Years ago, Jonathan Rees became a freemason. According to journalists and investigators who worked with him, he then exploited his link with the lodges to meet masonic police officers who illegally sold him information which he peddled to Fleet Street.

As one of Britain’s most prolific merchants of secrets, Rees expanded his network of sources by recruiting as his business partner Sid Fillery, a detective sergeant from the Metropolitan Police. Fillery added more officers to their network. Rees also boasted of recruiting corrupt Customs officers, a corrupt VAT inspector and two corrupt bank employees.

Other police contacts are said to have been blackmailed into providing confidential information. One of Rees’s former associates claims that Rees had compromising photographs of serving officers, including one who was caught in a drunken state with a couple of prostitutes and with a toilet seat around his neck.

It is this network of corruption which lies at the heart of yesterday’s claim in the House of Commons by Labour MP Tom Watson that Rees was targeting politicians, members of the royal family and even terrorist informers on behalf of Rupert Murdoch’s News International. The Guardian’s own inquiries suggest that Watson knows what he is talking about.

Much of what the police sources were able to sell to Rees was directly related to crime. But Rees also bought and sold confidential data on anybody who was of interest to his Fleet Street clients, to which the police often had special access. The Guardian has confirmed that Rees reinforced his official contacts with two specialist ‘blaggers’ who would telephone the Inland Revenue, the DVLA, banks and phone companies and trick them into handing over private data.

One of the blaggers who regularly worked for him, John Gunning, was responsible for obtaining details of bank accounts belonging to Prince Edward and the Countess of Wessex, which were then sold to the Sunday Mirror. Gunning was later convicted of illegally obtaining confidential data from British Telecom. Rees also obtained details of accounts at Coutts Bank belonging to the Duke and Duchess of Kent. The bank accounts of Sarah Ferguson, Duchess of York, are also thought to have been compromised.

Confidential data

The Guardian has been told that Rees spoke openly about obtaining confidential data belonging to senior politicians and recorded their names in his paperwork. One source close to Rees claims that apart from Tony Blair, Jack Straw, Peter Mandelson and Alastair Campbell, he also targeted Gaynor Regan, who became the second wife of the former foreign secretary Robin Cook; the former shadow home secretary Sir Gerald Kaufman; and the former Tory cabinet minister David Mellor.

It is not yet known precisely what Rees was doing to obtain information on these political targets, although in the case of Mandelson it appears that Rees acquired confidential details of two bank accounts he held at Coutts, and his building society account at Britannia. Rees is also said to have targeted the bank accounts of members of Mandelson’s family.

An investigator who worked for Rees claims he was also occasionally commissioning burglaries of public figures to steal material for newspapers. Southern Investigations has previously been implicated in handling paperwork that was stolen by a professional burglar from the safe of Paddy Ashdown’s lawyer, when Ashdown was leader of the Liberal Democrats. The paperwork, which was eventually obtained by the News of the World, recorded Ashdown discussing his fears that newspapers might expose an affair with his secretary.

Computer hacking

The successful hacking of a computer belonging to the former British intelligence officer Ian Hurst was achieved in July 2006 by sending Hurst an email containing a Trojan programme which copied Hurst’s emails and relayed them back to the hacker. This included messages he had exchanged with at least two agents who informed on the Provisional IRA — Freddie Scappaticci, codenamed Stakeknife; and a second informant known as Kevin Fulton. Both men were regarded as high-risk targets for assassination. Hurst was one of the very few people who knew their whereabouts. The hacker cannot be named for legal reasons.

There would be further security concern if evidence finally confirms strong claims by those close to Rees that he claimed to have targeted the then Metropolitan Police Commissioner, Sir John [now Lord] Stevens, who would have had regular access to highly sensitive intelligence. Sir John’s successor, Sir Ian Blair, is believed to have been targeted by the News of the World’s full-time investigator, Glenn Mulcaire. Assistant commissioner John Yates was targeted by Rees when Yates was running inquiries into police corruption in the late 1990s. It appears that Yates did not realise that he himself had been a target when he was responsible for the policing of the phone-hacking affair between July 2009 and January 2011.

Targeting the Bank of England, Rees is believed to have earned thousands of pounds by penetrating the past or present mortgage accounts of the then governor, Eddie George; his deputy, Mervyn King, who is now governor; and half-a-dozen other members of the Monetary Policy Committee.

Rees carried out his trade for years. His career as a pedlar of privacy stretches back into the 1990s, when he worked assiduously for the Daily Mirror, the Sunday Mirror and the News of the World.

Rees and Fillery had three key media contacts, some of whose conversations with them were recorded by a police bug in their south London office: Doug Kempster from the Sunday Mirror, who was recorded suggesting that “Asians look better dead”; Gary Jones from the Daily Mirror, who was recorded as Rees told him that some of what he was doing for the Mirror was illegal; and Alex Marunchak, the executive editor of the News of the World.

This lucrative career was crudely interrupted in September 1999 when Rees was arrested and then jailed for plotting to plant cocaine on a woman so that her ex-husband would get custody of her children. Sid Fillery similarly ran into trouble with the long of the arm of the law which he was so keen to twist. He was arrested, convicted for possession of indecent images of children and retreated to Norfolk to run a pub. Rees, however, emerged from prison in May 2004 and proceeded to carry on trading, this time exclusively for the News of the World, then being edited by Andy Coulson, who went on to become David Cameron’s media adviser.

The scale and seriousness of Rees’s activities have worrying implications for Operation Weeting, the Scotland Yard inquiry which finally — unlike its two predecessors — is making a robust attempt to get to the truth of the scandal. Weeting has been told to focus on one private investigator, Glenn Mulcaire; on one illegal technique, phone-hacking; which he deployed for the one newspaper which paid him on a full-time contract, the News of the World. That alone is consuming the full-time efforts of 45 officers.

The truth is that Mulcaire was only one of a dozen different investigators, many of whom used other illegal techniques. And the News of the World, as journalists all over Fleet Street know, was not the only enthusiastic employer of these dark arts. Mulcaire and his phone-hacking became the single focus through the simple fluke that he was clumsy enough to get caught interfering with the voicemail of the royal household — the one target which would finally move the police into taking on a Fleet Street paper. The police famously failed to look beyond him, and it is only now that the rest of the truth is beginning to emerge.

With the new disclosures of Rees’s operation there will be pressure on Weeting to expand its inquiry, which would involve recruiting still more officers. And, in the background, there is a small queue of other investigators waiting to have their names — along with their Fleet Street clients — added to Weeting’s list of suspects. High among them will be a former Metropolitan police detective who was accused of corruption in the early 1980s and forced out of his job after a disciplinary hearing.

Senior Yard sources say this detective then came up with a novel form of revenge. He acquired a press card and proceeded to act as a link between Fleet Street crime correspondents and the network of corrupt detectives he knew so well.

Former crime reporters from several national newspapers have told the Guardian that they used this detective to carry cash bribes — thousands of pounds in brown envelopes — to serving officers. Scotland Yard for years has been aware of his activity and has attempted but failed to catch him and stop him.

The crime reporters say that one reason for the Yard’s failure is that, when the Yard tried to stop the corruption, serving officers tipped them off so they could evade detection.

And there is more. The Guardian has identified a total of eleven specialist ‘blaggers’ who were paid by wealthy clients, including Fleet Street newspapers, to steal medical records, bank statements, itemised phone bills, tax files and anything else that was both confidential and newsworthy.

• This article was amended on 9 June 2011. The original referred to the then Metropolitan Police Commissioner, Sir John Stephens. This has been corrected. © Guardian News and Media Limited 2011

Daniel Paul Schreber

July 19, 2009

The Psychotic Dr. Schreber Page: The Life of Daniel Paul Schreber, Mystic and Madman.

The Psychotic Dr. Schreber



“I cannot of course count upon being
fully understood because these things are dealt with which cannot be expressed
in human language; they exceed human understanding. Nor can I maintain
that everything is irrefutably certain even for me: much remains only presumption
and probability. After all I too am only a human being and therefore limited
by the confines of human understanding; but one thing I am certain of,
namely that I have come infinitely closer to the truth than human beings
who have not received divine revelation.”

–Daniel Paul Schreber, Memoirs
of My Nervous Illness

Daniel Paul Schreber (25 July 1842 – 14 April 1911) was a German judge who suffered from what was then diagnosed as dementia praecox. He described his second mental illness (1893-1902), making also a brief reference to the first illness (1884-1885) in his book Memoirs of My Nervous Illness (original German title Denkwürdigkeiten eines Nervenkranken)[1]. The Memoirs became one of the most influential books in the history of psychiatry and psychoanalysis thanks to its interpretation by Sigmund Freud.[2] There is no personal account of his third illness (1907-1911), but some details about it can be found in the Hospital Chart (in Appendix to Lothane’s book). During his second illness he was treated by Prof. Paul Flechsig (Leipzig University Clinic), Dr. Pierson (Lindenhof), and Dr. Guido Weber (Royal Public Asylum, Sonnenstein).


Psychotic Dr. Schreber: A Critique of Freud’s Theory of Paranoia” by Brent
Dean Robbins

and Liberation: Journey to Cader Idris” by Brent Dean Robbins

the Memoirs: Schreber and “False” Representation” by Janet Lucas

Not God–The Story of a Schizophrenic” by Trisha Ready

as a Semantical Signpost” by Jonathan Blumen

the Case of Dr. Schreber” by Earl Jackson, Jr.

Other as Muse:  On the Ontology and Aesthetics of Narcissism” by Allen
S. Weiss

Institution of Rot” by Michel de Certeau

Space” by Alphonso Lingis

Doctors” by Annalee Newitz

in a Cyberspace Age” by Sheila Kunkle

and Freud page

review of Schreber’s Memoirs of My Nervous Illness


review of James Hillman’s Eranos lecture On Paranoia” by Christine

Dangerous Proximities: Telepathy, Psychosis, and the Real Event” by Pamela

from Vincent Crapanzano’s paper on Schreber

Skeptic’s Dictionary compares Schreber to Gurdjieff

of Tony Elias’ paper on Schreber and Deleuze

of John Farrell’s
Freud’s Paranoid Quest: Psychoanalysis and Modern

and the Subject of Law” by Ellie Ragland

Shaft” by Laurence A. Rickels

and Matt talk about Schreber at “Hey! What’s the big idea?”

Philosophy and Some Humanists Attitudes Toward the Teaching of Writing”
by David Bleich

and the Hoarse Men of the Apocalypse” by Fehta Murghana

– Questions And Answers National Institute of Mental Health

Freud page

Recommended Readings

of My Nervous Illness (New York Review of Books Classics)

by Daniel Paul Schreber

Our Price: $11.96

Case Histories

by Sigmund Freud, Philip Rieff (Editor)

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Defense of Schreber : Soul Murder and Psychiatry

by Zvi Lothane

Our Price: $65.00

Own Private Germany : Daniel Paul Schreber’s Secret History of Modernity

by Eric L. Santner

Our Price: $37.50

Paradoxes of Delusion : Wittgenstein, Schreber, and the Schizophrenic Mind

by Louis A. Sass

Our Price: $13.95

and Modernism : Insanity in the Light of Modern Art, Literature, and Thought

by Louis A. Sass

Our Price: $17.56

Psychoses 1955-1956 (Seminar of Jacques Lacan, Bk 3)

by Jacques Lacan, Jacques-Alain Miller (Editor),
Russell Grigg (Translator)

Our Price: $35.00

on Schreber : Psychoanalytic Theory and the Oritical Act

by C.B. Chabot

Our Price: $27.50

and Sexual Identity : Toward a Post Analytic View of the Schreber Case

by David Allison

Our Price: $24.95

: Father and Son

by Han Israels

Our Price: $57.50

of a Schizophrenic Girl : The True Story of ‘Renee’

by Marguerite Sechehaye (Contributor), Grace
Rubin-Rabson (Translator), Frank Conroy

Our Price: $10.36

God Talks Back: Madness or Mysticism?

by Tasha E. Mansfield

Our Price: $15.73

and Madmen : Psychiatry Opens Its Doors to Spirituality

by Russell Shorto

Our Price: $17.50

Mystic Phenomena and What They Mean

by Kevin Orlin Johnson, Ph.D. Kevin Orlin Johnson

Our Price: $25.00

Ecstatic Journey : The Transforming Power of Mystical Experience

by Sophy Burnham

Our Price: $18.75

and Experience

by Russell H. Hvolbek

Our Price: $24.50

Reason : Art and Psychosis Works Form the Prinzhorn Collection

by Laurent Busine, Inge Jadi, Bettina Brand-Claussen,
carolin Douglas, Caroline Douglas

Our Price: $29.75

Kundalini Experience : Psychosis or Transcendence

by Lee Sanella, Lee Sannella

Our Price: $12.95

: Capitalism and Schizophrenia

by Gilles Deleuze, Felix Guattari, Helen R.
Lane (Translator), Robert Hurley (Translator)

Our Price: $16.95

Thousand Plateaus : Capitalism and Schizophrenia

by Gilles Deleuze, Felix Guattari (Contributor),
Brian Massumi (Translator)

Our Price: $19.95

Studies in Schizophrenia : Based on the Readings of Edgar Cayce (Edgar
Cayce Health Series)

by David, M.A. McMillin

Our Price: $12.71

Lost Years: A Personal Exploration of Schizophrenia

by Christina Alexandra, John Paul Brady

Our Price: $11.01

With Schizophrenia (Psychological Disorders Series, Bk 2)

by Stuart Emmons (Editor), Craig Geiser, Martin
Harrow, Kalman J. Kaplan

Our Price: $22.95

: A Memoir of Faith, Art & Madness

by Robin Hemley

Our Price: $18.71

Plea : Schizophrenia in the Novels of Kurt Vonnegut

by Lawrence R. Broer

Our Price: $19.95

: The Voices of Paranoia

by Ronald K. Siegel

and Civilization : A History of Insanity in the Age of Reason

by Michel Faucault

to Say It

by Marie Cardinal


June 29, 2009

The first day or so we all pointed to our countries. The third or fourth day we were pointing to our continents. By the fifth day we were aware of only one Earth!-Sultan Bin Salman Al-Saud, (1956 – ), astronaut, interviewed on returning from a shuttle mission, 1985

The week that was through the eyes of David Rosenberg.

1) Largest drop in real GDP since early 1980s

GDP fell 6.1% QoQ annualized in 1Q, well below consensus expectation of -4.6% and even below the BAS-ML forecast of down 5.5%. All investment-related segments of the economy showed significant pullback, reflecting the global recession and the ongoing credit crunch that is making it difficult to complete projects. Commercial construction fell 44.2% in 1Q, which is the largest quarterly decline ever recorded going back to the late 1940s. The BEA noted significant declines in energy-related drilling projects as well as sharp downturns in commercial, healthcare, power and communication building. Capex investment fell 33.8%, the 5th quarterly decline in a row and the deepest decline to date. The residential building sector fared just as poorly, down 38% in 1Q continuing a string of declines that stretch back to early 2006, but again the 1Q drop was the deepest decline so far in the cycle. Inventories were cut by $103.7B in 1Q and took 2.8ppt from top line growth; however, this was far short of our expectations and combined with the weaker than expected final sales pace suggests businesses will likely need to slash more inventories in the months to come.

The one bright note in the report was the consumer, which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q, however, suggests that this positive pace likely will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q – a full percentage point higher than in 4Q. On the price side, the GDP price index increased by 2.9%, above consensus but in line with BAS-ML expectations. The more important consumer price index fell by 1.0% as expected and the core PCE advanced by an anemic 1.5% q/q annualized while the yearly pace slowed to a 4-year low of 1.8%.

2) Nominal GDP declines at a 3.5% annual rate

We must admit to being surprised at the bond market reaction as the yield on the 10-year note retests critical support around the 3% area, especially with NOMINAL GDP, which has the highest correlation with interest rates, in contraction phase. Nominal GDP declined at a 3.5% annual rate on top of a 5.8% slide in the fourth quarter of last year. This back-to-back slide dragged the year-on-year trend to -0.5% from +1.2% in 4Q and +4.7% a year ago. This is a historic event, in our view. Outside of the deepest part of the Great Depression from 1930-33, the only other times that nominal GDP was deflating were in 1938, 1946, 1949, 1954 and 1958. While the equity market turned in rather mixed showings during these periods, what is clear to us is that long-term bond yields traded in a 2-3% range with perfect consistency, which could be a signal that at current levels, we could have the makings of a pretty nice buying opportunity in the Treasury market. As for equities, a client made an interesting point to us in the aftermath of the data. The left side of the V does not surprise anyone anymore – it’s a done deal. What investors will likely have to see for this market to reverse course is the right side of the V prove elusive and end up looking like an L, an elongated U or a series of W’s.

3) Are the Fed and markets on the same page?

We find it rather difficult to square the Fed’s press statement this week with the extremely positive reversal in investor sentiment over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the right-hand side of the ‘V’. Mr. Market is to be respected, but he is not always correct. The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market. Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.

4) Deflation seen as the primary risk

As for Treasuries, the sell-off continues unabated, and came on a day when we learned that real GDP contracted at over a 6% annual rate, with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span. Perhaps the market was expecting that the Fed would announce more in terms of the size of its bondbuying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we have stated, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in the statement, but what it did not change was its view that deflation remains a risk – “the Committee sees some risks that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term”.

The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds.

5) March spending decline implies weak 2Q start

Real consumer spending fell 0.2% MoM in March, after upwardly revised prints of 0.9% and 0.1% MoM respectively in January and February. Since so much of the 1Q gain was front-loaded into the beginning of the quarter it leaves an extremely weak hand-off of -0.4% (March/1Q annualized) heading into the second quarter. Thus the numbers are confirming our view that the 2.2% quarterly annualized gain in 1Q was little more than a short-lived rebound after the extreme bout of risk aversion seen in 4Q. Combined with the decline seen in April retail sales, this leaves our 2Q tracking for PCE at around -2.9%. Personal income fell 0.3% MoM in March, continuing an almost unbroken string of pullbacks dating back to last September. Real disposable personal income (DPI) was flat in March after a 0.3% drop in February, marking a renewed downturn after the boon to real income of the prior 6 months as energy prices collapsed. The statistical momentum (March/1Q annualized) of real DPI turned negative in March for the first time since last September.

6) This rally more rooted in technicals than fundamentals

We remain of the view that this is a rally more rooted in technicals than in fundamentals and that means that traders may well end up enjoying a further upleg to the 200-day moving average of 970. It is possible, though we choose not to participate. If you want risk, at least get paid something for the price of being wrong; for example, an 8-1/4% yield on a Baa corporate at least means investors will garner some income if the consensus view of a second half economic turnaround turns out to be off base. Everyone loves to point to that 1932-37 rally in the equity market when the economy bounced off its lows – then again, real GNP had plunged 33% peak-to-trough so there was space for a “bungee jump” and indeed, that stock market rally took place as the level of economic activity surged nearly 60%. We shall see the extent to which we see such a vigorous rebound this time around. For all we know, this is not 32-37 but perhaps the hiccup we saw in 1Q31 when we saw a 1.1% annualized growth rate followed by a 7.2% pop the very next quarter. We can only imagine how much excitement there must have been back then, but the reality is that the recovery in both the economy and the equity market was still more than a year away.

7) Homeownership out of vogue

Data from the Census Bureau on 1Q homeownership and vacancy rates revealed that the homeownership rate eased slightly from 67.5% in 4Q08 to 67.3% in 1Q09. Though down 2ppt from the peak of 69.2% in 4Q04, a reversion to the long-term average would still suggest another 2-3ppt correction. To date, the largest correction has been in the Midwest, where homeownership has dropped 3.5ppt from the 74.2% peak in 2Q04. At 62.8%, the homeownership rate in the West is now the lowest regionally – likely the result of surging foreclosure rates. By age of homeowner, those under the age of 44 years have seen the largest correction in homeownership, with rates falling to 40% for those under 35 years (from 43.3% in 1Q05) and to 65.7% for those between 35-44 years (from 70.1%) –this segment was likely the most active in market speculation and/or taking out subprime and Alt-A mortgages during the financing boom. The latest climb in delinquency and foreclosure rates suggests on ongoing shift of households into the rental market – a trend that stands to only add to current vacant housing stock.

19.1M homes stood vacant in 1Q – a record figure – including over 2.1M specifically for sale. Relative to pre-bubble levels, this is an 800K overhang of homes that can be expected to weigh heavily on prices for quite some time. In fact, at the current sales and housing start rates for single-family homes, it would take over 7 years to work through inventories. Simply calling an outright moratorium on homebuilding would require a 125% jump in new home sales to work through the housing stock in one year’s time. In short, these numbers indicate a work-out period in the housing market that will likely take quarters/years to resolve even with mortgage rates at record lows and affordability at record highs.

8) Consumer confidence — a hope and prayer

Consumer confidence jumped by the most in 3 years to 39.2 in April from 26.9 in March, almost exclusively on the expectation that the policies put in place will set the economy on a better glide path. This is still an extremely depressed level of sentiment, down 65% from the cycle peak back in February 2007. As such, we reserve judgment on whether the government policies will actually play out as optimistically as the US consumer predicts, but in the short term it is suggesting less of a pullback in consumer spending and a perhaps temporary slowing in the pace of saving rebuild.

Consumer assessment of the present situation rose by 1.8 points to a still very depressed 23.7 in April, with the job assessment (jobs plentiful minus jobs hard to get) up just 0.7 points to -43.4. Thus we have not changed our forecast for April payrolls of -670K with a 0.5ppt jump in the unemployment rate to 9.0%. Future expectations surged to 49.5 from 30.2, the largest jump since just after the Iraq invasion in April 2003. The net assessment of business conditions improved to -9.7, a 20-point jump from the previous month, which is the largest delta we have seen in this indicator since the end of the 1990 recession. Employment prospects performed equally as well as business prospects. Notably, however, the needle in income prospects barely moved, suggesting consumers remain wary about economic-based pay such as bonuses, tips and commissions.

9) March home price declines could be set to reaccelerate

The Case-Shiller home price index for the 20 largest US cities fell 2.2% M/M in February to stand down 18.6% Y/Y (a let-up from the record decline of -19% Y/Y in January). Results were in line with BAS-ML expectations but a tick lighter than consensus estimates. All 20 markets were in the red for the 6th straight month, with declines ranging from -0.3% M/M in Dallas (-4.5% Y/Y) to -5.0% M/M in Cleveland (-8.5% Y/Y). While the pace of deflation appears to have eased slightly in February, prices were still down -26.3% at a 3-month annualized rate. Further, sales transactions in March were driven by a higher share of distressed properties (50% versus 45% in February according to the NAR), suggesting that a reacceleration to the downside may lie ahead.

The hardest hit markets continue be those where sub-prime lending was pervasive and foreclosure rates have surged. Such areas include San Francisco, Phoenix, Las Vegas, Miami, and Los Angeles – all off by 40-50% from their respective peaks. At the same time, Cleveland, Detroit, Chicago and Minneapolis were among the cities to post the largest monthly declines in February, reflecting the spreading nature of real estate deflation. To be sure, malaise in the auto industry was also partly at play in some markets and can be expected to continue to weigh heavily on real estate prices in coming months. Looking ahead, depressed demand, tight credit, rising default rates and excess inventories will likely continue to lead prices lower. We estimate that an additional 10%-15% in downside is still in store, for a peak to trough decline of 40% (versus -30.7% at present).

10) Swine flu — a look back to SARS

With the world watching the swine flu situation, we thought it would be interesting to look at the market impact of the SARS breakout in the opening months of 2003, though we note that this cannot be considered predictive for the current situation. SARS certainly did exert a market impact, though it did not last for much more than 2-3 months. We also have to consider that at the time, the recession was over by well over a year and the economy was far less fragile than is now the case. Plus, the Fed had just announced that it was going to build a “firebreak” around deflation and was on the cusp of cutting the funds rate to 1%, and we also had the positive impact from the initial success in the Iraq war. But what was clear at the time was that (i) S&P food processors fell 15% as the stock market was building its base, and along with that we had airlines down 20%. The hotel/leisure/tourism segment of consumer discretionary pulled back 15% as well. The best ‘hedges’ were pharmaceuticals, which rallied 15%, and gold, which rose 10% during the peak of the pandemic. Emerging market equities were clocked, with the near-25% slide in the Korean Kospi at the time was just one indication. Commodity prices dropped 10% while bond yields managed to rally 100 basis points (though keep in mind that the Fed was still in the process of cutting rates)

Shooting The Shoots

May 12, 2009

Must read from David Rosenberg, who is on fire today, even taking on Larry Kudlow now.

It’s time to set the record straight

We acknowledge that we have felt like salmon swimming upstream. And, we constantly preach that everyone should keep an open mind and about the dangers of being perma-bears at the low (not our intention!) – but it’s time to set the record straight.

Big money investors have been on the sidelines

We have talked to so many bewildered clients about the massive equity market rally from the March lows that we’ve lost count. Few, if any (especially in the hedge fund community) seem to be celebrating the fact that the S&P 500 has rallied 30%, which tells us that big-money investors have been on the sidelines through this entire move. From our lens – and you can see this clearly from the twice-monthly NYSE data – the buying power for this market has actually come from severe short-covering as the bears head for the hills.

Few market-makers share enthusiasm of most economists

We don’t really share the view that the recovery, if and when it comes, will be sustained. We understand the historical record that even in the face of monumental fiscal and monetary easing, it takes a good four years for the economy to work through the aftershocks of a collapse in credit and asset values. While most economists are now waving the pom-poms, we find very few marketmakers who share their enthusiasm.

By and large, this rally has been a clear technical event

Gaps get filled rapidly and the primary source of buying power seems to be coming from a huge short-squeeze, and perhaps some pension fund rebalancing, which always seems to happen after the market makes a new low. To be sure, there is always the chance that the dry powder (money on the sidelines) is put to work and investors chase this rally. And nothing says that the S&P 500 cannot go as high as the 200-day moving average of 970 over the near term. We have seen these kinds of rallies in the past There were four of these kinds of rallies from 1929 to 1932; a half-dozen in the 19-year-old Japanese bear phase; and no fewer than 40,000 rally points in the Nasdaq that were fun to play in the 2000-2003 bear market – but the fundamental downtrend was obviously still intact.

Stock market not good at predicting inflection points

The stock market bottomed for good in the spring of 2003 because at that time, we were on the cusp of a 4%+ real GDP growth rate over the ensuing four quarters. The reason the rally of late 2001 to early 2002 failed was because the market realized the recovery would be delayed. Let’s just say that a 21% rally in the S&P 500 from Sept 2001 to January 2002 was not a bounce that was pricing in a 1.5% GDP growth rate for the ensuing four quarters, which is what we ended up with.

We can look at the situation in reverse. Did the 20% slide in the S&P 500 in the summer accurately predict the 4-1/2% GDP growth trend we were going to see the following year? No. And even in this cycle, the equity market was peaking just as the recession started in the fourth quarter of 2007. So, this notion that the equity market is telling us anything meaningful about the economic outlook, as Larry Kudlow would have us believe, is open for debate. The stock market’s track record is just about as good as the economics community at predicting the inflection points in the business cycle – and that’s not very good.

The market, as a whole, cannot be considered cheap

While there are some good blue-chip companies trading at low multiples, the market as a whole can hardly be considered cheap. That may have been the case two months ago, but no longer. As for the earnings landscape, it has become fashionable to talk about how the vast majority of companies are beating estimates in their 1Q results, but the bar was set extremely low to begin with after that epic 4Q operating and reported loss on S&P 500 EPS. In the meantime, earnings forecasts are being trimmed steadily for the balance of the year. In fact, forward P/E multiple of 15x operating and 30x on reported EPS are not that compelling. So, we do not have a strong valuation argument. We do not have a strong earnings argument. The seasonals (“sell in May”) are about to become less compelling too.

New lows in S&P won’t happen as soon as we thought

We would, at the same time, acknowledge that if the terms of engagement have changed, the Obama economics team and the Fed have made it exceedingly difficult for the shorts to make money in this market. Tail risks, notably in terms of the banking system, have been removed. This, in turn, does mean that even if we break to new lows in the S&P 500, it probably will not happen as soon as we had thought.

Government will do whatever it takes

At the March 9 lows, there was a real feeling of possible bankruptcy in the financial system. But it is now abundantly clear the government will not allow any big financial institution to fail. The end of mark-to-market accounting rules and the super-steep yield curve have returned most of the banks to profitability. Uncle Sam can be relied on to remain the capital provider of last resort, even for those banks that do not pass the coming stress test (which has been delayed, in part because the government wants to assess how to deal with the fallout of those particular institutions). More and more taxpayer money is being thrown at the credit crisis, and now we hear that $50 billion will be allocated toward easing debt-service strains among those households that took on second mortgages during the housing bubble. And, until recently when the green shoots started to appear, there was growing talk of yet another fiscal blockbuster coming down the pike to underpin the economy.

Green shoots can turn into a dandelion or a beanstalk

We are more impressed with solid roots than we are with green shoots. The economy and the capital markets are being held together by tape and glue, in our view. Private sector activity is contracting and will continue to lose its share of GDP as the government’s influence rises on a secular basis. Tax rates will inevitably rise, as they are already doing at the state and local government level. The public sector is now involved in the mortgage market, the insurance sector, the banking industry, and of course, the automotive business.

Economy transforming into an early 1980s European model

As economists, strategists, analysts, and the media, focus on the noise – which is what green shoots really are: a blip in a fundamental downtrend – a dramatic transformation of the economy toward a 1970s/early 1980s European model is unfolding. That post-Mitterrand, pre-Thatcher model, if memory serves us correctly, was one of low-potential real GDP growth rates, low-fair-value P/E multiples, low rates of return on capital and a sclerotic economic system. Economy is not in free-fall but is hardly stabilizing.

Now let’s get to the economy and those fabled green shoots

There is no doubt that the economy is no longer in free-fall, but it is hardly stabilizing, even if the data have improved from deeply negative trends at the turn of the year. There are pundits claiming that because initial jobless claims have managed to come off their recent highs, the end of the recession is in sight. That is a fairy tale, in our opinion.

Slack still being built up in the labor market

Given the looming wave of auto sector layoffs, we expect claims to break to above 700,000 this summer, which would be a new record. So, jobless claims do not appear to have peaked yet. In fact, the relentless surge in continuing claims signals that an ever-increasing amount of slack is being built up in the labor market. There has never been a peaking out in gross claims without there being a confirmation from a similar turn in the continuing jobless claim data. Moreover, initial jobless claims have topped the 600,000 threshold now for 13 weeks in a row, and that is the real story.

To suggest that claims have stabilized above 600,000 and that this is a good thing is ridiculous. It would mean that by this time next year, the unemployment rate could potentially reach 15%. The reason is because employment losses do not end until claims actually break below 400,000. No recession ever ended until claims broke below 600,000, and on average, recessions only end once claims drop below 500,000 (when the last recession ended in November 2001, as an example, claims were 450,000).

Job losses will not end until the end of the year

Employment is one of the four critical ingredients that go into the recession call, not jobless claims, and at over 600,000 on claims, we lose payrolls at a monthly rate of around 600,000. That is hardly what we would call a stable economic backdrop. We do not see job losses ending before the end of the year. Industrial production and real manufacturing/trade sales are two other components that go into the NBER recession-determination model, and our forecast suggests that they too will not bottom conclusively until 2010.

Real organic personal income decrease is unprecedented

What really caught our eye is the fourth horseman of the recession call – real organic personal income. This metric peaked in October 2007 and was early in predicting the official onset of the recession, which began in December of that year. This measure of household income – it nets out government benefits – slipped 0.5% in March and has declined for five months in a row (and six of the past seven). Over that stretch, it declined at over a 6% annual rate, which is unprecedented (the data series go back to 1954).

Expect consumer spending to lag because of lost income

Since August of last year, the consumer sector has lost $266 billion of organic income (in nominal dollars at an annual rate) as job losses mounted, hours worked cut back, and full-time positions shifted to part-time. This lost income – not to mention $20 trillion of evaporated net worth – will likely bring long lags in dampening consumer discretionary spending. We realize that one of the bright spots in the 1Q GDP report was the +2.2% print on real consumer spending. But let’s face facts: The bounce was concentrated in January after a record 30% plunge in retail sales (at an annual rate) in the final three months of 2008. We already know that sales were down in both February and March and that the statistical handoff with respect to consumer spending is negative as we head into the second quarter.

The government does not create income; it redistributes it

We mentioned tape and glue above because the only component of household income that is rising is government transfers (mostly jobless benefits), which rose 0.9% in March and by more than 12% on a year-over-year basis. The government share of personal income at 16.3% is higher today than at any other time in the past six decades (and that covers the LBJ Great Society social benefit transfer of the 1960s). But keep in mind that the government does not create income – it distributes income by borrowing from today’s bondholders and tomorrow’s taxpayer. Not until we begin to see real incomes rise without the crutch of Uncle Sam’s checkbook will it be safe to call for the end of the recession. And again, we see this as more a 2010 story than a 2009 story, although very clearly the markets are suggesting the latter (insofar as they are signaling anything about the economic outlook).

The worst is over

In any event, the economy has certainly passed its worst point of the cycle even if we do not yet see the bottom that many others do at this time. And it may very well be that we overstayed our bearish call on the equity market and that the lows were turned in on March 9. Many pundits who have been around far longer seem to believe that, and they could be right. But there is no sense crying over spilled milk, even after a 30% run-up in the S&P 500 and a 100 basis point surge in the 10-year note yield from the lows. It just broke above its 200-day moving average, and there is nothing but empty space on the chart to 3.8% – that is an observation, not a forecast, by the way.

Lessons learned from the Great Depression

With all that in mind, we thought it would be instructive to look back to the experience of the 1930s. A credit collapse, asset deflation and massive decline in economic activity were finally stopped in their tracks by massive doses of fiscal and monetary stimulus. The S&P 500 bottomed in the summer of 1932 and the trough in GDP occurred shortly thereafter. But if history is any indication, the depression did not end for another nine years. Even after the massive relief efforts and government intervention from the New Deal, we closed the 1930s with a 15% unemployment rate and consumer prices deflating at a 2% annual rate.

Focus on SIRP — safety and yield at a reasonable price

Because the attention now has shifted to the green shoots, as was likely the case after the 1932 low as well, we highly recommend that investors focus on the big picture, which is that the aftershocks of a credit collapse and an asset deflation of this magnitude last for years, even with public sector support. Now go back to that June 1932 low in the S&P 500 (below 5) and the initial surge was breathtaking – the market roared ahead by 75% in just the first three months. But guess what? For buy-and-hold investors, by the end of 1941, the S&P 500 was at the same level as in the fall of 1932. Nine years of nothing, unless you are the most astute trader around.

Folks who chased the rally after the market broke out of the gate woefully underperformed those who stuck with their focus on generating cash flows from the fixed-income market. The yield on long Treasuries fell from 3.8% to 2.5% (Fall of 1932 to the end of 1941) while Baa corporates did even better – rallying from 7.1% to 4.4%. So from this point forward, unless you are comfortable that you have the discipline as to when to get out, the lesson of the last post-credit crunch/asset deflation/depression seven decades ago is to retain your focus on SIRP – safety and yield at a reasonable price. Passive buy-and-hold strategies are destined to fail, in our view.

Some of David Rosenberg’s last thoughts as he is putting the bubble wrap in his boxes. It is not surprising that his parting gift to his bank is a moderate shift to a slightly bullish outlook, likely designed to make life for his “Economic Strategist” replacement a little easier. However, reading between the lines allows for the real Rosie to shine through. And is, as always, a breath of fresh air in an environment where the MSM has become utterly useless.

We are in year 9 of an 18-year secular bear market

The S&P 500 peaked in real terms back in August 2000. Adjusted for the CPI, it is down 58% since that time. So, we would say that we are in year 9 of what is likely to be an 18-year secular bear market, because if you look at long waves in the past, they tend to last about 18 years with near perfection.

What happened during the last secular bear market

As an example, go back to the last secular bear market, and you will see that the S&P 500 peaked, again in real terms, in January 1966 and bottomed in July 1982, 18 years later. But there were plenty of mini-cycles in between. In fact, there were four recessions and three expansions during that entire 18-year period and unless you were a completely passive investor, you definitely wanted to be in the game during the three expansions because the S&P 500 rallied an average of 50% during those phases. Again, it is important to note that these were rallies you
could rent, not own, but they did last an average of 20 months. So, it’s not exactly as if they have an extremely short shelf life.

Playing a game of devil’s advocate

With all this in mind, we went through an exercise over the weekend and played a game of devil’s advocate. If Rosie had to face off against Rosie, what would we say if we were forced to take the other side of the debate, keeping in mind that in fact, we may be overly bearish at the present time. And believe it or not, we did manage to come up with some pretty compelling material.

Past the half-way point in the recession

First, our in-house model of predicting where we are in the cycle, for the first time, gave us a signal late last week that we are past the half-way point in the recession. Considering that the stock market bottoms 60% of the way through, this is an encouraging signpost.

We’ve worked through the effects of the Lehman collapse

Second, our propriety proxy for private sector interest rates has come down from 8.11% at the nearby peak to 7.18% now despite the backup in Treasury yields, to stand at their lowest since last September. The TED spread is back to where it was last September, as are most credit spreads. The VIX has finally broken to 35, back to where it was last September. 10-year TIPS breakeven levels, which were predicting deflation at the end of last year, are now forecasting 1.5% average inflation rates for the next decade. Again, we last saw this in September of last year. This is interesting because even though the economy and the markets were clearly in the doldrums back in September, the fact that so many market barometers are back to where they were then means that at the very least, we have worked through the ill-effects of the post-Lehman collapse.

Stock market has lagged relative to other asset classes

All an equity bull really has to do is point to the fact that the S&P 500 last September was trading around 1200. The only difference is back then we were looking at it from the perspective of being 20% off the highs whereas a move back to September levels, which, after all, would only mimic what many other market indicators have accomplished, would be viewed as an 80% surge off the lows not to mention another 35% potential upside from where we are today. Even the CRB raw industrials are now back to where they last October when the S&P 500 was hovering around the 950 level. So again, if we were equity bulls, and maybe we should be, we would simply point out that of all the asset classes that have bounced back to life, the stock market has actually been a laggard.

Three indictors that suggest cyclical bear market is over

Third, we found three indicators that have stood the test of time and strongly suggest that the cyclical bear market in equities and the economy have drawn to a close: the ISM, the Conference Board’s coincident-to-lagging indicator and the University of Michigan consumer sentiment survey. The ISM bottomed in December 2008 at 32.9 and is now 40.1. Going back to 1950, we found that recessions end within three months of the ISM hitting bottom, and never by more than six months. The coincident-to-lagging ratio just turned in successive lows of 89.6. The data go back to 1960 and we found that recessions ended within two months of this indicator, 100% of the time. And, the U of M consumer sentiment index bottomed at 55.3 last November. As we saw on Friday it had rebounded to 65.1 as of the end of April. The data show recessions end typically within six months of the bottom in this key leading indicator, and not once was the lag longer than eight months.

We could be on the precipice of a cyclical upturn

This is not to say that our secular views have changed. However, we could well be on the precipice of a cyclical upturn, and whether it is sustainable or not may have to be a story for another day. We don’t see as many green shoots as others do, but then again, we endured more than a year of jobless recoveries following the market lows of 1990 and 2002.

The most glaring example

The most glaring example of all is the fact that the S&P 500 bottomed in the summer of 1932 and yet by the end of the 1930s, seven years after ‘New Deal’ stimulus, the unemployment rate was still 15%, consumer prices were deflating at a 2% annual rate, and let’s face it, the Great Depression did not actually end until 1941. But for investors, the worst was over in the summer of 1932 in the immediate aftermath of the acute government intervention at the time. While
there were recurring setbacks along the way, including the severe bear market of 1937-48, the fundamental lows had already been turned in long before.

Investors have been able to price out financial tail risks

Fast forward to March 2009, and the same mantra was heard – ‘nationalization’, ‘depression’ and ‘deflation’. As was the case with FDR’s early days as President, what the last half of Obama’s first ‘100 days’ managed to accomplish was to eliminate these words from the investment lexicon. The degree of intervention from the Treasury and the Fed has been so intense that investors have been able to price out financial ‘tail risks’ that had dominated the market landscape through much of the first quarter.

The market is gravitating to a new mean

So, the way to look at the situation is that by removing the ‘tail risks’ of an outright systemic financial collapse, the market has gravitated to a new ‘mean’ (in the sense that at any given point in time, market prices reflect some expected distribution of possible outcomes – a very bad potential outcome has been taken out of the probability distribution, at least according to Mr. Market). This is why if the bulls have a solid argument, it is the prospect that the S&P 500 can indeed approach those pre-Lehman levels, which back in September, seemed rather bearish, but is only bullish today benchmarked against where we are.

Still not sold on the bull case for equities

Despite all these powerful arguments, we are still not totally sold on the bull case for equities. Valuation is not compelling, in our view. Sentiment has completely swung towards a bullish consensus (which is a contrary negative). Home prices and employment are still in freefall, the former undermining the balance sheet and the latter exerting a drag on the income statement and suggestions that a mild improvement in the negative growth rate is something to be excited about seems off base.

Difficult to ascertain who the marginal buyer will be

It seems hard to believe that after being burned by two bubbles seven years apart that the baby boomer is going to line up at the trough one more time. So, it’s difficult to ascertain who the marginal buyer is going to be. Disposal of durable goods assets to pay off a record household debt burden seems like a multi-year deflation story as far as we are concerned. Since the boomer household is income constrained and underweight fixed-income securities on its balance sheet, we believe that demand for high-quality bonds is going to strengthen in coming years. Government policy will remain highly pro-cyclical but there is no match for the contractionary effects from a shrinking US household balance sheet.

Deflation will win out over inflation

We are concerned that deflation will win out over inflation this time around. While the data cited above are indeed impressive in terms of their track record, since this is not a manufacturing inventory recession but rather a downturn deeply rooted in asset deflation and credit contraction, we may find out that the economic releases that were tried, tested and true in the other post-war cycles may not be appropriate today given the overpowering secular trends of consumer deleveraging and frugality.

satan’s corporation

April 25, 2009

Hat tip:
by amicus curiae

Monsanto is now suing the German government (and, by that, the people) to force them to grow their GM Corn. Monsanto files suit against Germany over GM ban:

MON810 maize is genetically engineered to produce Bacillus thuringiensis, which is toxic to the corn borer pest. Permitted in Europe since 1998 for animal feed, it is marketed as a way to save farmers money on insecticides and other pest controls.

However German agriculture minister Ilse Aigner claimed last week that she had “legitimate reasons” to believe the maize to be a danger to the environment – and believes the Environment Ministry to agree with the view. Although MON810 has been permitted in Germany since 2005, she scrapped plans for 3,600 hectares (8,892 acres) to be planted in the eastern states for this summer’s harvest.

Now the biotech giant has hit back, according to a Reuters article, filing a lawsuit against the Germany government in the administrative court in Braunschweig, northern Germany.

The wire quotes a spokesperson for Monsanto as saying the ban is “arbitrary”. A clause in EU law does allow member states to impose such a ban, but Monsanto claims they can only do so once a plant has already been approved if new scientific evidence has come to light.

If the outcome of the lawsuit is in Monsanto’s favour, the cost to the German government has been estimated at between €6m and €7m….

France also invoked the clause on new scientific evidence that cast doubt over its safety last year….

Other countries to implement bans are Hungary and Austria. Last month European ministers voted – for the fourth time – against forcing these countries to lift their bans, despite EFSA’s view.

Makes trying to refuse those sprouts at dinner seem familiar? Several other intelligent EU countries have reservations and have refused to grow these products that are inefficient, low producing, chemically ruinous, fertilizer intensive, UN-tested for toxicological harm to humans, and dubious safety for animals. This is a good indicator that not ALL the world has been fooled by Monsanto.

Some American growers are also moving away, after they have had land become so Roundup resistant they can no longer farm it! See ‘Superweed’ explosion threatens Monsanto heartlands:

“‘Superweeds’ are plaguing high-tech Monstanto crops in southern US states, driving farmers to use more herbicides, return to conventional crops or even abandon their farms.”

I do hope that Germany can not only win, but by doing so, set a precedent the rest of the world to follow. JUST SAY NO!! AND MEAN IT!

The Concise Maquarie Dictionary defines Megalomania as:

1. A form of mental alienation, marked by a delusion of greatness, wealth, etc.

2. A mania for big or great things.

I personally think a “form of mental alienation” is the correct term to sum up this news. The level of hubris that must exist for a corporation to attempt to force us to grow anything we do not want to grow, or eat anything we think is unsafe. Leave us to farm in peace without being harassed by GMO-contamination of our crops, animals, honey… whatever it is we produce.

This is a company forcing a government and a people to accept a product they do not want. Somebody certainly has a delusional issue, and it is NOT those who refuse to accept genetically altered food.

An Aussie who is disgusted at chem farming,gm and synth foods and big pharma. I study soil biota, and work with bees,what i see is worrying.

makes me ill

March 28, 2009

Feds Turn Their Sights on Third Pa. Judge as Part of Corruption Probe

The Legal Intelligencer

March 13, 2009

Federal authorities are looking at Luzerne County Common Pleas Judge Michael Toole as part of their investigation into alleged corruption at the Luzerne County Courthouse, sources have confirmed to The Legal Intelligencer.

The focus of the investigation appears to stem from an allegation that Toole may have received a payment from attorney Robert Powell.

Federal authorities have previously charged that former President Judge Mark A. Ciavarella Jr. and former Senior Judge Michael T. Conahan accepted more than $2.6 million in kickbacks from Powell and another source while Powell was one of the owners of PA Child Care, a private juvenile detention facility. Both Ciavarella and Conahan pleaded guilty in February to both counts — honest services wire fraud and conspiracy to defraud the United States — in the criminal information filed against them.

The amount allegedly paid to Toole is believed to be substantially less than what Conahan and Ciavarella received, sources said. Those sources either would not, or could not, identify the reason for the alleged payment or the amount.

When asked if Toole had taken a payoff from Powell, one of Powell’s attorneys, Mark B. Sheppard, formerly of Sprague & Sprague and now a partner at Montgomery McCracken Walker & Rhoads, said he could not comment.

"It would be inappropriate for our client or I to comment at this time, except to say that Mr. Powell continues to cooperate fully with any investigation," Sheppard said.

Sheppard, along with other attorneys from Sprague & Sprague, had previously authored a letter released to the media in February disputing the notion that the money Powell paid to Conahan and Ciavarella amounted to kickbacks, and instead said that Powell was the victim of a judicial shakedown.

"First, it is grossly inaccurate to suggest that our client ever sought or had any influence in the sentencing of any juvenile offender. In fact, Bob Powell never offered to pay a single penny to these former judges. Instead, Bob Powell was a victim of their demands for payment," the letter said.

The letter goes on to say that, although Powell recognizes he made a mistake by not going to authorities, he remained silent about Conahan and Ciavarella’s demands because they exerted pressure on Powell and his clients.

"The record will show that despite this, Powell not only refused the judges’ continued demands for additional payments, but ultimately reported the conduct to authorities," the letter said.

The letter, also signed by Richard A. Sprague and Geoffrey R. Johnson, said Powell is continuing to cooperate with authorities and is integral to the U.S. attorney’s prosecution of Ciavarella and Conahan.

Toole did not return a call seeking comment Tuesday. A call to an attorney rumored to be representing Toole was not returned. A call to Martin C. Carlson, the U.S. attorney for the Middle District of Pennsylvania, was not returned.

Luzerne County Common Pleas Court President Judge Chester B. Muroski said he was not aware of any investigation involving Toole.

"I have not been notified by any law enforcement authorities that any such investigation is ongoing," Muroski said.

Muroski, who said last week that he was interviewed by federal investigators concerning court administration issues, would not say if Toole’s name had surfaced during questioning.

"I’m not going to discuss any portion of any discussions I’ve had with law enforcement authorities," he said.

Asked if he ever heard rumors that Toole allegedly accepted payoffs, Muroski responded immediately.

"Never," he said.

The only reported connection between Toole and Powell is a case from 2004 in which the newly elected judge allowed the former co-owner of PA Child Care to continue docking his yacht, "Reel Justice," at a Florida yacht club linked to Conahan and Ciavarella.

In the case, first reported by the Times-Leader newspaper in Wilkes-Barre, Jupiter Yacht Club Marina notified Powell in August 2004 that his lease would not be renewed because he had violated marina rules and regulations.

According to the Times-Leader , a member of Powell’s law firm, Stephen Seach, filed a complaint against the club in Luzerne County Common Pleas Court. Toole, the motions court judge, set a date for a hearing and held one on Oct. 21, 2004.

An attorney for the yacht club sent a letter to Toole, dated Oct. 20, 2004, questioning why the case was being heard in Pennsylvania and asking for a continuance, according to the Times-Leader. The attorney called the issues in the case "Florida matters."

According to the Times-Leader, the attorney for the yacht club had only been given one day’s notice for the hearing.

Toole’s order directed the marina to stop interfering with the renewal of Powell’s lease. He called for a full hearing on the issue, but the issue became moot. According to the Times-Leader, Powell withdrew his court action about two months later.

Toole had been on the bench for less than a year at the time.

According to a Feb. 10, 2009, article in the Times-Leader, Toole defended his decision and asserted that he had jurisdiction over the case because the plaintiff was from Pennsylvania.

"Our citizens, if they enter a contract here, shouldn’t have to fight a corporation in their hometown," Toole said, according to the Times-Leader.

While the initial charges in the federal probe centered around the allegations that Conahan and Ciavarella accepted kickbacks in exchange for sending kids to PA Child Care, sources have confirmed that the investigation has since grown to include allegations of case fixing in motor vehicle arbitration cases, alleged case fixing between Conahan and two admitted felons — including reputed mob boss William D’Elia — as well as scrutiny of other Luzerne County judges.

Sources have previously confirmed that D’Elia and his friend, admitted felon Robert Kulick — also a friend of Conahan’s, sources have confirmed — have been cooperating with law enforcement authorities in their investigation into alleged corruption in Luzerne County.

D’Elia has issued a statement through his attorney distancing himself from Kulick and Conahan.

"I in no way was involved with the judges and juvenile detention center and the Thomas Joseph lawsuit," D’Elia has said, according to his attorney James Swetz.

And late last week sources confirmed to The Legal Intelligencer that federal investigators are looking into a zoning case in which the owners of a hotel frequented by D’Elia challenged a zoning variance that would have allowed the county to build a new county-owned juvenile detention facility.

Before his election to the bench in 2003, Toole was a partner with Ciavarella at Lowery Ciavarella Rogers and Toole. Court records show that, on at least one occasion, Toole represented The Woodlands Inn & Resort — a hotel on the outskirts of Wilkes-Barre that has ties to D’Elia and that also received a pair of favorable rulings from Conahan in 2000 and 2003. There is no evidence to suggest that the plaintiffs improperly influenced either case.

The resort received another favorable ruling in 2003 from Judge Peter Paul Olszewski Jr. that blocked the construction of a county-owned juvenile detention facility near its property, because it might have scared away prospective guests. The decision essentially paved the way for the construction of PA Child Care.

That is a case federal investigators are looking into, sources have told The Legal Intelligencer. There is no evidence to suggest that the plaintiffs improperly influenced the outcome of the case.

During his time at the firm, Ciavarella represented Robert K. Mericle — the builder of PA Child Care.

Though he was not named in the criminal information filed by federal officials against Ciavarella and Conahan, Mericle’s construction company allegedly wired $1 million of the $2.6 million in kickbacks to a company over which the judges had control, according to the criminal information filed against the judges.

A review of Toole’s 2003 campaign contributions shows Mericle donated $600.

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“Class is a Dirty Word”

December 27, 2008


Renowned economist Khazin predicted U.S. financial crisis in 2000
KP.RU, Yevgeniy Chernyx — 29.10.2008
Five years ago, I ran the cultural section at Komsomolskaya Pravda. Publishing houses used to send me their new releases now and again for review. One day, after digging through the latest shipment of such literature, I stumbled upon a book titled, “Sunset of the Dollar Empire and the End of the Pax Americana.”

I remember reading the title over to myself several times in disbelief. Way back when, Soviet Americanologists loved to debate the collapse of the U.S. financial empire. But this book was published in 2003.

I flipped through the pages, skimming over the text. The conclusions of the author — an economist named Mikhail Khazin — seemed convincing enough. So I gave the book to our economics columnist at KP Jenya Anisimov, who wrote a review and interviewed the author later at our editorial offices.

All these years, I kept Khazin in the back of my mind, and followed his career as he spoke at various conferences throughout Russia. He seemed certain the U.S. was teetering on the verge of an economic collapse, while other analysts were quick to refute his theory. Now, as his once unfathomable prognosis begins to come true, KP contacted Khazin for an interview.

Fired from the Kremlin!

KP: Mikhail Leonidovich, how did you end up predicting the current financial crisis?

Khazin: In the spring of 1997, the Kremlin established the Presidential Economic Department. I was made the deputy head of the unit. Our first task was to prepare a report for [former President Boris] Yeltsin about the economic situation. We realized an economic crisis was pending in Russia and would take place in the late summer or early fall of 1998 if the country”s economic policies weren’t changed.

KP: What view did the higher echelons take of your report?

Khazin: They didn’t really take any view at all. No one read the text except for the deputy head of the administration and Yeltsin himself. In the summer of 1998, we were fired from the presidential administration for trying to stop a business project titled, “State Treasury Bills— Exchange Rate Corridor.” This was the biggest financial scheme of the post-Soviet era. Just as we had predicted, an economic crisis gave way that August. Together with my colleagues, I continued researching the reasons behind the crisis.

After becoming seriously consumed in our studies of the U.S. financial system, we found an unprecedented parallel. Just as our T-bill market had sucked all the juices out of the Russian economy, the U.S. financial market was sucking the resources out of the entire planet. We realized a similar fate awaited the U.S. financial system. Our article was published in the summer of 2000 in the “Ekspert” magazine, titled, “Is the U.S. Digging for an Apocalypse.” We concluded that it was just as impossible to avoid an economic crisis in the U.S. as the financial collapse in Russia.

Playing the idiot

KP: The U.S. obviously didn’t listen to the song written by [the renowned Russian rock group] LUBE during perestroika, “Don’t Play the Fool, America!” Seriously, though, what’s the real reason for the economic collapse? Let’s try to do this without any heavy duty financial terms…

Khazin: I’ll try! The economic model that led to the collapse was the result of a crisis in the 1970s. This was a terrible financial crisis that was the result of surplus capital. Even the 19th-Century classics in economics literature concluded that capital grows faster than labor provides compensation. As a result, there is a lack of demand. In traditional capitalism, this problem is solved on account of crises in excess production. And in an imperialistic system, the problem is solved on account of capital outflow. But by the 1970s, these solutions had run their course. However, the internatinoal situation demanded the U.S. either make a great scientific and technological leap forward or lose the Cold War to the USSR. The administration of [President Jimmy] Carter and the head of the Financial Reserve System Paul Walker developed a very tricky concept. For the first time in the history of capitalism, capitalists began helping others, issuing new currency in an effort to stimulate aggregate demand .

KP: They decided to switch on the printing press?

Khazin: Exactly. In the early 1980s, they started to stimulate demand through state support. For example, they launched the “Star Wars” program. As of 1983, they placed an emphasis on the household economies.

KP: You mean, they relied on the average citizens?

Khazin: Yes. For an entire quarter century, households received funds as a result of issuing new currency in larger and larger quantities.

KP: In other words, credit?

Khazin: Yes. The U.S. was able to make the next step in technological progress as a result of this excess demand. They accomplished the collapse of the USSR and numerous other significant fears. But… The boom took place thanks to resources that were supposed to provide for future growth. The country ate its own resources two generations ahead of time. The U.S. built up tremendous debt. This is clearly seen if we compare the growth of debt in U.S. households with the entire U.S. debt and GDP. The economy is growing at an annual rate of 2-3, or at a maximum 4 percent. But debt is increasing at a rate of 8-10 percent.
KP: Well, let the debt keep growing… The U.S. lived fine up until now without a problem… Better than we did!

Khazin: Yes, the U.S. did create a very high standard of living by stimulating consumer demand. Generations lived without having to experience poverty. But it’s impossible to live forever in debt. Household debt has now surpassed the national economy — more than $14 trillion. Now it’s time to pay up. Of course, Wall Street tried to postpone this collapse. I won’t go into detail about derivatives and other such financial assets, but this was just a gasp for air before an inevitable death.

Another problem in the U.S. is that powerful industries were built around this growing demand. Whatever decision Wall Street takes right now, the demand is going to fall. What will happen to these industries? In 2000, we estimated that 25 percent of the U.S. economy would disappear. Today, we think the number is closest to one-third — if not more.

KP: That’s a lot!

Khazin: That’s an incredible amount! But what exactly does this mean — the destruction of one-fourth of the U.S. economy? It means an uncontrollable increase in unemployment, a horrible depression, a sharp increase in the effect of social services on the budget… Now, the U.S. is jumping all over the place doing everything its can to rescue this fraction of the economy. The government is stimulating banks and manufacturing… But regardless, in 2-3 years, the U.S. will face a crisis similar to the Great Depression.

Who is Who

Mikhail Leonidovich Khazin was born in 1962. He studied mathematics at the Yaroslavl University and Moscow State University. In 1984-1991, he worked at the Soviet Academy of Sciences. In 1993-1994, he worked at the State Working Center of Economic Reforms. In 1995-1997, he was the head of the Credit Policy Department at the Economics Ministry. In 1997-1998, he was the deputy head of the Presidential Economics Department. In June 1998, he left state service. At the moment, he is president of the consulting firm, Neokon.