Asia Times Online - May 10, 2008 Nineteen years ago, the fall of the Berlin Wall effectively eliminated the Soviet Union as the world's other superpower. Yes, the USSR as a political entity stumbled on for another two years, but it was clearly an ex-superpower from the moment it lost control over its satellites in Eastern Europe.

Less than a month ago, the United States similarly lost its claim to superpower status when a barrel of crude oil roared past US$110 on the international market, gasoline prices crossed the $3.50 threshold at American pumps, and diesel fuel topped $4. As was true of the USSR following the dismantling of the Berlin Wall, the US will no doubt continue to stumble on like the superpower it once was; but as the nation's economy continues to be eviscerated to pay for its daily oil fix, it, too, will be seen by increasing numbers of savvy observers as an ex-superpower-in-the-making.

Sarah Rohrs | Bay Area | May 8

San Jose Mercury News - Vallejo has become the first city of its size in California to seek bankruptcy protection.

The decision to file for bankruptcy came in a unanimous vote by the city council Tuesday night as hundreds of residents watched . . . Vallejo has been slammed by increasing costs of its public safety contracts, the housing crisis and lower property values. The city faces a $16 million deficit in the 2008-09 fiscal year that starts July 1. Tuesday night's vote came after months of fruitless talks between city and labor representatives.

Nota bene: They are the first, but they certainly won't be the last! ~spk Mish who is now on our blogroll has more.

May 7

AFP - The credit crisis that has scorched international financial markets is on the wane but more shocks are ahead, US Secretary Treasury Henry Paulson told the Wall Street Journal in an interview published on Wednesday.

"The worst is likely to be behind us," Paulson told the paper, in one of the most optomistic comments by a top US finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.

Paulson said it would take "some months longer" for the situation to stabilize and cautioned there would likely be further "bumps along the road."

But, he said, "there's no doubt that things feel better today, by a lot, than they did in March."

Paulson said the decision by the US Federal Reserve to rescue US investment giant Stearns and to inject liquidity into other investment banks proved to be a turning or "inflection point" in the crisis.

May 7 (Bloomberg) -- UBS AG, Switzerland's biggest bank, said the U.S. Department of Justice is investigating whether the firm helped clients evade U.S. taxes.

One senior bank employee was ``briefly detained'' by U.S. authorities as a ``material witness,'' the firm said in an e- mailed statement. The Financial Times reported that the employee was Martin Liechti, the Zurich-based head of UBS's international wealth management business for the Americas. Rohini Pragasam, a UBS spokeswoman in New York, declined to comment on the FT report. Liechti could not immediately be reached for comment...

Ballmer got 'em by the ying-yang? Or the reverse?

Yahoo CEO open to more Microsoft talks

NEW YORK (Reuters) - Yahoo Inc (NasdaqGS:YHOO - News) chief Jerry Yang signaled a more open stance towards Microsoft Corp (NasdaqGS:MSFT - News) on Monday, saying he had been seeking common ground when the software maker abruptly ended deal talks.

Yang told Reuters in an interview that he had "mixed feelings" about the weekend outcome, after investors showed their disappointment over the break-up of negotiations by sending Yahoo shares down 15 percent.

"We were negotiating a way to find common ground and then on Saturday they chose to walk away," said the 39-year-old co-founder of the pioneering Internet company. "They started it and they walked away."

Asia Times Online May 6, 2008

... The current system has experienced a broad transformation to a credit mechanism dominated by market-based instruments, in contrast to the traditional predominant position held by the banking system all the way through Minsky’s "money manager" era. Today, the financial apparatus is beholden not to a coherent banking system but instead to an ambiguous thing called "marketplace liquidity" and the unwavering confidence such a mechanism requires. Importantly, momentous changes to the prevailing incentive system are also consistent with designating a new phase of Minskian capitalism.

Late in Minsky’s life, he expounded upon the role rising stock and corporate debt prices were playing in dictating various behaviors in the credit system, markets and real economy. With financial arbitrage capitalism, the bounty of seemingly limitless (until recently) speculative profits has created a reward system encouraging unprecedented debt creation, leveraging, and myriad forms and layers of financial intermediation.

Ouch, oil clears $120. Nasty, nasty, nasty. I can only imagine how expensive gas will get with the arrival of the summer driving season.

F William Engdahl | May 6, 2008

Asia Times Online - ~60% of oil price due to unregulated speculation

Persons within the United States seeking to trade key US energy commodities - US crude oil, gasoline and heating oil futures - are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.

Is that not elegant? The US government energy futures regulator, CFTC, opened the way to the present unregulated and highly opaque oil futures speculation. The present chief executive officer of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.

The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way.

May 5, 2008, 7:26 am

NYT - Prosecutors in the Eastern District of New York in Brooklyn are stepping up their scrutiny of players in the subprime mortgage crisis, focusing on Wall Street firms and mortgage lenders, The Wall Street Journal reported.

A task force of federal, state and local agencies will look into potential crimes ranging from mortgage fraud by brokers to securities fraud, insider trading and accounting fraud, The Journal said.

The Federal Bureau of Investigation is already targeting major corporate insiders and criminal groups in its investigation of fraud in the mortgage lending industry. The FBI has said it is investigating 19 companies in mortgage cases. ...

The US president George Bush has attracted a lot of flak here in India for his statement the other day that India's middle class is responsible for rising food prices. See Bush now blames Indian middle class for rising food prices.

There are many Bushisms that are outrageous and this one too at first sight seems to be the same. But except for the fact that only India and only middle class has been targetted and that only food prices are being shown concern about I agree with the underlying thrust. Many of my posts in my blog (http://natant.blogspot.com) have talked about the mindless and excessive consumerism but I recognise the fact that it is a global phenonmenon.

Craig Torres | Washington | May 2

Bloomberg - A month after the Federal Reserve rescued Bear Stearns Cos. from bankruptcy, Chairman Ben S. Bernanke got an S.O.S. from Congress.

There is ``a potential crisis in the student-loan market'' requiring ``similar bold action,'' Chairman Christopher Dodd of Connecticut and six other Democrats wrote Bernanke. They want the Fed to swap Treasury notes for bonds backed by student loans. In a separate letter, Pennsylvania Democratic Representative Paul Kanjorski and 31 House members said they want Bernanke to channel money directly to education-finance firms.

Student loans are just the start. Former Fed officials and other Fed-watchers say that Bernanke's actions in saving Bear Stearns will expose the central bank to continuing pressure to use its $889 billion balance sheet to prop up companies or entire industries deemed important by politicians. The Fed satisfied Dodd's request today, expanding the swaps to include securities backed by student debt.

Great insight from Stirling here:

So what all of this means is that the numbers as presented are accurate, but uninformative to the question that most Americans want to know. What they say is that the very small elites are prevailing in their gambling to keep control of the economy, while producing a radically lower standard of living for everyone else. They are continuing in their gamble to incarcerate or keep in the military the small core of people who are willing to break bones to make political change. Here.

No, it's not a touchy-feely, nice sentiment. But that doesn't make it untrue. Nothing will change until the war ends. Period. Full stop.

Quite a catch-22 there, huh?

I think this is a very astute observation from Agonist reader tjfhx

Economic fundamentals are now deflationary as credit contracts, while monetary and fiscal policy is inflationary. This has led to a confusion over whether the US is experiencing deflation (e. g., falling housing values) or inflation (e.g. rising commodity prices). The bias is toward deflation and as Stirling has observed in Fire the Fed and his comment in that thread entitled Inflation, the Fed has adopted a meso-inflationary stance that disincentivizes hoarding dollars under these circumstances by depreciating the dollar, because if large numbers of people start saving rather than consuming, the downward spiral will accelerate out of control.

Thus, the price of necessities must rise, now that discretionary spending is falling, in order to perpetuate the inflation tax that transfers wealth upward. As the price of resources rises, wage earners are forced to pay more, while the owners of resources and those who speculate in them increase their wealth at least nominally and possibly also in real terms if they do very well. If one has funds, the objective is to be on the right side of this equation.

A weird combination of both?

Darren Schuettler | Bangkok | May 2

Reuters - A proposed "OPEC-style" rice cartel in Southeast Asia will go nowhere due to the inability of governments to cooperate with each other and control output from their farmers, analysts and traders said on Friday.

Thai Prime Minister Samak Sundaravej, a TV chef whose main contact with rice is cooking it, has revived the long-dormant idea of a price-setting body involving producers Thailand, Vietnam, Myanmar, Laos and Cambodia.

The proposal, which threatens to add to global food supply fears amid record high rice prices, failed to gain traction seven years ago when it was first floated by Bangkok -- and most see little chance it will fare better this time around.

"I don't think it would work. All they can do is agree on a price, but they can't control the supply like oil," said Graham Catterwell, an economic analyst with 30 years of experience in Thailand and the region. "It's going nowhere."

more at the link

Chan Akya | May 2

Asia Times - As the world comes to grips with declining United States power both in political and economic terms, it almost seems surreal that global media appear so keen to paper over the cracks. With even the corrupt and unctuous Gulf dictators rebelling against the US dollar, this is the beginning of the end.

Yes, I know that the Titanic was not registered as a United States ship. The title though refers to the startling comparisons that can be made to the ill-fated vessel after it hit the iceberg in 1912, and the US today after it has hit the twin icebergs of the idiotic George W Bush presidency and the subprime mess in the economy. I am not suggesting that the two were linked, only that an ineffectual government frequently makes a cyclical problem much worse by its own actions.

US Federal Reserve head Ben Bernanke has taken on the role of the second in command whose job it is to scream "full steam ahead", even as it becomes wildly apparent that it is a structural problem in the economy, not a mere cyclical downturn.

more at the link

David Apgar | May 1

The Globalist - Microfinance institutions around the world — the tiny banks that make micro-loans to the developing world’s working poor — face a significant challenge in even the best current global economic scenario.

A political tide threatens them that could reverse much of the progress against poverty they have made over the past decade.

The reason is that the twin crises of world food price inflation and the U.S. sub-prime mortgage meltdown may be joined at the hip. And as a result, the developing world’s working poor could well channel their anger toward some of the new links with global capital markets that seemed so beneficial to them until now.

much more

Leonard Doyle | Washington | May 3

Independent - America's love affair with sports utility vehicles (SUVs) and pick-up trucks is finally over.

The gas-guzzlers that ply the country's freeways and clog its city streets and parking lots are falling victim to ever-rising petrol prices, rather than concern about the country's oversized carbon footprint. The fall-off in sales is dramatic however.

Even offers like that from a Denver showroom of a year's free petrol with each new SUV isn't shifting the pick-ups and 4x4s quickly enough to stave off financial ruin for the country's car manufacturers.

With petrol now selling for almost $4 (£2) a gallon, consumers are trading in their Humvees and Ford Explorers so fast that for the first time, one in five cars sold in the US is now a compact or subcompact. In another first, sales of six-cylinder vehicles were bypassed by smaller four-cylinder, mostly Japanese, cars in April.

The credit crunch isn't over, not by a long shot:

The Federal Reserve, seeking to prevent a deeper economic slowdown, took another stab at coaxing banks into lending at lower rates.

The Fed boosted its biweekly Term Auction Facility sales of cash to banks by 50 percent to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities. It also raised the amount of dollars it makes available to the European Central Bank and Swiss National Bank through swap lines to a combined $62 billion from $36 billion.

Borrowing costs for banks have risen as much as 0.38 percentage point in the past six weeks, an increase that blunted the impact of the cash injections that began in December. The strains threatened to further impair mortgage markets, worsening an economy where growth has already stalled.

Really, the Fed's balance sheet has got to be looking pretty bad about now.

That being said, spring is almost over and summer will lull most into a false sense of security, rising gas prices notwithstanding. But as fall arrives and the two worst months, historically speaking for markets that is, of September and October come well, who knows? My crystal ball is certainly far from perfect. But I'd be building up my cash right now more than anything else. Better safe than sorry. With cash you can always get back in the game, but when you're broke?

I'd like to see the numbers, but the NYT is headlining this: "U.S. Economy Grew at 0.6 Percent Pace, Commerce Department Says" right now.

Here's the BEA release. Anyone want to break down the numbers and tell us what really happened?

Barry at The Big Picture talks about the 'big shitpile' they call the GDP numbers.

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AlterNet Apr 28, 2008

George Bush came into office. There was a recession almost immediately. Officially it began in March of 2001 and, officially, it ended eight months later.

The causes of that recession are vague and amorphous, generally credited to the "business cycle."

There is, in addition, a minor Republican industry dedicated to backdating the onset by five months, to November 2000, in order to make it a Clinton recession. Or, to inadvertently say that the very election of George Bush screwed up the economy; he didn't even have to come to power.

Asia Times Online Apr 30, 2008 ... It is in this context that I believe U. S. policymakers are today unknowingly risking global financial and economic catastrophe. They are, of course, fixated on domestic concerns and are willing to do any and everything in a desperate attempt to sustain the U. S. Bubble Economy. They are oblivious to both the heightened risks associated with today’s Current Account Deficits and to the various linkages of their policies to Heightened International Monetary Disorder. Stage II is fraught with great but not easily recognizable risks.

Kester Kenn Klomegah | Moscow | April 26

IPS - New efforts have been launched to curb human trafficking across Russia and the ex-Soviet republics. The Moscow office of the International Organisation of Migration is implementing a programme 'Prevention of Human Trafficking' jointly financed by the European Commission, the U.S. State Department and the Swiss government, adapting features of counter-trafficking legislation in the European Union to bridge gaps in Russian law.

According to United Nations estimates, 20 million migrants pass through the region every year. "Russia serves as a main transit country from Asia to the European Union, and it (Russia) has a significant amount of internal trafficking from smaller towns and villages to regional city centres, both for labour and sexual exploitation," said Lauren McCarthy of the University of Wisconsin. Many people look to leave poorer countries like Moldova, Tajikistan, Uzbekistan and Kyrgyzstan. The wish to migrate is then exploited by traffickers.

Trafficking for forced labour (other than forced prostitution) is the main form of trafficking in the region, in particular central Asia. Law enforcement responses, however, tend to focus on sex trafficking which often involves young women trafficked to western Europe, the Middle East and Russia.

I've read reports of some knee jerk reactions by food retailers in the USA limiting rice purchases.

Overall the google news goddess indicates that the situation is OK.

Is it time to boil, fry or make rice-pudding, mauberly?

Even when times are good, it's hard to believe that corporate CEOs can look you in the eye and tell you that they've truly earned their outrageous $10 million, $50 million, $100 million or more pay packages.

And right now, times aren't good.

But this week I saw another round of stories on corporate CEOs getting multi-million dollar "bonuses" even as their companies lose millions of dollars.

This is just another outrageous example of a corporate culture that is out of control and out of touch with most Americans. These corporations fight any kind of regulation designed to protect workers, the environment, or public health, yet when their irresponsible behavior bites them in the ass, they come crawling to us begging for a bailout, while continuing to lavish hefty paychecks on their top executives.