Tag: finance

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Municipal bond investors, a conservative bunch who want to avoid rollercoaster rides and cliffhangers, are getting frazzled. And they’re bailing out of muni bond funds at record rate, while they still can without losing their shirts. So far this year, they have yanked out $52.8 billion. In the third quarter alone, as yields were soaring on the Fed’s taper cacophony and as bond values were swooning, net outflows from muni funds reached $32 billion, which according to Thomson Reuters, was more than during any whole year.

Muni investors have a lot to be frazzled about. Municipal bonds used to be considered a safe investment – though that may have been propaganda more than anything else. Munis are exempt from federal income taxes, hence their attractiveness to conservative investors in high tax brackets. Munis packaged into bond funds appealed to those looking for a convenient way to spread the risk over numerous municipalities and states. While the Fed was repressing rates, muni bond funds were great deals.

Then came the bankruptcies.

The precursor was Vallejo, CA, a Bay Area city of 115,000 that filed for Chapter 9 bankruptcy protection in 2008 and emerged two years ago. But it’s already struggling again with soaring pension costs that had been left untouched. Jefferson County, which includes Alabama’s largest city, Birmingham, filed in 2011 when it defaulted on $3.1 billion in sewer bonds, the largest municipal bankruptcy at the time [but it’s already issuing new bonds; read….. Municipal Bankruptcy? Why Not! And so The Floodgates Open].

Stockton, CA, filed in June 2012. Mammoth Lakes, CA, filed in July 2012. San Bernardino, CA, filed in August 2012. They were dropping like flies in the “Golden State.” Detroit filed in July this year, crushing all prior records with its debt of up to $20 billion. That’s $28,000 per person for its population of 700,000.

But Detroit is just a fraction of what is skittering toward muni investors: the Commonwealth of Puerto Rico. The poverty rate is 45.6%. Unemployment is 14.7%. The economy has been in recession since 2006. The labor force has shrunk 16% from 1.42 million in 2007 to 1.19 million in October. The number of working people, over the same period, has plunged from 1.8 million to 1.1 million, a breathtaking 39%.

Puerto Rico had a good run for decades as federal tax breaks lured Corporate America to set up shop there. But when these tax breaks were phased out by 2005, the companies went in search for the greener grass elsewhere. To keep splurging, the government embarked on a borrowing binge that left the now lovingly named “Greece of the Caribbean” with nearly $70 billion in debt.

That’s 70% of GDP, and for its population of 3.67 million, about $19,000 per capita, or about $64,000 per working person. And then there is the underfunded pension system. But unlike Detroit, Puerto Rico is struggling to address its problems with unpopular measures, raising all manner of taxes and cutting outlays. Not even the bloated government payrolls have been spared. Too little, too late? Given the enormous poverty rate and long-term shrinking employment, what are the chances that this debt will blow up?

Pretty good, according to Moody’s Investors Service. Last week, it put $52 billion of Puerto Rico’s debt under review for a downgrade – to junk. Moody’s litany of factors: “Failure to access the public debt market with a long-term borrowing, declines in liquidity, financial underperformance in coming months, economic indicators in coming months that point to a further downturn in the economy, inability of government to achieve needed reform of the Teachers’ Retirement System.” This followed a similar move by Fitch Ratings in November.

Alas, Puerto Rico has swaps and debt covenants with collateral and acceleration provisions that kick in when one of the three major credit ratings agencies issues the threatened downgrade. Which “could result in liquidity demands of up to $1 billion,” explained Moody’s analyst Lisa Heller. It would “significantly narrow remaining net liquid assets.”

Now Puerto Rico is under pressure to show that over the next three months or so it can still access the bond markets at a reasonable rate. If not….

Puerto Rico’s debt was a muni bond fund favorite because it’s exempt from state and federal taxes. Now fears of a default on $52 billion or more in debt are cascading through the $3.7 trillion muni market. But Puerto Rico isn’t alone. Numerous municipalities and some states have ventured out on thinner and thinner ice.

Default risks are dark clouds on the distant horizon or remain unimaginable beyond the horizon. And hopes that disaster can be averted by a miracle still rule the day. However, the Fed’s taper cacophony is here and now, and though the Fed is still printing money and buying paper at full speed, the possibility that it might not always do so hangs like a malodorous emanation in the air.

Taper talk and bankruptcies are a toxic mix for munis. Now add the lure of stocks that have become the official risk-free investment vehicle with guaranteed double-digit rates of return for all years to come. So muni-fund investors, tired of losing money, are seeking refuge in stocks. This has pressured munis further. The Bank of America Merrill Lynch master municipal index has dropped 2.8% and, unless a miracle happens, will end the year in the red. A first since 2008. Its index of bonds with maturities of at least 22 years has skidded almost 6% – though the Fed hasn’t even begun to taper.

The Fed’s easy money policies over the decades encouraged borrowing binges by municipalities and states. When the hot air hissed out of history’s greatest credit bubble in 2008, the Fed’s remedy, its ingenious QE and zero-interest-rate policies, blew an even greater credit bubble – kudos! As that credit bubble transitions from full bloom to whatever comes afterwards, the plight of muni bond funds is just the beginning.

The Fed’s policies of dollar destruction took on a sudden virulent form in 1970 – clearly visible against the Swiss Franc. And it’s still going on. When even the Swiss couldn’t handle it anymore, they too jumped into the currency war. Read…. Mother Of All Currency Wars in One Chart: Dollar Vs. Swiss Franc

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/J7HFwwgZu2s/story01.htm testosteronepit

Despite numerous “13s”, infamous technical analyst Tom DeMark tells Rick Santelli, the Fed’s liquidity pump has negated every one of these ‘potential sell’ signals and stocks have “unusually” kept going. DeMark goes on to note several analogs and trendlines that look extremely familiar; warning that the convergence of all these signals is notable and suggest “something comparable to 1929“. Unable to get a word in edgeways, Santelli is more intrigued by DeMark’s call on precious metals as he notes with downside limited, there is “a big move coming” for gold to the upside in 2014. Precious metals prices started to accelerate as POMO started (and again when it ended) and are extending the gains post DeMark (Silver +4% from early lows).

 

DeMark on the equity market analogs and Gold’s coming big move…

 

As we noted previously, the Ghost of 1929 is re-appearing in many signals.

 

 

and the longer-term trendlines are converging…unless… it is different this time…

 

Precious Metals are shifting notably today with Silver surging 2.7%!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/E5XPbqBjNmw/story01.htm Tyler Durden

Despite numerous “13s”, infamous technical analyst Tom DeMark tells Rick Santelli, the Fed’s liquidity pump has negated every one of these ‘potential sell’ signals and stocks have “unusually” kept going. DeMark goes on to note several analogs and trendlines that look extremely familiar; warning that the convergence of all these signals is notable and suggest “something comparable to 1929“. Unable to get a word in edgeways, Santelli is more intrigued by DeMark’s call on precious metals as he notes with downside limited, there is “a big move coming” for gold to the upside in 2014. Precious metals prices started to accelerate as POMO started (and again when it ended) and are extending the gains post DeMark (Silver +4% from early lows).

 

DeMark on the equity market analogs and Gold’s coming big move…

 

As we noted previously, the Ghost of 1929 is re-appearing in many signals.

 

 

and the longer-term trendlines are converging…unless… it is different this time…

 

Precious Metals are shifting notably today with Silver surging 2.7%!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/E5XPbqBjNmw/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

Though still a week shy of its centennial anniversary, the US Federal Reserve will hold a celebration this afternoon in Washington DC.

Just imagine the scene – a bunch of current and former central bankers slapping each other on the back, congratulating one another for a job well done over the last 100 years.

Of course, you and I know this is total nonsense… as is the concept of our modern monetary system in which we award total control of the money supply to a tiny central banking elite.

Human beings are fallible. We are not gods. Yet we practically deify central bankers and entrust them with the power to manipulate markets, control prices around the world, and effectively dominate the economy.

This system has proven to be foolish and destructive.

While the Fed engages in its self-aggrandizement this afternoon, there is another far more important anniversary today – the Boston Tea Party.

It was this day in 1773 that dozens of men dumped 342 chests of tea from 3 ships into the water. But what a lot of people don’t realize is that it started with bankers.

In 1771, London banker Alexander Fordyce of the banking house Neal, James, Fordyce and Down thought himself infallible too.

Fordyce had made a fortune as a speculator, and he enjoyed his opulent wealth. He held magnificent estates in Surrey, Roehampton, and Scotland, and once blew 14,000 pounds (several million dollars today) running for parliament.

There was only one problem: Fordyce began making his bets using other people’s money. And when his bet on the East India Company didn’t work out, Fordyce’s bank used customer deposits to cover their losses.

By June 1772, the bank could no longer keep up the charade. And within days their collapse caused a cascade of other bank failures as far as Edinburgh and Holland.

With a crisis unfolding, the government forced the central bank to intervene in a way that was eerily similar to the 2008 financial crisis.

Just like 2008, too-big-to-fail companies got bailed out… including the East India Company itself. The East India Company was a bit like General Motors a few years ago– it was obvious they were in financial straits.

And as part of the bailout, the British parliament soon passed the Tea Act– an attempt to flood the colonies with the East India Company’s stockpiles of excess tea.

The Tea Act had another purpose, though– to assert parliament’s right to tax the colonies. And this is what ultimately led to the Tea Party on December 16, 1773.

John Adams wrote in his diary that the destruction of the tea was ‘daring’ and ‘intrepid’, and that to ignore the Tea Act would be like submitting “to Egyptian taskmasters, to [burdens], Indignities, to Ignominy, Reproach and Contempt, to Desolation and Oppression, to Poverty and Servitude.”

Britain’s harsh reaction to the Tea Party further escalated tensions with the colonists, and it wasn’t long afterward that the first shots were fired.

Given the prominent role of bankers and bailouts in the American Revolution, it’s ironic that the Federal Reserve has chosen to hold its centennial celebration today.

And as they all slap each other on the back today extolling the Fed’s ‘successes’, one can only hope that the arrogance and pomposity of the current system will lead to a new revolution– this time a revolution of the monetary system and a return to the principles of sound money.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/h9h7T-xUL-w/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

Though still a week shy of its centennial anniversary, the US Federal Reserve will hold a celebration this afternoon in Washington DC.

Just imagine the scene – a bunch of current and former central bankers slapping each other on the back, congratulating one another for a job well done over the last 100 years.

Of course, you and I know this is total nonsense… as is the concept of our modern monetary system in which we award total control of the money supply to a tiny central banking elite.

Human beings are fallible. We are not gods. Yet we practically deify central bankers and entrust them with the power to manipulate markets, control prices around the world, and effectively dominate the economy.

This system has proven to be foolish and destructive.

While the Fed engages in its self-aggrandizement this afternoon, there is another far more important anniversary today – the Boston Tea Party.

It was this day in 1773 that dozens of men dumped 342 chests of tea from 3 ships into the water. But what a lot of people don’t realize is that it started with bankers.

In 1771, London banker Alexander Fordyce of the banking house Neal, James, Fordyce and Down thought himself infallible too.

Fordyce had made a fortune as a speculator, and he enjoyed his opulent wealth. He held magnificent estates in Surrey, Roehampton, and Scotland, and once blew 14,000 pounds (several million dollars today) running for parliament.

There was only one problem: Fordyce began making his bets using other people’s money. And when his bet on the East India Company didn’t work out, Fordyce’s bank used customer deposits to cover their losses.

By June 1772, the bank could no longer keep up the charade. And within days their collapse caused a cascade of other bank failures as far as Edinburgh and Holland.

With a crisis unfolding, the government forced the central bank to intervene in a way that was eerily similar to the 2008 financial crisis.

Just like 2008, too-big-to-fail companies got bailed out… including the East India Company itself. The East India Company was a bit like General Motors a few years ago– it was obvious they were in financial straits.

And as part of the bailout, the British parliament soon passed the Tea Act– an attempt to flood the colonies with the East India Company’s stockpiles of excess tea.

The Tea Act had another purpose, though– to assert parliament’s right to tax the colonies. And this is what ultimately led to the Tea Party on December 16, 1773.

John Adams wrote in his diary that the destruction of the tea was ‘daring’ and ‘intrepid’, and that to ignore the Tea Act would be like submitting “to Egyptian taskmasters, to [burdens], Indignities, to Ignominy, Reproach and Contempt, to Desolation and Oppression, to Poverty and Servitude.”

Britain’s harsh reaction to the Tea Party further escalated tensions with the colonists, and it wasn’t long afterward that the first shots were fired.

Given the prominent role of bankers and bailouts in the American Revolution, it’s ironic that the Federal Reserve has chosen to hold its centennial celebration today.

And as they all slap each other on the back today extolling the Fed’s ‘successes’, one can only hope that the arrogance and pomposity of the current system will lead to a new revolution– this time a revolution of the monetary system and a return to the principles of sound money.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/h9h7T-xUL-w/story01.htm Tyler Durden

As we predicted in April of 2012, the most important pillar of a self-sustaining, “virtuous” US recovery – investment in future growth through capital spending – has been missing and will be missing as long as the Fed’s intervention policies in the economy provide shareholders (and management teams) with a far quicker way of generating returns by using excess cash flow to buy back stock and boost dividends (in the process keeping activist shareholders happy). And who can blame them: in an age of instant gratification, shareholders care about cheap-credit funded cash now, not decades from now. Needless to say, employees end up suffering the most since without revenue growth, companies are forced to keep trimming overhead which explicitly means firing more workers just to match Wall Street’s (declining) EPS consensus.

Since that article our observations were proven correct, and now that the CapEx drought has become a mainstream topic, it bears reminding that this phenomenon will continue indefinitely, and certainly as long as CapEx hurdle rates are far greater than issuing a low-yielding bond and using the proceeds to reward shareholders: indeed, this shareholders friendly topic has been perhaps the dominant theme of 2013 when activist investors stormed to the forefront once again, most prominently in the face of Carl Icahn, and have managed to force even lower revenue growth prospects by levering companies with debt loads that are now greater than during the prior credit bubble peak.

Naturally, one after another bank has come out once again, as they did, and is predicting that the great deferred CapEx renaissance is upon us… any day now. Unfortunately, it isn’t. And just to confirm this, here is Archer Daniels Midland summarizing the company’s plans for its 2014 free cash flows. In short: they don’t involve any US growth CapEx spending at all.

“Our continued strong cash flow generation and our confidence in the future earnings power of our company allow us to significantly increase our quarterly dividend,” said Patricia Woertz, ADM’s chairman and CEO. “Historically, we have paid out approximately 20 to 25 percent of earnings; going forward we will aim for a range of 25 to 30 percent, thereby allowing shareholders to participate more directly in the earnings stream of the company.”

 

The company also announced that it intends to buy back from its shareholders 18 million shares of its stock by the end of 2014 to fully mitigate the dilutive impact of equity units converted in 2011 and compensation and benefit plan issuances in 2013 and 2014. At current prices, this would represent about $725 million. To the extent that ADM’s credit metrics improve throughout the year and the company receives significant proceeds from asset sales, the company will consider further distributions to shareholders later in 2014 in the context of its capital allocation strategy.

 

Woertz also provided some detail on the company’s 2014 business plans, noting that from the cash flows to be generated in 2014, it expects to invest about $1.4 billion in capital projects, with the majority of the growth capital invested outside the U.S., and will return about $1.4 billion to shareholders in the form of the higher dividends and the repurchase of 18 million shares.

 

“We will continue to take a balanced approach to capital allocation.”

So balanced that growth capital spending in the US is not even on the radar. Unfortunately, ADM is indicative of what the capital spending plans of the the vast majority of US-based companies for 2014 look like. But any day now though…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/D-dWDJHP_4Q/story01.htm Tyler Durden

As we predicted in April of 2012, the most important pillar of a self-sustaining, “virtuous” US recovery – investment in future growth through capital spending – has been missing and will be missing as long as the Fed’s intervention policies in the economy provide shareholders (and management teams) with a far quicker way of generating returns by using excess cash flow to buy back stock and boost dividends (in the process keeping activist shareholders happy). And who can blame them: in an age of instant gratification, shareholders care about cheap-credit funded cash now, not decades from now. Needless to say, employees end up suffering the most since without revenue growth, companies are forced to keep trimming overhead which explicitly means firing more workers just to match Wall Street’s (declining) EPS consensus.

Since that article our observations were proven correct, and now that the CapEx drought has become a mainstream topic, it bears reminding that this phenomenon will continue indefinitely, and certainly as long as CapEx hurdle rates are far greater than issuing a low-yielding bond and using the proceeds to reward shareholders: indeed, this shareholders friendly topic has been perhaps the dominant theme of 2013 when activist investors stormed to the forefront once again, most prominently in the face of Carl Icahn, and have managed to force even lower revenue growth prospects by levering companies with debt loads that are now greater than during the prior credit bubble peak.

Naturally, one after another bank has come out once again, as they did, and is predicting that the great deferred CapEx renaissance is upon us… any day now. Unfortunately, it isn’t. And just to confirm this, here is Archer Daniels Midland summarizing the company’s plans for its 2014 free cash flows. In short: they don’t involve any US growth CapEx spending at all.

“Our continued strong cash flow generation and our confidence in the future earnings power of our company allow us to significantly increase our quarterly dividend,” said Patricia Woertz, ADM’s chairman and CEO. “Historically, we have paid out approximately 20 to 25 percent of earnings; going forward we will aim for a range of 25 to 30 percent, thereby allowing shareholders to participate more directly in the earnings stream of the company.”

 

The company also announced that it intends to buy back from its shareholders 18 million shares of its stock by the end of 2014 to fully mitigate the dilutive impact of equity units converted in 2011 and compensation and benefit plan issuances in 2013 and 2014. At current prices, this would represent about $725 million. To the extent that ADM’s credit metrics improve throughout the year and the company receives significant proceeds from asset sales, the company will consider further distributions to shareholders later in 2014 in the context of its capital allocation strategy.

 

Woertz also provided some detail on the company’s 2014 business plans, noting that from the cash flows to be generated in 2014, it expects to invest about $1.4 billion in capital projects, with the majority of the growth capital invested outside the U.S., and will return about $1.4 billion to shareholders in the form of the higher dividends and the repurchase of 18 million shares.

 

“We will continue to take a balanced approach to capital allocation.”

So balanced that growth capital spending in the US is not even on the radar. Unfortunately, ADM is indicative of what the capital spending plans of the the vast majority of US-based companies for 2014 look like. But any day now though…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/D-dWDJHP_4Q/story01.htm Tyler Durden

Submitted by James Howard Kunstler of Kunstler.com,

The so-called Volker Rule for policing (ha!) banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history.

First of all (and there’s a lot of all), this rule comes in the form of nearly 1,000 pages of incomprehensible legalese embedded in what was already a morbidly obese Dodd-Frank Wall Street Reform (ha!) and Consumer Protection (ha!) Act of 2012 that clocked in at 2000 pages, not counting the immense rafts of mandated interpretations and adumbrations, of which the new Volker Rule is but one. These additions were required because the Dodd-Frank Act itself did not really spell out the particulars of enforcement but rather left it to the regulatory agencies to construct the rules — which they did with “help” of lobbyist-lawyers furnished by the banks themselves. That is, the lobbyists actually wrote the rules for Dodd-Frank and everything in it, which means the banks wrote the rules. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.

The Volcker Rule was a lame gesture toward restoring the heart of the Glass-Steagall provisions of the Banking Act of 1933, which were repealed in 1999 in a cynical effort led by Wall Street uber-grifter Robert Rubin and his sidekick Larry Summers, who served serially as US Treasury Secretaries under Bill Clinton. Glass Steagall was passed in Congress following revelations of gross misconduct among bankers leading up to the stock market crash of 1929. The main thrust of Glass Steagall was to mandate the separation of commercial banking (deposit accounts + lending) from investment banking (underwriting and trading in securities). The idea was to prevent banks from using money in customer deposit accounts to gamble in stocks and other speculative instruments. This rule was designed to work hand-in-hand with the Federal Deposit Insurance Corporation (FDIC), also created in 1933, to backstop the accounts of ordinary citizens in commercial banks. The initial backstop limits were very modest: $2,500 at inception, and didn’t rise above $40,000 until 1980. Investment banks, on the other hand, were not backstopped at all under Glass-Steagall, since their activities were construed as a form of high-toned gambling.

The Glass Steagall Act of 1933 was about 35 pages long, written in language that was precise, clear, and succinct. It worked for 66 years. Banking during those years was a pretty boring business, commercial banking especially. It operated on the 3-6-3 principle — pay 3 percent interest on deposits, lend at 6 percent, and be out on the golf course at 3 p.m. Bankers made a nice living but nothing like the obscene racketeering profits engineered by the looting operations of today. Before 1980, the finance sector of the economy was about 5 percent of all activity. Its purpose was to allocate precious capital to new productive ventures.

As American manufacturing was surrendered to other countries, there were fewer productive ventures for capital to be directed into. What remained was real estate development (a.k.a. suburban sprawl) and finance, which was the enabler of it. Finance ballooned to 40 percent of the US economy and the American landscape got trashed. The computer revolution of the 1990s stimulated tremendous “innovation” in financial activities. Much of that innovation turned out to be new species of swindles and frauds. Now you understand the history of the so-called “housing bubble” and the crash of 2008. The US never recovered from it, and all the rescue attempts in the form of bail-outs, quantitative easing, zero interest rates, have turned into rackets aimed at papering-over this national failure to thrive. It is all ultimately linked to the larger story of industrialism and its relationship with the unique, finite, fossil fuel resources that the human race got cheaply for a few hundred years. That story is now winding down and we refuse to pay attention to the reality of it.

The absurdity of Dodd-Frank and the Volcker Rule in the face of that is just another symptom of that tragic inattention. The baroque prolixity of these statutes must have been fun for the lawyers to construct — thousands of pages of incantatory nonsense aimed at confounding any attempt to enforce decent conduct among bankers and their supposed regulators — but it does nothing to really help us move into the next phase of history.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0M1I7ANIga4/story01.htm Tyler Durden

Submitted by James Howard Kunstler of Kunstler.com,

The so-called Volker Rule for policing (ha!) banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history.

First of all (and there’s a lot of all), this rule comes in the form of nearly 1,000 pages of incomprehensible legalese embedded in what was already a morbidly obese Dodd-Frank Wall Street Reform (ha!) and Consumer Protection (ha!) Act of 2012 that clocked in at 2000 pages, not counting the immense rafts of mandated interpretations and adumbrations, of which the new Volker Rule is but one. These additions were required because the Dodd-Frank Act itself did not really spell out the particulars of enforcement but rather left it to the regulatory agencies to construct the rules — which they did with “help” of lobbyist-lawyers furnished by the banks themselves. That is, the lobbyists actually wrote the rules for Dodd-Frank and everything in it, which means the banks wrote the rules. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.

The Volcker Rule was a lame gesture toward restoring the heart of the Glass-Steagall provisions of the Banking Act of 1933, which were repealed in 1999 in a cynical effort led by Wall Street uber-grifter Robert Rubin and his sidekick Larry Summers, who served serially as US Treasury Secretaries under Bill Clinton. Glass Steagall was passed in Congress following revelations of gross misconduct among bankers leading up to the stock market crash of 1929. The main thrust of Glass Steagall was to mandate the separation of commercial banking (deposit accounts + lending) from investment banking (underwriting and trading in securities). The idea was to prevent banks from using money in customer deposit accounts to gamble in stocks and other speculative instruments. This rule was designed to work hand-in-hand with the Federal Deposit Insurance Corporation (FDIC), also created in 1933, to backstop the accounts of ordinary citizens in commercial banks. The initial backstop limits were very modest: $2,500 at inception, and didn’t rise above $40,000 until 1980. Investment banks, on the other hand, were not backstopped at all under Glass-Steagall, since their activities were construed as a form of high-toned gambling.

The Glass Steagall Act of 1933 was about 35 pages long, written in language that was precise, clear, and succinct. It worked for 66 years. Banking during those years was a pretty boring business, commercial banking especially. It operated on the 3-6-3 principle — pay 3 percent interest on deposits, lend at 6 percent, and be out on the golf course at 3 p.m. Bankers made a nice living but nothing like the obscene racketeering profits engineered by the looting operations of today. Before 1980, the finance sector of the economy was about 5 percent of all activity. Its purpose was to allocate precious capital to new productive ventures.

As American manufacturing was surrendered to other countries, there were fewer productive ventures for capital to be directed into. What remained was real estate development (a.k.a. suburban sprawl) and finance, which was the enabler of it. Finance ballooned to 40 percent of the US economy and the American landscape got trashed. The computer revolution of the 1990s stimulated tremendous “innovation” in financial activities. Much of that innovation turned out to be new species of swindles and frauds. Now you understand the history of the so-called “housing bubble” and the crash of 2008. The US never recovered from it, and all the rescue attempts in the form of bail-outs, quantitative easing, zero interest rates, have turned into rackets aimed at papering-over this national failure to thrive. It is all ultimately linked to the larger story of industrialism and its relationship with the unique, finite, fossil fuel resources that the human race got cheaply for a few hundred years. That story is now winding down and we refuse to pay attention to the reality of it.

The absurdity of Dodd-Frank and the Volcker Rule in the face of that is just another symptom of that tragic inattention. The baroque prolixity of these statutes must have been fun for the lawyers to construct — thousands of pages of incantatory nonsense aimed at confounding any attempt to enforce decent conduct among bankers and their supposed regulators — but it does nothing to really help us move into the next phase of history.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0M1I7ANIga4/story01.htm Tyler Durden

Whether an unintended consequence of the push for over-consumption of the Chinese consumer or simply a man hitting his breaking point (as many Americans – we are sure – have considered in the last few weeks), 38-year-old Tao Hsiao lept to his death from a 7th story walkway in a Jiangsu mall after his girlfriend would not stop Christmas shopping. The 5-hour marathon ‘consumption’ ended badly after Tao’s girlfriend said he was “spoiling Christmas,” when he chided her that she “already had enough shoes…it was pointless buying more.” He died on impact, and no one else was injured. It is unknown if his girlfriend continued shopping…

 

Via Shanghaiist.com,

When his girlfriend insisted on prolonging their Christmas shopping marathon, 38-year-old Tao Hsiao leapt from a seventh-story walkway and killed himself in a Jiangsu shopping mall.

Tao and his girlfriend (whose name has not been released) had reportedly been in the Golden Eagle International Shopping Center, in Xuzhou, for some five hours before a rather routine relationship scuffle escalated drastically out of proportion.

Tao told his girlfriend that “she already had enough shoes, more shoes that she could wear in a lifetime and it was pointless buying any more,” according to a witness. Tao was then accused of “spoiling Christmas,” and the shouting match likely would have continued had Tao not chosen that moment to hurl himself over the seventh-story balcony.

Tao fell through elaborate christmas decorations and crashed into a shopping stall on the mall’s ground level, injuring no one but himself in the process. He died on impact.

 

It brings a whole new meaning to the term “shop til you drop”…but Tao’s last words do ring horribly true in this age of over-consumption

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/psRYalyCks8/story01.htm Tyler Durden