CNBC's "Breaking News" thingy says that the NY Fed is involved as well as JP MOrgan.

totalitarianism is the only hope for you

Can't help but feel some smug satisfaction toward my former (and ridiculously conservative) employer.

How can we be sure the Bush White House hasn't made a visit to the Department of Labor recently?

Bush is giving a speech today saying the economy will be just fine. Time to batten down the hatches; we are on our way to hell in a hand basket.

The big problem is that Bear can't be unique. It has so many trades out there with other people that if it goes down, so do they. That's why the Fed is backstopping JP Morgan to prop up the carcass.

I find a good rule of thumb is that the real situation is always worse than you read in the financial press. In short, we are well and truly fucked.

"Stearns, a scrappy and until now resilient investment bank that carved out a niche for itself by mastering the intricacies of the United States mortgage market."

If it had "mastered the mortgage market," then why the hell did two of its hedge funds that specialized in that market recently go under? Bear-Stearns was not burned by others; it did it to itself.

Keep clapping. Tinkerbell will live.

The CPI unchanged? How often does the Dept of Labor stop at the pump?

the report is nonsense...

Just one week after his latest dismal failure to "jawbone" OPEC into boosting oil production, President Bush yesterday tried his hand at talking up the plummeting U.S. dollar. Sadly, just 24 hours later, the greenback plunged to record lows against the euro and the Japanese yen. Bush's Reverse Midas Touch, it seems, has now infected both the oil and currency exchanges.

For the details, see:
"Bush Fails to 'Jawbone' the Dollar."

From Tobias:

The U.S. government turned in a $175.56 billion budget deficit for February, a record for any month . . . a 46.3 percent increase over the previous all-time single-month deficit . . . [and] for the first five months of fiscal 2008, which began last October 1, the deficit reached a record $263.26 billion, up 62.3 percent from the $162.16 billion for the same period of fiscal 2007.

The previous record deficit for the first five months of a fiscal year was set in 2004, a year in which the government also reached its previous record full-year deficit of $413 billion. The White House last month estimated that the fiscal 2008 deficit would hit $410 billion, but that excludes undetermined supplemental spending requests for war funding in Iraq and Afghanistan.

F Of course, not only does the reported deficit not include spending for the wars, it also omits the money we are looting from the Social Security Trust Fund. Figure a true deficit by fiscal year’s end that could be within hailing distance of $1 trillion.

The National Debt – $9.4 trillion (up $400 billion since Labor Day) – will, as I’ve long suggested, be $10 trillion by the time Bush leaves office. Three-quarters of that, accumulated since 1776, will have been racked up under just 3 of our 43 presidents: Reagan, Bush, and Bush.

Worse, the National Debt has grown relative to the size of our economy. It was 30% of our GDP when Reagan took office; it will be about 70% of GDP when Bush leaves.

Overall, more than 85% of the debt will have been racked up under Republican Administrations.

The interest on this mostly Republican debt now amounts to about 40% of all the personal income tax we pay. The closer it gets to 100%, the less we have to spend on anything else.

The management and staff will continue to get their bonuses, won't they? Stop sniggering, this is IMPORTANT!

The CPI is, of course, adjusted to exclude things like gasoline, insurance, food and utilities. With bread prices nearing $4 a loaf, the shock from oil prices to the economy has metasticized to mundane things like food crops which have been displaced worldwide for ethanol. The bread and circuses agenda has become circuses only.

It is clear that Ken Lay's management by meltdown is this administration's model. Might even include some faked deaths if they have to beat it away from mobs of hungry people. This is the perfect storm of mismanagement and incompetence. This outcome is why impeachment should have been on the table along with an affordable dinner! Lots of empty tables coming.

The Bear Stearns insolvency is bad news, as was the failure of the Carlyle Capital. But the bailout is good news.

Unfortunately, the bad news part will get much more press than the good news. We need more good news. There will eventually be a federal bailout of sub-prime lenders and those who bought sub-prime debt. I know it, you know it, and the market expects it. So why don't we just get it done? I would be the first to say that it will be a bad deal for taxpayers, and on some level it's just wrong. But given what the expectations are, at this point it's absolutely necessary.

The Fed has now exhausted nearly all of its options; it has committed over half its reserves with its latest scheme, it is near the point of diminishing returns with interest rate cuts, and Bernanke's bully pulpit has been woefully ineffective.

Like it or not, we're in a recession. The sooner we pull our heads out of the sand and start dealing with the problem, the sooner we get back on the path to a healthy economy. And since we can't go back in time and unmake all those bad loans and investments, we have little choice but to bond together as a nation and make those loans good.

Sparko: The bread and circuses agenda has become circuses only.

That was ancient Rome. In America the agenda was fuel and circuses. Of course your point that it's been reduced to circuses only is still correct.

With bread prices nearing $4 a loaf, the shock from oil prices to the economy has metasticized to mundane things like food crops which have been displaced worldwide for ethanol.

Not quite. Wheat prices were affected more by drought. Nevertheless the corn ethanol scam is bad news for everybody except corn farmers.

The Bush Labor Dept. report on inflation simply isn't credible - just like the last few years' audit reports at the RNC. It is bogus and manipulated to give people a false sense of security. The American economy is in serious, serious trouble. People who have not worked in banking may not realize the gravity of Bear Stearn's liquidity crisis and how intertwined the American financial system is. If a brokerage house that size went teats up, the ripples could set off an economic collapse that would make the Great Depression look like a tea party. Houston, we have a VERY serious problem here.

I think Bush and his voodoo economic team are just trying to apply enough band-aids to these gaping wounds to get through January 2009 without the whole house of cards collapsing. Remember that ranch in Paraguay that Bush allegedly purchased? He's gonna need it.....

When oh when are the major liberal bloggers like Kevin, Josh Marshall and Brad DeLong going to raise the question whether government statistics reporting has been compromised as the Justice Department was? The BLS employment stats in particular have been suspect for some time. Karl Rove surely knew very well how much the official unemployment rate dominates the headlines and wire service scrolls. These guys on our side have the potential to smoke out whether there is any professional dissent going on underneath the surface. I'm curious why they never seem to have thought to raise this obvious question.

>"There will eventually be a federal bailout of sub-prime lenders and those who bought sub-prime debt."

For a bail-out to take place, there must be a currency that creditors will accept at face (denominational) value. The USA had this the last time around... but now the underlying value of the currency is gone... kaput.

There will be a massive inflation of the currency to close the difference between imaginary (bubble) and real (market) value.

Folks, there is no bailout from this one.

Is everybody missing the real issue? Sub-prime is going to look like a dropped penny when the derivatives bubble-bomb bursts. Derivatives are currently valued at 10x the global GDP which is ah... impossible.

Don't take my word for it. Read what Warren Buffet said about it 5 Years Ago!

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7bB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7d&print=true&dist=printTop

The BLS is claiming that inflation is only 4.8% over last February.

If you believe that, I want to know where you are shopping, and what you are eating.

Slowly everyone is starting to realize that the 1996 revision to the CPI is absolute garbage.

Buford >"...there is no bailout from this one."

Of course there is. There are always options. Prime should be a real currency, based on true value. Value is not expressed by money and money isn`t true value.

And note Edward Tufte wrote, 30 years ago, THE book about those "economic" indicators, how they are manipulated & how little they mean.

Time to wake up, the planet awaits our enlightenment.

"We are accustomed to the new land yet attached to the old country" - anon

http://www.counterpunch.org/whitney03132008.html

The problem has metastasized into many parts of the financial industry.

We need to mitigate the worst effects and head off any crash by allowing many small failures and corporate crashes, but smooth out the curve, so there is no massive market or world economic crash.

Decreasing interest rates allowed many to get by longer without failing and thus allowing the pressure for a bigger crash to grow. That's a mistake.

We have to have more faith in the resiliency of the system and let small (or at least relatively small) failures to happen if we are to rebound smoothly.

Fixing the mortgage industry lending practices is good, but a little late.

Fixing the repeal of Glass-Steagal is good, but a little late.

The economy stimulus is good and might need another boost later in the year.

More needs to be done to push lenders into refinancing mortgages, so fewer families will be harmed. They have to write-down some kind of losses and accommodate people's incomes, rather than hoping for 1990s-ish profits.

Providing liquidity is good, but it should always be done with an eye toward overall markets and not individual companies. It's not the end of the world if a firm collapses in value. But, it is better if we can accept that and keep the whole economy rambling along like a 3-legged race gone wrong.

Small failures now mean a less vicious crash later!

According to Paul Krugman, it appears that the Fed is loosing its ability to affect the economy.

urban legend: "raise the question whether government statistics reporting has been compromised
But the Bushco gummint has gone a lot farther than that....it's stopped keeping a lot of the statistics you used to be able to use to track trends and reality. They don't have to cook the books, the numbers are gone except for a few oosey-goosey numbers

>"There are always options."

Why of course...

You're on the Titanic and the lifeboats have rowed away.

Option 1 - Die fast.
Option 2 - Die slow.

Or as borrowed from the immortal Duke Nukem

"I came here to chew some gum and kick some ass... and I'm fresh out of gum."

Steward Dean --

What I want to see is proof of politicization. Sure compiling the list of the missing stats would be helpful, but for now, what Kevin, Josh and Brad could possibly dig out with their connections is whether there are angry professionals once or formerly within these agencies who will explain -- on the record or otherwise -- exactly how, when and where the data has been compromised. They could do the same for the productivity numbers underlying the Social Security projections, which looked mighty funny in the past couple of years as a reasonably time- honored methodology was abandoned without plausible explanation -- but with the convenient effect of making the Social Security projections look worse than they would have. All the people disappearing out of the labor force looks weird, too, but it neatly has the effect of keeping the unemployment percentage under the magic 5% barrier.

Or are we just being paranoid? While being open to that, we also seem more than justified in demanding a high standard of proof for such a conclusion. Just saying it or throwing out "conspiracy theorists" mantra won't do the job -- in fact, it will be strong evidence of just the opposite.

We're doomed. We're on our way to Banana Republic status. We're looking at the end of the American century, plain and simple. The end of cheap oil, our "Standard of Living" fueled by debt, our mindless consumption and waste.

Buford - you know of course that the line comes from the 80s film THEY LIVE, still a very timely movie.

The real economic stats using the pre-Clinton era methodology, and a reconstruction of the missing stats, are here:

http://www.shadowstats.com/
(headline on today's subscriber-only update:
"February's Unchanged CPI Not Credible")

http://www.shadowstats.com/alternate_data

http://www.shadowstats.com/article/53
http://www.shadowstats.com/article/56

I heard beer is going to $10/six pack. The prices for hops and barely have no limit with market pressure from 'renwewable' energy and increased aridity.

Better add distilling to the list of needed future skills.

Buford >"...You're on the Titanic and the lifeboats have rowed away...."

I`m wondering if you have ever been outside your mom`s basement. Clearly you have NO CLUE what you are babbling about. Time to go back to your video games.

*Sheesh* kids these days...

"The surest way to corrupt a youth is to instruct him to hold in higher regard those who think alike than those who think differently." - Nietzsche

urban legend >"...What I want to see is proof of politicization...."

Read the evidence.

“You would label it cynicism-as if that proved it wrong." - Robert A. Heinlein

errr Bear Sterns is HUGE news.

I do not think you guys understand the significance of this. Bear has a big derivatives book and is a counter party to derivatives transactions around the globe.

Now they are kaput (they will NOT survive - they are DONE once counter parties have no confidence in them) counter party risk in global credit markets will rachet up. You think the current credit crisis was bad ? We are only just started.

And for the guy asking for bailouts -

- you are a F*CKING IDIOT - the US is broke and you think you should go bail ppl out ? There is NO MONEY. Foreigners do NOT trust the US anymore - do you understand ? They are NO LONGER BUYING TREASURIES (check the damn auctions !)

This is exactly the mentality that has fucked the US. With ppl like you good like getting the US to climb out of the hole.

Does this mean that Bear Stearns' top execs won't be getting multi-million bonuses in 2008?

>> Does this mean that Bear Stearns' top execs won't be getting multi-million bonuses in 2008?

Heh that is part of the problem isnt it.

The taxpayers are bailing out a bunch of overcompensated, greedy incompetents, because they are "too big to fail". How much you want to bet that our money is being used to preserve the jobs of people who make on average $500,000?

I suppose the gov't numbers are the easiest to get and publish. but do you really believe them? Do you think they are not really lying thru their teeth, just to put the best spin on the Bush Administration. I absolutely do not believe them. And I don't know all the definitions. But I doi know they don't count any unemployed that have exhausted their benefits.

So, what other numbers are misleading? Well, reading 'Elvis' comment above and following his links to shadowstats.com is interesting and illuminating. I do not have $175 to subscribe, but if I was making a living out of blogging I might have found some money.
I post on the effect of Bush econ polocy (or lack thereof) at http://libertystreet.wordpress.com/ and it is free.

re: "Do you think they are not really lying thru their teeth, just to put the best spin on the Bush Administration."

If you read the free articles linked below, you'll see that they have been doing that since the 80s, but the big intentional distortions started being introduced during the Clinton administration.

They've all had (and still have) many very real motivations to 'fix' the economic stats. The most obvious benefit is that is reduces the cost of entitlements like Social Security by understating the Cost of Living Adjustments from what their true value would be if 'real' CPI numbers were used. For the same reason it also pushes taxpayers into higher tax brackets. All off this is possible because most people will never notice if the government has their figurative 'finger on the scale' by a few percentage points. The average voter is unlikely even notice a small discrepancy between real-world prices and government stats, much less pay that much attention or question them, especially not during twenty years of rapidly declining prices for bigger ticket items like consumer electronics.

In this respect, it is analogous to Best Buy being competitive on the items their research tells them people compare prices on, while having much higher prices on the items they don't.

What is happening now though, is an increasing disconnect between real-world price increases (and subsequently, the unemployment rate) and the official government stats that are fudged to help 'reassure' people that everything is just A-OK.

It's going to get more and more difficult for them to keep claiming this cat isn't out of the bag. That become so obvious that it's already becoming an old joke among savvy traders to poke fun at this using the 'Baghdad Bob' metaphor.

Eventually, look for a watershed event that breaks this open, and you'll see voters (finally) react similar to how investors in firms deeply over-leveraged into shaky debt instruments are reacting.

Not only has the Fed seemed to have lost control over real-world interest rates, what's even more worrisome is that their rate cuts are seem to be having the opposite effect that they intend. all the most recent cuts have just caused even further weakness in the US$, which in turn drives up commodity prices, of which the US is now a huge net importer. This in turn just keeps making the US current account deficit worse.

This kind of reminds me of the battle scene in the opening of The Fifth Element where every missile they fire just causing the target to get bigger, finally engulfing them.

I recall that months ago, there was one candidate who warned about this in the presidential debates, but he was soundly ridiculed by his fellow candidates. As we saw in the case of a certain vote back in 2002, having the correct judgment when it mattered can not only be unpopular at the time, it can seem downright bizarre or repugnant to those who have a very, shall we say, "limited" world-view. Oh well, as this progresses, I expect we'll see that candidate (usually on CNN) periodically reminding those in the chattering class of how foolish they were (not that they care, mind you, unless it costs them politically).

http://www.shadowstats.com/
http://www.shadowstats.com/alternate_data

http://www.shadowstats.com/article/53
http://www.shadowstats.com/article/56

Bear Sterns is a bailout too far. Read Gretchen Morgensen is today's NYT.

Using government stats to size up the economy is like trying to gauge the results of your diet by standing on a rigged scale in front of a funhouse mirror.' - Eric Janszen

As for Kevin continuing to put faith in government issued stats on employment or inflation, well, damn, you can't say I haven't tried to get him to grasp that they have been massaged way past the usual 'happy ending'.

'The US inflation rate is about twice as high as the government’s inflation measures report. In order to hold down Social Security payments, the government changed the way it measures inflation. In the old measure, inflation measured the nominal cost of a defined standard of living. If the price of steak rose, up went the inflation rate. Today if the price of steak rises, the government assumes that people switch to hamburger. Inflation doesn’t go up. Instead, the standard of living it measures goes down.' - Watching the Dollar Die By PAUL CRAIG ROBERTS