http://www.marketwatch.com/news/story/goldman-sachs-downg ...

"Coal is abundant and, at these prices, supply will come to the market much faster than bulls may expect," he said. "In addition, our supply/demand forecast for inventories indicates that they will be at high historical levels through 2009 -- making it hard for us to believe that pricing could go much higher from here."

Shares of all the coal firms in the downgrade fell Friday morning. Massey Energy was the deepest decliner, giving up nearly 7% to $38.95.

Scientific evidence is springing up in many places that indicates the massive and pernicious impact of the human species on the limited resources of Earth, its frangible ecosystems and life as we know it.

Guided by mountains of carefully and skillfully developed research regarding climate change, top rank scientists issued a Climate Code Red emergency declaration this month to leaders of governments and to the family of humanity proclaiming the necessity for open discussion and action by politicians and economic powerbrokers.

From my humble perspective, many leaders of the global political economy are turning a blind eye to human over-consumption, overproduction and overpopulation activities that can be seen recklessly dissipating the natural resources and dangerously degrading the environs of our planetary home. The Earth is being ravaged; but it appears many leaders are conspicuously refusing to acknowledge what is happening.

Because the emerging global challenges that could soon be presented to humanity appear to so many fine scientists as human-induced, leaders have responsibilities to assume and duties to perform, ready or not, like them or not.

Perhaps leadership in our time has too often chosen to ignore whatsoever is somehow real in order to believe whatever is politically convenient, economically expedient, socially agreeable, religiously tolerated and culturally prescribed. When something real directly conflicts with what leaders wish to believe, that reality is denied. It appears that too many leaders are content to hold tightly to widely shared and consensually validated specious thinking when it serves their personal interests.

Is humanity once again finding life as we know it dominated by a modern Tower of Babel called economic globalization? That is, has human thinking, judging and willing become so egregiously impaired by our idolatry of the artificially designed, manmade, global political economy that we cannot speak intelligibly about anything else except economic growth and profits without sounding like blithering idiots?

Hooray, a corporation donates 25 million dollars. Hooray!

Is humanity soon to be confronted with million dollar global challenges or billion dollar global challenges, or even trillion dollar ones?

If the daunting global challenges posed to humanity by the astounding growth of the human population overspreading Earth are as huge as they appear in these early years of Century XXI, then 25 million dollars is a pitiful pittance.

In 2006 Goldman Sachs awarded year-end bonuses to certain employees totalling more than 16 billion dollars.

How many trillion dollars will the USA alone pay for the fiasco in Iraq?  How much money in bonuses were paid to the investment banking industry as it duplicitously engineered the sub-prime mess on the backs of the poor? Does the investment banking industry have a responsibility to reclaim the 33 billion dollars in annual bonuses it 'awarded' in 2007 to the perpetrators of the sub-prime fiasco?

If we can spend billions of dollars to reward one investment banking corporation's economic powerbrokers for underwriting another year of the sub-prime debacle, corporations can surely do more than provide token gestures as responses to the challenges posed by climate change.  

As things now stand, the funds given to preserve Earth as a fit place for human habitation by our children amount literally to nothing more than "drops in the bucket."

For a moment, let's us consider that climate change is the size and has the shape of a weapon of mass destruction which has to be acknowledged, addressed and overcome.  That is to say, dealing reasonably and sensibly with climate change as if it was a WMD is a categorical imperative.

In the light of such circumstances, current leaders can be seen failing to respond ably to what people everywhere can see as somehow real.  Current leadership is richly rewarded for  engaging in fools' errands -- fiascos in Iraq and on Wall Street -- while refusing to so much as sensibly begin to address the ominously looming global challenges visible, even now, on the far horizon.

Perhaps a change of course is in the offing.

Sincerely,

Steve

Steven Earl Salmony
AWAREness Campaign on The Human Population
established 2001
http://sustainabilitysoutheast.org/

http://break.com/index/how-we-got-into-the-subprime-mess. ...

Steven Earl Salmony, Ph.D., M.P.A.
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilitysoutheast.org/

January 14, 2008

J. H. Kunster

Disarray

      The dark tunnel that the US economy has entered began to look more and more like a black hole last week, sucking in lives, fortunes, and prospects behind a Potemkin facade of orderly retreat put up by anyone in authority with a story to tell or an interest to protect -- Fed chairman Bernanke, CNBC, The New York Times, the Bank of America.... Events are now moving ahead of anything that personalities can do to control them.
     The "housing bubble" implosion is broadly misunderstood. It's not just the collapse of a market for a particular kind of commodity, it's the end of the suburban pattern itself, the way of life it represents, and the entire economy connected with it. It's the crack up of the system that America has invested most of its wealth in since 1950. It's perhaps most tragic that the mis-investments only accelerated as the system reached its end, but it seems to be nature's way that waves crest just before they break.
     This wave is breaking into a sea-wall of disbelief. Nobody gets it. The psychological investment in what we think of as American reality is too great. The mainstream media doesn't get it, and they can't report it coherently. None of the candidates for president has begun to articulate an understanding of what we face: the suburban living arrangement is an experiment that has entered failure mode.
     I maintain that all the "players" -- from the bankers to the politicians to the editors to the ordinary citizens -- will continue to not get it as the disarray accelerates and families and communities are blown apart by economic loss. Instead of beginning the tough process of making new arrangements for everyday life, we'll take up a campaign to sustain the unsustainable old way of life at all costs.
      A reader sent me a passle of recent clippings last week from the Atlanta Journal-Constitution. It contained one story after another about the perceived need to build more highways in order to maintain "economic growth" (and incidentally about the "foolishness" of public transit).  I understood that to mean the need to keep the suburban development system going, since that has been the real main source of the Sunbelt's prosperity the past 60-odd years. They cannot imagine an economy that is based on anything besides new subdivisions, freeway extensions, new car sales, and Nascar spectacles. The Sunbelt, therefore, will be ground-zero for all the disappointment emanating from this cultural disaster, and probably also ground-zero for the political mischief that will ensue from lost fortunes and crushed hopes.
     From time-to-time, I feel it's necessary to remind readers what we can actually do in the face of this long emergency. Voters and candidates in the primary season have been hollering about "change" but I'm afraid the dirty secret of this campaign is that the American public doesn't want to change its behavior at all. What it really wants is someone to promise them they can keep on doing what they're used to doing: buying more stuff they can't afford, eating more shitty food that will kill them, and driving more miles than circumstances will allow...............  

By George Soros

Published: January 22 2008 19:57 | Last updated: January 22 2008 19:57

The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.

Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.

Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks' commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.

Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.

Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

The writer is chairman of Soros Fund Management

Worries That the Good Times Were a Mirage
23 January 2008
The New York Times

So, how bad could this get?

Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.

Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: ''the great moderation.''

These days, though, the great moderation isn't looking quite so great -- or so moderate.
The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world's financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank's history.

The great moderation now seems to have depended -- in part -- on a huge speculative bubble, first in stocks and then real estate, that hid the economy's rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn't go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

Now, some worry, comes the payback. Martin Feldstein, the eminence grise of Republican economists, says he is concerned that the economy ''could slip into a recession and that the recession could be a long, deep, severe one.'' In Monday's Democratic presidential debate, Barack Obama made the same argument: ''We could be sliding into an extraordinary recession,'' he said.

In the next breath, of course, Mr. Obama suggested that the right policies might still help, while Mr. Feldstein has said that a recession isn't yet a sure thing. And much of the great moderation is real. Computers allow managers to run their businesses more efficiently and avoid some of the wild swings. The Fed and central banks in other countries have learned from their past mistakes.

But a recession is now more likely than not. It may well have started already. The Philadelphia Fed reported Tuesday that the economy shrunk in 23 states last month, including Ohio, Missouri and Arizona, and was stagnant in seven others. California and Florida, with their plunging home values, may soon join the recession list.

The bigger question is how severe the recession will be if it does come to pass. The last two, in 1990-1 and 2001, have been rather mild, which is a crucial part of the great moderation mystique. There are three reasons, though, to think the next recession may not be.

First, Wall Street hasn't yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody'sEconomy.com. They're not being dishonest; they just haven't untangled all of their complex investments.

''Part of the big uncertainty,'' Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, ''is where the bodies are buried.''

As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms' holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.

This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.

The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.

David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.

The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.

For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.

Cheaper stocks and houses will benefit many people -- namely those who don't yet own a home and still have most of their 401(k) investing in front of them. But the price declines will also lead directly to the third big economic problem.

Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt -- as a recent study co-written by the vice chairman of the Fed dryly put it -- ''is not likely to be repeated.'' So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.

''What people have done is make an assumption that these prices could continue rising at the rate they had been,'' said Ed McKelvey, an economist at Goldman Sachs. ''And that does seem to have been an unreasonable assumption.''

Certainly, there are some forces to push in the other direction. Outside of Wall Street, corporate balance sheets remain remarkably strong, while the recent fall in the dollar will help American companies to sell more goods overseas.

But it's hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don't have and investors will become more alert to risk.

Welcome to the new moderation.
E-mail: leonhardt@nytimes.com

Because the emerging global challenges that could soon be presented to humanity appear to so many fine scientists as human-induced, leaders have responsibilities to assume and duties to perform, ready or not, like them or not.

Steven Earl Salmony
AWAREness Campaign on The Human Population, established 2001
http://sustainabilitysoutheast.org/