The NYT Has Really Stupid Editorials About Finances

December 3, 2007

Elaine Meinel Supkis

The global banking crisis continues and gets much, much worse. Of course, all the Western banks will apply the Japanese Solution: 0% interest rates. Ben Stein is paid a lot of money by the NYT to say many very stupid things but that is normal for the Times. So I tear him to pieces but he won't change. He does call for Goldman Sachs to be investigated. After claiming that there is nothing really wrong with our economy. Insane, isn't it? And the Arab nations continue to discuss the dollar's death while taking various measures to protect themselves. And Europe realizes it is also falling off the same mountain the US is falling off of. A mountain of debt and M3 money creation.

The Long and Short of It at Goldman Sachs

By BEN STEIN

A gent in Florida who is sure economic disaster lies ahead (and he may be right, but he’s not), forwarded a newsletter from a highly placed economist at Goldman Sachs named Jan Hatzius.

That worthy scholar recently wrote a detailed paper about how he thought the subprime mess would get worse and worse. It would get so bad, he hypothesized, that it would affect aggregate lending extremely adversely and slow down growth.
*snip*
So I started an e-mail correspondence with Dr. Hatzius, pointing out what I believed were a few flaws in his paper.

Even more so than Friedman, Ben Stein is one of the least capable of people to hold an economic debate with. Since he knows very little, he thinks he is an expert. I am not an expert but I have spend many, many hours pouring over raw data, correlating numbers and time frames, looking at those indispensable charts and graphs. Ben Stein thinks that people putting out bearish reports are stupid. Can't they see all the sunshine in the news?

Of course, since he is clueless, he can't fathom the nature of those pesky clouds that keep covering the sun. It is worse: this dialogue between a fatuous man who is pampered by the press and a financial advisor for Goldman Sachs doesn't cover any of the ground I crawl over on a daily basis. Ben Stein does mention that Hutzius figures out the housing boom was busted in 2006. But then, that didn't require any genius. I figured, correctly, that is began specifically in November, 2005. All subsequent data since has confirmed my call. Even when the Alt-A and Sub-interest payments only loans surged during that time frame, the overall number of houses sold began to drop and the markets began their grand collapse. In NYC, this didn't happen until the September of 2006, a year later. House hunters there began bidding DOWN the price instead of up.

But the real riddle isn't this sort of simplistic analysis which I can do in my sleep. It is understanding the larger historical forces at work and figuring out what will happen in the future. Ben Stein thinks the future will be like the past. He cannot understand how this housing bubble is different from previous ones. I, on the other hand, am very alarmed to see it devolving like the one in Japan. It has many similar features including the very important feature of crowing about how this collapse is improving exports and how it is crushing workers and thus, reducing wages.

In other words, with the greatest possible respect to Dr. Hatzius, his paper is not really what I would call a serious overview of the situation. It is more a call to be afraid and cautious based on general principles that he embraces and not on the lessons of history. (In this respect, he is much like many economic journalists and commentators who sell newsprint by selling fear. The common cause of journalists and Wall Streeters in this regard is a subject I will address in the future.)

For this paragraph, I award Ben Stein the Friedman Fool of the Year Award. Let's give the man a hand *clap*clap*clap*. Anyone reading the media or researching media reporting in the past can clearly see the majority of the media operatives work hard to present happy news. Obviously, if there is a panic or some disaster, they will report it breathlessly. But they avoid ANTICIPATING anything bad. Except with the weather. If there is a bad storm brewing, they will report it but if there is light showers on the weekend, they will lie about the weather and pretend it will be pleasant.

I will also note that Stein is mocking people calling for caution. A classic chump dating Miz Risky, the devilish creature who lures men to ruin, he chides advisors who suggest it is time to marry Miz Safety, the angelic female who doesn't want you to get hurt. On top of all this, what are the lessons of history, anyhow?

As a devotee to reading history, it is obvious that historians rain on everyone's parade. Especially anyone writing about empires and bankruptcy. These go hand in glove and we are seeing in painful close up, exactly how this works! A number of years, ago, I was very alarmed by the tsunami of red ink pouring into our system. I have known people to focus on one or the other but seldom do they focus on ALL of them. And this is the ugliest business of all: we are in a classic state of denial because we actively refuse to see the obvious deficits piling up in EVERY venue, EVERY system, from top to bottom! This is very alarming. Far from 'All is well' nostrums, we should be hearing nothing but alarm bells ringing.

But we don't because the mainstream media hires complete idiots to explain basic economic facts.

Dr. Hatzius’s paper is a prime example of my puzzlement. It shows extreme intelligence but basically misses the point: yes, there are possible macro dangers, but you have to go all the way around Robin Hood’s barn to get to them, and you have to use what I think are extremely far-fetched hypotheticals to get to a scary situation. (This is not to diminish the real risks in today’s economy, I’m just not as gloomy about them as Dr. Hatzius.)

Robin Hood's barn is our entire financial banking system. And the macro dangers are right around the corner of this barn: China, Japan and the oil pumping nations. Actually, people can look through the barn doors where the economic work horses left due to outsourcing and we can see through the opposite windows, our buddies sharpening their butcher knives. 'But Japan is our ally,' Ben might say. Or, 'We can bankrupt China by destroying our entire currency and then starting over again with the peso as our money.' Or perhaps, 'We can nuke the Arabs and steal everything, hahaha!' Yes, Ben has many cunning plans and tricks he hopes to pull if history suddenly becomes activated.

This guy actually believes that if we ignore all the red ink, it won't matter since no one is yelling about it overseas. Oops, actually, people are yelling about it overseas. Ben is simply unable to hear a thing, wrapped up in his happy times cocoon and counting his dollars he gets paid by the NYT who won't pay me or a lot of other people any money to write smarter things. If the NYT gave me a couple thousand a month, I too, could ignore economic reality and live in Ben's bubble.

An odd thing happens in this article. Suddenly, Ben wakes up and notices that Goldman Sachs sold CDX and CDO instruments to gullible people similar to the NYT staff writers. He then begins to discuss how amoral that is and how it might have some bad problems since the gang there makes money coming and going while trusting investors are sheered and left naked in the cold winter gales. So he switches suddenly from playing the gay, happy fool to darker thoughts!

When the Depression got under way, the government created the Temporary National Economic Committee to study just what had happened on the Street to get the tragedy going. Maybe it’s time for an investigation of just what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal.

He wants them investigated, eh? I want them arrested. Along with the Fed leaders, the Gollum Sachs retread running the Treasury and the present occupants of our White House! And we must also investigate the NYT and ask them why they hire schizoid writers to yap about economics. Now---onwards, dear readers, on to the parade of bad, bad news that illustrates clearly, the West in deep in a major banking crisis that is just begun, not ending.

Banks refuse dollar loans to exporters as cost rises

Indian banks have been drawing foreign currency credit lines from international banks to lend to local exporters. Now, with the subprime fiasco severely impacting the global money market, high-street banks in the US and Europe, even reluctant to lend each other in the term money market, are in no mood to extend credit lines to Indian banks.
*snip*
“Liquidity has become so tight that we would be losing money if we give PCFC (packing credit in foreign currency) loans to exporters,” says the head of trade finance of a private bank.

*

At the beginning of the Great Depression, the biggest international banking enterprise was still in London. The British Empire was even bigger than before WWI. The British Empire was also BANKRUPT. It still sailed the Seven Seas and it still marched about Africa, Asia, the Americas. But the banking system COLLAPSED. Since the £ was used for international trade, the collapse of the banking system meant a collapse of trade. And this was fixed only through the expedient of having a massive World War as everyone fought over the corpse of the British Empire. The only reason any bits survived was due to the new empire, the USA, stepping in and taking over the Seven Seas and Britain as well as half of Europe. We lost most of Asia through a long, grinding war called 'The Cold War' but we held onto Japan. After Russia fell, we ended up ruling the Earth.

And driving straight into bankruptcy, ourselves. Now we are seeing a repeat of that time period. The Great Depression was not started by US consumers buying radios, cars and houses. How on earth could that cause world banking to collapse? But when Germany refused to pay Britain reparations, the whole INTERNATIONAL banking system went kaput. As it is, today. Banks trade with each other and this is now collapsing. And not due to homeowners walking away from outsized mortgages. The numbers are still rather puny. Compared to our trade deficit. And our war expenditures. And our budget deficits. As well as a thing created by bankers and financiers, a thing that dwarfs all other things on earth, the biggest, ugliest thing of them all: $500 TRILLION in derivatives!

This is what is in trouble. This is the 'magic multiplier' effect at work with a vengeance. A woman slamming the door on her overpriced home in California as she leaves for good is like the butterfly wings in the Amazon causing a hurricane to brew and sweep up into the Gulf. The butterfly doesn't cause the hurricane, the temperature of the air, water, tilt of the earth, speed of the upper atmosphere winds, all the mega-forces cause the hurricanes. But the butterfly is part of that system, nonetheless.

Hotels hedge bets as revaluation fever grips UAE

Hotels in the United Arab Emirates, including those owned by Dubai's ruler, have started changing dollars into dirhams at as much as 17 percent below the official rate in anticipation of a revaluation.

Money changers, used by expatriates in the UAE to send savings home, have also jacked up rates, in many cases overnight, on expectations that the central bank would allow the dollar-pegged dirham to appreciate.

I remember when Russia's exchange rate was pegged to be the same as Germany's rate many years ago. 4 to the dollar. Then the ruble collapsed in value and money changers would run up to tourists to make exchanges. The government tried to stop this but when 300 rubles bought a dollar, Russia went bankrupt. The devaluing of the dollar is now quite popular and even, expected. This is a disorderly way of doing things. Japan doesn't worry about the relative value of the yen collapsing because nearly no one holds yen right now. It is a purely internal currency. But the dollar is most emphatically NOT. It is the exact replica of the British £ in the past. We cannot afford to see it turned to toilet paper.

AMF Chief Urges GCC States to Drop Dollar Peg

The latest call for depegging from the dollar came from Jassem Al-Mannai, chairman of the Arab Monetary Fund (AMF), who urged the GCC states to lift their pegs to the dollar, saying revaluations would not solve the problem of rising inflation. Speaking at an economic seminar in Abu Dhabi, he advised the GCC that groups Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the UAE, to switch to a managed float or peg their currencies to a basket, including the euro, sterling and yen.

The calls to drop the US dollar in oil sales is rising. The US has lost the advantage now. Iran has announced they don't have any nuclear bomb material and are being backed up by many others in this matter, taking the wind out of the US warship's sails. Russia just handed Putin a resounding victory which is being decried in the West at the same time the dictator who is unpopular in Pakistan is hailed as a servant of democracy by our own dictator, Bush, who has a very poor record when it comes to elections, himself. Chavez tried to monkey with the Constitution and got slapped down which is more than I can say about the US.

We are still in the dark shadow of our own Constitutional Crisis and I don't see our corrupt Supreme Court doing much to restore our legal liberties and rights. Nor is Congress arresting Bush and Cheney for war crimes. Namely, lies about WMD in Iraq. Not to mention, the lack of an open, honest investigation of 9/11.

The oil pumping nations are going through some very great changes due to the flood of dollars coming in even as the dollar swan dives or rather, belly flops into obscurity. Once this change is done, the US, the world's biggest importer of oil, will be in very serious trouble. Congress recently passed a bill making cars and trucks improve their mileage to 35 MPG in...2020! Wow, the turtle will win the race! I had a car that got 55 MPG back in 1990. The red ink this oil importation represents is one of the key elements in our looming catastrophe that Ben Stein pooh-poohs so hard.

GCC to ‘act united’ on dollar move

THE six-nation Gulf Co-operation Council will make a united move if it were to decide on a currency revaluation or de-peg from the US dollar, Saudi Arabia’s finance minister said in Doha yesterday.

“We would do it as a block” if there is any decision on the currencies, Ibrahim al-Assaf told reporters when asked whether Gulf states could make the forex move on their own after the recent slide in dollar ratcheted up inflationary pressures on their economies.

Al-Assaf also said Gulf finance ministers at their meeting ahead of the GCC summit in Doha today didn’t discuss revaluation of GCC currencies or ending the peg to the dollar. “It was not on the agenda,” he said.

We should not treat this 'wait and see' attitude to mean this present mess may continue forever. All the variety of news coming out of the Middle East are all warnings coupled with reassurances. They want us to move in a certain direction and they are definitely preparing to throw us to the sharks if we don't move in that direction but like China, they are NOT ready to do this, not at all. They heartily wish to keep the status quo of last year going for at least another 20 years.

The US abused this desire to run up impossible bills. We decided, if we can go in debt, let's do it as much and as fast as possible. Now we are at the end of our rope. This rope is the debt rope: one can't go into infinite debt. One may print infinite money as Zimbabwe does...note that this particular example nearly never makes US news! But we can't run up infinite debts. Right now, we have been heading into the dangerous waters of potential bankruptcy by taking on debts and paying only the interest due. In some areas like housing and consumer credit, we are now paying less than that but at a higher interest rate! In the case of housing, to keep signing new contracts, mortgage sellers had to reduce even the interest rates with the 'teaser rates' in order to keep things going. Then we hit the point where even that was not enough.

People who bought houses only a year before were defaulting. And this is what is bringing the system down: we can't afford anything but Japan's 0% interest loans. And even that won't do if we keep spending in the red.

E*Trade firesale seen hurting Wall St portfolios

Financial analysts on Friday said E*Trade got anywhere from 11 cents to 27 cents on the dollar for its $3.1 billion portfolio of asset-backed securities. The portfolio sale was part of a $2.5 billion capital infusion from a group led by hedge fund Citadel investment Group.
*snip*
Using what she called a simplistic analysis, Katzke estimated Merrill Lynch & Co Inc could take a $9 billion after-tax hit to the valuation of assets underpinned by subprime mortgages. That estimate assumes the Merrill assets would be marked down to 26 cents on the dollar.

E*Trade was one of the irresponsible brokers who wrote many 'teaser rate' loans. Now these are seen as worthless. 11¢ on the dollar is a 89% loss! Imagine that. A $3 billion portfolio vanishes without much a trace. Less than the 20% profit fees, I guess, that the originators of these guys all hoped to collect. I remember when MarkIt started their ABX pages. The illustration for the graphs showed only bars going upwards, not down. Wishful thinking. Because of the recent rescue operations like the expensive one done by Citadel, prices have gone up very slightly this last three days. They are anticipating yet another and possibly bigger rate cut from the Federal Reserve. The race towards 0% financing continues

China wins from credit crunch fallout

The total secrecy in which the Chinese state conducts all of its business means that the meeting of central and commercial bankers at the People's Bank of China in Shanghai, the country's commercial capital, has never been reported. Officially, the Chinese government and the state bank will not even confirm that it happened.

But The Daily Telegraph has been exclusively briefed on the discussions, which gave a rare glimpse of the workings of the communist regime and its financial operations.

Those present included senior executives from some of China's "Big Four" commercial lenders, each of which has the government as its majority shareholder. Officials from the People's Bank of China wanted to know whether the lending banks "had any skeletons in the closet", according to one person present.

As I have noted in the past, people are willing to talk about things only if they can be totally invisible. This is part and parcel of the 'Ring of Power' system whereby actions are hidden from view but we can guess about them. I have noted in the past that China has had many secret meetings concerning the Great Western Banking Crisis. Japan has flitted over to China to consult, too. And so have some Arabs and Putin and a bunch of people are heading to the Dragon's Lair, the place behind Robin Hood's barn. The cave that is right behind this big barn that baffles Stein so much is where the Asian money making machine is, aka, human labor.

The Chinese, as I correctly said six months ago, are NOT exposed to danger from the devolving mess in the US subprime-off shore-hell hound-derivative mess. They are wondering how to exploit all this, of course. We know the Japanese are very keen on this issue for they fear going under if we go under. They also are doing immense trade with China and have to now make some difficult choices. They would love a weaker China but can't expect this. So they are triangulating, as I predicted. I am expecting China to begin pressuring Japan into a joint currency rise based on secret protocols which concerns military presence in Asia of the US fleets. If we see joint communiques issuing from Tokyo and Beijing simultaneously, we expect this to be a surprise.

My dad was once on a very delicate mission to Taiwan on behalf of President Carter when events forced Carter to suddenly announce recognition of China. This was while my dad was negotiating on this very issue! I was at home and dropped everything and phoned the State Department. 'Did you warn my father?' I asked an undersecretary. They said, 'We can't find him!' Meanwhile, riots were spreading in Taiwan. I wa terrified for my dad. He was found on this farm, visiting a high official and wandering about, examining the farm's operations and didn't know about the riots or the recognition.

Moral of this story: EVERY change in China's status and the US response comes LIKE A THUNDER CLAP! Nixons' visit was the same. My father's first visit, equally fast and shocking to all of us. The request to move into my house, an utter shock that surprised the State Department, too. They always do these lurches.

There is a near-consensus among economists, in fact, that the Anglo-Saxon world created this credit crunch and will likely bear the most pain.

The eurozone, it is widely assumed, has been less affected by sub-prime. Most investment banks predict the 13-country region will out-perform the UK in 2008.

A slew of recent data tells me we should now question that assumption. If I’m right, and the eurozone does a face serious drop, us Brits would be foolish to grin. We like to revel in Continental misfortunes, but the single currency area matters hugely – accounting for three-fifths of UK trade, more than four times as much as the States.

The reason the eurozone now worries me is the emerging picture of sharply rising consumer prices on the one hand, and falling output on the other. Just like the Bank of England, the European Central Bank will on Thursday try to set monetary policy not only to deal with inflation, but also bolster growth.

The US is like a very fat member of a mountain climbing crew. All tied together, if the US keeps its footing, all is well, the others can even dangle on the line. Indeed, they can fight each other and even set each other's clothes on fire. But if the US takes a tumble, everyone falls, one by one, down the crevasse. England, being the closest and most careless, goes second. Then the Europeans, one by one. Then Japan goes down. China is not big enough to stop this. But China can saw off the rope in time! This is why they had the secret meetings this last month. I wish I knew the financial details at those meetings! I bet they discussed all the graphs and charts I have grown so fond of.

Evidence that eurozone growth is souring is now coming thick and fast. In Germany, the region’s powerhouse, retail sales fell 3.3 per cent between September and October we learnt last week – with consumer spending frail in many other member states too. Europe’s bellwether Economic Sentiment Indicator also fell for the sixth consecutive month.
*snip*
The eurozone also sends less than a tenth of its exports to the US. So, on a trade-weighted basis, the euro is up only 7 per cent against the dollar since January – less than half the straight euro-dollar rise.

The oil pumping nations are nervous about the dollar so they are not spending like crazy but are worried that the US will drag us all into a bad recession and then the price of oil will collapse, the value of gold will collapse and the dollar be cut even more in value even as these things fall in price. Ie: depression sets in. Namely, the dollar buys less and less and thus, there is inflation, but relative to all other currencies, it is actually a depression. Already, the fall against the euro has that effect. Trade is floundering and like in the Great Depression, it is due to a cessation of trade and a lack of 'liquidity' and funds for bankrolling trade, this is the depressionary cycle which is harder to break than an inflationary cycle. To break that, all one has to do is raise the interest rate until people begin to save again! But deflationary is very hard to stop. Note how Japan has clung to its own depression, grimly making it worse and worse because it pays off for the rich.

All systems that enrich the elites go on and on forever. This is why we cannot let them push us all into a 0%, depressionary cycle with constantly dropping wages and prices.

Bond market illiquidity hits eurozone

threatening to impair the ability of some governments and other borrowers to meet their funding needs in coming months, according to market specialists.

Here is more confirmation that we are definitely in a banking crisis similar to the Great Depression. Governments need to sell bonds in order to function and if all governments are running in the red then the competition rises for investors and thus forces interest rates up. Only everyone is also trying to go to 0% financing and frankly, can't afford more than that. This crisis should be addressed by the IMF who is supposed to prevent banking meltdowns but obviously cannot if the bankers running the IMF are the ones causing the problems here. The failure of all the systems set up by the West to prevent financial meltdowns like the one we are seeing today have failed because we frankly, do not want to take the harsh IMF medicine we prescribed to many a third world or South American nation.

The sterling interbank market has collapsed at the fastest rate in modern history, prompting pleas for immediate rate cuts from a chorus of top British economists.

Office for National Statistics data sourced to the Bank of England shows the volume of market loans in the banking system plunged from £640bn at the onset of the credit crunch in August to £249bn by the end of September, suggesting British lenders have been hit even harder than US banks in relative terms. Total sterling assets dropped from £3,244bn to £2,876bn.

"This is one hell of a shock to the financial system," said Professor Tim Congdon, a leading monetarist at the London School of Economics.

"A market that has taken 30 years to build has completely imploded in a matter of months. Lenders have been squeezed savagely. We've moved into a different era," he said.

We are in a different era, all right. Or worse, we are back to Square One which is when the British Empire went bankrupt before.

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Comments

[Al]

Elaine, as I recall Ben Stein used to be one of Nixon's speechwriters. Enough said.

[Mike W.]

Elaine,
Thank you for this incredible article....you certainly have a way of cutting through the smoke and mirrors and getting right to the truth. Oh how I wish we had more of the truth these days. But that would not be convenient now, would it?
I do however take exception with your views on oil and gold. If the US$ buys less and less as you state, throwing us into a depression, (or rather a hyper inflationary depression) I do not think that oil usage would grind to a global halt. That is impossible. There are many countries that will continue to function even as we spiral nose first towards the dirt. And besides, I don't think you give enough credit to anyone not on Wall Street or in DC. There are thinking individuals on the planet...like you.
Additionally, if the use of oil were to drop off, the producers would make certain to adjust their production to compensate. Reality always lies somewhere in between the extremes.
For instance, things could not be much worse than in Iraq right now. Yet they have people working, driving, doing business. Not exactly a booming economy, but there is some commerce.Unless we dive into a form of complete self destruction overnight, I just can't see things ending as abruptly as you describe.
I do however also think that gold will rise for the very same reasons you say it will not. With the dollar buying less, why would we pay less for gold?? I don't get it. Also, with the drop off the cliff of the dollar, the former reserve currency of the world, the demand for anything non-$ will be tremendous.
Additionally, as the Western Central Banking establishment collapses, currencies in all those countries will be rejected for the same reasons the US$ is. People will no longer trust the paper of their own country. Again, a strong case for gold.
Also, the gold market itself is one of the smallest markets in the world. As things continue to deteriorate, the likelyhood that holders of gold will be willing to sell diminishes greatly causing a shortage of the metal for sale in the market. The higher prices for Gold also reinforce the notion of holding on to ones gold, not selling it. Especially as trust in the financial system disintegrates.
The oil producers will also have a thing or two to say about the price of gold. Remember that the only things keeping the current game going is a clever combination of lies, deception, ignorance and firepower.
Please do not mistake the paper gold comex market with the physical market itself. They are two completely different entities. One of the nastiest sandboxes in the world is the comex.
What say you?
Warmest,
Mike
ps. I heard Ben Stein not 3-4 weeks ago on NPR having a rather un-intelligent discussion about economics and the housing collapse. For someone who is supposed to be so smart, he sure was wrong just a few weeks ago. He continues to be.
Amazing how stupid people can do so well in this economy. Additonal proof of just how inbred our current economy is.

[Elaine Supkis]

Stein is all over the media BECAUSE he is stupid! Think they would talk to me?

As for physical gold: translating it into sales is very difficult if the government is hostile. Power grows out of the barrel of a gun and no one has more guns than governments Only when things go really bad and there are open insurrections does this fail or fall apart. Usually drug sellers/dealers like the ones in Afghanistan or Columbia, are the ones fighting the fiercest.

Gold holding works only if the government protects gold holders.

[John]

Hey, look! Senator Dodd Asks Paulson About Goldman Subprime Role

``It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question, addresses the concerns raised by Mr. Stein's article,'' Dodd's statement said. ``Failure to do so may be cause for a more formal investigation.''

I wonder if he's got the cajones to actually make something of this?

[Elaine Supkis]

Yes, isn't it amazing? That stupid article, as I pointed out, schizophrenically suddenly lurches into my territory, calling for the arrest of the clowns who are destroying our economic system.

[ron]

Gold goes up when the dollar goes down. They share an inversely proportional relationship with one another.

Ben Stein is an ardent republican who toes the party line. It's amazing that suppy-siders can't even get past their own BS to realize what a failure it is for this country.

Yah, deficits don't matter, trade deficits really don't matter and debt is good for the country, while savings is bad. And this trickle down economy BS. Man, this country is doomed.

Thanks for the info. It's a great read!

[Elaine Supkis]

Thanks, Ron. I'll see you behind Robin Hood's barn.