Fullblown Panic

      January 21, 2008

     Knees knocked last week from sea to shining sea as the shape-shifting monster of economic reality cut a swathe of destruction through the markets and financial ranks. The exact nature of this giant beast still remained largely concealed in a fog of accounting gambits, policy blusters, and reporting dodges, but a few intrepid scouts who glimpsed the behemoth up close said it looked like Godzilla with Herbert Hoover's face.

       George W. Bush, tried to appease the beast by offering each American adult the dollar equivalent of half a month's mortgage payment -- with the exhortation to drive forthwith to the nearest WalMart and blow it on salad shooters and plasma TV's -- but Hooverzilla just laughed at the offering and pounded the equity markets further into the dust of loss, while the "bank-like" guardians of wealth lay in the drainage ditches bleeding from their ears and eyes.

     My favorite moment was seeing Treasury Secretary Paulson and one of his fellow shaved-head deputies at a press conference rostrum frantically trying to calm the news media rabble like a couple of extraplanetary high priests from a Star Trek episode -- the batteries having run down in their laser wands, and their incantations ("liquidity! liquidity!) veering into mystifying glossolalia.

     I resort to such admitted extreme hyperbole because it may be the only language that an infotainment-drunk society can still process in the face of an epochal calamity that will transform the lush terms of everyday life as we've known it into something like a bleak surrealist landscape in the manner of Tanguy. That crashing sound out there is the armature of confidence needed to support an economy based on faith that borrowed money will be paid back. It's as simple as that. (Doesn't seem so exciting now, does it?)

     The United States is so broke, its people at every level from the Federal Reserve on down don't know whether to shit or go blind. The homeowners cringing in the media rooms of their 5000-square-foot personal family resorts don't know how long they can stay put microwaving pepperoni hot pockets with the default clock ticking. The mortgage "servicers" don't know how they will persuade interested parties like, say, the Illinois State Cafeteria Workers' Pension Fund (holder of X-amount of mortgage-backed securities underwritten by, say, Merrill Lynch or Deutsche Bank) to foreclose on properties scattered everywhere from Key West to Bainbridge Island -- or if there is actually any legal mechanism known to man that would make it possible to "work out" the sliced-and-diced collateral. The millions of maxed-out credit card holders and the issuers of their plastic are stuck together paddling a leaky tub in a sea of troubles every bit as wide, deep, and polluted as the one the mortgage junkies and their enablers are sinking in. The developers of malls, office parks, and power centers are weeping into their filing cabinets as the harsh daylight of insolvency stops the orgy of "consumption" and the retail tenants pack up their unsellable goodies for the liquidators, and the rent checks stop arriving in the mail, and the notes on this mall and that mall enter the eerie realm of "non-performance." And, of course, there are the genius wonder boyz and Wall Street playerz whose algorithms and turpitudes underwrote the script of this horror show -- for all I know they'll end up laughing into sugary skull drinks on a beach in the Cayman Islands, or doing Chinese fire drills in federal prison (or simply ass-fucked on the granite countertops of their Tribecca aeries by mobs of angry, repossessed, swindled former American dreamers pouring into Manhattan from the tract house dormitories of New Jersey and Long Island).

     There's a lot to be concerned about out there. I don't mean to be too cute about it. But, as the master once said, nothing is funnier than unhappiness.

     A whole closet full of "other shoes" is now waiting to be dropped. Surely the biggest clodhoppers in the closet belong to the hedge funds, representing trillions and trillions of dollar-denominated "positions" which, however hallucinatory, had previously yielded enough real "money" year-by-year to keep all the realtors and Humvee dealers in the Hamptons goose-stepping to Goldman Sachs's drumbeat. These "positions" can't help now from moving into counterparty crisis territory, especially as the bond insurers such as MBIA and Ambac go up in a vapor, and if that happens the damage could be so colossal globally that Stephen Hawking might have to be brought in to run the Federal Reserve.

     This is going to be a rough week. Fastening your seat belts may not be enough for this ride. Better superglue yourselves to the floorboards and pray for God's mercy.

Comments

[georgedunbar]

don't worry derrick. they'll bring it down all on thier own. maybe not fast enough or not in any good way though.

http://derrickjensen.org/econ.html

[montysano]

Light rail is a fine, albeit expensive, solution for affluent countries who can afford it. Unfortunately, that ain't us right now.

Here's a very somber Jim Cramer on the bond insurer situation.

[montysano]

WTF is wrong with Typepad; it ate my link.

Jim Cramer:

http://www.cnbc.com/id/22728371

[EEofDC]

"Some Washitonians may even mention things like gas taxes and mass transit development."--Bud4Wiser

Are you crazy, B4?? Those of us who live and work here (the real Washingtonians)--as opposed to the fatcat jackasses who are sucking off the public teat "representing" the rest of you out in the UPL--are slowly but surely holding our public officials accountable. You need to do the same. Hell, we don't even have a vote in the cesspot over on Capitol Hill. (Not that there aren't all sorts of greedy, whoremongers that wouldn't love the job.)

It's the grass roots, baby! You guys need to demand that your elected officials stay the hell in their own states and assemble via the internet. Then we can turn the Capitol Building into another tourist attraction or condos or sumpin' useful and multipurpose.

[umass82]

Jim:

After years of de-industrialization and off shoring the economy is as you have said based on financing and continued home construction.

As a result of the use of non union cheap (and in many cases illegal) immigrant labor, we have essentially off shored home construction, now as a result of the sub prime meltdown the financiers are going hat in hand offshore to raise capital, what this means is that that as a result of remittances by individuals and corporations the one part of our economy that is left will in a large part be siphoning wealth overseas, as this happens we will become a poorer and poorer nation till one day we will have nothing left to sell and we will become an economic colony of the likes of Red China and Saudi Arabia. This is happening in front of our eyes, and yet the genpop is focusing on K-Fed and Brittany, Bread and Circus as the barbarians are at the Gates.

When Paulsen had that news conference with GWB, Hank looked like he was shitting a porcupine, GWB is going to give out $800.00 to the genpop. This will stimulate the economy a bit, it will give us a bump in the economy maybe just enough to keep the wolves at bay until the next election the plan being to keep the GOP in charge.

[msjanket]

JK, you da man. I think you are making this gloom and stuff sound palatable in that you aren't pulling any punches. Dancing politicians fearful of revealing how bad off we really are are the worst people we face on our road to ruin.
Nobody wants to lay the cards on the table, especially before the election. While politicians primp and posture, we are witnessing the burning of Rome.
I figure I can last 32 minutes at high stakes bingo before my rebate from the Feds is all gone. Should jumpstart the economy, huh?

Jim, well done this week . I love being lashed by the truth, the pain is exquisite.

[msjanket]

JK, you da man. I think you are making this gloom and stuff sound palatable in that you aren't pulling any punches. Dancing politicians fearful of revealing how bad off we really are are the worst people we face on our road to ruin.
Nobody wants to lay the cards on the table, especially before the election. While politicians primp and posture, we are witnessing the burning of Rome.
I figure I can last 32 minutes at high stakes bingo before my rebate from the Feds is all gone. Should jumpstart the economy, huh?

Jim, well done this week . I love being lashed by the truth, the pain is exquisite.

[LaughingAsRomeWasBurningDown]

msjanket, you are so right on Rome burning. And I thought I had that 401K diversified enough

http://finance.yahoo.com/intlindices?e=asia

[Brandon]

Rico speaks the truth, Cloverfield blew chunks. I thought the latest episode of Bob the Builder was more "thrilling" even though I was slightly in a different mode of perception, being drunk on merlot and actually still paying attention thanks to d,l methylphenidate.

This post of JHK's reminds me of someone manically typing on his keyboard in so many words "SEE I TOLD YOU SO MOTHER FUCKERS! I WAS RIGHT AND FINALLY EVERYONE WILL SUFFER AND I TAKE GREAT PLEASURE IN THIS! GREATER PLEASURE THAN WHEN I ENGAGE IN AUTO EROTIC ASPHYXIATION!"

[Saint Bif]

This is more auto neurotic and TOD-ish than auto erotic but... The total energy cost of passenger vehicles occasionally comes up in these threads. Here’s something I have come across previously on the intertubes that takes a whack at holistic accounting of total energy cost of an auto over its entire life. In 1998, H. MacLean and L. Lave at Carnegie Mellon U. published “A Life Cycle Model of an Automobile” in Environmental Science & Technology. I no longer have the article, only my notes. Focus of their effort was mainly toward assessing environmental impact of autos, but in doing so they looked at energy use over the life stages of a typical car. For this they chose a Ford Taurus, estimated a fuel efficiency of 21.8 mpg, and assumed a lifespan of 14 years.

They were looking at this stuff in mega joules so I converted to BTUs (for Nudge) and then to barrels of oil equivalent (BOE) for me and the petroleum engineers:

Manufacture one car – 113.5MM BTUs (19.6 BOE)
Operate one car 14 yrs – 832MM BTUs (143.5 BOE)
Fuel cycle 14 yrs – 100MM BTUs (17.2 BOE)
Maintenance the car 14 yrs – 37MM BTUs (6.4 BOE)
Insure car 14 yrs – 14MM BTUs (2.4 BOE)

Total for one car would be 189 BOE over 14 years, and averaging 13.5 BOE/yr.

According to MacLean and Lave:

BTUs were accounted for in supply chain for manufacture and maintenance.
“Fuel cycle” refers to energy cost to produce, refine, distribute, dispense the oil consumed by auto.
The final stage, recycling of the junk car, is not included and assumed to be minor additional BTUs.
66.3 kg of “toxic” compounds produced/released in lifetime of car. 39kg of this during manufacture.

Again, these are my notes, access article for your own take.

As always, your mileage may vary.

For grins only, I have scaled their results thusly: Applying the above estimates to current U.S. fleet of registered vehicles, approx 250MM passenger cars each averaging 13.5 BOE/yr, would result in a total of 3,376MM BOE/yr, or 9.25MM BOE/day.

[Nudge]

Saint Bif, thanks for mentioning that article. Is this the same one?
http://www.ilea.org/lcas/macleanlave1998.html

I got a somewhat different number, by a different method, for the daily BOE for running the UPL domestic auto fleet. Starting from the known UPL gasoline usage rate of 385 million gallons of the stuff per day, and the known cracking efficiency of getting 19.5 gallons of gasoline per 42-gallon barrel of oil going into the refinery, this gives us roughly 19.75 million barrels of oil per day going into the making of gasoline. Presumably other substances besides regular unleaded are derived from each 42-gallon barrel o' crude, but still, this gives us a figure of almost 90% of the United Parking Lot of America's 22mbd habit going into making go-juice for all the J6P's to burn up in their solo-occupant SUV commuter vehicles.

Of course, if they meant gasoline-to-BOE equivalent as being 42 gallons per barrel, then yes, 385 millions gallons gasoline per day would be 9.16 million barrels gasoline per day.

[American]

Ronald Reagan: The man who taught America prudent behavior wasn't necessary.

[Holmes, I presume]

Our would-be future First Gentleman has a "dream"!

http://www.nypost.com/video/?vxSiteId=0db7b365-a288-4708-857b-8bdb545cbd0f&vxChannel=NY%20Post&vxClipId=1458_227094&vxBitrate=700

[American]

Ronald Reagan: The man who taught America prudent behavior wasn't necessary.

[Holmes, I presume]

Heh, heh... how many of you can say you've been the creamy center of a Ronald Reagan crispy cookie sandwich?

[Nudge]

Gang, I'm sorry to report that the errant JR has yet to actually email me to arrange this coffee thing. Boys will be boys, I guess.

Looks like the stock market in Oz is following the 'tanking seen round the globe' thing that happened on Monday. Tomorrow morning should be .. interesting.

Holmes, who's supposed to be the bread on the side opposite from Ronny? That drooling, misspelling proto-CON Ollie N, or the spineless read-my-lips no-new-taxes veep? Or, in a game of “bi” partisanship, might it be the sweaty triple-jowled quadruple-chinned Teddy K, our very own bestest from Mass?

Oh, sorry, I don't care much for politicians.

[thal]

Hey hey, good video Holmes. I slept through half of it, though.

[Holmes, I presume]

No Nudge, that's two slices of RR!

[Nudge]

Uggh, at work I know people who still practice the “shop 'til you drop” thing and who haven't yet given up the once-weekly nail thing or the eating out 3x weekly thing or the $120/month HDTV subscriptions. Something tells me that folks as clueless as that won't have any clue, later on, as to why they find themselves in various bread and soup lines.

It's enough to make a sane person want to be at least 5 or 6 digits into PM holdings.

Perhaps tomorrow I'll get to change that sign at my desk to “12,000, we barely knew ye!”

Tttttttimber!

[scott]

It's possible tht a lot of that dough chasing emerging markets could be coming back into U.S. stocks. I wouldn't be surprised if the DOW was up 3 or 4 hundred tomorrow. There's a lot of fear in the markets right now, got to find something that isn't selling off. Volatility? Some analysts the other day were saying the VIX would go over 40, it was at 28 on Friday.

[Saint Bif]

Nudge, your link is a very brief synopsis of the paper they wrote.

I expressed the megajoules energy cost in BTUs and ‘barrel of oil equivalent’ but that doesn’t mean all energy cost was from oil. Also, this is in regard to energy cost of passenger vehicles only.

[Uncle Yarra]

PL is channelling through me...
http://www.theoildrum.com/node/3481#more

[thal]

Several thoughts. St. Bif, yes, a five hundred point rally wouldn't surprise me. It's not ambivalence to watch the whole thing drop a thousand though. Sometimes, in some regards, it's good enough to warm a ringside seat. All, yes, excellent synopsis of the math (which only goes to suggest that most everyone will be denying the validity of facts). JHK, Stephen Hawking, Federal Reserve black hole governor! Nudge, timberrrrrrrr, as a NW native lumberjack wannabe with Pendleton shirt, apt.

[Holmes, I presume]

“Some people simply do not belong.”

http://www.youtube.com/watch?v=SPTaX5_pDZU&feature=related

LTL, yes, it’s that time again… Time To Drive.

[LaughingAsRomeWasBurningDown]

Money talks and bullshit walks

http://www.energybulletin.net/39353.html

But not to worry. CERA concludes its report with a double dose of its patented petroleum Prozac, arguing that its results “reinforce our model showing that liquids capacity could climb to 112 million barrels a day by 2017…”

Betting on depletion is like betting on rust. Your authors here, Udall and Andrews, on behalf of ASPO-USA, are willing to wager CERA $10,000 that petroleum liquids capacity won’t climb to 112 million barrels a day by 2017. That wager, in our view, is a sure thing.