And You Wonder Why?

As the United States Operation in Iraq enter the next to last phase, extracting all of our operational personnel and equipment associated with “Operation Iraqi Freedom” out Iraq and gets them to Kuwait for preparation and transport back to CONUS, we the people of the United States do not know what this side trip down the rabbit hole has really cost the country.

Something we know with an exacting precision.  We know that at the end of Sept 2011, a total of 4,483 members of the United States Armed Forces were listed as Killed in Action.  We know that at the end of Sept 2011 a total of 32,200 members of the United States Armed Forces were listed as Wounded in Action.  Concerning these individual what we do not know and will never know is the associated misery and suffer that was a result of their loss.

That is not the only thing the United States Government cannot determine with any certainty.   The other is the  dollar cost of the trip down the rabbit hole.  The Bush Administrations initial published estimates was $60,000,000,000 (60 Billion Dollars).  The current administration has published estimates of the cost in the range of $845,000,000,000 (845 Billion Dollars).  We only missed the Bush/Rumsfeld estimated number by a factor of 14.  Although now it looks more like a WAG (Wild Ass Guess).   Some might argue that it should be a SWAG, but that for another rant.

If we could get an accounting of the cost to within normally accepted margins of error, 10%, 1%, or .01%, and the current number of 845 Billion Dollars is closed the “Actual Cost” we are looking at anywhere between 84.5 Billion Dollars to 84.5 Million Dollars of error in the number being provided.

And you thought that Accounting was precise, well as far as the Federal Government is concern you are very sadly mistaken.  Now as no other time in the history of the United States have the prophetic words of Everett Dirksen, Republican Senator Illinois, 1950-1969, have been more salient to the nation and our current circumstance.  Three come immediately to mind.

“We are becoming so accustomed to millions and billions of dollars that "thousands" has almost passed out of the dictionary.”

 “A billion here, a billion there, and pretty soon you're talking about real money”.

Probably his most prophetic statement is

“I have said, with respect to authorization bills, that I do not want the Congress or the country to commit fiscal suicide on the installment plan.”

Which is exactly what the Congress and the administration have done since 2003.

Off the book expenditure for the Wars on top of the existing DOD Budget are as follows:

Fiscal Year	Billion Dollars
2003	78.5
2004	107.5
2005	82.0
2006	72.4
2007	170.0
2008	190.0
2009	130.0
2011	159.3

For those of you that are counting via the installment plan for fiscal suicide the Congress and three Administrations (Bush Terms 1 and 2, Obama 1) have spent or authorized 994.7 Billion Dollars that we did not have, that we did not commit existing revenue streams to cover, that we did not commit additional revenue streams to cover.  And you wonder WHY.

News Flash from New Jersey

As reported by Bloomberg, “NJ Taxes Cause Rich to Move, Economist Says”

And here I thought it was that the “Garden State” is not really a garden, given that it is the only state that has every one of its counties deemed to be “Urban” as defined by the Census Bureau’s Combined Statistical Area.

Or is it because of the great locations to choose from you know Hoboken, Weehawken, Perth Amboy, Trenton, Bayonne, Plainfield, Camden, Paterson, Passaic, and who can forget the jewel in the crown Newark.

Yep, anyone who is making over a million dollars a year wants to leave New Jersey, at least that is what Charles Steindel, the New Jersey state treasury department’s chief economist either implied or stated.  What Mr. Steindel did not provide was how many of these lucky, plucky individuals are relocating or have relocated.  Additionally he was silent on just where they went.

But it gets even better,  this announcement is the results of a survey of subscribers to the state’s online newsletter which according to the article “includes financial advisers to high-wealth clients”.  Additionally the article states that, “More than half of the respondents said their clients had recently left or express interest in leaving”.  Leaving and expressing interest in leaving are to entirely different propositions; the latter is like asking your teenager if they would like a new car (The answer is Hell Yes).  The former is having your teenager spend his or her own allowance/savings to buy that new car (No Fracking Way).

Just speculation, but it might be that given the current real estate crunch that these lucky plucky few cannot sell their leverage houses for enough to allow them to move, and you thought there was not an up side to real estate mess.

A secondary issue maybe finding a mark who is willing to move to New Jersey or who already lives in New Jersey and does not want to leave, who is willing and able to purchase their house for their asking price.

The statement from Mr. Steindel implies that it is a bad idea to raise the taxes on the very rich, because they will just get up and move, or at the very least threaten to get up and move.

I almost feel sorry for these tax refugees, being periodically uprooted and forced to flee their recently financed mansions, as the tax man comes a knocking.  I have images of the Clampett’s loading up all their possession in the back of their Escalades and driving off into the night in their search for their next mansion where life is good, the services are excellent, and the taxes are low.

Ah the American Dream.

This Just In

"Europe is in one of its toughest, perhaps the toughest hour since World War Two,"

Angela Merkel Chancellor Federal German Republic, 14 November 2011 address to the Christian Democratic Union party meeting in Leipzig.

Come on Angela, here is a link to a Spiegel article full of before and after pictures.  I suspect that you might be stretching the story just a little.

http://www.spiegel.de/fotostrecke/fotostrecke-56828.html 

 Seriously?  I do not know but judging from the picture in the above link it sure looks like 1946-1953 was just about as bad as it can get and still be called a society/civilization..

Angela wants to Forge Closer Union

Off course Angela wants a closer union, she needs everyone to share the haircut that is about to take place, given that the European Banks are leverage somewhere north of 400 to 1.   And we thought it was bad in the United States, the banks thought that they were leverage between 16 and 20 to 1, when in fact they were leverage somewhere between 27 and 45 to 1.  It is my own observation that being leverage above 12 to 1 is approaching a rectal bleed.

In the United States it was all that toxic real estate paper.  In Europe for the most part (Except Ireland) it is all that toxic sovereign debt.  Much of this debt was gratefully acquired by the various banks in an attempt to be compliant with the Basel Conventions.  On paper it appeared better than holding cash reserves.

The mistaken assumption in the various Basel accords concerning Tier I debt.  You know the quaint thought that there no risk in sovereign debt, governments are rational, and they at least the European do not default on their debt, and the governments will not borrow money to support their life style, or operating expenses.  For we all know that modern responsible governments only issue debt to invest in infrastructure, and they have some form of levy to cover the expenses associated with the debt.

In the interest of fairness it was nice that the EU only required only the private banks to take the "Voluntary" 50 percent haircut on the Greek sovereign debt.  Remember dear reader that the Government of Greece did not institute this reduction, no it was done by the private creditors, the government creditor still expect and demand that they be paid in full.  The private creditors just have a few tens of thousands stockholders that are pissed, which is much better than have several hundred million voters pissed.

After all the management of the banks are safe, well as safe as anyone with their head in a guillotine is. Management typically controls enough stock in most occasions to control and keep their jobs.  Politicians on the other hand the situation is much more tenuous, they must remain popular typically with out regard to associated cost.  As evidence we provide Silvio Berlusconi.

There is an old saying that if you borrow a little money from the bank, the bank own you, but if you borrow a large amount of money from the bank you own the bank.

For sometime the Banks in Europe new that they were owned, and it took sometime for the bankers to convince the Politicians that the banks were owned by the debt that they held on their books.  And now it is time for the Politicians to break the news to the people.  This is really going to suck.

The Bankers think that they have an out, they can use the infamous "Nuremberg Defense" in that they were complying with the rules as provided to them by the various governments (Local, State, National, International)(Basel Conventions, local laws and regulations).   It did not work then it probably will not work now.

Pass a few conventions, laws and regulations and put the system on auto-pilot, or just not check on the baby from time to time, after all "All is Quiet on the Western Front".

To cite the title from a recent movie "There Will be Blood" it is only a matter of time.

Remember that all systems are self correcting, you just do not want to be around when they correct.


Angela just wants to spread all the pain around and she wants to be the spreader, remember that it more blessed to given than receive, the longer they wait the more the pain will be.

What a novel thought

What a novel thought that George Papandreou, the Prime Minister of Greece would insist on a binding public referendum for the European Union Greek Bailout Proposal.

George Papandreou has a 2 Vote Majority at best in the Parliament, and many suspect that he does not have that, and he does not want to find out the hard way.  The easiest decision to make is to let someone else make that decision, the blame is theirs not yours.  Of course you can advise them on the decision that they are being asked to make, but the fallout is theirs alone to bear.

If the people of Greece pass the referendum Mr. Papandreou will be able to say “I did not force this upon you, a majority of your fellow citizens agreed to accept this burden”.  The main problem will be that however the outcome of the vote the effects will not only affect the current generation it will be on at least the next two generations.  If the citizens of Greece pass of the life line with anchor attached, and then decide that Greece needs to go in a different direction, well so be it, again the choice was theirs to make and theirs to bear.

Greece might have been the birthplace of democracy, but since the end of World War II it has not spent much of the time in a stable democracy.  Greece history since World War II has been anything but stable.  About the only thing stable was the name.

Since the end of World War II some 67 years there have been 48 different governments in Greece.  Just a crude back of the envelope calculation would indicate that the average Greek government has a half-life of 8.4 months.  Mr. Papandreou must be doing something right considering that he is currently at 2.85 half-lives.  It could also mean that the situation is so balled up that no one in his or her right mind would even consider taking the position. (My condolences, You have won the election and you are the new Prime Minister).

The European Proposal has nothing to do with Greece, but everything to do with its own major banks, and the really sloppy practices (Regulators and Banks) that they have been operating with for at least past 10 years.

The various powers that are in place with banking over sight functions failed, and they failed big.  The data was there, and it was available, either by sheer incompetent or criminal collusion it was not acted on.

It was not an either or situation I believe that it started out with incompetents, and then graduated to criminal collusion.  Some of this incompetent is a result of deliberate/legislative blurring of the lines between commercial and investment banking.  Some of this incompetent was due to lack of experience with investment banking, or the assumption that investment banking was just like commercial banking.

That said when the various individual operating the banks started to make large amounts of loans to the Greek Government, and the incompetent regulator did not call them on it, and for that fact neither did their Board of Directors nor the stockholders.  Who wants to stop the elevator on the way up (The ride is really great counting those unrealized gains)?  The management of the Banks recognized this fact and jumped in with both feet, and just compounded the problem. (our depositors are demanding their interest payments, and I need my bonus)

Greece was writing IOU (they were not the only ones), Backed by the Full Faith and Credit of the Greek Government in a currency that they did not control.  The Investment Bankers where getting fat commissions and fee helping them write and place the IOU.  The Basel Treaty inadvertently provided a ready market for all the paper that was being created (Tier I Assets Requirements, the mistaken assumption between Zero Risk and No Risk, and that Sovereign Debt is “Riskless”) Zero Risk is relative, and No Risk is Absolute, the former is real and it is continually changing to reflect the current conditions.  The later is a figment of the mind and a delusional mind at that.

The European Governments do not want the Greek government to default.  A Greek debt default would trigger the first way of various Credit Default Swap agreements.  Since the Credit Default Swaps are not regulated (they are not regulated anywhere) no one has any idea of the magnitude of the counterparty risk, but if the experience of the United States is an accurate example we will all find out in rather short order.

Europe stands at the edge of the abyss, and I am afraid that they will fail the test.  In 2008 when the United States stood at the edge of the abyss the decision was easier to make since the states are united by form and function (Constitution, laws, monetary, de facto common language, common national history), we fought a civil war to establish most of these facts.  Europe has not had this experience (most of their wars have been just the opposite).  Europe in practice is not united by form and in reality by function.  Europe carries a tremendous amount baggage from its past, that makes it easier to be separate rather than united.

The term “common good” does not ring true in Europe, for Europe.  Common good does have resonance for the people only as it applies to their nation.  The lack of trust between the various members of the European Union is palpable, and in many case lies just beneath surface.  Any significant economic distress will bring this to the surface with all of attendant ramifications.

Many of the older and middle-aged Germans are scarred by the experiences economic turmoil of the Weimar Republic, and the initial post war period, in particularly their treatment at the hands of inflation and hyperinflation.  Many Germans are myopic and rather emotional on this subject (So are the Italian, French, you name them).  In many cases these Germans will not admit, much less understand that they benefit from this expansion of debt in Europe.  Many will not recognize that the debt allowed German industries to sell goods and services abroad.

Many of these Germans enjoyed the trip going up, but they are not looking forward to the trip down.  Many of the German that I talk to express a strong belief that this situation is only isolation to Greece, or maybe to the Southern Europeans, and that the effects will somehow by magic be isolated to these areas.

The various European governments, and for that matter the United States, are not coming clean with the various electorates as to just how vulnerable their countries are visa vie the risk in their respective financial systems (The United States passed the Dodd-Frank Bill and now we can sleep safe at night (NOT)).

The world has had sixty some years of peace in Europe, but this could be coming to an end in the coming years.  I hope that I am really wrong on this point.

Germany is the only European country with the financial resources to address this debt issue, unfortunately it will not address it, the internal political costs are too great, and the political cost of not addressing it are a matter for another day, and possibly another German Chancellor to address.  Regardless of the decision the People of Greece make it, the out come will not be good for Greece and the European Union.