A Bankrupt BP - Worse For The Financial World Than Lehman Brothers?

http://day-trading-the-stock-market.blogspot.com/

Written by JSMineset - Tuesday, 22 June 2010 18:29

The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.

People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.

And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register… a foot in the door so that they could subsequently beg for an extension in credit size and duration.

For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC – or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP’s distress. They are one of the only "hard asset" entities backing up this so-called exchange.

If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.

As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter… we now have a major oil company on the verge of going under. Another leg of the global economic "chair" is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.

All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again – and it could probably be a lot worse. The world is in a far more delicate state now.

Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn’t take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.

The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet – but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn’t make an individual now turn towards gold at full speed, it is likely that nothing will.

http://oilprice.com/Energy/Energy-General/A-Bankrupt-BP-Worse-For-The-Financial-World-Than-Lehman-Brothers.html

The Highest Commercial Real Estate Default Rate Since 1992:

The U.S. Has Highest Commercial Real Estate Default Rate since 1992, Analyst Reports...

http://www.realestatechannel.com/commercial.php

Posted by Alex Finkelstein 06/17/10 11:35 AM EST

As predicted, 2010 will mark the highest default rate among commercial real estate owners since at least 1992, according to two separate new studies by New York City-based analysts.

Pressures continue to drive up commercial mortgage defaults, reports DSNews.com.

Hotel delinquencies claimed the biggest jump, up 129 basis points to top out above 18 percent.

The economic downturn has choked off demand for retail and office space, with vacancy rates rising and prospects of new occupants limited by the duress of today's job market," the publication reports, citing statistics from the analysts' reports.

At the same time, commercial real estate values have dropped more than 40 percent in some markets, pushing a growing number of property owners severely under water.

"Plagued with the same trip wires that have set off a barrage of residential mortgage delinquencies - unemployment and negative equity - the commercial real estate market, too, is dealing with a monstrous volume of loan defaults," according to DSNews.com.

Two separate studies show that defaults on commercial mortgages, both held by banks and those owned by securities investors, have reached new record highs.

According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation's FDIC-insured banks increased from 3.83 percent in the fourth quarter of 2009 to 4.17 percent in the first quarter of 2010.

Real Capital says this is the highest default rate reported since 1992, the first year for which data is available, when it was 4.55 percent.

Year-over-year, the default rate is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was 0.58 percent.

As of the first quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital's tally.

Real Capital Analytics segregates multifamily apartment loans from the broader category of commercial mortgages, which includes hotel, office, retail, and industrial.

In the first quarter of this year, the default rate on multifamily mortgages held by banks hit 4.62 percent, up from 4.41 percent the previous quarter, and the highest level on record going back to 1992.

In total, $9.9 billion of bank-held multifamily mortgages were in default last quarter.

A separate study by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and REO, jumped 40 basis points in May to 8.42 percent - the highest in the history of the CMBS industry.

For seven of the last eight months, the rate of increase in CMBS delinquencies has been between 37 and 49 basis points in Trepp's study. The only exception was February of this year when the delinquency rate nudged up only 22 basis points.

To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65 percent. One year ago, it was 2.77 percent, according to DSNews.com.

Trepp notes that results were mixed across the varying property types. In May, the industrial sector was the only one to post a decline in CMBS delinquencies, dropping from 3.44 percent in April to 3.34 percent.

Britain Is the First To Choose Deflation:

http://day-trading-the-stock-market.blogspot.com/2010/06/britain-is-first-to-choose-deflation.html

by Rick Ackerman - Wednesday, June 9, 2010

Over the last three years, the Federal Reserve has conjured up trillions of dollars of funny money in an attempt to breathe some inflation back into the economy. The attempt has cleared failed...

Now, it would appear, Britain has become the first country to throw in the towel on fiscal and monetary black magic. In effect, the country has decided to let deflation take its course, allowing the chips to fall where they may. In the essay below, Cameron Fitzgerald, a frequent contributor to the Rick’s Picks forum, takes a close look at the decision and what it will mean not only for Britain, but the world. He concludes with a list that spells out what to expect, and the kind of pain we will experience as the world’s financial system comes very slowly back into balance in the years ahead. If his predictions are borne out, the standard of living is about to fall sharply for billions of people around the world.

David Cameron's new Government in England announced Tuesday that it will introduce austerity measures to begin paying down the estimated one trillion (U.S. value) in debts held by the British Government. Lets let that sink in for a moment, for it is a stunning announcement. Now repeat it: England will introduce austerity measures in order to eliminate the deficit and begin paying down the national debt. And that being said, we have just received the signal to an end to global stimulus measures -- one that puts a nail in the coffin of the debate on whether or not Britain would “print” her way out of the debt crisis. That would have virtually guaranteed an eventual hyperinflation that would have spread to all Western nations, destroying the U.S. dollar as the world’s reserve currency in the process and ending several hundred years of Western economic dominance.

This is actually a celebratory moment although it will not feel like it for most. But wait. The U.S. did not say it would pay down its debts. And anyway, everyone knows that debt pile is too large to ever be repaid. They are wrong. And the U.S. does not need to send any particular message at this time anyway. The U.S. has been in a deflationary spiral since 2006, having discovered that nothing, not even oil flooding the Gulf, a nuclear North Korea threatening war, campaigns in Afghanistan and Iraq, nor threats that Israel might one day bomb Iran and shut down the oil pipe, can pump up energy prices enough to drive future inflation or save the economy the old-fashioned way. Not nearly enough to escape the gravity of the housing and asset collapse anyway.

Out of Ammo

We have run out of the ammo of cynicism and old-style politics. Debts will have to be paid. Creditor arrangements will be made, concessions granted, standards of living will decline and countries will be sent to the table to bargain in a cooperative effort to resolve credit imbalances. There will be horse-trades, payments out of key commodities and access granted where previously it has been denied. There will be recovery eventually and it is a better future than what a hyperinflation would bring us all. And yes, the bills will be settled. Time to rejoice.

To my way of thinking, the U.S. will not, cannot, resort to regular debt monetization, printing press economics or the eventual and guaranteed destruction of their currency, economy and way of life before attempting first to harness what appear to be insurmountable debts and obligations. Particularly if European nations and England (first among them) begin taking serious steps toward fiscal discipline and bringing in measures of restraint. Many will argue against my theory. They will all be wrong. And so the English have opted to go with the devil they know. They have chosen a path that means their economy will contract, perhaps significantly. Where unemployment will surge as public sector layoffs and the elimination of programs are required to harness the debt bomb are enacted and all spending is carefully scrutinized, fleshed away, even eliminated.

Minimal Safety Net

Everything could conceivably be on the chopping block short of core government services, social service spending, basic medical services, pensions and the safety net itself. The debt is just so big that nothing less than all the efforts of Government and the cooperation of the majority of the public in accepting restraint will allow it to work. But what does this mean in the wider picture when one of the leading members of the G8 has deliberately chosen the path that signals a deflationary trend? Possibly even bringing on a global depression as an outcome of that choice?

As I said, the English have chosen the devil they know, and that is economic contraction. The last serious bout they experienced on that front was of course during the 1930's and again following the Second World War, but over the years Britain has seen many recessions. Some were deep, and folks may recall the Maggie Thatcher days of fiscal restraint, elimination of public programs and a sell-off to the private sector of everything from coal mines to railways and airlines.

Hyperinflation ‘Devil’

The devil the British does not know is hyperinflation -- not up-front, ugly and in their faces, anyway, but only anecdotally from the experience of others. No major modern economy in the West has ever hyperinflated. The exception, Germany, did so only under duress brought on by destructive and debilitating reparations following the First World War. Nobody wants a repeat of that. So this is actually a relatibrly safe move from that standpoint.

Those other nasty outcomes are already too well-known from readings of the history books out of the Weimar Republic. A complete destruction of the currency there resulted from ill-conceived “fixes” followed by a total failure of the financial, investment, banking and insurance systems. Printing press solutions led to widespread public misery and hunger. Bond and debt defaults were manifest and eventually the worst insult was when the country was saddled by an inability to borrow and rebuild following its confidence crisis. Last came radicalism and political instability as the people demanded solutions to all their problems.

Social Collapse Possible

We know too that hyperinflation can lead to chaos and social disorder. Nor is social collapse out of the question under that scenario -- particularly with so many people dependent on our existing system, and as the population ages and becomes more dependent on fewer folks of working age. No Brit wants that either. No Brit Government could survive it. The debt must be paid and the burden of that pain will be shared by all. It is the right decision. But at a high cost.

I think it is worth it. The likes of Russia, India, Brazil and China have been working in concert to develop an alternative world reserve currency, buying up gold in earnest, ostensibly to back their claim with real wealth under IMF auspices and the terms of Special Drawing Rights (SDRs). Success will give them the kind of collective bargaining power that until now has gone automatically to the U.S. because of the dollar’s status as the world’s reserve currency.

So, will we just sit back, punish our creditors through an inflationary default and thus hand them the power and influence to control a new and developing reserve currency; or will we defend our position, pay off our debts fairly (or by concessions) and retain the rights we hold dear? Let’s first ask ourselves the following question: Why must hyper-inflation be the only alternative to deflation? Answer: Because governments all over the globe have already tried stimulating their way out of the recent credit crisis and recession to little avail. They have attempted fruitlessly to generate even mild inflation despite huge stimulus efforts and pointless spending. All they have to show for it is massive additional debt and an unfolding currency time-bomb.

No Buying Our Way Out

Clearly, we cannot buy our way out our debt burden. It is that simple. It has been tried and it does not work. We cannot dig our way out of a hole either. So instead, consumption, the driver of our Western economies, remains sluggish at best, real estate is badly overpriced almost everywhere and personal indebtedness is strangling the middle classes while unemployment continues to rise and the tax burden and obligations grow by the day. It is an unsustainable exercise that will not end well. We now know it will not work, cannot work and won't likely be tried again in any significant way except by insane self-serving governments and those that have just run out of creative solutions. It is time to just pony up and pay the piper. This is simply the better (and only reasonable) solution to all the alternatives. But it will mean a long, slow and deliberate winding down until solvency is within reach. It will mean cities, states and counties will go bankrupt and not be rescued.

And it will be painful. Public spending will be cut. Consumption could decline precipitously. Unemployment numbers may skyrocket and bankruptcies will stun readers of daily blogs like this one. It will put the brakes on growth around the world. Oil prices will fall along with the prices of most other commodities. Gold could soar while food costs rise as a relative percentage of daily expenditures. The Dow will crash and there will be ripple effects across the European union and eventually the globe. Hardest hit will be major exporting nations like China and India who depend on Europe and the Americas for their bread and butter income. Aid programs to the Third world will be gutted, and I cannot yet imagine the consequences that will bring to the poorest people on earth.

Announcement ‘No Coincidence’

The significance of the decisions announced Tuesday will impact every nation on earth. And this is not happening in a vacuum, nor is the timing of the announcement just weeks prior to the G8 and G20 meetings coincidental. The statements made today are designed to lead and they will. The EU is also attempting to bring spending and fiscal controls to its member states. Greece is only the first to face the specter of a declining standard of living, much higher taxes and interest rates, controls imposed from outside its borders, and seriously reduced government spending. But the idea proposed now by the Cameron Government has real traction and will gain momentum. Britain is signing on voluntarily and has done so before, its back is to the wall and no good options other than strategic default. I applaud them.

And the idea will spread. But with a twist this time: Instead of protectionist stances between governments, there will be more free-trade arrangements implemented. Access to markets will open, not close. Canada itself is undertaking to establish a major trade agreement now with the European Union that would include among other things greater labor mobility and freedom from past employment barriers between the partners. Structural change is in the air too. It will also be in the interests of all nations to cooperate and not enter into conflicts or trade wars.

This Is the Big One

Anyone who thinks that the massive debts piled up by governments can be discharged easily while we go through a mild recession is flat-out wrong. This is the big one. Markets may respond positively at first, but then that sinking feeling will bring on some very bearish sentiments. This could well occur over the next few weeks. A major global economic contraction will without a doubt take the steam off almost all stocks as reality begins to set in. This is the expected outcome. It will come as a big surprise, though, to all who were certain that uncontrolled spending, stimulus and debt monetization would be the solution chosen by governments to satisfy the electorate. While spoiled and self absorbed, the electorate is not stupid. They will get on board with a solid plan if it is presented in a way that assures them their core interests are protected and offers hope and a better future.

A major reckoning is now a foregone conclusion. The word reset comes to mind -- and then a long, slow grind from the depths of debt insanity, followed perhaps by an agonizing return to prosperity and economic health. A decade may well be too optimistic a time frame to bring balance back to the old world and economies of the West. Let's get used to it. We are all in this one together.

So deflation it is. It will come to Canada eventually, too, so let’s start having a real debate about what that will look like and get familiar with the idea. We have already experienced stark restraint in this country in a program that was masterfully crafted by Jean Chretien and Paul Martin in the 1990's. Sanity was brought back to this country after three hard years of belt tightening. But this next phase will be a much more bitter pill to swallow. We need to look to our leadership to guide us through the crisis as it unfolds. The inflationist's camp can now leave the room because none of us can stand to hear their anguished cries, angry foot-stomping and teary, selfish objections. So pathetic.

What to Expect

Here is a very short list of what can be expected -- and trust me, this is a much more palatable list than the ones I have analyzed involving an unthinkable and devastating hyperinflation. So put away the placards and protest signs. We all need to get on board with paying down debt like any responsible citizen debtor would do. We owe big-time and this is but a taste of how it may cost us:

*Major employment reductions amongst those working in the public service
*Health care services that are rationed. Fewer nurses, health practitioners and support staff
*Larger class sizes in schools and large reductions in the number of teaching positions
*Reduced public pensions and benefits, including social service payments
*Interest rates that will gradually rise and eventually settle at around six percent
*Strikes, labor unrest and supply chain breakdowns
*Widespread unemployment affecting virtually every sector of the economy. None will be spared
*An expansion of public works programs, green initiatives
*Civil disobedience, arrests, targeting of threatening movements by security agencies and government
*Increasing taxation, particularly on the wealthy and buoyant businesses
*Shortages of all kinds and the loss of variety on store shelves
*An erosion in standards of living for most but particularly for those who are indebted
*Cutbacks in military spending, defense, coastal patrols and overseas engagements
*Cherished programs that Government usually support being completely eliminated
*Larger police forces, prison expansions and a judiciary that is strained to the breaking point
*Cities, states and counties denied bailouts, forcing them to bankrupt
*A reduction in services that protect the environment, animal rights and special interests
*Closures of universities
*The list could stretch on and on, but you get the picture.

It will be a very difficult and long-lasting correction that will purge waste and inefficiency from the system. Few will be happy, but the alternative is just too distressing to consider. The only thing that will give you true immunity in the mean time is a fat blanket of cash. Be sure to have some.


Be liquid. Pay off debts. Rejoice in your good decisions. And live free...

http://news.goldseek.com/RickAckerman/1276063200.php

US Economic Recovery of Lies:

http://thedailybell.com/1096/US-Economic-Recovery-of-Lies.html

Slow-motion recovery keeps unemployment high...

High unemployment isn't going away. The slow pace of economic growth shows the recovery is too weak to generate enough jobs for 15.3 million unemployed people. Layoffs are contributing to the problem. That's evident from an elevated number of weekly claims for jobless aid. Two government reports Thursday offered new evidence on all of those fronts. For many Americans, it doesn't feel much like a recovery. The unemployed face fierce competition for job openings. Those with jobs are watching their paychecks shrink. A growing number of people are at risk of falling into foreclosure. And only people with the most stellar credit are likely to get a new loan. "We're out of recession, but the recovery is not going to bring a whole lot of smiles," said Joel Naroff, of Naroff Economic Advisors. – AP

Dominant Social Theme: Growth is hard to come by and patience wins the day.

Free-Market Analysis: The trouble with economic reporting in the West is that it simply does not tell the truth. This AP story is a good example. Its main point is that the American "recovery" is not going to be strong enough to provide enough jobs for the 15.3 million unemployed. Now this supposition has two problems. First of all there is no "recovery" as it is commonly understood, and second we assume that the 15 million out-of-work figure is based on a 10 percent unemployment rate. In fact, that figure is very much in dispute because of the way American federal government analysts count – and then don't count – the unemployed. Many savvy observers believe that the unemployment rate is twice as high, at 20 percent, and we believe it to be even higher than that.

Anyway, as far as the US recovery itself goes, this is a most misleading conversation within the mainstream press. Even during less severe downturns, Western economies have continually degraded and this is no ordinary downturn as we have pointed out many times. This time around the fiat money system basically collapsed. The entire system has been on life-support for about two years now. What kind of extrication can be expected from such a quandary?

We figured that to save the system, central banks would have to pump an aggregate US$100 trillion into Western economies over a period of time. We're not sure how far along they are, or if they'll reach that figure but the amounts of debt-based money that has been created and loaned out or stuffed into commercial bank coffers is staggering. It hasn't all circulated but watch out (for hyper-inflation) if it does. Of course, that was before this latest sovereign debt crisis. Since central banks do all sorts of things they don't report – engaging in various kinds of swaps and derivatives trading, who knows what the final number may be. Here's some more from the AP article:

The economy grew at a 3 percent annual rate from January to March, according to a new estimate released by the Commerce Department Thursday. The new reading, based on more complete information, was slightly weaker than an initial estimate of 3.2 percent a month ago. Consumers spent less than first estimated. Same goes for business spending on equipment and software. And the nation's trade deficit was a bigger drag on economic activity. Those factors led to slower growth last quarter than first estimated.

In a separate report, the Labor Department said the number of newly laid off workers filings claims for unemployment benefits fell to 460,000 last week. But the latest level of claims is actually higher than it was at the start of the year. By this point in the recovery, economists had hoped claims would be in the 400,000 to 425,000 range. That would signal more robust job growth was on the way.

Sounds grim? It gets worse. This article was written just as first quarter American growth was revised DOWN – adjusted from an annual rate of 3.2 percent to just 3 percent, according to the Commerce Department. The expected growth rate was to have been about 3.4 percent. It certainly didn't get there.

In fact, there are plenty of statistics that could be marshaled to put this current recovery into focus. But when one starts to do that a trend emerges, and it isn't a pretty one. We recently came across an article in the socialist Monthly Review. The article, "Capitalism, the Absurd System – A View from the United States," was co-written by Robert W. McChesney, whom left-wing Utne Reader in 2008 listed as one of their "50 visionaries who are changing the world".

The article has some fascinating charts, including one that shows GDP growth shrinking from four percent in the 1940s to a little over one percent in the 2000s. The chart is attributed to the Bureau of Economic analysis and we're not sure if it adjusted for inflation. There is another telling chart in the article, showing how wages have fallen. The article describes the trend this way: "Worker productivity is much greater than it was back in 1975, but very little of this increased wealth actually goes to workers themselves. ... The wages of U.S. manufacturing workers have fallen rapidly during the last three and a half decades as a share of value added in U.S. manufacturing. The median wage of all nonagricultural workers has stagnated over the same period."

Given this context, it is interesting to see how the article explains the non-performance of Western capitalism – specifically in the United States – by turning to Marx for enlightenment as follows: "Marx's work provides searing insights on how to understand a society that, at the surface, appears to be one thing but, at its deeper productive foundations, is something else. Marx argued that a core contradiction built into capitalism was between its ever-increasing socialization and enhancement of productivity, and its ongoing system of private appropriation of profit."

Of course Marx never did seem to explain adequately how workers were deprived of their share of a growing pie of profits, and when it comes to explaining how current capitalist trends mighty be countered, the authors are similarly fuzzy: "Mere state ownership of key productive forces is not enough to create a socialist society; the people must exercise a sovereign rule over these productive forces and society as a whole, and the society must be organized to promote collective needs."

As usual, we wonder who exactly will "exercise a sovereign rule over these productive forces." Additionally, we would ask, when it comes to the organization of society "to promote collective needs," exactly who will be doing the organizing. This is always where collectivist solutions tend to fall down. They get hazy about who is going to provide the leadership that will lead the people to the promised land.

We think we can explain all this a little more succinctly using some free-market thinking. The problem with Western economies for at least the past 100 is central banking. It is central banks, by overprinting money that cause first booms and then busts. The power elite, rarely if ever mentioned in Marxian analysis, stands behind the central banking system – which began as an Anglo-American invention but has now spread around the world. As US Congressman Ron Paul has pointed out, the central bank is an engine of centralization. After every boom cometh a bust and after every bust more businesses go bankrupt and more of the middle class is washed away.

That's why the AP's statement about the American recovery certainly stretches the truth. (Of course it's not fair to pick on AP – the recovery meme is a promotion of the power elite and is virtually everywhere these days throughout mainstream US media.) The point is that Western recoveries under a central banking regime are inevitably fainter and fainter. Each recovery is weaker than the last while crises grow stronger and deeper.

As we recall Bell feedbacker F. Beard recently pointing out, the system is set up so that people "buy at the top" – take out loans and generally expand portfolios during the good times and then are faced with certain consequences when the economy turns sour. The problem is always the same: Loans are suddenly under water as debtors discover that the equity of their investments is worth less than what they owe. Bank lenders know the inevitability of this. Many borrowers do not.

Is the current economic crisis is some sort of turning point? In the past the power elite has shoveled money at commercial banks and securities firms – and then proclaimed a recovery when the stock market began to move up. Even when the recovery was weak and limited the elite could rely on the mainstream media to forcefully proclaim victory over recession, inflation, deflation, etc.

But with stock markets rising and the media crowing, it was never really possible to examine the extent of the damage in a prolonged or realistic way. That's changed now. The Internet has allowed real discussions of the economic fraud of the so-called modern capitalist system. And the system itself has so badly failed in the past few years that it is probably much more difficult to cover-up the damage this time.

Conclusion: For those apt to defend the system, the next few years likely shall prove both difficult and unforgiving. We anticipate continued conversations about alternative forms of money and different ways of approaching the economy. The elite of course shall suggest further centralization and central banking control. But we have a feeling that this will be a hard argument to make. The mainstream press has lost credibility as regards these matters. Articles such as this one published by the AP will be an increasingly hard sell to an increasingly informed public.

32 States Now Officially Bankrupt: $37.8 Billion Borrowed From Treasury To Fund Unemployment; CA, MI, NY Worst:

http://www.zerohedge.com/article/32-states-now-officially-bankrupt-378-billion-borrowed-treasury-fund-unemployment-ca-mi-ny-w

Submitted by Tyler Durden 05/21/2010

Courtesy of Economic Policy Journal we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states.

Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance. The states in most dire condition, are, not unexpectedly, the unholy trifecta of California ($6.9 billion borrowed), Michigan ($3.9 billion), and New York ($3.2 billion). With this form of shadow bailout occurring, one can only wonder how many other shadow programs are currently in operation to fund states under the table with federal money.The full list of America's 32 insolvent states is below, sorted in order of bankruptedness (in billions of dollars):

California $6,900
Michigan 3,900
New York 3,200
Penn. 3,000
Ohio 2,300
Illinois 2,200
N.C. 2,100
Indiana 1,700
New Jersey 1,700
Florida 1,600
Wisconsin 1,400
Texas 1,000
S.C. 886
Kentucky 795
Missouri 722
Connecticut 498
Minnesota 477
Georgia 416
Nevada 397
Mass. 387
Virginia 346
Arkansas 330
Alabama 283
Colorado 253
R.I. 225
Idaho 202
Maryland 133
Kansas 88
Vermont 33
S.D. 24
Tennessee 21
Virgin Islands 13
Delaware 12