Thursday, January 31, 2008

They say there ain't no inflation...but you can't argue with a grocery store tape!...No Sir...surely can not!

Wednesday, January 30, 2008

Bond Insurers Face Downgrade Despite Call for Delay

By Charlie Gasparino, On-Air Editor | 29 Jan 2008 | 04:29 PM ET

Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.

Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.

Insurer Ambac
AMBAC Financial Group Inc

12.93 1.80 +16.17%
Quote | Chart | News | Profile | Add to Watchlist
[ABK 12.93 1.80 (+16.17%) ] has received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA

15.98 1.13 +7.61%
Quote | Chart | News | Profile | Add to Watchlist
[MBI 15.98 1.13 (+7.61%) ] hasn't been downgraded.

The ratings agencies realize they're walking a tight rope -- if they downgrade the insurers, they could expedite their demise. On the other hand, if they follow New York's request and don't downgrade, they're in essence violating their duty to downgrade bonds on objective criteria.

Moody's downplayed the likelihood of striking a deal with New York, however. A spokesman for the ratings agency confirmed that Moody's has had conversations with the Insurance Department, but said "we don't forbear on our ratings" based on talks with government officials.

Standard & Poor's had no comment.

The New York State Insurance Department has hired Perella Weinberg Partners to advise on developing a bailout of the bond insurers, a spokesman for the department said on Monday.

As CNBC reported last week, banks that met with Insurance Superintendent Eric Dinallo asked him to hire an outside financial advisor.

Sources told CNBC that New York is considering one of two approach as a bailout plan: either a line of credit that bond insurers could tap as needed, or a deal that would deal with each insurer on an individual basis.

Bond insurers, who guarantee more than $2 trillion of securities, have suffered write-downs of bonds and derivatives linked to subprime mortgages. The losses are big enough to potentially trigger ratings downgrades, forcing some investors to sell securities guaranteed by the bond insurers.

Last week, New York State Insurance Superintendent Eric Dinallo met with banks to encourage them to put up cash to support bond insurers.

Perella Weinberg is looking at ways to protect policyholders of the major bond insurers.


Jan. 30 (Bloomberg) -- UBS AG, Europe's largest bank by assets, reported a record loss after about $14 billion of writedowns on assets infected by subprime mortgages in the U.S.

The fourth-quarter net loss of 12.5 billion Swiss francs ($11.4 billion) was almost double what analysts surveyed by Bloomberg were estimating, and brings the total decline for the year to about 4.4 billion francs, the Zurich-based bank said today in a statement. UBS publishes its official results on Feb. 14.

``The damage is enormous,'' said Dominique Biedermann, director of Ethos Foundation in Geneva that holds UBS shares worth about 80 million francs. ``It wipes out profit and shows that an inquiry is needed to make sure it doesn't happen again, and eventually whose responsibility this is.'' Biedermann has called for an independent audit of the bank's controls.
UBS posted its first annual loss since the company was created through a merger a decade ago, with the fourth-quarter drop exceeding the records reported earlier this month by Citigroup Inc. and Merrill Lynch & Co. The collapse of the U.S. subprime mortgage market has led to more than $130 billion of losses and markdowns at securities firms and banks since June.

UBS reported about $12 billion of losses directly linked to the subprime market and an additional $2 billion for positions related to the U.S. residential market. The company said its so- called Tier 1 capital ratio, a measure of financial strength, was 8.8 percent as of Dec. 31.

Monday, January 28, 2008

Artistic Krewe of Barkus Parade
February 3, 2008 2pm
Downtown McKinney
Dear AIM Friends and Family,

Yes, it's here! The 2008 Artistic Krewe of Barkus parade is this Sunday! See Elvis, KISS and many more at 2pm on
February 3 as the parade rolls out. That's the canine versions, of course. This year's parade theme is "Rock and Roll Paw of Fame", so please be sure to come out for some great entertainment. After the parade, stick around for the awards ceremony celebrating the best dog costume, best float, and best dog/owner combo costume to name a few. Vendors will also be set up in the park for your enjoyment.

There is still room to register your dog, so let us know no later than Saturday, February 2 if you would like to participate. Cost is $5 per dog. You can register three ways:

1. Reply to this e-mail or e-mail to
2. Go to and click the Krewe of Barkus link
3. Call 972-529-6872

Please include your name and your dog's name, dog's breed, coloring and costume, your address, phone number and e-mail address.

Check-in for parade participants is at 12:30pm at Mitchell Park and all participants must register BEFORE the day of the parade. No day-of or on-site registration will be accepted this year. The parade will begin at 2pm.

Parade route:
From Mitchell Park east on Louisiana Street
North on Tennessee Street
West on Virginia ending back in Mitchell Park

For spectators, both human and canine, please find a place to watch the parade before it begins at 2pm and make sure to stay on the sidewalks. The parade participants need the entire street for vehicles and floats for their safety and yours.

And, don't worry, you will be home in plenty of time for your Super Bowl parties, armed with many hilarious stories to entertain your guests.

So, please, mark your calendars for this Sunday as we celebrate Mardi Gras McKinney style. Laissez les bon temps rouler!
Art Institute of McKinney

Sunday, January 27, 2008

Our lives move to fast!...we do not even see what is coming, or maybe we do and choose not to think about it...We're a train wreck waiting to happen...this is a long read...but interesting enough to put in the effort...

Chronology Of Things That Can't Happen

One of the reasons the Fed was created was to manage the economy and prevent further depressions. Guess What? The biggest deflation in history, the great depression, happened 17 years later.

At one time economists thought that inflation and recession could not happen at the same time. It happened anyway. A new term was coined for it “Stagflation”.

Deflation supposedly couldn't happen in a fiat regime. Japan proved otherwise.

If you asked anyone in Japan if housing prices could fall for 18 straight years, they would have said "It can't happen". It did happen.
For 30 years people have said US housing prices would never again decline on a national scale. They were wrong. It happened.

It is the very nature of the market that it takes the convincing of nearly everyone to believe that something cannot happen, to actually cause it to happen. Consider housing. Everyone became convinced that housing was a one way ticket north, that all housing was local, and housing would not decline nationally.

This mass belief in a faulty housing premise in spite of evidence to the contrary in Japan is what helped form the US housing top. Greater fools everywhere who came to believe that faulty theory eventually rushed in to speculate in housing. That made the top. Even the rating agencies got into the act.

Please consider Fitch Discloses Its Fatally Flawed Rating Model. As amazing as it might seem now, Fitch disclosed as recently as March 2007 that their model for rating CDOs assumed low to single digit home price appreciation forever into the future. They even admitted their model would break down if home prices were flat for an extended period of time. There is a shocking conference call discussed in the above link where Fitch described those fatally flawed assumptions.

Fitch placed so much faith in their models (as did Moody's and the S&P) that the biggest financial speculation in housing history took place. Greenspan and the Fed cheered the miracle of derivatives most of the way. Such foolishness has already cost Citigroup (C) and Merrill Lynch (MER) their CEOs. It may cost Citigroup its entire company. See More Writedowns Force Citigroup To Sell Assets.

Housing speculation is likely to cost both Ambac (ABK) and MBIA (MBI) their companies. See Buffett Signs Death Warrant For Ambac & MBIA for more on the demise of the guarantors.

It's Different Here

All of the above are casualties of the bursting of a housing bubble, a bubble that until last year people denied even existed. Instead of looking at Japan for what was about to happen, all we heard was "It's Different Here. The US is Not Japan".

Faulty Premises

It's Different Here.
It's Different This Time.
The Fed won't let deflation happen.
Belief in the third point above goes well beyond amazing to the point of being nearly universal. Yes, there are a handful of us that see deflation coming, but as Nimesh writes "For almost thirty years people like you have predicted that our economy will collapse and it hasn't happened."

That is precisely the sentiment that it takes to make a top (or a bottom). Many predicted the demise too early and are now discredited. Those hopping on the bandwagon near the top are compared to the early visionaries. It becomes guilt by association even though there is no real association.

Mocking of the early visionaries is part of the topping process. Group think sets in and is reinforced over the years. Risk premiums drop as the long term trend reaches the peak. That takes time. Memories fade. Does anyone fear another great depression? Heck, does anyone even remember it, let alone fear it?

Where Prechter Went Wrong

Since everyone knows the early visionary we are talking about, we may as well openly discuss his name. Robert Prechter ignored and/or did not foresee many things that could keep the credit bubble expanding. Let's start with a flashback to conditions of the 70's and 80's.

Why The Credit Bubble Lasted For Decades

Single household breadwinner became two household bread winners
Interest rates were at 18% headed to 1%
Internet revolution provided tremendous numbers of jobs
Lending standards declined
Housing boom provided jobs
Rising asset prices supported consumption
Every one of those things allowed the credit bubble to keep expanding. Many of those factors took years to play out, decades in aggregate. The decline in interest rates alone made housing more affordable for quite some time, at least until things went extremely loony a few years back. And when housing prices went loony, progressively lower credit standards kept the expansion going. The madness ended when there was no one left to buy, and no way to keep that portion of the credit bubble expanding.

Sadly, people still give Greenspan credit for his role in keeping the economy expanding. Greenspan deserves absolutely no credit. All Greenspan really did was accelerate the existing trend. Furthermore, he did so in a way that was completely reckless. The only reason the economy did not collapse under Greenspan was the ability of consumers and businesses to take on credit had not yet peaked.

Major Bubbles Fueled By Greenspan

Greenspan fueled an overall stock market bubble by bailing out banks exposed to Long Term Capital Management. For more on LTCM please see Genius Fails Again.

Greenspan fueled a dotcom bubble in 1999-2000 out of irrational fear of a Y2K crash. Greenspan embraced the productivity miracle and was worried about the economy overheating just months before it imploded. The story is documented in FOMC minutes.

Greenspan fueled an even bigger bubble between 2003-2006 by embracing ARMs and slashing interest rates to 1% to bail out his banking buddies caught up in bad loans to dotcom companies and bad loans to countries like Argentina.

In a sense, Greenspan was the luckiest Fed chair in history. He had a tailwind of productivity at his back that helped keep consumer prices low while he fueled bigger and bigger and bigger credit bubbles when each of several smaller bubbles popped.

Greenspan has now left an unsolvable mess for Bernanke to cleanup. This time, there is no bigger credit bubble to be blown.

What They Were Saying And When

In 1999-2000 people were saying "The Nasdaq hasn't crashed yet so it's not going to".

In 2006 Lereah wrote: Why The Real Estate Boom Will Not Bust. Ironically, it already had.

In 2007 many are writing me with reasons why the credit bubble will not bust. It already has. However, just like housing in 2006, the implications have not yet been fully felt.

The party is over once the ability and willingness of banks to lend, or ability and willingness of consumers and businesses to borrow is exhausted. Those signs in place today for all but ostriches.

One thing I want to be clear on is that I am not calling for another "great depression". We could have one, but I am inclined (at least right now) to doubt it. Japan went through 18 years of deflation and the world did not end. The US will survive deflation as well.

However, we are likely to see something the US has not seen since the great depression: a falling standard of living and a declining middle class. Many things will be A Matter Of Choice but no one alive knows exactly what choices government will make.

One thing I am sure of is the more money we waste in Iraq and the more money we waste attempting to be the world's policeman, the worse off we will be.

Can The Fed Inflate Out Of This Mess?

There is enormous and unwarranted belief in the Fed's ability to "inflate out of this mess". It's all an illusion. Greenspan presided over an economy that added enormous numbers of internet jobs followed by enormous numbers of housing related jobs and enormous numbers of jobs related to the buildout of commercial real estate.

This was not "success"; This was forestalling the day of reckoning by repetitively blowing bigger bubbles. Greenspan appeared successful only because the ability and willingness of consumers and businesses to take on more debt was not yet exhausted.

Bernanke, on the other hand has no dotcom boom to bail out the economy. Nor does Bernanke have a housing bubble to look forward to that will bail out bad bank lending practices and provide jobs to the economy.

Problems Bernanke Faces

Falling real estate prices
Subprime housing mess
Alt-A mortgage mess
Pay Option ARM mess
Sharply rising unemployment
Rising credit card defaults
Commercial Real Estate implosion
Global wage arbitrage
Falling US dollar
Overheating China
Slowing global economy
Tapped out consumers
Implosion of $500 trillion in derivatives
Solvency issues at banks
Forced unwind of massive Yen carry trade
Boomer retirement Pension plan assumptions in an economy starving for yield
Rising corporate defaults

Greenspan never had to deal with anything remotely close to that set of problems. It's a lethal combination of things given that solvency issues at banks that will restrict lending. It is also a lethal combination in the face of consumers and businesses that are unwilling to expand because consumers are tapped out. In addition, rising unemployment sure is not going to do anything about consumer's willingness or ability to take on more credit.

Yet because of Greenspan's so called success, many came to believe in the magic of the Fed. The idea was further enhanced by one of the most ridiculous Fed speeches ever Deflation: Making Sure "It" Doesn't Happen Here.

Trends Do Not Die Easily

With Bernanke's speech, came the near universal belief that Bernanke would succeed in fending off deflation as well. However, near universal belief in a flawed idea is a necessary but insufficient condition for a primary trend exhaustion.

The housing boom morphed into merger mania, leveraged buyout speculation, buyout bingo and all sorts of other nonsense including covenant lite deals where debt was paid back not with interest but with more debt.

There were not really any more players because there was no one left to convince. Rather the players involved just got greedier and greedier. Even as housing died, credit expansion looniness continued for two more years.

Chuck Prince Dances At the Top

When everyone acts as if every risk no matter unsound will go unpunished by the Fed and the market, it fosters the environment where the greedy participants (and even some innocent bystanders) are going to be tremendously punished.

It is fitting that Chuck Prince marked the top of the insanity in July of 2007 when he announced No End Soon To Buyout Boom. Chuck Prince resigned in disgrace four months later.

Unsound Beliefs Foster Unsound Actions

Few have stopped to consider that credit conditions only got as insane as they did because of fundamentally unsound belief the Fed cannot fail. Similar beliefs marked the top of the housing boom in the summer of 2005. Yet in spite of the housing implosion, everyone acted (and most still do) as if there is no risk of deflation. Most still fail to see that it was unsustainable credit expansion that fueled not just housing, but the economy in general.

Ironically, it is the unvarnished arrogance by Bernanke in conjunction with greater fools who believe in his untested academic wizardry, that fostered the very extreme risk taking attitudes towards credit that makes deflation inevitable.

Things that can't happen, are about to.
Texas Municipal Retirement System cities brace for shortfall's impact

As state system faces shortfall, some may cut benefits, raise tax rates

January 24, 2008
By ELIZABETH LANGTON / The Dallas Morning News

A state pension fund used by more than 820 Texas cities – including most of those in North Texas – faces a $1.7 billion funding shortfall. And fixing the situation will force some cities to raise taxes, cut future retirees' benefits or both.

Although cities won't receive definitive numbers until April, some expect to face double-digit increases in their contribution rates to the Texas Municipal Retirement System beginning next year. That's the equivalent of adding millions of dollars in expenses to their annual budgets – and multiple cents to their property tax rates.

"This gives me a headache," Duncanville City Council member Johnette Jameson said during a briefing session on a potential $2 million increase in the city's annual payment to the fund. "You just feel like you're stuck between a rock and a hard place."

TMRS, created by the Legislature in 1947, is the pension provider for most Texas cities, though Dallas, Fort Worth, Bedford and some others maintain their own plans. The system covers more than 45,000 employees and retirees in North Texas and more than 130,000 statewide.

Not 'going broke'

Overseers of the $17.8 billion pension fund say it is not in jeopardy, and have asked city officials to help quash such rumors.

"TMRS is not 'going broke,' and no retiree benefits are in danger," TMRS said in a Dec. 10 e-mail bulletin to member cities.

TMRS, which has always invested conservatively, has not experienced the investment failures that have hurt private and other government pension funds. Rather, the shortfall is due to changes in actuarial procedures, the methods used to predict how much money the fund will need to make promised payments, said executive director Eric Henry.

TMRS had considered the changes for at least two years. Mr. Henry, who took over in June, said they call for cities to pay in advance for retirees' future cost-of-living increases. The overall cost to cities hasn't changed, he said, but they are being asked to pay more of the total sooner.

Municipal employees in the system make contributions – 5 percent to 7 percent of their salaries – and their cities match or exceed that amount. In return, the employees are guaranteed monthly payments in retirement. The setup differs from that of a 401(k), in which benefits may be higher or lower, depending on how much and how successfully participants invest during their working years.

Older cities hit hardest

The impact of the changes on individual cities will depend on factors such as payroll growth, the size and age of the workforce, benefits and workers' length of service. Young, small, fast-growing cities are less likely to be hit hard; officials in Little Elm and The Colony, for example, expect minimal or no increases. Older, larger, more established suburbs – Garland, Carrollton, Farmers Branch and Duncanville, for example – anticipate big bills.

City Manager Kent Cagle predicted that Duncanville's payments could double. The additional $2 million a year would be the equivalent of adding 8 cents to the property tax rate, he said.

Farmers Branch faces an increase of about $1 million annually, the equivalent of 3 cents on its tax rate. But finance director Charles Cox said the city would do all it could to avoid raising taxes.

"We're trying to be as fair as possible to existing employees and retirees, but at the same time we have to be fiscally responsible," he said.

One alternative to raising taxes may be cutting future benefits.

"What this is forcing is a very difficult discussion between employers and employees about what are appropriate benefits and what are acceptable costs," Mr. Henry said. "Our role is to make sure that the benefits that have been promised are soundly funded."

The situation puts city councils, which must balance the needs of employees and taxpayers, in a difficult position, Carrollton City Manager Leonard Martin said.

"No one is pleased to find out the funding of your pension system is not what you've been told all these years," unless the change is in your favor, he said.

'Impossible situation'

Paul Nicholson, executive director of the Texas Pension Review Board, the state agency that oversees public retirement systems, called it "an impossible situation."

"I know the cities are unhappy. They should be," he said. "We do hear the anger and frustration. Many cities are beside themselves. But what if ... [TMRS] hadn't caught it? How much worse could it be?"

At the end of 2006, TMRS was 82 percent funded under the old actuarial method but just 74 percent funded under the new one. Pensions funded above 80 percent are generally considered financially sound.

Mr. Nicholson said TMRS has handled the shortfall in the best way possible – by openly communicating with its cities and members.

"Historically, should this have gone differently? Probably," he said. "But it has happened, and they are dealing with it."

Automatic renewal

The biggest burden will fall on cities that offer annuity increases, similar to cost-of-living adjustments, and updated service credits, which account for salary increases later in employees' careers. Both tend to increase payments to retirees.

Historically, cities renewed those benefits annually, and TMRS considered them optional. But about 15 years ago, TMRS gave cities the choice of having the benefits renew automatically until cities acted to turn them off.

More than two-thirds of cities adopted the automatic renewals, and 90 percent of TMRS members are covered by them. The benefits have become an expected part of retirement packages, Mr. Henry said.

"No one expected all the cities would keep them," he said. "It's clear now that they are what we call committed benefits, and we must look at the future liabilities."

Several city officials said TMRS, under its former leadership, sold the automatic renewals to them by saying they would add no cost.

"It wasn't until a number of years later that the actuaries looked at it and said, 'We really aren't doing this correctly,' " said Mr. Cox of Farmers Branch. "And boom – all of a sudden folks have to come up with all this money."

Said Mr. Martin of Carrollton: "Some of these changes probably would not have been done if we'd known how much it really cost."

Former TMRS executive director Gary W. Anderson, who retired in October 2006, said that public pension funds are generally in good shape and that he didn't want to be drawn into a debate about what should have happened when.

"Things happen that require you to make course adjustments along the way," he said. "Changes to actuarial assumptions occurred on more than one occasion over the years. That's an ongoing process, and that's something all pension funds have to do to remain financially viable."

Help isn't enough

TMRS will offer cities some help adjusting to the changes. The fund traditionally avoided stocks, which can have wide price swings, in favor of more stable bonds. But its board recently approved moving 12 percent of its holdings into equities, which fund managers expect will increase earnings and therefore reduce cities' contributions.

TMRS also plans to allow cities that face contribution increases of more than 0.5 percent to pay their additional liability over 30 years instead of the standard 25. Those cities can also phase in their higher payments over eight years.

City officials say those measures could help but probably wouldn't eliminate the need for changes to their pension plans. Many North Texas cities plan to hire consultants to review TMRS' figures and recommend solutions.

Retirement plan changes made by cities would not alter what employees have already earned or reduce payments received by current retirees. But if cities eliminate cost-of-living adjustments, their current retirees would no longer see annual increases.

"I think the employees and the retirees are going to be up in arms if the ... [cost-of-living adjustments] go away," said Duncanville council member Ken Weaver.

Mr. Martin said he wants Carrollton employees to have a solid retirement, but that it won't be the Mercedes of plans.

"They'll have a good solid Ford or Chevy that will fire up every day and serve them well, but it won't have the chrome knobs," he said. "Everybody's got to feel the pain. It's not just the taxpayers feeling the pain."

•Created by the Legislature in 1947, it began operating in 1948.

•It is underfunded by $1.7 billion, not because of bad investments but because forecasting changes indicate that the fund will need more money to make promised pension payments.

•It has 821 member cities, ranging from the tiny (Blue Ridge, in Collin County) to the large (San Antonio).

•The system covers more than 130,000 employees and retirees.

•Catching up on funding will require increased contributions from many cities. The impact will vary depending on factors such as workforce size and age, workers' length of service, and whether a city has opted for the equivalent of annual cost-of-living and other adjustments for retirees. Older, larger, more established cities are likely to be hit hardest.

•To hold down their costs, some cities may choose to reduce future retirees' benefits.

•The fund has invested mainly in bonds but recently decided to move 12 percent of assets – and possibly more later – to stocks. The hope is that the expected higher long-term return on stocks would reduce the burden on cities.

SOURCE: Texas Municipal Retirement System

Thursday, January 24, 2008

Freezing Rain Advisory in effect from 9 PM this evening to 12 PM CST Friday...

Realities of monoline rescue attempt sink in

By Aline van Duyn, Saskia Scholtes and Michael Mackenzie

Published: January 24 2008 22:08 | Last updated: January 24 2008 22:08

In spite of a welcome ray of hope in the form of regulatory efforts to push for a potential cash injection from banks, sentiment in the bond insurance industry was once again clouded on Thursday by a realisation that a solution might not be imminent.

Hopes that banks might cough up some cash to plug holes left in the balance sheets of bond insurers such as Ambac and MBIA, which miscalculated the risks associated with assets backed by subprime mortgages, pushed their shares up sharply on Wednesday.

On Thursday, however, the euphoria subsided somewhat, not least because there was still a lot of detail to be ironed out and it was far from clear how many banks would back such a scheme.

Ambac’s shares fell 6.8 per cent by midday in New York to $12.77 and MBIA’s shares fell 13.2 per cent to $14.42.

Eric Dinallo, the New York State Insurance Superintendent who held talks with banks on Wednesday and has urged them to come up with as much as $15bn of cash for the bond insurers, made it clear no plan was ready to be announced.

“Clearly it is important to resolve issues related to the bond insurers as soon as possible,” said Mr Dinallo in a statement on Thursday. “However, it must be understood that these are complicated issues involving a number of parties and any effective plan will take some time to finalise.”

As the behind-the-scenes discussions continued on Thursday, and as bond insurers also continued to talk to potential equity investors such as private equity firms, another bond insurer lost its coveted triple-A rating.

Security Capital Assurance ditched its plans to raise $2bn in fresh capital, leading Fitch Ratings to slash its triple-A credit rating to single-A. This is not likely to be the end of the story – Fitch warned it may cut the ratings further. SCA’s shares were down 26.7 per cent at $2.78.

“[This] reflects the significant uncertainty with respect to the company’s franchise, business model and strategic direction; uncertain capital markets; the company’s future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the [bond insurer] market overall,” Fitch said.

Fitch, which has taken a more negative stance on the ratings of bond insurers than rivals Moody’s Investors Service and Standard & Poor’s, was clearly not anticipating an imminent cash shot from banks. The downgrade of SCA follows a cut of Ambac’s rating to AA by Fitch last week.

The worry is that other rating agencies may follow suit, and that the widespread loss of triple-A credit ratings could lead to losses for banks and other financial institutions with exposure to some of the over $2,000bn of debt guaranteed by bond insurers or hedges in which they are counterparties.

A bail-out could reduce these concerns, which have been hanging over the entire equity market. News of the talks about a capital infusion led to a powerful rebound for US stocks on Wednesday after a five-day losing run and on Thursday helped power the biggest gains in European stocks for almost five years.

“It would remove a lot of counterparty concerns that are hurting the financials,” said Doug Peta, strategist at J&W Seligman.

Some analysts said it was too early to say whether such a plan to bail out the monolines was feasible.

“Scepticism about a bail-out lies along three lines: whether the banks can overcome competing interests, whether the banks can actually afford the $15bn, whether the $15bn is enough,” said TJ Marta, fixed income strategist at RBC Capital Markets. Some analysts speculated that the banks might be forced them to raise additional capital, such as from sovereign wealth funds, given the constraints on their capital.

The problems for bond insurers, of which MBIA and Ambac are the largest, stems from their move into structured finance. Historically, bond insurers have guaranteed payments on debt borrowed by municipalities in the US. By allowing lower-rated entities to essentially piggy-back on the insurers’ triple-A credit ratings, for a fee, municipalities were able to sell their bonds to investors who only wanted top ratings.

Structured finance, which includes guaranteeing payments on bonds backed by other debt, some of it in turn backed by assets such as mortgages, has turned out to be riskier than their traditional municipal business, with higher rates of default. The scale of losses associated with such collateralised debt obligations (CDOs) is still not clear, and estimates have continued to rise in recent weeks.

This has led to shortfalls in capital needed to preserve triple-A credit ratings, and a crisis in confidence which has made it made it hard for MBIA and Ambac to get new business.

In a back of the envelope calculation, Geraud Charpin, analyst at UBS, said that a downgrade from triple-A to double-A would lead to an extra $10bn of higher counterparty risk at banks. Mr Charpin based this on the assumption that the insurers guaranteed about $2,200bn of debt, of which probably around $1,000bn is non- municipal debt.

“Of course, the writedown would be heavier in case of a complete failure [which would void the guarantee and force a full mark-to-market pricing of the securities],” Mr Charpin said. “At this stage we are not sure who already made appropriate – preventive – writedowns and who did not. It is possible the overhang of additional writedowns in bank books was overestimated by the market.”

Working out answers to these questions is now key, but not easy. One of the problems is that the level of losses associated with mortgage-backed assets is not yet known. Many analysts are now factoring in worst-case scenarios in terms of losses – a few weeks ago many only ascribed a low chance of that being the case.

Nigel Myer, analyst at Dresdner, said investment banks might be prompted to back a bail-out if they believe losses could be worse than currently expected.

“If structured finance valuations can be maintained and that market kept open, the cost of injecting new capital may be less than the writedowns that would otherwise be incurred should a [bond insurer] fall below double-A, which we believe to be a critical threshold,” he said. “Could a sweetheart deal within the industry work – we think it could, but the odds are against it because the incentive for each player is to stay out while others take part.”

On a related note...over at CalculatedRisk:

Thursday, January 24, 2008

Egan Jones: Monolines Need $200 Billion in Capital

From The Times: Mortgage bond insurers 'need $200bn boost'

America's biggest mortgage bond insurers collectively need a $200 billion (£101 billion) capital injection if they are to maintain their key AAA credit ratings, a figure that dwarfs a plan by New York regulators to put together a capital infusion of up to $15 billion ... Sean Egan of Egan Jones Ratings Company, said.
The next few weeks should be very interesting for the monoline insurers.
Comments (53)

Winter Storm Watch

1247 PM CST THU JAN 24 2008


1247 PM CST THU JAN 24 2008





The Fed did not panic

Posted by Ambrose Evans-Pritchard on 23 Jan 2008 at 17:39

Let us scotch one foolish and dangerous notion already gaining acceptance. Those who accuse the Fed of acting out of panic in slashing rates 75 basis points on Wednesday do not grasp the seriousness of the situation.

The move was imperative to prevent a grave financial crisis spiralling into disaster. The threat of a melt-down in the $2.4 trillion market for US municipal bonds had suddenly moved from possible to imminent. No monetary authority could ignore such risks.

As skittish markets showed today, more will undoubtedly be required, and soon. But at least the US authorities are facing up to the predicament that they created in the first place by fixing the price of credit artificially low for year after year, and failing to regulate banks, derivatives, and structured credit with a minimum of common sense.

“Central banks have lost control,” said George Soros to the chastened elites in Davos today, so humbled from the hubris of last year.

Not yet, perhaps, but the banks have certainly come a little too close to losing control. Both the European Central Bank and the Bank of England may yet do so, trapped by their inflation orthodoxies and mandates.

The trigger for the Fed action was the move on Friday by Fitch to strip the US monoline insurer AMBAC of its `AAA’ rating, with the mounting risk that the rating agencies would soon downgrade its bigger peer, MBIA.

Why does it matter? Because they have guaranteed a large part of that $2.4 trillion bond market.

If they lose their AAA ratings, all the bonds that they have insured will lose their ratings pari passu. This would force a large number of pension funds and institutions under strict investment rules to sell their bonds, setting off a cascade of sales with no obvious buyers in sight.

The effect could easily have been – and may still be – a second lethal leg to the credit crisis, with vast losses. This could all too quickly lead to a run of bank failures.

Do not be fooled by the fall in three-month dollar LIBOR rates. These had not fully returned to normal last week. They reflected the drastic change in expected interest rates, as priced by the futures markets.

The contracts were already pricing in huge rate cuts within three months. Adjusted for this, LIBOR had not really eased.

No doubt the Fed had a mix of fears. The “financial accelerator” was moving into a very ugly mode. The ABX index measuring subprime debt – and used as a benchmark for bank write-offs – had begun to plunge again, nearing 13 cents on the dollar for some BBB debt and 26 cents for A grade.

Even the AAAs were down as low as 60 cents for some vintages. S&P last week raised the expected default level on 2006 subprime debt from 14pc to 19pc. Citicorps said it was raising loss reserves on auto debt and credit cards. The noose was tightening fast.

If there was any doubt about the gravity of this crisis, it ended on Monday when the entire universe of global equities went into free-fall, with German stocks off 8pc and Japan’s Nikkei suffering the worst two-day fall in seventeen years.

The Fed action is not to everybody’s taste. Stephen Roach, the head of Morgan Stanley Asia, was blue in the face from righteous wrath in Davos today.

“Policy-makers are reaching back to the same play book that created this mess in the first place. They’re saying we are there to clean up after bubbles burst first rather than to prevent them. It’s a dangerous, reckless and irresponsible way to run the world’s largest economy.’’

“We have a market-friendly Fed injecting a lot of liquidity in the system which will set us up for another bubble economy. Excessive monetary accommodation just takes us from bubble to bubble to bubble.”

I have much sympathy for this view. The Fed has been “asymmetric” for much of the last fifteen years, standing back as asset prices overheat but then interviewing to prevent a proper liquidation to purge the excesses. Indeed, I would go futher, blaming them for actively stoking those bubbles in the first place.

But the time for tough-love is when the economy is humming along a little too fast, not when it is in the midst of a grave crisis. Calvinist monetary discipline at this point would wreak havoc, and possibly endanger the political stability of several countries (in Europe, if not in the US).

The best we can hope to do is right the ship slowly, and turn a blind eye to moral hazard for now. It is not pretty. It means a lot of pin-stripe villains and leverage louts in the City will escape their condign punishment.

But as Fed governor Frederic Mishkin put it recently, we cannot chastise whole societies to keep the moralists content.

Yes the banks will soon be able to play the carry trade again, borrowing short to lend long. It cleanses the balance sheets.

Money rains like manna from Heaven. Profits loom again and the new cycle starts.

That will be the moment for society to settle its scores with the credit clowns. Not now.

Wednesday, January 23, 2008

Kolkata, January 22 About 2,324 cases of people suffering from fever have been reported from the Birbhum district — Ground Zero of the bird flu outbreak in the state — in the last five days.

“The West Bengal Government is failing to understand the gravity of the situation,” said Union Minister of State for Health and Family Welfare P Lakshmi, during a visit to Birbhum on Tuesday.

Lakshmi, who is currently in the state to get a first hand assessment of the culling operations, did not find adequate health infrastructure to combat the bird flu threat. She criticised the state government for acting irresponsibly and lacking seriousness to fight the disease.

“There is no infrastructure, not even qualified doctors. We have sent pills and gear but the required equipment is not in place till date. They do not understand that this is an emergency situation and they should be prepared for it,” she added.

She blamed the state Animal Resource Development department for the spread of the virus to new areas, as it did not carry out culling operations in a swift manner.

The state government, however, maintained that there has been no case of H5N1 virus infecting humans, and tried to play down its own figures of fever cases in Birbhum.

“There is no need to panic. We do not have any reports of humans being infected. Therefore, a few hundred fever cases means nothing,” said Sanchita Bakshi, state director health services.

According to the status report, as many as 707 fever cases were reported from Birbhum district on January 18.

A day later and another 304 people were added to the list.

For January 20, which happened to be a Sunday, the report does not give any figures.

On January 21, 707 more cases were added to the existing figures and today an additional 613 cases of fever were recorded.

The report further stated that that six central rapid response teams are assisting the state government in culling operations.

Five human blood samples taken from South Dinajpur district have tested negative, the report added.

Reprinted from Cayman Net News

Letter: Spread of avian flu by drinking water
Published on Tuesday, January 22, 2008

Dear Sir,

There is a widespread link between avian flu and water, e.g. in Egypt to the Nile delta or Indonesia to residential districts of less prosperous humans with backyard flocks and without central water supply as in Vietnam.

Avian flu infections may increase in consequence to increase of virus circulation. Transmission of avian flu by direct contact to infected poultry is an unproved assumption from the WHO. Infected poultry can everywhere contaminate the drinking water. All humans have contact to drinking water. Special in cases of small water supplies this pathway can explain small clusters in households.

In hot climates and the tropics flood-related influenza is typical after extreme weather and natural after floods.

The virulence of the influenza virus depends on temperature and time. If young and fresh H5N1 contaminated water from low local wells, cisterns, tanks, rain barrels or rice fields is used for water supply the water temperature for infection may be higher (at 24°C the virulence of influenza viruses amount to 2 days) as in temperate climates (for “older” water from central water supplies cold water is decisive to virulence of viruses: at 7°C the virulence of influenza viruses amount to 14 days).

Human to human and contact transmission of influenza occur - but are overvalued immense. In the course of influenza epidemics in Germany, recognized clusters are rare, accounting for just 9 percent of cases e.g. in the 2005 season. In temperate climates the lethal H5N1 virus will be transferred to humans via cold drinking water, as with the birds in February and March 2006, strong seasonal at the time when drinking water has its temperature minimum.

The performance to eliminate viruses from the drinking water processing plants regularly does not meet the requirements of the WHO and the USA/USEPA. Conventional disinfection procedures are poor, because microorganisms in the water are not in suspension, but embedded in particles. Even ground water used for drinking water is not free from viruses.

In temperate climates strong seasonal waterborne infections like the norovirus, rotavirus, salmonella, campylobacter and - differing from the usual dogma - influenza are mainly triggered by drinking water, dependent on the water’s temperature (in Germany it is at a minimum in February and March and at a maximum in August). There is no evidence that influenza primarily is transmitted by saliva droplets.

In temperate climates the strong interdependence between influenza infections and environmental temperatures can’t be explained by the primary biotic transmission by saliva droplets from human to human at temperatures of 37.5°C. There must be an abiotic vehicle like cold drinking water. There is no other appropriate abiotic vehicle.

In Germany about 98 percent of inhabitants have a central public water supply with older and better protected water. Therefore, in Germany cold water is decisive to the virulence of viruses.

Dipl.-Ing. Wilfried Soddemann
Free Science Journalist
Infrastructure improvements are on the way! This is a good thing!

These improvements will go a long way towards improving the drainage problems we sometimes face during heavy rains...

Monday, January 21, 2008

True to my contrarian point of view the next few days may get testy...

World economic situation serious: IMF


ALL developed countries are suffering from the slowdown in the US putting the world economy in a serious situation, IMF Managing Director Dominique Strauss-Kahn said overnight.

His comments came after world stock markets fell sharply and demand for safe-haven bonds and currencies soared on fears a slowdown in the US economy would be worse than expected.
”The situation is serious,'' he said. ”All countries in the world are suffering from the slowdown in growth in the United States, all countries in the developed world.''

He warned that emerging market growth could also be dragged down by the outlook in the US.

”Fortunately, emerging markets continue to have strong enough growth and will continue to drive global growth. Nevertheless, it is not impossible that it may have an effect even on emerging market countries, that growth is weaker than forecast.''

US markets were closed on Monday for a holiday, but US stock index futures were down sharply, suggesting investors were pessimistic about the outlook for US stocks.

Investors in Asia and Europe were carrying through from last week's concern on Wall Street that a $US150 billion fiscal stimulus proposed by President George W. Bush would not be enough to stop the US economy falling into recession.

”It seems financial markets did not appreciate the package put forward by President Bush,'' Mr Strauss-Kahn said.

”We see that the markets did not react positively to the proposals that were made.

”It shows that in the United States the debate is becoming quite pointed on the risks and therefore on the need to try to ward them off by monetary policy, but not only that,'' he said.

This is not the time to panic, but surely is a time to be vigilant! You can start here

Thursday, January 17, 2008

We have been playing with film again some...
From a trip to Colorado a few years back:

Castlewood Canyon State Park

Wednesday, January 16, 2008

Somber Fed Says Economy Has Lost Punch
Wednesday January 16, 5:33 pm ET
By Jeannine Aversa, AP Economics Writer

Federal Reserve Says US Economy Has Lost Momentum; Recession Fears Persist
WASHINGTON (AP) -- Retailers, home builders and many manufacturers should brace for even more rough times ahead, a somber Federal Reserve suggested Wednesday amid growing fears that the U.S. might be sliding into recession.

The Fed's snapshot of business conditions showed a national economy losing momentum heading into the new year and a future riddled with uncertainty. The persistent housing slump and harder-to-get credit are making people and businesses ever more cautious, it said.

Separately on Wednesday, more big banks reported losses and said people were having trouble making payments for everything from credit cards to cars. Stocks were mostly down for the day, the Dow Jones industrial average declining 34.95 points, or 0.28 percent.

The Fed report was the unwelcome icing on a recent batch of economic indicators -- ranging from a plunge in retail sales to a big jump in unemployment -- raising concern that the country is heading for its first recession since 2001.

At the beginning of last year, many economists put the chance of a recession at less than 1-in-3; now an increasing number say 50-50 or even worse. Goldman Sachs, the biggest investment bank on Wall Street, thinks a recession is inevitable this year.

The Fed report said the economy did grow during the survey period -- from the middle of November through December -- but more slowly than during the late fall. Credit problems intensified in December as did troubles in the housing market. That threw Wall Street into new turbulence.

The economy probably grew at a feeble pace of about 1.5 percent or less in the final three months of last year and will stay weak in the first quarter of this year as consumers -- major shapers of the nation's economic health -- tighten their belts.

After retailers suffered their worst sales season in five years in 2007, "the outlook for 2008 among retail merchants was cautious," the Fed said in its report. And the outlook for housing remains gloomy: "weak during the first part of 2008."

Fallout from a meltdown in risky "subprime" mortgages continued to sock financial institutions. JPMorgan Chase & Co. and Wells Fargo Inc. both reported Wednesday that their earnings fell -- raising fresh fears of a widespread lending crisis.

Federal Reserve Chairman Ben Bernanke, in a speech last week, pledged to aggressively cut a key interest rate as needed to try to prevent all these problems from plunging the economy into a major recession. That may well mean a bold half-point cut at the end of a two-day meeting on Jan. 30. The Fed started cutting rates in September, but some critics on Wall Street and elsewhere say Bernanke should have acted sooner and more forcefully.

"Clearly there is a high level of caution," said Ken Mayland, president of ClearView Economics. "Everyone's guard is up to protect and insulate one's businesses from the high degree of sluggishness that is expected to prevail in the months ahead."

With voters expressing angst over the economy, the White House and the Democrat-controlled Congress are exploring ways -- including the possibility of temporary tax rebates -- to get money quickly into the hands of consumers and help stimulate spending. Presidential contenders also are floating their own ideas for rescue packages.

The chairman of Congress' Joint Economic Committee said he had spoken Monday with Bernanke and found him "generally supportive" of lawmakers and Bush approving a stimulus bill.

Bernanke, who hasn't supported any specific plan, testifies before the House Budget Committee Thursday.

The recent leap in the nation's unemployment rate, from 4.7 percent in November to 5 percent in December, rang one of the loudest warning bells. It raised concerns that consumers would clamp down, sending the economy into a tailspin.

On Wednesday, the Fed observed that "holiday sales were generally disappointing" and pointed to "further weakness in auto sales."

A day earlier, the government reported that shoppers cut back on their spending by 0.4 percent in December, wrapping up the weakest year for retailers since 2002.

Adding to worry about how consumers will hold up: Consumer confidence, as measured by the RBC Cash Index, fell in January to its lowest point in figures dating back to 2002.

The housing picture remains bleak -- "quite weak" in all Fed regions, the survey said. Sales continued to be sluggish, and inventories of unsold homes "persisted at historically high levels."

Manufacturing activity varied around the country, but there was one common thread: Factories reported "pronounced weakness" in housing-related industries as well as the automobile business. The Fed, in a separate report Wednesday, said production by big industry was flat in December, fresh evidence of an economic slowdown.

Mayland was more graphic. "Manufacturers have gotten cold feet," he said.

Businesses are having to cope with high costs for energy and food, too. That's squeezing profit margins for companies and boosting prices to some customers.

Consumer prices moderated in December, rising by 0.3 percent, the Labor Department reported Wednesday. For all of 2007, prices jumped 4.1 percent, the biggest increase in 17 years.

Monday, January 14, 2008

America is in for major changes coming down the pike. Get ready.


January 14, 2008

[by James Kunstler]

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 s#!tty food that will kill them, and driving more miles than circumstances will allow.

Here's what we better start doing.

Stop all highway-building altogether. Instead, direct public money into repairing railroad rights-of-way. Put together public-private partnerships for running passenger rail between American cities and towns in between. If Amtrak is unacceptable, get rid of it and set up a new management system. At the same time, begin planning comprehensive regional light-rail and streetcar operations.End subsidies to agribusiness and instead direct dollar support to small-scale farmers, using the existing regional networks of organic farming associations to target the aid. (This includes ending subsidies for the ethanol program.)

[i]Begin planning and construction of waterfront and harbor facilities for commerce: piers, warehouses, ship-and-boatyards, and accommodations for sailors. This is especially important along the Ohio-Mississippi system and the Great Lakes.[/i]In cities and towns, change regulations that mandate the accommodation of cars. Direct all new development to the finest grain, scaled to walkability.

This essentially means making the individual building lot the basic increment of redevelopment, not multi-acre "projects." Get rid of any parking requirements for property development. Institute "locational taxation" based on proximity to the center of town and not on the size, character, or putative value of the building itself. Put in effect a ban on buildings in excess of seven stories. Begin planning for district or neighborhood heating installations and solar, wind, and hydro-electric generation wherever possible on a small-scale network basis.

We'd better begin a public debate about whether it is feasible or desirable to construct any new nuclear power plants. If there are good reasons to go forward with nuclear, and a consensus about the risks and benefits, we need to establish it quickly. There may be no other way to keep the lights on in America after 2020.

We need to prepare for the end of the global economic relations that have characterized the final blow-off of the cheap energy era. The world is about to become wider again as nations get desperate over energy resources. This desperation is certain to generate conflict. We'll have to make things in this country again, or we won't have the most rudimentary household products.

We'd better prepare psychologically to downscale all institutions, including government, schools and colleges, corporations, and hospitals. All the centralizing tendencies and gigantification of the past half-century will have to be reversed. Government will be starved for revenue and impotent at the higher scale. The centralized high schools all over the nation will prove to be our most frustrating mis-investment. We will probably have to replace them with some form of home-schooling that is allowed to aggregate into neighborhood units. A lot of colleges, public and private, will fail as higher ed ceases to be a "consumer" activity. Corporations scaled to operate globally are not going to make it. This includes probably all national chain "big box" operations. It will have to be replaced by small local and regional business. We'll have to reopen many of the small town hospitals that were shuttered in recent years, and open many new local clinic-style health-care operations as part of the greater reform of American medicine.

Take a time-out from legal immigration and get serious about enforcing the laws about illegal immigration. Stop lying to ourselves and stop using semantic ruses like calling illegal immigrants "undocumented."

Prepare psychologically for the destruction of a lot of fictitious "wealth" -- and allow instruments and institutions based on fictitious wealth to fail, instead of attempting to keep them propped up on credit life-support. Like any other thing in our national life, finance has to return to a scale that is consistent with our circumstances -- i.e., what reality will allow. That process is underway, anyway, whether the public is prepared for it or not. We will soon hear the sound of banks crashing all over the place. Get out of their way, if you can.

Prepare psychologically for a sociopolitical climate of anger, grievance, and resentment. A lot of individual citizens will find themselves short of resources in the years ahead. They will be very ticked off and seek to scapegoat and punish others. The United States is one of the few nations on earth that did not undergo a sociopolitical convulsion in the past hundred years. But despite what we tell ourselves about our specialness, we're not immune to the forces that have driven other societies to extremes. The rise of the Nazis, the Soviet terror, the "cultural revolution," the holocausts and genocides -- these are all things that can happen to any people driven to desperation...
We have prints hanging!

One Arts Plaza - - Resource One
1722 Routh Dallas, Texas75201
Exhibition in Lobby

Friday, January 11, 2008

US unveils new driver's license rules

By DEVLIN BARRETT, Associated Press Writer 43 minutes ago

Americans born after Dec. 1, 1964, will have to get more secure driver's licenses in the next six years under ambitious post-9/11 security rules to be unveiled Friday by federal officials.

The Homeland Security Department has spent years crafting the final regulations for the REAL ID Act, a law designed to make it harder for terrorists, illegal immigrants and con artists to get government-issued identification. The effort once envisioned to take effect in 2008 has been pushed back in the hopes of winning over skeptical state officials.

Even with more time, more federal help and technical advances, REAL ID still faces stiff opposition from civil liberties groups.

To address some of those concerns, the government now plans to phase in a secure ID initiative that Congress passed into law in 2005. Now, DHS plans a key deadline in 2011 — when federal authorities hope all states will be in compliance — and then further measures to be enacted three years later, according to congressional staffers who spoke to The Associated Press on condition of anonymity because an announcement had not yet been made. DHS officials briefed legislative aides on the details late Thursday.

Without discussing details, Homeland Security Secretary Michael Chertoff promoted the final rules for REAL ID during a meeting Thursday with an advisory council.

"We worked very closely with the states in terms of developing a plan that I think will be inexpensive, reasonable to implement and produce the results," he said. "This is a win-win. As long as people use driver's licenses to identify themselves for whatever reason there's no reason for those licenses to be easily counterfeited or tampered with."

In order to make the plan more appealing to cost-conscious states, federal authorities drastically reduced the expected cost from $14.6 billion to $3.9 billion, a 73 percent decline, according to Homeland Security officials familiar with the plan.

The American Civil Liberties Union has fiercely objected to the effort, particularly the sharing of personal data among government agencies. The DHS and other officials say the only way to make sure an ID is safe is to check it against secure government data; critics like the ACLU say that creates a system that is more likely to be infiltrated and have its personal data pilfered.

In its written objection to the law, the ACLU claims REAL ID amounts to the "first-ever national identity card system," which "would irreparably damage the fabric of American life."

The Sept. 11 attacks were the main motivation for the changes.

The hijacker-pilot who flew into the Pentagon, Hani Hanjour, had a total of four driver's licenses and ID cards from three states. The DHS, which was created in response to the attacks, has created a slogan for REAL ID: "One driver, one license."

By 2014, anyone seeking to board an airplane or enter a federal building would have to present a REAL ID-compliant driver's license, with the notable exception of those more than 50 years old, Homeland Security officials said.

The over-50 exemption was created to give states more time to get everyone new licenses, and officials say the risk of someone in that age group being a terrorist, illegal immigrant or con artist is much less. By 2017, even those over 50 must have a REAL ID-compliant card to board a plane.

Among other details of the REAL ID plan:

_The traditional driver's license photograph would be taken at the beginning of the application instead of the end so that should someone be rejected for failure to prove identity and citizenship, the applicant's photo would be kept on file and checked in the future if that person attempted to con the system again.

_The cards will have three layers of security measures but will not contain microchips as some had expected. States will be able to choose from a menu which security measures they will put in their cards.

Over the next year, the government expects all states to begin checking both the Social Security numbers and immigration status of license applicants.

Most states currently check Social Security numbers and about half check immigration status. Some, like New York, Virginia, North Carolina and California, already have implemented many of the security measures envisioned in REAL ID. In California, for example, officials expect the only major change to adopt the first phase would be to take the photograph at the beginning of the application process instead of the end.

After the Social Security and immigration status checks become nationwide practice, officials plan to move on to more expansive security checks, including state DMV offices checking with the State Department to verify those applicants who use passports to get a driver's license, verifying birth certificates and checking with other states to ensure an applicant doesn't have more than one license.

A handful of states have already signed written agreements indicating plans to comply with REAL ID. Seventeen others, though, have passed legislation or resolutions objecting to it, often based on concerns about the billions of dollars such extra security is expected to cost.


Associated Press writer Eileen Sullivan contributed to this report.

Thursday, January 10, 2008

There appears to be no real slowdown in construction in Dallas...we counted no less than four new towers going up while in town 2nite! Staff Report
Dec 31st, 2007 8:36pm

Beginning Tuesday, the City of McKinney is cracking down on smokers.

New smoking regulations in McKinney go into effect Jan. 1. The ordinance adopted by McKinney City Council in September 2007 bans smoking in any public places in the city starting New Year’s Day.

However, existing businesses with a valid certificate of occupancy dated prior to Jan. 1, 2008, have until Sept. 4, 2008, to comply with the ordinance. Smoking will be prohibited in all enclosed places of employment within the city on Sept. 4, including retail stores, offices, restaurants, public transit, museums, theaters, public parks, hospitals and common use areas in apartment and other buildings.

“Anyone who chooses to smoke can still do so on their personal property, among other select places. Smoking is also allowed in the parking lots of city parks and on public sidewalks more than 25 feet from a door or window. We’re really focused on public health and maintaining the quality of life that helps make McKinney unique,” said Executive Director of Development Services John Kessel.

McKinney’s ordinance allows smoking in private residences, including porch and yard areas, personal automobiles, retail tobacco stores and designated smoking rooms of country clubs. Smoking is also allowed in outdoor places of employment, public sidewalks 25 feet from doors and windows, and parking lots within public parks.

“The last time the city had updated any smoking ordinance was about 15 years ago, and the population has more than quadrupled since then,” Kessel said. “We needed a new ordinance that reflects the changes since our last updated ordinance and better protects the health of our citizens.

In addition, not more than 10 percent of hotel and motel rooms can be designated smoking rooms. All smoking rooms must be on the same floor, adjacent to the other smoking rooms and require separate ventilation systems.

Any person or business violating the ordinance will be punishable by a fine of up to $500. For more information about McKinney’s smoking ordinance, visit

Wolf at the Door

TALK ABOUT GREAT ENTRANCES! For investors, anyway, they don't make them any better than the memorable one staged by that precocious calendrical infant, 2008. That is, if you're an investor who happens to have a portfolio chock full of gold and overflowing with oil.

The precious metal never glistened more brightly than it did last week as it soared past the all-time peak of $850 an ounce set nearly four decades ago. Not be outdone, crude made hydrocarbonic history of its own by topping $100 a barrel, an all-time record high and, keep in mind, please, we're not talking any old all-time, we're talking the real thing: geologic all-time.

Now, we're not so cloistered or insensitive as to fail to recognize that an absolutely humongous number of investors to their sorrow -- including not a few of those extraordinarily bright chaps and chicks who subscribe to this august magazine -- own neither a speck of gold nor a thimble of oil.

In that melancholy event, obviously 2008 did not begin on an upbeat note. Quite the contrary. But, hey, don't lose heart -- the year still has 365 other days, at least two of which, even a timid soul like us would be brave enough to wager, will witness a rise in stock prices.

Actually, we can understand why folks, especially those of a chronically cheerful disposition, shy away from gold. It is, after all, the nearest thing we have to a Dow Jones Average of Global Misery. We are a nation of optimists, and a real optimist would just as soon drink a quart of sour milk as own something that keeps reminding him that everything isn't hunky-dory. Then, too, for a lot of people, the mere mention of gold stirs up painful pre-fluoride childhood memories of having cavities filled by drill-happy dentists.

Gold's perverse proclivity to feed on bad news was much in evidence as the gathering woes of the economy at large (think housing collapse and the gaping black hole in our accounts with the rest of the world) and the financial sector in particular (the mother of modern credit crunches) provided the spark for the precious metal's combustible performance that sent it soaring to unprecedented heights.

And it's not an accident that bullion has battened rich on the sickening downward spiral of the dollar, which, easy to forget, was until not all that long ago the most revered currency on the face of the planet. The remorseless shrinking of the greenback's value has given rise to a clutch of scary scenarios, from an inflationary chain reaction to a kind of global Olympics in which nations fiercely compete in a race to devalue their own coin that is destined to end with every participant (except Zimbabwe) a loser.

Oil eased off its peak toward week's end, as buyers took a breather and concerns arose that the awful jobs report for December represented a harbinger of recession that would curb demand for all that crucial stuff like gasoline and heating oil that's squeezed out of a barrel of crude. And no doubt it will.

But, as we've said before (like George Bernard Shaw, we quote ourselves to spice our conversation), should oil suffer a slide, it'll probably be only to $80 a barrel, $75 at worst, not the $30-$40 the petro bears fantasize. And looking out a piece, prospects get increasingly bleak, not least because OPEC seems to have gotten its evil act together and China's inexorably growing thirst for oil shows no sign of being slaked.

Matt Simmons, boss man at Houston-based Simmons & Co., which covers energy the way Willie Mays used to cover center field, put out one of his rare personal reports on oil, and it doesn't make for pleasant reading. Matt lays out the case quite persuasively that global production peaked in 2005 at 74,298,000 barrels a day and is now a couple of million below that, while daily consumption has continued to climb and is rapidly approaching 88 million barrels. To fill the gap, he reports, various sources are being tapped, all of which share one quality -- they're not sustainable.

That suggests to him, among many more horrific things, that we'd better get used to $100-a-barrel oil, which he reassuringly reflects "is the equivalent of only 15 cents a cup." Somehow, that doesn't make us feel any better, even if it isn't "social chaos and widespread geopolitical conflict or war," possibilities he also alludes to if we don't get off our butts and do something about finding new energy sources, seriously pushing conservation and weaning ourselves from "a chronic addiction" to fossil fuels.

IT CAN GET AWFUL COLD in a terrific hurry in Iowa. We know because we spent a fair slug of time in the state way back when and grew quite fond of it and its homespun folks. We have a feeling that Hillary Clinton and Mitt Romney also have concluded, but more than a little ruefully, that Iowa gets awful cold in a hurry. Both spread plenty of the long green around the state and both enjoyed early success wooing the voters. Only to get blindsided by a pair of political parvenus.

The geographically challenged Mr. Huckabee, whose strongest card seems to be his amiability, demonstrated to the apparent satisfaction of the state's Republicans that he was a regular guy by donning some hunting gear and shooting at flocks of quizzical birds. But, in fact, our Iowa sources tell us, he was really after bigger game: He was keen on picking off some Pakistani terrorists who, he implied, have been sneaking into Iowa by the thousands to do their mischief.

For Mr. Huckabee seems to have confused Pakistan with Mexico in terms of their respective locations and also seems to believe that Iowa borders on Mexico/Pakistan. We must admit we never did a thorough survey of the state in the considerable time we spent in such places as Red Oak and Iowa City. So it could be he's discovered a hitherto unknown sliver of the state snakes its way undetected to the nation's southern border. We're quite eager to see what comparable revelations Mr. Huckabee's journeys through New Hampshire yield.

The Democrats, for their part, spurned Hillary Clinton and her new-found smile, which we can authoritatively report, despite all appearance, was not surgically affixed to her face, in favor of Barack Obama. Rubbing it in a bit, the Iowa voters or whatever you call participants in a caucus (caucusees? caucusers?) relegated her to third place behind John Edwards and Mr. Obama. Whatever the effect on her political fortunes, she manifestly isn't invincible, which seemed to be her biggest claim for the nomination.

Mr. Obama is long on oratory and short on any concrete qualifications for the presidency. But as recent history has mordantly demonstrated, that might be just the ticket for election. His main pitch is that he's not an old Washington hand. Which raises two questions: If he thinks Washington is such an evil place why is he panting to get back there? Or, at the very least, why doesn't he propose that the nation's capital be relocated to a city at some remove from D.C., say Honolulu?

All the pundits agree that Iowa is not the end of the road to the nomination. We find that a most depressing thought.

WALL STREET, NOT SURPRISINGLY, didn't give a fig as to who won or lost in Iowa. But that failed to keep it from getting deeply depressed. And who can blame the investing masses? After duly celebrating the arrival of the new year, they woke up only to find the wolf at the door.

For many months now, there had been plenty of warning that recession was lurking out there in the tall grass. But it went pretty much unheeded, when not scorned. However, even the most ebullient bull began to breathe heavily as 2008 dawned, accompanied by a swell of evidence that the economy was tanking, led by manufacturing, which was supposed be enjoying a boomlet thanks to the debased dollar and demand from abroad, and retailing, which presumably could always count, in fair weather or foul, on consumers to consume. Alas, it ain't necessarily so.

Came Friday and with it the crusher in the form of an exceptionally ugly report from the Bureau of Labor Statistics on jobs -- or more precisely, the lack of them -- in December. As Philippa Dunne and Doug Henwood of the Liscio Report neatly summed it up, the payroll number was quite weak and its household counterpart even weaker.

All told, supposedly 18,000 jobs were added. We might note right off the bat that there were no fewer than 66,000 mythical jobs added, courtesy of the infamous birth/death adjustment; save for that curious confection, the total would have gone considerably negative. That handy adjustment, incidentally, was responsible for 89% of all the reported payroll additions in 2007.

Unemployment jumped to 5%, from 4.7%. And the big losers were widely dispersed, paced by construction, where 49,000 jobs vanished last month and manufacturing, which lost 31,000. Apart from health-care and restaurants and bars, there were virtually no conspicuous gainers. As Philippa and Doug quip: "Our new economic model: eat, drink and check into the hospital."

They anticipate "some significant negative employment numbers in the coming months" and point out that "the unemployment rate is already above what the Fed had projected for the next three years." We imagine the Fed will do what it always does when it gets agitated -- cut rates. And we suspect that'll have zilch lasting effect on the economy and the stock market.