First NBC Bank Fails

First NBC Bank failed last night – it will be absorbed by Whitney Bank and the FDIC was named receiver.  With $4.7 billion in assets this is the largest bank failure in two years and the fourth bank failure so far this year. The United States had five bank failures all of last year.

This deserves keeping an eye on – it is not often that banks of this size fail. The failure of First NBC Bank does not necessarily portend further failures of additional banks but it is noteworthy enough to pay attention.

For comparison, in 2013, there were 24 bank failures at a combined total cost of $1.16 billion. The cost of resolution for First NBC Bank: $996 million. And that’s just an early estimate; it’s guaranteed to go up.

Normalizing The Abnormal

It has now been more than eight and a half years since the collapse of Lehman Brothers and the meltdown of AIG. In the wake of those calamities the Treasury Department and the Federal Reserve took extraordinary action in order to prevent the global credit markets from locking up entirely. Unfortunately that extraordinary action has continued each and every day since then. More than eight years down the road and central banks are still injecting liquidity into the global financial system at a rate of $200 billion per month in order to keep the credit markets solvent. The Federal Reserve still a balance sheet of $4.5 trillion while central banks around the world have already purchased more than a trillion dollars worth of assets just so far in 2017 – and we are not even half way through the year.

Once again, we have fixed nothing.
The governments and central banks around the world, led by the Federal Reserve, have created a liquidity trap. The very problem these central banks, including the Federal Reserve, set out to save us from in 2008 is the very problem which they have exacerbated which is why they are still required to keep interest rates at historical lows, cannot unwind their balance sheets and are still purchasing assets at a heart stopping pace. Every financial crisis has at its’ root illiquidity and the liquidity trap has created a near constant liquidity fear for the past eight years which is why the central banks cannot normalize. Here is what Jeffrey P. Snider said, “That, too, is in important factor because it was liquidity at the very least the QE’s were supposed to fix. The path of balance sheet expansion into the real economy was always murky to begin with, no direct channel would ever exist between the purchase of MBS or UST into the wage rates of ordinary Americans. It was thought to work through expectations more than anything else. But the trillions of bank reserves, so-called money printing, surely would cure all financial liquidity risk. And yet, that is the most prominent feature of the financial landscape apart from the stock market. Everywhere you look there are expressed abnormal (for all history before 2007) liquidity preferences; from eurodollar futures to German federal paper the story is the same – persisting fear of illiquidity, “dollars” most of all. If Bernanke could not get even that right through four QE’s and $2.5 trillion in reserves, the one thing closest to what everyone assumed was this central bank’s wheelhouse, then his views on stocks are likely to be, again, contrarian.”

Where has all of this liquidity gone? It has not gone into expanding corporations, new products and increased employment and wages. It is primarily gone to equities and real estate. Just this morning it was announced that the global market cap has reached $50 trillion. EPS is reaching historical heights – again Jeffrey P. Snider: “”Dr. Bernanke noted that corporate earnings have risen at the same time; he believes corporate earnings will continue to grow and “catch up” to asset prices.” Obviously, given his track record, that is a chilling statement of contrarian purposes. Kidding aside, it is interesting that he of all people would feel comfortable enough in making such a claim. For one, that is exactly the market problem at the moment. It is priced for enormous growth, way out in front of actual earnings which for nearly three years now have failed $100 (for the S&P 500). In order for EPS to “catch up” will require the kind of growth you actually find in a recovery, at the very least a short burst of intense activity that creates all the follow-on effects that he once talked about igniting through QE. But that isn’t what he actually said in his interview. Like Janet Yellen, Bernanke sees only vague improvement, so unsure that he felt compelled to qualify it further.”

For each and every year that Obama was President more American businesses went out of business than were created. It is not looking as though the first year of Trump will be any better. Just this morning the Atlanta Federal Reserve revised their first quarter GDP growth down to 0.2% while JP Morgan estimates first quarter GDP growth at 0.3%. There is no growth in the economy – yet the Dow Jones and Nasdaq are screaming and real estate prices have now exceeded the high water mark of 2006-07. That should send chills down your spine.
The net effect of the actions of the central banks over the last eight and half years is to communicate that the central banks will not allow the markets to suffer a significant decline – let alone fail. One of the consequences of this communication has been the belief that it is much safer to invest your money in real estate or the stock market than it is to invest your money in starting a new business or expanding an existing business. Consequently capital has flowed out of business expansion and creation and into equities and real estate. The net effect of this market distortion has been, due to the decline in business creation and expansion, a decline in the corresponding creation of full time private sector jobs.
On the other hand shadow banking has thrived under this monetary regime – derivatives received a deluge of blame for the disaster of September 2008. At that time the notional value of derivatives was on the order of $240 trillion. What is the notional value of derivatives today? About $550 trillion. Again, we have fixed nothing. That should also send a chill down your spine.
Despite this, people continue to argue what a great idea Dodd-Frank was. Yes, Dodd-Frank is a great piece of legislation – if you are a Wall Street bank.
Even though the last eight years has been the greatest credit expansion in history – the United States has lost something on the order of nine million full time private sector jobs over that same timeframe. There is an obtuseness to this that is in no small measure at the root of our discontent. Raúl Ilargi Meijer said it well – “But as these maps show, it’s not about Le Pen, or Trump, or Nigel Farage. It’s about people being left behind in ever larger numbers, susceptible to voices other than the ones they’ve known for a long time and who never listened to them. And nothing is being done to address these people’s claims; on the contrary, things are only getting worse for them. I saw a headline today that said ECB president Mario Draghi’s “Stimulus Could Blunt Populism as Unemployment Declines”. There’s only one possible reaction to that: what happens when he stops his stimulus?”

Indeed, what happens when all of this stimulus stops? If you are in a position to profit from this mind bending credit bubble you are doing very well. If you are not in that position then you are very likely growing poorer by the day. This situation is true in Europe, in the United States, in Canada, in Japan and in China. Unfortunately the profit from this credit bubble to a large degree has been consigned to specific geographical boundaries – causing many people to draw the mistaken implication that the profit from the credit bubble equates into a superior cultural model being prevalent in these geographical locations.

It is difficult to imagine a more lethal mistake to make than believing that profit from a credit bubble equates to superior culture yet here we are.
Buckle up…

The Daily Camera’s Fatuous, Failed Backpedal.

Yesterday, Monday, I took the Boulder Daily Camera to task for an indefensible letter it published last Wednesday, April 19 that unambiguously incited violence against oil and gas workers. A day later on the 20th, without retraction or apology, the Camera had modified the letter, but grossly inadequately. The letter still plainly supported violence against person and property.
 

A friend later alerted me that a day before I posted my criticism, on Sunday, April 23, four days after the original letter, the Camera’s editorial editor, Dave Krieger had penned a “full scale mea culpa.” Intrigued, I clicked to the Camera to see what this apology might say, and whether the paper had done the right thing and withdrawn the inflammatory letter. No. The letter is still there and Dave Krieger’s apologia does not make his indefensible position more defensible. He just piles on bad journalism and bad historical thinking.

 

 
In the brief “Editor’s note” the day after the letter first appeared, Kreiger explained he sanitized the phrase “blow up wells and eliminate fracking and workers” into “take action to dissuade frackers from operating here” because the Camera does “not condone violence or property destruction of any kind.” But he still believed the letter presented “philosophical questions about civil disobedience” that were worthy of discussion in the community debate about fracking. In his longer apologia on Sunday, Krieger first explains that in long hours of editing, he just had a brain freeze and didn’t quite grasp the line about blowing up wells and eliminating workers. So, slap the forehead and delete. He goes on to reflect at length about historical cases of righteous civil disobedience to unjust laws and their possible guidance for public debate today.
Here’s the threefold problem with the Camera’s frivolous backpedal:
 
First, the edited letter still sitting on the Camera’s server absolutely advocates violence against person and property:

 

“[F]racking equals murder. Malcolm X said: ‘I don’t call it violence when it’s in self-defense; I call it intelligence.’ Coloradans must be intelligent and act in self-defense to protect their neighborhoods and children from the existential threat of fracking. Weibo Ludwig of Calgary, Canada fought back by pouring cement down wellheads and blew up wells.”

 
Talley up those clauses, Mr. Krieger: Coloradans are facing the equivalent of murder. Acts of self defense are not violence. We must act in self defense. One exemplary citizen did it by vandalizing and blowing up wells.
 
No one can honestly, reasonably say that is anything but urging violence against person and property.
 
Second, even with the benefit of the doubt, and assuming no threat to persons, it is still the case that after all legal and administrative avenues of opposition to fracking have been exhausted, direct destruction of property is probably the only effective means to halt drilling. Therefore, the Camera’s cheery assurance it does not condone destruction of property, but nevertheless wants to spur a community conversation about the validity of civil disobedience to block drilling is either rankly illogical or disingenuous.
 
Third, Krieger’s Sunday piece hijacks and cheapens the legacy of brave people who, at great personal risk, fought oppression and gross denial of human rights. It also blurs the critical distinction between action that is merely illegal, that he invokes, and action that is violent and destructive, that he flirts with. In broad daylight, Ghandi and followers, Martin Luther King and followers, even the suffragettes put themselves in the way of physical harm and death. They acted by passive resistance to fight foreign occupation of India, the systematic legal and cultural suppression of a race of people, and the denial of the basic human right to participate equally in voting in representative government.
 
The suffragettes and civil rights activists secured for everybody the right to vote and participate civically. Americans enjoy those rights today. But that’s not enough, some like Krieger suggest. Democratic participation is not the prize—winning and getting your way is the thing that matters. And the degree of claimed violation that justifies the violent resistance Krieger romanticizes is no longer denial of personal rights, but simply public policies and industrial activities that someone disagrees with.
 
So yeah, taking a brave stand against energy development by launching destructive, thief-in-the-night strikes is justified. Just like Ghandi and MLK. Pass the dynamite.

Skin In The Game

Assertion; Anything written by Nassim Nicholas Taleb is worth your time to consume and ponder and that includes his latest “On Interventionistas and their Mental Defects.” The gist of it is that we have allocated great power to people who have no skin in the game. Consequently we have had a very long run of very bad decisions in this country, decisions made by people who pay no personal price for a bad decision. The people making these decisions justify their continued empowerment to make decisions citing their educational achievements and mathematical models and propaganda and often simply by pointing out their ‘good intentions.’ The general pattern is to utterly ignore the unintended consequences brought about by their decisions.

Stark example: Obamacare. The advocates of the Affordable Care Act point to the millions who gained health insurance while ignoring the tens of millions that have lost their health insurance plans. The advocates of the Affordable Care Act point to people who gained health insurance as though it was the same as having gained healthcare. In the hallowed corridors of DC the mathematical models simply reflect and confuse health insurance with healthcare – oblivious to the reality that half of the people in the United States have less than a thousand dollars the bank and a net worth of less than five thousand dollars yet Obamacare is compelling these same people to purchase health insurance with a deductible of six thousand dollars.
Not a single one of these politicians or bureaucrats will be shopping for health insurance on one of the ever vanishing Obamacare exchanges – they have exempted themselves from it all. Not a single one of these politicians or bureaucrats will be put in the position of the government forcing them to shell out money for a health insurance plan which provides them no value because they do not have the financial wherewithal to meet the deductible.

They have no skin in this game whatsoever.

Thomas Sowell some years ago observed, “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”
To the point of Taleb and Sowell – this is exactly what we have done.
In 2005 Ben Bernanke said a housing bubble was “a pretty unlikely possibility.” After the housing bubble nearly collapsed the global economy Bernanke was then promoted. Janet Yellen in 2004 said that closer supervision had “made our financial system far more resilient to shocks.” In 2005 Yellen said “we don’t think widespread problems are likely.” In 2006 Yellen said “overall the economy has shown considerable resilience” followed by “while we face a great deal of uncertainty, the economy appears to be approaching a highly desirable glide path.”
During her congressional testimony in 2010 Yellen said she failed to “connect the dots.”
Yes, Janet Yellen was promoted as the successor to Bernanke.
See the point?
Where does a system such as this take us? Taleb answers that question, “And, one may ask, what can we do since a centralized system will necessarily need people who are not directly exposed to the cost of errors? Well, we have no choice, but decentralize; have fewer of these. But not to worry, if we don’t do it, it will be done by itself, the hard way: a system that doesn’t have a mechanism of skin in the game will eventually blow up and fix itself that way. We will see numerous such examples.”
This is why centralized government fails. Every. Single. Time.

Green Extremist Suggests Death Threats for Drillers; Colorado Paper Carries His Water.

The East and West Coasts can’t hog all the excitement. While militant Antifa types attack Trump supporters in Berkeley, rowdy snowflakes hustle conservative speakers off campus, and masked hooligans occupy streets in New York, Colorado could be cultivating some Leftist violence of its own…in the cause of making energy less plentiful and more expensive.
 

Last week, the Boulder Daily Camera published a letter asking, whether, if oil and gas companies drill too close to homes, thus “threatening our lives and our children’s lives, then don’t we have a moral responsibility to blow up wells and eliminate fracking and workers?” The next day, without apology or retraction, editors walked back the incitement to a blander formulation: “[D]on’t we have a moral responsibility to take action to dissuade frackers from operating here?” Editors intoned they “do not condone violence or property destruction of any kind” but they stand by the letter because it “presents a philosophical question the Camera believes is worthy of community conversation in the context of the ongoing discussion over fracking.”

 
The Camera’s reasoning is so lacking it’s hard to know where to start. First, the letter itself is an unscientific rant which simply strings together all of the environmental Left’s worst accusations and rumors about fracking. It baldly asserts fracking threatens lives, but omits the statistics and obituaries of the growing number of victims. It assures fracking pollutes our water, except, even the EPA admits it does not. And fracking causes climate change! Except that the natural gas produced by fracking is the cleanest burning fossil fuel and helps reduce carbon emissions. Fracking causes species extinction! Except energy producers, like all US industry operate under the Endangered Species Act, and if there were any evidence of species threat, EPA regulators would happily swoop in and slap down. (Unless the threat came from windmills, whence EPA necks would swivel like Linda Blair’s to look away.)
 
Surprisingly, the letter avoids the most recent hot button charge: Fracking drives a large increase in earthquakes. Except the United States Geological Survey prepared a Myths and Misconceptions chart that thoroughly debunks that claim.
 
Second, the Camera cannot say it opposes violence and destruction and still publish the letter. The letter is about violence. Even airbrushing the direct incitement, it blares out this unveiled call to action:
 
“The oil and gas companies are putting their profits ahead of the health of the people in Colorado; consequently, fracking equals murder. Malcolm X said: ‘I don’t call it violence when it’s in self-defense; I call it intelligence.’ Coloradans must be intelligent and act in self-defense to protect their neighborhoods and children from the existential threat of fracking. Weibo Ludwig of Calgary, Canada fought back by pouring cement down wellheads and blew up wells.”
 
The Camera isn’t even pretending to remove incitement to violence. If editors implausibly state they mean to foster discussion of legal means to oppose fracking, then they would have to acknowledge fracking already is probably the most examined, debated, opposed, governmentally supervised technology in the 21st century. Federal agencies like the EPA, the Army Corps of Engineers, the BLM and others all have different roles and authorities that affect fracking. Similarly, Colorado state agencies like the Department of Health and Environment, the Oil and Gas Conservation Commission, the Air Quality Control Commission, as well as local governments all have roles in working to keep the environment clean and fracking practices reasonable. The CDPHE recently issued the results of a comprehensive study finding fracking generally safe and involving low levels of risk to health.
 
What philosophical question does the Camera think is worthy of conversation? If, after all the regulating, lawyering, planning, negotiating, hearings, and sometimes litigating, a project is approved and goes forward, there is only one possible question left: Are people who disagree with the outcome of the process justified in using violence to get their way? The writer says yes. The Camera says let’s discuss it. It’s outrageous. The lunatics not only occupy the asylum but the editorial board.
 
As a bit of an aside, it’s important to note the tired old head fake involved in demonizing “corporate profits” that come from providing the public something it wants. The rant is so ubiquitous it’s easy to become numb to its absurdity. Oil and gas companies produce energy because people want to use it for their quality of life. Most of us like good lighting, warm heaters, hot showers, cool air conditioners, and convenient appliances and electronic devices. Energy producers produce what the public wants in abundance.
 
Irrational griping about corporate profits suggest there’s some kind of pick pocketing or identity theft and account plunder involved. Actually, the opposite is true. Left to their own devices, consumers would use more energy. But the same green left that wants to limit the supply also wants to force limits on consumption—to regulate light bulbs, dishwashers, washers, dryers, car sizes and mileage. They also work with regulators and utilities to impose cumbersome “Demand Side” and shaming programs on consumers. (Final note: this observation about the economic contribution of producers does not apply to monopoly distributors, like Ecel Energy. Companies like Excel team up with green activists and cooperative regulators to force more expensive energy and higher costs onto consumers. Everyone pays more to pad Excel’s uncompetitive bottom line. They indeed are world class pick pockets.)

Aftermath Of The French Election

The first round of the French election is over and Marine Le Pen and Emmanuel Macron will advance to the next and final round.

Earlier this week I posted here that the French elections was one of the global risk factors. That risk factor is now diminishing. While Le Pen would certainly be considered a global risk factor, based on where the money is flowing in the markets and the gambling establishments tonight, Macron must be considered the heavy favorite in the race between the two. Bookies have it at Macron 90%+ while the risk trades which were constructed if the two finalist had been Le Pen and Communist-backed Jean-Luc Mélenchon instead of Le Pen and Macron are unwinding all around the globe tonight.

However China is off significantly…

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