FedUpUSA

Archive for September 15th, 2011

You knew they would do it, right?

The 17-nation currency rallied as the ECB said it will coordinate with the Federal Reserve and other central banks to offer three separate three-month loans to ensure euro-area banks have enough of the U.S. currency through the end of the year. The dollar dropped after weaker-than-forecast economic reports damped confidence in the recovery.

Wait a second… this isn’t actually new!

Remember, The Fed previously (like more than a year ago) announced these swap lines and more-recently announced their extension.  So not only is this not new, it’s not news!

But the market is up big on the non-news news.  Why?  Because it appears banks are still going to be able to lie about asset values – for a little while longer.

The last time the world had a major banking crisis, fair-value accounting rules were near the top of the list of scapegoats most likely to be denounced by government and industry leaders. Not so this go-around.

Today many of Europe’s largest financial institutions are seemingly on the brink again, driven by fears of pent-up losses stemming from the sovereign-debt debacle. Only you don’t hear much criticism of fair-value reporting anymore. That’s probably because the accounting mandarins gutted many of their fair-value rules in response to the financial system’s near-meltdown three years ago. This hasn’t made banks safer. It has given politicians and bankers one less culprit to blame, though.

Actually, it makes banks much more dangerous.  Having neutered regulators you see lots of grins and no fear that actual accounting at current value is likely to show up any time soon.  This in turn leaves banks levered up the ying-yang and in many cases deeply underwater.

This in not just a US phenomena, although you can sure see it here, as most of the big banks have stock prices of half or less of the claimed “book value.”  This is of course illogical; if anyone believed those values they’d immediately buy the company and make an instant 100% (or more) profit, even if they had to dismantle and sell off the bank to do it.

Clearly, the market’s expectation is that the so-called “values” are lies.  And from this belief comes systemic risk, because now any event that threatens to force recognition of true value is an immediate bankruptcy trigger.

Fixing this requires only two things: Forcing recognition at fair value and One Dollar of Capital for all unsecured positions.  That ends the problem immediately.

But, of course, that also ends the skimming and rip-off operations too.

We won’t do it, and I bet that right now the bounce in the markets is causing people in DC to exhale, thinking that once again we’ve averted death and it’s all going to be ok.

Hint to the DC Critters: No it’s not, and the time bought this time around is likely to be much shorter than you got the last time.  Were you wise you’d use this reprieve to dismantle ex-rep Kanjorski’s BS game from early 2009 and force back in fair-value accounting.

But those in DC are not wise.

They’re corrupt.

All of them.

Rather than actually address the fundamental issues at the heart of the “jobless recession,” the Status Quo has engaged in a massive campaign of perception management, a.k.a. propaganda.

A number of euphemisms are used for the concerted Status Quo effort to convince the public  to maintain their belief in faltering institutions and a debt-based consumerist economy.The most neutral euphemism is “persuasion,” followed by the slightly more sinister “shaping the context” and “setting the agenda.” More directly, the effort is known as propaganda.

Perhaps unsurprisingly, perception management is a psychological-operations (psych-ops) term of Pentagon origins.The basic mechanisms are classic propaganda techniques. From the Wikipedia entry:

There are nine strategies for perception management. These include:

Preparation — Having clear goals and knowing the ideal position you want people to hold.
Credibility — Make sure all of your information is consistent, often using prejudices or expectations to increase credibility.
Multichannel support — Have multiple arguments and fabricated facts to reinforce your information.
Centralized control — Employing entities such as propaganda ministries or bureaus.
Security — The nature of the deception campaign is known by few.
Flexibility — The deception campaign adapts and changes over time as needs change.
Coordination — The organization or propaganda ministry is organized in a hierarchical pattern in order to maintain consistent and synchronized distribution of information.
Concealment — Contradicting information is destroyed.
Untruthful statements — Fabricate the truth.

Why expend treasure and resources on a propaganda campaign that is doomed to run aground on the sharp reefs of reality? Two reasons: it’s cheaper and less risky than real change.The Status Quo has a tremendous stake in maintaining the present structure and hierarchy of control, power and wealth. Enabling real change introduces uncertainty and thus risk, and so the lowest-risk response to devolution is to convince people that the erosion is not actually happening.

This is also much less costly than actually introducing potentially destabilizing real change.

But reality, unlike perception, cannot be changed by propaganda.  The Chinese buying Italian debt, for example, does not make the debt or Italy’s insolvency go away.

Thus the Status Quo’s campaign of “solving” fundamental problems with perception management will necessarily fail. A noteworthy example is the Eurozone’s Status Quo attempt to convince everyone that Greece, Portugal, Spain and Italy will not default, when their default is already unavoidable.

Human behavior, as reflected by the stock market, can be manipulated in the short-term: yet another announcement that Greece has been saved is followed by a 200 or 300-point rally, which fades as the tides of reality soon wash over the sand castles of perception management.

The Status Quo in Euroland can set all the agendas it wants and announce all the rescues it wants, but none of that propaganda will reduce the crushing debts by a single euro. Sand castles are no match for the tides of reality.

Charles Hugh Smith – Of Two Minds

The $1 trillion student loan market begins to implode – Department of Education shows two-year default rates at for-profit colleges up to 15 percent.  Student loan debt increasing at a rate of $170,000 per minute.

We seem to have entered an era of perpetual and unshakeable financial bubbles and the next ripe bubble to burst is in the student loan market.  Student loan debt has become the fastest growing debt sector throughout the economic recession.  Growth at for-profit colleges has been incredible and tactics used at these institutions reflects patterns seen with the subprime mortgage operators.  They target low income markets and exploit government backed loans and pump them through local area lenders.  It is a bubble of mammoth proportions and it is no surprise that data released by the Department of Education only a few days ago reflects a default pattern reminiscent of the subprime crisis.  Default rates on student loans at for-profit institutions are absolutely abysmal.  There is no question now that the student loan bubble is now the next market to pop.  What will be the consequences of the $1 trillion student loan market contracting?

For-profit student loans the new subprime

Source:  RortyBomb

“(Department of Education) The U.S. Department of Education today released the official FY 2009 national student loan cohort default rate, which has risen to 8.8 percent, up from 7.0 percent in FY 2008. The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.”

This rate is horrifying.  The ways these are measured are reflected by two-year default cohorts so you have 15 percent of the entire group defaulting within two-years!  The real default rate is much worse if we tracked these out for the life of the loan.  In other words, you have many going to for-profit paper mills and coming out with very little job prospects but with the added burden of massive student loan debt.  Clearly the student did not benefit but the profits at these institutions are enormous.  The government backing is the only way these lenders and schools even survive.  If a bank had to lend their own precious money you think they would give someone $40,000 or even $100,000 in student loans to pursue a degree at an unranked paper mill?  Reminds you of people buying tiny condos in Florida for $500,000 with no verifiable income.

The above chart is startling.  Take a look at the yellow and red lines.  That rise is simply the increasing default rates that we are seeing and we still have yet to see 2010 data which is likely to be even worse.  And keep in mind student loans are still expanding in this crisis.  While every other sector of debt is contracting this is the only area growing.  What is worse is that the earnings for recent college graduates doesn’t reflect the higher costs of college:

Source:  BusinessWeek

Take an open look at the above chart and align it with these stats:

Since 2000, in real terms college costs are now up by 23%

Since 2000, in real terms real pay for college graduates is down by 11%

Read the rest at My Budget 360

And this one, if true, is BAD:

The liberal Daily Beast reports on a broadband project backed by a frequent Obama White House visitor and donor that has Pentagon officials concerned over potential military GPS interference. The Obama FCC took the lead in intervening on the donor, billionaire hedge fund manster Philip Falcone’s, behalf and granting his company called “LightSquared” one of those coveted Obama waivers from existing law. Then Obama officials reportedly pressured a general to alter his testimony about the company’s impact on military satellite transmissions.

This is a SERIOUS charge if true.

For the unaware the issue arises because Lightsquared acquired spectrum that was originally intended for satellite-to-ground communication and wanted to re-purpose it for ground-to-ground for 4g phone service, basically.  The problem is that in order to do so it would have to up the ERP (effective radiated power) of the devices by several orders of magnitude, and the spectrum in question was both on top of the non-US version of GPS (which runs on a different band) and damn close to US GPS frequencies.

The question of whether that license should have been granted becomes one of whether there would be interference or not and if so, was it limited to those companies that did irresponsible things (like building one device for a world market where there was no reasonable expectation that the world bands would remain “clear” in the US) or is there an issue of interference even with properly-designed devices?

There’s a national security and life-safety question here.  If, and I stress if – the Obama administration put pressure on people to intentionally mislead parts of the government on the interference issue so as to provide an operating license to a politically-connected entity even though it could severely interfere with GPS location devices inside the United States then you have the worst sort of corruption and someone – or a bunch of someones – need to fry for it.

I am not sold on this given the information currently available, but this is much, much worse than Solyndra if true.

That was just money (although a hell of lot of it) – this, if substantiated, was potentially an issue of lives.

The government this week reported the U.S. poverty rate has risen to 15.1%, the highest since 1993, while 22% of children are living below the poverty line. Meanwhile, average median U.S. income fell 2.3% to $49,445, roughly 7% below the 1999 peak and a level not seen since 1996 on an inflation-adjusted basis. (See: As America’s Middle Class Shrinks, P&G Adopts “Hourglass” Strategy)

If you think that’s bad, just listen to what trend watcher Gerald Celente has to say in the accompanying video.

“Things are going to get much worse,” Celente says. “Society is breaking down on every level: socially, economically, politically and it’s not just the U.S. It’s worldwide.”

Celente believes the globe is following a similar path to what occurred after the 1929 crash: Severe economic contraction, followed by currency wars, trade wars and, ultimately, armed conflict.

Currency wars have already started he said, citing the recent decision by the Swiss National Bank to peg the Swiss franc to the euro. “Trade wars are next and then real wars, unfortunately,” Celente predicts.

Unlike the 1930s and 1940s, The Trends Journal publisher believes major nations will avoid direct conflict “because they can annihilate each other.”

The bad news is he expects more asymmetrical warfare, including the use of weapons of mass destruction such as bio-terrorism and “suitcase nukes.”

Power to the People

Lest you believe Celente, who has been making similar forecasts for some time, is entirely negative, he does believe there’s a solution: Direct democracy.

“If we can bank online we can vote online,” he quips, suggesting we follow the Swiss (or Californian) model of letting citizens vote on “major” decisions, such as war, health-care policy, education and the like.

“We don’t have a representative form of government,” Celente continues. “This is not a democracy. The only people these cats represent are the people that give ‘em a lot of dough.”

As discussed in a prior segment, Celente considers himself a political agnostic and doesn’t see much (or any) difference between the two major parties.

“It’s a two-headed, one party system,” he says. “We have a bunch of losers in Washington. How can any adult believe these guys after the summer spectacle of debt ceiling baloney?”

How, indeed.

The Daily Ticker