What Comes After Twitter? Flutter

I want it NOW! …. jeez…

more about “What Comes After Twitter? Flutter“, posted with vodpod

Clues to What’s Next for the Economy – List of Troubled US Banks

All US Banks and their Texas Ratio

Chris Brunner at the Lew Rockwell Blog posted this interesting article about how to get a clue as to what banks might be the shakiest at the moment, and more likely to fail.

Brunner:

A few days ago, a friend of mine called me to ask if I had any idea how to figure out which banks would be the next to fail. Some extensive googling revealed that while lists of troubled banks obviously exist, none of them seem to be readily available to the public. Why? Because the bankers do not want you to have this. Just watch the president of the American Bankers Association in this interview talk about how important it is to keep this private.

This is a list of all of the banks in the United States and the corresponding Texas Ratio for each one. Developed by Gerard Cassidy, the Texas ratio is a measure of a bank’s credit troubles. Basically, the higher the ratio, the worse the situation is for that particular bank. Banks with a ratio of 100 and higher are in very serious danger of collapse, and banks with a ratio of 50 or higher are vulnerable.

This is the formula I used:

100 * ((Non-performing Assets – U.S guaranteed loans) + Other REO) / (Equity + Loss Reserves)

… I recommend Chris’s post – read it!

I have put the list together as a word .doc file and as an excel spreadsheet sorted (ascending) by state and city and then (descending – worst to best) by Texas Ratio.

View:            doc spreadsheet

-dcm

Why aren’t Unlimited Text Plans $1 / Year?

AT&T, Sprint, T-Mobile, Verizon Still Owe Senator Kohl (And their Customers) Some Explanations

There’s a reason costs for text plans have skyrocketed recently, and it’s not due to increased overhead.  From Randall Stross’s What Carriers Aren’t Eager to Tell You About Texting:

“…text messages are not just tiny; they are also free riders, tucked into what’s called a control channel, space reserved for operation of the wireless network. That’s why a message is so limited in length: it must not exceed the length of the message used for internal communication between tower and handset to set up a call. The channel uses space whether or not a text message is inserted.

Senator Herb Kohl would like to talk with the wireless carriers about that.

So far they haven’t been very forthcoming.  Stross writes:

The written responses to Senator Kohl from AT&T, Sprint and T-Mobile speak at length about pricing plans without getting around to the costs of conveying text messages. My attempts to speak with representatives of all three about their costs and pricing were unsuccessful. (Verizon Wireless would not speak with me, either, nor would it allow Mr. Kohl’s office to release publicly its written response.)

The carriers will have other opportunities to tell us more about their pricing decisions: 20 class-action lawsuits have been filed around the country against AT&T and the other carriers, alleging price-fixing for text messaging services.

We should All listen to what they have to say.

I wonder if they’ll get around to talking about what Common Carrier means.  Does the bus company charge You to use the bus’s rest room while enroute?  It’s there, on the bus, whether or not any passenger uses it.  And You’ve paid for it in the cost of the ticket.

From Ars Technica Sept 10 Article Senator to cellular carriers: UR TXTS R 2 XPENSIV:

Kohl’s office is asking each carrier to explain the method behind the text message rate madness, including any cost, technical, or other factors that justify the 100 percent increase between 2005 to 2008. Kohl also wants data on how text messages are utilized, comparisons of how text message packages stack up against competitors, and—perhaps most importantly—price comparisons against per-minute charges for voice plans, and per-KB charges for mobile Internet and tethering plans. It should be fun to hear AT&T defend why it charges over $1,300 per megabyte for text messages.

Again, Kohl’s office made it clear that this letter is more of an conversation starter (though a fairly forceful one) in what could turn out to be an embarrassing (for the carriers) discussion over high cost of text messages. The staffer did, however, hold out the possibility of further investigation, and even a request that antitrust regulators to look into the matter, should the situation call for it.

Donald Melanson at Engadget filed this report at the time.

Here is Senator Kohl’s letter:

For Immediate Release: 9/9/08 Phone: (202) 224-5653 KOHL CALLS ON CELL PHONE COMPANIES TO JUSTIFY RISING TEXTING RATES In Three Years, Text Message Charges Have Doubled for Wireless Customers WASHINGTON, DC — Today, US Senator Herb Kohl (D-WI), chairman of the Senate Antitrust Subcommittee, asked the presidents and chief executive officers of the four largest wireless telephone companies to justify sharply rising rates for its customers to send and receive text messages. In a letter, Senator Kohl requested an explanation from Verizon Wireless, AT&T, Sprint and T-Mobile, which collectively serve more than 90 percent of the nation’s cellular phone users. The text of Senator Kohl’s letter follows below. September 9, 2008 Lowell McAdam President and CEO Verizon Wireless Randall Stephenson Chief Executive Officer AT&T Dan Hesse Chief Executive Officer Sprint Robert Dotson President and Chief Executive Officer T-Mobile Dear Messrs. McAdam, Stephenson, Hesse and Dotson: I am writing to express my concern regarding what appear to be sharply rising rates your companies have charged to wireless phone customers for text messaging. Some industry experts contend that these increased rates do not appear to be justified by any increases in the costs associated with text messaging services, but may instead be a reflection of a decrease in competition, and an increase in market power, among your four companies. Your four companies are the nation’s leading wireless telephone companies, collectively serving more than 90% of the nation’s wireless subscribers. Since 2005, the cost for a consumer to send or receive a text message over each of your services has increased by 100%. Text messages were commonly priced at 10 cents per message sent or received in 2005. As of the end of the month, the rate per text message will have increased to 20 cents on all four wireless carriers. Sprint was the first carrier to increase the text message rate to 20 cents last Fall, and now all of its three main competitors have matched this price increase. What is particularly alarming about this industry-wide rate increase is that it does not appear to be justified by rising costs in delivering text messages. Text messaging files are very small, as the size of text messages are generally limited to 160 characters per message, and therefore cost carriers very little to transmit. Text messaging files are a fraction of the size of e-mails or music downloads. Also of concern is that it appears that each of companies has changed the price for text messaging at nearly the same time, with identical price increases. This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace. What has changed in recent years is the level of consolidation in the wireless telephone industry. The number of major national competitors has declined from six to four. And the large national wireless carriers continue to acquire their smaller, regional competitors, with the announced acquisition of Alltel by Verizon Wireless being just the latest example. As Chairman of the Antitrust Subcommittee, I am concerned with whether this consolidation, and increased market power by the major carriers, has contributed to this doubling of text messaging rates over the last three years. Therefore, I specifically ask each of your companies to explain why text messaging rates have dramatically increased in recent years. Please explain the cost, technical, or any other factors that justify a 100% increase in the cost of text messaging from 2005 to 2008. Please also provide data on the utilization of text messaging during this time period. Please provide a comparison of prices charged for text messaging as compared to other services offered by your companies, such as prices per minute for voice calling, prices for sending e-mails, and prices charged for data services such as internet access over wireless devices, from 2005 to the present. Finally, please state whether your text messaging pricing structure differs in any significant respect from the pricing of your three main competitors. Please provide this information no later than Monday, October 6, 2008. If you have any questions regarding this request, please contact Jeff Miller or Seth Bloom of my Antitrust Subcommittee staff at (202) 224-3406. Thank you for your attention to this matter. ###

-dcm

Funk Break for Holidays

Stanley Clarke, Marcus Miller, Victor Wooten

Thank You Guys.  Happy Holidays All.

-dcm

Presidential Records “Custodian” Dead in Plane Crash

Republican IT Consultant Mike Connell Masterminded external GWB43 email accounts

(update 1) (update 2) (update 3) (update 4)

So let me get this straight.  Rawstory is reporting that Mike Connell, Karl Rove’s IT Contractor, has been killed in a plane crash.

“A top level Republican IT consultant who was set to testify in a case alleging GOP election tampering in Ohio died in a plane crash late Friday night.

Michael Connell — founder of Ohio-based New Media Communications, which created campaign Web sites for George W. Bush and John McCain — died instantly after his single-prop, private aircraft smashed into a vacant home in suburban Lake Township, Ohio.”

This is the guy who ran the company whose mail servers handled the President’s mail for the two year period which the administration variously claims is “lost”, “archives destroyed”, “archives never created”, i.e., unavailable.  (And now, ) No matter what course of legal action, unavailable.

dead men tell no tales?

Connell’s mail servers handled at least 88 White House email accounts, according to Think Progress.  This included the VP’s and Carl Rove’s and other inner circle officials and operatives email, too.

Larisa Alexandrovna, who has reported on Connell for some time, posted this about it on her blog at-Largely yesterday (emphasis added):

Michael Connell died in a plane crash last night. He was a key witness in the Ohio election fraud case that I have been reporting on. More importantly, however, he had information that he was ready to share.

You see, Mike Connell set-up the alternate email and communications system for the White House. He was responsible for creating the system that hosted the infamous GWB43.com accounts that Karl Rove and others used. When asked by Congress to provide these emails, the White House said that they were destroyed. But in reality, what Connell is alleged to have done is move these files to other servers after having allegedly scrubbed the files from all “known” Karl Rove accounts.

In addition, I have reason to believe that the alternate accounts were used to communicate with US Attorneys involved in political prosecutions, like that of Don Siegelman. This is what I have been working on to prove for over a year. In fact, it was through following the Siegelman-Rove trail that I found evidence leading to Connell. That is how I became aware of him. Mike was getting ready to talk. He was frightened.

It is interesting how Alexandrovna was led to Mike Connell, while investigating the US Attorney firing scandal.

So all this mail has been lost.

And now the IT guy who ran the thing is dead.  And he was getting ready to talk. And he was frightened.

And he just happened to have had a fatal accident.

Uh Huh.

-dcm

Update 1 – Pissed Off Democrat is reporting that Ohio’s Election Attorney had requested Witness Protection for Connell due to threats from Karl Rove and his associates.  Also that Velvet Revolution has called for a full federal investigation after their contacts with those close to Connell revealed the threats and concern for Connell’s safety.

Update 2 - Here is VR’s press release in yesterday’s NY Times.

Update 3 – The Brad Blog has been covering this for a while.   Also, Lisa Derrick published this piece about it on Huffington Post.  A search of YouTube video’s about Connell’s various alleged crimes is here.  Below is a video explaining a bit of the context of Mike Connell’s suspicious and untimely death.

Update 4 - 1 Boring Old Man offers a couple of informative posts, Red Flags, and Re: Mike Connell.  There’s a discussion over at E. Pluribus Media.  Locally, CantonRep.com has an accident report that brings some perspective here, which includes the below video at the scene.

Post Script

Here are the background links Larisa compiled for her post’s second update.  They are valuable for understanding the context for Mike Connell’s death.

Here are the reading materials in case you have not followed any of this closely. These are articles I have done over spanning over a year of investigative work:Part 1 – Political Prisoner http://rawstory.com/news/2007/The_Permanent_Republican_Majority_1125.htmlPart 2 – Siegelman’s Daughter Speaks Out http://rawstory.com/news/2007/The_permanent_Republican_majority_Daughter_of_1127.html Part 3 – Karl Rove Running Elections from the White House http://rawstory.com/news/2007/The_Permanent_Republican_Majority_Part_III_1216.html Part 4 – Mississippi Prosecution, Justice Oliver Diaz http://rawstory.com/news/2008/How_Bush_US_attorney_riddled_with_0401.html Part 5 – Justice Diaz Speaks http://rawstory.com/news/2008/Diaz_placeholder_0408.html Part 6 – Break-ins plague targets of political prosecutions http://rawstory.com/news/2008/Breakins_plague_Justice_Department_whistleblowers_0430.html Part 7 – Justice for Sale http://rawstory.com/news/2008/Justice_for_Sale_How_Big_Tobacco_0828.html Related articles: Judge who denied Paul Minor release was protégé of Karl Rove http://rawstory.com/news/2008/Judge_in_Paul_Minor_case_was_0821.html DOJ Investigating 2 US Attorneys http://rawstory.com/news/2008/DOJ_Investigating_two_US_Attorneys_involved_0604.html 60 Minutes Segment on Siegelman “dropped” in Alabama http://rawstory.com/news/2008/60_Minutes_broadcast_on_prosecution_of_0225.html Republican IT Consultant Subpoenaed in Ohio election fraud case http://rawstory.com/news/2008/Republican_IT_consultant_subpoenaed_in_case_0929.html Abramoff said he had agreement with White House aide just a month after Bush took office http://rawstory.com/news/2008/Abramoff_said_he_had_agreement_with_1117.html Treasury Department investigating US Attorney for leaking state Supreme Court Justice’s tax returns http://rawstory.com/news/2008/Treasury_Department_investigating_US_Attorney_for_1201.htm

Torturing Democracy – See it

Documentary GOP Insiders Failed to Block Now Online

A compelling video about the Bush – Cheney Administration’s path to their torture policies is now available online.

(Update 1) (Update 2 – above)

Glenn Greenwald at Salon:

Last month, I interviewed Harper’s Scott Horton regarding a piece he had written on the efforts of several PBS officials, including Jay Rockefeller’s wife (the CEO of Washington’s PBS affiliate) to block broadcast of the documentary Torturing Democracy, which compellingly documents how virtually all of the torture and other illegalities and abuses of America’s interrogation programs were authorized and ordered at the highest levels of the Bush administration (of which waterboarding is but one small example).

That documentary is now available to be viewed in its entirety online — here — and I can’t recommend it highly enough.

(Note – Jay Rockefeller is the ranking GOP member and Co-Chair of the Senate Intelligence Oversight Committee.)

Ditto for me. Here’s a link to each of the 3 parts:

• Part 1 From 9/11 to waterboarding: The inside story
• Part 2 From the CIA to Guantanamo: Copying harsh Communist interrogation methods
• Part 3 While hundreds remain imprisoned in Guantanamo, Congress grants immunity to US Officials who may have ordered torture

(Update! – 111708)

And here is an excerpt:

Also, There’s a pretty good timeline at the Torturing Democracy site, as well as all the key documents in the Bush administration’s decisions to stray beyond the boundaries of the Law.

President-Elect Obama Speaks

Reaffirms America’s Penchant for Change

Ladies and Gentlemen, The President-Elect of the United States …

Well, who could possibly follow that?

AIG Not Telling US Treasury How They Used Up 3/4 of $123 Billion in 2 Weeks

Possible Signs of Internal Financial Irregularities

After taking an $85 billion emergency loan from the Fed, and then another $38 billion, A.I.G isn’t being very specific on how it has already spent most of the money, according to Mary William Walsh’s article in the New York Times:

(emphasis added)

A.I.G. has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.

Some industry observers say there must be undisclosed irregular accounting leading up to the bailout for so much of the $123 Billion lifeline to have been used up so fast.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse.

The article details indications of a sustained effort on the part of AIG top management to bury any details of an internal debate on how to value it’s derivatives contracts over the past few years.  When a former SEC accountant was brought in due to previous irregularities,

He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division … When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

(emphasis added)

Astounding Burn Rate

In the roughly 6 weeks since AIG got the massive government loans they have already used up 90 of an available $123 billion at last reports.

A spokesman for the insurer, Nicholas J. Ashooh, said A.I.G. did not anticipate having to use the entire $38 billion facility. At midyear, A.I.G. had a shortfall of $15.6 billion in that program, which it says has grown to $18 billion. Another spokesman, Joe Norton, said the company was getting out of this business. Of the government’s original $85 billion line of credit, the company has drawn down about $72 billion. It must pay 8.5 percent interest on those funds.

…

For $59 billion of the $72 billion A.I.G. has used, the company has provided no breakdown. A block of it has been used for day-to-day operations, a broad category that raises eyebrows since the company has been tarnished by reports of expensive trips and bonuses for executives.

(emphasis, links added)

US Federal Deficit 1989 - 2004

Possible Legal Violations

Rep. Barney Frank, House Financial Service Committee chairman said on Friday in remarks directed at Banks who had received a separate $125 Billion government buy-in, that financial institutions were “distorting” the government’s $700 billion economic bailout plan by using the money for bonuses, dividends and acquisitions.  Frank said any uses of that money other than lending were “violation of the terms of the act.”

On 7 October Rep. Henry Waxman’s Committee on Oversight and Government Reform held hearings on the causes of AIG’s need for a bailout. (Full Hearing Video).  At the hearing it came out that the week after AIG got an $85 Billion initial govenrment bailout, executives went on a retreat at a luxury resort, spending $443,343.71. Rep. Elijah Cummings (D-MD) said:

Have you heard of anything more outrageous – a week after taxpayers commit $85 billion dollars to rescue AIG, the company’s leading insurance executives spend hundreds of thousands of dollars at one of the most exclusive reports in the nation…Let me describe for some of you the charges that the shareholders, taxpayers, had to pay. AIG spent $200,000 dollars for hotel rooms. Almost $150,000 for catered banquets. AIG spent $23,000 at the hotel spa and another $1,400 at the salon. They were getting manicures, facials, pedicures and massages while American people were footing the bill. And they spent another $10,000 dollars for I don’t know what this is, leisure dining. Bars?

(emphasis added)

AIG Gets Another $25 Billion – Total: $144 Billion (so far…)

On Thursday 30 October, AIG said “it would be able to borrow up to $20.9 billion under the new program, raising its maximum available credit from the Fed to $144 billion under three different programs,” the New York Times reports.  And there’s no sign yet that will be enough.

From Walsh’s article:

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.

AIG’s unwillingness or inability to place a determinative valuation on their deriviative contracts has poisoned the credit market. As Tavakoli Structured Finance President Janet Tavakoli observes, “When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets. … “It’s really bad for the markets. Things don’t heal until you take care of that.”

The NYT reports “Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls.”

Tavakoli is an expert in derivative and similar financial products, and recently debated “mark to market” options on Bloomberg.

more about “Derivative Valuation Debate – Bloombe…“, posted with vodpod

Morningstar Analyst – May be better to let losses be realised

Bill Bergman, Senior Equity Analyst at Morningstar observed, “We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss.”

– assembled from various reports by dcm

The Real Great Depression – 1929 Wrong Model for Current Crisis

Today’s global collapse more closely resembles Panic of 1873 than 1929

By Scott Reynolds Nelson

[Occasionally I will invite a Guest to publish at Scribal Thrum - and I'm proud to welcome Scott Nelson, Professor of History at William and Mary College.  Thanks for Contributing, Scott.)

As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.

When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873.

Run on the Fourth National Bank, No. 20 Nassau Street New York City, 1873 : WikiMedia Commons

Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, “economic organization crumbled with some primeval upheaval.” Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms “tramp” and “bum,” both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York’s Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania’s coal fields in 1875, when masked workmen exchanged gunfire with the “Coal and Iron Police,” a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.

In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing.

Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-default swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007.

By then trillions of dollars were already invested in this credit default swap derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.)

As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.

If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment.

Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)

The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

In the end, the Panic of 1873 demonstrated that the center of gravity for the world’s credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.

Scott Reynolds Nelson is a professor of history at the College of William and Mary. Among his books is Steel Drivin’ Man: John Henry, the Untold Story of an American legend (Oxford University Press, 2006).

Reprinted by Special Arrangement with the Author.  A slightly different version of this article appeared in The Chronicle of Higher Education, October 17, 2008 issue, Volume 55, Issue 8, Page B98, and in the Online Edition, here.

Bailout Cash Not Lent – Used By Banks for Mergers Instead, Despite Kashkari’s Testimony

Joe Nocera at the New York Times writes that Banks are hoarding their new bailout cash for the onrushing downturn, instead of making loans to free up the credit markets.

He reports that on 17 October, only four days after taking a $25 billion bailout, a JPMorgan Chase executive admitted during an employee-only conference call that there was no intention on the part of management to use the money to make loans.

(emphasis added-dcm)

Question:

“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”

Answer:

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase … What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Yet, here is what Neil Kashkari said to Senator Chris Dodd and the Senate Banking Committee on Thursday, 23 October:

Full Hearing Video

Either somebody’s cribbing, or JPMorgan Chase has plans for the money that the Congress hasn’t.

The problem is the bailout was passed to buy up toxic mortgage debt in the form on credit default swaps of dubious and opaque valuability.  But the Fed’s direction changed after they got the money, and realised that the unfreezing of the credit markets through the recapitalisation of the banking system was the way our European Partners had determined to go about this, and we had better follow suit.

The Economist:

In America, where the authorities have helped to shovel failing banks into the hands of bigger ones, the retail-banking landscape now has three towering figures. On September 25th JPMorgan Chase overtook Bank of America as the country’s largest deposit-taking institution by snapping up the assets and deposits, but not the other liabilities, of Washington Mutual (WaMu), a Seattle-based savings-and-loan bank that had been suffocated by bad mortgage loans.

Four days later Citigroup, its risks capped by a loss-protection agreement with the Federal Deposit Insurance Corporation (FDIC), strengthened its domestic deposit base by acquiring the banking operations of Wachovia. Further consolidation is likely. Jim Eckenrode, an analyst at Tower Group, a consultancy, reckons that a top tier of five banks (Wells Fargo and US Bancorp are two other contenders) may end up holding as much as half of America’s deposits.

So now it looks like the credit markets will have to wait, and we must endure the resultant deep wave of medium and small business layoffs and bankruptcies due to a lack of available credit, while the Fed forces a round of bank consolidation with what bailout money they have at the moment.

As Joe Nocera put it:

“Nobody is saying it should make loans that people can’t repay. What I am saying is that [JP Morgan Chase CEO] Mr. Dimon took the $25 billion on the condition that his institution would start making loans. There are plenty of small and medium-size businesses that are choking because they have no access to capital — and are perfectly capable of repaying the money.”

Senator Dodd did press the urgency of lending to Kashkari in Thursday’s hearing:

While JP Morgan Chase may use their $25 Billion as a “backstop” against what’s coming,  Bloomberg reports that Goldman Sachs may raise capital to buy assets assuming it finds the right opportunities, according to company spokesman Lucas van Praag:  “If we see assets that are attractive, we might raise capital in order to be able to acquire them,” but Goldman has “no immediate plans to raise capital.”

Bloomberg:

Goldman, now the sixth-largest U.S. bank by market value,
is more interested in buying deposits than in buying entire
banks, according to a person familiar with the firm’s thinking.

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It’s been a long day.  Looks like the Fed is letting the banks sit on the money for a rainy day, or to buy other banks.  Doesn’t look like they’re gonna lend out much, at any kind of decent rates, anytime soon.  I hope Senator Dodd can talk some sense into them.

I can’t fix that right now.  But I can rest, kick back, crack open a Foster’s, and enjoy Oscar Peterson and Joe Pass show me how a Nigerian Marketplace should work.

Thanks Oscar, Guys, Joe.

-dcm