What China Is Thinking

“What—you want a piece of me, punk?”: In China, if you kill a panda bear—
even by accident—you will be executed. So DO NOT fuck with the pandas. 

  

We all have a sense of what the Chinese are thinking about the rest of the world—but we don’t really know. Of course, they tell us what they’re thinking—but that’s as polite and meaningless as when you ask your dinner guests how’s the food: They might look green around the gills, but they’ll invariably say, “Why, it’s wonderful—thank you!” 
  
So getting an actual document which spells out in black-and-white what the Chinese are really thinking is an eye-opener: Not so much for what it says—which on the whole is predictable—but for the emphasis it has. 
  
Recently, I got handed a copy of the Chinese economic evaluation of Japan, the European Union and the United States. The document was written for and by Chinese government officials who will be attending the G-20 summit in Seoul next November. This document will be the basis for their discussions with their trading partners, and outlines China’s concerns about those countries.

The Coming Middle-Class Anarchy

Future Anarchists of America?

Update I, below. Update II, below. Update III: The denouement of Brian and Ilsa’s story can be found here. 

  

True story: A retired couple I know, Brian and Ilsa, own a home in the Southwest. It’s a pretty house, right on the manicured golf course of their gated community (they’re crazy about golf). 

  

The only problem is, they bought the house near the top of the market in 2005, and now find themselves underwater. 

  

They’ve never missed a mortgage payment—Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm. In short, they are the backbone of America. 

  

Even after the Global Financial Crisis had seriously hurt their retirement nest egg—and therefore their monthly income—and even fully aware that they would probably not live to see their house regain the value it has lost since they bought it, they kept up the mortgage payments. The idea of them strategically defaulting is as absurd as them sprouting wings. 

  

When HAMP—the Home Affordable Modification Program—was unveiled, they applied, because they qualified: Every single one of the conditions applied to them, so there was no question that they would be approved—at least in theory.

The Second Leg Down of America’s Death Spiral

I swear to God Almighty: Mortgage Backed Securities are America’s Herpes—the gift that keeps on oozing. 

  

Last Friday, Bank of America announced that it was suspending all foreclosure proceedings, presumably until further notice. Other banks have already suspended foreclosures in a whole truckload of states. A nationwide moratorium on foreclosures might soon happen—which would be a big deal: Global Financial Crisis, Part II—Longer, Wider and Uncut. 

  

“It’s oozing from where?”
“Man, you guys are fucked.”

But the mainstream media—surprise-surprise—has downplayed the whole shebang. They’re throwing terms out there into the ether, but devoid of context or explanation: “Robo-signings”, “foreclosure mills”, forged signatures, “double booking”, MERS—it’s confusing as all get-out. 
  
So the mainstream media just mentions it casually—“and in other news tonight . . .”—like it’s no big deal: A couple-three lines, lots of complicated, unfamiliar terms, an attitude like it’s a brouhaha over paperwork of all things!—and then zappo-presto-change-o!: They’re showing video footage of a cute koala nursing in the arms of a San Diego zookeeper. 

  

But even the koalas know that something awful is heading America’s way. Smart little critters, they’re heading for the treetops, to get away from this mess. 

  

So what the hell is going on with the God forsaken mortgage mess in the United States? 

  

It’s got a lot of bells and whistles, but it’s basically quite simple: It’s all about the fucking Mortgage Backed Securities (MBS). Again. 
  
So this is what happened, more or less—the short version:

A New Model for Book Publishing That’s Really Quite Old—and Which Just Might Work.

A New Model for Book Publishing That’s Really Quite Old—and Which Just Might Work.

A few weeks back, I made the digital acquaintance of a would-be thriller writer, who had a heartbreaking story about the book publishing business: 
  

“Le Philosophe” (2007)
by André Martins de Barros

This would-be novelist, John Cole, wrote a swashbuckling novel about CIA agents and dastardly deeds, much like the kind I used to write (which was why he got in touch with me). He searched for a literary agent—and landed one of the biggest names in the business, a guy called Eric Simonoff, at William Morris Endeavor Entertainment. 
  
That made me perk up—Simonoff had blown me off, when I approached him about representing me and my monster, The Green of the Republic. And here was John, this obscure gaspipe engineer, who’d landed Simonoff as his agent. 
  
Color me impressed—and jealous, too: Simonoff has the reputation for making seven-figure sales of first-time novelists. He’s money. He also handles something like half of the writers on The New Yorkers’ most recent “20 Under 40” list. He’s money and prestige. 
  
So Simonoff took on John’s first novel, Live Through This. Not only that, Simonoff got his agency behind the book, and then sent it out to about a dozen publishers, plus a half dozen movie studios. 
  
WME2 is forever slugging it out with CAA for agency dominance—they’re big. That Simonoff and his agency were fully committed to John’s book says a lot—says volumes. John should’ve been busy figuring out where he was gonna put that mountain of money he would soon be coming into. 
  
But then, here comes the sad part:

This Is What Brian and Ilsa Said To Their Bank: “Show Me The Note, Motherfucker!”

Note to new readers and kind fans: My outrage at the Mortgage Mess made me swear quite a bit in my last post about this issue—a lot of people thought it detracted from my arguments. 

Therefore, like a junkie easing off the horse, I’m going to set goals for myself: Not more than half a dozen swear words in this post—deal? The one in the title counts as the first. GL  

So the week before last, I wrote about Brian and Ilsa, a retired couple in their mid-to-late sixties, living in a house in the Southwest that had—unremarkably—gone underwater.
  

©2010 by the crazy/brilliant WilliamBanzai7.
Used with permission. (Not me swearing—
blame the middle finger on Billy-B7.)

They had tried to refinance their home mortgage, under the auspices of the HAMP, the Home Affordable Modification Program. HAMP was part of the Financial Stability Act of 2009—the famed “Stimulus Package”. 

  

Under this program, the principal of Brian and Ilsa’s mortgage loan would remain the same—they would not be getting a free ride. (Some readers mistakenly thought that they would. See note at bottom.) 
  
But though the principal of their mortgage loan would remain the same, the period of their mortgage would be extended—and the loan itself would be refinanced with a lowered mortgage rate of 2.75%, from the 6.25% of the original mortgage. 
  
Therefore, their monthly payments would go down roughly 40%—a significant amount for them, especially after their retirement savings had taken a big hit following the Global Financial Crisis. 

  

What had been dreadful about Brian and Ilsa’s case was that, though they qualified for HAMP—and indeed, HAMP had contacted them, at least initially—they were given the bureaucratic runaround for several months, before they were finally allowed into the program. 

Statement On The Kotok Plagiarism

To Everyone in the Financial Blogosphere: 

  

Yesterday evening, I discovered that David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors, plagiarized over fifty paragraphs of my recent post “The Second Leg Down of America's Death Spiral”, where I discussed the Mortgage Mess.

  

My post appeared in my own blog on October 12. The link is here. 

  

Then the post ran on Zero Hedge on October 14. The link is here. 

  

Mr. Kotok passed off my piece as his own writing in his “Market Commentary”, on October 15. The link is here. He posted no link or mention of my blog, or Zero Hedge. 

  

David Kotok olympically tried passing off my work as his own. 

  

It shouldn’t need stating, but Mr. Kotok is not the sharpest knife in the drawer: Only a fool plagiarizes something that has already gotten such intense exposure, as most posts in Zero Hedge tend to get. 

  

But then, instead of just coming clean about his plagiarism, Mr. Kotok began to lie. 

  

Once people realized what he had done, he altered his “market commentary” page, inserting a disclaimer at the top, claiming the post had been written by “an anonymous source”—then claimed the disclaimer had been there all along, and that readers simply hadn't noticed it. 

  

To prove that he is now lying, attached to this post are two screen shots of his “market commentary”—before he inserted his disclaimer, trying to hide the fact of his plagiarism. 
  

Top of plagiarized page.
Please click to enlarge.

Bottom of plagiarized page.
Please click to enlarge.

  

David Kotok is a plagiarist and a liar. 

  

The plagiarism—and the lying to cover it up—are in and of themselves trivial. After all, this isn’t life and death—it’s just a silly column that I wrote. On a blog. For free. 

  

But Mr. Kotok’s behavior points to something very troubling: 

  

David Kotok obviously plagiarized my work so as to look good with his clients. You have to wonder what else he’s doing—or will do—so as to look good with his clients. After all, Bernie Madoff looked good with his clients, too—until they discovered that he was a fraud. 

  

Morality is the template of a man’s soul—he applies that same template in all situations, large and small. 

  

If Mr. Kotok would so foolishly plagiarize from an obscure, insignificant blogger in order to look good—and then lie about it to cover his tracks—then one has to wonder what other actions he would commit, in order to look good. 

  

This is all I have to say about this matter—all I will ever say about this matter. 

  

Actually, the whole subject bores me—I slept like a baby last night. After all, I authored the piece, so my conscience is clear. And I don’t have any of my money with Cumberland Advisors, or with its Chairman, Mr. David Kotok. 

  

Thank you for your attention. 

  

Gonzalo Lira

Mulligan Mortgages—The Banks’ Only Way Out

This summary is not available. Please click here to view the post.

Chile’s Triumph, America’s Exhaustion

In Chile, the collective mood is one of hard-earned triumph, after the successful rescue of the 33 miners.

  

The leader of the trapped Chilean miners, Luis Urzúa,
seconds after emerging from their two-month ordeal.

There was of course joy and jubilation when the miners were pulled out after their two-month ordeal underground. I wasn’t watching the news at the time, but I knew the precise moment when the first miner was pulled out alive: Passing cars started loudly honking their horns—Tat–tat–ta-ta-tat!! Tat–tat–ta-ta-tat!! Tat–tat–ta-ta-tat!! 

  

But in the nearly two weeks since the rescue, there has been a collective afterglow in Chile: Everyone feels happy. Everyone feels confident. Everyone feels as if any and every problem—no matter how big—can be taken in hand, and solved successfully. 

  

There is none of that feeling in the United States.

I’m Late—Sorry!

Dear Readers, 

Please forgive me: A personal emergency kept me from posting today, Monday 10/25. 

  

I'll post tomorrow, Tuesday 10/26, at noon EST—promise. 
  
The name of the post will be: 

  

“Our God Is Money”: Economics Isn’t A Dismal Science—It’s An Ersatz Religion
  
Until then, all the best, 


GL

“Our God Is Money”: Economics Isn’t a Dismal Science—It’s an Ersatz Religion

“Are you an Austrian?” I was asked recently, in the polite tones reserved for asking if I were, say, Jewish or Muslim or Christian. 
  

An object of veneration.

I’d been asked the question while discussing macro-economic policy in the United States— 
  
—actually, “discussing” doesn’t quite capture what I’d been doing:
  
I’d been lambasting the Neo-Keynesian drivel of spend!-spend!-spend!, which I deplore—“They’re like drunk sailors with the national credit-card—trawling for good blow and cheap whores in a Tijuana back alley!”—
  
—while at the same time ridiculing the Monetarists’ obsession with money supply—“Money-supply fetishists are just like foot fetishists—only twice as creepy, and only half as reasonable!”—
  
—all the while insisting that in this Global Depression, savings had to be the priority—austerity the only policy prescription that made any kind of sense. 
  
“Are you an Austrian?” came the question. 
  
“I'm an agnostic,” I answered flippantly—but then instantly realized that my answer went to the heart of the problem with economics. 
  

It’s no great insight to say that economics—the so-called “dismal science”—has had a dismal track-record in terms of predicting macro-economic events over the last forty-odd years. 
  
And as for the last couple of years? Sheesh—a monkey throwing darts would have done a better job of predicting how the macro-economic picture would play out.

Links To Look At

This is an experiment I’ll be trying out over the next few days: Daily links to interesting/unusual/informative stories or bits of information on the web. I’ll link to between a half-dozen and a dozen. I’ll try to post this by 7 am EST. 

  

To my new readers and kind fans, please comment as to whether you like them or not—both the idea, and the specific links. Thank you. GL

  

• British Airways chairman says, “We must stop kowtowing to American security overkill”. Surprised it took this long. 

  

• Slate.com on Treasury bonds yields going negative, and investors betting on inflation. If Slate is talking about this, then the U.S. mainstream is (slowly) realizing inflation is on its way. 

  

• The Hobbit film production stays in New Zealand—after the Kiwis gave Warner Bros. a sweetener in the form of incentives. The foolish Australian actors’ union—which is the parent of the NZ actors’ union—was behind the brouhaha; scuttlebutt is so as to get part of “The Hobbit” filmed in Australia. The production will spend US $530 million in NZ. 

  

• Lenders take over Stuyvesant town in Manhattan. The four-year, $5.4 billion agony is over—for now. 

  

• Michael Lewis gives an excellent explanation of the TBTF banks’ shell game regarding their prop-trading desks. The banks—contrary to statements—aren’t selling their prop desks: They’re disguising them. 

  

• Fascinating and in-depth cultural précis on China’s Communist Party today, and what they are aiming for. From the always illuminating London Review of Books. 

  

• Glenn Greenwald on NY Times and mainstream American media’s efforts to discredit WikiLeaks new document release by smearing their spokesman, Julian Assange. Greenwald has been all over this—and he’s absolutely right: The messenger is not the message. 

  

• Calculated Risk confirming that Ben Bernanke will use an incrementalist approach to QE2. It’ll be “a couple of hundred billion at a time”. 

Reactions:

Signs Hyperinflation Is Arriving

This post is gonna be short and sweet—and scary: 
  
Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value. 

  

See, how come I don’t look as cool
when I make my predictions?

Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning. 

  

I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly. 

  

I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke. 
  
Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar. 
  
A lot of people claimed I was on drugs when I wrote this. 
  
Now? Not so much.

I’m Down

 
                                       GL, Self-Portrait

Has Facebook Peaked?

If Hollywood has gone and made a movie about Facebook, then Facebook has probably peaked. 

  

“One of us, one of us, one of us . . .”

Looking at the numbers, it would seem that FB has definitely peaked: On July 22 of 2010, it got its 500 millionth user—but now three months later, it’s at 543 million. 

  

The inference is easy to make: From the halcyon days of consistently charting 25 million new users per month, Facebook is now going up by about 14 million new users per month. 

  

Still: 14 million users a month? The implications are staggering. 

  

FB doesn’t release numbers of users who’ve quit—rather cagily, they say that, on any given day, half of all users log on to Facebook. 

  

But none of that really matters: Who has registered, and now is inactive, who registered and is on every day, who registered and is sporadic, who registered and now wants their Facebook account shut down and disappeared—all of that is trivial and unimportant, compared to the central and obvious fact that they all registered on Facebook.  

  

This means? It means that one corporation has managed to get the basic personal information of roughly ten percent of the world. 

  

That’s epochal. No wonder the fuckers in Hollywood made a movie about the people behind the Facebook program. So let’s not get too cavalier and condescending, when discussing this remarkable achievement.