Baseball91's Weblog

February 28, 2011


Filed under: currency,History — baseball91 @ 8:01 PM

The new year was about fear. And moving stories that grabbed the heart. Stories not necessarily ending in freedom.

There seemed to be a lot of rebellion going on in the new year. When the world itself makes us at time move. As the Mayan calendar which ruled the world of Chinese horoscopes over a 26,000 year astrology cycle (the Precession of the Equinoxes) had us all coming to an abrupt end by around Christmas 2012. Or in the belief of the Mayans, the Sumerians, Tibetans, and Egyptians, precisely on December 21, 2012.

Fear always had moved people who mostly never wanted to be changed, This year, fear was stealing people’s money and independence. Fear moved those in power. Revolutions were about movements. When those who lived in pain organized in movement. Over the price of food, or over currency, for people in parts of the world which needed oil to move.

When movement was no longer an elective, for people caught up in hunger and fear. And how it was fear moved a story. It was why people read –looking not so much to be changed but for some wisdom about the world. Perhaps about the coming new world, and how to outfox it, beginning on December 21, 2012.

When inequality threatens stability. The use of language used by the media in this decade to describe current events is interesting. Particularly over the increasing use of the term “Insurgents.” Counter-insurgency involved “action taken by the recognized government of a nation to quell a rebellion against a constituted authority.” Has anyone ever asked why the rebellion in the first place, against a constituted authority? And authority “constituted” by who?

The way brains are wired. When inequality threatens stability. Inflicting more than just pain….but homicide. When you waged organized homicide called war, and society accepted it. And when you controlled a school system that ingrained how brains were wired. And the numbers bear out that a lot of young people believed they were fighting in defense of the United States by waging war in Afghanistan. Counter-insurgency action taken by the recognized government of a nation….constituted by who? And if the rebellion in a foreign land was thought to be unjust, who had made the determination and why had the US government selected this particular land, of all the places, to fight over? When you had a neighbor like Pakistan, supposedly an American ally, who was aiding and abetting the rebellion.

When inequality threatens stability, and homicide was waged against you. As pro-democracy uprisings spread across the Middle East, Saudi Arabian princes were feeling increasingly isolated. And the Omaha World Herald was getting around to sending their own reporter to Afghanistan where it is difficult to impossible to make a distinction between an insurgent, a supporter of a non-combatant insurgent, and an entirely uninvolved members of the population. Apparently the publisher thought a story was going to be breaking out in Afghanistan. Soon.

And consequently because of that war, my country has been spending $193 million per day fighting in foreign lands, not really counting the cost, aiding and abetting in a counter-insurgency action taken by a recognized government, and these young people were willing to sacrifice their lives.

When you controlled a school system that ingrained how brains were wired on how to recognize legitimate governments, maybe someone was confused as to the geography –thinking Afghanistan was located next to Egypt or Tunisia. But counter-insurgency operations have often rested on a confused, relativistic distinctions. And in such a secular world, when a school system had ingrained how brains were wired on how to recognize legitimate governments, and maybe someone was confused as to the geography…or very concerned about their reporters’ safety as Islamists rebelled against a constituted authority in some kind of world-wide movement. So maybe exporting “democracy” to a parts of the world which had never had the experience, without checks and balances, without a respect for the dignity of a minority, was not such a good idea.

When you waged organized homicide called war, and the majority in a society accepted it. The way brains are wired, when inequality threatens stability. Never counting the true enduring stress syndromes, in the ecology of the soul, with all the post traumatic stress which came into people’s lives, people’s homes, after war, in representative democratic republics. In stories not necessarily ending in freedom

There seemed to be a lot of rebellion going on in the new year. In the age of globalization, when everybody on earth seemed to want to make some kind of contribution. Republicans exporting “democracy” to a parts of the world which had never had the experience, and now Democrats in the name of hope, if not change, because their brains are wired that way. Not counting the cost. Where inequality threatens stability. When the preeminence of the US dollar was no longer stable, and with its instability, we had now exported the problem elsewhere. To China, and those OPEC nations. All the rebellion resulting from the unrecognized monetary wars, to fund the counter-insurgencies in Iraq and Afghanistan. When inequality threatens stability.


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May 1, 2010

Where Are You When We Need You, Paul Revere?

Did you notice that Zygi Wilf was, after his purchase of the Minnesota Vikings, as lucky now as Prince Charles? Except for the issue of waiting, with so little hostility directed at the overall process of royalty. “If you got a bill in the mail every year for seven bucks — that’s the cost of a beer at new Target Field — would you consider that a worthwhile contribution for keeping your pro football team?” writes David DeLand in the St. Cloud Times.

Would they ever put the question to the voters in England. About the cost of Buckingham Palace? Or a new house every thirty years? Or about just continued public subsidies to The Royals? In a nation that never believed in royalty, would they ever put the question to Minnesotans?

Where, by the way, had the Kansas City Royals come up with the money to refurbish their stadium, Mr. DeLand of the sports department?

Did you have to be in the souvenir business to notice that licensing fees in the NFL went to the NFL. The NFL that never paid for new stadiums, like was required in Europe. MLB was late to the game over this concept of licensing fees, by about five or ten years. When, beginning in the 1970s and ever since, it was all about the cost of the official logos on your purchases.

Licenses and licensing fees. Driver’s licenses. Fishing licenses. The revenue always went to a government body. Except when it came to sports authorities. In these parts, the local NFL franchises never paid for new stadiums. The one that was demanded in the late 1970s, with a dome. The father of the mayor of Saint Paul spent a lot of time seeing that the bill was passed. Yeah, in a day before there seemed to be franchise rights sold for elected office, which too many politicians somehow had passed along. Since the days of the Kennedys. The Cuomos. The Bayhs in Indiana. All those bleeding hearts. And the Bushes. And the Clintons. Now with their organized ways to show up at every car crash. Or hurricane. Like they cared.

When public service was now something else. About only power. Too many thoughtless if not clueless sons and daughters of politicians. Jock sniffing for votes. Trying to run a show that a Prince Charles could only envy. With real power.

The NFL that never paid for new stadiums, like was required in Europe. Or out east. With too many politicians seeking autographs instead of tax revenue from these athletes. There should be a national tax on MLB and the NFL, for revenues raised to pay for the next sports stadium they felt they needed. And yes on the Player’s Association and the NFL Players’ Union, who got something like 55% or more of the revenue.

Prince Charles could envision himself in the picture, as the role model for local baseball people as they made trips to other fiefdoms in the kingdom of MLB, to view their new palaces. Though Prince Charles had been able once to send his wife, when he was married to a blonde, when he tired of it all.

There was a day when kings and queens gave everything away for free. For loyalty. Before the politicians and manufacture’s reps entered the picture, with blackout rights. Did you notice all the hostility directed at the Goldman Sachs who, like all the reptile oil salesmen at the reptile oil emporium, were making so much? And the ensuing jealousies there. Over money and good looking blondes.

Note all the ambivalence of the audience, the ones watching for free, about these thugs who had no investment in the game. Or the carpetbaggers, with only manufacture’s reps working for them as reptile oil salesmen at the reptile oil emporium, until they acquired the local NFL franchise, and entered the picture.

”There’s a critical mass of legislators, fans and business leaders,” said Lester Bagley, the Vikings’ Vice President of Public Affairs and Stadium Development. “Who believe this is the year.” Were they the ones on the bicycles at rush hour, tying up traffic? Mostly on Fridays?

“We know that this is a tough discussion, and the economy is tough,” Bagley said. “But we think we have a good story to tell: What we bring to the community.”

His current neighbor across the street is Hennepin County Medical Center, a hospital in the community that was really bleeding, where they seemed to think 2010 was the year for them. Or hope. Like a lot of Viking fans. With bleeding hearts, over politics and sport. This was finally the year? But at HCMC, those fans would die, actually die, unless something was done about the budget issues. This year.

Just as the Prince’s Foundation for Integrated Health, yeah under Prince Charles, was being shut down for fraud, the Redcoats were coming. One if by land. Two if by sea. Or maybe by bike. Or ambulance. Camouflaged in purple.

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September 6, 2009

In the Shadows of Those Cloakrooms

Twelve months ago, there was talk of a revolution coming in the financial markets, which was financially supported by the 3500 lobbyists in Washington, for both parties. There was a new form of fascism in those stories at the time. That is if “fascism” was a word about comforts, with government offering instruction how all of us could live easier. With the help of former Goldman Sachs officers in government, government was now deciding, 12 months later, who were saved, which among us were rescued, at least amongst financial institutions. The free market had been replaced.

If the revolution in the financial markets was not enough, how did you feel as Congress was coming back from summer recess, from all the dog and pony shows, to address not the health care crisis but how, with a nation with an aging populace, to pay for health care. At a point in time when government through Medicare had not exactly been covering the cost of new technology in hospitals, was not paying a fair share. Yet health care itself had never been better.

In the debate, there are people who desire government to decide all of the issues of health care. How much to pay medical institutions, when government was not, had not been, reimbursing hospitals the true cost of taking care of patients with Medicare. Government now wanted to mandate the amount of reimbursement for all procedures, and somehow distribute the cost throughout the entire population in the form of premiums. People who thought government was honest seemed to support the concept. Did they know about the 3500 lobbyists in Washington who had been working for more than a generation to make sure the system was not fair? How had these health care reform supporters felt about the bailouts? (In the case of my Congressional Representative, Betty McCollum supported both the bailout and health care reform.)

Like in those financial bailouts, government was now deciding, if Betty McCollum got her way, who would be saved, which among us would be rescued, amongst both health care institutions, and their patients. Suddenly aware that government knew it had the power to print money, increase property taxes in the states, and if the need were come, to confiscate everything, now they would decided every health care procedure. We had yet to hear specifics how Washington would replace those Blue Cross Blue Shield claims people to make the same kind of every day decisions with all the love and care I found when I went to renew my license plate tabs.

The timing was not real good in September 2009, less than 12 months after the revolution in the financial markets. Not when this discussion seemed more like elective surgery. With a lot of swine flu around. I hoped the vote might be postponed for 6 to 12 months. Until the patients had a lot more strength. Until the president had the courage to introduce the specifics of a bill himself, with some accountability, rather than rely on Congress or the 3500 lobbyists in Washington to take the citizens to a health care destination. Congress had not done a very good job dealing with triage in the last crisis, but that might have been due to a president who just wanted to get out of office after creating the mess himself rather than actually lead.

I wonder if somewhere in those August dog and pony shows from New Hampshire to Montana, if the president heard someone ask when he might introduce the actual legislation that might work. If Congress had spent the time to approve his appointment so he had enough staff to work on a bill.

August 9, 2009

In the Wake of the Aquino Death

Cory Aquino died this week.

There had been a revolution in the Philippines after her husband who was the opposition leader had been killed.

In 1972, Ferdinand Marcos declared martial law. No one knew how long it might last. Marcos effectively exiled and deported Benito Aquino, probably the most popular politician in the country. In 1983, following a kidney transplant, with access to the president curtailed by physical health issues, Imelda Marcos and Chief of Staff General Fabian Ver limited access to the president. Imelda Marcos was said to have flown to New York in May 1983 to convey that Benito Aquino would never again set foot on Philippine soil. There was total chaos as no one knew what was happening, and how the Filipinos might regain control of their country.

Benito Aquino swore to return and, in August 1983 he did, amidst the medical and political crisis. Aquino was assassinated on the tarmac of the airport as his plane landed, by one of the aircraft guards. The guard then committed suicide. Though it was widely believed that Imelda Marcos pursued the elimination of the opposition leader, the chief of staff Ver was tried for the assassination and received a not guilty verdict. The day of the verdict, Cory Aquino announced her candidacy for president, as the EDSA ‘People Power’ revolution removed the Marcos dictatorship and restored democracy in the Philippines in 1986.

The majority of the young people in the Philippines today immediately give an adjective of their Congress men and women. Corrupt is the adjective. Filipino history provides the basis for these feelings, for what occurred both before Cory Aqunino’s election and in the history subsequent to her time in office.

The strength of a democracy is judged by the safety extended to journalists pursuing their stories. Th Philippines ranks next to Russia with pursuit of justice when either an opposition leader or a journalist is killed.

August 2, 2009

Those Dog Days of August

There was a true revolution in the world markets last September that anyone buying stocks last week seems to have missed. The new world order was now all about social engineering on capitalism. It was only the start, back in September. Bill Gross is the Warren Buffet of the bond market and his PIMCO website with current outlook is must reading.

The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash is by Charles R. Morris, a former banker who “comes to his conclusions based on objectivity, knowledge, and lucid thought.” He wrote this book before the 2008 market collapse which I have not read. I have however read a few pieces by Mr. Morris over the last 12 months, as he is on occasion featured in the Jesuit magazine America.

Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.” –
Charles R. Morris

With an estimate that 20% of the population was really unemployed, there is no reason for the optimism reflected at July’s end in the Wall Street indexes. The procedure for identifying ends of a recession is by looking at when the contraction ends. Per the Wall Street Journal, “The elements that will drive a recovery –rising wages, consumer demand, production and sales — haven’t appeared.”

Government fears throughout the world are that of deflation, because they have no arrows in their quiver to fight it, when it occurs. Paul Virgen wrote on July 31st in the Wall Street Journal that economists surveyed by Dow Jones Newswires estimate the Commerce Department’s GDP report later today likely would show a contraction of about 1.5% for the second quarter, a less-severe decline than the first quarter’s 5.5% figure.

For me the word contraction is a synonym for “DEFLATION.”

Credit markets froze between September 15th and October 7th when Congress was voting on bailouts, while the battle of ideology was going on between the credit markets and the equity markets as reflected in the spread of about 3.0 percent in the LIBOR rate which one bank charged another bank. That is 3.0 higher than the Fed rate at the time, an unheard of differential. Banks in that environment, no matter the moves put on by the Treasury, were not buying in to the bailout in October 2008. When everything was overvalued, why lend money? So government came to the rescue. Because of government fear about DEFLATION.

I continue to live in a neighborhood where real estate values have barely budged, where the bubble has not burst. The American illusion persists. About values.

Read the current Atlantic Monthly piece about Dr. Doom. Learn about the economist, Hyman Minsky. Read Paul Krugman’s piece now 4 years old. ‘The news that the US housing bubble is over won’t come in the form of plunging prices….” He won the last Pulitizer prize in economics.

On May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky was an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention, like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

That was why credit markets froze in September 2008. Bankers who have always been conservative. Do you know any? They were not buying into the social engineering on capitalism. There was a revolution in capitalism with this bailout. No one wanted to purchase shares in these banks that were illiquid. Based on the value of real estate, there was a bubble. A huge illusion about valuations of homes. The banks owned all the real estate. And it is said that the banks in Europe were in worse shape. In September 2008, bankers neither trusted the balance sheet of another bank nor the government. Thus the state of the credit markets. Bankers understood too well the persisting illusion.

By the end of October 2008, more than half of the U.S. banks were pretend banks. With no capital. Citibank. Bank of America. Wachovia. The bailout has worked to avoid an immediate collapse that would have had consequences worse than in Russia in 1906. Or in Russia in 1917. The panic, the revolution did not occur as a result of a couple years of events. Immediately.

“If drugs continue to be injected which mask symptoms rather than address the disease (medicine in the form of debt destruction), the likelihood of a seismic readjustment increases in kind, writes Todd Harrison, about the dollar. “As governments take on more risk” as they price assets on behalf of the market and transfer debt from private to public, “the common denominator, or release valve, becomes the currency.”

Some facts:

World GDP $47 trillion
World stock valuation $121 trillion
Bond market $85 trillion
Credit derivatives $473 trillion

There would be turmoil in currencies in the coming year as a consequence of the political fallout over American debt, before this was over. It was all because there was $460 trillion to $560 trillion in derivatives, and there is not enough money in the world to keep the system of capitalism going. The social engineering last September was all about government trying to keep capitalism going. Those derivatives, not backed up by reserves. When the laws of survival of the fittest in the market place had been always about letting systems collapse.

These news items in July 2009 you might have missed:

“Joining the growing chorus questioning the U.S. dollar’s unofficial position as global reserve currency, in India, chairman of the Prime Minister’s Economic Advisory Council, Suresh Tendulkar, is urging India to diversify its foreign-exchange reserves and hold fewer dollars,” according to Bloomberg News.

“Zeng Peiyan, the head of China Center for International Economic Exchanges and the former Chinese Vice-Premier, in a speech in Beijing on Friday called for a new system to ensure the stability of the major reserve currencies,” the China Daily reported.

“To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger.” –2008 piece by Henry Liu

“Tensions mounting between the People’s Bank of China’s economic concerns over China’s holdings of dollars, with the earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency largely taking the place of the dollar, and the Chinese government, with their “diplomatic reasons” for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. The Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,” Gallo said.”

And in April 2009, the head of the China Banking Regulatory Commission issued a statement published on its website that banks need to guard against making risky loans and instead focus more on sustainable lending practices. Banks must be “on high alert for the accumulation of hidden risks as loans surge,” Liu Mingkang said. According to published reports in remarks made at the Boao Forum for Asia, Chinese Premier Wen Jiabao last spring called for more surveillance of countries that issue major reserve currencies. That would be the United States. This statement comes on the heels of discussion at the G20 meeting of a new world currency. There is growing distrust of America and the politics involved in our currency. Last spring in an essay published on the central bank’s web site, the head of the People’s Bank of China, Zhou Xiaochuan, proposed the creation a new international reserve currency. Seeking to expand currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset, Wen said, “We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries.”

“There is no chance that a nation as reputationally scarred and maimed as the US is today, could extract any true ‘alpha’ from foreign investors for the next 25 years or so. So the US will have to start to pay a normal market price for the net resources it borrows from abroad. It will therefore have to start to generate primary surpluses, on average, for the indefinite future. A nation with credibility as regards its commitment to meeting its obligations could afford to delay the onset of the period of pain. It could borrow more from abroad today, because foreign creditors and investors are confident that, in due course, the country would be willing and able to generate the (correspondingly larger) future primary external surpluses required to service its external obligations. I don’t believe the US has either the external credibility or the goodwill capital any longer to ask, Oliver Twist-like, for a little more leeway, a little more latitude. I believe that markets – both the private players and the large public players managing the foreign exchange reserves of the PRC, Hong Kong, Taiwan, Singapore, the Gulf states, Japan and other nations – will make this clear.

“Keynesian demand stimulus may work for a while (a couple of years, say). When the consequences for the public debt of both the Keynesian stimulus and the realization of the losses from the assets and commitments the Fed and the Treasury have taken onto their balance sheets become apparent, the demand stimulus will fade and may be reserved as precautionary behavior takes over in the private sector. My recommendation is to go easy on the fiscal stimulus. The US government is ill-placed financially and fiscally, to engage in short-term fiscal heroics. All they can really do is pray for a stronger-than-expected revival of global demand, without any major stimulus from the US.” -Willem H. Buiter of the European Institute, Professor of European Political Economy, London School of Economics and Political Science

William McChesney Martin was the Fed’s chairman from 1951 through 1970. Martin said his job as central-bank chief was “to take away the punchbowl just as the party gets going” to keep the economy from overheating. Paul McCulley said that the government’s efforts to aid financial firms in effect are reversing this well-known quip. “Now they are actually creating ‘punchbowl banks’ where you have the equity coming in from the Treasury,” McCulley said. “They are de facto banks owned by the Treasury and funded by the Fed. If the U.S. is putting its ‘full faith and credit’ behind the liabilities of the various financial institutions, then I want to be a co-investor with Uncle Sam, which is another way of saying I want to invest with the American taxpayer. It sounds a little like socialism only because it is.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said.

According to Pimm Fox and Daniel Kruger, “So far, that has included expanding the Fed’s assets to $2.2 trillion, injecting $270 billion of capital into what Paul McCulley called ‘punchbowl banks,’ and promising to buy $600 billion in mortgage securities related to government-sponsored enterprises.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said. Before the start of the financial crisis in August 2007, that comprised institutions which lacked access to the Fed’s discount window and whose customer accounts were not insured by the Federal Deposit Insurance Corp.

So that 12 months later, we are all back to where the world was, with just a little more transparency, recreating “the shadow banking system.”
Money always seemed to affect the outcome of elections.

In June 2009 there was a summit of the world’s four largest emerging economies, as leaders from of China, India Russia, and Brazil met in Yekaterinburg, Russia to discuss reforming the global financial system and lessening reliance on the United States. These four countries hold nearly 40 percent of the world’s currency reserves and make up 15 percent of the global economy.

A joint BRIC (Brazil, Russia, India, China) statement issued before the summit expressed a commitment to advance the reform of international financial institutions so as to reflect changes in the world economy. The statement said. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” calling for a greater role for developing nations in global financial institutions and the United Nations. Leaders discussed investing their reserves in one another’s bonds, swapping reserve currencies and increasing the role of Special Drawing Rights, an international reserve asset. Discussions took place earlier in the day in the Urals city at a meeting of the Shanghai Cooperation Organization about the creation of a supranational currency and lessening global reliance on the U.S. dollar. President Dmitry Medvedev was an outspoken a critic of the current world financial system, reserving his most bold comments for the Shanghai Cooperation Organization. “There cannot be a successful global currency system if the financial instruments it uses are denominated in only one currency, which is the case today. And that currency is the dollar.”

But the idea of replacing the dollar found little traction with China, which holds $2 trillion in foreign currency reserves.

Other notable quotes this year, not dealing with currency:

“With stocks tied to bonds, bonds tied to housing, housing tied to the credit crisis, and everyone hitched to the government, this was all like the conga line to the poor house.” -Craig Rappaport, wealth manager at Janney Montgomery Scott

Bob Prince hedge fund manager of Bridgewater Associates, on downward spirals: “The pressure on corporate margins is now passing through to employment cuts. Employment cuts will reduce incomes which will raise defaults. Rising defaults will hinder bank capital adequacy, which will constrain credit growth, which will slow spending, which will hurt profit margins, then employment. This chain of events was virtually sealed when demand dropped off the table in October, although it was highly probable earlier this year when credit conditions deteriorated rapidly. We are now in the middle of it and there really isn’t much that anyone can do besides hang on.”

“My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner. Dow 5,000? We don’t have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well. One only has to recognize that roughly 20% of bank capital is now owned by the U.S. government and that a near proportionate share of profits will flow in that direction as well. Better to own corporate bonds than corporate stocks, but that’s a story for another Investment Outlook.” -William H. Gross , Managing Director, PIMCO, December 1, 2008

Bill Gross, in October 2008: “What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August 2007.

I have never taken creative accounting….full disclosure. But anyone who was investing might recognize that the greatest opportunity to make money is now in the credit markets and not equities.

Now about the political consequences over the social engineering on capitalism which would be studied in history books in a thousand years, if the world survived this mess……. oh, that’s another lecture.

July 25, 2009

Those Domestic Situations

The New York Times reports today that the Bush administration in 2002 considered sending U.S. troops into a Buffalo, N.Y., suburb to arrest a group of terror suspects in what would have been a nearly unprecedented use of military power.

According to U.S. Sen. James Inhofe (R-OK) and U.S. Rep. Brad Sherman (D-CA) said that as U.S. Treasury Secretary Henry Paulson pushed for the Wall Street bailout in September 2008, he brought up that that the crisis might even require a declaration of martial law, as a worst-case scenario.

The Associated Press notes that dispatching troops into the streets is virtually unheard of. “The Constitution and various laws restrict the military from being used to conduct domestic raids and seize property.”

A 1994 U.S. Defense Department Directive (DODD 3025) allegedly allows military commanders to take emergency actions in domestic situations to save lives, prevent suffering or mitigate great property damage. The Clinton administration had set up the Joint Task Force-Civil Support in October 1999 as a “homeland defense command.”

In 2002 the Pentagon established the U.S. Northern Command, charged with carrying out military operations within the United States. Prior to this, under the Posse Comitatus Act of 1878, the U.S. armed forces had been barred from domestic operations, except in specific, limited circumstances.

So that Associated Press note about “dispatching troops into the streets as virtually unheard of” is a historic note. It is a mistake to say the “constitution and various laws restrict the military from being used to conduct domestic raids and seize property.”

Pentagon officials at one point to end 2008 were projecting some 20,000 active-duty U.S. troops to be stationed in the United States by 2011.

The Minsky Watch

There has been a lot of public discourse over the last year of systemic risk without any real systemic re-pricing of risk in my neighborhood, which would have a deflationary affect. Now my home is located within a few blocks of some famous people, like Joe Mauer and Garrison Keiller. From my own research, the homes around here have barely budged in valuation over the past year. Home now selling for $575,000 that would not have brought $325,000 since the time I moved into the neighborhood in the 1990s. In times when the financial system economy was not overlooking the precipice, trapped in a classic debt-deflation cycle as it seemed now in which falling asset prices and declining consumer demand transmit deflation through the economy. It had not really happened much yet in my neighborhood.

A number of publications have referred to real unemployment to be near 20%, despite the $787 billion stimulus package. State budgets are drowning in red ink, soon to deepen with jobless claims and Medicaid bills, hesitant to spend consumers as paychecks shrink and jobs disappear. I would not be buying stocks with this kind of economic forecast, yet this week the indexes on Wall Street sprouted up like Iowa corn.

The speculators still abound. People who are gambling with their money in these times, as they had gambled turning real estate in this decade. In May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky is an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

James Fallow’s opening paragraph in this months Atlantic Monthly is: “On March 28, 2007, Federal Reserve Chairman Ben Bernanke appeared before the congressional Joint Economic Committee to discuss trends in the U.S. economy. Everyone was concerned about the ‘substantial correction in the housing market,’ he noted in his prepared remarks. Fortunately, ‘the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.’ Better still, ‘the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy.’ On that day, the Dow Jones industrial average was above 12,000, the S&P 500 was above 1,400, and the U.S. unemployment rate was 4.4 percent. That assurance looks bad in retrospect, as do many of Bernanke’s claims through the rest of the year: that the real-estate crisis was working itself out and that its problems would likely remain ‘niche’ issues. If experts can be this wrong—within two years, unemployment had nearly doubled, and financial markets had lost roughly half their value—what good is their expertise? And of course it wasn’t just Bernanke, though presumably he had the most authoritative data to draw on. Through the markets’ rise to their peak late in 2007 and for many months into their precipitous fall, the dominant voices from the government, financial journalism, and the business and financial establishment under- rather than overplayed the scope of the current disaster.”

Paul McCulley delivered a speech to the 17th Annual Hyman Minsky Conference on April 17, 2008. He stated, “Since August 2007, the shadow banking system – defined as any levered lender who does not have access to (1) deposit insurance and/or (2) the Fed’s discount window – experienced a modern-day run, with asset-backed commercial paper holders refusing to roll over their paper. It has not been fun. It has not been pretty.” And he saw that it was not over, as the ensuing 15 months proved. Whereas James Fallow cited Federal Reserve Chairman Ben Bernanke discussion of trends in the U.S. economy on March 28, 2007, Paul McCulley of PIMCO on April 17, 2008, 25 weeks before the Lehman Brother collapse, talked about a lot of things that Bernanke publicly was oblivious to.

Paul McCulley of PIMCO wrote on April 17, 2008: “Which brings us back to where I began: Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. And when the financial regulators are not only asleep but actively cheerleading financial innovation outside their direct purview, a disaster is in the making, as the last year has taught us. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

In May 2009, Paul McCulley wrote, “Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about. He says ‘from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system’s reactions to a movement of the economy amplify the movement – inflation feeds upon inflation and debt-deflation feeds upon debt-deflation.'”

Paul McCulley on April 17, 2008: “Whatever moment you pick for the Moment, we have since been traveling the reverse Minsky journey: moving backward through the three-part progression, with asset prices falling, risk premiums moving higher, leverage getting scaled back and economic growth getting squeezed. Minsky’s Ponzi debt units are only viable as long as the levered assets appreciate in price. But when the price of the assets decline, as we’ve seen in the U.S. housing market, Minsky tells us we must go through the process of increasing risk-taking in reverse – with all its consequences.

“The recent Minsky moment comprised three bubbles bursting: in property valuation in the U.S., in mortgage creation, again, principally in the U.S., and in the shadow banking system, not just in the U.S. but around the world. The blowing up of these three bubbles demanded a systemic re-pricing of all risk, which was deflationary for all risk asset prices. These developments are, as Minsky declared, a prescription for an unstable system – to wit, a system in which the purging of capitalist excesses is not a self-correcting therapeutic process, but a self-feeding contagion: debt deflation.

“Fittingly, the last debt unit on the forward Minsky journey is called a Ponzi unit, defined as a borrower who has insufficient cash flow to even pay the full interest on a loan, much less pay down the principal over time. Now, how and why would such a borrower ever find a lender to make him a loan? Simple: as long as home prices are universally expected to continue rising indefinitely, lenders come out of the woodwork offering loans with what is called negative amortization, meaning that if you can’t pay the full interest charge, that’s okay; they’ll just tack the unpaid amount on to your principal. At the maturity of the loan, of course, the balloon payment will be bigger than the original loan.

“As long as lenders made loans available on virtually non-existent terms, the price didn’t really matter all that much to borrowers; after all, housing prices were going up so fast that a point or two either way on the mortgage rate didn’t really matter. The availability of credit trumped the price of credit. Such is always the case in manias. It is also the case that once a speculative bubble bursts, reduced availability of credit will dominate the price of credit, even if markets and policymakers cut the price. The supply side of Ponzi credit is what matters, not the interest elasticity of demand.

“Clearly the explosion of exotic mortgages in recent years have been textbook examples of Minsky’s speculative and Ponzi units. But they seemed okay, as long as expectations of stably rising home prices were realized. Except, of course they cannot forever be realized. At some point, valuation does matter! How could lenders ignore this obvious truth? Because while it was going on, they were making tons of money. Tons of money does serious damage to the eyesight. And our industry’s moral equivalent of optometrists, the regulators and the rating agencies, are humans too.

“As long as the forward Minsky journey was unfolding, rising house prices covered all shameful underwriting sins. Essentially, the mortgage arena began lending against asset value only, rather than asset value plus the borrowers’ income. The mortgage originators, who were operating on the originate-to-distribute model, had no skin in the game – no active interest – because they simply originated the loans and then repackaged them.
But who they distributed these packages to, interestingly enough, were the shadow banks. So we had an originate-to-distribute model and no skin in the game for the originator, and the guy in the middle was being asked to create product for the shadow banking system.

“The system was demanding product. Well, if you’ve got to feed the beast that wants product, how do you do it? You have a systematic degradation in underwriting standards so that you can originate more. But as you originate more, you bid up the price of property, and therefore you say, “These junk borrowers really aren’t junk borrowers. They’re not defaulting.” So you drop your standards once again. And you take prices up. And you still don’t get a high default rate. The reason this system works is that you, as the guy in the middle, had somebody bless it: the credit rating agencies. A key part of keeping the three bubbles (property valuation, mortgage finance and the shadow banking system) going was that the rating agencies thought the default rates were low because they were low. But they were low because the degradation of underwriting standards was driving up asset prices.

“Both regulators and rating agencies were beguiled by very low default rates during the period of soaring home prices. It all went swimmingly, dampening volatility in a self-reinforcing way, until the bubbles created by financial alchemy hit the fundamental wall of housing affordability.

“Ultimately, fundamentals do matter! We have a day of reckoning, the day the balloon comes due, the margin call, the Minsky Moment.

“If the value of the house hasn’t gone up, then Ponzi units, particularly those with negatively-amortizing loans, are toast. And if the price of the house has fallen, speculative units are toast still in the toaster. Ponzi borrowers are forced to “make position by selling out position,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventual default or jingle mail. Ponzi lenders dramatically tighten underwriting standards, at least back to Minsky’s speculative units – loans that may not be self-amortizing, but at least are underwritten on evidence that borrowers can pay the required interest, not just the teaser rate, but the fully-indexed rate on ARMs.
From a microeconomic point of view, such a tightening of underwriting standards is a good thing, albeit belated. But from a macroeconomic point of view, it is a deflationary turn of events, as serial refinancers, riding the back of presumed perpetual home price appreciation, are trapped long and wrong. And in this cycle, it’s not just the first-time homebuyer that is trapped, but also the speculative Ponzi long: borrowers who weren’t covering a natural short – remember, you are born short a roof over your head, and must cover, either by renting or buying – but rather betting on a bigger fool to take them out (“make book”, in Minsky’s words). The property bubble stops bubbling and when it does, both the property market and the shadow banking system go bust.

“The asset class imploded violently, when the conventional basis of valuation was undermined for the originate-to-distribute (to the shadow banking system) business model.

“And the implosion was on Wall Street and next on Main Street, with debt-deflation accelerating in the wake of a mushrooming mortgage credit crunch, notably in the subprime sector, but also up the quality ladder. Yes, we are now experiencing a reverse Minsky journey, where instability will, in the fullness of time, restore stability, as Ponzi debt units evaporate, speculative debt units morph after the fact into Ponzi units and are severely disciplined if not destroyed, and even hedge units take a beating. The shadow banking system contracts implosively as a run on its assets forces it to delever, driving down asset prices, eroding equity – and forcing it to delever again. The shadow banking system is particularly vulnerable to runs – commercial paper investors refusing to re-up when their paper matures, leaving the shadow banks with a liquidity crisis – a need to tap their back-up lines of credit with real banks or to liquidate assets at fire sale prices. Real banks are in a risk-averse state of mind when it comes to lending to shadow banks, lending when required by backup lines but not seeking to proactively increase their footings to the shadow banking system but, if anything, reduce them. Thus, the mighty gulf between the Fed’s liquidity cup and the shadow banking system’s parched liquidity lips.

“The entire progression self-feeds on the way down, just like it self-feeds on the way up. It’s incredibly pro-cyclical. The regulatory response is also incredibly pro-cyclical. You have a rush to laxity on the way up, and you have a rush to the opposite on the way back down. And essentially, on the way down, you have the equivalent of Keynes’s paradox of thrift – the paradox of delevering. It can make sense for each individual institution, for a shadow bank or even a real bank, to delever, but collectively, they can’t all delever at the same time.

“Along the way, policymakers slowly have recognized the Minsky Moment followed by the unfolding reverse Minsky journey. But I want to emphasize “slowly,” as policymakers, collectively, tend to suffer from more than a thermos full of denial. Part of the reason is human nature: to acknowledge a reverse Minsky journey, it is first necessary to acknowledge a preceding forward Minsky journey – a bubble in asset and debt prices – as the marginal unit of debt creation morphed from hedge to speculative to Ponzi. That is difficult for policymakers to do, especially ones who claim an inability to recognize bubbles while they are forming and, therefore, don’t believe that prophylactic action against them is appropriate. But framing policies to mitigate the damage of a reverse Minsky journey requires that policymakers openly acknowledge that we are where we are because they let the invisible, if not crooked, hand of financial capitalism go precisely where Professor Minsky said it would go, unless checked by the visible fist of counter-cyclical, rather than pro-cyclical, regulatory policy.

“That’s not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite. Minsky wrote these words in 1986:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

Three years later, we can only bemoan that his sensible counsel was ignored and the economy experienced the explosive growth of the shadow banking system, or what Minsky cleverly called “fringe banks and other financial institutions.”
Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

“Meantime, we’ve got a problem: we’re on a reverse Minsky journey. The private sector wants to shrink and de-risk its balance sheet, so someone has to take the other side of the trade to avoid a depression – the sovereign. We pretend that the Fed’s balance sheet and Uncle Sam’s balance sheet are in entirely separate orbits because of the whole notion of the political independence of the central bank in making monetary policy. But when you think about it, not from the standpoint of making monetary policy but of providing balance sheet support to buffer a reverse Minsky journey, there’s no difference between Uncle Sam’s balance sheet and the Fed’s balance sheet. Economically speaking, they’re one and the same.

“I think we’re pretty well advanced along this reverse Minsky journey, and it’s a lot quicker than the forward journey for a very simple reason. The forward journey is essentially momentum-driven; there is a systematic relaxation of underwriting standards and all that sort of thing, but it doesn’t create any pain for anybody. The reverse journey, however, does create pain, otherwise known as one giant margin call. The reverse journey comes to an end when the full faith and credit of the sovereign’s balance sheet is brought into play to effectively take the other side of the trade. No, I’m not a socialist; I’m just a practical person. You’ve got to have somebody on the other side of the trade. The government not only steps up to the risk-taking and spending that the private sector is shirking, but goes further, stepping up with even more vigor, providing a meaningful reflationary thrust to both private sector risk assets and aggregate demand for goods and services.

Thus, policymakers have a tricky balancing act: let the deflationary pain unfold, as it’s the only way to find a bottom of undervalued asset prices from presently overvalued asset prices, while providing sufficient monetary and fiscal policy safety nets to keep the deflationary process from spinning out of control. Debt deflation is a beast of burden that capitalism cannot bear alone. It ain’t rich enough, it ain’t tough enough.

“Capitalism’s prosperity is hostage to the hope that policymakers are not simply too blind to see.

“As long as we have reasonably deregulated markets and a complex and innovative financial system, we will have Minsky journeys, forward and reverse, punctuated by Minsky Moments. That is reality. You can’t eliminate the Minsky journeys. It’s a matter of having the good sense to have in place a counter-cyclical regulatory policy to help modulate human nature.

“Not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

“While asset prices, and notably property prices, were soaring, it was all quite dandy. Which, of course, propelled the Forward Minsky Journey. There were no regulatory cops on the beat, only regulatory czars in corner offices, actively accommodating growth in the shadow banking system. Most fundamentally, regulatory authorities ignored the systemic liquidity risk imposed by the shadow banking system versus the conventional banking system: without access to either deposit insurance or the Fed’s discount window, and mostly void of any meaningful term financing, the shadow was a sitting duck for a classic run on liquidity. And ever since last August, that has been precisely what has unfolded, punctuated by the run on Bear Stearns last month.

“Along the way, the Fed has taken gallant and bold steps to inject liquidity into the markets, creating lending facility after lending facility. But up until last month, when the Fed opened the discount window to investment banks, who are the largest shadow banks of all, the Fed’s role as liquidity provider of last resort was simply not effective, however valiant it may have been. Channeling liquidity to conventional banks, in hopes that they would pass it along to shadow banks, simply did not work very well, though it did have the salutatory effect of allowing some banks to (reluctantly) expand their balance sheets so as to absorb assets being disgorged by shadow banks.

“As the Bear Stearns rescue forcefully demonstrated, the Fed had no choice but to open the discount window to investment banks, to facilitate the takeover of Bear in particular and even more importantly, to prevent a cascading of runs. This was a moment of truth and clarity, if there ever was one. I applaud the Fed for doing what it had but no choice to do. At the same time, the Fed’s action demands a complete re-think of the bifurcated regulatory regime for conventional banks and investment banks.

James Fallow: “The difference was partly ‘debt versus equity.’ That is, a loss of stock-market value is damaging, but defaults on loans which put banks themselves in trouble had a ‘multiplier’ effect. The difference between this crash and others, Nouriel Roubini said, was that the speculative bubble involved so much more of the economy than the term ‘subprime’ could suggest. ‘It was subprime, it was near-prime, it was prime mortgages. It was home-equity-loan lines. It was commercial real estate, it was credit cards, and it was auto loans. When there’s a credit crunch, for every dollar of capital the financial institution loses, the contraction of credit has to be 10 times bigger.’

“‘Bernanke should have known better. But it’s not really about him. It’s in everybody’s interest to let the bubble go on. Instead of the wisdom of the crowd, we got the madness of the crowd. So when the proverbial stuff hit the fan in the summer of 2007, the Fed and the Bush administration were initially taken by surprise,’ Nouriel Roubini concluded. ‘Their analysis had been wrong. And they didn’t understand the severity of what was to come. And all along, their policy was two steps behind the curve. We’ve had a model of growth in which over the last 15 or 20 years, too much human capital went into finance rather than more-productive activities. It was a growth model where we over-invested in housing, the most unproductive form of capital. We have been in a growth model based on bubbles, and the model has broken down, because we borrowed too much. The only time we are growing fast enough is when there is a big bubble.

And so the government now more than doubled note and bond offerings to $963 billion in the first half of 2009 as it tries to end the recession. It may sell another $1.1 trillion by year-end, according to Barclays. The second-half sales would be more than the amount sold in all of 2008.

“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” Fed Chairman Ben Bernanke said this week in semi-annual testimony before the House Financial Services Committee. Bernanke said “limited inflation pressures” will allow policy makers to keep interest rates near zero for an “extended period.”

“‘The Fed is now embarked on a policy,’ Nouriel Roubini said, ‘in which they are in effect directly monetizing about half of the budget deficit. The public debt is going up, and the federal government is covering about half of that total by printing new money and sending it to banks. In the short run, that monetization is not inflationary.” But banks are holding much of the money themselves. ‘They are not re-lending it. So that money is not going anywhere and is becoming inflationary.’”

But at some point the recession will end—Roubini’s guess is 2011–and banks will want to lend the money. People and businesses will want to borrow and spend it, James Fallow’s piece concludes.

Writes Alan Blinder, a Princeton University professor of economics and public affairs, in the Wall Street Journal: “Economic conditions are dreadful at the bottom of a deep recession. Jobs are scarce. Layoffs abound. Businesses scramble for penurious customers. Companies go bankrupt. Banks suffer loan losses. Tax receipts plunge. Government budget deficits balloon. All this and more in what now looks to be the country’s worst recession since 1938. So why is everyone so blue when the U.S. economy is hitting bottom. The good news also is the bad news. As the economy hits bottom, it’s a long uphill climb to get out.

Paul McCulley of PIMCO and Bill Gross of PIMCO and Mohamed El-Erian at PIMCO have had a better public perspective than Mr. Bernanke has over the past two years. As did Nouriel Roubini. It is hard to believe his name will be put in nomination at the soon to end current term as Fed chief, no matter his performance since September 2008. Even though the real-estate crisis was working itself out and its problems likely remained ‘niche’ issues, and had not approached my neighborhood.

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July 23, 2009

Those Arizona Diamondbacks

The wife of Senator John McCain did have some tangential relationship to news on the passing of Max Dunlap in prison. Cindy McCain was the daughter of a Budweiser distributor in Arizona who had, according to an investigation in 1976 following the death of reporter Don Bolles, acquired his business from mob connections. And if not for the mob connections of his in-laws family, the Henselys, John McCain would never have been the senator from Arizona. Professional journalists sent a contingent force to complete the investigation begun by Don Bolles.

In 1993, Max Dunlap was convicted of murder and conspiracy to commit murder for arranging the killing of Don Bolles. Bolles’ brother wrote the book What Color Is Your Parachute ?? Max Dunlap, 81, was serving a life sentence for the car-bomb in a parking lot of a Phoenix hotel of an Arizona Republic reporter Bolles who at the time had gone to meet a tipster as he was investigating land fraud and organized crime. A bomb made of dynamite planted under the car was detonated by remote control. There is a blockbuster movie in the story if anyone ever gets funding to put a production company together.

Newsday’s Bob Greene at the time made a pitch to the Investigative Reports and Editors  board that, at the very least, the project to expose corruption “in a community in which an investigative reporter has been murdered,” would result in the Arizona community and other like communities in reflection on what had happened and hopefully would result in thinking “twice about killing reporters.” Thirty-eight journalists from 28 newspapers and television stations across the country descended on Arizona.

“For all of us – particularly newspapers with high investigative profiles – this is eminently self-serving. As individuals we are buying life insurance on our own reporters. If we accomplish only this, we have succeeded.”

Working under Greene, they set out not to find Bolles’ killer but to finish his work of exposing Arizona’s tangled underworld. This piece reflects the result of that investigation, that touched the family of Cindy McCain. 

Prosecutors believed Bolles was targeted because of stories that he had written which upset a liquor wholesaler who was a mentor of Dunlap. Bolles’ car exploded as he backed out and he died 11 days later from those injuries. Max Dunlap was one of three men convicted in his killing. John Adamson, who police said put the bomb on the car, was released from prison in 1996 after serving a 20-year sentence. He died in 2002. James Robison, who was accused of setting off the bomb, was convicted of murder and conspiracy, but his conviction was overturned.

The team-produced series made its debut on March 13, 1977, amid continuing controversy. Among those publishing the series: Newsday, The Miami Herald, The Kansas City Star, The Boston Globe, The Indianapolis Star, and The Denver Post. The Arizona Daily Star in Tucson was the sole newspaper in Arizona to publish the series. Many others carried reports from the Associated Press that began on March 18, five days after the first stories started.

It was said that Arizonans would never be told the true background to any of this by the Arizona media, like the Arizona Republic and the Phoenix Gazette, which were started by a guy called Eugene Pullium, at the instigation of Kemper Marley.

James Danforth “Dan” Quayle (born February 4 1947) is an American politician and a former Senator from the state of Indiana. He was the forty-fourth Vice President of the United States under George H. W. Bush (1989–1993). Quayle was born in Indianapolis to Martha Corinne Pulliam and James C. Quayle. He has often been incorrectly referred to as James Danforth Quayle, III. In his memoirs, he points out that his birth name was simply James Danforth Quayle. The name Quayle originates from the Isle of Man. His maternal grandfather, Eugene C. Pulliam, was a wealthy and influential publishing magnate who founded Central Newspapers, Inc., owner of over a dozen major newspapers such as the Arizona Republic and The Indianapolis Star. James C. Quayle moved his family to Arizona in 1955 to run a branch of the family’s publishing empire. While the Quayle family was very wealthy, Dan Quayle was less so; his total net worth by the time of his election in 1988 was less than a million dollars.

McCain’s father-in-law got his start as the top henchman for Kemper Marley, who was for 40 years, until his death in 1990, the undisputed political boss of Arizona, acting as the behind-the-scenes power over both the Republican and Democratic parties. But Marley was more than a politician. He was the Meyer Lansky crime syndicate’s chief Arizona operative front man for the Bronfman family—key players in the Lansky syndicate.

After Prohibition, Lansky-Bronfman associates such as Marley got control of a substantial portion of liquor (and beer) distribution across the country. In fact, Marley’s longtime public relations man, Al Lizanitz, revealed it was the Bronfman family that set Marley up in the alcohol business. However, in 1948, 52 of Marley’s employees (including Jim Hensley (the manager of Marley’s company) were prosecuted for federal liquor violations. Hensley got a 6 month suspended sentence and his brother Eugene went to prison for a year. 

The story in Arizona is that Hensley took the fall for Marley in 1948 and Marley paid back Hensley by setting him up in his own beer distribution business. Newsweek implied in an article that Hensley’s company was a “mom and pop” operation that became a big success, but the real story goes to the heart of the history of organized crime. It was the late Tom Renner, Newsday’s mob expert who spent most of his time undercover working “deep and dirty,” on the organized crime background. 

Hensley’s sponsor, Marley, was also a major player in gambling, a protégé of Lansky lieutenant Gus Greenbaum who set up in 1941 a national wire for bookmakers. After Lansky ordered a hit on his own longtime partner, “Bugsy” Siegel, who was stealing money from the Flamingo Casino in Las Vegas—which was financed in part by loans from an Arizona bank chaired by Marley—Greenbaum turned day-to-day operations of the wire over to Marley while Greenbaum took Siegel’s place in tending to Lansky’s interests in LasVegas. 

In 1948 Greenbaum was murdered in a mob “hit” that set off a series of gang wars in Phoenix, but Marley survived and prospered as did his protégé, Jim Hensley, whose fortune through his daughter, Cindy, sponsored McCain’s rise to power.

Jim Hensley, McCain’s father-in-law also dabbled in dog racing and expanded his fortune by selling his track to an individual connected to the Buffalo-based Jacobs family, key Prohibition-era cogs in the Lansky network as distributors for Bronfman liquor. Expanding over the years, buying up racetracks and developing food and drink concessions at sports stadiums, Jacobs enterprises were described as “probably the biggest quasi-legitimate cover for organized crime’s money-laundering in the United States.”

In 1955, James Hensley acquired the Anheuser-Busch distributorship for Arizona. 

June 2, 1976 – Arizona Republic reporter Don Bolles, one of the founding members of Investigative Reporters and Editors, Inc., was called to meeting in a downtown Phoenix hotel by a source promising him information about land fraud involving organized crime. The source didn’t show up. Bolles left the hotel, got into his car parked outside and turned the key. A powerful bomb ripped through the car, leaving Bolles mortally injured. Bolles, 47, is gravely wounded when six sticks of dynamite are detonated beneath his compact car in the parking lot of the Hotel Clarendon, 401 W. Clarendon Ave. Bolles, who had been lured to the hotel by the promise of a news tip, whispers the name “Adamson” to his rescuers.

Over the next 10 days, doctors amputated both Bolles’ legs and an arm, but could not save him.  

His shocked IRE colleagues reacted in a way unprecedented and never copied since. They descended on Arizona for a massive investigation. They set out to find not Bolles’ killer, but the sources of corruption so deep that a reporter could be killed in broad daylight in the middle of town. They were out to show organized crime leaders that killing a journalist would not stop reportage about them; it would increase it 100-fold. 

The project was exceedingly controversial and remains so. The New York Times and The Washington Post, giants in the business, chose not to participate. Some journalists, including IRE members, disliked the idea of reporters on a crusade.

June 13, 1976 – Bolles dies. Phoenix Police arrest John Harvey Adamson, racing-dog owner and a former tow-truck operator.

June 16, 1976 – Max Dunlap, a Phoenix contractor, is questioned by Phoenix Police homicide detective Jon Sellers, the lead investigator. Police say Dunlap had been observed delivering cash to Adamson.

Jan. 15, 1977 – In an agreement with prosecutors, Adamson admits planting the remote-control bomb and pleads guilty to second-degree murder. He agrees to cooperate with prosecutors in exchange for a 20-year, two-month prison sentence. Dunlap and James Robison, a Chandler plumber who allegedly helped Adamson by triggering the bomb, are arrested.

July 6, 1977 – Trial begins for Dunlap and Robison, who are charged with first-degree murder. During the trial, Dunlap’s attorney tries to cast suspicion on Phoenix attorney Neal Roberts, who had dealings with both Adamson and Dunlap, as the real mastermind in the murder plot.

Nov. 6, 1977 – A jury finds Dunlap and Robison guilty primarily on the strength of Adamson’s testimony. They also are found guilty of conspiring to kill then-Arizona Attorney General Bruce Babbitt and advertising man Al Lizanetz, because Babbitt had filed an antitrust lawsuit against the liquor industry in 1975. Adamson testifies that Dunlap wanted the three killed because each had angered Dunlap’s friend, millionaire rancher and liquor wholesaler Kemper Marley Sr., who never is charged in the case. Adamson testified he was hired to kill Bolles by Max Dunlap, a Phoenix contractor and close associate of Marley’s. Marley had extended a $1 million loan to Dunlap, which had not been repaid. Adamson said Dunlap hired him to kill Bolles because Marley was upset over Bolles’ stories.

Jan. 10, 1978 – Dunlap and Robison are sentenced to death.

Feb. 25, 1980 – The Arizona Supreme Court, saying defense lawyers should have been allowed to question Adamson more closely, overturns the convictions of Dunlap and Robison and orders a new trial.

June 2, 1980 – The murder charge against Dunlap is dismissed after Adamson balks at testifying against him again. Adamson had asked prosecutors to grant him certain concessions, but was denied.

June 6, 1980 – The Arizona Attorney General’s Office withdraws Adamson’s 1977 plea bargain and reinstates the original charge of first-degree murder.

June 13, 1980 – The murder charge against Robison is dismissed after Adamson refuses to testify.

Oct. 17, 1980 – In a trial held in Tucson, a jury finds Adamson guilty of first-degree murder.

Nov. 14, 1980 – Adamson is sentenced to death.

May 9, 1986 – The 9th U.S. Circuit Court of Appeals in San Francisco overturns Adamson’s death sentence, saying that he improperly was condemned to die after a trial judge had ruled that a prison term was appropriate.

Dec. 22, 1988 – Adamson’s death sentence having been reinstated, it is again overturned by the circuit court.

Nov. 27, 1989 – After a renewed investigation by the Attorney General’s Office, led by investigator George Weisz, James Robison, the Chandler plumber is recharged with the murder of Bolles.

June 25, 1990 – Kemper Marley, Sr., 83, dies of cancer in La Jolla, Calif. In 1976 Bolles had written a series of articles exposing organized crime’s involvement in land fraud. Three men were convicted of Bolles’s murder. The three men were connected with Kemper Marley, Sr., an Arizona liquor wholesaler who was reportedly angered by Bolles’s articles and thought they had cost him a seat on the Arizona Racing Commission. Marley was not charged in Bolles’s murder. Mr. Marley, one of Arizona’s wealthiest men, was the son of an early pioneer family cottonseed oil, produce, a liquor distributorship and cattle and sheep ranches. He also had holdings in Sonora, Mexico, and the Imperial Valley of California, and was a founder of the Farmers and Stockmen’s Bank in Phoenix. (Don Bolles. Bolles wrote extensively about Marley’s lucky past. And about how the Hensleys (Marley’s managers) bought Ruidso Downs racing track in New Mexico. He wrote about Eugene Hensley spending five years in federal prison for a skimming scam. And about the Hensleys selling their track to a buyer linked with Emprise Corp. And about Marley’s liquor ties with Emprise … one of Bolles’ final dispatches appeared as Marley was about to become a member of the Arizona Racing Commission – the agency that regulates racetracks, including those run at the time by Emprise … the story dispatched Marley’s appointment. Two months later, a car bomb killed Bolles.)

June 28, 1990 – The U.S. Supreme Court leaves intact the 1988 appeals court ruling overturning Adamson’s death sentence.

Dec. 19, 1990 – Dunlap is recharged with Bolles’ murder. Dunlap and Robison also are charged with conspiring to obstruct a criminal investigation into the slaying. Adamson agrees to testify against the pair in return for the reinstatement of his 1977 plea bargain and 20-year, two-month prison sentence.

Jan. 11, 1993 – Dunlap and Robison are granted separate trials.

March 22, 1993 -An attorney for Dunlap, John Savoy, is sentenced to two years’ probation on perjury conviction for telling a grand jury he didn’t have any records dating from 1977 related to Dunlap. Prosecutors believed some of the records detailed secret cash payments from Dunlap to the girlfriend of James Robison, the Chandler plumber .

April 20, 1993 – Dunlap is found guilty of first-degree murder and conspiring to obstruct the investigation of the case, and is later sentenced to life in prison without possibility of parole for 25 years.

Dec. 17, 1993 – Robison is acquitted, despite admitting under cross-examination that he asked a fellow jail inmate to arrange for the murder of Adamson, the chief witness against him.

July 26, 1995: Robison, having pleaded guilty to soliciting an act of criminal violence for trying to have Adamson killed, is sentenced to five years in federal prison.

Aug. 12, 1996: Adamson is released from prison and goes into the federal Witness Protection Program, which he will voluntarily leave a few years later.

1998: Robison, 76, is released from prison.

Jan. 28, 1999: Phoenix attorney Neal Roberts dies in poverty at the age of 66 of coronary artery disease, cirrhosis and emphysema. His former secretary says Roberts told her he was involved in the Bolles murder at various levels, but investigators say his statements may have been influenced by his heavy drinking and taste for melodrama.

In a subsequent lawsuit against Investigative Reporters and Editors Inc.. an investigative group that was formed after Bolles’s killing, a jury in Phoenix awarded Kemper Marley, Sr., $15,000 for emotional distress resulting from a news article that was written about the slaying. The same jury found that the article, which linked Marley to figures in organized crime, had not libeled him and that his privacy had not been invaded.

Marley was never charged in the case. In 1989, State Attorney General Bob Corbin said new leads indicated that Mr. Marley had no connection to the killing.

Hard Call, Faith of My Fathers, Why Courage Matters, 13 Soldiers

July 15, 2009

Professions and Professionals

It was the age of enhancements.

Those women in the movies. Those athletes in the all-star games.
Enhancements might only attract attention for a short while. That was the nature of enhancement while the human mind figures out what was underneath the next layer.

Ascending into the ranks of the elite, surrendering to individual, partisan, and class interests, people no longer try to preserve their ethnic heritage. Or their belief system. That was the secular world. Those were my thoughts listening to the hearings of a nominee for the U .S Supreme Court.

David Brooks wrote in the New York Times this week that the lure of work provides an organizing purpose and identity. “Until the strains of a multicultural establishment become visible. You see the way that people not only choose a profession, it chooses them. It changes them in a way they probably didn’t anticipate at first.”

Ascension into the ranks of the elite. Business that cut back workers. Parking lots now with money slots instead of attendants. Every business with voice mail instead of real people. The Microsoft world. Where even the armed forces lived and died by computer outages, susceptible to hackers in North Korea. Young people with priceless educations susceptible to outsourcing in India or the Philippines.

The outward signs were there that our institutional arrangements seem to be failing the community. The signs were all around us. In world with too many divorces, more cohabitation, where the equilibrium was lost pursuing self-interests at the cost of the common good. Too many leaders who were not leading. Because the electorate can no longer come together. In board rooms across the country, in state houses, and on Capitol Hill, there was the pursuit of self-interests.

April 21, 2009

Those 6 Month Extensions

There were a lot of six-month extensions sought last week. The extensions included those quarterly reports from those financial stocks last week. According to a few columns written by financial analysts, there were extensions in transparency, when it came to looking for detail in the bank earnings. Like the earnings statement of Goldman Sachs and its reported $1.8 billion quarterly profit. Like the earnings statement of Citibank that was said to be “a lot like a scavenger hunt.” Apparently Citibank failed to include a comment regarding why Citibank “is now consolidating over $80 billion in heretofore off-balance-sheet credit-card balances for regulatory purposes, but not generally accepted accounting principles’ purposes.”

Read Minyan Peter at

Read Fred Norris at the New York Times.

The horn blast on ABC Radio News was followed by reports of “record” earnings at Wells Fargo, without analysis that the refinancing wave was contributing to the profitability at Wells Fargo or other financial stocks which “is entirely reliant on the Federal Reserve’s ability to manage the 10-year Treasury yield through quantitative easing. There was no mention after the horn blast of ABC Radio News that since September 2008 Wells Fargo had acquired Wachovia, and the combined 2009 1st quarter earnings of Wachovia and Wells then were not a “record.”

In lieu of the change in the Mark to Market Accounting rules, Bank of America offered gains of $2.2 billion on certain Merrill Lynch structured notes as a result of credit spreads widening. This statement from Bank of America actually meant, per Minyan Peter, “Because the market is now more doubtful of our ability to meet our obligations on these structured notes than they were at the end of December, we can recognize a $2.2 billion gain this quarter.”

Per the columns and blog of Fred Norris at the New York Times, Goldman’s explanations about their recent earnings statement sometimes do not ring true. Like Goldman’s proclamation that it wants to pay the $10 billion under the TARP program back and get out from government control of things, like bonus payments. Goldman’s explanations did not mention the $28 billion borrowed with a guarantee from the FDIC. David Viniar CFO at Goldman told Norris he expected to borrow more, probably hitting the maximum $35 billion. Not mentioned in the text of the release and buried in the tables was the important fact that Goldman had lost a lot of money in December, losses which do not show up in any quarterly number that would have been part of the quarter had the firm not changed its fiscal year. That information was there in the tables on page 10 of a news release. Goldman won’t say if a December-to-February quarter would have been profitable.

Todd Harrison wrote at Marketwatch to close the quarter:
“January thought: The age of austerity officially has arrived and we’ll see a steady stream of social strife as the rejection of wealth increases in size and scope. While societal acrimony began to percolate last year, this dynamic will manifest through social unrest and geopolitical conflict as we edge ahead.”

Read the news from Europe. Read the comments of Chinese Premier Wen Jiabao over the weekend when he called for more surveillance of countries that issue major reserve currencies. Like the United States. This statement comes on the heels of discussion at the G20 meeting of a new world currency, what Todd Harrison calls the growing unease of foreign holders of dollar-denominated assets.
Todd Harrison cites a sense of the tip of iceberg in the news story in late March with acknowledgment by the former chief regulator for the $2.7 trillion municipal bond market that the governing board failed to save taxpayers upwards of $1 billion of losses due to opaque financial products.

The political consequence of all this can ever be seen, as pointed out by Todd Harrison, in the feelings of those left at work as they are asked to pick up the slack without additional compensation even as unemployment continues to rise.

A people forced to extend and soon to reinvent themselves. Everywhere. As finance ministers gather this weekend in Washington for meetings of the International Monetary Fund and the World Bank, focusing on the $4.1 trillion projected losses from the global economic crisis, and the $1.1 trillion to help fix the crisis.

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