Popeye Comments on Events in Japan

I just received an email from Popeye regarding the nuclear crisis in Japan. It was a short message: "That's all I can stands and I can't stands no more." Popeye was upset over all the hype.

Yes, there is a catastrophe in Japan. Yes, the reactors are going to be unusable. And yes there is a huge problem regarding radioactive water.

Yet, any rational person could figure all of that out weeks ago.

So with each passing minute, someone, somewhere has to trump up something regarding the nuclear crisis in Japan to absurd levels.

As a prime example, please consider Who Are the Liquidators?

The prime minister of Japan has said that his government is �not in a position where we can be optimistic� about the Fukushima Daiichi Nuclear Power Plant.

Is there any logical conclusion to draw from that statement other than that a large chunk of Japan is going to be uninhabitable?

Blue Ribbon For Hype Award

There is no point in reading an article beyond such absurd hype. There are hundreds of logical possibilities and conclusions one might draw.

The first thing on my mind certainly would not have been that a "huge chunk of Japan was about to become uninhabitable".

I would have thought something along the lines "the Fukushima Daiichi Nuclear Power Plant is totally destroyed". However, I assumed that well over a week ago.

Note that the author did not even phrase his opinion as a "possibility" but rather as an inevitable "logical conclusion".

When you hit a sentence like that, you know the author is in competition for the blue ribbon for hype award. There is no point in reading further because the author has already completely discredited himself.

However, I do point out the site trumping up that "logical conclusion" has an appropriate name This Can't Be Happening.

Presenting hype as a forgone logical conclusion needs to stop.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Fed Releases 895 PDFs in Response to Court Order; Fed Does Not Disclose Collateral for Loans; Why Secrecy is a Problem; FDIC's Role in the Mess

At long last the Fed has responded to court pressure and the freedom of information act to release the names of banks receiving funds during the height of the crisis. The Fed packaged information into 895 individual PDFs and no doubt someone will compile a list soon.

Unfortunately, no one can really say what risks the Fed took because the Fed does not disclose what collateral it accepted for the loans.

Please consider Fed Releases Discount-Window Loan Records Under Order

The Federal Reserve released thousands of pages of secret loan documents under court order, almost three years after Bloomberg LP first requested details of the central bank�s unprecedented support to banks during the financial crisis.

The records -- 894 files in PDF form that must be individually opened and read -- reveal for the first time the names of financial institutions that borrowed directly from the central bank through the so-called discount window. The Fed provided the documents after the U.S. Supreme Court this month rejected a banking industry group�s attempt to shield them from public view.

�This is an enormous breakthrough in the public interest,� said Walker Todd, a former Cleveland Fed attorney who has written research on the Fed lending facility. �They have long wanted to keep the discount window confidential. They have always felt strongly about this. They don�t want to tell the public who they are lending to.�

The central bank has never revealed identities of borrowers since the discount window began lending in 1914. The Dodd-Frank law exempted the facility last year when it required the Fed to release details of emergency programs that extended $3.3 trillion to financial institutions to stem the credit crisis. While Congress mandated disclosure of discount-window loans made after July 21, 2010 with a two-year delay, the records released today represent the only public source of details on discount- window lending during the crisis.

�It is in the interest of a central bank to put a premium on protecting its reputation, and, in the modern world, that means it should do everything to be as transparent as possible,� said Marvin Goodfriend, an economist at Carnegie Mellon University in Pittsburgh who has been researching central bank disclosure since the 1980s.

�I see no reason why a central bank should not be willing to release with a lag most of what it is doing,� said Goodfriend, who is a former policy adviser at the Richmond Fed.

The Fed documents released today show the central bank providing credit to borrowers large and small. A page described as �Primary Credit Originations, February 5, 2008� lists the New York branch of Deutsche Bank AG with a loan of $455 million from the New York Fed. On the same day, Macon Bank is listed with a $1,000 loan from the Richmond Fed.

Lending through the discount window soared to a peak of $111 billion on Oct. 29, 2008, as credit markets nearly froze in the wake of the bankruptcy on Sept. 15, 2008, of Lehman Brothers Holdings Inc. While the loans provided banks with backstop cash, the public has never known which banks borrowed or why. Fed officials say all the loans made through the program during the crisis have been repaid with interest.

The Fed was forced to make the disclosures after the U.S. Supreme Court rejected an appeal by the Clearing House Association LLC, a group of the nation�s largest commercial banks.

Discount-window lending was not the largest source of the Fed�s backstop aid during the crisis. Bernanke also devised programs to loan to U.S. government bond dealers, and to support the short-term debt financing of U.S. corporations.

Also consider Bernanke�s Fed Responds to Pressure for More Transparency

For most of its 98-year history, the Federal Reserve has operated with all the transparency and enthusiasm for change of the Vatican. Now the ultra-secretive Fed is starting to change its ways, if somewhat grudgingly. Some of the new openness, such as Chairman Ben S. Bernanke�s plan for quarterly press briefings, is the central bank�s idea. Much of it comes under duress.

�The free-market system only works if it�s fully informed,� says Lynn E. Turner, who battled the Fed over disclosure issues while serving as the Securities and Exchange Commission�s chief accountant from 1998 to 2001. �There�s a lot of similarity between the Fed and an SUV with blacked-out windows.�

The Fed says such calls threaten its core function: preserving market confidence by acting as a lender of last resort. Publicizing the names of discount-window borrowers could spark bank runs or discourage sick banks from seeking help until they are fatally compromised. �The full monty may not be a good thing,� says Frederic Mishkin, a former Fed governor.

For the Fed, keeping information from investors is nothing new. Congress last year had to pry loose the details of $3.3 trillion worth of crisis-fighting programs that relied on the central bank�s vault. In the late 1990s, the Fed successfully resisted the SEC�s attempt to require banks to stop using hidden funds, or �cookie jar reserves,� to smooth quarterly earnings, says Turner.

Some former Fed insiders say the public should routinely be clued in when private institutions tap the public purse, in the same way the SEC requires companies to inform investors of major financial events. �This should be material information. Investors should have the right to know,� says Roberto Perli, a former Fed board economist who is managing director of International Strategy & Investment in Washington.

So what did we find out?

Not much, because the Fed did not disclose collateral.

Notice the misguided policies of the Fed and FDIC though. By preventing all bank runs for decades, the Fed instilled an artificial and undeserved confidence in banks.

It would be far better to disclose banks in trouble, let them go under one at a time quickly, rather than have a gigantic systemic mess at one time.

Secrecy, in conjunction with fractional reserve lending is an exceptionally toxic brew. Overnight trust can change on a dime, system-wide, and it did.

Moreover, by keeping poor banks alive (and my poster-boy for this is Chicago-based Corus Bank for making massive amounts of construction loans to build Florida condos), more money pours into failed institutions further increasing toxic loans.

Failure of FDIC

FDIC is a part of the problem. When the government guarantees deposits, everyone believes in every bank no matter how poorly they are run or what risks those banks poses. No one has any incentive to seek a bank with good lending practices. Instead they seek a bank that pays the highest yield because it is guaranteed.

Driving deposits to banks that take the most risk is no way to run a system. Yet, that is precisely what the FDIC does, up to the FDIC limit of course.

People look at FDIC as a big success because there was no crisis for decades. Instead, we had one gigantic crisis culminate at once, hardly a fair tradeoff for periods of artificially low problems.

FDIC is Fraudulent

No only is FDIC a problem, it is outright fraudulent to guarantee deposits that cannot possibly be guaranteed in a fractional reserve Ponzi-scheme system.

For further discussion of the problems with fractional reserve lending please see Central Bank Authorized Fraud; Fractional Reserve Lending Problems Go Far Beyond "Duration Mismatch"

Also see an excellent discussion on the Acting Man blog: Fractional Reserve Banking Revisited

Ending the secrecy is easy. Simply abolish the Fed. However, that not the only thing that needs to happen. For a look at solutions, please consider Geithner's Blatant Lies at the G20 Meeting; Four-Pronged Solution

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Geithner's Blatant Lies at the G20 Meeting; Four-Pronged Solution

Proving that he cannot find his ass with two hands and a road map, Treasury secretary Tim Geithner says inflexible currencies are biggest monetary problem.

Tightly controlled exchange rate regimes are the main flaw in the international monetary system and the solution is simple, U.S. Treasury Secretary Timothy Geithner told a G20 meeting on Thursday.

In a thinly veiled swipe at the Chinese hosts of the seminar of the Group of 20 wealthy and developing economies, Geithner said that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order.

Both French President Nicolas Sarkozy and Chinese officials have said it is time to consider bringing the yuan into the basket of currencies that constitutes the SDR, which is currently restricted to the dollar, euro, yen and pound. Geithner suggested that certain conditions should be met first.

"We believe that currencies of large economies heavily used in international trade and financial transactions should become part of the SDR basket, and that to achieve this objective, the concerned countries should have flexible exchange rate systems, independent central banks, and permit the free movement of capital flows," he said.

Emphasizing that solutions to the global monetary system's problems rest at the national level, Geithner said the United States had made progress in fixing the policy mistakes that caused damage in the global financial crisis but still had work to do.

"We are committed to ... fiscal reforms that will reduce deficits as a share of the economy to three percent over the next several years so that we stabilize the ratio of debt to GDP at a level that will not threaten future economic growth," he said.

Lies, Lies, and More Lies

It is hard to know where to start disputing the lies. Clearly the US has shown no interest in fixing the budget deficit. Republican and Democrats are locked in a battle over $30 billion, an amount less than 1% of the budget, and a mere 1.875% of the $1.6 trillion deficit.

For more on the battle, please see Pissing and Moaning Over 1.875% of the Budget

More importantly, does anyone in their right mind think that had China floated the Yuan, we would not have had this global crisis?

Rampant credit expansion, unbridled central bank stimulus, deficit spending, and interest rates held too low too long is what created the crisis.

China still suffers from rampant credit expansion, and unbridled central bank stimulus, and interest rates held too low too long. The US and EU suffer from two of those. In addition, the EU has a myriad of problems stemming from a currency union but no fiscal union.

Japan has a debt to GDP ratio of 200% and growing and Keynesian clowns think the solution for Japan is to go deeper in debt. For that discussion, please see Window for More Idiocy is Always Open

Four-Pronged Problem

1. Central banks micromanaging interest rates
2. Factional reserve lending
3. No enforcement mechanism to solve trade imbalances
4. Rampant deficit spending in country after country

For a discussion of the problems with fractional reserve lending please see Central Bank Authorized Fraud; Fractional Reserve Lending Problems Go Far Beyond "Duration Mismatch"

Also see an excellent discussion on the Acting Man blog: Fractional Reserve Banking Revisited

When Nixon closed the gold window, the enforcement mechanism (settling trade deficits in gold) went out the window with it. That was the last check on fiscal sanity everywhere, and created a license for governments to spend, central banks to print, and trade imbalances to soar.

IMF SDR Non-Solution

Buffoons will be all over Geithner's and Sarkozy's statements predicting the end of the dollar and the beginning of the Yuan as a reserve currency. Forget about it.

Look at the four problems above. Does the IMF wet dream of SDRs (special drawing rights) fix anything? What backs SDRs? What is the enforcement mechanism for curing trade imbalances? Is the Yuan going to be a major reserve currency?

The answers are No, Nothing, None, No.

And "No Timmy Boy", tightly controlled exchange rate regimes are not "the" problem but rather an obscure symptom of the problem.

Giethner said the solution was not complicated. That depends on the meaning of "complicated".

Four-Pronged Solution

1. Institute a 100% gold-backed dollar
2. Kill fractional reserve banking
3. Abolish the Fed (Central banks in general)
4. Balanced Budget Amendments

Do those things and problems will go away. China will not be able to fix its currency, print like mad, and waste money on enormous property bubbles. Nor will any government be able to print like mad and get away with it.

Blaming the Yuan is like blaming pimples instead of blaming oily skin that causes pimples. China is nothing more than a convenient scapegoat for failed policies of the Fed, the Bush administration, and the Obama administration.

Unfortunately, governments do not want to fix the problems because they all want to print like mad and they all want to do what they want, when they want. Eventually however, the market takes matters into its own hands like it did with Greece.

Bear in mind I do not think it would be possible to implement my Four-Pronged solution big bang, but it certainly could be phased in over a number of years.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Window for More Idiocy is Always Open

The Window for Idiocy is open. Then again, it always is. No matter how how many times a piss poor policy has been tried and failed, nutcases want to try it bigger and bigger, expecting different results.

Proposals to "fix" what ails Japan provide the perfect example. Please consider Japan Urged to �Seize This Moment� or Face Another Lost Decade.

Japan begins forging a road map for recovery from its worst postwar disaster next month, a process that may determine whether it sheds the legacy of the 1980s bubble or has a third �lost decade� of stagnation and deflation.

Key to the result: whether the nation�s companies end an aversion to borrowing, taking on debt to propel domestic investment and wage gains, and whether policy makers embrace a stimulus financed by Bank of Japan money creation, analysts said.

�The only time you can get things done is in moments of genuine crisis and catastrophes -- there�s a small opportunity to do an extraordinary amount,� Malcolm Gladwell, author of �The Tipping Point,� who writes for New Yorker magazine, said in an interview with Bloomberg Television. �Japan -- a country whose politics were in deadlock and sluggish for many, many years -- I hope they can seize this moment and accomplish a lot.�

�The window is not likely to be open for more than a few months� to set a �bold� course of action that changes the economy�s direction, said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. Feldman�s bold scenario envisages 40 trillion yen of total new spending, with no tax increases and 50 percent financing by the BOJ.

Because Japan is already in deflation, the risk of monetizing the debt is low, according to some analysts. Consumer prices, excluding fresh food, haven�t sustained a 1 percent increase in sequential years since the early 1990s. BOJ board members identify stable prices as an inflation rate of around 1 percent.

Borrowing as a percentage of assets slid to an average of 43.7 percent last decade from 69 percent in the 1990s as companies de-leveraged. The figure stood at 42 percent at the end of March 2010, the most recent BOJ data available. Willingness to borrow again may help propel growth, said Richard Koo at the Nomura Research Institute Ltd. in Tokyo.

�There�s been a debt-rejection syndrome, and we needed a shock to get out of it -- this may actually do it,� said Koo, chief economist at the research arm of Japan�s biggest brokerage. �Companies will have to borrow money because they�ve got to get themselves back in production.�

�The instincts of the DPJ are on the cautious side; however, the DPJ is also practical, and realizes that it must support the economy and economic revival,� said Feldman, who has analyzed Japan�s economy since the 1980s bubble years. �After an initial period of caution, I expect a swing toward the bold scenario.�

�The window is not likely to be open for more than a few months� says Robert Feldman. Ironically, his proposal is clear proof the window for idiotic ideas is always open.

For 20 years Japan was on a fool's mission to produce stimulus via Keynesian and Monetarist stimulus. The only thing those policies ever accomplished was to increase nation debt. Yet, Feldman wants to try again, hoping to spur inflation. When it does come, it will come in spades.

Analysts says that "Because Japan is already in deflation, the risk of monetizing the debt is low".

That is as silly as believing that home prices always go up.

The situation in Japan is so dire that if interest rates were to rise to a mere 3%, interest on the national debt would consume all revenues. That sure seems like a lot of risk to me.

At some point debt matters. I do not know when it matters, but to believe otherwise as Richard Koo, Robert Feldman, and Malcolm Gladwell proves that they have not learned a thing from history. It's really quite pathetic.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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How the CRA Fueled the Housing Bubble

President Obama wants to expand the Community Reinvestment Act. Thus it should be no surprise that a self-serving report by the Obama Administration concludes that CRA "greenlining" (forcing banks to lend to low-income neighborhoods) did not contribute to the housing bubble or the financial crisis.

Investor's Business Daily takes apart ACORN and the CRA in an editorial Community Reinvestment Act: Separating Fact From Fiction

In light of the Obama administration's stated goal of expanding the CRA, separating fact from fiction regarding this issue is of towering importance � to set the historic record straight and to prevent another financial calamity.

FICTION: Because the CRA was passed in 1977, long before the subprime crisis, it couldn't have caused the recent explosion in bad loans.

FACT: The toothless 1977 regulations fully expired in July 1997, when President Clinton rewrote them to toughen CRA enforcement as part of a crusade to close the "mortgage gap" between blacks and whites.

For the first time, banks were required to show results. One of the five performance criteria in the "lending test" � the most heavily weighted component of the CRA exam � was adopting "flexible lending practices" to address the credit needs of poor borrowers in "predominantly minority neighborhoods." Banks that didn't bend their underwriting rules risked flunking the exam.

Ex-Federal Reserve Board Gov. Lawrence Lindsey, a staunch CRA defender, acknowledges that the changes "did contribute to a downgrading of credit standards."

FICTION: "Many of these (CRA) loans were not very risky," the FCIC report claims.

FACT: Studies show that CRA loans have higher delinquencies and defaults and act as a major drag on bank earnings. In 2008, CRA loans accounted for just 7% of Bank of America's total mortgage lending, but 29% of its losses on home loans. Also, banks with the highest CRA ratings tend to have the lowest safety and soundness ratings.

FICTION: Only 6% of subprime loans were originated by banks subject to the CRA, so the vast majority of risky lending was not tied to the law.

FACT: Among other things, the figure does not count the trillions of dollars in CRA "commitments" that WaMu, BofA, JPMorgan Chase, Citibank, Wells Fargo and other large banks pledged to radical inner-city groups like Acorn, Greenlining and Neighborhood Assistance Corp. of America (NACA) after they used the public comment process to protest bank merger applications on CRA grounds.

All told, they shook down banks for $4.6 trillion in such commitments before the crisis, boasts a report by the National Community Reinvestment Coalition, or NCRC, the nation's top CRA lobbyist (which conveniently removed the report from its website during the FCIC hearings).

FICTION: "These loans performed well," the FCIC report maintained.

FACT: Brookings found that the loan commitments were set aside for low-income minorities with "marginal credit scores" and posed a higher risk. They were even riskier than regular CRA loans, because the banks delegated underwriting authority to the nonprofit shakedown groups, which had no experience judging credit risk.

NACA thinks traditional underwriting standards are "patronizing and racist." It advertises that anyone � "regardless of how bad your credit is" � can qualify for the mortgages it's arranged through special deals with banks. Not surprisingly, one study found that its delinquency rates were eight times higher than the national average.

Banks reported delinquency rates ranging from 5% to 50% on loans made pursuant to their merger-related commitments.

Yet the FCIC refused to investigate the more than 300 CRA agreements that banks and community organizers entered into before the subprime bubble burst.

Despite repeated requests by Commissioner Peter Wallison, the panel never examined the performance of the trillions in loan commitments.

Why would Chairman Angelides steer blame away from the CRA? Because he's a big fan of the CRA. And as California state treasurer, from 1999 to 2007, he steered billions in state funds into unsafe CRA mortgages securitized by Freddie Mac.

At the time, Greenlining advised Angelides on where to invest California state funds, even providing him with its own CRA report card on "good" and "bad" banks. He has also personally benefited from CRA projects brokered by his real estate development firms, according to "The Great American Bank Robbery."

As part of the CRA racket, Angelides should have been a witness in the crisis investigation, not its chief inquisitor. With the cover-up complete, he now hopes that CRA critics will go away.

"The debate about the role of the CRA should now be over as evidence presented in the commission's report is clear," Angelides declared earlier this month.

Sorry, sir, but the debate will end when the public has all the facts, not just your cooked report.

The CRA certainly did not cause the financial crisis. However, it did contribute to it.

Ironically, the very same people who insisted money be lent to people who could not afford houses are the very same people now bitching about those same "predatory loans".

Forcing banks to lend money is a piss poor idea. Piss poor loans help neither the lender nor the borrower. Yet, those who added fuel to the housing bubble have now whitewashed their role in the affair and beg for still more funds.

President Obama want to expand the CRA. Instead it should be added to the scrap heap of history along with Fannie Mae, Freddie Mac, HUD, HAMP, and thousands of affordable home programs all of which did anything but make homes affordable.

Now that home prices are falling, one might think the affordable home advocates would be happy. They are not. The hypocrites now want to prop up home prices on the belief that falling home prices hurt neighborhoods.

When dealing with misguided activists and self-serving fools you simply cannot win.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Pissing and Moaning Over 1.875% of the Budget

Democrats and Republicans are horn-locked in a debate about whether budget cuts should be $30 billion or $60 billion.

Senate Majority Leader Harry Reid, says President Barack Obama�s offer to accept a total of $30 billion in spending cuts for 2011 is �clearly in the same ballpark� with what House Republican leaders asked for.

The pathetic debate lingers on.

Please consider Budget Negotiations Stall Amid Charges of Inaction as U.S. Shutdown Looms

Republicans and Democrats in Congress traded charges over which party is stifling agreement on budget cuts needed to avert the first U.S. government shutdown in 15 years.

With no accord in sight on legislation to extend government spending past April 8, Senate Majority Leader Harry Reid, a Nevada Democrat, accused Republican leaders of trying to placate an �extreme minority� of their party by spurning an offer to reach a deal.

President Barack Obama�s offer to accept a total of $30 billion in spending cuts for 2011 is �clearly in the same ballpark� with what House Republican leaders initially sought before their rank-and-file demanded deeper reductions, Reid said.

�Are they afraid to tell the extreme Tea Party members of their caucus that they�re trying to find common ground with Democrats?� Reid asked yesterday at his weekly news conference.

Pathetic Performance by Both Parties

Quite frankly this is a pathetic performance by both parties. Moreover, I will flat out state the Republicans have only themselves to blame.

By offering a piss poor budget reduction of a mere $60 billion, they now look like the bad guys for not meeting the Obama half-way at $30 billion.

Just the Math Maam

Please do the math. $30 billion is a mere 1.875% of the budget. That is what everyone is pissing and moaning over.

If Republicans had any balls, and they clearly don't, they would have proposed cutting the budget by $300 billion. Then, a compromise at $150 billion would have been a mere 9.375% of the deficit.

It is is bad enough to argue over 9% of the budget, so what does it mean to bicker over 1.875% of the budget?

What it means is that neither party has the balls to fix a damn thing. It also means the Republicans can blame themselves for being placed in this absurd position.

Addendum:

Reader Don comments ...

"Don't you mean 1.875% of the deficit? I believe $30 billion is less than 1% of the budget."

Don is correct, proving even more so just how absurd all this pissing and moaning is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Addicted to the Nanny State; Politicians are Like Pushers

Here is an email from reader Buck Novak in response to Misguided Views of Libertarian Economics and the Alternative "Regulation" Model

Buck writes ...

Hello Mish

I find it interesting that people who hate big corporations embrace the ever-growing nanny state. The reality is the nanny state is nothing but a gigantic corporation that hires those who would not be hired in the private workforce at prices far more than they are worth.

In many respects, government is no different than big business. Governments, like business want to grow. Bureaucrats always want more employees and bigger budgets.

The difference is the nanny state is run by politics not by profit. It is run for a political agenda.

If you want a perfect example of a corporation too big to succeed, it's the government.

Take a look at those protesting in Wisconsin, Illinois, Ohio and elsewhere.

Who is protesting government cuts? Why it's government employees. They protest for their benefit, not the benefit of the public at large and they want government to use even more force to take what it needs.

What does it take to stop the madness?

The Ever-Growing Nanny State

Through a process of extortion, coercion, and vote buying, a population too dumb to figure out what is really going on becomes addicted to the nanny state. The only ones who benefit are the politicians and the nanny employees. They are in bed with each other.

Unfortunately, misguided souls buy into the propaganda of the politicians and the public unions and clamor for more "nannyism" even though the process makes slaves out of everyone.

Students are especially prone to supporting the nanny state in return for student loans that make those same students debt slaves for life.

For more on the slavery aspect of public unions and collective bargaining advocates, please see

1. Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!


2. Collective Bargaining neither a Privilege nor a Right

There is one major difference between private business and the nanny business. Huge mistakes will eventually force big businesses out of business. However, the bigger the mistakes of the nanny state, the faster it grows. The current $1.6 trillion deficit should be proof enough.

Stopping the Madness

What does it take to stop the madness?

It takes people willing to be involved. It takes leadership from Congress. It takes politicians willing to stand up to the public unions whose mission it is to addict everyone on nanny drugs.

There is one other thing that would crash the nanny state: Force of the market.

Greece is the perfect example. Unless we want to become like Greece, we must take action to halt the nanny state now.

Politicians are Like Pushers

Public union employees and those addicted to the nanny state need an ever-increasing "fix". They are like drug addicts, and politicians are like pushers.

Think about drug addicts willing to do anything for their daily fix. Addicts will coerce, bribe, or steal to get what they want. Public unions are no different.

Those not addicted are not equally motivated. Indeed, no one is as motivated as a drug addict in need of a fix. Like pushers, politicians supply the "fix" in return for votes. Thus, overcoming inertia of the nanny state and its addicts is difficult.

I commend those like New Jersey Governor Chris Christie, Senator Rand Paul, Congressman Ron Paul, and Wisconsin Governor Scott Walker for their efforts to rein in the nanny state. It's not an easy process. Those addicted to the nanny state are willing to do anything to get their fix.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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March LPS Mortgage Monitor Report: 30% of Loans in Foreclosure have not made a Payment in Over 2 Years

Inquiring minds are reading the March 2011 LPS Mortgage Monitor.

There is a bit of good news in the report. Delinquent and Non-Current Rates are improving. However, the rates are still exceptionally high historically. Also, some of the foreclosure data is skewed by moratoriums and reworked loans.

On the other hand, option ARM foreclosures have increased dramatically over the last six months and 30% of loans in foreclosure have not made a payment for at least two years. 47% of those in foreclosure have not made a payment for at least 18 months.

Charts and Comments from the LPS Report

Delinquencies remain about twice the 1995-2005 average, foreclosure inventories are 7.8 times historical �norms�.



30% of loans in foreclosure have not made a payment in over 2 years.



February Month-End Data: Conclusions

• Delinquency rates resumed their decline after an increase in January and foreclosure inventories remain stable, slightly below historic highs.
• Delinquencies continue to improve as new problem loan rates decline and cure rates increase.
• Foreclosure start declines and foreclosure suspensions are reducing the upward pressure on inventories caused by foreclosure sale moratoria.
• An enormous backlog of foreclosures still exists with overhang at every level:
• There are three times the number of loans deteriorating greater than 90+ days delinquent as compared to foreclosure starts.
• There are also three times the number foreclosure starts vs. foreclosure sales.
• Foreclosure inventory levels are over 30 times monthly foreclosure sale volume.

There are 42 pages of charts and tables in the report. Inquiring minds will want to take a closer look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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New Rule: Banks Exempt from New Mortgage Rules

Long awaited FDIC "skin-in-the-game" mortgage rules are out. Amusingly, banks are largely exempt from the new rules. On one hand it's hard to make this stuff up, on the other hand it seems laughably easy to believe. My ears say the proposal sounds like it came straight from "The Onion".

Please consider FDIC�s plan for �skin-in-the-game� loans

Federal regulators drafting tighter underwriting standards for mortgages are planning to exempt banks from a key rule if they sell loans to two seized mortgage-buying giants.

The long-awaited proposal is due to be publicly released by the Federal Deposit Insurance Corp. Tuesday, and the proposal was obtained ahead of that by MarketWatch. At issue is a provision in the Dodd-Frank Act that requires banks to have �skin in the game� � namely, by retaining 5% of the risk of loans they package and sell.

The goal is to eliminate what had been a problem underlying the financial crisis, where lenders packaged and sold subprime mortgages of dubious quality. But lawmakers who drafted the legislation also included a measure that would exempt certain high-standard mortgages from the risk-retention rule if their loans met certain high underwriting standards.

According to the proposal obtained by MarketWatch, loans sold to mortgage-refinance giants Fannie Mae and Freddie Mac would carry no risk-retention requirement as long as the mortgage giants remained in government conservatorship. Fannie and Freddie were both taken under conservatorship in September 2008, at the height of the financial crisis.

These loans wouldn�t have to meet new strict underwriting standards for exemption set out in the proposal, but they must already meet underwriting standards that Fannie and Freddie generally require. Roughly 90% of all new loans today are sold to Fannie and Freddie.

"New Rule" Math

90% of loans are sold to Fannie and Freddie . Thus, 90% of loans will be exempt from the new rule.

90% seems like a high number and it is. However, why would banks accept any "skin-in-the-game" risk, when they can easily dump all the risk onto taxpayers via Fannie and Freddie?

Clearly, the effect of the new rule and its exemption will put upward pressure on the already astronomical percentage of loans going to Fannie and Freddie.

If the intent of this regulation is to get someone other Fannie and Freddie back in the mortgage business it will fail. If the intent of the regulation is to force more risk on banks, that will fail too.

If you are unemployed, look on the bright side. The FDIC will no doubt need to hire a few extra "regulators" to enforce this "brilliant" piece of regulation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Holy Grail of Investing

Reader "David" wonders why he went wrong in the last two years and asked me to do an article on the "Money Trail" to help him understand why.

David writes ...

Hello Mish

I am not stupid but based on what has happened with the stock market, I certainly feel stupid. I realize that my inability to profit over the last two years was due to a lack of understanding about the money trail that the FED creates.

Have you ever thought about building a visual representation of the money trail from step 1 of the FED actually buying bonds to where that money goes and then to where that money might go?

I would think if I had a better understanding of the money trail and the money changers, maybe, just maybe, a little guy like me might be able to be more successful in investing.

There is No "Holy Grail"

Hello David. You are not asking for a "Money Trail" but rather the "Holy Grail". It does not exist, especially over short-term time horizons.

If the Fed could prevent stock market declines, the S&P 500 would never have hit 666 in the first place.

If the Japan could prevent plunges the Nikkei would not be down 75% 25 years later.

We are all Guessing

The idea that there is a "money trail" that will tell you what to do is fallacious. Discard it.

People are selling all kinds of ideas. The fact of the matter is simple: They don't know, and I don't either.

However, I can tell you with reasonable accuracy whether the market is historically overvalued or not. On that, please consider a recent pair of articles.

• Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think


• Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?

No One Can Possibly Know

Bear in mind that one of the best market analysts and authors I know says the Fed will "print and print and print" and the U.S. stock market bottom is in.

He may be right. However, I can assure you he will admit that he does not "know" either (and he would be the first to admit it).

No one can possibly "know". This is uncharted territory. What will China do? Congress? The ECB? The Bank of England? The Bank of Japan? How will sentiment change?

That latter question is the crucial one. Stock prices move much further and much faster on sentiment than on actual earnings. The willingness to bid PE ratios to the moon is a measure of sentiment.

PE ratios go through cycles of expansion and contraction. During expansion cycles it is difficult to do anything wrong. During major contraction cycles it is difficult to do anything right. However, there are counter-cycles. I believe we are in the mother of all counter-cycles one now.

History is certainly on my side, but no one "knows" when the current state of massive overvaluation matters.

What Country Blows Up First?

We are all guessing what major country blows up first. Many think the US and the US dollar with it. I happen to think Japan. Ironically, that means that Yen-Hedged investments in Japan are at bargain basement prices.

However, you can find any opinion you want.

I am bearish on China, others aren't. For my China outlook, please consider World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

Tomorrow's Gold

The closest thing to a "Holy Grail" is to buy reasonably priced things totally and completely out of favor (gold and energy in 2000 are perfect examples) and hold on to them until they are fully valued. However, things can stay out of favor for decades then take decades longer to reach full value.

It is not easy to hold on! Heck it's not easy to recognize the turn in the first place. Moreover, mistakes are costly.

The best book on explaining the concept of buying things out of favor is one of my favorite books of all times and number one on my recommended reading list: Tomorrow's Gold by Marc Faber.

Unfortunately, the current state of affairs has little that one can call exceptionally undervalued. Stocks, bond yields, energy, and commodities all seem hugely overvalued and prone to a sharp pullback.

Yen-hedged Japanese equities are the closest thing to "value" that I can find. Japan is hugely out of favor and has been for decades. When or if that trade works, I have no idea.

I like gold but it is certainly not the bargain it was at $250 in 2000. Is it fully valued? The answer depends on what central banks do and how sentiment plays out. The former suggests gold can run a lot longer. The latter? I don't know. Nor does anyone else.

Sometimes the best thing to do is nothing (taking a significant portion of cash to the sidelines). I am reasonably confident that for most things, far better opportunities await those who are patient.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Misguided Views of Libertarian Economics and the Alternative "Regulation" Model

One of the brightest regulars who comments on my blog has a totally distorted view of what Libertarian economics is all about. Unfortunately, I am quite confident that her view is mainstream.

Tin Hat writes ...

Here is the core premise behind libertarian economics:

The private business sector will put ethics, morality and public employee good above profits, shareholders, bonuses, golden parachutes and CEO compensation -- IF they were completely unfettered from any government imposed rules, laws, and regulations.

And IF the private sector entity failed in its fiduciary duty to the public, Main Street would rise up and kick them out.

That's Corporatism.

Regulation Model vs. the Libertarian Model

Sorry Tin Hat but that is not what Libertarian economics is all about or stands for at all.

First let's ponder the "Regulation" Model.

The "Regulation" model assumes Barney Frank (feel free to substitute your least favorite representative) will write responsible legislation and Congress will stop taking bribes for legislation they want.

Here are some examples of what the regulation models has wrought.

• The regulation model sponsored Fannie Mae and Freddie Mac.
• The regulation model gave huge tax breaks written by GE for GE
• The regulation model encourages flight of jobs overseas
• The regulation model supports corrupt public unions that have bankrupted cities and states
• The regulation model gave us the Fed and its bubble blowing policies
• The regulation model gave us thousands of affordable home programs all of which drove up the price of homes
• The regulation model provides hundreds of billions of dollars of student loans the effect of which is to make those graduating from school now, perpetual debt slaves.
• The regulation model gave us a healthcare bill we literally "had to pass to find out what was in it" according to Nancy Pelosi. Congress did not write that bill, it was entirely written by a consortium of special interest lobbyists.
  

I can provide thousands of more examples of what the "regulation" model has given us.

The very best financial regulation will ever do is prevent the last crisis. However, we are not going to have another housing bubble for decades. At worst, and far more likely, new financial regulation is highly likely to sow the seeds of the next crisis.

Regulation sponsoring Moody, Fitch and the S&P did just that. So did thousands of affordable housing programs. So did the Community Reinvestment Act. So did sponsorship of Fannie Mae and Freddie Mac. So did HUD. So did thousands of financial loopholes. And most importantly so did the legislation that created the Fed and FDIC.

The legislation model has been disproved in spades yet otherwise intelligent people keep clamoring for more of it as if we could find, hire, and listen to some "all-knowing" super-regulator that can identify the next crisis in advance and write timely legislation that the likes of Barney Frank would deem wise and pass.

The idea is ludicrous given we cannot even get consensus about what to do after the housing bubble has already burst. Also bear in mind the Fed is supposed to regulate the economy. How well did that work out?

It's preposterous to believe that Congress can identify and appoint some sort of super-regulator because no such person exists in the first place.

Sure, many people identified the housing bubble in advance. I did, so did other bloggers and so did people like Elizabeth Warren.

What good did it do?

I am quite certain a huge number of bight people can identify the next crisis. Indeed they already have. Some people are calling for hyperinflation, some are calling for deflation, some are calling for stagflation, some think Japan will blow up, and others think peak oil will send oil prices to the moon. Some think printing money is a good idea, others don't.

Lots of people are going to be right because there are lots of people in every one of those camps, and one of them is guaranteed to happen. When one of them does, many people will say "I told you so".

So who do you want the Fed to believe?

I don't want the Fed to act on any of those calls because there should not be a Fed in the first place. The Fed failed as a regulator, again, and again, and again.

Libertarian Economic Model

The Libertarian model does not end all regulation. Indeed the basis of the Libertarian economic model is that we need to protect private property, prevent fraud, protect human rights, and give everyone an equal chance under the law.

Had we done that, and "just" that we would not be in this mess.

In the Libertarian model, Fannie Mae and Freddie mac would not have existed. Nor would there have been a Fed keeping interest rates too low, too long. Without the loose lending model of the Fed, and without banks being able to lend more money than they have, the housing securitization model that blew up would not have happened or if somehow it did, it would have been less problematic by orders of magnitude

In the Libertarian model, there would not have been government sponsorship of the rating agencies Moody's, Fitch, and the S&P.

In the Libertarian model the construct of "Too big to fail" does not exist. Indeed, allowing failure is one of the tenets of the Libertarian model.

Note that something like Glass-Steagall would work in the context of a Libertarian model because its purpose is to put a firewall to prevent fraud. Pollution laws would still be needed to protect private property. Child labor laws would still be needed to protect human rights. Public safety laws are fine. No one would be allowed to yell "fire" in a movie theater.

If you want to take that model and add some social safety nets, all but strict Libertarians might agree.

Failure of Regulation

All the corporatism, all the bank failures, the credit bubble, the housing bubble, and all the warmongering is a direct result "of" regulation that Libertarian economics has nothing to do with.

Indeed most of those those things could not happen in a Libertarian model. To the extent that any of them could happen, they would not occur to the same magnitude.

Libertarian Solution

The solution is to throw away all legislation except what is needed to protect private property, prevent fraud, protect human rights, and give everyone an equal chance under the law.

That means all tax breaks that favor GE as well as all tax breaks for homes, have to go. Tax code should not favor any group or thing. Drug imports from Canada would be allowed in this model and warmongering would stop. Subsidies to home builders would stop. Subsidies for ethanol would stop. In fact, subsidies for everything would stop.

Government would not be allowed to spend more than it takes in, banks would not be allowed to lend more money than they have ownership of, and the Fed would be abolished.

Instead, those in the regulation camp want to patch a million misguided pieces of legislation that should not even exist, and worst of all they expect Barney Frank to get it right.

One model has been tried and failed a million times. One model has never been tried.

Yet misguided souls want more of the model guaranteed to fail. Quite frankly it is preposterous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Poisonous Illinois; Caterpillar CEO Threatens to Leave Illinois over Taxes; Illinois Attorney General Wins Dubious Honor "Prevailing Wage Award"

To prove how totally fooked the state of Illinois is, simply read Madigan honored with "prevailing wage" award

So allied are the unions with Madigan, they honored her in Bloomington on Wednesday. As WJBC reported:

Illinois Attorney General Lisa Madigan accepted an award from the state�s Building Trades Council in Bloomington for her previous pro-union legislation. The Reuben G. Soderstrom Prevailing Wage Award is given annually. Madigan says she�s honored and will continue with the same work. She says she�s now working on a bill to enhance penalties for criminal violations of the prevailing wage act. Madigan says under the law, violations would be a class four felony.

Madigan says it would penalize people evading the law, and create a level playing field for those following the law. The bill also allows state, local and federal law enforcement agencies to get relevant documents from contractors and reduces the notice time contractors have before government inspection of documents.

Prevailing Wages Laws are Criminal

If there is anything criminal here it is prevailing wage laws. They force cities, municipalities, counties to pay a "prevailing wage" which means a union wage. It does no good to send out bids when all the bids will be based on the same wage. It's no use going to a non-union shop because you have to pay a union wage regardless of what you do.

Pat Quinn wants businesses to move to Illinois. No business in their right mind could possibly think Illinois is a good place to do business. Some are stuck here because moving costs are too high, and I suppose some might want to come here specifically to take part in Illinois graft, undoubtedly the highest in the nation.

The fact remains Illinois is owned lock-stock-and-barrel by unions. Everything here costs more because of it.

Caterpillar CEO Threatens to Leave Illinois

Please consider Caterpillar CEO's letter talks of leaving Illinois

The chairman and CEO of Peoria-based Caterpillar Inc. is raising the specter of moving the heavy equipment maker out of Illinois.

In a letter sent March 21 to Gov. Pat Quinn, Caterpillar chief executive officer Doug Oberhelman said officials in at least four other states have approached the company about relocating since Illinois raised its income tax in January.

"I want to stay here. But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest," Oberhelman wrote in the letter obtained Friday by the Lee Enterprises Springfield bureau. "The direction that this state is headed in is not favorable to business and I'd like to work with you to change that."

Oberhelman said he's being actively courted to move.

"I have been called, 'cornered' in meetings and 'wined and dined' -- the heat is on," Oberhelman wrote. "Before, I never really considered living anywhere else and certainly never considered the possibility of Caterpillar relocating. But I have to admit, the policymakers in Springfield seem to make it harder by the day."

Oberhelman also sent along correspondence Cat has received from other states.

"I stand ready to help convince you to relocate or expand in the fiscally conservative, low-tax Lone Star State," wrote Texas Gov. Rick Perry in a Jan. 24 letter.

"I encourage you to consider South Dakota as a place for your business to grow and prosper," noted J. Pat Costello, secretary of the South Dakota governor's economic development office.

Nebraska Gov. Dave Heineman wrote in February to say, "In Nebraska, we balance our budget by controlling spending, not by raising taxes."

Republican leaders, who unsuccessfully fought Quinn on the tax hike, say the letter confirms why they were opposed to the increase.

"These are the kinds of letters we fear," said Patty Schuh, spokeswoman for Senate Minority Leader Christine Radogno, R-Lemont. "Even more worrisome are the hundreds of businesses being wooed that we don't know about."

Schuh said the tax hike and the state's worker compensation costs on businesses "make Illinois a hostile environment, prime for the picking."

Poisonous Illinois

Illinois is not "hostile" to business, Illinois is downright "poisonous" because of high corporate taxes, absurd prevailing wage laws, forced collective bargaining, a massive pension mess, and copious amounts of taxpayer unfriendly legislation.

It is time for national right-to-work laws to end the forced slavery of collective bargaining and it's also time to kill Davis-Bacon and all poisonous prevailing wage laws at the state level as well.

Unions like to point out studies that show union work is no more expensive than non-union work. It's true because of poisonous prevailing wage laws force it to be true.

For details please see Thoughts on the Davis Bacon Act

For details regarding the slavery aspect of collective bargaining, please see

• Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!


• Collective Bargaining neither a Privilege nor a Right

Illinois desperately needs right-to-work legislation. Lisa Madigan is hell-bent on taking things the opposite direction.

One might think that Illinois would get the the message given changes that are happening in Wisconsin, New Jersey, New York, and to some extent even California. However, Illinois Governor Pat Quinn, House Speaker Michael Madigan, Attorney General Lisa Madigan (daughter of Michael Madigan), are bound and determined to suck every drop of taxpayer blood in Illinois and give it to the unions.

Why Caterpillar would think of staying in this corrupt union hellhole if they have any reasonable choice is beyond me.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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100,000+ Protest in London against Budget Cuts; Growth Expectations Fall Short; UK Standard of Living to Decline; US vs. UK Deficit Reduction Plans

By some estimates, as many as a quarter million people took to the streets in London protesting budget cuts by British Prime Minister David Cameron. The protesters held signs "Defend Our Public Services".

Those signs should have read "I Want to Raise Your Taxes".

As with every public union protest everywhere, the rally in London has nothing to do with defending public services and everything to do with "Save My Sorry Ass".

Thus, it's no surprise that Cameron's budget plans have not gone over very well with the 300,000 public workers who will lose their jobs under his austerity package.

Moreover, Prime Minister Cameron and Chancellor George Osborne are sticking with plans to balance the budget by 2015 even though recent growth expectations have fallen far short of the mark.

Tens of thousands march in London to protest budget cuts

The International Business Times reports Tens of thousands march in London to protest budget cuts

Violence has broken out on the streets of central London, England has tens of thousands of people have demonstrated to express their opposition to drastic spending cuts by the British government.

Organizers claim that more than a quarter of a million people have appeared at the march, far more than expected.

It is believed to be the largest union-organized event in Britain in more than two decades years; and the biggest overall public march in the nation since the invasion of Iraq in March 2003.

The Conservative-Liberal Democrat coalition led by Prime Minister David Cameron plans spending cuts of about $131-billion over the next five years, including slashing about 300,000 public sector jobs.

Protesters marched from Victoria Embankment to Hyde Park, where Brendan Barber, the general secretary of the Trades Union Congress (TUC), which organized the march, spoke.

Many protesters held up banners which read: "Don't Break Britain", "No to Cuts" and "Defend Our Public Services",

"The noise in Whitehall was deafening as thousands of protesters banged drums, blew whistles and shouted anti-cut slogans, slowly making their way towards Trafalgar Square,� a BBC reporter said.

Interest on National Debt is Part of the Undisclosed State of Affairs

Chancellor Osborne is not exactly being 100% forthright about the UK's fiscal state even if they can balance the budget by 2015, something I highly doubt.

Please consider Britain's leaders should come clean on the true depth of the fiscal crisis

The UK's fiscal retrenchment, we are told, is being conducted at an "extraordinarily ambitious pace". Last week's annual Budget statement pledged to "eliminate the structural deficit by 2014/15".

George Osborne told the House of Commons that "Britain has a plan and is sticking to it". The Chancellor won't be cowed by claims his efforts to get the UK back on the fiscal straight and narrow will do more harm than good. He is right, of course � but only up to a point.

The Labour party's most senior figures, in defiance of their education and intelligence, keep claiming that Osborne's actions are "driven by ideology, rather than necessity". This is absurd. Anyone who argues that rapidly addressing the fiscal catastrophe Labour left behind is anything other than absolutely crucial either knows nothing about global bond markets, or is so blindly ambitious, so determined to close their eyes to the facts, as to be unfit for public office.

Having said that, Osborne is also ignoring the facts � if to a slightly lesser degree. Because the UK's fiscal retrenchment won't be over by 2015 � when the deficit, on last week's numbers, falls roughly to zero. That won't be the end of our budgetary problems. It won't even be the beginning of the end. It will merely be, if we're lucky, the end of the beginning.

In 2009, the UK spent �31bn � around 6pc of total tax receipts � on debt interest payments. That's money down the drain. By 2015, we won't have reached, in Churchill's words, some "broad sunlit upland". After four more years of deficits, debt services costs, according to last week's Budget, will by then be �67bn a year � or almost 10pc of total tax receipts. These shocking numbers are also likely to be under-estimates, given the UK's massive "off-balance-sheet" liabilities and the Treasury's benign assumption of future gilt rates.

The lack of true fiscal retrenchment, together with rising inflation and its impact on welfare payments, means that the Office for Budget Responsibility now estimates debt service costs will be �4.7bn higher during the current fiscal year than Osborne forecast during his last budget. That's equal to more than a penny on income tax. Over the next five years, on last week's numbers, total debt service costs will now be some �18bn higher than before.

Why aren't Osborne and Co. explaining these catastrophic realities and their impact on our medium-term ability to maintain our public services, using them to rally support for austerity measures that are long overdue? Why aren't such stark facts thrown back into the face of those who claim that the Tories' retrenchment plans are "driven by ideology rather than necessity"? The answer is fear and a lack of respect. Fear that the British public would be critical of such candour. And a lack of respect for their intelligence.

Budget Estimate Falls Short

Inquiring minds note Billions added to 2011 budget after growth falls short of the forecasts expectations

Even as he proclaimed a Budget for Growth, George Osborne admitted that the economy would expand more slowly this year than he had hoped.

The Chancellor was also forced to set out plans to borrow �45.6?billion more than planned over the five years starting next month.

The office blamed the gloomier forecasts on the economy shrinking in the final three months of last year and higher-than-expected inflation.

Overall, the Government will have to borrow �45.6?billion more than expected between 2011-12 and 2015-16.

Despite steady reductions in the annual government deficit, the national debt � the total stock of outstanding borrowing � will continue to rise, reaching �1.36?trillion by 2015-16.

The interest Britain pays on that debt will also rise.

The OBR said that debt interest will be �48.6?billion in 2011-12, �4.7?billion higher than its last forecast. By 2015-16, the Government will be paying �66.8?billion on debt interest, more than the budget for the Department of Education.

Standard of living to fall for two years

The Telegraph helps explain the state of affairs with this comic on Standard of Living.



Bright Side of Things

I seriously doubt Cameron can balance the budget in 4 years. However, being the ever-optimist, I feel obliged point out the bright side of things:

• Over the long haul, the fewer the government workers the better.
• The bigger the miss in budget expectations, the more public workers will have to be fired to balance the budget.

The pertinent question is "Will Prime Minister Cameron lose his nerve?" On that unfortunately, I am not so optimistic.

UK vs. US in Budget Balancing

Assuming government does not give into demands, it's a sign of success when hundreds of thousands of public workers protest budget cuts.

Measured by protests alone, the British appear to be making some sort of effort to rein in the deficit. Hats off to the British.

Unfortunately, there is little success in the US except at the state level.

On this side of the Atlantic, we are stuck with Republicans and Democrats who will not cut defense, Democrats who will not cut entitlements, and neither party willing to do anything but bicker on how to cut anything more than $20 billion out of a massive $1.6 trillion deficit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Constitutional Amendment in North Dakota Would Abolish Property Taxes

One of the best constitutional amendment proposals I have seen in years comes from a taxpayer group in North Dakota.

Please consider Amendment would abolish ND property taxes, order Legislature to figure out new revenue plan

Backers of a constitutional amendment to abolish North Dakota property taxes believe they have enough petition signatures to put the idea on the ballot, even though the number they thought they needed has risen.

"It's a new idea. It's something a lot of people hadn't even considered until we put it in front of them," said Charlene Nelson, of Casselton, who is chairwoman of the initiative campaign.

The amendment bars the state and local governments from levying any property tax, beginning Jan. 1. It says the Legislature must use other revenue sources, such as taxes on sales, income and energy, to decide how to replace the revenue that local governments will lose.

North Dakota's Constitution allows voters to bypass the Legislature and put a constitutional amendment directly to a vote if the proposal's supporters can gather enough petition signatures.

Property owners were billed $774.6 million in property taxes in 2009, according to the most recent North Dakota Tax Department data. Local school districts' share was about 41 percent, while cities billed 28 percent and counties 26 percent, the data say.

By comparison, the state collected $883.3 million in sales taxes during its 2010 budget year, which ended June 30, according to the state's most recent comprehensive annual financial report.

Individual and corporate income taxes raised $380.1 million during the same period, while taxes on oil, natural gas and coal raised $633.5 million.

Property taxes on a person's home means he or she never owns it, even after its mortgage is paid, Nelson said. The annual property tax bill is due regardless of a person's income, while taxes on income and sales depend on the amount of money a person has to spend, she said.

The proposed property tax ban "goes to the core of the lot of the problems that people in this state are facing. Economics, low-paying jobs, seeing their young children move out to other states," Nelson said. "The public debate, I think, is going to be the most healthy thing that comes out of this.

Never Owning Your Own Home

I agree with nelson that paying property taxes on your home means you can never own it. It is an insidious tax that hits those on fixed income the hardest.

Of course school districts love it. They collect more taxes over time, then waste the money. When valuations crash, they want to raise the tax rate to "make up for it".

Unlike California Property 13 type non-solutions that create huge winners and losers, everyone but the tax recipients win by abolishing them completely. Even renters win because landlords will not be struggling to pass on property tax hikes. Abolishing property taxes also helps out struggling businesses and creates an incentive for property owners to move businesses to states without such taxes.

I am also against taxes on store-bought food, medicine, and clothes priced below a certain amount. Although everyone would benefit from such tax relief, elimination of taxes on food, shelter, medicine, and clothes especially helps those who spend most of their money on such items.

Because of the new census, the petition gatherers do not have the signature cushion they thought. However, they still have a slim cushion and they have until Midnight Tuesday to gather more signatures. Good luck to them.

Side Benefit

As a side benefit, cities, towns, and counties would be able to fire all the local assessors, lawyers, and assistants associated with figuring out the tax and collecting it.

I would love to see a wave of proposals by states to abolish property taxes along with the other taxes I mentioned. So would the real estate industry, a group I generally do not side with. Such a move could hardly come at a better time for the real estate industry.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Libyan Rebels Retake Ajdabiya; Scores Killed in Syria Protests; French President Warns Arab Rulers of More Libya-Type Intervention; Ivory Coast Next?

In top Mideast and regional news...

• Libyan rebels have retaken the strategic town of Ajdabiya


• Scores are dead in violent protests in Syria


• French president Nicholas Sarkozy has warned all Arab rulers that they risk Libya-type intervention if governments cross a certain line of violence against their own people.
  

Sarkozy suggested the Ivory Coast could be next in line for a UN vote on intervention.

Libyan Rebels Retake Ajdabiya

The New York times reports Qaddafi Forces Pull Back as Rebels Retake Ajdabiya

In Ajdabiya, the charred hulls of government tanks hit by allied missile strikes and strafing runs through the night were still smoldering on Saturday at the city�s gates, where they had driven back rebel assaults over the past few days. But on Saturday, hundreds of rebels streamed in, honking their horns, shooting weapons into the air and waving their tricolored flags in celebration.

As night fell, rebel forces had not only recaptured Ajdabiya, a crucial hub city in eastern Libya, but had also driven almost uncontested to the town of Brega, erasing weeks of loss as the airstrikes opened the way.

There was evidence on Saturday that the allied military effort was having an effect not just in the rebel-held east, but in the west as well. In Misurata, where Libya�s military has kept up a tight siege against the last opposition redoubt in the western part of the country, rebel commanders said the allied airstrikes had allowed them to hold out.

Fighting around Misurata erupted again on Saturday, according to a rebel spokesman using the name Aiman. He said tanks and artillery resumed firing into the city on Saturday morning until three waves of airstrikes forced them back.

Protests Continue in Syria, Scores Dead

Bloomberg reports Assad's Promise Fails to Halt Syria Unrest as Scores Die During Protests

Syrian President Bashar Al-Assad�s security forces clashed with protesters in several cities after his promises of freedoms and pay increases failed to prevent dissent from spreading across the country.

The protests that started earlier this month in the southern province of Daraa may have resulted in the deaths of 55 people, London-based Amnesty International said in a statement on its website yesterday. Security forces opened fire on protesters in the town of al-Sanamein in Daraa and carried out arrests in the capital, Damascus, it said.

Protests began earlier this month, making Syria the latest Middle Eastern country to be hit by the wave of uprisings that ousted longtime rulers in Egypt and Tunisia, and sparked a civil war in Libya. Assad�s regime is an ally of Iran and a key power broker in neighboring Lebanon, where it supports Hezbollah, a Shiite Muslim group that has a guerilla army.

�Security elements are firing live bullets on protesters,� a man who identified himself as Omar al-Masri, told BBC Arabic television in a telephone interview from Daraa. �We are not gangs. We are peaceful protesters.�

Sarkozy Warns Arab Rulers, Cites Ivory Coast

The EU Observer reports Sarkozy warns Arab rulers about Libya precedent

French President Nicolas Sarkozy has warned all Arab rulers that they risk Libya-type intervention if they cross a certain line of violence against their own people.

The president told press at an EU summit in Brussels on Thursday (24 March) that UN Security Council resolution 1973 authorising air strikes on Libya has created a legal and political precedent on the "responsibility to protect."

Referring to deadly violence in Syria, he explained: "Every ruler should understand, and especially every Arab ruler should understand that the reaction of the international community and of Europe will from this moment on each time be the same: we will be on the side of peaceful protesters who must not be repressed with violence."

Sarkozy indicated that he is ready to tolerate a certain level of violence, but that any country which orders its army to open fire on crowds will cross a red line.

"In any democracy there can be demonstrations which can turn violent. But no democracy can accept that the army shoots live ammunition at protesters. This is the position of France and it does not change no matter what the country concerned."

He suggested that the Ivory Coast, where President Laurent Gbago's forces recently fired a heavy artillery shell into a market square, will be next in line for a UN vote on intervention.

Recalling the "extremely moving" scenes of Libyan rebels in Benghazi celebrating the arrival of French warplanes and the "extreme importance" of the United Arab Emirates' and Qatari involvement in the coalition, he called Libya a "historic opportunity" for "reconciliation between the two worlds."

The hawkish speech comes amid criticism of EU "double standards" on tolerating violence in strategically important countries such as Bahrain, Syria and Yemen. Palestinian diplomats have also pointed out the EU did nothing when Israeli jets bombed civilians in Gaza in 2009.

The Mideast and Africa will be a big mess in a hurry if there is going to be military intervention in every country where there is violence.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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FDIC "Cash for Keys" Proposal Would Pay Underwater Homeowners $21,000 to Walk Away; In Prison for Taking a Liar Loan

The Financial Times reports US Banks in 'Cash for Keys' Foreclosure Talks

The five biggest US mortgage servicers were told this week at a private meeting with regulators to consider paying delinquent borrowers up to $21,000 each as part of a broader settlement of the foreclosure crisis.

People who attended the meeting, chaired by the Federal Deposit Insurance Corporation on Monday, said the industry-wide �cash for keys� program would involve the biggest servicers, led by Bank of America paying borrowers as an incentive to leave their homes.

Banks would pay borrowers who are more than 90 days behind on mortgage payments up to $1,000 to seek independent financial advice and up to $20,000 in cash as a �fresh start� payment towards living costs in a new home. They would have to vacate their properties quickly and leave them in good condition.

Sheila Bair, FDIC chairman, raised the idea but people involved said it was not an official government proposal and was rejected strongly by some of the banks.

The Department of Justice; state attorneys-general; banking regulators, including the FDIC; the Treasury; and the new Consumer Financial Protection Bureau are among the agencies trying to come to a settlement with the industry. A combined penalty of about $20 billion has been discussed, with one idea to use the money to write down the outstanding debt of struggling homeowners.

However, prospects for a single �mega settlement� have worsened because officials disagree on the level of penalty and whether money raised in fines should be used for a principal writedown. The banking regulators, who do not agree among themselves, are nonetheless keen to come to an agreement quickly.

One way through the gridlock, which has been discussed among officials, is giving the servicers a menu of options for settlement, which might include principal writedown or a �cash for keys� scheme.

No Winnable Actions

If this absurd proposal were to pass, can someone tell me who the hell the banks would sell those properties to, how fast, and at what loss?

Of course I also want to know what valuation these distressed properties are kept on bank balance sheets if banks do not immediately take possession.

Is there a winning action here?

Obama's $20 Billion Civil Fine Scheme

Bear in mind the FDIC discussion stems from Obama's request for $20 Billion in Civil Fines, Money to be Used for Loan Modifications.

How Far would the Money Go?

Let's assume this proposal is adopted. How many would benefit? The answer of course depends on the criteria. However, but the goal seems to be to help those in distress, so let's use those currently in distress as a starting point.

Total Non-Current and Delinquent Loans



The above chart and following stats from the LPS Mortgage Monitor, January Observations

• As of December 2010 there were 2,117,845 90+ day delinquent loans.
• As of December 2010 there were 2,555,799 30-60 day delinquent loans.
• As of December 2010 there were 2,195,940 in foreclosure.
• As of December 2010 there were 6,869,584 in total non-current loans

Those in foreclosure are clearly too far gone to help. If we take $20 billion and spread it out over the rest, we can calculate mortgage principal reductions several ways.

• $20 billion divided by 2,555,799 would give everyone 30-60 days late a principal reduction of $7,825
• $20 billion divided by 2,118,845 would give everyone 90+ days late a principal reduction of $9,439
• $20 billion divided by both groups would give everyone a principal reduction of $4,278

This is supposed to help?

By the way, history suggests once someone gets to 90+ days late, the situation is hopeless. Even if the $20 billion was entirely thrown at those 30-60 days late, we are talking about principal reductions of under $8,000.

Doing Nothing Not a Solution

Assuming banks gave everyone $20,000, they would help 1 million people. However, what would banks do with those 1 million "cash for keys" houses?

If banks helped 2 million people at 10,000 each, what would banks do with another 2 million houses?

However, doing nothing is not a solution given there are 6,869,584 in total non-current loans of which 2,195,940 are already in the foreclosure process.

One irony is that previous programs attempted to halt foreclosures, this would speed it up.

While I see merit in speeding things up, I see little merit in forcing banks to pay $20 billion to kick people out of their houses.

Kicking the Can

The administration, the banks, the FDIC, and the Fed have collectively managed to kick the can down the road. Meanwhile the problem keeps growing.

In Prison for Taking a Liar Loan

Of all the crooked bankers from the top on down, of all the millions of potential cases, government managed to go after a one person who took out two liar loans.

Please consider In Prison for Taking a Liar Loan

This story is truly amazing, you have to read it to appreciate it.

I do not condone liar loans but sending someone to prison for that is more than a bit ridiculous. The punishment should fit the crime.

By the way what does it cost to imprison someone for 2 years? Meanwhile let's recap my rolling list of bank fraud and what little was done about it.

Rolling List of High Profile Fraud Targets

October 10, 2010: FDIC Authorizes $1 Billion Lawsuits Against Failed-Bank Executives; Token Search for Low-Profile Scapegoats

April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated

April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed

March 2, 2010: Geithner's Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says �Don�t Trust Your Government�

January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP

January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels

January 26, 2010: Questions Geithner Cannot Escape

January 07, 2010: Time To Indict Geithner For Securities Fraud

October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation

July 17, 2009: Paulson Admits Coercion; Where are the Indictments?

June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl"

April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Professor at Alaska University Chimes in on Public Unions and the Situation in Wisconsin

A few days ago I received an email from Roland Stearns, a professor at University of Alaska in Anchorage. He copied me on a response he sent to Randi Weingarten, president of AFT a self-proclaimed "union of professionals" .

Weingarten asked professor Stearns to "take the pledge in support of fairness, justice, democracy and workers� voice."

I am pleased to report that professor Stearns took a stand against the coercion, bribery, and slavery tactics endorsed by those in favor of collective bargaining and union extortion.

Here is professor Stearns reply to Randi Weingarten and the AFT...

Dear Mr. Weingarten,

I am a professor, Vietnam era Veteran and, technically a member of a "minority" who would like to express my firm and absolute conviction that collective bargaining - when it consists of forcing anyone against his or her preference to join a group of any kind - may no more be termed a "right" than forcing someone to sit in one place on the bus - calling that forced seating a "right".

For years during and after my MM and Ph.D. studies (completed with 3.98 GPA) I lived largely debt free on incomes averaging $8,000 to $10,000 a year, on occasion less, and did so without expecting anyone to pick up my tabs.

I have been the recipient of both union members' bullying and mobbing as a high school student while doing summer work to save for my college expenses all the way through to the present-day when as a Veteran my own situation under Alaskan law have been dismissed as some kind of exceptional irrelevancy to the union agenda.

It is the purest definition of a corrupt process to force membership in any group hired by government and then, in any way, manner, shape or form, use involuntarily collected funds of that group to influence a political process that literally picks the taxpayer's pocket.

I am not writing this as an indictment of the great majority of fine educators. I am, however, writing this as an absolute indictment of the political, self-aggrandizing corruption and whining of those who do, indeed, disgrace the profession. We need to drop most of the pretense of bigger paychecks and benefits "for the children".

Respectfully,

Roland Stearns, Ph.D.
Anchorage, AK

Issue of Slavery

I frequently receive such emails but I will only post them if I can use a name. Roland graciously agreed. I thank Roland Stearns for his brave public stance because there is little doubt he will soon be under attack by those who support slavery and coercion.

I am particularly pleased by Stearns' comparison of union "rights" to tactics in the South that allowed whites the "right" to displace blacks in seating on buses.

Rights of unions must not and cannot be allowed to interfere on the rights of other to NOT belong to a union, or pay union dues if they do not want to. The "right to work" is a universal right and union slavery advocates stand firmly in favor of slavery on this point.

For more on the slavery aspect of public unions and collective bargaining advocates, please see

• Collective Bargaining neither a Privilege nor a Right


• Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!

Here is a short list from the article of those in support of slavery.

• Paul Krugman, a Nobel prize winning economist and writer for the New York Times
• Bill Maher, an extremely popular stand-up comedian and host of HBO Real Time with Bill Maher
• Stephen Colbert host of Comedy Central's The Colbert Report
• Harold Meyerson, a columnist for the Washington Post.
• Yves Smith author of the site Naked Capitalism and one of the most popular economic bloggers country
• Rick Ungar, a writer for Forbes magazine.

Read the links. I make a case, point by point.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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