Article 43


Sunday, May 03, 2009

The Next Depression Part 30 - Recession Getting Worse


TODAY’S REPORT on GROSS DOMESTIC PRODUCT (GDP) growth in the first quarter of 2009 just confirms the obvious: the United States economy is mired in a particularly steep recession. On EVERY INDICATOR except government purchases the current recession is worse than average, and it should be noted that further declines are almost inevitable in coming quarters.

The last quarter of 2008 and the first quarter of 2009 together posted the worst half-year of GDP performance in over 60 years. While coming quarters may see a moderation in the pace of decline, it’s clear that this recession is already a stand-out in its severity and will only get worse.
- Josh Bivens, Economic Policy Institute, April 29, 2009

Every plan weve heard from Treasury amounts to the same thing an attempt to socialize the losses while privatizing the gains.
- Paul Krugman, Biggest Con Job of 2009, March 3, 2009

The real economy is sinking fast and, with it, any hope for a quick recovery. Policymakers are completely at a loss. The public knows that things are far worse than they are being told.
- Mike Whitney, May 1, 2009

Upside surprise in consumption spending doesnt stem sharp decline in economic growth

By Josh Bivens with research assistance from Kathryn Edwards
Economic Policy Institute
April 29, 2009

According to a Commerce Department report released today, gross domestic product (GDP) shrank 6.1% in the first quarter of this year, measured at an annual rate. This drop and the 6.3% decline in the last quarter of 2008 represent the worst half-year GDP performance since 1958.

The decline was driven by large falls in exports, dwindling private investment in all categories, and declines in government spending.  While the contraction was slightly worse than consensus forecasts of a 5% decline, the real surprise in the report was the 2.2% increase in personal consumption spending, which had fallen at an average rate of 4% in the previous two quarters.

An especially troubling sign was the cliff-dive of investment spending. Investment in non-residential structures fell 44% in the quarter. Non-residential investment has historically followed movements in residential investment with a one to two year lag. It had held up through the first three years of the residential housing sector meltdown, but shrank 9% in the last quarter of 2008.  Its performance in the first quarter this year is a sign that it will be dragging on GDP growth for some time to come.

Following the 28% decline in the last quarter of 2008, investment in equipment and software dropped another 34% in the first quarter of this year. This is the fifth straight quarter of decline, with each successive fall being larger than the previous.

The residential housing sector posted its 13th straight quarter of decline, and its contraction was the steepest yet at 38%. Ironically, the decline of the housing sector has been so dramatic that the sector is now too small for it to put great downward pressure on overall GDP. Housing accounts for 2.7% of overall GDP now, roughly 43% of its peak size in 2005. Given that home prices fell at the fastest rate yet in the first quarter of 2009, it seems unlikely that this decline in home building will stop anytime soon.

Trade continues to collapse on both the import and export side, down 30% and 34% respectively. As imports remain much larger than exports, these changes led to net exports (exports minus imports) adding a full 2 percentage points to the quarterҒs growth. However, given that the International Monetary Fund (IMF) predicts 2009 will be the first year in the last 60 to see an overall decline in world output, it seems unlikely that foreign demand will provide a reliable boost to pull the U.S. economy out of recession. This is especially worrying given that a new IMF report on recessions that are accompanied by financial crises indicates that these downturns are most likely to end when a country sees a rapid increase in demand for its net exports. This recession and financial crisis are, however, global and global net exports, of course, are always and everywhere zero. In short, the prescription for alleviating a national recession and financial crisis just cant work at the global level.

Both federal and state/local government spending fell last quarter, by 4.0% and 3.9% respectively. The federal spending downturn was entirely accounted for by the 6.4% decline in defense spending. This was probably inevitable after extraordinarily rapid increases in defense outlays in the previous 6 months (they rose by an average of over 10% in the last two quarters of 2008).

It should be noted that essentially none of the money in the stimulus package passed in February was spent in the first quarter, so that at least is a bright sport for the future. Further, much of the money appropriated both in the stimulus package and in the bailouts of the financial sector does not show up in the government category of the GDP report. This category essentially counts only government purchases of goods and services.

Also, the state fiscal relief included as part of the stimulus package was not generally felt in the first quarter of 2009; this number should hopefully stabilize a bit in coming quarters.

The gains in consumption spending last quarter are a real surprise. A key factor was a 9.4% rise in durable goods spending, which had fallen for the previous year. Spending on autos accounted for two-thirds of this increase, following six straight quarters of decline. Despite the 4.8% increase in spending on autos, motor vehicle production in the United States actually fell, subtracting a full 1.4% off of overall GDP in the quarter. Extraordinarily low levels of auto sales before the first quarter of 2009 indicate that pent-up demand for cars could conceivably be a strong force leading to recovery in coming years.  For the moment, much of this demand was probably satisfied by running down inventories, which subtracted 2.8 percentage points off of GDP this quarter. This pent-up demand for autos, however, will only help pull the U.S. economy out of recession if it is translated into a rise in U.S. production of cars. In a sense, todayҒs GDP report argues strongly that there is a compelling macroeconomic reason to make sure that American-based auto producers do not fail in the next couple of years.

The rise in consumption spending is even more puzzling in that it was accompanied by a large increase in the personal savings rate. Savings reached 4.2% of personal disposable income, the highest rate since 1998. Given that before the stock and housing bubbles of the 1990s and 2000s this rate averaged well over 6%, it is safe to guess that future quarters will not see the relatively strong consumer spending numbers posted last quarter.

The rise in both consumer spending and the savings rate was made possible by a large fall-off in personal taxes, which fell 13% in the quarter. This fall-off in taxes is almost surely a symptom of the rapid declines in the earnings of high-income households that has accompanied the current recession.

Despite the upside surprise on consumption spending, todays GDP report overall tells the story of an economy mired in recession. The uptick in consumer spending was accompanied (maybe even driven) by falling prices for consumer goods, and the overall effects of it were mostly undone by running down inventories. The overall economic decline spread across many more sectors, with huge falls occurring in the investment accounts. In short, there is very little in this report to make one optimistic in the near-term about the U.S. economy.



U.S. Economy In 2nd Straight Quarter Of Steep Decline

NY Times
April 29, 2009

The economy contracted sharply in the first quarter of the year as businesses scaled back on investments and cut their stockpiles of unsold goods, the government reported on Wednesday. But the numbers suggested that the worst of the recession may be fading as the governments stimulus filters into the economy.

The gross domestic product shrank at an annual rate of 6.1 percent from January through March after a 6.3 percent decline in the fourth quarter of 2008. Not since 1958 have Americans experienced such a sharp contraction over six months.

But on Wall Street, investors barely flinched at the worse-than-expected decline in economic output. Stock markets rallied 2 percent in midday trading as two big media and entertainment companies beat earnings expectations and analysts upgraded their outlook on bank profits.

Although economists expect the economy to shrink again in the current quarter, they said it would do so at a slower pace and level off in the second half of the year as one of the longest downturns since the 1930s begins to lift.

The 6.1 percent decline in the first quarter was very bad,” said Mark Zandi, chief economist at Moody’s ?But the situation is not nearly as dark as this number suggests. The details suggest a more stable economy this summer.”

One of the bright spots in the numbers was a 2.2 percent increase in consumer spending, which accounts for some 70 percent of economic activity. After two quarters of sharp declines, economists said consumer spending had stabilized, thanks in part to lower energy prices and higher-than-normal tax refunds, which have put more money in peoples pockets.

And economists said that government spending, which declined 4 percent, would probably turn around and buoy the broader economy for the rest of the year as infrastructure projects from the $787 billion stimulus plan get underway.

“This reads like the final blow-off quarter of the recession,” said Mickey Levy, chief economist at Bank of America. “Things are going to begin to stabilize. Other gauges of the economy are beginning to show signs of healing.”

Credit markets that spiraled out of control late last year are improving, and retail sales and orders by manufacturers are no longer posting record declines. And on Tuesday, a closely watched gauge of home prices in the United States leveled off by a hair, the first time in 16 months that the slide in housing prices did not accelerate.

“Were still declining, but we can see the forces that will get us out of this,” said Markus Schomer, global economic strategist at A.I.G. Investments. “We still have this massive fiscal stimulus coming. There are a lot of positives that are coming over the next six to 12 months that will drive the recovery.”

Falling inventories and a plunge in business investment contributed to much of the overall decline in the nations economic output in the first quarter.

Companies cut their capital investment at an annual rate of 38 percent, and cut their inventories at a pace of $103.7 billion as they rushed to reduce their costs. Business investment in software and equipment declined by an annualized 33.8 percent, and investment in new structures was down 44.2 percent.

ҒIt was just a complete free-fall in investment activity, said Joseph LaVorgna, chief United States economist at Deutsche Bank.

But even if the economy is beginning to reach a bottom, millions of Americans are unlikely to see their fortunes improve any time soon.

Economists warned that job losses are likely to continue through the rest of the year. The current unemployment rate of 8.5 percent is expected to rise as high as 10 percent as businesses reduce their costs and put off hiring, buckling down for more bad times.

Already, more than 5 million workers have lost their jobs since the recession began in December 2007. Businesses that began to cut costs with furloughs and pay freezes are laying off workers in large numbers. Earlier this week, General Motors announced it would cut another 21,000 jobs in the United States.

President Obama made the economy the centerpiece of his campaign for the White House, and he has said that his stimulus package would save or create three million to four million jobs over the next two years. Economists said the coming months would begin to put those promises to the test.

“I don’t think anyones going to be thrilled,” said Michael Moran, chief economist at Daiwa Securities. “The unemployment rate is going to continue rising, and I think this soft labor market is going to continue to give a disappointing tone to the economy.”



Economy On The Ropes

By Mike Whitney
May 1, 2009

The economy continued to shrink in the first quarter of 2009 at an annual pace of 6.1 percent, making it the worst recession in more than 50 years. Gross Domestic Product slipped into negative territory from January to March for back-to-back quarters of negative 6 percent growth. The news of falling GDP was preceded on Tuesday by a dismal housing report which showed that housing prices have continued their historic downward plunge with only modest improvement. Since their peak in July 2006, housing prices have dropped 31 percent, falling 18.6 percent in the last year alone. The rate of decline has decelerated slightly but--on their present trajectory--prices are on target to tumble 45 to 50 percent from their 2006 highs. Another 20 percent loss in home equity means another $4 trillion loss for US homeowners.

The news on the employment-front is equally bleak. In the week ending April 25, initial jobless claims increased by another 631,000, bringing the 4-week moving average to 637,000. Ongoing unemployment claims are now at 6.27 million, an all time record.

According to the Associated Press:

Unemployment rates rose in all of the nation’s largest metropolitan areas for the third straight month in March… The Labor Department reported Wednesday all 372 metropolitan areas tracked saw jobless rates move higher last month from a year earlier.”

Consumer spending also fell more than forecast with purchases decreasing 0.2 percent in March and wages and benefits rising at the slowest pace in three decades.

GDP is falling, unemployment is soaring and business and residential investment are at their nadir. Even so, the stock market has continued its 7 week surge on signs that the market may be bottoming.

Although the bad news continues to mount, Northern Trust economists Asha Bangalore and Paul Kasriel have issued a report “US Economic and Interest Rate Outlook” asserting that the worst is over and that the huge quarterly contractions to GDP should gradually improve ending in positive growth by the forth quarter of this year. Kasriel is a first-rate economist and his work should be taken seriously. Still, whether there is a uptick in business activity in the near-term or not, deeper economic problems persist and are likely to get worse before they get better. There is no doubt, however, that Fed chief Ben Bernanke’s massive injections of liquidity have had an effect on stabilizing the financial system and reviving the sluggish economy. The Fed chief has committed or loaned $13 trillion in public funds to avoid an impending disaster and to restart speculation in the equities markets. Barron’s Randall W. Forsyth provides an original account of Bernanke’s intervention:

“THE FEDERAL RESERVE has been roundly castigated in some quarters—even former high officials of the central bank—for its aggressive and unprecedented steps to combat the credit crisis.

But data just released by the Bank for International Settlements suggest that, if anything, the expansionary measures taken by the Fed (and in concert with the Treasury) were dwarfed by the record contraction in the global banking system brought on by the crisis. According to the BIS, which acts as a central bank for central banks, total bank claims shrank by $1.8 trillion in the fourth quarter, or 5.4%, to $31 trillion. This was the largest decline ever recorded.

In other words, there never was a global run on the banking system such as the one seen in the final three months of 2008, which followed the bankruptcy of Lehman Brothers and the near-collapse of American International Group in September. The numbers serve to confirm the extent of the tsunami the swept through the world’s financial system.... Unlike in the 1930s, when central banks actually aided and abetted the collapse of the banking system, today’s leaders responded to the unprecedented crisis in the fourth quarter with equally unprecedented force.....

To be sure, banks, including the I-banks, have benefited from the actions of the Fed and the Treasury. But that is separate from the question of the macroeconomic impact of their actions.

Those who contend that the expansion of central bank balance sheets is inflationary, ignore the contraction of balance sheets in the banking system, as well as the so-called shadow banking system of assets and liabilities not recorded on banks’ books. This analysis is very different from arguments that appeal to the “output gap,” the difference between the economy’s potential output and actual production. That analysis effectively says that high unemployment will hold down wages and prices, which manifestly did not happen in the stagflationary ‘Seventies.

Inflation, as Milton Friedman taught, is always and everywhere a monetary phenomenon. Yet the current central-bank expansion is offsetting the contraction in the banking system—which Friedman criticized the Fed for failing to do in the 1930s.The new BIS data bear out the justification for the Fed’s actions, notwithstanding the critics’ claims.” ("Fed Fights a Record Global Bank Run”, Randall W. Forsyth, Barrons)

Whether one approves of the Fed’s price-fixing, market-distorting, business-friendly policies or not; Bernanke’s emergency actions probably pulled the financial system back from the brink of annihilation, thus, preventing a full-blown meltdown. Bernanke has spared no expense to save Wall Street and the banking cartel. The Fed’s bias is clear by the amount of money it has devoted to fixing the financial system as opposed to relieving unemployment, slowing foreclosures or providing debt relief. The Fed’s loyalties have never really been in doubt.

While Bernanke may have avoided a global bank-run, the bleeding continues in housing, business investment, manufacturing, industrial capacity, and global trade. Every sector is falling precipitously with no end in sight. Even worse, nothing has been done to remove the trillion dollars of toxic assets from the banks balance sheets which is causing credit to tighten even more. Treasury Secretary Timothy Geithner has failed to take advantage of the uptick in investor confidence to resolve the problem of underwater banks. Instead, he has stubbornly stuck with his Public Private Investment Program (PPIP) which has made less than $6 billion in transactions so far. Unless the banks are restored to health and their balance sheets repaired, a sustainable recovery will not be possible. According to Bloomberg, 6 of the 19 largest banks (which contain 75% of the system’s total assets) are insufficiently capitalized:


“At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said. While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses.” (Bloomberg)

Geithner continues to nibble at the edges, using unreliable accounting maneuvers instead of addressing the problem head-on and forcing a debt-to-equity swap that would recapitalize the banks by giving bond holders a haircut. Geithner thinks that if he stalls long enough, the rotten assets will regain their original value and the banks will be fine. He’s ignoring the fact that many of the mortgage-backed securities (MBS) are collateralized with fraudulent loans to borrowers who have no way of paying the money back. The losses need to be accounted for and written down while there’s still a glimmer of optimism in the market. The IMF believes that the losses on securitized assets may reach $4 trillion by the end of 2010 and that banks will be on the hook for roughly 61% of the writedowns. Nonperforming loans at the big banks are skyrocketing. “Bank of America Corp. bad assets increasing 229 percent to $25.7 billion. Problem assets at New York-based Citigroup Inc. rose 128 percent to $27.4 billion, and San Francisco-based Wells Fargo & Co.s jumped 180 percent to $12.6 billion.” (Bloomberg) There’s no way to sweep losses of this magnitude under the rug.

In an article in the Financial Times, economics editor Martin Wolf fleshes-out the projected costs of the financial system bailout in eye-popping detail:

“These are not the only sums required. Governments have so far provided up to $8,900bn in financing for banks, via lending facilities, asset purchase schemes and guarantees. But this is less than a third of their financing needs. On the assumption that deposits grow in line with nominal GDP, the IMF estimates that the ғrefinancing gap of the banks - the rollover of short-term wholesale funding, plus maturing long-term debt will rise from $20,700bn in late 2008 to $25,600bn in late 2011, or a little over 60 per cent of their total assets. This looks like a recipe for huge shrinkage in balance sheets. Moreover, even these sums ignore the disappearance of securitised lending via the so-called shadow banking system, which was particularly important in the US.” (Fixing bankrupt systems is just the beginning”, Martin Wolf, Financial Times)

Fixing the banking system will be a continual drain on public resources ensuring that any rebound will be slow and any recovery weak. Even if the equities markets show signs of life, the real economy will stumble listlessly from one quarter to the next unable to make up the losses from unemployment and under-consumption. Working people will feel as if they are in the grips of another Great Depression whether GDP shows marginal gains or not. Housing prices will stay flat for a decade or more, plundered 401ks will force elderly workers to stay on at their jobs longer than they planned, and reduced credit-availability will force consumers to set aside more of their wages in savings accounts. 10% unemployment and 10% personal savings is the nightmare scenario that economists dread. The 10-10 combo will send the economy into a deflationary tailspin regardless of “green shoots” in the stock market or other fleeting signs of hope. In a bifurcated system, where most of the public resources go to the banks and investor class, the underlying economy is bound to slip into severe inertia. The Fed has become the guarantor of investor class entitlement while the working stiff gets table-scraps.

This is from an article “Income Gaps hit record levels in 2006, new data show”:

“New data from the Congressional Budget Office (CBO) show that in 2006, the TOP ONE PERCENT of households had a larger share of the nation’s after-tax income, and the middle and bottom fifths of households had smaller shares, than in any year since 1979, the first year the CBO data cover. As a result, the gaps in after-tax incomes between households in the top 1 percent and those in the middle and bottom fifths were the widest on record.

Taken together with prior research, the new data suggest greater income concentration at the top than at any time since 1929.”

Among the CBO’S FINDINGS was that “The average after-tax income of the top 1 percent of the population more than tripled, from $337,000 to over $1.2 million. (An increase 256 percent) while “The average after-tax income of the poorest fifth of the population rose only from $14,900 to $16,500” (an increase of 11 percent.)

The CBO shows that the same inequality thrives in the tax system which is blatantly regressive:

“Households in the bottom fifth of the income spectrum received tax cuts averaging $20” whereas “within the top 1 percent, those with incomes exceeding $1 million received tax cuts averaging $118,000.” ("New data show the rich-poor gap tripled between 1979 and 2006.” Center on Budget and Policy priorities, Arlen Sherman)

GROWING INEQUALITY - now MORE FLAGRANT THAN EVER given the humongous government bailouts and PREFERENTIAL TREATMENT of financial institutions--is feeding the anger which is SPREADING nationwide. Timothy Geithner has become the face of a thoroughly corrupted SYSTEM run by money-grubbing speculators, avaricious banksters and shyster fund managers. He has become a lightening-rod for all manner of criticism which should be directed at the inherent flaws of a system which provides obscene riches to crafty tycoons and securities fraudsters while the people who shine their limousines or build their homes find themselves perusing the want ads the end of an unemployment line. Every day Geithner stays in office, is another triumph for the people who want deep-structural change to the system. His presence at Treasury fuels the public rage.

The current recession is first and foremost a debt crisis brought on by a collapse in private financial intermediation. The breakdown in securitization was triggered by the meltdown in subprime mortgages which led to multi-trillion dollar asset deflation and rising unemployment. The bottom line is that credit will continue to be tight, the economy will drift sideways for longer than expected, and America’s decades-long consumption binge will end. Digging out will be a Herculean task.


Despite the 7-week bear market rally and the slight deceleration in home prices, the stagnation of the broader economy--in terms of under-consumption, unemployment and overcapacity--will persist until the massive system-wide deleveraging process abates and personal debt is again reduced to a manageable level. The Fed’s loose monetary policy coupled with the banks’ off-balance sheets operations, created an torrent of credit which was not backed by sufficient reserves to withstand the shock of a slumping market. When subprime mortgages began to default in the tens of thousands, the secondary market for mortgage-backed securities (MBS) froze creating a break in the chain which had been converting the gigantic capital inflows from foreign banks and investors into debt-instruments. This process of securitization--transforming pools of loans into bonds--enriched the bankers and hedge fund managers while providing more than 40 percent of the credit flowing into the economy. That process is now in ruins and beyond repair. The meltdown in subprime loans has shown that MBS and other structured debt is worth considerably less than originally believed due to the weakness of the underlying collateral. (The risks of AAA MBS are accurately reflected in current market prices which estimate that similar bonds are worth roughly $.30 cents on the dollar.) Without securitization, asset values will continue to plunge because the main cog in the credit-generating mechanism no longer functions. Bernanke can prop up the financial system with trillion dollar lending facilities and zero percent interest rates, but if the credit markets aren’t working properly the economy will continue to contract and the recession will progressively deepen.

Personal consumption is ebbing just as savings have begun to grow and a new spirit of thriftiness has overtaken the country. The culture is changing. Conspicuous consumption is out. A new ethos is emerging from a generation now facing chronic joblessness, dwindling equity and grueling scarcity.

There’s no way that the economy can reduce its credit by 40 percent and launch a sustained recovery. Unless the Fed and the Treasury continue to provide massive fiscal and monetary stimulus on an ongoing basis; consumption will flag, investment will shrivel, global trade will remain sluggish, and the nation will slide into a protracted downturn. And as the administration pumps more stimulus into the economy, the dual-deficits will soar and either US Treasuries will rise or the dollar will fall, one or the other. There’s no free lunch. In the next year the US will have to sell $1.8 trillion of US Treasuries to fund its deficits. Only $500 billion of that sum will be sold to foreign central banks and investors. The world is capital-starved and doesn’t have the money to spare. So, the dollar will fall. The dollar now faces its biggest challenge as the world’s reserve currency. As goes the dollar, so goes the empire.

The Fed’s quantitative easing (QE) has increased the likelihood of a disorderly run on the dollar and an extended period of currency market turmoil. There’s no way to avoid the turbulence dead-ahead.

The Federal Reserve and Treasury are now staking the country’s future on the belief that they will be able to revive securitization and reflate the bubble economy through complex taxpayer-funded programs (TALF and PPIP) which no one completely understands. If they succeed, then the toxic assets on the banks balance sheets will regain their original value and GDP will grow in a low interest, easy credit environment. It all depends on whether the Treasury’s lavish inducements (94% government funding on non recourse loans) are enough to entice investors to purchase risky financial instruments for which there is currently no market.

The more probable scenario, is that the equities markets will periodically rally in response good news or the Fed’s liquidity injections, while deflationary pressures continue to push down asset prices, swell the unemployment lines, and further shatter consumer confidence. The real economy is sinking fast and, with it, any hope for a quick recovery. Policymakers are completely at a loss. The public knows that things are far worse than they are being told.


Posted by Elvis on 05/03/09 •
Section Dying America • Section Next Recession, Next Depression
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Americans Outsourcing Their Own Jobs


The form of law which I propose would be as follows: In a state which is desirous of being saved from the greatest of all plagues - not faction, but rather distraction - there should exist among the citizens neither extreme poverty nor, again, excessive wealth, for both are productive of great evil . . .  Now the legislator should determine what is to be the limit of poverty or of wealth.
- Plato

The American economy has gone away. It is not coming back until free trade myths are buried six feet under.
- Paul Craig Roberts

How glorious it feels
Moth to the flame
Only to have
My wings burned again
- kgr 2008


GREED is a PERVASIVE SICKNESS in America, while OUTSOURCING and FREE TRADE are the biggest UNDOERS of the middle class.

Here’s a neat little satire VIDEO from the THE ONION NEWS NETWORK that spotlights the SLITTING OF OUR OWN THROATS, and exploitation of global workers by ordinary people like you and me.

The guy in INDIA makes $0.68/hr.


Here’s a real one:

Developer Sacked for Outsourcing His Entire Job to China

By Jerry Condliffe
January 16, 2013

The truly lazy are often the most creative. Like this developer, who was caught outsourcing his entire job to China so that he could spend his time at work… not working.

The rusehighlighted in a Verizon case study - was carried out by an employee called “Bob” who worked at an anonymous “critical infrastructure company”. The trick was only spotted when someone noticed suspicious activity on the company’s VPN log. THE REPORT explains:

“We received a request from a US-based company asking for our help in understanding some anomalous activity that they were witnessing in their VPN logs. Plainly stated, the VPN logs showed [Bob] logged in from China, yet the employee is right there, sitting at his desk, staring into his monitor.”

While Bob apparently received glowing performance reviews, all of his development work was being carried out from China. In fact, he pulled off the same scam across multiple companies concurrently, earning “several hundred thousand dollars a year”.

Further investigation revealed a typical day’s work for Bob included: reading Reddit for two hours, shopping on eBay for an hour, browsing Facebook for two hours, and checking LinkedIn for a further two. Looks like he’ll be spending more time on LinkedIn from now on.




Posted by Elvis on 05/03/09 •
Section Dying America
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The Shadow Inventory


Its hard for me to see it, when someone else owns it and I am homeless with nothing.
- Foreclosure victim

Housing Bubble Smackdown: Bigger Crash Ahead
Huge “shadow inventory”

By Mike Whitney
Global Research
April 21, 2009

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing prices is gaining speed. The moratorium was initiated in January to give Obama’s anti-foreclosure program---which is a combination of mortgage modifications and refinancing---a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that THE PROGRAM WILL FALL well-short of its objective.

In March, housing prices accelerated on the DOWNSIDE indicating bigger adjustments dead-ahead. Trend-lines are steeper now than ever before--nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It’s a disaster bigger than Katrina. SOARING UNEMPLOYMENT and rising FORECLOSURES ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There’s nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?


Here’s a excerpt from the SF Gate EXPLAINING THE MYSTERY:

“Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.” ("Banks aren’t Selling Many Foreclosed Homes” SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.

Here is more on the story from Mr. Mortgage “California Foreclosures About to Soar...Again”

“Are you ready to see the future? Tens of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium.”

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing more price-slashing into the foreseeable future. According to the Wall Street Journal:

“Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can’t meet their loan payments, up from about 1.7 million in 2008.” (Ruth Simon, “The housing crisis is about to take center stage once again” Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will FEEL THE PAIN. Obama’s $75 billion MORTGAGE RESCUE PLAN is a mere pittance; it won’t reduce the principle on mortgages and it won’t stop the bleeding. Policymakers have decided they’ve done enough and are refusing to help. They don’t see the tsunami looming in front of them plain as day. The housing market is going under and it’s going to drag a good part of the broader economy along with it. Stocks, too.


How Another Housing Bubble Was Blown And Why

Washington’s Blog
June 5, 2013

Preface: In PART 1, we showed that mortgage applications are down, and it is really institutional investors driving the housing boom. Part 2 explains why.

Housing prices have boomed because:

(1) Lenders are artificially keeping vacant houses off of the market


(2) The Obama administration has thrown all sorts of artificial incentives at institutional investors to pump up prices

Artificially Suppressed Housing Inventory

Naked Capitalism REPORTED last August:

Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms Ŗ flush with cash thanks to Tim Geithners religious devotion to trickle-down economics and the resulting cascade of corporate welfare Җ have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long-term sustainable.


Lenders argue the drop in foreclosures is caused by delays in the court system. However, Judge Jennifer D. Bailey, lead foreclosure judge in Miami-Dade County epicenter of the foreclosure crisis ֖ solidly rebuts that argument. Here in Miami-Dade County’s Eleventh Circuit, there has been no delay in foreclosure case hearings for nearly two years, Judge Bailey said in an Aug. 19, 2012 interview with the Miami Herald. “If you want to see a judge to hear your trial or summary judgment, you get a prompt court date. This coincides with my own observations in foreclosure court, where judges rail at bank lawyers for repeatedly delaying their cases, even when borrowers are in no way contesting their foreclosures.”

Holding back inventory means that the houses that are put on offer sell faster and at higher prices. That creates an incentive to delay foreclosures or not foreclose at all even when a home is delinquent.

Indeed - IN THE REAL WORLD - 12.6 MILLION HOUSES ARE VACANT - 1.5 MILLION MORE THAN ARE UNDERWATER. In other words, without artificial scarcity created by banks, there would be more available houses than there are underwater homeowners having problems paying their mortgage.  There would - in a word - be a glut.

Government Is Secretly Helping Financial Companies to Snap Up Housing

There are realistic ways to help the economy. For example:

Force the big banks to WRITEDOWN BAD DEBT

CRACK DOWN on fraud

BREAK UP the giant banks

Force Wall Street to REDUCE LEVERAGE

Stop encouraging business to SEND JOBS and dollars abroad

But instead, the government’s entire strategy is to try to PAPER OVER all of the real problems with the economy by ARTIFICIALLY PROPPING UP asset prices - in an attempt to hide the fact (which has been obvious for years) that the big banks are insolvent.

Stocks, for example, are largely being driven by insiders and government policy.

Indeed, we’ve pointed out for years that all of the Obama administration’s “homeowner relief” programs are really just back-door bailouts to the big financial companies - and are not even intended to help homeowners.

Mike Whitney EXPLAINED last September:

Private Equity firms are piling in to the housing market to take advantage of bargain basement prices on distressed inventory. The Obama administration is stealthily selling homes to big investors who are required to sign non-disclosure agreements to ensure that the public remains in the dark as to the magnitude of the giveaway. Aside from the steep discounts on the homes themselves, the government is also providing “synthetic financing” to reduce the up-front capital required if they agree to form a joint venture with Fannie Mae and share proceeds from the rental or sale of properties. (Businessweek)

In other words, US-taxpayers are providing extravagant financing for deep-pocket speculators who want to reduce their risk while maximizing their profits via additional leverage. The plan resembles Treasury Secretary Timothy Geithner’s Public-Private Partnership Investment Program . Speculators are getting lavish incentives (gov financing, low rates, and severe discounts) in secret deals to buy distressed inventory which should be available to the public at market prices. If that’s not a ripoff, then what is?


Obama’s preferred customers are getting discounts of up-to 60 percent of the home’s peak value and generous gov-backed financing to boot!


As the article above indicates, theres no shortage of delinquent homes that will eventually be foreclosed. That means the process is being dragged out so the banks don’t have to fess-up to the losses on their fetid pile of nonperforming loans Here’s a little more background from an article in Businessweek:

“About 6 million U.S. borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households,” according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California.

Single-family rentals are priced to deliver unlevered total returns in the range of 7.5 percent to 8 percent, or about 0.5 percentage point to 1 percentage point higher than institutional-quality apartments, according to a June 8 report by Ray Huang, senior associate at Green Street Advisors in Newport Beach, California.  (Colony Said to Win Foreclosed Homes Sold by Fannie Mae, Businessweek)[LINK]

If 6 million homeowners will lose their homes in the next five years, then why are clownshoes media dupes touting a “bottom in prices” and a “market rebound?”

It’s all hype. And look at how calculatingly fiendish Obamas foreclosure-to-rental program really is. The big boys have figured out the nearest penny how much they can make by throwing people out of their homes. (7.5 percent to 8 percent) Talk about heartless. And, of course, this whole process is being orchestrated by President Fairydust and his Wall Street Pranksters to keep prices artificially high and preserve the illusion that the banks are solvent.

It’s infuriating!

And if that isn’t hard-hitting enough for you, Jim Quinn WRITES:

The contrived elevation of home sales and home prices has been engineered by the very same culprits who crashed our financial system in the first place. This has been planned, coordinated and implemented by a conspiracy of the ruling oligarchy - the Federal Reserve, Wall Street, U.S. Treasury, NAR, and the corporate media conglomerates. Bens job was to screw senior citizens and drive interest rates low enough that everyone in the country could refinance, attract investors & flippers into the market, and propel home prices higher. Wall Street has been the linchpin to the whole sordid plan. They were tasked with drastically limiting the foreclosure pipeline, therefore creating a fake shortage of inventory. Next, JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action. The Wall Street big hanging d[!@#*] have screwed the American middle class coming and going. The NAR and media are tasked with what they do best - spew propaganda, misinform, lie, cheerlead and attempt to create a buying frenzy among the willfully ignorant masses. The chart below reveals the truth about the strong sustainable housing recovery. It doesnt exist. Mortgage applications by real people who want to live in a home are no higher than they were in 2010 when home sales were 33% lower than today. Mortgage applications are lower than they were in 1997 when 4 million existing homes were sold versus the 5 million pace today. The housing recovery is just another Wall Street scam designed to bilk the American middle class of what remains of their net worth.

Of course, economist Michael Hudson would put it a little differently: banks are trying to roll back all modern laws and make us all into serfs.

In other words, the giant financial service companies are attempting to privatize public resources, socialize losses, scam people out of their homes and other private property - and then rent back to us what we used to own for a hefty price.

Do you understand the game now?


Posted by Elvis on 05/03/09 •
Section Dying America
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When Green Isn’t Good

US Firms Offshore 22,000 Green Jobs To India

By Joe Byrne
Raw Story
May 2, 2009

Barack Obama and his green guru, Van Jones, have a green-collar job plan that they believe will solve the two biggest crises of our time: 5 million new green-collar jobs will directly stimulate the economy and will contribute to a more sustainable future in the face of coming climate change. But the 2009 GREEN OUTSOURCING REPORT, an annual industry study conducted by Brown-Wilson Group, found that green technology jobs are being created faster in India than in the US since Obama took office.

The report, which was released two weeks ago, surveyed 4,000 businesses around the world, including Xerox, Accenture, IBM Global, CSC, Capgemini, Oracle, HP/ ED S, Aramark, SITEL and Perot. Doug Brown, co-author of the Green Outsourcing Report, told THE NEW INDIAN EXPRESS, We see the (green job offshoring) trend increasing. There are few suppliers who match credentials and outcomes of Indian firms.

Soaring energy costs and regulatory pressure have put pressure on firms in the US and Europe to embrace green technologies. 84% of companies outsourcing green jobs are doing so because of skyrocketing energy costs, compared to 12% and 18% in the past few years, respectively. Most corporations seeking to outsource a service or product require impeccable green credentials in their suppliers before handing over work, the report says.

US corporations, focusing on survival strategies during the long-lasting recession, have offshored more than 22,000 new green-collar jobs to India alone. Firms seeking stabilized energy and labor costs while trying to convince consumers of their eco-friendly practices are more often turning to Indian green-collar workers than American ones, according to Brown-Wilson Group. Indian labor suppliers have become popular with American businesses over the last few years by aggressively investing in appropriate hardware, waste disposal, recycling, eco-friendly buildings and other green technologies.

Surprisingly, just a year ago, India was remarked to be among the worlds highest polluting nations and suffering from offshore aversion and reverse outsourcing.


Posted by Elvis on 05/03/09 •
Section Dying America
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