FedUpUSA

Archive for January 3rd, 2010

“HAFA” – Foreclosure Warning Dead Ahead!

Posted by Karl Denninger

Under the Radar – a bit – came this ditty at the end of November.  Coupled with the “unlimited” Fannie and Freddie “credit line”, this may presage a veritable collapse in house prices this coming spring and summer – along with a massive “dump” of inventory.

“HAMP”, the Treasury’s program to “prevent” foreclosures, did not originally appear to have a “stick.”  Well, here’s the stick folks – for those who cannot qualify for a modification, or who “blow it” while on a trial program and simply don’t get a permanent change servicers are in fact required to offer short sale or “deed in lieu” alternatives when they make sense.

Got that?  Servicers participating in HAMP must follow the guidelines set forth in this Supplemental Directive.

No choices here folks – if you’re part of HAMP, you are required to offer expedited and unified procedures for short sales and, optionally, “deed in lieu” programs.

This goes into effect in April, although servicers can start offering these programs earlier. 

Come the spring selling season you’re going to see the inventory of homes that were “HAMPd” and failed for whatever reason hit the market. 

This is not a trivial number of houses – there are close to 750,000 homes currently under trial modifications, and only a tiny number of them – something like 30,000 – have converted to permanent payment changes.

Thank Treasury for not telling you about this until the “selling season” had ended and we were in the middle of the winter months when sales are slow – and timing the “required start” date for April 1st, right into the maw of the spring selling season.

If you need to sell your house in the next year this is something you need to take into consideration.  A flood of nearly 3/4 of a million houses appear poised to hit the market as short sales and “deed in lieu” sales beginning in April.

In short it appears that Treasury has figured out that all these “extend and pretend” games are not converting delinquent loans into sustainable payments and ownership opportunities.  As such the stick has now made it’s appearance.  While this will promote the market clearing (a good thing) one wonders about:

• The propriety of “deciding” to extend an unlimited line of credit to Fannie and Freddie on Christmas Eve in the hope that the market “wouldn’t notice.”  Dennis Kucinich and a couple of other reps have made noise about Fannie and Freddie becoming the tools by which bad loans are dumped on the taxpayer in a back-door bailout of the banks.  Before you applaud Dennis make sure you look at his voting record on the bills that enabled the bailout of Fannie and Freddie – and made Treasury’s actions lawful – in the first place!
• The be really really quiet fashion in which Treasury has tried to play this one.  Remember that there are overlapping programs here, and the quiet nature of some, along with the trumpeting of others, appears to be designed to disadvantage consumers – that is, to SCREW YOU.  Specifically, the “first time” home buyers tax credit (and repeat credit) both require contracts to be signed by April 30th, 2010.  This program’s mandatory effect begins on April 1st, which means that with the ordinary process of approval and evaluation (set forth in the document linked above) that inventory will hit the market right about May 1st.  That $8,000 “credit” may be the most expensive $8,000 you have ever received compared to the deal you would obtain had you waited a couple of months and bought into the maw of the short sale and deed-in-lieu unload.  Thank Tim Geithner and President Obama for hiding their intentions in this regard until tens of thousands of Americans bought (and are still considering buying) grossly-overpriced houses when they were fully aware of their intent to force an unload at an actual market price just a few months later!

The short form is that Treasury has suddenly pulled the stick out of its pocket with regard to the HAMP program and as a consequence those who believe that “housing has stabilized” are very likely to get a truly epic surprise later this spring and into the summer months.

In addition, those who bought during the time period of the “home buyer tax credit” almost certainly, to an individual transaction, have gotten and will continue to be screwed, with the essence of the rip-off being the lack of disclosure of Treasury’s intent to force the market to clear. Indeed, Treasury has sent public signals for over two years that they have NO INTENTION of forcing market-clearing prices - EVER!

If “housing stability” is part of your investment thesis, whether it be in credit the equities, you need to check the premise upon which your thesis is based and adjust accordingly.

I applaud Treasury for what appears to be recognition of what I have advocated for more than two years: The housing market cannot be propped up at artificially-inflated prices and must be forced to clear by a return to fundamental values. 

However, I must object to how Treasury has gone about this.  Rather than being an advocate for the people of this nation Treasury has instead intentionally designed these programs and withheld critical information from the public with regard to their full intentions with the purpose and effect of inducing consumers to enter into transactions that are severely to their disadvantage – all to create yet another rip-off of the public for the benefit of the big banks.

No Good Deed Goes Unpunished as Banks Seek Profits From Bailout

Jan. 4 (Bloomberg) — To understand the meaning of no good deed goes unpunished, Treasury Secretary Timothy F. Geithner can look no further than Wall Street where the banks that received the biggest taxpayer bailouts are seeking to reap trading profits from securities rescued by the government.

Only months after it was started, the U.S. program designed to purge debts of no immediate discernable value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied. Bank of America Corp. and Citigroup Inc., who received 22 percent of the $418.7 billion American taxpayers loaned to troubled financial institutions, boosted holdings on their trading books of home- loan bonds that lack government guarantees while investors were raising cash for the program, according to Federal Reserve data.

Charlotte, North Carolina-based Bank of America along with Citigroup, Morgan Stanley and Goldman Sachs Group Inc., all based in New York, added a combined $2.74 billion of the debt, for which there were few buyers as recently as March, to their short-term trading assets during the third quarter, up 13 percent from the second quarter, the most-recent data show.

Prices of these securities may slump again, leaving the banks exposed to potential losses that the Treasury Department’s rescue plan was designed to mitigate, said Joshua Rosner, a managing director at New York-based Graham Fisher & Co., which advises regulators and institutional investors.

“It’s a trade that will likely work out, but it’s still a speculative trade, which is not what a taxpayer should want from firms that have only recently come out of critical care,” Rosner said.

‘Making a Killing’

The Public-Private Investment Program was introduced in March by Geithner as a means of helping struggling banks by reviving the market for unpackaged loans and mortgage securities that aren’t backed by government-supported institutions, such as Fannie Mae or Freddie Mac. Under the program, asset managers were supposed to raise money from investors and, with additional capital and loans from taxpayers, buy as much as $1 trillion in toxic assets from U.S. banks, freeing up money for lending.

It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California- based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it.”

Officials for Bank of America, Citigroup, Goldman Sachs and Morgan Stanley declined to comment on the Fed data, as did Treasury spokeswoman Meg Reilly.

Scaling Back

Geithner, 48, scaled back PPIP as the Fed declined to provide additional financing and banks balked at selling non- agency mortgages at a loss. It wasn’t until July that the Treasury chose New York-based BlackRock Inc., Invesco Ltd. in Atlanta and seven other firms to start PPIP funds.

To date, funds participating in the program have raised about $6 billion of equity capital from private investors, which the government has matched. The Treasury also provided $12 billion of debt capital, bringing the funds’ purchasing power to $24 billion. Neither the Treasury nor the funds have disclosed how much and what debt has been bought.

Prices for some of the securities that the funds were supposed to buy have almost doubled since March. The rally was fueled in part by traders jumping in before PPIP funds could get off the ground, said Steve Kuhn, who helps oversee about $440 million of mortgage-bond investments for Pine River Capital Management LLC in Minnetonka, Minnesota.

“Anytime people know there’s a buyer coming, they position for that, and that’s clearly what happened here,” said Kuhn, who is co-manager of the Nisswa Fixed Income Fund.

Market Rally

The rally was boosted further by investors seeking riskier fixed-income assets to offset record low yields on Treasuries and by the stabilization of the housing market, he said.

Typical prices for the most-senior bonds backed by hybrid Alt-A mortgages stood at about 58 cents on the dollar by mid- December, up from lows of around 35 cents in mid-March, according to Barclays Capital data.

Prices rose as high as 60 cents on the dollar in November. Fixed-rate prime jumbo mortgage securities were at 84 cents, up from 63 cents in March.

Before the credit crisis, senior non-agency home-loan securities didn’t typically trade below 95 cents on the dollar, JPMorgan Chase & Co. data show.

Alt-A loans fall between prime and subprime in terms of projected defaults. Jumbo mortgages are larger than government- supported Fannie Mae and Freddie Mac are allowed to finance.

Non-Agency Debt

The Fed data on bank holdings of mortgage securities don’t distinguish between changes in value from buying or selling and those that result from rising or falling market prices. The higher values at Citigroup and Bank of America reflect in part purchases of non-agency debt, according to people familiar with each bank’s positions.

The value of non-agency debt designated by the four banks as held to maturity or available for sale fell a combined $593 million to $70.8 billion in the third quarter from the previous three months. Under accounting rules, securities in these categories are usually held for longer than those designated as trading investments, helping to avoid writedowns. Debt available for sale can be sold more easily at a later stage than notes held to maturity.

Bank of America’s Wager

Bank of America, the largest U.S. bank by assets and deposits, added the most non-agency debt on its trading book in the third quarter, with an increase of $945 million, or 34 percent. The value of securities designated held-to-maturity or available-for-sale also rose, by 8.2 percent to $37.3 billion.

The Charlotte, North Carolina-based firm, now led by Chief Executive Officer Brian Moynihan, reported $80 billion in writedowns and losses from the credit crisis, much of it related to defaulted home loans and bonds backed by them. The lender received $45 billion in federal bailout funds in October 2008 under the Treasury’s Troubled Asset Relief Program, which it repaid Dec. 9. The U.S. still holds warrants in the bank.

Without new purchases, bank holdings tracked by the Fed usually decline as the underlying loans are refinanced or default. That shrank the overall market by 5 percent in the third quarter and by 30 percent since its peak in mid-2007, separate Fed data show.

Citigroup’s holdings of non-agency residential mortgage bonds designated for trading rose by $421 million to $13.5 billion in the third quarter, the Fed data show. Other holdings fell $2.3 billion, or 6.9 percent, to $33 billion.

$117.8 Billion Loss

The New York-based bank was among the largest and earliest losers on toxic home-loan securities and has posted $117.8 billion of writedowns and credit losses. The U.S. injected $45 billion of taxpayer capital into the company and extended guarantees for $301 billion of its assets, including mortgage debt. Citigroup, led by CEO Vikram Pandit, agreed last month to pay back $20 billion and cancel the insurance. The U.S. owns 27 percent of the bank’s common shares.

At Goldman Sachs, CEO Lloyd Blankfein increased non-agency home mortgage bonds designated for trading by $593 million in the third quarter, to $2.71 billion, and Morgan Stanley’s jumped $785 million to $4.25 billion, the Fed data show. Goldman Sachs’s other holdings climbed $76 million to $449 million. Morgan Stanley, now overseen by CEO James Gorman, classified all its holdings as trading assets, according to the Fed data. Both companies are based in New York.

‘Free Money’

Of the seven biggest owners of residential mortgage-backed securities, only San Francisco-based Wells Fargo & Co. reduced holdings of the debt on its trading book, by $130 million to $44 million. JPMorgan added $49 million to the trading book, while cutting its other holdings of the securities by $1.47 billion to $12.7 billion, according to the Fed data.

Eric Petroff, director of research at Wurts & Associates, a Seattle-based firm that advises institutions on $30 billion in investments, said it’s no surprise that banks added to their holdings following the unveiling of PPIP.

“Any time the government says, ‘We’re going to buy something in the securities market,’ they’re putting out a sign that says, ‘Free money, come and get it’,” he said.

The renewed interest by banks in holding the bonds has helped restore liquidity, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago. Higher prices have also eroded potential profits of PPIP funds and increased the risk of losses, making it harder for asset managers participating in the program to attract investors, he said.

Returns Shrink

Four of the nine PPIP managers missed the original Sept. 30 deadline for raising the minimum $500 million by more than a month. One manager, Marathon Asset Management, was allowed to make its initial closing after raising $400 million.

“If you were looking at returns in the high teens to low twenties in PPIP, now you’re looking at the low-to-mid teens,” said Joel Paula, senior analyst at Cambridge, Massachusetts- based NEPC LLC, which advised Connecticut’s state pension board on its decision to invest $200 million with three PPIP managers.

Higher prices are also slowing the pace at which PPIP managers can and want to buy, because they must be more careful when examining securities and their underlying collateral, NEPC’s Paula said.

“If you do your homework, you can still find value, but you’re not getting 20 percent for doing nothing anymore,” Paula said in an interview.

Locked In

While fundraising and investing is moving slowly, time could ultimately play to the PPIP investor’s advantage, said Alan Papier, of consulting firm Mercer, a unit of New York-based Marsh & McLennan Cos. Under PPIP’s terms, investors are locked in for eight years and managers have up to two years from their initial closings to invest the money, giving them time to wait for prices to drop.

“Managers are trying to figure out whether the rally in residential mortgage-backed securities is sustainable, or if there will be some sort of pullback,” Papier said.

Bill Eigen, manager of the $5.4 billion JPMorgan Strategic Income Opportunities Fund, said he bought residential mortgage- backed securities in the spring. Since then, he has sold and begun shorting both residential and commercial mortgage-backed securities, anticipating that their price would fall.

“This stuff was supposed to trade on fundamentals and will again trade on fundamentals,” he said in an interview. “PPIP is not going to fill up buildings.”

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.netJody Shenn in New York at jshenn@bloomberg.net

Fed Bubble Blowing: A Study Of Denial

Posted by Karl Denninger

Ben Bernanke once again steps into the realm of (intentional?) misdirection with the following missive:

The financial crisis that began in August 2007 has been the most severe of the post-World War II era and, very possibly–once one takes into account the global scope of the crisis, its broad effects on a range of markets and institutions, and the number of systemically critical financial institutions that failed or came close to failure–the worst in modern history. Although forceful responses by policymakers around the world avoided an utter collapse of the global financial system in the fall of 2008, the crisis was nevertheless sufficiently intense to spark a deep global recession from which we are only now beginning to recover.

“Although the firefighters showed up and threw tens of thousands of gallons of water on the fire, thus preventing the ultimate collapse of the structure, the fire was nonetheless intense enough to destroy the contents of the building.”

Even as we continue working to stabilize our financial system and reinvigorate our economy, it is essential that we learn the lessons of the crisis so that we can prevent it from happening again. Because the crisis was so complex, its lessons are many, and they are not always straightforward

“Fire, especially in a structure, is a very complex process.  The usual process of fire beings with the heating of one or more items until they begin to combine with oxygen in the air, releasing energy and producing a self-sustaining series of chemical reactions that we call ‘fire’.  This in turn causes the heating of other items that contain chemical compounds that can both burn and melt.  These chemical processes are extremely complex and so the lessons are not always straightforward in explaining the chemical reactions that take place.”

What Bernanke doesn’t mention is that The Fed ran around playing “Backdraft” setting the damn fires for twenty years and now wants credit as a “hero” for “putting out” their own acts of financial arson!

Surely, both the private sector and financial regulators must improve their ability to monitor and control risk-taking. The crisis revealed not only weaknesses in regulators’ oversight of financial institutions, but also, more fundamentally, important gaps in the architecture of financial regulation around the world. For our part, the Federal Reserve has been working hard to identify problems and to improve and strengthen our supervisory policies and practices, and we have advocated substantial legislative and regulatory reforms to address problems exposed by the crisis.

This sort of nonsense is amazing.  Bernanke then goes on to continue with an “analysis” of the 2000-2005 monetary policy conditions, including his favorite “tool”, the “Taylor Rule.”

The problem with the entire remainder of this “analysis” is that it simply refuses to acknowledge the truth found in the following graphs.  Let’s start with my favorite:

“Something” happened around 1985, didn’t it Ben?  What was “it”?

Simple: The leverage ratio – that is, the amount of debt outstanding in the economy for each dollar of GDP, began to rise precipitously.  This happens to be roughly correlated with the so-called “modern era” of Central Banking by The Fed, just a few short years before Alan Greenspan took office and continuing to this day.

But what caused this expansion?

Simple: A long line of “deregulatory” actions taken beginning with The Depository Institutions Deregulation and Monetary Control Act of 1980, and then the Garn-St. Germain Depository Institutions Act of 1982.  This, along with the ever-present thing called “human greed”, led to rampant real-estate speculation in the 1970s and early 1980s.  It was this unsound real-estate lending that ultimately led to the S&L bust, along with the expansion of brokered deposits and linked financing.

The expansion of leverage led directly to the bust and the “answer” to it in the mid 1980s was even more expansion of leverage!

We then had, in succession, even more booms and busts.  LTCM, Latin America’s debt explosion, the “Asian Tiger” explosion, The Tech Bubble and of course The Housing Bubble.

All of these were caused by one thing – the rapid expansion of leverage – that is, debt – compared to GDP.

It took more than twenty years to go from 150% of GDP to 175% of GDP in total systemic debt outstanding, an increase of about 17%.

Since then – less than thirty more years - we have more than doubled the debt-to-GDP ratio.

This has generated the following distortions in alleged “GDP”:

That is, during the decade of the 1960s, about 10% of the alleged GDP didn’t actually occur (not growth, aggregate output) through growth – it happened due to additions in borrowing beyond that which was paid off.  In the 1970s, 16%.  In the 1980s, 20%, in the 1990s, 16.3% and in the 2000, 21.6%.

Borrowing that produces something – that is, productive investment through the use of financing – will produce a negative percentage contribution.  Simply put, if I borrow $100,000 to buy a CNC machine and it’s aggregate output (ex-costs such as material, employees and the like) over the financed period is $300,000 then it produces a negative aggregate impact on debt-to-GDP ratios, because GDP grows faster than the debt does.

Monetary and regulatory policy is primarily responsible for the above table.  When people are in effect paid to borrow they will do so with wild abandon and use those funds not for productive investment but rather to speculate with.  Further, when those who commit fraud through various schemes are not forced to eat their own cooking, either financially or criminally then they will use leverage as a means to skim off “rents” from various parts of the economy for themselves by making an effective claim that 2 + 2 = 6.

The problem with using things like the so-called “Taylor Rule” is that one must make sure you include in “inflation” the actual price signals of all goods and services.  This, of course, is not done.  The average household spends 30-50% of it’s post-tax income on housing-related items, including the home itself, utilities (which are mostly energy or energy-derived in some form or fashion), food, and of course taxes imposed by governments and insurance costs mandated by the use of leverage to purchase same.  Another 16% of GDP is consumed by health care, making these two general categories of expenses account for the majority of all personal spending.

Yet “CPI”, or what we call “inflation”, does not count actual home price changes – it instead uses what’s called “owner’s equivalent rent“.  The BLS considers purchased housing investment, not shelter – that is, not consumption.  Yet the BLS also considers improvements and repairs to housing part of investment even though those items are clearly consumed!  In other words, they attempt to impute the rental cost of owned property.

This is, however, invalid.  Research has shown that most homeowners retain their house for about seven years on average.  Further it is clear that a home is in fact shelter as it’s prime purpose, not “investment”, and further the expenditure of funds to reverse the inevitable effect of entropy is claimed as investment rather than expense as well!

Health care expenditures are similarly (and deliberately) understated.  Most persons gain the bulk of their health care as part of their compensation – that is, they do not directly spend that money.  This in turn causes the BLS to dramatically understate price inflation in health care expense because most of it does not show up in the consumer price index.  Specifically:

The weights in the CPI do not include employer-paid health insurance premiums or tax-funded health care such as Medicare Part A and Medicaid.

These distortions are critically important because they in turn drive public policy and public perception, and that, in turn, is how we wind up with a series of asset bubbles.

From a mathematical perspective the problem is relatively simple:

As soon as you start refinancing to avoid paying off debt, or writing loans that are not contemplated as amortizing, you have entered The Ponzi Zone.

Identifying these sorts of financing is trivial.  Among them:

• Balloon, “Option ARM” and other exotic, non-amortizing mortgages.
• Commercial Real Estate and other forms of corporate loans that are “interest only” and have to be rolled at maturity.
• Debt issues that include “PIK” sorts of features (so-called “Toggle” bonds, etc.)
• Credit card “rollover” offers that provide a zero-interest period with no balance transfer cost, effectively permitting the “parking” of debt at a zero rate (for a period of time.)

All of these features tell you that the economic cycle has entered a “Ponzi” phase that will soon inevitably result in a bust.

But when one looks to the “why” rather than the “what” the cause is clear: Negative real interest rates – that is, rates anywhere on the curve that are below the rate of actual price inflation, inevitably lead to excessive speculative borrowing and asset bubbles.

It is here that Bernanke and his predecessor have completely and utterly blown it, and they appear to either not realize it or are desperately hoping they can keep you from figuring it out.

The Federal Government uses things like “owners equivalent rent” and other similar distortions in CPI to prevent having to pay out cost-of-living increases in entitlement programs.  But The Fed is not compelled to use the BLS and BEA numbers in conducting economic policy.  Indeed, The Fed employs a literal army of economists who are quite capable of developing their own independent price measurements – if they wanted to.

Bernanke also alleges that:

What policy implications should we draw? I noted earlier that the most important source of lower initial monthly payments, which allowed more people to enter the housing market and bid for properties, was not the general level of short-term interest rates, but the increasing use of more exotic types of mortgages and the associated decline of underwriting standards. That conclusion suggests that the best response to the housing bubble would have been regulatory, not monetary. Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates. Moreover, regulators, supervisors, and the private sector could have more effectively addressed building risk concentrations and inadequate risk-management practices without necessarily having had to make a judgment about the sustainability of house price increases.

What was your first clue Ben?

There was clear evidence of demonstrably unsound financial underwriting by banks you have primary regulatory authority over as early as 2004.  You did nothing.

You claim to have issued “guidance” in 2005 on non-traditional mortgages, yet they were offered by banks such as Wachovia right into the maw of the bust, with them attempting to personally solicit me for one in the spring of 2008, more than three years later!  Instead of taking them up on it I shorted their stock, as that offer was a clear display of idiocy that I was certain would lead to their demise. 

I was right, but you still claim you didn’t “see the problem.”

Clearly you did not regulate – you stood back and watched the bubble inflate.  You even said (just a few months before the bottom fell out of housing) that you believed house prices were supported by “strong fundamentals.”

This claim was either a bald lie or a product of profound blindness.  Either way it does not speak well of your capacity for discernment, say much less judgment.

In addition the peddling of paper with radically inflated claims of “quality” was also evident early in the bubble.  This too is under your domain – fraud is always punishable and the law is supposed to be enforced.  There is no need for more regulation – just enforcement of existing law.  When one takes a package of loans that has a true risk-adjusted return of 300 basis points over Treasuries of the same duration it is impossible to produce a set of securities with a blended return higher than 300 basis points, and it is also impossible for anyone to sell a credit default swap against that package (that they can actually perform on) for less than the true risk-adjusted spread.  Since nobody works for free the true return on a CDS + Debt, where “Debt” has some risk-adjusted return over Treasuries of equivalent duration, must always be less than simply buying the Treasuries!

As a consequence there is never a market for such a “synthetic” bond+protection that is “as safe as government debt” UNLESS someone is intentionally mis-pricing risk BECAUSE AT AN HONEST ASSESSMENT OF RISK AND THUS PRICE THE COMBINATION MUST ALWAYS RETURN LESS THAN AN ACTUAL RISK-FREE GOVERNMENT BOND!

Nobody in their right mind would select such a combination at a blended yield of 3%, for example, if the equivalent-duration US Treasury was yielding 3.5%. 

These products were able to be marketed only because they were laced through and through with fraudulent misrepresentations.  That someone was cheating was obvious to anyone who pulled their head out of their ass and looked at what was being packaged and at what yield it was being sold.  Again, directly or indirectly The Fed had the supervisory authority to put a stop to these practices and refused to do so.

The bottom line is that asset bubbles do not just magically appear – they happen because of negative real interest rates and intentional and pernicious fraud, both of which occur as a consequence of intentional obscurity and outright lies.

Our economy and people deserve better.  It is a fact, whether we like it or not, that we cannot have and sustain the sort of “economic growth” we have been sold over the last 30 years on an indefinite forward basis, as you cannot continually take on debt at a rate that exceeds productive output – eventually you will default.  Instead of facing the truth – a long-term growth rate roughly approximating the growth in population, or about half of what we have allegedly “enjoyed”, we have used debt pyramiding – that is, serial Ponzi schemes, to produce the illusion of dramatically higher economic growth.

There is no evidence that you, or anyone in Congress, has yet had their “Come to Jesus” moment with the blunt mathematical facts.  Attempting to blow another bubble – which is the inherent path you are attempting to take – risks destruction of our nation’s political system and economic future.

There are hard choices to make and economic adjustment to the realities of our debt load and what this portends for economic growth on a forward basis will not be easy.  It is, however, both inevitable and necessary.  The longer we continue to try to deny the math the worse the ultimate outcome.

It was time for the adults to be allowed in the room and the children restrained in August of 2007, as I have previously said.  More than two years of continued banter and bovine excrement from you and others has not changed a thing.   We have solved nothing and you have learned nothing.

In short, it is time for you to step down.

Plunder! How Public Employee Unions Are Bankrupting the Nation

Jack Dean at Pension Tsunami just emailed subscribers a note to watch Steven Geenhut, author of Plunder!: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation on C-SPAN2 tonight at 10:00PM EST.

About The Program

Steven Greenhut takes a critical look at government workers and the unions that represent them. Mr. Greenhut argues that government employees, who receive salaries, benefits, and a level of job security that far outpace workers in the private sector, have become a huge drain on state and federal coffers.

About the Authors

Steven Greenhut, a former member of the Orange County Register’s editorial board, is the director of the Pacific Research Institute’s Investigative Journalism Center and News Bureau in Sacramento. He is the author of “Abuse of Power: How the Government Misuses Eminent Domain.”

If you don’t have access to BookTV (C-SPAN2) via your cable provider, you can watch it on your computer (Windows Media Player required) at CSpan2Live.

If you want to keep abreast of pension news, enter your Email address at Pension Tsunami and click subscribe. It’s free.

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

Walmart, Costo, US Bank Profit From Energy Credits in US; Carbon Tax Thrown Out By French Court

Inquiring minds are noting Court throws out Sarkozy’s carbon tax.

France’s new carbon emission tax, due to have gone into effect tomorrow, has been ruled illegal by the country’s constitutional court because it exempted too many polluters.

The Conseil Constitutionnel struck down the tax on Tuesday because the exemptions breached ”the principle of [tax] equality”.

It estimated that 93 per cent of industrial emissions outside of fuel use, including those of more than 1000 of the country’s most polluting industrial sites, would be exempt from the tax of €17 ($27) a tonne of emitted carbon dioxide.

The ruling is a blow for the President, Nicolas Sarkozy, as the measure was one of his flagship initiatives to cut emissions. It also leaves the Government with a €4.1 billion hole in its 2010 budget.

Meanwhile, the President of Brazil, Luiz Inacio Lula da Silva, has signed a law requiring that Brazil cut its projected greenhouse gas emissions by 39 per cent by 2020, meeting a commitment made at the Copenhagen climate change summit.

Winners, Losers, Inequality

The Conseil Constitutionnel made the correct ruling. It’s clear to see what the policy was: handouts to 1000 favored industries at the expense of everyone else.

Walmart Wins Oregon Loses On Energy Credits

Please consider Walmart, others make money on Oregon’s energy tax credits.

When Oregon started handing out jumbo tax subsidies for renewable energy projects two years ago, one of the biggest beneficiaries was also one of the world’s richest corporations — Walmart.

No, the retail giant hasn’t branched to solar panels or wind turbines.

Instead, Walmart took advantage of a provision in Oregon’s Business Energy Tax Credit that allows third parties with no ties to the green power industry to buy the credits at a discount and reduce their state income tax bills.

State records show Walmart paid $22.6 million in cash last year for the right to claim $33.6 million in energy tax credits. The cash went to seven projects, including two eastern Oregon wind farms and SolarWorld’s manufacturing plant in Hillsboro. In return, Walmart profits $11 million on the deal because that’s the difference between what it paid for the tax credit and the amount of its tax reduction.

The loser in the transaction is Oregon’s general fund — which pays for public schools, prisons and health care programs — because the state is out the full $33.6 million in tax revenues.

Walmart isn’t alone. An analysis by The Oregonian shows Costco and U.S. Bank, which also rank among the nation’s top 200 wealthiest businesses, have made millions by buying up energy tax credits to cut their Oregon tax bills. Dozens of other companies and hundreds of individual Oregon taxpayers also have cut their tax bills by buying up the tax credits.

“It’s so convoluted,” says Eric Fruits, an adjunct economics professor at Portland State University who has studied Oregon’s energy incentives. “You’ve got all these dollars swirling around. Everyone is trying to grab them as fast as they can.”

Walmart, Costco and U.S. Bank, which top the list of energy credit buyers, shelled out a combined $67 million to avoid paying $97 million in Oregon income taxes.

Walmart and others are making money on projects that were closed, went belly up or never produced the energy or energy savings they initially claimed.

Gov. Ted Kulongoski and state energy officials say they recognize problems with the energy tax credits and are working to overhaul the program when state lawmakers convene for a short session in February. Among the targets of the overhaul is the pass-through option.

“The governor believes there’s been a public value to the program,” says Anna Richter Taylor, Kulongoski’s spokeswoman. “That said, he also is very supportive of efforts to align the rate better with other public investment portfolios.”

Insanity of Cap-And-Trade

Oregon thinks it knows how to fix the problem, but the whole idea of granting companies credits that they can trade is simply fatally flawed.

Walmart, Costoc, and US bank made millions for doing nothing and Oregon taxpayers got clobbered.

In Europe, the Cap-and-Trade Carbon Credit Extortion Scam In Full Swing.

The world’s biggest polluters wanted the carbon cap so they could trade their permits (acquired for free), to other businesses who will have to buy them to expand.

Now some of those polluters are going to move to India anyway after extorting extra permits out of the EU.

Not only is the global warming data bogus and manipulated, the whole cap-and-trade program is now easily seen as nothing more than an extortion scam, a scam that has fittingly blown up in the face of the EU and UN clowns who created it (unless of course that was their intention all along).

Unfortunately, EU workers and taxpayers are the ones who are going to suffer over this, not the clowns who created this ridiculous scheme.

Such is the insanity of Cap-And-Trade. It creates a big stream of winners and losers out of thin air, with taxpayers being the most likely loser.

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

More on the economy from the NY Times – food stamp article: