Some Hopeful Signs

The first bit of good news comes from Italy. In Milan, authorities have seized the assets of several large banks who sold fraudulent derivatives to the city. This will be an important precedent in obtaining justice for many local governments and non-profits world-wide who were subject to a wide variety of fleecings at the hands of unctuous bankers.

The next bit comes from the U.S. Senate, where the Banking Committee comes closer to holding hearings on the Paulson-Bernanke-Lewis affair. This is a bit of 'he said - she said' drama that everyone should be looking forward to. The matter is quite serious for them as at least one in the group is probably going to end up in prison, and with their pants sued off. We seriously hope the drowsy Senate will start doing their jobs again and make the U.S. a nation of laws and not of strongmen.

Finally, we are heartened by news from Belgium, where normally sleepy shareholders showed some righteous indignation at the Board of Directors of Fortis. Throwing shoes is probably too good for the greedy, incompetent banksters who have done so much damage.

Now that shock and denial over losses are past, perhaps some healthy anger will be directed at deserving culprits. More importantly, it looks like legal reform may be in the works as well. Ironically, much of the recent financial damage resulted from recent undoing reforms of earlier eras. Perhaps a future of low- or no economic growth will have a plus: the cycle of reform and 'liberalising innovation' will come to an end along with the myth of growth.

U.S. Leadership: Innocent or Guilty?

In his weekly editorial on Monday, James Kunstler laid out his belief that President Obama is a man able to provide the leadership necessary to lead the United States to what he sees as the future of the country: de-industrialised regional agriculture. His view is that, although the President may or many not have an understanding of the situation, Mr. Obama will rise to the occasion when needed. To quote:

"I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs.... I also think that circumstances will force Mr. Obama's hand before long -- specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future."

Perhaps Mr. Kunstler is right, but we think not. The actions of the Obama Administration do not seem to be the actions of a "team" working towards legitimate, rational solutions to the present economic catastrophe. For example, Treasury Secretary Geithner's latest brainchild is eeriely familiar; we think he might have just ripped off some notes that former Secretary Hank Paulson left in the desk drawers.

No, we fear that Mr. Kunstler is hopeful, and not in a good way. He accepted the rhetoric of President Obama at face value, and is perhaps unwilling to address the lack of corrolation between Mr. Obama's words and the actions of the Administration. We feel the President is not the great bringer of change... but, we could be wrong. For instance, we though Geithner's new plan would crash the markets, but lo! it went up! So much for our omnipotence...

But seriously, the same questions we ask about the Administration are beginning to appear in more mainstream sources. Here is an article from, of all sources, the Rolling Stone - Mr. Kunstler's former employer - and from the pen of Mr. Matt Taibbi:

"The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things[,] or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex."

We know which side we believe; it only remains to see if the Administration can put its actions in line with its rhetoric. Frankly, we don't think it ever will.

Trillion Dollar Welfare

We're certain that you have seen the recent flap about Ms. Nadya Suleman, from whose loins recently sprung a brood of eight premature babies. We extend our condolences to the people of California, whose tax-dollars will go toward the bill Ms. Suleman's fourteen children are piling up.

Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...

But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.

Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.

Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.

Disaster Economics

We remember the flap surrounding the origins of the TARP, when former Treasury Secretary Hank Paulson, Jr., told Congresspersons that martial law would have to be declared if the bailout were not quickly passed. If memory serves, words like 'catastrophe' and 'crisis' were bandied about. A dystopian landscape was painted for the poor elected officials, who apparently weren't intelligent enough to seek a second opinion.

Fast forward to today... and we find President Obama making more-or-less the same comments, albeit without the martial law part. Still, suddenly it's just fine to be using the very same phrases that netted Bush flak. The economy is in "a crisis," so the money's got to flow fast and furious to prevent "a catastrophe," says the new President.

"This economy needs support," whines Mr. Bill Gross, or else the United States will enter a "mini depression." By "this economy," we assume that Mr. Gross means his mutual fund portfolio, but we could just be cynical.

All this rhetoric is at once silly, and disturbing. If the Government and big-shot Investorati types manage to keep the citizenry of the United States in a state of reactive fear, any amount of deplorable -- if not downright illegal -- actions will likely be taken. Fear, above all, makes the average person less able to read the fine print... and there will be a lot of fine print in the months ahead.

Painted into a Corner

Mr. Henry Paulson, Jr., has had $350 billion burning a hole in his pocket since October. It's a terrible thing: he had far more money than he knew what to do with. He's been passing out the bucks willy-nilly, handing off bags of cash to friends, former co-worker, and former employers. Even so, it took him awhile to burn up the taxpayer's hard earned dollars: the last of TARP's initial $350 billion are set to roll out from the Treasury's loading dock. Now Mr. Paulson has pockets filled with lint; it is within his powers to now request the second $350 billion immediately... but he's making no moves to break open that piggy bank. 'Tis strange, we think: it's the season of giving, and he looked like he was having a ball of a time.

His compadre, Mr. Ben Bernanke, is having an even better time: $1.388 trillion worth of goodness, to approximate from the Fed's inscrutable balance sheet. We've looked at the Fed's latest excuse for a report... good luck making headway into its decipherment. Bloomberg has apparently sued the Fed for more information about the central bank's various lending programs... but the Fed may fall back to its legal trump card: the Federal Reserve System is a private bank, and therefore doesn't fall under the Freedom of Information Act.

We put ourselves in the shoes of these two men, and we can't help but feel... nervous.

Let us explain: the Treasury wants to keep the bailouts rolling, and the incoming Obama Administration is planning on spending trillions. At present the Treasury's bailouts are funded by investors buying Treasury debt... but when the cost of make-work programs start rolling in, these investors will be swamped. They just don't have enough money.

Enter the Federal Reserve, which can create a theoretically infinite supply of money. The Fed wants to prevent deflation by any means necessary, and buying up Treasury debt on the open market is just the thing for stoking inflation. The Treasury gets its money, the Fed gets its inflation and liquidity.

The policies of the Treasury and the Fed seem to be forcing them into an inflationary corner. Surrounded by seas of financial red ink, they have nowhere to turn but to the presses. They are playing with fire: sooner or later, all that paper money is going to start burning - first, in the people's pockets; and second, in their furnaces.