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There is an excerpt of Speech-Less: Tales of a White House Survivor by ex-Bush speechwriter Matt Latimer in this month’s GQ.

I wouldn’t have paid much attention to this — although some of it is hilarious — except for the knee jerk response from the former Bushies. See Bush vets: Who is Matt Latimer?.

I cannot help but observe that the insider reaction to every book about the Bush years is nearly identical — utter disdain, withering criticism, contempt dismissal — regardless of how well researched it might be, what insights it contains, hell, even whether its true or not.

What should an objective observer deduce? The logical conclusion is either that nearly everyone who has every written anything about the Bush White House is lying about it (and this offends the insiders) — or that nearly everyone is telling the truth (and this embarrasses the insiders).

Draw your own conclusion; GQ Excerpt:

We wrote speeches nearly every time the stock market flipped. Meanwhile, the White House seemed to have ceded all of its authority on economic matters to the secretive secretary of the treasury…(In the weeks that followed, Paulson changed his spending priorities two or three times. Incredibly, he’d been given the power to do with that money virtually anything he pleased. All thanks to a president who didn’t understand his proposal and a Congress that didn’t stop to think….)

Chris had just come from a secret meeting in the Oval Office, and without so much as a hello he announced: “Well, the economy is about to completely collapse.”

You mean the stock market?” I asked.

“No, I mean the entire U.S. economy,” he replied. As in, capitalism. As in, hide your money in your mattress.

The secretary of the treasury, Hank Paulson, had sketched out a dire scenario. And Chris said we’d have to write a speech for the president announcing his “bold” plan to deal with the crisis. (The president loved the word bold.)

The plan… Basically, it could be summed up as: Give me hundreds of billions of taxpayer dollars and then trust me to do the right thing…In some cases, in fact, Secretary Paulson wanted to pay more than the securities were likely worth in order to put more money into the markets as soon as possible. This was not how the president’s proposal had been advertised to the public or the Congress. It wasn’t that the president didn’t understand what his administration wanted to do. It was that the treasury secretary didn’t seem to know, changed his mind, had misled the president, or some combination of the three…

When White House press secretary Dana Perino was told that 77 percent of the country thought we were on the wrong track, she said what I was thinking: “Who on earth is in the other 23 percent?” I knew who they were—the same people supporting the John McCain campaign. Me? I figured there was no way in hell any Republican would vote for that guy. John McCain, the temperamental media darling, had spent most of the past eight years running against the Republican Party and the president—Republicans on Capitol Hill and at the White House hated him. Choosing John McCain as our standard-bearer would be the height of self-delusion…

He [Bush] paused for a minute. I could see him thinking maybe he shouldn’t say it, but he couldn’t resist.

“If bullshit was currency,” he said straight-faced, “Joe Biden would be a billionaire.” Everyone in the room burst out laughing…

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Sources:
Speech-Less: Tales of a White House Survivor
Matt Latimer

Excerpted in
ME TALK PRESIDENTIAL ONE DAY
GQ, September 2009

http://men.style.com/gq/features/landing?id=content_10957

With a Colleague’s Book Due Out, Ex-Bushies Play Out the Ritual of Anxiety
Al Kamen
Washington Post August 3, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/02/AR2009080201874.html

The Hole in FDIC
September 18, 2009
By John Mauldin

Elements of Deflation, Part 3
Outrageous! – Artificial Deflation!
If You Are in a Hole, Stop Digging!
The Hole in the FDIC
How Can Just Four Stocks Be 40% of the NYSE Volume?
New Orleans and a Mauldin Migration to Europe

This week we continue to look at what powers the forces of deflation. As I continue to stress, getting the fundamental question answered correctly is the most important issue we face going forward. And the problem is that we cannot use the usual historical comparisons. This week we look at one more factor: bank lending. I give you a sneak preview of what will be an explosive report from Institutional Risk Analytics about the problems in the banking sector. Are you ready for the FDIC to be down as much as $400 billion? This should be an interesting, if sobering, letter.

But first, Dennis Gartman and Greg Weldon will be joining me next week for another Conversation with John Mauldin. This is my subscription service where I sit down with my friends and let you eavesdrop on our conversations (we also transcribe them). Dennis and Greg are two of the premier traders and data mavens in the world, and we will be all over the world of commodities, currencies, and the markets. I can tell you, it will be one exciting conversation for me.

It won’t be too long before it will be time to do another Geopolitical Conversation with George Friedman. George and I are doing a conversation quarterly, and right now it is a bonus if you subscribe to Conversations with John Mauldin, but the plan is to offer it separately for $59. Now, here is the important part:

all current subscribers and anyone who subscribes now will receive these Geopolitical Conversations free, as a thank you. If you have not yet subscribed, you can do so and receive a discount by clicking the link and typing in the code JM49
to subscribe for $149. This is a large discount from our regular price of $199; plus, we are including the bonus Geopolitical Conversations that are worth $59.

And now, to the regular letter.

Outrageous! – Artificial Deflation!

Speaking of deflation, let me mention something I find totally outrageous. Normally, I actually take up for the bureaucrats who are stuck with the task of trying to monitor inflation. It is a tough job, and like Monday-morning quarterbacks, everybody thinks you should have done it differently. I can understand the rationale for hedonic measurements, housing rent equivalents, etc., even if I don’t agree with them. You have to set some rules and live with them. But the latest imbroglio is disgraceful.

It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the “Cash for Clunkers” program as if the price of a car fell by $4,500. Really? My tax dollars account for nothing?

This does several things. It will decrease the inflation used to adjust the GDP for this quarter. Not the end of the world, but annoying But what really matters is that the CPI is used to calculate Social Security increases and interest paid on TIPS.

If I tried to defraud one of my clients using such accounting legerdemain, I would be shut down, sued, and taken to court (at the minimum) by the host of regulators who look over my shoulder. And I should be! You don’t make such changes in the rules to your own benefit. But that is what the BLS did. This policy should be overruled immediately. There are enough deflationary forces in the world without having to artificially create some more. OK, off the soapbox and onto the banking system.

If You Are in a Hole, Stop Digging!

Right outside my office window I am watching what is to me a visual parable for the banking crisis that has beset the world. I lease a rather large home in a nice, quiet neighborhood in Dallas, and moved my office here last year, as we can use the extra bedrooms and sitting areas. Besides saving a lot (!) of money (always a good thing), it gives me a ten-second commute as I walk down the hall to the back of the house. Tiffani and I each save over a month in driving time a year. That is huge.

My quiet neighborhood changed a few weeks ago. Trying to sleep in the morning after the Paul McCartney concert, I awoke to find with my bed literally vibrating. Earthquakes in Texas? No, it seems my neighbor decided he needed a bigger home, and the first thing to be done was to tear down the old one, which they did rather efficiently, if not quietly, over the next few days. We
literally had glasses and other items vibrating in the house.

Then, after removing a large pecan tree, they proceeded to dig 25-foot-deep holes (26 of them!) and fill them with iron and concrete piers on my side of the lot. The plans called for a rather large basement, and the very experienced builders (exceptionally nice guys) wanted to make sure the earth did not move, causing my home to have problems. So for three days I had a very noisy drill literally ten feet away from my window (I wrote an e-letter during one of those days).

Now, since the other sides of the lot were on a street or backed up to an alley, they did not put in piers there. No homes to worry about. I did not think much of it, as these guys had built some of the biggest and nicest homes in the area. They then proceeded to dig a very large hole, as the basement was going to be quite expansive. It turns out you have to dig the hole bigger than the actual size of the basement, since you have to have room to put up forms to pour concrete, etc. And you have to excavate on an angle. At the end of the process, most of the lot was slanting downward toward the end of the hole near
the alley.

Then the clouds darkened, and the builders realized we were in for a little rain. (You can start to guess!) They took precautions and put heavy plastic over the sides of the hole to keep the sides dry. And then the rains came. Texas rains. The plastic was pulled from its wall and the street side of the hole began to literally wash back into the hole as we watched, going all the way back to and under the sidewalk. The poor builders showed up and began the process of trying to mitigate the damage, but it had been done and only got worse as it continued to rain for three days. The next morning I was the temporary owner of lake-front property. Those piers on my side were starting to be exposed.

They brought in crews for emergency repairs to the sides of the hole, and they really went after it. What to do then? It seems that the only thing to do was to fill the hole back up and start all over, only this time putting piers around the whole property. Which is what they are doing now. But since they had taken all the original dirt away, they are now having to take dirt from the rest of the property to fill the hole they will redig later.

Read the rest of this entry »

Bailout Nation gets reviewed in India!

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The Hindu : Faux capitalists look for the free lunch

The US President Barack Obama, despite being articulate, is allowing his team to sound like philosophers and researchers when they explain what is going on in the marketplace and what the business plan is to fix it, rues Barry Ritholtz in ‘Bailout Nation’ (www.wiley.com). “This is the first time we’ve had to handle this situation, and it’s incredibly complex and difficult. While it takes great minds to devise a solution, when it’s time to explain it to the typical family, it needs to be kept reasonably simple and clear.”

The author gives an analogy from the field of sports, thus: “If a football coach has a brilliant game plan on the blackboard but cannot simplify it so it is crystal clear to the players, that plan will not get executed properly. The probability for failure increases.”

Perhaps, Obama’s speech last week, in the Federal Hall on Wall Street, was to make amends for the absence of clear communication. He had then chastised the industry for still engaging in “reckless behaviour,” “quick kills,” “bloated bonuses,” and taking “exorbitant risks that were unsustainable for the system,” as www.bloomberg.com reported on September 15.

The book has a chapter titled ‘Casino capitalism,’ which suggests that a simple solution to banks’ problems is to identify the banks that are insolvent and temporarily nationalise them. “Appoint new management, and give them six months to spin out 10 per cent of each of the separate viable pieces, with the taxpayer retaining the rest as passive investors. Bank of America can spin out five major pieces: BoA, Merrill, Countrywide, a toxic holding company, and the rest of its holdings,” Ritholtz recommends.

The call for nationalisation, he reasons, is not a move toward socialism, but an attempt to prevent casino capitalism from bankrupting the country. “Real capitalists nationalise; faux capitalists look for the free lunch.”

An example of the latter is the backdoor bailout of major financial institutions with AIG serving as the middleman; for, it is actually a bailout of private speculators, the author fumes. “Not only are US taxpayers subsidising the bad decisions made by executives in the US, but we are also bailing out the poor judgment of the rest of the world.”

Worth a read.

-D. MURALI

I am a big fan of Stephanie Pomboy’s economic commentary, even though she has steadfastedly managed to duck my meeting her every chance she gets — conferences, dinners, drinks — I even heard she once hid behind a column in Vail to avoid me ; )

No matter, I still find her work outstanding. Her most recent commentary on Deflation was right up mny alley. Its discussed extensively in Abelson’s Barron’s column this weekend:

“THE INDOMITABLE STEPHANIE POMBOY, who beguiles us week-in, week-out with her feisty, funny and very much with-it MacroMavens commentary, is a member of the small but hearty camp (number us among them) who believe that the immediate threat is deflation, not inflation.

As, among other things, the glistening rise in gold and the heavy shorting of long-dated Treasuries strongly suggest, she notes, the popular investment view is pretty fixated on inflation. And Stephanie mulls whether Jeff Lacker, president of the Federal Reserve Bank of Richmond, “isn’t sure the Fed will be able to make a graceful exit before all inflation hell breaks loose,” shouldn’t we all share his concern? Her answer is a qualified “no.” Qualified because she believes there’ll be inflation, but it’ll be in assets, not goods.

For she’s convinced the consumer’s new-found prudence is no passing fancy, but a behavioral sea change, and that the repair of consumer balance sheets so badly thrown out of whack by a quarter of a century of credit overindulgence will continue. So while equities and commodities, as their recent explosive runs demonstrate, may run hog-wild, the massive decline in consumer credit represents a daunting barrier to a kindred climb in consumer prices. Yet despite mounting evidence of the new frugality on the part of the populace, Stephanie points out, retail stocks are posting their strongest relative performance since March 2007, and junk spreads are the narrowest since October 2002. “Investors,” she shakes her head, “are discounting an environment in which retail sales register 3%-style annual gains.”   (emphasis added)

As we noted recently, its even worse than that. The markets have, as is their occasional wont, decoupled form the fundamental economic reality.

Pomboy continues:

To notch such an increase, she gauges, retail sales, now declining at an annual rate of $331 billion, would have to make a U-turn and rise $470 billion! As she says, “An $800 billion swing? You’d have to be certifiable to bet on that.”

Stephanie felt “there’s no way professional investors are betting real money (even if it’s other people’s money) on such an outcome. Is there?” So she went back to the drawing board hoping to arrive at a less frightening conclusion.

Specifically, she turned to what she calls the “broadest proxy of risk appetite,” namely stocks versus bonds, to discover what types of gain in overall consumer spending it implied. The divergence between the two, she explains, is at extremes last seen when consumer spending was chugging along at a 6% clip.

“To reach that milestone today,” she sighs, “would require one whiplash-inducing U-turn if ever there was one, with the present $165 billion annualized decline in spending giving way to a $779 billion gain.” Even these days, that’s a big number.

If the demand for credit revives or employment and income begin to grow, neither of which seems to us likely to happen anytime soon, Stephanie says that’ll be the time to start worrying about inflation in the traditional sense. At the moment, the only serious inflation is in stuff like financial assets, because all the surplus “liquidity” that has been pumped into the economy has nowhere else to go.

She tabs the equity rally as exceedingly long in the tooth. Earnings expectations, she submits, “have never been so far afield of economic reality, and the market’s banking on a $1 trillion spending swing over the next 12 months.”

I cannot disagree with anything she has stated, except the historical factors that suggest that Bear Market rallies that follow collapses can easily run 18-24 months.

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Source:
All Hail the Hero
ALAN ABELSON
Barron’s September 21, 2009

http://online.barrons.com/article/SB125331269914024113.html

Paul Kedrosky directs us to a recent study by Moody’s (of all folks) that looks at that precise question: When will collapsed U.S. real estate prices regain their prior peaks?

The map below suggests 2020 as the year nationwide — and while on the pessimistic side, that might not be too far off.  Note the wide regional disparities.

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Paul cites other data (not on the map) that according to Moody’s, California, Arizona and Florida won’t fully recover until (brace yourselves) early 2030:

Hard-hit states such as Florida and California will only regain their pre-bust peak in the early 2030s, well after the nation does. New York will also be a laggard, although its overall decline in prices will be less severe. The main constraint on New York’s outlook is Wall Street. In general, the length of the downturn and the length of recovery in a region will depend on the degree of aggressive lending or overinvestment in housing that occurred during the boom. On the recovery side, states with weaker job growth will also take longer to return to peak.

Moody’s may not be the best analysts of this data, given their past track record. Regardless,  I would take the other side of that bet . . .

You may have noticed over the past few weeks that the site has occasionally been glitchy. “Node unavailable; Database Inaccessible” and other error messages have cropped up.

I am having my programmers make the site inactive for a few hours to run diagnostics. This means we are in Read Only mode — there will be new no posts or comments for the next 8 hours or so — and then we will come back online.

Some of this has to do with the increased population (traffic, users, comments and search queries).

Given the number of posts and comments, I wonder if we are butting up against a natural limit for WordPress.

Anyway, back in a few hours . . .

A few quickies before I head home to stuff myself for the holidays. For those of you who are not Jewish,  I can briefly sum up pretty much every holiday we have thusly: They tried to kill us, we escaped, let’s eat.

Until then, here is some afternoon reading:

• CNN Poll: U.S. still in a serious recession Poll says 86% of Americans believe the U.S. is still in a recession, while Fed chairman is more optimistic.   (CNN/Money)

• Take This Monetary System, Please (Barron’s)

• Is The Fed On The Side Of Investors? (AAO Weblog)

• Real estate slump isn’t over, exec says (Union-Tribune) See also Wells Fargo’s Commercial Portfolio is a ticking time bomb

• Ultimate Mean Reversion (Stockcharts)

• Burglar Arrested After Checking Facebook During Robbery (Mashable)

L’Shanah Tovah

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A little birdy told me that Moody’s is skipping this little shindig (S&P  and Fitch are appearing).

Gee, why might they want to skip a where various state commissioners would have been questioning them on the fabulous job they did rating various CDOs?

See this agenda for their notable omission.

NAIC TO HOLD PUBLIC HEARING ON CREDIT RATING AGENCIES

The National Association of Insurance Commissioners (NAIC) will hold a public hearing on September 24 to discuss the past and future roles of Nationally Recognized Statistical Ratings Organizations (NRSRO). The hearing will examine the role of these credit rating agencies in the insurance regulatory system and what changes may be needed in light of the financial crisis. Representatives of credit rating agencies, insurance companies and pension funds will be invited to testify, as will regulators, consumer representatives, leading academics and industry experts.

Insurance companies hold nearly $3 trillion in rated bonds and the insurance industry constitutes the largest sector of the financial services industry to rely on credit ratings to supervise capital asset adequacy. Insurance regulators currently mandate the use of credit ratings to determine capital reserves and other regulatory requirements for insurance companies.

Here is the latest David Singer Dow annotation:

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click for ginormous chart

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chart by David L. Singer at SINGER$MARKET