Friday, December 21, 2012

Because the Darkness Runs So Deep, The Light Burns So Bright

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

             "While Christmas is undoubtedly a time of great joy, it is also an occasion for deep reflection, even an examination of conscience."

            -Pope Benedict XVI, Financial Times, December 20, 2012, "A Time for Christians to Engage the World"

"Maybe the Mayans were onto something after all. Perhaps the impending solstice marks the moment the ailing financial system - rather than our entire civilization, one hopes, finally reaches its grand climacteric and Ben Bernanke suffers the ultimate embarrassment of seeing all his proferred cheques bounce."

            -From a wishful thinker in Switzerland, December 20, 2012

            Maria Santos Gorrostieta Salazar was murdered by emissaries from the Mexican drug cartel on November 17, 2012. The Financial Times and the Daily Telegraph published obituaries, which is the source of the following. The two newspapers seem to be the only English-language media sources, so the story here is brief and perhaps contains errors. (For instance, I've also read she died on November 12, 2012; that, she had three sons, and, that she had two daughters and one son.)

           Gorrostieta had been mayor of Tiquicheo, a small town southwest of Mexico from 2008 until recently (before her death). She was 36-years old. She was to the manor born, a doctor, and "a glamorous figure who would always turn heads at political meetings." She left three children behind. Her husband had been murdered by the money interests when an attempt to kill Maria Gorrostieta failed three years before.

In the Financial Times' words: "Gorrostieta's no-nonsense manner, and, above all, her courage in the face of persistent threats, proved too much of an obstacle for the region's narcotics mafia. Last week her corpse was discovered at roadside."

A second murder attempt killed her brother. At that time, Maria Gorrostieta was shot three times, tortured, had to wear a colostomy bag and was in constant pain from that point forward. After that second attempt, she wrote a public letter which is published below. Questions were raised of why she continued. Her response is not one from an age of opinions but of convictions: "At another stage in my life, perhaps I would have resigned from what I have, my position, my responsibilities, but today, no; it is not possible for me to surrender when I have three sons, whom I have to educate by setting an example..." (Goethe was asked why, in this age (around 1800) we can no longer build Charters: "Because they had convictions, We only have opinions.")


Nor, could Gorrostieta abandon her responsibility to "keep on searching, scratching, negotiating plans, projects and actions for the benefit of all of society, but, in particular, for the vulnerable ones." More were becoming vulnerable, the Financial Times explained: "As the cartels have grown in size and strength, their turf battles have ever more frequently had devastating consequences for the civilians caught in the middle."


            This is a world in which a few cartels bequeath devastating consequences to those who lie under their control and who cannot escape.


The following is reprinted from, "Reporting on the Mexican Cartel Drug War":


[After the second attempt on her life, Maria Santos Gorrostieta was interviewed by El Universal. She was addressing critics who doubted the severity of her injuries. As a sign of respect, I thought it would be appropriate to translate a letter that she made public in which she explains what kept her going. I decided to translate the entire letter instead of the abridged version most commonly seen in news reports. She was a brave lady. -un vato]



Message to the citizenry


There is no doubt that life at times lacerates us with sufferings and humiliations that not all of us are able to understand completely, many times we tend to appear arrogant and stubborn before God's will. However, despite everything, I have had to bear losses that I would not wish on anyone, and have had to accept them with resignation and with the knowledge that it is our Lord's will, and have gone on, even with a wounded soul.


I know... that life surprises us at times, hurts us, makes us complain even about ourselves; it is well known by those around me that my life has not been easy, it has been permeated by sorrows and misfortune.


Despite that, and despite my own safety and that of my family, what occupies my mind is my responsibility towards my people, the children, the women, the elderly and the men who break their souls every day without rest to find a piece of bread for their children.


It is a great burden to know that among my responsibilities as city mayor is that of obtaining the benefits, the programs and the aid that I know will represent great improvements in the economy and in the quality of life of the people of Tiquicheo.


 One of the greatest sorrows that a human being can suffer is that of pain in the soul. This is seldom understood by people around us because they simply have not lived it or are indifferent to the suffering of others.


My life these past few months has received blows that I sincerely believe I do not deserve, since my efforts have always been focused on leading my people, my city, towards a better quality of life, to provide them the tools that will help them face the difficult economic situation that we are all going through.


Despite that, for some, my efforts and dedication have not been enough and they have regretfully celebrated the misfortunes I have suffered.


The inner strength that has moved me to get up, even when I'm dying, has served to demonstrate and make tangible the great commitment that I have with my ideas, my projects for the future, and, of course for the people who witnessed my birth and for whom I will get up however many times God allows me to, to keep on searching, scratching, negotiating plans, projects and actions for the benefit of all of society, but, in particular, for the vulnerable ones.


This is who I am...


[I have omitted poetry here that Maria Santos Gorrostieta Salazarattributes to an anonymous source.-- un vato]


At another stage in my life, perhaps I would have resigned from what I have, my position, my responsibilities as the leader of my Tiquicheo. But today, no; it is not possible for me to surrender when I have three sons, whom I have to educate by setting an example, and also because of the memory of the man of my life, the father of my three little ones, the one who was able to teach me the value of things and to fight for them; and, although he is no longer with us, he continues to be the light that guides my decisions, each of which, it goes without saying, is dedicated to getting my city out of its backwardness.


It's true they have attacked my physically and morally; one can still feel on my body the wounds from the bullets and from the disbelief of some who have doubts about my mutilated body. I struggle day to day to erase from my mind the images of the horror I lived, and that others who did not deserve or expect it also suffered. To them, my recognition, respect and love for the courage with which they faced their troubles and for their unconditional support for myself and my work.


I wanted to show them my wounded, mutilated, humiliated body, because I'm not ashamed of it, because it is the product of the great misfortunes that have scarred my life, that of my children and my family.


It is a living witness to the fact that I am a woman of strength and integrity, and that, despite my wounds, both physical and mental, I am still standing and still in the constant struggle to become a better person and a better leader of a city that still trusts me and expects results from its mayor.


You may ask, what is it that so attracts Maria Santos Gorrostieta Salazar today? Where does the power of her integrity reside, this public and political figure, from Tiquicheo, from Michoacan, Mexican and universal: in her works, in her life, or in her wounded body and her serene face? It is difficult to answer you from this hemisphere of my life, however, I would point out that transgression and resistance are conjugated in perfect harmony in my being.

Many persons have mistakenly doubted the severity of my injuries; today, the proof is in their hands, my mutilated body speaks for itself, evidence of how vulnerable we are, of our life's fragility and of God's wishes, which are always present in our daily sorrows.


To many, it may seem an act of insolence to show my wounds such as they are, but it was necessary because I had to give my version of the facts, what it really meant to be attacked like that and the traces that these attacks left on me and my people. Because everybody else could say, unsay, talk, invent, defame, except me; and now is the time and place to do so.


What you can see doesn't need much of an explanation; I simply want your understanding, support and consideration, because despite the fact that I show myself as somebody strong and unbreakable, inside of me, I am still a woman, fragile, a dreamer, a romantic, a mother, but one thing for sure, with an unquenchable determination to continue with my mission of service as head of this administration to which I was elected, and to help those who have less and that still live in a state of great vulnerability.


I firmly believe, in fact, I am certain, that my conduct during my term as mayor has been correct, since every one of the decisions I've made has been focused on serving my people. If the opposite had been true, it would undoubtedly have already been noticed. This is why I make available for anybody who wants to look at what has been done up to now. The accounting and my conscience are clean, the projects and actions are in plain view.


A year after a bloody incident


Throughout this year, I am here with an open mind and a quiet heart, several memories come to mind that no doubt history will judge me on; all I want to say is that walking on this rocky path has not been easy, that it has been permeated with disappointment and despair. I'll tell you that whatever trench I get, I will defend it with sword and cape, I am faithful to my ideals and to achieve my conviction and my objectives, always convinced that truth and authenticity will set us free. I am grateful with all my heart to those persons who have trusted in my work, to my children, my mother, my brothers, friends, collaborators and to the city that has given its unconditional support.


I have walked a long road towards freedom, and I have tried not to hesitate. I've stumbled along the way, but I've discovered that great secret; that after climbing a hill, one finds that there are many more behind that. I've given myself a moment of rest to look at the glorious landscape that surrounds me, the view back towards the road I've traveled. But I can only rest for a moment, because freedom brings with it responsibilities and I don't dare fall behind. My long road is not yet finished; the footprint that we leave behind in our country depends on the battle that we lose and the loyalty we put into it. Today, it is a privilege to be part of the history of Tiquicheo.


With love,


Maria Santos Gorrostieta Salazar 

Tuesday, December 11, 2012

Our National Deficit

"Under current law, the Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases. Under this scenario, the U.S. Mint would make a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed moves this money into Treasury's accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years - without needing to issue new debt. The [current $16.4 trillion national debt] ceiling is no longer an issue."

            -Brad Plumer, Washington Post, December 6, 2012, "Could the 'Platinum Coin Option' Solve the U.S. Debt Crisis?"

            In reality, the U.S. Constitution permits Congress alone to "coin money," but technicalities are particularly in vogue for a country stumbling through its dotage. Author Plumer may be auditioning for The Onion, but he did cite the authority of Yale Law School (Professor Jack Balkin) for legal counsel. (As you probably deduced, Balkin teaches Constitutional Law.) As to its practicality, Plumer turned to one Joseph Gagnon from the Peterson Institute for International Economics: "I like it. There's nothing that's obviously economically problematic about it."

            Whatever Gagnon's reasoning, he is a candidate for the Federal Reserve Board, just as Balkin is a shoo-in for the Supreme Court. This proposed plan to wipe out the federal deficit involves more substance than the Fed's open market operations. Platinum is a physical element on the periodic table: it is real. Federal Reserve Chairman Ben S. Bernanke has preternaturally expanded the Fed's balance sheet - that is, he has declared over $2 trillion into electronic existence where nothing exists - since 2008. Simple Ben is a laggard here. If the Treasury can declare a platinum coin worth $1 trillion, why not stamp 100 coins at $10 trillion each, wipe out the national debt, and give every American a few million dollars? Everyone would be rich.

            The Washington Post, Yale, and the Peterson Institute are good brand names. In America, it does not matter what is stated but that it is declared by a revered source. Reuters reporter Cate Long recommended, in the wake of Hurricane Sandy, that the billions of dollars needed to repair busted infrastructure was there for the taking: "Tough times is no excuse to give away public assets to private entities. The most obvious source of funding for these projects would be for the Federal Reserve to purchase public infrastructure bonds instead of the $40 billion a month of mortgage-backed securities it has been buying." (See: "Can the Port Authority and MTA Afford Repairs After Sandy?"

Looking beneath the surface, Long has described how state and municipal debts are funded. The Chinese and Japanese are no longer dependable buyers of U.S. Treasury obligations. The Federal Reserve buys the majority of Treasuries. Without the Fed's backstop of the several-trillion-dollar deficit at such an unnatural rate of interest, it would be impossible for corrupt or incompetent municipal borrowers to find a buyer of bonds below 10%. As long as such proposals as Cate Longs' are written and read without acknowledging the obvious contradictions, To Be Foolish Will Be Very Heaven.

There will come a time when the U.S. Treasury will be unable to borrow at under 8%. At that moment, "tough times" will require "public assets [to be sold] to private entities." (Not "given," as Cate Long somehow concluded from a proposal recommending that "private funds can be used.") Corrupt or ossified municipal unions, which, too often, go hand-in-hand with corrupt or incompetent municipal governments, will retain control only so long as the Treasury receives accommodating bids. A failed auction and a 6% Treasury rate will relieve many faded organizations, maybe even Yale Law School, of underserved tenure. 

Monday, December 3, 2012

Exit, Pursued By Bear

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

"Just when scientific progress was supposed to be ridding the world of myths and ghosts, famous people became larger than life.... Fame was found increasingly fascinating. And it seemed to happen by popular demand. The general spread of education didn't make people more resistant to fame. If anything, it made them less resistant."

                       -Clive James, Fame in the Twentieth Century

            When Lombard Street crawls hat-in-hand to Bay Street, London is in trouble. The Bank of England, having ceded its once impregnable reputation as banker to the world, has cast its line for a Canadian to reign at the Bank of England.

Bank of Canada Governor Mark Carney has been lured to the post. He is leaving the Americas in the nick of time, but you would never know it from the reaction. The Daily Telegraph felt compelled to remind readers: "Mark Carney Isn't the Messiah," but it looks as though the myth of central-banking infallibility has not suffered a jot since September 29, 1998, when the Wall Street Journal published James Grant's warning: "Alan Greenspan Isn't God."

To start (and end) with, the Carney-led Bank of Canada has encumbered the country with a housing bubble that is starting to tumble. On April 29, 2012, Barrie McKenna anticipated just such a timely exit in the Toronto Globe and Mail. The "intensely image-conscious Mr. Carney" was already known to be "a candidate to head the Bank of England." McKenna was writing after Carney had publicly worried that "Canadian households as a whole are being overstretched, which creates risk for the economy." (Carney's hokum was addressed here before, on December, 16, 2010: See: "A Vote for Gold.")

            "Oh, no you don't," McKenna as much as said when he wrote: "Mr. Carney has kept the pedal to the metal for years now with ultra-low interest rates, flooding the financial system with easy money. That has kept Canadians buying homes while markets elsewhere in the world faltered." In 2005, Federal Reserve Chairman Alan Greenspan engaged in a similar legacy-building exercise when he noticed there was some "froth" in the housing market.

            A point of debate with Mr. McKenna is the word "falter." There may be exceptions (none come to mind), over the past few years, where a competent central bank stymied a budding housing bubble before it unleashed its horrors upon a population. (In which case, "falter" would fit.) Central banks have caused excesses in housing finance across six continents. Whether through incompetence or cowardliness they did nothing when the problems were manageable. Sometimes, they rooted for devastation when froth turned to bubble, after which, there is no return. The media's childish discussion of the heroics to be performed by Mark Carney at the Bank of England demonstrates a lack of integrity, responsibility, and intelligence

Housing excesses in Berlin, Oslo, Stockholm, Hong Kong, Hanoi, Iceland (again!), Melbourne, Nanning, Toronto, and Vancouver are in stages of bubble bursting. To see what Carney is leaving behind, some comparisons are made to the United States. These are meant to show that Canada is heading into a housing catastrophe. The numbers are calculated differently in each country so are only vaguely useful to judge the severity of Canadian indulgence.

The home ownership rate in Canada has risen from 64% to 70% over the past decade. In the United States, the ownership rate peaked at 68%. Remembering the skullduggery required to grasp the American Dream, Canadians are in for some shocking disclosures.

            Canadian household-debt-to-household-income is 163%. The ratio peaked in the U.S. at 160%.

            Construction jobs in Canada have grown to a larger proportion of employment than was true of the United States at its peak (which was 6%). According to Statistics Canada ( "Construction... employ[s] more than 1.2 million men and women. In 2010, 7.1% of employed Canadians aged 15 and older worked in the construction industry, an increase of 50.8% since 2000, when 806,900 people worked in construction." (The population of Canada is close to 35 million, about 1/9th the 314 million living in the United States.)

            Adding construction to the financial sector (FIRE: finance, insurance, and real estate), Canada is more leveraged into mortgages and related paraphernalia than was the United States at its housing peak. Over one-quarter of Canadian GDP is housing and financial-service related. Loonie holders (Canadian dollars) might hope the housing fever settled in the oil sands that surround Fort McMurray, but those who have been buying Canadian bonds are not simply betting on commodities.  

            Canadian housing starts have averaged roughly 200,000 a year since 2007. Multiply that by nine and Canada approaches the peak, U.S. building figures (2004: 1.9 million starts, 2005: 2.0 million, 2006: 1.8 million, 2007: 1.4 million).

            The signs of collapse are manifest: new housing supply is booming; housing demand is waning. Prices are too high for the average buyer (the average Canadian house now costing $350,000). Without the average buyer, house markets tumble. Home equity withdrawal rose from 2% to 8% of disposable income, which spurred spending, and mortgage debt has more than doubled over the past decade.

            How are those bullet-proof Canadian banks doing? Since 2000, they have expanded lines-of-credit by 700% when disposable incomes rose 70%. The five largest Canadian banks hold $400 billion of uninsured consumer credit. The Canadian Mortgage and Housing Corporation (CMHC), which insures mortgage loans, got giddy (increasing insurance to 100% of loans and to 40-year amortization periods in 2006). The government lifted the limit on CMHC insurance from $450 billion to $600 billion in 2009. The $600 billion limit is close to capacity, which may not excite a U.S audience, but Canada's GDP is around 10% of its southern neighbor, so the liability (in comparative terms) is around $6 trillion.

            On November 27, 2012, an "observer" at described an early indicator that the CMHC will drag Canada's credit rating down a few notches: "43 listings dropped to a cumulative total of 20%+ this week, 12 [fell] 25% and 6 [fell] 30% this week."

            The opinions of Carney's effervescence come from the same sources that never saw, nor understand today, how the central banks blew up the world. What is it, exactly, that Carney, or anyone else, is going to do at the Bank of England that will matter at all? Finally, since Goldman Sachs gave us Robert Rubin and Jon Corzine, who could be anything but horrified with another alum at the top?