Fall On Me: The Dow Goes Down

Grim news on The Street as the Dow Jones Average loses 512 points, or 3% of its value. I thought the debt ceiling deal was supposed to prevent a market crash.

Stocks spiraled downward Thursday as investors buckled under the strain of the global economic slowdown and the failure of policy makers to stabilize financial markets.

The selling began in Europe and continued in the U.S., where stocks plunged from the opening bell. The Dow Jones Industrial Average posted its worst point drop since the financial crisis in December 2008, falling 512.76 points, or 4.31%, to 11383.68. Oil and other commodities were also hammered. Even gold was a safe haven no more as prices fell. Asian markets slid on Friday morning, with Tokyo, Australia, South Korea and Hong Kong markets all falling more than 3% in early trading.

Just joking about the debt ceiling, of course. I'm sure if DC remained gridlocked, things would have been even worse. As it stands, it was (temporary) good news that a US default was averted, even if the threat of default was only due to the unilateral acts of our destructive Executive Branch. But with the threat of default gone, everyone could focus on the fundamentals: namely, that Europe has a cascading series of debt crises infecting it; that the US has spent an ungodly amount of $$ on useless stimulus; and, worst of all, that US policy leavers are in the hands of ideologues who would rather go down in flames, rather than pursue pro-growth policies such as tax cuts and a true reduction in government spending. If I was still in the market (I got out at the same time QE2 ended), I'd sell, too

Everybody's got their tipping point and mine came with the announcement that 1Q had been revised downward to 0.4%. Like everyone else, I thought things had been picking up in the early part of the year, so to learn that the opposite is what was going on was disappointing to say the least. Economically, we are on the road to nowhere.

UPDATE: if there's one good thing about the latest down-turn, it's that this feels more like a "regular" recession, and not the on-set of a depression as was the case with the Crash of '08. Supposedly, there's a general fear out there that the US government and the Fed are out of policy arrows. If that's the case, things are looking up!

Where's The Panic Button?

Hard to believe this story in CNBC is for real. According to John Carney, the adults in the room are expressing frustration with the absence of a stampede for the exits in the markets. As they learned during the TARP voting, there's nothing like a historic drop in the Dow to change a few votes.

I just got off the phone with a source on Capitol Hill who has spent the past few days trying to convince Republicans to vote for a debt ceiling hike.

He told me that the biggest obstacle he faces has been "market complacency."

"Frankly, a bit of panic would be very helpful right now," he said.

As he explained it, lots of people in Washington, D.C. expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling.

Hard to imagine you can improve on the boundless cynicism of the bolded part. But, wait, there's more:

"We were following the script from 2008. When the market collapsed after TARP failed, that spooked everyone enough to get them to fall in line. We thought the same thing would happen this week," he said.

That's the problem. Everyone knows that the TARP vote was indeed induced by a DC-NY axis that threatened Armageddon if a trillion dollars wasn't transferred to every major financial institution in the world by the close of business on Thursday. Ever since then, the Congress simply hasn't been legislating in a normal manner: no budgets for 800 days, endless continuing resolutions, health care reform passed via bribes and procedural tricks, etc., all the while accompanied by apocalyptic pronouncements about a broken "system" and Republican intransigence. At this point, the market has probably priced the cost of liberal governance into its buy-sell decisions, hence the failure to panic.

The markets have been down a little this week, but that is as much due to the increasing rate of bad economic news as it does the parliamentary machinations in DC. And despite the best efforts of the adults in the room, the markets simply don't believe a default is coming because such an event would be due to a willful act of the executive branch, not because of Tea Party extremists in the Legislature.

The Invisible Hand: Hispanics Disproportionate Levels of Foreclosures

You've gotta love "studies" as in "studies show..." A phenomenon may be obvious from anecdotal evidence and personal experience, but it doesn't exist in the eyes of the media and policy makers unless there is a "study." Now, a "study shows" that Hispanics in California faced nearly half of the foreclosures that have hit the state since the bursting of the housing bubble.

A review of the damage wreaked on California communities by the housing bust shows that Latino households suffered nearly 50 percent of the foreclosures and that loan defaults are concentrated in the state's Central Valley.

That area, which includes the Sacramento and San Joaquin valleys, features six of the top 10 California metro areas for foreclosure concentrations, according to the Center for Responsible Lending, which released a comprehensive report Tuesday.

No California communities have experienced a higher percentage of defaults than Modesto, Merced and Stockton - each of which had a foreclosure percentage of around 16 percent between late 2006 and 2009, the study found.

"The signature finding of this report, that there is a disproportionate rate of foreclosures for Latinos, is really stunning," said Paul Leonard, director of the California office for the Center for Responsible Lending. "The data shows that high-cost loans correlate with foreclosures and that there was a big presence of subprime lending to the (Latino) demographic and in areas where there are concentrations of Latinos."

Way to go. Of course, Michael Barone and (blush) Free Will were writing about this 18 months ago. Back then you had plenty of sob stories in the media about foreclosed homeowners and - even without explicit mention of race - it was clear that many of the distressed were Hispanics. This article in the NY Times about Washington Mutual's lax lending standards is a classic of the genre with its descriptions of subprime borrowers working as "gardeners," "maids," and even a "Mariachi singer." I don't know, I'm getting a mental image of these folks that correlates with the results of the above ""study."

I don't suppose we won't be reading any studies about how many of the foreclosed are in the US illegally, but I'm willing to bet that illegals would represent a significant percentage of the foreclosed. While the conventional wisdom has targeted banks, mortgage securitization and investment banks as being at fault for the bursting of the housing bubble, the fact is that borrowers were as much at fault as well. Liberals have sneered over some borrowers - namely grasping bourgeois buying Hummers and granite counter tops with home equity loans - but have been studiously quiet about borrowers who probably shouldn't have bought in the first place, yet were able to obtain loans through, at least partially, the ministrations of Fannie/Freddie and their liberal political patrons in Congress.

There's a lot of heartbreak behind the statistics, I'm sure. Hispanic borrowers were no different than anyone else: they wanted to buy a safe and secure homestead for themselves and their families: the American Dream that long predated any goofy government policy about artificially increasing homeownership. But, the fact is that many of them could not handle the financial costs of homeownership, and the rest of us have been left with the tab.

Good Points

A lot of good points being made across the Blogosphere today:

Republicans ecstatic over the anti-Obamacare results in Missouri should temper their enthusiasm, since the status quo was and remains unsustainable. Repeal will not be enough. If Americans want to "keep" their current health care, they need to accept that they will have to actually pay for it. (Cafe Hayek)

Just because someone is a left-wing historian with an axe to grind, doesn't mean their research lacks merit. US involvement in the Korean Peninsula during the Cold War has actually inspired some useful historical writing from progressive types, as the "official" record has been hopelessly white washed. (Marginal Revolution)

The Obama Administration's approach to the "Birther" issue - mockery, combined with deliberate opaqueness that only encourages further "questions" - has had the opposite of its intended effect. The number of people who aren't sure whether Obama was born in the US is at 58%, at least in one poll. (Legal Insurrection)

In the wake of the Crash of '08, the US needs to do more than pass regulatory "reform," or build up balance sheets. Its regulators, finance pros, and ratings agencies need to rebuild their tattered reputations, or see themselves replaced by foreign competitors more willing to make bearish (i.e. rational) calls on US financials. (Ampontan)

American media outlets may be more numerous than ever, but they keep failing to report the same stories; namely that New Age/Leftist ideas and philosophies can be just as destructive and anti-human as anything you could point to on the Right. (The Macho Response)

Liberals like Paul Krugman claim to hate deflation because it creates a "downward spiral" that is hard to get out of. The truth is they hate the benefits of deflation: debt becomes more expensive, savings increase, and private capital formation encourages self-determination. So much easier if liberals could just artificially goose the economy with "stimulus" and zero per cent interest rates, and then inflate away all of the debt that their schemes generate. (Market Ticker)

If you are in New York City and want to talk to beautiful women, you need a Vespa and some blue shoes. At least that's what you need this summer. (The Sartorialist)

There's no scandal quite like a Republican bikini scandal. Apparently, the Left thinks this will kick off some sort of hypocrisy buzz. What they don't realize is that Republican bikini scandals remind people that the hot women are all on the right side of the aisle. (The Other McCain)

"When I Paint My Masterpiece" is one of Dylan's best songs from his post-accident semi-retirement period. It's also one that isn't well understood. (Brendan Bernhard)

While we can all put on an appropriately glum face on the anniversary on Hiroshima, it's worthy of comment that civilian battlefield deaths among our allies, including one battle that took place on American soil, have been forgotten despite their exceeding the toll from the atomic bomb. (The Belmont Club)

Life Is Not Fair. (The Leader of the GOP)

A Failure To Learn: Investigating the Financial Crisis

I've already griped about this earlier in the week, but the way finance regulators have been going about their business of investigating the events leading up to the Crash of '08 does not make me think we're learning anything useful. The SEC and others seem to be looking at cases where people made money shorting the housing market and/or over-leveraged financial firms, rather than the true source of the problem; namely that people were losing money - billions of it - on bad bets involving the housing market. Now Deutche Bank is being investigated for brokering a bet between housing bears and housing bulls over the direction of the markets and then failing to disclose who was on each side of the transaction. Yes, it's the Goldman scenario again. Dual Role in Housing Deal Puts spotlight On Deutche

Federal probes of the collapsed mortgage-bond boom are shedding light on how Wall Street firms sometimes created securities and sold them to one set of investors, while advising others to bet against them.

One firm that was a major player in mortgage securities, Deutsche Bank AG, illustrates a pattern investigators are looking at. While creating and selling mortgage securities to some of its clients, the big German bank was not only advising other clients to bet the other way, but also sometimes doing so itself

A Deutsche trader helped create an index that made it easy to bet against housing, and the bank itself then used the index to do just that

After the collapse of mortgage securities led to a costly bailout of the firm that insured many such securities—American International Group Inc.—some of the federal cash that was sunk into AIG flowed to Deutsche, to cover bearish bets by its hedge-fund clients.

Deutsche's actions are a vivid example of potential conflicts on Wall Street—the way big financial firms play both sides of the fence with investors. The issue became more extreme during the mortgage bubble and subsequent bust because of the size of the bets on Wall Street and subsequent losses on Main Street.

As in the Goldman "fraud," the party taking the short position was John Paulson, who was a lonely voice on Wall Street taking bearish positions on housing, usually through purchases of CDO's and the like. He was looking at the same numbers as everyone else, saw doom, and acted accordingly. Everyone's bitching at Goldman and Deutche now, but at the time everyone thought Paulson was nuts. Even after he decided to short housing, he spent a considerable amount of time trying to figure out how to do so, eventually working with a number of dealers to buy insurance that would pay out in the event of a housing crash. (the "Greatest Trade Ever" was actually a series of transactions). While regulators are complaining that "no one knew" Paulson was on the other side, the fact is that Paulson didn't know either until quite late in the game, finally learning that the banks selling the mortgages and mortgage related products were often the counter-parties. Maybe someone should investigate that instead of the schmoes who brokered the deals.

It's probably gauche to point out that, overall, Deutche lost money just like everyone else, so I won't.

The fact is that these sort of non-disclosure cases are the ones that regulators are going great guns to pursue (along with Ponzi schemes and outright frauds like Madoff, Sanford, and Dreyer). The guys who led their firms into a ditch have largely been left alone, although Lehman's Dick Fuld seems to have attained a sort of infamy. But, it was the masters of the universe who led the financial world to ruin by going long on housing.

A perfect example is Merrill Lynch's Stan O'Neil who, after winning praise for his "historic" ascendency to the top of the Merrill food chain (where he promptly began firing everyone who didn't kiss his a**), decreed that Merrill would go heavily into the mortgage market. And then stayed...and stayed...until O'Neil was fired for over-extending the firm. Receiving the inevitable nine-figure golden parachute, not to mention, years of record setting bonuses, while heading out the door, of course. So, O'Neil screwed up his firm going long on housing. A familiar story and one that regulators missed at the time and continue to blow off in their quest for accountability.

But, O'Neil wasn't done. While reading Paul Ingrassia's Crash Course about the fall of the American auto industry, I learned that one of GM's many problems was overexposure to the subprime mortgage industry by GMAC, which eventually had to be bailed out. Apparently one of GM's board members had been insistent that mortgages and real estate in general were can't-miss investments. This board member held great sway due to his "expertise" in mortgage-related investments, so even though others on GM's board expressed doubt, GMAC went long on mortgages ... and went right off of a cliff into a tax payer bailout. The name of the board member? Stan O'Neil! Imagine that!

The fact is that we are relentlessly focusing on learning the wrong lessons from the Crash of '08, punishing the people who made money, while letting the losers skate away with their millions into a luxurious obscurity. This follows the claims among Bear Sternes and Lehman executives that all of their problems were caused by short sellers driving their stock price down (and making a profit). No, the short sellers' profits were a symptom of the failed firms' own disastrous miscalculations, not a cause. But, better to blame shadowy short sellers like John Paulson, rather than media stars like Stan O'Neil.

Willed Ignorance: Refusing To Learn The Lessons of the Financial Crisis

In a blink-or-you'll-miss-it story in the business section, the SEC announced that it had reached a $75 million settlement with Citibank to settle subprime claims. As this follows quickly on the heels of the $500 million Goldman settlement, it's worth noting how the differences between these two cases, and their resolution, shows how our regulatory agencies continue to fail to police the finance industry

Goldman Sachs was loudly accused of committing fraud by brokering a transaction between housing bear John Paulson (one of many such transactions he entered into, btw) and a group of banks and hedge funds that wanted to continue going long on housing. Everyone was looking at the same set of numbers, but Paulson was almost alone in concluding that subprime was about to blow up and take out the financial system with it. That's why he's a billionaire today and the Richard Fulds and Stan O'Neils of the world are in disgrace. Goldman's "fraud" essentially consisted of failing to disclose that Paulson was on the short side of the transaction. Somehow this was worth $500 million, plus the usual front-page headlines and microphone pounding.

Citibank, on the other hand...well, check it out

Citigroup agreed on Thursday to pay $75 million to settle federal claims that it failed to disclose vast holdings of subprime mortgage investments that were deteriorating during the financial crisis and ultimately crippled the bank.

The settlement centers on events in the fall of 2007, when Citigroup’s reported losses started to cascade, eventually prompting the federal government to rescue the bank a year later. The case is the first to focus on whether banks adequately disclosed to their shareholders the increasingly precarious state of their finances during the crisis.

It is also the first time the Securities and Exchange Commission has brought charges against high-ranking bank executives over their involvement with subprime mortgage bonds.

The commission singled out two Citigroup executives — Gary L. Crittenden, the former chief financial officer, and Arthur Tildesley Jr., the former head of investor relations — for omitting material information in disclosures to shareholders, according to the complaint.

Mr. Crittenden agreed to pay a $100,000 fine; Mr. Tildesley will pay $80,000.

While we can debate whether Fannie/Freddie, CRA, Jimmy Carter, Alan Greenspan, or whatever "caused" the Crash of '08, I think we can all agree on this basic narrative: banks and other large financial institutions became dangerously over-exposed to subprime loans and other mortgage backed securities. When those securities began to lose value at an alarming rate, many of these institutions became functionally insolvent, or close to it. But, rather than disclose this, these institutions used all manner of accounting trickery and fund raising to try to hide the true state of affairs of their balance sheets. This directly led to the credit crunch and the Crash of '08 as investors and lenders could no longer trust one another and lending/investment activity ceased.

In other words, Citibank has just settled an enforcement action where they were accused of doing the exact thing that caused the credit crunch and wrecked the economy. And, while Goldman may have failed to make a disclosure to a group of sophisticated investors, Citibank was lying to everybody: its regulators, its shareholders, its counter-parties, and the public. Doesn't that seem, I don't know, worse? As the Times notes, the $75 million fine is nothing compared to the $40 billion Citi failed to disclose. (and God knows what might still be lurking in its balance sheet!) The miniscule fines levied against the two Citi executives are likewise a joke. How are they not getting the full Ken Lay treatment?

I'm not going to sit around and read minds, but it sure is odd that the "tough" new SEC seems to have so little stomach to punish activity that was at the heart of the financial crisis while coming down hard on a complex transaction between equals. But, Goldman is politically unpopular, while Citi is a ward of the government. Just a coincidence, I'm sure.

Bottles & Cans, Just Clap Your Hands

The Governator's ambitious plan to "end" welfare in California has drawn a predictable response from Democrats in the legislature. Senate Democrats thought long and hard and came up with a great idea: raise taxes! Wow! that's just the sort of innovative thinking California is known for.

Democrats in the Assembly found this to be too limiting and unsophisticated. Their solution: raise taxes and take on more debt! Assembly Dems: Borrow Cash To Save Welfare

Assembly Democrats on Tuesday unveiled a plan to fully fund education and save welfare and government jobs in California by borrowing billions of dollars, just one day after Senate Democrats proposed raising nearly $5 billion in taxes to stave off cuts to the same social programs.

The proposal by Assembly Speaker John Pérez, D-Los Angeles, calls on the state to borrow $8.7 billion in bonds to be repaid over 20 years, plus interest, with a new tax on oil companies that would raise roughly $1 billion a year.

Pérez said his proposal would help the state's economic recovery by giving more money to cities, counties and school districts in the year starting July 1, investing $1 billion in job creation measures and avoiding the deep cuts to California's social safety net that Gov. Arnold Schwarzenegger has proposed.

You have to love Democrats. While they love to pose as populist defenders of the Little Guy, and go out of their way to demonize "banksters," they are perfectly willing to borrow money from those banksters, for whom cash strapped stated are a major source of revenue, and then stick the put upon Little Guy with the bill.

It's an economically absurd plan, of course. All this will do is "preserve" welfare for one year. That money is going to go into one hole and out the other with no net benefit left over in the end, except that leftists can pat themselves on the back for preserving "the safety net." To underscore the absurdity of all this, here is the collateral that Democrats proposed that we borrow against:

Pérez's plan would borrow $8.7 billion from Wall Street against the California Beverage Recycling Fund, which collects deposits on bottles, cans and other recyclable containers and is underfunded because of past raids by state officials.

The Recycling Fund? You mean those guys pushing shopping carts filled with cans are going to be responsible for helping pay down billions in debt? Wonderful.

California has approximately one-tenth of the nation's population, but it also has one-third of the nation's welfare recipients. While everybody, I'm sure, has a sad story to tell, the numbers say that many of these people come from other states (and countries. yeah, I'm looking at you Mexico) in order to find a more perfect welfare state. Are there any journalists in Sacramento willing to ask Perez and his supporters why in the world California should keep doing this? Doubtful. They would rather enable the Party of Debt's continued deprivations.

Left Behind

I don't literally want to be a "man of the Left," but sometimes you have to envy how nothing liberals or socialists do is ever their fault. Case in point: Greece's socialist PM says he will be looking into bringing fraud claims against the US bankers he holds responsible for his nation's Euro-destabilizing economic crisis: Greece Considering Legal Action Against US Banks for Crisis

Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.

“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled for broadcast today, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.

...

Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.

“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”

Come on! Even a corpse in the desert has enough dignity to not rail against the vultures circling above him! US banks didn't spend a decade cooking Greece's books to hide its unsustainable entitlements and back breaking debt. Greeks did that all by their little selves. The "speculators" causing trouble now are simply taking advantage of the hole that the Greeks dug for themselves.

Papandreou is welcome to demagogue "bankers" and "the US" all he wants. Hell, it might even work since the Greek people have shown a vigorous enthusiasm for being lied to. But, there is no avoiding the simple fact that we are not living through a crisis of capitalism, but a crisis of Big Government and the welfare state.

Supercuts

The Governator has submitted his "draconian" budget proposal. For once, spending cuts are directed at California's bloated welfare state. CA has approximately one-tenth of the US population, but fully one-third of the nation's welfare recipients live here.I've long called for CA to simply stop paying for everyone else's poverty program (that would Mexico's and the other western states), while also cutting out anything that duplicates something being funded by the feds, and this seems to be a step in that direction. Of course, the MSM reaction is all too predictable: Budget Proposal Deals Blow to California's Poor

State programs that help California's neediest residents would be significantly cut or outright eliminated under Gov. Arnold Schwarzenegger's updated spending plan announced Friday.

Schwarzenegger proposed ending the entire state welfare program along with most state-subsidized child care, cutting mental health services by 60 percent and considerably slashing in-home care services for elderly, sick and disabled people. Those cuts, along with others, would save the state an estimated $12 billion in the year starting July 1.

"California no longer has low-hanging fruits, we don't have any medium-hanging fruits and we also don't have any high-hanging fruits," Schwarzenegger said. "We have to take the ladder from the tree and shake the whole tree."

First of all, if you come to California specifically to obtain the state's generous welfare benefits, and the numbers indicate that a lot of people do, I don't think you should be considered part of "California's poor." You are poor people from another state/country who came here for a better dependency culture. Second, America has developed an odd system where "poor" people own cars and major appliances, have been able to buy homes with subsidized mortgages, and suffer not from hunger pangs but from obesity. Of course, the joke is that these cruel cuts will reduce California's spending levels to those last seen in (dramatic pause) 2008! Oh the humanity!

The Governator's budget doesn't even go anywhere near as far as it could go, as some deficit hawks have noted: Schwarzenegger's Budget Addresses Few Structural Issues

For starters, Schwarzenegger's proposal would not balance the budget. He fell $3+ billion short by borrowing money from the future while calling the result "balanced". He arguably fell another $3 billion short, by counting on handouts from Obama.

Unfortunately, I see no specific pension reform mandates (Schwarzenegger is leaving that up to the legislature). The proposed payroll reductions of 5% primarily comes from not filling vacancies. Ho-hum where is the pain there?

Democrats are upset Schwarzenegger will not raise taxes, and sensible Republicans are unhappy Schwarzenegger did not stick it to the unions as did Governor Chris Christie of New Jersey.

In regards to the prison system, I see no radical changes, only wimpy proposals to move inmates from one jail to another.

(Sssshhh. We're getting ready to do all that after Governor Whitman is sworn in).

The budget actually increases funding to the state's colleges and universities. It also improves funding to the state's many parks. I don't like the idea of paying for the livelihoods of the tenured radicals at UC any more than you do, but I think we can all agree that universities and parks are a public good that the government should be paying for. So, OK, the mean GOP is cutting "welfare." That's what we do, babe. But, the proposed budget also increases funding to the state's community colleges, which are still some of the best educational deals out there (is it still $13/credit hour for SF's City College?), and a surer way out of poverty than subsidizing someone's drug habit.

California, like much of the rest of the developed world, has been experiencing a crisis of Big Government, not just in over-spending, but also in the economic distortions created by an overweening state that insists on doing everything for everybody. A lazy sort of left-liberalism has been the state's default political setting for decades. We are now living with the accumulated results of that orientation. Progressives in Sacramento and in the media may decry "draconian cuts," but the fact is we have never tried to solve California's problems with the sort of cuts and reforms that would make a real difference. The Governator's new budget won't win any popularity contests, but it is certainly a hesitant step in the right direction.

UPDATE: here are some charts courtesy of Chuck DeVore, which graphically represent the outsized extent of California's welfare case load (h/t Book Worm).

MC-0

I'm guessing that the Detroit Tourist Bureau, or whatever they've got, has concluded that Mitt Romney will never be president. Detroit officials are planning to tear down his boyhood home, which will of course mean no future "historical" sight to commemorate the Man From Palmer Woods

Wrecking crews are preparing to tear down a landmark 5,000-square-foot house in the posh neighborhood of Palmer Woods in the coming weeks, a sign that Detroit is finally getting serious about razing thousands of vacant and abandoned structures across the city.

In leveling 1860 Balmoral Drive, the boyhood home of one-time presidential candidate and former Massachusetts Gov. Mitt Romney, Detroit is losing a small piece of its history. But the project is part of a demolition effort that is just now gaining momentum and could help define the city's future.

The house was owned by Mr. Romney's parents, George and Lenore Romney, from 1941 until 1953, when the family moved to the northern suburbs. The elder Mr. Romney would go on to become head of American Motors Corp., then governor of Michigan and U.S. secretary of Housing and Urban Development.

The tear down is part of an overall plan to knock down thousands of vacant buildings left over from Detroit's economic apocalypse.

Mayor Dave Bing has pledged to knock down 10,000 structures in his first term as part of a nascent plan to "right-size" Detroit, or reconfigure the city to reflect its shrinking population.

When it's all over, said Karla Henderson, director of the Detroit Building Department, "There's going to be a lot of empty space."

Mr. Bing hasn't yet fully articulated his ultimate vision for what comes after demolition, but he has said entire areas will have to be rebuilt from the ground up. For now, his plan calls for the tracts to be converted to other uses, such as parks or farms.

Even when the demolitions are complete, Detroit will still have a huge problem on its hands. The city has roughly 90,000 abandoned or vacant homes and residential lots, according to Data Driven Detroit, a nonprofit that tracks demographic data for the city.

Romney, for one, was philosophical, but also willing to place some blame:

The younger Mr. Romney, who is considered a leading GOP presidential candidate for 2012, said "it's sad" that his childhood home is being razed, "but sadder still to consider what has happened to the city of Detroit, which has been left hollow by fleeing jobs and liberal social policies."

No kidding. Detroit has done everything that Democrats think is necessary for a "just" society. It embraced trade unionism (both in industry and in public sector jobs), industrial policy, generous welfare services, etc. The Kerner Commission Report, the definitive example of the liberal "root cause" approach to crime and urban poverty, was drafted specifically to respond to the Detroit Riots of 1967, those riots being the moment Detroit and the Left embraced racial separatism as a political goal. Detroit and national Democrats treated the area's major employers - that would be the Big Three - as little more than ATM's and playthings of social policy, especially in the environment and energy. And, now everyone's standing around, shocked that the Golden Geese have died. Can I hear a "Duh!" from the congregation?

Romney at least understands what happened. But, what about Detroit's (and Michigan's) many "progressive" potentates. Have they lost a single night's sleep over the ruin they have caused? Doubtful. Even now, the tattered Brezhnevian Levin brothers - Senator Carl and Congressman Sander - are planning new assaults on America's private sector. Detroit may have failed economically, but the root of that failure was political. And there is no sign that the politicians or the political philosophy that brought a city to the point where it is tearing down neighborhoods have been discredited.

Pas de déjeuner sans prix

Your "Durrrrrr!" moment of the day, courtesy of Gideon Rachman at The Financial Times: Europe Is Unprepared For Austerity

I used to think Europe had got it right. Let the US be a military superpower; let China be an economic superpower – Europe would be the lifestyle superpower. The days when European empires dominated the globe had gone. But that was just fine. Europe could still be the place with the most beautiful cities, the best food and wine, the richest cultural history, the longest holidays, the best football teams. Life for most ordinary Europeans has never been more comfortable.

It was a great strategy. But there was one big flaw in it. Europe cannot afford its comfortable retirement.

To paraphrase Admiral Yamamoto: "We have awoken a sleeping idiot."

Land of 1010 Dances

I spent most of the morning in the car listening to the radio, and all anyone wanted to talk about was illegal aliens. Shut off the radio at around 11 AM. One hour later, the internets were screaming about a 1000-point drop in the Dow. Even if I wanted to sell into that, it happened so fast there was no time: Dow Takes a Harrowing 1010 Point Journey

A bad day in the financial markets was made worse by an apparent trading glitch, leaving traders and investors nervous and scratching their heads over how a mistake could send the Dow Jones Industrial Average into a 1,000-point tailspin.

At its afternoon low, the Dow had plummeted 998.50 points, its biggest intraday point drop ever. The swing from its intraday high was 1,010.14 points.

The Dow eventually rebounded to close down 347.80 points, or 3.2%, at 10520.32, its worst percentage decline since April 2009. Stocks from Dow components Procter & Gamble and 3Msuffered precipitous declines. At one point shares of P&G tumbled 37%.

Everyone's blaming this on some sort of computer glitch leading to cascading sell orders from the dreaded High Frequency Traders, but lets not kid ourselves. For all the talk of a nascent recovery in the US (and things do feel a little more prosperous, at least in SF), there is still a lot of uncertainty out there, almost all of it directed not at banks, but at nations:

All this fogginess about botched trades came as the market was already on edge about Greece and the European debt crisis.

Just before the panic started, which was around 2:30pm ET, Mohamed El-Erian said on CNBC that the Greek crisis is about to spread.

"We've seen a crisis start in a country—Greece—become regional, impact the whole of the Euro zone and is on the verge of truly going global," said El-Erian, CEO of the world's biggest bond fund.

Rochdale analyst Dick Bove said the riots in Greece, which escalated after theGreek austerity bill was passed, are also a telling sign.

"There is simply a growing recognition that Greece has got to default, said Rochdale banking analyst Dick Bove. "The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland, it's going to be made by people in Greece and they're not going to repay it," he said. "Anyone seeing the riots is going to recognize that this government is going to be thrown out and anything replacing this government is going to be far more leftist leaning and they're going to repudiate."

The developed world is living through a crisis of Big Government, as nation-states as varied as Greece, Britain, Japan, Spain, California, and the US grapple with unsustainable public expenditures made worse by political climates that have been paralyzed into inaction. The violent riots in Greece are a warning that the Left will not hesitate to protect its prerogatives. The (typically) muddled election results in Britain, which might result in Gordon Brown remaining in office as Prime Minister (!), indicate that no one will have a mandate to make serious efforts at scaling back government until there is absolutely no other alternative. And, the continued spending in California (high speed rail!) and the US (Obamacare) show that some politicians simply can't imagine a world where they can't appropriate billions of dollars for ephemeral gains. Appropriately, our normally loquacious President was strikingly quiet this afternoon. There's no emergency if the president isn't involved, right?

The Little Depression lurks, for now...