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Web Log - September, 2009

Summary

An amazing video of Ukrainian sand artist, Kseniya Simonova

The winner of Ukraine's Got Talent competition brings people to tears.

by John J. Xenakis

Kseniya Simonova used a light-box filled with sand to depict Ukraine's experiences in World War II.

Quite possibly, Ukraine suffered more in World War II than any other nation. The Nazi invasion killed one in four Ukrainians, and that was after millions had been killed by Russian dictator Josef Stalin.

In one of the most amazing displays of pure talent that I've ever seen, Kseniya Simonova won the Ukraine's Got Talent competition on September 24 by portraying the Nazi invasion of Ukraine in 1941. "The opening scene shows a couple sitting on a bench under a starry sky. Warplanes appear and the happy scene is obliterated to be replaced by crying faces. Then a baby arrives and the woman smiles again, but war and chaos return and a young woman becomes an old widow, before the image turns into an obelisk – the Ukrainian monument to its Unknown Soldier."

Here's the video:

Incidentally, I believe that's Jacques Brel singing about halfway through.

(Comments: For reader comments, questions and discussion, see the Russia thread of the Generational Dynamics forum.) (29-Sep-2009) Permanent Link
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After a week of foreign policy disasters, President Obama's entire program is adrift

Obama's first term is indistinguishable from Bush's "third term."

by John J. Xenakis

I've been extremely critical of President Obama's policies, and the core of my criticism, which I first wrote about almost four years ago in "Barack Obama to Boomers: Drop dead!", is that Obama's world view is based on his contempt, typical of Generation-Xers, for the values and accomplishments of those in the Boomer and Silent generations.

According to Obama, Americans are sick of feuding Boomers, and ready to turn to Generation X, "after the campus culture wars between freaks and straights, and after young people had given up on what überboomer Hillary Rodham Clinton called in a 1969 commencement address a search for 'a more immediate, ecstatic and penetrating mode of living.' ... In the back and forth between Clinton and Gingrich, and in the elections of 2000 and 2004, I sometimes felt as if I were watching the psychodrama of the baby boom generation — a tale rooted in old grudges and revenge plots hatched on a handful of college campuses long ago — played out on the national stage."

In that same article I quoted Democratic advisor Paul Begala as saying, "I hate the Baby Boomers. They're the most self-centered, self-seeking, self-interested, self-absorbed, self-indulgent, self-aggrandizing generation in American history."

Obama and Begala are both Generation-Xers, and their contempt for and hatred of Boomers is typical of their generation. Boomers, growing up after the trauma of WW II, received a great deal of love, attention and privileges from their parents. By the time the Gen-Xers came along, growing up in the 60s and 70s, they didn't receive anything like the same level of attention, and came to have the attitudes expressed by Obama and Begala in the quotes above.

During the election campaign, Obama could say anything he wanted, as long as he criticized President Bush. He would receive wildly enthusiastic cheers from his supporters no matter what the content of his speech. As I wrote in July, 2008, in "Barack Obama in Berlin calls for greater European militarism," it was clear that the people, in America and Europe, who were wildly cheering Obama had absolutely no idea what he was talking about. They were cheering a fantasy Obama, not the real Obama standing before them.

Standing in front of an audience that cheers wildly no matter what you say is a like a drug-induced euphoria. You become addicted to the drug, you crave it more and more, and you begin to believe that the wild cheering is for the real you, not the fantasy in their minds. Thus, the fantasies held by the audience are transferred to the mind of the speaker like a kind of virus.

Obama frequently said that the world would change on January 20, 2009, as soon as he was inaugurated as President. His goal was to heal the world with his mere presence -- cure global warming, provide universal health care, close Guantanamo, leave Iraq in peace, bring a two-state solution to Palestinians and Israelis, beat the Taliban in Afghanistan, restore the stock market bubble, and dismantle President Bush's war against terror. Nothing was beyond his reach.

I was actually quite shocked by Obama's speeches after he won the election. Once he had won, he should have pulled back from some of his more quixotic and far-fetched campaign promises. Instead, much to my surprise, he seemed to become even more strident in claiming that the world would change on January 20.

That's when I really began to realize that Obama held a totally fantastical set of beliefs, that weren't just campaign rhetoric. He actually believed them. He really believed that there was no universal health care, that Guantanamo prison was open, that the Palestinians and Israelis could not agree to peace, etc. -- he really believed that these things were true because the Bush administration was simply evil and ideological, that it catered to special interests rather than to the best interests of the country, that all the country's problems really were caused by "the psychodrama of the baby boom generation — a tale rooted in old grudges and revenge plots hatched on a handful of college campuses long ago — played out on the national stage."

It's becoming increasingly clear that Obama himself has no strategic world view that goes beyond the reaction to what he calls the "psychodrama of the baby boom generation." He's deeply involved in the "old grudges and revenge plots" that he complained about in the Boomers.

This was apparent in his highly partisan nationally televised September 9 health care speech to Congress. For all that effort, I doubt that it changed a single person's mind. (Polls showed that his approval rating increased slightly after the speech, but the increase quickly dissipated.) If you watched the news in the following days, the only real discussion of the speech were the endless comments on Representative Joe Wilson's outburst "You lie!". The point is that the actual content of the speech was barely mentioned. It was a wasted speech.

A lot of the news this past week has taken place with Obama on the international stage. As usual, he's been a brilliant speaker, but he has nothing to show for it except a series of foreign policy disasters. Let's take a look at the issues:

American army general warns of imminent defeat in Afghanistan war

General Stanley McChrystal says more troops are needed immediately.

by John J. Xenakis

According to an internal army report that was leaked to the Washington Post, General McChrystal says that "Failure to gain the initiative and reverse insurgent momentum in the near-term (next 12 months) -- while Afghan security capacity matures -- risks an outcome where defeating the insurgency is no longer possible." Success is still possible, according to McChrystal, but only with tens of thousands of additional troops.

McChrystal's report is presenting a political problem for President Barack Obama and his administration.

On the one hand, Obama's rhetoric during the campaign was extremely strident and warlike towards Afghanistan. He claimed that President Bush had invested too much in the Iraq war, and vowed to retreat from Iraq, while investing more troops in Afghanistan.

On the other hand, Obama's Democratic party is very wary of supporting new troops for Afghanistan, and many on the far left would like an immediate American withdrawal from Afghanistan.

Obama has kicked the can down the road by saying that a complete strategy review will be necessary before any decision can be made on additional troops. However, this is going to be a growing political issue.

And that's only part of the political problem. The Afghan war effort also depends on the International Security Assistance Force (ISAF), a NATO force with soldiers drawn from several European countries, albeit usually reluctantly.

However, a recent Pew Research poll found significant opposition to troop increases was found in all NATO countries polled; at least half of those surveyed in Germany (63%), France (62%), Poland (57%), Canada (55%), Britain (51%) and Spain (50%) disapproved of sending more troops to Afghanistan.

Afghanistan vs Iraq wars

There's a lot of discussion today comparing the Iraq and Afghanistan wars, especially focusing on the "surge" that was so successful in the Iraq war, bringing an almost immediate end to most of the violence. The question is whether a "surge" of American or Nato troops in Afghanistan will be equally successful in bringing that war to a conclusion. So it's worthwhile to do a generational analysis on the differences between the two countries and the two wars.

As I wrote from the beginning in 2003, and many times since then, Iraq's last crisis war was the Iran/Iraq war of the 1980s. This means that Iraq is in a generational Awakening era, and is "attracted away from" war, so that a crisis civil war was impossible. It's quite possible that the violence would have ended at that time even without the surge, but it certainly would have ended before too much longer, with or without the surge.

Afghanistan's last crisis war was the very bloody 1992-96 civil war between Afghan ethnic groups. So Afghanistan is in a generational Recovery era (the era following a crisis war and preceding an Awakening era), and Afghanistan is even more repelled by war than the Iraqis are. (See "Basics of Generational Dynamics.") One fascinating sign of this that I wrote about last year was a study by the Jamestown Foundation that showed that Afghan Taliban suicide bombers almost never kill anyone but themselves.

So if that's true then why, you may ask, is there a war in Afghanistan at all?

The answer is: There isn't an Afghan war. The Afghan war was launched shortly after 9/11, and because the country was in a Recovery era, the Taliban army collapsed almost immediately. The war ended within a few months. There's no more war in Afghanistan.

What there is in Afghanistan is a group of radical Sunni Islamist insurgents that plant roadside bombs and conduct suicide bombings. But there's no real war.

And what about those suicide bombings? I've been unable to find recent information about the background of the suicide bombers, but there's little doubt in my mind that they're recruited from Taliban and al-Qaeda groups in Pakistan -- which is in a generational Crisis era. That's what happened in Iraq: the terrorist group Al-Qaeda in Iraq was unable to recruit Iraqis as suicide bombers, and had to import them from Saudi Arabia and Jordan.

But there's another huge difference between Iraq and Afghanistan: Iraqis put their nationalism ahead of their sectarian differences, but Afghans do not. In other words, Iraqis were Iraqis before they were Sunni or Shia Muslims.

In Iraq's last two crisis wars -- the Great Iraqi Revolution of 1920 and the Iran/Iraq war of the 1980s, Sunni and Shia Iraqis banded together against the foreign enemy, the British in 1920 and the Iranians in the 1980s. They did not fight each other. Thus, al-Qaeda in Iraq was able to stir up sectarian violence for a while, but eventually the Iraqis themselves turned against al-Qaeda in Iraq, and threw them out.

The situation in Afghanistan is very different. Afghanistan's last crisis war was a very bloody civil war between different Afghan ethnic groups. The Sunni Muslim Pashtuns in the south fought against what later became known as the "Northern Alliance" -- Shia Muslim Hazaras, as well as Tajiks, Uzbeks and other ethnic groups in the north. There was no Afghan nationalism.

I described the following map in my analysis last year of the Afghan war:

Afghan-Pak-India ethnic map
 Afghan-Pak-India ethnic map

Instead, after the 1992-96 civil war ended, the Afghan Pashtuns became the Taliban, allied themselves with Osama bin Laden and al-Qaeda, and governed the country until they were overthrown by the American / Nato invasion that followed the 9/11 attacks. After that, the Taliban became a group of anti-Western radical Islamist insurgents within the Pashtun ethnic group, and remained allied with al-Qaeda.

Official map of Pakistan, with the addition of the FATA (Federally Administered Tribal Areas), highlighting Swat Valley <font face=Arial size=-2>(Source: pakistan.gov.pk)</font>
 Official map of Pakistan, with the addition of the FATA (Federally Administered Tribal Areas), highlighting Swat Valley (Source: pakistan.gov.pk)

Even today, things MIGHT settle down if Afghanistan weren't right next door to Pakistan, which is in a generational Crisis era. Radical Islamist Pashtuns from Pakistan, along with al-Qaeda groups from the Arabian peninsula, have set up terrorist training camps in the Federally Administered Tribal Areas (FATA) of Pakistan. Prior to 9/11, those training camps used to be in Afghanistan itself.

And so, with that background, you can see the major difference between Afghanistan and Iraq. Iraqi Sunnis asserted their nationalism and threw out the foreigners -- al-Qaeda in Iraq.

But in Afghanistan, ethnic identity trumps nationalism, and there is no motivation whatsoever for the Pashtuns to throw out either the Pashtun Taliban or their civil war allies from al-Qaeda.

As I've written many, many times on this web site, when making Generational Dynamics predictions, the only important trends are the attitudes and behaviors of the masses of people, entire generations people. The attitudes of politicians are irrelevant, except insofar as they represent the attitudes of the people.

Thus, McChrystal's report says that the strength of the Taliban and al-Qaeda insurgency is growing: "The insurgents control or contest a significant portion of the country, although it is difficult to assess precisely how much due to a lack of ISAF presence. ... [The insurgency] is clearly supported from Pakistan. Senior leaders of the major Afghan insurgent groups are based in Pakistan, are linked with al Qaeda and other violent extremist groups, and are reportedly aided by some elements of Pakistan's ISI [Pakistan's Inter-Services Intelligence (ISI) agency]. ... [Al-Qaeda and other extremist movements] based in Pakistan channel foreign fighters, suicide bombers, and technical assistance into Afghanistan, and offer ideological motivation, training, and financial support."

Thus, we have this clear and growing trend among the masses of Pashtuns, and there is no chance whatsoever that a "surge" of American or Nato troops will bring an end to the Taliban terrorist threat. In fact, there is no chance whatsoever than ANYTHING will bring an end to the Taliban terrorist threat. The Taliban are not foreign intruders to be thrown out; instead, they're ordinary Pashtun people who have adopted the radical Islamist Taliban political view. In fact, it could almost be said that the differences between Taliban and non-Taliban Pashtun Afghans are no more signifcant than the differences between Democrats and Republicans in the U.S.

Thus, there is no war in Afghanistan. The war ended in 2002, and all that's left is Islamist suicide bombers acting against Western interests and against domestic enemy ethnic groups.

And if there's no war going on, then there's no way to win the war.

From the point of view of Generational Dynamics, Afghanistan is approaching a generational Awakening era, where the major internal conflicts will be political, not military. And there is no way for the American or Nato troops to resolve political conflicts; only the Afghans themselves can do that, and they're not going to do it.

American response

In the longer run, Afghanistan is of major strategic importance. I don't think that anyone believes that Afghanistan can be a stable country if the U.S. and Nato forces withdraw. And a Taliban takeover of the Afghan government would bring about a return of al-Qaeda safe havens, and would cause further destabilization of Pakistan.

It's funny, you know, but this is what always happens. A war always seems to look good at first, and receives a lot of public support. As the war runs into problems, the public turn against the war, and forget their initial support.

President Obama must already see the writing on the wall. If he doesn't approve the additional troops, then he'll be condemned when things go wrong. If he does approve the additional troops, then he'll anger his own hard-left base, and he'll still be condemned when things go wrong.

Everything seemed so easy to Barack Obama when he was campaigning, and could just blame everything on George Bush. Now Obama is making the decisions, and that's turning out to be a lot harder. It will be interesting to see how he handles the question of additional troops.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Afghanistan, Pakistan and India thread of the Generational Dynamics forum.) (26-Sep-2009) Permanent Link
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Big Iran street protests greet Ahmadinejad's fiery denunciations of Israel

Iran's political crisis continues to grow, as the college year begins.

by John J. Xenakis

Iran's president Mahmoud Ahmadinejad promised his audience, "This regime (Israel) will not last long. Do not tie your fate to it ... This regime has no future. Its life has come to an end."

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The occasion of the Friday speech by Iran's president Mahmoud Ahmadinejad was al-Quds Day, where al-Quds is the Arabic name for Jerusalem. Ahmadinejad was speaking in support of the Palestinians, and condemning Israel. Here are some excerpts from his speech:

"The plans for the formation of the [Zionist] regime had been drawn up before the World War I to rule all material and intellectual sources of the world. ...

We do believe that if war is waged in Iraq and Afghanistan, it is because of Zionists' provocation. If Sudan is suppressed it is because of Zionists' temptations. Zionists are behind all the conspiracies of the arrogance and colonialism. They do not allow the main factor of excuses for Palestine occupation be examined and surveyed. ...

The pretext for establishing the Zionist regime is a lie - a lie which relies on an unreliable claim, a mythical claim, and the occupation of Palestine has nothing to do with the Holocaust."

These are some of the most inflammatory statements that Ahmadinejad has made in a while.

As I've written in my analysis of Iran's strategy, Iran would like to gain hegemony over the entire Mideast. To this end, they've provided money to the Palestinians, armed Hizbollah to fight Israel, supplied Shia terrorists in Iraq with materials for roadside bombs, and supplied Sunni terrorists in Afghanistan with materials for roadside bombs. In recent months, Iran has been providing support to the Shia Houthi rebels in Yemen's civil war.

Ahmadinejad is trying to mimic the success of Iran's 1979 Islamic Revolution, in which the leaders united the country by referring to the United States as "The Great Satan." From the point of view of Generational Dynamics, that kind of strategy works in a generational Crisis era, such as Iran was in during the 1979 revolution and the 1980-88 Iran/Iraq war. But it can't work today, because Iran is now in a generational Awakening era. (See "Basics of Generational Dynamics.")

Thus, a speech at the same event given by hard-line cleric, Ayatollah Ahmad Khatami, returns to the theme of Jerusalem and the Palestinians:

"The late Imam Khomeini and the Islamic administration's support of the Palestinian cause is not a matter of politics but has deep roots in religion. The first religious basis of the support of Palestine is that the Holy Koran refers to Muslims as a united body."

This statement is part of an incredible fantasy held by Ahmadinejad and other hard-liners in Iran's government: That Iran can create an Islamic empire encompassing the entire Mideast. Thus, the Iranians are aiding the Hamas Palestinian terrorists and the Lebanese Hizbollah terrorists to fight Israel. As unbelievable as this may seem, they actually believe that by doing things like that, they're going to be able to create an Islamic empire, centered in Tehran, that will control the entire Mideast.

This is tied into the fanatical religious belief, held by Ahmadinejad and other hardline Iranian leaders, of the coming of the Mahdi that I discussed in "Iran and Ahmadinejad are waiting for the Mahdi," something that's roughly equivalent to waiting for the second coming of Christ in the Christian religion.

They actually believe that the Arab/Sunni Muslim populations on the Arabian peninsula will allow themselves to be governed by the Persian/Shia Muslim government in Tehran. Such a belief is fanaticism to the point of insanity.

Iranian officials had feared al-Quds day demonstrations, and had forbidden them with threats of arrest. However, that didn't stop tens of thousands from protesting, according to The Times:

"In Tehran and other cities, tens of thousands of demonstrators hijacked Iran’s annual al-Quds Day rallies in support of the Palestinian cause and turned them into protests against the oppression of Iranians. The security forces hit back with teargas and baton charges. There were violent confrontations between government and opposition supporters in the squares and avenues of central Tehran and numerous reports of arrests and injuries. ...

Car drivers stuck in the gridlock sounded their horns and turned on their headlights to show support. Protests were also reported in Isfahan, Shiraz, Tabriz, Qum, Rasht and other cities. Within hours the internet was flooded with video clips showing jubilant crowds applauding, singing and holding their arms aloft to form a sea of V-for-victory signs. Witnesses said that they chanted “Rape and torture will not stop us” and “Liar, liar, where is your 63 per cent?” — a reference to Mr Ahmadinejad’s alleged share of June’s vote.

They chanted: “I will fight, I will die, but I will take back my country”, and “Supreme Leader! This is the last message — the Green Movement of Iran is prepared for the uprising”. Mocking the regime’s concern for the Palestinians, they chanted: “Neither Gaza nor Lebanon — I sacrifice my life for Iran.” Some held placards saying: “If I rise, if you rise, everyone will rise.”

One elderly woman said: “They have raped, murdered and tortured our youth after stealing the election. May God’s wrath come down on them.”

A 69-year-old merchant said: “I came to show solidarity with the youth of my country. The regime is destroying Islam and Iran.”

A young female student said: “The cheating, the raping, the killing and the torture drive you mad. I’ve come to express my hatred for Ahmadinejad and his protector, that so-called Great Leader of the Revolution.”

Of particular note was the chant, "Neither Gaza nor Lebanon — I sacrifice my life for Iran." This was a direct repudiation of Ahmadinejad's policy of supporting Hamas and Hizbollah.

Analysts at organizations like Stratfor and the BBC had predicted, earlier this summer, that the protests would be crushed. At one point, the BBC reported all day that the protests were already dead. On the very next day, there were tens of thousands of protestors.

Analysts, journalists and politicians all got it wrong because they were using the wrong historical analogy -- the massive 1989 Tiananmen Square protests in China, that died out after they were crushed by China's People's Liberation Army firing on and killing hundreds or thousands of protestors.

However, as I said from the beginning, a Generational Dynamics analysis indicates that the best historical analogy is America's protests beginning with the 1967 Summer of Love. Those protests continued for almost a decade, and resulted in the failed presidencies of Lyndon Johnson and Richard Nixon, as well as an American defeat in Vietnam.

(For information about generational Awakening eras, see "Basics of Generational Dynamics." For information about America's Awakening era in the 1960s-70s, see "Iraq Today vs 1960s America." For information about the Summer of Love, see "Boomers commemorate the 40th anniversary of the Summer of Love.")

It's way too early to say that "the Islamic Revolution is toast," but it's not to early to say that Iran's government faces many years of political crisis, as the generation of hardline survivors of the 1979 revolution all retire and die, and younger post-war generations grow in size. These younger generations are generally pro-American and pro-West, and they are not interested in wiping Israel off the map. When colleges open in the fall, large campus demonstrations are likely.

And it's still my expectation, as I've stated several times in the past, that when the Clash of Civilizations world war arrives, Iran will be the ally, not the enemy, of America, Israel and the West.

(Comments: For reader comments, questions and discussion, see the Iran thread of the Generational Dynamics forum.) (19-Sep-2009) Permanent Link
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Stock market goes dangerously parabolic, as day traders bid prices up

Wall Street markets shot up 1-1.5% on Wednesday, 48% above the March lows.

by John J. Xenakis

As we wrote last month in "Stock markets reflect increasingly delusional Wall Street," this new stock market bubble represents an increasingly dangerous situation. It's like stretching a spring; the more you stretch it, the more violently it snaps back when you release it.

The surge appears to be related to a strong showing by day traders -- people who trade stocks several times a day in order to take advantage of minute by minute movements in the price of the stock -- according to a WSJ article:

"Return of Day Traders Drives Rise in Volume

Even as mom-and-pop investors sit out the rally, short-term players -- including some classic individual day traders -- appear to be making a comeback.

Trading volume surged 14% or more last month from July at online brokerage firms....

Total daily average revenue trades at E*Trade rose 37% from a year earlier in August.

It amounts to an unusually large jump in online trading, traditionally the domain of smaller investors. "Usually, August is one of the worst months of the year," said Richard Repetto of Sandler O'Neill Partners L.P., with volume typically falling 10% from July.

The trading surge coincided with a powerful rally in stock prices -- a wave these traders may have been trying to ride. The Dow Jones Industrial Average is up 14% from the start of July and 4% from the beginning of August. On Tuesday, the Dow closed at 9683.41, up 0.59%, its highest level since Oct. 6, 2008.

The revival of short-term trading doesn't necessarily reflect long-term confidence in stocks. That's because a lot of long-term money is still sitting on the sidelines."

If true, then this new stock market bubble is actually being caused by day traders competing with each other to bid up stock prices. This is dangerous because bad news can cause stock prices to fall very rapidly, if day traders begin to panic.

That's what happened to the Shanghai stock market, which was pushed by day traders to high bubble levels, and then crashed to below 50% of its peak.

Thus, there's no way to tell how long or how high the current stock market bubble will grow, but the concern is that when it bursts, it will do so rapidly.

The bubble is propelled by the fantasy that there's a full-fledged economic recovery in progress. This fantasy is put forth by the politicians, who have votes to gain, and by CNBC and other financial media, who have advertisers to please.

Looking at some of the actual data, we see a very different picture.

Job openings vs unemployed <font face=Arial size=-2>(Source: Dave Rosenberg, Gluskin Shiff)</font>
 Job openings vs unemployed (Source: Dave Rosenberg, Gluskin Shiff)

The unemployment picture continues to worsen, and even the Administration agrees that unemployment is going to go well above 10%. However, Dave Rosenberg of Gluskin Shiff, in his September 11 "Breakfast with Dave Rosenberg" commentary (or click here for PDF file) says that the job situation is much worse than government officials are saying:

"The problem is not so much with firings any more; it’s more about a complete lack of new hiring. The NFIB index that measures job openings fell again in August — from 9.0 to a 27-year low of 8.0. Challenger hiring plans collapsed 24% in August to a three-month low. Someone obviously forgot to tell the folks at Manpower that the recession was over because its employment plan index for the U.S. just broke below the worst levels of the last three economic downturns. The JOLTS data from the Bureau of Labor Statistics also showed that job openings plunged 121,000 in July and we now officially, for the first time on record, have six unemployed people competing for every possible job opening out there. No wonder organic wages and salaries are deflating a record [Year on Year] rate of nearly 5%."

This comes at a time of increasing monetary deflation, according to Rosenberg. He says that over the four weeks up to August 24, bank credit shrank at an "epic" 9% annual pace, the M2 money supply shrank at 12.2% and M1 shrank at 6.5%. "For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said. Credit is shrinking at a "Great Depression" rate, according to Ambrose Evans-Pritchard.

This is the deflationary spiral that I've been talking about for years. Each day, there's less money in the world than there was the day before, as the money created during the real estate and credit bubbles continues to be destroyed. There is absolutely nothing about this that points to a recovery, or justifies the current parabolic behavior of the stock market.

Nouriel Roubini was interviewed by CNBC on Monday morning, and he painted a very harsh picture of the current economy, calling it "Death by a thousand cuts":

"On the issue of the banks, let's be realistic about it. 350 non-bank mortgage lenders have gone out of business more than 100 banks have gone out of business. The banks that are on the list of the FDIC that are in trouble are already 400. So at the end of the day we might have over 1000 financial institutions, and even some of the big ones, like Fannie and Freddie, Bear Stearns, AIG, Lehman have gone bust.

So this is a severe financial crisis. Now, how would I have dealt with the issue of the banks?

My view of it is that there are still many losses that have not been acknowledged. There's now massive forebearance. For example, $2 trillion of commercial real estate is in trouble. They have default rates of 30%. But now the regulators have said, "Forebearance. Let's pretend that these assets are now worth face value. We're going to wait."

[[This is a point that I've been making frequently. Not only have bankers been defrauding the public, and continue to do so, but regulators are complicit in the fraud, and are urging banks to continue to defraud the public. - JX]]

And eventually, there's going to be trouble -- for regional banks, and for smaller banks.

If you think about it, subprime went to near prime and prime. Now it's commercial real estate, credit cards, auto loans, student loans, leveraged loans, industrial and commercial loans, corporate bonds, muni bonds -- all these losses slowly slowly are adding up. It's going to be death by a thousand cuts.

We're not going to have another blow-up like Lehman, because we've decided that nothing that's systemically important is going to be allowed to collapse again like Lehman.

But the financial system is severely damaged. It's not just the banks. Most of the shadow banking system has completely disappeared. There is no securitization, there is no credit growth. So how is the economy going to grow?

Let's recognize that things are much better than a year ago, of course, and I credit the policy makers and their strong actions, but there is still huge amount of damage in the financial system, and in the real economy.

[[Question about interest-only mortgages]]

Nouriel Roubini <font face=Arial size=-2>(Source: CNBC)</font>
 Nouriel Roubini (Source: CNBC)

Absolutely. Right now, delinquencies are rising from sub-prime to near-prime and prime on the interest-only mortgages.

There is now, by the way, a moratorium on foreclosure. Because of that, the excess supply of homes on the market has been limited, but eventually this moratorium is going to disappear, and people who looked at the data, they see a massive increase in the supply of existing homes that are going to come on the market in the next six to 12 months.

So while the quantities in the housing market have now stabilized because they fell 80% from the peak demand and supply, the gap between demand and supply is so huge, you can stop producing homes for a year to get rid of the inventories. And about 1/3 of all existing home sales are distress sales, short sales or sales of foreclosed homes, and that's going to increase.

So the price adjustment, in my view, is going to continue for another year, and on a cumulative basis, 40% reduction in home prices some time next year from the peak. That means that half of the people that have a mortgage are going to be under water, with negative equity in their homes. That's what we're facing right now."

I wanted to provide this quote from Roubini at length, because he gives a lengthy laundry list of the problems in the economy, including the expected 40% cumulative reduction in home prices. Roubini has flip-flopped several times on how long and how deep the recession will be, and even whether it will lead to a new Great Depression, which he was worried about a year ago, but no longer considers possible.

Roubini has a brilliant "bottom up" view of the economy that allows him to see how these different economic components are coming together to produce a further financial crisis. However, he has very weak "top-down" vision, and can't see that we will indeed have other blowups like Lehman, or that we will indeed have a new Great Depression, as is predicted by Generational Dynamics.

I've been writing about the deflationary trend for six years, and the deflationary spiral since 2007. I still receive e-mail messages from people who disagree with me on this point, even when they agree with other things. However, there's plenty of evidence pointing to a continuing deflationary spiral, including a recent WSJ article which says that deflation is being caused by a reduction in liquidity, caused in turn by a reduction in the velocity of money:

The collapsing velocity of money leads to further deflation <font size=-2>(Source: wsj.com)</font>
 The collapsing velocity of money leads to further deflation (Source: wsj.com)

"As Liquidity Drains, So Does Inflation Risk ...

In fact, whether by accident or design, some liquidity already seems to be draining away. M2 money supply, a measure that includes time deposits such as certificates of deposit, has fallen for four weeks in a row, at a 12% annualized rate, according to Gluskin Sheff chief economist David Rosenberg.

A separate measure by the Federal Reserve Bank of St. Louis, called MZM and designed to better gauge broad liquidity, has fallen at a 16% annualized pace in that time.

At $8.3 trillion and $9.5 trillion, respectively, both money measures still are near records. But money velocity, or the speed with which cash is spent, is declining. ..."

The graph shows that the money supply increased during the massive credit bubble of 2003-2007, but has been falling sharply since the beginning of the deflationary spiral that began in August, 2007.

This measure of the money supply actually ties together monetary policy with considerations from generational theory.

As a society enters a generational Crisis era (such as the current one), people become risk-averse, and stop spending or lending money. This lowers the velocity of money, causing deflation (rather than inflation).

As the crisis continues, people will become even more risk-averse, and the velocity of money is going to go even lower, causing further deflation. It's still my expectation that the CPI will fall by 30% in the next few years, despite bailouts, stimulus, and quantitative easing.

This deflationary spiral makes the stock market incredibly dangerous for everybody, even for people who understand that we're in a deflationary spiral.

I've previously written about Higgenbotham, a member of the Generational Dynamics forum, who last month had already lost about 4% of his net worth by going short in the market. He was betting that the rally would end and the market would go sharply down. This would make a lot of money when it happened, but first he'd have to risk more and more money as the rally continued.

Well, on Thursday, as the market continued its rally and appeared to be going parabolic, he posted the following:

"I took my loss today, as what is going on looks nothing like what I expected (for example, look how much gold and silver went up today and how low the dollar is - I had predicted that would not happen). Shorting this bear market rally destroyed almost 8% of my net worth. The S&P is up 13.5% from where I started shorting.

Analyzing my psychology heading into this exercise in Maximum Ruin (which has probably been gleaned by anyone reading this thread): First, I had made some money in the previous bubble from 2003 until 2007, although I did sell everything 1-2 years before their respective highs (real estate, stocks, etc). Then I was short at the top of the stock market in 2007 and made some money there. And, as we know from the forum, I made a little money last Fall buying and selling stocks. So I hadn't lost a dime going into this exercise. I think what can happen in such cases is that a person becomes overconfident and doesn't consider their actions carefully enough. In addition, the overconfidence results in the failure to take the actions that one knows should be taken. I knew that I should be in safe cash and tangibles and should not be fooling with the market.

As I watched my money get destroyed today, I told myself over and over that this will be the last time I ever speculate. I realized that the actions that had led to my previous success (or perhaps luck would be a better word) were based on similar thinking to what had led to taking the short position to begin with, but that I was basically standing in front of a tsunami that I had incorrectly identified. As we stated the other day, this market environment is nothing like that which existed previous to the crisis (and perhaps will be less similar to the past generational crisis than anticipated). During that time, it always seemed like the market would forgive your errors and let you out gently.

Generally, the country hasn't learned this lesson yet, but this small exercise in Maximum Ruin gives me a taste of what is coming and how people are going to feel when it is over. It's going to be a very different world once this market crashes for real. Of course, having an understanding of what is coming makes all the difference because we all know that the days of easy money are over and once your savings are lost it will be impossible to recover them. One of the big problems I see is that our leaders have convinced many that the days of easy money are not over, when in fact they most likely are. Without that knowledge, losing this money probably wouldn't have bothered me much. For example, about 12 years ago, I lost about 20% of my money in the market. At that time, it didn't bother me nearly as much as losing 8% today and, in fact, I hadn't ever calculated the percentage until just recently. Looking back on that now, I must have been nuts...."

Intuitively, you would think that the bulls who buy and hold stock ("longs") and the bears who short stock are complementary in some way. You would think that the bulls make money if and only if the bears lose money, and vice-versa.

But that's not entirely true in a deflationary spiral. What's happening is that there's less money in the world every day, and the deflationary spiral pulls money from everywhere that money is changing hands.

Thus, in the current situation, the bears are losing money because of this new bubble / rally. Also, the bulls are staying in the market, and they're going to lose money when the market plunges again.

During the bubble, hundreds of trillions of dollars of new money were being created all the time. So everyone, both bulls and bears, could make money.

But now that the bubble is leaking, all of that money is disappearing, and the money is being pulled from every possible source.

That's the Principle of Maximum Ruin, and it applies to both bears and bulls in a deflationary spiral.

That's why literally stuffing the money into your mattress is the safest thing to do. Keep the money out of play, where the deflationary spiral can't get at it. That's the only way to stay ahead of everybody else.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (17-Sep-2009) Permanent Link
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Escalating civil war in Yemen threatens to pull in Iran, Saudi Arabia and U.S.

Last week, President Obama said we would help Yemen in its "fight against terrorism,"

by John J. Xenakis in a letter delivered to Yemeni President Ali Abdullah Saleh. If this commitment is followed through, it would involve the U.S. in Yemen's civil war.

Yemen. Fighting is increasing in the northern Saada province, and displaced refugees are nearing the nation's capital, Sana'a. <font size=-2>(Source: CIA Fact Book / Economist)</font>
 Yemen. Fighting is increasing in the northern Saada province, and displaced refugees are nearing the nation's capital, Sana'a. (Source: CIA Fact Book / Economist)

The promise was given because the civil war is escalating, and is threatening the stability of the Yemen's government. Yemen has enormous strategic importance because it borders on the Gulf of Aden and the Red Sea. Shipping in these seas is already suffering because of pirates based in Somalia, and the collapse of Yemen's government could provide additional bases for pirates.

The fighting is between tribesmen loyal to the Shia Muslim Houthi family, a powerful northern clan, versus the Sunni Muslim government's army. The fighting has been going on mostly in the Saada province, but hundreds of thousands of refugees have been forced to move south, and are now within 30 miles of the nation's capital, Sana'a.

This situation has already reached humanitarian crisis proportions, according to the United Nations, while a $23 million emergency appeal for humanitarian funds launched nine days ago has not yet received a single cent.

Tribal warfare has been going on in Yemen for centuries, and reached a peak in the early 1920s with the collapse of the Ottoman Empire. It's now growing into a new peak, thanks to the tribal identification with wider groups: the Shia Muslims of Iran and the Sunni Muslims of Saudi Arabia. As I've written many times in the past, the Mideast is headed for a Sunni vs Shia war in the next few years with certainty.

As if that weren't enough problems for the Yemen government, the al-Qaeda terrorist group has been establishing bases in Yemen.

The Saudi and Yemeni branches of al-Qaeda have merged, earlier this year, to form a single organization, al Qaeda in the Arabian Peninsula (AQAP). The instability in Yemen has given AQAP a sanctuary for bases in Yemen. AQAP has been conducting terrorist attacks, and last month the region was shocked when an AQAP suicide bomber almost succeeded in killing Saudi Arabia's security chief, and a prominent member of the Saudi royal family.

AQAP is also fighting the Yemen government with terrorist attacks, but in a version of the old Arab saying, "The enemy of my enemy is my friend," the Sunni terrorist group is not supporting the Shia Houthi rebels. However, according to Iran, Saudi Arabia is supporting the conflict against the Houthis, and are even using some segments of al-Qaeda as part of the crackdown.

On the other side, Yemen's president Ali Abdullah Saleh said in a recent interview that "Security forces have seized two cells whose members acknowledged that they received some $100 thousand from some destinations in Iran," although he didn't accuse Iran's government directly. He added that Muqtada Al-Sadr, the Shia cleric in Iraq who played a big part in Iraq's past sectarian violence, is also supporting the Houthi rebels.

In 2006, I discussed the Shia Muslim belief of the coming of the Mahdi in "Iran and Ahmadinejad are waiting for the Mahdi," something that's roughly equivalent to waiting for the second coming of Christ in the Christian religion.

According to Najeeb Ghallab, a Yemeni scholar, "Iran has strategic goals in this regard, and the Iranians believe an army will come from Yemen to support the long-awaited 12th imam, the Mahdi. Any threat to the Yemeni state will also threaten Saudi Arabia, the only force that can confront Iran. Iran therefore has an interest in promoting threats to Yemen."

Thus, instead of a local tribal war, what we're seeing is the beginning of a proxy war between Iran and Saudi Arabia, who are bitter enemies and who are competing for hegemony in the Middle East.

On top of everything else, let's not forget to mention that there's a southern Yemen secessionist movement. South Yemen has historically been separate from North Yemen, and this secessionist movement is gaining strength because Yemen's army and security forces are embroiled in the war with the Houthis.

I usually end discussions of this type by saying that this war might escalate, or it might fizzle or lead to nothing. But in this case, it's hard to see how it would fizzle.

The Yemen government is facing a Houthi rebellion and humanitarian crisis, terrorist acts by al-Qaeda, and a southern secessionist movement. All three of these elements are going to increase.

The only question remaining is whether Yemen's civil war will expand into a larger regional war and, if so, when.

(Comments: For reader comments, questions and discussion, see the Yemen thread of the Generational Dynamics forum.) (13-Sep-2009) Permanent Link
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The housing bubble began in 1995.

This means that the housing crisis will last for almost another decade.

by John J. Xenakis

Pundits, politicians, journalists and Nobel prize winners have all been looking at various political explanations of the housing bubble. For years, they said the bubble didn't exist at all, but late in 2007 when it clearly was leaking, they blamed it on Alan Greenspan or George Bush, using some tortured logic.

Almost none of the mainstream analysts and economists even admitted that there was a real estate bubble until 2006 or so, when Nouriel Roubini discovered the bubble and announced it to the world. By that time, it was already pretty clear that it had begun to leak.

I started writing about the real estate bubble in 2004, but I too thought at that time that it was caused by the low near-zero interest rates that Alan Greenspan and the Fed had put into effect. I later rejected that view, as I came to understand that the bubble occurred in countries around the world.

I've just become aware of a 2002 research report by Dean Baker of the Washington-based Center for Economic Policy and Research. This paper shows clearly that the real estate bubble began in 1995, the same time as the dot-com bubble.

Baker shows this in several ways, but the following graph shows it most clearly:

Cost of owning real estate versus renting, 1975-2002 <font size=-2>(Source: Dean Baker)</font>
 Cost of owning real estate versus renting, 1975-2002 (Source: Dean Baker)

This graph compares real estate prices with rental prices. As you can see, the two graphs began diverging significantly in 1995, with cost of ownership surging.

This REALLY makes a lot of sense, because it corresponds exactly to the start of the dot-com bubble. Furthermore, although the real estate bubble didn't START in 2003, it really skyrocketed starting in 2003, and that also corresponds to the huge credit bubble.

Let's take another look at this chart, that I first posted in 2007:

Generational 'moods' overlaying Dow Industrials since 1950
 Generational 'moods' overlaying Dow Industrials since 1950

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I described this chart in detail in the above-mentioned article, but here I only wish to relate this chart to this new information about the real estate bubble.

The point of inflection that occurred in 1995, the time when all the Great Depression survivors disappeared (retired or died), and Boomers rose to senior management positions. At this time, the cautious investment strategies of the risk-averse Depression survivors were replaced by the reckless investment strategies of the Boomers. We now know that the real estate bubble began at the same time of generational change.

Then, in 2003, the credit bubble exploded, and so did the real estate bubble.

This really ties things together from the point of view of Generational Dynamics. It's always bothered me a little that the real estate bubble apparently began in 2003, but now with the real estate bubble starting in 1995, along with the dot-com bubble, everything fits together.

Now, there's a little more to this story.

I found my way to the 2002 paper on the housing bubble through a blog entry by its author, Dean Baker. Baker was commenting on a NY Times article that congratulated President Obama, Timothy Geithner, Lawrence Summers, Ben Bernanke and Henry Paulson because "the financial crisis of 2008 turned out to be far less bad than it could have been."

Here are some excerpts:

"What If the Captain of the Titanic Managed to Get Three Quarters of the Passengers on Life Boats?

David Leonhardt wants to congratulate the gang that led us into the worse economic downturn in more than 70 years because it will not be as bad as the Great Depression. Yes, the downturn could be worse, but let's be serious.

This crash was 100 percent preventable to anyone watching the economy and capable of doing 3rd grade arithmetic. The housing bubble was easy to see and it should have been obvious that its collapse would devastate the economy. ...

This is a complete disaster. Any custodian, dishwasher or shoe salesperson who showed the same degree of incompetence on their job would be fired instantly. There is no reason that the country should engage in this soft bigotry of low expectations when it comes to economic policy. This crew blew it just about as badly as anyone conceivably could. Saying that you didn't give us another great depression is not exactly a winning re-election slogan."

This is what drives me crazy. Here's a guy from a Washington DC economic think tank. He's done the research. He's established that the real estate bubble is correlated to the technology bubble. He offers no opinion at all as to what happened in 1995 to cause both bubbles to start growing; indeed, he has no idea why the bubbles occurred at all, and why they began in 1995, as opposed to 1985 or 2005. He doesn't even pretend to have the answers to these questions.

And yet, even though he has no idea about how the bubble started, he's ABSOLUTELY CERTAIN he knows all the answers about how to keep the bubble from crashing. He says, "This crash was 100 percent preventable to anyone watching the economy and capable of doing 3rd grade arithmetic. The housing bubble was easy to see and it should have been obvious that its collapse would devastate the economy."

Well how the hell was the crash preventable? Perhaps he thinks that Congress could have passed a law making it illegal for bubbles to crash. What more could President Obama, Timothy Geithner, Lawrence Summers, Ben Bernanke and Henry Paulson have done beyond what they did do -- flood the economy with trillions of dollars worth of bailouts, stimulus and quantitative easing?

In fact, now that we know that the housing bubble began in 1995, we can draw some further conclusions: Since the bubble started leaking in 2006, it lasted for 11 years, and so we can apply the Law of Mean Reversion and, assuming that it leaks at roughly the same rate that it grew in the first place, the housing crisis will last 11 years, until 2017.

The credit and real estate bubbles were hundreds of trillions of dollars in size, and growing. To say that the crash was preventable is typical of the nonsense produced by economists today.

Speaking of economists who produce lots of nonsense, Nobel prize winning economist Paul Krugman has just written a lengthy article titled, "How Did Economists Get It So Wrong?" Krugman won the Nobel Prize because he met the prize committee's major criterion: Hatred of George Bush. In his columns, he's pretty much given up any pretense of economics, since each conclusion he reaches is based on ideological considerations. One of the major reasons that economists got it so wrong is that they interpret everything through an ideological filter. Krugman's new article might be called an ideological history of economics of the 20th century. Pathetic.

At any rate, now that we know that the housing bubble began in 1995, we know that it couldn't have been caused by George Bush or Ben Bernanke. It also wasn't caused by Alan Greenspan's near-zero interest rate policy, since that began in 2002. Ideologues on the right might try to blame it on President Bill Clinton, but that's silly as well. The real estate and dot-com technology bubbles were caused by the disappearance of the risk-averse Great Depression survivors from senior management positions in the early 1990s, and the dumb investments made by Boomers when they reached those senior management positions.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (8-Sep-2009) Permanent Link
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Laughable SEC report on Madoff absolves SEC management of blame

"Confusion" and "inexperience" of young SEC staff members are blamed.

by John J. Xenakis

I frequently write on this web site about the lethal combination of nihilistic Gen-Xers, managed by stupid, incompetent Boomers. There's no better example of this than the way the SEC handled Bernie Madoff, the man who defrauded hundreds of investors of $65 billion.

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According to the report, the blame for the failure of the SEC to figure out what Bernard Madoff was doing was entirely on the young Enforcement staff, who were "confused" and "inexperienced." The confusion and inexperience apparently lasted 16 years, because that's how long they ignored warnings from various people.

Here are some excerpts from the executive summary:

"During the course of both these examinations, the examination teams discovered suspicious information and evidence and caught Madoff in contradictions and inconsistencies. However, they either disregarded these concerns or simply asked Madoff about them. Even when Madoffs answers were seemingly implausible, the SEC examiners accepted them at face value.

In both examinations, the examiners made the surprising discovery that Madoffs mysterious hedge fund business was making significantly more money than his well known market-making operation. However, no one identified this revelation as a cause for concern.

Astoundingly, both examinations were open at the same time in different offices without either knowing the other one was conducting an identical examination. In fact, it was Madoff himself who informed one of the examination teams that the other examination team had already received the information they were seeking from him. ...

Both examinations concluded with numerous unresolved questions and without any significant attempt to examine the possibility that Madoff was misrepresenting his trading and operating a Ponzi scheme.

The investigation that arose from the most detailed complaint provided to the SEC, which explicitly stated it was "highly likely" that "Madoff was operating a Ponzi scheme," never really investigated the possibility of a Ponzi scheme. The relatively inexperienced Enforcement staff failed to appreciate the significance of the analysis in the complaint, and almost immediately expressed skepticism and disbelief. Most of their investigation was directed at determining whether Madoff should register as an investment adviser or whether Madoff's hedge fund investors' disclosures were adequate.

As with the examinations, the Enforcement staff almost immediately caught Madoff in lies and misrepresentations, but failed to follow up on inconsistencies. They rebuffed offers of additional evidence from the complainant, and were confused about certain critical and fundamental aspects of Madoff's operations. When Madoff provided evasive or contradictory answers to important questions in testimony, they simply accepted as plausible his explanations.

Although the Enforcement staff made attempts to seek information from independent third-parties, they failed to follow up On these requests. They reached out to the NASD and asked for information on whether Madoffhad options positions on a certain date, but when they received a report that there were in fact no options positions on that date, they did not take any further steps. An Enforcement staff attorney made several attempts to obtain documentation from European counterparties (another independent third-party), and although a letter was drafted, the Enforcement staff decided not to send it. Had any of these efforts been fully executed, they would have led to Madoff's Ponzi scheme being uncovered."

It goes on and on like this.

When you read stuff like this you really realize that the inmates were running the asylum. Where were the (presumably Boomer) senior managers in all this?

Did senior management never review the findings of the young Enforcement Staff? Were they allowed to do whatever they wanted, without anyone supervising them? When the Enforcement staff issued opinions, did no one in upper management question them?

This is not a trivial matter, and it's a perfect example of what I call stupid Boomers managing (or failing to manage) nihilistic Gen-Xers.

If you read the report, you'll see that this entire farce is blamed on "confusion" and "inexperience" of the Enforcement staff, presumably a group of young Millennial (Gen-Y) auditors, supervised by Gen-X middle managers. Presumably they were all college graduates, many having studied finance and law. Presumably some were just out of college, but many others had been working for 10-20 years. And you're telling me that this group of people were confused and inexperienced? That's bullshit.

Let's take another look at one paragraph from the above extract:

"As with the examinations, the Enforcement staff almost immediately caught Madoff in lies and misrepresentations, but failed to follow up on inconsistencies. They rebuffed offers of additional evidence from the complainant, and were confused about certain critical and fundamental aspects of Madoff's operations. When Madoff provided evasive or contradictory answers to important questions in testimony, they simply accepted as plausible his explanations."

This is a total farce. Are you really going to tell me that when these professional auditors and investigators, and their supervisors, when faced with obvious lies, were so stupid that they did no follow up whatsoever? And that this went on for 16 years? This is the ultimate court defense: "I can't possibly be guilty, Your Honor, because I'm way too stupid to have committed this crime."

These people simply didn't do their jobs -- on purpose. Well, why not? The Enforcement staff were contemptuous of their managers and of the rules they were asked to enforce. That's the heart of Gen-X nihilism, just as failure to manage is the heart of Boomer stupidity. That's how Gen-Xers and Boomers work together to create disasters.

I've been criticizing the SEC for many years. My original point, that I first starting making in 2002, is that the SEC had been formed in the 1930s with the specific purpose of preventing a new stock market bubble like the one that occurred in the 1920s. They completely failed to stop the dot-com bubble of the late 1990s, and now you can see why. The people at the SEC didn't give a shit about anything.

The only good thing about this report is that you can see how pathetic this agency is. According to the report, there were unsupervised children running around conducting investigations, being distracted every time someone offered them a lollipop. Management is invisible in this report.

And the same people are still there. The former chairman, Christopher Cox, has been replaced by someone new, Mary L. Schapiro. But this report, written under Shapiro's direction, shows that Shapiro is just as incompetent as Cox was, and anyway, all the same "confused" employees are still in place

The biggest mistake that you can make, Dear Reader, is to assume that what happened here is unique to the SEC. The same kind of thing happened and is continuing to happen in millions of businesses and government agencies across the country (and, indeed, across the world).

The current financial crisis was brought about when almost every financial and real estate institution in the country (and the world) began practicing corruption and fraud on a large scale. The employees of these organizations are still there, screwing ordinary people, and collecting their million dollar bonuses.

Long-time readers of this web site know that I've been describing this corruption and fraud for many years now, and I've been repeatedly revolted, disgusted and infuriated by what I've seen going on. I received a lot of criticism for some things I said, but everything I've said, and more, have turned out to be true. I'm still sickened by the bumbling incompetence in the Administration, by the clown circus in Congress, by the continued fraud being practiced by financial institutions, and by the Pollyannaish garbage being put forth by CNBC, the Wall Street Journal, and other financial media.

What most people don't realize is that almost everyone is playing "kick the can," meaning that they're doing everything to cover up what's going on, hoping that the problem will go away.

You may recall that Citibank and other banks were forced to admit that the assets in their portfolios were virtually worthless, since they were structured assets based on worthless mortgage-backed securities. You may have thought that all of those worthless assets have finally been removed. That's not true. There are some $1 trillion (notional value) in additional securities that have no market value, and regulators are allowing them to continue to do so. These securities represent a fraud on investors, because they hide the true value of the institutions. Investors purchase stock in the institution, based on the phony notional value of the assets.

This is just one example of the widespread fraud and corruption that's continuing at this very time. Nothing has been learned in the last two years, since the credit crisis began. We're following exactly the same path that we followed in the 1930s, and we still have much farther to go down.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (6-Sep-2009) Permanent Link
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Wartime entertainer Vera Lynn returns to pop music charts in UK

The romantic escapist music of the the 1930s and 1940s is returning.

by John J. Xenakis

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Arctic Monkeys were the most popular artists in the UK last week, followed close behind by Dizzee Rascal. But that wasn't the big news.

The big news is that "the Soldier's Sweetheart," Vera Lynn, is back on the charts at number 20 with her recording of "We'll Meet Again," a song that she sang to the troops during the darkest days of World War II. The release of the recording was timed for release at the 70 year anniversary of UK's declaration of war on Germany, September 2, 1939.

Here's a video showing an actual performance of Vera Lynn before an audience from the Royal Air Force in 1942: 

    We'll meet again, don't know where, don't know when
    But I'm sure we'll meet again some sunny day
    Keep smiling through, just the way you used to do
    Till the blue skies chase the dark clouds far away


    Now, won't you please say "Hello" to the folks that I know
    Tell 'em it won't be long
    'Cause they'd be happy to know that when you saw me go
    I was singing this song


    We'll meet again, don't know where, don't know when
    But I'm sure we'll meet again some sunny day

One of the few real pleasures of writing articles for this web site is to describe the return of the Big Band Era style music.

I wrote about this last April, when Susan Boyle won worldwide acclaim and popularity for her performance of "I Dreamed a Dream."

The best music of the 1930s and 1940s was lyrical, romantic escapist music. People needed that music to gain momentary respite from the suffering of homelessness, starvation and war.

Music goes through generational changes like everything else. After the war you had the sweet "live, love, laugh and be happy" post-war love ballads, followed by "rock 'n' roll" and the protest music of the Awakening era Boomers.

As Gen-X music took hold in the late 1970s and 1980s, the protest music morphed into counterculture "punk rock" music, with dark lyrics mostly rejecting Boomer values, and often emphasizing themes of violence, isolation, disillusionment and death.

Now the young Millennial generation is making itself felt more and more, and we're starting to see a return to the beautiful romantic ballads that cheer people up during times of crisis.

The following video contains a recording of Vera Lynn's most popular song, the beautiful and sentimental "The White Cliffs Of Dover".

This is an incredibly sad song, because in 1942, Nazi war planes were pouring over the English Channel, past the cliffs of Dover, to carry out their mission of bombing London and other British cities. Those of you who were traumatized by the attacks of 9/11/2001 might think about what it's like to be traumatized like that three times a day. 

    Oh, there'll be bluebirds over the white cliffs of Dover
    Tomorrow, just you wait and see


    There'll be love and laughter and peace ever after
    Tomorrow, when the world is free


    The shepherd will tend his sheep
    The valley will bloom again
    And Jimmy will go to sleep
    In his own little room again


    There'll be bluebirds over the white cliffs of Dover
    Tomorrow, just you wait and see

A couple of footnotes.

Susan Boyle suffered a nervous breakdown after her appearance on "Britain's Got Talent," and had to spend 5 days in a psychiatric hospital. Since then she's recovered, and she's recorded an album scheduled for release in November, at which time she'll give U.S. concert tour.

And Dame Vera Lynn is still around today, alive and kicking and 92 years old. Click here for a fascinating recent BBC interview where she reminisces about her war experiences.

(Comments: For reader comments, questions and discussion, see the Music and Generations thread of the Generational Dynamics forum.) (1-Sep-2009) Permanent Link
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