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DrumBeat: August 25, 2007
Posted by Leanan on August 25, 2007 - 9:36am
BP’s green drive dangles axe over $3.8bn US refinery development
To rebuild its environmental image in America, BP has refused to take up the increased pollution limits it has been offered in order to upgrade a refinery near Chicago. But unless there are unexpected technological breakthroughs, the $3.8bn plan will be scrapped, and a US refining capacity shortage will grow more acute.
South Asia vegetable oil demand firm, imports seen curbed
South Asia’s demand for vegetable oils is expected to surge as much as 10 percent in the new oil year and outstrip production, but rising global prices may crimp imports as poor consumers switch to cheaper home-grown oils.
Japan - Why Worry? Japan's Nuclear Plants at Grave Risk From Quake Damage
In the 40 years that Japan had been building nuclear plants, seismic activity was, fortunately or unfortunately, relatively quiet. Not a single nuclear facility was struck by a big quake. The government, along with the power industry and the academic community, all developed the habit of underestimating the potential risks posed by major quakes.
Japan - Eco-home is where heart is: Such houses cut energy consumption, but out of reach for many
Attention is increasingly focused on environmentally friendly eco-houses, which are designed to reduce energy consumption. But such dwellings remain out of reach for the general public, as government measures to promote such houses are insufficient. Let us examine the cost and energy-saving effect of eco-houses by looking into a few examples built by ordinary people.
First the bad news: With oil prices rising and energy demand from emerging economies ballooning, no single energy source will emerge to replace fossil fuels.The good news is that that's OK. Even if nothing ever rules the world like oil did last century, different regions will adapt by tapping the technologies and energy sources that suit them best.
Hurricane Dean’s Wake: Death And Cold Water
The, er, cool thing about hurricane wakes is that some scientists think that they’re critical to the redistribution of ocean heat in the direction of the planet’s poles. We can see the cold wake at the surface; but there’s also a warm anomaly below the surface. In order to restore equilibrium, then, the oceans presumably have to redistribute that additional sub-surface heat pole-ward in the direction of regions where waters are cooler.What’s more, that added heat, transported through the oceans, may be enough to have a significant effect on the climate. That’s especially so if hurricanes intensify and so drive more warm water down into the ocean depths — more heat could then get transported to the poles, leading to a disproportionate warming of the higher latitudes in relation to the equatorial ones.
Myanmar Detains at Least 63 Activists
Myanmar's military junta has detained at least 63 activists who protested massive fuel-price hikes, state media reported Saturday as the government pursued its clampdown on the increasingly daring demonstrations.
Myanmar to put activists on trial
Thirteen pro-democracy activists arrested earlier this week in military-ruled Myanmar are being interrogated and legal action will be taken against them, a state-owned newspaper has reported.The New Light of Myanmar said on Saturday that the detainees, most of them leaders of a student uprising suppressed in 1988, were being accused of "harming the stability of the state, community peace and rule of law" under an act that carries a penalty of up to 20 years in jail.
Current global challenges and alternative energy futures for South Africa
The combined effect of depletion of global oil and natural gas reserves, climate change and global monetary imbalances and financial instability is likely to have significant impacts on the global and South African economies throughout the 21st Century.
Carmakers fight fuel-efficiency bill
As Congress gears up for a fall debate on whether to increase automobile fuel economy, lobbyists for the auto industry are working with chambers of commerce to support less stringent standards.
Region's recycling in China prompts probe
"The Chinese won't take anything they can't make money at," Smith said. "So if they're taking mixed plastics, they're sorting it over there, and reusing the plastic as something."If plastics sent to China can't be profitably recycled, "the other option is to burn it as a fuel," he said. "Nobody is going to take anything to China to throw it out."
State DOT becoming scooter boosters
Higher gasoline prices have driven so many Connecticut residents to fuel-efficient motorized scooters that the state Department of Transportation has decided to buy 35 of them for rider-training purposes.
The 50% MPG Gain That Detroit Won't Touch
Gerald Rowley keeps his dreams in his garage. There, on a quiet street in this southeast Florida town, he stores an aging Mazda 626 sedan, cream white with a worn interior, unremarkable in nearly all respects with the exception of a precisely machined, one-gallon steel box in the trunk connected to fuel lines leading to a gasoline vaporizing device under the hood.The steel box holds one gallon of regular unleaded gasoline. The device beneath the hood is called the VFS, Vaporizing Fuel System--not the most elegant name, but one considerably more acceptable and descriptive than the "Vapster" badge Rowley originally stuck on his invention.
Smart car creator now turns his attention to fuel cell engines
The man behind the micro-sized Smart car, the head of Swiss watch group Swatch, wants to develop a new "green" vehicle powered by fuel cell technology, a company spokesperson said yesterday.
How Corn Ethanol Could Pollute the Bay
Despite rising food prices, it seems that nearly everyone is turning to corn-based ethanol as their choice for alternative fuel. Hidden behind these headlines, though, is an equally important but less visible cost: water pollution.Corn is a "leaky" crop, losing more nitrogen per acre than most other crops. In the Washington region, much of this excess nitrogen ends up polluting the Chesapeake Bay and robbing fish, crabs and oysters of oxygen.
EATING PROFITS: Restaurants weigh whether to jack up menu prices amid rapid rise in food bills
First dairy prices shot up. Then meat and seafood followed suit. Now higher grain costs are causing the cost of bread to rise.It all adds up to steeper prices on the menu, and small independent restaurants are feeling the pinch. They’re weighing whether to eat the costs or try to pass them along to diners.
Lebanon: EDL announces further power cuts due to breakdown
The announcement added fuel to the fire. The Lebanese public, already enraged by the continuous electricity outages in their neighborhoods, were angered upon hearing EDL's announcement.
Shell accuses Argentina of discrimination in fuel battle
Anglo-Dutch oil company Royal Dutch/Shell, whose top executives are under threat of arrest, accused the Argentine government of "discrimination" in a page-wide advert published Friday in leading newspapers."The discrimination Shell is being subjected to is inadmissible," said company president Juan Aranguren in the statement, adding that the firm was unfairly blamed and fined for a diesel fuel shortage in the country.
Congo Waits Skeptically For The Lights to Come On
From a mud hut under the world's longest high-tension power line, Tshisumpa Nvita can see the rusting remains of a power station that, for a few months 30 years ago, brought electricity to this corner of Congo.Like many local villagers, the 76-year-old was hired as a temporary worker on the U.S.-funded Cold War-era project.
But when work was completed, the lights went out again.
"We hoped it would give us power too. It wasn't until they finished that they said none of this was for us. It was for the mining companies," Nvita said.
Mexican Lawmakers in Talks to Reduce Pemex Taxes
Mexico's ruling party has agreed to include tax cuts for state-oil monopoly Petroleos Mexicanos as part of President Felipe Calderon's tax overhaul package so long as the reductions are gradual, Senator Gustavo Madero said.
NTPC plans to become coal producer
State-owned National Thermal Power Corp. has plans to become the second-largest producer of coal in India after Coal India Ltd.The company said it would achieve this target in the next five years. The coal consumption of the country's major power generator is estimated to increase to 185 million to 200 million tons annually by 2017. It has planned to meet up to 25 percent of its total requirement from its internal sources over the next 10 years, The Business Line newspaper reported Friday.
Australia: The great desert dream
A farmer-frontiersman. A trailblazer for what has been described as "Australia's greatest 21st century adventure": to transform the Tropical North; to bring the southern farmers to the water, rather than the northern water to the farmers; to turn the Top End into a major exporter of food and, yes, water to Asia.
China's oil officials intervene to ensure stable supplies throughout the country
The number of private oil companies from southern China that are seeking fuel from sources in the north of the country due to local supply shortfalls has fallen and prices have eased slightly after the National Development and Reform Commission (NDRC) ordered the country's major refiners last month to ensure stable fuel supplies. Lower international crude oil prices have also led to a drop in fuel hoarding, state media reported today.
Gazprom seeks BP's help to break into American energy supply
Russia's Gazprom is trying to muscle its way into the American energy market by encouraging BP to share a stake in its liquefied natural gas operation in Trinidad, which supplies the US.Gazprom, the world's largest gas producer, has already secured a 25% share of the wholesale gas market in Europe - something that has caused widespread political unease - and wants to increase its influence in the US.
In March, oil-field services giant Halliburton HAL announced it was moving its headquarters to Dubai, United Arab Emirates.The new digs puts the behemoth right in the middle of its fastest-growing business, providing oil-field technology services and products to develop oil and natural gas reserves in the Middle East, Africa and Asia.
Last year, the Eastern Hemisphere accounted for almost 40% of Halliburton's $13 billion in oil-field services revenue.
Energy shortages punish Argentine July industrial production
Argentina’s July industrial production grew 2.7% over the same month a year ago and actually declined 2.1% compared to June 2007 because of the energy crisis which forced many factories to reduce production, according to the latest release from the country’s Statistics and Census Office, Indec.
EU gearing up for battle over splitting up energy groups
The European Commission, eager to fire up Europe's energy markets with more competition, is drafting plans to break up big integrated gas and power majors despite stiff opposition from many countries.
South Africa: Copper Thieves, an Abattoir And Coal Mining Threaten Lake District
However, the most serious threat to the future of Lake Chrissie and the surrounding wetlands may not come from sewage spills or illegal dumping, but from mining.Hundreds of mining companies have applied for licences to begin digging opencast coal mines in the area. As international coal prices surge, even small scale mining can become a lucrative business.
Court keeps claims for energy refunds alive
The Federal Energy Regulatory Commission must reconsider its denial of refunds to wholesale customers of Powerex Corp. and other electric companies in the Pacific Northwest during the 2000-01 California energy crisis, a federal appeals court ruled Friday.
TREC says that we could meet the entire world's energy needs by covering a fraction of the world's deserts -- just 0.5 percent -- with concentrated solar power plants. It is now working with governments and businesses to make this dream a reality.
War Without End - Part V: Inexorable Forces
One of the most insightful thinkers in this area, who early on saw that the end of light sweet crude not only had economic consequences, but also political, and cultural ones, was Stirling Newberry. Prior to the domestic peak oil production, and subsequent decline, U.S. interests in the Middle-East were still economically important, but mainly for U.S. based oil companies. When the U.S. became a net importer of crude, it became a matter of national importance. It was also at the root of the trade and current account deficits that would plague the U.S. from then on.
Curfew Extended in Nigerian Oil City
Authorities in Nigeria have extended a dusk-to-dawn curfew in Port Harcourt for a further week.Tight controls triggered by gun battles between rival gangs have been in effect in the oil-producing city since last Friday. Nigerian troops have raided hideouts of suspected gang leaders, sparking more gunbattles.
Alberta Oil, Gas Land Sales Revenues Slump in 2007
Alberta's revenues from selling exploration rights have slumped more than 60% so far this year, knocked by low natural gas prices, rising oil sands development costs and weak equity markets, the Globe and Mail reported Friday.
Africa: The Global War On Oil Now Makes Its Way to the Continent
In Nigeria and Angola, oil has been a source of internecine warfare and mafia-type crime on a massive scale even by African standards. In less troubled oil producing countries like Gabon, Guinea and Cameroon, national affairs are conducted by boisterous kleptomaniacs who use the proceeds only for personal gain.
OPEC Secretary General to Visit Angola
At the invitation of Angolan Oil Minister Desiderio Costa, Abdalla Salem El-Hadri, who will arrive in the Angolan capital Luanda on Saturday, will lead a team of OPEC technicians to discuss with Angola's oil industrial authorities issues like the OPEC's Reference Package Price including the Angolan crude oil.
Congress may mull 'carbon tax' on McMansions
To add to mortgage meltdown miseries, the credit panic, plunging home sales and rising foreclosures, here's a new worry: a proposed cutoff of mortgage-interest tax deductions for all houses with more than 3,000 square feet.
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Why the US is Headed for Global Bankruptcy (and lose our ability to buy oil on the foreign markets)
Yes, there will be deflation in assets massively inflated by the easy money(as experienced by the rest of the world) but the US will then go into hyperinflation and be priced out of the foreign markets.(including and especially oil) When we can no longer afford to buy 25% of the oil produced, there will be plenty for the rest of the world. When you are 862 trillion dollars in debt and no one will take a check anymore, you're pretty much screwed.
http://cid-yama.livejournal.com/29250.html
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
Which is why I expect Bush/Cheney to come out of the "Peak Oil Closet" and admit that the US is in Iraq to maintain control of (or "safeguard") Middle East oil reserves. Whether we can maintain said control is another matter.
WT,
You really think that will help them?
I think that most people would be surprised at the number of Americans who think that it is a swell idea for us to seize foreign oil fields--at least until they or their family members are sent to fight and die to keep the oil flowing.
A conservative editorial writer for the Dallas Morning News has been becoming more and more critical of the Bush administration--but he really started unloading on the Bushies after his brother-in-law, who is in the reserves, was recently sent to Iraq. I wonder if his wife "encouraged" his continued change in his position on Iraq.
I think shrub/vader are getting closer to 'coming out' about Iraq and our oil woes. Yesterday I saw a portion of an ad on CNN for the military and written across the ad was the phrase 'We Must Win.' First time I have seen that one but as usual I had the sound muted. Even if this administration did come out and say that 'we must have Iraqi oil' I dont believe that shrub/vader are competent enough to eliminate the insurgents and get huge quantities of oil flowing from Iraq to US ports.
I can't imagine any administration ever "coming out" about oil & Iraq. It would be as if today's administration said "we killed the Native Americans to take their land." Everyone knows it's a fact, but no administration will ever say it in public, because it makes us feel guilty. :(
America's goal in Iraq, by the way, is not to eliminate the insurgents. The goal is to let them fight each other for control of the non-oil-producing provinces.
With no strong central government, the Iraqi people have less bargaining power over oil.
This is strange stuff.
I agree that many Americans have an abberrant sense of entitlement. This raw greed is always linked with noble ideas asbout American Exceptionalism -- we are the ones who know how to do things and can be trusted to be fair.
This American Exceptionalism is never far from the idea that we are chosen by God to lead the world into either a Utopian (pre?)Kingdom of Heaven future or into a Dystopian Apocalypse.
The US Military recently cancelled or altered a "Military Crusade" by a Christian Fundamentalist group that obviously offended many Americans as well as any Muslim who would have heard of it.
American Fascism requires a meta-narrative with which to conduct Resource War in drag. The meta-narrative must hook enough people in to provide political momentum for the increasing brutality with which the war is carried out, and also to cover increasingly oppressive policies at home.
Ultimately, "we the people" must be persuaded that we are in a long emergency which requires that we suspend -- or transcend? -- all of the old notions embodied in the US Constitution and in agreements like the Geneva Convention.
I think that oil will be a very big overt issue, but it will be clothed in arguemnts that fuse the oil war with a reliouss and cultural narrative to expand the powers of the political Establishment which dominates both big paties in the USA.
"Maintaining control" will be an increasingly brutal and essential matter.
You certainly hit that nail on the head. I don't like having a doomsday cult driving our foreign policy.
Beggar, I really think you've got a handle on it. You can see the constant probing for a narrative that will sell, as the excuses and explanations twist and change. There are plenty of people who would be fine with "look, we need the oil, it's us or them", but probably not quite enough - or it is still too soon. It either needs a tastier icing put on, or life will have to get a lot harder before enough people willingly take the final step (final step, because most of the changes are already complete). But I have no doubt we will. I just cannot see us turning back now - what could happen that would drive it?
Right. And as SCT noted, this amounts to being run by a "doomsday cult" whether the NeoCons are secularists or religious fanatics. Ain't nobody going to win another world war.
When things get really tough, the Religious and Cultural Meta-narrative gets easier to sell, because people are more desperate to believe that "we" are really in the right.
Many may know at some level what is going on already, but always many people will need a story to tell themselves that rationalizes atrocities into necessary acts of heroism.
beggar,
I'm as left wing as they come and protested the Iraq war 8 times before the war of conquest started. But, realisticly, the conservatives are right about the troops being necessary. They made it that way. After the torture at Abu Ghraib, and the kidnapping of "terrorists" so they can be tortured and "disappeared" in foreign prisons, do you really expect the US to be able to get back in the Persian Gulf after the US withdraws? If you were moslem, would you reguard the threats against Iran as proof that the US government hates Islam? I know I sure would.
If we leave I expect an immediate embargo by the oil producers of the US. We import 68% of the oil we use, and without oil the US military will collapse in a few months, so its a non-violent way to stop the U.S.. That's why Hillary Clinton supports the war, IMHO, plus Bill Clinton will be tried as a war criminal too after 2 million Iraqi's died in the invasion and air strikes between the two Persian Gulf Wars. That means with the 800,000 dead according to the British medical journal, the Lancet, we have killed close to 3 million people for this.
I still think we have to end the war, but we already have a huge Karmic debt to pay. The only hope is to start mitigation now, on a personal basis or we will all have huge personal problems.
So get a hybrid, and start work for Alan Drake's electrification of rail program right now. Its the only hope any of us has to survive this with any kind of prosperity. Bob Ebersole
Bob,
Even if we left Iraq, CENTCOM would have overwhelming military presence in the Persian Gulf. Here's a map:
http://www.globalsecurity.org/military/facility/centcom.htm
Every Iraqi tanker of oil leaving the Persian Gulf floats past about a dozen U.S. Navy and Air Force coastal bases before it reaches the ocean. None of these bases is in Iraq.
If The Middle East embargoed U.S.-bound oil (the U.S. only gets 15% from there) we could easily blockade, sink, or pirate their tankers.
Sounds to me like the actions of a "rogue state".
I am doubtful that the US$ could retain its status as the world's reserve currency under that scenario. And once it is no longer the reserve currency and its value has plunged, then there would be little downside left for the rest of the world to punish us by imposing a total trade embargo on the US (until we cease and desist, pay reparations, and offer up our political and military leadership to the ICC - which won't happen). It woudn't be 100% effective, but it wouldn't have to be. We don't have a big enough military to engage in enough piracy to grab everything we would need to import. Besides, some of those other countries do have navys of their own and would start shooting back.
No, I think if we go down that path then we really are looking at WWIII in our future, followed by NO future worth thinking about.
Sounds like you've been reading "Myths America Lives By" by Richard T. Hughes.
There are always many threads in these big narratives. I wonder if one idea has been that nudging Americans along the path of heavy dependence on oil will make them more willing to back military action in the ME when the time comes. If we had viable alternatives (solar supported PHEVs, solar powered water heaters, solar and wind powered homes), even just enough to offset most of the oil imports, Americans might be inclined to look to those solutions rather than a military solution. By keeping solar, wind, tidal energy, etc. as future solutions it leaves us dependent on oil.
If we started getting a substantial portion of our energy from the sunshine landing on our rooftops and on our deserts their is much less need for adventurism in the ME. No war profits in that.
I have little doubt that Bush/Cheney have full knowledge of Peak Oil. However, this factoid in a very roundabout way runs contrary to my settled opinion:
One of the first bits of advice pretty much any personal finance guru gives is to cut out the $5.00 a day latte habit to get one's expenses under control. (I've always thought that Starbuck's fortunes would be a leading indicator of the coming economic crash.)
However, if TPTB are aware of coming doom, why would they invest in a chain of fancy coffee shops? Using the Carlyle Group as proxy for TPTB, then why did the Carlyle Group buy the Dunkin' Donuts chain last year? Now, Dunkin' Donuts announced this week that they plan on tripling the number of their stores to 15,000 by 2020! (In case you haven't been to one in a while, Dunkin' Donuts is relying more and more on the coffee drinks than on the donuts.)
If I thought we would be reduced to eating rice and beans in 2020, I wouldn't make a big investment to sell more flavored lattes. Or is latte now the opiate of the masses?
I had a coworker who's spouse was a beer salesman. During a recession or hard times, the sales of the more expensive brands went up.
You may not be able to buy a new car or tv, but pricey beer and coffee are a relatively inexpensive treat for those beat down by circumstance.
Of course, a recession is not a depression.
There are going to be both winners and losers. The losers will have guessed wrong. We are seeing lots of future losers in the process of guessing wrong now. Beware of making future forecasts based upon just a few data points.
The coffee and donuts are for all the additional police the US will need. ;)
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
Coffee is probably an excellent investment. Workers who are exhausted and stressed out will be very unwilling to cut back on caffeine intake. There's a reason why it's the most given advice - it's also the hardest to take.
the coming police state will need lots and lots of donut shops. the latte is only a cover.
Who knows, they may want to buy it, improve it, then sell it for a profit before TSHTF.
There is also a global market for these things that you may not know of. Dunkin Donuts recently opened their first stores in Taipei, Taiwan. Young Taiwanese are very eager to spend money on Dunkin Donuts because it is a cosmopolitan and worldly thing to do, comparatively speaking.
The "fast crash" that is possible by 2020 would relate to crashing oil exports as explained by westexas. This would be so horrible, that anyone who really grasps the idea today is likely to quit their job with TPTB and go live in the mountains. So even TPTB have a limited ability to comprehend the scope of the problem.
Oh, I agree this is very possible. I was once browsing a book by a right wing lawyer with a bunch of talking points for arguing with liberals, something like that. He quotes Ann Coulter to the effect that the war is not about oil -- BUT -- if it were, what would be wrong with that? There was a pro-war letter in the local paper a few years ago: it said, yep, it's about oil, let's go get it.
It has been my fear that once the economy tanks and people are really hurting, the endless war will be presented as the solution to several problems. It worked in Germany, although the timing of events there was different.
It worked in Germany, although the timing of events there was different.
If I remember correctly, that did not end well. All their cities turned into rubble, their women raped by Russians.
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
This is where you end up when the philosophy of "the ends justifies the means" becomes dominant and unquestioned. Any means become justifiable in the pursuit of any ends.
It didn't used to be that way. I can remember a time when school children were taught that America isn't like that. "The ends justifies the means" was the mistaken philosophy of dictatorships like Nazi Germany and the Communist USSR, and that was why they did terrible things. The US was different. We were supposedly governed by laws rather than by men - laws based on an absolute standard of right and wrong. Thus, there were things that the US simply did not do, because they were wrong.
It was all a fiction, of course. We never were THAT good. There were plenty of counter-examples where we failed to live up to that standard.
My point is, though, that at a certain basic level the standard still held true. If you asked the average person on the street if the ends always justified the means, if that was a good way to run a society, they probably would have said "no". Thus, while we didn't always live up to that standard, the standard was still there.
Now, apparently, it is totally history. Now we are in a country that is totally governed by the principle of the ends justify the means. Poland/Iraq have territory and resources that you need? That end justifies the means of invasion and conquest. Need to eliminate people opposing your regime? That end justifies locking them up in concentration camps and torturing them. Need to keep a lid on people spreading disloyal and seditious thoughts? That end justifies spying on your own citizens by any technical means possible.
Makes one wonder why we even bothered fighting WWII and doing the cold war thing in the first place. We are becoming what our enemies were.
Excellent post WNC.
Just wish your politicians were stating this in their speeches, your schools discussing it in civics classes and your TV talking heads judging the current government's actions against this standard.
That your country is "becoming what your enemies were" is exactly the reason for the growing level of concern amoung foreign friends and allies.
We have become what we despise and no mistake about that. War criminals in the Whitehouse - who'd have predicted that when we elected Bush?
I really have some doubts about economic data issued by our government. Then again, I continue to receive rediculous mortgage offers via mail and phone. Below are two tales by two Florida newspapers...
http://hosted.ap.org/dynamic/stories/W/WALL_STREET?SITE=FLDAY&SECTION=HO...
story carried in Sat edition of DB News Journal...
'In economic news, the Commerce Department said new home sales rose 2.8 percent in July, after falling 4 percent in June. The increase in July lifted sales to a seasonally adjusted annual rate of 870,000 units. A second report showed that orders for durable goods - those expected to last at least three years - jumped 5.9 percent in July, the biggest increase in 10 months.
The housing report appeared to ease concerns that the U.S. economy might tip into recession because of a skidding housing market and tightening access to credit.'
http://hosted.ap.org/dynamic/stories/M/MORTGAGE_CRISIS_VICTIMS?SITE=FLPA...
story carried in Sat edition Palm Beach Post...
Their troubles began in April 2006 when they refinanced the remaining $207,000 on a 30-year fixed loan to a two-year adjustable rate mortgage so they could pay down hefty obligations on their SUV and pickup truck.
A mortgage broker informed them just before the closing that the remaining debt would be $3,500 more than expected, but they signed anyway.
"We didn't have time to change the terms so we just signed them," Connie said.
About the time the first payment on the new loan came due, a sequence of events left them unable to keep up. First Connie's mother moved out and stopped helping out with mortgage payments. Then her husband Timothy lost his job at a mobile home factory because of the housing industry slump.
Man, those stories are heartbreaking. Especially the woman who put a $100,000 down payment down on a $300,000 mortgage. Obviously, she's not irresponsible or financially illiterate, if she put down that kind of downpayment. And she had doubts about the mortgage, and even refused to sign at first. The broker basically lied to her to get her to sign.
How do those scumbags sleep at night?
"On top of a pile of money, with many beautiful women."
-Rainier Wolfcastle, 1995
Cid, I didn't realize that was your blog. I will add it to my daily reading list! Debbie
Glad you liked it. :)
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
I especially love the 862 trillion dollars in debt quote. Truly this discussion is rooted in pure, unaltered and unbiased facts.
Edit: That aside, people are still looking at this from the wrong angle. If the US today couldn't afford to buy another ounce of oil, that would only take off 15 million barrels of global demand. At that rate, assuming some of the more conservative decline rates of 4% per annum after 2009, the world would catch up on consumption by 2013: a gain of a whole 4 years! Clearly enough to solve everyone else problem...or not...
The single largest category of global oil use is involved in transportation. Fully 45% of global oil demand is used JUST for gasoline and diesel. Thats nearly 40 million barrels per day. If every car on the planet were to become a plugged in hybrid car tomorrow (same dream world as used above) it wouldn't be until 2030 when oil depletion 'catches up. If we cut back on air travel and fuels by packing people into just the new Dreamliners, we would save another 9 million bpd. That would push back doomsday until 2038. Doing away with a similar ratio for military uses of oil (electric tanks?) would further extend the doomsday time to 2045...
Now we're dealing with finding away to compensate safely for around 25 million barrels per day. And thats AFTER normal oil depletion is taken into account. That figure isn't so out of the question when biofuels and GTL are taken into account...
Where is all this electricity going to come from? I don't think it's realistic at this juncture to expect electric production to ever be more than 50% of current levels. Go to CA and they have nuke plants all up and down the coast already. The amount of electricity generated already is simply staggering.
matt
CA canada? california? California has 3 nuclear power plants and one of them is in Arizona. The land of Bananas. You cannot produce electricity here from coal or nukes. The bananas vetoed an LNG terminal near oxnard and a windfarm just south of my town. There`s a drought currently. Californians think brownouts are caused by Enron.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Sorry,shouldve thought more about the nukes. I do think that's good about the wind farm though. The Altamont wind farm is an absolute abomination IMO. The archetypal Steinbeckian CA landscape of rolling golden hills, completely desecrated. Windmills are cool in isolation, but I just can not get used to the look of a wind farm w/ it's mindless repetition of generating units.
Matt
We need to pick the least worst option. Is that brownouts?
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Yes. I think there is something really perverse about filling open space w/ wind farms in order power the 11th and 12 th Staples or LOng JOhn SIlver's in a given area.
Matt
Ok, you`re a banana. I like electricity and I can`t do anything about Staples or LJS. To quote Stallone in Cobra,"I don`t shop there". I got solar panels so no matter how badly you screw california, the worst thing you can do to me is make me buy batteries.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Robert,
CA has almost 40 million people. it is screwing itself. The fact is that endless energy equals the endless expansion of the human footprint. This is neither sustainable,nor desirable. The fact is, we can either impose limits through increased costs/limited supplies or run up against inevitable limits (whatever they may be) in the future. The problem with he approach "we'll just address THOSE limitations in the future." is that the stakes just keep getting higher, ie everything else you've continued to build up depends on overcoming those future limits.
I don't shop there either but I have to coexist with them. That makes me an interested party.
Banana Matt
Matt,
They are planning on replacing the ancient turbines in Altamount with newer, more efficient, more bird friendly ones. If the bananas will let them.
I don`t mind you being anti-wind if you were pro-nuke. Pro-something. If you are another banana in the bunch, I have no time for you.
California uses 75% of the US average electricity per capita. The reasons for that include mild climate, no heavy industry, and outrageous electricity costs that scare server farms and other heavy electricity users away. They never say so but I believe google installed 200,000 sq. feet of solar panels to save themselves a ton of money. Assuming they have to do business from silicon valley. Probably cheaper to run a power line from Mountain View to Palo Alto but that probably wasn`t an option.
Of the electricity we do use, we import hydro from the Columbia river and Canada and Hoover dam. He get a lot of coal by wire. We put the coal plant in Arizona and Wyoming and just string a wire. There are transmission losses but running a coal train over the Sierra Madres takes energy too.
You are entitled to your own opinion but not entitled to your own facts.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Partyguy,
Obviously you didn't follow the links.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...
I actually understated the debt.
By the way, where are yours? Or did you just pull your numbers out of your angus?
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
but you didn't count the zeros. that is 862 billion, not trillion.
Opps! You are correct. Makes me feel better, but not much. They still won't take a check. ;) I need to go amend my post. Thanks for pointing it out.
Turns out on further research, the CIA figure does not represent out total debt. Current debt is 8.98 trillion dollars.
http://brillig.com/debt_clock/
http://en.wikipedia.org/wiki/U.S._public_debt
That figure is what I was referring to, Cid :P
I was looking at the Sitemeter last night and perused the recent visitors By Referrals and found some interesting things. The most traffic comes from "unknown" which I would guess is just people pulling up their browser and typing www.theoildrum.com . Then there were the usual suspects with some interesting resutls such as www.Kunstler.com running about equal with Google for referrals - though this may be regulars who read Kunstler a lot. Then there are things like www.drydipstick.com, www.lifeaftertheoilcrash.net, www.oilcrashmovie.com, www.energybulletin.net, etc. But one of the weirdest, because I've never heard of it before and also the fact that there are A LOT of referrals from the site, was www.caseyresearch.com
Also there seemed to be a substantial jump in traffic for the 20, 21, and 22nd probably due to the hurricane Dean coverage.
Caseyresearch doesn't even have a link, so they must have had a story with a link.
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
I take the Casey Energy Speculator the August Edition is the "Peak Oil Edition" and features a interview with Matt SImmons. Not anything earthshattering in the review for most of us that frequent this site but one interesting chart was the Oil Production Outstrips Discovery Rate that we are all familiar with showing oil discoveries peaking in the Sixties (bar graph) with production starting to exceed discoveries in the Eighties. Well they have delineated discoveries thru 1994 and discoveries thru 2005. The net effect showed an increase in barrels discovered by 2005 versus the barrels discovered by 1994. The delta was the increase in "discovered barrels" thru reserve growth for discoveries since 1945 basis with the hindsight of 11 years of C+C production since 1994. By showing and adding this delta as a revised "discovered" growth since 1994 we can now find 3 or 4 years since the 80's that we have met or exceeded production which is an improvement over the older graph often used to make the production vs discovery point in most peak oil proofs.
By and large this investment advisory vehicle is pretty decent. Casey's forte seems to be Jr. mining stocks and he remains very predisposed to Uranium and Canadian Jr. oil and gas producers. Priced at less that $100 U.S. a year it is a reasonable value if you have a few shekels seeking refuge in the investment world. The operative word is "Speculator" as in the "Energy Speculator"
I couldn't find the referenced chart but if I understood your post he used reserve growth to show increased discoveries. As I recall, however, the original chart "backdated" the reserve growth on the basis that that oil had been found already, just not economical to extract. If that is so, then the the two sets of data are not comparable.
Would it be possible for you to either post or link to that chart?
The information is behind a paywall and has a copywrite so I don't have a way to link and don't feel comfortable publishing this. The info sources for the data are IHS, ASPO, and the Oil & Gas Journal. Also subscriber based. Ace's last review had a Exxon Mobil version 2002 backdated with 3 year moving averages which obviously softens the curve and the discovery bars.
http://www.theoildrum.com/node/2828#more
That shows no years after 1984 except 1990 with discoveries outpacing production. The annual data version contained in the Casey Report shows discoveries meeting or exceeding in 81-85,91,2000 and 2001. The Exxon 2002 version has a significant on going gap after 1992. Part of the distortion is just the way the data is portrayed. But I would expect that even the 3 years difference in the data 2002, versus 2005 would have some variance potential especially for the discoveries that occurred in that 2000-2002 time frame.
I assume Dingell knows full well that his proposal for cutting off mortgage deductions for houses over 3,000 square feet is going nowhere. As a congressman who has long resisted any attempts to increase gas mileage, I seriously doubt the sincerity of his proposal or of his commitment to doing something about energy use and climate change.
Having said that, something should be done to encourage the building of homes that approach zero net energy usage. This is much easier, economically, if if the built house is smaller. This is being done here in Boulder County, Colorado, although I don't think they are going far enough since the currently proposed "reference" house size is 4500 square feet. The scary thing is that this is considered a small house compared to the average size of new homes which is 6700 square feet. I kid you not.
The other issue which needs to be considered is energy impact from the embodied energy of the dwelling and the impact of where the dwelling is being built. Those developers building next to existing infrastructure and transit should also be rewarded.
Decades ago, E.F. Schumacher told us small was beautiful. If only we had listened. Unfortunately in America, only big is considered beautiful.
I agree mostly, but what if someone wants to build a 4,500 sf, passive solar heated, straw bale, carbon neutral house? I'm not seeing any compelling reason why that should be discouraged. Better to just institute a simple carbon tax and forget about micromanagement through tax policy.
I think one of the best policy ideas I've seen on TOD is the carbon tax. You burn more carbon you pay more tax. Combined with a repeal of personal income tax, it could be the best policy change in 70 or 80 years. We'd also need some sort of pro-rated tax on import goods, to account for carbon burned in the country of origin, to make it all work.
Unfortunately everyone is used to the corrupt system we've got, where the connected get loopholes and everybody else pays. It's gonna break sooner or later, but cool ideas like this will probably be lost in the noise.
4 of the 6 houses advertised with on the page with the story qualify as McMansions by that standard.
Where I grew up a lot of the houses were duplexes or even apartment buildings with 4 apartments (2 each on 2 floors). It would be most unfair to treat such a building as a McMansion, but if someone were to buy one and occupy all 4 units, you would effectively be using it as such.
There are so many ways in which such a McMansion law could be circumvented. And for that matter, a new McMansion might in fact use less energy than a smaller sized and older house with crappy windows.
A carbon tax is so much easier, and applies incentives that seem to be more properly directed.
Its unfortunate that US government regulation requires any declared homestead to be at a minimum of 900 square feet. I live in a 1350 square foot apartment with 3 beds and 2 baths, and its PLENTY spacious enough for me and 2 or 3 kids if I were to have them...
You think you've got mortgage problems...
Tenants given 30 minutes to move out
This happened to us in 1987. We were renting a small patio home, after being wiped out in the 1986 oil price crash. The owner called me up and asked if we wanted to pick up the mortgage payments (about $1,400), The bank had instituted foreclosure proceedings because he wasn't making the mortgage payments. We were renting it for about $1,000. I declined the offer. He then threatened to sue me if I didn't keep making the rent payments (until the bank kicked us out). I think that we moved out about two days later.
For anyone looking at a good rental deal, you might want to find out what the size of the mortgage is. Lots and lots of owners are going to be facing negative monthly cash flows. They may decide to keep the rent payments and stop making the mortgage payments. I don't know if a bank would do a subordination agreement--which would honor the lease if the bank assumed title to the property--probably not, but it might be worth trying.
Register the lease as a lien on the property at the County (or Parish) courthouse.
Alan
But it would be secondary to the mortgage lien. Unless the mortgage holder signs some kind of agreement to honor the lease, the tenant is out of luck when the mortgage holder forecloses.
WesTexas is right, its called a subordination. And if you drill an oil well without a subordination, if the bank forecloses they own the well, tanks, pumps and equipment too.
Same way if you assume a mortgage on farmland and the irrigation equipment or barn was built after the first mortgage. The owner after the foreclosure owns the improvements, so you guys be really careful when you buy a piece of property by assumption. Get a title company to give you a copy of the "exceptions" on the title policy and if you have any questions, go to a title lawyer familiar with problems in the state in which the property is located. My opinion, or that of your brother-in- law the traffic ticket lawyer isn't good enough.
Get your own lawyer and not the title company's or the banks, and make sure he has malpractice insurance. The insurance companies do a very thorough job of checking reputation before they issue insurance, and the bank's lawyer represents the bank, not you, while the title company lawyer represents the title insurance company, not you.Pay attention. Right now is when that stuff is really going to matter, not when times are good.
Same way when you buy a piece of an oil deal. Make sure the operator has a good title opinion from a good title lawyer, preferably one old enough to have seen the problems 20 years ago when oil prices and real estate prices collapsed on farm land at the same time. Law Firm reputation doesn't count, its the quality of your lawyer.
This is really going to matter in the Barnett shale wells near Dallas and Ft. Worth, some are on property purchased with funny mortgages in the last ten years.
Bob Ebersole
OMB,
I`m thinking never assume a mortgage if you are creditworthy enough to get your own. Get a new mortgage and pay off the guy holding the deed. Sound right to you?
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Something like that happened to my sister. Her landlord broke the lease, and told her she had to move out in a week. It was May, just before finals week. She was pretty irate that he couldn't have waited a month. And the law was on her side, as she well knew, since the finals she was taking were for law school. But she moved. She figured he must be having a lot worse problems than she was.
My thought is that it is not legal to demand that renters who are abiding by their contract to simply move out in 30 minutes.
Why would anyone -- banks included -- really think that making such a demand would be a good idea?
The downsides would outweigh the upsides unless the process could be made attractive to the renters being told to leave.
The bank is not a party to the rental contract, unless the bank agrees to abide by the terms of the lease, in the event of foreclosure. I suspect that legally tenants are just considered squatters, although there may be some state laws that address the issue.
In any case, the bank had a contract with the owner/borrower--who defaulted on the loan--and the banks generally want to sell the property as soon as possible.
This is why we get subordinations of liens when we take an oil and gas leases from a mineral owner.
Ahhhh. That makes some legalistic sense, although not necessaarily any sense in terms of justice for renters.
I can see where specific laws to protect renters might be helpful.
Sure, a bank wants to sell a property, but that "right" may conflict with a decent renter's expectation to at least getting a month or so to find a new place and get set to move.
An interesting conversational tangent.
As I have said before, a lot of my ELP recommendations come from personal experience. For most of the country, the 1986 oil price crash was only noticeable because gasoline was a little cheaper. For the US oil industry, about 80% of our net cash flow vanished in about one week's time. Talk about deflationary effects. From January, 1986 to January, 1989, my income dropped by 75%.
However, in 1986 (and in late 1998 and early 1999) the oil price crash pain was highly concentrated. What we are seeing now are widespread deflationary effects from the housing meltdown, combined with inflationary food and energy prices--not a good combination.
In any case, if you are looking at a "good deal" on a housing rental in a badly slumping area, I would do some research--at least find out how big the mortgage is. I don't know if lenders ever do rental subordinations, but it might be worthwhile to try. If the alternative is a foreclosure, they might be willing to do a subordination.
Now that we have a mortgage again, my personal situation is different. But I know folks who rent.
ELP is the key. Lawns to gardens and roads to rail and water and here's to walk-able, bike-able neighborhoods everywhere.
Active transportation is good for the heart! :):)
In Louisiana (I was told) rental agreements have the same status as workman's liens for unpaid repairs. An auction for unpaid taxes can clear both, but mere foreclosure cannot (unless fraud is proven; you sign a 20 years lease at $100/month with a relative when the landlord gets into financial trouble).
Only true if the lease is registered (<1% are).
Are laws are different though,
Alan
This is a good discussion of the topic:
http://d2d.ali-aba.org/_files/thumbs/course_materials/SL004-CH34_thumb.pdf
The problem is most acute in discrete residential housing units, e.g., where the tenant might be paying $2,000 per month in rent, but the owner is paying $3,000 per month in mortgage, property tax and insurance payments, and I suspect that it may be very acute in California, where rents have long been below what they should be relative to property values, so when property values fall, owners are not inclined to keep absorbing the negative cash flow.
When property values were rising, many owners were willing to absorb negative cash flows, because of the expectation of a capital gain from selling the property.
For large apartments, commercial properties, etc., the bank will generally want the tenants to stay.
We made the offer in the other direction. The bank and the homeowner`s association sent payment due notices to our mailbox. We offered to buy out our landlord but they refused. So we bought another house in the same complex. We had to rent a truck and some movers for half a mile move. I don`t know what happened to him. Not my problem.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
In Ontario, Canada this type of eviction is only possible when a 'single family home' comes into possession of somebody who intends to live there themselves or have close family members live there.
The bank can't evict you.
With multi-unit complexes of any sort, the tenants "go with the land" as they say. You don't need to worry if your landlord is on the skids mortgage-wise.
When will the majority of the Mainstream Media (MSM) report that we can't have an infinite rate of increase in the consumption of a finite energy resource base?
"Never" comes to mind.
It never ceases to amaze me how dependent the MSM is on advertising by the auto/housing/finance sector. While perusing the Fort Worth Star-Telegram this morning, I did a brief survey of the advertising. I estimate that at least 90% of the ads were by the auto and housing related industries, and 100% of the half page and larger ads were by the auto/housing sectors.
Bear in mind, it's not just the auto/housing/finance sector, but the advertisers in general. Why would a business advertise if it were not trying to grow? Go to a Chamber of Commerce and talk about Peak Oil or resource depletion. Go to a "Businesses for Social Responsibility" and try it. You might be cordially received, but you will not be understood, let alone believed by more than a very small percentage.
cfm in Gray, ME
I agree most businesses don't want to hear about "no-growth possibilities"---why, it's downright Un-Amurikan!
As someone who volunteers in the community, sometimes you feel a bit like a character in Horton Hears a Who---is anyone really listening?! but our outgoing president of Sustainable Ballard did manage to create a Sustainability Committee at our local Ballard Chamber of Commerce. The first accomplishment was composting all food wastes and recycling at the annual Seafoodfest in July, and having a dedicated Sustainability Corral with other like-minded business and community groups, such as The RE-Store and FlexCar.
And, we have gotten interest from future-thinking businesses; our local business sponsorship list for our upcoming September Sustainability Festival grows daily.
The Atlantic monthly is the same way. They have a demographic of Clinton Dems which Oil/Auto/ Ag complex place a high value on reaching. They spend good money every month reassuring people. Each issue, upon opening the mag,you are treated to 2 pg glossy by, in order 1) BMW or GM "dont worry,we have hydrogen" 2) Monsanto or Cagill "Biotech will keep the meals coming." 3) BP "Beyond Petroleum."
Matt
As the situation starts to get harder, more money will be spent and better 'offers' to encourage the orgy of consumption but everyone is starting to feel the friction burns, if the message for reduction in consumption does come it will garantue the death of the economy as we know it. While that may not be much of a suprise given the mess we have been blundering into it will cause serious problems.
http://www.thisisnorthscotland.co.uk/displayNode.jsp?nodeId=149212&comma...
ELM in action
http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/business/20...
Was the only link I could find for this story any one got a better one?
Its not the size of the tank its the size of the tap
EEE + ELM --> ELP
That is actually an old story. It was originally published in other papers in June. For some reason some of those Arab papers run stories weeks or months late. Gotta clear the censors or something?
Here is the link I originally posted back in June.
For the windies
http://www.youtube.com/watch?v=UzX0lMYDvA0
Its not the size of the tank its the size of the tap
It's not just ads for more consumption. It's also an exponential increase in the number of ads that encourage greater production of more consumers - Had your Viagra today?
I daresay most, though certainly not all, Viagra users are well beyond procreation age. Or more accurately their spouse is beyond procreation age.
Well that reminds me of the story about the woman who went to the dr. for a tubal ligation. The doctor recommended that it would be simpler for her husband to get a vascectomy. Her reply was: "But what good would that do for me?"
I read a article last year that a "study" had been done on this sort of "Get it up" drug use, and that it had become essentially a party favor, much like coke or pot, rather than a medical issue. There's even similar drugs on the market now for women. In any case it's the message this sends that is the problem. Also related is the same message being taught in grade school and various religious venues. "Be fertile and multiply" or some such for Christian and Catholic, "We will outbreed the West" for Islam, etc.
Look at the advertising, the tone of popular TV shows and "Games", and so on. It's all about making babies. Oh there is the occasional ref. to "safe sex", but that's aimed at STD's rather than reproduction. To be crude, we are well and truly fucked.
Russians offered day off, prizes to procreate
Yeah, I saw that. So, I wonder who's gonna win the "reproduction wars" ? Probably cockroaches. Eat, defecate, procreate. The new world order.
There was a recent article (Discover print edition?) indicating that Viagra had effect on a man's oxytocin levels. That would be the stuff that bonds couples together ... so in addition to the, uhh, rise, its likely to increase the desire to make the relationship work, too.
41 die as fires ravage Greece
A brutal heat wave and high winds have helped the fires spread. They think terrorists may have started them.
This is what Athens News Agency has on the subject:
http://www.hri.org/news/latest/greek.latest.html
When I lived in Greece I remember forest fires were very common, and many people thought they were often started by greedy developers who wanted to claim new areas for posh buildings. OTOH I didn't think Greeks were generally ecologically minded, and many fires surely started because of sheer stupidity.
Oh, boy. Now I suppose Homeland Security will be worrying about Al-Qaida starting forest fires.
Great. Bush can tell everyone he's clear-cutting the national forests to save us from terrorist attack. :-P
I was actually worried about this during the drought year of 2002, when it was clear how easily total firefighting capacity could be overwhelmed by multiple fires, but it seems like Al-Qaida doesn't think that way. It only needs a dry winter, a pickup, and some Molotov cocktails - but I guess there's no halo of martyrdom in attacking pine trees.
Or maybe it just never occurred to them. (Until now.) I suspect forest fires aren't a big concern in Saudi Arabia.
Trees are required.
Around here we don't need any developers or terrorists to start forest fires. We have plenty of local crazies who are doing just fine without any help. During dry times like these the Forest Service and State Forestry are on constant patrol looking out for new outbreaks. Most of these are set for who knows what reason. Thrills? Hate the Forest Service? Hate your neighbor whose home is nearby?There are stiff peanalties for any caught doing this, but catching them is difficult.
Yes. While everyone else is worried about 15 year old kids with lighters, the TSA will spend a billion dollars studying the possibilty that AQ will start forest fires and the possible consequences.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
I've been going through Greek websites and am beginning to understand the scale of this disaster. The daily Eleftherotypia today had a front page headline screaming "Crematorium!" and describes what has been happening as "the holocaust (olokaftoma) of the Peloponnese". (In Greek the term is not reserved exclusively for you know what.)
What I cannot figure out is who would have an interest in starting these wildfires. Terrorism in Greece is traditionally associated with the far left and directed at conservative politicians, big businesses and US military and intelligence officials. No left-wing group would do anything like this, and there is no indication of any other kinds of terrorists in Greece.
Organized crime is big, particularly the Russian and Albanian mafias, but why would any kind of mafia start wildfires? It just doesn't make sense. And one more thing that annoys me is that it could well be that the culprits will never be caught, the Greek police is not exactly my preferred organisation when it comes to efficiency.
If there weren't so many fires in so many places, it could be just a few lunatics or pyromaniacs, but this most certainly looks coordinated.
Terrorists?
More likely property developers and estate agents wanting to clear the protected forests in order to build on them
Seriously.
As I said above, Greeks have generally assumed that to be the case. But the scale of this now would appear to indicate something more sinister than a few developers wanting to clear some land. And I don't think it's protected forests that are burning: in southern Greece you can hardly find any forest at all, what you do find is very dry shrublands. I don't think there are any bigger trees on Mt. Hymettos for instance, which is located right next to the eastern parts of Athens (Athens Uni campus is basically on the slopes of Hymettos).
I'm just flat astonished this hasn't been done in a concerted fashion here in the U.S. The west is tinder dry, timers and small incendiaries would not be particularly difficult for anyone with just a little bit of electronics background to build. $1,000 invested, two days of distribution, and then forty eight hours later ... whoooooosh
I think this one fact, more than anything, indicates our law enforcement efforts have stamped out any troubles crossing our borders.
I don't understand why border security has much to do with this. I'd expect the people crossing borders looking for jobs and a place to live are far less disgruntled than the typical laid off factory worker, mistreated soldier, urban unemployed, ripped off pensioner, etc.... Outside of a few ideologs, one doesn't move to a place to destroy it. Look at the Cuban exile community; they bomb Cuban planes, not US planes.
Our infrastructure is wide open. People in the land of shopping are remarkably well behaved. That Cheney doesn't expect it to last shows in all the increased surveillance; that's not about catching immigrants but watching us.
cfm in Gray, ME
One would think that if stealing airplanes became impossible the people behind such things would go to the next easiest target.
I agree re: domestic surveillance. That isn't about terror and its not about illegal immigrants, its about keeping the lid on discontent here as people realize what is happening.
If you don't care about getting caught (and many of them certainly don't seem to), why bother making it so complicated? Wait for the day when the weather has been dry and the forecast winds are right, then drive an SUV along the proper back roads, tossing a lit road flare into the woods every quarter mile or so. Or use a flare gun available at most any boating supply house if you want a bit more distance.
The main argument against doing such as a terrorist is that in most of the West, you're not going to kill anyone with this. I was astonished when the "41 die in fires" headline was people dying in forest fires. Other than firefighters, I can't remember the last time a forest fire killed someone here in Colorado.
But on the other hand, the goal of a terrorist is to cause terror, and make us expend money and resources combating what they did last time. Killing people fits their goals, but is not a requirement.
Fires are pretty terrifying. I remember flames on the ridges above town at night and burning branches dropping out of the sky onto city streets and helicopters swooping in the valley like something out of Apocalypse Now and the day to day dispatches of where the fire had gone next and how many laws of physics it apparently violated, and the out-of-control feel, and the triage of private vs public property, as place after place I knew burned up - all of this lasting six weeks. And this was a non-deliberate fire: to know some hostile organization was behind it would have made it feel exactly like a war.
The primary goal of terrorists attacking a first world country is to attack the infrastructure and thereby destroy or cripple the economy of the country. If enough damage can be done to the economy of a country, that country will be forced to alter its actions to comply with the goals of the terrorists. Causing terror (fear instilled in the population) is a secondary consideration. First world nations are target rich environments due to their highly developed infrastructures. If we expend money wisely to combat terrorist attacks at home we will not concentrate it all to prevent the last thing the terrorists attacked but spread it to all sectors that are susceptible to attack. No one can predict where the next attack will occur or even if there will be another attack. An attack like that on 9-11 set events in motion that have not finished playing out...So, the terrorists can wait and see how 9-11 and our follow up actions effects our economy in the long term. The best defense is a good offense. Which begs the question: Why are we not spending more effort hunting the terrorist leaders?
The goal of terrorists is to cause us to lash out and overextend, both at home and abroad. In this they have been wildly successful. A relatively minor, yet telling example:
http://www.boston.com/news/odd/articles/2007/08/25/running_club_members_...
9/11 has clearly driven us wild with rage and completely off the deep end.
Matt
We are, but in the shadows of the Islamic world in a time where digital information is cheap, it is very hard to fight a decentralized ideology. And make no mistake, its the ideology that has us on the defensive. The terrorists have no center just information - and they do not want our infrastructure - what they want is the “corrupt” west out of there corner of the universe.
No can do as long as they have oil.
Guys with drug problems and a desire for fire fighting money pull stuff like that every year. The problem is that they'd be there while the trouble started. A timed or remote activation strategy has the capability to hit all at once, or to hold other activations in reserve without exposing the perpetrator.
Now that I think about it high paying fire fighting jobs and a twenty percent unemployment rate are likely to take care of all that excess fuel that has accumulated.
So the perfect storm is two dozen rigs containing a TracPhone based detonator, a charged motorcycle battery for a long standby time, and a quart bottle half full of gasoline. One call does it all, as they say ...
Hello Leanan,
Thxs for this tragic Greek info. Recall my much earlier posting series on firestorms. Here is just one from the TOD archives:
http://www.theoildrum.com/comments/2006/3/18/174032/731/240
A fire in full bloom under the right conditions can easily outrace a human.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Leanan, excellent catch on the 'Bits Of News' article concerning the 'free trade' agreements and the follow on Iraq war debacle... I would like to add that several of these agreements were in development long before Clinton became president (they were being discussed as far back as the mid '70s) and that both the democrats and republicans were falling over themselves to approve these disasters. A look at who was pushing these agreements sheds some light on why they were enacted...
http://www.newswithviews.com/Spivey/phyllis2.htm
...snip...'Given the origins of NAFTA and GATT, it should come as no surprise that both trade pacts ceded control of U.S. trade policies to international bodies. GATT established the 125-member World Trade Organization (WTO) and gave the U.S. one vote and no veto. The European Community got 12 votes, and so-called developing countries comprised 83 percent of the membership. NAFTA, between Canada, the U.S. and Mexico, established the Trilateral Trade Commission and also gave the U.S. one vote.
Both agreements – due to court rulings and constitutional provisions -- preempt existing U.S. laws and supercede state laws through an ongoing process of regulating, i.e., legislating, by an army of unelected, unaccountable international bureaucrats. Moreover, the pacts authorize the U.S. president to selectively adjust duties, quotas, and tariffs – effectively vesting him with life-and-death power over entire industries...snip...
'With future agreements pending, Clinton tried to get "fast track" extended, but failed. It took President George Bush and intense big-business lobbying to get it through Congress in 2002. A group that served on the Steering Committee of the USTrade coalition, the Council of the Americas, congratulated its members on the passage of the legislation – now called Trade Promotion Authority (TPA) – in an August 2002 letter...snip...
According to the Council’s letter, the renewal of TPA "clears the way for progress on a number of outstanding trade initiatives, including the Free Trade Area of the Americas (FTAA), the U.S.-Chile Free Trade Agreement, a U.S.-Central America Free Trade Agreement (CAFTA), and a new round of global trade talks in the World Trade Organization."
The Council’s honorary chairman? David Rockefeller. Council board members included executives from Archer Daniels Midland, Bank of America, Bear Stearns & Company, Chevron Texaco, Citigroup, Mc Donald’s, Merk & Co., Pfizer, General Electric, General Motors, J.P. Morgan Chase & Co., Kissinger McLarty Associates, Time Warner, and other transnational corporations. Representatives of Boeing, Caterpillar and Procter & Gamble, also council members, served as co-chairmen of USTrade'...snip...
http://www.bitsofnews.com/content/view/6004/
'Dubious as the Bush presidency's policies have been, the underlying problems of the U.S. are not all of his making. Under the cover of the economic boost of the IT revolution, the Clinton White House and Congress enacted free trade agreements which had little to do with comparative advantage and mutually beneficial exploitation of resources, and everything to do with labour arbitrage. Basically it was a medium term play, based on the possibilities offered by cheap transport and communications, to shift production to low wage countries, while still being able to sell the goods in high wage regions. The sad fact is that aside from his other eccentricities, Ross Perot's "giant sucking sound" was very real. That in turn was itself a symptom of a more basic problem still.'...snip...
...snip...'At some point the far simpler explanation becomes the more convincing one, that sizable and influential blocks of the Democratic Party establishment don't lack intestinal fortitude, but indeed demonstrates an impressive amount of it, by acting against the clear wishes of their political base, and the American public at large. Not reluctant hostages to imperial policy, they are in fact the committed defenders of those policies'...snip...
...snip...'As I mentioned in a previous article, this doesn't necessarily reflect a deep seated nefariousness, yearning for conquest, or even wish for the inherited powers of a unitary executive following the 2008 presidential election on the part of the Democrats, as much as a realisation that America is in a real bind as regards the Middle-East.
Even if it wanted to, the U.S. would now find it exceedingly difficult to disentangle itself from the Middle-East. That die was really thrown back in the '70s, when the U.S., faced with the domestic Hubbert's Oil Peak, chose not to initiate a program of exploring alternative energy sources, or follow through on strict fuel efficiency standards. One could compare it to a patient with renal failure opting out of a transplant, and instead going on constant dialysis'...snip...
'The very landscape of the U.S. had been shaped in the heyday of the automobile, with sprawling suburbs that were clean, safe, and relatively cheap, with most conveniences drive to or drive through, with little in the way of public transport. This was made possible by cheap and plentiful petrol to ferry people to their place of employment. That structure, made even more dominant in the years since the '70s also represents an enormous sunk cost in infrastructure, massive enough to stagger belief'...snip...
'When Vice President Dick Cheney stated that the American way of life was non-negotiable, he was in fact speaking not only for himself, or even the Republican White House and Party, but also for the establisment at large, including the leadership of the Democratic Party, many of whom might not have made the case with such bluntness, but nevertheless ascribe to the same view of the world. The United States simply can't afford the risks involved in losing control of the Middle-East, possibly to hostile powers.
The Iraq war is not simply a Bush folly, but merely the first in a series of resource wars looming on the horizon, on the outcome of which hangs the very way of life of millions of people.'
River,
That's a very interesting column. One fact correction, though. After the 1970's oil shock Jimmy Carter and Congress did start a real program to have energy independence in America through investment in alternatives including nuclear, but this was quickly dismanteled when Reagan took office, he even took the slar cells and hot water heaters off the White House roof, and this policy of hostility to real alternatives continued through the Clinton years, too.
This is my thought about it, judging as a peacenik. The Military-Industrial complex has to have enemies to fight in order to justify their existance, that's why they resisted the Soviet Union and persecuted the domestic communists after the collapse of the Axis powers in the end of WWII. The Russians were our allies against the Japanese and the Germans, but were made into enemies to justify the huge expense of a permanent war footing. Even the threat of the mostly agrarian China and Russia was exagerated. And the regeimes of the Communist block were happy to cooperate, they needed an enemy too. This was the theory of George Orwell, it runs through his letters and essays, and was a major theme of the novel "1984" with its societies based on constant war.
The collapse of the Soviet Union was the same era when the rumors about Roswell, Alien Abduction and Area 54 became a part of the US mythology, they were being primed to become enemies because their existance and hostility is as good as Terrorism, impossible to prove, but a real reason to clamp down domesticly.
The oil embargo and Islamic terrorism was even better as an enemy. The Muslim nations were no real threat at that point, and the Israeli foreign policy dovetailed with the US's real reason for empire, resource wars and control. Yassar Arafat was even ugly and looked crazy, a real gift for propoganda purposes. And its all grown from this.
This is why we need to be very cautious in our choice of support of a Deemocratic Presidential candidate. Hillary Clinton means more of the same old stuff, and the security of the US, our liberties and the fate of the western lifestyle may very well turn on our primary votes and causus support.
Bob Ebersole
The price of oil also dropped below $10/barrel during the Clinton years and the Republicans had control of Congress 6 of the 8 years. The environment was not right to do anything about energy.
The Military-Industrial complex has to have enemies to fight in order to justify their existance,
And 'safety sells' a whole lot easier than other policies it would seem. It also helps when the accounting is 'so complex' that you can 'loose track' of 2+ trillion.
http://www.cbsnews.com/stories/2002/01/29/eveningnews/main325985.shtml
Alan Watts talked a lot about this idea of groups needing outsiders to define themselves. You can't have an inside if you don't have an outside. Us is never Them and vise versa. When the Cold War was fading away I started wondering who would be the new enemy that would rise to replace them.
If terrorism and islamofascism somehow fade from the scene you can bet that some other boogeyman will rise to take their place.
An interesting film to look up is The Power of Nightmares. It's thesis is that governments used to gain power by promising economic benefits. Vote for me and I'll see that you get fed. A chicken in every pot. The new argument is to first scare the voters with some inflated enemy and then tell the voters that politicians will protect them if given the power.
An interesting scene involves Rumsfeld and Cheney (imagine that!) back in the 70s arguing that we needed more defense spending. The CIA said that the Soviet union was crumbling from within and would not last long. These two said the reason that the CIA couldn't find any scary Soviet weapons was that those weapons were so advanced that they couldn't be detected. Interesting logic. The lack of evidence that a country has weapons is actually evidence that they have very sophisticated weapons. Amazing. More amazing that anyone bought this twisted logic.
Last time I read the constitution, ratified treaties are the law of the land. Trade agreements don`t preempt US law; they are US law. Congress agrees to create a sandbox they can`t piss in because otherwise other nations won`t do business with us. Trade was always dependent on international bodies, otherwise known as the countries that buy our goods.
Until we decided to piss on Canadian lumber the USA was nineteen for nineteen in WTO court decisions. I guess they aren`t pro-USA enough for you.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
NEVER ENDING WAR
"Beyond the Euphrates began for us the land of mirage and danger, the sands where one helplessly sank, and the roads which ended in nothing. The slightest reversal would have resulted in a jolt to our prestige giving rise to all kinds of catastrophe; the problem was not only to conquer but to conquer again and again, perpetually; our forces would be drained off in the attempt."
Emperor Hadrian AD 117-138
Emperor Hadrian AD 117-138...
An excellant quote. Quite proverbial in my opinion.
The great hope wind power:
N.Y. Utility Scrapping Ocean Wind Park
I might also add that NIMBY played a big role in killing this. Something about the "view" from Jones Beach.
There's some discussion of this story in yesterday's DrumBeat, if you're interested.
Leanan's link about Japan's green houses actually took me to an interesting article about seismic dangers and inadequate design in Japan's nuclear plants.
http://japanfocus.org/products/details/2495
My experience working with Asian high tech companies is that the strong cultural group orientation makes awesome manufacturing teams, but makes it very difficult to admit to and retreat from errors. Cultural evolution will show if the group orientation is more successful than the US's extreme individualism.
Oops. I was looking at both this morning, and must have mixed them up. Too many tabs open...
In traditional Japan, errors are admitted to by committing sebukku. That`s makes them reluctant to use it as the first option.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
This is in support of Don Sailorman's views of the Fed's powers. I'm quoting Yves Smith of the blog, Naked Capitalism.
However, as this central banker (Walter Buiter of the Monetary Policy Committee of the Bank of England) noted:
Although they can do it, I see no evidence that the Fed is accepting either dead dogs or illiquid CDOs as collateral. And Buiter hasn't either.
http://www.nakedcapitalism.com/2007/08/fed-acts-more-directly-to-shore-u...
So, I Asebius am wondering..... say things get real real bad and banks default on the Fed, losing their collateral to the Fed. If you, the homeowner, default then the Fed could own your house?
Maybe, at the end of the apocalypse the Fed will own everything and we'll all be serfs. ;-)
Asebius: Here is a scenario for your suspected apocalypse:
new account, would you please explain to me how some of these hedge funds came to be so highly leveraged.
I have seen mention of ratios as high as 80:1.
Thank You
You are asking a question that a lot of people are asking. I cannot give you an answer on the specifics but I can give you a general answer.
I ask you for a mortgage to complete a house purchase valued at $100,000. I put $10,000 down and your provide me with the $90,000 needed to complete the transaction. The terms of the loan are that I pay interest only for the first 2 years and then interest and principle of 12% for the next 28 years.
If the house doubles in value and I sell at the end of a 2 year period then I get $200,000 in cash and I pay you back the $90,000 I owe you plus a pre-payment penalty. Subtract my initial capital and I have made $100,000, a ten to one return in two years. I have leveraged my capital and generated a big return. As lender you have no share in my good fortune other than having made it possible.
But as lender you would like to get the same leverage and the same level of return. So you package my loan with others that you have originated and you sell it to others. This is called securitizing the debt. You have turned the extension of credit to me into a form of asset that you have resold to others. You keep ownership of 10% of this new asset and sell the other 90%. You are now leveraged at 10 to 1.
The person buying this asset can then repackage it with yet other similar securitized loans and generate another new asset. They can then hold 10% of the new package and sell the other 90%. So they too are now leveraged at 10 to 1.
You can see how this process can continue. Hedge funds were trading these "synthetic assets" as if they were real assets like houses or other securities. Note the outcome of this process is an inverted pyramid. Somewhere at the bottom of the pyramid there sits a real asset i.e. my house. Above this real asset there are layers and layers of synthetic assets. How high does this pyramid go? The sky is the limit!! There is no limit!! As long as the underlying asset continues to appreciate, and as long as I, and all the other borrowers service our debt, all is good and everybody in the pyramid makes out like bandits.
A problem erupts when somebody declares that the emperor has no clothes, that this form of economic activity is unsustainable or insane. The same problem erupts if I decide my house has dropped in price so that it is now worth less than I paid for it. Why should I service the loan and generate money for you if I can just walk away and leave you with the collateral? At that point the Ponzi scheme comes to a crashing halt. This is what occured a week ago when the financial markets underwent a liquidity crisis. No body wanted to trade these synthetic assets as 1) No one was sure what the value of the asset to be traded actually was (remember these assets represent the slicing and dicing of multiple other assets); 2) No one was sure what the value of the underlying asset (my house) might be, either now or in the near future; 3) No one could be sure that the person with whom they traded was not overexposed in this market and therefore represented a significant counterparty risk
I am not sure if that fully answers your question but that is a general outline of what has taken place. The Fed is now seeking ways to add liquidity to these markets so there can be a resumption of trading. Certain synthetic assets will be found to have no value and will be marked down. The reverse leverage will bankrupt a number of hedge funds and banks and put a lot of financial types out on the street. And all lenders will tighten their lending standards.
This creates an even bigger problem. If buyers suspect that something will be cheaper tomorrow than today then they will delay making a purchase. Even if they wish to buy they may be denied credit. And enough folks will be scared by this process that they will seek to rein in their spending until they understand what is going on. This is where this problem spills over from Wall St to Main St and we face a consumer lead recession. This process has already started as I hear stories of merchants deciding to order less stock for Christmas, of auto sales tanking, of folks increasingly worried over jobs and income.
The result is a deflationary spiral, an excess of supply over demand that drives prices down. This includes the price of housing which would have to drop around 40% to return to the long run mean. If you loaned $90,000 on something that is now worth $50,000 you have a problem. Everyone above you who has leveraged off that same loan is also in trouble. In fact the entire financial system is broken and on the verge of collapse. This was acknowledged a week or so ago but the Fed and all the other players do not wish to make public acknowledgement as that would just increase the fear and panic.
Cheers!
Wow. That's quite a tale of woe and intrigue!
I have been, and will be, asked about this many times as
the house of cards collapses. The example you cited should be reasonably clear, at least intuitively,
to anyone who inquires.
Thank you for unpacking that.
The problem is that most of the woe still lies in the future. The unwinding process will take several years. The unwinding of the Japanese bubble took more than ten years and real interest rates during that period were negative: the government was in effect paying folks to borrow.
The NYT has a very good article on the issue here -->
http://www.nytimes.com/2007/08/26/business/26housing.html?hp
And an excellent graph of house pricing here -->
http://www.nytimes.com/interactive/2007/08/25/business/20070826_HOUSING_...
I am not sure what you mean by intrigue. Most of this process was driven by mutual delusion and that mutual delusion is now being shattered. There are other delusions still to be shattered such as the "American way of life is non-negotiable," and "American exceptionalism grants every American an exemption from the laws of physics and fiscal reality." Reality bites and it is going to bite hard.
I think this is a confusing paragraph. I lend you 100K for thirty years and now own a long term payment stream at some agreed upon interest rate. If I retain 10% of that claim and sell 90% of it I have not leveraged anything! Period. My share of the income stream is 10% and the owner of the 90% gets the rest.
Now if I borrowed 90K and ante'd up 10K from my savings account to provide you with the loan I would indeed be leveraged. If you, the homeowner, default on the loan I made to you and if I stop paying my 90K lender, he will foreclose on the house since the house would be the collateral for the 90K loan I got from him.
My only profit is in the spread between what I take in from the homeowner and what I have to pay my lender. An appreciating home value does not increase the value of my claim on the income stream from my loan to you. Nor does my lender benefit from it either. For us the terms are set. There is no comparison or even connection between these two types of returns. One is based on asset appreciation and the other on an interest rate spread that is fixed at the outset.
I think you are confusing the terms "sell" and "borrow." I might indeed borrow 90K at an attractive interest rate based on the following agreement. I will agree that any shortfall in the payments will first come out of my 10% share. Only after I've taken a total loss on payments will my lender's payments be affected. In return for this gamble I get a better yield than he does.
What is being "sold" to create the leverage is, in fact, a bond. But selling a bond is completely equivalent to taking out a loan, so I think it's a lot clearer to talk about borrowing vs: selling something.
Furthermore, if push comes to shove and we have to foreclose on the house, any shortfall in the sale price will come out of my 10% share first.
You can see that if that 10% ownership was of a risky high yield tranche of a CDO it would be pretty easy to get wiped out. Replace "me" with "hedge fund" and the scene is set. This sounds like what you are trying to describe.
The hat trick here is to get the highest percentage possible of the asset value rated as AAA by one or several of the rating agencies. It can then be sold to pension funds and the like who have rules regarding the level of risk they can take.
By agreeing to take the losses from my toxic tranche first I can get the ratings guys to give my lender's portion of the asset the desired AAA rating. They do this by supposedly figuring the odds that the lower rated tranches will get wiped out.
In return for the high rating the percentage yield I have to pay goes down. Hence the spread. If I am taking in 12% from the homeowner and only have to pay 6% to my lender then I'm making out very well. Not as well as a credit card company mind you but enough to make a living.
Suppose I decide I'd really like to get rid of that 10% toxic tranche along with a bunch of other toxic waste. What to do? How about packaging them all up and have Moody's figure out what the odds are that 20 percent, say, are going to fail. If the percentage isn't good enough I can buy some Credit Default Swaps and throw them into the mix to hedge against the defaults.
Sooner or later the labyrinthian maze of connections becomes too much for the human mind to comprehend. This is why there is such concern right now about a house of cards credit collapse. No one seems to know where all those loans ended up and no one knows how many issuers of credit default swaps can really make good if the loans go bad. This makes the credit market freeze up since no one wants to lend to an institution that may have its books riddled with bad debt.
If you'd like an accurate and rather nerdy explanation fo leverage in CDO's you might read up on Tanta's UberNerd postings at CalculateRisk.com. She does a much better job explaining this stuff than I do.
jbunt
LJR
Thanks for adding some clarity. Someone putting down $10,000 on a $100,000 house is generally the only one leveraged. He loses money if the value of the home is less than $90,000, a 10% decline, and he is forced to sell. The mortagage holder(s) are at risk for $90,000. But it does not matter if it is one holder who holds $90,000 or 90 holders who hold $1,000 each, the total risk is nominally the same, and there is no additional leverage. As, you point out, if there are 90 multiple holders, and they structure their contracts so that A loses his $1,000 first, then B, then C, etc. - we have only established disproportionate risk holders, with A being the most vulnerable and RRRR being the safest. But, no ponzi scheme leverage is created soley by spreading out the mortgage among a number of people.
So how, then, did some of these hedge funds come to be so highly leveraged?
I have seen mention of ratios as high as 80:1.
Thank You
In the world of stocks and bonds, the leverage is usually in the form of stock loan/repurchase agreements, via "prime brokerage" accounts (available to funds, but not available for individuals). You buy a bond, let's say a nice AAA collateralized loan obligation (CLO), yielding a fixed 5.35%. Using that bond as collateral, one can sometimes borrow 100% (or nearly) of the face amount at the overnight repo rate, which is roughly tied to the current Fed Funds rate--now 5.25%. Borrow at 5.25%, earn 5.35% on the money--you'd want to do that as often as you could, right? It would be infinitely leverageable, except that no one will allow you to do it--the prime broker you deal with requires equity in the account, and depending on the strategies and their perceived risks, they will let you run 10:1 pretty easily. 80:1 would probably not be usual, but rather the result of a loss of the equity base. LTCM reputedly pushed it to 100:1, but I'm not sure I believe it was planned. At higher leverage, you can believe the margin calls come in very quickly after a few bad trading days.
This is the really simple version, but essentially that's what happens.
I have just been reading Tanta and she gives a very good in-depth explanation which may be much more than most TOD readers want. I am guilty of oversimplification but don't feel much shame over that as this is a topic that even the finance professionals now claim not to be able to explain or understand :-)
This would be true if you were a bank engaged in mortgage lending in the conventional understanding of that relationship. But when I securitize the extension of credit the income stream from your loan is merged with a number of similar income streams which are "owned" by the newly created security. It forms part of a financial package that I can sell to a third party. The credit risk is also transferred apart from the equity tranche that I retain.
Fractional reserve banking requires that I retain 10% of my capital and I am free to lend the other 90%. Since I have resold the securitized loans I now have the immediate return of capital on my books and I can turn around and repeat the process, creating a new security, retaining 10% and selling off the other 90%. The purchaser of the security can repackage what they have just bought, combine it with other ecurities and sell it to a fourth party who can in turn do the same thing and sell it on to a fifth party. Part of the problem with this activity is that non-bank actors (hedge funds) also engaged in this process and were effectively acting to enlarge the money supply. The regulators appear to have looked the other way.
You can juice the returns by borrowing yen at a 0% interest and funding your purchase with yen debt. You can further juice your returns by adding fees such as insuring the counterparty against credit risk. You do not benefit from any increase in the price of housing but the prospective appreciation in the underlying asset theoretically insures you against any downside risk. The financial models "proved" that this was a "risk free" way to enjoy high returns. When the models failed to work the participants were forced to mark to market and since no one wanted to trade toxic paper the market price was $0. The financial system ground to a halt.
I have just re-read your comments and I think we are both trying to describe the same financial elephant.
J R Bunt's description of what took place is not correct. It is not the case that 100 lenders participated in a single loan event and thereby spread the risk. Rather 100 loans were combined in a single security which was then sold only to be repackaged and resold. I believe he also argues against the presence of leverage which is better explained in this post by Tanta:
http://calculatedrisk.blogspot.com/2007/07/leverage-ratings-and-forced-u...
And if I confused you Supertuscan, my apologies.
Fractional reserve banking requires that I retain 10% of my capital and I am free to lend the other 90%.
One poster on the internet (The mongombo guru) is claiming these days the 'reserve' is less than 1% these days.
Thank you for the re-visit.
Frightening stuff.
supertuscan:
Just realized that part of the confusion is that there are two primary actors: banks and hedge funds.
Banks obtain leverage by taking your $100 deposit and make $90 worth of loans. They share some of the return with you in the form of interest. But they also hold the credit risk that some borrowers will default.
Hedge funds are buyers of the securities originated by mortgage lenders. They take the capital provided by their pool of investors and use that as collateral to obtain additional loans from the banks. So if my investor pool is $100 and the bank will loan me $900, then I can buy $1,000 worth of asset backed mortgage securities (ABMS). The hedge fund is leveraged at roughly ten to one.
But the hedge fund can now turn around and sell what they just bought. They hold 10% of the security and get a payment of $900 that they can then use to obtain a further bank loan. With that loan they can then make further ABMS purchases, hold 10% sell the balance, use the return to support a third loan and so on.
There were some 8,000 firms engaged in this activity. The total amount of outstanding derivatives realted debt is around $500 trillion while annual US GDP is $13 trillion. So it would take 13 years of US economic activity to extinguish this debt and the size of this payment leaves nothing left over for food, fuel, and all the other aspects of the economy.
This is still a heavily simplified model so take it with a grain of salt. Similar activity occured with regard to the leveraged purchases of public firms by private equity and many of those deals will likely result in hardship. But the same basic theme was played out in different sectors of the economy.
Cheers!
Sounds like a very elaborate Ponzi scheme.
Investment bubble is the other term but it does function as a Ponzi scheme. Those who came last to the party pay for the gains that flow to the ones who came early.
I miscalculated the years of productive activity required to completely pay off the current level of derivative related debt -- 38 years of US GDP.
With regards to public debt, this amount is being transferred to future generations. So the young will have to pay for current consumption, remediation of the environment, response to AGW and PO.
jbunt
I was trying to give an easy illustration, and not saying that there were 90 lenders. Okay, lets try this. Assume that your loan is packaged into a collateralized debt obligation (CDO) along with 10,000 other loans and then this CDO is sold to one hedge fund. The hedge fund has 750 individual investors. Now 750 people own an undivided interest in your one loan.
If the CDO is rated investment grade, the hedge fund can borrow 90% of the money that it took to buy the CDO. And, if the 750 investors in the hedge fund were all pre-qualified with a net worth over $10 million, they each might have borrowed 50% of whatever they invested in the hedge fund from a bank.
At the end of the day, you default, so the CDO owners foreclose and have a house worth less than the original mortgage. The hedge fund suffers the loss, which is spread among the 750 hedge fund investors. We can go on and on. If an investor in the hedge fund wants out and the value has dropped by more than 50%, so he has no money to repay the 50% bank loan and he goes bankrupt, then the bank loses whatever he cannot pay back.
The subprime mortgages total $1.4 trillion and the alt A mortgages total $600 billion. If they all go bad and every house using those mortgage products is worth Zero, the maximum loss is $2 trillion, spread over investors around the world. Painful, but entirely manageable. More realistic is at least 50% value, and a loss of $1 trillion.
By the way, derivitaves have asset legs and liability legs. Assume $600 trillion of floating interest loans that debtors would rather have a fixed rate. And, you can find lenders that are receiving floating on an entirely different $600 trillion of loans, that would rather have fixed. Reaching a mutually agreeable point, a derivitive is put in place that floating rate debtors pay a fixed amount and the lenders receive a fixed amount. If interest rates rise above the peg, the borrowers pay their lenders the going rate, but receive the difference back from the derivitive lenders. If rates plunge, the borrowers pay their lenders the going rate, but also pay the difference up to the peg to the derivitive lenders. Now, between the two groups, there are $1,200 trillion of debt covered by derivitives. However, the risk in the contract is only the interest differential on $600 trillion owed from one group to the other. And, as with everything, some will get in trouble, but not everyone at the same time. Of course, we can always say - what happens if interest rates go to 100% a year. Okay, not going to work. But that is the way it is with everything. What if GM after today, never sells another car? Okay - bankrupt.
Another example. If you buy 10 options (a derivitive) (1,000 bbls/option) to purchase oil in 2010 for $100 bbl, it will cost you only a few thousand $'s. But, what if oil goes to $300 bbl.? Does someone have a liability of $2 million for selling you the options for a few thousand. Not usually. Might be an oil company that thinks $100 would be a good price and they want to collect some option premium. Worst case, they sell the oil covered by the options for $300 bbl. and give you, the option holder, $200 of that amount. They have given up future profit, but have not lost. And, if an individual went short the options, he would have been margin called out of the position long ago. But, the NYMEX guarantees your position (long the options) so someone else would have taken over the opposite side, perhaps many of times, as prices rose.
High inflation would devalue debt and make it easy for net debtors to pay off their debts.
Also, the US government can't devalue the dollar 3 times because the dollar's value is not fixed against anything by the US government.
Cut off from additional credit? The US government could sell a couple of trillion dollars in bonds to the Federal Reserve.
If one is going to write a financial disaster scenario one should try to make it work within basic economic rules.
Future Pundit said,
"High inflation would devalue debt and make it easy for net debtors to pay off their debts."
Good observation, but let me tell you from first hand experience, you have to actually experience that down at street level to feel the full liberating weight of it!
Starting over a decade ago, I had for the first time in my life began to build some real debt....uninsured dental work, some continuing education classes, yes, of course a car....
Contrary to the slang often used, most people do not decide to "jump into debt." It builds gradually like arthritus or heart blockage. Unless you are one of those very detailed people, you really don't notice how much your paying out in interest until....
A combination of the recent concern about fuel prices, the economy in general and my own advancing age caused me to really take a hard look. Based on that examination, I began to double and triple up, one after the other on each debt, and pay them off.
The release of excess cash has been nothing short of astounding!
It MUST be remembered that when banks and loans calculate the interest you owe them on borrowed money it is NOT counted the way any "normal interest" is counted, and it is certainly NOT counted the way money on invested money earning interest is. How do they calculate it?
I will be very honest, I have no EARTHLY IDEA!
I just know that the difference between money earned in interest or dividend on say $20,000 invested is such a world apart from the money owed in interest on that some $20,000 that it is hard to believe that in both cases the concept of "interest" is being discussed. SO DIFFERENT.
I have heard folks here and elsewhere talk about the concept of class. I have others talk about the concept of race, or ethnicity, and sometimes even "culture" or religion.
But I am prepared to go a completely different route: I think that all sociology and cultural study should take a very long look at the difference between the TWO GREAT CLASSES in the world, the SINGLE great deviding line:
(a) There are those who PAY interest
(b) There are those who EARN interest
The world of group (a) is absolutely alien to the world of group (b), and I don't care what they are paying interest on. To repeat, the way it is PAID out is alien in almost every way to the way the calculations are made to earn it, causing the payout to be so great as to be THE great brake placed on American business and prosperity.
While everyone frets about the government stealing your freedom, the banks still your wealth. The latter at this moment has by far the greater effect.
MORAL of the story: Pay off your debt. If you do, and you were carrying the debt before hand, current energy prices will seem like a joke you can laugh at.
RC
Remember we are only one cubic mile from freedom
(edited to correct spelling and errors)
Just imagine if people could figure that out when they are young.
'Give me control of a countries currency and I care no who makes its laws'...Baron Rothschild paraphrased. We have been wage slaves (similar to serfs) for a very long time. Even though we might have title to a home it can be confiscated for delinquent taxes...so do we own it? Perhaps a case can be made that the 'Fed has owned everything' since its birth in 1913?
It wouldn't be out of character for the exceptionalists.
It`s 35C, 95F in Japan this week. Japan is producing more electricity than ever but with 7 nukes down for repairs or inspection or paperwork (I haven`t been following that story) after an earthquake she doesn`t have the reserves she expected. Tokyo Electric Corp (TEC) pulled the plug on large industrial users that get a discount by purchasing interruptible power. We Californians know how that works. AFAIK, no blackouts and everyone`s air conditioner is running full blast. Sayonara.
RobertInKyoto
I haven`t escaped from reality. I have a daypass.
On a somewhat related note: Green Rooftops! Imagine your average suburban sprawl covered with grassy rooftops. I'm sure Tolkien would get a good laugh out of this!
The City of Toronto has a Greenroof incentive program, but it is still trailing behind Portland, if I recall correctly. I just went to a presentation on it last week.
The whole issue of use of rooftops has some fascinating history in modern architecture.
I was once reading a book in which the Architect/architectural historian Phillip Johnson said that most modernist architects had no interest in the roof. As Johnson said, "Le Corbusier made a big scene aboout roofscapes....we thought the roof was something to pretend didn't exist."
(A brief aside, Johnson was once asked about the climate control/energy use issues of a building in the 1970's, and dismissed this as an architectural responsibility....."you want heating/climate control, you call in the mechanics" he was quoted as saying at the time)
The idea of complete ignoring of the roof can be seen in the work of the great modernist architect Ludwig Mies van der Rohe in his iconic building at the Barcelona Pavillion,
http://www.greatbuildings.com/cgi-bin/gbi.cgi/Barcelona_Pavilion.html/ci...
And his Farnsworth House
http://www.greatbuildings.com/cgi-bin/gbi.cgi/Farnsworth_House.html/cid_...
Note the roof is almost paper thin. One can sense the real effort taken to reduce it to nothingness.
Now the exceptional Le Corbusier, in the Villa Savoy House:
http://www.greatbuildings.com/cgi-bin/gbi.cgi/Villa_Savoye.html/cid_aj18...
http://www.greatbuildings.com/cgi-bin/gbi.cgi/Villa_Savoye.html/cid_aj18...
Note the opportunity for rooftop gardening and use of the area for outdoor entertaining/recreation:
http://www.greatbuildings.com/cgi-bin/gbi.cgi/Villa_Savoye.html/cid_aj18...
The roof terraces are kept in easy access from the ground and from inside the home.
The Villa Savoy is a masterpiece of use of space given the size it is. Many current McMansions are twice or three times as large, but lack the features and variety the 1920's era Villa Savoy House provides.
You would think the customer would demand that the architects provide more in our current age, but since most arts and humanities education classes were dismantled years ago, there is really no danger. Most customers do not even know that Le Corbusier or his houses ever existed.
But it is cleverness in design and arrangement that can reduce energy/resource/landspace waste WITHOUT destroying standard of living. The reason most people think that the two are mutually incompatible (efficiency and standard of living) is simply because they have almost never had the opportunity to see real design.
Roger C
Remember, we are only one cubic mile from freedom
Hello TODers,
I suggest you google Georgia and Russia yourself because the newsarticles are so conflicted. Anyhow Georgia now claims to have shot down a Russian aircraft, but Russia says they are nuts, but the breakaway area of Abkhazia now claims to have found the wreckage. Others say the wreckage is from an American recon-plane. Don't forget Georgia wants into NATO, and Bush wants radar in Georgia and elsewhere, but Putin most definitely does not want encroachment. The Great Chess Game is getting pretty scary.
http://euronews.net/index.php?page=info&article=438896&lng=1
http://news.independent.co.uk/europe/article2896196.ece
http://www.latimes.com/news/printedition/asection/la-fg-georgia26aug26,1...
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Stoneleigh and others...here is an interesting story that popped up late night on CNN:
Fed bends rules to help two big banks: If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.
http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortun...
The link to PDF versions of these letters was placed in Drumbeat by Records-->
The letters are dated August 20th but were not released to the public until Friday after the market close. If you want to bury news then you release it late on Friday afternoon. If this news came out on Aug 20th I doubt the markets would have ended up for the week.
The permissible amount is 25 billion per bank. Compare this to the 500 million that each of 4 banks were reported borrowing from the Fed window. I think it likely that some major banks are insolvent. How big is this problem?
Hmmm...the links to the PDFs say "page not found". That's never a good sign.
Milton Friedman was wrong. We are going to sell each other CDOs. Soon as I get back to the states I`m going to stock up on deep out of the money puts on ALL big banks they provide a market for. My only concern is that the Feds might bail out the stockholders. Risk worth taking.
RobertInKyoto
I haven`t escaped from reality. i have a daypass.
Hello TODers,
http://www.kansascity.com/news/columnists/cw_gusewelle/story/247767.html
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Global inertia aggravates Zimbabwe’s agony
When history is written of the last decades of the 20th century and the first years of this one, it is not what we have done in Africa that will invite the charge of U.S. racism, but rather what we haven’t done — in Sudan, Zimbabwe, Rwanda, Ethiopia, Congo, Sierra Leone and other bloody and broken places.
Another country is dying. It’s just a headline in the news.
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What are the chances of Oprah, Jay-Z, Fifty Cents, Will Smith, Puff Daddy, Kanye West, Tiger Woods, Michael Jordan, and other rich African-American actors, athletes, musicians, and businessmen coming to the rescue of the common Zimbabwean by hiring Blackwater Mercs to quickly overthrow Pres. Mugabe?
It should be blatantly obvious by now to these very influential people that the US Govt. will not lift a finger to reduce the suffering in Africa by these homegrown, tyrannical overlords. Oprah, with her massive wealth alone, could do much to jumpstart Peakoil Outreach and Paradigm Shift throughout Zimbabwe. She has never replied to my email, but surely she could get by with a smaller personal jet and fewer estates to help Africa. Time will tell whether she can find the courage and fortitude to be a postPeak female version of Haym Solomon:
http://www.nps.gov/revwar/about_the_revolution/haym_salomom.html
http://en.wikipedia.org/wiki/Haym_Salomon
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
I am very sad to hear that.
He was a great American patriot and I intend to keep loaning out the video to any takers.
To rebuild its environmental image in America, BP has refused to take up the increased pollution limits it has been offered in order to upgrade a refinery near Chicago. But unless there are unexpected technological breakthroughs, the $3.8bn plan will be scrapped, and a US refining capacity shortage will grow more acute.
If you provided the refinery with unlimited unmetered electricity and unlimited and unmetered hydrogen,
could more fuel be produced by the refinery for a given volume of canadan crude with less polution??????????