Friday, May 17, 2013 - Squirrel

Squirrel

by Sinclair Noe

DOW + 121 = 15354
SPX + 17 = 1667
NAS + 33 = 3498
10 YR YLD +.08 = 1.95%
OIL + .83 = 95.99
GOLD – 25.70 = 1361.20
SILV - .43 = 22.36

Record highs for the Dow and the S&P 500; marking the fourth consecutive week of gains. For the week, the Dow gained 1.6%, the S&P 500 gained 2%, and the Nasdaq was up 1.8%. The S&P 500 is up about 13% year to date.

Someone asked me yesterday if I intended to talk about the scandals in Washington; you know, the Benghazi scandal, the IRS scandal, and the Associated Press scandal. I suppose we can talk about that if you want.The issue I might address right now is, what does all the scandal-mongering mean for the economy?

Well, we could look to the Clinton years, which continued to perform handsomely, but I think that had more to do with the dot.com boom than with Clinton's proclivity. Greenspan warned about irrational exuberance while fostering policy that just pumped the markets to higher highs. Not so different really from Bernanke's warnings about excessive risks while continuing with QE to infinity and beyond.

The market has been profiting from the indulgences of the Fed's easy money, and the Chairman seems more worried that Congress will busy itself with more fiscal austerity in the form of quick-timed spending sequesters and additional tax increases than he is about inflation from easy money. Unspoken is the fear certainly in the Fed quarters and lurking in the markets' subconscious that Congress will go even further and again set up another credit-rating political cliffhanger over the debt ceiling extension.

Maybe, the politicians can pull themselves away from their compulsive partisanship to recognize that the deficit is getting better. The Congressional Budget Office revise its budget projections. The short-term deficit, in particular, is way lower; $200 billion lower; or a $643 billion deficit for 2013 rather than an $845 billion deficit. That should be really big news, just not this week. Both sides of the aisle could take credit for that, but it barely gets a nod. Congress is distracted, like a dog in the presence of a squirrel.

And the longer they keep up their nonsense, the less time they have to meddle with the economy; which might not be such a bad thing. No time to come up with a Grand Bargain on Social Security and Medicare; no time to figure out entitlement cuts; nothing but gridlock through the hazy days of summer.

For a business community that constantly begs for certainty, maybe they would enjoy a lazy summer of slow, steady growth without the distractions from Washington. Fed Chairman Bernanke has begged for Congress to come up with fiscal policy that might help grow the economy, but would probably be happy to see Congress stop stepping on the economy's tail with it's austerity obsession. The politicians are clueless about the economy and they could only screw things up.

Case in point; last week the US House passed the Full Faith and Credit Act, which quickly gained the nickname “Pay China First Act”. The supposed purpose of the act is to prevent default on the public debt as a result of the debt ceiling.

The idea was the act prioritizes the financial obligations of the US government, and authorizes the Secretary of the Treasury to meet only the highest priority obligations when at the debt ceiling; that is how the act is described by its own authors, since the head of the resolution contains the description, “A bill to require that the Government prioritize all obligations on the debt held by the public in the event that the debt limit is reached.”

The act seems to have been designed to provide the Secretary of the Treasury with an alternative mechanism for paying off public debt and meeting Social Security obligations once the government has reached the statutory debt limit. But the new mechanism cannot be applied directly to other government spending commitments, and so Congress would still apparently have the ability use the debt ceiling as a tool for shutting down other government payments and forcing the executive branch to accept further spending cuts.

But remember the politicians are not real strong on economics and it appears this act would provide the Secretary of the Treasury with the power to meet all US spending obligations, and effectively eliminate the debt ceiling as a serious political and operational consideration going forward.

The act specifically authorizes the Treasury to issue “obligations … to pay with legal tender”, the principal and interest on the obligations described in subsection 2(b). Now, an obligation is just another debt instrument. So the act basically permits the Treasurer to issue IOUs to pay the principal and interest on public debt. It permits the Treasurer to redeem conventional government debt obligations – all of the usual bills, notes and bonds the government issues, and that count against the debt subject to the debt limit – with a new kind of debt obligation.

Basically, the Treasury could write IOU's and put them in the Treasury coffers to reduce the debt, and then issue fresh bonds to raise cash to pay for whatever they want to pay for.

Squirrel.

The one thing that has roiled the markets lately is talk of the Federal Reserve tapering off Quantitative Easing. While the economy has shown signs of improvement, it is still a long way from a strong economy. Inflation remains under control, so that's not a problem. Unemployment is still a problem, so that's reason to increase stimulus, not taper off. Several regional Fed presidents have weighed in recently, and yesterday, Fed governor Sarah Bloom Raskin raised the possibility that rising inequality may restrain growth for years to come.

In a speech delivered in Washington, Raskin said: “In my view, the large and increasing amount of inequality in income and wealth, which has been an ongoing development for decades, may have exacerbated the crisis. More research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come.”

Raskin’s comments are among the most forceful to date from any current member of the Fed’s seven-person Board of Governors regarding wealth, income inequality, and how dynamics in household wealth may be impeding growth and prolonging the realization of a full-fledged recovery

Between 1979 and 2007, inflation-adjusted, pretax income for households in the top 1 percent more than doubled, while middle-income households experienced earnings growth of less than 20 percent, according to Congressional Budget Office data. A recent survey by the Fed found that households in the top fifth of annual income owned 72 percent of the total wealth in the economy in 2010, while those in the bottom fifth owned just 3 percent.

Maybe this is the excessive risk Bernanke has been harping on lately.

Here's your weekend reading list:

From the Guardian: A Look at How Apple will petition Washington for a Tax Holiday and what history tells us about tax holidays.

Matt Taibbi continues to dig up wrongdoing by banksters; Everything is Rigged

Friday, April 26, 2013 - The Fix is In

The Fix is In

by Sinclair Noe

DOW + 11= 14,712
SPX – 2 = 1582
NAS – 10 = 3279
10 YR YLD - .05 = 1.66%
OIL - .86 = 92.78
GOLD – 5.30 = 1463.90
SILV - .36 = 24.14

The initial guesstimate of first quarter gross domestic product shows the economy growing at a 2.5% pace. Consumer spending increased by 3.2%, the strongest increase in consumer spending in 2 years. Defense spending fell at an annual rate of 11.5 percent in the first quarter, on the heels of a 22.1 percent decline in the last three months of 2012.

This is the initial report on GDP and it is subject to revisions. The initial fourth quarter GDP number came in at a negative 0.1% and was revised up to 0.4%; the first quarter estimate of 2.5% is well below expectations, and it certainly isn't showing enough strength to indicate a solid recovery.

Personal disposable income, today’s report shows, actually fell by $140 billion in total from the fourth quarter. Reversion of the payroll tax to its normal rates at the beginning of 2013 will continue to drag on the disposable income of middle-class consumers throughout the year. Business investment in productive equipment and IT — a driver of productivity, innovation, and employment — slowed markedly to 3% growth in the first quarter, relative to nearly 12% in the prior quarter. Residential investment maintained strong growth, however, expanding 13% as housing markets in many areas of the country seem to be turning up. exports grew 2.9% in the first quarter. Imports grew even faster at 5.4%, much of that due to an increase in oil prices.

The quick and easy is that cuts in government spending is acting as a drag on economic growth. Government spending fell at an annual rate of 8.4 percent, after a decrease of 14.8 percent in the fourth quarter of 2012 — with both declines happening before the March start of the sequester. Fiscal policy is not enough to get the economy to cruising speed, and monetary policy has only been effective at delivering below-target inflation.

The sequester cuts haven't yet hit the economy, at least it wasn't reflected in the first quarter GDP numbers; the sequester has hit; maybe you haven't felt it yet, unless you were in an airport the past week. Washington politicians are frequent fliers; they are feeling the sequester.

The original theory was that the specter of sequestration would be so threatening that Republicans and Democrats would agree to a budget deal rather than permit it to happen. That theory was wrong. The follow-up theory was that the actual pain caused by sequestration would be so great that it would, in a matter of months, push the two sides to agree to a deal. That theory was wrong. The reality is that the pain of the sequester doesn't matter if it hits the general public, but if it inconveniences politicians; then they will change the parts they don't like.

Today, the Congress decided that the part of the sequester that resulted in furloughs for air traffic controllers, which resulted in delays at airports; they decided that was just too painful, so they are coming up with the money to prevent the air traffic controller furloughs.

Former Labor Secretary Robert Reich correctly observed that most of the pain of the sequester is invisible.

Brandeis University in Waltham, Massachusetts, for example, is bracing for a cut of about $51m in its $685m of annual federal research grants and contracts. The public schools of Syracuse, New York, will lose over $1m. The Housing Authority of Joliet, Illinois, will take a hit of nearly $900,000. Northrop Grumman Information Systems just issued layoff notices to 26 employees at its plant in Lawton, Oklahoma. Unemployment benefits are being cut in Pennsylvania and Utah.

Taken together, these cuts are significant. But they're so localized, they don't feel as if they're the result of a change in national policy.

A second reason the consequences of the sequester haven't been obvious to most Americans is that a large percentage of the cuts are in programs directed at the poor – and America's poor are often invisible.

The Salt Lake Community Action Program, for example, recently closed a food pantry in Murray, Utah, serving more than 1,000 needy people every month. The Southeast Alaska Regional Health Consortium is closing a center that gives alcohol and drug treatment to Native Alaskans. Some 1,700 poor families in and around Sacramento, California are likely to lose housing vouchers that pay part of their rents. More than 180 students are likely to be dropped from a Head Start program run by the Cincinnati-Hamilton County (Ohio) Community Action Agency.

All across America, food pantries and community centers catering to the poor are laying off staff, reducing services, or closing. But most Americans don't know anything about this because the poor live in different places than the middle class. Poverty has become ever more concentrated geographically in America.

A final reason much of the sequester is invisible is that many employees are being "furloughed" rather than fired. "Furlough" is a euphemism for working shorter workweeks and taking pay cuts.

Two thousand civilian employees at the Army Research Lab in Maryland, for example, are being subject to one-day-per-week furloughs starting this week, resulting in a 20% drop in pay. The Hancock Field Air National Guard Base is furloughing 280 workers. Many federal courts are now closed on Fridays.

Furloughs arguably spread the pain. Mass layoffs would be far harder to swallow.

For all these reasons, the sequester hasn't been particularly visible.

But the politicians couldn't deal with flight delays. Sequestration will continue because there is no more pain to push for overturning the whole policy. Well, there's no more pain for the politicians; there's going to be plenty of problems for people who don't have political clout. Air travelers get bailed out; cancer patients; food pantries, schools – all that other stuff is still grounded.

The jobless rate in Spain is now 27.2% for the first quarter; the highest since they have been recording unemployment there going back to the 1970's. In France, more than 3.2 million are unemployed, the highest jobless rate since 1997.

So, things are kind of lousy but there is a little bit of growth in the US economy, thank goodness we're not in Spain, or Greece, or Cyprus, or heaven forbid – Syria; it's okay, we'll just kind of slog along.

It would be great if we lived in a world where there were enough air traffic controllers for all the planes in the sky, and money for cancer research, and money for food pantries, and enough economic growth to create jobs for all the people who want to work. That would be great, but that's not the world we live in. The reason is not because we can't live in prosperity and abundance; the reason is because the banksters are skimming; they are siphoning off profits, at the expense of well, everybody else.

Now, let's move our attention to a story that has been building slowly and received almost no attention in the mainstream media. I'll provide a couple of links. (go to Eatthebankers.com) and click here (Matt Taibbi) and here (Bloomberg Businessweek)

First, let's get in the way back machine. Remember the Libor rate rigging scandal? Libor is the London Interbank Offered Rate, it's where 18 of the big banks get together each day and submit interest rates that the banks would be charged if borrowing from other banks. They take the numbers and average them together, and Libor is then used as the benchmark interest rate for almost everything that uses an interest rate. The Libor is used to calculate how much interest you pay on a credit card, a mortgage, a car loan, financial products, bonds, and derivatives; all together, about $500 trillion dollars worth of financial instruments. And the whole thing was rigged.

The banksters were submitting false numbers to try to look better during the financial crisis and they were also front-running trades based upon the rates, and sometimes they were getting the people who submitted the numbers to submit fake numbers to manipulate trades based on the Libor interest rate.

Taibbi:

Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.

Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.

The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers.

So, the government won't prosecute, but some private investors did, and in March a case went before federal judge Naomi Buchwald in the Southern District of New York and the judge basically said there was no collusion by the banks because the banks weren't competing against one another. So the judge dismissed most of the claim against the banks.

But the case did open up another investigation because if the banks were rigging $500 trillion in interest rates, maybe they were rigging other markets as well.  So, regulators have subpoenaed as many as 15 banks and about a dozen current and former brokers at ICAP, a London based brokerage, with trading desks in New Jersey. ICAP is short for Intercapital. ICAP's website says they are the world’s leading voice and electronic interdealer broker and provider of post trade risk and information services. Among other things, the company collects the data submitted by 13 banks to set ISDAfix prices. ISDA is the International Swaps and Derivatives Association; and the ISDAfix is the benchmark for interest rate swaps, which is about a $379 trillion dollar market.

In their simplest form, swaps are used by investors to exchange a fixed interest rate for a floating one, or vice versa. They affect everything from pension annuities to commercial real estate investments, to more complex derivatives.

And now regulators, including the Commodity Futures Trading Commission, are trying to determine if they’re colluding to manipulate quotes.

The ISDAfix works the same way as the Libor did. Banks submit rates and an average is compiled every day. About 15 banks and about a dozen brokers set the rates on a $379 trillion dollar market. An April16 report by the International Organization of Securities Commissions found that benchmark setting is a process with “opportunities for abusive conduct,” through submission of “false and misleading data” or attempts to buy off the people who physically enter submissions.

In other words, the ICAP brokers may have been gathering the information and then holding on, delaying publication of the rates to allow the banksters to slip in a trade ahead of the public.

It's not like these guys would have to cheat in really big and obvious ways; just a tiny fraction of a percent of a $379 trillion dollar market is enough to pay, one-one hundredth of one percent would be enough to pay for air-traffic controllers, cancer centers, Head Start, food pantries – you know – everything in the sequester.

But wait, there's more.

Given what we have seen in Libor, we’d be foolish to assume that other benchmarks aren’t venues that deserve review, and that means more than just Libor and ISDAfix. So, what other markets carry the same potential for manipulation?

In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together and setting prices.

That includes the markets for gold, where prices are set by five banks in London every morning and afternoon (it's called the AM and PM fix); and silver, whose price is set by just three banks; as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it.

The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world. And after they're done investigating, they will be too afraid to do anything because the banks are to big to jail. And so the banksters will continue to skim off the top of everything, and that means that the rest of us will just kind of slog along.

Wednesday, May 16, 2012 – An All Out Jog to the Finish – by Sinclair Noe

DOW – 33= 12,598
SPX – 5 = 1324
NAS – 19 = 2874
10 YR YLD -.01 = 1.76%
OIL – 1.16 = 92.82
GOLD – 4.00 = 1541.30
SILV -.45 = 27.37
PLAT + 3.00 = 1439.00

A Judge has been appointed to lead Greece until the next round of elections in June; leading Greece is a misnomer. The judge will be the caretaker prime minister, replacing another caretaker prime minister. Yesterday, we told you about the run on the banks. On Monday, Greeks pulled out about $900 million dollars, Euros actually. Makes sense. If you think your country will exit or be kicked out of the Euro-union, and be forced back to the drachma at about half the value, you might want to grab some Euros and hold on. Having the actually paper money in your hands prevents the banks from cutting the value in half; banks will do that sort of thing. Right now, it's not really a bank run, more of a jog. Paul Krugman explained why it is a problem:

“Where are the euros coming from? Basically, banks are borrowing them from the Greek central bank, which in turn must borrow them from the European Central Bank. The question then becomes how far the ECB is willing to go here; is it willing, in effect, to lend enough money to buy up the entire balance sheet of the Greek banking sector, given the likelihood that this sector will be left insolvent by Greek default? Yet if the ECB says no more, Greek banks stop operating — and it’s hard to see how they can be restored to operation except by ditching the euro and using something else.

“And if that happens, surely depositors in other European countries will start their own bank jogs.”

Where are the Euros coming from? Well, they're not. Today, the European Central Bank stopped funding operations for some Greek banks. Is this how it ends? With a bank jog?

What happens if Greece tells the Euro-union to go to hell? What happens if the Greeks do a full-fledged “shove this” default on all their outstanding debt? Well, someone did a study and they conclude that it would cost France around 66-billion-euro, and it would cost Germany about 90-billion-euro. The looses for French banks would run about 20-billion-euro, and the losses for German banks would be around 4.5-billion-euro. That's just from the default; it doesn't include the fallout. The real danger is contagion to Portugal, Ireland, Spain, Italy, Belgium, France, and the deadly linkages between 15-trillion-euro in public and private debt in these countries and the 27-trillion-euro European banking network.

Has the economy slowed enough to cause the Fed to dish out free money? Most of the reports indicate the economy is shuffling along. The stock market is stumbling. Is that enough to motivate the Fed? The Fed's program to "extend the average maturity of its holdings of securities" (aka Operation Twist) is scheduled to end in June. The FOMC meets in June. Today, the Fed released the minutes of the April meeting and we learn that “several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.”

What exactly would be considered momentum lost or a greater downside risk? Two quick thoughts: first, the whole mess in Europe deteriorates; second, Washington screws up. Yesterday, House Speaker John Boehner promised to oppose any increase in the debt ceiling unless there are big spending cuts. It's deja vu all over again. You remember, last year we had the same problem, resulting in the loss of the United States' Triple-A credit rating. Remember, when they appointed the bi-partisan Super Committee? And remember how the Super Committee failed miserably at everything except collecting campaign bribes? And remember how the Super Committee was designed to trigger automatic and simultaneous tax increases at the end of the year? Mutually assured destruction for both political parties and for the economy. And it turned out the politicians on the Super Committee cared more about their campaign donors and their political parties than they cared about the well being of their country. Tax increase and spending cuts could vaporize about $500 billion dollars next year and trillions over the next decade, and result in another credit downgrade. Yea, that might be considered “momentum lost”.

For now, Bernanke is saying it is up to fiscal policymakers to save the economy, but if he's expecting Congress to do anything, he has clearly lost his sanity. The Fed will have an accommodative easing policy, which may or may not be called QE3, and they might wait past the June FOMC meeting if they feel the need to keep their powder dry, but make no mistake – the Fed will have an accommodative monetary policy. Of course, the Fed has tried an accommodative monetary policy two times before and the results were pathetic; well, it was pathetic for the economy but it was pretty sweet for the banksters. Of course, if the Fed decides to do nothing, no Quantitative Easing Part 3, then the money that's been coming out of the stock market will turn into a torrent. Has the economy slowed enough to cause the Fed to dish out free money? Wrong question.

With all the malfeasance associated with JPMorgan this week, this next story hasn't received the attention it deserves. Once again, MattTaibbi has dished some great dirt on Goldman Sachs. There has been an ongoing legal battle between Goldman Sachs, Bank of America/Merrill Lynch and Overstock.com. Last week, the banks filed some paperwork with the courts and they filed an unredacted version, and they inadvertently entered into public record a laundry list of misdeeds.

Specifically, the documents relate to short selling, which is a legal practice, except the way Goldman Sachs did it. Normally, short selling involves borrowing shares from a brokerage account. For example, if I think stock xyz is heading lower, I instruct my broker to borrow shares from your broker. Your broker takes the shares out of your account and gives them to me. I sell the shares, for example 1 million shares for $1 million, or a dollar per share. The price drops, and in a little time, I go out into the market and buy 1 million shares for 50 cents each, and I return those million shares to your broker and your broker puts a million shares into your account. You get nothing. Your broker collects a fee. I pocket $500k. All legal.

Although sometimes, it isn't easy to find 1 million shares to lend to someone. When that happens, I have to pay your broker a premium to borrow the million shares. These hard-to-borrow stocks, stocks that cost money to borrow, are called negative rebate stocks. In some cases, these negative rebate stocks cost so much just to borrow that it doesn't make sense to do the trade. Goldman Sachs figured out a way around that problem. Even if they couldn't find another broker willing to lend shares, they did the trade anyway. Why bother paying the high cost of borrowing “negative rebate” stocks? Instead, Goldman Sachs just sold stock they didn't possess. If you don’t have to actually locate and borrow stock before you short it, you’re creating an artificial supply of stock shares. At one point, 107% of all Overstock shares available for trade were short – a physical impossibility.

Here's what it means – Goldman and Merrill made it cheaper and easier to bet down the value of the stock by adding fake supply, in turn making it easier to make money by destroying value. This is what the banks like Goldman Sachs and Merrill Lynch do when they turn the stock market into a casino – they destroy real, job-creating growth.

Monday, May 14, 2012 - Problems in Greece, Euro, California, and JPMorgan - No Surprise

DOW – 125 = 12,695
SPX – 15 = 1338
NAS – 31 = 2902
10 YR YLD -.05 = 1.79%
OIL - .70 = 94.08
GOLD – 23.80 = 1557.50
SILV - .71 = 28.28
PLAT – 29.00 = 1442.00

Back in early April I started telling you to heed the old market maxim: “Sell in May and Stay Away”. You are welcome. The Dow Industrial Average has now dropped 8 out of the last 9 sessions; no surprise.

Of course, we had the weekend to think about the shenanigans of JPMorgan Chase; a too big to fail bank acting irresponsibly while simultaneously demanding less regulation; no surprise.

Today's declines started in Europe; no surprise. In Germany, Angela Merkel's Christian Democratic Union Party suffered more losses in a local election for the second straight week. Merkel's CDU party received just 26% of the vote while a coalition of left-leaning Social Democrats and Green party candidates received over 50%. In light of the recent French elections, we are starting to see a trend.

In Greece, the various leaders of the various political parties failed to form a coalition government over the weekend; no surprise. The Greeks will likely need to call another election. And the fate of Greece hangs over the markets just as the possibility of exiting the Euro-Union hangs over the heads of the Greeks. And I think that is the correct application of the metaphor, with Angela Merkel in the role of Dionysius and the Greeks in the role of Damocles. I don't know whether the next Act in the tragedy comes from “The Merchant of Venice”: The quality of mercy is not strained, or “Brer Rabbit”: Brer Fox I don’t mind if you eat me. But, oh, whatever you do don’t throw me in that briar patch; or maybe “Hamlet”: To be or not to be, that is the question. Whether 'tis nobler to suffer the slings and arrows of outrageous austerity, Or to take arms against a sea of troubles, And by opposing them end them?

Which is the long way of getting round to the point that the final chapter has not been writ and so there are infinite options in Euro-land. The Greeks are coming to the realization that the plan of essentially indentured servitude to their northern masters might have shortcomings and they reject this as a false choice, although the alternatives are still a bit vague. The Greeks might like to stay in the Euro-zone and reject the harsh budget-balancing measures Europe has demanded in return for the money Greece needs to remain solvent. That, at least, was the message of the recent election in which the two dominant parties that had signed off on the terms of Greece’s 130 billion euro bailout deal took a drubbing. So, why can't the Greeks increase wages, halt public sector layoffs and repudiate Greece’s debt, and stay in the Euro-Union?

Of course, that is dangerous thinking for the powers that be. If Greece does not buckle under the crack of the bankers' whips, there is little chance the Portuguese and Spanish and Italians and Irish, and then the Union will dissolve and Greece will be shown the exit. This is the claim. The Greeks say it is a bluff. The ECB and the IMF must surely be flustered. They can't even have a good standoff until the Greeks can cobble together a government and the next election won't happen until mid-June.

It appears to be the European hard-liners that have been pushing austerity that has destroyed the political center and radicalized the extreme right and left. What's the worst that could happen? Greece gets tossed back into the briar patch once known as the drachma. They won't be buying new cars or computers or importing much of anything but they'll export like crazy; tourism will flourish; before you know it they'll be standing on the Acropolis, combing the tar out of their fur and laughing at the IMF.

With a month to go until the next election, is it possible the hard-liners will soften their demands? After all, how can you get money out of a bankrupt country? And don't forget who gets the bailout money; it's not the Greeks, it's the Euro-banks. All these billions of dollars of funds aren't going into the pockets of people in Athens, the money goes to the banksters. And the Greeks have come up with the radical idea that they don't care if the banksters get paid.

The threat to kick Greece out of the Euro-Union is very real but it would require the votes of 16 countries to do it. What happens if Portugal or Spain sides with Greece? How long would it take for that vote? Germany may talk tough but they don't have much firepower behind their rhetoric, and the German voters don't seem to have the stomach for discipline.

Though this be madness, yet there is method in't.

There is a chance that Greece might find some coalition of pro-austerity parties and remain in a debt purgatory while applying Teutonic discipline, or there is a possibility the Greeks will lead a Euro-revolt against austerity and various elections will serve as happy rapprochment between the debt slaves and the cracking whip. Of course, there is still a huge downside to all of this; global credit markets could freeze, global equity markets could tumble, global capital markets could be trashed, and governments could nationalize, and the banksters could be bailed out again, or not, and we could have a global financial meltdown – you know, almost like the one we had in 2008, and then did nothing to correct.

And make no mistake, we are not immune; it is just a matter of time before the basic problems of Europe come to the United States; it could hit us any day; maybe today.

And that brings us to California, which still has a budget problem; no surprise. Governor Jerry Brown is proposing more than $8 billion in cuts to close the state budget deficit and he is touting a tax hike initiative for the November ballot. And the combo might fill the revised $15.7 billion budget shortfall for the fiscal year that starts July 1. That is up from an earlier estimate of a $9.2 billion gap projected in January.

The Legislature had cut tens of billions of dollars from schools, social services, universities, courts, and health care programs for the poor. The cuts in higher education have sparked demonstrations at regents' meetings and on college campuses.

Brown said the size of the deficit makes it virtually impossible to balance the budget with spending cuts alone, so his budget balances the cuts with the revenue he anticipates if voters approve his proposal to increase the statewide sales tax by a quarter cent and boost income taxes on those who make more than $250,000 a year. Both tax increases would be temporary. Brown's budget proposes $8.3 billion in cuts, $5.9 billion from the tax increases and $2.5 billion in a variety of other solutions.

Jamie Dimon has been trying to gut the Dodd-Frank reforms, specifically the Volcker rule. Apparently JPM was so confident that their interpretation of the hedging exemption would prevail, that they got ahead of themselves and operated as if this loophople were in effect. That is part of what the Too Big To Fail Banks have been doing. Paying the lobbyists and the legislators to eviscerate the reforms, while continuing to act like the rule of law doesn't apply to them. Maybe it doesn't. A new article from Matt Taibbi, How Wall Street Killed Financial Reform. This is a good article, and it really points out just how broken Congress and the electoral system are.

Let me share with you part of what Taibbi wrote:

The giant reform bill turned out to be like the fish reeled in by Hemingway's Old Man -- no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. In a furious below-the-radar effort at gutting the law -- roundly despised by Washington's Wall Street paymasters -- a troop of water-carrying Eric Cantor Republicans are speeding nine separate bills through the House, all designed to roll back the few genuinely toothy portions left in Dodd-Frank. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes -- by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart's birthday.

The fate of Dodd-Frank over the past two years is an object lesson in the government's inability to institute even the simplest and most obvious reforms, especially if those reforms happen to clash with powerful financial interests. From the moment it was signed into law, lobbyists and lawyers have fought regulators over every line in the rulemaking process. Congressmen and presidents may be able to get a law passed once in a while -- but they can no longer make sure it stays passed. You win the modern financial-regulation game by filing the most motions, attending the most hearings, giving the most money to the most politicians and, above all, by keeping at it, day after day, year after fiscal year, until stealing is legal again. "It's like a scorched-earth policy," says Michael Greenberger, a former regulator who was heavily involved with the drafting of Dodd-Frank. "It requires constant combat. And it never, ever ends."

That the banks have just about succeeded in strangling Dodd-Frank is probably not news to most Americans -- it's how they succeeded that's the scary part. The banks followed a five-point strategy that offers a dependable blueprint for defeating any regulation -- and for guaranteeing that when it comes to the economy, might will always equal right.

Here's a list of the five ways,. The article gives great detail on how each of these work and were accomplished for the Dodd-Frank legislation. 

STEP 1: STRANGLE IT IN THE WOMB

STEP 2: SUE, SUE, SUE

STEP 3: IF YOU CAN'T WIN, STALL

STEP 4: BULLY THE REGULATORS

STEP 5: PASS A GAZILLION LOOPHOLES

Taibbi concludes this lengthy article, saying, "But money never gets tired. It never gets frustrated. And it thinks that drilling holes in Dodd-Frank is every bit as interesting asThe Book of Mormon or Kate Upton naked. The system has become too complex for flesh-and-blood people, who make the mistake of thinking that passing a new law means the end of the discussion, when it's really just the beginning of a war."