Ye Olde Mystery economic theatre 2014

[fivemack]

Originally Posted by ewmayer

...and furthermore, the security of Apple’s encryption is only as good as, well, the security of Apple’s encryption, which you have to take their word for - not so much in the maths of the crypto scheme(s) used as in their implementation. Article also goes on to describe that anything you store "in the cloud" is more or less completely insecure, and as most cloud-based data services back up user data to the cloud "for your convenience" they are thus incompatible with any reasonably strong notion of data security.

Apple are quite vigorously advertising the quality of their encryption implementation, with white papers that mention most of the right things - they've got secure areas in the CPU, AES keys are generated there and never exported, unlocking the device requires you to ask the secure area to check the passcode or the fingerprint and the secure area locks up unrecoverably after some number of failed pass codes.

Backups in the cloud appear to be encrypted with a key derived from the user's password, which is nothing like as good as an unexported key produced in secure hardware but about as good as you can sensibly get while allowing the backups to be restored onto different devices.

Effectively, there used to be very substantial government pressure for encryption in consumer devices to be inadequate, but after the Snowden revelations the manufacturers have decided they'd rather be on the side of the customer than on the side of the government; I'm willing to trust Apple's crypto pretty implicitly.

[Fusion_power]

Where's the inflation? (Say this in the same tone as saying "Where's the beef?")

We've had central banks across the world printing money like a house on fire yet inflation worldwide is under 2 percent. We have had QE1, QE2, and QE3, and face the potential for QE4 here in the U.S. So I want to know, if we printed all these trillions of dollars, where's the inflation? If the Fed had printed 6 trillion dollars in 1980, we would have had Zimbabwe style inflation of thousands of percent a year. To control inflation, the Fed raises interest rates and reduces money supply until inflation runs screaming to hide in a corner. We saw that in spades between 1978 and 1985. But interest rates are sitting effectively at zero. I can borrow money at the bank for 4% interest on personal loans and about 2.5 percent for a mortgage. So I ask again, Where's the inflation?

Think about this for a minute. We are in uncharted territory. All the money printing and interest rate manipulating they could throw at the market barely kept inflation at the 2% level. This highlights an unprecedented level of deflationary pressure. Japan went into a deflation/stagnation economy 20 years ago and still has not recovered. I submit that the U.S. is in a deflagnation economy right now and there is no end in sight. What are the effects? Wages are effectively frozen to even shrinking a bit. Prices for critical goods like food are increasing. The market is riding a QE_heroin high that sees no end in sight. Where will this house of cards end?


On a separate note, look what is happening to power utility companies as solar penetrates the market.

There are fixed costs to maintain the grid power distribution network. The power utility companies bundle those grid maintenance costs into the retail price of power. By doing this, large power consumers disproportionately pay more to "subsidize" the grid. This results in the average consumer paying a relatively low price for grid access.

As these large consumers install alternative energy sources, power utility margins are squeezed making residential power service unprofitable to provide. Adding to the problem, residential users are now joining the party by installing solar. So the power company bottom line is being whacked by large businesses that jump ship and insult on top of injury, residential users are jumping ship too.

This leaves the utility company with no choice but to raise prices on the remaining consumers because solar users are no longer subsidizing the system. I'm not a whiz expert, but I can easily run the numbers to show that if solar reaches 1% of electricity consumption, the power utility business will begin to destabilize. They will have no choice but to raise prices on remaining users.

Wind power does not trigger this dynamic. The power utilities own outright or purchase from dedicated suppliers of wind power. There is no significant loss of user base with wind power.

Now the utilities are desperately working to insert access fees onto monthly bills. Solar businesses are screaming about unfair business practices. Regulators are anxiously scanning rate requests and trying to figure out what to do. Anyone with an ounce of forethought can see that buying a solar system now will not change a thing about the power utility raising the price for grid access, in fact will just speed up the process. The U.S. tax subsidy is still a potent motivator to install a system now, after all, it expires in 2016 and given the congress that was just elected, is unlikely to be renewed.

[ewmayer]

The inflation you seek is to be found in financial-asset (and housing, but the central wankers have effectively turned homes into financial assets, at least in most buyers' minds) valuations, which are once again deep into bubble territory.

At the consumer-price level, you shouldn't believe government-published inflation metrics -- There was an article back in August to the effect that the average cost to raise a child to age 18 in the US has hit nearly a quarter-million dollars. I posted that to Naked Capitalism - forgot if I cross-posted here, don't feel like checking right now - and as I added at the time: "the 10x increase since 1960 implies an average annual inflation rate of around 4.4%. As this survey does not include college education costs, factoring those in would give an even higher inflation rate.".

At the same time, the one place inflation would actually be welcome in terms of helping the 99%, wages, we have been seeing persistently the opposite. To the economic & financial-policy elites, that's a bug, not a feature, even though in the long run it destroys demand, the lifeblood of genuine economic recoveries. Japan is example #1 in that regard. Thus, when debtor governments say "deflation", that may still be accompanied by real-world purchasing power erosion to the tune of several % per year.

[ewmayer]

Pair of related pieces on the turmoil in financial markets due to the recent collapse in oil prices:

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge? | Naked Capitalism

Russian Ruble, Turkish Lira, Ukrainian Hryvnia Hit Record Lows; Global Currency Crisis on Deck | Mish

Massively leveraged junk-debt-fueled speculative oil bubble meets global glut due to drop in demand (as embodied by the major economic slowdown in China as the multiyear housing/credit-bubble chickens come home to roost there), in the context of "the global recovery that wasn't" -- looks like a set-up for a perfect storm to me.

And --

U.S. taxpayers help fund oil-train boom amid safety concerns | Reuters

One more reason I'm cheering every added fall in oil prices, even though that conflicts with my "SUVs are evil" stance. Lesser of 2 evils, just like US electoral politics!

[kladner]

http://readersupportednews.org/news-...ice-department

Note to Ernst: The original is firewalled, and I have exceeded my 5-piece allowance at Newsweek. Besides, doesn't it add a special something, that RSN headed the article with photo of a very happy-looking Lloyd Blankfein?

[only_human]

Treasury Sells Entire Ally Financial Stake, Taking Total Recovery to $19.6 Billion and Closing Auto Rescue Program

In total, taxpayers recovered $19.6 billion on the investment, roughly $2.4 billion more than the original $17.2 billion investment in Ally, formerly GMAC. Including today’s proceeds, taxpayers have recovered $441.7 billion on TARP investments including the sale of Treasury’s AIG shares, compared to $426.4 billion disbursed.

Treasury exits Ally, ends six-year auto bailout (The Detroit News)

The losses on the $85 billion auto industry were about $10 billion, but they saved hundreds of thousands of jobs.
"The auto industry financing program helped save the auto industry, more than 1 million jobs, and prevent a second Great Depression," Treasury Secretary Jacob J. Lew said.

[davar55]

So the Treasury and the FR were right on the bailout. Hmm.

[Prime95]

Originally Posted by davar55

So the Treasury and the FR were right on the bailout. Hmm.

Even if you believe this accounting (remember the administration will make every effort to put the best possible light on the numbers), then the Treasury made a $15 profit on a $400 billion investment. These investments were hugely risky (companies on the verge of bankruptcy). These companies were in dire need (days away from bankruptcy). These companies had no other options. And under those circumstances the best deal these so-called brilliant minds could negotiate yielded a whopping 4% profit in 7 years!!!!!! IMO, that is the very definition of a disgraceful giveaway. Coupled with no prosecutions and you have what can only be described as gross incompetence.

[ewmayer]

Originally Posted by Prime95

Even if you believe this accounting (remember the administration will make every effort to put the best possible light on the numbers), then the Treasury made a $15 profit on a $400 billion investment. These investments were hugely risky (companies on the verge of bankruptcy). These companies were in dire need (days away from bankruptcy). These companies had no other options. And under those circumstances the best deal these so-called brilliant minds could negotiate yielded a whopping 4% profit in 7 years!!!!!! IMO, that is the very definition of a disgraceful giveaway. Coupled with no prosecutions and you have what can only be described as gross incompetence.

Exactly. And to put the risk/reward here in perspective: Warren Buffett made a $2 Bln profit (after 5 years) on s similar $5 Bln depths-of-the-crisis investment in Goldman Sachs, with far less risk, due to the type of warrants he obtained (senior preferred shares) for his money.

Also, it is entirely pointless to blather about "how we made on this chunk" without discussing the status (and likely returns and default risks) of the remaining monies.

Moreover, focusing on TARP ignores the $trillions in other kinds of bailouts, whose amounts dwarf TARP and many of which were of the "backdoor" variety. A notable example being the roughly $1.5 Tln is mortgage-backed securities purchased from the TBTF banks by the Fed. In effect the banks exchanged trash ('illiquid' MBSes which never saw anything resembling a market pricing attempt) for cash - new money created by the Fed, most of which got parked right back at the Fed as interest-earning reserves, but which *belongs* to the banks. No provision for the banks to repurchase any of the debt "when market conditions improve", nor for the Fed to sell it back into the markets under similarly more-favorable conditions. In other words, the asset purchases appear to have been structured in a way which delays the loss recognition on the purchased debt as long as possible, that is, a decade or more, depending on the precise mix of mortgage terms involved.

All of these trillions in backdoor bailouts obviously helped hugely to make the banks going concerns again, thus making it possible for them to "repay TARP monies, with interest". It's as if you had a spendthrift kid who pesters you to help him build a lemonade stand - you give him $25 for lemons and sugar (TARP), blow another $200 to rent a spot at the local farmer's market for him to park the stand (backdoor bailouts), he makes $26 gross, and you brag to your work buddies the following Monday about how your kid learned the beauty of free-market capitalism and made you $1 in profit, to boot.

[ewmayer]

Much more on the Big Lie of "banks paid back TARP money, with interest" courtesy of David Stockman (here via ZH). Compare the overall amounts of the "total consumer-borne bank subsidy due to financial repression" to the 'profit' from TARP - heck, compare it to the entirety of TARP, period. In other words, as I've noted on several occasions in the past few years, TARP was constituted as (or quickly morphed into) the "PR-oriented public face of the bank bailouts"; the real bailout Schmutz was going on via multiple less-easily-grasped-by-the-rubes channels, and is in fact ongoing, with no end in sight, except for a temporary suspension of overt (= asset-purchase-based) QE which you can rest assured will be restarted with zeal once the latest ginormous bubble begins to deflate in earnest:

The Greater Abomination: Washington's Lies About TARP's "Success" Are Worse Than The Original Bailouts, Part I | Zero Hedge

The policy apparatus of the state has subjected savers to brutal punishment for one reason alone. Namely, to enable the insolvent big banks of America to dig their way out of the deep hole they were in at the time of the financial crisis. By scalping false profits from the Fed’s regime of financial repression, they have, in fact, been able to return accounting profits to pre-crisis levels and beyond.

And here’s why. Thanks to the Fed, banks’ “cost of production”—–that is, the funding cost of earning assets—–has been practically eliminated.

Click on graph area to view data points table

Stated differently, ZIRP has enabled banks to carry $10 trillion of deposits at negative real interest rates. During the 72 month since ZIRP was officially embraced in December 2008, the CPI has risen by 12% (1.9% per annum). That compares to an average return on six months CDs over the same period of 0.4%. Call that a negative 1.5% real rate on the banks cost of funds.

This has been called the Fed’s “No Banker Left Behind” program and for good reason. Financial repression extracts at least $700 billion annually from bank depositors. At current tax and inflation rates, an honest free market would require at least a 4% deposit rate or 350 bps more than the average bank cost of funding shown above.

And that’s just for starters. As will be shown in Part II, banks—especially the giant Wall Street banks and financial supermarkets—-have profited in many other ways from financial repression. These include hundreds of billions of mortgage banking profits that were skimmed from the mortgage “refi” boom of 2010-2013. When the Fed used QE to scoop up more than $1 trillion of GSE securitized mortgages, and thereby drove home mortgage rates to as low as 3.25% in 2012, banks led by Wells Fargo booked massive gains through the magic of “gain-on-sale” accounting.

The banks’ financial repression windfall also included the underwriting profits from the huge boom in investment grade and junk bond issuance. This multi-trillion issuance frenzy over the last six years had very little to do with market economics or real asset investment; these new funds went overwhelmingly into stock buybacks, LBO’s, cash M&A deals and other forms of financial engineering.

And, it goes without saying, that the Fed’s massive buying of US treasury debt provided yet another form of windfall. Banks loaded up with government securities during the past five years, knowing that the Fed had put a floor under bond prices, permitting them to scalp virtually risk free returns owing to their 0.4% funding costs.