The Market Ticker - Musings

Commentary on Gay Marriage

nospam@example.com (Karl Denninger) — Tue, 03 Nov 2009 10:59:50 -0500

This has only a tangential relationship to the markets, so I am placing only a link here....

Head on over to Musings if you're interested in that discussion.... :)

Slope Of Hope Interview, Pts 4, 5 and 6

nospam@example.com (Karl Denninger) — Mon, 02 Nov 2009 12:48:00 -0500

Here 'ya go - last three parts.....

Reprised: HERE IT COMES

nospam@example.com (Karl Denninger) — Fri, 30 Oct 2009 15:10:24 -0400

Time to drag this out.... from quite some time ago.....

Slope Of Hope Interview, Pts 2 and 3

nospam@example.com (Karl Denninger) — Fri, 30 Oct 2009 07:17:00 -0400

Slope Of Hope Interview, Pt 1

nospam@example.com (Karl Denninger) — Thu, 29 Oct 2009 07:56:00 -0400

Possible Credit Dislocation: Be Warned

nospam@example.com (Karl Denninger) — Fri, 23 Oct 2009 11:55:00 -0400

I have reason to suspect that the "monetary transmission mechanism" is full of rocks (again), and we are about to have another instance of what could colloquially be called "fun." (Yes, that's sarcasm.)

Here's what we know and what I can deduce from it:

JP Morgan's "cash position" was analyzed by a writer who published on SCRIBD, which showed that actual cash held has deteriorated radically. By more than half in the last year. The deterioration is continuing, not slowing.
I am hearing repeated anecdotes from multiple areas that foreclosed property held by banks with multiple full-price offers that include a financing requirement are being sold instead to people with actual cash at radical reductions from that price. This implies that these financing contingencies are regarded as not only potentially no good but factually no good, as if the banks know for a fact that the credit pipeline will (not might), within weeks or months (in the time required to close), disappear. There is no other rational explanation for this behavior.
Citibank's credit-card terms change implies a willingness to accept and even provoke a complete and intentional destruction of their credit card business as a very high probability outcome, given that nobody in their right mind will accept a 30% interest rate who has an alternative. The obvious implication is that only those who can't transfer balances out will remain and if your credit is that impaired there's a good chance you will default - either intentionally or otherwise. This too implies foreknowledge of a near-complete impending freeze in the credit markets.
The change in terms on credit accounts is NOT confined to Citibank. I have received a fax from a customer of Infibank with substantially identical terms, in which both the standard and penalty rate was adjusted to 29.99%. This strongly implies that whatever Citibank smells the problem is not confined to them.
Both of these credit card "adjustment" letters are of course marginal rate changes. That is, they are both based off the PRIME rate. The importance of that is missed by many. Don't be one of them (more on that below.)
I recently received a back channel communication indicating that The Fed is aware that this has been and still is a solvency problem and has so briefed certain members of Congress. This from a source believed reliable, but which cannot be independently confirmed.

This data is not conclusive. But - if you are dependent on credit access and these anecdotes are in fact indicative of actual knowledge of an impending lock-up you are at grave financial risk.

Note that "margin" type rates that are based on the PRIME rate could hurt you far worse than you believe. With PRIME at historic lows should any such dislocation spike the prime rate your interest rate could go much higher with little or no notice or ability to do anything about it.

IF this is going to manifest as a dislocation of some sort it will probably occur within the normal closing window for real estate transactions, since the anecdotes related to that have the best-defined "reach", and the discounts being accepted to avoid this risk are massive to the point of denoting near-certainty of this event in the minds of the market participants who are electing to accept these cash-discounted offers.

Therefore, if you are dependent on such credit access I would take immediate action to do whatever is necessary to mitigate, to the extent you are able, the consequences of such a dislocation.

Consider how you survive returning to what essentially amounts to a cash economic posture in your business and personal life.

Note that the indications above are far stronger than what we saw going into last fall before the wheels came off. As a consequence if these actions are those of people with real knowledge (and this is not a guess on their part) I would expect the outcome to be worse than what we saw last fall in terms of economic impact.

Those who are short dollars (synthetically or in the actual market) need to beware - if I am reading this correctly you're about to get a really ugly surprise.

If you want to speculate on this outcome levered bets on radical dollar appreciation look like one of the best choices out there, followed closely by bearish levered bets on commodities. I would not consider such a speculative play that is not characterized by defined risk, as this analysis is based on nothing more than observation of behavior by market participants that all point toward their foreknowledge of an event that might happen in the reasonably-near future and is not, at present, backed up with actual significant credit-spread widening or other objective criteria.

Disclosure: Initiated a small speculative, defined-risk play LONG the US Dollar (UUP CALL options for March 2010)

More On Secession: Did It Already Happen?

nospam@example.com (Karl Denninger) — Mon, 12 Oct 2009 09:42:00 -0400

On this Columbus Day, when Columbus "discovered" The New World (Really? Native Americans weren't already here?) one should, I believe, ponder the following.

"What Defines America?"

Is it a defined political hierarchy centered in Washington DC?
Or is it The Constitution?

Is it a symbol (e.g. the flag)?
Or is it A Republican Form of Government, as allegedly guaranteed by our Constitution (as amended)?

Is it an organized looting operation centered in NYC and Washington DC?
Or is it this?

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. - US Declaration of Independence.

Is it "merely" a conglomeration of 50 alleged "States", or is it the bargain struck between each of those 50 States and The Federal Government. Specifically:

Section 4. The United States shall guarantee to every state in this union a republican form of government, and shall protect each of them against invasion;

An official policy of "all illegal immigrants are welcome to come and loot our Treasury and people" is contrary to these requirements, and a Republican Form of Government requires actual representative government - not purchased, bribed legislators.

Is The Fed and Treasury's explicit and declared policy of dollar devaluation, which is exactly what "Quantitative Easing" (aka "monetization") is, lawful?
Or does The Constitution specify that Congress has this power, not The Executive or an "independent" Central Bank (Article I Section 8), specifically:

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

Is not The Constitution (as properly amended) a Contract between the people, the States and The Federal Government?

I argue that it is.

Contracts require performance by all parties.

Has The Federal Government met its burden of performance?

If not, who's seceding from whom?

Is there not an argument to be made that Secession has already happened - without a shot fired - and it was Washington DC and Wall Street that did the Seceding from our Constitutional Form of Government?

Note that under 18 USC Chap 115 Sec 2381-2385, for a crime to be committed an act of secession must involve violence. A "mere" renouncement of the Constitutional Principles that allegedly bind our nation together by The Federal Government and its handmaidens both at The Federal Reserve and on Wall Street, accomplished without violence, is, by all appearances, lawful.

So here's your homework for the day - ponder this:

Does America, bound and defined by The Constitution with the rights and duties of each party defined, still exist, or has Washington DC and Wall Street already seceded over the previous two decades? Is this, in point of fact, not the root of the problems we now face in our economy and nation, whether they be runaway debt, financial frauds perpetrated upon the people, the counties and states, or blatantly-fraudulent entitlement promises that are mathematically impossible to sustain?

To The States: Should We Talk About Secession?

nospam@example.com (Karl Denninger) — Sun, 11 Oct 2009 15:18:00 -0400

I'm going to go back to this quote by Barney Frank of the US House, because it says everything those in state and local governments need to know:

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

Got it? It's a policy to screw the state and local governments.

Huh, you say? It's simple, really: State and local governments rely on property tax revenues. Yet defaulted mortgages don't pay property taxes. Yes, there's a lien on the property but this doesn't help the municipal budget now.

And suffer they are:

Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers.

"It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states' revenue situations "close to unprecedented."

These shortfalls are a direct consequence of the intentional action of not only refusing to prosecute financial fraud and the making of unsound loans for years, but of continuing the game-playing even now as an official federal government policy.

This game goes back to the former Fannie accounting scandals, as a recently-discovered set of documents from a law firm that threatened a discrimination and whistleblower retaliation suit show:

"There is no explanation which I can see which justifies amortizing beyond 100% of an asset's value. Having made those arguments with Janet and Dick and having lost, I have to hope their knowledge of the factor generation and cash flow modeling processes includes expertise which I do not have." (Roger Barnes, internal email, October 2002.)

Well I don't understand a reason for justifying amortizing an asset beyond 100% of it's value either, but when we get down to 2 + 2 = and the answer is something other than "4".....

We have a regulatory environment where The Federal Government has intentionally left out of the Federal Legal code strictures on operating a bank while insolvent, when many states explicitly define such an act as a felony, thereby giving The Federal Government cover in allowing banks to operate long enough to generate 20, 30, 40 and even 50% losses as measured against their asset base before being closed. To date nobody has been criminally charged in relationship to these events.

We have banks that are intentionally sitting on "NODs" (Notices of Default) and foreclosure actions, with many people in bubble areas not having made a payment in more than a year. There are those who view this sort of thing as "good" for the economy (since those individuals continue to spend in the local economy instead of being evicted.) Banks are doing this to avoid having to take the "mark" on the defaulted asset; by refusing to recognize the current value of those assets as the recovery value and instead holding the note at "par" or near to it, they effectively cook their books and appear healthier than they are. Government is allowing this and claiming that it is "for the good of the economy" to keep these blown-up banks in business but along with the default on the mortgage comes a default on the impound account (if there is one) which means state and local governments are not receiving their property tax revenues.

We also have banks that have homes that have either "jingle mailed" or otherwise been left empty, and the banks are refusing to sell these properties off for the same reason - maintenance of these "assets" at unrealistic values on the books of these firms. This also results in the property tax bills not being paid as there is nobody living in these homes and nobody making the payments to state and local governments.

It has become clear during the last two years that despite the royal screwing that is imposed on state and local governments as a direct consequence of these actions Federal regulators, lawmakers and administration officials will not step in and put a stop to it, as they are fully bought and paid for by the financial industry.

As a direct consequence of this intentional blindness state and local governments are being forced to lay off school teachers, firefighters, police officers and severely curtail other normal activities for lack of funds. The Federal Government in turn is plying the States with "stimulus" money but that amount is nowhere near the amount of the shortfalls being generated by these policy decisions.

Make no mistake: This is not about protecting "the broader economy." It is about one and only one thing: covering up the bogus accounting and embedded losses these firms are carrying so they can pay their bonuses and indeed remain in business while the local, county and state governments are serially violated by the bankers and organs of the federal government.

States must stand and say "no more!" to these policies. Fraud is fraud and papering it over doesn't make it less crooked. The states are entitled to their funds irrespective of whether the federal government wants to protect big banking interests on Wall Street, and must not be used as a scapegoat in this latest game of "hide the truth."

State governments must rise and demand an end to the banking and balance sheet games. Failing such an attempt they must pass 10th Amendment recognition laws with the full force of law behind them and then begin to bring criminal charges against those institutions that are improperly holding defaulted property off the market or allowing people who remain in homes who are not paying their mortgages - or taxes. If The Federal Government will not investigate and bring charges then The States must indict under their own consumer protection and anti-fraud laws and issue 50-state Governor's Warrants as required.

I believe it is time for State Governments to openly question whether The Federal Government has violated the contractual limits and stipulations of the US Constitution on an ongoing basis for more than two decades, and whether The States should remain within a Union where one party violates the rights and privileges of the Other Parties with impunity and malice aforethought.

Despite the calls of some who scream "racism!" and similar echoes of the 1860s this debate is not only proper now it is proper at any time; all parties to a contract are charged with continual assessment of whether the terms are being met, and it is never "over the line" to raise the question or hold an open debate on this account.

Many claim that The War Between The States was "only" over slavery. But contemporary documents of the time make clear that this was not the case; to wit, Georgia:

The manufacturing interests entered into the same struggle early, and has clamored steadily for Government bounties and special favors. This interest was confined mainly to the Eastern and Middle non-slave-holding States. Wielding these great States it held great power and influence, and its demands were in full proportion to its power. The manufacturers and miners wisely based their demands upon special facts and reasons rather than upon general principles, and thereby mollified much of the opposition of the opposing interest. They pleaded in their favor the infancy of their business in this country, the scarcity of labor and capital, the hostile legislation of other countries toward them, the great necessity of their fabrics in the time of war, and the necessity of high duties to pay the debt incurred in our war for independence. These reasons prevailed, and they received for many years enormous bounties by the general acquiescence of the whole country.

Hmmm... perhaps slavery was an excuse rather than the actual cause?

The Constitution is in fact the contract under which each State entered the Union. All contracts may be renegotiated, but none may be violated unilaterally. By refusing to comport with equal protection under the laws of the land as demanded by same and by stepping into what are clearly intrastate matters with judicial and legal activism, as was done with Bush's interference with state predatory lending laws and other similar abuses, along with government refusing to stop bogus accounting that threatens state tax revenues and fiscal health The Federal Government is acting not as a party to The Constitution in concert with the States of this Union but rather as an insane monarch who has used The Constitution as toilet paper and then discarded it into the trash.

The States must demand that these violations be immediately cured and should the Federal Government refuse the States must both indict on their own initiative the bad actors in this economic mess and consider declaring themselves free of the bonds imposed by the Constitution, not by virtue of their desire to violate its' letter and intent but rather as a consequence of the other side's refusal to recognize that the original agreement still exists.

(And by the way, for those who can't read English very well, nowhere within this Ticker - or anywhere else - have or will I advocate violent overthrow or activity of any sort. Not only is such an act unlawful but I am fully aware of the fact that it is highly likely that any such action will not lead to a "more free" nation, but rather a Hitler-style fascist dictatorship - simply based on the lessons of history.)

Where's My Economic Recovery?

nospam@example.com (Karl Denninger) — Sun, 11 Oct 2009 11:42:00 -0400

We were promised one, you know.

Dennis Kneale, Larry Kudlow, hell, name a "mouthpiece" on ToutTV or in the sell-side of Fraud Street and you'll find someone claiming that "the recession is over."

But if it is, how can this be true?

Lockyer’s spoke before Controller John Chiang said state general fund revenue fell $1.1 billion below estimates during the first three months of the fiscal year that began July 1.

Let's boil this down a bit: Sales tax revenues came in at $99.8 million, or 4.5% lower than expected.

Income tax revenues were also off big, but remember that income taxes are (usually) progressive, so a loss in income translates into a larger drop in tax revenues (as an aside this, my friends, is why "tax the rich" only works when the rich are getting richer - when they start to get poorer as a consequence of your redistribution schemes and move down the tax ladder, your income tax receipts collapse!) while sales taxes are a straight percentage of sales, often with the only exception that would skew on an income basis being food.

This strongly implies that California saw gross consumer sales off about 4.5% from where they expected; this, of course, raises the question "what was expected?"

What we do know is that for the three months ending in June they had expected a 14.4% drop - and got an 18.75% one.

It's not just California either:

"It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states' revenue situations "close to unprecedented."

Most states had been pessimistic in forecasting their tax revenues for the 2010 fiscal year, Pattison said. So far, collections have fallen below even those low targets.

The bubble economics games have severely damaged everyone for the benefit of only a very few, whether you participated in the purchase of a home during the boom or not. States were led to project budget numbers that were totally fraudulent and everyone who moved into (or within) a bubble area during those years was forced to participate by either having to rent or buy at artificially-high prices.

This wasn't limited to real estate either. Medical care, insurance, college costs - all were inflated dramatically by the obscene "bubblenomics" for the benefit of those "securitizing" that debt and selling it off to rubes - so-called "investors" who were defrauded on a grand scale by "models" that promised the mathematically impossible.

All of this was not only cheered on by Washington but deliberately enabled through perversions such as Barney Frank, who was caught admitting that having the FHA make bad loans on purpose was "a policy."

The markets generally cheered a "better than expected" initial unemployment and continuing claim number last week, but those numbers don't necessarily provide a good signal in an economic environment like this. For one, they completely ignore anyone who isn't eligible for unemployment compensation - which includes the self-employed. They also don't measure how hard it is to find a replacement job, which of course is the key metric if you find yourself unemployed. The employment report provided less-than-encouraging news in this regard, particularly the household survey which strongly suggests that we've lost a hell of a lot of jobs and are not, at present anyway, turning that corner:

Note that this indicator turned upward right near the end of the last "official" recession - and it also led the "official recession" beginning calls by about 12 months. There's no indication of recovery in this number - yet. Indeed, the flattening of this curve for a couple of months is probably a big part of what led a whole bunch of people to make those "bottom" calls, yet that is increasingly looking not like dawn approaching but rather an incoming meteor.

Then there's consumer credit, which contracted at a rate of about $10 billion last month. Most of it was in revolving (credit card) debt, which is no big surprise. Nor is it a surprise that September had a moderation of the decline in non-revolving (mostly car loan) debt outstanding. But "cash for clunkers" is now known to have massively pulled-forward demand and left a vacuum behind, as the most-recently posted auto sales were disastrously bad. This of course portends a resumption of credit contraction next month, never mind what may come from those who bought "clunker deals" but can't afford them. If you're looking for a new(er) car the best time to buy may well be in the late winter and spring of next year, when the lates have turned into repossessions and the lots are rather likely to be full of six-month-old cars with a few thousand miles on them clogging up dealer lots, destroying not only the poor fools who took on debt they can't afford but adding further punishment to new car sales (after all, why buy new when you can buy a six-month old vehicle at 30% - or more - off!) We won't get another Fed Z1 report until December 10th, but I strongly suspect that when we do it will show further deterioration, confirming credit contraction that is being reported by banks themselves (28% annualized contraction rate to businesses, 19% annualized across all segments of the economy.)

At the same time The Dollar is under attack - not from external causes as many would love to lay the blame upon (there are a lot of people who hate George Soros) but rather due to our own government and Fed policies. After all, printing over a trillion to buy likely-worthless securities in legally-questionable (at best) transactions to prop up two bankrupt companies (Fannie and Freddie) along with the administration's penchant to spend nearly double what it takes in via taxes has a habit of being currency negative. How negative? You judge:

Of particular problem here is that descending wedge. It should have broken upward according to the expectations of basic technical analysis. It didn't; instead it broke in a downward direction on extremely high volume, bounced back inside and then took a second stab at collapse.

Let me be quite clear: We are literally hanging by a thread. There is one final support level down around 72, but I don't think it is particularly meaningful. The "powers that be" clearly recognized the danger, as the jawbones came out in earnest overnight into Friday morning, along with some intervention in Asia.

While the Chinese might tolerate a slow deterioration of the dollar even though it screws with their export economy tremendously (never mind the Arabs and their oil) a collapse is another matter. Lest someone think this move has been "slow", let me point out that from March to today the index has fallen some 15%. This, of course, is about a 30% annualized rate. To put this in perspective the dollar is suffering a pace of decline this year about equal in the degree that the stock market did last year.

This move has been broadly supportive of stocks; indeed, stock prices are almost lock-step responsive to dollar moves intraday. Not only do prices look "cheaper" to foreigners but exports are helped by a falling currency.

There are only two rather large dragonflies in this ointment; not only are imports hurt (and we're a major importing nation) but worse, foreign capital suffers a direct loss when it repatriates. History says that weakening the currency never works as a means of getting out of a credit problem or covering insolvencies because capital flees faster than you can devalue and as a consequence you lose even if you're a net exporting economy (as was Japan); for a net-importing economy such as ours the ultimate outcome is disastrous.

Of course the incessant claim of support for a "strong dollar" has echoed from TurboTimmy the last couple of weeks, and of course The Fed has (as usual) disclaimed any interest in where the dollar stands. Both claims are flat lies.

For Treasury's part spending more than you make weakens your currency. Why? Because you must borrow that extra money, which weakens your nation's balance sheet. Since your currency is backed by that balance sheet, weakening it leads your currency to decline. It's that simple.

The Fed's words are even more outrageous; there is no more certain way to cause the price of something to decline than to produce more of it without commensurate demand. Yet that's what The Fed has done by effectively monetizing both Fannie and Freddie along with Treasury debt. These programs have amounted to "printing money", which increases supply into what is clearly slack demand for credit origination. Basic economic theory tells you that when you increase the supply of something while demand is falling price collapses.

Many are concerned about potential "inflation" and this has in turn driven gold to new highs in the last week. In my opinion this concern, to the extent it is for inflation, is misplaced. Rather, I'm quite concerned about the impoverishment of millions of Americans - those of middle class means and below, as the destruction of the currency's purchasing power is not able to be reflected back into wages due to offshoring of damn near everything. The consequence will be that standards of living fall, but not due to hyperinflation where nominal GDP rises. Rather the curse we've seen over the last two years looks to be poised to accelerate dramatically, with spending shifting hard into mandatory items (food, fuel, shelter) and away from virtually everything else. This in turn will place increasing pressure on GDP and the government's attempt to support output.

But how? For now government can borrow all the money it wants at near-zero cost, especially on the short end of the interest rate curve, and they have taken advantage of this, shifting down the curve in a dramatic fashion over the last two years. But there is grave danger herein; while last fiscal year's interest expense for the government was $383 billion (versus $451 billion in FY08) the deficit and outstanding debt exploded higher, with $1.743 trillion added in the last fiscal year.

The effective interest rate on the debt in FY08 was 7.7%. This last year it was 5.1%.

To put this in perspective the previous fiscal year saw $750 billion (or less than half as much) added and the year prior $206 billion.

See a pattern here?

What happens if our interest expense goes back to where it was in Fiscal Year 2008?

The interest cost would be $581 billion.

Can this game continue indefinitely? No, it cannot.

In Fiscal Year 2009 the government took in $2.1 trillion dollars (preliminary numbers from the CBO) This is a current coverage ratio of 18% (income to cover interest), which sounds reasonable. But should the cost of debt rise to FY 2008's level coverage would deteriorate to 28% - that is, from about one in six dollars going to interest to a bit more than one in four.

The Government did manage to add roughly four points and change to GDP last quarter, and it will also be adding positively this time around with Cash For Clunkers and similar "free money" schemes, but the broad question really is whether such "GDP additions" should count at all. There are valid arguments on both sides of this debate, with one side claiming that if you go to the bank and borrow $20,000 you haven't really added to output at all (since all you've done is pulled forward spending you'd otherwise do later) while others say that the "now" counts (but so does the hangover later.)

The latter is more mathematically defensible but the question becomes when the "hangover" will be realized, rather than drowned with yet another keg of whiskey. That prescription seems to work just fine for a while if you're a drunk, but eventually your liver shuts down and you die.

Such may be our fate if we do not stop to take our medicine soon, as a dollar collapse that really gets some legs under it could trigger all sorts of unfortunate consequences - including a war. I'm quite certain that neither Japan or China is going to sit by silently and watch us destroy nearly $3 trillion of their wealth, say much less what Saudi Arabia holds. Despite the view that we have them by the short hairs in truth we both are pointing pistols at each other's heads - the question becomes whether one of us develops a tick in our trigger finger.

Americans appear oblivious to this as they cheer the stock market but let's take a look at whether you should be cheering at all. Mathematics is a bitch and she's not being particularly kind to people in retirement accounts or, for that matter, anyone who doesn't trade actively - and guess right. Let's take the S&P 500 which topped at 1576 in October of 2007. It fell to 666 in March of 2009, a 58% loss. That's horrible.

It has since risen to 1071, a 61% gain. Great, right?

Uh, notice something folks?

32% of your money is still gone.

The Dow is in similar dire straits. It went from 14,000 to 6,469, a 54% loss. It has since recovered to 9,864, a 52% gain. Where's the rest of your money? Almost 30% of it is still missing!

Were you better in tech stocks? Let's look. The NDX (Nasdaq 100) went from 2,239 to 1,018, a loss of 55%. It has since recovered to 1,727, a monstrous 70% gain! You're in the money, right? Uh, wrong; 23% of your original money is still missing.

Then there are individual stocks. Yes, there are some crazy winners, including Alcoa which has nearly tripled. Or is it a winner? Alcoa lost 90% of its value from July of 2007, when it sold for $48.77. Today it sells for $14.24, an insane loss of 71%. Yes, buying it at $5 was a screaming deal - if they didn't go to zero (and still don't.)

The usual rubric is that "it's a stockpicker's market and you need professional advice." Oh really? How many of those so-called "pros" told you to get out in 2007? "What is none, Alex?"

Now I want you to consider the following - The DOW today, at 9,864, is back where it was in March of 1999. You've spent ten years and made nothing. That's bad.

What's worse is what has happened to the price of eggs, milk, cars, medical care, college tuition and more during those years. Most have doubled and some have tripled. Yet your stock portfolio is exactly where it was then.

In terms of purchasing power it has lost half or more over that decade, and the same story is told in the S&P 500.

Renewed economic growth? Where? Baby Boomers have had their retirements destroyed by the Fraud Street crowd. The 401k is, for most people, a scam and what's even worse is the concept of "saving" in a world where we have a government hellbent on destroying every saved dollar. We the Sheeple think this is great as our so-called "per-capita income" goes up, but has it really increased? Has our wealth really increased in terms of spending power? I'd argue no; we have instead been lied to about the future and about our nation and its economy, and have as a consequence been goaded into spending money we do not have and have no hope of being able to earn.

We have now discovered that we're in a huge hole, well over our heads, and Bernanke and Obama have shovels and are trying to make the damn thing deeper, all in the name of "trying to help."

In a crisis you need to make a choice. You can choose to solve the problem and protect the innocent from the results of the firestorm. Or you can try to teach them a lesson. You can't solve the problem by teaching people a lesson. That's not a strategy for solving the crisis. It's a strategy for inflicting a lot of damage.

That's a very nice thought from TurboTimmy, but it intentionally misses the point. Fraud Street and Washington have been running around with gasoline cans spraying gas everywhere in the financial system for more than 20 years. Someone threw away a lit cigarette and the firestorm erupted.

Timmy and the rest of Fraud Street and K Street then showed up with fire trucks and "put the fire out" - but they did so by smothering it with more gasoline! "Heh, if we can just get enough gas in here there won't be any oxygen and the fire will go out!" "Great idea, let's do it!"

Now the fire's out, but instead of a bit of gasoline on the floor we're now up to our chests in it and the oxygen is coming back into the room. Not only has nobody drained any of the gas off they're still adding more and while there are "no smoking" signs up everywhere eventually someone is going to create a spark, and this time it won't start a fire - there will be an explosion.

The fraudsters must be thrown out and prosecuted. Lying to people about your balance sheet and the structure of deals is a crime, not a mistake. Intentionally omitting people's incomes and plugging in "guesses" on liar loans into models is a crime, not a mistake. Intentionally holding short-term market rates negative in real terms through various liquidity schemes for the purpose of goading people into borrowing and lending irresponsibly isn't a mistake, it's an intentional act. Modeling indefinite 6, 7, 10% home price increases isn't a "reasonable estimate", it's an act of fraud, as a 7% increase annually (touted by many during the boom years) would mean that in a decade the price of all homes, added together, would be greater than that paid for every home cumulatively from the inception of America 230 years ago to the day that 10 year period began.

Jimmy Carter lost his job for saying this on national television for those of you who remember. He was referring to electricity use, which was at the time increasing by 7% a year. He was right - whether you wanted to hear it or not. He over-estimated the average American's intelligence; this, after all, is (really) sixth grade math. The next Presidential Election made clear that at least 51% of Americans failed that class.

We have deadly-serious issues facing our nation. They require serious solutions. The nation must stop promising that which it cannot deliver. We must stop allowing liars in our government, at The Fed and on Fraud Street in New York to run amok with impunity. That which cannot happen over long periods of time but is sold to investors as a "long term trend" must be prosecuted as the fraud that it is. Those who intentionally make loans they know have no reasonable expectation of being paid back must be prosecuted. Those banks that are intentionally holding assets at above-market values when those "values" were achieved via mathematically-unsustainable practices must be forced to write down those "assets" to their market price. If this causes them to fail, so be it.

We the people must stand up instead of sitting in front of our boob tube and watching American Idol. If you're unemployed and pissed off about it, or if you live in a house that is worth half of what your mortgage balance is, be aware that it was not an accident. You lost your job and your house's "value" spiked and then collapsed because of three decades of formal American policy promulgated by bankers and government officials resulting in production being offshored and the border left wide open for illegal immigrants, squeezing you on both ends. At the same time Greenspan, Bernanke and Congress all actively conspired to prop up asset values through intentionally-derelict fiscal and monetary policy decisions. This was the only way to make the books balance and keep justifying the debt issuance that was otherwise impossible to cover.

But now all the workers that can be offshored have been, and what's left are people making coffee at Starbucks, McJobs flipping burgers, unskilled labor cleaning rooms in hotels and of course Fraud Street "magicians" who claim to have found $105 in a $100 lending transaction through a computer model that takes the world's largest supercomputers a full day to run. That would be great if it was real but it isn't, any more than is cold fusion, turning lead into gold by alchemy, or as was discovered just a few years ago, the "complex adjustments" that Fannie Mae applied to their deals to "manage" their earnings (and which later blew up in their face, as it was bogus from the start.) If you're interested in exactly how ugly that was, complete with the emails documenting it, read that link - then consider that some of those referenced as allegedly "guilty" in those emails are STILL employed by the GSEs, FHFA and others in the securities and lending industry!)

Instead what we truly have left is a mountain of impossible-to-service debt and in a mad dash to avoid recognition of the facts we are now turning to outright scams with the full sanction of the government behind them - refusing to sell properties at auction, not initiating foreclosures for a year or more after the homeowner goes into default, "re-marketing" mortgages under government "approval" to people that the government knows can't pay and pretending that commercial loans are all going to be "money good" when there is no possible way for them to cash flow. The nearly-100 banks that have failed thus far in this crisis have proved this to be the rule rather than the exception - uncovered losses should simply never happen under our body of law, yet we continually see 20, 30, 40 even 50% losses against entire asset bases.

The game of "kick the can" has been played with a reasonable degree of success for the last 30 years, but the can is now full of cement. We cannot choose whether to take our medicine any longer - we can only choose whether to decide to do it now and have the outcome be bad, or try to put it off one more time and have the outcome be catastrophic.

Choose wisely America.

Ft. Lauderdale Speech

nospam@example.com (Karl Denninger) — Tue, 06 Oct 2009 14:11:40 -0400

ROFL! 4 Minutes With An Elephant

nospam@example.com (Karl Denninger) — Mon, 28 Sep 2009 08:31:00 -0400

WARNING: Bad language, but funny enough to have you rolling on the floor. Props to Mish Shedlock for sticking this where I found it...

And if that got you started... (yes, this one has plenty of foul language in it too - hattip to Chuck over at Rebeltraders for this one :))

OUTRAGE: TYING IT ALL TOGETHER

nospam@example.com (Karl Denninger) — Fri, 18 Sep 2009 20:20:03 -0400

The Sort Of Decoupling You Don't Want

nospam@example.com (Karl Denninger) — Thu, 03 Sep 2009 09:01:00 -0400

I've been seeing more and more rumors fly around about China's "sovereign wealth fund" buying hard assets - and eschewing dollars. Most of these claims have been in the "rumor" category, but today I finally found something sourced well-enough for me to consider pointing to it:

While CIC was set up only two years ago, funded with $200 billion in initial capital, a report to the U.S. Congress noted that according to top Chinese officials, it was created to improve the rate of return on China's $1.5 trillion in foreign exchange reserves and to soak up some of the nation's excess financial liquidity. Depending on its performance with the initial allotment of $200 billion, the CIC might be allocated more of China's growing stock of foreign exchange reserves - and this has already proved to be the case.

That's a problem. (Yes, I know the site in question is a "goldbug" type of site - even a blind squirrel and all....)

There are a number of major problems brewing here, and none of them are the sort of thing I or anyone else with a brain want to see - although all of them may be inevitable.

The first is that China, unlike the US, has come to its senses regarding energy independence. They are building nuclear plants - and lots of them - unlike the United States. We're "scared" of the issue of nuclear waste and safety considerations, while China has come to its senses in this regard: There is no such thing as risk-free energy; environmental and health damage from our existing power-production infrastructure in one year dramatically exceeds that of nuclear energy over its entire time on the planet!

President Obama talks about "green energy" but the fact of the matter is that there is no "green" alternative that (1) we can utilize now, and (2) can replace "base load" capacity in the United States - other than nuclear fission. It is also a fact that nuclear fission can be entirely fuel-cycle neutral, as we proved the technical ability to run breeder reactors in the 1960s. This goal is not beyond technical feasibility given today's technology - rather, this is about political BS.

Second, China isn't just talking about diversifying away from the dollar and putting together an energy independence program - they're doing it when it comes to paper assets as well:

Sept. 3 (Bloomberg) -- The International Monetary Fund, which in July outlined plans to issue bonds to member countries, signed an agreement with China under which the Asian nation would buy as much as $50 billion of the notes.

I note that this is 1/20th of China's commitment to the dollar. That sounds puny, right? Its not. $50 billion is unlikely to be new investment; rather, it is likely to be part of diversification away from the dollar.

America has, for the past decade and especially for the last two years, operated on the belief that we can literally hide the fraudulent credit creation of the last decade by shoving trillions of dollars of new debt down other nation's throats. We also believe we can fund profligate spending, including an entitlement culture that our government has embedded and imbued in our citizens, through the same process.

China appears to have had enough of this, despite the "nice-nice" forward appearance and smiles at public relations events with Tim Geithner and President Obama, and has begun the process of what is certain to be a messy divorce from dependence on the dollar as a means of sterilizing their trade balance.

America had better wake up - and fast. While at present we are enjoying record low interest carrying costs for our external debt, this is by no means a right nor is it something we can expect to continue. The irresponsible and outrageous actions of our Federal Reserve and both the previous and present Administrations, focusing on aiding and abetting "Fraud Street's" machinations, both can and will come to roost, likely at a very uncomfortable and undesirable time.

Addendum To "Will It All Come Tumbling Down?"

nospam@example.com (Karl Denninger) — Wed, 19 Aug 2009 09:04:00 -0400

Yesterday's headline Ticker generated quite a bit of heat.

It also generated some email: Some direct, some not-so-direct.

One self-described policy wonk in DC had the following to say:

This author's anger is overcoming his common sense, and at this point in time we need to find ways to expand the economy, rather than exhibit some kind of psudo-russian worldview that finds the failure of your enemy more rewarding than your own success.

Really?

Let's examine this sender's foolish premise: at this point in time we need to find ways to expand the economy.

That's the problem, you see, given the current environment: We can't.

We can cheat, but we can't generate true growth.

Last quarter we cheated. The government increased its spending at a 15% annualized rate - an actual, no-BS outlay of close to $200 billion dollars - to produce the "improvement" in GDP.

But that money wasn't real. It hadn't been collected in taxes, it was printed up as Treasury Bills, Notes and Bonds. It was a chimera, just as it is if I go to the bank, take a cash advance against my VISA for $30,000, and then proclaim that "I've generated positive personal wealth!"

In fact, I have not.

Worse, The Federal Government is spending more than $250 billion in addition to that every quarter simply propping up the fraud and grift. Not by subsidizing it - by standing in place with "guarantees" valued, according to Mr. Barofsky, at some $23.7 trillion dollars.

Oh yes, these are guarantees, not expenditures. Yet. But they are the only reason "the financial system" is functioning right now. Take them away, either because we are unable to fund continuing their actual cash-flow cost (which is running some 1% of the guaranteed amount per quarter) or because those responsible for a huge part of it (e.g. The Fed) realize that it is futile to continue and we are left with making good on those guarantees or the entire economic system instantly implodes.

We live in a credit-based - that is, debt-based - monetary world. All modern monetary systems are debt-based. But debt-based transactions depend entirely on trust: the normal commercial flow of business credit depends on me being able to ship you a good and expecting to be paid for it in some form or fashion. While we've made our financial system much more exotic than the basic "letter of credit" trade system of yore, the fact remains that it all comes down to the same fundamental truth - if I cannot trust you I will not ship until I have cash in hand, and the entire credit-based system on which we rely comes to a screeching halt.

This is what Bernanke and Paulson feared in September of 2008.

What they failed to tell Congress and The American People is that the reason the system was threatening to shut down and revert to "cash on the barrel" - a system that would implode GDP by 90% instantly - was because everyone in the financial system had been and was continuing to lie about their ability to pay!

Substituting "Uncle Sam" for "Crapbank" doesn't make Crapbank solvent. It simply means that if Crapank has been lying about the value of its assets, and thus is not solvent, then "Uncle Sam" will stroke a check to make up the difference.

This presumes that Uncle Sam is solvent himself.

What if he's not?

But more importantly, Uncle Sam is the tail. Yes, 30% of GDP is important, but Uncle Sam himself doesn't create money - or credit. That's done in factories, its done when you program a computer or design a new gadget. It is done when you plant a crop, tend and harvest it. And it is done when you dig iron ore out of the ground, or stick a straw into the earth and suck out the oil therein.

We have written checks we cannot cash for the last 30 years and have been kiting them over and over in a desperate attempt to claim that we're solvent, when in fact we're not. We accumulated trillions of dollars of alleged "assets" in financial institutions that are in fact worth 20, 30, 40, even 90% less than the valuations that they are being carried at on the books.

This is a fact, it is not conjecture.

We know it is a fact because the FDIC is supposed to seize banks before (or just at) the point where their assets become less than their liabilities - that is, when they become bankrupt. By doing so the FDIC takes no (or very little) loss to their deposit insurance fund, which is how they (allegedly) can get away with having less than 1% of the insured amounts in capital.

But that's not how it has been working out.

Instead, we have repeatedly seen the FDIC "estimate" 10, 20, 30, even 50% losses against the entire asset base of a bank when it is seized and these announcements come at the time of closing!

That is, this is not a surprise that suddenly appears when the FDIC goes into a bank, closes it, and then examines the books. No, they're aware of it - months or at least weeks beforehand - that these "assets" are worth nowhere near what they're being carried at in alleged valuation.

There's the problem, in a nutshell, and why the government has stepped in and done what it has done: instead of treating the intentional over-valuation of these assets as an offense (it is: Fraud, in all its forms, is generally a felony) the government and Federal Reserve are "papering over it."

This has two highly-negative effects that cannot be gotten around:

I can't borrow anything against an asset that is "carried" on the books somewhere at higher than its actual value; nobody in their right mind will lend against collateral that's underwater already.
The institution cannot trade that asset and free up its alleged balance sheet because if it does it is forced to recognize the true value and doing so would instantly expose the fact that the firm is (and has been!) insolvent.

Remember back up at the top when I said that we were a credit-based monetary system?

Now you understand (I hope!) why the path we are on can't fix what ails our economy: the transmission mechanism for expansion of the economy - that is, the expansion and maintenance of credit - is broken.

This sort of "extend and pretend" fraud is exactly what Japan did when they got in trouble. Instead of forcing all their financial institutions to tell the truth (under penalty of imprisonment) and shutting down the insolvent they wrote government guarantees and turned an intentional blind eye to the cheating. Their credit transmission mechanism locked up and still is locked up; the consequence is a moribund economy that is now going on 20 years in duration.

But Japan had an advantage we do not: They were and are a net exporter. That is, they can hobble along while relying on the credit of other nations; the buyers of their goods in fact are the ones asking for credit in the course of trade. Thus, their locked up transmission allowed them to continue, albeit with no real economic growth, as they were able to sell into the world markets, tapping everyone else's credit transmission system to support the distribution of their goods.

We do not have that luxury as we are a huge net importer.

Our monetary transmission mechanism has to work; we are both the world's largest economy and absolutely dependent on imports for critical resource requirements, including energy (oil.) Without the ability to clear those transactions our economy implodes.

We cannot return to true economic growth until and unless the fraud is purged from the system. Every dollar we spend - and we've spent well over $3 trillion thus far that we do not have - is another dollar of debt ladled onto a broken monetary transmission mechanism for the express purpose of hiding someone else's lie - the lie that bought their house and yacht in The Hamptons, or the grift that went into some Senator's or Representative's campaign fund.

In 2007 and 2008 The Government should have (as I urged) forced all the marks into the open and seized all the insolvent banks. It would have had to seize a lot of them, including a lot (maybe all!) of the really big ones. So what? This would have cost a trillion dollars (most of it to backstop depositors under FDIC limits), but then it would have been over, there would have been hundreds if not thousands of bank executives awaiting trial on various charges, the sound banks would take over the deposits and market shared from the failed, and we would be in a position to rebuild our economy with a sound and working credit transmission system.

If we do it today it will cost twice that, plus all the money we've already spent papering it over, because asset values have continued to deteriorate. But there is still time to do the right thing - including frog-walking the executives.

If we wait too long and the spiral of ever-increasing demand for more printed and borrowed money exceeds our ability to fund the bolus necessary to perform the takeover and shutdown of these insolvent institutions then the "sudden stop" outcome is assured.

In that instance commerce returns to actual cash on the barrel - no credit available at any price - and up to 90% of GDP could disappear almost overnight.

If you think this outcome is impossible, you haven't looked at the math and you don't understand how debt-based monetary systems work.

If you think this outcome is improbable, then explain why two years after the government allegedly "had it all under control" nothing has worked to restore prosperity, the PPI reported yesterday recorded crude good price contraction of 44.8% annualized and intermediate goods at the PPI level recorded a 15.1% decrease - all records on a 2008 to 2009 basis.

This is the mark of a severe deflationary spiral - the collapse of actual commercial credit and thus economic activity - in its formative period.

This is precisely what Bernanke said he could avoid two years ago through his policy prescriptions and the verdict is now in: those policies are proved failures and must be abandoned NOW.

Do not be fooled; while there remains time to do the right thing, it is drawing short.

Let me remind everyone of the last time we played this game with unbridled, fraudulent credit creation: The 1920s.

After the '29 crash things seemed to stabilize. By the middle of 1930 all of the economists of the day predicted that the worst had been avoided and growth was just around the corner. The stock market had recovered to early 1929 figures and it appeared that we had stared into the abyss - but had "saved ourselves". Among them:

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929

"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929

"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

"There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930

"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."
- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

"... the outlook continues favorable..."
- HES Mar 29, 1930

"... the outlook is favorable..."
- HES Apr 19, 1930

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930

"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

"Gentleman, you have come sixty days too late. The depression is over."
- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

"... irregular and conflicting movements of business should soon give way to a sustained recovery..."
- HES June 28, 1930

"... the present depression has about spent its force..."
- HES, Aug 30, 1930

Notice anything similar to the pronouncements of Krugman, Cramer, Kneale, President Obama, Geithner, Bernanke and dozens more?

In 1930 they could not have been more wrong; by failing to immediately force the bad debt and bogus asset claims out into the open, clearing the system, government set the stage for a grueling decade that would prove the most difficult economically our nation has faced to date.

We are headed directly for the same outcome, for the same reason. History will repeat, not because it is destined to, but because in response to lying, cheating and fraud the same errors are being made today that were made then.

The view of all of the "great pundits and policy wonks", including Bernanke, Geithner, Paulson, Summers and more is that if we "backstop" the credit system we can "muddle through." The problem with such a thesis is that doing so requires a continual injection of borrowed money and leaves the system on life support, unable to spur the very economic recovery you need to get out of the hole.

Much of this error in thought process comes from the fact that all of these people going back to Rubin, Greenspan and more, had their hand in the creation of the policies and acts that led to the problem in the first place, including the lying - and therefore you're asking someone to repudiate a policy they have espoused for 20 years or more.

That's darn unlikely.

Unfortunately the math is never wrong and debt-based monetary systems require a sound and trustworthy web of intermediaries to function. We cannot obtain a strong, durable recovery without clearing the credit transmission mechanism, and doing that requires honest marks. That, in turn, mandates the closure of all the insolvent institutions, a colossal but inescapable task.

Yet it must be done if we want to return to economic prosperity, and if we fail to do so then we are simply one "event" away from a "sudden stop" outcome that nobody with half a brain wants to see occur. While it certainly is possible that we could "avoid" this and wind up with an outcome more akin to Japan, is it worth the risk of a full-on meltdown so the modern-day robber barons can keep their mansion in The Hamptons and not go to prison for their sins?

I think not.

Will It All Come Tumbling Down?

nospam@example.com (Karl Denninger) — Tue, 18 Aug 2009 10:55:00 -0400

Let's juxtapose two stories. First, from Bloomberg:

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

Ok. Now how about this one?

WASHINGTON (MarketWatch) -- Delinquency rates for loans and leases at U.S. banks increased to a record 6.49% in the second quarter from 5.58% in the first quarter, the Federal Reserve announced Monday.

So let me see if I get this right.

At 5% of non-performing loans a bank is at risk of being insolvent.

But the entire banking system in The United States had its non-performing loan ratio increase from 5.58% in the first quarter to 6.49% in the second, a record, and higher than the 5% level at which the survival of a bank(ing system) is threatened with collapse.

Hmmmm.... So should we take from this that the entire US Banking System is about to collapse?

This much we know for certain - you're being screwed - systematically - to cover the sins of these banksters who made loans to people who they had no reason to believe could pay:

Being in debt is about to get a lot more expensive for millions of Americans. Credit card issuers have been rushing to raise rates in advance of this Thursday, when the first provisions of the Credit Card Accountability Responsibility and Disclosure Act (CARD) will go into effect, with other protections starting in February 2010.

Right. Including those who are good credit risks.

This is the problem with allowing the blatant and outrageous fraud in our system to continue: Those who are prudent, who have done only good and not bad things, get reamed repeatedly and are forced, at gunpoint, to pay for the sins of those who committed that fraud.

Yet we, as Americans, permit this.

We absorb 20, 25, 30% interest rates (while the banks borrow at zero) so the bank executives who knowingly granted credit to those who could not pay, then sold worthless securities to investors, do not go to prison for fraud.

We pay more than $30 billion in overdraft charges and allow banks to "shuffle" deposits and withdrawals to generate the maximum in these fines so that the bank executives who are knowingly mis-marking "assets" at higher than their true values can "cover" their sin and do not go to prison for fraud.

We pay the FDIC "assessments" and "loans" from Treasury, as taxpayers and banking customers, so that the FDIC can repay depositors after it absorbs a loss that it should not have incurred - a loss that happened because OTS, OCC and the FDIC failed to close banks in a timely manner that were cooking the books when they either knew or will willfully blind to the control fraud taking place at these institutions.

The Fed says that:

Demand for loans continued to weaken across all major categories except for prime residential mortgages.

The American people are wising up, but only to a degree. They are refusing to take on new credit (as they should, seeing as they're being charged not only for their own legitimate level of risk, but also for their next door neighbor who was intentionally given a loan that the bank knew he could not pay) and demanding in some small way that The Bezzle be eradicated.

The people recognize they're being violated repeatedly by the scam artists on The Beltway and Wall Street, but they're not quite sure how to stop it. Certainly, hollering at Congress hasn't done any good. The Fed has refused to enforce consumer protections, as has Treasury, and both have done their damndest to overrule state regulations and even State Attorney Generals whenever possible.

Here's reality folks:

The system still has too much non-performing debt in it, and that percentage is going up, not down.

It is getting worse, not better.

The only reason we have any "resemblance" of a functioning credit system at all at the present time is that the government and Fed are pumping upwards of $250 billion dollars a quarter - that is, $1 trillion a year - into the system to subsidize bad credit risks and keep those who have been and are getting screwed by these frauds - so long as they're other banks and businesses - from having to bear the cost of these acts.

Instead of locking up the bank robbers (who wear a $3,000 suit instead of a kevlar vest and a gun) we are covering their theft with taxpayer money.

Instead of removing the embezzlement from the system and forcing fraud into the open, we are sweeping it under the rug.

Instead of demanding that people do business honestly and punishing those that refuse, we are allowing them $100 million dollar bonuses - after they run the price of your Granny's Heating Oil up once again.

Tired of it yet?

It appears not.

But there is a mathematical limit to this sort of papering over of control frauds. It cannot go on forever; we do not have the ability to tax or borrow an infinite amount of money. Unemployment will not ease and true production and consumption cannot resume at a normal level when a trillion dollars or more is being stolen every year to cover up these scams.

Ultimately the tax base and borrowing capacity will both collapse.

We will come to the end of this rope, and before we do we had better flush the system of these shysters and con artists or our economy will disassemble itself in a spectacle far worse than what you saw last fall and into March of this year.

Of that I am certain.

16% of our working-age population is unemployed but looking for work. Nearly 30% of people 16 to 19 years of age are out of work but desire a job.

Why aren't those people in Washington DC? Whether they have to hitchhike, carpool, take a bus - why aren't they on the steps of the Capitol? Why aren't they on The Mall? Why have these millions of individuals who have been screwed, blued and tattooed by the thieving ways of the banksters and fraudulent accounting that our government and "business interests" have engaged in not shown up to press their demand for redress of grievances?

Have we really turned into Prozac Nation? Is American Idol really that powerful? Have we become so immune to being ripped off over the last 30 years that when a bank re-orders our transactions to turn a $30 overdraft charge into $300 worth of fees on $50 worth of checks we're willing to simply bend over the table, place a stick between our teeth and take it, then ask "please Sir, may I have another?"

Or will we witness America turn to something more destructive - events that I'm hearing about more and more - civil unrest?

This has not yet turned to rioting, but in Chicago neighborhoods there are now crimes happening in areas - such as Lincoln Park - that were unheard of just a year or two ago (and when I lived there) - men being mugged, from behind, by gangs, being robbed and severely beaten (hattip Janet Tavakoli for bringing this to my attention.)

There are a few people who are taking notice. Like this gentlemen:

No, that's not someone about to commit an act of lawless violence. It is a man exercising his lawful Second Amendment right in a state that recognizes same - the right to keep and bear arms. He demonstrated, lawfully, while President Obama gave a speech in Phoenix. There was no violence, no shooting, just free speech coming from signs and mouths - and a polite society in which ideas were exchanged, backed up by the indelible yet unspoken statement: This demonstration WILL be and remain peaceful and I pledge my honor and, if necessary, life to guarantee every man and woman's right to same.

As expected "the mainstream media" considered this gentlemen "a threat." Perhaps he is, but not in the way they'd like you to believe. Certainly, he's a threat to anyone who might commit an act of random (or not-so-random) violence in that crowd! Certainly, he's a guardian of freedom and the right to peaceable assembly and speech. Would you try to mug him walking down a street in Lakeview? Oh hell no. But you'll never see that gentleman in the Lakeview neighborhood in Chicago because Chicago, unlike Phoenix, refuses to recognize your right to defend not only yourself but others as well, and as a consequence only the criminals are armed.

Certainly this gentleman is a threat - to a government that would run roughshod over people and ignore The Constitution and the lawful limits to its power, to a corporatist culture that has become imbued with fraud, deceit and lies, and to the heathens in Washington DC, all of them, who have knowingly and willfully cooperated with the lawless behavior of those who not only got us into this mess but refuse to this very day to put a stop to it.

Folks, wake the hell up. If you're going to get mad and swear to "get even" with "the man", do so in a constructive fashion and channel that anger where it will do some good!

Do you want an America where your children cannot go to college without taking on $100,000 in debt? Where you can be taxed not by a government but by a bank to cover your neighbor's bad loan - when the very same bank gave him that loan knowing he couldn't pay it back? Where so-called "regulators" actively conspire to cook the books of a major thrift (IndyMac) which then fails, costing you - via FDIC assessments - billions of dollars? Where none of these acts of control fraud are prosecuted and in fact they are defended by our government going to court to block state law enforcement from protecting your rights?

What sort of nation do you tolerate, America? What sort of nation are you willing to live in?

Will you finally rise from your chair and demand that it stop when unemployment reaches 20%?

30%?

When you have no food in the pantry and no money to buy some?

When you are mugged and beaten, with the thieves stealing your cell phone and a mere $20 while walking home from the subway stop, or as you leave your local watering hole after a friendly drink? Or will you wait until you're walking home from the corner grocer with a loaf of bread, purchased with your last $2, and are mugged by marauders who are hungrier than you - in a city that refuses to recognize your right of self-defense.

How high does your interest rate have to go on your credit cards - while your bank borrows the money it lends you at zero percent - before you cut 'em all up and send 'em to the bank with a picture of your erect middle finger instead of a payment?

How long will you sit while both Democrat and Republican lie to you about how the "bailouts" and "handouts" will help the economy. Has all this grift helped? Did the "stimulus" keep unemployment from going higher as was promised? Did you really get help with your mortgage or were you offered a scam "forbearance" that amounts to the back-end loading of your balance, turning it into a balloon note or worse? Have you enjoyed watching JP Morgan and other big banks that got tens of billions of taxpayer dollars lease tankers and then bid up the price of oil - causing it to double - with your tax money? How about The Fed and Treasury funneling tens of billions in taxpayer money through AIG to a literal "who's who" of big banks so they could in turn pay billions in bonuses?

All of this obviously meets with your approval as demonstrated by your actions: You still sit back and pop a beer, you go about your daily routine, you refuse to rise from your chair and demand: STOP THE LOOTING AND START PROSECUTING, finally willing to back that up with your sacred honor - or more.

Sometimes I wonder what our nation will stand for - exactly where the breaking point is where we finally force the right things to be done. The right choices. Whether the time will come where we force the barons both inside the beltway and out to face the music for their sins.

Is it 10% unemployment? 15? 20? 1/3rd of our nation out of work and hungry?

Is it 2 million foreclosures, three, six, ten, thirty?

Is it credit card rates at 20%, 30, 50?

Will we submit to the jackbooted foot of the scammers and frauds on our collective necks, both in business and in DC, until our children starve and our grandmothers, mothers and fathers are shoveled in the hole, dead and cold?

Does America still truly have the capacity, as a people, as a nation, to get angry? To demand redress of grievance? To call, support, and honor a general strike? To take up, keep and bear arms not to commit violence but to stand shoulder-to-shoulder as our Constitution recognizes as our God-given right to prevent violence against not only ourselves but our neighbors - any and all of them? To peacefully occupy The Capitol and shut it down - not to loot, pillage or destroy, but to force the cessation of all commerce in an unmistakable and singular statement: This far you have gone, and you shall take not one step further until each and every guilty man and woman is under indictment, the institutions and businesses responsible are closed, and the ill-gotten gains returned.

Do we still have what it takes to make that happen? Do we have any more Rosa Parks' in America? Any Dr. Kings?

Or is all we have left in us a descent into random lawlessness - civil unrest, or even full-scale riots where the looting and burning is not of the banks and others who have robbed America, but of the random store-owner, house or car - simply because it's there?

I fear for my nation and her future.

I fear we have too few men like that gentleman in Arizona and too many muggers in Lakeview.

We live in a nation where our government's founding documents formally recognize the supremacy not of the government, but of the people. Where government exists only by the consent of the governed.

Not of, by and for the corporation, but of the individual.

Not by the rule of man, but the rule of law.

But those are just words on parchment, over 225 years old.

Does the will and the desire to bring those words to life still exist? To render them something more than dry, old, cracked ink?

233 years ago there was.

Does it still exist in America today?