Daily Digest

Daily Digest - April 23

Friday, April 23, 2010, 9:49 AM
  • William K. Black: To Rob A Country, Own A Bank
  • It Happens Only In India
  • Wholesale Prices Rise In March As Food Costs Jump
  • Producer Prices in U.S. Rise 0.7%; Core Rate Up 0.1%
  • Greek Debt Crisis Worsens As EU Revises Figures
  • Greek Tragedies and Wall Street Worries
  • Banks May Not Be Lending, But They Are Buying Treasurys
  • Fred Hickey: This Country Is On The Path Towards Impoverishment
  • China's LNG imports surge 86.4% in March
  • Many Americans Struggling With Rising Rental Housing Costs
  • George Soros: America Must Face Up To The Dangers Of Derivatives
  • Oil Producers Risk Blowouts, Blazes in Search for Deeper Fields
  • Peak Phosphorus

Economy

William K. Black: To Rob A Country, Own A Bank (Tom A.)

William Black, author of "The Best Way To Rob A Bank Is To Own One" talks about deliberate fraud on Wall Street.

Part 1 of 5

It Happens Only In India (Deepak)

In the United States, from where India borrows its economic prescriptions, food is only allowed to be exported after the country ensures that in addition to 309 million people, 168 million cats and dogs have also been well-fed. In India, food — and that includes wheat, rice, maize, pulses, fruit and vegetables — is routinely exported, and the government often provides subsidies to offset the losses incurred in trade.

Wholesale Prices Rise In March As Food Costs Jump (mhoop)

The Labor Department said the Producer Price Index rose by 0.7 percent in March, compared to analysts' forecasts of a 0.4 percent rise. A rise in gas prices also helped push up the index.

Still, there was little sign of budding inflation in the report. Excluding volatile food and energy costs, wholesale prices rose by 0.1 percent, matching analysts' expectations.

Producer Prices in U.S. Rise 0.7%; Core Rate Up 0.1% (Ben Johnson)

Wholesale prices in the U.S. rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984.

The 0.7 percent increase in prices paid to factories, farmers and other producers followed a 0.6 percent drop in February, the Labor Department said today in Washington. Excluding fuel and food, so-called core prices rose 0.1 percent for a second month, restrained by cheaper autos and appliances.

Greek Debt Crisis Worsens As EU Revises Figures (Christian W.)

Markets pushed Greece closer to an expensive bailout after the EU raised its estimate of the country's budget deficit Thursday and a top agency downgraded Greece's credit rating. The twin moves caused the heavily indebted nation's borrowing costs to spike to unsustainable levels.

Greek Tragedies and Wall Street Worries (Ilene)

The House of Representatives approved a bill in December that called for the most sweeping regulatory changes since the Great Depression of the 1930s. The House bill embraced most of a comprehensive package of financial reform proposals introduced by Obama in 2009. The Senate version, if passed, would have to be reconciled in joint committee with the House before it goes to Obama for his signature and becomes law. Meanwhile, the IMF has a proposal on the table to tax bank balance sheets that some analysts suggest will cut pre-tax profits by as much as 20% if the measure moves forward.

Banks May Not Be Lending, But They Are Buying Treasurys (joemanc)

Banks snapped up $5.7 billion of the total $34 billion auctioned in 10-year notes and 30-year bonds, providing demand for auctions that many analysts thought would flop. The auctions occurred as inflation fears began to grow and amid signs that investor appetite for the massive supply of government debt was beginning to wane.

But there's also another less-obvious reason banks could be stepping in to the Treasury market: A type of tacit quid pro quo with the Federal Reserve to keep short-term rates low by helping the government finance its debt through Treasury.

Fred Hickey: This Country Is On The Path Towards Impoverishment (Christian W.)

Damien Hoffman: Fred, can we create a perpetual business cycle where we don’t get recessions?

Fred: No. I have a quotation on my board here that says, “The final outcome of the curve expansion is general impoverishment.” That means if we continue down this path the outlook, unfortunately, is general impoverishment for the country.

China's LNG imports surge 86.4% in March (Christian W.)

China imported 599,740 tons of liquefied natural gas in March this year, 86.4% more than in the same month of last year, according to statistics released by the General Administration of Customs yesterday.

Many Americans Struggling With Rising Rental Housing Costs (Christian W.)

The gap between the cost of renting a modest apartment and the wages of working families continues to widen, according to a new report from the National Low Income Housing Coalition.

George Soros: America Must Face Up To The Dangers Of Derivatives (Christian W.)

This synthetic collateralised debt obligation did not finance the ownership of any additional homes or allocate capital more efficiently; it merely swelled the volume of mortgage-backed securities that lost value when the housing bubble burst. The primary purpose of the transaction was to generate fees and commissions.

Energy

Oil Producers Risk Blowouts, Blazes in Search for Deeper Fields (joemanc)

Energy companies delving miles beneath the seafloor for oil are risking pressure surges like the one this week that may have sparked the deadliest U.S. rig accident in 23 years.

Explorers began work on 17 new Gulf of Mexico wells last week in waters deeper than 1,000 feet (305 meters), spurred in part by a tripling in crude prices in the past decade. The threat of pressure surges, or blowouts, that can smash steel equipment and create gushing columns of fire increases as drillers probe deeper, Neal Dingmann, an analyst at Wunderlich Securities, said.

Environment

Peak Phosphorus (Christian W.)

Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.

Please send article submissions to: [email protected]

17 Comments

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Re: Daily Digest - April 23

"LONDON -- Pushed to the brink of bankruptcy, Greece on Friday officially requested a massive, $56 billion rescue from European nations and the International Monetary Fund aimed at preventing a financial meltdown in the heart of Europe.

Prime Minister George Papandreou made the request Friday morning. The desperate move, potentially locking Greece into fresh rounds of austerity cuts that could worsen public unrest, came as investors lost faith in the accuracy of financial reporting by the Mediterranean nation and flight of capital was threatening to undermine the Greek banking system.

The news helped lifted stock markets from London to Frankfurt, and invigorated the euro, lifting it up from one-year lows against the dollar as fears ebbed that Greece -- one of the 16 nations that use the principle common currency -- would be forced into a catastrophic debt default. "

......................1A) Greece Debt Restructuring May Spark 'Lehman Event,' Reid Says

......................1B) Slovak Employers Hit Out at Aid Package to Greece

.......................1C) Greek civil servants strike, challenge EU/IMF talks

"The price Portugal has to pay to borrow shot up to 4.922 percent in morning trading on Friday, sending a signal that contagion from the Greek debt crisis is stalking eurozone bonds.Greek yields on 10-year bonds remained at record high levels, far above 8.0 percent and in the realms of yields on bonds issued by some emerging countries.The Portuguese yield on 10-year bonds at 4.922 percent marked a big rise from 4.881 percent late on Friday.The yield on Greek bonds stood at 8.773 percent.Analysts hold that Portugal is one of the weak links in the eurozone, and could be the next country in the 16-nation bloc to come under pressure because of its high debt.In recent weeks analyst have also mentioned Ireland, and Spain as countries which could be dragged in."

"WASHINGTON -- Military health care spending is rising twice as fast as the nation's overall health care costs, consuming a larger chunk of the defense budget as the Pentagon struggles to pay for two wars, military budget figures show.

The surging costs are prompting the Pentagon and Congress to consider the first hike in out-of-pocket fees for military retirees and some active-duty families in 15 years, said Rear Adm. Christine Hunter, deputy director of TRICARE, the military health care program.

Pentagon spending on health care has increased from $19 billion in 2001 to a projected $50.7 billion in 2011, a 167 percent increase.

The rapid rise has been driven by a surge in mental health and physical problems for troops who have deployed to war multiple times and by a flood of career military retirees fleeing less-generous civilian health programs, Hunter said.

Total U.S. spending on health care has climbed from nearly $1.5 trillion in 2001 to an estimated $2.7 trillion next year, an 84 percent increase."

"On Thursday, pension consultant Girard Miller told California's Little Hoover Commission that state and local governments have $325 billion in unfunded pension liabilities, which he said amounts to $22,000 for every working adult in the Golden State.

"In California we had the Internet bubble, we had the housing bubble, and I see in the very near future the public pension bubble," Gov. Schwarzenegger said this week. Confronting the pension crisis, he said, should be the state's No. 1 policy priority.

If the problem is not addressed, the burden for funding government employee pensions would fall to the state's taxpayers. "

"Poland’s general government budget deficit amounted to 7,1 percent of GDP last year, exceeding the 3 percent envisaged in the Maastricht criteria which sets out rules for European single currency adoption.

The data, collated by the EU’s statistical agency Eurostat, means that unless Poland manages to lower its budget deficit it will not be able to initiate, as scheduled, entering the ERM-2 mechanism, the first phase of adopting the euro.

The shortfall amounted to 95.7 billion zloty (24.6 billion euro) last year, double 2008’s 46.9 billion zloty.

EU rules stipulate that the deficit must be under 3 percent of GDP."

"The governor is asking lawmakers to vote for making state employees contribute towards their retirements instead of having the state pay more."If we don't do this, then $70 million will be lost to the general fund, which undoubtedly results in people being laid off," said Governor Barbour.The Mississippi Retirement Board has already voted to increase the state's contribution as it has in years past.Barbour said about 1,000 state workers or more could face layoffs if this happens."

"The number of financial bets against Ireland has risen by 77pc over the last year as concerns grow over the stability of smaller eurozone countries.

Data from the International Monetary Fund (IMF) show that traders have hugely increased the amount of bets they are taking out against Irish bonds, which are among the cheapest in the eurozone after Greece.

The amount of Irish credit default swaps (CDSs) bought by traders has gone up by 77pc in the year to February 5, according to IMF statistics."

.......................7A) Anglo ruling could double deficit (Ireland)

"Ireland's exchequer deficit, already the biggest in the euro zone, could double next year following the European Commission ruling that money injected into Anglo Irish Bank is not an investment and must be treated as spending.

The ruling by Eurostat, the commission statistical body, yesterday forced the Government retrospectively to revise up its 2009 deficit – the difference between what it spent and what it raised in tax in any one year – from €19.35 billion to €23.35 billion.

The difference is the €4 billion injected into Anglo Irish bank.

Government sources conceded last night that if the commission takes a similar view of the additional €18 billion earmarked for Anglo Irish Bank this year, then the deficit will be almost doubled in 2010 to nearly €40 billion, rather than reducing as planned."

...........................also Toxic Anglo could double Ireland's deficit

"One of Seattle's first skyscrapers has been sold — for 40 percent less than it fetched four years ago

An affiliate of Laeroc Funds of Hermosa Beach, Calif., bought the 1929 art-deco Seattle Tower Thursday for $20.65 million, according to county records.

The seller, Legacy Partners of Foster City, Calif., purchased the 27-story office building at Third Avenue and University Street for more than $36 million in 2006.

The building, once known as the Northern Life Tower, is on the National Register of Historic Places and is a designated Seattle historic landmark. It is about 30 percent vacant, according to commercial real-estate database Officespace.com."

"Last fall, when California Pension Reform wrested the database of state retirees earning more than $100,000 a year from the California Public Employees Retirement System, there were 6,133 people on the list.

And now – just shy of one year after the first database was released – an update shows that the new total of people in the $100,000-plus public pension club is 9,111 - a staggering 49 percent increase."

"Faced with laying off about 700 staff members to close a $34 million budget gap, Buffalo school officials hope for a last-minute bailout from Albany or Washington.

Very few people expect that to happen. Instead, dramatic budget cuts look increasingly probable, resulting in bigger class sizes and program cuts.

“I would love for someone to come in with a pot of money,” said Lou Petrucci, chairman of the Board of Education’s Finance Committee. “But the realist in me tells me the chances of that are slim. There’s no new money out there. There just isn’t.” "

......................10A) Buffalo Schools Pay $110 Million for Healthcare

"BUFFALO, NY - "We spend $110 million, that includes retirees also," said Barbara Smith, Chief Financial Officer of Buffalo City Schools. That's what Buffalo Schools pay for health insurance for its employees. That's more than $10,500 a person and costs are rising.

"Part of it is the market, part of it is the benefits," said Smith.

Benefits that include cosmetic surgery for teachers, but they don't contribute a dime to their healthcare. But now, to help address a potential $50 million deficit, the superintendent wants teachers to contribute 20-percent to their healthcare costs.

"It's an insult to ask them to do that," said Phil Rumore, President of Buffalo Teacher's Federation. "

"CENTRAL FALLS — Facing what officials say is an enormous deficit caused by reductions in state aid, the City Council has voted to ask the General Assembly to enact legislation allowing Central Falls and other municipalities to file for bankruptcy protection."

"Huberman and other top Chicago school officials will deliver an address on the doomsday budget at 10 a.m. at John M. Smyth Elementary School, at 1059 W. 13th St. on the city's Near West Side.

The budget proposal will outline what CPS will have to cut if the state goes ahead with deep cuts to education in its own budget rather than approving a tax increase as Gov. Pat Quinn has proposed.

A number of teaching positions may be among the cuts in the budget.

The press conference follows Huberman's trip to Springfield, where he joined school administrators from throughout Illinois and top labor leaders to press the funding issue.

"With just two weeks left in its current session, the Illinois General Assembly must soon decide whether to accept a budget that slashes state education spending by $1.3 billion," a CPS news release said. These cuts would result in the elimination of more than 20,000 education jobs throughout the state."

CPS has been struggling to plug a potential $1.2 billion deficit for next school year. In an effort to do so, the schools have cut sophomore sports, and have discussed eliminating pre-school and all-day kindergarten programs."

  • Other news and headlines:

California: Top State Underwriters Did $27.5 Billion CDS Since '07

Morgan Stanley Gets Debt Extension in Japan: Sources

Parent fundraising group hoping to save teacher jobs hits $1 million mark (Cupertino, CA)

Caltrain data shows path to bankruptcy without electric railroad

City job layoffs may top 300, Goodman says in dire report (Las Vegas)

Thai Baht Falls Most in 10 Months After Deadly Grenade Attacks

California's teachers strike against pay cuts

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Re: Daily Digest - April 23

For those who hadn't seen...a number of high level SEC employees have been busted for running a porn database in their office. This is shameful. http://www.cnbc.com//id/36733087

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Re: Daily Digest - April 23
Mike Pilat wrote:

For those who hadn't seen...a number of high level SEC employees have been busted for running a porn database in their office. This is shameful. http://www.cnbc.com//id/36733087

Shameful?  Sure.

But not as shameful as the fact that (a) fraud went detected but uninvestigated and unpunished for 13 years and (b) that nobody from the SEC even got in trouble or fired let alone sent to prison for this massive criminal act:

WASHINGTON (AP) — The Securities and Exchange Commission knew since 1997 that R. Allen Stanford likely was operating a Ponzi scheme and an agency enforcement official who helped quash investigations of his business later represented the billionaire, according to the SEC inspector general.

The SEC didn't bring charges against Stanford, alleging a $7 billion fraud, until February 2009. The SEC inspector general also said in a report released Friday that "institutional influence" in the enforcement division was a factor in the agency's repeated decisions not to conduct a full investigation.

Complex cases like Stanford's that couldn't be quickly resolved were discouraged by enforcement higher-ups, the IG's report says.

(Source)

And how about the fact that the agency official who quashed the investigation then went on, at great personal gain, to represent Mr Stanford when the ponzi scheme finally blew costing investors some $7 billion.

This is beyond outrageous. 

You or I could commit a level of financial malfeasance 1/1,000,000th as bad and we'd be spending huge dollars defending ourselves, facing jail time, and a felonious criminal record to boot.

But government officials?  All we ever get is chirping crickets and maybe some handwringing about how complicated it all is and that sometimes it's just better to let sleeping dogs lie.

One set of rules for us, another for them, that's the main message.  The funny part is that DC pretends to have no idea why people would get angry and join the Tea Party as if such anger appeared out of thin air, unconnected to anything and therefore mysterious and inexplicable.

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Re: Daily Digest - April 23

 

"You or I could commit a level of financial malfeasance 1/1,000,000th as bad and we'd be spending huge dollars defending ourselves, facing jail time, and a felonious criminal record to boot."

My father told me at an early age " Son if you are gonna steal, steal big. The punishment is the same whether it is big or small"

Now  I tell my kids " Kids if you are gonna steal, steal big. If you get caught stealing big you get off. If you get caught stealing small you are screwed"

See things do change

V

 

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Re: Daily Digest - April 23

As a resident of the DC area, I can confirm Chris's perceptions...People here don't get it. There wasn't a recession, is not a recession, and may not be a recession in this area due to the huge government expenditures. Statistics only tell so much. When I drive around here and talk with people, they are mostly ignorant of the suffering the rest of the nation is going through. They fail to understand that nearly all of their jobs are ultimately due to the government and therefore not truly productive in and of themselves. They are less-than-unemployed, in that sense. They just get paid a lot for it.

I have been to some of these protests in DC and it has been interesting to note the amount of security that shows up. Sometimes, BHO's Presidential helicopter will fly overhead, apparently indicating that he is vacating the White House.

We all know what the statistics and the going word is about government jobs. But I must say it is a whole different experience to talk with many people that have meaningless, bureaucratic jobs that pay twice as much as the rest of the (productive) nation. They work for <2 hours / day, and all of that "work" is non-productive. Some don't even bother to show up in the office. There is actually a semi-boom, economically speaking, going on in parts of northern Virginia because so many people are immigrating to this region for work. And of course government spending (and salaries) always go up.

Many of the jobs now involve spending billions on ultra secure, secret government facilities. People are paid tons to keep their mouths shut, not to actually produce something. Nothing keeps people dumber than easy money.

I mean this sincerely to everyone else: I apologize on behalf of the people here for the corruption in this region. It is not improving and I am watching it rob everyone else. There is only so much that numbers and statistics can capture (and I say this having a technical background); the culture created by all the money sloshing around here has made this city a modern day Sodom or Gomorrah. There are many positive aspects to be sure, but people here are oblivious about how they are prospering directly at everyone else's expense.

 

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Re: Daily Digest - April 23

Mike P,

If Ron Paul was elected, do you think he could actually reduce the size of the government, or is this something that the House and Senate would have to do?

I would love to see Ron Paul clean house, but its hard to imagine that he would ever be allowed to get in that position.

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Re: Daily Digest - April 23
JAG wrote:

Mike P,

If Ron Paul was elected, do you think he could actually reduce the size of the government, or is this something that the House and Senate would have to do?

I would love to see Ron Paul clean house, but its hard to imagine that he would ever be allowed to get in that position.

Jeff - I don't think we have to wait for a Ron Paul to get elected. Peter Schiff has come up with a great idea, as far as I'm concerned, to shrink the government. Assuming he got elected, he would try to convince 39 other Senators to join him and filibuster the next time the USGOV tries to raise the debt "ceiling", which at this rate from what I have read would be early next year. If the government can't go into any more debt, then they would be forced to cut spending, or shut down the government. And I'd rather have the government shut down than the government shutting down the country. It can be done and might be our best and only chance at this point.

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Re: Daily Digest - April 23

Analysis of banking fraud from The Guardian:

http://www.guardian.co.uk/business/2010/apr/18/goldman-sachs-regulators-...

Quote:

...........................

Bankers will complain these cases all involve one or two misguided individuals, but that most banking is above board and was just the victim of irrational exuberance, misguided belief in free market economics and faulty risk management techniques. Obviously that is true – but, sadly, there is much more to the crisis. Andrew Haldane, executive director of the Bank of England, highlights the remarkable reduction in the risk weighting of bank assets between 1997 and 2007. Put simply, Europe's and the US's large banks exploited the weak international agreement on bank capital requirements in the so-called Basel agreement in 2004 to reclassify the risk of their loans and trading instruments. They did not just reduce the risk by 5 or 10%. Breathtakingly, they claimed their new risk management techniques were so wonderful that the riskiness of their assets was up to half of what it had been – despite property and share prices cresting to new all-time highs.

Brutally, the banks knowingly gamed the system to grow their balance sheets ever faster and with even less capital underpinning them in the full knowledge that everything rested on the bogus claim that their lending was now much less risky. That was not all they were doing. As Michael Lewis describes in The Big Short, credit default swaps had been deliberately created as an asset class by the big investment banks to allow hedge funds to speculate against collateralised debt obligations. The banks were gaming the regulators and investors alike – and they knew full well what they were doing. Simon Johnson's 13 Bankers shows how the major American banks deployed vast political lobbying power and money to create the relaxed regulatory environment in which all this could take place. In Britain no money changed hands. Gordon Brown offered light-touch regulation for free – egged on by the Tories, who wanted to go further.

This was the context in which Goldman's Fabulous Fab created the disputed CDOs, Sean FitzPatrick allegedly moved loans between banks and Lehman created its Repo 105s along with the entire "debt mule" structure revealed this weekend of inter-related companies to shuffle debt around its empire. London and New York had become the centre of an international financial system in which the purpose of banking became making money from money – and where the complexity of the "innovations" allowed extensive fraud and deception.

Now it has all collapsed, to be bailed out by western taxpayers. The banks are resisting reform – and want to cling on to the business practices and business model that has so appallingly failed. It is obvious why: it makes them very rich. The politicians tread carefully, only proposing what the bankers say is congruent with their definition of what banking should be. Labour and Tories alike are united in opposing improved EU regulation of hedge funds, buying the propaganda those operations had nothing to do with the crisis. Perhaps Paulson's trades at Goldman, and the hedge funds' appetite for speculating in credit default swaps, may disabuse them.

It is time to reframe the question. Banks and financial institutions should do what economy and society want them to do – support enterprise, direct credit to where it is needed and be part of the system that generates investment and innovation. Andrew Haldane – and the governor of the Bank of England – are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth. Britain should also launch an official investigation into what went wrong – and hand the findings to the Serious Fraud Office. This needs to become this election campaign's number one issue – not one which either a compromised Labour party or a temporising Conservative party will relish. The Lib Dems, the fiercest critics of the banks, have begun to get very lucky.

........

There is no way to reform this system from within (Ron Paul for pres, etc) IMO. The end will come through soverign defaults and popular resistance to austerity measures. It is the interwoven web of international financial 'arrangements' at the root of the problem that must fail for substantial, substantive change to occur - thus it is impossible to gain sufficient political support within the key countries (US and G Britain) to legislate reform - there is too much at stake, too many expectations at risk. Look at the crazy somersaults being tried to prevent a Greek default.

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Re: Daily Digest - April 23

Statism: The Opiate of the Frightened Masses

Science is the search for truth, whether we like it or not ~ David Bohm

When I discovered Austrian economics, in 1999, I gradually undertook a process of intellectual rebirth. I read many of the masterful books written by Hayek, Mises, and Rothbard. The more I read, the more I came to understand that the economics, history, and social studies classes I attended, from grade school through grad school, were laden with pro-statist junk. Years of indoctrination in public schools, which I attended, tend to shape a person into a non-thinking, state-worshiping, sponge who absorbs "news" and information from the mainstream media and mistakes it for knowledge. This being stated, could it be that science itself has been tainted by statism? Say it isn’t so as I immensely enjoyed taking science courses while attending school. Alas, the poisonous reach of the state leaves nothing unscathed.

http://www.lewrockwell.com/englund/englund57.1.html

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Re: Daily Digest - April 23

Jeff and Joe - 

My take on this is that we are up against a bit of a cultural wall. Ultimately, the laws reflect either our agreement or our laziness in not pushing back. Having RP as president won't solve anything in and of itself. On the flip, if people truly understand the issues at hand, I think our elected officials will be held more accountable. There is so much disinformation and propaganda out there that many are confused.

I don't mean to try to hard to rile everyone up on here, but I have to be honest, DC causes me a lot of dissonance. I see it as an outsider, even though I'm technically on the inside (for 14 years now). A number of people here could never survive in private industry but easily make $80k / year doing nothing in a government job. This is the heart of the entitlement culture and has certainly led many to adopt a rather elitist attitude. It is true that the education level in northern VA is the highest in the nation. The problem is that these people are ultimately using their educations to schnooker and steal from everyone else. They are not creating true wealth with it. It's sad to watch.

DC (and all government) are ultimately fueled by taxes. The only thing more fundamental than taxes is the Fed itself. It's not even a matter of what tax rates do to the economy, it's a matter of what they do to the power structure. The power to tax really is the power to destroy, and DC is destroying Main Street.

The thing is that we don't just need to stop the budget increases, we actually need to shrink government spending (imagine that). You better believe there will be a lot of pushback from the power brokers, but ultimately, I think it would lead to much more realistic, meaningful jobs in the DC area. Instead of sleeping at work, fudging statistics, and pandering to in-power officials, a legitimate private sector might flourish. 

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Are The Big Banks Preparing For A Deflationary Spiral?

I saw this on ZeroHedge:

 

Are Bank Purchases Of 10 And 30 Year Treasuries Indicative Of Trouble?

One of the notable observations in recent Treasury auctions has been the increasing participation by commercial banks in taking down 10 and 30 Year Treasury auctions - traditionally two parts on the curve banks have historically avoided like the plague. We present some observations on why this may be happening as well as some troubling conclusions, both of which indicate trouble, namely that liquidity is and has been the name of the game for the past 13 months, and that commercial banks, or presumably some of the smarter money around, are seeing economic distress ahead.

Here are the preliminary observations from Morgan Stanley, the one outlier bank which sees rates jumping to 5.5% by the end of the year, and 4.5% by the end of June (by way of context):

I'm not fluent in "bond-speak", so I'm a little confused by the possible reasons that Morgan Stanley gave for it, but my "deflationist eyes" are wide open on this news.

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Re: Daily Digest - April 23

I see we're in for another round of gov't bashing.  As an 'insider' I'll share my general observations.  First, there are many highly motivated and hard working civil servants.

Second, I think it is fair to say that low skilled gov't employees make more than their peers in the private sector and highly skilled gov't employees make less than their private peers.  That's the nature of public service and always has been.  I know a lot of people who work in the public sector because they're more interested in doing the job than chasing money.  They settle for less money and better professional experience.

Third, it has been my observation that the people who are really getting over are gov't contractors.  They have proliferated since I originally went to work for the gov't early in the Reagan Admin, largely thanks to the Reagan Admin and all its successors.  I would love to see an honest accounting of how much jobs that were originally done by gov't employees are costing the taxpayer now that the money is just filtered through the gov't to the contractors.  The cost of one program with which I am familiar tripled almost overnight with no oversight when the work went to contractors.

None of this is to say that there isn't waste in the gov't, of course there is, just as there is everywhere else.  And, I will admit that gov't agencies and bureaucrats sometimes shamelessly bow to ideologically driven politicians who have no knowledge of or concern for the damage they do.  They just want to curry favor with voters and special interests, or bring home the bacon to their districts.  Further, in economic times like these, there is no good reason why the gov't shouldn't share the pain of cost cutting and reduction in size and function.  But, always and ever, those cuts affect voters and special interests.  Convince them that its fair that their benefits or contracts are being cut.  I do not believe that gov't competence suffers in comparison to the private sector, we just have different constituencies.  If you think we are paid too much, explain to me how the whiz kids on Wall St. deserve their bonuses.

Doug

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Re: Daily Digest - April 23

great post doug!

spinone's picture
spinone
Status: Bronze Member (Offline)
Joined: Jul 12 2008
Posts: 49
Re: Daily Digest - April 23

I understand the urge to shrink government.  But there is a percentage of civil servants who do an important job.  If you shrink govt and lay off civil servants, many hard working people who do important work will be streeted

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Daily Digest - April 23

The Flow Riders......love that phrase LOL. Sad it is so true.

 

For those who hadn't seen...a number of high level SEC employees have been busted for running a porn database in their office. This is shameful. http://www.cnbc.com//id/36733087

I would like to say it is nice to see the SEC so hard on the job but this takes on a new meaning now.

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - April 23

Too funny idoctor! :)

Doug, I agree - especially about the contractors. Government employees are restricted from contributing to or participating in political activities... but contractors are not. A government contract allows for laundering of funds a portion of which can be returned as campaign contributions - who says we don't have publically funded political campaigns? Think about the lobbying activities of all the contractors - especially the big money ones like defense - who pays for that lobbying? The public, thats who. Who is a civil servant responsible to? A govt contractor?

I have a great idea - lets farm out all of the national security work to contractors.... opps, already done... and what are the implications of doing this? .... Think about it.

By the way, another 7 banks failed today, all in illinois - at least that was the count at 5pm...

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Re: Daily Digest - April 23

Wow, thanks for the positive feedback.  I expected to get flamed.

Going even further back in my bio, I was in the US Navy during Vietnam.  The last ship I served on was the latest in supply ships.  Supply ships sound boring, but when you're supplying entire carrier groups by highline at sea, it can get very exciting.

But, the point is that that ship and every other supply ship were turned over to civilians under Reagan.  I don't doubt that those ships are run as efficiently today as they were then, but the question of how much its costing to support the civilian crews compared to Navy personnel has to be asked.  I know what merchant seaman make, as I was one for a while, and what Navy seaman make.  Believe me, there is a huge difference, and the Navy winds up on the short end of the stick.

Doug

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