And Thank You for That, Paul Martin

A survey by TD Securities claims to have found that Canada is considered the most solvent country in the world. Pretty cool, eh? From The Globe & Mail:

Chief strategist Eric Lascelles examined credit default swap data for 25 countries, and found markets believe there is only the slimmest of chances that Canada would ever default on its obligations.

“Canada is now regarded as quite possibly the world’s safest sovereign country in terms of the solvency of the country’s government,” Mr. Lascelles said in a research note.

“Since it is the government that is generally called upon to fix major problems that crop up, this suggests that the market does not expect major problems out of the broader Canadian economy and financial sector.”

Sovereign credit default swaps are the market’s way of putting a number on the chances of a government defaulting on its debt. Canada’s five-year CDS levels are at 13 basis points, which is less than half the rating given to second-place Germany, at 33 points. The United States is at 38 points, while Spain is at 93 and Korea is at 561.

http://www.reportonbusiness.com/servlet/story/RTGAM.20081030.wswaps1030/BNStory/Business/home?cid=al_gam_mostview

And to think all of us, even Stephen Harper, owe it all to Mr. Dithers, Paul Martin.

 

I Oughta Be Rich, Insanely Rich

I oughta be rich right now, a multimillionaire at least, maybe even a billionaire. I oughta be basking in comfort and luxury, having to worry about whether I would spend next week at my beachfront villa on Maui or my suite in Rio. Hmmm, decisions, decisions.

If only someone had told me a few years back that, for just pennies on the dollar, I could buy a bet, at 20 to one odds no less, that the US housing bubble would burst. Imagine, a “bubble” bursting? Just like every bubble before it has burst? What are the chances?

So I buy the ultimate no-lose bet for just pennies on the dollar and reap an insane windfall when one morning I get up and discover that, golly gee, the housing bubble has burst.

But no one ever came to my door asking if I’d be interested in picking up a few Credit Default Swaps. I didn’t receive any flyers offering to let me win big by betting that the American housing bubble would burst. Not even any telephone solicitations.

Hell, I’d never even heard of Credit Default Swaps until I saw Steve Croft explain how the damned things are at the heart of the American financial meltdown that’s bringing recession to every industrialized nation on the planet.

Now these Credit Default Swaps are just a decriminalized form of grand larceny. In fact, until McCain cronie and sometime economic advisor Phil Gramm used his position as then Chairman of the senate banking committee to introduce and push through a law that literally pulled America’s pants down around its knees and pushed it right over a barrel, these bogus insurance side bets were very much illegal. Why they were big time, felony illegal.

Maybe that’s why we didn’t hear of Credit Default Swaps until the meltdown. I figure they were just for “insiders.” I mean they were too good to be real and, if the public had known that someone was fool enough to take bets against a bubble bursting, the demand for them would have been so great and widespread that the whole house of cards would have collapsed as fast as it went up.

No, there’s no doubt about it. Credit Default Swaps, even though they had been decriminalized, still had to be treated as though they were criminal. They still had to be done under the table, very much on the Q.T. Lowlife like you and me would have killed this Golden Goose.

I visited a pretty credible site today that listed several categories of these CDSs that came to a grand total of – wait for it – just under SIX HUNDRED TRILLION DOLLARS. 60 Minutes only had them pegged at sixty trillion greenbacks but I’m now told that real estate assets were sometimes leveraged up to thirty times their value. Say what? Well that’s how America’s housing stock, which in 2006 was valued at just over $20-trillion all in, could be parlayed into $600-trillion of securitized side bets.

You see, you didn’t have to actually hold the dodgy securitized mortgage to bet against it, to get a Credit Default Swap/Insurance contract. Anybody could bet on it, the more the merrier. That’s how this monster grew. Thirty, fifty, hundreds of people who realized that the wiring was faulty could take out fire insurance on the same house. When it predictably burned to the ground, there were thirty, fifty, hundreds of policies to pay. Weird, ain’t it?

It’s much too late to get in on this scam. That came to an end with the subprime mortgage crisis/housing bubble crisis/Wall Street liquidity crisis-driven US meltdown turned global meltdown.

But wouldn’t you love to know just who was in on it? Wouldn’t it be great to get the names of everyone in the Bush administration, immediate relatives included, and every member of Congress, immediate relatives included, and every major political contributor, immediate relatives included, who did dabble in the Dark Arts of Credit Default Swaps?

You see, you can’t have larceny without thieves. And I suspect that the more we know about who got in on this gravy train and how, the more obvious it is going to be that this was a hell of a lot more than just greed-driven Wall Street adventurism. This reeks of culpability. It screams of an organized effort to fleece the financial sector worldwide.

Remember, these people are still standing in line, awaiting their windfall, wage-earner taxpayer-funded handouts. If the taxpayers are going to fund it, they should at least get a look at who’s raking in the loot. That, I think, will put this villainy in a brand new light and I’m guessing that will make my proposition that these Credit Default Swaps simply be wiped off the books, declared null and void, seem pretty reasonable.

It’s time to name names.

 

Four in Ten Canadians Fear Imminent Poverty

The Canadian Centre for Policy Alternatives has released a poll showing that 39% of Canadians believe they’re but one or two paycheques away from poverty.

From CTV News:

Pollster Environics surveyed 2,023 Canadians for the left-of-centre think tank. It found that Canadians are almost unanimous in their call for governments to protect their jobs.

“A shocking 96 per cent are saying ‘Do something about investing in jobs and skills (and) training right now. Don’t wait until there are better balanced budgets,'” CCPA senior economist Armine Yalnizyan told CTV’s Canada AM on Monday.

The CCPA poll found that:

39 per cent of Canadians think they’re just one or two paycheques from poverty
47 per cent struggle with personal debt regardless of income
44 per cent worry about having enough to retire comfortably
26 per cent say they are worse off than a decade ago

“The interesting thing about the poll is that Canadians looked beyond their own pocketbook issues and said … that governments need to step up to the plate, too,” Yalnizyan said.

She said Canadians look at Scandinavian and European countries’ focus on poverty reduction and say, “Why can’t we do that here?”

According to the survey:

90 per cent want the government to take leadership to reduce poverty
86 per cent believe concrete government action can greatly reduce poverty
81 per cent support reducing poverty by at least 25 per cent over the next five years.

Well, if our Furious Leader, Stevo, is looking for a mandate, there’s one for him. 96% is one helluva mandate, Steve.

Curious that so many Canadians are looking to those awful “Northern European welfare states” isn’t it Steve?

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20081027/jobs_poverty_081027/20081027?hub=TopStories

 

Nick Stern – Global Warming Worse than US Meltdown

Former top British treasury economist, Sir Nicholas Stern, has issued a blunt warning that the consequences of ignoring climate change far outweigh the global financial meltdown now entrancing our governments.

“The risk consequences of ignoring climate change will be very much bigger than the consequences of ignoring risks in the financial system. …That’s a very important lesson, tackle risk early,” Stern told a climate and carbon conference in Hong Kong.

Most governments badly affected by the meltdown are looking to the tried and tested solution of major capital programme spending to kickstart their flagging economies (my take on this is in an earlier post, “Spending like there IS a Tomorrow”). Stern is adding his voice to the growing choir of those advocating that government use this as an opportunity to advance clean technology:

“The lesson that we can draw out from this recession, is that you can boost demand in the best way possible by focusing on low carbon growth in future,” Stern said, including greater public spending on mass public transport, energy and green technologies.”

http://www.enn.com/business/article/38498

 

Wipe Credit Default Swaps Off the Books

I learned something new on 60 Minutes last night about Credit Default Swaps, those nasty, unregulated mortgage default insurance contracts that are the disease behind the global financial meltdown.

At first I had the impression that these were insurance contracts that Wall Street used to convince prospective customers to buy its toxic securities – securitized mortgages, derivatives, bundled bad debt. Okay, I’m not really sure what it is I’m buying so I want insurance. That makes sense and it’s Wall Street’s fault for selling insurance when they had no means, no assets to honour those committments when the bottom fell out.

But there’s more, a lot more. These Credit Derivative Swaps were available to anyone. They weren’t limited to buyers of derivatives. Anyone could buy a CDS for a few pennies on the dollar without having to buy or hold the dubious mortgage bundles. In this way you were betting against the housing bubble, betting against the securitized mortgages, betting that this madness would collapse.

These unregulated bets earned some people billions in profits, and it’s their billions in profits from gaming CDSs that are a big chunk of the problems that have rocked markets around the world.

What really is outrageous is that governments around the world are using wage-earners’ tax dollars to bail out banks that need to make good on these gamed Credit Default Swaps and, right now, nobody even knows the total value of them or even who is liable for what. It’s estimated that there are 60-trillion dollars of Credit Default Swaps in circulation.

Here’s an idea. Rather than soaking taxpayers why don’t our governments use their sovereign powers to declare those Credit Default Swaps to be redeemable for exactly what was paid for them. If you paid pennies on the dollar, you get pennies on the dollar and thank you for your patriotism in a time of troubles.

The Western world has been raped by these gamblers and swindlers. Why should working stiffs be saddled with making good their bad debts, especially on these gamey Credit Default Swaps? You want to clean up the financial markets, restore confidence and liquidity, get credit moving again? A good way to start is to wipe the CDS garbage off the books. Write them down to what was actually paid for them, pennies on the dollar.

Yes, some people will lose out on their windfall bets but, so what? After all, they not only bet the housing bubble would burst, they also bet that the outfit selling them the CDS would be good for it. That’s a two part bet and they lost. Why should taxpayers be expected to make winners out of losers?

 

Carpetbagging On The Public Dime

I just spotted this in The New York Times and decided it needed to be posted. It concerns the hundreds of billions of dollars the US government has chosen to inject into the nation’s banks to improve their liquidity in order to get credit flowing again to American business.

Guess what? The banks are happy to take it but they have a different idea of what to do with their Washington windfall. One executive at one of the surviving megabanks was careless enough to let a Times reporter eavesdrop on an internal discussion:

“In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.

(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

So, to summarize, those hundreds of billions of dollars of wage-earning taxpayers’ money the banks are getting to free up America’s credit markets are to be used, instead, as a mergers and acquisition windfall.

That kids is fraud, plain and simple, old-fashioned fraud. And it’s fraud on the very taxpayers whose own financial future already has been put in jeopardy by the greed of these same banksters.

I think it’s time that Washington simply seized these banks and threw their scheming managers out on the street.

This is truly mind-boggling.

http://www.nytimes.com/2008/10/25/business/25nocera.html?em

 

Spending Like There IS A Tomorrow

There’s a growing consensus in the United States that this is no time to be waging war on deficits, just the opposite. The idea, proposed by Krugman and others, is that the US government needs to stimulate the economy by a variety of means, a key one being infrastructure projects. In essence they’re talking about a new New Deal.

Unlike government giveaways, infrastructure projects are an investment, the sort of thing designed to reap big dividends in years to come. They’re also a means to introduce major technology shifts.

Why restore obsolete or unproductive infrastructure? Maybe in the future the rising cost of fuel will mean you won’t need three highways in some places but only one. Restoring all three, therefore, would plainly be little more than a glorified, make work project.

However, past experience shows this sort of depression-era infrastructure spending can, by its very size, allow governments to introduce new technologies and major changes that would otherwise have been impossible.

Look at Germany in the 30’s. Monster that he was, Hitler’s Nazi government brought that country back to life through some key pre-war infrastructure projects ranging from public housing to autobahns. Similar benefits came to Americans from Roosevelt’s interventions which are neatly summarized in this from Newgeography.com:

“Together with a plethora of well-built public schools, libraries, post offices, parks, water systems, bridges, airports, hospitals, harbors, city halls, county courthouses, zoos, art works and more, New Deal initiatives spread the wealth and enriched the lives of uncounted Americans.”
http://www.newgeography.com/content/00170-excavating-the-buried-civilization-roosevelt%E2%80%99s-new-deal

Most of North America is well overdue for a serious makeover. There’s the essential infrastructure decay that needs fixing – water and sewer systems in many Canadian cities, for example. But there are also opportunities to get our nations aligned for the 21st century realities. I’ll give you an example.

Rail transport. We know that rail is up to five times more fuel efficient for transporting freight over great distances than long-haul truck transport. Unfortunately the rail system we have today isn’t up to the job. What if the government was to commit to a mega-project to construct a new, high capacity railway system for the 21st century? Use rail in lieu of trucks. Not only would it reduce fossil fuel consumption but it would make the transport of goods far more affordable. Trucks would be used for short and medium-haul delivery, not inefficient cross-Canada transport.

I’m sure there are several other equally sound ideas for overhauling and modernizing Canada’s infrastructure to meet the changes we’ll face this century. Let’s identify them, see what can be done and what rewards we’ll reap from them in the future.

If you see this as just standard, socialist babble, take a look at the 401 highway from Windsor to Montreal. Read about the old, pioneer path 2-lane routes it replaced and then learn about the role this one superhighway played in Ontario’s economic rise in the postwar decades. Once you’ve digested that, you can come back and rail on about socialism. Look at the expansion and development of secondary airports and microwave communications and the role they played in opening up Canada’s north and then you can bleat anti-socialist mantras.

We all pretty much realize that a real future lies in so-called green industries, everything from carbon capture technology to alternative, clean power projects. Those are industries that will create jobs and wealth. What better time to kickstart things like that?

Of course it will take a government with real vision to recognize the opportunities and exploit them for the benefit of the country. I doubt very much that’s within the scope of the one-dimensional administration we have today.

 

Zakaria Sees Hope on Horizon

In this era of uncertainty it’s refreshing to hear a voice of reasoned optimism. From Newsweek’s Fareed Zakaria:

Since the 1980s, Americans have consumed more than they produced—and they have made up the difference by borrowing.

Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn’t actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years. The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970.

But the average American’s behavior was virtue itself compared with the government’s. Every city, every county and every state has wanted to preserve its many and proliferating operations and yet not raise taxes. How to square this circle? By borrowing, using ever more elaborate financial instruments. Revenue bonds were backed up by the prospect of future income from taxes or lotteries. “A growing trend is to securitize future federal funding for highways, housing and other items,” says Chris Edwards of the Cato Institute. The effect on the projects, he points out, is to make them more expensive, since they incur interest payments. Because they “insulate the taxpayer from the cost”—all that needs to be paid now is the interest—they also tend to produce cost overruns.

The whole country has been complicit in a great fraud. As economist Jeffrey Sachs points out, “We’ve wanted lots of government, but we haven’t wanted to pay for it.” So we’ve borrowed our way out of the problem. In 1990, the national debt stood at $3 trillion. (That sounds high, but keep reading.) By 2000, it had almost doubled, to $5.75 trillion. It is currently $10.2 trillion. The number moved into 11 digits last month, which meant that the National Debt Clock in New York City ran out of space to display the figures. Its owners plan to get a new clock next year.

…At some point the magical accounting had to stop. At some point, consumers had to stop using their homes as banks and spending money that they didn’t have. At some point, the government had to confront its indebtedness. The United States—and other overleveraged societies—have now gotten the wake-up call from hell. If we can respond and change our behavior markedly, this might actually be a blessing in disguise.

In the short term, all the solutions to the current crisis require that governments take on more debts and larger obligations. This is inevitable and necessary. But that doesn’t mean we should, as some noted economists advocate, stimulate the economy with more tax cuts. That would be only one more way to keep the party going artificially—like asking a drunk to go to AA next year, but in the meantime to have even more whisky. A far better stimulus would be to announce and expedite major infrastructure and energy projects, which are investments, not consumption, and therefore have a much different effect on the country’s fiscal fortunes.

…we have to get back to basics. Households, for instance, should save more. Governments should put incentives in place that make such savings more likely. The U.S. government offers enormous incentives to consume (the deduction of mortgage interest being the best example), and it works. We have the biggest houses in the world, the thinnest flat-screen TVs and the most cars. If we were to tax consumption and encourage savings, that would also work.

…A new discipline would benefit America in a more general sense, too. Ever since the collapse of the Soviet Union, the United States has operated in the world with no constraints or checks on its power. This has not been good for its foreign policy. It has made Washington arrogant, lazy and careless. Its decision making has resembled General Motors’ business strategy in the 1970s and 1980s, a process driven largely by a vast array of internal factors but little sense of urgency or awareness of outside pressures. We didn’t have to make strategic choices; we could have it all. We could make blunders, anger the world, rupture alliances, waste resources, wage war incompetently—it didn’t matter. We had more than enough room for error—lots of error.

…Checks and balances are James Madison’s crucial mechanisms, exposing and countering abuse and arrogance and forcing discipline on people. This discipline will be painful for a country that has gotten used to having it all. But it will make us much stronger in the long run. If we can learn the right lessons from this crisis, the United States will once more be playing by its own rules. And that cannot be bad for us.

 

The Fall of an Empire

What happens when a megastate collapses under the weight of its own excesses and bad judgment?

The director of the liberty and national security project of the Brennan Centre for Justice at New York University, Aziz Huq, offers this incredibly insightful look at what America has made of its unipolar superpower days and what lies ahead for the United States.

http://www.atimes.com/atimes/Middle_East/JJ18Ak03.html

 

There Is a Santa Claus – If You’re a Failed Banker

This is nothing short of obscene. Despite pillaging the American taxpayers for more than a trillion dollars in bailouts, Wall Street still plans to pay out $70-billion in pay deals, including bonuses, to its top personnel.

Read the disgusting details in The Guardian

http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking