Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

The Next Domino

by Jerome a Paris Mon Jan 21st, 2008 at 09:32:48 AM EST

European markets are down sharply this morning, after a similarly dismal day in Asia, reflecting worries about the now-acknowledged-as-inevitable US recession, and more specific fears about the banking sector.

In particular, the dire situation of the monoline insurers is a particular worry. Monoline insurers are specialised insurers which focus on narrow sectors of the financial world: initially created to carry the residual risk on US municipal bonds (debt raised by local public authorities), they have extended that same function to a few other markets, including asset-backed securities.

Yes, the infamous asset-backed securities.

The very ones at the center of the storm in the financial markets. The category includes in particular the now infamous mortgage-backed securities, which are now understood to be backed to a surprisingly large extent by impossible-to-repay "toxic sludge" - subprime and other mortgages provided to borrowers who could never afford them, used to buy houses at inflated prices that are now collapsing.

Unsurprisingly, the monolines are now in trouble.

Theor core business is, at heart, quite simple: they take the risk on the underlying debt (the payment risk on the relevant municipality, or on the asset-backed securities) via a guarantee to pay that debt to the bondholders who purchase it. The guaranteed bonds are of course paying out less interest than if they were not guaranteed, and the monoline takes a fee on the difference - but not the whole difference, which makes the product attractive to municipalities and other borrowers. The "wrapped" (or guaranteed) bonds are usually rated "AAA", ie the safest possible, thanks to the rating of the monoline insurer itself, which is structured to be an ultra-safe institution. The underlying bonds would themselves be investment grade (ie in the better half of rated paper), but less well rated and thus less attractive to whole swathes of investors. The fact that the monolines do not need to fund their risk taking, and the specific risk profiles they seek in the underlying transactions, is what makes it possible for their guarantee to be cheaper. Investors get ultra-safe paper. Municipalities (and others) borrow cheaper than they otherwise could. Monolines earn money. A wonderful win-win-win. Until...

:: ::

Municipal bonds are still seen as safe, so the problem is not there; it's, of course, the exposure to ABSs that is threatening the monolines today, as the underlying risks they are guaranteeing appear to be a lot worse than initially assessed. Whether this was caused by faulty ratings of the underlying paper by rating agencies, or by insufficient risk analysis by monolines, remains to be seen. Faced with that now visible exposure to bad risks, monoline insurers are being asked to build up their capital and reserves if they want to keep their coveted "AAA" rating which allows them to provide the coveted guarantees.

AMBAC, the largest of the monolines, was downgraded this week-end by Fitch, the smallest of the 3 rating agencies (Moody's and S&P are widely expect to follow suite soon), after it emerged that its proposed capital-raising plan would not be seen as sufficient and was cancelled. This means that:

  • AMBAC can no longer do any business; clients that were looking to enhance their bonds through them can no longer do so, and will see their borrowing costs increase;
  • even worse, all bonds which are already guaranteed by AMBAC will now lose their own AAA rating, which means that all the investors that need to hold a given proportion of such highly rated paper (and there are a lot of them) are going to need to sell that paper, which no longer fits in their portfolio. This could cause a massive drop in their price if they all sell at the same time, losses for many institutions, and more chaos in the financial system.
And there's close to a trillion dollars of such paper around. We're looking at the mother of all financial stampedes here, if and when the monoline insurers are downgraded by the two big rating agencies...

The market panic in this context is quite rational.


Display:

Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA, throwing doubt on the ratings of the $2.4 trillion of debt guaranteed by bond insurers and threatening forced sales by investors that are restricted to holding the highest-grade bonds.

``The major risk for credit markets remains forced selling on the back of downgrades of the insurers,'' said Jochen Felsenheimer, the Munich-based head of credit derivatives research at UniCredit SpA, Italy's biggest bank. ``The problem right now is there seems no way out.''


Credit-default swaps on Ambac, the second-biggest insurer, soared last week to $2.6 million upfront and $500,000 a year to protect $10 million in bonds, implying a more than 70 percent chance of default in the next five years, according to a JPMorgan valuation model.

It cost $2.6 million upfront and $500,000 a year for a similar contract protecting MBIA debt, signaling traders also see a more than 70 percent default risk in the next five years.

The bond insurance industry guaranteed $100 billion of collateralized debt obligations linked to subprime mortgages, $22 billion of non-prime auto loans and $1.2 trillion of municipal debt. New York-based Merrill Lynch & Co., the world's largest brokerage, last week took $3.1 billion of writedowns on the value of default protection from bond insurers.




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 09:35:31 AM EST
Weeeee. We're in for a ride. China has the wild west of manufacturing. The US has the wild west of finance.

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Mon Jan 21st, 2008 at 09:41:27 AM EST
[ Parent ]
http://www.dailykos.com/story/2008/1/21/94415/4741/953/440435

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 10:33:52 AM EST
[ Parent ]
Would "Oh my!" be an appropriate response to this news?
by Colman (colman at eurotrib.com) on Mon Jan 21st, 2008 at 09:42:03 AM EST
"Holy shit!" seems more appropriate.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 09:47:58 AM EST
[ Parent ]
That's the problem with you continentals. Too excitable.
by Colman (colman at eurotrib.com) on Mon Jan 21st, 2008 at 09:48:56 AM EST
[ Parent ]
As the hurricane said to the palm tree
"Hang on to your nuts, this ain't no ordinary blow-job"

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Mon Jan 21st, 2008 at 10:22:58 AM EST
[ Parent ]
No it's the invisible hand of the market at work.

Why's that Wall Street guy have his pants down?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Jan 21st, 2008 at 11:51:55 AM EST
[ Parent ]
ManfromMiddletown:
Why's that Wall Street guy have his pants down?

Beats me. He was falling past my window so fast I couldn't get a good look.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Mon Jan 21st, 2008 at 12:08:20 PM EST
[ Parent ]
I don't think that you were the one being beat.

Invisible hand at work again, strokin' off the bosses.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Jan 21st, 2008 at 12:13:24 PM EST
[ Parent ]
Hey! The invisible hand just picked my pocket!

Il faut se dépêcher d'agir, on a le monde à reconstruire
by dconrad (drconrad {arobase} gmail {point} com) on Mon Jan 21st, 2008 at 07:46:48 PM EST
[ Parent ]
Does anyone want to hazard a guess as to how bad this could get?
by gobacktotexas (dickcheneyfanclub@gmail.com) on Mon Jan 21st, 2008 at 10:38:54 AM EST
[ Parent ]
This quote partially overlaps with Jerome's quote in his top-level comment.

Bloomberg.com: Corporate Default Risk Soars to Record on Ambac Ratings Cut (21 January 2008)

Ambac was stripped of its top AAA grade by Fitch Ratings on Jan. 18 after the New York-based company abandoned plans to raise new equity. Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA, throwing doubt on the ratings of the $2.4 trillion of debt guaranteed by bond insurers and threatening forced sales by investors that are restricted to holding the highest-grade bonds.
I'll hazard a guess that the downgrading of Ambac happened after the close of trading on US markets on Friday, knowing that the US market would be closed for a holiday on Monday. Tomorrow's market open in New York should be interesting. This may have influenced the Asian markets, which were still open and has definitely hit the European markets today as well as, again, the Asian and Australian markets this morning. The following piece doesn't mention the downgrading of bond insurers, concentrating instead on the reation to Bush's announced economic stimulus package:
International Herald Tribune: European and Asian markets plunge on U.S. recession fears
Global stock markets plunged Monday as fears spread that the contagion in U.S. mortgage markets was spreading. Indexes in Europe fell as much as 7 percent after a massive sell-off in Asia.

...

Investors in Asia have been in a state of denial about the possibility of a U.S. recession, said Adrian Mowat, chief strategist for JPMorgan in Asia. But now, he said, "there's no debate about it."

Now, this is very interesting:
There may be more downturns in store for Asia, particularly as banks report the impact from their investments in the U.S. mortgage market. Companies "have not announced their year-end numbers yet," said Schuller, the Moody's credit officer, and if they are holding subprime assets, they may need to write-off their value. "They are going to be taking these 25 to 30 percent haircuts we're seeing on Wall Street," she said. "I think it is going to shock people."


We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 11:00:55 AM EST
[ Parent ]
If I understand it right -- and I'm an economist, not a trader, so maybe I don't -- this is the doomsday scenario, the one that puts the banking system at risk.

The "Send lawyers, guns and money" one.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Jan 21st, 2008 at 11:33:27 AM EST
[ Parent ]
The banking system is not at risk.

It's fucked.

We are looking at Japan 2.0 - in Spades.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jan 21st, 2008 at 11:39:37 AM EST
[ Parent ]
Isn't this a time to scream "market failure" and have the central banks start, I don't know, guaranteeing things? Nationalising things?

Anyone?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Jan 21st, 2008 at 11:18:27 AM EST
[ Parent ]
Except that the central bank doesn't seem to know what's going on.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Jan 21st, 2008 at 11:34:11 AM EST
[ Parent ]
How about this, we adopt the same approach as most industrialized nations do to bank deposits.

So that the government covers deposits to a certain point, and insures individuals and pension funds to a reasonable point (say $1 million US as of 1/01/08) including mutual funds and all pensions save those that are fixed benefit.

The rest is either written off, or held by the insuring goverment in order to create long term income to cover the cost of the intervention.

In one fell swoop, banks, power plants, all sorts of public infrastructure returned into the hands of the people.  And subject to democratic control based upon the principle of one person, one vote, not one dollar, one vote.

The income ineqaulity of the past 30 years could be corrected in one action, and the productive assets taken by the government could be used to insure continuity of government services.

Paul Krugman has been fretting about how we get that Great Compresssion that occurred during the 1937-1945 period in the US, that was brought on by massive spending on the Second World War and the demands for a greater portion of the surplus value of production.

When Krugman spoke at the launch of an populist economic policy inititative by a union backed group he has this look of "oh, shit" when he was talking about how it took a world war to get a great compression the first time around.  If there is prompt government action, that need not occur this time around.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Jan 21st, 2008 at 12:06:57 PM EST
[ Parent ]
In one fell swoop, banks, power plants, all sorts of public infrastructure returned into the hands of the people.

More like into the hands of faceless state bureaucrats. We've had enough of that in this country. We're just getting rid of the last state-owned things which the state has no business of owning, and I'd hate having to start from scratch all over again.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Jan 22nd, 2008 at 01:37:59 AM EST
[ Parent ]
Holy Crap indeed!  
I have only now remarked that the CAC40 felled 6.8% today! I don't remember to have seen something like this before (then again, I do not always pay attention)
by Deni on Mon Jan 21st, 2008 at 12:33:09 PM EST
[ Parent ]
Not since 9/11 has the CAC40 fallen as far in a day. (says Boursorama).
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jan 21st, 2008 at 12:51:41 PM EST
[ Parent ]
Ditto the DAX in Frankfurt - off 7.16%.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Mon Jan 21st, 2008 at 01:12:13 PM EST
[ Parent ]
Oh, what's a few percent amongst friends?

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Mon Jan 21st, 2008 at 01:44:44 PM EST
[ Parent ]
By analogy with The Wizard of Oz ("Lions and Tigers and Bears, Oh My!") I would say:

"Bears and Bears and Bears, Oh My!"

Il faut se dépêcher d'agir, on a le monde à reconstruire

by dconrad (drconrad {arobase} gmail {point} com) on Mon Jan 21st, 2008 at 07:48:11 PM EST
[ Parent ]
And by investors who have to hold a proportion of AAA's you mean things like pension funds and similar creatures?
by Colman (colman at eurotrib.com) on Mon Jan 21st, 2008 at 09:47:12 AM EST
Yes, and they will lose a boatload of money in the forced sell-off.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 09:48:58 AM EST
[ Parent ]
Wouldn't there be some clause about extraordinary circumstances and/or orderly selling with regard to forced sell offs?

aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Mon Jan 21st, 2008 at 09:51:56 AM EST
[ Parent ]
I think at some level the heavy regulation of mutual funds to make their investments "safe" may be counterproductive.

Mutual funds are required to engage only in "safe" investments (long only, no derivatives, only top-grade bonds, etc) ostensibly to protect their unsophisticated retail investor base (the proverbial widows and orphans - which including people's private retirement pensions which in the US are called "401k"). I would say that unsophisticated investors have no business being investors. Widows and orphans should have state pensions instead of being encouraged to take on private pensions on the assurances that regulation makes the investment safe.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 10:12:47 AM EST
[ Parent ]
which means that you should have compassion for these people and not hit them when they are down.

Yep, you absolutely nailed it.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 10:21:12 AM EST
[ Parent ]
There are people who make all their money on the markets by anticipating the predictable moves of all "safe" fund managers.

For example, take index-tracking "passive" fund managers. FTSE Index rebalance coming up? Gee, all of these people are going to have to sell the Northern Rock stock they hold. Let's do a short sell a little bit before the index rebalance and buy it back from the "safe" managers.

Regulations of "safe" investment funds make the funds predictable and therefore vulnerable, allowing the wealthy and "sophisticated" investors to rip off the funds where small-time "unsophisticated" investors put their savings.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 10:33:30 AM EST
[ Parent ]
No, no, no.

As ever, Gordon Brown leads the way, and as we see from the FT front page today - "Lenders seek help to fund home loans" - Northern Rock now looks like setting a wonderful precedent.

ie the the Government should guarantee everything......

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jan 21st, 2008 at 10:33:41 AM EST
[ Parent ]
Unsophisticated investors are all of them minus the real manipulators, unfortunately.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Tue Jan 22nd, 2008 at 01:37:21 PM EST
[ Parent ]
Nah, don't worry.  The whole summary of losses will fit into a cd they will post to the UK, so an appointed clerk can lose it forever.  (;

</lack of seriousness>

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Tue Jan 22nd, 2008 at 01:32:44 PM EST
[ Parent ]
Can you imagine the strategic discussions at high levels of Moody's and S&P's?  They are truly caught between a rock and a vice; damned if they do, damned if they don't.  Can anyone play this scenario out?

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Mon Jan 21st, 2008 at 09:54:13 AM EST
Under any objective criteria, it seems that several of the monolines need to be downgraded. That this hasn't been done yet is a testimony to the incredible pressure and lobbying that must be applied so that this doesn't happen.

I'd imagine that the managers of S&P and Moody's are looking for waivers of liability in exchange for maintaining (undeserved) optimistic ratings. But, even if the clean up is orderly, their reputations of independence and impartiality will be damaged by such an episode.

I haver no idea how this will play out, but the whole ratings industry will come out of this crisis completely different to what it was before - and so will the investment world.

Fascinating times...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 10:00:48 AM EST
[ Parent ]
What is all AAA debt became downgraded? Could the rating agencies reset their scale?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 09:59:22 AM EST
Just the chunks that are AAA thanks to the monoline "wraps". It's still big enough to create real dislocation.

But you still have US Treasuries (whose price, unsurprisingly, is going up these days - their yield is going down).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 10:02:15 AM EST
[ Parent ]
Well, there is a flight to quality explaining the rising price of US Treasuries. However, if the ratings agencies decide to downgrade US Treasuries so they are no longer AAA, there will be a sell-off of those as well and yields will rise again.

I'm not saying that the downgrading of the insurers is a downgrading of all AAA securities, I'm just imagining a scenario in which creditworthiness deteriorates across the board.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 10:06:08 AM EST
[ Parent ]
but this is a bit different, so far.

The "threats" to the US ratings are purely ideological assaults on the welfare state. Downgrading the US government makes no sense from a US investor's perspective: it's always going to be the safest entity around - it can tax everyone else in the US, and no foreign government can be safer - if only becuase investment outside the US can be regulated by the US government for US domestic investors.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 21st, 2008 at 10:20:09 AM EST
[ Parent ]
Downgrading the US government makes no sense from a US investor's perspective: it's always going to be the safest entity around

Why is that necessarily Jérôme? Could it not decide to default on part of his debt, or inflate away? In that case it would probably be worse than bonds from a Government that more or less balances the accounts, wouldn't it?

Having said that, I agree that in that particular case, it was pure propaganda against social programs. There was no mention of the war, or of tax cuts on the rich, which is a rather clear canary in the mine...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Jan 21st, 2008 at 10:50:50 AM EST
[ Parent ]
I don't think so, because in case of massive investment in foreign country debt from US investors, the US government may put some restriction on offshore investment that would ruin this advantage.

Very theoretically, US government may put into jail investors who would divert money from US treasuries.

by Xavier in Paris on Mon Jan 21st, 2008 at 11:34:14 AM EST
[ Parent ]
Yes, they could add those restrictions. But UNTIL they do so, would there not be an advantage?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Mon Jan 21st, 2008 at 12:02:57 PM EST
[ Parent ]
Ack, I meant "what if"

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Jan 21st, 2008 at 12:13:04 PM EST
[ Parent ]
I understand the rush to unload the securities by those required to be "prudent" but there hasn't actually been a rise in the risk that is proportional to the drop in value.

One can see the same effect when the S&P drops a stock from the 500 index. All the index funds sell to keep their portfolio balanced causing a momentary shift in price. It would seem that the "smart money" is mostly governed by a herd mentality.

Even with a lower ability for the monoline insurers to cover their obligations this does not mean they have no ability to do so. If a bond defaults there may be some residual value and the insurer need only cover the difference.

For the case of municipal bonds I suspect that the US federal government will have to intervene in some fashion since no one can afford to see this sector disrupted. If Northern Rock can get bailed out by the UK central bank then one can expect something similar will happen in other circumstances.

Unfortunately clear thinking and panic don't go hand in hand...

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Jan 21st, 2008 at 10:01:12 AM EST
Well, I've been advocating people clubbing together as in shipping

 P & I Clubs

for some time.

A "Guarantee Society" is what I call it. A mutual guarantee, backed by provisions into a Default Fund, and managed by a service provider partner.

Not difficult: and disintermediating the current model..

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jan 21st, 2008 at 10:40:27 AM EST
[ Parent ]
I find this interesting:

On the 15 November last year, Wikileaks received a document regarding Project Wing:

Project Wing - Northern Rock Executive Summary - Wikileaks

Injuncted (UK) leak regarding the sub-prime lending crisis and impacting Northern Rock, Bank of England, United Kingdom taxpayers, UK Shareholders, Merrill Lynch, Blackstone Group, and Citi Group.

It has been able to confirm it through the repeated requests for its removal.

Northern Rock vs. Wikileaks - Wikileaks

Today the transparency group Wikileaks released a number of censorship demands it has received over a confidential briefing memo relating to the dramatic financial collapse of the UK's Northern Rock bank.

And the claim for censorship is based on copyright, which does not surprise me one bit.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon Jan 21st, 2008 at 10:47:01 AM EST
I am giddy instead at all of this news.

Is that bad?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jan 21st, 2008 at 12:25:08 PM EST
I believe that's a sign that the times have moved from "interesting" through "fascinating" to "exciting".

This is not a good thing.

by Colman (colman at eurotrib.com) on Mon Jan 21st, 2008 at 12:27:28 PM EST
[ Parent ]
This being said, one can't take it with them, and I've this nagging feeling that, at least for us lot, the tide is about to turn back into our favor.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon Jan 21st, 2008 at 12:29:52 PM EST
[ Parent ]
Nice new whateveryoucallit about freiheit.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Mon Jan 21st, 2008 at 01:46:11 PM EST
[ Parent ]
I'm with you here.  The big thing that will be happening over 2008 (in the US at least) is that the 80's-90's corporate worship of the financial class will deteriorate.  Recall that before this trend began social programs, safety nets, etc, enjoyed massive popular support.   Americans are easily tricked into helping the rich when they think they too can become rich.  The instant they begin accepting this as impossible they begin to go after "theirs."

We're on the cusp of great changes by default.  The present financial and credit system of the US is an absolutely disgusting mess, from top to bottom.  

An anecdotal example of life in the US:  You have a good job, make 3 times rent but can't get an apartment in a city because your credit report has a few marks here and there.  Some of them are not even yours.  The agencies in charge care very little about this.  Where do you live?

The myth that if you WORK HARD and earn a good salary you will have a good standard of living in the US is being greatly challenged at this time.  A society that requires you to have investment and credit strategies to even get a HOME is headed for failure.  American culture requires that a good working salary alone should be enough to support a quality of life within those means.  If it is not, why work?

by paving on Mon Jan 21st, 2008 at 05:10:37 PM EST
[ Parent ]
Sometimes things have to get worse before they get better.

For the past thirty years people in the US and to a lesser extent Europe have repsponded to the shift of income from those who live by work to those who live by wealth through a set of measures that have allowed things to continue without a crisis.  

First, women entered the workforce as a way to keep family income stable.

Second, families turned to credit to sustain a lifeystyle beyond their means.

There is not third wave to sustain things as they are.

There has to be fundamental change.

Either workers in the advanced world have to accept lower standards of living, and walk down a path of economic inequality that in due time will yield social distinctions.  Down this path lies the death of democracy.

Because when a social system requires economic relationships of subordination, social distinctions that reinforce this soon emerge. Democracy then dies.

The sooner the realization that we have to fight comes out, the easier it's going to be.  We can either have a peaceful shift, or we can have war.  The longer we avoid the inevitable the more likely the latter becomes.

 

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Jan 21st, 2008 at 12:48:05 PM EST
[ Parent ]
The sooner the realization that we have to fight comes out, the easier it's going to be.  We can either have a peaceful shift, or we can have war.  The longer we avoid the inevitable the more likely the latter becomes.

Reasonable, rational 2words.
At least 20 years too late.
Too many sleepy people.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Jan 21st, 2008 at 04:43:32 PM EST
[ Parent ]
It's not just that things have to get worse before they get better, although that is part of it as well.

Everyone who has been following this (and here I just barely count myself as one such) has known that this had to happen. Something had to give. It wasn't a matter of "if", it was only a matter of "when".

And everyone has been nervous, wondering and waiting for it to happen.

Don't you think Damocles would have been relieved when the sword finally fell?

Il faut se dépêcher d'agir, on a le monde à reconstruire

by dconrad (drconrad {arobase} gmail {point} com) on Mon Jan 21st, 2008 at 07:34:19 PM EST
[ Parent ]
Exactly.  I have always enjoyed domino days because the game riggers finally get raided and it doesn´t happen often.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Tue Jan 22nd, 2008 at 02:06:06 PM EST
[ Parent ]
From now on, Martin Luther King, Jr. Day might also be known as "Black Monday".

And you thought irony was dead.

I am thankful for one thing. No matter how bad things get, at least I'll understand what's going on, and why, as long as Jerome keeps posting. Thank you, Jerome!

Il faut se dépêcher d'agir, on a le monde à reconstruire

by dconrad (drconrad {arobase} gmail {point} com) on Mon Jan 21st, 2008 at 07:30:23 PM EST
From now on, Martin Luther King, Jr. Day might also be known as "Black Monday".

Hahaha!

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Jan 22nd, 2008 at 01:37:17 AM EST
[ Parent ]
I get it, but for older people, we have already run out of ´black´ weekdays.  They are all taken, so we have to start with the terra alert color days and we are in deep ´white terratory´.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Tue Jan 22nd, 2008 at 01:58:08 PM EST
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