Do You Think The Economy Will Escape A Trump Meltdown?

From time to time I asked my financial advisor when she thinks the Trump Crash will come. She doesn't see one coming any time soon. I hope she's right. Do you know who Jim Rogers is? I used to see him on TV all the time when I watched financial news programs. Usually termed a "legendary investor," he was one of the founders of the Quantum Fund. He was just interviewed by Business Insider's Henry Blodget. He predicted "a market crash in the next few years, one that he says will rival anything he has seen in his lifetime." (He was born in 1942.)

He grabbed the first opportunity to make his prediction-- less than 30 seconds in: "Some stocks in America are turning into a bubble. The bubble’s gonna come. Then it’s gonna collapse and you should be very worried. But Henry, this is good for you. Because someone has to report it. So you have job security. You’re a lucky soul." Blodget, of course, asked when and why. Rogers said "Later this year or next... Write it down."

Well, it’s interesting because these things always start where we’re not looking. In 2007, Iceland went broke. People said, ‘Iceland? Is that a country? They have a market?’ And then Ireland went broke. And then Bear Stearns went broke. And Lehman Brothers went broke. They spiral like that. Always happens where we’re not looking. I don’t know. It could be an American pension plan that goes broke and many of them are broke, as you know. It could be some country we’re not watching. It could be all sorts of things. It could be war. Unlikely to be war but it’s going to be something. When you’re watching Business Insider and you see, ‘That’s so interesting. I didn’t know that company could go broke.’ It goes broke. Send me an email and then I’ll start watching.

So how bad will it be?

Rogers: It’s going to be the worst in your lifetime.

Blodget: I’ve had some pretty big ones in my lifetime.

Rogers: It’s going to be the biggest in my lifetime and I’m older than you. No, it’s going to be serious stuff. We’ve had financial problems in America-- let’s use America-- every four to seven years, since the beginning of the republic. Well, it’s been over eight since the last one. This is the longest or second longest in recorded history, so it’s coming. And the next time it comes-- you know, in 2008, we had a problem because of debt. Henry, the debt now-- that debt is nothing compared to what’s happening now. In 2008, the Chinese had a lot of money saved for a rainy day. It started raining. They started spending the money. Now, even the Chinese have debt and the debt is much higher. The federal reserves, the central bank in America, the balance sheet is up over five times, since 2008. It’s going to be the worst in your lifetime, my lifetime too. Be worried.

Blodget: I am worried.

Rogers: Good. Good.

Blodget:  Can anybody rescue us?

Rogers: They will try. What’s going to happen is they’re going to raise interest rates some more. Then when things start going really bad, people are going to call and say, ‘You must save me. It’s Western civilization. It’s going to collapse.’ And the Fed, who is made up of bureaucrats and politicians, will say, ‘Well, we better do something.’ And they’ll try but it won’t work. It’ll cause some rallies but it won’t work this time.

Blodget: And we are in a situation where Western civilization already seems to be possibly collapsing, even with the market going up all the time. Often when you do have a financial calamity, you get huge turmoil in the political system. What happens politically if that happens?

Rogers: Well, that’s why I moved to Asia. My children speak Mandarin because of what’s coming. You’re going to see governments fail. You’re going to see countries fail, this time around. Iceland failed last time. Other countries fail. You’re going to see more of that. You’re going to see parties disappear. You’re going to see institutions that have been around for a long time-- Lehman Brothers had been around over 150 years. Gone. Not even a memory for most people. You’re going to see a lot more of that next around, whether it’s museums or hospitals or universities or financial firms.

And not a whisper or even a hint about Trump causing anything. This morning, HuffPo's Zach Carter, writing about what Democrats can learn from Corbyn's big win in the U.K., was more insightful about the relationship between politics and financial (and economic) swings. "Financial crises," he wrote, "foment authoritarianism. This idea is not controversial in Europe, where authoritarian scars are still historically fresh. Stateside, many financial journalists intuitively grasp the connection between banking crashes and far-right politics, after witnessing the pattern in country after country... As Donald Trump surged in the Republican primaries, a flurry of academic papers began making the rounds highlighting the moderately high median incomes of his supporters. These are still trickling out. They continue to serve as feature fodder for centrist publications and continue to be largely irrelevant to the political landscape. It doesn’t matter how rich the authoritarians are. Their key feature is their authoritarianism."

We have had few financial crises in the United States since the Great Depression, and our political thinkers are accustomed to grappling with aristocratic conservatism, not authoritarianism. Aristocratic conservatism-- the type espoused by House Speaker Paul Ryan and establishment Republicans of the past 50 years-- seeks to protect the financial interests and social status of the wealthy. Banking elites want low capital gains taxes, but they are in many ways more protective of their position on top of the American social hierarchy. Even as he scuttled prosecutions for financial fraud and protected bonuses for bailed-out bankers, former President Barack Obama prompted hysterical denunciations from Wall Street by casually dismissing “fat cat bankers” in a single TV interview early in his first term.

The Democratic Party can sometimes defeat aristocratic conservatives by publicly shaming them as extremists. Aristocratic conservatives are sensitive to elite social pressure and respond to attacks on their dignity. This was a key plank of Hillary Clinton’s 2016 general election strategy, and in some ways, it worked: Clinton really did win over a big chunk of millionaires who had previously voted Republican.

But shame is a terrible strategy for defeating authoritarian candidates after a financial crisis. Banking meltdowns don’t unleash a wave of aristocratic sympathy. They cause widespread, unfair suffering and create tremendous uncertainty. People lose their jobs and homes through no fault of their own. Even working families who survived the 2008 crash relatively unscathed did not do so without having to confront new psychological strains. Millions of people who kept their jobs had to come to the aid of family members who did not. The prospect of economic ruin was always right around the corner.

Authoritarians exploit this uncertainty by promising stability, order and safety. This is not a mathematical equation guaranteeing higher incomes. It is a social rebellion against the governing aristocracy that has just failed and-- even in the most just and perfect bank rescue-- enjoyed the political prioritization of its own interests over the needs of the broader citizenry.

In the wake of a financial crisis, the public does not interpret centrist politics as an appeal to moderation or reasoned debate. It sees centrism as an attempt to rehabilitate the legitimacy of the aristocracy which has just pushed the country into disaster. “Countrymen, I have been approved by the finest minds of the old order as an eminently reasonable leader!” is a poor slogan when measured against “I will crush your enemies and restore your glory!”

A much better pitch? “I am on your team and will protect you.” This works very well with promises to expand and improve social welfare programs. “I will break the cheating aristocrats who did this to you” can also be effective. In 1932, Franklin Delano Roosevelt put the Democratic Party in power for only the third time since the Civil War by campaigning on a combination of both messages.

Whatever the slogan, anti-authoritarian politicians need to make a clean break with what failed and offer a psychological alternative to authoritarianism’s call for order through violence and suspension of civil liberties.

The specific policy agenda is important-- politicians need good ideas that people actually like. Corbyn appears to have significantly boosted the youth vote by promising to abolish college tuition fees entirely. But policy mostly functions as a guidepost for voters. A leader’s tone and presentation matter just as much-- the point is to project a sense of safety and community. Corbyn nailed that part, too. When May called the election, she and the Conservatives believed Corbyn’s left-wing priorities would alienate him from voters. His stump speeches did the exact opposite.

...Trump is the American strain of the authoritarian virus that has infected much of Europe. In France, its standard-bearer is Marine Le Pen. In Greece, it is the neo-Nazi Golden Dawn party. Finland has the True Finns; Hungary has Jobbik. In the U.K., this faction was represented by Nigel Farage and the U.K. Independence Party, which won 4 million parliamentary votes in 2015 and successfully mobilized a campaign to push their country out of the European Union by demonizing refugees and promising better health care for native Britons.

Farage is still at it. During a Fox Business interview with Maria Bartiromo last week, he raised the prospect of mass “internment” of “thousands” of terror suspects. But under May, the chief vehicle for authoritarian politics in the U.K. has become the Conservative Party. She has embraced Farage’s Brexit cause and floated the repeal of human rights laws in the name of stability in opposition to Corbyn’s “weak” approach to terrorism. On Thursday night, UKIP was decimated, its vote split between the new ethno-nationalist haven in the Conservatives, and the populist alternative offered by Corbyn’s Labour party.

The same union of authoritarian insurgents and the aristocratic old guard is taking place in the United States. After campaigning as an authoritarian populist, Trump has filled his administration with Goldman Sachs alums and is embracing the aristocratic economic agenda of Paul Ryan’s Republican Party.

And the Republican aristocracy, with a few Never-Trumper exceptions, is reciprocating. Just ask Paul Ryan about James Comey’s Senate testimony. Then ask him about Dodd-Frank.

Corbyn made significant gains where nearly every political expert in Europe expected him to march off an electoral cliff. He did so by abandoning dyed-in-the-wool aristocratic Tory voters, energizing new, young Labour voters with policy, and making a direct psychological challenge to authoritarian appeals.

There’s a lesson there for the Democratic Party. It can be the party of the Good Aristocrats, or it can be the Anti-Authoritarian Party. But it can’t be both.

Junk Bonds Are in Worse Shape than Before Lehman Collapsed

Percentage of S&P junk bonds and leveraged loans considered "distressed" (click to enlarge)

by Gaius Publius

We know that there will be another economic "big one" like the crisis of 2008. All of the pieces are in place — Wall Street greed and literal pathology, the even greater size of too-big-to-fail institutions, a literal get-out-of-jail free card that almost blesses continued financial fraud, and the like. We just don't know when it will occur, or what will trigger it. Last time it was triggered by the collapse of the bubble-sized home mortgage market. The time before that, it was the bubble-sized tech stock valuations. Where's the bubble now, or the inverse bubble, the market hole that may be forming somewhere?

Many people are looking at collapsing oil prices and soaring supplies, which is causing the collapse of over-leveraged carbon companies of all types (coal, oil and methane), as a potential cause of the next crash. Others say that the collapsing price of oil is "contained" — unique and isolated — and is not contaminating other markets.

The following piece by Wolf Richter argues the opposite point — that the collapse in the carbon market is not contained at all, and that collapse is in danger of spreading via the increasing price of junk bonds. Is this a precursor to the next "big one"? See what you think.

Wolf Richter (my emphasis throughout):

Now It’s Even Worse Than it Was When Lehman Collapsed, But It’s “Contained”

“Distress” in Bonds Spirals into Financial Crisis Conditions

The pile of toxic corporate bonds in the US, euphemistically called “distressed” debt, ballooned 15% in the single month of February to $327.8 billion, up 265% from a year ago, according to S&P Capital IQ. The number of S&P rated US companies with distressed debt rose 9% in February to 353, up 128% from a year ago.

The last time the pile of distressed debt had soared to this level was in November 2008, and the last time the number of distressed issuers had shot up to these levels was in October 2008; Lehman had declared bankruptcy in September.

These “distressed” junk bonds sport yields that are at least 10 percentage points above US Treasury yields, according to S&P Capital IQ’s Distressed Debt Monitor. 

Note the definition in the final paragraph above. Bonds are considered "distressed" if they have to offer 10 points or more greater yield than U.S. Treasuries in order to attract buyers. Obviously, any company whose financing depends largely on these bonds is at risk of bankruptcy.

As a chart, the above data looks like this. Take a minute to study it.

The Y-axis is both number of issuers (bar graph) and billions of dollars issued (line graph). Click to enlarge.

Richter adds this about the S&P "distress ratio" for junk bonds and leveraged loans (see chart at the top):

The ratio hit the highest level since July 2009, when it was coming down from the Financial Crisis. But this is the spine-chilling part: Back in September 2008, before the Lehman bankruptcy had fully registered in the ratio, but when the Financial Crisis was already gaining a good amount of momentum, and when stocks were crashing left and right and prudent people were wearing hardhats while out on the sidewalk, the distress ratio was “only” 28.9[.]

Richter quotes the report he cites as saying that a rising ratio is “typically a precursor to more defaults.” If he's right, we could be headed into the same soup we took years getting out of. And this time, it will be a political soup as well, since the country, both left and right, is in zero mood for another massive government bailout.

Not Confined to Oil and Gas

Nor is the damage in these markets confined to the carbon sector. Richter again:

And it’s not just the oil-and-gas and the minerals-and-mining sectors that are getting crushed. Of the 607 distressed bond issues in the ratio, 172, or 28%, are oil-and-gas related and 80 bond issues, or 13%, are minerals-and-mining related. The remaining 59% are spread across other the spectrum.

“Spillover effect,” is what S&P Capital IQ calls this. It has contaminated “the speculative-grade spectrum as a whole.”

The article has more along these lines, including a list of sectors affected, how many billions of dollars in debt are distressed in those sectors, and the main companies affected in each sector. It's quite eye-opening.

Will Commodity Prices Cause the Next Collapse?

I've been personally watching all of this with interest. There is a bubble in commodities — especially those things that the very very wealthy are interested in (for example, Manhattan real estate and high-end art) — but really, in commodities in general. There's also a major crack in the commodities bubble connected to carbon products (coal, oil and methane). I've wondered before if collapsing oil prices would spark a collapse in other commodities (stocks, for example) via the highly leveraged, and therefore highly vulnerable, nature of many fracking companies in the U.S.

It's possible we'll get an answer soon ... or not. Still, this is worth watching. If you're interested, Richter's website, Wolfstreet.com, is worth checking on a regular basis.

GP

Goldman Eyes $20 Oil; Glut Overwhelms Storage Sites

The price of two oil benchmarks, Brent Crude and West Texas Intermediate (WTI), in danger of collapse? (source)

by Gaius Publius

Ever since the "Exxon Knew" story broke, and especially since NY AG Eric Schneiderman announced his Martin Act investigation of Exxon and other carbon companies for fraud, I've been watching to see how this disrupts the oil and gas markets.

To be clear — I consider a disrupted carbon fuel market to be good, since the supply of fossil fuel does have to be interrupted, and forcefully. Consider that if they dig it, we will burn it. So we have to prevent them digging it, and again, with force. The law, when applied with penalties, counts as force. A collapsing commodity price market also counts as force, as does a collapsing stock market price for companies like Exxon.

The alternative, if the market for extracted carbon starts to collapse or become wildly chaotic, is for government to prop it up with even more subsidies and "bailouts" — the opposite of what any climate-aware citizen should want. We need to get off of oil, as a nation, quickly, and we need all the help we can get doing it. I don't want to see government standing in the way of the destruction of the oil and gas industry. (Do you?)

So, is the carbon market headed for chaos? I don't know, but the possibility of oil at $20/barrel is frightening many analysts, including those at Goldman Sachs. From the Telegraph (my emphasis):

Goldman eyes $20 oil as glut overwhelms storage sites

“The world is floating in oil. The numbers we are facing now are dreadful," said David Hufton from PVM Group

The world is running out of storage facilities for surging supplies of oil and may soon exhaust tanker space offshore, raising the chances of a violent plunge in crude prices over coming weeks, experts have warned.

Goldman Sachs told clients that the increasing glut of oil on the global market has combined with mild weather from a freak El Nino this winter. The twin-effect could send prices plummeting to $20 a barrel, the so-called ‘cash cost’ that forces drillers to abandon production. “Risks of a sharp leg lower remain elevated,” it said.

Oil has fallen from $110 a barrel early last year and is hovering near $40 for US crude, and $44 for Brent in Europe.

The US investment bank said the overall glut in the commodity markets may take another twelve months to clear. It cited ‘red flag’ signals on the Shanghai Future Exchange over recent days. Copper contracts point to “imminent weakening” in China’s ‘old economy’ of heavy industry and construction, it said.

The chart at the top shows that benchmark prices have dropped to about $36/barrel, risen but not to new near-term highs, then dropped again. A technical analyst would say, watch that $35 price point. A drop below that could be trouble.

Now for the fundamentals. Note in the quote above: "$20 a barrel [is] the so-called 'cash cost'." At present, people are keeping their oil off the market, not selling their inventory in hopes of a better price ...

It is estimated that at least 100m barrels are now being stored on tankers offshore, waiting for better prices. A queue of 39 vessels carrying 28m barrels is laid up outside the Texas port of Galveston, while the Iranians have a further 30m barrels offshore ready to sell as soon as sanctions are lifted.

“The world is floating in oil, and commercial stocks on land are at a record high,” said David Hufton, head of oil brokers PVM Group. “The numbers we are facing now are dreadful. Stocks have been building continuously for two years. This is unprecedented.”

... yet even so, prices are falling, despite current buying by the Chinese for their strategic reserve (see the article for those details). We're in new territory at present — low prices, high inventory, high production — and could be headed for even newer territory.

The Story Is Complicated; the Outcomes Are Many

This is not a simple story, as the article makes clear. No one in position to comment expects a permanent collapse, yet the items in play are both many and varied. To name just a few, they include conflict among the OPEC nations about how much to produce, the length of time the bear market in oil will stay depressed, the ability of marginally-financed producers — the U.S. shale oil producers qualify here — to stay afloat in a "below cost of production" sales environment, the worldwide growing awareness that climate change and carbon emissions are linked, and so on.

At some point, if these conditions prevail (the last will certainly grow stronger), carbon production will drastically slow and companies will simply go bankrupt. At that point, absent government intervention, if you're an investor do you buy or sell the stock of these companies?

Now add in AG Schneiderman's fraud lawsuit, and then, way down the road, the potential for a Sarbanes-Oxley prosecution to yield criminal charges and jail time for oil and gas execs — assuming some AG (that's you, Ms. Lynch; that's you, whomever President Sanders appoints) is bold enough to pursue that course. That will certainly stir the pot even further, and not in a good way. Just the announced intent to pursue Sarbanes-Oxley prosecution could further roil this market — the roilage of which is your friend, since an uncertain energy market drives an increased move to "safer" renewables.

At this point, it's all up in the air. Oil prices may recover and the market re-stabilize. That would be a bad thing, assuming you have grandchildren and care about them. But the good news is ... right now, it really is all up in the air. That good thing that could turn into a very good thing with just a few more breaks our way.

GP

Never mind Greece, WTF is going on with China's plunging equity markets?

Droll washingtonpost.com caption: "The Extraordinary League of Punditry requires this stock photo of an investor looking at a red screen when writing about the ongoing turmoil in Chinese equity markets."

"The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market."

-- from Bloomberg's report yesterday, "Chinese Trading
Suspensions Freeze $1.4 Trillion of Shares Amid Rout"

by Ken

"Nothing to see here," reads the deck on Tufts Professor Daniel W. Drezner's washingtonpost.com post "The politics of China's stock market collapse" -- "just the meltdown of Chinese equity markets."

"So while every international affairs pundit and their mother are focused on the travails of an economy the size of Louisiana," Drezner begins his piece, "the second-largest economy is experiencing a teeny-weensy stock market meltdown." He quotes from Fox Hu's Bloomberg report, adding dramatic emphasis for the sentence I've pulled out above:

Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses.

The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper….

The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market. The Shenzhen Composite Index has led declines with a 38 percent plunge since its June 12 peak, as margin traders unwound bullish bets (emphasis added).

Oops!

Well, it seems what's happened isn't quite as dramatic in real-world terms as it may appear, and doesn't really tell us anything significant about China's "real" economy, which was already known to be slowing down but shows no signs of being in significant trouble. For one thing, Chinese stock markets don't have anything like the importance of markets in the world's other major-player economies.

Chinese equity markets are pretty thin and small as a percentage of GDP compared to the developed world. Less than 20 percent of household assets were in the stock market. Financially, it would be difficult to argue that this is China’s Lehman moment.

But more important, what the Bloomberg report describes as "at least $3.2 trillion in value" lost was no such thing, if by "value" we mean, you know, value. Drezner insists that everyone was well aware that China has been in the grip of an economic bubble so enormous that something had to give. In fact, stock prices had soared so wildly above companies' actual asset values that the market still has a heap of correcting to do.

The pre-panic run-up had all the makings of irrational exuberance [the link is to a Wall Street Journal piece headlined "How Chinese Stocks Fell to Earth: 'My Hairdresser Said It Was a Bull Market' " -- Ed.]. Furthermore, despite the large decline in equity prices, Chinese stocks are still massively overvalued compared to where they were last fall. So unless the “Xi put” is way larger than the “Greenspan put” [defined at the link as "a description of the perceived attempt of the then-chairman of the Federal reserve Board, Alan Greenspan, of propping up the securities markets by lowering interest rates and thereby helping money flow into the markets" -- Ed.] was back in the day, Chinese stocks still have a long way to fall [my emphasis added].

That's right, there should still be a lot of correcting to come.

"CHINESE STOCKS STILL LOOK OVERVALUED"

[Click to enlarge.]

Peter Thal Larsen begins the Monday NYT DealB%k post linked above: "For all the Chinese authorities’ increasingly overt meddling in the market, Chinese shares are still looking expensive. Even after the country’s main market indexes plunged roughly 30 percent in three weeks, on any fundamental analysis, they have further to fall."

A BUBBLE THE SIZE OF THE ONE THAT'S
BURSTING IN CHINA CALLS FOR COMMENT

The "Xi" of Drezner's "Xi put," of course, would be China's ever more powerful president, Xi Jinping (who you'll recall is also general secretary of China's Communist Party and chairman of its Central Military Commission). Xi, Drezner notes, "has spent the past few years centralizing political power [this link is to an April New Yorker profile of Xi by Evan Osnos, the magazine's former China correspondent -- Ed.] to a greater extent than anyone since Deng Xiaoping." And as is suggested by Drezner's post title, "The politics of China's stock market collapse," he's most interested in how Xi has been dealing with these developments and how they may affect his future powers and his promised economic reforms.

Drezner is intrigued by the fact that the bubble "was allowed to form in the first place," and looks to two very different explanations.

From The Economist's "Free exchange" blog comes the argument "that the stock market was pumped up to enable and legitimize economic reforms."

The government has staked much credibility and prestige on the stockmarket. When the going was still good, the official press was chock-a-block with articles about how the rally reflected the economic reforms that Xi Jinping, China’s top leader, was set to push. Li Keqiang, the premier, said repeatedly that he wanted equity markets to provide a bigger share of corporate financing—comments, from punters’ perspective, not unlike waving a red cape in front of a bull. The sudden end to the rally is the first major dent in the public standing of the Xi-Li team. The botched attempts to stabilise the market only make them look weaker, giving succour to their critics.

Whereas Andrew Erickson and Gabe Collins argue in the Wall Street Journal ("Stock Slump Casualty: The Myth of Chinese Exceptionalism") that the culprit was bureaucratic inertia:

So why wasn’t China’s vaunted bureaucracy able to head off this policy train wreck? Well-documented bureaucratic turf wars [behind Financial Times paywall -- Ed.] between the People’s Bank of China (PBOC) and China Banking Regulatory Commission (CBRC) helped sow the seeds of some of China’s most pressing current economic problems—such as ballooning debt and use of shadow banking. Such infighting continues impeding the Chinese government’s response to the current market downdraft….

As such, the PBOC likely faces significant political pressure to continue pumping the stock market up, as this helps distract the populace from the fact that the market for residential real estate—the prior hot investment area—is flagging. For its part, the CBRC has likely been “captured” by the very banks it is supposed to regulate, further contributing to amplified systemic risk from shadow banking activities that are tougher to track and regulate than lending conducted through normal bank channels. Ultimately, conflicting bureaucratic priorities and infighting send contradictory messages to investors and likely fuel additional market instability.

Drezner takes no position here, but notes, "The one thing that these analysts and everyone else agrees upon is that this will put a serious dent into Xi Jinping's efforts to liberalize the Chinese economy ranging from capital account liberalization to simply letting the market play a 'decisive' role in the economy."

He points out that "China’s government has recently been extremely sensitive to what seems like minor matters," and in the matter of what he calls the government's "increasingly desperate series of interventions" he cites a report by the Financial Times's Tom Mitchell [again, behind FT paywall] pointing out that "the market was not malfunctioning," and that "if anything, a three-week, 30 per cent correction after a 12-month, 150 per cent surge seemed like a welcome adjustment." But, says Mitchell,

for Mr Xi’s administration, letting the market find its own level apparently involved a loss of control — and a level of risk — that it could not accept. It does not bode well for the rest of his reform agenda. [I had to put that in boldface. -- Ed.]

Drezner, referring back to a March post of his, "Stress-testing the China model" (whose subhead was "The Chinese economy is due for a major league correction. How China's political system handles this will be interesting"), says, "The China model appears to be failing this stress test." And here's where all that power President Xi has consolidated unto himself comes into play.

It will be possible but difficult for him to fob off blame for this setback onto someone else. And in the mind of ordinary Chinese citizens, Xi’s leadership will not look quite so all-powerful from here on in.

#

McCain May Not Have Helped Invent The Blackberry, But He Was Part Of The Team That Invented Banking Scandals And Bailouts

Is there a relationship to John McCain's Keating 5 Scandal, which led to the taxpayers losing $3.4 billion, and the current Wall Street meltdown? You bet there is! Crooks & Liars has the story. Both scandals are direct results of Greed, special interest's/political corruption and the arrogance of Power. And McCain was at the heart of both. Although his disgraceful role in the Keating 5 scandal was largely whitewashed and he got away with an admonishment, his role as the head of the Senate Banking Committee where he came down firmly against federal regulatory agencies on behalf of the special interests paying him off with millions and millions of dollars in political "donations," will be tougher to deny.

The new film, Third Term helps put McCain's relationship to his ethics shortcomings into perspective. David Donnelly, director of Campaign Money Watch sums it up nicely: "Fast-forward twenty years to now, we have a huge mortgage crisis on our hands. It’s the result of years and years and years of a deregulatory approach that Senator McCain has supported."

He did not learn his lesson. The S&L collapse was a failure of adequate regulation, with the banks running wild, making dodgy investments with high risk-high reward margins. If that sounds familiar, it should... It’s the same thing that’s happening now, as banks fail, and as our housing market collapses. And the people responsible for this new crisis are the ones McCain has surrounded himself with, men like Phil Gramm and his banking lobbyists. He will offer the same kind of deregulatory policies that led to the banking collapse of the early ‘90s.

Take a look at this short clip from the movie, which puts the whole mess into perspective:



Just like he did before, at the time of his Keating 5 Scandal, McCain is desperate to blame everyone else and take no responsibility. That is the hallmark of his disgraceful career. McCain railing against the "Washington culture of lobbying and influence peddling," blaming this culture of the Wall Street crisis, and insisting that Obama is "square in the middle of it" is quintessential McCain, someone any colleague from the Senate, short of gay cypher Lindsey Graham and Holy Joe Lieberman-- both of whom have pinned their political futures to McCain's star-- will tell you is the least trustworthy, least believable, least honorable man in the U.S. Senate, regardless of political party.

Even the Wall Street Journal's notoriously right-wing editorial board is fed up with his devious campaign and is telling its readers that he "doesn't understand what's happening on Wall Street... McCain clearly wants to distance himself from the Bush Administration. But this assault on Mr. Cox is both false and deeply unfair. It's also un-Presidential... It wasn't very long ago that he blamed speculators on the long side for sky-high oil prices. Then oil prices fell. Now Mr. McCain wants voters to believe speculators are responsible for driving mismanaged financial companies to ruin. The irony is that this critique puts Mr. McCain in the same camp as some of the Wall Street CEOs who have led their firms so poorly. They also want someone (else) to blame... In a crisis, voters want steady, calm leadership, not easy, misleading answers that will do nothing to help. Mr. McCain is sounding like a candidate searching for a political foil rather than a genuine solution."

This morning Bush and Obama were calling on the whole nation to put partisanship aside and come together to fight the common enemy. McCain, clearly sensing that he is the common enemy lashed out viciously and desperately with more false negative, Rovian TV commercials trying to blame Obama while spewing an endless regurgitation of lies and distortions.

Financial Markets And Economic Policies Confuse And Annoy McCain... So He Just Makes Stuff Up

McCain's head must be exploding. All he wants to do is fight wars and he's been dragged down into complicated discussions of macroeconomic policies that he doesn't understand or care about. His economic policy advisors-- Phil Gramm, Douglas Holtz-Eakin, Carly Fiorina-- have gotten him into trouble again and again. At any given time at least one or two of them have been given "time outs" by McCain for boneheaded remarks that are killing his campaign. And then there's Sarah Palin, a two-legged embarrassment and a walking indictment of McCain's judgment and his commitment to the most basic well-being of our country. If McCain wants boneheaded comments, he doesn't need Gramm, Holtz-Eakin, Carly Fiorina or Palin; he's got himself-- and I'm not just talking about him forgetting the differences between Sunnis and Sh'ia, Iran and Iraq or even Spain and Bolivia.

Even his base-- the mainstream media-- is stunned how he has been stumbling around blindly and stepping all over his own (very mixed and mixed up) message since the financial crisis exploded onto the front pages of every newspaper in the country on Sunday, leaving the Palin phenomena where it always belonged-- on the cover of the National Enquirer.

As McCain watches the Palin bounce evaporate and as Bush prepares to come out of McCain-friendly hiding and address the nation on the financial meltdown his policies have caused, McCain is trying to remember what he's for and what he's against. Yesterday he tried negating decades of clear anti-regulatory voting records and statements by claiming that he and Palin would regulate, regulate, regulate. Today, when Obama was basking in the glory of an endorsement by equal pay heroine Lilly Ledbetter (in contrast to the endorsement that McCain had trumpeted yesterday by some decadent, snobbish, social-climbing baroness), McCain seems to have forgotten that he's been a relentless and vociferous opponent of equal pay for many years. Coming from an era when no one could find voting records-- and never having adapted to the computer age-- McCain is utterly unaware that when he makes statements, people can contrast them to his votes.

Yesterday he was trying to combat the embarrassment of the endorsement by the stinking rich, and much detested Lady de Rothschild by claiming that he supports equal pay for equal work too. He never has in the past-- never. It's just more hopeless McCain flip-floppingYesterday: "I want to assure you, that we not only have a role model, but we will hire people and we will make sure people come to our administration wherever there is discrimination. We will eliminate it, we will fight it, and if necessary we'll TAKE THEM TO COURT. We'll do those things."

Yet the last time McCain had a chance to do something about unequal pay (April 23) he skipped the Senate vote [HR 2831, Vote #110] on, ironically... the Lilly Ledbetter Fair Pay Act. The next day the A.P., a news organization extremely biased in McCain's favor, ran this headline: "McCain opposes equal pay bill backed by rivals" and reported that "he opposes a Senate bill that seeks equal pay for women because it would lead to more lawsuits." The day before he said pay disparity was due to education and job training, proving he lacks a basic understanding of the problems regular women-- not like Cindy and Carly and Baroness de Rothschild-- face in the workplace. Back on July 17, 2000 McCain voted to impose a Budget Act point of order tabling a Harkin amendment to "provide more effective remedies to victims of discrimination in the payment of wages on the basis of sex." That was consistent with a couple of votes in 1985 against passage of the bill to establish a commission to oversee a study of the federal workforce to determine whether differences in pay and classification have arisen because of discrimination on the basis of sex, race or national origin." And yet his response to the financial meltdown this week, catastrophic for so many American families: "let's start a commission to study it." I'd suggest he read today's Wall Street Journal instead, and then get out of the way for someone prepared to deal with the crisis.

The financial crisis that began 13 months ago has entered a new, far more serious phase.

Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem -- troubled subprime mortgages -- in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others. There's also a growing sense of wariness about the health of trading partners.

The consequences for companies and chief executives who tarry -- hoping for better times in which to raise capital, sell assets or acknowledge losses -- are now clear and brutal, as falling share prices and fearful lenders send troubled companies into ever-deeper holes. This weekend, such a realization led John Thain to sell the century-old Merrill Lynch & Co. to Bank of America Corp. Each episode seems to bring government intervention that is more extensive and expensive than the previous one, and carries greater risk of unintended consequences.

Expectations for a quick end to the crisis are fading fast. "I think it's going to last a lot longer than perhaps we would have anticipated," Anne Mulcahy, chief executive of Xerox Corp., said Wednesday.

"This has been the worst financial crisis since the Great Depression. There is no question about it," said Mark Gertler, a New York University economist who worked with fellow academic Ben Bernanke, now the Federal Reserve chairman, to explain how financial turmoil can infect the overall economy. "But at the same time we have the policy mechanisms in place fighting it, which is something we didn't have during the Great Depression."

How can McCain be expected to understand it? He was just a small child riding around on a burro in his native Panama when Republican policies of Greed and Selfishness plunged the U.S. into the Great Depression. And now he is surrounded by economic advisors who want to role back all the reforms from that era meant to protect consumers, workers and society in general. In fact, his chief economic advisors claim there is no real crisis and that Americans are whiners and exaggerators and just have "psychological" problems. McCain doesn't remember how many homes he owns; he's not hurting. I suspect Lady de Rothschild, who claims Barack Obama is an elitist, may have a similar problem keeping track of all her estates spread out over several countries. I don't know if in-and-out of serial bankruptcies Trump, another decadent parasite who endorsed McCain, knows how many homes he owns either. Larry King should have asked him.

Bush Regime's Parting Gift To America: (National) Socialism

Actually the unscrupulous political right has always been ready and eager to socialize private companies' losses. It looks like we, the taxpayers, are about to take ownership in a 4/5 stake in A.I.G., a very shady insurance and financial services company, recently run by crooked Wall Street operators, Hank Greenberg and then Martin Sullivan. It's the 18th biggest company in the world. George Bush nationalized it, just like he did Fannie Mae and Freddie Mac. Talk about flip floppin'! The free and unfettered market where government gets out of the way is all well and good with predator Republicans are scooping up bundles of cash-- and sharing it with politicians-- but when the going gets tough... the politicians remember why buttered their bread.

Martin Sullivan donated tens of thousands of dollars to sleazy Republicans like John Ensign (R-NV), John Sununu (R-NH), George W Bush (R-TX) and to suspect Democrats from the Republican wing of the Democratic Party like Tom Carper (D-DE), Evan Bayh (D-IN), and Max Baucus (D-MT). Maurice "Hank" Greenberg, who has been in constant trouble with the Feds for running the company like a real gangster operation has donated hundreds of thousands of dollars to crooked politicians (almost entirely Republicans), like Sandy Treadwell (R-NY), David Dreier (R-CA), Susan Collins (R-ME), John Ensign (R-NV), George W. Bush (R-TX), and, of course, John McCain (R-AZ). The company's political action committee (PAC) has bundled hundreds of thousands of dollars more for corrupt politicians of both parties. Big recipients of AIG bribes include Lindsey Graham (R-SC), Judd Gregg (R-NH), Evan Bayh (D-IN), Joe Lieberman (R-CT), John McCain (R-AZ), John Sununu (R-NH), Ben Nelson (D-NE), John Boehner (R-OH), Roy Blunt (R-MO), Charlie Rangel (D-NY), Don Young (R-AK), Mitch McConnell (R-KY), Scott Garrett (R-NJ), Patrick McHenry (R-NC), Ileana Ros-Lehtinen (R-FL), Chris Shays (R-CT), Max Baucus (D-MT), Jay Rockefeller (D-WV), Melissa Bean (D-IL), Howard Berman (D-CA), Tim Mahoney (D-FL), and Elizabeth Dole (R-NC).

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

In return, the Fed will receive warrants, which give it an ownership stake. All of A.I.G.’s assets will be pledged to secure the loan, these people said.

This deal will head off the biggest corporate bankruptcy ever. I wonder if any of the politicians will return the money they were paid by AIG. I bet not. Generally, its a sleazy bunch AIG was greasing. I wonder if any of them will recuse themselves from voting on AIG matters. I doubt that too. Bernanke and Paulson briefed members of Congress last night.

And by the way, serious Wall Street reform would be a great thing-- and long overdue. That doesn't including giving over the power to Regime connected predators like Jeb Bush, recently hired as a Lehman Bros advisor. Regardless of what McCain, confused, panicked and desperate to distance himself for the catastrophic Republican economic policies of Greed and Selfishness he has fully supported, says, look at who he has surrounded himself with: the very authors of this disaster are the McCain campaign. Even yesterday, Palin was doing her first solo-fundraiser with one of the villains of Ohio job loss, W.J. Timken, Jr.

THE BEAR STEARNS FIASCO-- AN OUTGROWTH OF GOP POLICIES AND RIGHT WING IDEOLOGY

$1.2 million Bear Stearns Bldg. thrown into the deal for free

A few days ago we looked at the collapse of the Republican Party honeypot, Carlyle Capital Corporation (part of the notorious Carlyle Group). They defaulted on $16.6 billion in loans from many of the world's major banks. None of the GOP bloodsuckers, particularly the Bush family and their circle-- who have raked in unbelievable profits from their participation in Carlyle-- are in any way being held to account for this, of course. Those who write the laws, write them to effect what other people do, not what they do. In today's NY Times Gretchen Morgenson asks some questions about the Wall Street meltdown in general.

WHAT are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

Or all of the above?

Stick around, because we’ll soon find out. And it’s not going to be pretty.

Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of JPMorgan Chase, the Federal Reserve Bank of New York conceded last Friday that no sizable firm with a book of mortgage securities or loans out to mortgage issuers could be allowed to fail right now. It was the most explicit sign yet of the Fed’s “Rescues ‘R’ Us” doctrine that already helped to force the marriage of Bank of America and Countrywide.

But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.

On Monday one of the Republican authors of the economic collapse we are starting to experience, SEC Chair and former right-wing Congressman Christopher Cox, blatantly lied to the public by claiming the big Wall Street firms "were resting on comfortable capital cushions." They aren't-- and no one inside the Robber Baron-oriented Bush Regime knew that better than Cox. Today Bear Stearns would have had to file for Chapter 11 bankruptcy protection or sell itself to the highest (low) bidder. JP Morgan bought it at $2 a share, shares that were trading for $50 a share a few days ago-- and $170 a share one year ago. Put another way, "the price represents a startling 93 percent discount to Bear Stearns’ closing stock price on Friday."

Bankers and policy makers raced to complete the deal before financial markets in Asia opened on Monday, as fears grew that the financial panic could spread if Bear Stearns failed to find a buyer.

...The companies said that the Federal Reserve would provide special financing in connection with the transaction and that the Fed had agreed to fund up to $30 billion of Bear Stearns’s “less-liquid assets.”

This sale includes the Bear Stearns Manhattan headquarters, which alone is worth over a billion dollars. Still seems like a risky purchase for JP Morgan, although I suppose they had no choice because the size of the crash on Monday had they not done it would have been incalculable. The laissez fairies who are all hands off when ordinary Americans lose their homes and jobs and savings-- often due to corruption and incompetence at the top of the economic ladder-- but when these big corporations start to totter, due to their own malfeasance, the government steps in with our tax dollars to save the day. And no one has to give up any of those six and seven figure bonuses or severance packages. And to top it off the Fed announced today that they are lowering the interest rate by another quarter percent-- on top of the $200 billion they pumped into the system Tuesday. You notice how wan Bush looked and how he bumbled his way through his speech even more lamely than usual on Friday? Even he understands what's happening. Wait til the big banks report earnings-- losses-- later in the week.

As I hit the sack Sunday night in Los Angeles, all the Monday morning stock market openings in Asia are tumbling drastically, a big vote of no confidence in the Bush Regime's lame efforts to contain the financial meltdown. Tokyo's Nikkei index dropped 4.2% to a three year low and markets in Korea, Hong Kong and Australia are also sinking.


6:00 AM (PT) UPDATE: AS BAD AS I PREDICTED LAST NIGHT

This morning's Wall Street Journal tries to make some sense out of the mess, or, at least, gets the facts on the table. Paul Krugman, in this morning's NY Times is, as usual, more frank and to the point: The B Word. The Bush Regime is lying about not using taxpayers' money to bail out the big financial institutions and a bailout is inevitable. Why?

1- What goes up (housing prices) must come down
2- Risk exists
3- GOP ideology that regulation is bad led to inevitable and catstrophic consequences

The U.S. markets aren't open yet. CNN says they will open 200 points lower. Markets in the rest of the world were dramatically down. And what was up? The Euro and other currencies against teh dollar and the price of gasoline (not to mention inflation and unemployment). Even the Canadian dollar is now trading higher against the U.S. dollar!