NYC Junta

Are the Greeks likely to secede from the EU because of their sovereign debt? John Mauldin, a financial investor and writer who claims 1 million+ email subscribers, says its not as fanciful as it sounds:

The third option is that they could vote to leave the European Union. While this is unthinkable to most Europeans, it is an option that may appeal to some Greeks. They could create their own currency and effectively devalue their debt. It would make their labor and exports cheaper…

Most people scoff at this notion, but money is flying out of Greek banks into non-Greek ones, and to my way of thinking that is a suggestion that some Greeks think secession might be a possibility. It is also causing severe stress at Greek banks.

Mr Mauldin’s letter is worth reading in its entirety (he requires an email address to access full letter). It’s a 20min read but explains the reasons behind the Greek financial crisis and the possible ways out, and along the way showing the parallels with the rest of Europe and America.

Greece is being told that it must cut its budget to an 8.7% deficit this year and down to 3% within three years.

For my American readers, let’s put that into perspective. That is the equivalent of a $560-billion-dollar US budget cut this year and another such cut next year. That would mean huge cuts in entitlements, Social Security, defense, education, wages, subsidies, and on and on. And repealing the Bush tax cuts? That would just be for starters. No “let’s freeze the budget” and try and grow our way out of it, as we effectively did in the ’90s, or gradually cutting the budget a few hundred billion a year while raising taxes. That combination of tax increases and budget cuts would guarantee a US recession. Unemployment, already high, would climb higher.

And yet, that is what the Greek government is being asked to do as the price for a bailout.

[...]

Whether it is Japan or Portugal or the US or (pick a country), the body of evidence clearly shows that there is a limit to the amount of debt a sovereign country can handle without a crisis developing. That limit is different for each country, but there is a limit that the bond market will impose. And there are many countries in the developed world that are approaching that limit.

I highly recommend subscribing to his newsletter. It’s free.

In the News financial crisis, greece, sovereign debt, usa

It’s been ten days since the Junta met to discuss the crisis in the American system and the possibility of collapse, but I’m just getting around to writing it up for a number of reasons, chief of which being that I’m a top procrastinator.

Given the topic of discussion, Arrow Bar proved an appropriate locale – we were well-protected in what could pass as an underground bunker in the East Village, with at least a week’s worth of booze to keep us in good spirits while we rode out the rending apart of civilization, the social and political equivalent of what the analyst John Mauldin has called “The Great Unwind.”

Mauldin was referring to the massive deleveraging that has to take place for the economy to right itself – the great amounts of debt that must be paid back, refinanced, written off, or inflated away. J.P. started off ten days ago by stating that things were likely to get worse in this economy before they got better – don’t be fooled by the recent rally that’s been taking place in the markets.

We spent a good amount of time going over the events that brought us to this point, and a lot of it was stuff I had been reading for months. But one aspect I found novel was when Mark said that the truth about the “toxic assets” is that there is a market for this paper, apparently, but the going rates are so low that the banks are unwilling to sell them and realize massive losses. By keeping the paper, they are like the guy who bought tech stocks in March 2000 and then refused to sell those stocks in the hope that they would rebound.

Mark also went into a tangent about government action and the discombobulating effects it can have on how people choose to act. He had shorted some stocks on the apparently sound advice of a friend – but despite the companies looking miserable, their share prices rallied when Uncle Sam announced an imminent bailout. In the future, he said, he would be more likely to keep his money on the sidelines – where many thousands of other investors, large and small, are doubtless keeping theirs right now.

And what about gold, that all-time favorite of paranoid doomers everywhere? We had invited Tom, a longtime goldbug, to discuss the case for being long on the metal. He wasn’t able to attend, but recently sent this note:

That funky ol’ Ben Bernanke has been one wild and crazy dude, hasn’t he? He may look like your basic college professor dweeb but he certainly hasn’t been shy about doing unprecedented financial engineering. Any way you cut it, this smacks of desperation:

(click to enlarge)

One Federal Reserve item not receiving enough press is that the Fed starting buying recently issued Treasury debt, something like $300 billion to start with.  This is without question about as inflationary a policy as there is.  Now Bernanke got his nickname “helicopter Ben” by virtue of his statement to the effect that you could stop deflation by dropping $100 bills from a helicopter.” This guy doesn’t fool around.

President Obama’s budget projections call for trillion dollar deficits for at least the next few years. Clearly he is attempting to do what it takes to prevent the economy from sliding into a 1930’s style depression.  Can’t argue the motive but what he is doing is without question highly inflationary.

Right now the United States is trying to borrow its way out of economic malaise.  Kind of like that person you know running up the credit cards while they are looking for a new job or starting a new venture.  Things can work out but it is shear financial madness to bet on it – especially when the foreign creditors are probably worse than your friendly neighborhood financial services companies.

All of this is negative for the U.S. dollar and the United States overall.  The rhetoric has been along the lines of “it couldn’t happen here…..”  Don’t be so sure. Read this article on Argentina. It could happen here – we have all of the preconditions and arrogance that are required for real trouble.

That is why we believe in gold and gold stocks.  We see nothing that can match its safety and upside potential.  If only we weren’t waiting for the end of time.

Personal Views

We went around the table giving our own personal views of the recession, and found that mainly things weren’t so bad. Most were still employed, even if they’d seen others lose their jobs. Apparently down times are good for artists. Jeff – whose paintings have been selling well this year – recalled a cartoon showing a man falling into a hole marked “Recession.” He sees another man, already in the hole, painting a picture. He asks the painter, “What are you doing here?” The painter replies, “I live here!”

There was optimism all around, even from one attendee who had been laid off. A sense of adventure, an opening of the eyes. The realization that a person needn’t spend all his precious hours slaving away in a cubicle. A feeling that there will always be opportunities for the smart, the quick and the brave; there will always be something to be busy doing.

It’s not the end of the world, after all.

Wrap-Ups doom, financial crisis, usa

The Junta will convene this Thursday, April 9th, 7:30-9:30pm, at Arrow Bar, 85 Avenue A, between 5th and 6th Streets. The door to the bar is easy to miss, as you have to walk down a staircase on the sidewalk to reach it. Drinks are 2-for-1 until 9pm (starting at 4pm, if anyone wants to arrive early…)

The topic is less focused than some past meetings have been, but the basic theme is “Financial Instability and Doomsday Scenarios.” We will be talking about the nature of the current economic, political and social situation, what kind of changes the crisis stands to bring to our society and the world at large, and how we can act to not only protect ourselves in whatever new environment is coming, but thrive. You can read some of the recent posts to see what has been on our mind specifically, but we’re also looking for any tangents you have to add.

We look forward to seeing you all there.

Meetings doom, end times, financial crisis, usa

I drop out and leave the country for one week and when I come back everyone is having mass hysteria over some bonuses paid out at AIG. Thankfully, though, I am not the only one asking why we are so mad about $160 million paid to executives when we didn’t approach nearly this level of ire while paying out one thousand times that amount bailing out the company.

When do the pitchforks come out? Felix Salmon wonders over at Portfolio:

As inequality grew in America over the past 30 years, there was always the risk that it would snap back violently and dramatically. That day is not yet here, but it’s closer than it has ever been, and its possibility cannot be discounted. Barack Obama smells the public mood, and is trying to respond to it in a grown-up and non-incendiary way. Congress smells it too, and is being rather less grown-up about things.

But is this really the “public mood,” or are we just watching too much television? Joe Klein at Time points out that there haven’t been any actual riots here, as there have been in places like China, where peasants gather in the streets from time to time and spill blood to show how pissed off they are.

But most of the anger we see and hear comes from people who are paid to be angry, on cue, on cable television–as opposed to people with actual grievances. Suddenly, the White House press corps goes barking mad over the AIG Bonuses. It is said that the bonuses are an aspect of the bust that the “public” can understand; in truth, the bonuses are an aspect of the bust that reporters can understand. Suddenly, the Obama Administration has a “crisis.” The President has to go on television and act as if he’s angry, even though he knows these bonuses are the tiniest outcropping of outrageousness.

One of the best moments of Obama’s press conference last night was when he cut off the breathless CNN hack who wanted to know why it took the President “two days” to get on the teevee and act mad about the AIG bonuses. Obama slapped him down: “It took us a couple of days because I like to know what I’m talking about before I speak.”

Ouch. Still, that’s not really what we’re talking about, is it? Wealth being wiped out or handed out is not the issue. People in the streets, with guns – now that’s something to be worried about. This guy pretty much nails the paranoia:

Civil unrest will break out before the end of the year.  The Military and Guard will be called up to try to stop it.  They won’t be able to.  Big cities are at risk of becoming a free-fire death zone.  If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go “feral”; witness New Orleans after Katrina for how fast, and how bad, it can get.

Yep. There ya go. (Emphasis mine).

To protect ourselves, the Junta is looking for a seriously underground location to meet – like a nuclear bomb shelter in the East Village. Likely date: April 9 (Thursday).

In the News aig, doom, end times, financial crisis, usa

This whole business about the AIG bonuses is really getting out of hand. As outrageous as they are, it is really a distraction from the wider issues and just a quick way to create a scapegoat. One week it’s Richard Fuld, the next it’s John Thain, then Madoff, now the faceless but certainly greedy and mendacious people at AIG’s financial unit who got bonuses despite their unit’s cataclysmic performance.

The bonuses are indefensible and betray both the tin-ear of the politicians in charge of the bail-out and a strong sense of incompetence among the senior executives at AIG (surprise, surprise…). But demonizing these guys is ridiculous. Picture you are one of the men/women working in that unit of AIG that got the bonuses. Are you going to not accept the substantial bonus that they give you, which they were contractually bound to do? We can all get on our high horse about this, but if you quietly got a check for a million dollars that you felt you earned you wouldn’t turn it down. And I knew that there was nuance within the story about the people that were a part of that team that wasn’t out there, and today we had the op-ed in the NY Times that was really a resignation from someone from that very unit that sheds some of the light on the ambiguity I’m talking about.

http://www.nytimes.com/2009/03/25/opinion/25desantis.html?pagewanted=1&_r=1&ref=opinion

Really, the issue isn’t with the people that got the bonuses. It is the people who were supposed to look after their companies and–even more so–the regulatory agencies that were supposed to watch them. I used the baseball analogy when arguing this with a colleague the other day. The baseball steroid scandal is something that I care a lot about. And it’s easy to demonize Barry Bonds, Roger Clemens, etc. And to a large extent those guys deserve it, in particular because of their reactions.  But my beef is with the league for letting the steroid era flourish with the player’s union who fought tooth and nail on any initiative that would have led to testing and greater oversight. It is Bud Selig, Donald Fehr and Gene Orzo that deserve the blame. If you’re a player watching other players at a similar or equal level suddenly bulk up, hit monstrous homers and receive huge contracts that set them up for life, can’t many of us understand the impulse to do that, in particular as they were even testing at the time? I don’t want to digress too far, but that is the same thing with the people on Wall Street being demonized. Our government and regulatory agencies failed us. The villains I want accounted for are the numerous heads of the SEC who refused to take action when a whistle-blower gave them evidence that Maddof’s fund had to be just a scheme. If I was still a journalist I would be working on that night and day.

It is the people that allowed this era of lax regulation, easy credit and predatory lending to flourish that should be held responsible. And the more you think about, the more we as a society are responsible. The people in the midwest who would like to tar and feather anyone from NY who works in finance sure liked getting cheap loans and mortgages and $30 DVD players made in China, purchased at Wal-Mart. We all as a society saved incredibly little and lived above our means for a long time. Now we’re paying for it.  Demonizing a handful of people who got bonuses that seem unfair might make us feel better for a moment in term of venting our rage. But it isn’t going to get us anywhere.

In the News aig, doom, end times, financial crisis, usa

NYCJunta.com was down for almost a week, for what reason I’m not sure, but I think I’ve finally managed to solve the mysterious problem. Where the login page was supposed to be, there was instead a custom “404- Page Not Found” dead-end but with a Japanese cartoon image and a link to, I assumed, the Pokemon fan site that hacked into the Junta’s webquarters.

The confusion that enveloped me was similar to what I feel while reading another report about the wall that the country has hit at full speed, the economic trainwreck, the fiscal hurricane blowing our roofs off and running them across the fields. Wealth has been wiped out in large swathes. Uncertainty reigns. Information pours out from the media in droves and we are bombarded with tales about how bad things are.

While the large majority of Americans are confident things will eventually look up – and include me in that group – isn’t worth wondering about the possibility that it won’t get better, the small chance that the good ol’ American experiment could actually be ending? Granted, I think it’s a very, very slight chance, and not very likely to occur. But consider: resting assured that the very unlikely would never happen is exactly what caused this mess in the first place.

It’s not exactly about the U.S. collapsing; it’s about our society breaking down by degrees. What would 20% unemployment look like? What about 50%? Today my co-worker was complaining about something and said if things get any worse, people will… they’ll—

“What?” I asked him, really wanting to know. “What will they do? Riot? Loot?” He didn’t have an answer. A lot of people are looking for answers, though. Are we being hyped up by a too-broad flow of numbers, words and ideas, or is Jim Sinclair – holed up on his 38-acre farm, shotgun at the ready – wise to keep the fuel and water tanks full at all times? Are you long on gold?

It’s doomsday times, with hardly a scrap of good news anywhere. The cover story of this month’s Atlantic features a piece on how things might shake out in post-crash America. This is the sober version. For a more breathless vision of the future, turn to the delightfully named “ClusterFuck Nation”:

Forget About “Recovery”

At the risk of confirming my critics’ dumbest charge — that I am a “doomer” — the mandate of clarity requires me to ask: to what state of affairs do we expect to recover? If the answer is a return to an economy based on building ever more suburban sprawl, on credit card over-spending, on routine securitized debt shenanigans in banking, and on consistently lying to ourselves about what reality demands of us, then we are a mortally deluded nation. We’re done with that, we’re beyond that now, we’ve crossed the frontier and left that all behind, and we’d better get our heads straight about it.

And as if we didn’t have enough to worry about, Earth narrowly missed a flying asteroid last week.

The Junta is looking to convene a meeting to discuss the potential collapse of the system, and what effects it might have both on America’s position in the world, and on her own internal workings. Will the classes realign themselves now that debt-fueled consumption is no longer possible? For example, might less middle-class families decide to send their kids to college, with tuition going ever higher?

Start thinking about it, and let others know who might like to join us. The meeting will likely be in mid-April, at a decidedly downtown location – something that resembles a fallout shelter, perhaps?

Meetings doom, end times, financial crisis, gold, usa

Rindy is agitating for Junta #3 to take place on November 3rd. His reasoning is sound–the eve of the election–but I’ve been resisting because I’ll have come back from China the night before. But he promised to organize everything and have it somewhere near my apartment, and with the understanding that I may start drooling from jet-lag and scotch within the hour. But I expect a heady atmosphere will prompt me up: Will Obama continue to build on his growing lead in the next couple of weeks? Will the economy continue to unravel or will the coordinated international steps of the last few days calm markets? I was going to spend a few extra days in China after I got finished on Friday the 31st, but I’m coming back Sunday night because I want to be here for the election. It will be the first US presidential election since I got back to the States almost two years ago, the last time I was even here for one was Clinton/Dole. I spent a number of subsequent years in Prague, and much time conspiring with Alex Zaitchik, writing in the same magazines and forming pre-Junta like talk sessions in sketchy Czech bars (late-night Herna bars and Klub Jaguar) talking politics and books. AZ is back in NY after continued vagabond days going from India writing for the eXile, to editing the legendary Moscow newspaper (incredibly, after a decade now gone…), to Greenland and Mexico City, and…. I can’t remember, many places. He’s back and he’s got some of the same feelings about being around for a historic election, so I’m hoping he’ll be able to make it. I’ll try to stay awake.

Check out Alex’s on the financial crisis:

http://www.alternet.org/workplace/102676/not_my_financial_crisis_–_i%27ve_got_literally_nothing_to_lose/

Here’s Alex’s dispatch on the Franken/Coleman race in Minnesota

http://www.thenation.com/doc/20080804/zaitchik

Meetings democracy, financial crisis, politics, usa

At Junta number 2 we are going to talk about the financial crisis that is dominating the news, many are calling it the worst since the Great Depression. I spent a few days last week at hedge fund conference in Greenwich and it was amazing to be surrounded by that crowd as the market was doing somersaults. Guliani opened the conference, Larry Summers (former Treasury Secretary), and Eugene Ludwig (former Comptroller of the US Currency) spoke, among others. Ludwig was more willing to forecast and said that we are only “50%” through the crisis. He said that the main problem with the US economy was “an overabundance of financial services” and said that he expected at least another 100 banks in the US to fold.

As the crisis has unfolded I personally have felt that despite all the incompetence of the Bush administration, and all their culpability in the time leading up to the market meltdown, we were in good hands with Bernake and Paulson. Bernake is one of the world’s leading experts on the Great Depression, and Paulson is a former head of Goldman Sachs; I used to follow Paulson’s work on China through the Strategic Economic Dialogue he founded with the Chinese and was impressed with him. In reading about things I have been inclined to say that if these very serious men feel like this massive bailout is essential for the US economy to weather the storm than I guess we better do it. But listening to some contrarian opinions, and reading about Buffet’s investment in Goldman Sachs, I’m starting to wonder if the bailout is the right move and would like to hear other thoughts about that tonight.

I also suggest we talk about this business on executive pay and the bailout, and I would like it if some of our finance friends could shed some light on the debate surrounding mark to market versus fair value accounting. This all might sound pretty esoteric but it now affects us all. 

I heard a quote by John Maynard Keynes this morning that I thought was apropos: “The market’s ability to remain irrational will outlast a company’s ability to remain solvent.”

Meetings financial crisis