Marco Polo In the Court of Congress

That was some riveting theater the other day before the House Subcommittee on SomethingorOther when Harry Markopolos, the avenging angel of the Re-Regulation Forces, appeared to describe to the Committee his futile efforts to get the New York office of the SEC to do something about Bernard Madoff's massive fraud scheme.  For fans of Schadenfreude, it was like Weinachten in February.

The comfy bureaucrats at the SEC had it made during the Bush years, of course, reveling in their sinecures as friends of the High and Mighty. The whole idea was to leave the securities industry alone and let the "invisible hand" of the market work its magic. You might say that certain miscreants took advantage of this libertine situation, and no one more than Bernie Madoff.  Harry Markopolos was himself in the investment game, a self-described expert on derivatives with long experience on Wall Street, and he simply refused to believe that Madoff's "split-strike" strategy for returning about 12% to his investors, in good years and bad, was humanly possible.  So, using a "Mosaic" technique, he spent years investigating Madoff with the assistance of his "team."  He summed it all up in a long letter dated November, 2005, to the SEC, stating bluntly that it was his conclusion that it was "most likely" that Madoff was running the biggest Ponzi scheme in world history.

Markopolos never met Madoff, never interviewed anyone who worked in his organization.  In some ways, what Markopolos did in that letter (which you can find in pdf by Googling "Markopolos letter to SEC") is reminiscent of the work of the legendary Polish cryptologist Marian Rejewski, who deduced the internal wiring and basic structure of the Nazi Enigma machine without ever seeing one, by using permutational mathematical analysis of German encrypted messages.  Truly one of the astounding feats of mental deduction of all time.  I wouldn't put Marko Polo's work in that category, but it's pretty good.  He figured out that (a) Madoff was running a Ponzi scheme, (b) that the amount involved was somewhere between $20 and $50 billion, and (c) that Madoff had been a crook since at least 1991.  All from studying the "performance" of the Madoff fund, Madoff's relationship with the places where he got his money, and Madoff's obsession with secrecy.  A virtuoso demonstration of logical analysis.

Watching Markopolos testify, you couldn't help but think that he probably has a screw loose somewhere.  For one thing, both testifying and in his Nov. 2005 letter, Harry is a little, how to say it, egotistical.  A tendency toward the grandiose, describing himself (with his business degree from Boston College) as one of the few people in the world with the mathematical background to understand derivatives well enough to do the analysis he did. Actually, I read his letter, and on the basis of my own very limited experience with securities litigation, I was able to follow it pretty easily.  You just need to know a few basic concepts, such as what an option is, what a put versus a call is, what "out-of-the-money" means as applied to options, and a few other things, and you've got the basic hedging strategy that Madoff claimed to be running. You don't really need to have a PhD in mathematics as so many of those brainiacs who devised the algorithms for Long Term Capital Management possessed, who might even go a little deeper in math than Harry Markopolos.

That, I think, was sort of the problem with Harry for the SEC.  In addition to his borderline megalomaniac tendencies, Marko kind of presented himself as a Wall Street Maxwell Smart, offering to go undercover, to disguise himself, and warning of the grisly fate that awaited him if his cover was blown.  I don't doubt that physical danger was a serious threat when you're dealing with that much money and with a crook as bent as Bernie Madoff.  But if Harry Markopolos presented about 30 "red flags" in his letter re: Madoff, then the SEC probably found as many red flags about Harry in Harry's letter to them.  Which is what the SEC really wanted to find, because the last thing they wanted to do was to take on Bernie Madoff.

So natually, just as Harry predicted, the SEC sided with Madoff, because Bernie was a Wall Street maven, a Mensch, a power player who was in on the ground floor of the establishment of NASDAQ.  The New York office decided that Markopolos was a jealous whistleblowhard (to coin my own term), maybe a little nuts, and not someone they should allow to tell them what to do.

Man, did they pay for that dismissive attitude.  What's worth YouTubing and playing is Rep. Gary Ackerman's smackdown of the entire top brass (minus the weasly Christopher Cox) of the SEC on national TV.  This New York Democrat absolutely tore the counsel staff a new one in unsparing, scathing terms, telling them they couldn't find their ass with both hands in a room with the lights on. They're all going to get canned, they know that, and anyway they're all mostly holdovers from the Bush Roaring Aughts Era.

The problem for the SEC is that Harry Markopolos, one citizen working with an ad hoc "team," figured the whole thing out right down to the ground.  He was right about everything, astonishingly so, and he was right over three years ago.  How much additional money was lost because the SEC sat on their hands?  Billions and billions and billions.  Markopolos predicted the cascading failures in other hedge funds as the High Net Worths all scrambled to liquidate and cover their Madoff losses, the collapse of the "feeder funds," of private banks in Europe which were heavy into Madoff. Harry saw it all coming, laid it all out for the SEC, and the SEC did nothing.  And then had to sit silently and listen as Harry Markopolos described, in excruciating detail, their incompetence, their corruption and their utter worthlessness.

One of those days where it just feels good to be alive.  Thanks, Marko Polo.

George W. Bush's Coup de Grace

The latest figures available for fiscal year 2009 (that ending September 30, 2009) indicate that the federal deficit for the year so far is about $232 billion.  This represents the deficit for the month of October just past.  Annualized, the deficit for the year at this rate, in other words, would reach $2,784,000,000,000, or nearly 3 trillion dollars. We have, ladies and gentlemen, entered the Realm of Weimar, that crucial threshold where all semblance of rationality, manageability, and sanity is gone.  Our situation is now analogous to the coked-out movie star who has become indifferent to the repo men who have scaled the security gate and are systematically hotwiring and driving off his Rolls-Royces, and hijacking his Gulfstream Jets in midflight and and holding auctions of his Beverly Hills mansions - but not only indifferent, but manically screaming that he needs more coke and whores and tells his henchman, as he waves his gun around, that he demands a new Mercedes and a villa on Como.

You know, that point at which it's a joke to imagine any realistic way out of it. Congress is frantically "authorizing" "money" to buy all the investment banks, recapitalize all the commercial banks, buy AIG, salvage the Big 3 auto makers, and omigod! what just happened over there! There are so many "programs" to save so many vital aspects of the American economy that we haven't had time to sit down and calmly appreciate that this is madness.  The federal government was broke before it started doing all this.  Its Triple A credit rating was already in doubt.  If we push the national debt to $20 trillion, and if $15 trillion of that is "true" debt owed to outside creditors (and not to the bankrupt Social Security & Medicare funds); and if we have to pay 10% interest to attract all the money we need to borrow, isn't it obvious the major part of the federal budget will be used increasingly to pay interest on what we just borrowed? Nobel Prize winning columnist Paul Krugman is urging Obama to "go big" to get the U.S. economy moving again; in other words, ignore the deficits and move full-speed ahead. I guess so - if the collective worldwide hallucination of American solvency is not disturbed, that's what Obama will have to do.

George W. Bush is going out in a blaze of destruction, that we can clearly see.  With just over two months left, Bush could not quite get the pneumatic jacks to work well enough to hold up the White House roof long enough for him to get to Dallas.  Like Maxwell Smart, he missed it by that much. I saw him yesterday giving a brief talk to the Manhattan Club, extolling the wonders of the free market, gloating over the failed economy of Cuba, smirking, winking, wrinkling that narrow brow. The whole shtick.  I noticed that the jaw twitch was back in force; it's a spasmodic sideways jerking of his lower jaw while his mouth is held slightly open.  I don't know what it means.  Some have suggested it's a tic symptomatic of central nervous system damage brought about by substance abuse.  At this point, it's not even really interesting to speculate anymore.  Of course there are serious things wrong with him, but the true thing is that he's been President for the last eight years.  Of that we can be sure.

The graphs in the upper left were put together by a talented scientist in the Southwestern United States.  They depict slopes based on 3rd order polynomial calculations and offer graphic evidence of what happened to the United States once we abandoned the principle of intelligent management in favor of amiable idiots appealing to "values voters."  America had experimented with idiots before.  Warren G. Harding, Herbert Hoover, for example.  However, the drastic consequences of entrusting a system as complex as the American economy to dumb guys included the Great Depresssion, so that the electorate was chastened into voting once again for competence. For a long time, then, we placed the stewardship of the United States only in the hands of intelligent, competent leadership: FDR, Truman, Eisenhower, Kennedy, Johnson, Nixon and Carter.  

But as Santayana warned us, those who cannot remember the past are doomed to repeat it.  So we elected the first of the amiable dunces, Ronald Reagan, who made all kinds of stupid pronouncements about the "irrelevance" of federal deficits, or the principle of fiscal prudence in general, and who went on a spree of massive military spending while simultaneously drastically reducing the government's primary source of revenue.  Reagan saw the government as the enemy, although the government, really, is just us. So we declared war on ourselves, and we won.  And lost.  We followed Reagan up with the first of the Bushes, then took a shot at another smart guy, and look what happened?  Even working against a Republican Congress for six of his eight years, a Congress which wanted to attack and hamstring him with endless moralistic crusades throughout his tenure, Clinton began to bring the financial house back to some semblance of order, even to produce a budget surplus in his last couple of years.  And then Bush II:  the Coup de Grace, finishing the dark work of Reagan and his father.

With the sort of prudent guidance which Al Gore would naturally have carried forward, that hypothetical extension in graph #2 could have been our reality.  We would have innovated, dealt with global warming, adapted to changing circumstances, revitalized the economy. Gone $20 trillion in the black, enough to do whatever we needed to do to change energy paradigms. Alas, it was not to be.  For 20 of the last 28 years, we have squandered our resources, bankrupted our country, fought needless, ruinous wars, and destroyed the legacy of America for our children.  At a point very soon, the world is going to finally, regretfully conclude that the USA does not have all the money it is "spending" to bail itself out of every exploding catastrophe.  We are in the position of a man standing on a ladder, a few feet short of the roof, trying vainly to lift the ladder with his own hands.  It is entirely possible the world will not allow us to forget this particular lesson of history and make the same mistake all over again.

The Nobel? Maybe Next Year

I am impressed that Paul Krugman, ace columnist for the New York Times, has just won the Nobel Prize for Economics. Although in graciously acknowledging this honor I can't help but feel the Nobel committee might have also considered my own stunning accuracy in predicting the Dow's plummet to the 9,100 level in a blog post many weeks ago, long before the Dow elevator passed the 9,100 floor on its way to the basement.  I would quote myself, but that seems unnecessary. Also, way too much work.  This is a blog, for crying out loud.

Nevertheless, there is more to maintaining a blog than simply basking in the egotistical glow that occasionally comes from a lucky guess.  Not much, but a little.  Thus, it seems appropriate at this point to elucidate some of the theoretical underpinnings of my theory for the benefit of a confused world.

First, unlike run-of-the-mill economists, those with jobs, for instance, I do not take seriously the "scientific" claims of economics.  I think the Nobel Prize should probably be in the same general category as the one for literature.  I noticed that Paul Krugman never figured out the Dow would hit 9,100 this year, the way I did.  He was more "generalized" in his comments about the economy; that way, you can never tell if he's right or wrong. That's the way all these guys play the game.

Me, I believe in numbers, so I gave one.  And The Formula:  14,000 - 4,900 = 9,100, where 14,000 was the Dow at its height; 4,900 was derived by halving the discretionary income of the American populace and multiplying this fraction by 70%, the percentage of the American economy attributable to buying stuff from each other, and winding up with 35% of 14,000, or 4,900. But I used letters for variables and equal signs, so the whole thing looked like algebra. My inputs were based on things I'd read, here and there, particularly Kevin Phillips and his work on the housing bubble.  Americans were getting about half their money from borrowing equity out of their houses, one way or another, during the "Bush boom."  All that money's gone.

I can practically guarantee you that the big rally on Monday was orchestrated by the Treasury Department and the Fed.  There was nothing real about it.  The Fed is printing money, giving it to the Treasury Department, and Paulson is manipulating the market with all his "discretionary spending money."  I don't think they're even going through the pretense of borrowing the money from "abroad" or from American investors or anywhere else.  They're running the printing press at a speed set just below the ignition point for paper money and letting 'er rip.  

There is one main purpose for this elaborate theater:  it buys time for the Bush Administration.  George W. Bush just wants to get out of town before (a) there are huge bank runs and a reversion to a wampum-barter economy last seen in the early 1600's in Pilgrim America (the best case scenario), or (b) [Bush's true paranoid vision] millions of destitute Americans arrive at the gates of the White House with pitchforks and torches.  It must be miserable for W to contemplate that after faking his way through the Presidency for almost eight full years, that he could find himself, with only 97 days to go, stuck in this awful mess.  I suppose nothing much disturbs his sleep, but if a nightmare did intrude, I guess it would be that archetypal vision where he's trying to get away, struggling to elude a monster trudging after him, and he just can't get his legs to go.  So he sits looking at a short-timer's calendar, dreaming of Dallas and a resumption of moderate drinking, of gaining as much weight as he wants, of not simply pretending to be folksy but of being the folksy cornball which his very limited intellect makes his natural style.  

It will be bliss.  And the only thing he's got to stave off for 97 days is the complete and utter collapse of Planet Earth's economic system, which has been brought on by his colossal ineptitude. Is that really so much to ask?

Look Up in the Air! It's a Bird! It's a Plane! It's an Investment Banker!

It is the utter incompetence of George W. Bush which has led to sentiments such as this.  It is axiomatic in the practice of legal negotiations, for example, that the side which controls the drafting of the first proposal has a tremendous advantage in the ultimate outcome of the deal.  It's simply the way the human mind works: the opening offer sets the template or frame for what is possible.  Yet when Bush, out of the blue, announced that America, unlike the economically thriving place he had described just weeks earlier, was on the verge of complete collapse, he filled the panic-stricken void with the stupidest proposal feasible.  His Treasury Secretary, Henry Paulson, until recent years the Chairman of Goldman Sachs, one of the most likely beneficiaries of the huge bailout, rolled out a program which gave the Treasury Department absolutely unfettered discretion to dispense the largesse in any fashion he deemed appropriate to save the economy.  The terse, skeletal, three-page "legislation" denied all other branches or agencies of the government, including the courts, any right to review any action taken by Paulson.  It also empowered Paulson to hire any private outfit he wanted to help him with his unsupervised work.

Yet another stunning example of Bush's grotesquely inappropriate temperament for the job he pretends to do.  The huge problem, which he helped more than most to create with his absentee-landlord government, does need intervention to save us from the worst of the inevitable decline the U.S. economy is headed for.  But Bush, in his utterly bottomless arrogance, nevertheless proposed that only he and his cronies in the Treasury Department would have any input into the process of solving the problem.  I suppose, when psycho-historians look back on this strange interlude in American history, the one recurring theme they will delineate is the reality distortion so obviously inhabiting the mind of the president.  He simply cannot see what's going on here.  He thinks that his 70% disapproval rating, almost unprecedented in U.S. history, reflects only the misunderstanding of his subjects.  If they could see the world through his wondrous eyes, they would realize that the crazy and useless war in Iraq, the cratering economy, the shredded Constitution, the diminished place of America in the world, were not actually any of these things. Our view, like seeing the nonexistent bend in a pencil placed in a glass of water, is the result of inaccurate reporting and a biased media.  We should continue to trust him, to allow him and an investment banker to figure out the entire economic problem, because his gut instincts, informed by daily chats with the deity, always lead him to the right decide-making.

Bush will never understand that we're not missing anything.  The picture up above, with its hilarious echoes of 1929, when men who created disasters did the noble act of self-defenestration instead of begging the government for a handout, reflects an honest reaction to Bush's first proposal.  The American people don't want to give a trillion dollars to Goldman Sachs and JP Morgan Chase or whoever is left standing on Wall Street as a reward for their perfidy.  The three-page ransom note Bush initially handed to Congress implied that possibility, and it was his fault that the entire initial bailout debate degenerated into a "Wall Street versus Main Street" slugfest.  As a result, precious time was lost and the problems of liquidity have gotten worse. Bush caused the impasse by framing the debate in exactly those terms.

The bill that was voted down was much different from Paulson's sketch, yet even the House bill suffered from the effects of the original template.  Many economists have weighed in with much more sensible and direct approaches for recapitalizing cash-strapped banks, ones that do not carry with them the stigma of bailouts for billionaires. Such proposals start from scratch, without reference to Paulson's prescriptions.  Maybe for that very reason Bush was never very interested in such real solutions to real problems.

The Senate takes up the task now, I'm sure with the able assistance of the senior senator from Arizona, who will murmur his own diktats to help the process along.  Something will happen soon, no doubt.  The Congressional Clown Troupe can't strike the tents and go home until they finish this, and the one motivation that energizes them more than any other is the chance to stop working.

It's Probably Time to Face the Music

I believe it was a distant relative of mine, Aristotle, who observed that it was the fate of democracy to devolve into oligarchy.  It certainly happened here.  The final push was the abandonment by the United States of even the trappings of social democracy in favor of a devil-take-the-hindmost capitalism without restraints of any kind.  Human nature being the immutable thing it is, a greedy competitiveness became the ethos of the Hollow Men of the Bush Era.  They ran scams, Ponzi schemes, swindles, the whole gamut, settling on the securitization of America's last great asset, its actual land, as the final play.

It all crashed and burned and now America's days as the great hegemonic capitalist are coming to an abrupt end.  The "bail-out" is not actually to restore America to functionality.  Its sole purpose is to reimburse the financial swindlers who call the shots for the Bush Administration.  On their way out the door, they're going to pull a Brinks job of historic proportions.  Empty the Treasury of its last shreds of notional value, its "dollar reserves."  Hey, if it proves legal tender in countries with hard currencies, so much the better.  There is no real harm in taking a hand-out arranged by your friends in high places, even if it proves worth less than it seems.

A moment's reflection should convince you that the "bail-out" is preposterous.  It violates what you might think of as the First Law of Financial Thermodynamics: if the United States is actually $10 trillion in debt, if we run yearly trade deficits of $800 billion, if the American banking system is overleveraged and broke, how do we conjure, out of thin air, another $1 trillion to give to large financial institutions?  If we can actually do that simply by "appropriating" the money, then why do we say we have any national debt at all?  Why don't we immediately "appropriate" enough money to pay off the national debt?  It's only one order of magnitude removed.  There, now we're solvent.  We print the world's fiat currency, don't we?  Then we decide how rich we are and how rich everyone else can be.

The "bail-out" is a hallucination which might work long enough for Bush and his financial cronies to transmute Paulson's unsupervised, unreviewable largesse into something of actual value.  If you read the actual language of this ridiculous piece of "legislation," you will see things that sound simply and fundamentally un-American, as we used to think of that term.  Why would a cabinet member be given dictatorial powers to decide who receives public money, and why would all courts be deprived of jurisdiction to challenge his use regardless of cronyism, bribery, favoritism, graft?  It's simple: the bail-out is theft, pure and simple, and no one in the Bush Administration wants to answer for what they do with that $700 billion.  If the Congress is stupid enough to give Paulson this kind of power, then I think we can safely say at that point - that's all she wrote, there is no one in Washington who actually represents the American people.

No amount of legerdemain is going to really create money where there is none.  The world has caught on to this act.  It's better to face insolvency sooner rather than later, particularly when the efforts to delay the inevitable simply add to the problem.  The last of the bubbles has burst and the bills have come due.  It's time to start powering down the American economy, and if "crises" of illiquidity occur and the "financial markets" freeze up, so be it. We'll have to get used to a standard of living based on our actual productivity and income.  Adding a crushing burden of debt as the economy goes down anyway makes no sense.

Like most observers, I have no confidence that the Democratic Party will do anything other than whimper a few objections to Chairman Bush's latest Socialist foray, and then line up behind his "plan."  Let's face it: they're in on it.  They're on the payroll of the same lobbying groups.  And they certainly don't want to shoulder any blame if the Crash comes with no legislation in place.  They would prefer a larger Crash sometime in the future, when a President who doesn't scare them so much won't give them dirty looks and call them names.

The Banality of Idiocy

For a couple of minutes there yesterday, I watched President Bush address the nation on the most current, desperate financial crisis in America, the implosion of the two big government-chartered mortgage companies Fannie Mae and Freddie Mac. Fannie & Freddie sound like a couple of lovable losers in a British sitcom, but they're actually a couple of unlovable losers in the American subprime fiasco. They once played a starring role in Bush's "ownership society," but that was then. They're lucky if they can get a cameo spot in an infomercial now.

I didn't switch Bush off; he only talked for a couple of minutes. He had just met, or at least said he had, with that genial banker-about-town Henry Paulson, Secretary of the Treasury. I've looked but I've been unable to find a transcript of the entirety of Bush's remarks, brief though they were. Here's what was available on the White House website:

"I want to thank you all very much for your briefing. These are tough economic times for the American citizens. There is a way forward to help relieve some of the pressure on their pocketbooks. And I'm looking forward to seeing -- watching this Congress respond in a positive way."

That is indeed the essence of his remarks, although it lacks some of the defining quality of Bush commentary. What I like to call the "descriptive meaningless." We've all heard examples of it. While in China at a G-8 summit, Bush reportedly told the President of China that China and Russia were "big countries." I don't see how any honest person could disagree with Bush's statement. Or why the President of China would need to be told. In his verbatim remarks this morning, Bush did the following:

1. Confirmed that he had just met with Paulson.
2. Stated that Paulson and his team (Bernanke, et al.) were "working the problem very hard" with Fannie & Freddie.
3. Confirmed that Fannie and Freddie were "important."
4. Said what's indicated up above, that these were "tough economic times."
5. Congratulated Secretary Paulson on sending out a lot of stimulus checks, and cited the number of checks, which Paulson must have just told him (in order to demonstrate Paulson was trying to do something to keep the country from unraveling completely.) Bush said consumers were spending this money.
5. Cited the cost of oil as one of the reasons for our troubles, and said the high price was caused by supply and demand.
6. Said that Congress should not go home for the August break until we're drilling in the Gulf of Mexico and in Alaska's wild life reserve.

He then thanked us all for coming.

It's as if Bush, upon entering a room, would feel the need to name the furniture. Wrinkling his brow and squinting fiercely with those small eyes, Bush looks around the parlor: "That's a couch," he says. "There's some chairs there, by that table, and then there's the table itself. On the floor, down below us, is a rug, which covers the floor. Then there's some lamps, on these, which are end tables. Thank you all for coming out."

Somewhere along the way, Bush was told by one of his image-creators that he needs to stay away from anything remotely abstract, such as using words to express intellectual concepts. Thus, he is reduced to naming the actual events which have just occurred and applying a generic, uninformative adjective to (a) the event and (b) the subject, if any, which was discussed at the event. Let' see how these instructions are actually put into play by the bozo running our government:

Paulson came by to talk to Bush, and Bush confirmed that he did. He thanked his Secretary of the Treasury for telling him about how bad things are in America. Then he said the Secretary had sent out a lot of checks, and recited the number. Then he said the Secretary and the Fed Chairman were working on the problem "very hard." Then he said the two government-backed mortgage companies were "important."

That actually concluded the "briefing." Bush, however, being a mean and vindictive little man who absolutely hates the widespread, completely accurate perception that he's grossly incompetent and has driven the country into an economic ditch, could not resist blaming things on the "Democrat" Congress. Thus, he wanted Americans to know, the ones enduring the "tough economic times" which Bush has been absolutely incapable of alleviating, that the "pressure on their pocketbooks" could be relieved by a "way forward," namely, lifting the ban on drilling off American coasts and in the ANWR. Bush did not mention that the most optimistic estimates of the effect of this effort would not be felt until about 2018, at which point the "pressure on American pocketbooks" would presumably have reached 5,000 lbs. per square inch. And even then, the oil production would have a marginal effect on the price of gasoline in that distant future, when it might cost $1,000 to fill up the family Tercel.

So again, to sum up, because I'm trying to get a handle on this guy: Bush had just been informed that a couple of major pillars in the American financial structure had crumbled and collapsed, rotted out by worthless loans and overwhelming liabilities. Presumably, Paulson had also told him that IndyMac Bank would be seized later that day by federal regulators to stop a bank run (one of many were going to be seeing over the next few months). The Dow Jones is slightly above 11,000, which measured against the Dow Bush inherited, minus the government's own lala-land inflation figure, means it's worth 15% less than when he took the oath in 2001. The euro is just shy of $1.60 American. Oil is at an all-time high, touching $146/bbl at one point on Friday. When the federal budget deficit is honestly tabulated at the end of the year (refusing to count the Social Security surplus as part of general revenue, in other words), and if the "stimulus [bribe] package" is added to the costs of bail-outs of huge financial institutions, and enormous ongoing costs of Bush's twin wars, all financed with borrowed money -- we'll be lucky if it doesn't add up to $1 trillion.

And what Bush proposes doing is drilling offshore. That's it. Stay in Iraq, make the tax cuts permanent, and drill offshore. Just what constituency do you think he might be serving? At this point, I only hope the worst happens before he can sneak out of town. After all, that was the purpose of the Bribe Program; to allow Bush to slither out the back way from the White House just ahead of the roof falling completely in.

An experiment in Bush/Dow coefficients of correlation

As a brief endnote to Friday's musing, President Bush is about to address the nation on the "economy." I will watch this speech on CNBC and note the Dow at the moment when Bush begins speaking. I have noticed in the past that as Bush speaks, the Dow sinks with practically every word. It's already been a terrible day on Wall Street, and we'll see if King Bizarro Midas can work his magic again:

The Dow at the moment Bush begins to speak: 12,314 Down 289.
Dry mouth, slurring his words. He looks gaunt these days.
5 minutes in, Dow down 288. Confounding the theory.
7 minutes in, Down down 287. This man is a leader.
Uh-oh. At 9 minute mark, down 294.
Bush still on stage, Dow down 298.
Finished.
So when Bush began, Dow was at 12,314. As he turned to observe the swearing in of his new Secretary of Housing and Urban Development, Dow was at 12,305.

9 point loss in the course of a 10 minute speech. It's good Bush didn't speak for an hour. Would have cost us 54 points. Wait-- now we're at 321 down. This must be the hangover effect from a Bush speech. Just when the country is feeling hopeless, Bush begins speaking and we have our confirmation - there truly is nothing but despair on the horizon.

As Tax Day Approaches, Iraq's Cost by the Numbers

A little perspective: suppose you owe $5,000 in income taxes on your 1040. The Iraq war will use your contribution in 1 second. Like a drop of water hitting a red-hot skillet: pffsssst! Gone. Here's the interesting part: it did no good whatsoever. The $5,000 you just paid in will do absolutely no good. Indeed, it is a down payment on future calamity, as Nobel economist Joseph Stiglitz tells us in predicting the total cost of the Iraq war will be $3 trillion. Your $5,000 ante simply maintains soldiers in the field, who will be shot, blinded, blown up, traumatically amputated, massively burned, and driven insane. Those soldiers will then bring all their problems home to a country which is unequipped to handle them.

I've been writing this post now for about 180 seconds. During that time the United States spent $900,000. Half of our urban high schoolers no longer graduate from public high school, so the next question is tricky for them maybe: how long till we get to $1 million? That's right, we're there. It took 20 more seconds. We're now past $1 million, and still spending. Actually, I don't know anyone who owes $1 million in taxes personally, so a lot of us around here must be pitching in.

Well, actually we're not paying for it. We just provide the money used to pay interest on the loans used to pay for it. To finance the Iraq war, BushCo borrows the money from foreign sources. We can't actually afford to pay for the war. The Chinese, the Japanese, the British, the Gulf States, they're the ones lending us the money to pay for the war. Let's figure out how much we spend a minute so we can keep up with the cost of this blog post. 60 x $5,000 = ? $300,000 per minute. $18 million per hour. $432 million per day. $3 billion per week. $12 billion per month. $144 billion per year. Here's the other thing: the Iraq war keeps getting more expensive as we go. I suppose that's because we've worn everything out over there, and keep hiring more and more mercenaries and contractors to replace fully-depreciated soldiers, and the guns-for-higher cost a lot more than the patriotic grunts sold a bill of goods by their government. The guys at Blackwater aren't going to put their asses on the line in exchange for George W. Bush's tear-stained mumbles of gratitude.

Besides, we must have plenty of money if we can afford to spend $432 million per day on just one war. Right? No, not really. We're over $9 trillion in debt and the economy is in recession. We're becoming like everybody's drunk brother-in-law who keeps borrowing money from relatives till they pretend not to be home when he knocks on the door. "Shhhh! It's the United States at the door! Act like we're not here!"

It's going to be hard to get around in the USA anymore since all the airlines are now collapsing. They can't afford to buy jet fuel. ATA went belly up because they couldn't afford the $25,000 it takes to fly one-way from San Francisco to Honolulu. The Iraq war apparently didn't do much to control the price of oil. People think twice before driving anywhere now. Consumer confidence is in the toilet. Housing prices are slumping, depriving the US of A of its regular adrenaline fix of re-fi and line o' credit moolah to keep Target and Best Buy humming. No dough, no go.

So this is what it looks like when you put a career screw-up, a guy who took every business placed at his mercy and ran it into the ground, in charge of the United States of America. He couldn't handle relatively simple businesses, so we thought, in our collective wisdom, we would put him in charge of the most complicated economic-social organism on Earth and see how that would work. Surprised? Why? It should confirm your sense of the natural order of things. He can't prioritize; he can't adapt to changing circumstances; he can't think creatively to find another way out. He resorts always to one principle: if he said he was going to do something, he'll keep doing it even when it proves to be the wrong thing. That is his one value: to remain obstinately dedicated to the error of his ways.

Took 30 minutes here. $9 million down the tube in Baghdad. We'll soon be following it down the chute.

Co-Dependent Nation

The stock market is tanking again today (in the morning, as I write), an indication that the Plunge Protection Team meeting in the basement of the White House is running out of gas. They just don't have the scratch to do it all by themselves, folks. Look, all you American Idol fans: you've got to do your part. Isn't there anything you want to buy right now, even if you're unemployed and you've missed your last two mortgage payments? Where's your sense of commitment? The "service sector" numbers are down, and since "service sector" = "the economy," we've got a real problem. And the American consumer is causing it. How can we put this to you? Try this: Buy shit or die.

I've been watching Treasury Secretary Henry Paulson bob and weave before a Senate committee this morning, and he's valiantly striving to explain how Bush's last budget can be reconciled with his pledge to balance the books by ...some date in the future. The current estimate calls for an "official" deficit of $409 billion; however, it must be pointed out that this number fails to include anything, even though everyone knows that huge expenses are being deliberately left out in order to maintain the fiction that Bush's "budget balancing" is an actual phenomenon and not the reality distortion of a dry drunk trying to convince himself he's done something he hasn't.

You can see how the personality problems of our national father engender anxiety symptoms in his citizen-children. How come Daddy still refuses to admit that he's not including the Social Security surplus of $200 billion in his calculations? So that takes our deficit to $607 billion. And what about the uncounted "emergency appropriations" for Iraq & Afghanistan, which apparently will add up to $70 billion? So we're up to $677 billion. And then the "stimulus package" of $150 billion, taking us to $827 billion, or twice the official figure. That's about 25% of the total budget of $3.1 trillion, and will take the national debt to about $10 trillion when Bush leaves office.

The Senators, however, are obviously afraid to point out Daddy's problem. He's addicted to military spending. No matter how bad his financial situation gets, he absolutely insists that his war jones has nothing to do with it. He's got it under control. He needs it, in fact. While we're talking about that, this year he'd like more money to feed the monkey. He wants to cut medical research, education funding, subsidies for seniors freezing to death because of high fuel oil costs, transportation funding (like resurfacing our washboard roads), benefits for veterans getting maimed in his wars, but dammit -- give me that military money!

Gee whiz, it does seem that until someone has the guts to point out to Daddy he's got a huge problem, and that he's nowhere near his fantasized goals, that we're going to remain stuck on Step One. Where we've been, unfortunately, since January, 2001.

A wild surmise

From Hale Stewart's column in the HuffingtonPost, Oct. 22, 2007:
"However, the big foreign buyers of US debt aren't buying this debt like they used to. According to information from the Treasury Department, the five largest holders of US debt (Japan, China, UK, Oil Exporters and Brazil) owned a combined total of $1.224 trillion in August 2006 and $1.459 trillion in August 2007. That's an increase of $235 billion. And over that same time, the really big purchases came from the UK ($189.4 billion) and Brazil ($63.6 billion.) China only increased their holdings by $13 billion and Japan decreased their holdings by $37.9 billion. In other words, Asian Central Banks -- who used to be reliable purchasers of US debt just aren't that interested in buying anymore right now."

And then this subtle datum: "M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada."

As of March, 2006, the United States government stopped publishing data on the M3 money supply. The reasons given were unconvincing; to "save money," was one excuse. Saving money on a government program? The mind reels. Or: because you can calculate the M3 supply by reference to other data, such as the M1 and M2 numbers. Huh? Someone needs to do a Venn diagram. M1 and M2 are supposed to be included in the M3 supply.

Admittedly, all of this is a bit arcane, shadowy and abstruse, and I may choose to make this third adjective My Word for the Day, and if I use it three times -- it's mine! So I'm told. It means "recondite" or perhaps "hidden," from the Latin abstrusus, meaning, well, "hidden." But I come around to what I think is a logical question. Why did the British suddenly become our #1 purchaser of Treasury debt among foreign investors? I see plenty of Land Rovers around my neighborhood, I admit that, and "Benny Hill" in syndication must bring in a fortune (okay, not really). Still -- what's going on? Between August 2006 and August 2007 the British suddenly became the chief financiers of America's ongoing slow-motion bankruptcy.

Persistent rumor has it the U.S. printing presses are working overtime making lots and lots of money. Some have speculated this is the true reason for the relative stability of the U.S. stock market despite the deflating housing bubble -- all that money has to go somewhere. But suppose (and this is where the wild surmise takes shape) that the United States, which must finance about 1/2 trillion dollars per year to "balance" its crazy books, has hit on a scheme which eluded the Weimar Republic in its disastrous hyperinflation days of 1922 and following. One way you might do it would be to concoct a system for buying your own debt. And to conceal what you're doing, you stop publishing data on Eurodollars (U.S. dollars held in banks in the UK and Canada, chiefly), because you (yo! Treasury -- I'm talking to you) are using an elaborate system of straw men to "buy" Treasuries from yo'self. You're cash-strapped, you're running wars you can't afford while cutting taxes, and the Asians signal that they're tired of watching their dollar holdings depreciate in value while receiving a measly return on Treasury notes, especially now that the tapped-out American consumer is making fewer trips to Wal-Mart to buy lead-based toys and dog food with Ikea dust in it.

Meanwhile, back at Prairie Chapel Ranch, Bush is frantic to keep the pipeline open between the American treasury and American mercenaries and defense contractors in Iraq. If it were to leak out that America is now printing money, sending it to UK banks which in turn buy our own debt, it could put a real damper on war funding, and also turn Bush's last year into the waking nightmare he has so far somewhat eluded. Such a disclosure would probably spell the end of the U.S. dollar's reign as the world's "fiat currency." Not to be too abstruse (2), but it didn't work for the Confederate States of America and it probably won't work for the Union either. As I say, a wild and abstruse (3) surmise, but if we've learned anything about the Bushians, it's that they're capable of any kind of deceit, large or small.