Naked Capitalism Link of the Day

Today's link from naked capitalism: Anxiety keeps the super-rich safe from middle-class rage, at the Guardian:

But the gap between the richest 1% or 2% and everybody else in the top 20% or 30% is now so great and growing so rapidly that, one might reasonably think, it should change the terms of political trade. The income distance may be huge but the social distance is not. Those in the top 2% and the next 28% have often been to the same schools and universities. More important, they compete for scarce resources: places in fee-charging schools, houses in the best areas, high-end personal services. The super-rich have provoked raging inflation in the prices of these goods. Many of the not-so-rich were born into the professional classes and high expectations. Now, to their surprise, they find themselves struggling. In income distribution, their interests are closer to those of the mass of the population than to people they once saw as their peers.
They are not, however, imminently likely to join a crusade for equality. This generation of the middle classes has internalised the values of individualist aspiration, as zealously propagated by Tony Blair as by Margaret Thatcher. It does not look to the application of social justice to improve its lot. It expects to rely on its own efforts to get ahead and, crucially, to maintain its position
As psychologists will tell you, fear of loss is more powerful than the prospect of gain. The struggling middle classes look down more anxiously than they look up, particularly in recession and sluggish recovery. Polls show they dislike high income inequalities but are lukewarm about redistribution. They worry that they are unlikely to benefit and may even lose from it; and worse still, those below them will be pulled up sufficiently to threaten their status. This is exactly the mindset in the US, where individualist values are more deeply embedded. Americans accepted tax cuts for the rich with equanimity. Better to let the rich keep their money, they calculated, than to have it benefit economic and social inferiors.
As Runciman observed, "most people's lives are governed more by the resentment of narrow inequalities, the cultivation of modest ambitions and the preservation of small differentials" than by the larger picture of social justice. That applies as much to the professional as to the working classes.

I've long been puzzled by why my friend who never made more than $50,000 a year thinks people who make $75,000 to $100,000 are overpaid and need to sacrifice, while thinking that people who make $1,000,000 have earned it and should be able to keep more of it.  I think it's just that he really doesn't know anybody who makes a million a year, while he knows a lot of people in the 75 to 100 thousand range, and he sees that they blow money on stuff they don't need.  It still seems strange, but I think he associates the million a year person with some amazing invention or something, and that they worked hard to get that money.  I tried to point out that such people make enough that they can pay higher marginal rates on very high amounts of income, but he tells me that they deserve what they get.  I think eventually people in the middle class will get mad at the super rich, and if they do, those guys up top better watch out.  When the scales fall from peoples' eyes, they are going to be out for blood.

One other note, today's links showed me one of the best post titles of all time: Longtop Financial: lessons in the morphology of sin, loss of virginity and your 17 year old daughter, at Bronte Capital. 

Naked Capitalism Link of the Day

Today's link from naked capitalism: They're onto us, at MacroBusiness.  The post looks at Moody's downgrade of 4 large Australian banks and quotes the Moody's press release to highlight the strains on the Aussie economy:

Ouch. Put this down as the China warning. Australia’s entire economic model is being peeled back here. For well over a decade, Australia’s banks have funded huge swathes of the current account deficit. As well, over the past two commodities booms, much of the export income has been leveraged up and blown on housing and fancy living. Moody’s is effectively calling the risks of this model to account. And they’re still not finished:

It goes on to say that Moody's is indicating the four banks are too big to fail, and if the Australian government backs off on implicit guarantees, they'll really cut the ratings.  Way to protect the banksters and investors at the expense of taxpayers, again.  We've got bad stuff brewing in Asia and Europe, while we plod along looking at huge government cutbacks sooner or later with a still highly-leveraged private sector.  I don't see this ending well.

Naked Capitalism Link of the Day

Today's link: The Secret Sharer, at the New Yorker.  The article describes the case brought under the Espionage Act of 1917 against Thomas Drake, an NSA employee who became a whistleblower against the agency's surveillance of U.S. citizens:

Few people have a precise knowledge of the size or scope of the N.S.A.’s domestic-surveillance powers. An agency spokesman declined to comment on how the agency “performs its mission,” but said that its activities are constitutional and subject to “comprehensive and rigorous” oversight. But Susan Landau, a former engineer at Sun Microsystems, and the author of a new book, “Surveillance or Security?,” notes that, in 2003, the government placed equipment capable of copying electronic communications at locations across America. These installations were made, she says, at “switching offices” that not only connect foreign and domestic communications but also handle purely domestic traffic. As a result, she surmises, the U.S. now has the capability to monitor domestic traffic on a huge scale. “Why was it done this way?” she asks. “One can come up with all sorts of nefarious reasons, but one doesn’t want to think that way about our government.”

Binney, for his part, believes that the agency now stores copies of all e-mails transmitted in America, in case the government wants to retrieve the details later. In the past few years, the N.S.A. has built enormous electronic-storage facilities in Texas and Utah. Binney says that an N.S.A. e-mail database can be searched with “dictionary selection,” in the manner of Google. After 9/11, he says, “General Hayden reassured everyone that the N.S.A. didn’t put out dragnets, and that was true. It had no need—it was getting every fish in the sea.”
Binney considers himself a conservative, and, as an opponent of big government, he worries that the N.S.A.’s data-mining program is so extensive that it could help “create an Orwellian state.” Whereas wiretap surveillance requires trained human operators, data mining is automated, meaning that the entire country can be watched. Conceivably, U.S. officials could “monitor the Tea Party, or reporters, whatever group or organization you want to target,” he says. “It’s exactly what the Founding Fathers never wanted.”
On October 31, 2001, soon after Binney concluded that the N.S.A. was headed in an unethical direction, he retired. He had served for thirty-six years. His wife worked there, too. Wiebe, the analyst, and Ed Loomis, a computer scientist at SARC, also left. Binney said of his decision, “I couldn’t be an accessory to subverting the Constitution.”

The article stresses how badly the Bush administration violated the Constitution, then desperately tried to track down the whistleblowers who leaked their criminal activity.  It further indemnifies Obama for hypocritically prosecuting Drake, after claiming to oppose the NSA eavesdropping and claiming to support the rights of whistleblowers.  The executive branch has claimed way too much authority, and abuses of that power comes from whoever is in the White House.  The whole article is well worth reading, it is absolutely chilling.  Michael Hayden comes off especially poorly, as a corrupt hack who was too busy trying to get private contractors rich to figure out how to do things lawfully, or well.

Naked Capitalism Link of the Day

Today's naked capitalism post has a number of good links.  Among them are a story about how Fox News spreads their propaganda, another article about Australia's economy on the brink with evidence that Chinese commodity consumption may be slowing, a good Krugman column and a story about how regulators and banks are making the economy more fragile in enacting the Dodd-Frank "reforms."  I wanted to highlight Indiana Supreme Court: citizens have no right to resist unlawful police entry, at the Evansville Courier-Press:

People have no right to resist if police officers illegally enter their home, the Indiana Supreme Court ruled in a decision based on a Vanderburgh County case.
The ruling overturned centuries of common law, a fact the court acknowledged in the decision, noting that some scholars trace its origin to the Magna Carta in 1215.
The court issued its 3-2 ruling on Thursday, contending that allowing residents to resist officers who enter their homes without any right would increase the risk of violent confrontation. If police enter a home illegally, the courts are the proper place to protest it, Justice Steven David said.
"We believe ... a right to resist an unlawful police entry into a home is against public policy and is incompatible with modern Fourth Amendment jurisprudence," David said. "We also find that allowing resistance unnecessarily escalates the level of violence and therefore the risk of injuries to all parties involved without preventing the arrest."
The court's decision stemmed from a Vanderburgh County case in which a man yelled at police and blocked them from entering his apartment to investigate a domestic disturbance. Evansville resident Richard Barnes shoved a police officer who entered anyway, and was shocked with a stun gun and arrested.

Vanderburgh County Prosecutor Nick Hermann said the ruling brings Indiana up to date with what already is recognized in many other states.

In some ways, this fits in with the "sovereign citizen" story.  In an abstract way, it is correct that since the Magna Carta, people have the right to protect themselves and their property.  Unfortunately, the methods of resistance may make a bad situation much worse.  I get a bad feeling about this ruling from the perspective of police abuse of power, but at the same time, if police surprise someone in a raid, and the person starts shooting at the "intruders," this is going to end badly.  It is a delicate balancing act, which needs some restraint on both sides of the issue.  Referring to the "sovereign citizens," it is clear that these guys are often going to react very badly to run-ins with police or the courts, and police expecting violent reactions in routine police business makes them more trigger-happy.  It is hard to decide how to handle a domestic disturbance case, when somebody's temper has already flared prior to police involvement.  This ruling is interesting, while being somewhat disconcerting.

Naked Capitalism Link of the Day

Today's link: Will Aussie housing go bust? at MacroBusiness:

A funny thing is happening in Australia. At a time when the economy continues to flourish, Australian families have gone on a spending strike. Unemployment is low at around 5%, interest rates are neutral rather than contractionary and not a day passes without the public being told that Australia sailed through the global financial crisis undamaged, thanks to China and of course brilliant political leadership.
But the average punter doesn’t seem to believe it. Families are paying down debt like there is no tomorrow. Australia’s household savings rate has now hit an extraordinary 9.7% of disposable income compared with about 5% in the USA and close to zero in New Zealand. This is a multi-year high for Australia.
Retailers especially are unhappy and are blaming the weather, online vendors, the Government and just about any one else they can think of. But sales revenues continue to shrink and high street shops continue to close their doors. ”For Lease” has made a big come-back.
The problem, as Keynes elucidated many years ago in his “Paradox of Thrift”, is that if everyone saves at the same time to create a buffer against looming adversity, it just makes the whole problem worse because those savings suck demand out of an economy.

It is interesting to me that this is happening while the Chinese fueled commodity boom is still going on.  But I guess the U.S. housing boom ended with the mini meltdown in August of 2007 (although I've also seen April 2007 given) while the rest of the economy still appeared to be healthy, then built up to a climax in September 2008.  It will be interesting to see what happens down under.

Naked Capitalism Link of the Day

Today's link: McMansions dead at last? The kind of homes we'll build in the future, at Slate:

The increase in demand for rental housing has reinvigorated the apartment market, and some new construction has begun. What if people get used to renting? Owning single-family houses represents a long-established tradition that the U.S. shares with many countries (Canada, Australia, the United Kingdom, Ireland, the Netherlands, Norway), but 10 years is long enough for traditions and behavior to change. It is likely that in the future multifamily housing will represent a larger share of the American housing market than the one-in-five new dwellings that has been the historic norm. What about single-family houses, which will still remain for many people the home of choice? There is some evidence that urban townhomes and infill housing are more popular, as rising gas prices increase the cost of commuting. Higher energy costs also affect heating and air conditioning, which may have the effect of discouraging homebuyers from purchasing large houses with soaring entryways and expansive family rooms. While the evidence is fragmentary—the current reduction in average new house sizes has more to do with the preponderance of first-time buyers than an overall shift in demand—it is clear that the long recessionary cold-shower will dampen the exuberance that characterized the boom years of 2000 to 2005. That will mean smaller houses closer together on smaller lots in inner suburbs, fewer McMansions, and fewer planned communities in the distant hinterland. An alternative scenario is that American optimism will prevail and it will be business as usual, as happened during the boom of the 1950s following the Great Depression, or during the period following the Energy Crisis of 1973, when car buyers, after a brief flirtation with Japanese compact cars, embraced minivans and SUVs. But I wouldn't count on it.

Development in the 1990s and 21st century was the worst thought-through waste of money in history.  As oil supply becomes tight, sprawling suburbs will be cursed by all.

Naked Capitalism Link of the Day

From Friday: The People vs. Goldman Sachs, by Matt Taibbi:

They weren't murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.
Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.

It is a very interesting read, although Taibbi is known to go to some extremes (even though I agree with him, some people think the vampire squid is an overstatement).  It is clear that Goldman knew they were selling shit to their clients, and yet they sold them anyway.  Somebody should go to jail.

Naked Capitalism Link of the Day

Today's link: Brokerage rip-off datapoint of the day, by Felix Salmon:

A lot of people have signed up for Wikinvest and handed over access to their brokerage accounts. I spoke briefly to SigFig founder Parker Conrad, who explained that it’s incredibly easy to flick through those accounts and come up with examples like the one he pulled up, of a man with $2.3 million in his Merrill Lynch account.
This guy probably knows that he’s paying his Merrill broker an annual management fee of 1.75%, which alone is more than $40,000 a year. But he doesn’t know that other Merrill clients in his position are paying far less — that Merrill brokers basically charge as much as they can, and the average Merrill client on Wikinvest pays less than half that, just 85 basis points.
And there are other things this guy doesn’t know, as well, because they’re buried in his statements — things like the fact that Merrill charged him $5,763 to make 24 trades last year, over and above that $40,000 management fee. That’s about $240 per trade.
Other fees are even higher. The Merrill broker bought something called the Fidelity Advisor International Capital Appreciation Fund, which charges 1.45% per year on top of a 5.75% fee payable when you buy the thing in the first place. The fund is substantially identical to the Fidelity International Capital Appreciation Fund, which has a 1% management fee and no front-loading at all. Why would any advisor with his client’s best interests at heart put that client into FCPAX rather than FIVFX? He wouldn’t — FCPAX is simply a vehicle invented by Fidelity for advisors which allows them to skim off hefty commissions.

Wall Street is full of crooks.  They should be taxed much more than they are.  They are ridiculously paid thieves and contribute nothing of value to society.

Naked Capitalism Link of the Day

Today is an excellent set of links.  I'm going to highlight two, because they are both significant agriculturally, but there are excellent links to an awesome sky survey, an investigation of corruption in Southern Illinois courts, concern that Fukushima is as bad as, or worse than Chernobyl, a report on Bahrain's Sunni government demolishing Shiite mosques, an interesting history of the removal of the gold indexation clause in debt contracts in the Great Depression, and several other interesting stories.

The first link I'll highlight is Unnatural Selection: Wily Weeds outwit herbicides, at New Scientist:

The weedkillers atrazine and simazine were introduced in 1958. Ten years later, a plant nursery in the US that had been regularly using the pesticides reported that they were no longer effective against a plant called common groundsel – the first confirmed case of herbicide resistance.

Half a century on, the number of known strains of resistant weeds stands at 357 and counting. "Herbicide resistance is a fantastic example of evolution in response to human-induced selection pressure," says Stephen Powles of the University of Western Australia in Perth, who studies the problem.

Because of its huge commercial importance, a lot of money is spent studying the problem and in many cases we know exactly how plants are evolving resistance. The mechanisms range from changes in leaf shape or waxiness to reduce herbicide uptake, to mutations that prevent herbicides binding to the proteins they target.

Strategies such as alternating the type of herbicide used can slow the evolution of resistance, but it is not foolproof. Many weeds have developed resistance to more than one herbicide. In some cases, this is due to plants evolving resistance mechanisms that are effective against more than one pesticide. For instance, many break down pesticides using new variants or higher levels of enzymes of a kind called P450s. These enzymes often protect against a range of different herbicides. In the 1980s, two weeds were found to be resistant to weedkillers that had never been used in the field. In other words, says Powles, weeds can evolve resistance to herbicides that have not even been developed yet.

The second story is Farm Antibiotics: 'Pig Staph' in a Daycare Worker, at Wired:

It’s been just about seven years since an alert epidemiologist in the Dutch town of Nijmegen identified an aberrant strain of MRSA, drug-resistant staph, in a toddler who was going in for surgery to fix a hole in her heart. The strain was odd because it didn’t behave normally on the standard identifying tests, and because it had an unusual resistance factor — to tetracycline, a drug that it should not have been resistant to, because the Netherlands had such low rates of MRSA that tetracycline wasn’t being used against the bacterium there.

Pursuing the source of the strain, researchers at Radboud University found it in the toddler’s parents and sister, and in the family’s friends. Not knowing where else to look, they asked what the parents and their friends did for a living; discovered they were all pig farmers; and went to their farms, and checked the pigs, and found it being carried by them, too. Suddenly, that strange resistance pattern made sense: The Netherlands uses more antibiotics in pig agriculture than any other country in the European Union, and the drug that it uses the most is tetracycline. Clearly, the aberrant strain — known as MRSA ST398 for its performance on a particular identifying test — at some point had wandered into pigs, become resistant to the drugs being given to the pigs, and then crossed back to humans, carrying that new resistance factor as it went.

From that first discovery unrolled the microbiological equivalent of a car-chase scene, complete with unpredictable turns, skids around corners, and unexpected dead ends. Researchers have identified ST398 in animals, people and retail meat in most of the EU; in pigs, farmers and hospital patients in Canada, and in pigs and a few farm workers, and most recently supermarket meat, in the United States. (You’ll find a long archive of posts on ST398, and more here.)

Both of these stories raise significant concerns about how we raise our foods.  They each also indicate that things may become more challenging in the near future, as we deal with glyphosate resistance and antibiotic-resistant bacteria.  Without even throwing in peak oil, I believe there will be no shortage of challenges in the future.

Naked Capitalism Link of the Day

Today's link: Food inflation, land grabs spur Latin America to restrict foreign ownership, at the Christian Science Monitor:

One of the first things passengers see when disembarking at Cuiaba airport in central Brazil is a real estate advertisement promoting arable land to foreigners.
South America has some of the most productive land on the planet, and buyers have long been drawn to pastureland for cattle; fields for grains, soybeans, and sugar cane; and forests where they can plant eucalyptus for timber and paper. Farms can reach the size of small nations.
Such advertisements may soon be preaching to an empty audience, however, as this and other South American nations that traditionally welcomed foreign investors are now changing land laws to restrict foreign ownership as arable areas worldwide become more sought after, a fact underlined by recent food crises. For lawmakers in Brazil, Argentina, and Uruguay, a nation where an estimated 25 percent of all land (an area the size of Denmark) already sits in foreign hands, it isn't a moment too soon to roll back the welcome mat.
These three nations produce much of the world's beef and grains and have been attractive to investors not just because land is available, but also because buying it was relatively straightforward.
Newly concerned over land grabs and eager to exercise more control over its food security, Argentinean Pres­ident Cristina Fernández de Kirch­ner said April 27 she would send a bill to Congress restricting how much land foreigners can buy or own. Uruguay fears that nations such as China and Saudi Arabia want to buy prime real estate and has promised to clamp down. Brazil, the world's biggest producer or exporter of beef, coffee, sugar cane, orange juice, and tobacco, last year blocked foreign companies based in Brazil from purchasing additional local real estate.

There was a big push ten years ago for U.S. farmers to go down and buy land in Brazil.  It economically made sense, but I couldn't see moving down there permanently to farm in a foreign land.  Guys who got involved were making a killing, but there was a lot of risk involved also.  I'm not surprised they are clamping down, and would anticipate laws in some Corn Belt states limiting corporate ownership.  Things are going to be very interesting in the near future.

There is also an interesting story about Ireland's alleged plans to restructure its debts to the EU and the IMF within 3 years.

Naked Capitalism Link of the Day

Today's link: Climate Shifts 'hit global wheat yields,' at the BBC.  This is a recap of the posts here and here.  From the BBC story:

The team carried out a large statistical analysis that tried to isolate the effects of temperature and precipitation on crops, independent of all other factors such as changes in technology and land management.

Wheat and corn are the staple crops that are most affected by changes in temperature

"We can see how much these variables affect crops... for example, for a crop like wheat, a degree (Celsius) of warming on a global average translates to about a 5% loss in production."
Professor Lobell said the study only referred to past relationships, as extrapolating the findings to predict future trends would require a number of assumptions to be made.
"In particular, you have to assume how non-linear the response will be and how different the crops of tomorrow will be from the crops of today," he said.

Population growth and energy consumption is straining agricultural resources, adding increasing global temperatures to the mix could very easily lead to catastrophe.

Other links of note include a story on the right-wing campaign to destroy the public schools, and a solar device to sterilize medical equipment.  A daily visit to Yves Smith's naked capitalism site is highly recommended.

Naked Capitalism Link of the Day

Two things.  First, The Fateful Choice, at the Middle East Research and Information Project:

There is nothing new about torture in warfare, even as waged by democracies. What is new (at least in the modern era) is the brazenness with which torture’s proponents have asserted its compatibility with democracy and the rule of law. The Bush administration’s tangle of poor legal argumentation in support of its torture policy need not be rehearsed; the Obama administration was right to rubbish the lot. It has been disgusting, therefore, to see Bush officials emerge from the woodwork to suggest that finding bin Laden came about through torture. Former Defense Secretary Donald Rumsfeld, for instance, told FOX News that “anyone who suggests that the enhanced techniques, let’s be blunt, waterboarding, did not produce an enormous amount of valuable intelligence, just isn’t facing the truth.” His fellow Republican, Rep. Peter King of New York, went one step further: “Osama bin Laden would not have been captured and killed if it were not for the initial information we got from Khalid Sheikh Mohammed after he was waterboarded.”
A former top military interrogator in Iraq, who goes by the pseudonym Matthew Alexander, has corrected the record by insisting that torturing detainees produces “limited information, false information or no information.” As Alexander and others note, Khalid Sheikh Mohammed, the operational planner of the September 11 attacks (who, incidentally, was captured at home in a commando raid, not on a battlefield, with a nudge from another $25 million bounty), blurted out nothing of value despite being waterboarded 183 times. He was confronted with the nom de guerre of a courier -- the one whose trail eventually led to bin Laden -- and claimed he had “retired” from al-Qaeda. The nom de guerre and all subsequent actionable leads were obtained from other sources through old-fashioned detective work. These facts have led Sen. John McCain (R-AZ) to contradict Rumsfeld and King, saying: “So far, I know of no information that was obtained, that would have been useful, by ‘advanced interrogation.’” And when the CIA tortured Abu Faraj al-Libbi, another al-Qaeda courier who would have known others, he proffered a fake name that sent the manhunt on a wild goose chase. Torture is thus likely to have delayed the apprehension of al-Qaeda’s master terrorist.
The utility of torture is beside the point, in any case; torture is repellent and degrading of those who practice it as well as those subjected to it. It is also manifestly illegal, under both US and international law. As anyone who pays attention knows, the revelations of torture at Abu Ghraib and elsewhere swept away what remained of the post-September 11 wars’ moral credibility in the eyes of the world. Along with the Bush administration’s deceptions, arrogant doctrines of US dominance and disdainful asides to the effect that “we don’t do body counts,” torture poisoned all of the wars’ fruits, even turning bin Laden and Saddam Hussein, the ugliest caricatures of Arab anti-imperialism, into heroes to some.

This torture was disgraceful and produced misleading and detrimental information, and yet Republicans still defend it and would do it again if they are ever put back into power.  This paper utterly destroys our choices in the war against terror.  It is a must-read.

Second, Edward Harrison has this chart in his article about how much banks in Germany are owed by the periphery states of the Eurozone:

That is stunning and I don't see how they will get that all back.  It is more a matter of how much they lose how quickly.

Naked Capitalism Link of the Day

Today's link: Why ETF's give an uneasy sense of deja vu, at the Financial Times:

And even if investors are wise enough to understand the risks of individual ETFs, the bigger structural impact is not well understood. The FSB, for example, fears that liquidity mismatches and poor collateral practices could create unpleasant markets jolts in a crisis. It also notes there are potential conflicts of interest because of “the dual role of some banks as ETF provider and derivative counterparty.” And there is another, more basic concern: precisely because the market has exploded with such stunning speed, it may be changing flows in unpredictable ways.
The commodities sector is one case in point: though politicians like to blame hedge fund “speculators” for price swings, ETFs may be as important as hedge funds in recent price trends. But many other asset classes are affected too. As I noted in a recent column, recent swings in the Vix (volatility index) may reflect a recent boom in volatility-linked notes.
Some canny hedge funds, of course, understand these shifts, and are making profits by trading these flows. But less agile investors risk being stranded (including those invested in ETFs). And, more broadly, “the impact of such innovations on market liquidity and on financial institutions servicing the management of the fund is not yet fully understood by market participants, especially during episodes of acute market stress,” the FSB says. Just look at this week’s stunning swing in the silver market. Or, for that matter, last year’s “flash crash”.

I just read a story the other day saying that the triple-long or triple-short ETF's were being held by some investors long-term, even though these Funds' value goes to nothing over time, and they were only meant to be traded over short intra-day periods.  Similarly, the commodity ETFs were getting gouged by the regular market traders each time they had to roll their long positions.  Retail investors always are the patsies at the table.

Naked Capitalism Link of the Day

Today's link: A peek into one of the deepest little cesspits in Europe, by David Malone:

Beyerishe LB was either the witless dupe who was left holding a huge shit schnitzel or just the last in a long line of greedy and corrupt bottom feeding institutions who wanted the chance to siphon some of that fetid  underground nourishment for themselves.  I personally feel the latter is the more likely explanation for the Europe wide enthusiasm for buying Austrian banks. Austria, with its anonymous accounts had made itself into a major portal for dirty money seeking onward transfer into European banks. And European banks were drawn to Austria like flies to a sewer.

The fact is Beyerische bought a bank for 1.6 billion euros into which it had to immediately pour another 2.1 billion euros just to keep it afloat.  Which although it sounds blunderingly stupid is, by Bavarian banking standards little worse than average. Compare Beyerische to the saga of inept incompetence which surrounded two other Bavarian banks Beyerische Hypotheken-und Wecshel Bank and Beyerische Vereins-bank, whose billions in losses forced the shot-gun wedding whose issue was HVB (see Dominoes Falling from the East) and you wonder how Germany has any banks at all?

Today there is still another 3.1 billion euros of bad debts to be paid at Beyerische. The open question vexing both sides of the German/Austrian border is who will pay? Since Beyerishe sold Alpe Adria back to Austria for a whopping 1 euro it might fall upon the Austrian people. But it might still land back on Beyerishe and therefore on the German taxpayers. Both sides would love to find a way of claiming they were just innocent victims of foreign fraud.

I guess you could call this the European bank mess-Austrian edition.  The article goes into great detail about various bank black holes in Austria which tie into Anglo-Irish Bank, among others.  What a mess, we definitely haven't seen the worst of this yet.

Are the Chinese Hoarding Commodities For Financing?

Yves Smith highlights  that Michael Pettis claims China is importing excess copper because (somehow) it allows cash-strapped businesses to access financing.  He also speculates that they might be doing the same thing with soybeans:

As much as it may sound barmy to stockpile commodities to obtain better terms on financing, Michael Pettis claims that’s one of the factors behind what looks to be unduly aggressive purchases of copper by the Chinese. An excerpt from his latest newsletter, courtesy Michael Shedlock:

China had been importing for many months far more copper than was needed for real use…. Imports continued even when London prices exceeded Shanghai prices by more than the equivalent of China’s value-added tax.

Instead of being shipped to end users, it seems that copper was being stockpiled in warehouses.　 Why?　 One possibility of course was pure speculation…

It turns out, that the copper purchases were not entirely, or even mainly, speculative.　 They were part of a financing scheme for companies that….were having trouble accessing bank credit.　

Credit-starved companies were importing copper because they could obtain trade finance or some other sort of foreign financing, and then used the physical copper (or warehouse receipts, I guess) as collateral for domestic borrowing.　 The financing was continually rolled over.　 Buying copper was just a way to borrow for companies that needed loans and were otherwise unable to get them.

As I mentioned two weeks ago, when I discussed this in February with a senior executive in a major commodities company, he responded by saying that he thought the same thing might also be happening in soya…

I don't understand this at all, but if they cut back purchases, we might get some really nasty price drops, especially if this wet weather continues and the market gets concerned about acres switching from corn to beans at the end of the month.

Naked Capitalism Link of the Day

Today's link: China Controls Our Food Supply, Barry Lynn interviewed by Dylan Ratigan:

Because of our obsession with efficiency over flexibility, our “lowest-price-above-all” philosophy over fair prices for producers, and our acceptance of a monopolistic commercial distribution structure, lots of essential products are now coming over seasons from a single foreign source.
That includes one critical preservative that is in nearly every food in America’s grocery stores, which China currently has a monopoly on.
The issue with getting critical products from one place is that, as we’ve seen over recent years, the world isn’t predictable.  Global disruptions — like an economic squabble with China, a massive political upheaval in the Middle East, or a natural disaster like the tsunami in Japan — have the capacity to topple the very fragile U.S. import structure.  The culprit? Our reliance on monopolistic, single-source production and distribution structure for things we need to survive, says Barry.
China currently has a production stranglehold over a critical chemical compound that helps keep food fresh — ascorbic acid.  We use this to preserve almost all the food that is on the store shelves.  It’s essential to keep food on America’s tables, and we don’t have any control over its production or distribution.
“It was first synthesized by an American scientist, it was first mass produced by an American company.  100% of our ascorbic acid or vitamin C now comes from China,” says Barry.  “In terms of pricing,  just about to the day that the Chinese finished capture and control over our supply of Vitamin C, ascorbic acid, they jacked up the price by 400%,” says Barry.

This doesn't seem to be a smart way of doing business.  As Yves notes, "First rare earths, now this."  Always striving for the cheapest has undermined our manufacturing base, now it is crucial supplies in which we are at others will.  Our oil dependence is also tremendously deleterious to our future.

Naked Capitalism Link of the Day

Today's link: How Goldman Sachs Created the Food Crisis, at Foreign Policy.  The whole thing is fascinating.  There is also more on food production here.  To summarize, Goldman created a long-only commodity index fund, and after the CFTC allowed speculators to take unlimited positions in 1999, long-only funds have grown massively.  The new money flowing in from investors, pension funds, insurance companies and such are driving up food prices.  I really liked this history at the beginning of the article:

It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there's value, there's money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).
For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.
Change was coming to the great grain exchanges of Chicago, Minneapolis, and Kansas City -- which for 150 years had helped to moderate the peaks and valleys of global food prices. Farming may seem bucolic, but it is an inherently volatile industry, subject to the vicissitudes of weather, disease, and disaster. The grain futures trading system pioneered after the American Civil War by the founders of Archer Daniels Midland, General Mills, and Pillsbury helped to establish America as a financial juggernaut to rival and eventually surpass Europe. The grain markets also insulated American farmers and millers from the inherent risks of their profession. The basic idea was the "forward contract," an agreement between sellers and buyers of wheat for a reasonable bushel price -- even before that bushel had been grown. Not only did a grain "future" help to keep the price of a loaf of bread at the bakery -- or later, the supermarket -- stable, but the market allowed farmers to hedge against lean times, and to invest in their farms and businesses. The result: Over the course of the 20th century, the real price of wheat decreased (despite a hiccup or two, particularly during the 1970s inflationary spiral), spurring the development of American agribusiness. After World War II, the United States was routinely producing a grain surplus, which became an essential element of its Cold War political, economic, and humanitarian strategies -- not to mention the fact that American grain fed millions of hungry people across the world.
Futures markets traditionally included two kinds of players. On one side were the farmers, the millers, and the warehousemen, market players who have a real, physical stake in wheat. This group not only includes corn growers in Iowa or wheat farmers in Nebraska, but major multinational corporations like Pizza Hut, Kraft, Nestlé, Sara Lee, Tyson Foods, and McDonald's -- whose New York Stock Exchange shares rise and fall on their ability to bring food to peoples' car windows, doorsteps, and supermarket shelves at competitive prices. These market participants are called "bona fide" hedgers, because they actually need to buy and sell cereals.
On the other side is the speculator. The speculator neither produces nor consumes corn or soy or wheat, and wouldn't have a place to put the 20 tons of cereal he might buy at any given moment if ever it were delivered. Speculators make money through traditional market behavior, the arbitrage of buying low and selling high. And the physical stakeholders in grain futures have as a general rule welcomed traditional speculators to their market, for their endless stream of buy and sell orders gives the market its liquidity and provides bona fide hedgers a way to manage risk by allowing them to sell and buy just as they pleased.

I've cursed the speculators a number of times, but they are important to the liquidity of the markets.  Unfortunately, the limitations on the size of their positions shouldn't have been removed.  There is a special place in hell for Phil Gramm.

Update: The Food issue has a lot of interesting stuff.

Naked Capitalism Link of the Day

Two today, both ag related: First, Pigs have 'evolved to love mud', at BBC:

That analysis has led Dr Bracke to propose that mud wallowing, like rolling, could play a role in reproduction in pigs.
But more fundamentally, Dr Bracke suggests the behaviour could have evolved in pigs' most ancient relatives.
"We all evolved from fish, so it could be that this motivation to be in water could be something that was preserved in animals that are able to do so."
For many animals, this would be too dangerous, because watering holes are ideal places for predators to ambush their prey.
"But pigs, like many carnivores, are relatively large animals with enlarged canine teeth, so they would be better able to fend off an attack."
So rather than pigs needing to cool down in mud because they do not have [functional] sweat glands, Dr Bracke thinks that they "did not evolve functional sweat glands like other ungulates because they liked wallowing so much".

Second, Why Is Damning New Evidence About Monsanto's Most Widely Used Herbicide Being Silenced, at Alternet.  If Don Huber at Purdue is correct about Roundup, we've got a serious problem on our hands:

But Huber says this is not true. First of all, he points out, evidence began to emerge in the 1980s that "what glyphosate does is, essentially, give a plant AIDS." Just like AIDS, which cripples a human's immune system, glyphosate makes plants unable to mount a defense against pathogens in the soil. Without its defense mechanisms functioning, the plants succumb to pathogens in the soil and die. Furthermore, glyphosate has an impact on microorganisms in the soil, helping some and hurting others. This is potentially problematic for farmers, as the last thing one would want is a buildup of pathogens in the soil where they grow crops.
The fate of glyphosate in the environment is also not as benign as once thought. It's true that glyphosate either binds to soil or is broken down quickly by microbes. Glyphosate binds to any positively charged ion in the soil, with the consequence of making many nutrients (such as iron and manganese) less available to plants. Also, glyphosate stays in the soil bound to particles for a long time and can be released later by normal agricultural practices like phosphorus fertilization. "It's not uncommon to find one to three pounds of glyphosate per acre in agricultural soils in the Midwest," says Huber, noting that this represents one to three times the typical amount of glyphosate applied to a field in a year.
Huber says these facts about glyphosate are very well known scientifically but rarely cited. When asked why, he replied that it would be harder for a company to get glyphosate approved for widespread use if it were known that the product could increase the severity of diseases on normal crop plants as well as the weeds it was intended to kill. Here in the U.S., many academic journals are not even interested in publishing studies that suggest this about glyphosate; a large number of the studies Huber cites were published in the European Journal of Agronomy.
If Huber's claims are true, then it follows that there must be problems with disease in crops where glyphosate is used. Huber's second letter verifies this, saying, "we are experiencing a large number of problems in production agriculture in the U.S. that appear to be intensified and sometimes directly related to genetically engineered (GMO) crops, and/or the products they were engineered to tolerate -- especially those related to glyphosate (the active chemical in Roundup® herbicide and generic versions of this herbicide)."
He continues, saying, "We have witnessed a deterioration in the plant health of corn, soybean, wheat and other crops recently with unexplained epidemics of sudden death syndrome of soybean (SDS), Goss' wilt of corn, and take-all of small grain crops the last two years. At the same time, there has been an increasing frequency of previously unexplained animal (cattle, pig, horse, poultry) infertility and [miscarriages]. These situations are threatening the economic viability of both crop and animal producers."
Some of the crops Huber named, corn and soy, are genetically engineered to survive being sprayed with glyphosate. Others, like wheat and barley, are not. In those cases, a farmer would apply glyphosate to kill weeds about a week before planting his or her crop, but would not spray the crop itself. In the case of corn, as Huber points out, most corn varieties in the U.S. are bred using conventional breeding techniques to resist the disease Goss' wilt. However, recent preliminary research showed that when GE corn is sprayed with glyphosate, the corn becomes susceptible to Goss' wilt. Huber says in his letter that "This disease was commonly observed in many Midwestern U.S. fields planted to [Roundup Ready] corn in 2009 and 2010, while adjacent non-GMO corn had very light to no infections." In 2010, Goss' wilt was a "major contributor" to an estimated one billion bushels of corn lost in the U.S. "in spite of generally good harvest conditions," says Huber.
The subject of Huber's initial letter is a newly identified organism that appears to be the cause of infertility and miscarriages in animals. Scientists have a process to verify whether an organism is the cause of a disease: they isolate the organism, culture it, and reintroduce it to the animal to verify that it reproduces the symptoms of the disease, and then re-isolate the organism from the animal's tissue. This has already been completed for the organism in question. The organism appears in high concentrations in Roundup Ready crops. However, more research is needed to understand what this organism is and what its relationship is to glyphosate and/or Roundup Ready crops.

Naked Capitalism Link of the Day

Today's link: Boom and bust signals ecosystem collapse, at BBC:

The Peter Lake food web contained four key components. Insects such as fleas ate tiny water-borne plants, small fish such as golden shiners ate the fleas, and much bigger largemouth bass ate the little fish.

Beginning in 2008, the researchers began to add more bass, and more than a thousand hatched the following year.

Sensing the threat from these predators, the golden shiners began to spend more time in the shallows or sheltering under floating logs.
Larger fleas moved in, eating the floating plants (phytoplankton).
But the changes were anything but smooth, with wildly varying numbers of fleas and phytoplankton seen at different times.
Eventually, by late 2010, the ecosystem appeared to have finalised its transition from one stable state to another.
This second state, dominated by fleas and largemouth bass, is similar to the situation that had existed for years in neighbouring Lake Paul.
This lake showed no major changes during the three years, indicating that the changes seen in Peter really were caused by the addition of bass.

I would guess that most people in western Ohio understand that large population increases of blue-green algae in Grand Lake St. Mary's signals an ecosystem collapse.  Some just don't want to believe why that is occurring.

Why Do Christian Conservatives Like Ayn Rand

In his review of the box office failure of Atlas Shrugged, Mark Howard asks the same question (h/t naked capitalism):

The affinity for Ayn Rand by the Tea Party has always been a bit of a mystery. Sure, there is a shared hostility for government, particularly when it endeavors to fulfill its Constitutional obligation to provide for the general welfare. Both Rand and the TP’s despise efforts to aid society’s less fortunate, whom they believe deserve to suffer. But how do predominantly Christian, patriot, Tea Partyers justify their idolization of an anti-American, atheist who regards compassion as evil and selfishness as the pinnacle of human values?

Ironically, a key theme of the book and the film is the rejection of society by the wealthy business class who mysteriously disappear. There is a correlation to that plot point in contemporary America as we have already witnessed the disappearance of business luminaries like Bernie Madoff, Ken Lay, Jack Abramoff, Dennis Kozlowski, Bernard Ebbers, and John Rigas, to name a few. It doesn’t appear that society has suffered from their absence. Yet there is another industrial titan who not only hasn’t vanished, he is masquerading across the airwaves as a presidential candidate. I’m not sure Ayn Rand would approve of this, however, the popularity of Donald Trump at Tea Parties is perfectly understandable. He is the ultimate manifestation of Randian politics: a greedy, conceited, selfish bully. But for every Tea Party supporter there are probably twenty other Americans who wish that Trump would “go Galt.”

It would be nice if the Tea Party were to go Galt.  Unfortunately, they wouldn't be able to cut it on their own, they depend way too much on government support.