Time for 15 euro nations to throw in their cards

The cost of saving Europe is getting too high, and considering the direction the Eurocrats’ philosophy is taking, it’s better just to walk away.

One warning sign was the vehement opposition to the proles ever having a say in how their country or their continent is run.   Never mind that the Greek right wing had half the debt hidden with accounting trickery and derivatives so the public never had a say or notice that the debt was being run up that high.   They should just be stuck with the debt because the elites that want to enslave them say so.  That is the right wing thinking.

Personally, I emphatically agree with the “doctorine of odious debt” and strongly believe that it should be international law.   If somebody like a dictator runs up a huge tab without a mandate, I don’t accept that that there is any moral or ethical basis why the public should be bound by that evil collusion.

It needs to be held to situations where it is appropriate, and the banks colluding with a prior Greek government to run up a tab with no mandate, off the books, is well across the line.

Now another angle is that S & P is being condemned for threatening to downgrade even Germany and France.

S & P, Moody’s and Fitch should be condemned for not having already downgraded Germany and France.

These ratings agencies need to decide if they are in the public relations business or the ratings business.   If they are supposed to be publicists generating good buzz for everybody they should go work for Kim Kardashian and leave serious work to somebody else.

The traditional ineptitude of ratings agencies among other things makes market crashes worse as occurred in 2008.

In 2008 some seriously defective instruments that were given AAA ratings suffered serious losses.    Some of these packages of instruments were intentionally designed to fail and the banks selling them were shorting them at the same time.

Ratings should not be a rubber stamp.

But getting back to the recent story, the real news is not the threatened downgrades, but that the politicians and bureaucrats think that ratings agencies shouldn’t tell the truth because it might affect the markets.

God forbid a ray of truth might get through.

At the same time, half the financial press are writing on the impending market disaster while the other half write glowing nonsense about how the markets are certain to rise and we face eternal prosperity.  The direction that the politicians, bureaucrats and media are taking is Orwellian and I don’t like it.   Europe is regressing 80 years and the US is turning into the Republic of Americastan.

I take it the French have thrown veracity on the rubbish heap along with liberty, fraternity and equality.  The Germans have never espoused those values so I can’t accuse them of abandoning anything.

So there you have it.  If you are in favor of truth, justice and democracy you are an enemy of the Reich…er..European Union.   Framed that way, I know which side I’m on.

Footnote suggestion: start turning ratings hard instead of issuing them in inscrutable ways that look more like religion or astrology.

The European Union’s magic numbers were debt no more than 60% of GDP and deficit no more than 3%.   But that level will already cause significant debt stress.

The GDP is not the best figure to use.  As shown in the US, governments face significant resistance to raising taxes.  They also face significant resistance to reducing programs, any programs.  The result is often inertia.  That means that comparing the debt to the government budget is a more appropriate ratio.  The GDP is irrelevant unless the government can access more of it.  And which sounds more ominous, that the debt is 60% of GDP or that it is 240% of the annual budget?

But using GDP comparisons for a moment, as that is all that has been publicly developed, the idea that the 60%/3% should reflect a AAA rating is ridiculous.

The idea that a government is inherently a more reliable debtor is a dangerous misconception.   A government controls its’ own process in a way that no other debtor can.   A government can immunize itself from execution against assets and unceremoniously give you the heave ho.

Giving a government that is badly in debt a AAA rating because it is a government is incorrect.

If I were making the credit ratings I wouldn’t give a government with the 60%/3% debt ratios better than a BBB.

The US present debt and deficit? A BBB-…maybe. For any other country I’d put that in single or double B.

Have hard lines that result in automatic downgrades without debate, analysis or equivocating and it will help straighten things out.   There’s no need for a field that is mostly numbers to be all soft analysis.

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Euro chicanery as ominous as any other sign

I’m sure everybody has noticed by now certain patterns that European politicians have used to disguise the lack of progress on their issues.

The mainstay approach of having a meeting, resolving nothing, then departing and declaring victory is getting really thin.

The announcement is followed with no specifics and further meetings are announced to work out the details of the non-deal when in fact the extent of the agreement is “we have agreed to solve the problem” but without any mechanics.

The second line of attack is, we’ve had a meeting, and we’ve decided that somebody else will solve our problem.  China will solve our problem.  Private investors will solve our problem.

That is not a plan, it is a hope for “deus ex machina”.

This form of salvation reminds me a lot of the old Aesop fable about mice who are being terrorized by a local cat.  So the mice have a meeting and they decide that the solution to the problem is that they will put a bell on the cat.   The reaction to this is quite favorable, until an old and wise mouse speaks up and says, the plan is fine, but who is to bell the cat?

In other words, a plan that can’t be implemented due to an insurmountable hurdle is as good as no plan at all.

China is predictably not interested and there is little incentive for them to get involved.  The lack of any attempt by Europe to take a serious run at its’ problems on its own makes it foolhardy to fund them.  They’ll just go through any money contributed and then when it is about to run out, start having meetings again to figure out what to do.  Giving money to Europe right now is about as constructive as putting your money in a pile and setting it on fire.

As for the private investors solution, that fizzled for predictable reasons.  There is little interest in European bonds now as it is.  The leverage plan is rather silly, because it insures only 20-30% of the value of bonds.  The statement that makes is in some ways worse than no insurance.  Invest in Europe and we guarantee you will get one fifth of your money back ! Woo hoo, sign me up.

The whole issue is that private investors are losing faith in government debt.  The theory that you will fix the problem by attracting back private investors is strained at best.

Trying to force banks to take on more government debt by increasing tier 1 capital requirements is dirty pool and there is a bit of a conflict of interest in the decision.  The irony is that the whole thrust of the problem is that tier 1 capital is arbitrarily defined and attributes a reliability to government debt that is without foundation.

Other dubious plans have come up.   An utterly bizarre plan from Germany involves putting together currency reserves to increase investor confidence.

So Germany alone would need to save 500 billion Euros under that proposal.

If there isn’t actual currency set aside, it’s just an accounting gimmick.

If currency is raised to set aside with bonds, then you increase the debt.

If you do set physical currency aside as a guarantee, you will decrease the liquidity in the system unless you print more Euros.   That will tend to cause deflation and stagnate markets.  Deflation will increase the value of existing debts.

If the idea is to print money to set aside as a guarantee, so that there isn’t a liquidity crisis, why not just simply print money without turning this into a dog and pony show.

So I am divided as to whether this latest from Germany is supposed to make no sense or whether it is supposed to be counterproductive.

The latest from Europe generally is, the ECB lends money to the IMF and then the IMF lends it out to Italy or Spain as the case may be.

Is John Cleese making European policy?

If Europe and the ECB can’t bail out Italy and Spain now, how does it assist to loan money through the IMF?  If they are providing the funds, how does adding a step with the IMF in the middle change anything?

If the idea is that the IMF is a better credit risk, then you have the ultimate issue that, if the debtor country stiffs the IMF, will it be Europe or the IMF that gets stuck with the tab?

That really is the issue.  If the IMF doesn’t have the money to loan, and the ECB doesn’t have the money to loan, how does this work? If the IMF and the ECB could fix the problem with their resources together, why not have the ECB put in some money and the IMF put in some money separately rather than taking weird roundabout steps?

If the money isn’t there for a bailout, it isn’t there.

There is an old expression about pulling oneself up by one’s bootstraps which would be appropriate, but it is a bit dated.

Here’s a more contemporary allegory: bees lifting a laptop:

http://www.youtube.com/watch?v=3AxIOtSjXyA

Mythbusters proves that bees can’t lift a laptop using basic principles of physics.

The basic myth of bees lifting a laptop has the same structure as supply-side and other right wing economics however.   It is possible with some sleight of hand to create the appearance that it can work but that isn’t enough to deliver.

It’s hard not to wince hearing some of the plans being floated in Europe these days.   When a “plan” is obvious balderdash, it has a prejudicial effect worse than having no plan.  A bunch of confusing bafflegab may reassure slow people but to those of us with IQs over 100 it looks incredibly desperate, like not only is there no plan but you’ve given up and are prepared to say things that are incoherent rather than say nothing at all if you need to stall for time.

Merkel and Sarkozy are the pioneers of the planless plan, where the real plan is to game the media to keep up market and consumer confidence without doing anything.   It’s too bad that Merkel is taking the lead in this, because she leads Germany and Germany has money to spare.   Sarkozy is at least ten times as smart as Merkel and far better at public relations.

Merkel and her bank friends are so awful that they make me feel sorry for Berlusconi.  Italy was in good shape and then there was a massive misleading press blitz about Italy’s finances and then ECB halved it’s support for Italy’s bonds in order to push Berlusconi out of power so that he could be replaced by an ECB/ Goldman Sachs puppet.

It is a supreme irony that with all of Berlusconi’s unethical connections and activities and more legitimate reasons to remove him than you can count on your fingers, that when he was finally removed from office, he was removed by foreign powers and bankers because he was a patriot who refused to sell out his country.

The tactics used against Italy suggest to me that those who would consolidate Europe now do not have the appropriate motives and it must not happen.

Europe has had years to work on the debt problem and they haven’t come up with a single good idea.  Germany vetos any suggestion that would solve the problems (e.g. print money).

The plan for Greece is doomed to failure for a variety of reasons, not least of which is that the yields on Greece’s bonds are over 30%.

If Greece’s full debt was unsustainable at 7% yields, can half of Greece’s debt be sustainable at 30% yields?  Do the math.  No way.  Greece is going to burn out and soon.

Greece should be allowed to default…because they are going to default.  Anything that anybody has to say on the subject is moot.

What needs to be the focus is, when is Greece going to default.

The unpopular answer for the politicians should be, as soon as possible and it should be carefully planned so the logistics can be worked out.

If more bailout funds are given to Greece, they will be spent.

Greece should be allowed to default, but the flip side of that is that the bailout funds would need to be given to Greece’s creditors to keep them afloat.

Wait, and the bailout funds will have been spent and we will be in the same mess but with fewer resources to address it.  Unfortunately politicians are averse to taking any immediate action that is unpopular, even if it is necessary and the cost/benefit is there.

 

 

A simple solution to fraudulent foreclosures

It seems that banks and robosigners are now foreclosing homes of people that did not even have mortgages with them:
This is really easy to fix.
Make statutory minimum damages of $100,000 and minimum legal costs award of $20,000 for an incorrect foreclosure application, or for an incorrect entry on the credit rating of a person due to a falsely alleged mortgage default.   Make this absolute liability with no defence if the foreclosure is in fact incorrect.
Lawyers will then take these claims on contingency and the problem will go away.
For reasons that escape me, bank officials committing frauds on behalf of banks and government officials committing frauds on behalf of governments are almost never charged criminally.  In my view their station is an aggravating, not a mitigating factor, and they should generally receive the maximum sentence.   Whether they are stealing for their own benefit or not is irrelevent.
And have not just the banks, also the lawyers working for them, as potentially eligible defendants although  on a different standard [clients lie to and mislead lawyers all the time, you can’t justify absolute liability].   Lawyers are expected to take reasonable steps to ensure that their clients are not misleading the court, and in cases like mortgages where everything should be well documented, it should be quite easy to verify whether there is an arguable claim or not.

More problems for Boeing 787

There seem to be endless problems and delays with the new 787.  I’ve nicknamed it the Boeing Cormorant (for those who don’t get the black humor, the Cormorant is a bird that dives into water).
I don’t think I’ll be getting on any of those until they’ve got a lengthy track record of being safe.
Meanwhile there seem to be problems with new Rolls Royce engines supplied to both Boeing and Airbus such that there were problems with Qantas this week.
With billions on the line there is maybe sometimes too much pressure to get to market and not to backtrack.
I do wonder whether there might be any issue to do with volcanoes.   Indonesia is having trouble and all of a sudden two planes have major engine failure within 24 hours, you have to wonder if it is a coincidence or if there is an external factor.
Among other issues, the quality of different ash clouds may make it necessary to consider the different concentration and composition of the ash clouds from each eruption of each volcano, as it would be surprising if these issues made no difference to the effect on engines.

Media, not Tea Party, sends the loudest message about who is in charge

So the turnout of voters under 30, disproportionately Democrats, was something around 13% in this election.  Having been convinced by the media that the Republicans were unstoppable, why would they show up?
So the right wing media have again shown an ability to generate a self-fulfilling prophecy through misleading journalism.  That at all times the population eligible to vote had a much lower view of the Republicans was consistently suppressed, and instead soft numbers about probable voters instead of eligible voters was used to generate the self-fulfilling prophecy.
If the media had done the same thing to affect the price of a stock there would probably be arrests, but deliberately misleading the public with false news to generate an election outcome for some reason is tolerated.   That kind of behaviour by the media belongs in Stalinist Russia.
The election is portrayed by the media as being about the economy, but it couldn’t be about that. The results were a large swing in favor of the party that destroyed the economy, and other polls that were published stated that the voters were aware that Bush and Wall Street are mostly to blame for the economy.   Electing people that want to repeal the new constraints on Wall Street is an unintelligible response.
The media did it’s best to generate a climate of alleged “voter anger” directed at the Democrats, and pimping the Tea Party, while making no effort to educate voters that the Tea Party and Republicans generally want to go against the voters’ stated objectives.
The 2008 collapse, which had been building since 2004, was a direct result of corporate lawlessness and a failure of the government to adequately regulate.  Only a complete idiot could honestly believe that an excess of regulation and too much government interference were what led to the economic collapse.
Again, I don’t see the people in charge of the Tea Party as people that believe in freedom from government.  Quite the opposite, they are about oppression by fraudulent government, seeing government as little more than a propaganda organ of big business.   Much like Stalinists, but  in favor of big business rather than big labor.   Given the facts, the position that the economic problems are a result of too much regulation is Orwellian.  It is what Goebbels would say.  The Tea Party does not represent a return to honest government and honest government is the worst fear of their leadership.
Polls suggest that the electorate want jobs, and again the right wing have successfully confused them.  The right wing is about closing jobs here and sending them to East Asia.   The right wing is famous for “jobless recoveries”.   If you want jobs, don’t vote for a Republican.  Ever.
The Tea Party people now want to cut government spending.  If there is a way to do that to a meaningful degree without cutting lots of jobs, I’ll be duly impressed.  The only way that the Tea Party and Republicans can do what they’ve said they are going to do is if they do the opposite of what the country wants- cut even more jobs, which will take more money out of the economy, lead to more foreclosures, and speed up the economic death-spiral.   Selective cuts, especially to things like military junk, may be manageable.
For the most part stimulus spending is a waste of time- a trillion dollars now so that we delay the collapse for a year or two and make every subsequent year worse, is just a bad idea.  Better to take the medicine now althought it is never politically popular to tell the public that doing nothing is the best option.  There may of course be some specific cases where the cost-benefit is there and in particular we can’t lose track of spending on preventative maintenance on infrastructure now will probably save greater expenses in the future.
The central problem of the few Tea Party and Republicans who want the country to improve is that it is not possible to turn the country around with their model.  Central to any recovery has to be that anti-dumping and anti-subsidy laws apply in the same manner to low minimum wages as they do to government subsidies.   The Fordism model for building America cannot work if every business can opt out of it without consequences and move production offshore.   Whether a company has an advantage through a subsidy by the people through the government or is subsidized by the people by low labor costs is only a difference in semantics.
The right wing is creating an environment in which it will only be possible for America to compete by reverting into the equivalent of a third world country.
This global “race for the bottom” doesn’t make a lot of sense.  Better to tell corporations  that if they break with the program, they break with it completely, and if they want to make shoes with laborers in Thailand making 10 cents per hour, then they can go see how much they sell to the Thais.   Otherwise they are freeloaders being carried by everyone else.
Another problem, the demographic bulge with the baby boomers, can only be resolved by going against the other right wing agenda and opening up immigration.  A good immigration policy can smooth out the demographics.   A number of billionaires have called for an improved immigration policy for presumably this reason. If you have too much of your population retired there is a huge burden on the remaining workforce.  The longer the wait to open the borders the worse the problem will be as people aren’t going to just walk into the country and immediately pick up all of the slack.
The “Tea Party” types have tied their hands by confusing empirical issues with philisophical issues and have said, essentially, that they will vote against anything that could possibly work.   Doing more of what got America into this hole in the first place is just going to dig that hole deeper.

Palin and Beck Orwellian

Some 30 years on in the right wing economic agenda, with nothing to show for it but disaster after disaster, and a steadily declining standard of living, we now hear from such luminaries as Palin and Beck that we need to exercise our “second amendment rights”- (i.e. kill our fellow citizens?) to have a revolution so that we can have…exactly the same policies as we have for the past 30 years that have led to nothing but failure and impoverished billions.
How it would be a revolution to take up arms to do what is little more than defending and furthering a corrupt existing order, I don’t know.  It is hard to see it as anything other than Orwellian doublespeak.
One of the more common delusions is of a “free market”.  The operational definition of “free market” seems to be an arrangement where privately owned businesses take great risks and if they make money by fair means or foul, they keep all of it, but if they run into trouble, they morph into socialists.   Proper regulation could avoid both ends of the problem.  The lack of appropriate regulation creates needs for bailouts and even more interference by government than if there had been an appropriate level of interference in the first place.
The right wing has been consistently preaching financial responsibility for 30 years while the left wing has been practicing it.   Put a democrat in power and the balance sheets usually tend to adjust quickly.   Put Republicans in and the finances spiral out of control.    But because they replace Democratic expenses that help people and give ordinary people jobs with far more expensive programs that center on killing people, the military, they consider themselves more responsible.
When Bush and friends left office, they had created a stimulus plan that was supposed to turn the country around.  The incoming Congress and President had little alternative but to ratify what the previous administration had already planned unless they were to stall and take more time for debate.  Obama has huge problems to deal with, most of which he inherited from the younger Bush.   Now a plan formulated under a Republican administration [yes, in consultation with a number of Democrats who are also guilty of it] is being rebranded as a Democrat abomination.    Never mind that 30 years of terrible decision making by mostly Republicans came to a head with the crisis, or that the Democrats were continuing policies arrived at by Bush and his appointees.    Of course the stimulus plan was a terrible idea with many Democrat (and Republican) backers, but rebranding it as a Democrat idea is pure fiction.
The key underlying problem with tea party types is exactly the same as the key problem with Stalinists.   Utopians of every flavour tend to follow a similar trajectory.
The first step is to have a simplistic world view and believe that if everybody adhered to this ideal that all conflict would magically dissipate and everybody would live in peace and happiness.
The second step is, because the utopian’s simple solutions never work, to create a mythical fall from grace and scapegoats.   The fall becomes due to women because Eve ate an apple, or Jews, or some other race or alleged conspiracy.   Utopians are generally fanatics.  Their reasoning goes that if everybody was on the same page, their system would work.   The system does not work, and therefore that is because not everybody is on the same page, not everybody is pure enough.   That leads to purges, threats of violence and an insistance that if only more people would follow the dogma everything would be fine.   The solution proposed is usually even more extreme than that which is already not working.    Decades of setbacks do not prove that the idea is refuted, they prove that the “wicked” have been getting in the way and only through purification can there be progress to the utopian ideal.
Utopianism seems to be more of a defect of the white race, the others don’t seem to get as confused or stay confused for as long.
Utopians tend not be great students of history.    There was a time when the economy was almost unregulated.   It was not a Utopia.  In the early Industrial Revolution the conditions were so bad that if not for the reforms in the early 20th century it probably would have been better if there had never been an industrial revolution at all.   Lack of regulation led to great boom and bust cycles, to the detriment of everybody, including most business owners.    The conditions were so horrific that Marxism gained a great deal of traction.   And if the majority of the population is subjected to those conditions again, Marxism or something like it will spring up again for the same reasons.   We have all the empirical evidence that we could ever need that blanket deregulation or lack of regulation is a disaster.
Utopians tend to not be good with facts or common sense.   Henry Ford was no Marxist, actually reputed to have been a Nazi sympathizer, but he realized that workers have to make enough money to buy products.   There is no use having an assembly line that makes cars if almost nobody has the resources to buy a car.  Notwithstanding his unsavoury politics, his economics is basic common sense: http://en.wikipedia.org/wiki/Fordism
A country without a middle class cannot have a thriving economy.   Yet eradicating the middle class and reducing the bulk of society to subsistence wages so they can’t buy anything but subsistence products is the primary objective of the right wing in western civilization since Reagan.
You see, the battle is not between left wing economics and right wing economics, it is between the “supply side” and Reaganomics people vs. Ford economics.  Ford economics built America and Reaganomics and supply side economics destroyed it.
There have been a number of Tea Party type movements in the past, with usually mixed results at best.  The Nazis were one such movement.  They put a guy like the new Glenn Beck in charge and that didn’t go so well.   The French did a little better but Robespierre got drunk on power and paranoia and after he took out the trash he started taking out everything else, including former allies.  Once people get a taste for doing things that way the genie doesn’t go back in the bottle.  Maybe the best outcome of such a movement was with Julius and Augustus Caesar, albiet again resulting in the appointment of a dictator.
Not really something to aspire to.  Is there anything wrong with going back to what worked?