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It's still very difficult to watch all this come undone and to be able to seeso much of it coming. What was it, five or six weeks ago I told you to startwatching Citigroup?... Citigoup stock fell 23% today. I'll have comments onthe cabinet when it's more filled out. You can rule out Rubin for Treasury.He's on the board at Citigroup and that's going to be real messy and won'tlook good. Today's Dow drop told everyone that we are nowhere near closeto a bottom yet and I'm narrowing in on an eventual capitulation maybe inthe low 5,000s. But things are so volatile that a metaphoric zero is not outof the question. It is becoming very clear that government leaders aroundthe world are pretty much out of their pay grade, so to speak . . .The whole process takes time. There are millions of mistakes in need ofcorrection. Each one has to be marked down, written off, worked out, andforgotten. We still have to see the show trials. And the perp walks. And thekvetching... the complaining... the whining... the wimpering. The bailoutsand the payoffs... The bottles of whiskey and the loaded revolvers. It's allstill ahead! Dow 5,000... 10% - 15% unemployment...20% off house prices.Businesses cut prices at a record rate and builders started fewer newhomes last month than anytime on record, according to new governmentdata, as the outlook for the economy continues to dim. The data helpedspur another terrible day for the stock market, as did a projection of morehard times ahead by leaders of the Federal Reserve. A serious recessionnow appears all but assured. The stock market fell another 5 percent, asmeasured by the Dow Jones industrial average, which closed below 8,000for the first time in this bear market. New-home starts in October werethe lowest since at least 1959, when the government began keeping data.The consumer price index plummeted by the most since that series ofwas started in 1947.And the Federal Reserve released projections indicatingthey expect the economy to worsen significantly in the coming year. This crisis is far more serious than the Great Depression. All major sectorsof the global economy are affected. Recent reports suggest the system ofLetters of Credit as well as international shipping, which constitute the lifeline of the international trading system, are potentially in jeopardy. Theproposed bank "bailout" under the so-called TARP is not a "solution" to thecrisis but the "cause" of further collapse. The "bailout" contributes to a further process of destabilization of the financial architecture. It transferslarge amounts of public money, at taxpayers expense, into the hands ofprivate financiers. It leads to a spiraling public debt and an unprecedentedcentralization of banking power. Moreover, the bailout money is used by the financial giants to secure corporate acquisitions both in the financialsector and the real economy In turn, this unprecedented concentrationof financial power spearheads entire sectors of industry and the economyinto bankruptcy, leading to the layoff of tens of thousands of workers . . .Citigroup faced a crisis of confidence as investors questioned the survivalprospects of the U.S. banking giant, and its shares tumbled 23 percent to a13-year low. The second-largest U.S. bank by assets has been reeling onconcerns that mounting losses from credit cards, mortgages and toxicdebt could overwhelm its efforts to slash costs and add deposits. Lastmonth, Wells Fargo & Co dealt a blow by derailing Citigroup's bid to buyWachovia Corp. Citigroup shares closed down $1.96 at $6.40 on the NewYork Stock Exchange and have fallen 33 percent this week as someinvestors concluded that Chief Executive Vikram Pandit's plan to shed 52,000 jobs and cut expenses by one-fifth won't restore the bank to health.As if they haven't done enough damage. Thousands of subprime mortgagelenders and brokers—many of them the very sorts of firms that helpedcreate the current financial crisis—are going strong. Their new strategy:taking advantage of a long-standing federal program designed to encouragehomeownership by insuring mortgages for buyers of modest means. Youread that correctly. Some of the same people who propelled us toward thehousing market calamity are now seeking to profit by exploiting billions infederally insured mortgages. Washington, meanwhile, has vastly expandedthe availability of such taxpayer-backed loans as part of the emergencycampaign to rescue the country's swooning economy . . . Now there's asevere danger that aggressive lenders and brokers schooled in the rashways of the subprime industry will overwhelm the FHA with loans for peopleunlikely to make their payments. Exacerbating matters, FHA officials seemoblivious to what's happening — or incapable of stopping it. They're givingfirms licenses to dole out 100%-insured loans despite records blotted by sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.Washington is so nervous that credit cards will become the next financialsinkhole that the government will soon ask banks to go through thearduous task of running tests on hundreds of millions of their cardholders. On Oct. 7, the Office of the Controller of the Currency put together a testcalled Definitions of Data Fields Collected Monthly at the Account Level,which asks banks nationwide to put the 700 million or so credit cards inexistence to a test of 74 questions. Question 11 on the test is, "StudentCredit Card Flag - indicate whether a credit card is internally identified as astudent credit card." Question 27 is "report dollar and number of allapplicants that applied for credit with a FICO score below the normal cutoffFICO score." Quick, close the barn door, the cows have already left. The recent thaw in short-term lending markets made it look, at leasttemporarily, as if the worst of the credit crisis had passed. But, saysBreakingviews, the rapid collapse in the market for commercial-mortgagebacked securities, or C.M.B.S., shows the American economic downturn isnow becoming a big threat, and feeding back to financial assets, whichtook the brunt of Wednesday’s stock market rout. For the top-rated slicesof C.M.B.S., risk premiums have ballooned this week. The acceleration ofthis collapse over the past couple of days is partly due to the potentialdefault of two loans that are held in many C.M.B.S. portfolios . . .Chinese carmakers SAIC and Dongfeng have plans to acquire GM andChrysler, China’s 21st Century Business Herald reports. A National Enquirerthe paper is not. It is one of China's leading business newspapers, with adaily readership over three million. This newspaper cites a senior official ofChina’s Ministry of Industry and Information Technology – the regulator ofChina’s auto industry – who dropped the hint that "the auto manufacturinggiants in China, such as Shanghai Automotive Industry Corporation (SAIC)and Dongfeng Motor Corporation, have the capability and intention to buysome assets of the two crisis-plagued American automakers.” These hintsare very often followed with quick action in the Middle Kingdom. The hintswere dropped just a few days after the same Chinese government gave itsauto makers the go-ahead to invest abroad. And why would they do that? General Motor's financial arm, GMAC Financial Services, applied to becomea bank holding company today, a move that could allow it to grab a pieceof the Treasury Department's $700 billion rescue package and give it access to the Federal Reserve's discount window to receive emergency loans. In addition to the access to the $700 billion rescue plan, becoming abank company could more immediately help GMAC by giving it access tothe Fed's discount window for low-interest, short-term emergency loans. The Ford family is paying a heavy price to maintain its controlling stake inthe automaker. In less than seven months, the family has lost $533 millionon the special shares that give it 40 percent of the voting rights in thecompany. Its holdings in those shares are now worth about $89 million,down from $2.5 billion less than a decade ago. Through a combination oftrusts, the founding family owns 70.85 million Class B shares, but if it wereto sell off a modest number of that stake, its voting rights would drop to30 percent under rules established when the company went public in 1956. Not only in Washington, DC, is there a fierce debate over state aid to thebeleaguered car industry. On November 18th, just as the bosses of GeneralMotors, Ford and Chrysler were lining up before the Senate bankingcommittee to ask for help, the directors of the European Investment Bank,the European Union’s lending arm, were considering whether to giveEurope’s carmakers $51 billion in soft loans. The condition of Europe’s carmakers is hardly healthy, but unlike their Detroit counterparts they arestill some way from the critical list. J.D. Power, a market-research firm,forecasts that the western European market will shrink by 7.9% this year,compared with a 16% drop in America. But things are getting grimmer bythe day. J.D. Power expects a further 10.5% contraction in Europe in 2009.Vallejo has some company in financial purgatory. The budgetary nightmarethat has shrouded Vallejo - a plunge in tax revenues coupled with risingemployee costs - is playing out in the nearby cities of Fairfield and Rio Vistaas well as other municipalities hard-hit by the foreclosure crisis. Rio Vista istalking to bankruptcy attorneys while a home development sits virtuallyabandoned. Fairfield just sliced 9 from its budget and is poised to slash 7%more. Earlier this year, Vallejo filed for bankruptcy when faced with a $16million deficit. All three share some of the highest foreclosure rates . . .This holiday season, any retailer not named Wal-Mart has reason to worry.Paltry profits and debt-laden balance sheets mean some players are facingnot just tough times, but potential extinction. With U.S. retail sales taking arecord 2.8% dive last month and Deloitte Research's consumer spendingindex turning negative for the first time since 1980, the climate is [simply]unforgiving. Big names such as Circuit City, Linens 'n Things, and Steve &Barry's are among the 22 merchants that have already filed for bankruptcythis year. While retailers who filed for bankruptcy in recent years oftencould live to see another day, that may no longer be true. "You can't getthe financing to reorganize, so we are in a world of liquidation," saysHoward Davidowitz, chairman of retail consultancy Davidowitz & Associates. It is about as far as you can get from the woes of Wall Street: the muckybusiness of digging ore out of the ground, shipping it across the oceans andturning it into steel, the feedstock of industry. So the recent slump in raw-material prices and the decline in shipping costs indicate how far-reachingthe consequences of the global financial crisis will be for the real economy.Since the early summer the price of steel has fallen by 20-70% and the keyrate for shipping of commodities is down by over 80%. There are stories ofcargoes piling up because buyers’ letters of credit have not been honoured.Unwelcome by dealers and buyers, thousands of cars worth tens of millionsof dollars are being warehoused on increasingly crowded port property. Andfor the first time, Mercedes-Benz, Toyota, and Nissan have each asked tolease space from the port for these orphan vehicles. They are turningdozens of acres of the nation’s second-largest container port into a parkinglot, creating a vivid picture of a paralyzed auto business and an economy inperil. "This is one way to look at the economy," Art Wong, a spokesman forthe port, said of the cars. "And it scares you to death." The backlog at theport is just part of a broader rise in the nation’s inventories, which were up5.5% in September from a 2007, according to the Commerce Department. At the beginning of a recession, there are people who see the downturn asan occasion for moral revival: Americans will learn to live without materialextravagances. They’ll simplify their lives. They’ll rediscover what reallymatters: home, friends and family. But recessions are about more thanmaterial deprivation. They’re also about fear and diminished expectations.The cultural consequences of recessions are rarely uplifting. The economicslowdown of the 1880s and 1890s produced a surge of agrarian populismand nativism, with partiular hostility directed toward Catholics, Jews andblacks. This recession will probably have its own social profile. In particular,it’s likely to produce a new social group: the formerly middle class . . .I've seen estimates suggesting one out of every six homeowners has atroubled mortgage. This is an enormous social problem. It is also acontinuing economic problem. In the year since the crisis began, theworld's financial institutions have written down around $500 billion worth ofmortgage-backed securities. Unless something is done to stem the rapiddecline of housing values, these institutions are likely to write down anadditional $1 to $1.5 trillion. In other words, we ain't seen nothin' yet . . .The image filed away in the American brain under "home ownership" is anaerial photograph of Levittown, N.Y., the suburb built by Levitt & Sons inthe 1940s and 50s in Nassau County, Long Island. Sprawled upon the sandypotato plain is a precisely machined geometry of tidy rows, some straight,some curvy, all lined with little boxes that all look the same. Zoom in now,though, and you wouldn’t recognize the place. After 60 years, the cookie-cutter Cape Cods have been remodeled beyond recognition, growingdormers, garages, bay windows and second floors. The neighborhood looksprosperous and perfect, except for the supply of empty homes and ForSale signs. Levittown, a symbol of suburbia, is now a foreclosure hot spot. Anderson was among the hundreds of heavy equipment owners selling offtheir rigs to the highest bidders at the two-day auction, which endedWednesday. The auctioneer, Ritchie Bros., said the more than 2,000 piecesbeing sold would probably fetch a combined $20 million or more. Sellerssaid they were purging their inventories to pull in operating capital. Buyerswere lured by cheap prices, although several expressed reluctance tospend money on equipment that could remain idle for months. "These arethe worst prices I've ever seen," said Steve Thompson, 52, who was thereto make bids for Chuck Green & Associates, a company that buys, resellsand rents heavy equipment. In 2005, the company sold a used hydraulicdirt excavator for $309,000. That same excavator [now goes for] $50,000.As the world's energy situation becomes more and more confused, withprices gyrating wildly, and with more voices warning of unprecedented problems just ahead, this 569-page report stands as the most authoritativedescription of what will happen to the world's energy supply. The energypolicies of the 28 countries that are members of the IEA in theory hinge onthe report's findings - and that is where the trouble comes in. Untilrecently, the IEA's forecasts have been based on the premise that therewas plenty of oil or equivalent hydrocarbons left to extract. Forecasting future production was simply a function of extrapolating demand. Howevermuch oil the world needed and was ready to pay for, the oil industry wouldprovide. In recent years however, as world oil production stagnated, andas more attention was focused on rates of oil depletion vs. the likelihood ofoffsetting new production, the IEA's basic premise became untenable. Thisyear the agency [finally] succumbed to reality and addressed the issue ofstagnating oil production with detailed discussions of oil depletion . . The IEA performed a comprehensive study of 800 of the world's largest oilfields. And it concluded that depletion in conventional oil fields is occurringat a rate in excess of 9% per year. (That's an average. We see depletionrates in excess of 15% in Mexico's Cantarell field, for example.) This meansthat absent large amounts of new drilling, new investment in enhancedrecovery and new discoveries, the current worldwide oil output will declineby over 9% per year. And if it keeps going along this trend (there's noreason why it won't), the base of world oil output could conceivably dry upwithin 10 years. Don't get me wrong. The world won't run out of oil in 10years. That's not how it works. It's just that volumes of conventional oilare declining. The takeaway point is that the energy markets will tightenup, like a hangman's noose around the neck of the oil-consuming world . . .The world currently transports 80% of all international freight by sea. Morethan 10 million cargo containers are moving across the world's oceans atany one time. The heavy ocean traffic (and its cargo) spawned a surge insea piracy and a new breed of pirates, the bloodiest the world has seen.More than 2,400 acts of piracy were reported around the world between2000 and 2006, roughly twice the number reported for the preceding six-years. Although pirate attacks have at least tripled during that time, the actual number of attacks is unclear. Shipping companies frequently do notreport attacks out of concern that it could increase insurance premiums.But the British raid only underscored the difficulty facing internationalmilitary efforts to police the shipping lanes of East Africa. The vesselattacked by the marines was nothing more than a rickety old fishing dhow,and the eight men arrested are likely to be quickly replaced by hundreds ofother pirates — not to mention the thousands desperate to join their ranksand get a piece of the lucrative action. The pirates have thrived in asituation of negligible government authority on land, where the Somali state barely exists. And they are further emboldened by the jurisdictionaldifficulty of figuring out where to put arrested pirate suspects on trial.Strict rules of engagement also prevent foreign navies from attackingsuspected pirate vessels unless they are caught carrying out a raid. Thatmeans that patrol boats can rarely interdict the pirate "mother ships" thatply international waters, directing the speedboats to their prey . . . The housing bust is accellerating and job losses are rising. Unless you arevery certain of your income, it would be wise to assume that some portionof next year may be spent without power in your house. If living therewithout it isn’t pleasant for you, do what you can to make it so. Right now,in the very early stages of a Depression, most people are able to work outa deal with the power company, to put it on a credit card. That will not last forever - the credit will dry up and the ability to get funds will too. We have a food system that keeps nothing in stock and everything alwayson the move in trucks, responding to computerised signals when suppliesare running low. It is known as the "just in time" system. A lorry drivers'strike, a volatile situation in the Middle East, an oil blockade – all or any ofthese could sabotage the process that puts food on our shelves. "We allhope there won't be a food emergency," says Holden, "but many are nowthinking not 'if', but 'when'. If we're prepared, we will survive." Now forsome heart-warming news. Over the past few years a revolution of almostsilly simplicity has been taking place in fallow pockets and small farms. It isa bottom-up movement, led by citizens acting from a potent combinationof enlightenment and self-interest, and it could make us more resilient . . .Relinked at reader requestL
For defenders of the movement, like Jim Rawles who runs a survivalist blogand lives "in a very lightly populated region west of the Rockies" thisperversion by a "lunatic fringe" distorts the true message of survivalism,which is, in many ways, just about personal freedom. Derek, 60, whomoved from London to the countryside in the southeast of England fouryears ago, puts it another way. "There's going to be pandemonium, so Ijust want to be prepared so that I'm not a burden on anyone," he says.Relinked at reader request:
There are lots of problems on Wall Street. For starters, we've seen theconsolidation of power and the concentration of both capital and revenue infewer and fewer hands. The few institutions left on Wall Street - and thereabout 10 - are now like superstores or warehouses. And the story of howthey came to dominate Wall Street is very much like the story of howCostco or Sam's Club came to push mom and pop retailers off the map. Iwould know. I started my career at Alex Brown & Sons, the oldest investment bank in the country. A guy named AB "Buzzy" Krongard hired me. Buzzy later turned out to be the number three guy in the CIA . . .
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