More Experts Waking Up to U.S. Default

We all know what happens if we don't pay our bills. At best you wind up with late fees, possibly even a higher interest rate as dictated by the angry creditor you have eluded. At worst, you experience bankruptcy and carry a marred credit score limiting purchases and personal leveragability for years to come.

Here at The Cosmopolitan Charlestonian, we've been squawking for some time about default. But we're not too worried about our own balance sheets. We're talking about the default of Uncle Sam. A national default.

Although a national default is not imminent, there's no reason to avoid the facts - that it's looking a lot like that's where the U.S. is headed. Simply being open to the idea that the current bailout mania chops away at the US' triple A sovereign credit rating with each billion added can begin to leave the average citizen feeling jumpy. It's starting to seem like at any moment a burly guy named Lou, is going to jump out from behind the bushes, crowbar in hand, to repossess the car. Only in the case of a US default, Lou is China.

More and more experts are beginning to openly discuss a US default. This alone can be perceived as good and bad. On the one hand, open discussion is what we need to find solutions to our economic woes (it's the derivatives, stupid!). On the other hand, the rising cacophony of default whistle blowers means more are seeing a US default as a possibility.

NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.

Hat tip to Financial Armageddon blog for pointing to Reuters and offering their own excellent commentary in, Not as Bad as Before, Worse.

As if confirmation from an old player at Goldman Sachs isn't enough (Goldman is so in the know with Whitehead still well connected), Satyajit Das, an expert on derivative financial products, also deduces default is an option in, We Interrupt Regular Programming to Announce that the United States of America has Defaulted. Thanks to Nouriel Roubini's blog for putting that one out there. It is true that Mr. Das correctly predicted to fall of the financial system over the last several years as we've followed his work closely. The author of Traders, Guns and Money, he is an accurate, relevant and entertaining writer. Das is also known for writing some of the key reference works in the Swaps/Financial Derivatives Library. Das was, after all, a creator of some of the derivatives himself.

The US' ability to maintain its sovereign credit rating of AAA will surely be a topic discussed in G20, which begins tomorrow. It is yet to be known if our creditors have structured a payback plan for us. One thing is guaranteed - the US will have little wiggle room.

It's evident at this point that our creditors have been gracious enough to continue extending credit (as long as things were going well). The problem now is that things aren't going so well and it's time to pay the bill. At this point, the US is pretty much broke, so do we need to revisit what happens when we don't pay our bills?

Gov't Won't Buy Bad Mortgage Debt

An interesting endeavor it has been to watch the slow disintegration of the US economy. Trouble in the housing markets was just the beginning; the proverbial straw that broke the camel’s back, if you will. This giant mess has been accumulating for thirty-some odd years. The turmoil has now bubbled over from housing to credit crisis to credit collapse. Lack of access to credit is exposing weakness in the markets, and in a big way.

The Big 3 of the Auto Industry are now asking the government for money - threatening they will each fail otherwise. This is a result of, and on top of, the perfect storm that has hit consumers and businesses driving up the overall cost of credit.

Meanwhile, the Fed’s been throwing money around trying to keep the economy chugging along. But in their haste, the Fed & Treasury haven't been very open about where the money is going. This has resulted in Bloomberg News filing a Freedom of Information Act lawsuit in recent days against the Fed. This action was meant to force the Fed (Ben Bernanke, Federal Reserve Chairman), and the Treasury, to disclose which troubled assets the government has already purchased with the $700 billion in taxpayer money they are currently partially controlling (Congress hasn’t released the other portion yet). Perhaps moved forward by the lawsuit, today Treasury Secretary, Hank Paulson held a news conference to present the US with a market update.

QUICK REHASH OF PLAN:
Just a few short weeks ago, the Treasury Secretary, Federal Reserve Chairman and the President (Bush) told us (the American public) that the government would be using seven hundred billion of our hard earned tax dollars for the purpose of buying up “troubled” assets to fix the financial markets as they were near collapse. They told us we would eventually get our money back over time via their program. Then they developed the TARP (Troubled Asset Relief Program) to purchase the assets.

PLAN IN ACTION:
Despite the plan outlined to Congress, what Hank really did was take a portion of the $700 billion of “Troubled Asset Relief Program” money and handed it over to banks for recapitalization. The Treasury hasn't bothered to tell us if they’ve received assets in return (securities) from the banks they’ve funded. According to Hank, after he gave the banks some moola, he "encouraged" lending. The banks didn’t lend. The banks are simply keeping the money. They’re still having problems with those bad investments (that the government has not purchased) and are hanging onto the cash in the coffers incase they might need it later. So now Mr. Paulson tells us the whole plan to buy assets is not going to work.


TODAY’S NEWS CONFERENCE:
As mentioned earlier, the government has used some of the money, therefore Bloomberg filed suite to find out which assets the government is now holding. We suspect the news conference was a direct result of Bloomberg's pressure. Of course, Paulson was asked about this minor point. His answer - astounding. Mr. Paulson basically said the plan would become transparent just as soon as he got done writing it! Bwahahahahahahaha! Surely Bloomberg, along with the rest of the leveraged financial community is pretty serious about gaining access to the special pricing formulas the Big Boyz’ are using to price illiquid assets, considering the assets in question are not being priced on the open markets (because, uh, nobody is buying them).

After announcing that taxpayer money will not be used to purchase troubled asset securities as the acronym TARP suggests, the Treasury Secretary outlined his plan B. Rather than purchasing "toxic debt," money will be redirected toward bank recapitalization efforts, which has already begun at Mr. Paulson’s choice.

Paulson boldly asserted he would make no apology for shifting plans when asked why the structure drifted so far from the design presented to Congress. He simply answered that the financial landscape had changed over the last several weeks, and stressed matters would have been worse had he not shifted as the markets dictated.

Somewhat glossed over early on, Mr. Paulson mentioned that banks continue to hold a “significant” amount of illiquid assets.

The bailout is truly a giant mess. Yet this is exactly what a nation that puts the fox in charge of the henhouse should come to expect. Between his job with President Nixon to the boardrooms of Goldman Sachs, Mr. Paulson is well versed in confusion creation and its self-serving mitigation.

The man just told the American public and Congress to shove it. He is taking the reigns as he sees best fit. So, this week TARP is dead. Bait. Switch. Officially, per Mr. Paulson we are now moving to a bank and non-bank (whomever is vital for providing credit) recapitalization plan.

The markets screamed displeasure with Paulson's new direction. Since Paulson's gone rogue, we are now playing a "wait and see" game. What will the Masters of the Universe come up with next??? At any rate, within a few more weeks all this will probably have changed again. Interesting developments may come from the G-20 which begins in a few short days.

Update: Angry Bear has an Excellent Article, Paulson Reverses Course.

One Year Without a Car in Charleston, South Carolina

Is living without a car for a year possible in Charleston, SC?

Yes, it is.

Last year, around mid-September (2007) our car lease was up. Instead of burning rubber to the local Auto-mile with a pre-arranged auto loan in hand, we elected to experiment with a different kind of lifestyle – one with no car at all.

Charleston may be famous for her long term standing in the upper rankings of most hospitable cities but she is not known for her public transit. Yet we endeavored to move forward in a challenge to ourselves that included reducing our carbon footprints while exploring alternative methods of transportation. We figured at best our delirium or tenacity, whichever you choose to call it, would last for a few weeks or so.

Despite not knowing the course this grand experiment would take, here we are,- one year later still riding the bus as our main source of daily transportation! Yes, it's true. And, no, it is not always chock full of convenience. For instance, Friday night one of us was semi-stranded and waited for almost a full hour because the bus got held up by traffic in the rain. So, how have we had the patience to pull this off?

Well, we live downtown and are lucky to be centrally located with the buses dropping us within close proximity to almost all of the places we regularly have to go, including home. We also have access to a family-member's car if needed, which allows us to work in a quarterly trip to Costco (several miles outside of downtown) or take the dog to the vet (he is unwelcomed on the CARTA bus as you have probably guessed).

Life without a car isn't bad, yet over the last year a lot of people have peppered the pair of us with all kinds of peculiar questions related to our personal carlessness. Someone once asked, Is it safe? Clearly. We're still alive to write about it. Someone else wondered allowed, How do you go shopping? Walk or bike to the farmers market or grocery store, buy lots of fresh food. Alternatively, carry goods on bus. Others have inquired, How long do you have to wait for the bus? Sometimes we wait, sometimes we don't. And, once by e-mail someone asked, Why don't you just buy a Prius? Prius ownership still involves oil dependency to a degree. Although we believe owning a semi-electric is a great step, our experiment here involves the giant leap away from car ownership. However, we solute you, Prius owners! We know a few of you out there.

Anyway, despite CARTA's increase in ridership over the last year as a result of gas prices, the daily workings of the transit system seem a mystery to many. The unintended positive consequences of ridership, like trimmer waistlines and reductions in episodic road rage, are obviously hidden beneath the folds of CARTA's sparsely funded packaging, out of obvious view.

Hopefully our mixed bag of justifications for car-free living - conjestion, over-consumption, questioning the belief systems commanding our conveniences, economic contraction and global warming among them, are clearly discernible through the stories we've shared here online. Curing The Oil Addiction - Converting to CARTA from last September was our first carless post and captured some of the things on our minds at the time. But basic things, like money, and an expectation that our economy might end up in turmoil, supported the continuation of this project.

Yep, we have saved a lot of money by living without a car for a year. We've eliminated car payments, car insurance, State taxes, maintenance, and gas & oil expenses from our total household budget. The savings have helped adjust our household balance sheet as the U.S. Financial system has slowly slipped into crisis mode. Free of being saddled with a car payment certainly makes watching White House economists on C-Span (fighting over the roles of Keynesian vs. Austrian economic theory in modern-day America) more laughable, at least.

For the moment, and possibly until the perfect electric vehicle is released, we are going to continue living car free. We will rely on CARTA as our main source of mobility and keep pushing for the betterment of our public transit system. This blog is mainly dedicated to the experiences collected through direct utilization of Charleston's public transit system. We've met some interesting people, had some odd conversations and found glimmers of enlightenment in strange scenes that would never have been observed in auto utero, behind the glass of the protective windshield. The whole order of society can be seen from a bus seat when peering out the corner of one's eye. So, without further adieu, here is a collection of the last year's postings which more specifically highlight our adventures on CARTA, a most under-appreciated public bus system. Enjoy.

Jaguar vs. CARTA - Week One
Week Two - Curing Oil Addiction Follow Up
CARTA Politics and Community Planning
Dashing About Town
Getaway CARTA
Not NASCARTA
Biking to a Business Event
Charleston's Talking Public Transit
Tourist Season on CARTA
Shame on Charleston - Going to the Doctor



Check back as we continue pushing for better community planning, improvement & expansion of mass transit and the responsibility and possibility of Energy Independence.