The Open Ocean

August 6, 2007
     By now, is there anyone over twelve in the USA who has not seen Jim Cramer's tantrum recorded late Friday afternoon on CNBC as the stock market took a 280 point swan dive off the rocky cliff of Hedge Fund Island?

     Cramer's histrionics were only a few clicks above his normal antics on the "Mad Money" show, but even so, they made a remarkable impression of someone in real, not mock, despair. He mentioned more than once during the tirade that he'd been on the phone all week with other interested parties who were begging him to do something about the rising bloodbath on Wall Street. And by "do something," they clearly meant that Cramer should go on his TV show and make an appeal to Federal Reserve chief Ben Bernanke to drop the prime interest rate at the Fed's meeting this coming Tuesday -- the purpose of which would be to make cheaper loan money available to the Wall Street players whose investment houses suddenly found themselves underwater in the churning straits off Hedge Fund Island, weighed down by bagfuls of worthless securitized non-performing mortgages.

      Personally, I don't quite get how a financial industry based on bad loans would be helped by borrowing more money to bail out a hopelessly unwinding Ponzi loan racket of the type the industry had engineered for itself -- but maybe I'm lacking the gene for financial creativity that the Bear Stearns bonus babies were all born with.

     In any case, apropos of Cramer's telephone marathon, one can only imagine the number of cell phone minutes racked up this weekend out in the Hamptons by players trying desperately to finagle their way out of the brutal fact that their firms and funds suddenly lay exposed to the cruel ravages of reality. A lot of catered crab tidbits and mini-quiches must have gone uneaten out along the dunes as weeping men in blazers realized that "marked to market" had come to mean the same thing as "holding a bundle of shit."

     I'd be surprised if all these geniuses hadn't managed to rig some kind of a life raft over the weekend, but they'll still be bobbing in the dangerous waters offshore, with plenty of sharks circling, and they'll still be stuck with those wet, bags of mortgage tranches (soon swelling and reeking in the sun), and my guess is that by Tuesday or Wednesday the life raft will be listing in more heavy seas.

     At the other end of the storyline are the many sad people who were the initial dupes in the racket: the poor shlubs who signed "creative" mortgage contracts to become notional home-owners and thus achieve their spot on the first landing of the American Dream staircase. I say "notional" home-owners because somebody who "buys" a "product" such as chipboard-and-vinyl McHouse with no money down is not really an owner of anything but rather a kind of glorified renter stuck with the additional burdens of paying property tax and maintenance costs for something really owned by another party (a notional landlord). And, of course, we all know by now that the payment terms for these loan contracts were slippery sliding indexes which uniformly tended to slide upward as interest rates re-set above the ludicrously low levels of 2003 - 2006.

     Millions of these unfortunate people are now seeing their lives whirl down the interest rate re-set drain. If this was still the same American Dream nation of It's a Wonderful Life, these contracts might have been re-negotiated by friendly, helpful, upright local bankers who benefited directly from loans favorable to both parties that continued to perform. But the whole racket this time was designed to dissociate the loan contracts as far as possible from their company of origin, and then to slice and dice the liabilities of ownership so finely that all the lawyers theoretically ever producable in the life of this universe, or several like it, may never succeed in patching together a coherent skein of ultimate responsibility. In the meantime, a remorseless chain of mere procedure in the form of default and foreclosure notices issued by computers will be sent through the mail, and sheriff's deputies will fan out through the subdivisions with their rolls of yellow tape, tossing residents out on the street (if they haven't already mailed in their keys to some company that fired all its employees and shuttered its offices back in June). A lot of these unfortunates will prove to be members of racial minority groups -- as reported by Gretchen Morganstern in today's New York Times -- and that is liable to add some cayenne pepper to the political gumbo cooking on the nation's back burner.

     In his CNBC tirade, Cramer barfed up some choice phrases such as, "[the Fed board] has no idea how bad it is out there!" and "this is armageddon for fixed income [markets]!" No doubt a lot of observers, especially in the cheerleader financial media, will discount these utterances as we enter the shark-infested waters of the open markets this week. I really have to wonder if the many little life-rafts out there, rigged desperately over the weekend, bearing the castaway crews of hedge fund boys, are not drifting into the damp winds of a perfect financial storm.

Comments

[gstuffjoe]

Wow, that Cramer guy is absolutely nuts. I can't wait to see what happens next.

[Dr. Girlfriend]

Wow- Tanta and Kunstler (nearly)on the same page.
http://calculatedrisk.blogspot.com/2007/08/sfas-140-like-bridge-over-troubled-bong.html

[ms2]

Very similar things are happening in Italy. If interested, check out
http://www.beppegrillo.it/english.php

[nikmills]

Kunstler is by far the most entertaining energy/future/money/collapse/culture related blog. I love Monday mornings, all due to Jim.
To me, however, the most inspirational site concerning energy decline is
http://transitionculture.org/. I suggest clicking "about" and then look over this man hopkin's site. I like his excitement and proactive stance concerning our future challenges.

[nikmills]

Interesting that the bridge collapse over the Mississippi was eclipsed by Cramer at the last minute. I thought for sure I-35 was going to be todays subject. It's tailor made for Jim. There's just too much happening at once I guess.

[optimusowl]

That's only about a 2 percent slide. It seems normal that the dow should slide within 10 percent up or down on any given day. It isn't real. It is all a casino.

I've been reading Jared Diamond's "Collapse". The history of Easter Island could be extrapolated into a lesson for the United States. Our half of this phase of Globalism corresponds with their giant statue erecting phase. Oil for us is what trees were to them. The measures of our success(sprawl, shopping malls, giant skyscrapers, wall street wealthy, capital intensive expeditionary wars/turkey shoots) are comparable to their building of worthless giant statues.

The last statue ever built there was also the largest statue ever built there. And then they had no more timber. They couldn't fish or trade for necessary goods anymore. Their soil became much less rich.

Globalism has been the facilitator of our oil addiction. We've replaced normal productive economic activities with sprawl and white collar busy work.

[David Mathews]

"A lot of these unfortunates will prove to be members of racial minority groups ..."

Is this really relevant? There isn't any need to inject racism into a bad situation.

The price of oil is down dramatically. The price of gasoline is down. The Dow is still over 13,000.

It is too early to worry. Perhaps this is another false alarm.

[StephenB]

I dunno. I've been a market watcher for almost 2 decades now. Combined with what I've learned about peak oil etc., I think this is the real start of the downfall in markets and just about all of it. Yes, oil can and will dip, the Dow may bounce, but this feels like a "short the pops" trend to me if there ever was one. jmo.

[optimusowl]

Dave,

it isn't racism. It is simple statistics.

And considering the economic "winners" in the U.S. are mostly white and have mostly abandoned more densely populated cities, there could be some problematic adjustments when they need to move closer to work. They're going to have to abandon their appreciation for legal busy work.

[PeakOilBoy]

Hopefully all the "False Flag" jitters in Portland are unfounded, but the "Nuke" exercises set for this city do not rest well on the minds of the people.

If one goes off in the Pacific Northwest and the blame is shifted to some "Enemy", just know that Operation Noble Resolve was a US planned event and be sure to question and investigate the official story!

[artiefacts]

Wow. You go away for a few months and things have changed at CFN. JHK is still waiting for the market to crash, but at least the peanut gallery requires a log-in now. Big improvement. Seems like a few of us argued for a new discussion format a few months back, but like the markets, things happen more slowly than we sometimes like.

It would appear that the market cannot crash fast enough to suit JHK. Has it really been three years since he first made the "Dow 4000" prediction? I have to agree with JHK that some of the fundmentals look extremely flaky, but Kunstler's message still comes across as run for the hills, jump from the speeding car, abandon ship/all hope, ye who enter here.

[Brandon]

So I should buy my emergency stash of cannabis now?

I need another 1/2 ounce tomorrow, maybe I should just get a whole ounce?

Man, there was so little time to do anything meaningful...

[David Mathews]

Hello Everyone,

Moving on to a more serious subject. What does it mean when the "best" Peak Oil website in the Universe receives its marching orders from the American Petroleum Institute?

The latest API conference call included three (3!) Oil Drum luminaries:

Robert Rapier - Mr. ConocoPhillips

Nate Hagens - investor in oil futures (any conflict of interest here? Nah ... of course not!)

Gail the Actuary - part of the Actuarial - Industrial Complex

Turns out that the API doesn't like the Energy Bill. Guess it wasn't kind enough to handing out subsidies and environmental exemptions to the oil corporations.

This is why the API is unhappy:

Jim Ford: That's right. This is Jim Ford with Government Affairs at API. And basically, you look at the provisions that are in the House bill, and it has a negative impact on current and future domestic production. It has limitations on expanding refining capacity. . . . So it has an extremely negative impact. It just far outweighs anything else that you might consider positive.

( http://www.theoildrum.com/node/2845#more )

Poor little oil corporations, I weep for you! You have only collected maybe $100 billion in profits over the last five years.

How can we help you?

We cannot let these little oil corporations suffer. We need to become politically active and tell the Congress to protect the powerless and defend the defenseless.

Fortunately The Oil Drum is eager to help. They are lobbying congress on behalf of the oil industry. The Oil Drum will save America's energy-gluttonous lifestyle.

The Oil Drum also wants to build trains. That's nice. Problem solved. Peak Oil ... history's greatest anticipated non-event!

[David Mathews]

Classified under, Ask a silly question:

"One thing I haven't understood about these API calls is what API gets out of them. It has to be more than just PR or trying to put a spin on things. My gut feeling is that they are trying to get a feel for what questions might be asked by others and, thereby, take anticipatory action. Any thoughts?"

( http://www.theoildrum.com/node/2845#comment-223118 )

Well, I am going to guess that this is exactly what the API gets out of its call:

"I think one of the concerns of the oil companies is that they do not want to be caught in a squeeze between price gouging provisions (which they view as being akin to price controls) and higher taxes.

"Oil companies are going to be hit very hard by peak oil. Their most productive wells are declining rapidly. If they continue to drill, it is likely to be in sites that are very expensive to produce. There is also a huge amount of existing infrastructure that needs to be maintained (particularly pipelines). While I agree that there has been a lot of less-than-productive use of the profits in the past (stock buybacks, purchases of other companies), the fact remains that we will need these oil companies in the years ahead, as imports become more and more of a problem.

"The oil "majors" are subject to increased competition both from the National Oil Companies (overseas) and the small independent companies in the US. We don't need to make it harder than necessary for them."
( http://www.theoildrum.com/node/2845#comment-223121 )

I am pleased to see that the actuary industry is looking out for the oil industry.

The Oil Drum represents the API very well, too well. So well that I cannot put much faith in anything that The Oil Drum advocates.

The Oil Drum is perhaps right about Peak Oil but that is all. I would put much faith in an oil industry website under any circumstance.

[artiefacts]

"Poor little oil corporations, I weep for you! You have only collected maybe $100 billion in profits over the last five years."

You know, it's true that oil companies make big profits. They also sell enormous quantities of products. McDonald's and Coca-Cola show better ROI than Exxon, and their products wreak comparable havoc on the American way of life. Shouldn't we be heaping equitable amounts of scorn on these venal high-profit industries too?

[optimusowl]

Jim Kunstler's mistake is in assuming the Market = the Economy. This is a mistake many in the mainstream make. The stock and equities trading markets have never resembled anything concretely real. It goes up largely for no real reason. So it doesn't take a real reason to keep it up, or keep it from falling too severely.

Inflation can be shifted around. 50 or 60 years ago, when a farmer needed a new truck he sold 2 cows. Today he has to sell about 30 cows. Yet there were far more economically viable farms and farmers then also. Interestingly enough, there were also many more auto workers gainfully employed. So what is the point of measures of efficiency or productivity as a metric of the "health" of our economy?

Inflation as a percentage isn't a real valid measurement, because it is parcelled up and shifted around in vastly unproportionate ways.

Here's another interesting metric: the new business of consumer electronics involves selling extended warranties. they interview an electronics store owner. He explains that it used to be you buy a tv or something and it would last 7 years before something went wrong. Today something will go wrong within 2 years. Granted, it has a shitload of digital menu options and settings. But what is the point?

[Holmes, I presume]

Modeling Project

http://www.theoildrum.com/node/2823#more

This is an incredibly ambitious project as presently envisioned. oilmanbob makes some interesting comments.

[David Mathews]

Hello artiefacts,

> "You know, it's true that oil companies make big profits. They also sell enormous quantities of products. McDonald's and Coca-Cola show better ROI than Exxon, and their products wreak comparable havoc on the American way of life. Shouldn't we be heaping equitable amounts of scorn on these venal high-profit industries too?"

I head scorn upon all industries. Especially the oil industry, which makes all of these other parasitic corporations possible and profitable.

I look forward to a day in which all of the world's industries have ceased operated and all of the world's corporations have gone out of business.

I had hoped that Peak Oil would get this job done, but now I know that wind farms and trains will solve the Peak Oil problem without much pain and provide economic gain.

Given that windfarms and trains have solved the Peak Oil problem I cannot imagine why the government should do any more favors for the oil corporations.

I look forward to the day when both ExxonMobil and ConocoPhillips are bankrupt and out of business. These corporations should die.

[upnatpishtim]

it just so happen that G.W. (george washington) camped out on a well to do farmer's fields.
although it looks quaint, it must
have been brutal to have to live like that. working sun up to sun down just to clothe and feed you and yours.
when the oil runs out the old,weak and very young will be doing a peak of dying.
an aside, i often wonder, the deeper they drill for oil, might not some of it be radioactive?
would oil companies refine and distribute radioactive gasoline?
has anyone ever investigated that?
but...all is well. sirius,the dog star is a blue giant with a life time of say 50 million years.
when it goes super nova, the gamma rays will sterilize all life on earth.some say global warming is more like solar system warming. all the planets are exhibiting warming trends or at least bizzare
weather quite different from 20 years ago.
what if our sun is ready to swell up into a red giant?
what if gaia had created intelligence to escape that fate and we blew it?
all we skwak about is peak oil
or financial melt downs. what are the important things in life?
fill you belly with food, embrace your spouse, watch you children grow. for now. no one lives forever. everything comes to an end. one day even the protons in your body will evaporate into quarks. ZARDOZ SPEAKS TO YOU HIS CHOSEN ONES!

[David Mathews]

Hello Everyone,

Robert Rapier -- Mr. ConocoPhillips -- is so eloquent when speaking out on behalf of the oil corporations:

"If the API doesn't like the bill, the has to be something good in it.

"Good for whom? Good for people who like the idea of "sticking it to Big Oil", but who don't really understand that in an era of diminishing reserves, oil companies are going to have a tough enough time as it is producing new oil. Receding horizons and all that comes into play. But the geniuses in Congress think that Big Oil will bear the brunt, and it will all be good for consumers because biofuels are going to save them from the wrath of those greedy oil bastards. In reality, some provisions in this bill may exacerbate the speed at which oil production goes downhill, which is a problem for all of us.

"I see a couple of possibilities. The bill passes, and the tax works its way down to the consumers. In 2 or 3 years, when gas is $2 or $3 higher, Big Oil is once again blamed for the results of this bill, and we rush out and try a different knee-jerk approach.

"Or, Big Oil slows down their capital spending, meaning in 2 or 3 years when gas is $2 or $3 higher, Big Oil is once again blamed for the results of this bill. So we rush out and try a different knee-jerk approach. Wash, rinse, and repeat until congress figures out that what we have here is a problem that they in fact either can't, or won't come to grips with.

"After a few years of crushing price increases, perhaps our government will decided that the American way of life is negotiable after all."
( http://www.theoildrum.com/node/2845#comment-223140 )

Well.

I am in favor of a few years of "crushing" price increases.

I am also in favor of "sticking it" to the Big Oil Corporations. They are the ones who got America addicted to oil and they have profited much from the addiction.

I am also in favor of ExxonMobil and ConocoPhillips going out of business. Their stock should become worthless and all those who have spent their careers working for such reprehensible organizations ought to lose everything that they have earned.

***

Peak Oil + Wind Farms + Trains = Perpetual Economic Growth?

The future ain't what it used to be.

[steve duncan]

Bush just wants to stagger to the finish line before failure in Iraq, the housing bust, oil price inflation and various criminal investigations really come to the forefront of national consciousness. Once it's February, 2009 every single problem will be the fault of Democrats. The citizenry are such a brew of dithering idiots they'll believe Fox News when told of the terrible failures and embarassments the U.S. is suffering due to Hillary, Obama or some other unlucky winner of the "Pinata Election" coming up.

[DaveL]

http://www.youtube.com/watch?v=EZspGyoexCU&mode=related&search=

good bye house of pain. now these guys make me want polish up the old broad sword.

[bud4wiser]

JK - posted this nugget: "But the whole racket this time was designed to dissociate the loan contracts as far as possible from their company of origin, and then to slice and dice the liabilities of ownership so finely that all the lawyers theoretically ever producable in the life of this universe, or several like it, may never succeed in patching together a coherent skein of ultimate responsibility."

JK, it's this kind of prose, more specifically, this kind of Faulknerian sentence that makes your BLOG worth reading.

Although, I share your outrage at those people who have schemed our nation into Clusterfuck, I'll never approach your unique penchant for expressing my thoughts with such verbose, supercilious indignation.

Thanks for sharing.

[David Mathews]

Hello Everyone,

Robert Rapier is one eloquent person when the oil industry is threatened by the government:

"Pure Venom

"It is disturbing to me that an industry that plays as important a role in modern life as that of the farmer is so vilified. It must be that people simply do not recognize the role the oil industry plays in their lives: From medicine to food to clothing to housing to transportation - today all are heavily dependent upon the oil industry. Yet somewhere a group got together and said "Hey, let's slap a bunch of additional taxes and burdens on the oil industry."
( http://i-r-squared.blogspot.com/ )

Maybe if you frame your Peak Oil arguments in a subtle enough manner you can get the environmentalists to lobby on behalf of the oil industry!

The Oil Drum is an oil industry rag. Everyone who reads that blog need to keep that in mind whenver tempted to heed the advice of its contributors.

What is good for ConocoPhillips is terrible for Homo sapiens. The oil industry needs to die if humankind wants to survive.

[DaveL]

"What is good for ConocoPhillips is terrible for Homo sapiens. The oil industry needs to die if humankind wants to survive."

in 100 years, maybe less, there will be no oil companies. homo sapiens will be down to under 1 billion, maybe less, hopefully.

I wish i could be there to see it. If i'm lucky, i've got about 40 years left. it'll be interesting if nothing else.

If all the human beings put together in the entire world right now had an ounce of brain between them...well, i don't know what we'd do. it just has to play out. there's no other way.