The Big Picture

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• Norris: US, Global Growth Outlook “Well below trend”
• Richard Feynman: The Pleasure of Fnding Things Out
• Housing Tornado Warnings Were an Exercise in Futility
• A modern Pecora Commission could right Wall Street wrongs
• Europe Rises Up Against ACTA

Norris: US, Global Growth Outlook “Well below trend” Posted: 05 Feb 2012 12:30 PM PST Floyd Norris explains why the picture for Global Growth has been disappointing: “United States economy has been growing at its slowest rate since the Great Depression. Most other major developed countries have also experienced unusually slow growth over the last 10 years. The American economy's reported 2.8 percent growth in the fourth quarter, at an annual rate, was seen as mildly encouraging. But it meant that over the previous 10 years, the economy had grown at a compound annual rate of just 1.7 percent. Until the current cycle, there had been no similar prolonged period of slow growth since the Depression.” Charts below reflect the IMF forecasts of 1.8% real growth in 2012 and 2.2% in 2013. For the US, the past decade will have fallen to 1.5%. This is well below trend for any prior 10-year American period — but still above the 0.9 percent compound growth rate in the decade from 1929, the year the Depression began, to 1939. > > Source: A Bleak Outlook for Long-Term Growth FLOYD NORRIS NYT, February 3, 2012    http://www.nytimes.com/2012/02/04/business/a-long-term-slide-in-growth-for-industrialized-economies.html

Richard Feynman: The Pleasure of Fnding Things Out Posted: 05 Feb 2012 08:59 AM PST THE PLEASURE OF FINDING THINGS OUT, Richard Feynman Interview (1981) BBC Horizon/PBS Nova THE PLEASURE OF FINDING THINGS OUT, Richard Feynman Interview (1981) Fifty minutes of PURE Feynman! This is the original Horizon Nova interview – essential for any Feynman fan… and for everyone else too! “I’m an explorer, OK I like to find out!” Richard Feynman, physicist and adventurer extraordinary… THE PLEASURE OF FINDING THINGS OUT was filmed in 1981 and will delight and inspire anyone who would like to share something of the joys of scientific discovery. Feynman is a master storyteller, and his tales — about childhood, Los Alamos, or how he won a Nobel Prize — are a vivid and entertaining insight into the mind of a great scientist at work and play. “The 1981 Feynman Horizon is the best science program I have ever seen. This is not just my opinion – it is also the opinion of many of the best scientists that I know who have seen the program… It should be mandatory viewing for all students whether they be science or arts students.” - Professor Sir Harry Kroto, Nobel Prize for Chemistry BBC Horizon/PBS Nova

Housing Tornado Warnings Were an Exercise in Futility Posted: 05 Feb 2012 08:00 AM PST > There is a absurd yet fascinating article in the Sunday Times by Gretchen Morgenson, titled A Mortgage Tornado Warning, Unheeded. It is is stirring and emotional. What makes it fascinating is yet another story told about prescient warnings in advance not heeded about the coming mortgage crisis. What makes it absurd is its complete lack of recognition of how large companies operate, how businesses interact with the public, how humans behave. Consider the reality of how businesses operate in the world. No (bizarrely according to this column) huge corporations do not sift through an enormous volume of incoming communications, including emails, letters, and phone calls to pull out that one important warning from non-clients, and make major shifts in their business models and operations. This is not how firms whose goals are to profit maximize on behalf of their shareholders operate. I speak from experience. I spent the better part of 2005-06 discussing the imminent housing collapse, warning about valuations, showing how the collapse would play out into the broader economy. These were with clients I had an existing relationship with, a good track record and an established degree of trust. How did that work out? I ended up getting the following Hugh McLeod line printed on the back of my business card: “I can’t take this shit anymore, he said, mistakenly.” Its now a print hanging in my office. They had their models, they thanked me for the color, but there was simply too much money to be made. The thing to blame companies for is not that they ignored some outsider’s warnings; Rather, it is  that they themselves failed to recognize the many warning signs of the coming housing collapse. This is the true failure of the Mortgage Lenders, Wall Street Secritizers, GSEs, Real Estate Agents, Appraisers, and of course, Central Bankers. Their expertise should have alerted them to the obvious coming tornado. Or worse — and IMO criminally — they saw it all coming and went about running up risky exposure regardless. The massive smash and grab, break the bank, snatch huge IBGYBG bonuses, and split before anyone noticed was the order of the day. It is not that they ignored the public warnings.  If the economy is dependent upon large companies recognizing broad warnings of economic danger coming from the public, we are all doomed. Rather, it is that they should have known better on their own. That was their massive failure. > Previously: Mistakenly (April 7th, 2011) More Ignored Warnings About Bad Mortgages circa 2003 (October 11th, 2008) Putting an end to Wall Street's 'I'll be gone, you'll be gone' bonuses (March 12, 2011) Source: A Mortgage Tornado Warning, Unheeded Gretchen Morgenson NYT: February 4, 2012 http://www.nytimes.com/2012/02/05/business/mortgage-tornado-warning-unheeded.html

A modern Pecora Commission could right Wall Street wrongs Posted: 05 Feb 2012 05:00 AM PST A modern Pecora Commission could right Wall Street wrongs Barry Ritholtz January 28 2012 ~~~ What shall we make of this surprise pronouncement in President Obama's State of the Union address? A belated investigation has been launched into the role of fraud in the financial crisis. This much is clear: Despite rampant illegalities, bank fraud and countless cases of perjury, the response to date — at the federal level and from most, but not all, states — has been underwhelming, cowardly even. A few principled holdouts — the attorneys general of Delaware, New York, Nevada and California — refuse to rubber-stamp a pre-investigation settlement with banks, but that's all. Despite chances to bring crooks to justice, there has been little action. So, here we are, four years after the great financial collapse, three years after the recovery began and in the last year of Obama's term — and the president has finally decided to investigate the role of fraud in the great global financial crisis. Hence, this new task force — the unit of Mortgage Origination and Securitization Abuses — begins behind the curve. The statute of limitations is, in many cases, close to elapsing. Even so, do not dismiss the investigation out of hand because of the timing: History informs us that a serious investigation can begin four years after the fact. Recall that Ferdinand Pecora was the fourth chief counsel for the Senate committee that investigated the Wall Street crash of 1929 and subsequent Depression. He was appointed in 1932 and received broad investigatory powers in 1933. His report ran thousands of pages. Thanks in large part to Pecora's findings, Congress passed the Glass-Steagall Banking Act, which separated commercial and investment banking; the Securities Act of 1933, which established penalties for filing false information about stock offerings; and the Securities Exchange Act, which created the Securities and Exchange Commission to regulate the stock exchanges. Nearly 50 years of financial stability followed. The personality in charge can make all the difference. In an encouraging sign, Obama appointed to the task force New York Attorney General Eric Schneiderman, one of the few attorneys general not railroaded into a premature settlement with banks of the robo-signing-foreclosure scandal. Critics have derided the task force as little more than election maneuvering. The politics are obvious: Both Occupy Wall Street and the tea party were very unhappy with the bank bailouts; they seem even less happy with the lack of prosecution. It's fair to ask: Is this new task force a meaningless exercise? It is too soon to tell, of course. Like good poker players, we can look for "tells" that signal whether this will be a farce or a serious player. We'll find clues in the structural setup of the office as well as the areas it investigates. In the setup of the office, four aspects are crucial: • Does the office have subpoena power (as the New York attorney general's office has through the Martin Act)? • Are there going to be public hearings (preferably in the Senate)? • Will the commission have a significant budget? • Will it be a forum for whistleblowers and crowdsourcing? Without such powers, the office would be a farce, helping to shield banks from the fallout of their wrongdoings. What the office investigates will also reveal how serious this is. Both pre- and post-crisis topics should be investigated, including: • MERS: Mortgage Electronic Registration Systems was created by banks without any authority or enabling legislation. It allowed the rapid transfer of mortgages, avoiding state and county filing fees amounting to billions of dollars. Without MERS, it's hard to imagine that the massive volume of mortgage securitizations could have occurred. How were lenders able to circumvent mortgage filings with town and county registrars? Did they engage in illegalities? How many billions of dollars do they owe in fees for transferred notes? And what percentage of MERS assignments were fraudulent, made for entities that did not exist? • Origination fraud: Why did lenders accept "stated income" loans? Why did they abandon traditional standards? Michael White, a Countrywide subprime unit employee, called this "origination fraud," observing, "Eliminate the verification of income for a mortgage borrower, and you eliminate your ability to predict the likelihood of repayment or default." • RMBS: Wall Street's securitized mortgage pools (residential mortgage-backed securities) contained a broad variety of flaws, some so egregious that they amounted to fraud. In plain English, we're talking about bad paperwork and misrepresented pools of mortgages to borrowers whose debts were significantly understated and whose median incomes and credit scores were significantly overstated. • Insurance fraud: Look at a bank tactic in which legitimate home insurance is canceled and new insurance provided at a substantially higher fee through a subsidiary or affiliate of the bank mortgage holder. This extra expense in some cases led to foreclosures. • "Pyramid" servicing fees: An illegal practice in which current payments are applied to past late fees, generating more late fees and additional interest owed and creating a delinquency where none existed. This tactic also led to foreclosures that were probably unlawful. • Lost mortgage notes: How is it possible that the most important part of the mortgage contract — the promissory note — was consistently lost or misplaced by banks? It is unfathomable to anyone who has ever handled documents. At best, it's gross incompetence. At worst, it's willful document destruction during litigation. •Document fraud for sale: There were many examples of alleged document fraud, but the one crying out for investigation involves Lender Processing Services' DOCX subsidiary. The firm seems to have been selling fabricated documents for a fee to lawyers and banks. Indeed, Lender Processing Services, which processes nearly half of all U.S. foreclosures, could require a separate investigation. •False affidavits, perjury (robo-signing): We do not know who ordered the robo-signing of foreclosure documents, the false notarizations, fraudulent written statements to courts and perjury. This should be easy to investigate, like flipping a nickel-bag dealer to get to the drug kingpin. Astoundingly, this easy-to-investigate felony (via notarized perjurious statements submitted to foreclosure courts) has yet to be prosecuted. • Foreclosure mills, process servers: Law firms engaged in rampant fraud that corrupted the foreclosure process. If found guilty, those folks should be disbarred and jailed. Same for the "sewer service" process servers who threw away legally required notices to delinquent homeowners. • Soldiers and Sailors Relief Act: Federal law protects active-duty service members from foreclosure and eviction. I find violation of this law reprehensible. If it were up to me, I would let the Special Forces — Navy Seals and Army Green Berets — handle this as they see fit. Even with criminal statutes of limitations elapsing, we can achieve some measure of justice against the crisis wrongdoers. Lawyers can be disbarred and corporate insiders banned from serving in publicly held firms again. CEOs and CFOs can be fired. A significant investigation, with subpoena powers, a real budget and public hearings would go a long way toward restoring public confidence. Schneiderman has an opportunity to create a legacy for himself that lasts far beyond the next election cycle. If he lacks the tools to do so, he should demand them or resign in protest. ~~~ Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture.

Europe Rises Up Against ACTA Posted: 05 Feb 2012 04:17 AM PST Widespread Protests Are Starting to Turn the Tide Against Anti-Democratic Bill The widespread protests against the anti-democracy bill ACTA by the Polish people have forced Poland's prime minister to stall – or perhaps even back out – of the treaty. As TechDirt notes: Following the growing protests about ACTA in Europe, as well as signs of US meddling, Poland's prime minister is making it clear that Poland will not ratify ACTA for the time being, leading to speculation that the EU may not actually join ACTA. Tusk's backtracking could spell the end of ACTA for the entire European Union. If Poland or any other EU member state, or the European Parliament itself, fails to ratify the document, it becomes null and void across the union. As it stands, there are already five member countries that have not even signed ACTA. "I share the opinions of those who from the beginning said that consultations were not complete," Tusk said, according to a report in Wirtualna Polska. The 54-year-old prime minister added that a Polish rejection of ACTA is now on the table, and admitted that he had previously approached the agreement from a "20th century" perspective, due to his age. The Slovenian ambassador to Japan has apologized to her country and her children for signing ACTA, saying she signed it because her government told her to, and "out of civic carelessness" in not bothering to understand what ACTA meant before signing it. Bulgarian and Polish MPs wore Guy Fawkes masks to protest ACTA. Again, from TechDirt: We recently pointed out that a bunch of Polish politicians wore Guy Fawkes/Anonymous masks in Parliament to protest ACTA: It appears that some politicians in Bulgaria thought that was a good idea, and have done the same thing: Indeed, even the elderly are wearing Guy Fawkes masks in protest of ACTA: European Parliamentarian Marietje Schaake writes: As a Member of the European Parliament, I very much welcome the increased attention the Anti-Counterfeiting Trade Agreement (ACTA) has received in the past weeks. It has taken a while for massive outcry to emerge, but we are seeing protest voices getting louder and louder. ARS Technica reports that the Greek Ministry of Justice was hacked by anonymous: The Greek Ministry of Justice had its Web site defaced by Greek and Cypriot Anonymous-affiliated hackers (a mirror of the defaced site is available here). The hackers included a video message (now removed) complaining that the Greek government had abandoned the democratic will of its people and was instead bending to the will of the IMF and the EU. Greece is expected to accept IMF funds in an effort to allow its government to bring some semblance of sustainability to its finances, but Anonymous believes that this move will "introduce a new dictatorship upon [the Greek] people's shoulders and allow the bankers and the monarchs of the EU to enslave them both economically and politically." The defaced site itself focused on an anti-ACTA message. It warned that Greece had two weeks to "stop ACTA," and that if it failed to do so, some 300 sites would be defaced. The next targets will include both media and ministry sites, with the hackers announcing that they already had passwords for most sites and that this was "JUST the BEGINING [sic]." Swedes are out in force protesting ACTA. As The Local reports: Over 10,000 Swedes had pledged to take part in demonstrations in Stockholm and other cities on Saturday to protest against the ACTA anti-piracy legislation which is set to go before the Riksdag later this year. The demonstration, held at midday on Sergels Torg in the centre of Stockholm, featured speeches from MEPs Christian Engström of the Pirate Party, Carl Schlyter of the Green Party and Mikael Gustavsson of the Left Party. Over eleven thousand people had signed up to attend the Stockholm demonstration on Facebook by 10am on Saturday. Christian Engström told the Dagens Nyheter (DN) daily that with indications that Poland's parliament is set to reject the controversial international anti-piracy legislation, the pirate movement had wind in its sails. "1.4 million signatures have been collected through an online petition and there have been riots in Poland. There now seems to be a commitment among citizens so I feel very hopeful," he told DN. By all accounts, the number of ACTA protests in Europe is overwhelming: But that only tells half of the story. As Pirate Party found Rick Falvinge reports: Just look at this map. I've never seen anything like it in terms of people all across Europe demanding their freedom of speech and being angry against backroom corporativist deals that steals their most basic civil liberties. *** This is not Hollywood versus Silicon Valley, as oldmedia likes to frame it. This is Hollywood versus The People. For decades, they have trained us to think in black and white, in good versus evil fighting for domination of the free world. And now, they've gone and put themselves in the role of evil villain. The copyright cartel thought they were battling Google. They're not. They're waging war against the people, with the help of the politicians. And we're not standing for it. We can't change the copyright cartel, but we can send a clear message to the politicians that 250 million Europeans sharing and preserving contemporary culture is not a problem. It is a power base of 250 million voters that will kick you out of office if you dare so much as touch the net. And there are visible cracks in the façade, especially seeing Poland falter and the copyright cartels visibly shaken from the SOPA defeat in the US, with the politicians having started to pay attention to what the Internet wants. We can win this. Today, Sweden rallies. List of rallies below (via Christian Engström, Member of European Parliament): Stockholm: Sergels Torg, 12 noon. [Facebook] Göteborg: Götaplatsen, 12 noon. [Facebook] Malmö: Stortorget, at the Karl X Gustav statue, 12 noon. [Facebook] Helsingborg: at the Magnus Stenbock statue, 13:00. [Facebook] Umeå : Apberget, 12 noon. [Facebook] Kalmar: Giraffens Köpcentrum, 12 noon. [Facebook] Sundsvall: Torget, 12 noon. [Facebook] Karlstad: Stora Torget, 12 noon. [Facebook] Borlänge: Jussi Björlings torg, 12 noon. [Facebook] (The observant will note that less than half of these rallies are marked on the already-impressive map of European rallies. Makes me wonder what the map would look like if all rallies were included.) Most of Europe will rally next Saturday, on February 11. That's going to be something, too. Let's give Europe the best of precursor to those rallies from Sweden that they could possibly get! As of early morning on February 4, 11,000 people have committed to coming to the Stockholm rally, with another 3,500 maybes. Those are numbers that would overfill the Plattan plaza by a wide margin. I'll be at the rally in Stockholm, Sweden, and will be taking plenty of imagery and will follow up here. UPDATE AT 1500: *** Rally at the Sergels Torg plaza in Stockholm, Sweden. Anna Troberg, leader of the Swedish Pirate Party, speaking (at left) and maybe 1/3 of the crowd. The turnout was like nothing I've seen for a February rally in Sweden. In -20°C, there were well over a thousand people protesting corporate rights over their freedom of speech; normally, you're lucky getting 50. Also, there was a very clear recurring theme among the Members of European Parliament speaking, MEPs from three different parties. They all told the story of how software patents had been defeated in Europe, followed by the crucial "amendment 138″ in the Telecoms Package, which aimed to shut people off en masse from the Net. Well, thanks to diligent activists and people on the inside, we managed to get as strong safeguards in place as possible against shutting people off. But the monopoly lobbyists never quit. Now they're at it again, this time saying that if authorities can't shut people off en masse due to that "amendment 138″, maybe they can get private corporations – the ISPs – to do it instead through third-party liability forcing certain terms of service and wiretapping. Hence, ACTA. Fortunately, and this was a consistent message from all Members of European Parliament, we have the blueprint for defeating ACTA. We need to repeat what we did with the software patents and with the Telecoms Package. It takes hard work, it takes tons of activism, but we know exactly what to do and how to do it, and most importantly: we know that we can win. As the rally concluded, everybody was determined to win this fight, having heard the clear message that it takes work but is perfectly doable. UPDATE 2: There are more photos from Christian Engström, Member of European Parliament here. Free for any use (CC0 / Public Domain). Here's one of his photos, showing the protester crowd:

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