Entries by Karl Denninger

This is a total load of crap:

This week, many of our largest corporations reported robust earnings – a positive sign of growth.

This last week large banks reported the rape of the public once again, with "profits" that came from skimming off pieces of production from common Americans.  Every dollar a bank "makes" is one it takes from a productive person in this country, just as every dollar the government taxes is one it takes from a productive person.

But too many of our small business owners and those who aspire to start their own small businesses continue to struggle, in part because they can’t get the credit they need to start up, grow, and hire. 

Capital formation does not come from borrowing.  It comes from savings.  But your policies, along with those of George W. Bush and the Federal Reserve under both you and he, have intentionally destroyed the return available on savings.

Therefore, you have sought to intentionally and willfully destroy capital formation, which is the source of entrepreneurship and small business formation.

This is a fact and no amount of spin will change it.

You have chosen to protect those who made bad bets in their lending through government largesse and manipulation of the markets. 

You have permitted banks to lie about the quality of their alleged "assets" by getting rid of mark-to-market accounting and nightly collateral and margining for OTC derivatives.

Instead of allowing the market to enforce discipline, you have tampered with the market, protecting those "big businesses" and their revenue siphons which have bled the economy dry.

The problem is not the absence of government "help".  It is the presence of government interference which has stifled small business growth and formation, and no amount of further tampering will make the situation better.

Three times, the Senate has tried to temporarily extend that emergency assistance.  And three times, a minority of Senators – basically the same crowd who said “no” to small businesses – said “no” to folks looking for work, and blocked a straight up-or-down vote. 

Some Republican leaders actually treat this unemployment insurance as if it’s a form of welfare.

It IS welfare.

Only the first 26 weeks of unemployment is actually a self-insurance program paid for by employees in the form of lower wage offers from their employers, compulsorily taxed (through both direct taxes and compulsory insurance payments) into an alleged fund that is then disbursed when one loses their job.

The entire rest of the so-called "EUC" benefit - second and third tier - is indeed WELFARE.  It is a transfer payment from the general fund of the government to a person, not a payment of insurance upon loss, but rather a direct transfer.

Two years of these payments - 99 weeks - is more than enough.  Indeed, that is a sufficient amount of time for someone to earn an associates degree in a local community college - if they bothered to do so.

But through the last year we have seen repeated "sob stories" of people who are on their last dollar as the EUC welfare ceases.  And what do all of these sob stories have in common?

$100 cell phone plans, $75 cable television and Internet bills, $300 electric bills blasting air conditioning into the summer heat.

Thrift?  Where?

You would think that when someone loses their job they would immediately cut back on these non-necessary purchases.  Purchases that nobody needs.  You and I grew up in a world without cable TV, cell phones and in many cases (including mine) air conditioning. 

That's five hundred dollars a month in many of these households that is being spent unnecessarily. 

Oh sure, it's nice to have those things.  And when one has a job, one can afford those things.  But when one does not have a job it is not government's responsibility to cover the comforts that employment brings to one's personal situation.

Wake up Mr. President. 

Your policies, just as those of the previous President Bush, are the reason there is no capital formation in this country. 

YOU, ALONG WITH BERNANKE AND CONGRESS, HAVE INTENTIONALLY AND WILLFULLY DESTROYED CAPITAL FORMATION IN THE UNITED STATES WITH YOUR INCESSANT BAILOUTS AND HANDOUTS.

Frankly, I'm stunned:

On Friday's Dylan Ratigan show on MSNBC, host Dylan Ratigan reported on Minnesota Congresswoman Michelle Bachmann attempting to form a congressional tea party caucus and proceeded to rant: "...the tea partiers were nowhere when it came to ending the mass extraction in Wall Street, so I think they're actually full of crap."

Have you gone senile Mr. Ratigan?

I truly have to ask if you're either mentally deficient, have lost you mind, or if you were intentionally lying to people on TV yesterday.

Why?

Because of this:

That's Guy Adami, who along with you used to be CNBS FAST MONEY hosts.  What's he doing?  Having a conversation with the original "Tea Party" protesters who showed up in NY right outside your own damn studio after Bear Stearns failed.

April 25th, 2008.

Then there is this video - professionally produced and which was handed out by the hundreds in Washington DC in the summer of 2008 in DVD format - and which I hand-delivered to Ridge and Keating at the "campaign rally" for McCain - which I personally paid the "entry donation" for out of my own pocket (as a citizen, NOT with corporate, "Cuda", or "Ticker" funds.)

FedUpUSA and myself were two of the original Tea Partiers.  Indeed, my Ticker asking people to send a TEA BAG to Congress to go along with President Obama's inauguration on January 20th of 2009 is a historical FACT and precedes Rick Santelli's "scream."

I will not argue that there hasn't been an attempt to co-opt the Tea Party concept by various political factions, including a fair number of "nutters" who would like to see the "literal end of the world" - there has.  However, I'm willing to bet that Mr. Stack, or, for that matter Mr. Dahlmer, were both members of one of the "mainstream" political parties.

Is Mr. Ratigan going to call that party a "group of cannibals" because Mr. Dahlmer voted that way and supported one of them?  I suspect not.

Mr. Ratigan, you owe those of us who have been tirelessly, day by day calling out the corruption and BS since this entire mess began in 2007 a formal apology.  Who have been on the front lines with protests in Washington DC (including one with a toilet held in front of the Canon House Office Building for deposits of "collateral" to The Fed), protests in NY, professionally produced and distributed videos and literally thousands of articles written and posted in an attempt to call out and STOP the corruption in our financial and political systems.

As luck would have it I will be in the general vicinity of Washington DC all this coming week.  If you're willing to have an on-air discussion with one of the actual people who has been fighting to stop this scam for the last three years on-air, have your producers contact me. 

I'd love to set the record straight.

I was promised an earth-shattering ka-doom!

Well, not really.

And the spew is not, in fact, funny.

But what's even less funny is the number of people who have come completely unhinged with their "imminent death of everything and everyone" nonsense.

Let's go down the list of the some of the better ones:

Everyone who worked on the Exxon Valdez spill is dead (or alternatively, that across the entire population of those who worked on the Valdez spill, the average age of death is 51.)

Really?  Can you source that?  I've been trying.  Yeah, I've found the claim - 10 seconds with Google finds it.  It's been repeated everywhere.  CNN had an alleged "expert" on who made the 51 year life expectancy claim - "almost all who worked on the Exxon Valdez cleanup are now dead."

Can I find an actual documented source for the claim?  Nope.  And I've tried to find it.  No luck.

The same interviewee claimed that the components of the dispersent, Corexit, were not disclosed.  This we know to be false; there are two formulations and we know what's in them.  The nastiest component is called "Butyl Cellusolve", and is indeed a nasty chemical solvent.  The question is concentration; incidentally, you can buy cleaning solutions containing butyl cellusolve at Home Depot, among other places.  I don't recommend drinking it.

All of these claims appear to be traceable to one so-called self-identified "expert."  If she has actual evidence, such as a roster of all the people who worked on the Exxon Valdez, their ages, and the disposition of their health (and death, as she alleges) then let's have it.  This sort of extreme claim requires strict proof.  Period.

There is a second well that BP (and/or Diamond Offshore) is hiding that is the real leak that is five (or alternatively seven) miles away; this is a sideshow and they can't plug either.  The pressures are off the charts, never encountered before.

Really?  Then how come they just did plug the well?  Off the charts?  About two weeks ago there was a pressure gauge on one of the downhole lines, and it read 7,000 psi.  The water at that depth exerts ~2,000 psi.  If this was an absolute gauge (probably true) then the in-bore relative pressure (relative to the sea floor) was ~5,000 psi.  About right - and not "off the charts."  Note that the current picture DOES NOT LIE - there is no oil coming from the riser - at all.

As for the second hole, exactly where is it?  And why is it that we can't verify that?  There were, at one point in this mess, accusations made on my forum (and elsewhere) that a second well was "blown out."  It turns out that was complete bullcrap - that second well was being remediated on an ongoing basis from damage sustained in the hurricanes over the last number of years, and the small amount of seepage that had been taking place was being collected on the sea floor - the vessel on the surface was drawing down that collected oil and working on a final kill solution.  That well was one of a cluster that all fed a platform that was severely damaged in the storms.  In other words, the claim was utter and complete BS, and yet those who ran that line of crap never retracted it or admitted they were scaremongering without a shred of evidence.  Of the wells involved in that mess only four were capable of production without being actively pumped - that is, only four had positive pressure.  In short, there was no "second big spill."  There were also no apologies.

The water is highly toxic!  We have a sample with a high amount of propylene glycol (one of the constituents of Corexit) in it!

Really?   This was also posted on my forum.  The claimed amounts were between 360 and 440 ppm, and the claim was also made that this was extremely toxic, with the claim made that 25ppm is lethal to fish.  Really?  The MSDS says otherwise:

A level head and analytical mind are important attributes at times like this, and perhaps God gave us this little disaster so those who are mentally unstable would display their insanity before they could get the rest of us in real trouble.

Sorry, no $ale over here:

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant's agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice ofthis Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 17(a) ofthe Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77q(a)]

Oh, so we have to enjoin people from doing that which is already unlawful?  You mean the law itself isn't enough - we have to sue on top of it?

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for disgorgement of $15,000,000 and a civil penalty in the amount of $535,000,000 pursuant to Section 20(d)(2) ofthe Securities Act [15 U.S.C. §77t(d)(2)]. Defendant shall satisfy this obligation by disbursing the foregoing disgorgement and civil penalty pursuant to the Fair Fund provisions of Section 308(a) ofthe Sarbanes-Oxley Act of2002 as follows:

(following a split up alleged restitution and a "fine")

On first blush this looks pretty strong.  $300 million to the SEC, a "disgorgement" (fine), and then "restitution."  Further, these amounts are explicitly barred from being offset, and there are enhanced "reporting and surveillance" requirements on a forward basis.

So what's not to like?

Well, a few things.

• The amount of the judgment is high, but not enough to deter behavior.  This is the general problem - do this sort of thing 10 times, get caught once, pay one fine, it's a cost of doing business. 
  
  
• There's no admission of anything beyond "an omission."  Yeah, right.  Ok.  You're welcome to believe that.  I do not.
  
  
• Fabrice got hung out like Fabreeze.  Uh, no.  I don't believe for one second that Fabrice acted without Goldman's knowledge, either generally or specifically, that this was "common business practice."  If he had someone would have stomped him before the cops showed up.  They didn't, and that's the beginning and end of it.  He gets hung out to dry as he's not covered by this, and indeed the company is now turned on him as a "star witness."  In my opinion this is exactly backwards.

In short, there are only two means of enforcement that matter to corporations - either ruinously expensive fines for misconduct sufficient to destroy huge amounts of operating profit and market cap, thereby deterring future acts, and severe and permanent reputational damage - which means an admission of intentional misconduct.

What's "enough"?  Well, Pfizer paid $1.2 billion, and I argued that wasn't anywhere near enough.  Indeed, considering it was a second offense it definitely wasn't enough (what is, for a recidivist?)  Goldman has a market cap of $75 billion (roughly) as of today.  Do you really think that 1/2 of 1% of their market is any deterrent?  No - it is simply a cost of doing business.

Fine 'em 10% of their market cap - that would get their attention. FAST.  Do that a couple of times and the bad guys are out of business.

This judgment provides no real forward deterrent effect at all, and creates a presumption (in the reader, if not in fact) that the Goldman employee at the center of this effectively acted without the executive hierarchy being aware and approving of his conduct.  I simply don't believe that.

Yeah, I might believe that there is more to come in this regard, and the SEC News Conference stated as such yesterday afternoon.  I have no idea if that's smoke and mirrors or reality, nor does it matter.

So long as the SEC continues to bring cases and seek "resolutions" that are not punitive enough to deter future behavior, either in monetary damages or reputational damage, this sort of activity will continue to occur with the "regulatory action" being seen as nothing more than a footnote on the next quarterly earnings report.

That's unacceptable.

Eh, what's to like here?

General Electric Co.'s second-quarter earnings rose 16%, buoyed by a stronger performance at its GE Capital financial unit and what the company described as an economic environment that "continues to improve."

Yeah, right.  "Continues to improve" eh?  Then what's this?

Still, revenue slipped 4.3% to $37.44 billion and came in short of analysts' consensus $38.37 billion view. GE blamed the trend on downsizing at GE Capital as well as lower equipment sales and dispositions of some industrial assets.

But but but but but..... you said the economy was "continuing to improve"!  How can it be improving if your sales are falling?

GE's getting better at squeezing, er, "collecting" from its customers - that is, in its finance unit.  Of course this isn't exactly a straight-up "win" either - revenue there was down 3%.

Earnings?  Yes, but what of provisions?  And that commercial real estate portfolio continues to bleed, losing $524 million on the quarter - up big (more than double) from a year earlier.

Revenue at GE's energy infrastructure unit came in at $9.54 billion, off about 9%, although profit climbed 3%. Revenue at its technology infrastructure unit came in at $9.06 billion, off 6%. Profit at the unit declined 11%.

But but but but but..... the economy is improving!  This, of course, is why we don't need to keep building new energy infrastructure (e.g. electrical capacity.)

Oh wait - you mean we really don't have solid demand for power in the country (and internationally), and their technology infrastructure unit isn't "digging it" either?  Revenues off 6% there, and profit down 11%.

Yeah, it's all good.

Pull the other one GE.

I watch the income statements like a hawk.  "Earnings" are easily gamed. 

Cash? 

Not so much.