...from Dr. John - The ESFS and US Markets

"The European Financial Stability Facility (EFSF) is a Luxembourg corporation to which European states have committed 440 billion euros of backing, beyond which the EFSF must issue its own bonds to investors in order to make loans (not grants) to recipient countries or banks. There are two basic options that the EFSF contemplates for "leveraging" its 440 billion euros (which will actually probably be closer to 250 billion for all of Europe after amounts needed for Greece and bank recapitalizations). One is to issue "credit enhancements" or "partial protection certificates" that would be sold along with the new debt of European governments, where the certificates would provide first-loss protection of say, 20% of face value. Alternatively, the EFSF could construct a "special purpose vehicle" or SPV in each given country - basically an investment company formed to buy European debt - where the EFSF would "provide the equity tranche of the vehicle and hence absorb the first proportion of losses incurred by the vehicle."

So to start with, the EFSF is not actually an operating "bailout fund" at present - it's a shell corporation with a business plan and a certain amount of promised capital - not yet in hand - from European governments, in search of additional funding from private investors. Its intended business is to a) partially insure European debt, using capital from European governments, which these governments will obtain by issuing debt to investors, or b) to purchase European debt outright, by issuing EFSF debt to investors, leveraging capital obtained from European governments, which these governments will obtain by issuing debt to investors.

In effect, European leaders have announced "We have agreed to solve our debt problem, leveraging money we do not have, to create a fund, which will then borrow several times that amount, in order to buy enormous amounts of new debt that we will need to issue."

As Jens Weidmann, the President of the German Bundesbank objected about this plan last week, "It is tied to higher risks of losses and to increased sharing of risks. The way they are constructed, the leveraging instruments are not too different from those which were partly responsible for creating the crisis, because they concealed risks."

"On that note, don't look now, but even if you were to assume an optimistic 80% recovery rate, Portugese yields already imply certain default within less than 2 years. Assuming a more typical 60% recovery rate, the probability of a Portugese default within 2 years was 68% as of Friday (that same recovery rate produces an implied default probability of 88% within 3 years, and 100% within 5 years).

The bottom line is that a 20% first-loss provision is irrelevant until you need it, and then it suddenly is not nearly enough."

...back to the US markets...

"That simple set of conditions (WLI < -5, PMI < 52, SPX < 6 months earlier) has been seen in every postwar recession for which the data is available. Though we've seen recessions without a drop in the WLI much below -5, when a WLI below -7 has been coupled with a PMI below 52 and an S&P 500 below its level of 6 months earlier, the economy has been in recession within 13 weeks, 100% of the time. This is the combination, incidentally, that we observe today."

Live Today

Chris Martenson

Whole Lotta Love...Friday Night Rock

The Next Big Bank Bailout

By Matt Taibbi

POSTED: OCTOBER 5, 9:34 AM ET

Amidst all the bad news coming out of Wall Street and the economy, here’s something good: California has backed out of the talks for the long-awaited foreclosure settlement, now making it far from likely that the so-called “Attorneys General” deal will happen anytime soon.

California Attorney General Kamala Harris sent a letter to state and federal regulators explaining that she pulled out because the proposed settlement amount for banks guilty of bad securitization practices leading up to the mortgage crisis – said to be in the $20 billion range – was too small. From Business Week:

Harris says in a letter to state and federal negotiators that the pending settlement is "inadequate" and gives bank officials too much immunity.

I’m convinced that the deal will eventually go through, however, after some further concessions are made. Certainly the absence of both New York (whose Attorney General Eric Schneiderman gamely started this mess by refusing to sign on or abandon his own investigation into corrupt securitization practices) and California will make it difficult for the banks to do any kind of a deal. But there is such an awesome amount of political will to get this deal done in Washington that it almost has to happen before the presidential election season really gets going.

If it does get done, expect a great deal of public debate over whether or not the size of the settlement was sufficient. Did the banks pay enough? Should they have paid ten billion more? Twenty? Even I engaged in a little bit of that some weeks ago.

But if and when that debate takes place, it will actually obscure the real issue, because this settlement is not about getting money from the banks. The deal being contemplated is actually the opposite: a giant bailout.

In fact, any federal foreclosure settlement along the lines of what’s been proposed will amount to a last round of post-2008-crisis bailouts. I talked to one foreclosure activist over the weekend who put it this way: “[The AG settlement] will be a bigger bailout than TARP.”

How? The math actually makes a hell of a lot of sense, when you look at it closely.

Any foreclosure settlement will allow the banks to pay one relatively small bill to cover all of their legal liabilities stemming from the monstrous frauds they all practiced in the years leading up to the 2008 crash (and even afterward), when they all schemed to create great masses of dicey/junk subprime loans and then disguise them as AAA-rated paper for sale to big private investors and institutions like state pension funds and union funds.

To recap the crime: the banks lent money to firms like Countrywide, who in turn created billions in dicey loans, who then sold them back to the banks, who chopped them up and sold them to, among other things, your state’s worker retirement funds.

So this is bankers from Deutsche and Goldman and Bank of America essentially stealing the retirement nest eggs of firemen, teachers, cops, and other actors, as well as the investment monies of foreigners and hedge fund managers. To repeat: this was Wall Street hotshotsstealing money from old ladies. 

Along the road to this systematic thievery, a great many other, sometimes smaller offenses were committed. One involved the use of the MERS electronic registration system. By law, banks were supposed to register with county-level offices in each state every time they sold or resold a mortgage, and pay fees each time.

But they didn’t, instead registering with the private deed-transfer agency MERS, allowing them to systematically, and illegally, bypass local taxes.

So any “AG settlement” might allow the banks to avoid legal damages being sought from three different set of enraged creditors: the public institutions who invested in these sham securities, the private investors who did the same, and the localities who were cheated out of their taxes.

Let’s take a look at each of those three categories.

As far as private investors go, we’ve already had one lawsuit directed at Bank of America, over losses linked to purchases of bad MBS (mostly from Countrywide mortgages), which resulted in an $8.5 billion settlement.

That one settlement, covering 22 mostly private plaintiffs, cost one bank, Bank of America, nearly half the size of the entire proposed AG settlement. This is from the Times story about that deal, in June:

In a research note, Paul Miller of FBR Capital Markets projected that Bank of America could face a total of $25 billion of losses from the soured mortgages, the most of any of the major banks.

So a private analyst this summer was estimating that just one bank, Bank of America, could face more in damages than the Obama administration and the AGs are now trying to “wrest” from all the major banks, combined, for all their liabilities.

Just a few days ago, news of more such suits came in. An Irish company called Sealink Funding is suing Chase and Bank of America, seeking $4.5 billion combined in connection to losses in mortgage-backed securities sold to them by those banks. Meanwhile, a German bank, Landesbank Baden-Wurttemberg, is suing Chase for an additional $500 million in losses.

These huge amounts – a few billion here, a half a billion there – are coming from single companies, directed at single banks. And think about the Bank of America settlement for $8.5 billion: what’s the usual payoff in a lawsuit settlement? Ten cents on the dollar? Five?

In fact, the settlement amount in that case was just 2% of the face value of the loans when they were securitized ($424 billion), and represented just 4% of the principal still outstanding ($221 billion).

Why do those figures matter? Because the way these securitizations were structured, legally, Bank of America is obligated to buy back any loans that were sold fraudulently at face value – that is part of the legal language in the “pooling and servicing agreements” under which all of these mortgages were pooled.

So minus a settlement, Bank of America – one bank -- had a potential liability of $424 billion just from its Countrywide holdings! And it got off for $8.5 billion, a major victory.

All of which puts in perspective the preposterously small size of the proposed AG settlement. $20 billion would be a lousy number if we were just talking about Bank of America. But all the big banks combined?

And that just covers legal exposure to private investors. How about public agencies and institutions? Well, just recently, the Federal Housing Finance Agency sued a group of the major banks (Chase, Barclay’s, and Citi, among others) over losses connected with, again, bad MBS.

This suit covers sales to the two GSEs, Fannie Mae and Freddie Mac, and they’re seeking $200 billion. The’re asking for $25 billion from Merrill Lynch (which is now owned by Bank of America) and $6 billion from Bank of America proper, meaning they’re claiming $30 billion in damages from just one bank.

This, again, puts into perspective the idea of a collective $20 billion settlement covering all the major banks.

But wait, there’s more. The FHFA lawsuit only covers the GSEs. How about state pension funds?

Well, over the summer, Bank of America caught another lawsuit, when a group of union and state pension funds sued Merrill Lynch for misleading them in a $16.5 offering of, you guessed it, MBS certificates. The suit included claims from Mississippi and Los Angeles County employees, the Connecticut Carpenters’ Annuity Fund, and others.

So again, just with those two lawsuits, one bank, Bank of America, is facing nearly $50 billion in damages. And this doesn’t even cover all of the other states and localities that were wiped out by sales of fraudulently-conceived MBS. California’s state pension fund, CalPERS, lost $100 billion all by itself between 2008 and 2009, largely due to plummeting MBS values.

That would explain why Kamala Harris had to pull out of the settlement talks: she must have realized that going through the courts, her state could probably recover far more than whatever California’s share of $20 billion would have been. It’s incredible that other states have not already come to the same conclusion.

Lastly, of course, there is the matter of lost taxes. To date, most of the lawsuits filed by counties over unpaid fees have been directed at MERS, the private electronic registry company through which the banks “legally transferred” all of these mortgage deeds.

For example, my old home county of Essex County, Massachusetts, recently sued MERS for $22 million in unpaid fees. Dallas County, Texas, lost even more, suing MERS and claiming it lost between $50 and $100 million in fees.

You can do the math. That’s two counties – not states, but counties – claiming they lost a total of at least $70 million. And yes, they’re suing MERS, but ultimately the real liability probably rests with the banks, who would probably have been paying those fees had MERS not existed.

Will any AG settlement cover that potential liability? I have no idea. But if the settlement is broad enough, and covers all activities connected with securitization, it might very well cover these unpaid fees.

How many hundreds of millions in fees will the states lose if that deal goes through? Has anyone even asked? Have any county officials even been consulted?

The point of all of this is, if you add up all of the MBS-related liability out there, the banks as it stands are facing an Armageddon of claims from all sides. It can’t possibly be less than a trillion dollars, and it’s probably much, much more.

But the Obama administration’s current plan is to let them all walk after paying a few shekels apiece into a $20 billion kitty.

Certainly, of course, one can see the logic of a universal deal that avoids the probable end result minus a federal settlement – bankruptcy for one or more of the big “TBTF” companies (especially Bank of America). After all, if all the suits go through, then the final settlement for most of those defrauded parties will be squat or close to it, since there won' tbe any money left to recover. So if they can come up with a deal that satisfies plaintiffs at least in part and keeps the banks solvent, I suppose that might be a good thing.

But the negotiators really have three actors they have to consider: the banks, the investors, and the homeowners, who of course were also victims of this artificial bubble.

The current proposed deal is a huge giveaway to the banks, a major shafting to most of the investors, and would probably give homeowners either next to nothing or some cosmetic reward, i.e. a little bit of principal forgiveness, counseling, etc.

If the Obama administration was serious about helping actual human beings through this settlement, then it would be fighting for homeowners to get the same bailout the banks would get. If the banks are getting a trillion or more dollars of legal immunity, why shouldn’t homeowners get that much debt forgiveness? Or, half that much? A quarter?

It’s encouraging that California and New York have already come to this conclusion. Hopefully, down the road, there will be a settlement, but one that’s fair to everyone. It's probably up to the states to stop this TARP-on-crack of a deal.

http://www.rollingstone.com/politics/blogs/taibblog/attorneys-general-settlement-the-next-big-bank-bailout-20111005

Financial Engineering

Occupy, "The State Is the 1 Percent"

Mises Daily: Monday, October 24, 2011 by Llewellyn H. Rockwell Jr.


The "occupy" protest movement is thriving off the claim that the 99 percent are being exploited by the 1 percent, and there is truth in what they say. But they have the identities of the groups wrong. They imagine that it is the 1 percent of highest wealth holders who are the problem. In fact, that 1 percent includes some of the smartest, most innovative people in the country — the people who invent, market, and distribute material blessings to the whole population. They also own the capital that sustains productivity and growth.

But there is another 1 percent out there, those who do live parasitically off the population and exploit the 99 percent. Moreover, there is a long intellectual tradition, dating back to the late Middle Ages, that draws attention to the strange reality that a tiny minority lives off the productive labor of the overwhelming majority.

I'm speaking of the state, which even today is made up of a tiny sliver of the population but is the direct cause of all the impoverishing wars, inflation, taxes, regimentation, and social conflict. This 1 percent is the direct cause of the violence, the censorship, the unemployment, and vast amounts of poverty, too.

Look at the numbers, rounding from latest data. The US population is 307 million. There are about 20 million government employees at all levels, which makes 6.5 percent. But 6.2 million of these people are public-school teachers, whom I think we can say are not really the ruling elite. That takes us down to 4.4 percent.

We can knock of another half million who work for the post office, and probably the same who work for various service department bureaus. Probably another million do not work in any enforcement arm of the state, and there's also the amazing labor-pool fluff that comes with any government work. Local governments do not cause nationwide problems (usually), and the same might be said of the 50 states. The real problem is at the federal level (8.5 million), from which we can subtract fluff, drones, and service workers.

In the end, we end up with about 3 million people who constitute what is commonly called the state. For short, we can just call these people the 1 percent.

The 1 percent do not generate any wealth of their own. Everything they have they get by taking from others under the cover of law. They live at our expense. Without us, the state as an institution would die.

"They do not comprehend that the real enemy is the institution that brainwashes them to think the way they do."

Here we come to the core of the issue. What is the state and what does it do? There is vast confusion about this issue, insofar as it is talked about at all. For hundreds of years, people have imagined that the state might be an organic institution that develops naturally out of some social contract. Or perhaps the state is our benefactor, because it provides services we could not otherwise provide for ourselves.

In classrooms and in political discussions, there is very little if any honest talk about what the state is and what it does. But in the libertarian tradition, matters are much clearer. From Bastiat to Rothbard, the answer has been before our eyes. The state is the only institution in society that is permitted by law to use aggressive force against person and property.

Let's understand through a simple example. Let's say you go into a restaurant and hate the wallpaper. You can complain and try to persuade the owner to change it. If he doesn't change it, you can decide not to go back. But if you break in, take money out of the cash register, buy paint, and cover the wallpaper yourself, you will be charged with criminal wrongdoing and perhaps go to jail. Everyone in society agrees that you did the wrong thing.

But the state is different. If it doesn't like the wallpaper, it can pass a law (or maybe not even that) and send a memo. It can mandate a change. It doesn't have to do the repainting: the state can make you repaint the place. If you refuse, you are guilty of criminal wrongdoing.

Same goals, different means, two very different sets of criminals. The state is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.

The state is everybody's enemy. Why don't the protesters get this? Because they are victims of propaganda by the state, doled out in public schools, that attempts to blame all human suffering on private parties and free enterprise. They do not comprehend that the real enemy is the institution that brainwashes them to think the way they do.

It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the state that created and sustains the Fed and the dollar, because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the state to destroy our money on a whim.

They are right that society is rife with conflicts, and that the contest is wildly lopsided. It is indeed the 99 percent versus the 1 percent. They're just wrong about the identity of the enemy.

...from Dr. John

"Of course, Europe wouldn't need to blow all of these public resources or impose depression on Greek citizens if bank stockholders and bondholders were required to absorb the losses that result from the mind-boggling leverage taken by European banks. It's that leverage (born of inadequate capital requirements and regulation), not simply bad investments or even Greek default per se, that is at the core of the crisis.

The bottom line is a) European leaders will likely initiate a forced bank recapitalization within days; b) Greece will default, but the new hold-over funding may give the country a few more months; c) the EFSF will not be "leveraged" by the European Central Bank; d) banks are likely to take haircuts of not 21%, but closer to 50% or more on Greek debt; e) much of the EFSF will go toward covering post-default capital shortfalls in the European banking system following writedowns of Greek debt; f) the rest will most probably be used to provide "first loss" coverage of perhaps 10% on other European debt, which may be sufficient to limit contagion provided that implied default probabilities on Italian and Spanish debt don't breach that level and the global economy stabilizes; g) uncertainty following a Greek default is likely to create significant financial strains, even in the absence of a recession; h) all bets for stability are off if the global economy deteriorates markedly from here, which is unfortunately what we continue to expect."

...and back in the good ol' USofA..."...it's worth observing that a number of banks reported positive "earnings surprises" last week. If you look at those results for any of the major banks, it is immediately clear that the bulk of the earnings were of two sources: further reductions in reserves against potential loan losses, and an accounting gain known as a "Credit Valuation Adjustment." Those two items, for example, were responsible for nearly 90% of Citigroup's reported "earnings." The Credit Valuation Adjustment (CVA) works like this: as the bond market has become more concerned about new financial strains, the bonds of U.S. banks have sold off significantly in order to reflect higher default probabilities. Under U.S. accounting rules, bank assets are no longer marked to market, but happily for the banks, the decline in the market value of their bond liabilities means that the banks could technically "buy their bonds back cheaper." So the decline in the bonds, despite being due to an increase in investor concerns about bank default, actually gets reported as an addition to earnings! Surprise, surprise."...unfreaking believable...

Occupy, Felonious Munk

Occupy, baby

Alan Grayson on Occupy Wall Street

Nassim Taleb on Occupy Movement and Banking System

Occupy

Visit msnbc.com for breaking news, world news, and news about the economy

Which Way is the Market Going to Move Today?

...from Dr. John...Relief Rally - Recession Inevitable, Europa banking system in big do-do

..."From my perspective, Wall Street's "relief" about the economy, and its willingness to set aside recession concerns, is a mistake born of confusion between leading indicators and lagging ones. Leading evidence is not only clear, but on a statistical basis is essentially certain that the U.S. economy, and indeed, the global economy, faces an oncoming recession. As Lakshman Achuthan notes on the basis of ECRI's own (and historically reliable) set of indicators, "We've entered a vicious cycle, and it's too late: a recession can't be averted." Likewise, lagging evidence is largely clear that the economy was not yet in a recession as of, say, August or September. The error that investors are inviting here is to treat lagging indicators as if they are leading ones.

The simple fact is that the measures that we use to identify recession risk tend to operate with a lead of a few months. Those few months are often critical, in the sense that the markets can often suffer deep and abrupt losses before coincident and lagging evidence demonstrates actual economic weakness. As a result, there is sometimes a "denial" phase between the point where the leading evidence locks onto a recession track, and the point where the coincident evidence confirms it. We saw exactly that sort of pattern prior to the last recession. While the recession evidence was in by November 2007 (see Expecting A Recession ), the economy enjoyed two additional months of payroll job growth, and new claims for unemployment trended higher in a choppy and indecisive way until well into 2008. Even after Bear Stearns failed in March 2008, the market briefly staged a rally that put it within about 10% of its bull market high.

At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis."

..."A few weeks ago, I noted that Greece was likely to be promised a small amount of relief funding, essentially to buy Europe more time to prepare its banking system for a Greek default, and observed " While it's possible that the equity markets will mount a relief rally in the event of new funding to Greece, it will be important to recognize that handing out a bit more relief would be preparatory to a default, and that would probably be reflected in a failure of Greek yields to retreat significantly on that news."

As of Friday, the yield on 1-year Greek debt has soared to 169%. Greece will default. Europe is buying time to reduce the fallout.

The central problem facing the global economy here is leverage. In an economy where monetary authorities are at the ready to reignite bubbles after any setback, it has been possible for banks to get, say, $10 from shareholders, get another $20 by issuing bonds, get $70 from depositors, and then go out and make $100 of investments in loans, securities, Greek debt, and other assets, hoping that by leveraging shareholder capital ("equity") 10-to-1, they would earn a high return on that equity."

..."When you consider the fact that most U.S. banks, just before the U.S. credit crisis in 2008, sported gross leverage ratios of about 12 (where Citigroup, Morgan Stanley, Goldman Sachs and JP Morgan remain today), the gross leverage ratios of European banks today are truly astounding.

Weil ends his piece with a simple sentence: "Dexia's demise is only the start." We couldn't agree more."

http://www.hussman.net/wmc/wmc111017.htm

Dan Wheldon, RIP

Marc Faber

...from ZH - Who Killed the Economy

...sung to the tune of Who Killed Davey Moore...chapeau WilliamBanzai7

WHO KILLED THE ECONOMY
(Who Killed Davey Moore, Bob Dylan)
WilliamBanzai7 Blog

Who killed the Economy,
Why an' what's the reason for?

"Not I," says Greenspan and Bernanke,
"Don't point your finger at me.
We could've stopped it before it was too late
An' maybe kept the markets from this fate,
But the crowd would've booed, I'm sure,
At not gettin' their bubble's worth.
It's too bad it had to pop,
But there was a pressure on we two, you know.
It wasn't we that made the economy fall.
No, you can't blame we at all."

Who killed the Economy,
Why an' what's the reason for?

"Not us," says the short selling bear market crowd,
Whose screams deflated the subprime cloud.
"It's too bad the economy tanked that September night
That Lehman was left to its sorry plight.
We didn't mean for Fuld's bank to meet its death,
We just meant to see some sweat,
There ain't nothing wrong in that.
It wasn't us that made Lehman fall.
No, you can't blame us at all."

Who killed the Economy,
Why an' what's the reason for?

"Not me," says the Politician,
Puffing on a big cigar.
"It's hard to say, it's hard to tell,
I always thought Wall Street was a bottomless well.
It's too bad for our wives an' kids the Bull is dead,
But if he was sick, someone else should have said.
It wasn't we that made him fall.
No, you can't blame me at all."

Who killed the Economy,
Why an' what's the reason for?

"Not me," says the gambling man,
With his 401k Statement still in his hand.
"It wasn't me that knocked the Bull market down,
My hands never touched it none.
I didn't commit no ugly sin,
Anyway, I put all my money on it to win win win.
It wasn't me that made it fall.
No, you can't blame me at all."

Who killed the Economy,
Why an' what's the reason for?

Not us said the clowns over at AIG
We sell insurance to those in need
Our risk models run infallibly
It was a financial tsunami worse than any natural calamity
How big is our hole we just can't see
We're too big to fail
So bail us out Uncle Sam if you please]

Who killed the Economy,
Why an' what's the reason for?

"Not me," says the feckless financial news writer,
Pounding print on his digital typewriter,
Sayin', "CNBC ain't to blame,
There's just as much danger in the finance game."
Sayin', "Wall Street greed is here to stay,
It's just the old American way.
It wasn't me that made it fall.
No, you can't blame me at all."

Who killed the Economy,
Why an' what's the reason for?

"Not me," said the Wall Street conman whose securitized risks
Laid the markets low in an opaque cloud of toxic mist,
Who came here from some Ivy League door
Even though Ponzi scheming ain't allowed no more.
"We scammed and we scammed them, yes, it's true,
But that's what we are paid the big bucks to do.
Don't say 'fraud,' don't say 'steal.'
It was destiny, it was God's will."

Who killed the Economy,
Why an' what's the reason for?

Jon Stewart Interviews Ron Paul

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Russell Napier

...from Dr John - Greece Defaults, Recession All Clear, not so quick

"Just a note - by the end of last week, Greek 1-year yields had surged to 144%. European leaders have shifted from promising to prevent a Greek default to promising instead to ensure that European banks are well capitalized. Here, I would repeat that it is essential for policy makers to make a distinction between liquidity and solvency. Banks that are solvent, and countries that are solvent, should be within the ring-fence, in the sense that it is sensible for policy makers to follow Bagehot's Rule - freely provide liquidity, but only at high rates of interest, and only to the solvent and well-collateralized. Those institutions and countries that are not solvent should not be "saved" by using public funds to make private bondholders whole. The proper policy is to restructure, not bail out, the debt of banks and countries that have no reasonable prospect of paying off those obligations.

It remains in the best interest of Greece to default, and to leave the euro so it can depreciate its currency, but if it is going to default, it would be well-advised to default big. The only way to get new international capital after a default is for Greece to clear out enough of its legacy obligations that investors reasonably expect it to make good on any new funding they might (eventually) provide."

"As a final note, the chart below updates one of our composite measures of U.S. economic activity, reflecting a broad set of ISM and regional Fed surveys. While the slight uptick in a few of these survey measures has been the basis of a strikingly premature "all clear" attitude taken on by Wall Street analysts, the fluctuation has been entirely negligible, and represents a tiny fraction of typical random month-to-month noise. It is equally important to recognize that the ISM indices tend to lag our Recession Warning Composite and our broader ensemble models (and also lag ECRI's measures) by nearly 13 weeks, while payroll employment demonstrates a slightly greater lag. Given that the earliest signal - the Recession Warning Composite - deteriorated at the beginning of August, the October ISM, and even more likely the November reading, is really the window of concern. Suffice it to say that the recent evidence is generally more confirming than contradictory of recession concerns."

http://www.hussman.net/wmc/wmc111010.htm

European Banking Crisis - Global Financial Meltdown

...t minus 2 to 3 weeks...says IMF advisor Robert Shapiro

...from FT, a different take - Visionary, genius, game-changer ... but also a freak

By Philip Delves Broughton


One of the strangest research trips I ever went on was to the Kannon Do Zen Center in Mountain View, California. It came at the end of a long day at Apple trying to understand what made the company tick. My office at the time was a stationery closet on the fourth floor of One Infinite Loop, Apple’s corporate headquarters, a makeshift space an iPhone’s throw from the senior executives including Steve Jobs.

It was late 2009 and I had been hired for a few months to do some writing for the then nascent Apple University, an internal programme intended to help rising executives within the company learn the business of Apple. But first I had to try to learn it myself, to find something to grip in a company that to the outside world seems as smooth as the glass facades of its shops.

More

ON THIS STORY

• Millions pay tribute to Jobs
• Analysis A disruptive digital visionary
• Slideshow Steve Jobs 1955-2011
• Interactive Timeline Steve Jobs and Apple
• Lex Steve Jobs

ON THIS TOPIC

• Apple stores and online fans pay respects
• Letter Jobs knows how to hold his audience

Click to enlarge

Trying to get the truth out of any successful organisation is a challenge. Failure is a far better teacher than success, and since the early 2000s, Apple had been on a tear. Almost every major product launch had gone well, its retail strategy had been a triumph and its share price was soaring. The embarrassments beetled in the shadows, the botched MobileMe service, the lengthy investigation into the backdating of stock options for senior executives, the fact that the iPhone, for many of its urban users at least, was a terrible phone.

Success tends to cast decisions in a dangerously rosy glow and make geniuses of executives. When you asked what made Apple Apple, the answers came back implausibly bland: focus, simplicity, great design, vision, Steve. Yes to all. But what about the rest? Under the hood, Apple was as corporate as it comes. It was a lesson Jobs had learnt in his exile, when he was building NeXT and Pixar. Companies, like products, can only bear so much innovation. No one wants a six-wheeled car. They want a four-wheeled car that goes faster. 

Jobs did not do anything radical with the corporate form, but he did make it hum along more efficiently. He drove innovation from the top down, and applied intense pressure to his employees, believing it was required to elicit extraordinary achievement. This hero of American capitalism was an aggressive outsourcer of jobs to China. His legal department was kept busy fighting bruising patent battles. And there is an entire generation of record executives bearing Jobs’s teeth marks from the creation and rapid growth of iTunes.

We might prefer the politer terms of admiration, visionary, genius, game-changer, but purely as a businessman, Jobs was a freak and freaks make others behave oddly. He could take the dullest technical specification, the processing speed of a laptop, and make grown audiences whimper with pleasure. His eye for detail was the stuff of Silicon Valley legend, as were his rages if things were not done to his satisfaction. Behaviours which in another man might have been called delusional, obsessive or tyrannical were in Jobs seen as evidence of high standards and great leadership.

When most companies use the term “culture”, you may as well pull down the blinds and go to sleep. Not at Apple. It was impossible to think of its culture without thinking of the deeply paradoxical man at the top.

At Cafe Macs, Apple’s corporate cafeteria, you can sit in the California sunshine, drink a smoothie and gaze over at posters from the company’s Think Different advertising campaign, showing Albert Einstein, Mahatma Gandhi, Pablo Picasso and Martin Luther King, dead giants used to gin up Apple’s reputation for daring and creativity. It would be breathtakingly arrogant even today. But Jobs ordered this campaign in 1997, when he had just returned to Apple and the company was all but bankrupt. Was this evidence of a deranged idealism, a blind faith in the restorative power of Apple’s original counter-culture? Or was it marketing cynicism, a form of corporate pragmatism born out of failure?

Jobs knew better than anyone the fragility of business success. He had been the most famous entrepreneur in the world in his early 20s, and then fired from his own company at 30. But he had come back. Building a business, he would say, was not for the mentally sane. It was for the passionate and maddeningly persistent.

After weeks of thinking about Apple, I felt no closer to understanding it. It was both the most materialistic organisation, obsessed with the touch, feel and weight of its products and delighting in its ever-growing cash reserves, and the most immaterial, boasting of the magic and soul of its machines and the importance of acting out of love rather than money.

In this sense, it was the perfect expression of its founder. You can spend five minutes reading about Steve Jobs and discover that he could be the worst corporate bully, brimming over with grudges, but that he was also discreet and ordinary in his love for his family. In his public appearances, he could be PT Barnum one minute, banging the drum for a new operating system, and a sweet sixties hippie the next, guilelessly quoting Beatles lyrics. He was the 42nd richest American, yet lived, by Silicon Valley standards, quite modestly. As a negotiator, he left the toughest lawyers in the dust, and yet for years he had been fascinated by Zen Buddhism.

What I found at the Zen centre that evening was a barn-like meditation room filled with men and women of every age. We were told to sit cross-legged on a low cushion facing a bare white wall for 45 minutes. As each thought or worry entered our mind, we were advised to let it go, to let it waft away like a balloon, because for now there was nothing to be done. And so I did, wondering at first what Steve Jobs saw in all this, then eventually wondering about nothing at all.

To find someone so relentlessly focused on the present and future as Jobs eventually was, after a long quest of his own, is unsettling. For such people, the past is constantly cast aside. It does not matter. The old ties, old models are irrelevant. It can seem cruel and unfeeling. But it is attractive and in that most American way, dazzlingly optimistic.

The writer is author of ‘What They Teach You at Harvard Business School: My Two Years in the Cauldron of Capitalism’