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Doomsday Deluxe

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I frequently enjoy watching the Doomsday Preppers program on the National Geographic Channel.  I get a particular kick out of hearing the reason each particular family gives for building a bunker and making plans for Armageddon.  At the end of each story, the producers at Nat Geo usually reference the consensus of expert opinion concerning the particular doomsday scenario discussed by the featured family.  A popular fear is that earth will get knocked off its axis, causing a polar shift.  (You’ve probably heard Matt Damon mention that one on the TD Ameritrade commercial – wherein he credits the Mayans for starting the rumor.)  Although many of the preppers’ fears are far-fetched, there are certainly many legitimate causes for the sort of concern which could lead a perfectly reasonable person to initiate efforts toward the Ultimate Plan B.  My personal favorite threat is Fukushima.

A number of reports have recently been published concerning the efforts made by more upscale preppers to build designer bunkers.  This situation really cries out for a new television program:  Beverly Hills Bunkers or Celebrity Preppers of Palm Beach.

The Raw Story website ran an AFP report describing the efforts by developer Larry Hall to convert abandoned missile silos into luxury bunkers.  At this point, Hall has found four buyers who have plunked down nearly $2 million each for a silo bunker:

“They worry about events ranging from solar flares, to economic collapse, to pandemics to terrorism to food shortages,” Hall told AFP on a tour of the site.

These “doomsday preppers”, as they are called, want a safe place and he will be there with them because Hall, 55, bought one of the condos for himself. He says his fear is that sun flares could wipe out the power grid and cause chaos.

*   *   *

Built to withstand an atomic blast, even the most paranoid can find comfort inside concrete walls that are nine feet thick and stretch 174 feet (53 meters) underground.

Instead of simply setting up shop in the old living quarters provided for missile operators, Hall is building condos right up the missile shaft. Seven of the 14 underground floors will be condo space selling for $2 million a floor or $1 million a half floor. Three and a half units have been sold, two contracts are pending and only two more full units are available, Hall said.

*   *   *

He is also installing an indoor farm to grow enough fish and vegetables to feed 70 people for as long as they need to stay inside and also stockpiling enough dry goods to feed them for five years.

The top floor and an outside building above it will be for elaborate security. Other floors will be for a pool, a movie theater and a library, and when in lockdown mode there will be floors for a medical center and a school.

Complex life support systems provide energy supplies from sources of conventional power, as well as windmill power and generators. Giant underground water tanks will hold water pre-filtered through carbon and sand.

*   *   *

Interested buyers have included an NFL player, a racing car driver, a movie producer and famous politicians, he said, but he now requires all the money up front.

Blake Ellis of CNN Money gave us a peek at how “the one percent” is getting ready for doomsday:

Northwest Shelter Systems, which offers shelters ranging in price from $200,000 to $20 million, has seen sales surge 70% since the uprisings in the Middle East, with the Japanese earthquake only spurring further interest. In hard numbers, that’s 12 shelters already booked when the company normally sells four shelters per year.

Who spent $20 million on a bunker?  Oprah?  Bill Gates?  Lloyd Blankfein?

Inquiring minds want to know how their favorite celebrities will be riding out The Apocalypse.  Which porn stars will Charlie Sheen invite to his Doomsday Den?  How many people within one degree of Kevin Bacon will Kyra Sedgwick allow into his bunker?

There is definitely a television show here – and it’s bound to draw a bigger audience than the number watching Doomsday Preppers.  Any guesses as to which network runs with this?


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Be Sure To Catch These Items

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As we reach the end of 2011, I keep stumbling across loads of important blog postings which deserve more attention.  These pieces aren’t really concerned with the usual, “year in review”- type of subject matter.  They are simply great items which could get overlooked by people who are too busy during this time of year to set aside the time to browse around for interesting reads.  Accordingly, I’d like to bring a few of these to your attention.

The entire European economy is on its way to hell, thanks to an idiotic, widespread belief that economic austerity measures will serve as a panacea for the sovereign debt crisis.  The increasing obviousness of the harm caused by austerity has motivated its proponents to crank-up the “John Maynard Keynes was wrong” propaganda machine.  You don’t have to look very far to find examples of that stuff.  On any given day, the Real Clear Politics (or Real Clear Markets) website is likely to be listing at least one link to such a piece.  Those commentators are simply trying to take advantage of the fact that President Obama botched the 2009 economic stimulus effort.  Many of us realized – a long time ago – that Obama’s stimulus measures would prove to be inadequate.  In July of 2009, I wrote a piece entitled, “The Second Stimulus”, wherein I pointed out that another stimulus program would be necessary because the American Recovery and Reinvestment Act of 2009 was not going to accomplish its intended objective.  Beyond that, it was already becoming apparent that the stimulus program would eventually be used to support the claim that Keynesian economics doesn’t work.  Economist Stephanie Kelton anticipated that tactic in a piece she published at the New Economic Perspectives website:

Some of us saw this coming.  For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery.  Anything shy of that, they worried, would fail to sufficiently improve the economy, making Keynesian economics the subject of ridicule and scorn.

Despite the current “ridicule and scorn” campaign against Keynesian economics, a fantastic, unbiased analysis of the subject has been provided by Henry Blodget of The Business Insider.  Blodget’s commentary was written in easy-to-read, layman’s terms and I can’t say enough good things about it.  Here’s an example:

The reason austerity doesn’t work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy.  And when you further reduce tax revenue, you increase the deficit and create the need for more austerity.  And that even further clobbers the economy and tax revenue.  And so on.

Another “must read” blog posting was provided by Mike Shedlock (a/k/a Mish).  Mish directed our attention to a rather extensive list of “Things to Say Goodbye To”, which was written last year by Clark McClelland and appeared on Jeff Rense’s website.  (Clark McClelland is a retired NASA aerospace engineer who has an interesting background.  I encourage you to explore McClelland’s website.)  Mish pared McClelland’s list down to nine items and included one of his own – loss of free speech:

A bill in Congress with an innocuous title – Stop Online Piracy Act (SOPA) – threatens to do much more.

*  *  *

This bill’s real intent is not to stop piracy, but rather to hand over control of the internet to corporations.

At his Financial Armageddon blog, Michael Panzner took a similar approach toward slimming down a list of bullet points which reveal the disastrous state of our economy:  “50 Economic Numbers From 2011 That Are Almost Too Crazy To Believe,” from the Economic Collapse blog.  Panzner’s list was narrowed down to ten items – plenty enough to undermine those “sunshine and rainbows” prognostications about what we can expect during 2012.

The final item on my list of “must read” essays is a rebuttal to that often-repeated big lie that “no laws were broken” by the banksters who caused the financial crisis.  Bill Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City in the Department of Economics and the School of Law.  Black directed litigation for the Federal Home Loan Bank Board (FHLBB) from 1984 to 1986 and served as deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC) in 1987.  Black’s refutation of the “no laws were broken by the financial crisis banksters” meme led up to a clever homage to Dante’s Divine Comedy describing the “ten circles of hell” based on “the scale of ethical depravity by the frauds that drove the ongoing crisis”.  Here is Black’s retort to the big lie:

Sixty Minutes’ December 11, 2011 interview of President Obama included a claim by Obama that, unfortunately, did not lead the interviewer to ask the obvious, essential follow-up questions.

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.

*   *   *

I offer the following scale of unethical banker behavior related to fraudulent mortgages and mortgage paper (principally collateralized debt obligations (CDOs)) that is illegal and deserved punishment.  I write to prompt the rigorous analytical discussion that is essential to expose and end Obama and Bush’s “Presidential Amnesty for Contributors” (PAC) doctrine.  The financial industry is the leading campaign contributor to both parties and those contributions come overwhelmingly from the wealthiest officers – the one-tenth of one percent that thrives by being parasites on the 99 percent.

I have explained at length in my blogs and articles why:

• Only fraudulent home lenders made liar’s loans
• Liar’s loans were endemically fraudulent
• Lenders and their agents put the lies in liar’s loans
• Appraisal fraud was endemic and led by lenders and their agents
• Liar’s loans could only be sold through fraudulent reps and warranties
• CDOs “backed” by liar’s loans were inherently fraudulent
• CDOs backed by liar’s loans could only be sold through fraudulent reps and warranties
• Liar’s loans hyper-inflated the bubble
• Liar’s loans became roughly one-third of mortgage originations by 2006

Each of these frauds is a conventional fraud that could be prosecuted under existing laws.

It’s nice to see someone finally take a stand against the “Presidential Amnesty for Contributors” (PAC) doctrine.  Every time Obama attempts to invoke that doctrine – he should be called on it.  The Apologist-In-Chief needs to learn that the voters are not as stupid as he thinks they are.


 

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Plutocracy Is Crushing Democracy

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It’s been happening here in the United States since onset of the 2008 financial crisis.  I’ve complained many times about President Obama’s decision to scoff at using the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  One year ago, economist John Hussman of the Hussman Funds discussed the consequences of the administration’s failure to do what was necessary:

If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, there is no doubt in my mind that we would be quickly on the course to a sustained recovery, regardless of the extent of the downturn we have experienced.  Unfortunately, we have built our house on a ledge of ice.

*   *   *

As I’ve frequently noted, even if a bank “fails,” it doesn’t mean that depositors lose money.  It means that the stockholders and bondholders do.  So if it turns out, after all is said and done, that the bank is insolvent, the government should get its money back and the remaining entity should be taken into receivership, cut away from the stockholder liabilities, restructured as to bondholder liabilities, recapitalized, and reissued.  We did this with GM, and we can do it with banks.  I suspect that these issues will again become relevant within the next few years.

The plutocratic tools in control of our government would never allow the stockholders and bondholders of those “too-big-to-fail” banks to suffer losses as do normal people after making bad investments.

As it turns out, a few of those same banks are flexing their muscles overseas as the European debt crisis poses a new threat to Goldman Sachs and several of its ridiculously-overleveraged European counterparts.  Time recently published an essay by Stephan Faris, which raised the question of whether the regime changes in Greece and Italy amounted to a “bankers’ coup”:

As in Athens, the plan in Rome is to replace the outgoing prime minister with somebody from outside the political class.  Mario Monti, a neo-liberal economist and former EU commissioner who seems designed with the idea of calming the markets in mind, is expected to take over from Berlusconi after he resigns Saturday.

*   *   *

Yet, until the moment he’s sworn in, Monti’s ascension is far from a done deal, and it didn’t take long after the markets had closed for the weekend for it to start to come under fire.  Though Monti, a former advisor to Goldman Sachs, is heavily championed by the country’s respected president, many in parliament have spent the week whispering that Berlusconi’s ouster amounts to a “banker’s coup.”  “Yesterday, in the chamber of deputies we were bitterly joking that we were going to get a Goldman Sachs government,” says a parliamentarian from Berlusconi’s government, who asked to remain anonymous citing political sensitivity.

At The New York Times, Ross Douthat reflected on the drastic policy of bypassing democracy to install governments led by “technocrats”:

After the current crisis has passed, some voices have suggested, there will be time to reverse the ongoing centralization of power and reconsider the E.U.’s increasingly undemocratic character. Today the Continent needs a unified fiscal policy and a central bank that’s willing to behave like the Federal Reserve, Bloomberg View’s Clive Crook has suggested.  But as soon as the euro is stabilized, Europe’s leaders should start “giving popular sovereignty some voice in other aspects of the E.U. project.”

This seems like wishful thinking.  Major political consolidations are rarely undone swiftly, and they just as often build upon themselves.  The technocratic coups in Greece and Italy have revealed the power that the E.U.’s leadership can exercise over the internal politics of member states.  If Germany has to effectively backstop the Continent’s debt in order to save the European project, it’s hard to see why the Frankfurt Group (its German members, especially) would ever consent to dilute that power.

Reacting to Ross Douthat’s column, economist Brad DeLong was quick to criticize the use of the term “technocrats”.  That same label appeared in the previously-quoted Time article, as well:

Those who are calling the shots in Europe right now are in no wise “technocrats”:  technocrats would raise the target inflation rate in the eurozone and buy up huge amounts of Greek and Italian (and other) debt conditional on the enactment of special euro-wide long-run Fiscal Stabilization Repayment Fund taxes. These aren’t technocrats:  they are ideologues – and rather blinders-wearing ideologues at that.

Forget about euphemisms such as:  “technocrats”, “the European Union” or “the European Central Bank”.  Stephen Foley of The Independent pulled back the curtain and revealed the real culprit  .  .  .  Goldman Sachs:

This is the most remarkable thing of all:  a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti.  The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis.  Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence.

*   *   *

This is The Goldman Sachs Project.  Put simply, it is to hug governments close.  Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort.  Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government.  The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

*   *   *

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent.  Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under.  No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less.  The alternative is a second financial crisis, a second economic collapse.

The previous paragraph explains precisely what the term “too-big-to-fail” is all about:  If a bank of that size fails – it can bring down the entire economy.  Beyond that, the Goldman situation illustrates what Simon Johnson meant when he explained that the United States – acting alone – cannot prevent the megabanks from becoming too big to fail.  Any attempt to regulate the size of those institutions requires an international effort:

But no international body — not the Group of -20, the Group of Eight or anyone else — shows any indication of taking this on, mostly because governments don’t wish to tie their own hands. In a severe crisis, the interests of the state are usually paramount. No meaningful cross-border resolution framework is even in the cards.  (Disclosure:  I’m on the FDIC’s Systemic Resolution Advisory Committee; I’m telling you what I tell them at every opportunity.)

What we are left with is a situation wherein the taxpayers are the insurers of the privileged elite, who invest in banks managed by greedy, reckless megalomaniacs.  When those plutocrats are faced with the risk of losing money – then democracy be damned!  Contempt for democracy is apparently a component of the mindset afflicting the “supply side economics” crowd.  Creepy Stephen Moore, of The Wall Street Journal’s editorial board, has expounded on his belief that capitalism is more important than Democracy.  We are now witnessing how widespread that warped value system is.


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Here We Go Again

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Goldman Sachs is back in the spotlight.  This time, there is a chorus of disgust being expressed about how Goldman conducts its business.  Back in June of 2009, Matt Taibbi famously characterized Goldman Sachs in the following terms:

The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

The latest episode of predation by the Vampire Squid concerns an August 16 report prepared by Alan Brazil, a member of Goldman’s trading team.  Brazil prepared the 54-page presentation for the firm’s institutional clients as a guide to the impending economic collapse with some trading strategies to benefit from that event.  Page 3 of the report starts with the headline:  “Here We Go Again”.  The statement was prescient in that the report itself initiated a renewed, consensual effort to condemn Goldman.  Page 4 has the headline:   “The Underlying Problem May Be Structural And Created By the Housing Bubble”.  The extent to which the underlying problem may have been caused by Goldman Sachs had been previously discussed by Matt Taibbi, who explained Goldman’s propensity to act the way it always has:  

If America is circling the drain, Goldman Sachs has found a way to be that drain  .  .  .

Shah Gilani of Forbes reacted to the publication of Alan Brazil’s report with the following statement, which was used for the title of his own article:

In my opinion, Goldman isn’t just a travesty of a mockery of a sham, it is a criminal enterprise and worthy of being stepped on itself.

Susan Pulliam and Liz Rappaport broke the story on Goldman’s “Dark View” for The Wall Street Journal:

The report, released by the Hedge Fund Strategies group in Goldman’s securities division, provides a glimpse into the trading ideas that are generated for hedge funds through strategists, such as Mr. Brazil, who are part of Goldman’s trading operation rather than its research group.

Such strategists sit alongside the traders who are executing trades for their clients.  Unlike analysts in firms’ research divisions—who are supposed to be walled off from information about the activity of the firm’s clients—these desk strategists have a front-row seat for viewing the ebb and flow of clients’ investment plays.

They can see if there is a groundswell of interest among hedge funds in taking bearish bets in a certain sector, and they watch trading volumes dry up or explode.  Their point of view is informed by more, and often confidential, information about clients than analysts’ opinions, making their research and ideas highly prized by traders.

The report itself makes note that the information included isn’t considered research by Goldman.  “This material is not independent advice and is not a product of Global Investment Research,” the report notes.

The idea that such a gloomy assessment had not been shared with the general public has become a frequently-expressed complaint.  Michael T. Snyder wrote a piece for Seeking Alpha, which provided this explanation for the lack of candor:

As I wrote about the other day, the financial world is about to hit the panic button.  Things could start falling apart at any time. Most of these big banks will not publicly admit how bad things are, but privately there is a whole lot of freaking out going on.

*   *   *

You aren’t going to hear the truth from the media or from our politicians, because keeping people calm is much more of a priority to them than is telling the truth.

Henry Blodget of The Business Insider dissuaded the “little people” from getting any grandiose ideas after reading Brazil’s briefing:

Unfortunately, lest you think your knowledge of this semi-secret report will finally allow you to out-trade hedge funds, it won’t. The hedge funds got the report on August 16th.  As usual, you’re the last to know.

Beyond that, there is Goldman’s longstanding reputation for “front running” its own clients, which must have inspired this remark in a critique of Alan Brazil’s report, appearing at the Minyanville website:

Coincidentally, he had some surefire trading strategies for clients interested in capitalizing on this trend.  Presumably, Goldman’s own traders began bidding the various recommended hedges up some time earlier, a possibility Goldman discloses up front.

So this is what the squid is down to these days:  peddling the obvious to the bottom-feeders below it in the financial food chain.

By now, those commentators who had criticized Matt Taibbi for his tour de force against Goldman (such as Megan McArdle) must be experiencing a bit of remorse.  Meanwhile, those of us who wrote items appearing at GoldmanSachs666.com are exercising our bragging rights.


 

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