Monthly Archives: May 2012

Obama Goes All Firefighter.

As much as I would like to write about all of the other crazy things that are going on, the European banking thing is the gift that keeps on giving.

Now of course, the Obama administration is stepping up efforts to push Europe to deal with this debt crisis, so that he won’t have to just 5 months prior to the election. Actually, what he is trying to avoid is dealing with the pressures on the US banking system as they build to a crescendo more like 3 months prior to the election.

If the clowns in the Romney camp had any brains, they would be building a huge media plan focused on “How Obama got us into this mess.”

So, hoping to avoid a similar disaster to 2008, the administration is holding private meetings, urging officials in the 17-nation euro zone to take swifter action to calm markets, reassure depositors about their banks’ health, and prevent some of Europe’s largest countries from suffocating under high borrowing costs and weak economic growth.

They think that the lessons learned from the 2008 financial crisis includes acting quickly and decisively to stabilize the financial system and prevent investor panic.

As an example, the administration wants Europe to use the continent’s rescue fund— now around €700 billion ($866 billion)—to provide assistance to governments struggling with soaring borrowing costs. Allowing the rescue fund to directly recapitalize banks, instead of forcing the struggling governments to borrow first from the rescue fund, would help prevent bank failures and enable the banks to continue lending, which would help support economic growth, the officials believe. Under this approach, the governments wouldn’t have to boost their own debt loads by borrowing from the fund.

How this works, by the way, is that the U.S. yells directly at the International Monetary Fund, in which it is the largest shareholder. The IMF has been urging Europe to use the rescue fund for that purpose, but the idea is opposed by Germany because they rightfully fear they will be left holding a huge bag of defaults.

The administration has also pushed Europe to build a larger rescue fund, or so-called firewall, believing a bigger war chest would ease investors’ concerns about governments beyond long-troubled Greece. But, that won’t work this time as investors are now much more cynical than they were in 2007, and they no longer trust governments to get their bailouts right.

And, to further complicate the situation, (as we have faithfully reported here) risks are rising that the financial turbulence in Spain—Europe’s fourth-largest economy—could deepen even before Greek voters go to the polls in two weeks to decide their fate in the currency union.

On Wednesday, Mr. Obama and leaders from Germany, France and Italy held an hour-long videoconference to discuss the euro-zone crisis, following up on a meeting of the Group of Eight major advanced economies hosted by the White House just one week ago.

These meetings were planned before Spain’s borrowing costs shot up this week. But they underscored the administration’s rising worry about how the euro-zone crisis could drag down the weak U.S. recovery for the third straight spring.

In a Gallup poll released Thursday, 71% of Americans said they are at least somewhat concerned about the effect of the European financial crisis, but only 16% said they understood the danger to the US markets . The data suggested worries could rise as the troubles weighed on U.S. markets and gained more attention in the U.S. Among the 16% of people who said they are paying very close attention to the news about Europe’s financial situation, 95% said they are concerned. Unfortunately, that still means only 15% of the US population is concerned about this very serious and impossibly huge disaster waiting just off-shore.

What those 15% fear is that a cascading crisis across the European banking system, triggered by Spain, or Greece, or another unseen banking revelation, could cross the Atlantic and hit the U.S. financial system. As we said in a prior post, we have a $39 billion KNOWN exposure to the European banks. Almost any result imaginable will translate into less business investment and hiring and less bank lending, triggering yet another, and deeper recession.

I love him, but this one will belong exclusively to Obama. Better act NOW.

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The End of the Euro Nears.

As we watch the growing deterioration of the Greek and Spanish banking systems, I thought it might be interesting to take a closer look at the major U.S. banks’ overseas positions and exposures.

Citigroup has the largest net exposure to non-U.S. sovereign governments, with a little more than €14 billion ($17.5 billion) on their balance sheet.  JPMorgan Chase comes in second, with about €8 billion ($10 billion), while Morgan Stanley is third with €5 billion ($6.2 billion), and Goldman Sachs holding the smallest position of the four big banks with €4 billion ($5 billion) in non-U.S. sovereign debt. Remember how Wall Street reacted when JPMorgan lost $2 billon in derivative exposure a couple of weeks ago? Now, imagine a $39 billion loss. As Senator Everett Dirksen famously declared, “A billion here, a billion there, pretty soon it adds up to real money.”

This is an important data point because the U.S. banks are completely exposed to the growing European banking disaster. Europe’s entire banking sector has the potential to collapse completely if the contagion catches and runs completely amok. With the current run on Greek and Spanish banks, the possibility is slowly becoming a probability. Without an EU-wide deposit guarantee, depositors will withdraw all of their funds and move them to their mattresses.

In addition, the bigger of the PIIGS, Spain and Italy, have their debt spread out across Europe, putting them in the unenviable position of causing systemic ignition to just such a contagion.  As one example, French banks (Credit Agricole and Societe Generale) hold a substantial portion of their credit portfolio in Italian sovereign debt. Which we know is worthless.

Europe as a whole is in deep trouble as this latest iteration of the never-ending sovereign debt crisis could finally result in at least a partial breakup of the EU.  The actual likelihood is that Greece, then Spain, followed by Portugal, Italy and Ireland will drop out of the EU.

If that happens, Germany’s most rational choice would be to withdraw as well. After all, why should they continue their exposure to more poorly managed countries who will only default on what remains of their sovereign debt?  France, Sweden, Belgium, the Netherlands and the U.K. would be quick to follow in Germany’s footsteps, leaving behind, a handful of countries like Cyprus, Estonia, and Latvia to sort out the remaining arguments for remaining in the Union and supporting a single currency.

It doesn’t take much of a mental stretch to imagine what would happen next.


Collaborative Consumption!

And, now for something completely different.

Collaborative Consumption is a phenomenon that describes a lifestyle generally associated with the Gen-Y population and has grown out of an ethos of sharing, a sense of community, and a sensibility around reuse, recycling and conservation.

The resulting economic model (and you all know how I love economic models) is based on buying, selling, sharing, swapping, bartering, trading or renting access to previously owned products. Technology and peer communities are enabling these old market behaviors to be reinvented in ways and on a scale never possible before.

From enormous marketplaces such as eBay and Craigslist, to peer-to-peer marketplaces such as Tradepal, Fiverr, emerging sectors such as social lending (Zopa), peer-to-peer travel (CouchSurfing, Airbnb and Onefinestay), peer-to-peer experiences (GuideHop), event ticket sharing (unseat.me) and car sharing (Zipcar or peer-to-peer RelayRides), Collaborative Consumption is disrupting outdated modes of business and reinventing not just what people consume but how they consume it. Collaborative Consumption is sort-of the opposite of Conspicuous Consumption, where instead of choosing to drive a new BMW, the status achievement is more associated with driving a used 1970s Volvo.

Collaborative Consumption sites are proliferating on the web, with new platforms announcing their launches on almost a daily basis. These platforms are pioneering new spaces, and while they are all tapping into the Gen-Y zeitgeist, they press human behaviors to such an extent that they are all experiencing a certain amount of initial resistance due largely to inertia.

Getting people to try an idea that might be perceived as ‘risky’, like sharing your home with a stranger, is difficult to actually accomplish over the web.

This foray into the world of Collaborative Consumption raises interesting behavioral and technical questions.  How do we use technologies to enable trust between strangers? Is it even possible? What’s the best approach for building critical mass?  How do we know when and how to scale? How do we design a user experience that gets to the essence of what people want? How do we build a trusted brand in the community?

Almost all Collaborative Consumption marketplaces depend on matching what people want with what other people have. Obviously, this raises the issue of building a critical mass of inventory (users, products or services) on both the supply and demand sides of the equation, but which side should one focus on first?

Many of these sites seem to lean on the supply-side in order to create a sufficient number of choices to both entice and retain users who are shopping for stuff. Easy to talk about, but hard to do.

One of the not so obvious pitfalls is to try and be everything to everybody, which will usually result in chaos. It is far better to limit the number of choice variables while you build up a controlled market of supply and demand. If you were offering ridesharing services, you may initially limit your offering to certain streets and routes and only during certain hours of the day. Known commute corridors during peak commute times for instance.

If you were offering to match up weekend accommodations, you might limit the locations to areas within walking distance of common tourist attractions in a given city. Or, near main subway or bus stops that serve the entire city.

This is why these marketplaces happen mostly on a local or neighborhood level, as people share working spaces (for example, on Citizen Space or Hub Culture), gardens (Landshare),experiences (GuideHop) or parking spots (on ParkatmyHouse). However, Collaborative lifestyle sharing is beginning to happen on a global scale, too, through activities such as peer-to-peer lending (on platforms like Zopa and Lending Club) and the rapidly growing peer-to-peer travel (on Airbnb and Roomorama).

In order to build a community of trust that will engender sharing and overcome the barriers associated questions like “do I really want to share my apartment with a stranger?”, successful sites will have reached out to their target community during launch and asked what the community wants the site to do and what they would like to see when they engaged. This is the first step in building a brand within the community that will support growth and expansion, based on complete transparency and honest communication.

In future blog posts, I will address the growth of the Collaborative Consumption online markets and the specific issues of critical mass, scale, user experience, trust and branding in detail. If you are interested in this topic and learning more, please drop a line to steve@ipeoplefinance.com. I am really interested in hearing about your experiences with peer-to-peer sites. Thanks.


A Run On Greek Banks. What’s Next?

Last Wednesday, a senior judge was sworn in to act as a caretaker for the Greek government for 30 days while the country figures out what to do next.

Council of State head Panagiotis Pikrammenos, 67, was appointed to head Greece‘s caretaker government for a month.

He has no mandate to make any binding commitments and is just keeping the throne warm until the new election, which is scheduled for June 17. The craziness has caused major international creditors and Greeks themselves to make a run on banks, withdrawing hundreds of millions of Euros from Greek banks since the May 6 election.

About €700 million ($898 million) in deposits have left Greek banks since May 7, the day after the election, President Karolos Papoulias told party leaders after being briefed by central bank governor George Provopoulos. “The situation in the banks is very difficult,” Papoulias said according to a transcript of the meeting’s minutes released Tuesday night. “Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic.”

It’s not like people are standing in lines at banks in Athens, but Greeks have been gradually withdrawing their savings over the past two years as the country’s financial crisis deepened, and either sending the money abroad or keeping it in their mattresses.

The May 6 election made it clear that the majority of Greeks refuse any and all austerity deals and would rather exit the Eurozone and revert to the Drachma.

Greece is being kept afloat by bailout loans from other Eurozone countries and the International Monetary Fund, and losing them would lead to state coffers running out of money, including reserves for pensions, health care and salaries. No one knows how the June elections will affect the payment of these obligations. Try to imagine being in that situation.

The Germans are hoping beyond hope that cooler heads prevail in June, but the evidence seems to be mounting that the left has most of the Greek voter sentiment, and all of the economic analysts’ reports encouraging Greece to exit the Euro is not helping. Germany and the rest of Europe will be caught holding a heavy bag and 50% of the unemployed and over-educated Greek youth will be on their way to England or Germany seeking jobs and welfare.

The stage is clearly set for a default and a disorderly exit and return to the Drachma. Then, the road may be cleared for a return to economic stability and growth, but the resulting government will definitely have a mandate to implement a socialist agenda.

Investors will undoubtedly conclude that Italy, Spain, Portugal and Ireland will follow Greece’s lead (why not?) and should begin a rapid and massive withdrawal of deposits from European banks.  Otherwise known as a bank run. What will the U.S. banks do in response, or in anticipation of the inevitable?

Stay tuned. It WILL be entertaining.


European Bank Run Has Started!

In the last 7 days, searches for the phrase “bank run” on Google hit an all-time high, surpassing even the first days following the collapse of Lehman Brothers in 2008.

The analysts’ conclusion is that a bank run is under way in Europe.

The fear of bank runs is deeply ingrained in all economists who know anything about the genesis of the Great Depression in the United States in the early 1930s. Then, the failure of the Bank of United States in December 1930 led to multiple bank runs across the country. Bank failures in the following two years wiped out personal savings and greatly exacerbated the collapse of demand in the economy.

The classic account of the crisis, by Milton Friedman and Anna Schwartz, concluded that the collapse was largely the fault of the Federal Reserve, which failed to provide enough liquidity to keep the banks functioning and thus end the panic.

On Monday, Gavyn Davies, who chairs Fulcrum Asset Management, and is an adviser to the British government, wrote in the Financial Times: “A bank run is now happening within the Eurozone. So far, it has been relatively slow and prolonged, but it is a run nonetheless. And last week, it showed signs of accelerating sharply, in a way which demands an urgent response from policy-makers.”

On Tuesday, a report from Citigroup analyst Matt King who took Greece, Ireland, and Portugal’s documented withdrawal rates and applied them to Spain and Italy, said, In Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52 percent, and foreign government bond holdings by an average of 33 percent, from their peaks.” Further, he said, “The same move in Spain and Italy, taking into account the fall that has taken place already, would imply a further $272.17 billion and $270.9 billion in capital flight respectively, skewed towards deposits in the case of Spain, and towards government bonds in the case of Italy….Economic deterioration, ratings downgrades and especially a Greek exit would almost certainly, significantly accelerate the timescale and increase the amounts of these outflows.”

Wednesday saw the release of a report from Nomura analysts showing that the exodus of funds wasn’t limited to banks and had been increasing since March: Portfolio investments saw a net outflow of $44.58 billion (compared with February net inflows of $24.2 billion). The main reason behind the negative overall portfolio flows was the activity of Eurozone investors, who bought $76.43 billion of foreign assets, mainly bonds and money market instruments. This is the largest foreign investments in almost 1.5 years.

There was further proof of the capital racing out of most of the EU on Thursday as the Financial Times reported: Some of Europe’s biggest fund managers have confirmed they are dumping euro assets amid rising fears over a possible Greek exit from the Eurozone and single currency turmoil.

And, Friday’s news of Bankia, Spain’s 4th largest bank, suspending its stock and Moody’s downgrade of some Nordic banks which many had assumed safe has only added fuel to the fire. Get ready, folks. If you haven’t already, sell those bank stocks and run  to the nearest exit. 

Because, now, America’s banks are starting to get ready for Mr. Toad’s wild ride! And, it won’t be pretty.


A Crisis of Massive Proportion.

Well, we had the obligatory G-8 meeting at Camp David last weekend,

and appropriate lip service was paid to keeping Greece in the euro zone, but the economists who are watching the continuing financial crisis in Europe are rapidly coming to two conclusions: 1) Greece is likely to abandon the common euro currency now used by 17 European countries. And 2) there will be a damaging domino effect throughout most of Europe.

One of the effects of this abandonment results from the impending Greek revival of its traditional currency, the Drachma. Salaries and prices within Greece would be converted from euros to drachmas, and the drachma would be allowed to depreciate to make the Greek economy more competitive.

The problem comes with debts that are denominated in euros, especially if the lenders are outside of Greece. These lenders would naturally resist being repaid with less valuable drachmas. However, if Greek borrowers have to repay the loans with euros, the debt would become more expensive for them to pay off after the drachma is devalued.

The most likely result therefore, is that debts to non-Greek creditors would become useless after Greece switches to the drachma.

(Shocked face here – I believe we predicted this back in January).

After all of the inevitable lawsuits, defaults, forced reductions in repayment, the lenders end up holding an empty bag and losing big money. Just as in the U.S. banking crisis of 2007-2008, once some banks lose enough money to become troubled, the contagion spreads to other banks, because they are all tethered to one another as co-parties.

The Central Bank and the IMF would step in and try to stabilize the situation, and Germany would take its lumps (and perhaps a few islands) and after a couple of years on the Drachma, Greece stabilizes itself and life goes on. Sounds ugly, but generally benign, right? Unless you happen to be a Greek, that is. But what else might happen?

Well, there is always our friend, the derivative, and it could easily set off a global chain reaction. You know derivatives, right? They are the complex, “synthetic” financial securities, which Warren Buffett famously referred to as “financial weapons of mass destruction.” And which recently caused Jamie Dimon some embarrassment and a $2B loss.

In the case of government bonds, these instruments are known as credit derivatives. They include all sorts of loans secured by bonds as well as incredibly complicated vehicles that amount to insurance policies if the bonds default, like CDS. No one really knows how much of this stuff is sloshing around the international financial system, but the total value for all types of bonds was estimated at more than $50 trillion in 2008 and has continued to grow rapidly since then.

Trouble is, if the bonds underlying these derivatives become questionable, all the derivatives become uncertain too, even if they add up to far more than the value of the bonds themselves. Moreover, some of the synthetic investments based on Greek bonds could be governed by Greek law, some by British law (if anything originated in London) and some by U.S. law (if Wall Street was involved).

What if one legal system accepts the conversion of euro loans into drachmas and another doesn’t? Everything could be thrown into the courts for months. Even worse, if synthetic investments secured by Greek bonds become untrustworthy, why would anyone trust similarly complex investments involving Spanish bonds or Italian bonds?

The result of a meltdown in the world of derivative investments could cause far more chaos than simple bond defaults, because at the very least, it would be almost impossible to figure out who owed how much to whom.

So, let’s say Greece recovers quickly, and Italy, Spain, Ireland and Portugal want out of the euro zone too. There is the very real possibility that Greece abandons the euro and bounces back surprisingly fast. In fact, that is exactly what we urged them to do back in January.

But, our recommendation while good for Greece, would cause another sort of disaster, potentially much, much larger than the one facing the Greeks. Both Argentina and Iceland suffered currency collapses, but after a horrible year or two, they each rebounded and were better off than if they had fought to save a failing currency. Analysts point out that both countries were big exporters of grain, meat or fish and those sales boomed after currencies were devalued.

Greece, in its own way, could profit from a similar recovery — a rebound in tourism. A 30% drop in the exchange rate might make a vacation in Greece the best deal in years. Even for Germans.

Good for Greece, but not so good for Europe and really bad for the U.S.  How could the Italian government convince its people of the need for higher taxes or the Spanish government explain soaring unemployment if Greece were obviously better off outside the euro zone? They couldn’t and wouldn’t even try. In order to remain in office, any politician worth his salt would say, “Hey. Let’s follow Greece’s lead.” Then the entire European Union would likely unravel, with Germany leading the way and with Global financial consequences many times greater than those resulting from Greece alone.

U.S banks are deeply invested in the European outcome and are in the impossible position of needing to hold their positions otherwise risk a banking panic of global proportions. The best they can do now is hope and pray, neither of which has ever been a really good strategy. However, the best you can do now is to sell all your bank stocks and watch the show safely from the sidelines.

And, what a show it is bound to be.


Watch Out Great Britain. Here Comes Europe!

All of Europe is now preparing in earnest for a Greek and Spanish exodus, but none more warily than the British.

Citizens of EU countries do not need work permits to settle and work in the UK. And the British, who run one of the most generous socialized health and welfare states in Europe, are getting really nervous. It is not only possible, but really easy for EU citizens to claim free health treatment on arrival and to register for UK social security payments.

British Home Secretary, Teresa May, told the Daily Telegraph today that the UK authorities were exploring emergency immigration controls in case of a Greek exit; those same controls might also be needed if further economic turbulence develops in countries like Spain, causing an exodus of unemployed workers.

a privilege that has been a long time coming all over Europe. Prior to the 1980s every country ran their own border controls. Cars often queued for hours to pass from one country to another, while officials checked passports. Under EU law however, inhabitants of the Union are allowed to travel freely between each country. Post-transition, the UK has been exceptional in maintaining some degree of border integrity, so what May has in mind goes much further than passport checks.

The Home Secretary says that the Government is already “looking at the trends” to determine whether immigration from beleaguered European countries is increasing. While there is no evidence of increased migration at present, she adds that it is “difficult to say how it is going to develop in the coming weeks.”

Meanwhile, in an interview with The Guardian newspaper, IMF head, Christine Lagarde, insisted it is payback time for the Greeks.

She was asked in an interview about whether Greek tax evasion and corruption were responsible for the country’s current difficulties, and she made no bones about assigning blame and indicating her disapproval of the Greek government’s handling of the crisis. When asked if it was payback time, she said, “Absolutely.”

The internal bickering around Greece’s future appears either to be preparing the ground for exit or for one final attempt to enforce the conditions of the EU-IMF bailout. But what is clear is that Greece is in the final hours of their agonizing descent into fiscal chaos, and the outcome won’t just affect the Greeks, but the rest of the European population as well.

To say nothing of the US banking system. Stay tuned for Wall Street’s wild ride. 


$2 Billion? Chump Change. Jamie Dimon Has Real Problems Now.

The US Federal Reserve has just released data that shows mind-boggling trade positions that JP Morgan has taken in synthetic credit indices, an extremely haphazard class of derivative, also known as Credit Default Swaps (CDS).

Um, try $100 Billion worth; an increase from a net long notional of $10 Billion at the end of 4Q11, to $84 Billion by the end of 1Q12.

All banks are required to report quarterly on these things and JP Morgan’s position in CDS has jumped eight-fold in under 6 months. This may raise additional concerns about JP Morgan’s investment strategy in synthetic products.

In investment-grade CDS with a maturity of one-year or less, JPMorgan‘s net short position exploded  from $3.6 billion notional at the end of September 2011 to $54 billion at the end of the first quarter.

Over the same period, JPMorgan’s long position in investment grade CDS with a maturity of more than five years leapt five times from $24 billion to $102 billion (see chart). They are either really, really smart, or really, really, stupid. If it’s the latter, guess who bails them out?

“I don’t care how big a bank you are, that’s still a big move,” said one seasoned credit analyst.

JPMorgan’s chief executive Jamie Dimon said his firm began closely examining the CIO’s (Chief Investment Officer) controversial trading strategy in closer detail when large mark-to-market losses – put at $2 billion by Dimon during an analyst call on May 10 – started appearing in the second quarter.

Dimon has since tried to balance his exposures by flipping positions in long, high-yield CDS and short positions in investment-grade CDS, but the crazed selling of these CDS positions is eerily reminiscent of the final hours of Lehman Brothers.

People will question senior JP Morgan management signing off on a trading strategy that vastly increased the banks’ exposure to a worsening credit environment at a time when other banks were battening down the hatches. In dramatic contrast to JPMorgan, the Fed data show ALL other major US banks (GSax, Citi, B of A, Morgan Stanley) maintaining large short positions in investment-grade credit in expectation of a continuation of the rocky credit environment persisting throughout the second half of 2011.

The figures underscore JPMorgan’s failure to act at an earlier stage, given the large concentrations of risk it was accumulating, as well as the inability of regulators to discern abnormal trading patterns among the piles of data banks already reported to them. Shame on the SEC … again.

On the day (May 10th) that the $2 Billion loss story broke, that morning’s The Gartman Letter, market commentator Dennis Gartman wrote:

“The press conference… caught everyone a bit off guard and does raise all sorts of flags and does indeed cause us to remind ourselves that “there is never just one cockroach;”          however, if the losses sustained are held to what was reported yesterday afternoon, then we must remember that this is isolated; that it shall be a loss of only 30 cents/share; that Jamie Dimon’s pristine reputation has been irreparably sullied; that the Left shall use this as an excuse for even more onerous over-sight of the banking/broking businesses of the nation, but the nation is not in jeopardy and we shall all go on.”

IF … “the losses sustained are held to what was reported … .”.

Should be an interesting couple of weeks on Wall Street.


Lies, Damn Lies, and Republican Lies.

Do we have a dream team here? Ready for slashed spending? Are we scared yet?

Mitt Romney and Paul Ryan appear to be basing their 2012 Presidential campaign upon the theory that Obama is a tax and spend President and that his “runaway spending” policies have been responsible for the biggest deficit and the fastest growing national debt in the history of the country.

The Republican ad machine tells us that were we to re-elect him, we would be endorsing more of the same, as well as increased spending for entitlements, that would push the deficit to historic levels and cost more jobs while creating an even larger national debt.

Oddly, the actual facts tell a very different story. Compared to George W. Bush and Ronald Reagan, Obama’s record in office shows that he has embraced fiscal conservatism more than any other president in recent history, with the exception of fellow Democrat Bill Clinton.

Economics Professor Mark Thoma provides a helpful chart on his blog that puts President Obama’s per capita spending into context, comparing it with the spending of every president in the last 40 years:

The data is going to be difficult for Obama’s critics, who have spent years hammering his administration for record spending and fiscal irresponsibility. The Atlantic’s Derek Thompson put it best: “Going by federal expenditures…it would seem that if Obama’s a socialist, Ronald Reagan is Karl Marx with an ICBM.”

Here’s a look at  public sector employment during the Obama Expanding Government era; the 1981, 1990 and 2001 recessions were under Reagan, Bush I and Bush II. The red line is the 2007 Obama recession:

Or, how about a look at Obama’s big-government policies in action. They should have led to a massive growth in our bureaucracy, right? Well, believe it or not, there have been 607,000 jobs lost in the public sector, largely from state and local cutbacks due to no federal aid. Here’s what that looks like:

I could go on, and there are endless charts that all say the same thing, no matter how you slice and dice the data. This guy is a conservative.

At the end of the day, it is really, truly time for the myth about Big Spender Obama to die. If anything, it is remarkable that, after the worst recession in history and a private sector implosion, the public sector expanded less under this administration than it did under Bush or Reagan. Them’s the facts.


Mad As Hell! And, See You In Court.

That didn’t take long.

Facebook Inc and Morgan Stanley, the lead underwriter of social networking company’s IPO, were sued by shareholders who claimed the defendants hid Facebook’s weakened growth forecasts ahead of its $16 billion initial public offering.

The lawsuit also names underwriters JPMorgan Chase and Goldman Sachs among others, and follows quickly on the heels of Facebook’s May 18 stock market debut, which was plagued by technical glitches.

Facebook shares fell 18.4 percent from their $38 IPO price in the first three trading days. In early afternoon trade today, Facebook shares were up 2.1 percent at $29.51.

Hey, I just lost $2 Billion. Don’t bug me with your problems!

The legal action accused the defendants, including Facebook Chief Executive Mark Zuckerberg, of concealing “a severe and pronounced reduction” in revenue growth forecasts resulting from increased use of Facebook’s app or website through mobile devices.

Facebook was also accused in the lawsuit of telling its bank underwriters to “materially lower” forecasts for the company.

“The main underwriters in the middle of the road show reduced their estimates and didn’t tell everyone,” said Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, which brought the lawsuit. “I don’t think any investor in Facebook wouldn’t have wanted to know that information.”

Regulators including the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and Massachusetts Secretary of the Commonwealth William Galvin have begun looking into how the IPO was handled. The U.S. Senate Banking Committee is also reviewing the matter. Busy, busy, busy. Let no self-respecting agency appear as though they aren’t busy looking into things. Problem: Horses are already gone. 

“The SEC has since the 1990s broadly condemned the trickling out of material non-public information, which would include that savvy, well-paid analysts are lowering estimates,” said Elizabeth Nowicki, an associate professor at Tulane University Law School and a former SEC lawyer. Condemned? Or, is it actually against the law?

Syndicate banks “are on the hook in terms of liability by not making accurate, complete disclosure,” she added. “Selective disclosure of analyst outlook changes is not acceptable.” Not acceptable? Or, against the law?

Andrew Noyes, a Facebook spokesman, said: “We believe the lawsuit is without merit and will defend ourselves vigorously.”

Andrew Noyse.

Morgan Stanley had no comment. It said on Tuesday that Facebook IPO procedures complied with all applicable regulations, and were the same as in any initial offering.

The shareholders said the disclosures about Facebook’s business risks were inadequate, and that the company should have told everyone, not just “preferred” investors, that analysts knew those risks and cut their business outlooks accordingly.

Should have? Or, were they bound under the law to disclose to everyone?