Daily Digest

Daily Digest - January 14

Thursday, January 14, 2010, 11:02 AM
  • The Case Against Tim Geithner
  • Fed Paid Record $46.1 Billion to Treasury in 2009
  • U.S. Stocks Surge Back Toward Bubble Territory
  • Hank Greenberg Tells WSJ Goldman Sachs Behind AIG’s Collapse
  • Federal Reserve Seeks to Protect U.S. Bailout Secrets
  • White House Changes Stimulus Job Accounting
  • Consumer Confidence Plummets
  • Upcoming Government Funding Crisis: Japan Edition
  • Japan Stocks Fall on China, Japan Airlines Fears
  • Goldman Exec Says Firm Gained From Trading Against Clients
  • Look Who's Peeking at Your Paycheck
  • Sovereign Bonds Seen as Riskier Than Corporates
  • Probability of a Crisis Will Build in 2010
  • MBA Now Sees 2010 Mortgage Originations Plummeting By Even More
  • America's New Financial Capital is ... Washington
  • Six Months to Live
  • Greatest Fake Rally in History
  • US Cult of Greed is Now a Global Environmental Threat
  • EIA Sees US Natgas Production Down 3 Percent in 2010
  • Economy

    The Case Against Tim Geithner (Ben Johnson)

    As we sit here today, Wall Street continues to exploit a policy of government-sponsored giveaways and secrecy to pay themselves billions. Record-setting bonuses due to banks like Goldman Sachs as early next week. Yet instead of acting as our cop, Secretary Tim Geithner has become central to what may be a cover-up of the greatest theft in U.S. history. Here is the evidence.

    Fed Paid Record $46.1 Billion to Treasury in 2009 (E.S.)

    The Federal Reserve paid a record $46.1 billion to the U.S. Treasury last year as aggressive bond purchases and lending to fight the financial crisis swelled its net income by 46.8 percent.

    U.S. Stocks Surge Back Toward Bubble Territory (E.S.)

    As the latest update of Professor Robert Shiller's cyclically adjusted PE ratio shows, US stocks are now more than 30% overvalued, at 21X earnings. That's more reasonable than the 100%+ overvaluation in 2000, but it's closing in on the level of the three other bubble peaks of the 20th Century: 1901, 1929, and 1966.

    Hank Greenberg Tells WSJ Goldman Sachs Behind AIG’s Collapse (E.S.)

    Hank Greenberg, former chief executive officer at American International Group Inc., said Goldman Sachs Group Inc. is responsible for the collapse of the insurer during the economic crisis, the Wall Street Journal reported. 

    Federal Reserve Seeks to Protect U.S. Bailout Secrets (Ben Johnson)

    The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.

    White House Changes Stimulus Job Accounting (Nickbert)

    Despite mounting a vigorous defense of its earlier count of more than 640,000 jobs credited to the stimulus, even after numerous errors were identified, the Obama administration now is making it easier to give the stimulus credit for hiring. It's no longer about counting a job as saved or created; now it's a matter of counting jobs funded by the stimulus.

    Consumer Confidence Plummets (Brian C.)

    The ABC Consumer Confidence index plummeted last week, falling from -41 to -47, sustaining "one of its steepest one-week drops in the last quarter century, following last week’s troubling jobs report with an all-hands retreat from what had been a tentative positive trend in consumer attitudes." At -47 the index is essentially at the average 2009 level of -48, and far below the average since 1985 of -12. As far as the US consumer is concerned, this recession is far from over.

    Upcoming Government Funding Crisis: Japan Edition (Brian C.)

    SocGen's Dylan Grice looks at the possibility of a funding crisis enveloping governments of the developed world, and originating in the place where ever more people see trouble brewing: Japan.

    Japan Stocks Fall on China, Japan Airlines Fears (Samuel A.)

    Japanese stocks retreated Wednesday, hit by worries that growth in China may cool and by another dizzying nosedive by Japan Airlines.

    Goldman Exec Says Firm Gained From Trading Against Clients (Nickbert)

    Thomas Mazarakis, who heads Goldman's fundamental strategies group, told select clients in an email that his unit often provided investment ideas that the firm had already traded on and the firm sometimes took the opposite approach, betting against particular instruments recommended by the group, the Times said.

    Look Who's Peeking at Your Paycheck (Nickbert)

    You might think your income is private information. But the credit bureaus may have your number. And starting in February, your income—as estimated by the bureaus—may be used to help determine whether you get a new credit card.

    Sovereign Bonds Seen as Riskier Than Corporates (nncita)

    The cost of insuring against the risk of debt default by European nations is now higher than for top investment-grade companies for the first time, as mounting government debt prompts fears over the health of many leading economies.

    Probability of a Crisis Will Build in 2010 (pinecarr)

    So says the team of equity analysts at Barclays. Although policymakers helped avoid the second Great Depression, Barclays believes we have simply kicked the can down the road. As their head of U.S. equity strategy said in November, the likelihood of Japanese style de-leveraging stagnation remains very high.

    MBA Now Sees 2010 Mortgage Originations Plummeting By Even More (Ben Johnson)

    It appears the [poop] in housing is about to re-hit the fan. While in December, the Mortgage Brokers Association anticipated an already staggering 24% drop in mortgage originations, a mere month later they now see the drop to be 40%. And all this occurring with Q.E.'s MBS purchases set to expire in less than 3 months. With mid-term elections coming, someone better line up more bailouts, stimuli and subsidies pronto. The American dream of middle-class homeowner debt slavery must continue.

    America's New Financial Capital is ... Washington (pinecarr)

    New York's crisis and Washington's growth is more than a business page story. Over two centuries, American culture has been shaped by the physical separation of politics and finance. The British might centralize everything in London, the French in Paris, the other countries of Europe in their great capitals, but the United States divided these functions.

    Six Months to Live (nncita)

    There are just too many obvious things that can go wrong, and that means there are many less obvious, hidden things that can go wrong, and isn't it tragically foolish to tempt Murphy's Law, since it operates so well without any help from us?

    Greatest Fake Rally in History (Davos)

    I truly believe that back in March 2009 at the market lows, the Federal Reserve, the Treasury, and the criminal mega banks met and decided they were going to create a recovery by manipulating the stock market.

    USA on Heroin? (Paul W.)

    Wide-ranging interview with Don Coxe


    US Cult of Greed is Now a Global Environmental Threat (nncita)

    In its annual report, Worldwatch Institute says the cult of consumption and greed could wipe out any gains from government action on climate change or a shift to a clean energy economy.


    EIA Sees US Natgas Production Down 3 Percent in 2010 (pinecarr)

    “In its January Short-Term Energy Outlook, EIA said it expected marketed natural gas production to be down 1.8 billion cubic feet per day, or 3 percent, this year, primarily due to steep declines from initial production at newly drilled wells and the lagged effect of reduced drilling activity.”


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Johnny Oxygen
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Re: Daily Digest - January 14

4 Economic Scenarios You'd Better Hope Won't Materialize


You've probably heard that the economy is recovering, that consumers are more optimistic, and that companies might soon begin hiring more workers than they're firing. Hooray. We'll all be thrilled when the economy stops quivering. The only problem with an upbeat prognosis is that large chunks of the U.S. economy remain addicted to financial painkillers or dependent upon dysfunctional institutions like Fannie and Freddie, and we've never gone through the kind of withdrawal that's set to take place this year. If all goes well, we'll avoid messy complications, such as these:

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Re: Daily Digest - January 14

"US Gold Corp CEO and founder Rob McEwen stated that in period between 2012 and 2014 gold price can soar up to $5,000 per ounce.

"“The cause of gold price rise can be weakening of US dollar against the background of rapid growth of United States’ public debt,” Mr. McEwen said.

He Ruiyan, the head of research at Hong Kong firm Xiamen International Trade Futures Co., predicts that gold price can reach $2,000 before the end of 2010.

”The US government, striving to help domestic economy, prints money. The US increases its debt in devastating scale and that will reduce value of dollar further,” Mr. Ruiyan thinks.

In 2009, Deutsche Bank made gold price forecast for 2010 at the level of $1,100 per ounce, but already last autumn it was surpassed.""

"In 2008 and 2009, the decisions by these governments to do "whatever it takes" to backstop their financial systems and keep their economies afloat soothed investor concerns. But if countries remain biased toward continuing with loose fiscal and monetary policies to support growth, rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered "safe havens." "

"""We want our national currencies to be used in our projects,"" the Iranian official said, adding this measure would facilitate the financing of large projects.

The move is also seen as an attempt to find an alternative to the U.S. dollar whose credibility has been weakened by the global economic crisis and reduce dependence on the greenback as the world's major reserve currency.

Shirazi also said that Iran planned to double gas output in the next five years to one billion cubic meters a day, increase oil production by one million barrels per day to five million bbl/d, and build new oil refineries and petrochemical plants. "

"James Turk, founder of GoldMoney, speaks about the indications of hyperinflation in the US today."

"Strong worries over further asset bubbles, underinvestment in infrastructure, falling government finances, and the consequent danger to economies to sink into a major debt crisis are some of the top threats facing the world in 2010, the World Economic Forum said on Thursday."

"In response to the financial crisis, many countries are at risk of overextending unsustainable levels of debt, which, in turn, will exert strong upwards pressures on real interest rates. In the final instance, unsustainable debt levels could lead to full-fledged sovereign debt crises. These crises also have social and political implications of high unemployment."

...............5A) Debt levels

"Debt levels have risen from 78 percent (in 2007, before the crisis) to 118 percent of GDP in the G20 ... this is something that could really create much more of a crisis than in the past, and we are already in a vulnerable situation."

"Since 2007, Organisation for Economic Co-operation and Development government deficits have risen by 7 per cent of gross domestic product to just more than 8 per cent, and debt, excluding contingent liabilities, has risen by about 25 per cent of GDP to just more than 100 per cent. The biggest increases have occurred in Iceland, Ireland, the US, Japan, the UK, and Spain. There is no peacetime precedent for the current speed and scale of public debt accumulation and it is difficult to assess the social tolerance for high debt levels, and for the pain of protracted fiscal restraint. In several European Union member states, the threshold has already been breached. The spectre of sovereign default, therefore, has returned to the rich world.

Default does not have to mean outright debt repudiation. It can mean some type of moratorium on interest payments, and the restructuring of loan terms. Richer nations are assumed to be above such measures, but not in extreme circumstances. The US abrogated the gold clause in government and private contracts in 1934, and in 1971, it abandoned the gold standard altogether. Default can also occur through inflation, currency debasement, the imposition of capital controls, and the imposition of special taxes that break private contracts. Seen in this light, a few countries in eastern and western Europe may already be technically at risk of default."

"The US economy is heading down a path of lower living standards and diminished confidence without action to stem the massive budget deficit, a group of prominent researchers said Wednesday.

The panel said the country faces difficult choices on tax increases and spending cuts to achieve a more sustainable fiscal balance.

"The federal government is currently spending far more than it collects in revenues, and if current policies are continued, will do so for the foreseeable future," said the report from the National Research Council and National Academy of Public Administration.

"No reasonably foreseeable rate of economic growth would overcome this structural deficit. Thus, any efforts to rein in future deficits must entail either large increases in taxes to support these programs or major restraints on their growth -- or some combination of the two."

The US government closed its 2009 fiscal year with a record 1.416-trillion-dollar budget deficit and the White House forecasts an even bigger gap of 1.502 trillion dollars in fiscal 2010, said the report.

"The federal government's fiscal ship is headed toward dangerous waters," said John Palmer, dean emeritus of the Syracuse University Maxwell School and co-chair of the panel.

"Our committee members have varying political backgrounds and views, but we all agree that future economic prosperity is at grave risk if our nation does not change its fiscal course.""

"Rick Santelli discusses how ironic it is that the media has ignored the government's silent suspension of the loss ceilings of government investment in Fannie and Freddie, clearing the way for the companies to receive hundreds of billions of dollars more in government/taxpayer money. "

"The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.

With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.

Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity.

CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.

Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change. "

"Sales for all of 2009 fell 6.2% compared with 2008 to $4.14 trillion. It was the largest decline on record, dating back to 1992. It was only the second decline on record; the other was the 0.5% drop in 2008."

"Two top Federal Reserve policy-makers said on Wednesday that the U.S. central bank will need to be certain the economic recovery is firmly in place before tightening its monetary policy stance.

New York Federal Reserve Bank President William Dudley and Chicago Federal Reserve Bank President Charles Evans said continued credit problems and a high rate of unemployment are constraints on the U.S. economic recovery.."

"Dudley said the "extended period" language means different things to different people. But, he said, "what I want to stress is extended means at least six months. It could be a year from now.. two years from now. It's going to depend on how the economy develops."

The comments from Evans and Dudley, seen in the middle ground between the U.S. central bank's anti-inflation hawks and pro-growth doves, suggest the central bank is in no rush to move toward raising interest rates."

..............11A) Fed’s Dudley Says Rates May Stay Low for as Long as Two Years (Bloomberg)

"President Barack Obama will ask Congress for an additional $33 billion to fight unpopular wars in Afghanistan and Iraq on top of a record $708 billion for the Defense Department next year, The Associated Press has learned - a request that could be an especially hard sell to some of the administration's Democratic allies."

"WASHINGTON (Reuters) - U.S. cities will face a collective budget shortfall of at least $56 billion over the next two years, with the current recession not seen hitting bottom until 2011, according to a report on Wednesday.

The National League of Cities said that because economic recoveries in cities lag national ones by about two years, the pain from the recession that began in 2007 could continue for years to come.

The collective shortfall could reach $83 billion through 2012, the league said. Cities will seek to cure revenue declines and spending pressures with higher service fees, layoffs, unpaid furloughs, and drawing on reserves or canceling infrastructure projects, the report said.

Many cities have already used these options as the recession has worn down their finances."

"As banks start releasing fourth-quarter earnings this week, the losses and reserves tied to commercial real-estate loans could spike even higher than some analysts think. Regional banks could get hit hardest, given typically greater exposure to commercial property than their bigger peers.

The stress is building. This month, market researcher Reis Inc. announced sharp declines in rents and occupancies in all property classes, giving landlords less cash flow to service debt. Foresight Analytics estimates delinquencies on commercial real-estate loans held by banks will rise to 9.47% in the fourth quarter from 5.49% a year earlier. "

"The Federal Deposit Insurance Corporation laid much of the blame for the financial crisis at the door of the Federal Reserve at an inquiry that causes fresh problems for the US central bank.

Sheila Bair, chairman of the FDIC, which insures depositors against bank failures, said on Thursday that the Fed waited seven years to use fully its powers to regulate subprime lending. "

"As expected, foreclosures broke records by wide margins in 2009, with 2.8 million foreclosures being filed, an increase of 21 percent over 2008 and 120 percent over 2007, according to RealtyTrac’s year-end report.

However, so many properties are in the pipeline that huge numbers of delinquent properties won’t come to market until this year or later. The “hangover” of foreclosures also is expected to set a record and will be felt in real estate markets at least through the second quarter. “In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog,” said James J. Saccacio, chief executive officer of RealtyTrac.

In fact, the delay in processing foreclosures due to loan modification programs, moratoria and a system overwhelmed by the sheer volume of properties was the only reason the number of 2009 foreclosures was not greater."

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Re: Daily Digest - January 14

Thanks Brian C for the article on Japan's looming funding crisis.  One thing that's tough for me to keep in mind is the huge impact ideally retiring baby boomers will have on the economy, all over the world.

And saxplayer, you weren't the first to post!  Slackin on us?  ;-)

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Re: Daily Digest - January 14

"The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds."

Yep.....been telling folks for years now: "When the politicians are backed against the wall, moneywise, they are going after the largest easy-to-take pool of funds around....the tax sheltered retirement accounts".

I didn't know what form it would take.....I suspected some kind of "credit" to be given you along with, or in lieu of ( if you have any assets beyond the clothes on your back ) Social InSecurity.....and this proposal may not the final one, but make no mistake about it....they ARE going to take your account.....they know where it is......and the custodian will not fight them a lick, simply hand it over as directed "by law".

I took mine out several years back, paid the penalty and taxes, and bought physical silver at $5-6.00.....and I sleep well at night. 

The older I get, the more I am convinced that all 'investing' that you can't physically lay your hands on ( or as a friend of mine puts it "If you don't hold it, you don't own it " ) is merely a plan designed to separate you from a fair portion ( if not all ) of your money.   Like any casino, you may win a little from time to time, but the house always gets the most in the end.

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Re: Daily Digest - January 14


Cartoons from the Great Depression, part 2

Eerily Relevant Today

These cartoons say a lot about the era, and the debates which continue today over how government should respond to crises. Also see part 1, Cartoons from the Depression.

peter.vedder's picture
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Re: Daily Digest - January 14

I don't know whether or not the technique described in the article is feasible, but thought it might be something many in this forum would find to be of interest


idoctor's picture
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Re: Daily Digest - January 14

I saw this posted about Americans:

First off, they don't have a clue as to what is going on. Second, they are insolvent and have no faith in themselves to get out of their hapless position. Lastly, they are looking for the government to take care of them. This country was based on rugged individualism, freedom and liberty. That is done. We are now a group of pathetic "victims" looking to the government to provide for our needs

I hate to say it but I sure see a lot of this to be true.

guardia's picture
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Re: Daily Digest - January 14

Oops, I submitted a different story than the one that showed up under my name above:

JAL Stock Plummets 81%
TOKYO -- Shares of Japan Airlines plummeted 81% to just ¥7 in brief flickers of trading before going ask-only once again Wednesday. Fears of delisting could push the stock to just one yen, some traders said, as investors brace for a delisting as part of a government-brokered restructuring package.

Or one without annoying registration screen:

In the end, it has not been delisted... Might be a good stock to buy for the medium term :)


guardia's picture
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Re: Daily Digest - January 14
peter.vedder wrote:

I don't know whether or not the technique described in the article is feasible, but thought it might be something many in this forum would find to be of interest


'"If we can produce this fuel [on a mass scale], this would be the greatest sea change in history for our country," declares J.C. Bell, the project's pioneer.'

Notice the similarities: "If we could live on the Moon, travel to Mars on the weekends, it would revolutionize our way of life." Hum, better luck next time!

Anyway, thanks for the post and welcome aboard! You will eventually realize this kind of misinformation is everywhere :)


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Re: Daily Digest - January 14

A sign of the times. We can't afford grit for the roads but we can afford police riot shields...

Police in UK enjoy the snow with riot shields

UK workers crawl to work on hands and knees.

I guess next year the fun-lovers will have automatic assault ski-batons to go with their sledges and after that they'll be wearing ski-masks too.



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Chavez dont devaluate the currency, really overvaluate !!

To: idoctor, yes we can buy gold or silver with Bs, but silver is imported, we have a very large deposit of gold in the ground and is local mined, but venezuela business is very speculative the gold is sell to price of the black market, yes we can also buy guns by we need to have a licence of the government. 



I live in venezuela, i was following the chrismartenson web page from 2 year ago, and see the CC like 2 times.

Let me explain the real and fact situation in venezuela, remember dont trust the main media.

In Venezuela the government (Chavez) have a limitation for any one to obtain dollars, the government sell the dollar to 2.15  BS = 1 US$ to company importers with a lot of paper bureaucracy, any company also can obtain dollars in the black market 5.9 BS = 1 US$.

But every company sell the mercandise to US$ of black market, regardless of whether they have received government dollars to 2.15 or if purchased on the black market to 5.9.

The Government understood this and make the following change, official dollar 4,3 Bs = 1 US$, and the government also will sell dollars in the black market when needed to lower the price of this dollar upto 5.1 US$.

This results in that before the importer sold their imported goods, with a black dollar from 5.9 and now will sell their merchandise with a black dollar of 5.1 Bs

The fact is not a devaluation is an overvaluation. You can follow the black dollar price on the next page dolarpermuta.com.

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Re: Daily Digest - January 14
idoctor wrote:

I saw this posted about Americans:

First off, they don't have a clue as to what is going on. Second, they are insolvent and have no faith in themselves to get out of their hapless position. Lastly, they are looking for the government to take care of them. This country was based on rugged individualism, freedom and liberty. That is done. We are now a group of pathetic "victims" looking to the government to provide for our needs

I hate to say it but I sure see a lot of this to be true.

Good video! So simple. So right.

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Re: Daily Digest - January 14

Federal Reserve Seeks to Protect U.S. Bailout Secrets - "...unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman..."

Can someone tell me where the "$2 Trillion" figure comes from in this article.  I remember the $700 Billion in TARP that congress authorized.  Where did the additional $1.3 Trillion come from?

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