Guest Post: "Why I’m Freaking Out"

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This post is from reader Gonzalo Lira. Although I beg to differ with him on a couple of his observations, it’s certainly colorful and thought provoking. I give my quibbles at the end.

Insofar as this burgeoning Millennial Depression goes, I’ve noticed there are two sorts of people: Ones such as myself, obsessively following every blog and every chart and chasing after every little Bloomberg article like a starving hunter in an African veldt chasing down every little rodent with a spear, and others who vaguely know that there’s a crisis going on but who are pretty much buying the stock markets’ rise and the mainstream media’s line that “Green shoots are sprouting, and everything will soon be back to normal.”

Obsessives like me and presumably you who are reading this are more or less outraged that these pathetic cud-chewers are placidly eating up this “green shoots” nonsense. We see our charts, we read our Bloomberg, we see one and one thing only: THE END IS HERE!!! REPENT NOW YE SINNERS!!! IT’S A SHORT SQUEEZE, YOU IDIOTS!!! SAVE YOURSELVES FROM DAMNATION!!!

We obsessives are a high-strung bunch.

Now, the economy isn’t like the weather: If the weatherman says it’ll be sunny tomorrow, the weather don’t grow cloudy to spite him. The weather don’t care what the weatherman say. But in macroeconomics, if enough people say that things are going to suck canal water, well then, things will suck canal water—hell, they’ll suck turpentine. Macroeconomics is the ultimate example of the Heisenberg Uncertainty Principle, only magnified: If some observers say it’ll get better, it’ll get a lot better. If enough observers say it’s going to get worse, it’ll get a LOT worse. A relatively small group of influential market participants—the MSM and some key people, not even necessarily powerful people—can literally create self-fulfilling prophecies.

So if we discard the old, clearly failed model of perfectly rational markets and economic actors, and instead think of macroeconomics in these more realistic terms—more-or-less rational models and charts and numbers, plus a really big slug of basic human psychology—a healthy bit of denial is actually not a bad thing. The very act of believing things will get better actually makes things get better. So when I torque down and try to coolly analyse what’s going on, macroeconomically speaking, I am actually okay with all this talk about green shoots and light at the end of the tunnel. I figure, Happy talk leads to calm people, leads to happy markets, leads to renewed confidence, leads to . . . you get the picture.

But I’m still freaking out. Why?

It’s because of what’s behind the mask.

In every economic crisis or mushrooming recession, the MSM and the leadership classes always talk up how great things really are, and how great things are going to get in just a little while, putting on a brave face and putting out optimistic talk—and that’s fine: That sort of mild deception is not only acceptable, it is in fact necessary. Putting on the happy mask is not the issue.

The issue is, what’s behind the happy mask. In other words, what are the people in power actually doing, and do they have any sense that they know what they’re doing, or where they’re going? Or are they making it up as they go along? Are they on a path—even if it’s the wrong path, or one I don’t agree with—or are they lost in a wilderness and just going around in circles?

That’s my problem. That’s why I’m freaking out.

Sixteen months into this Millennial Depression, and less than a business quarter into Obama’s administration, it is inescapably clear that Team Obama hasn’t the slightest idea what it’s doing. To pretend otherwise is self-deception. The louts and Constitutional traitors of the Bush administration didn’t much know what they were doing either—but they were flat stupid. Team Obama doesn’t have that excuse.

Let’s do a quick recap—roll tape:

The banks: The stress test was so obviously so much window-dressing that it’s rather questionable what utility the whole process actually served. I mean, c’mon: The banks negotiated the results of the test (!). This is a far cry from Roosevelt’s bank holiday in March ’33—a far cry? Hell, it’s a whole other musical genre. But even if the stress tests had been on the up-and-up, it is clear that Team Obama will not do what has to be done—nationalise the banks, fire management, liquidate the stock-holders, write off the bad assets, get the bond holders to take haircuts (or quasi-decapitations, as the case
may be) and turn the banks around and send them on their way, FDIC-style. Why they won’t do this is besides the point, through capture by Wall Street—akin to state capture of East European governments by the native oligarchy—seems to be the general consensus.

Regardless, the banks are zombies—and they will remain zombies indefinitely. Zombie banks can undercut solvent competitive banks, strangling financial competition and ironically curtailing market liquidity, because the zombies know they will always be propped up by Uncle Sam (sorry for the mixed metaphors, but you get the idea). This is exactly what happened—and is still happening—in Japan. Zombie banks will take the government’s largesse, lend out no money, squeeze out their non-zombie competition, and wind up turning the entire financial industry zombie—and Team Obama has no idea how to stop this, aside from shoveling even more liquidity in their direction. Or maybe they DO know what has to be done—put an FDIC receivership bullet in the brains of these zombies—but lack the political courage to do so. Either way, the result is the same: Zombies everywhere, killing everything, ironically curtailing liquidity even as they are propped up in the name of improving liquidity.

The charitable conclusion here is, this shows Team Obama doesn’t have the foresight to envision the obvious traps of allowing zombie banks to exist. Hence they don’t have an overall plan for the banking sector—if they did, they’d realize the perniciousness of zombie banks and therefore put a stop to them by setting up a real stress test and putting the banks that failed it—no matter their size—into receivership. The uncharitable conclusion is that Team Obama are captured lackeys of Wall Street.

Industry: Team Obama’s capitulation to entrenched interests in the automobile industry—that is, the United Auto Workers Union—is a very, very bad sign. The government’s involvement, instead of being good for Chrysler and GM in their respective bankruptcy processes and shielding upstream suppliers from the harm of a drawn-out bankruptcy, will actually mean that the business decisions of these two companies will effectively be beholden to political considerations from here on out. After all, the reason these companies were nationalised was in order to save the UAW’s bacon. (BTW, to compare what’s going on at GM and Chrysler today to Chrysler in 1980 is apples and Agent Orange: In 1980, the US government guaranteed Chrysler’s bonds. In 2009, the US government is guaranteeing CHRYSLER—and GM too.)

Moreover, Team Obama hasn’t presented any rationale for the de facto nationalization of Chrysler and GM—so what’s to stop any other industry (or union) from asking to be nationalised? I’m not one of these fools who says that any state-run enterprise is “Communist” or “Socialist”—I would prefer bankruptcy for an insolvent business, but on principle I have no problem with a government takeover of a business or industry, so long as there is a clear, compelling, non-trivial, non-political reason, and so long as there is a clear horizon for the exit of the government, if the interference was for exigent or unique reasons. But
the arbitrary de facto nationalization of Chrysler and GM through this sham (and probably illegal) pre-pack bankruptcy has no rationale, no raison d’etre, aside from propping up some union (which is receiving a shockingly sweet and possibly illegal deal in the Chrysler case, a deal presumably to be repeated in the imminent GM bankruptcy)—the way it’s being done makes no rational business sense, but makes terrific POLITICAL sense. These are the twin problems with Team Obama and their auto industry meddling: It’s not that they are meddling in the private sector, it’s that they’re giving priority to political considerations over financial or macroeconomic considerations, and they’re meddling without a clear and compelling rationale, opening the door for every private business to seek state subsidy so long as they have the political muscle to get the sweet taxpayer-financed deal out of Team Obama.

This shows Team Obama’s lack of an overall plan, coupled with a lack of faith in capitalism and bankruptcy, a lack of faith that the laws and system in place will actually do what they’re supposed to do. When an administration doesn’t have faith in the law, it starts to break it. If you don’t believe me, ask the Bushies.

The military: No one is noticing this, and I know I’m odd man out on this subject, but weapons procurements and excessively large military expenditures—above and beyond the two wars being fought—are continuing apace, and no one is saying a thing. This is a disaster. Military weapons are, by definition, expenses—they’re a waste of money, at best a very inefficient redistribution of income from taxpayers to workers on the factory floors of the weapons’ manufacturers. Now, I’m no pinko-Commie-Hippie-Vegan freak—I have a gun, I ate raw baby seal with some Inuit friends in Alaska one time (delicious), and I sure as hell don’t go around wearing that stupid little semaphore sign which is really just the footprint of the American chicken. However, the exorbitant military spending going on is a tremendous drain on the economy. It doesn’t seem so because the economy has been so used to it, and because in the good times it wasn’t such a pressing issue.

Keep in mind, the Millennial Depression is the first truly serious economic downturn since the end of the Cold War. But even during the Cold War, when the Soviet Union presented an obvious and equal military challenge, there were cutbacks in ’81 and after ’73, as well as in the Fifties, when the economy got rocky. Now—with no serious or imminent enemy except low-tech terrorists—we have a massive military industry, above and beyond the endless, pointless occupations in Afghanistan and Iraq. The military would be the obvious place to start cutting—is Team Obama cutting? . . .

Team Obama’s failure to cut non-occupation military expenditures shows a lack of political will, even though from a rational point of view, cutting weapons procurements and the excessive military in order to redirect those monies to more productive, more clearly stimulative programs is obvious and indeed necessary, if the rationale for the recently passed stimulus package is to be believed. Yet Team Obama does not have the will to do so.

The deficit: Here we come to the big kahuna, the ultimate issue. Team Obama delivered on its promise to stimulate—boy did they deliver! What a doozy of a stimulus package! And the financing of that stimulus? Deficit. The Constitutional traitor Dick Cheney declared that “deficits don’t matter”, and Team Obama is drinking from the same Kool Aid. The budget deficit is being financed by the emission of Treasury bills, notes and bonds. This year, I believe $2.3 trillion worth of Treasury paper will be sold.

Question: What happens when there are no buyers for those Treasuries? Don’t tell me it can’t happen—that’s what they told me last year about Lehman going under, and then they said the same about AIG. In the Millennial Depression, anything can happen. Simple math makes it obvious that those Treasuries won’t find foreign buyers like before—not when the petro-states are selling less oil and at cheaper prices than a year ago, not when China and Japan are exporting a fraction of what they did before. The Fed is willing and able to buy those Treasuries, effectively printing money—and Team Obama is a-okay with that. No budget cuts, just print money. Is anyone else realizing that the dollar will eventually crash if this isn’t stopped? Or am I whistling Dixie in a hurricane?

This shows that Team Obama is either willfully irresponsible in its cavalier attitude towards the currency, or else hasn’t seriously thought through what a crash of Treasuries and a run on the dollar could actually mean for the United States. I can tell you what will happen: In a nutshell, it would mean out-and-out chaos: Fighting in the streets over food. It’s happened before, elsewhere and in the U.S. immediately after the Civil War. No reason to believe it can’t happen in America today.

This is a quick recap, light on detail, maybe a bit on the hyperbolic side, yes—but you who are reading this, an obsessive like me, know all the details already. You can fill in those blanks, and the picture they paint is unmistakably clear: Team Obama is lost, with no guiding principles or overall plan, making it up as they go along.

I didn’t even go into abortions like the P-PIP or the collapsing balance sheets of the state and local governments (which the Federal Government is doing nothing to alleviate) or the looming pension fund blow-up, not to mention credit-card asset blow-ups (happening even now as I rant), CMBS blow ups (which are about to hit like Katrina), and on and on and on. I don’t have to mention any of this: All these details only add to the picture—Team Obama gives a great speech with a huge happy mask firmly in place.

But behind the mask, there is nothing. No plan, no vision for the endgame or the way out of this Millennial Depression, no idea what to do except put out every little fire that pops up in front of them while the general conflagration goes on all around. Team Obama doesn’t even believe that they should do nothing, on the assumption that time alone will heal the banks and the economy—if they really believed that time itself would be the cure for our current ills, they wouldn’t have passed such an aggressive stimulus package, or be playing with legal fire in the Chrysler and GM bankruptcies, or playing with financial Armageddon with the shockingly massive Treasury paper sale.

Team Obama does not have a clue what it is doing. Behind the happy mask of green shoots and hope we can believe in, there is nothing: Just a plastic, reassuring, empty smile.

That’s why I’m freaking out. Am I the only one?

Yves here. OK, the quibbles. On the zombie banks, the mechanism here is different than Japan, although you get to the more or less the same place. As John Hempton points out, corporations were saddled with debt which should have been written down or off, but instead it wasn’t. So companies weren’t borrowing and were trying to pay down the debt, and banks were sitting there with deposits and not lending.

The US is in debt up to its eyeballs, but unlike Japan, we have fat lending spreads. The benefit of the super cheap funding and the subsidies is not even partially being passed on to borrowers. Banks are increasing fees and not lowering spread commensurate with the fall in their funding costs. While some reduction in lending is salutary (too many weak credits got loans) the increases in charges are in many cases indiscriminate. High spreads are feeding the banks at the expense of enterprise.

Re the auto companies, I don’t see the solution as being about saving the UAW’s bacon. For GM, intransigent bondholders have proven to be a bigger impediment than the union. I see this as more a “this is what deal guys could craft” as opposed to being as politicized as Lira suggests. And when I went to B-school, some companies with high levels of unions ownership were models of efficient and responsive manufacturing. I am more disturbed that there was not a single auto industry expert involved in this process. There is a good team at MIT, and I am sure there were other sources too.

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  1. attempter

    The best point made here is the utter lack of any coordinating principle, any rational plan, any overall goal. There’s all this policy bluster, some of it explicitly continuing the status quo, some of it at least claiming to seek changes, but all of it seeming ad hoc, impromptu, uncoordinated, “sound and fury signifying nothing”, if “something” would comprise recognition that civilization is plugged up in a horrible bottleneck and will need radical shape-shifting to break free.

    It seems that no one in government or the MSM (or most of the blogosphere, for that matter) actually has any guiding principle beyond blind faith in infinite growth, debt, consumerism, materialism, and therefore all thinking is congenitally shackled to this framework. They’re incapable of even asking any question beyond, “How do we reflate the bubble? Where do we find new bubbles?”

    Beyond this, it’s simply whatever serves the day’s perceived political advantage.

    [Literary note: is “zombie” as in “zombie bank” still a metaphor, or by now is it becoming standard, dictionary-level terminology?]

  2. Stevie b.

    “but you who are reading this, an obsessive like me, know all the details already……Am I the only one”.

    You’re certainly not alone. Great post. I’d like to add something constructive, but frankly I’m sure it’d all be a bit repetitive for other readers. The basic stuff was explored getting-on for a year ago when the whole thing started to blow-up, and really we’ve been going round the houses ever since. In essence, you cannot make things better in the long-run by PERENNIALLY trying to prop-up the un-proppable-uppable in what seems to be the short-run.

  3. Charles Frith

    It’s insulting that green shoots are even mentioned at this stage even if they weren’t in a Disney Cartoon.

    The Economic hologram is being pursued to the bitter end. And bitter it will be. Well.. for those who don’t like change I should say. I thrive on it.

  4. Cix

    Why do you think there is a pubblic utility in constantly reminding us that we have to die?

    If this “exessive optimism” will have the effect of reducing the undershooting you are expecting for various asset classes, why shouldn’t it be welcome?

    Is this some kind of cult? You want us to do what precisely? Be sad? Depressed?

    We had enough of the depression talk, we know that economy is not going back where it was. What is that you want, that more people get punished? You’re angry because bank shareholders have lost 80% and not 100%?

    You want bank bondholders to be punished?

    What do you want?

  5. Chindit13

    In response to CIX:

    I cannot speak for everyone, but what I would like is that the folks who messed up pay the price, and the folks who had no part whatsoever in this debacle should be freed from paying for it. Yes, if the banks could not survive without public assistance, whether in the form of TARP money, ZIRP (that penalizes savers), Term Credit Facility, massive FED buying of CP and MBS, and accounting rule changes that obfuscate rather than reveal, then shareholders losing 80% is not enough. They assumed risk, expected all of the upside, so they have no right to expect the innocent to save them, even if it is only 20 cents on the dollar. Wipe them all out. After that start on the junior creditors, for similar reasons. Once all the losses are absorbed by those folks who probably once called themselves capitalists, the USG can sell off the ongoing concern—absent the incompetent management that expected gross overcompensation for failure—to folks who might run the place better. Before doing that, however, the ongoing concern should be split up so that it is no longer “too big to fail”. Let’s have some competition, and let’s take Ken Lewis et al’s finger off the financial nuclear trigger.

    Frankly, this does not seem too much to ask.

  6. bob

    Its getting really old getting yelled at by people just coming around to this conclusion, they were fine voting for bush as long as bush talked about security and freedom and capitalism. Those were the only words his masters told him he could say while he was writing checks and selling any real military capacity we actually owned to contractors.

    Its not one side or the other. Its all of them. We have to make these fuckers own the government that they have been elected to run.

    Government spending has never and will never go down, the best we can ever hope for is to get more out of it. This should be a common ground, and the existance of the federal government should not have to be defended by someone like me who can’t stand that asshole in front of me with the american flag on his pickup truck.

    The banks realized this first and showed up at the trough early.

    Now, because of people like the pissed, every one gets to throw out another useless fact about some tenth of a percent of government spending, and expect that their concern should be elevated to the forefront of the debate. The assertion that workers on an assembly line benefit from military spending is completely over the top. The single biggest cost of the military is buying the “intellectual property” from the contractors that we paid to develop in the first place. Or should they go “free market” and sell to anyone they can? Not that “they” aren’t already.

    You are behaving just like they want, confusion benefits only them.

    No, tax breaks or rebates or other nonsense like that do not work, there is a very real cost for the government of the US. Most of it is military.

    Now you want to bitch about deficits? Cut off your nose to spite your face….

    Beside the military angle, this whole thing was straight off the fox news “what you need to know to survive” top ten list.

    Not impressed, you are preaching to the choir. Why not try and just listen and READ for a while. It won’t cost anything. Turning off the TV is the best first step.

  7. Steve Sewall

    Insightful post, w sensible comments & context from Yves.

    I'm a fellow obsessive. I even play devil's advocate and look around me for evidence that Team Obama has thought the crisis through, especially the dreaded "crash of treasuries and run on the dollar" that the poster refers to.

    My guess is that the Obama/Summers game plan is to coordinate/nudge/bully central banks worldwide and do a delicate decades-long tight-rope dance with China. Globalizing America's national debt to avoid global catastrophe might be the team’s end-game and "vision".

    But who is talking about the Obama game plan and the "ruthless pragmatism" that the President says is the (unabashedly visionless) key to his approach to economics? The strongest support for Team Obama I've seen is FT's Martin Wolf siding with America and against Germany in calling for large stimulus plans at the April G20 meeting.

    Who else is explaining the Obama game plan to the world? There must be someone!

  8. frances snoot

    “Happy talk leads to calm markets…and renewed confidence.”

    The Obama administration did not have an agenda; to say otherwise is an exercise in “self-deception.”

    “Mild deception” by the media can be for good.

    Am I just short coffee, or did I really read this nonscence on Yves blog? Let’s talk deception. In October Congress crammed down a 700 Billion bailout package without voter approval which was used falaciously and without accountability. That just got the ball rolling. Every act since then has been a part and parcel of The Plan, a system to enrich the investing class at the expense of the saving, working class. We are running a bar tab of thirteen TRILLION dollars and counting.

    And the media has led those that are not insiders in investing into snake pits, with bad or untimely advice based on hot air.

    This is a good thing?

    The deception pumped now IS the problem. The fraud and criminal acts Have Not Been Punished. The banks have not been cleansed or held accountable. The people are not preparing for any hard times.

    The people are sitting “calmly” while a tsunami approaches, or looking for shiny shells on the beach.

    The Obama administration has furthered every horrid program of the Bush administration with Clinton ghouls at the head of the controls. It is unconscionable. To add insult to injury, if one attempts to address the real issues, one is “hurting the economy.”

    Are we really so naive?

  9. RN

    Wow, has this blog lost it. First it becomes little more than links to other people’s hard work, then she can’t even do her own posts, then the stuff she posts is crap like this.

    Such a terrible shame. We could use your good thoughts about now, Yves. But instead we get this Fox News-worthy drivel.

    Sad day.

  10. john bougearel


    Hempton’s observation that banks are enjoying fat lending spreads to “earn their way out of this mess” and not passing this on to consumers in any way shape or form is quite disturbing.

    Increasing fees because there is less competition and increased market share allowing them to do garner fat fees is also disturbing. These banksters were the biggest offenders of reckless lending leading us into this mess, now they are the only ones left standing to deal with. They should be the ones taken out behind the barn and shot or otherwise “put down” so more honest financial intermediaries could enjoy less competition and capture more market share.

    I would encourage everyone who can to deal with local credit unions and community banks from this point forward, and delete the criminal middlemen aka the banksters as much as possible.

  11. john bougearel

    Oh, but this plays right into the govt plan to allow the banksters not to have to raise that 74 billion in capital if they can game their earnings over the next few quarters.

    Of course they can game their earnings with the appropriate sleight of hands on the accounting legerdemain. That is, after all, what they do best, hide the truth and reveal the fiction.

  12. sanchmo

    The twin deficits and the Triffin Dilemna are teh achilles heel of the USA.

    In 1900, Britain was the world’s lone superpower, based on its position as the leading industrial economy, as a net exporter and a net lender. Its empire controlled massive swaths of land in Africa, North America, Australia and Asia. London was the world’s financial center, and the system of global trade was centered on the pound sterling – giving British subjects the most desired currency in the world and the most favorable position for access to strategic natural resources. But there were vulnerabilities – the cost of militarily protecting its position was growing while dozens of small threats ganged up strategically against the giant. Up and coming competitors and recent entrants into the industrial revolution seemed poised to take its position – most notably Germany and the US. Then came WW1 and the Great Depression. The world expected the impossible – that Britain’s industrial power and its pound sterling would be able to save the world. But it couldn’t – the policy required to maintain the global system of London-based, Pound-focused trade and finance (strong pound, low debt burden) was the exact opposite of that required to keep up the rate of British production and unemployment (cheap British exports) and the burden of war and fiscal stimulus (monetary inflation). Britain became a net importer from the US during the wars, and a net borrower to pay for its war and economic recovery efforts. The global London/Pound based system collapsed in the 1930s, currency crises reduced the value of the pound, the empire began to unwind, and Britain was saved only by teh discovery of oil in the North Sea, and by the power of the US, which emerged from WW2 and finally from the cold war at the top of the power pyramid. From the 1920’s until today, the pound has declined by over 50% against world currencies, and by over 85% against the dollar, and during times of crisis it dives even deeper into the hole.

    On to Washington and New York. With the destruction in Europe in WW2 and the loss of London and the Pound in the 1930s as the anchor of international finance & trade, the US and the Dollar took their place. Economists at first proposed that reserves be denominated in a pseudo-currency based on either a basket of international currencies (the SDR) or based on a wide basket of commodities (the bancor). At Bretton Woods in 1944, the US negotiated an alternative where the US promised convertibility to gold in exchange for the world agreeing to use the Dollar as the global reserve. But the cost of the Marshall Plan, the Cold War, and the Great Society cost the US too much gold to maintain convertibility. By the early 1970’s, Nixon cancelled gold convertability, and Nixon & Kissinger protected the dollar’s supreme position with a promise of US trade deficits (to provide foreigners a way to earn dollars and grow their economies), US budget deficits (to provide foreigners a safe place to invest those dollars), and growing imports of foreign energy (to increase demand by making the Dollar the currency used to buy oil). In 1973, the US was still a net lender and exporter, but the unsustainability of the bargain was clear by Nixon economist’s comment to objectors that “if it can’t go on forever, it will stop.”

    Since 1973 – for 35 years – the US has gone from a net exporter and net lender to a net importer & net borrower. Its future liabilities are unsustainable with current policy/guidelines. US debt held by the public now exceeds 40% of GDP, and generally accepted guidelines of currency vulnerability say that when debt held by the public exceeds 50%-60% of GDP, the country is unable to spend its way out of a recession; and that debt held by the public of 65%-70% makes a country unable to defend itself against speculative attacks on its currency. Crisis-date estimates for those codition sare typically believed to be in the 2025-2050 range, although the combination or reduced tax revenue & increased social spending & bailouts in the current economic crisis threatens to bring the crisis date to the 2012-2020 range. Today, the dollar is still the global standard and is in high demand around the world. But that is based on several vulnerable supports: the position of US treasury bonds as both a safe and profitable investment; the ability of the US economy to maintain its levels of net importing and net borrowing; its position as the medium of international trade for oil; the percention that the Fed can maintain its independence from US politicians, so that Fed policy does not hurt foreign dollar-holders.

  13. Delicious

    I note that, even here, the point that we have wrapped our military around us like a chain and leapt into the water goes uncommented upon. Our addiction to defense is like that of a family who will pimp their kids before they give up the rock.

  14. Dumbucker

    “Team Obama’s capitulation to entrenched interests in the automobile industry—that is, the United Auto Workers Union—is a very, very bad sign.”

    What a load of rubbish!
    The last thing we need is another finance, econ or insurance goon spouting “free-market” bullshit about how bad unions are, while themselves are the biggest do nothings in society.
    What do you do for a living: Hit the “buy button” on your trading terminal, and then bitch about union workers making $28 per hour?

    PUH-LEASE….. Put down the Ayn Rand love doll

  15. Kristina

    @ Cix: “What do you want?”

    I don’t know what the author wants, but for me, this post is all about validation: “I feel like I’m going crazy, and no one else is obsessing about this but me!” As a fellow obsessive, I’m glad to have read this post.

    @ bob: “Not impressed, you are preaching to the choir. Why not try and just listen and READ for a while. It won’t cost anything. Turning off the TV is the best first step.”

    Don’t like the post? It’s called a scroll button. Move on to the next post.

    @RN “Wow, has this blog lost it.”

    There’s a whole wide world of internet out there. Maybe you could find something more to your liking.

    Sorry, Yves and fellow posters. It really burns my bacon to see such nastiness directed at you. I’ll stop now.

  16. thestranger

    Here is why I like nakedcapi talism. I am looking forward to seeing some big changes in capitalism that will address the needs of people and the planet. I had hope for Obama, but he is not the answer, politics isn’t the answer, but an ecomomic crisis might be the ticket. I now hope we can make the most of the crisis rather than patching things up and move along that path we are on. We all have our reason and these are mine

  17. Dan Duncan

    C’mon Commenters.

    This is hardly an excessively right-leaning post to prompt all these “Fox News” and “Ayn Rand” laments.

    Gonzalo even through in a few gratuitous “Bush shredded the Constitution!” bones for you to chew on. Chill out.

    As for the post itself…I don’t understand Lira’s logic when it comes to reconciling the possibility of a breakdown of the social order and military spending.

    If, as Gonzalo says, there’s the real possibility of chaos and hunger riots in the US (and I’m certainly not yet ready to agree with this assertion)…then I assume he acknowledges that such strife would hardly be limited to just the US. If this is the case, then there is the real possibility of some ugly wars breaking out.

    Why, then, would we not want to make sure that our military is at its strongest?

    OK, so military spending is inefficient…but I’ll accept some inefficiency under these conditions of famine, chaos and possible war…as described by Gonzalo.

    The post was well-written and it was interesting as the author does exhibit independent thought—instead of the same tired ideological pandering.

    As for RN’s comment at 8:34:

    Yves did specifically tell her
    audience that she’d be on a bit of a sabbatical–hence the guest posters–who’ve been quite good in her stead.

    Prior to that (and concurrently…just less frequently) she really has submitted some excellent, original content. I used to think she did do too much of the CUT-N-PASTE thing that too many bloggers do…but she doesn’t. She really does some great work…and I say that as someone who disagrees with almost every word of it.

  18. DownSouth

    Lira is guilty of a horrible distortion here. The fact that he puts the pittance being tossed to industry and labor on par with the massive amounts being lavished on the true holders of power–the financial services and military sectors whose recklessness and abandon led to this train wreck–robs him of any and all credibility.

    Lira very much reminds me of the character Monsieur the Marquis from Dickens’ A Tale of Two Cities:

    Its owner went down stairs into the court-yard, got into his carriage, and drove away. Not many people had talked with him at the reception; he had stood in a little space apart, and Monseigneur might have been warmer in his manner. It appeared, under the circumstances, rather agreeable tohim to see the common people dispersed before his horses, and often barely escaping from being run down. His man drove as if he were charging an enemy, and the furious recklessness of the man brought no check into the face, or to the lips, of the master. The complaint had sometimes made itself audible, even in that deaf city and dumb age, that, in the narrow streets without footways, the fierce patrician custom of hard driving endangered and maimed the mere vulgar in a barbarous manner. But, few cared enough for that to think of it a second time, and, in this manner, as in all others, the common wretches were left to get out of their difficulties as they could.

    With a wild rattle and clatter, and an inhuman abandonment of consideration not easy to be understood in these days, the carriage dashed through streets and swept round corners, with women screaming before it, and men clutching each other and clutching children out of its way. At last, swooping at a street corner by a fountain, one of its wheels came to a sickening little jolt, and there was a loud cry from a number of voices, and the horses reared and plunged.

    But for the latter inconvenience, the carriage probably would not have stopped; carriages were often known to drive on, and leave their wounded behind, and why not? But, the frightened valet had got down in a hurry, and there were twenty hands at the horses’ bridles.

    “What has gone wrong?” said Monsieur, calmly looking out.

    A tall man in a nightcap had caught up a bundle from among the feet of the horses, and had laid it on the basement of the fountain, and was down in the mud and wet, howling over it like a wild animal.

    “Pardon, Monsieur the Marquis!” said a ragged and submissive man, “it is a child.”

    “Why does he make that abominable noise? Is it his child?”

    “Excuse me, Monsieur the Marquis–it is a pity–yes.”

    The fountain was a little removed; for the street opened, where it was, into a space some ten or twelve yards square. As the tall man suddenly got up from the ground, and came running at the carriage, Monsieur the Marquis clapped his hand for an instant on his swordhilt.

    “Killed!” shrieked the man, in wild desperation, extending both arms at their length above his head, and staring at him. “Dead!”

    The people closed round, and looked at Monsieur the Marquis. There was nothing revealed by the many eyes that looked at him but watchfulness and eagerness; there was no vivible menacing or anger. Neither did the people say anything; after the first cry, they had been silent, and the remained so. The voice of the submissive man who had spoien, was flat and tame in its extreme submission. Monsieur the Marquis ran his eyes over them all, as if they had been mere rats come out of their holes.

    He took out his purse.

    “It is extraordinary to me,” said he, “that you people cannot take care of yourselves and your children. One or the other of you is for ever in the way. How do I know what injury you have done my horses. See! Give him that.”

    He threw out a gold coin for the valet to pick up, and all the heads craned forward that all the eyes might look down at it as it fell. The tall man called out again with a most unearthly cry, “Dead!”

    He was arrested by the quick arrival of another man, for whom the rest made way. On seeing him, the miserable creature fell upon his shoulder, sobbing and crying, and pointing to the fountain, where some women were stooping over the motionless bundle, and moving gently about it. They were as silent, however, as the men.

    “I know all, I know all,” said the last comer. “Be a brave man, my Gaspard! It is better for the poor little plaything to die so, than to live. It has died in a moment without pain. Could it have live an hour as happily?”

    “You are a philosopher, you there,” said the Marquis, smiling. “How do they call you?”

    “They call me Defarge.”

    “Of what trade?”

    “Monsieur the Marquis, vendor of wine.”

    “Pick up that, philosopher and vendor of wine,” said the Marquis, throwing him another gold coin, “and spend it as you will. The horses there; are they right?”

    Without deigning to look at the assemblage a second time, Monsieur the Marquis leaned back in his seat, and was just being driven away with the air of a gentleman who had accidently broken some common thing, and had paid for it, and could afford to pay for it; when his ease was suddenly disturbed by a coin flying into his carriage and ringing on the floor.

    “Hold!” said Monsieur the Marquis. “Hold the horses! Who threw that?”

    He looked to the spot where Defarge the vendor of wine had stood, a moment before; but the wretched father was grovelling on his face on the pavement in that spot, and the figure that stood beside him was the figure of a dark stout woman, knitting.

    “You dogs!” said the Marquis, but smoothly, and with an unchanged front, except as to the spots on his nose: “I would ride over any of you very willingly, and exterminate you from the earth. If I knew which rascal threw at the carriage, and if that brigand were sufficiently near it, he should be crushed under the wheels.”

    So cowed was their condition, and so long and so hard their experience of what such a man could do to them, within the law and beyond it, that not a voice, or a hand, or even an eye, was raised.

  19. Leo Kolivakis

    Yves wrote: “The US is in debt up to its eyeballs, but unlike Japan, we have fat lending spreads. The benefit of the super cheap funding and the subsidies is not even partially being passed on to borrowers. Banks are increasing fees and not lowering spread commensurate with the fall in their funding costs. While some reduction in lending is salutary (too many weak credits got loans) the increases in charges are in many cases indiscriminate. High spreads are feeding the banks at the expense of enterprise.”

    BINGO! It’s all about spreads and banks are borrowing at practically zero and lending at much higher rates. They are also charging existing customers larger spreads, citing the credit crisis.

    One key difference between the U.S. and Japan is demographics. Japan is an ageing society whereas the U.S. has baby boomers but other generations that are younger.

    Finally, don’t forget the Bank of Japan acted late in dropping rates and they killed the rally in 1993, something which the Fed will not do.



  20. Carlosjii

    In a broader sense the US has slipped from a democracy into a tyranny of the state whose resources have been used to maintain its own self-serving ends. This is the historic progress of all Empires. A good example is FMN and FRE which were used as a convenient piggy bank by our politicians at the expense of taxpayers and the citizenry. Look at Rahm – he took some $350,000 out of FRE last year while languishing in the pre-election doldrums.

    This morphing to tyranny seems to have occurred after we began keeping a standing military force after WW 2. The US has FAILED TO PREVAIL in all of the three major conflicts [Korea, Vietnam and now Iraq & Afghanistan] since the glory days of ‘the greatest generation’. We should expect significant geo-political changes in the next few years and few Americans seem aware of that. That’s what’s scary.

  21. alien_mind

    no you’re not alone, I’m one of the people freaking out just like you. I see disaster looming everywhere yet a country and press that is “enchanted” with the new guy.

    the only thing I disagree with you on is defense. this is the one area where Obama has made actual cuts in spending. and of course I disagree that defense spending is a waste, on the contrary. We do need to scale back our military foot-print, wind down the wars, and force Europe to fund their defense or pull out.

  22. Ricochet Smith

    Cix: “What do you want?”
    What I want is to know who among you is going to personally do anything about this in your own lives. I am also in the maximum discontent mode.
    I have personally structured my existance to not support any government entity. All the bellyacheing in the world will not fix this supremely screwed up finanacial system-do everything you can to help their spontaneous combustion.

  23. Hugh

    I agree with Lira on the importance of looking at fundamentals and not being swayed by atmospherics. But I think his sector analyses are way off base.

    I am probably in the minority here but I think the problem we are facing is depression. It is surprising in this context with Lira invoking Millennial Depression that Keynes doesn’t even rate a mention. If he did, Lira might be less strident in his talk about the “size” of the Obama stimulus.

    If you look at likely jobs lost from the beginning of the recession in December 2007 through the stimulus period to the end of 2010 and you add to this the number of jobs needed to compensate for natural growth in the US population, we will conservatively speaking need 12-13 million new jobs. Obama’s stimulus with its promise of 3.5 million “new or saved” jobs will only produce about a quarter of those needed. $787 billion spread over two years is not as much money as it may seem. Its split between tax cuts and spending made it even less effective than it could have been. The truth is that what we need is about a trillion dollars in pure spending for each of the 2 years of the stimulus for it to produce the jobs we need.

    Could this be inflationary? Of course, but this is equally true of the trillions Fed and Treasury have been throwing at banks to much less purpose.

    And to be clear, we could not walk away after 2 years and say well been there done that. Those jobs would need to be maintained. With the paper economy blown up and the real economy in tatters, we should be using the stimulus and the jobs it produces as a bridge to a more sustainable re-industrialized economy. That is what we should be doing but as we all see on a daily basis, our elites: political, economic, media, and academic can’t deal with short term goals let alone long term ones.

  24. Unsympathetic

    The auto task force is 3 I-bankers and a politician. They don’t have an industrial engineer! Obama plans to re-engineer factories without asking people whose skillset is… re-engineering factories? Good times.

  25. Richard

    Delicious: well, some of us get it, the military and the insatiable appetite for the placement of military bases around the world, with forcible occupation used against those who resist, is a huge drag on the economy for anyone who does not directly profit from it

    and, of course, Lira gets it precisely backwards, the occupation expenses are more severe and out of control than the non-occupation ones, and BOTH must be cut substantially, and not just the “non-occupation” ones (whatever that means, aren’t most US military expenditures connected to the wars in Afghanistan and Iraq, and planned expansions into Iran and Pakistan?)

    but, as you say, it’s too hot a subject, no one wants to confront the fact that the US must bring resources home by downsizing the empire to finance domestic economic recovery and development, much as DeGaulle realized in relation to Algeria in the early 1960s

  26. bob


    Glad you feel better now. Should we set up feel good rant camps for all of the disenchanted and worried right wing to come to and tell everyone how bad things are?

    I call that fox news, they rant at you and like the post offer no solutions.

    If you come into an argument seeking “validation” you are not offering anything to the debate.

    I have been following this particular blog for more than a year, and the broader economic and now socioeconomic debates for much longer than that, going on about 15 years.

    Go back and read last years posts here, and elsewhere.

    Catch up with the thinking, then open the mouth. If I have validated any thing that you have said I clearly did not mean to.

    I need validation!!!!!!!! Go turn on the idiot box.

    If you would like to join in the debate in an intelligent and informed manner, please do, offer something new and insightful. The post was neither.

    I mean no harm, and appreciate all of the people here who do comment. That said, there has been a serious influx of people here with more volume than brains.

    Opinions are like assholes, everybody has one, and most of the stink.

  27. Eric L. Prentis

    When dealing with the economy, America does not need “happy talk or fake confidence building,” it does not work, it has never worked. Why, because Americans are living the economy daily, they understand what is going on all too well. Instead, HONESTY is what is desperately needed now: 1) to get the facts on what went wrong rather than covering them up; 2) to hold those responsible, accountable rather than giving them trillions of taxpayer dollars to double-down with; 3) to make changes to the financial system that will restore confidence rather than trying to resuscitate the current discredited one; and 4) for politicians and corporate leaders to prove they will conduct themselves responsibly rather than keeping in place the executives responsible for this financial disaster. The American people, although they can do little about it, understand when they are being taken advantage of, when they are being treated like fools and when they are being robbed. Without trust, no recovery, that simple!

  28. geo1952

    Hey der Yves, I’d like to offer an opinion on a highly unionized, well run company. Southwest Airlines. Their pilots, mechanics, flight attendants, and ground folks are all in one union or another. Maybe the bloom is off the rose but they sure made a lot of money for a long time. No small accomplishment given the tears of blood we’ve seen from the other airlines through the years.
    Love the blog but the content can really be depressing….damn reality.

  29. Erick

    Yves, thank you for posting this wonderful piece of Gonzalo Lira’s as well as your comments.


    Great point. We need to allocate resources towards producing more of the things we want: health care, clean energy, etc.

    Where will we divert those resources from?

    I think military spending is one rational location. Unless there are infinite resources at our disposal, building bombs makes it more difficult to provide the amount of education and health care we want.

    I’d much rather default on the intention to blow things up than default on my neighbor’s social security benefits.


    I agree that people can work together more effectively by putting aside partisan squabbling. People need to find common, shared goals to do this.

    What are those goals?


    You are suggesting that there are a variety of union leaders and a variety of unionized companies. Thanks for drawing my attention to this important point.

    Some unions better serve their members than others. Some unionized companies perform better than others.

    Is the leadership of the UAW doing a good job?

    I think there is much greater consensus around the need to protect workers’ and retirees’ pensions than the need to reward the leadership at Chrysler and UAW for managing their company and its benefit programs into bankruptcy.

    How can we accomplish the former goal without it resulting in the latter?

  30. bob

    “Is the leadership of the UAW doing a good job?”

    Are you a member of that union? Then it is none of your business. The anti-union sentiment is over the top in this country. God forbid we regulate the banks, and try to enforce laws and decisions that have been made in the past. No, we have to go after the unions. Everybody has an opinion on the unions.

    The only reason I can come up with for this position is jealousy. All of the middle aged people in the US who do not have a pension plan are just plain jealous of the unionized system that guarantees a retirement.

    Yes, the unions are screwed up, and have been for a very long time. Unless you have a direct interest in them, aka you work for a unionized company, you have no say, whatsoever. Wasting time debating this point is another part of the problem.

    Back to the banks, which the government has the right and responsibility to regulate. They need 700 billion fast. Sure, write a check. That is not even including the real robbery, the guarantees that the feds are offering to anyone.

    When the feds guarantee a pool of assets, such as citi had done a very short while ago, they are turning that crap(mbs, cdos etc) into US treasuries. They have an explicit guarantee from the government. That is a treasury bond.

    To talk about 10 or even 20 billion that chrysler and its bond holders were arguing over is extremely small change, and plays right into the ‘kill the unions” mindset that I am talking about. Lets just move the debate away from anything that could actually make a difference.

    The unions will and always do get screwed, right along with every other person in the US worth less than 200 million dollars. The one thing the unions have is a base of people who share the same common interests, and they use that. This should not be a subject for debate. Divide and conquer is the oldest play in the book and to see people here falling into that trap is very worrying.

    I am not sure on the details of the chrysler plan, but it does not even come close to putting a dent in the money that has already been spent by washington, as of february,

    Feb. 9 (Bloomberg) — The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

    Its the unions fault, sure. They don’t even count as a hemorrhoid on the ass of this thing.

    It just an issue invented to distract from the real looting.

    For those who don’t understand how guarantees and spending are the same thing, please read up on it.

    This is not a union problem, or a sub-prime problem, or a real estate problem.

    It is a BANK problem people.

    Any attempt to push the debate in another direction just distracts from the monster pile of money that has already been printed, just for them.

  31. jest


    I second Erick’s comment that both Lira’s essay and your blog are excellent.

    It’s rare to see any rays of light or sensible coherent thoughts these days, and I get it here in spades.

    Best of luck on the book.

  32. Jim T

    GONZALO, you are not alone my friend.

    I have been all over this since July 2007, when it first came to my attention. Those of you in the States may have had prior knowledge to that, but I've been watching very closely from 8000 miles away. (I live in Australia, but was born and lived in the U.S. until I was 45. My family still lives there.) Actually, I saw and predicted back in November 2007, the "Beginning of the End" hitting in September 2008 and the "Second Great Depression" hitting in the Summer of 2009.

    Here we are in May 2009 and I would have to say my prediction has been nothing short of "SPOT ON!" (Sorry to say!)

    I'm sure if I was back in the U.S. trying to warn friends of what was coming these past 22 months, I might have caught some neigh sayers, but doing it here in Australia! I'm surprised they haven't locked me up, especially early on July 2007 – May 2008. The line at the time was "that crisis thing is happening in the U.S. and will not affect us. Were more tied to China on trade matters." They didn't think it through that China was tied to the U.S. (Silly, silly Aussie optimism)

    So yes I have been very alone knowing what I know. It sometimes feels like being in the Twilight Zone. Knowing everything is on the BRINK and you hear TEAM OBAMA & the MSM talking as if nothing is about to CRASH DOWN ON OUR HEADS. "It's OK children, everything is fine, have somemore koolaid!" SCARY!

    Just a few quick points!

    1.) The Chrysler & GM bail outs anger me something shitless! Let's just call them the UAW BAIL OUTS! I'm sorry, President Obama is not Candidate Obama anymore! He is "PRESIDENT OF ALL AMERICANS" weather we or he likes it or not! He is not the PRESIDENT OF THE UAW and he has no right to outlandishly favor them over any other American faction! (Bond Holders) He should have just let the LAW TAKE ITS NATURAL COURSE! (Terrible, Unamerican Move!)

    2.) Military Spending! Here in Australia our current government is controlled by the LABOUR PARTY! To put things in perspective for you. The U.S. Democrate Party in Australia would be Right Wing Conservatives comparatively. So not really a Party that would be building up the military at all. Now the PM Rudd has been doing exactly what the U.S. has recomended with stimilus packages etc right down the line in this crisis, but just 2 weeks it was quietly leaked that they have started this "HUGE MILITARY BUILD UP" for no apparent reason. (WHY?)

    Always ask yourself, "What did they know and when did they know it?"

    Ben Bernanke appointed Chairman of the Federal Reserve February 2006! The WORLDS LARGEST BANK does not hire a banker. They hire an Academic who has never worked in a bank or run any company, but an Academic who just so happens to specialize in the GREAT DEPRESSION!
    (GO fIGURE!)

  33. jlivesey

    I have to say that I find obsessive versus non-obsessive to be a false choice.

    The thing you really want to be is a trader, and fortunately markets exist to allow you to be that.

    When you feel other people are too complacent, sell, and when they are too fearful, buy.

    I have only become any good at this in the past five years, but in that time I have not regretted swimming against the tide.

  34. Jim T

    To Bob & George

    So then I take it if you were one of the Chrysler Bond Holders (not a Union Member)you would have NO PROBLEM with your PRESIDENT circumventing the law and repaying HIS POLITICAL DEBTS with $4 Billions Dollars of your money!

    I think not! There is just NO WAY to make that right!

  35. bob


    Please explain exactly the law that was circumvented. I want the name of the “law” and the relevant sections which were violated.

    There was no law that was violated.

    The bond holders were in a pre-bankruptcy meeting. They were not required to agree to anything. There was no court involved, and no one telling them what to do. Negotiations that were voluntary, and non-binding.

    Please read up on legal processes.

    Please find me one bond holder that agrees with your position. I want their name and the firm that they represent. The clear majority of bond holders wanted to settle BEFORE it was sent to BK court. Who are you speaking for? Why are they not filing lawsuits over their ‘rights being violated’.

  36. Jim T


    Bob said: Please explain exactly the law that was circumvented. I want the name of the “law” and the relevant sections which were violated.

    My response: The Law that was “circumvented” is the Bankruptcy Law.

    Bob said : There was no law that was violated.

    My Response : I didn’t say the law was “violated” I said “circumvented” there is a big difference. Definition: Circumvent means to EVADE or to FIND A WAY AROUND

    Bob said : The bond holders were in a pre-bankruptcy meeting. They were not required to agree to anything. There was no court involved, and no one telling them what to do. Negotiations that were voluntary, and non-binding.

    My Response: If that were the case there would have been no need for the bankruptcy. The bond holders “did not agree” to the terms being forced upon them by the Obama Administration and forced the “lack of an agreement” before a bankruptcy judge. Why do you think Prez Obama was so pissed off? He didn’t want it to go tp a bankruptcy court!

    Bob said: Please read up on legal processes.
    Please find me one bond holder that agrees with your position. I want their name and the firm that they represent. The clear majority of bond holders wanted to settle BEFORE it was sent to BK court. Who are you speaking for? Why are they not filing lawsuits over their ‘rights being violated’.

    My Response: Look it up yourself, there were about thirteen Fund Managers representing thousands of clients. Their names were listed by the bankruptcy court! You can find it looking through the blogs covering the proceedings. And I speak for myself!

  37. bob

    A primer on BK negotiations

    Bond-holders side of the story:

    Someone buys a bond at face value, 100 on the dollar. They get interest payments according to the schedule that was part of the bond issue(5 cents for this example), they get the principal back at the end of the bond ( one dollar).

    In the case of chrysler, they were not going to be able to make that interest payment, let alone pay back the principal at the end of the bond period.

    The bond holders that are smart will sell for what ever they can get as soon as they can. 10 of 15 cents on the dollar, they lost their money, and there is none left to payout.

    The people who buy that bond at 10 cents then go into negotiations pre-bankruptcy. This is where everyone agrees that bonds cannot be made whole, after all they can’t even pay the interest payment.

    The guy who bought the bond at 10 cents makes money bargaining up above that. He just wants more than the 10 cents he put in, more, more, more. Anything over 10 cents is profit. The natural bargaining position of “distressed debt vigilantes” is to try and convince everyone that it is worth more than he paid for it. That is a bargaining position in a zero sum game, not having any basis in reality.

    It just happens to play well with the anti-union people to blame this on the union.

    You cannot get money out of someone who has none. They knew this when they bought the bond at 10 cents.

    And if you did buy a chrysler bond, I have no sympathy for you. It is a very badly run company, and has been for a while. To loan them money is a bad decision in the first place.

    Funny how the “right” forgets that someone actually had to make a decision to loan that money to chrysler by buying that bond.

    If you give your money to someone else, there is always the chance that you will not get it back, that is called risk.

    As to your assertion that there were thousands of people, prove it, you made the claim back it up.

    My claim is that they do not exist, and will not put their name on that position. It was a bargaining position with no basis in reality.

  38. Erick


    I totally agree that the debt holders should receive no more than to that which they are entitled when selling the company’s assets. Is that only 10%? Too bad. That is one of the risks in lending.

    If the holders of secured debt get 10-15 cents on the dollar for their debt, how much are the unsecured bondholders entitled to receive?

  39. Jim T


    If President OBAMA stayed out of this and let Chrysler go BK on its normal course the SECURED BOND HOLDERS would have forced Chrysler into a Chapter 7 liquidation bankruptcy and all of the assets would have been sold off and they would have received a percentage of what they legally were entitled to retrieve in accordance with their contractual rights with Chysler. Depending on the sale that percentage could be 10% as you state or it could be 50%, 75% and maybe 90%. It doesn’t matter, it is their CONTRACTUAL RIGHT to retrieve their money before the UAW gets 10 cents!

    Sorry, but that is the pecking order in a normal bankruptcy!

    BUT, President OBAMA did get involved because HE OWES HIS PRESIDENTCY (atleast a fair portion of it) to the unions.

    My biggest problem isn’t with the UAW Bob, it’s really with President Obama, his Administration and the way they handled this.

    If he has Political Bills to pay, he should be paying those bills with TAX PAYERS MONEY, not Bond Holders Money!

    WHY? Because then HE IS PAYING THE BILL, and he should, it’s HIS DEBT! If enough VOTERS don’t agree with him using TAX PAYER MONEY to give the UAW a SWEET HEART DEAL. Then the VOTERS will through him out on his but for doing it.

    But it’s just WRONG OF A PRESIDENT to single out a few TO PAY HIS DEBTS! it’s just not fair!

    Bob, I don’t agree with all of the BANK BAIL OUTs EITHER and I thought why is he giving them 2.2 TRILLION so far and begrudging the Auto Industry 100 billion? Why?

  40. bob

    “If the holders of secured debt get 10-15 cents on the dollar for their debt, how much are the unsecured bondholders entitled to receive?”

    The point of pre BK negotiations is to work this out between the debt holders. In theory, nothing for the unsecured creditors, they are last in line.

    When it goes into court, there rooms full of laws and existing precedents that can lend a lot of uncertainty and time to the outcome of the process. Time is money.

    “it is their CONTRACTUAL RIGHT to retrieve their money before the UAW gets 10 cents!”

    Yes, it is, it is also the right of the rest of the bond holders, the majority of them, to settle before that. That is what happened. And the minorty also agreed to settle, or it would have been a chapter 7. The bond holders you are sticking up for don’t even agree with you.

    You position is that everyone was wrong to settle. No stakeholder agreed with you, why should I?

    Please explain how the UAW made money off this? Where is this payment to them that you speak of?

    You are just demonstrating your ignorance, and your bias.

    “If he has Political Bills to pay, he should be paying those bills with TAX PAYERS MONEY, not Bond Holders Money!”

    That statement is crazy. He should use tax payer money for that? What planet are you from?

    The bond holders did not have any money, that is why they were going into BK. That is the definition of bankruptcy, not enough money to continue.

    “2.2 TRILLION” They have given the banks a lot more than that. the last figure I saw was over 12 trillion in cash and guarantees.

  41. Jim T


    If Secured bond holders were only getting 10 – 15 cents on the dollar, then your unsecured creditors (Like the UAW) would probably get ZERO!

    So for the UAW to come out of this getting $10 Billion in Cash and a 39% stake in the New Company for the $20 Billion that was owed to them.

    I would say they got a Great Deal at the expense of the BOND HOLDERS not President OBAMA!

    Like I told Bob, it’s just plain wrong Obama paid his debt with their money! ($4 Billion Dollars)

  42. bob

    The only people I heard of that were in opposition to the debt settlement with chrysler are detailed below. The settled for what was offered.

    That means they agreed to take what was offered. They agreed to the deal. Why are you opposed to this, when the people actually holding the bonds agreed to the deal?

    You are speaking for yourself, and only yourself.

    Why am I still arguing with you? The bond holders don’t even agree with you.

    `Hedge-fund manager Perella Weinberg Partners LLP said Thursday its Xerion Fund has agreed to the Treasury Department’s $2 billion debt-reduction deal for Chrysler’s creditors. Perella Weinberg, which along with Oppenheimer Funds and Stairway Capital Advisors LLC was one of three investment firms identified as dissidents, issued the statement hours after President Barack Obama called out creditors who rejected the deal. ”

  43. Marlowe

    Seems very straightforward to me. UAW bankrupted the automakers. End of gravy train. End of UAW.

    Social Security is next.

  44. Jim T


    I’m a bit confused. Are you a AUW menber? A staunch President Obama supporter? or Both?

    You just seem a bit crazed in your efforts to somehow legitimize the UAWs right to this outrages, over the top Presidential pay back! (Gift at Bond Holders Expense!)

    Additionally, you seem just as crazed in your defense of the President’s actions to selectively decide the Bond Holders should lose $4 Billion Dollars “on his behalf” so he could make the UAW such an outrages deal!

    OK Bob, first you need to “STOP THINKING” that the Non-bank Secured Bond Holders Settled Outside the Bankruptcy Court! THEY DID NOT! (The Zombie TARP Banks Settled Outside “Because Obama owns them, WHAT ELSE WERE THEY GOING TO DO?” and I think one Fund Manager “Because Obama brow beat them and THEY DO MILLIONS IN BUSINESS WITH THE GOVERNMENT”)

    The Rest of the Fund Managers on the list of Secured Bond Holders you provided in your post above are the ones that forced the bankruptcy filing to block the Section 363 bankruptcy prearranged sale of assets to the new Fiat lead company. After their efforts failed to block the sale of most of the assets they were forced to settle for the crap price Obama rammed down their throats! (The Assets they needed to sell were gone) Nothing left to hold out for! Of course they settled at that point!

    THOSE ARE THE TRUE FACTS OF THE SITUATION. Now if something about that bothers you (and it should bother every red blooded american) and you start losing sleep at night. You need to stop being a SHEEP and stop standing ideally by when the President of our country does something this wrong! Nobody, not even him should be above the LAW! Circumvention of the Law is wrong! For what? A couple extra Billion when you’ve already pissed away TRILLIONS!

    Our President and Country has to be better then that!

  45. Yves Smith


    I do not have much patience for fact free assertions.

    The auto industry has been mismanaged for nearly 30 years. Did the UAW have anything to do with the failure of Detriot to make smaller, more fuel efficient cars? No, instead they spent lobbying dollars fighting fuel efficiency.

    Long term winners in other industries have been willing to upend or substantially change their business model when faces with change. But no, all roads lead to the UAW.

    And you also conveniently overlook the considerable advantages the Japanese have by keeping the yen cheap. That’s a de facto export subsidy. And even the Japanese cars assembled locally have considerable Japanese content.

    You also conveniently forget that the Bug Three have long been management heavy, overpaid management at that.

    Do you even know how much labor cost is of a car?

    I suggest you read this paper. It paints quite a different story of union and management relations in the heyday of manufacturing than you allege is true:

  46. Slug

    Just poking my nose in to say I enjoyed this post, even if it is something of a rant.

    I agree with those above who believe military spending cuts should come second – right after resolving the insolvent banks ASAFP. The thing to remember is that the American Empire’s strong dollar imperialism is and was always accomplished via the threat of force. And so I believe we’ll keep throwing dollars at soliders and weapons until we put civil-war era greenback inflation to shame.

  47. Chindit13

    Contrary to what Mr. Lira says, happy people does not an economy make. People with the wherewithal to spend make a 72%-consumer driven economy work.

    No matter how fervently people believe in Santa Clause, no matter how many sweet dreams are made of his exploits, he is never going to come.

    The world is plum full of excess capacity and excess debt, and absent either time, or wage inflation that renders debt levels meaningless, happiness is not going to make the good times return.

    Bernanke et al have decided that time does not heal all wounds, or at least not on their watch, so they have embarked on the re-inflationary path. Woe to us if they succeed, and woe to us if they do not. In other words, you can’t get there from here.

  48. tom a taxpayer

    GONZALO, yes there is much evidence on increased potential for a “Millennial Depression”, or some kind of world-wide nightmare. Wall Street’s financial engineers created a Frankenstein’s monster that no one can control. The monster stalks the world, marauding the villages and raping taxpayers.

    Today, with so many banks and businesses (AIG, GM) too big to fail and too full of “systematic risk”, and so much global link between the dominoes (institutions), there is more potential for all sorts of catastrophes. The “best and brightest” scientists of the 20th century gave the world the nuclear weapons of mass destruction. The “best and brightest” Wall Street con men, pension thieves, and widow swindlers of the 21st century gave the world the financial weapons of mass destruction.

    Every once in a while, humans create a world wide tragedy. Some of these tragedies can’t be stopped or solved…once unleashed, they will play out. Yes, we need to try find solutions and not give up, but if you are sitting on the beach and the tide suddenly goes out, that is not the time to follow the tide out to try to figure what is happening and how to solve it. It is time to run to the high ground to try to escape the coming tsunami.

  49. pebbles

    Thanks to DownSouth for the thoughts and the excerpt from Tale of Two Cities. I have to add that there is undeniable political utility in an economic meltdown for a ruling class obsessed with vastly increasing the reach of its power. We should never forget that. If Clinton played a role in starting the economic crisis, so Reagan and all his republican successors also worked assiduously to bring it to fruition. We often overlook the bold thieving of Bush/Cheney, under whom 2.2 trillion dollars disappeared from DOD coffers (just before 9/11). Billions vanished from the Iraqi treasury under these thieves and other monies also disappeared from US agencies. The naked military aggression (never ending for this war-loving country), the police state apparatus they’ve created, etc. – all of this entails a vast diversion of funds away from our infrastructure. The impoverishing of America has been accomplished by them on many levels. Our fault as a nation lies in our attachment to believing in the political establishment, in our proclivity to cling to their every word as though only truth pours out of the mouths of politicians and journalists. Desperate people are easy to manipulate and pose little threat to a greedy, self-serving aristocracy. Too many of our politicians have aspired to create public misery for their personal power and profit. They won’t stop until we drop the stupid adulation of gangsters and thieves.

  50. hangygreen

    attempter commented “It seems that no one in government or the MSM (or most of the blogosphere, for that matter) actually has any guiding principle”

    God, family, country.
    Try to fulfill God’s plan for me.
    Family: economic security by paying off debt so our family is free.
    Country: work locally, volunteer locally, serve on city council to implement positive change locally.

    I can’t stop bush/obamas wars. I can and will work locally without the chains of debt.

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