Home     Writers     Op/Ed     Book Reviews     News     Bookstore     Photoshops     Submit     Search     Contact Us     Advertise  
  You are here: 

Mon

05

Mar

2007

Singing the Vegetable Opera - Kunstler
Monday, 05 March 2007 13:24
by James Kunstler

The jive-finance economy had a few acidic burps last week — or, at least, that's how it may seem in the days ahead as the equity markets finally upchuck the toxic notional junk "money" they have been gorging on in recent years. Has there ever been a financial collapse with brighter or louder warning signals?

I suppose the expectation (or hope) is that the quasi-mythical "plunge protection team" — a "working group" of federal reserve officials and bankers — will jump in and administer some soothing pepto-bismol, but frankly I don't see how that's possible this time. The poison at the bottom is a fetid mass of "non-performing" mortgages, billions upon billions of loans that strapped borrowers are not paying back, loans which, in the meantime, have been rolled over, rebundled into jive "securities" (ha!) and sold, and rolled over again and used as "leverage" for massive exotic bets and bloated arbitrages involving mere abstract figments of electronic digital pulses completely removed from any reality-based productive investment activity.

Among the leaders at the supply end of this racket has been General Motors — that's right, the company that used to manufacture cars, the company about which one plutocrat once remarked what was good for [it] was good for the country. In fact, General Motors' main source of earnings for a long time now has been money-lending, not car-making (which only loses money). They started decades ago with GMAC, their own car-loan operation — which makes sense if you are serious about selling cars — but in the 1990s, with foreigners way out-selling GM's shitty cars, the company's financial wizards decided to venture into home loans and thus Ditech was born.

That's right, Ditech, the outfit that advertised incessantly on TV, promising that house-buyers could sleepwalk their way into mortgage approvals — and thus frustrate all the smarmy, over-fed, punctilious bankers who obstructed such requests with pain-in-the-ass qualifying protocols and burdensome paperwork. Last week GM put off filing regular required financial reports because of disarray in its Ditech operation. Ditech is responsible for as much as $80 billion in mostly sub-prime house loans — i.e. given to people with dubious prospects for repayment. But GM's Ditech is but one of scores of entities now choking on non-performing paper (and many of Ditech's rivals are now bankruptcy road kill).

What makes matters far worse is that all this wildly reckless lending has been in the service of a suburban sprawl-building juggernaut that will itself represent another layer of grotesque liability for the United States. The crash of the house-selling bubble, based on absurd asset inflation for things built badly in the wrong places, is coinciding exactly with a permanent oil crisis that will only exacerbate the locational disadvantages of houses built in the newest and furthest suburbs.

Evidence now conclusively shows that Saudi Arabia's oil production was down 8 percent in 2006 over 2005, even while the number of oil rigs went up substantially — indicating that the Kingdom is drilling as fast as it can and still losing ground. (Production slipped from 9.9 million-barrels-a-day to about 8.4 mm/b/d.) Mexico's Cantarell field is crashing (minimum 15 percent annual decline and possibly much steeper rate, meaning in a year or two the US will cease getting oil imports from its number two foreign supplier). The North Sea is crashing, too. Russia is about show steep decline. Iran is past peak. Iraq, as every six-year-old knows, is the world's clusterfuck poster child. Indonesia (OPEC member) is now a net oil importer. Venezuela is past peak and full of loathing for the US. Nigeria is collapsing politically. No amount of corn is going save the Happy Motoring utopia, and that's really all our economy is now based on.

When the financial markets factor all this in — and they really haven't yet — I think we'll see a lot more of what they like to call "downside action." These things are all connected. The housing bubble was set into motion by $10-a-barrel oil at the turn of the millennium. Perhaps as much as half the jobs created since then have been in house-building, house-selling, house-buyership-enabling, house furnishing, and other things house-related. The whole final suburban blow-out enterprise has been a fantastic blunder. Now it's unraveling and the only "performing" loans will be the ones paid to the accounts receivable department in hell.

It ought to be an interesting week in the markets.
More from this author:
McMarching Through Georgia (9239 Hits)
by James Kunstler My travels last week took me to small college town in Georgia and into the heart of Vermont, and the contrasts...
Ass Kicking Republicans (7547 Hits)
by James Kunstler If an American political party was ever in for an ass-kicking, it's the current incarnation of the Republicans....
Democrats and 'Energy Independence' (9139 Hits)
by James Kunstler The day after the impressive Democratic election victory, Senate Majority Leader-to-Be Harry Reid declared that a top priority...
The American Fiasco - a Moment of Clarity (8257 Hits)
by James Kunstler Last week, I had one of those clarifying moments when the enormity of the American fiasco stirred my livers and lights...
Not So Wonderful (7319 Hits)
by James Kunstler It's a Wonderful Life, Frank Capra's 1946 Christmas card to America, is full of strange and bitter lessons about who we were...
Related Articles:
Forecast For the Year Ahead - James Kunstler (11452 Hits)
by James Kunstler Forecast For the Year Ahead First a Look Backward Let's get this out of the way up front: the worst call I made...
The Warming - Kunstler (7341 Hits)
by James Kunstler Everyone was walking around upstate New York delirious in their shirtsleeves on Saturday as the thermometer soared into the...
The Cheap Oil Mirage - Kunstler (9301 Hits)
by James Kunstler The American public is understandably happy to see the bottom fall out of the oil futures market. But temporary circumstances...
In It to Win It - Kunstler (6286 Hits)
by James Kunstler Of all the president-wannabes who emerged from their thickets, mole holes, burrows, and termite mounds last week, the...
Housing Fetish - Kunstler (7107 Hits)
by James Kunstler Martha Stewart was not an accident of history. She came along in the late 20th century as a kind of spirit guide to a...


Add this page to your favorite Social Bookmarking websites
Trackback(0)
Comments (1)add comment

a guest said:

0
Housing market crash is a small distraction compared to what conventional oil peak extrraction means
Without a continual increase in world oil extraction production we will have a decline in overall food production. Use your imagination...
 
March 05, 2007
Votes: +0

Write comment
smaller | bigger

busy
 

adsense

Top