Financial Armageddon

A (Very) Few Bright Spots

At Financial Armageddon, I focus on telling it like it is, so naturally that means most of what I have to say these days leans towards the negative. That said, it's not all gloom-and-doom. Below are snippets from recent news reports that highlight a few bright spots in an economy that still faces a heap of trouble:

Generic and second-tier brands, and stay-at-home alternatives:

"Dollar Stores Enjoying Boom Times" (Loudoun Times-Mirror)

The worse the economy, the better for retailers of deeply discounted items. Partly fueled by higher-income shoppers "trading down," the popularity of dollar stores has risen sharply since the current recession began in December 2007.

"RI Coffee Roasters Thrive in Recession"  (Associated Press)

While many Rhode Island businesses struggle during the recession, the state's coffee roasters are percolating.

The roasters, who turn out small batches of gourmet coffee beans, tell The Providence Journal that they are seeing an increase in business these days.

Ken Marot of Taylor's Landing, a coffee roasting house and cafe in West Kingston, says he's been pleasantly surprised to see his customer base grow.

Bob Mastin at Custom House Coffee in Middletown says he just added a second roaster to his cafe and wholesale business.

Mastin says even when people are watching their money, they want a quality cup of coffee.

Rhode Island roasters attribute their resilience to other factors, such as people wanting to save money by brewing their morning java at home.

"Private Labels Booming in These Tough Times" (Telegraph-Journal)

Penny-pinching shoppers have prompted a boost for discount goods businesses and cuts into sales of popular brands.

For Dieppe-based Irving Consumer Products Inc. this has meant increased demand causing record production levels.

The privately-held company is seeing increased sales in paper tissue, towel, diaper and private label brands it makes.

"Naturally in this economic climate the consumer looking at options starts looking at trading down," says company vice-president of sales Bob Tinnish.

The company's growth is strongest south of the border where there is more potential for store labels to gain market share from big brand names.

"Luxury Wine Market Reels from Downturn" (Wall Street Journal)

Many of America's high-end wineries are reeling from the economic downturn, as even wealthy drinkers slash spending on fine wines.

The slump comes as Americans continue to drink more wine overall. Recession-weary consumers, however, are buying more mid- and low-priced wines, causing a sharp falloff in sales of wines priced at $25 a bottle and higher.

Matchmaking and dating:

"Love Sites Booming in Tough Economy" (WCBD)

Times are tough, but you still have to live, laugh, and sometimes fall in love, right?

That philosophy is causing quite a boom in the matchmaking business.

Christie Nightengale is the owner of Premier Match in Philadelphia.  She thought when the economy started tanking, her business would too.

“We never saw a drop.  If anything we saw an increase.  We closed the year with record numbers.  The best we’ve ever had,“ she says.

"Downturn Dating: Hearts Flutter as Markets Stutter" (Associated Press)

Credit the recession for "staycations" and bringing us more game-night parties at home. But also give it a shout for spurring more first dates.

Economic woes, it seems, unleash something practically primal in many of us who find ourselves without a partner: a hard-wired desire for companionship.

Some singles are now hunting for dates with the same fervor others are showing hunting for jobs. On matchmaking Web site eHarmony.com, membership is up 20 percent despite monthly fees of up to $60, and activity has soared 50 percent since September at OkCupid.com.

It's not just the frequency of our dates that's changing — it's also the people we're choosing to spend time with.

"They're looking for something that's genuine in a world that isn't very secure," said Bathsheba Birman, co-founder of the Chicago dating event Nerds at Heart. "With headlines full of why you can't trust established institutions that you thought you could ... people are re-examining their own values."

Attendance at the monthly gatherings, where mostly young professionals pay $25 for a drink and a chance to spend the evening clustered around trivia and board games — was more than double expectations in April and has stayed high since.

"Misery loves company, especially if the prospect of romance and or sex looms large," said Craig Kinsley, a neurologist at the University of Richmond. "Really, dating, rather than being considered as expensive, can be a thrilling and inexpensive distraction. Like getting drunk without the wallet-hit or hangover."

Arts and entertainment on the cheap:

"Business Is Booming for Artists at Summer Festivals" (KVAL)

EUGENE, Ore- Several artists at the festival said they don’t have stores and sell most of their work online. But during the summer many travel from city to city selling their artwork at festivals.

They said traveling to festivals gives them an opportunity to showcase there talent with others.

“The opportunity to come out and interact with people, show them my work and get feedback helps inform the next piece. It lets me know what I’d like to create next,” said Jason Johnston.

Johnston does bronze cast figurative work. His sculptures feature sports figures and represent the human condition. He said business has been good for him during the recession.

“Last weekend I was in Lake Oswego just outside of Portland and as far as I could tell there is no recession in Lake Oswego. All the artists were doing great,” said Johnston.

"Gaming and Used Sales Boom During Recession, Says Nielsen" (PC World)

Time spent playing games and used game purchases are up, and in fact way up over the past several months, says the Nielsen Company. Citing a new study that gauged game playing and purchasing habits during the recent recession, the media audience tracker said the number of hours gamers claim to be engaged is at an "all time high," while the purchase of used games and video game rental service have both increased to "record-breaking" levels since tracking began in 2006. The conclusion? When it comes to entertainment, consumers are opting to get more from, well, more.

"Recession's Upside: Family Game Night" (Pittsburgh Post-Gazette)

Many parents are cutting spending on vacations and lavish toys, but spending more on board games for home

At Katie Pugh's house, the kids don't ask to play Guitar Hero or watch yet another princess movie after the family eats dinner.

Instead, her 6-year-old son, Jake, and 3-year-old daughter, Josie, are thrilled to play a board game before bedtime.

"They're way into it," Ms. Pugh said. "They ask for it every day."

So the Pughs break out Chutes and Ladders, Hullabaloo or Guess Who? at least three nights a week -- and sometimes during the day, too, said Ms. Pugh, a third-grade teacher in the Steel Valley School District. During her summer days at home in Munhall, a board game can be an easy alternative to messy arts and crafts projects.

"It's a low-energy, quick-cleanup, fun way to spend your time together that allows you to talk through things and get some educational value out of it," said Ms. Pugh, who started playing Cranium Hullabaloo, a color- and shape-classification game, with her son when he was about 18 months old.

Like the Pughs, many families with young children have begun embracing what was a tradition in their parents' and grandparents' homes: family game night. Hemmed in by financial pressures, many parents are cutting spending on takeout, movies, vacations and lavish toys, but are spending more money on board games they can play with their children at home.

The toy industry has seen spending drop by nearly 2 percent since April 2008 -- with youth electronics and vehicles showing particularly steep drops of 12 percent and 13.5 percent, respectively. But sales of board games have increased by nearly 5 percent during that period, according to researchers at The NPD Group.

Job-hunting:

"Recession Is a Boon to Image Consultants" (Democrat and Chronicle)

Three years ago, Paula Vullo sold her business and went back to school.

She got a master’s degree from Rochester Institute of Technology, but as she was getting ready to re-enter the work force, the economy tanked and suddenly jobs were scarce.

Wanting an edge, she called image consultant Cindy Kyle.

“I had a few friends comment on my hair, that it had grown out really long, and I never paid much attention to color and how to put accessories together,” said Vullo, who previously owned the Hospitality House, a banquet hall in Penfield.

“I knew some people that (Kyle) was coaching and I heard she had some success stories, and I thought: ‘Gee, I need a different approach.’”

A tough economy means more well-qualified people like Vullo are looking for jobs, and some of them are calling image consultants. Kyle said the portion of her business that deals with individuals has increased 50 percent, and other image consultants have also seen a boom among their individual clientele.

"Recession Camp: You Didn't Sign Up for This" (KOMO)

SEATTLE— To attend Recession Camp, you don’t need a permission slip from your parents, or your name sewn into your underwear.

The free and cheap daytime activities are designed to bring summer camp-style socializing to unemployed adults.

“The point is to get people away from their PCs and the stress of job searching for awhile and do some relaxed, low-key networking,” said organizer Maryse O’Neill.

O'Neill is a job-seeker, too. In May, the day after she was laid off from her job in IT management and process improvement, she asked her friend Andy Brenner, who started a Bay Area recession camp in 2001, if she could follow his lead.

“I wanted to do something that wasn’t those stressful networking sessions where you’re marching around, doing your elevator speech,” O’Neill said.

Instead of name tags and no-host bars, recession campers have met with their dogs for walks at Greenlake and Marymoor Park and gathered for a free architecture tour sponsored by the Seattle Architecture Foundation.

The Foundation offered the tour as a sort of “dress rehearsal.” Tour organizers got to work out the kinks, and participants got to go for free. Future events include a trip to hear a free lunchtime concert downtown, and whatever other campers want to organize.

O’Neill, who describes herself as a natural networker, said she has gotten two job interviews through Recession Camp connections, which she promotes through LinkedIn, Twitter, and Facebook. She’s also collected contacts for other people and believes that cooperating, rather than competing with fellow job-seekers, builds “networking karma.”

Worth Paying Attention to

Through the years, I've learned there are a number of individuals who are almost always worth paying attention to, even if I don't necessarily agree with everything they have to say.

My (very incomplete) list includes (in no particular order) people like Marc Faber, David Rosenberg, Mike Shedlock, Yves Smith, Albert Edwards, James Montier, Jeremy Grantham, Christopher Wood, Jim Rogers, Martin Wolf, Martin Hutchinson, Edward Chancellor, Jim Chanos, Richard Russell, Jim Puplava, Jim Kunstler, Bill Cara, Barry Ritholtz, and David Tice.

As it happens, the latter individual was interviewed by Bloomberg Television on Friday, and, as usual, his views were at odds with the delusional Wall Street types who (still) dominate the air waves nowadays.

(Hat tip to The Pragmatic Capitalist.)

Financial Armageddon visitors: feel free to add your own names (via the comments) of those who usually have something interesting or insightful to say about the world of economics, finance, and markets.

All Walks of Life

Time magazine is out with an interesting report, "Thrift Nation - How Americans Spend Now," featuring a series of vignettes that detail the impact the financial crisis is having on individuals from all walks of life. Examples include:

"The Unemployed Couple":

Chris Strong for TIME

Barbara, 46, and Kevin Lowe, 52, Grand Rapids, Mich.

The cell phones were canceled; so were all subscriptions and outside entertainment. We didn't go skiing this winter, and we won't be golfing over the summer. No more wine. We used our severance and some savings to pay off Kevin's 2008 Saturn and pay down the house. We debated whether to cancel the local newspaper, but in the end kept it for the Sunday coupons. We now eat every single item in the house until it's gone. If that means we have curly pasta and penne and spaghetti all mixed up, so be it. I have 101 ways to use half-eaten boxes of pasta. We're much more careful shopping — no more running in to get one or two things. We wait until we have a big list, and then buy only what's on that list — and at the local grocery warehouse, not the food boutique.

You'd be amazed at how you don't even know where your money goes. It took us a couple of months to get a firm handle on our expenses. There are some things you only pay a few times a year and you forget them, and then they crop up and you don't have $40 for the water bill or veterinarian. I distributed flyers around the neighborhood offering babysitting and elder-care services. I can take care of an infant for a few hours as well as any high school girl. I'm tired of waiting for someone else to offer me a job.

It's hard to invite people for dinner, so we don't accept many invitations. We went to the art show on the day tickets were discounted, and told friends we'd brown-bag our lunches. One of them said we could go to a cheap restaurant, but I can't. I'm not sure they really understand how it is. I know I didn't until it happened to me.

We are still confident something is going to come up. We have discovered we can live on a very small amount of money, but we need to find something with health insurance before our COBRA expires. We take turns having meltdowns.

"The Gun-Store Owner":

Danny Wilcox Frazier / Redux for TIME

Jody Windschitl, 49, Missouri Valley, Iowa

Our sales are up about 33% this year compared with last. As an industry, they say it's the "Obama effect." We have never been in business when the Democrats are in office. We've been told that gun sales go through the roof, and they weren't kidding. We can't even get stuff. Ammunition has just dried up all over the country. Right now we're so busy, we've had to hire one person. People are afraid also of the Democrats' putting a ban on firearms — that's the biggest fear factor.

I used to see about five M-15s sold a year. Until about two weeks ago, we were selling about five a week. Now it's three a week. More women are buying, especially older ones. A lot of them are widows who are alone, and they want to have self-protection, just because of the economy. We've had a lot of robberies and break-ins in our area, and they're attributing that to people being out of work.

"The Emergency-Room Doctor":

Bill Cramer / Wonderful Machine for TIME

Naisohn Arfai, 33, Philadelphia

I started in mid-July. I was a resident here, so I'm not entirely new to the system, but I'm new as an attending physician. You feel like you're at the front lines in emergency medicine. It's both rewarding and very painful at the same time. I feel like I've seen more people coming in in the past half-year telling me they can't afford their blood-pressure medicines. They haven't been able to see a doctor for a while. They used to have a doctor, but they're not covered anymore.

They come in when they've reached a point of desperation. They could be having a stroke or a heart attack or kidney failure. But more commonly what we see is people who are coming in with recurrent headaches. They feel lethargy. They feel like they're having blurred vision, headaches. Sometimes they have some mild chest pain or difficulty breathing. They come in, and they say, "I know my blood pressure's high. These are the kind of symptoms I get." It's frustrating, because you know you can remedy it temporarily, but in the long run, how can I be sure that these people are going to be seen by a physician after they leave?

There are times when people will come in and they'll need a chest X-ray, but they'll ask, "Well, how much is this going to cost me? How much is a CT scan going to cost me?" Oftentimes I don't see these people again. I don't get to see what happens after they leave the ER.

Here is the complete list:

1. The Unemployed Couple
2. The Sports CEO
3. The Restaurant Owner
4. The Autoworker
5. The Financial Adviser
6. The Blackjack and Roulette Dealer
7. The Gun-Store Owner
8. The Boutique Owner
9. The Bulk Shopper
10. The Organic Gardener
11. The Movie-Theater Concessionaire
12. The Emergency-Room Doctor
13. The Grocery-Store-Outlet Owner
14. The Therapist
15. The Financial-Aid Officer
16. The Doggie Day Care Owner
17. The Free Health Care Clinic CEO

Scenes from a Downturn

It's one thing to point to a steady stream of disappointing data points and ski-slope-shaped trendlines and say this is not your father's downturn.

However, it's stories like those that follow, detailing just a fraction of the unfamiliar reactions and novel responses of individuals, families, business, charities, and governments to the worsening economic climate, which leave no room for doubt that things really are different this time:

"Lose Your Job, Keep Your Fridge Under New Sears Plan" (Dow Jones Newswires):

Sears Holdings Inc. (SHLD) is letting customers who lose their jobs keep their appliances in an effort to assist them, and itself, during the recession.

Customers who buy big ticket items like refrigerators and washing machines from June 6 to Aug. 1 and become unemployed after the purchase will have one twelfth of the price - including warrantee and service charges -- taken care of by Sears each month. If the job loss lasts a year, Sears will write off the purchase.

The program is being run as a pilot for appliances costing $399 or more and, depending on how it goes, could see its time frame added to and possibly be extended to other products, said Kevin Brown, vice president and chief marketing officer for home appliances at Sears, in an interview with Dow Jones.

Sears came up with the program after hearing from customers that they needed the merchandise, had the money for it, but were afraid to commit because they were concerned about their jobs and the economy, Brown said. "This will allow them to move forward."

The program covers customers who have lost their jobs from 60 days to one year after the purchase.

If the customers keep their jobs, Sears books the sale. Customer don't get their money back if they paid in full for the products and they don't have to make up any payments as long as they can show proof they don't have a job.

The program comes as Sears has seen a falloff in large appliance sales that contributed to an 11.7% decline in same-store sales for its most recently reported quarter.

Sears calls the program the first of its kind by a national appliance retailer, and is adding its own twist to overtures made by major auto makers, although in Sears' case customers can keep the products.

General Motors Corp. (GM), Ford Motor Co. (F) and Hyandai Motor Co. have all had programs that allow auto buyers to return their cars if their jobs are lost.

In March, apparel retailer Jos. A. Bank Clothiers Inc. (JOSB) offered to refund up to $199 of a suit's price and allow customers to keep it if they are laid off through early summer.

Sears sees the program as a way of serving existing customers. "If we take care of them we believe they will take care of us," Brown said.

The program is also hoped to bring in new customers. "We hope there would be appeal in us serving as an innovator with this type of program," Brown said.

Citigroup Inc. (C), which manages Sears credit card portfolio, will oversee the program. A Sears spokesman didn't immediately respond to a request regarding what type of payment arrangement Sears has made with the banking company when customers default on their payments.

The appliance program "can help Sears build its image as a 'good citizen'" and help attract customers at a time they are hard to attract, said Barry Seifer, head of retail consulting firm Hart Seifer Partners.

"But as a purely financial move it doesn't make total sense," Seifer said. " They are making an appeal to customers who are more likely to become unprofitable to them."

Sears shares were recently up $2.67, or 4.11%, to $67.57.

"Recession Brings Out Salvation Army Kettles in July" (WATE):

KNOXVILLE -- Due to the recession, the Salvation Army will bring out the Red Kettles for a first time ever summer campaign in Knoxville.

Volunteers will ring bells on Friday and Saturday, July 17 and 18 at four Kroger locations:

• Knox Plaza in Bearden
• Middlebrook Pike at Cedar Bluff
• Northshore Drive at Pellissippi Parkway
• Kroger Marketplace in Farragut

Officials say the recession has been hard on local non-profits.

"Some of our major corporate donors have closed their doors this year," explained Knoxville Area Commander Major Don Vick in a press release.

"While our donations have been somewhat flat, our requests for assistance have increased dramatically," Vick added.

The Salvation Army is counting on volunteers to get the job done. Interested groups or individuals should call (865)-971-4907 to get registered.

Donations for the Salvation Army are also accepted online or by mail. Click here if you'd like to help.

"Animal Shelters Full Because of the Economy" (KRCG):

The animals at Callaway Hills Animal Shelter are waiting to be adopted.

The shelter has been at full capacity for more than two months now.

Abandoned pets are not what usually comes to mind with a recession, but workers at the shelter say tough economic times have flooded them with animals, so many that the shelter simply can't take in any more.

"Part of it is from people, you know, losing, you know, losing their homes and they're calling needing to place their animals.  We get a lot of calls like that," Callaway Hills Manager Mary Hall said.

Not only are more people giving up their pets, but workers say fewer people are showing up to adopt pets.

Patty Forister with the Central Missouri Humane Society in Columbia says a lot of calls are from long-time pet owners.

"Some people just can't afford to keep them anymore,” Forister said. “Some people allow their animals to have puppies or kittens and then they have too many and they can’t find them homes, so they just bring them to us."

Fortunately the Columbia shelter hasn’t had to turn any animals away partly because of an infusion of cash from a nationwide contest.

The Jefferson City shelter has also seen an increase in animals, and although they have almost reached their limit on cats, they are still accepting pets as long as the owner lives in Cole County.

Officials say this overpopulation problem can be easily prevented.

They say it’s important to have your pets spayed or neutered and to keep in mind adopting a pet is a life-long commitment.

“Try very, very hard to keep your pet,” Forister said. “They want to be with you. They don’t want to be here at a shelter.”

According to the humane society around seven million animals enter shelters nation-wide each year and only about three million are adopted.

"State Reconsiders Casino Gambling Amid Recession" (WCVB):

Lawmakers Expected To Act On Bill This Fall

BOSTON -- Casino gambling is back on the table in Massachusetts.

Lawmakers held a public hearing Monday to discuss the possibility of expanded gambling.

The discussion comes as Gov. Deval Patrick signs a fiscal 2010 budget sharply cutting government services and also raising the sales tax by 25 percent. Gambling proponents said those moves underscore the importance of capturing some of the estimated $900 million in revenue thought to be gambled each year by Bay State residents at Connecticut casinos.

Yet critics said the state's precarious financial situation is no reason to prey on vulnerable people who may make bad bets.

Senate President Therese Murray said she expects the Legislature to act on a bill this fall. And one prior opponent -- former House Speaker Salvatore DiMasi -- is no longer around to block it.

"Free Legal Services Stretched As Demand Rises" (GateHouse News Service):

From fighting for unemployment benefits to staving off foreclosure to watching a family unravel under financial strain, attorneys say more and more people face serious legal problems in a recession.

Yet for many who need it most, finding a lawyer's help is getting harder all the time.

Legal services organizations that offer free civil representation for low-income, disabled and elderly people are under siege from budget cuts, a drastic drop in other revenue and surging requests for help. That means painful decisions about which clients to help and which to turn away.

"It's bad when you're sitting there at a meeting and talking about a victim of domestic violence and debating whether the one who got thrown down the stairs is worse than the one who got thrown out of the car," said Betsy Soule, executive director of MetroWest Legal Services. "It's crazy."

Even in better times, legal services groups say they only have the capacity to serve about half those who ask for assistance. At MetroWest Legal Services, which is based in Framingham, calls have climbed 25 percent in the last six months, but Soule expects a budget cut in the fiscal year that begins Wednesday from $1.7 million to about $1.35 million.

"It's just an explosion right now," Soule said. "It's very difficult, especially for the people who answer the phone and screen the callers to have to say no, because there really is no other place to send folks for comprehensive legal services."

Greater Boston Legal Services Director Robert Sable said his group, too, faces problems. Its service area includes Newton and Waltham.

"The short answer is yes, we're getting hammered on both ends - losing money and client demand up," he said.

Both programs are among 17 legal aid programs funded by the Massachusetts Legal Assistance Corp., which gets revenue from two sources. One is a state appropriation, cut from $11 million to $9.5 million in the budget on the governor's desk, said Lonnie Powers, executive director.

The organization also receives two-thirds of the interest on lawyers' trust accounts. Whenever an attorney holds money temporarily for a transaction, such as when a client buys real estate, it goes into an interest-bearing account. That interest helps fund legal aid programs.

Much of that interest has dried up along with real estate sales. The interest rate for such accounts also has been cut to between zero and .25 percent, Powers said. That has caused interest to drop precipitously, from $26 million in 2008 to about $10 million in fiscal 2010, meaning a 67 percent drop for Mass. Legal Assistance Corp., Powers said.

That's meant layoffs, attrition and furloughs at many legal aid groups. Soule's organization has not replaced departures, instituted a hiring freeze and will spend down its reserves, she said.

The state budget cut means upward of 2,000 cases that would have been handled otherwise probably won't be picked up, Powers said.

"It's a real disastrous result of the problems in the overall economy and the problems in the commonwealth that we're seeing these cutbacks in legal assistance when low income people really need them more than ever," he said.

Many people are seeking help with evictions by landlords who have lost their homes to foreclosure, Soule said. Homeowners, too, are seeking help in foreclosure proceedings.

More employers are contesting unemployment benefits, leaving those who have lost jobs forced to fight for them. Some are seeking transitional assistance to get by.

Divorce and family problems, too, are rising, with some parents looking to reduce child support payments after losing work, lawyers said.

In most cases, to qualify for legal aid services, clients can make no more than 125 percent of the federal poverty line, which is about $26,000 for a family of four, Soule said.

Massachusetts Bar Association President Edward McIntyre said his group and county bar associations are boosting the number of attorneys offering pro bono services to qualified clients. But legal aid work takes specific skills, and there are not enough pro bono lawyers to meet the demand, he said.

"I'm 64. I've never seen this in my lifetime," McIntyre said. "I've been a lawyer since '81."

With some analysts saying it may be 2014 before state revenue recovers, legal aid may be reaching a "chronic stage," McIntyre said.

"I don't think we can hold on, legal services in the commonwealth, perhaps without some relief," such as federal stimulus funding, he said.

Ironically, Powers said, legal aid often saves Massachusetts money by shifting qualified people from state assistance programs to federal ones.

"That's the paradox of need and resources," he said

"Losing Our Jobs, Rediscovering Our Children" (Momlogic):

Yvette Manessis Corporon: I never knew what I was missing. How could I, a committed career woman, have any idea?

Carpools and class parties were for other moms, the ones who stayed home, the ones who dropped their kids off at school and then played tennis all day. I wasn't like them. I had important meetings to attend and stories to write and deals to make. I had an identity outside of the home and a career I had meticulously cultivated. Of course I loved my kids and they came first -- but I also loved having my own identity, a purpose outside the home. I always thought I did a pretty good job of balancing it all. And then it happened -- the recession, that is.

Like countless other Americans, I saw my work situation change overnight. Instead of working full-time and full steam ahead, I'm now working part-time -- less time spent in the office and more time spent at home, shuttling my kids to playdates and parties. I have to admit, I never fully understood the importance of school drop-offs and pickups until I actually started doing them on a daily basis. Now that I've seen my son flash his precious preschool smile the second he spots me in the car line, or listened, mesmerized, as my 8-year-old shares the intimate details of her day over an after-school snack -- there's no going back. I always made it to the big events, special days like recitals and school plays, but I never understood the beauty and value of those small moments, the moments I missed out on all those years while I was working. And I'm not alone.

The numbers are staggering, as well as scary. There are 14.5 million unemployed people in the U.S. 9.4% of Americans are out of work. Among them, millions of formerly working moms now find themselves taking on a daunting and quite foreign role: that of stay-at-home mother.

A funny thing happened on the way to the unemployment office; many of these moms lost their jobs but rediscovered their children in the process.

Wendy Lehman is an award-winning journalist who loves what she does and never once considered life as a stay-at-home mom. Since she became a mother three years ago, Wendy managed to nurture her son, Nicholas, as well as her career. But this past December, Wendy's show at BusinessWeek TV was canceled and she found herself at home caring for Nicholas full-time. Now this hard-charging journalist says she would be hard pressed to go back to her old way of life. "I am a little surprised at how much I enjoy staying home," Wendy tells momlogic. "I definitely thought I would experience a big sense of 'who am I?' The cliche of losing my identity. But what I discovered is that 'Mom' is a huge part of my identity. In fact, equal to my career."

But that's not all. For Wendy, and so many other first-time stay-at-home moms, the opportunity to finally focus completely on our families can be more valuable than even the paychecks we've lost in the process. Wendy explains: "I also can't quantify how amazing it is to spend this much time with my son. Having been both a 'working' mom and a 'stay-at-home' mom, I can honestly say they are both equally difficult and exhausting. But staying at home allows me to be less divided emotionally and that is satisfying for both Nicky and myself (and my husband!)."

Linda Mautone agrees. After 14 years, the mother of two was recently laid off from her fashion industry job. While facing unemployment can be daunting, Linda and her family have found that it can also have its benefits. "My husband loves it. We aren't juggling our schedules anymore. The stress in our lives has been reduced. It is a calming and more spiritual family existence we now share." And while Linda is open to returning to work, this experience has had an indelible impact on the roles she wishes to play, both at home and at the office. "If I decide to go back into the workplace, I definitely won't return to a management position. I want to focus solely on my family," she says.

We all know that these are challenging and difficult times. There's no great joy in losing your livelihood, especially when you have little mouths to feed. But even in these dark times, there are still lessons to be learned and beautiful glimmers of hope to be discovered. For me and so many other moms, that hope can be found in the faces of our children: in their giggles, in their smiles, and in the priceless and unexpected moments we suddenly find ourselves sharing. One day, hopefully soon, the economy will turn around and the workplace will need us once again. We'll get our careers back, but not this time we have with our children. Yes, these are scary times -- but it's also time to reflect, reconnect, and rediscover the gift called motherhood.

No One Else Even Comes Close

You gotta give those guys credit: when it comes to dissembling, distorting, misleading, and otherwise playing games with the truth: no one else even comes close to the shady characters who ply their wares on Wall Street.

Otherwise, how else could you explain, as Brad Delong, publisher of the Grasping Reality with Both Hands blog, notes in a commentary for The Week, "A Wall Street Fairy Tale," the latest load of nonsense -- aside from assertions that there are green shoots sprouting throughout the economy and that stocks are "cheap" -- that the financial system -- which has been bailed out with trillions of dollars of ultra-cheap loans and undeserved subsidies -- was never really in all that much trouble to begin with?

Now that the danger appears to have passed, Wall Street honchos, with support from some in Congress, are telling themselves that the financial system was perfectly sound all along. We can’t afford their delusion.

The story we tell ourselves about what happened to the financial markets last fall is vitally important. It will determine what form financial market regulation takes in the next few decades, and how vulnerable we will be to the next disruption. At this moment, a relatively calm one, a fictional version of last fall's events is gaining traction. So let's review a few foundational facts.

September, 2008 was a busy month. On Sunday, the 7th, the U.S. government nationalized the two large government-sponsored mortgage enterprises, Fannie Mae and Freddie Mac, which had been privatized in 1968. The following Sunday, the investment-banking house of Merrill Lynch was forcibly merged into Bank of America. The next day, Lehman Brothers simply did not open. The old-line investment bank went into an uncontrolled and unsupervised bankruptcy, and all financial-market expectations that the Federal Reserve and the Treasury would guarantee the unsecured debt of every substantial investment bank in America, as they had for Bear Stearns, went out the window. Wednesday, September 17, saw the nationalization of the American International Group, which, unlike Lehman, was deemed too big to fail. Government-injected cash went straight through AIG and out the other end—like grain through a goose. The forced feeding may total $300 billion before we are through.

The bankruptcies of Fannie, Freddie, Lehman, and AIG; the fall in the prices of risky assets worldwide; the shutdown of the flow of funds through financial markets as trust evaporated and everyone presumed that whoever they entrusted their money to might go bankrupt—this was September's harvest. Risk tolerance collapsed. People became much less willing to hold risky assets at any price. The interest rate on 30-year Treasury bonds fell to less than 3 percent. And it was presumed that every large bank in America would be bankrupt if they were forced to mark to market.

The banks' survival depended on their (a) not having to sell assets until asset prices rebounded, and (b) the availability of enough government money, at cheap enough prices, to enable them to avoid selling any assets at fire-sale prices.

This troubling tale led to the largest recession in post-war history. Yet if you go to the big banks of Wall Street right now, most of them will say: "What is the problem?" They will deny that any changes in the way they run their businesses are called for. "Sure there were a few scary moments," they say, "but big shocks cause scary moments. And our fundamental business model is sound."

Indeed, as Paul Kedrosky points out, if you look at the stock prices of Goldman, JPMorgan Chase, Barclays, and Morgan Stanley, they are back where they were in late August, 2008 before the worst unpleasantness began. (Citi, however, is still down 75 percent and Bank of America is off 67 percent.) So, they say, there is no need for government investments in, or control over, their businesses; no need for restrictions on how much they can pay whom or for what; no need to restrict how much leverage they assume or what they invest in or how much capital they must hold. The smart banks, they say, figured out that the mortgage market was headed for a crash and managed to profit from the boom without being destroyed by the bust. It was only the dumb banks, they say—Bear-Stearns, Lehman, AIG, Fannie, Freddie, and to a lesser degree, Citi and Bank of America—that suffered severely. That's how the market works.

This is a fairy tale.

Suppose for a moment, that things had been handled differently last September. Suppose that the Federal Reserve had announced not that it was buying up the stock of AIG and that it would make sure that all of AIG's debts were paid, but rather that AIG was bankrupt. Suppose the Federal Reserve said it would rescue AIG's bank clients by paying out cash at par for contracts with AIG-provided that it also got (a) upside warrants in the bank and (b) an illiquid, long-dated note, the value of which would be determined by formula after the crisis passed.

In that case, Goldman, JPMorgan, Barclays, Morgan Stanley, Citi, and Bank of America would still have been able to function—they would have had enough cash to pay their bills and enough assets to match their liabilities—but they would now be owned by the federal government. Because all the money passed through AIG to the banks would not be a loss for the government but would rather have been in the form of government investments in still-solvent banks. The resulting expansion of the banks' share issue would have left their stock prices today a shadow of their values last August.

When American high finance hedged its mortgage risk by buying derivatives from AIG, it did not perform due diligence to figure out if AIG could in fact meet its obligations. This failure cost American high finance an amount that may ultimately reach $300 billion. And it would have been fatal had the government not come to their rescue.

Had the government stepped in by discounting AIG paper in return for warrants and notes at fair market values, the banks' life support apparatus would have been obvious. It is only because the government stepped in by nationalizing AIG and guaranteeing its debts that American high finance now has healthy stock prices, and that the senior executives of the big banks—except Citi, Bank of America, Lehman, and Bear-Stearns—are congratulating themselves for their skillful navigation through the crisis.

The fact that the rescue of the banking system took the form of nationalization of AIG, and the honoring of its paper, rather than equity investments by the government in the banks, and the discounting of AIG paper, has encouraged a bout of revisionism in which most of Wall Street and at least a third of Congress now embrace a fairy tale. They tell themselves—and us—a story of a banking system that was fundamentally sound, that merely needed a little temporary liquidity to tide itself over a panic. But the true story is one of an overleveraged banking system that was insolvent save for a $300 billion gift from American taxpayers.

In September, Wall Street was overrun with bears. Now it seems Goldilocks has taken up residence there, too.

- BRAD DELONG is a professor in the Department of Economics at U.C. Berkeley; chair of its Political Economy major; a research associate at the National Bureau of Economic Research; and from 1993 to 1995 he worked for the U.S. Treasury as a deputy assistant secretary for economic policy. He has written on, among other topics, the evolution and functioning of the U.S. and other nations' stock markets, the course and determinants of long-run economic growth, the making of economic policy, the changing nature of the American business cycle, and the history of economic thought.

What a House of Cards Really Looks Like

As an author and blogger, I generaly rely on written words to describe what I see going on and where I think things are headed. But as the old saying goes, sometimes a picture is worth a thousand words. For a mesmerizing -- and disturbing -- graphical overview of what a house of cards really looks like, check out U.S. National Debt Clock: Real Time (screen shot below):

 

Smoking the Green Shoots?

Based on four measures of risk -- the CBOE volatility index (VIX), the price of gold relative to silver, the 3-month Eurodollar rate less the 3-month Treasury bill rate (TED spread), and Bloomberg’s U.S. Financial Conditions Index, which “combines yield spreads and indices from the money markets, equity markets, and bond markets into a normalized index” -- things are apparently back to where the were before Lehman Brothers went belly up back in September.

Yet even a cursory look around reveals that a great many markets are broken or are mere shadows of their former selves, the real economy remains on very shaky ground, and no small number of firms and parts of the financial system are parasitically dependent on Washington's largesse.

Maybe traders have been smoking too many of those "green shoots" the optimists keep talking about?

The Land of the Fleece Scam

The Wikipedia entry for "list of confidence tricks" details an extraordinary variety of schemes, frauds, and swindles, with colorful names like "the wire game" (featured in the Paul Newman and Robert Redford classic, The Sting), "false charity," "goldbricking," "three card Monte," and "pig-in-a-poke."

What this list does not include, however, is one of the biggest con games of all time, whereby a group of, perhaps, thousands of wealthy, corrupt, or politically- connected individuals used their power and influence to rip off hundreds of millions of taxpayers who've been led to believe that their hard-earned money was being used to "rescue" their country from the clutches of financial catastrophe.

In a column at TomDispatch.com, "The Greatest Swindle Ever Sold," Andy Kroll gives us the lowdown on what some might call the "land of the fleece scam."

How the Financial Bailout Scams Taxpayers, Subsidizes Wall Street, and Props Up Our Broken Financial System

On October 3rd, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the U.S. government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of $700 billion to stabilize the nation's failing financial systems and restore the flow of credit in the economy.

The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes, and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people.

That $700 billion bailout has since grown into a more than $12 trillion commitment by the U.S. government and the Federal Reserve. About $1.1 trillion of that is taxpayer money -- the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes 12 separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors.

Seven months in, the bailout's impact is unclear. The Treasury Department has used the recent "stress test" results it applied to 19 of the nation's largest banks to suggest that the worst might be over; yet the International Monetary Fund as well as economists like New York University professor and economist Nouriel Roubini and New York Times columnist Paul Krugman predict greater losses in U.S. markets, rising unemployment, and generally tougher economic times ahead.

What cannot be disputed, however, is the financial bailout's biggest loser: the American taxpayer. The U.S. government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. So far, the bailout has favored rescued financial institutions by subsidizing their losses to the tune of $356 billion, shying away from much-needed management changes and -- with the exception of the automakers -- letting companies take taxpayer money without a coherent plan for how they might return to viability.

The bailout's perks have been no less favorable for private investors who are now picking over the economy's still-smoking rubble at the taxpayers' expense. The newer bailout programs rolled out by Treasury Secretary Timothy Geithner give private equity firms, hedge funds, and other private investors significant leverage to buy "toxic" or distressed assets, while leaving taxpayers stuck with the lion's share of the risk and potential losses.

Given the lack of transparency and accountability, don't expect taxpayers to be able to object too much. After all, remarkably little is known about how TARP recipients have used the government aid received. Nonetheless, recent government reports, Congressional testimony, and commentaries offer those patient enough to pore over hundreds of pages of material glimpses of just how Wall Street friendly the bailout actually is. Here, then, based on the most definitive data and analyses available, are six of the most blatant and alarming ways taxpayers have been scammed by the government's $1.1-trillion, publicly-funded bailout.

1. By overpaying for its TARP investments, the Treasury Department provided bailout recipients with generous subsidies at the taxpayer's expense.

When the Treasury Department ditched its initial plan to buy up "toxic" assets and instead invest directly in financial institutions, then-Treasury Secretary Henry Paulson, Jr. assured Americans that they'd get a fair deal. "This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," he said in October 2008.

Yet the Congressional Oversight Panel (COP), a five-person group tasked with ensuring that the Treasury Department acts in the public's best interest, concluded in its monthly report for February that the department had significantly overpaid by tens of billions of dollars for its investments. For the 10 largest TARP investments made in 2008, totaling $184.2 billion, Treasury received on average only $66 worth of assets for every $100 invested. Based on that shortfall, the panel calculated that Treasury had received only $176 billion in assets for its $254 billion investment, leaving a $78 billion hole in taxpayer pockets.

Not all investors subsidized the struggling banks so heavily while investing in them. The COP report notes that private investors received much closer to fair market value in investments made at the time of the early TARP transactions. When, for instance, Berkshire Hathaway invested $5 billion in Goldman Sachs in September, the Omaha-based company received securities worth $110 for each $100 invested. And when Mitsubishi invested in Morgan Stanley that same month, it received securities worth $91 for every $100 invested.

As of May 15th, according to the Ethisphere TARP Index, which tracks the government's bailout investments, its various investments had depreciated in value by almost $147.7 billion. In other words, TARP's losses come out to almost $1,300 per American taxpaying household.

2. As the government has no real oversight over bailout funds, taxpayers remain in the dark about how their money has been used and if it has made any difference.

While the Treasury Department can make TARP recipients report on just how they spend their government bailout funds, it has chosen not to do so. As a result, it's unclear whether institutions receiving such funds are using that money to increase lending -- which would, in turn, boost the economy -- or merely to fill in holes in their balance sheets.

Neil M. Barofsky, the special inspector general for TARP, summed the situation up this way in his office's April quarterly report to Congress: "The American people have a right to know how their tax dollars are being used, particularly as billions of dollars are going to institutions for which banking is certainly not part of the institution's core business and may be little more than a way to gain access to the low-cost capital provided under TARP."

This lack of transparency makes the bailout process highly susceptible to fraud and corruption. Barofsky's report stated that 20 separate criminal investigations were already underway involving corporate fraud, insider trading, and public corruption. He also told the Financial Times that his office was investigating whether banks manipulated their books to secure bailout funds. "I hope we don't find a single bank that's cooked its books to try to get money, but I don't think that's going to be the case."

Economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, suggested to TomDispatch in an interview that the opaque and complicated nature of the bailout may not be entirely unintentional, given the difficulties it raises for anyone wanting to follow the trail of taxpayer dollars from the government to the banks. "[Government officials] see this all as a Three Card Monte, moving everything around really quickly so the public won't understand that this really is an elaborate way to subsidize the banks," Baker says, adding that the public "won't realize we gave money away to some of the richest people."

3. The bailout's newer programs heavily favor the private sector, giving investors an opportunity to earn lucrative profits and leaving taxpayers with most of the risk.

Under Treasury Secretary Geithner, the Treasury Department has greatly expanded the financial bailout to troubling new programs like the Public-Private Investment Program (PPIP) and the Term Asset-Backed-Securities Loan Facility (TALF). The PPIP, for example, encourages private investors to buy "toxic" or risky assets on the books of struggling banks. Doing so, we're told, will get banks lending again because the burdensome assets won't weigh them down. Unfortunately, the incentives the Treasury Department is offering to get private investors to participate are so generous that the government -- and, by extension, American taxpayers -- are left with all the downside.

Joseph Stiglitz, the Nobel-prize winning economist, described the PPIP program in a New York Times op-ed this way:

"Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year's time. The average 'value' of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is 'worth.' Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

"Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That's 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest -- $12 in 'equity' plus $126 in the form of a guaranteed loan.

"If, in a year's time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that's left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37."

Worse still, the PPIP can be easily manipulated for private gain. As economist Jeffrey Sachs has described it, a bank with worthless toxic assets on its books could actually set up its own public-private fund to bid on those assets. Since no true bidder would pay for a worthless asset, the bank's public-private fund would win the bid, essentially using government money for the purchase. All the public-private fund would then have to do is quietly declare bankruptcy and disappear, leaving the bank to make off with the government money it received. With the PPIP deals set to begin in the coming months, time will tell whether private investors actually take advantage of the program's flaws in this fashion.

The Treasury Department's TALF program offers equally enticing possibilities for potential bailout profiteers, providing investors with a chance to double, triple, or even quadruple their investments. And like the PPIP, if the deal goes bad, taxpayers absorb most of the losses. "It beats any financing that the private sector could ever come up with," a Wall Street trader commented in a recent Fortune magazine story. "I almost want to say it is irresponsible."

4. The government has no coherent plan for returning failing financial institutions to profitability and maximizing returns on taxpayers' investments.

Compare the treatment of the auto industry and the financial sector, and a troubling double standard emerges: As a condition for taking bailout aid, the government required Chrysler and General Motors to present detailed plans on how the companies would return to profitability. Yet the Treasury Department attached minimal conditions to the billions injected into the largest bailed-out financial institutions. Moreover, neither Geithner nor Lawrence Summers, one of President Barack Obama's top economic advisors, nor the president himself has articulated any substantive plan or vision for how the bailout will help these institutions recover and, hopefully, maximize taxpayers' investment returns.

The Congressional Oversight Panel highlighted the absence of such a comprehensive plan in its January report. Three months into the bailout, the Treasury Department "has not yet explained its strategy," the report stated. "Treasury has identified its goals and announced its programs, but it has not yet explained how the programs chosen constitute a coherent plan to achieve those goals."

Today, the department's endgame for the bailout still remains vague. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wrote in the Financial Times in May that the government's response to the financial meltdown has been "ad hoc, resulting in inequitable outcomes among firms, creditors, and investors." Rather than perpetually prop up banks with endless taxpayer funds, Hoenig suggests that the government should allow banks to fail. Only then, he believes, can crippled financial institutions and systems be fixed. "Because we still have far to go in this crisis, there remains time to define a clear process for resolving large institutional failure. Without one, the consequences will involve a series of short-term events and far more uncertainty for the global economy in the long run."

The healthier and more profitable bailout recipients are once financial markets rebound, the more taxpayers will earn on their investments. Without a plan, however, banks may limp back to viability while taxpayers lose their investments or even absorb further losses.

5. The bailout's focus on Wall Street mega-banks ignores smaller banks serving millions of American taxpayers that face an equally uncertain future.

The government may not have a long-term strategy for its trillion-dollar bailout, but its guiding principle, however misguided, is clear: What's good for Wall Street will be best for the rest of the country.

On the day the mega-bank stress tests were officially released, another set of stress-test results came out to much less fanfare. In its quarterly report on the health of individual banks and the banking industry as a whole, Institutional Risk Analytics (IRA), a respected financial services organization, found that the stress levels among more than 7,500 FDIC-reporting banks nationwide had risen dramatically. For 1,575 of the banks, net incomes had turned negative due to decreased lending and less risk-taking.

The conclusion IRA drew was telling: "Our overall observation is that U.S. policy makers may very well have been distracted by focusing on 19 large stress test banks designed to save Wall Street and the world's central bank bondholders, this while a trend is emerging of a going concern viability crash taking shape under the radar." The report concluded with a question: "Has the time come to shift the policy focus away from the things that we love, namely big zombie banks, to tackle things that are truly hurting us?"

6. The bailout encourages the very behaviors that created the economic crisis in the first place instead of overhauling our broken financial system and helping the individuals most affected by the crisis.

As Joseph Stiglitz explained in the New York Times, one major cause of the economic crisis was bank overleveraging. "[U]sing relatively little capital of their own," he wrote, "[banks] borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations." Financial institutions engaged in overleveraging in pursuit of the lucrative profits such deals promised -- even if those profits came with staggering levels of risk.

Sound familiar? It should, because in the PPIP and TALF bailout programs the Treasury Department has essentially replicated the very overleveraged, risky, complex system that got us into this mess in the first place: in other words, the government hopes to repair our financial system by using the flawed practices that caused this crisis.

Then there are the institutions deemed "too big to fail." These financial giants -- among them AIG, Citigroup, and Bank of America -- have been kept afloat by billions of dollars in bottomless bailout aid. Yet reinforcing the notion that any institution is "too big to fail" is dangerous to the economy. When a company like AIG grows so large that it becomes "too big to fail," the risk it carries is systemic, meaning failure could drag down the entire economy. The government should force "too big to fail" institutions to slim down to a safer, more modest size; instead, the Treasury Department continues to subsidize these financial giants, reinforcing their place in our economy.

Of even greater concern is the message the bailout sends to banks and lenders -- namely, that the risky investments that crippled the economy are fair game in the future. After all, if banks fail and teeter at the edge of collapse, the government promises to be there with a taxpayer-funded, potentially profitable safety net.

The handling of the bailout makes at least one thing clear, however: It's not your health that the government is focused on, it's theirs -- the very banks and lenders whose convoluted financial systems provided the underpinnings for staggering salaries and bonuses while bringing our economy to the brink of another Great Depression.

Andy Kroll is a writer based in Ann Arbor, Michigan. His writing has appeared at TheNation.com, Alternet, CNN.com, CBSNews.com, and Truthout, among other places. He welcomes feedback, and can be reached at his website.

Something of a Joke

Over the past several years, the field of accounting has undergone quite a metamorphosis.

After starting out as a boring but functional method of keeping tabs on how a business is doing, it has become a tool for manipulation, a means of executive aggrandizement, a shroud for nefarious activities, and a vehicle for creating alternative realities.

In sum, suggests columnist Jonathan Weil in a thoroughly entertaining Bloomberg commentary, "Freebasing in Caymans Would Be a Banker’s Dream," it has become something of a joke.

The race to the bottom is on for the two boards that set most of the world’s accounting standards. This can mean just one thing. It’s time they got competition.

Let us begin with a critical question. In this era of infinite possibilities, what might a truly industry-friendly setter of accounting principles look like? Allow me to present for your consideration the Financial Reporting Irregularities Board. That’s FRIB, or “Free-Bee,” for short. Its motto would be simple: You report, you decide.

Ever since last fall, the big news from the accounting mandarins in the U.S. and Europe has been one relaxation of their precious rules after another. One day, the International Accounting Standards Board in London is rushing to please bankers and politicians by softening its pronouncements on “mark-to-market” accounting, only to watch the U.S. Financial Accounting Standards Board loosen its own rules later.

Nothing they’ve done has been enough to satisfy the banking and insurance industries. They just keep playing the two boards against each other, begging for more breaks.

After the FASB’s latest cave-in, for example, U.S. Representative Spencer Bachus, ranking Republican on the House Financial Services Committee, last month called for new congressional hearings, saying that “questions remain as to the ultimate effectiveness of the fair-value accounting revisions.” Meanwhile, some European finance ministers complained the IASB hasn’t done enough to match the FASB’s changes.

The U.S. Chamber of Commerce’s “Fair Value Coalition,” composed mostly of banks and insurers, says managers still lack the discretion they need to “recognize true economic losses and allow for a realistic valuation of assets.” In other words, they want to value their companies’ securities at the prices they wish they could get, rather than what others would pay.

Start a Winner

So now it has come to this. The world must find a way to make sure neither of these boards can win this sordid contest. That leaves only one option: Let the banks start their own accounting board to win it instead.

From its sunny headquarters at a mail-drop in the Cayman Islands, the Free-Bee would gather the best and brightest minds from the planet’s greatest financial catastrophes to create a new set of free-market standards. Lehman Brothers, Royal Bank of Scotland, American International Group, Fannie Mae, the nation of Iceland -- their former brain trusts all would reside here.

Adherents, known as freebasers, would prepare their financial statements in accordance with Free-Bee rules, all of which would fit neatly in a 10-page brochure, double-spaced.

Accountant-Free

Most importantly, not one of this new board’s members would be an accountant. The Free-Bee would be a for-profit venture, designed to maximize revenue. And there’s no surer way to screw up a perfectly good set of toothless accounting standards than to let some bean counter take a crack at writing them.

How would this operation work? I’m glad you asked.

Let’s say your company would show earnings of two to three bucks a share under FASB or IASB rules, and $5 under Free-Bee rules. The Free-Bee would get a cut of the difference, negotiated quarterly on a client-by-client basis. Naturally, your company would be free to spend these extra “profits” however it sees fit -- perhaps, for instance, on larger executive bonuses.

Before you dismiss this plan as a mere pipe dream, take a look at this quote by Charlie McCreevy, the European Union financial-services commissioner, from a speech he gave May 7 in Brussels. “Accounting is now far too important to be left solely to -- accountants!” he said. “Independence of standard- setters is important, but they must be fully accountable.”

Wasted Money

To this, the Free-Bee’s trustees would cry out: Hear, hear! They would promise to be fully accountable to you, the humble chief executive, and you alone.

Sure, you could try getting the FASB and IASB to keep outdoing each other, using the same tried-and-true pressure tactics. By this point, though, all those campaign checks to lawmakers would be a waste of good money you otherwise could be spending on yourself.

Imagine the possibilities. Just this week, the FASB said it will make banks bring zillions of dollars of assets back onto their balance sheets next year by eliminating an off-the-books trick known as qualified special purposes entities. While the Free-Bee’s staff might not understand what a QSPE thingy is, they would know this: If the FASB wants to ban them, then the Free-Bee adores them and would demand you get them back.

Better Values

Do you treasure the discretion to value worthless commercial real-estate loans any way you like? It’s yours. Remember, the better your values, the greater the Free-Bee’s profits.

Have you had enough with all the red ink on junk-rated mortgage securities? The Free-Bee’s board members would be strong believers in the principle that all losses are temporary and all non-cash gains are golden, especially when the asset prices you’re using exist only in your imagination.

Or perhaps you run a publicly traded strip-club chain and want to make sure certain back-room activities don’t get reported as violations of the Foreign Corrupt Practices Act. Not only could this new board help you keep hookers off your balance sheet. The Free-Bee would deliver them back to your doorstep, showered and re-perfumed, with just 30 minutes notice.

Let the mainstream accounting poobahs have their race to the bottom. The Free-Bee’s mission would be to win it hands down. And while this new board may face hurdles, such as formal recognition by the U.S. Securities and Exchange Commission or the European Commission, history has taught us there’s nothing we can’t overcome as long as we have the right connections.

Any takers? I thought so.

The Newest Banana Repubic

One of the conditions that defines a "banana republic" is a cavalier disregard for the rule of law by those in power.

While ordinary citizens might pay a price for bad decisions or bad relationships -- or, simply, bad luck -- wherever they live, in a modern, civilized society, at least, they can usually have a measure of faith that wrongs can be righted and that what they have won't be arbitrarily taken away from them without compensation or a means of redress.

Sadly, while few would have considered the possibility that America was in the banana republic category only a short time ago, developments like those described in the following post from Bob Brooks' Prudent Money blog, "The Car CZAR has Spoken," suggest that is no longer the case:

Treasury Secretary Tim Geithner - AKA the Car CZAR, the Bank CZAR, etc.

CZAR - One having great power or authority. Also - also tsar or tzar (zär, tsär) A male monarch or emperor

I wrote a blog Monday about my friend Scott Lau, whose Chrysler dealership has been in the family 42 years and was just forced out of business due to the Government’s “surgical” Chrysler bankruptcy. I interviewed Scott yesterday about his story on Prudent Money. As I was preparing for the show, so many things started to dawn on me about the whole Government involvement and Chrysler.

First, let’s consider Scott’s dealership for a moment. Here is a business that has been a family operated small business for 42 years. It has been a solid business with a great business plan. It has been profitable through the years and was weathering the financial crisis. When it was all said and done, I believe that Preston Chrysler Jeep would have survived the financial crisis. They made the necessary adjustments.

Preston Chrysler Jeep is not closing their doors because they are not a good dealership. They are not closing their doors because they were in trouble financially. They are closing their business of 42 years because the Car CZAR has spoken. Chrysler gave them and 800 plus other dealerships the pink slip and said we no longer have a contract with you. There were no calls from any Chrysler representatives to Scott’s dealership.  There was a UPS letter delivered to the back door of the parts department.

This is a healthy small business with no debt that was forced to shut down because the only product that they sell and service was taken from them due to Government direction through “structured” bankruptcy. Preston Chrysler Jeep is not the reason that Chrysler and the rest of the automotive industry is in trouble. This dealership was nothing more than a small business participating in the American Dream.

The Government is destroying capitalism in a methodical fashion. There was a reason that Chrysler and GM didn’t go bankrupt in December (before we threw billions of dollars of taxpayer dollars down the toilet). Think about it for just a minute. If Chrysler or GM would have gone through bankruptcy in December, there wouldn’t have been as much Government involvement. Instead, the Car CZAR continued to pump billions of taxpayer dollars into these failing companies in order to keep the lights on. This gave the Car CZAR ultimate control. The Government controls the destiny of these automotive companies. Now who answers to who? Just look at what they are doing to the banking system.

You know when you borrow money from a loan shark you give your life away. There is no difference here. So, the Car CZAR has spoken and Scott and the rest of the employees at the dealership that have served this area faithfully were simply on the wrong side of the Washington power grid and out of luck. So much for the American Dream.

So, who is this Car CZAR? Well let’s look past the man, Steve Rattner, who was appointed to head of the task force. Instead, let’s take a look at who makes up the task force.

Members (according to Wikipedia)

• Co-chairs:
  - Treasury Secretary, Tim Geithner

- National Economic Council Director, Larry Summers

• Secretary of Transportation
• Secretary of Commerce
• Secretary of Labor
• Secretary of Energy
• Chair of the President’s Council of Economic Advisers, Christina Romer
• Director of the Office of Management and Budget, Peter R. Orszag
• Environmental Protection Agency Administrator
• Director of the White House Office of Energy and Climate Change
• Senior Advisor on Auto Issues at the Treasury Department, Ron Bloom

You really just need to stop with the first name to see where the power lies. It seems that Tim Geithner remains the man behind the curtain.