Gulag Blog

Internet Censorship Alert! Alex Jones exposes agenda to shut down the web

Aaron Dykes & Alex Jones | The Western world, from Australia to the United States, UK and Europe, are moving in a unified front toward dictatorial Internet censorship. Alex sounds a warning against the encroaching anti-speech policies.

Did The Obama Administration Do ANY Homework Before Announcing The Volcker Rule?

“The Volcker rule could be far-reaching. But it is disturbing that the Obama administration announced it before they had done enough homework to tell us how it would work. And with respect for the one man of influence sticking up for true restraints on the banks, I’d urge Volcker not to minimize the difficulty of the task until he founds out more of what’s really going on”

Toyota issues global Prius recall

Car giant recalls another 437,000 cars as it battles to reassure consumers over safety.

Greek Ouzo and the CDS Puppetmaster

Stacy Summary:   Two different takes on the Greek crisis at the moment.

• Greek Ouzo Crisis Escalates Into Global Margin Call

• The CDS PuppetMaster Behind it All

Tags: Greece

Links 2/9/10

‘Boredom can kill you’ ANI

Genes reveal ‘biological ageing’ BBC

Re-Engineering the Human Immune System h+ (hat tip reader David C)

Sahara Desert Greening Due to Climate Change? National Geographic (hat tip reader Diane R)

Spray-on liquid glass is about to revolutionize almost everything PhysOrg (hat tip reader Nick)

Sarah Palin caught cheating, proving to the world once again she’s a colossal IDIOT! Zeitgeist Watch (hat tip reader John L)

Unaccountable America Archein

Traders make $8bn bet against euro Financial Times

The Option of Last Resort: A Two-Currency EMU RGE Monitor

‘PIGS’ Crisis Is Opportunity for Euro to Stand Up Matthew Lynn, Bloomberg

Greek crisis intensifies as Joe Stiglitz calls for Europe to ‘teach the speculators a lesson’ Telegraph (hat tip Swedish Lex)

Mervyn King goes dog sledding but all avoid seal meat at G7 summit in Canada Guardian

Treasury is failing to force banks to lend, warn MPs Independent

The second lien sticking-point FT Alphaville (hat tip Richard Smith)

China says it shut down online academy for hackers LA Times (hat tip reader Sundog)

Dollars Flow Out as Data Flows In New York Times

In praise of mammoth deficits LA Times (hat tip reader Scott)

We’re Weimar James Howard Kunstler (hat tip reader Scott). Whether you agree or not, it’s a lively read

All roads lead to the renminbi Chevelle

Could we start industrial society from scratch today? Kurt Cobb (hat tip reader Robert M). From 2008, but the discussion is still pertinent

Name change: ‘Dynamite Prize in Economics’ Real World Economics. Vote for the economist most responsible for the crisis! (I did see this earlier, forgot to link, a nice reader reminded me, cannot find the message, so apologies for lack of h/t).

This Trend is Not Your Friend: Wall Street’s Killer Instinct Spells Death Knell for Jobs Pam Martens, CounterPunch (hat tip reader Stephen V)

Antidote du jour (hat tip reader Steve S):

Head of BIS Calls for Bigger Liquidity Buffers

Regulators have been making a concerted push for banks to hold more equity as a protection against loss and overly-optimistic valuation of trading assets. But the head of the Bank of International Settlements, Jamie Caruna, argued at a secret (not) central bankers’ conference in Sydney that banks also need to carry more in the way of liquid assets (note that this recommendation apparently came in the form of a paper, but we can find no such document at this hour at the BIS website).

Caruna recommended that banks hold enough to allow them to survive a month without access to funding. Note that idea only seems radical now, since banks have spent decades perfecting the art of running lean. The rule of thumb in banking is to lend out $9 of every $10 in deposits. In the 1960s, only $5 of loans versus $10 in deposit was considered prudent.

From Bloomberg:

Capital and liquidity buffers need to be built up in good times so that they can be drawn down in bad times,” Caruana said. “Banks should hold a sufficient stock of high-quality liquid assets to be able to survive a month-long loss of access to funding markets.”

The Basel Committee proposed in December that banks should keep assets that are simple to value and wouldn’t have to be sold at fire-sale discounts during times of stress.

Lenders should also increase the amount of equity and retained earnings they hold to help them cope with losses better, the Basel Committee said last year. Banks’ core capital should exclude stock with preferential dividend rights to reduce risks to the financial system, it said in a report.

“Capital requirements are the speed limits of banking,” Caruana said today. “Capital requirements should draw on deep pockets that can absorb losses. An idea worth exploring is whether those pockets might be usefully deepened by debt that is convertible to equity when times are bad.”

Simple and slow banking is, of course, less profitable in good times than the kind we’ve had over the last two decades. But banks were kept comfortably profitable and low risk via strict regulation for nearly five decades without having a major crisis (from the 1930s through the sovereign lending mess of the late 1970s). Although the financiers will fight it tooth and nail, simple, stupid banking looks a lot better than what we have right now.

Tags: Risk and risk management

Indy Mac Sweetheart Deal

Tags: Economics & Politics

$4 Trillion Lawsuit against SEC?

hmmm…. didn’t get reported in the financial press… Guess it was too "paltry" a sum!

WALL STREET JOURNAL, WASHINGTON POST SILENT ON $3.87 TRILLION SUIT

"On or approximately 11th January 2010, Mr A. Clifton Hodges, of Hodges and Associates, Pasadena, California, lawyers for the CMKM/CMKX Plaintiffs in their suit against the Securities and Exchange Commission [SEC] [Case Number: CV10-00031 JVS (MLGx)] filed in the United States District Court, Central District of California, sent copies of the Complaint seeking monetary payment of $3.87 trillion in the biggest financial fraud case in world history, to the following two US newspapers:

• The Wall Street Journal.

• The Washington Post."

Tags: Economics & Politics

Guest Post: “More Empires Have Fallen Because Of Reckless Finances Than Invasion”

While Eric Margolis’ entire comment in the Toronto Sun is a must-read, the following two quotes really hit the nail on the head:

More empires have fallen because of reckless finances than invasion…

If Obama really were serious about restoring America’s economic health, he would demand military spending be slashed, quickly end the Iraq and Afghan wars and break up the nation’s giant Frankenbanks.

Margolis is right.

As I have repeatedly shown, war is bad for the economy. According to a Nobel prize-winning economist, the head of JP Morgan and others, the Iraq war and the war on terror in general were huge factors in destroying our economy.

America is a dying empire, destroying the last of its resources to fight unnecessary wars. Instead of rebuilding our economy so that we can once again be a strong nation, we are wasting trillions fighting those unnecessary wars, thus guaranteeing that we do not have the economic resources to defend ourselves in the future from real threats.

Don’t believe me?

Well, our military and intelligence leaders say that the economic crisis is now the biggest threat to America’s national security.

And as leading economic historian Niall Ferguson recently wrote in Newsweek:

Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power…

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force…

If the United States doesn’t come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.
The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don’t forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.

And William R. Hawkins (formerly an economics professor at Appalachian State University, the University of North Carolina-Asheville, and Radford University) fills in some details on the fall of the Hapsburg empire:

Spain was the first global Superpower…With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

The Hapsburgs went into decline in the 17th century, and while any such momentous event has many causes, for our purposes the focus will be on the economic collapse of Spain, which not only sapped the empire of strength but served to build up the power of its rivals.

The demands of empire required a strong and growing economy, but Spain did not keep up with the economic expansion that was taking place in other parts of Europe. Madrid’s financial base fell out from under its empire. Spain could continue to consume in the short term because of the flow of precious metals from American mines, but it could not produce the goods it needed at home, which in the long-run proved fatal to its standing as a Great Power and as an advanced society.

Spanish imports were double exports and the precious metals became scarce within weeks of the arrival of the American treasure fleets as the money flowed to Spain’s many creditors. What industry there was, along with banking and shipping, was in the hands of foreign owners. As a modern historian, Jaime Vicens Vives, has concluded, “This was one of the fundamental causes of the Spanish economy’s profound decline in the seventeenth century, maritime trade had fallen into the hands of foreigners.” This, plus the “opening of the internal market to foreign goods,” produced a “fatal result.” Spain’s exports were at the same time under heavy pressure by competitors in third country markets. A nation that cannot control its domestic market will seldom be able to sustain itself in foreign markets, which are inherently less accessible and more unstable.

Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: “Let London manufacture those fine fabrics of hers to her heart’s content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens…so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.” A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

Historians have traced the flow of Spanish gold and silver across the markets of Europe. Those who “served” Spain by establishing industries to manufacture goods for the Spanish market gained the money. Spain’s rivals, France, Holland (which started a successful revolt in 1568) and England, prospered by their trade surpluses, and reinvested the money to expand their own capabilities. Another modern expert on Hapsburg history, Henry Kamen, has cited contemporary sources who referred to 17th century Spain as “the Indies for the foreigner.” The military empire of the Hapsburgs became the economic colony of other powers, or, to use a current phrase, Spain was the “engine of growth” for the rest of the continent.

Where there were jobs and prosperity, there was also rapid population growth, and rising tax revenue. Rival powers were able to field and finance military forces that could defeat the once superior Spanish forces both on land and at sea. The irony of this is that Spain was ruled by a warrior aristocracy tempered by centuries of constant warfare against Islamic hordes and Christian heretics. These nobles looked down on merchants and manufacturers and disparaged their mundane professions only to find that without a strong domestic business class they could not afford the fleets and armies that guarded the empire they had built.

Today, the American “empire” is also trying to consume more than it produces. The U.S. trade deficit is nearing Spain’s nadir of imports being double exports. Both government spending and private consumption are financed heavily by debt. Washington is printing money, the modern equivalent of digging gold out of the ground, rather than earning the means to pay its bills. And the political and military elites are apparently indifferent to the fate of domestic business and industry. Americans must learn … from the Spanish experience … and take corrective action while they still can.

As for the need to break up the “Frankenbanks”, see this.

Tags: Guest Post

The shell game and “Bleeding Banks”