyers said in interviews they sometimes waited weeks to appear before the commission to request "formal orders," which enabled them to subpoena documents and conduct depositions. During Cox's tenure, the annual number of these orders fell 14 percent. "Some investigative attorneys came to see the commission as less of an ally in bringing enforcement actions and more of a barrier," the GAO reported.
But enforcement lawyers faced even greater frustrations once investigations were finished and cases were finalized. In early 2006, Cox outlined nine conditions for investigators to consider when proposing penalties. On many occasions, former enforcement lawyers said, Cox removed cases from the agenda because of Atkins's concerns. Often, the enforcement team had already reached a settlement with a company. The practice made it more difficult for enforcement lawyers to negotiate credibly, the attorneys said. "Cases would sit and linger for months while you waited to get a response. . . . There was often a question as to what authority the staff had," said Thomas O. Gorman, a defense lawyer at Porter Wright Morris & Arthur in Washington who specializes in SEC cases.
Cases began disappearing from the agenda shortly after Cox became chairman. Two similar cases against financial firms -- MBIA and RenaissanceRe Holdings -- were plucked from the calendar after the companies agreed to pay penalties. The commission removed the items because of its concerns about the size of the proposed penalties, $50 million for MBIA and $15 million for RenaissanceRe, according to sources familiar with the cases. It took more than a year to close the cases, with penalties the parties had agreed to earlier.
In 2007, the SEC prepared to charge Ingram Micro, a California technology company accused of abetting a "massive financial fraud" in exchange for business at the software company McAfee from 1998 to 2000. But the case was repeatedly pulled from the commission's agenda. In mid-May, the SEC approved the settlement. Ingram, which agreed to pay $15 million, did not admit or deny wrongdoing.
In 2006, an SEC enforcement team forged an agreement with Brocade Communications Systems for the company to pay $7 million to settle allegations it illegally backdated hundreds of millions of dollars worth of stock options. Afterward, Brocade wrote the commission directly, saying the penalty was unreasonable because the company had cooperated with the investigation. The SEC enforcement team flew to Washington from California to present its case against the company and its executives. On the eve of the meeting, while the lawyers were at dinner, a message from the chairman's office appeared on their BlackBerrys: The commission would hear the case against the executives but postpone the one against the company, a source said.
Ten months later, to the surprise of the enforcement team, the commission met in executive session and approved a penalty against Brocade. The company did not admit or deny wrongdoing. When subsequent cases were brought against firms for alleged backdating of stock options, penalties often were not sought, several former and current agency officials said. "People openly discussed that if you wanted to get your case done quickly, you didn't put in a civil penalty," a former enforcement lawyer said.
In two cases involving large banks, the commission eased the penalties sought by the staff. Last year, the commission slashed the penalty proposed in a case against J.P. Morgan Chase. The bank was accused of ignoring improper transactions at one of its clients that had cost investors $2.6 billion. J.P. Morgan agreed to pay a $2 million penalty to settle the case. In late 2006, the SEC enforcement staff sought a penalty of $122 million against Deutsche Bank, which was charged with granting a hedge fund exclusive information about trading by mutual funds in exchange for business. The commission proposed reducing the fine to $17 million.
In paying penalties, neither company admitted or denied wrongdoing. In the Biovail case, the company had projected earnings that proved too rosy. The company blamed its poor performance on the crash of a truck in Illinois carrying depression medication. But SEC investigators determined the accident "had no impact on Biovail's financial results." Rather, the SEC said Biovail was engaged in a broader effort to defraud investors. The enforcement team sought penalties in the tens of millions of dollars, a source said. Instead, the commission set a range of $2 million to $10 million. Biovail settled for $10 million, without admitting or denying guilt.
White House: Krugman's Bailout Critiques "Not Entirely Convincing"
One of the leading progressive voices in the Obama White House said on Monday that criticism over the administration's bailout policies from like-minded economists -- namely the New York Times' Paul Krugman and The American Prospect's Robert Kuttner -- were "not entirely convincing." In a short speech at the America's Future Now conference in Washington D.C., Jared Bernstein argued that, in the absence of any blueprint, the best way to judge a bailout policy was to look at its success. On this front, he reasoned, Treasury Secretary Timothy Geithner deserved credit.
"I think there is a lot to be said for the argument made by the Treasury Secretary and, for that matter, the chairman of the Federal Reserve that the authority to unwind an AIG simply doesn't exist," said Bernstein, Vice President Joe Biden's chief economic policy adviser. "It is something we absolutely need going forward. But I guess the larger point is that nobody really knows what the best way is to proceed in terms of stabilizing the financial sector in a way that is most effective, most efficient and least burdensome to the taxpayers. Everyone has strong ideas about it, myself as well. What I have seen unfold and I hope that we. ... give Secretary Geithner a tone of credit for this ... what I have seen unfold, I think, has been really very promising and really quite effective."
As for the critiques, Bernstein acknowledged that there were "honest disagreements" among economists on these very issues. But, he added, some of the progressive arguments against the administration - mainly that the White House has been tougher on the auto industry than Wall Street or has catered too willingly to the needs of the big banks -- failed to acknowledge the recent good news on these fronts. "Take Paul Krugman, who I suspect is on a similar page as Bob [Kuttner]," said Bernstein.
"Here is, I have to say, where I have found myself being in meetings with the folks in the administration, pursuing our strategy and reading everything from the critics on the outside, and I have found the critical arguments not entirely convincing. ... I think a lot of people thought that the banks who scored badly under the stress test and you can bend the curve anyway you want, would have great difficulty going out to financial markets and raising capital.
But in fact they have been able to do that in ways that I think have been somewhat surprising and heartening. So I think basically since there are so many different ways of going at this and nobody really knows the right way I think you have to look at the outcomes. And I think the outcomes have actually been pretty favorable ... in terms of efficiency and in terms of protecting the taxpayers."
It is hardly unusual for an administration figure to defend its own policies. But Bernstein's strong response to Krugman shows the extent of the divide between the White House and the Nobel Prize-winning economist -- and just how confident the administration is with the early returns on its bailout and economic recovery packages.
Chinese Students Laugh At Geithner
US Treasury Secretary Tim Geithner was laughed at by an audience of Chinese students after insisting that China's US assets are safe. In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: "Chinese assets are very safe."
The comment provoked loud laughter from the audience of students. There are growing fears over the size and sustainability of the US budget deficit, which is set to rise to almost 13pc of GDP this year as the world's biggest economy fights off recession. The US is reliant on China to buy many of the government bonds it is planning to issue but Beijing's policymakers have expressed concern about the strength of the dollar and the value of their investments. However Chinese Vice Premier Wang Qishan said that the two countries were working closely together to fight the economic crisis.
US consumer spending dips, savings rate surges
Frugal consumers trimmed spending in April -- although by less than expected -- as rising unemployment kept pocketbooks in check and motivated Americans to save. With income growth far outpacing spending, Americans' personal savings rate zoomed to 5.7 percent, the highest since February 1995, the Commerce Department reported Monday. Consumer spending dipped 0.1 percent in April. That was slightly less than the 0.2 percent reduction economists were expecting, although it marked the second straight month that consumers cut back.
The pullback came after a burst of buying at the start of the year as shoppers took advantage of deeply discounted merchandise and other promotion. Americans' incomes -- the fuel for future spending -- jumped by 0.5 percent, following two straight months of declines. The improvement in April was due to tax cuts and benefit payments flowing from President Barack Obama's stimulus package, the government noted. Wages and salaries, however, were flat in April. The growth in incomes -- the most since May 2008 -- surprised economists. They were forecasting a 0.2 percent decline.
While the savings rate was the highest since February 1995, the level of savings -- $620.2 billion -- was the most on records dating back to January 1959. That reflects a more thrifty consumer whose wealth -- notably nest eggs, investment holdings and home values -- has been hard hit by the recession. It also reflects consumers being more cautious given rising unemployment. The nation's unemployment rate jumped to 8.9 percent in April, the highest in 25 years. Economists predict the jobless rate climbed to 9.2 percent in May as employers cut 523,000 jobs. The government releases the employment report on Friday. Since the start of the recession in December 2007, the economy has lost 5.7 million jobs.
Consumer spending accounts for roughly 70 percent of overall economic activity and is closely watched by economists. In April, consumers trimmed spending on big-ticket "durable" goods like cars and appliances, and on "nondurables" such as clothes and food by 0.6 percent each. That was a little less than how much they reduced spending on those categories in March. Consumers increased spending on services by 0.3 percent in April, up from 0.1 percent in March. Most economists believe consumers in the April-to-June quarter will hold tighter to their wallets than they did in the first three months of this year.
In the first quarter, consumer spending rose at a 1.5 percent pace. It wasn't a shopping spree by any means but it marked a big improvement from the final quarter of last year when recession-battered consumers slashed spending at a 4.3 percent pace, the most in 28 years. Even with the expectation that consumers will be cautious, economists predict that the economy as a whole is not sinking nearly as much now as it was in the prior six months. Forecasters at the National Association for Business Economics, or NABE, predict the economy will contract at a 1.8 percent pace in the April-June quarter. Other analysts think the economic decline could be steeper -- around a 3 percent pace. Some think it could be less -- about a 1 percent pace. The expected improvement would come from less drastic cutbacks in spending by businesses.
And, there's hope that companies will need to replenish razor-thin inventories of goods, prompting factories to up production, which would aid economic activity. In the first quarter, the economy contracted at a 5.7 percent pace. That followed a staggering 6.3 percent annualized drop in the fourth quarter of 2008, the biggest in a quarter century. Federal Reserve Chairman Ben Bernanke has said he is hopeful the recession will end later this year. And NABE forecasters predict the economy could start growing again as early as the third quarter. Obama's stimulus package of increased government spending and tax cuts should help economic activity. An inflation index tied to the consumer spending and income report showed that prices -- excluding food and energy -- rose 1.9 percent in April from a year ago. That was up slightly from a 1.8 percent annual increase in March.
Construction Spending: Don't Let the Headline Fool You
Construction spending in April significantly exceeded expectations with a gain of 0.8%, following an advance of 0.4% in March. February, however, had a 2.1% decline. On a year-over-year (YoY) basis, construction spending in April was down 10.7%. The YoY peak decline so far in this downturn was March 2009, off 11.8%. Private construction was down 16.1% YoY in April. The peak YoY decline so far was in March with a YoY drop of 17.9%. Public construction was up 3.3% in April YoY.
Private non-residential spending jumped 1.8% in April, accounting for some of the upside surprise in construction spending overall. Private non-residential spending was up 2% YoY. June 2008, up 19.5% YoY represented the peak for non-residential spending. Private sector residential spending was up 0.7% YoY in April, the best result in 3 years, but it is highly suspect, as it follows a huge 10.4% decline in February and a 3.6% drop in March. By the way, private construction spending in April worsened to a YoY decline of 34.5%. March had a 29.3% YoY drop.
The explanation for the April gain of 0.7% from March lies in the fact that private sector residential spending excluding new homes was up 8.9% in April. This means folks were spending money fixing up or re-modeling what they have. Construction spending on single family homes actually fell 6.7% in April from March. On a YoY basis single family residential construction is off a record 51.7%, evidencing a still worsening situation. Multi-family residential construction spending fell 2.6% in April from March. The YoY decline in multi-family construction spending is down 20%. Both the month-over month (MoM) numbers and the YoY numbers for multi-family have been worsening. Public sector construction spending in April at the state & local level was down 0.1% from March, and still up 2.2 % YoY, but it keeps slowing. Federal construction spending fell 6.5% in April, and was up 4% YoY.
The Institute for Supply Management (ISM) national factory activity index rose more than expected, reaching 42.8 in May from 40.1 in April. This was the fifth consecutive monthly advance in this series, reaching its best level since September 2008. A reading under 50 in this diffusion series denotes contraction. The ISM manufacturing series has been south of 50.0 for 16 months, but it’s clearly on the way back. Vital was the component new orders index which rose to 51.1, after 17 straight months of contraction.
Encouraging also was the improvement in the production component, which jumped from 40.4 in April to 46.0 in May. The employment index within the ISM was very weak at 34.3, a bit worse than a grim April reading of 34.4. The prices paid component jumped 11.5 points to 43.5, an early tentative shot in the bow to deflation. Nine industries reported growth in new orders in May. They are: Plastics and Rubber Products; Primary Metals; Printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; and Miscellaneous Manufacturing.
Eight industries with new orders contracting in May were: Furniture and Related Products; Wood Products; Computer and Electronic Products; Textile Mills; Transportation Equipment; Petroleum and Coal Products; Electrical Equipment, Appliances and Components; and Fabricated Metal Products.
The April data on personal income (PI), personal consumption expenditures (PCE), as well as personal saving (PS) are very telling. April was the second straight month where nominal or current dollar PCE declined, reflective of all the reasons the consumer has to be cautious. These include ongoing labor market deterioration, eroding home valuations, etc. PCE dropped 0.1% in April, following a 0.3% decline in March. Consumer caution was evident in the PS rate soaring to 5.7% in April from 4.5% in March. The YoY increase in the real PCE deflator was 0.44% in April
PI in April surprised those who expected a 0.2% decline; there was a 0.5% increase. But we need to go below the headline. Wages and salaries were flat with March. The PI increase was driven by government transfer payments: tax cuts, unemployment payments and other transfer payments from the “Making Work Pay” piece of the American Recovery and Reinvestment Act of 2009 rose 1%. PI was up in April an underwhelming 0.7% year-over-year (YoY). In contrast, PI in May 2008 was up 5.6% YoY. On a YoY basis, wages and salaries were down 0.8% in today’s data for April 2009. In contrast, wages and salaries in April of 2008 were up 3.4% YoY.
The PI data do not support growth in PCE in the current quarter. In a real GDP context, real PCE also fell 0.1% in April, and importantly real PCE currently stands 1.2% below the first quarter average. Given what we know of May, this decidedly reinforces our weaker than market/consensus real GDP performance in the second quarter. I believe we will have an annualized drop in real PCE (nearly 70% of GDP) in the second quarter. We think real GDP will fall at an annualized rate of 4% or more in the current quarter, in contrast to a current consensus drop of 1.8% to 2%. While a lessening in the pace of real GDP descent that characterized 4Q:’08 (6.3%) and 1Q:’09 (5.7%), the decline I envision is at least double what the market/consensus expects, i.e., a major disappointment awaits.
Foreclosure starts hit one million mark
Foreclosure starts, the first step of an often lengthy process, already hit the one million mark this year, according to estimates from the Center for Responsible Lending. The group expects foreclosure starts to hit a whopping 2.4 million in 2009, reducing the property values of 70 million households by a staggering $502 billion, or $7,200 per family. “The escalation of foreclosures on all types of loans is alarming,” said Michael Calhoun, President of CRL. “It’s easy to think, ‘Well, that’s tough luck for the families that lose their homes.’”
“The truth is that foreclosures are costing neighboring families hundreds of billions of dollars and dragging down the entire economy. Foreclosures started today’s crisis, and foreclosures will keep the crisis going if this epidemic continues.” Through 2012, the CRL expects foreclosures to rise to at least 9 million, costing 92 million families $1.9 trillion in lost home value. Despite loan modifications ostensibly doing very little to slow defaults and foreclosures, the group called on loan servicers to ramp up such efforts to keep more families in their homes. According to the CRL, a new foreclosure start happens every 13 seconds, amounting to about 6,500 a day, though not all of these will actually end up in foreclosure.
Freddie Announces $30 Billion Tender Of Near-Term Debt
Freddie Mac on Monday announced plans to repurchase up to $30 billion of debt securities coming due in the next 15 months as the mortgage giant looks at ways to restructure its balance sheet. The debt currently has $69.9 billion in principal outstanding. The tender offer expires at 5 p.m. EDT Friday. Freddie last month reported a loss of $9.85 billion for the first quarter amid mounting mortgage-default costs and said it will need another $6.1 billion of capital from the U.S. Treasury Department.
The company is undertaking the buyback as a way of managing its liabilities, said Mohit Sudhakar, Freddie's senior director of debt portfolio management. Freddie wants to retire a portion of its short, floating rate securities that mature over the next 12 to 15 months and issue longer maturing debt with cheaper risk premiums paid to investors, he said. The company included only a portion of its maturing debt, with nearly $71.75 billion of floating rate securities with maturities before 2011 not included.
This buyback of debt is consistent with what Freddie and its sibling, Fannie Mae (FNM), have been doing to decrease refunding risk and match longer duration modified mortgage assets, said Margaret Kerins, head of agency strategy at RBS. Both Fannie and Freddie have reduced reliance on short-term funds to nearly 33% of their debt at the end of April, from 38% at the end of 2008, according to RBS research. Freddie's short-term funding decreased by $35 billion, while the long term securities issued increased by $64 billion during the period.
The company will use a variety of funding sources to finance the tender offer including discount notes and longer maturing debt, Freddie's Sudhakar said. Federal regulators seized control of Freddie and its larger peer Fannie Mae, the two main providers of funds for U.S. home mortgages, in September as growing losses ate through their thin layers of capital. The Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie by purchasing preferred stock paying 10% dividends. With its latest request, that would bring Freddie's total to about $51 billion.
Close to 3% Delinquency in Fannie’s Single-Family Mortgages Portfolio
The total delinquency rate among conventional at Fannie Mae jumped to 2.96% in February from 2.77% a month earlier, and is up more than half from 1.1% seen in February 08, despite the agency’s participation in the Administration’s Home Affordable refinance program. The higher delinquency rate at the government-sponsored enterprise (GSE) came a month before the balance of its gross mortgage portfolio slipped $856m to $783.87bn in March, according to a monthly volume summary.
The delinquency issues do not seem to go unnoticed at the GSE, which began purchasing refinance mortgage originations made under the Making Home Affordable Program (MHA Program) in April as part of an attempt to encourage servicers to pursue workout options with delinquent and at-risk borrowers. “We expect that the MHA Program will bolster refinance volumes over time as major lenders adopt necessary system changes and consumer awareness continues to build,” Fannie officials said in the monthly summary report. Fannie reported issuing $87.8bn of mortgage-backed securities in the month while it’s refinance volume increased to $77bn, nearly double from a month earlier.
Over at Fannie’s brother GSE, Freddie Mac, April’s delinquency rate doesn’t look much better. Freddie reported total mortgage-related purchases and issuance fell to $58.1bn in April from $86.1bn in March. At the same time, the total delinquency rate among Freddie’s single-family mortgages increased to 2.44% from 2.29% a month earlier. Freddie officials attributed the increase in delinquencies to the expiration of its temporary foreclosure freeze: “We are currently assessing the impact on our delinquency rates of the suspension of foreclosure transfers that began on March 7 for loans eligible for modification under the MHA Program.”
Investigating the Collapse: Looking for the Killer We Already Know
Congress may establish a commission to investigate the causes of the economic crisis. This may be a useful exercise in publicly shaming those who are responsible for an enormous amount of unnecessary suffering. That would be a good thing. These people should be held accountable. Those in the financial sector who broke the law should go to jail, or at the least, lose their ill-gotten fortunes. The public officials whose incompetence and/or corruption allowed for this disaster should lose their jobs and never again be given a position of public trust.
These could be positive outcomes from an investigative commission. However, such a commission could have a negative role. It could be part of an ongoing effort to rewrite history and cover up for those who were responsible for this disaster. The basic point is straightforward. This crisis was simple and easy to see for any competent economist. We had an $8 trillion housing bubble. This bubble was driving the economy ever since the recession in 2001.
The bubble led to an enormous boom in construction, as builders made enormous profits selling new homes at bubble-inflated prices. It also led to a huge surge in consumption as homeowners spent a large portion of their bubble-generated housing equity. Bubbles inevitably burst. (That's why they are called "bubbles.") When this bubble burst, it was inevitable that housing construction would collapse and consumption would plummet, throwing the economy into a steep recession. There were no ands, ifs or buts in this story. It was an absolute certainty and totally predictable. The only question was the exact timing.
How could economists have recognized the housing bubble? This also was very simple. We have data covering more than 100 years showing that from 1890 to 1995, nationwide house prices just tracked the overall rate of inflation. Suddenly in the mid-90s, coinciding with the stock bubble, house prices began to substantially outpace the rate of inflation. By their peak in 2006, nationwide house prices had outpaced inflation by more than 70 percent.
There was nothing on either the demand or supply side that could explain this huge run-up in house prices. Incomes had grown well in the late 90s, but were actually stagnant in the current decade. Population growth and new household formation had slowed markedly from the pace decades earlier when the baby boomers were forming their own households for the first time. On the supply side, we were building homes at a near record rate. Obviously, there were no serious supply constraints.
Finally, as a check, we could examine rents, since any major change in fundamentals should have a substantial impact on both the rental and ownership side of the market. Rents slightly outpaced inflation in the late 90s and just tracked inflation in this decade. All of this should have led any serious economist to be yelling at the top of their lungs about the dangers of a housing bubble. Yet, almost none did. This was inexcusable; people should lose their jobs for this failure.
What about the bad loans, the overleverage and the unregulated derivatives? Yes, these all fed the bubble, and allowed it to grow much larger than otherwise would have been possible. These evils were also the basis for the enormous paychecks for people like Robert Rubin, Henry Paulson, Angelo Mozilo, and the rest.
The political influence of the Wall Street crew was undoubtedly a major factor in the failure to clamp down on the bubble. In other words, it was not just that the economists were incredibly incompetent, although many were. It is also that many were quite willing to look away from a looming disaster that was further enriching the rich and powerful. Welcome to modern economics.
But it is important to keep the bubble front and center and the finance secondary for two reasons. First, the bubble is the story. If we somehow had an $8 trillion housing bubble with no bad loans, overleveraged banks or bad derivatives, we would still be pretty much in the same place we are today: a collapsed housing sector, plunging consumption and a severe recession with mass unemployment and record foreclosure rates.
The second reason for keeping finance secondary is that, unlike the bubble, the specifics of finance are complicated. Most people cannot follow the details of collaterized debt obligations or credit default swaps. Focusing on this aspect of the crisis will lead the public to believe that the collapse really was hard to see coming and that people therefore cannot be held accountable. In short, shifting the focus to finance is a victory for the "who could have known?" gang.
So, it would be great if Congress outs the boys and girls at the Fed, the Treasury, the SEC, and the other regulatory institutions which allowed this bubble to grow on their watch as well as the Wall Streeters who profited off the nation's pain. But if this is an effort to cover up responsibility, then let's just save the money and wait until we get honest representatives in Congress to establish such a commission.
More government borrowing doesn’t necessarily mean more total borrowing
The United States is borrowing less from the rest of the world than it was. That is true even though the US Treasury is borrowing more from everyone, including more from the rest of the world. The amount the US borrows from the world is the gap between the amount that Americans save and the amount that Americans invest at home. That turns out to be equal to the current account deficit. And for the US, it so happens that the current account deficit is about equal to the (goods and services) trade deficit. The trade deficit — at least in the first quarter of 2009 — was way down. In dollar terms, it was about half as big as it was in the first quarter of 2008. That implies that the US is borrowing far less from the world now than at this time last year.
Why hasn’t the expansion of the fiscal deficit pushed the amount the US borrows from the world up? Simple. American households and businesses are borrowing a lot less, so the total amount of money that Americans are borrowing isn’t rising. A picture is generally more effective than words. The following chart shows borrowing by various sectors of the economy — households, firms and the government.** All data comes from the Fed’s flow of funds, table F1.
As the chart shows, the rise in government borrowing came even as other sectors of the economy were borrowing a lot less. Household borrowing peaked in 2006. Borrowing by firms actually peaked in 2007 — remember all the leveraged buyouts then. Borrowing by both households and firms fell precipitously in 2008. As a result, total borrowing by households, firms and the government fell in 2008. The last data point in the flow of funds data is from the fourth quarter of 2008. Q1 2009 data isn’t yet available, but the fact that the trade deficit fell so much in Q1 2009 suggests that total US borrowing isn’t rising — at least not faster than US savings.
The fact that the rise in government borrowing has come even as other sectors stopped borrowing has made be a bit more sanguine than some about the ability of the US to find the financing it needs to sustain a large fiscal deficit. But there obviously are still risks. As households and firms rediscover their animal spirits and start to borrow more, the amount the government borrows needs to fall. Otherwise, total borrowing would rise, and the amount that the US needs to borrow from the world would rise. More immediately, while the US is borrowing less from the rest of the world, it is still borrowing from the rest of the world.
A smaller trade deficit is still a trade deficit, and financing that deficit requires ongoing inflows from the rest of the world. That means that some creditor needs to increase their exposure to the US. Yet the crisis also has alerted China’s population — rather belatedly in my view — to the risks of lending to the US.*** The fiscal deficit is a lot more visible than the household deficit. That has had an impact on the popular debate inside China. So far the popular debate inside China hasn’t kept China’s government from continuing to add to its reserves and in the process finance the US. But it certainly has changed the tone of Sino-American discussions. Back in 2006 and 2007, China wasn’t talking about the need for the US to reduce its trade deficit by limiting the borrowing of US firms and households …
The dislocations associated with the crisis temporarily eased the financial pressures facing the US. Americans sold their foreign assets faster than foreign investors sold their US assets (in part because American money market funds stopped lending to European banks, forcing them to scramble for dollars cash). But those dislocations have eased — and with commodity prices rising on hopes that the emerging world will rebound quickly from the crisis, the US is likely starting to need to borrow more from the world just when private demand for American financial assets is starting to fade. That isn’t terribly comfortable –even if it actually isn’t all that different from 2007.
At the same time, the available data (which admittedly lags developments in the economy) does not show that the US as a whole is borrowing more than in the past. The rise in government borrowing has offset a fall in private borrowing. And since Treasury rates now (even after last week) are well below Treasury rates back when private borrowing was far higher, it is pretty clear that the rise in Treasury borrowing didn’t induce the fall in private borrowing (crowding out). Rather, the rise in Treasury borrowing came in response to a crisis-induced collapse in private borrowing. From 2004 to 2007, net borrowing by American households and firms averaged over $1.8 trillion. In q4 2008, it was less than zero. That is a rather large swing.
* Technically, a current deficit can be financed by selling equity rather than debt, so equating the current account deficit with the amount the US borrows from the world isn’t quite right. But in general the US has financed its deficit by selling debt not equity, so it isn’t a bad rough approximation.
** Firms are defined as non financial corprate businesses and nonfarm noncorporate businesses in table F1 of the flow of funds data. government includes state and local government.
*** The risks that China is taking financing the US now aren’t materially larger than the risks China took financing the (large) US trade deficit of 2006, 2007 and the first part of 2008 in dollars at low rates. So long as China’s government keeps its currency systematically below its market clearing rate, it risks large currency losses. The fact that most of the deficit then came from excesses in the household sector didn’t diminish the risk.
Don't write off the deflation danger just yet
Last autumn, when the panic about the world economy was at its peak, one thing which, along with everything else, deeply troubled the markets, was the prospect of deflation, that is to say, a period of falling prices across the economy. This conjured up images of Japan in the 1990s, if not the west in the 1930s. And it was widely recognised that, if it occurred on any scale, deflation would make the plight of the economy worse, as it would increase the real value of debts and cause people to postpone spending. You could see this fear clearly in market prices.
The gap between the yields on conventional government bonds and their inflation-protected (index-linked) cousins gives a measure of the market's expected rate of inflation. At one point towards the end of last year, for five year stocks, in the UK and the US, this gap was negative, indicating that falling prices on average were expected over this period. In France the gap was only about 0.5pc. Now these gaps are back up to about 1.5pc in all three countries. The markets appear to have decided that the deflation scare is over. Are they right? At one level they appear to be wrong. Last week saw figures from the euro-zone showing inflation falling from 0.6pc to zero. In Germany, inflation dropped from 0.8pc to minus 0.1pc. German inflation hasn't been negative for over twenty years.
This isn't the only area to be experiencing deflation for the first time in recent history. In April headline inflation in the US was minus 0.7pc. Inflation there turned negative back in December – for the first time since 1955. And deflation is emerging in Asia too. Japan is no stranger to deflation, of course, but now China, Singapore and Taiwan have it too. The UK inflation experience is a little different from elsewhere. Admittedly, we are already experiencing deflation on the RPI measure, which fell to minus 1.2pc in April. But this measure has been heavily pulled down by falling mortgage interest payments. CPI inflation is still 2.3pc. And although CPI inflation looks likely to fall much further in the coming months, it is looking unlikely that it will actually go negative this year.
So, current UK experience aside, why the insouciance on the part of the markets? They know that these sharp falls in inflation are being driven by the reversal of the rises in food and energy prices that pushed inflation up so sharply over the past couple of years. Once oil and commodity prices stabilise, then however low inflation goes in the short term, it will bounce back to something like its underlying rate. In fact, oil and commodity prices have even started to reverse some of their recent falls. The oil price last week broke the $60 per barrel barrier for the first time since last November, rising to $63 per barrel. Agricultural commodity prices are also now 25pc above their trough this March. So at some point there could even be another spike in inflation driven by higher commodity and energy prices.
But the markets should also know that dips into deflation caused by sharp movements of commodity prices are not what the real deflation danger is all about. The real risk has always lain with the behaviour of wages. And that danger is still very much alive. Don't be silly, I hear you say. Earnings are still rising at a relatively healthy clip. In the euro-zone, the annual growth rate of hourly labour costs stood at a robust 3.8pc in Q4 of last year. Admittedly, earnings growth in the US has slowed to a four year low. But annual growth of average hourly earnings in April was still 3.2pc. However, earnings react to changes in the labour market with a lag. And in the past, when unemployment has risen sharply – as it is doing now – average earnings growth has slowed significantly.
In both the US and the euro-zone, it will not be long before earnings growth is close to zero, and quite possibly negative. This could easily open the door to a far more serious deflation problem. Trend productivity growth in the euro-zone is around 1pc. Even stagnant wages would therefore leave unit wage costs falling by 1pc per annum. In the US, trend productivity growth is rather higher at 2pc to 2.5pc, suggesting that unit labour costs could fall even more sharply there. And unit labour costs are the ultimate foundation for core rates of inflation. If firms' unit labour cost are falling and they are competing for business in a very difficult market then they will cut their prices. Could it happen here? The main reason for our different inflation experience at the moment is the drop in the pound. This has kept imported food price inflation high and prevented energy prices from falling so much in sterling terms. The behaviour of core inflation in the UK has actually not been that different to elsewhere.
Of course, the pound has recently been creeping up again. It now stands 16pc above its trough against the dollar and up by 10pc in trade-weighted terms. But sterling would have to rise another 25pc or so to get back to the highs reached in 2007. I doubt that it will do this. (I certainly hope not.) But this is not necessary for the relative inflationary effect of the weak pound to fade out over time and for our inflation rate to converge on the core rate. But what will be happening to the core rate? It all depends upon unit labour costs and the state of demand in the economy. In fact, pay here seems to have responded more quickly to the economic downturn. Average earnings growth actually turned negative earlier this year.
Although this was primarily due to the impact of sharply lower bonuses in the City, the figure was also boosted by continued strong pay growth in the public sector. And that can't last. In the private sector not a day goes by without another company announcing a freeze or even a cut in regular pay. So the upshot is that the deflation danger is not yet old hat. People are watching the wrong thing. Don't look at the short term twitchings of the RPI or CPI but rather at the behaviour of wages and salaries. Of course, if the Chancellor is right and by the end of this year the economy is bouncing back strongly, then the deflation danger, like all the others, will quickly melt away as the strengthening economy eventually boosts employment prospects, pay rates harden and firms are more able to push prices up. But if you want to back that particular horse, I would strongly advise you to put your money on each way.
Some World Bank Health Programs Ineffective, Report Says
One-third of World Bank health, nutrition and population programs from 1997 through 2007 produced unsatisfactory results, with weak monitoring and overly complex projects contributing to the problem, according to the institution's internal watchdog. The report, released yesterday by the World Bank's Independent Evaluation Group, paints a disturbing portrait of ineffectiveness in areas vital to public health in the developing world. Programs designed to combat HIV-AIDS in Africa, for instance, had only a 25 percent success rate, compared with an 80 percent success rate for World Bank programs overall.
Many projects lacked a procedure to ensure that the poorest and most needy were receiving assistance. Others were poorly implemented. A $26.6 million HIV-response project in Ghana from 2000 to 2005, for example, failed to target populations at risk of contracting the virus. "A third of the projects did not meet their objectives," Cheryl Gray, IEG director, said. "Over-complexity is a problem, as is the lack of capacity of countries to implement the programs." Many programs, the report said, were extraordinarily successful, including an anti-malaria campaign in Eritrea that succeeded in reducing deaths by 85 percent.
The report comes as the Bank is attempting to launch millions of dollars worth of emergency programs to aid Mexico with the swine flu outbreak and governments are being asked to give billions of dollars to help institutions such as the World Bank combat the financial crisis. "The timing of this report is important," said Eswar Prasad, senior fellow at the Brookings Institution and professor of trade policy at Cornell University. "It is a cautionary note about long-held concerns that money to these institutions can generate a lot of waste."
World Bank officials acknowledged flaws in their health programs and said they were preparing to take steps to fix them. They said the Bank is moving to double its staff dealing with malnutrition, and would seek ways to streamline existing programs. Yet operating under difficult conditions in places such as Africa, officials said, remains challenging. "I accept much of the report; I accept it as constructive criticism," said Julian Schweitzer, World Bank director of health, nutrition and population. "In hindsight, some of these projects were too complex. But I also want to make a point that health is complicated. It is very hard to develop a good health system."
Canada's economy shrinks 5.4 percent
The Canadian economy contracted at a 5.4 percent annual pace at the start of 2009. It's the largest quarterly decrease since a record 5.9 percent drop in the first quarter of 1991. TD Bank Chief Economist Don Drummond and Royal Bank Chief Economist Craig Wright say the decline is slightly better than expected. Monday's report from Statistics Canada follows a 3.4 percent decline in the fourth quarter of 2008. Canada has avoided bank bailouts and has not experienced the failure of any major financial institution. There has been no crippling mortgage meltdown or banking crisis north of the border where the financial sector is dominated by five large banks. But the global sell-off of commodities have hit Canada hard.
Chinese manufacturing expands in May
China's manufacturing expanded in May, adding to signs the world's third-largest economy might be recovering from its slump, but growth was weak despite huge stimulus spending, according to two surveys released Monday. Brokerage CLSA Asia-Pacific Markets said its purchasing managers index rose to 51.2 from April's 50.1 on a 100-point scale. Numbers above 50 show an expansion. The state-sanctioned China Federation of Logistics and Purchasing said its own PMI eased slightly to 53.1 from April's 53.5 but still showed activity expanding.
"For the first time the PMI shows genuine evidence that policy really is gaining traction," CLSA economist Eric Fishwick said in a statement. A purchasing manager is an employee who oversees the acquisition of goods and services for a company. Economists see the PMI as a better indicator of China's economic outlook than measures such as gross domestic product growth because it includes forward-looking elements such as new and export orders. The figures add to mounting signs that Beijing's 4 trillion yuan ($586bn) stimulus is starting to show results, boosting domestic demand to offset lackluster exports. Consumer spending, auto sales, bank lending and investment also are up.
Both surveys showed factory output and news orders expanding in May, a possible sign the stimulus spending is helping to boost demand. CLSA said export orders fell in May for a 10th straight month but not as sharply as in April, while the Federation of Logistics said exports improved but gave no details. "The nation's economic recovery is in a preliminary form but still has not achieved comparatively high prosperity," said Zhang Liqun, an economist for a Cabinet think tank, in a statement released by the Federation of Logistics.
The collapse in global demand for Chinese goods threw as many as 30 million migrants out of work as thousands of export-driven factories closed, according to the government. Some are believed to have found new jobs with stimulus-financed building projects but no comprehensive figures have been released. Beijing is trying to shield China from the global downturn by pumping money into the economy through spending on building highways and other public works. Most of the money has gone to state-owned construction companies and suppliers of steel and cement but it has begun to reach the private sector as those companies pay workers and buy materials.
Premier Wen Jiabao and other officials say the stimulus is starting to take effect but have called for continued vigilance, warning that a full-fledged recovery still depends on a rebound in the global economy. Consumer spending in April rose 14.8 percent from a year earlier. Also in April, auto sales rose for a fifth straight month, jumping 25pc from a year earlier to a record high of 1.15 million units. CLSA said its indicator for manufacturing employment fell in May to a neutral 50 from April's slight expansion of 50.9.
Next Crisis Looms for German Economy
In the end, Berlin managed to find a solution for ailing Opel. But the carmaker isn't the only German company listing toward bankruptcy. Indeed, the next crisis, that of department store chain Karstadt, has already become an issue in Germany's developing election campaign. The sighs of relief could be heard across the republic this weekend. After months of hand-wringing and hard work, the German government, in conjunction with the Canadian auto-parts supplier Magna and its Russian partners, finally managed to find a way over the weekend to save Opel from being dragged down by its US parent General Motors.
The price tag for German taxpayers was, at €1.5 billion ($2.12 billion) in bridge financing, not insignificant. But Berlin hopes that most of the 25,000 German jobs at Opel will be saved. That's the good news. The bad news is that, with Opel safe and snug under the government umbrella, there are a number of other German companies that would like some taxpayer-funded shelter as well. Tops on the list is Arcandor, owner of the enormous department store chain Karstadt -- and tens of thousands of jobs may depend on what the government decides to do.
On Sunday, the dilemma turned into a full-fledged campaign debate as leading German politicians begin jostling for position ahead of general elections in just under four months. And, just as he did in the Opel conundrum, German Foreign Minister Frank-Walter Steinmeier -- who is also the Social Democrats (SPD) candidate to challenge Chancellor Angela Merkel for her job -- went public with a demand that Karstadt be saved. "We need a concept for the future, one which ensures the survival of lively department stores and lively city centers," he told the tabloid Bild am Sonntag. In response to those voicing doubt about a Karstadt bailout, Steinmeier said "it's as if we shouldn't be concerned about the blighting of city centers in Germany.
And we shouldn't forget, we're talking about 50,000 jobs here." SPD head Franz Müntefering likewise took a few steps down the campaign trail on Sunday, telling the Berlin paper Tagesspiegel am Sonntag that "we want to show that we don't just save industrial jobs, but also in the service sector and jobs for women." But it's not quite as easy as the SPD is making it out to be. As part of its second economic stimulus package pushed through back in February, Berlin included a fund to help out ailing German companies. But it wasn't intended for just any ailing company. Rather it was designated to help those firms that ran into trouble as a result of the financial crisis. More specifically, the €40 billion program was for those companies which were healthy as of July, 2008.
According to the Sunday edition of the Frankfurter Allgemeine Zeitung, some 1,164 companies have applied for state help from the pot with some 345 having already been granted aid. More, worrying, however, is the fact that the Opel deal makes a mockery of the July, 2008 cut-off -- the car company was struggling long before that date. So too was Arcandor, which is what has prompted the grave doubts voiced in Chancellor Merkel's conservative camp as to the wisdom of throwing money at the department store chain.
The company is requesting loan guarantees worth €650 million ($918 million) in addition to a €200 million loan from Germany's state-owned development bank KfW. Leading the anti-charge is Economics Minister Karl-Theodor zu Guttenberg, a member of the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democratic Union (CDU). Sounding much as he did during the debate over the Opel bailout, he told the newspaper Passauer Neue Presse over the weekend that "those who hold out the possibility of hundreds of millions for companies on a federal level without first undertaking a close examination of the company involved is waging a campaign on the backs of the taxpayers."
Roland Koch, the governor of Hesse and deputy head of the CDU, likewise urged caution, saying he was "very skeptical" of an aid package for Arcandor. Guttenberg, for his part, gave voice to similar concerns during last week's last second push to save Opel. The final deal, approved by German states on Sunday, foresees Magna taking on a 20 percent stake in Opel with the Russian-owned Sberbank acquiring a 35 percent holding. GM retains 35 percent with the remaining 10 percent going to Opel employees. The Magna deal will likely result in a cut of some 11,000 jobs at GM Europe (out of 50,000), with 2,500 of those being lost in Germany, where Opel employs just over 25,000 workers.
But Guttenberg attracted the ire of the SPD by wondering aloud if perhaps an Opel bankruptcy would ultimately have been the cheaper way to go. Indeed, the SPD in recent days appears to have been trying to turn Guttenberg into the neo-liberal villain of their election campaign. Now, he appears to be once again offering the SPD an open flank for their campaign offensive. For the SPD, however, throwing its support behind an Arcandor bailout is a risky move. After all there is little to guarantee that state help now will ensure a bright future for the department store chain -- a model which has been under pressure for years in Germany as large malls slowly replace the one-stop shop. It could just delay the collapse.
Berlin set to win HRE majority control
Germany’s government expects to take a decisive step in resolving its biggest banking crisis on Tuesday by winning majority control of Hypo Real Estate, ending a controversial threat of expropriation against investors. The government has clashed with private shareholders over the fate of HRE, which ran into liquidity problems and needed billions of euros in fresh capital to avoid being closed down by regulators. Berlin insists that the bank – which is said by authorities to pose a systemic risk to the banking system – needs to be taken entirely into state control so it can be restructured more easily and at lower cost. Shareholders in the lender will Tuesday vote on a huge share increase to be underwritten solely by the government.
The proposed issue of extra shares to the government, via Soffin, its bank rescue vehicle, would increase Berlin’s stake to 90 per cent. The government already controls 47.3 per cent of HRE after it made a public takeover offer last month. While short of a minority, this stake should be decisive in controlling the extraordinary meeting in Munich, unless there is an unexpectedly large attendance by investors opposed to the government’s plans. HRE management supports the measure. With 90 per cent control, the government should then be able fully to nationalise the bank, invoking a so-called “squeeze-out” process to force remaining minority shareholders to sell their shares. Berlin wants to avoid resorting to expropriation of HRE’s investors to achieve its aims. Expropriation was one of a suite of possible measures approved by lawmakers in April and supported by regulators who fear the contagion for other banks if HRE is forced to shut.
However some investors may argue that the planned “squeeze-out” in such circumstances is tantamount to expropriation – even if the measure has precedent in German takeover law. JC Flowers, the private equity fund that is HRE’s largest private shareholder, remains opposed to the government’s plans to win control and rejects the argument that the bank needs to be entirely in state hands to be restructured. The company bought a stake of almost 25 per cent in HRE a year ago, at €22.50 per share. Christopher Flowers, JC Flowers’ founder, said in an interview with Germany’s Die Welt newspaper at the weekend that it would not support the government-led share increase but acknowledged that the government should be able to push the measure through.
Mr Flowers, who wants to remain as a long-term shareholder to help restructuring and recover some value from the fund’s investment, doubted the legality of a planned squeeze-out and said compensation should be higher than the €1.39 a share offered by the government in its public offer last month. HRE shares have continued to trade slightly above the public offer price, suggesting other investors also believe they may get a better deal – although the government has said any compensation to remaining investors is likely to be made below the public offer price. Meanwhile Axel Wieandt, HRE chief executive, said in an interview with the Frankfurter Allgemeine Zeitung that the company would probably change its name to escape the stigma associated with its near-collapse. Hypo Real Estate was created in 2003 after being spun out of HypoVereins Bank, now owned by Italy’s Unicredit.
Why New Zealanders should fall out of love with Barack Obama
I had very high hopes for Barack Obama. I drank the Kool Aid and bought the ‘Yes We Can’ tee-shirt. He promised a change in America. He talked a very good game about reforming Washington and rooting out the policies as usual. Americans voted for a change to economic and foreign policies run by the Bush-Cheney nexus and their mates on K-Street, where lobbyists for big business hang out. The most beautiful President ever even promised not to start a trade war or turn any dispute into a trade war. I believed him.
But now I don’t. It’s clear to me he is a liar and a fool. New Zealanders should protest his economic and trade policies at every step. Our Prime Minister John Key should use one of those precious few minutes on the phone with the gilded one to tell him to rack off with his protectionism and his bailouts. They damage America and they damage the rest of the world. The honeymoon is over.
He is a liar because he promised a change to the status quo in Washington and he promised not to make the same mistakes from the 1930s that helped turn a recession into a depression. Yet he has done just that. He is a fool because he appointed exactly the wrong people to run his economic policies and has not intervened to stop them doing even more of the ruinous things started under Bush and Cheney. As recently as February 4 Obama was sweet-talking his way around the world, reassuring us that he was a free trader.
“I think we need to make sure that any provisions that are in there are not going to trigger a trade war,” Obama said when the EU and others complained about a ‘Buy American’ clause in his stimulus package. “I think it would be a mistake though, at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade,” he said then.
Contrast this rhetoric with the actions two weeks ago of Tom Vilsack, the Agriculture Secretary he appointed. Vilsack announced export subsidies for over 90,000 tonnes of milk fat and butter, arguing this was a response to EU subsidies and US farmers needed it. “These allocations illustrate our continued support for the U.S. dairy industry, which has seen its international market shares erode, in part, due to the reintroduction of direct export subsidies by the European Union earlier this year,” said Vilsack.
“The Obama Administration remains strongly committed to the pledge by the Leaders of the Group of Twenty to refrain from protectionist measures. Our measured response is fully consistent with our WTO commitments and we will make every attempt to minimize the impact on non-subsidizing foreign suppliers,” Vilsack said. Yes he actually said that.
Of course any American protestations about how much they love free trade is a joke. Lobbyists for large agricultural corporations set the agenda in Washington and have regularly trumped any moves for truly free trade. Ask the Australian sugar farmers what they think of their free trade agreement or what the Vietnamese catfish farmers think of American free trade. The sugar lobbyists ensured Australian cane farmers would never export to America and the Catfish Farmers of America effectively blocked Vietnamese exports of the fish after Bill Clinton signed a free trade deal with America.
I’m fired up about this again after seeing Fonterra’s payout forecast for 2009/10 of NZ$4.55/kg last week. This was worse than economists forecasts of around NZ$5/kg and this was largely due to a higher New Zealand dollar and because the American export subsidies bombshell destabilised the market again. Fonterra is clearly and rightly angry about this American move.
But the collateral damage for New Zealand from Obama’s foolishness is much bigger elsewhere. Obama is trying to out-Bush Bush with the multiple bailouts for banks, insurers and car companies. His astonishing deficit spending is compounding the problem. All these bailouts and deficits are driving up interest rates globally. US interest rates are the benchmark for longer term interest rates globally, including her. It’s clear now that the world’s investors simply cannot lend America the trillions of dollars it needs. Therefore interest rates have to rise. That has already been passed on to New Zealanders in the form of higher 3, 4 and 5 year mortgage rates.
It didn’t have to be this way. But Obama made a crucial appointment early in his presidency that showed he was a fool. He appointed Tim Geithner as his Treasury Secretary. Geithner had been the Governor of the New York Federal Reserve. It was his job over the last couple of years to regulate and understand the big New York banks. He failed dismally. He is clearly too close to Wall St and his reflexive actions have been to bail out the big banks he become close to over the years. He has left the managers in charge of the banks and insurers that lost hundreds of billions of dollars.
Even Obama allies such as Paul Krugman have pointed out that carrying on with the failed bailout policies of Bush was a mistake. Geithner is also widely loathed in Asia because he stuffed up the IMF’s response to the Asia crisis when he was a senior bureaucrat in the IMF in the late 1990s. Those same Asian bankers now don’t trust America’s spend and borrow policies. This will drive the US dollar down further (and therefore the New Zealand dollar up) and increase interest rates.
Yet Obama has persisted. Bailout after bailout has ensued. Barry Ritholz from The Big Picture tells the story best in his book Bailout Nation. It’s clear Obama has no idea that he has gone down the wrong track or, even worse, he knows it’s wrong and doesn’t have the ability or fortitude to change it. He is a liar and a fool that New Zealanders should fall out of love with. I have.
Gerald Celente: The bailout bubble The Mother of all bubbles