Sunday, February 28, 2010

Reply: Earthquake in Chile

Well of course people are already shungry and looting supermarkets, the army on teh streets trying to keep control of the situation.
Most saught after items?
Candles (I suppose that battries/flashlights as well... but thats just my speculation)
Bread is selling for around 8 dollars per kilo, ATMs arent working and credit and debit cards arent being accepted.
The government has set up generator in the Plaza de Armas so that people can charge their cell phones.(get a solar/crank cell phone charger)
The situation is pretty complicated and havent heard from cousin and aunt since yesterday.

Notice how its always the same basics: water, food, shelter and lighting. Means of comunication. Money buys you stuff as long as you have cash. Medicines or supplies for babies or the sick.
There's a number of disasters and events that can be much better dealt with if you have some basic supplies at hand.


Saturday, February 27, 2010

Earthquake in Chile

Mi cousin is living there in Santiago. They got hit by an 8.8 quake.
They live in a newish apartment that withstood the quake.
I just got off the phone, my grandmother told me that they are ok, but as of now there's no phones, no power or gas and they are checking the structural damage in the buildings.
At 3.30 AM they heard the windows breaking, their daughter woke up crying (the baby slept through it all) the appliances and everything loose fell, and even thier bead moved around.
The building being new was quake proof, but they are pretty scared  since the ground still moves every now and then.
Seems highways collapsed, pretty big earthquake.
Just another example guys of why preparedness is so important and how having the basics covers most of these events.
Worst case scenario: My cousin can just move back to Argentina. She still has her apartment and can stay in my aunt's house in the meantime.
Plan B location away from the mess beats 100 fully stocked forts all day.


CNN Link

Friday, February 26, 2010

MUST READ: How Financial Bubbles Work

This ins’t just a MUST READ, its the best article I’ve ever read explaining how a very small group of very rich people achieve such wealth by literally ruining millions of lives in USA and other countries… and get paid even more for doing so.
Too big to be allowed to fall, supposedly…
Please do yourself a favor, spend the next 20 minutes or so reading this article. I promise you wont regret it. It will make your blood boil for sure, but as the author says, at least you’ll know the truth.


The Great American Bubble Machine
From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

MATT TAIBBI Posted Jul 13, 2009 1:49 PM


The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibilliondollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in goldenparachute payments as his bank was selfdestructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailedout insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pumpanddump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumercredit rates, halfeaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage.

Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

BUBBLE #1 The Great Depression

Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids — just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his soninlaw Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out shortterm IOUs to smalltime vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrantled investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of precrash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and etrading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regularguy investors into the speculation game.
Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild.

The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

BUBBLE #2 Tech Stocks

Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a topdrawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "longterm greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a longterm loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair — but 'longterm greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of babyboomer, Sixtieschild, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a littleknown company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the daytrader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger firstday rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent — they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 The Housing Craze

Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and excons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junkrated mortgages were turned into AAArated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance — known as creditdefault swaps — on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the excons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated — and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.
More regulation wasn't exactly what Goldman had in mind. "The banks go crazy — they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."

Clinton's reigning economic foursome — "especially Rubin," according to Greenberger — called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housingbased securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgagebacked securities — a third of which were subprime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to secondmortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God's sake — pretending the whole time that it wasn't gradeD horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedgefund manager. "At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Goldman knew what it was doing."

I ask the manager how it could be that selling something to customers that you're actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn't amount to securities fraud.
"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."
But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 $4 a Gallon

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.
That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the shortterm flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the shortterm supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physicalcommodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the oncesolid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldmanowned commoditiestrading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.
"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive longterm bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedgefund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commoditiestrading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up presentday profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."
Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

BUBBLE #5 Rigging the Bailout

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investmentbanking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35yearold Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflictofinterest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bankholding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all this — the AIG bailout, the swift approval for its bankholding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the postbailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those firstquarter results six ways from Sunday," says one hedgefund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its firstquarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using halfbaked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?
Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly twothirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchforklevel outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 Global Warming

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's cohead of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carboncredit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigmshifting legislation, (2) make sure that they're the profitmaking slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for capandtrade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climatechange problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that capandtrade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utahbased firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in greentech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energyfutures market?
"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but capandtrade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedgefund director who spoke out against oilfutures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."
Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.


Thursday, February 25, 2010

Reply: "Knife Fighting"

David said...
Not planning to need any of this, mind you, but my question is: if defending against a knife attack, I would think that a club, stick, or some sort of shield would be better than a knife. Pepper spray looks better than a knife, too, to my armchair warrior eyes.

The point would be to prevent getting cut up while finding a way past or over the attacker to escape. Putting any part of the body inside the reach of the opponent's knife would strike me as a guarantee of getting cut badly, so a defensive tool that created a buffer zone would seem most ideal.

I always thought a hardened umbrella (carbon fiber, fiberglass or even steel shafted), possibly topped with a broadhead from a hunting arrow might be ideal (no one makes one that I know of...maybe I'll go into the business...).
February 25, 2010 12:13 PM

I’d take a knife over impact weapons and OC spray. I doubt OC spray will help much against a knife attacker at very close range.
Knife vs knife isn’t much better, you’ll get cut for sure unless you can dominate your attacker, and an enraged person with a knife isn’t someone you can easily disarm.

Best thing to do is try things out. Not with a real knife but just use a stick, you can even chalk it to see the strikes.
A cane or club leaves you little are to defend yourself.
I’d sooner grab a chair if one is around, a larger object to put between me and the knife attacker. Shoving forward, hitting with the legs, to buy time so as to either get help, find an escape route or stay in the fight without getting cut.
The phrase “more dangerous than a chimp with a knife” isn’t accidental. A knife fight can get bloody and messy pretty fast, better to avoid it or to be the only one with a knife! If armed with a firearm creating the distance as you fire would be the best strategy.

There’s a testimony in the book “Esgrima Criolla” of a soldier keeping a gaucho (and his deadly facon) at bay until he collapsed with a chair, after shooting him with his 45 ACP pistol.
There’s another testimony where the shooter couldn’t achieve this and was killed by the gaucho with his blade, even after getting shot several times with a 45 as well. Seems that gauchos got pretty cocky and violent after drinking too much in the “pulperias”.


Wednesday, February 24, 2010

Knife Fighting

Heres a site that I think is great, you have no doubt heard of it already but I just couldn't resist emailing you the link.


Good website. I’ve read it before and agree with almost everything he says.
I disagree partially with Lie #1 You're going to have time to draw your own weapon
If you are we aware of your surroundings you sometimes have time to draw your weapon. I’d go as far as saying you “often” have time to draw your weapon IF ( most important “if” in self defense) you have good situational awareness and detect the probable threat in time.

Cant emphasize awareness enough guys:
You may not be the guy that has 10 years worth of knife fighting training.
You may not be the guy that won the national action shooting competition 5 years in a row.
But being the guy that detects the thread just a couple seconds before the two other guys mentioned above do, is by far the best trait you can have.

He’s right though about not being much you can do if someone walks by and stabs you in the neck as you walk past him, but that’s not common on the streets where most often the first thing attempted is to intimidate you to steal your belongings , force you inside your home or vehicle. On prisons, yes, it happens just like that all the time, the objective of course being very different: just kill the man.
On the streets its usually different. None the less you should practice to have an immediate reaction of bringing your sacrifice hand forward to create or maintain the distance you need.
Same happens with firearms and if often the reason why most self defense shooting is done single handedly.

Knives are often underestimated in the gun powder era but you should always keep in mind that knives are deadlier than guns. Statistically speaking, you clearly have a better chance of survival if you get shot than if you get stabbed.

Also this one: Lie #19 You can use a knife on another human being without legal repercussions

I’d say its probably true in USA, but in other parts of the world I’d go for: “ it depends”. Basically of to variables a) who you cut b) In which neighborhood it happened.
You can cut a punk up in Villa Tranquila, do and origami swan with his guts and unless you sit there holding a sign that say “Yes, I just killed him!” you won’t get caught and probably no one will care either.

Some basics for when training with knives:
1)Practice any martial art you want, but know that only fighting a non cooperative partner is the training that matters. If you feel the training knife stabbing, you just got cut.

2)Don’t count on the Hollywood lethal strike where after a single stab the person stays motionless and pretty much falls asleep. Lots of movement event after getting cut, the fight goes on, the person can still shoot you/stab you.

3)Fighting with training knives is a great way of separating the BS from what really works for you. A strong grip with the fingers fully wrapped around the handle is the only way to go.
The first thing you notice is how easily training knives fly around: People don’t grip their weapon strong enough or use fancy grips holds and stances. And they end up losing the knife. This is particularly important for us gun guys, where the recoil can’t even compare to the strength you need to apply to keep a grip on your knife when slashing and stabbing an attacker.
That karambit knife hold where you just have a single finger around a ring at the bottom of the gip? Oh my God! Who actually does that in a fight? You’re much more likely to get your own finger broken than actually landing a significant cut.
Also an inverted grip reduces both your range and slashing options. Good for stabbing down on an opponent hard but keep those other two disadvantages in mind as well.

4)Just like with your handgun, carry your knife at all times. For most of us, that means a folder.

5)Do not underestimate the power of martial art BS. While some disciplines are good, and some instructors teach well, there’s people out there that pretty much just waste their time and if ever faced with a lethal threat, they’ll get themselves killed.
I’ll never forget the guy that was just taught how to disarm an attacker with a firearm… with a kick to the gun.
Oh, and you had to stand just where he told you for it to work.
… and he had to try it like 5 times to actually kick the gun out of your hand… after getting “shot” that is. No, he wasn’t 5 years old, he was mid 20’s, was in great physical shape and had a black belt in something. An athlete for sure, but he didn’t understand the first thing about self defense.


Tuesday, February 23, 2010

Food: shortage or just too expensive to buy?


Thank you for such an informative and honest blog.

I would like to ask you about the food situation during the economic collapse in Argentina in relation to what's to the situation here in the US. Due to the subpar farming seasons (in the US) this past year, there have been produce shortages to an extent in which many are saying that a major food shortage is coming. Prices obviously have went up.

However, some recent economic forecast articles I've come across have stated that there will be no food shortage, people just won't be able to afford it. I think it will be a combination of both.

What can we expect?



Hi Pers, thanks for your email.

That’s correct, Argentina produces food for 300.000.000 people (Maybe half of that these days, after the Farmers Crisis), and we have a population of 44.000.000. Why do 10 to 20 kids die of starvation each day then? As you well say, people can’t afford food, or they can only afford food of poor nutrition quality.
People need to understand that for every complex problem, there is an answer that is clear, simple... and wrong.

Go to any of these countries where there’s children dropping dead of starvation like flies, there’s always an elite that lives a good fat life. There’s restaurants where you can drop by and eat nicely… and cheap too!

Pick you favorite dirt poor African country and when you visit the capital district you’ll find a different reality. The dumb tourist may ask himself, “Dear God, why do people starve to death in this wonderful place when you can eat a fancy dinner in a restaurant for 5 dollars? I wish New York had joints like these!”

Some people are extremely poor. Argentina is of course not the worst example, but you still have to keep in mind that 50% o the population is still poor and 20% is BELOW the poverty line, meaning they cant afford to purchase the necessary calories do develop the daily activities. These are the ones that are seen begging on the fancy avenues, eating out of the trash of the McDonalds in the Capital and sububs, and yes, slowly dieing in provinces like Tucuman, Santiago del Estero or Salta.

There are cases in history where simply no food was to be found, but in most cases your other assumption is correct: People just cant afford the food. That’s the problem.
This is why having a food stock of 6-12 months is so important. It gives you enough time to evaluate your situation and take action instead of desperately trying to find food to feed your children.
Your food stock covers that primal, immediate need.

After having that basic need covered, your finances are of mayor importance as well. Finances and smart financial strategies and investments will ensure you have more resources and yes food on the table as well.
My grandparents where farmers in Spain, they lives there as farmers for generations, yet their main concern after escaping the Spanish Civil War and coming to Argentina wasn't finding a lot of land to farm: Their priority was starting their own business. That bakery store was a big success and covered all their needs 10x better than any farm would.

The modern equivalent of giving a man a fishing rod and teaching him how to fish in comparison to just giving him a basket full of fish.
While some people starved, other poor people that started out just as bad ended up starting their transportation companies, or even had the idea of buying a warehouse and providing a place to rent and start a market, commonly known here as “Ferias”.
So you see, you have people that starve, and you had poor people with no education that just using their heads, they made a fortune, having two of the latest Mercedes Benz parked on the front of their market/warehose (one of each color, exact same model that costs about 40.000 Euros each)

Your savings come into play as well. You precious metals can buy lots of food… today and 50 years from now! Probably even more than what they buy today. Gold and sliver has unlimited shelf life and can be used to compensate for any mistakes you may have made when planning your food stock.

Regarding your question, I think that there will be food. Its just going to be more expensive as you say, just like everything else, in the end it means that ex middle class people become poor and have lower standards of living.

I sincerely don’t think it will be as bad as it got here. We almost lost our middle class, at least half of them became poor. No, they are not starving, but they ARE poor and not USA poor with fancy cars and wide screen TVs. I’m talking about struggling to reach the end of the month and carefully planning what food they can or cannot afford to put on the table.

Food is still cheap in USA and Europe, do yourself a favor and write down exactly how much of each your family needs for a week, then put aside a 6-12 month supply just in case. You’ll end up eating it anyway, just remember the two most important Rs of food stockpiling: Rotate and Restock.

Do that, and you wont end up throwing a single cent away (you always eat food no matter what) and you’ll have a supply in case something bad occurs.


Monday, February 22, 2010

"Dirt War" and the current situation in Argentina

Hello from a regular reader!

I wanted to tell you how much I enjoyed your book. Unfortunately, reading "Surviving the Economic Collapse" made me realize how much time and money I had WASTED reading all the previous "survivalist" books, and what a bunch of nonsense 90 % of them are. I recommend your book to everyone I know who is interested in getting by during hard times.

With that said, I wanted to e-mail you because I was interested by your discussion on the situation with the Kircheners and the Argentine armed forces. I wrote my senior thesis in college on the Argentine "Dirty War" and read quite a bit about the Argentine military of this period. I have been seeing in the past few years that many former Argentine military officers have been hauled back into court both in Argentina and abroad and their amnesty agrements revoked. Most recently I saw that fmr General Videla has been placed under arrest.

As a student of this period in history, I am always curious to know how contemporary Argentines view the treatment of former soldiers from the "Dirty war" period. It seemed to me like the fight against the montoneros and other "revolutionary" groups was a vicious and nasty fight and the military to a large extent was acting to defend the country against ruthless terrorists. Do you think that events like 9/11, the emergence of Al Qaeda, the victory over the FARC in Columbia, and the misrule of figures like Chavez and the Kircheners have made people more sympathetic to the Argentine military? I dont know anyone in Argentina and would be really interested to know what your opinion is.

Keep up the great work with the blog and please put out another book!

Regards, Jeff

Hi Jeff, thanks for the nice words, glad you found it useful.
Regarding your question, at first it was a welcomed sight to see these true criminals behind bars, but then the leftist true colors of the Ks became visible, as well as their thirst for power.

It went from jailing dictators and murderers to completely demilitarizing the country, blaming them for everything they could think of .
With the human rights excuse we ended up with a country where criminals have more rights than the good guys.

A common line around here is that criminals walk free, while the good guys are the ones forced to live behind bars (burglar bars, that is)
The “rights” of the murderers and rapists are always of concern to the government, but law abiding citizens? No, they couldn’t care less.
It’s always disgusting the way in which, always waving the human rights excuse, the mothers of plaza de Mayo back up this dictatorship.
The exchange for their loyalty was putting the “junta” dictators behind bars but also a nice chunk of the booty.

The “Mothers of Plaza de Mayo” have unlimited credit in Argentina. Loans are given away to them by the national bank, no questions ask. Money is donated, their organization financed by the government directly.
What do they do? Support the government, promote communist agendas, support anti gun and anti self defense groups, support financially pro abortion groups, even a particular woman that stabbed her new born baby to death after giving birth to him in the toilet.
Her excuse? She had been raped by a neighbor… Afterwards we learned that he was in fact her lover, the man at the age of 40 had no criminal record or sexual assault history, just a long list of love affairs. They were both seen in the neighborhood walking around by the hand.

The personal fortune of the leader of the “Mothers”, Hebe de Bonafini is hard to account, but her political and social power is huge. http://www.madres.org/
That’s their website, I’m not hotlinking because I don’t want to be linked to this group, which is a rather dark hand of the Ks.
IN their website you can read “¡NO TIENEN QUE LEER LAS NOTICIAS DE CLARÍN Y LA NACIÓN!” Which means, dont read the Clarín and La Nación newspapers, which are by the way the two largest news groups in the country, now deadly enemies of the Ks since they passed the new Media Law, that gives the Ks the right to ban media groups of any kind at their will through sanctions and articles that would make the group they want to destroy financial impossible to sustain.

The “mothers” are side by side with Cristina Kirchner, every political enemy the K dictatorship faces is fiercely attacked by Bonafini and the Mothers group.
Again, when explaining all this I can’t avoid recommending Matt Brackens book, Foreign Enemies.
Mauricio Macri is one of Cristina’s most hated adversaries, specially since Macri and his right wing “Pro” political party won the city of Buenos Aires.

The latest excuse to attack Macri? Macri wants to issue Tasers to the Buenos Aires city police, like any serious police force around the world.
But the Mothers saw this as a new excuse to bring the rotten corpses of their sons out of the grave: “Tasers are elements of torture!”they say, “Just like the “picanas” used by the torturers during the military dictatorship”.
These days most educated people see the “mothers” for what they are: Once a group of genuinely grieving mothers, now turned into a political group tool of the Ks, using the bleeding hear excuse whenever they can.
The problem in Argentina and in most Latin America to be honest is much more complex.

There’s been a systematic destruction of our culture. The higher levels of education reached by Argentina have been systematically attacked by the K. Stupid people repeat stupid things like idiots, and the Ks just love that.
You see, the more poor, uneducated people in Argentina, the better for them and the longer they can keep in power.

They’ll blame everything on USA, on capitalism, and first world countries, they’ll blame the “rich”, or anyone that rises above the average mediocre level. Redistribution is a key word as well.
“You’ve got money? Then share it with the poor, better yet, give it to us and we’ll do it for you. You don’t like it? We’ll just steal it from you, you capitalist pig!”
Who’s stupid enough to fall for all this. Poor, uneducated people. The kind of society they create!

It’s true that in a large percentage the military dictatorship killed innocent people as well. Its also true and almost banned to say so in Argentina, that many of the “deasparecidos” weren’t boy scouts either, they were murdering communists that kidnapped, killed and bombed. Extremes are never good.
Now we have a socialist dictatorship in our hands, telling us what we can or cant read, hear or watch on television, with strong links to local and international drug dealers and best buddies with the likes of Chavez.

I’ll tell you one thing, there’s still a part of the population that isn’t that stupid. A minority for sure, but they are out there, and they remember the days when, with the evil military dictators in power ( and some were truly evil) we had more freedoms and the streets weren’t nearly as dangerous to walk as they are now.


Sunday, February 21, 2010

Malvinas War redux?

Don Williams said...

1) Off topic, Ferfal, but the British newspapers report that your "Botox Evita" (heh heh) is about to start another Falklands War as a way of handling her domestic problems.


2) Unless you guys have a couple of nukes I don't know about, I think its a bad idea to fight the Brits on the high seas. They've been playing that game for 400 years or so and are still pretty good at it.

Strategypage.com rates Argentina's naval power at a 2, Great Britain's at 46.


February 21, 2010 6:39 AM

You know, its the second time in less than two days that someone mentions this and yet there's not a single line of it on the local Argentine news.
They mentioned making a claim of some sort but nothing like going to war against UK which would of course be suicide in our current state.
My mother told me the same thing, that in Spain the news is that Cristina is about to declare war as a way out... ???

I'd be a bit more worried if the Kirchners hadn't systematically destroyed our armed forces during all these years.
We have nothing to fight with! Even our stock of small arms is shameful. Mostly old FALs and a handful of ARs. We sure were in much better shape when we fought the first time.

The Kirchners have blamed all the troubles of man kind on the Argentine armed forces, cutting their budget to nothing, destroying their structure and public image, we really have no armed forces left, only a shadow of it.

I think that if the declares war to UK, after insulting and destroying them like no other president ever did, people would simply march over there, pull here out of the presidential house and beat the crap out of her. Let the mothers of Plaza de Mayo and their communist buddies fight the war now.


Saturday, February 20, 2010

American Society

Dear Ferfal,

Wonderful info! I dropped everything to spend all day reading your blog and ordered your book..... You mention that you wonder if Americans can handle a SHTF scenario? Can they survive as well as the Argentineans? I can tell you definitely NO! We Americans are the fattest, laziest, greediest, most disgusting people on the face of the earth ever, IMO. I work in an ER and we have people come in as patients with paper cuts, yes, paper cuts, imaginary rashes, sore throats for 15 minutes, time off work, attention, loneliness, entertainment, drugs, drugs, drugs, and more drugs, etc etc etc.

Many of the patients are filthy.... Some of the women haven't washed "down there" in a month.... Some of the men haven't changed socks in 2 months. You can imagine the stench when we have to undress them for various exams...Often we have to close down and air out an exam room before we can reuse it because the patients stink so badly... 80% of the people in an ER don't need to be there--because they don't have an emergency! I have been in this business for 22 years now and the people get more and more trashy every year....My record is 10 people in a row lying to me where I could actually prove it!

We had a 500# guy call up the ER to say that his 450# wife s**t herself and ordered us to send a nurse out to "wipe her butt." We said we couldn't do that.... 20 minutes later, the wife arrives by squad complaining of chest pain. We do our usual heart attack evaluation costing $1500 to the taxpayers, which was negative naturally. And naturally the patient is a Medicaider, so she doesn't pay a cent. Then we cleaned her up, which is why she came in to the ER in the first place... After that, she demanded a taxi voucher saying she had no way to get back home! 50% of the entire US population has degenerated into human trash like this.... Americans will kill for AC; can you imagine what they will do when the Uncle Sam gravy train stops and their food stamps run short and they have food shortages?? They won't hesitate to bash anyone iin the head for a hamburger and fries. When, not if, the US collapses, it will be the mother of all SHTF scenarios!

There may be upwards of a 40-50% dieoff of population during the collapse chaos, IMO. I had thought about leaving this sinking ship years ago.... but the big problem is that when the SHTF really bad here, it will quickly spread to most of the world.... the global dominoes will all go down, so there really isn't any guaranteed safer place to go to...

BTW, I see most of the rest of the world is equally as soft and weak as us Americans... Think of the Europeans in a panic going berserk over being stranded for 5 hours in the Chunnel... Five days, sure, that I could understand... but five hours? That's making a mountain out of a molehill....

We are definitely on an unsustainable course here in the US. I don't know how much longer we have before the SHTF, but it can't be more than 2-3 years at most, IMO. Great info!


Wow Ellen, those sure are some stories.
Glad you like my blog, I'm sure you'll enjoy my book as well.
1/10 of those things would get you kicked out of an ER here in Argentina pretty quick. I’ve been to the ER several time like most of us I suppose, most of the time you could tell people had real injuries, kids with high fever and such.
In general terms people are clearly dirty, something understandable given that in the suburbs 40% of the people don’t have running water and the shantytowns have terrible conditions.

What you mention about the overweight problem in the American society has always been very visible. You cannot avoid noticing that as you walk around you clearly see much more people with overweight problems than in any other country I’ve visited.
First world societies in general are spoiled, and sure, hardships make people tougher in general terms.
I was watching on TV just yesterday, Buenos Aires flooded with a yard of water inside the houses in some places. A disaster? Sure, and it occurred in some of the nicest parts of down town Bs As, mostly Palermo. Firemen threw cords along the streets to help people around, boats moved those that couldn’t walk along the lines with the streets turned into rivers. People complained but not that much, there was probably some criminal activity, but mostly people in general kept calm, already used to not things always being ok.

But it all fairness, I think that in general terms you’ll be hard pressed finding a better society than the American one during hard times. In spite of everything, there’s already some sense of preparedness, while in most other countries there’s not even a word for it. You guys also have the 2nd Amendment and a solid gun culture, again, most countries don’t have that either.
I’ve been in Spain of over a month recently, Europeans are certainly far less prepared than Americans.
There’s a general sheeply feeling, all of them expect the government to watch over them like babies, there’s not even a voice that speaks out on the other side like the one you have in America.

Their society in general has turned almost unisex, you see guys on the malls shopping for clothes almost like women. They even dress in an general unisex kind of way. Men are mostly very skinny, strolling delicately, using tight, bright clothes and fabrics.
God forbid should you carry a knife… guns? They’d wet themselves.
Of course there are exceptions, but this is my general impression.
I’ll pick the American society any day. Don’t mean to offend anyone either. My father is Spaniard, my entire family lives there. It’s just a bit sad to see how the society there as changed.


Friday, February 19, 2010

Haggling and Bargaining

I was on the phone the other day talking with a guy about purchasing one of those little spy cameras.
I needed it for some Grabtheapple.com video clips, showing stuff in places where (due to the questionable legal status of the merchandise being sold) video cameras aren’t always welcomed.
The thing is, I wanted the one I saw in his website, around 200 pesos.
He offered me a much nicer one for 450 but I really didn’t want to spend that much.
I explained to him that for what I had in mind the 200 pesos one would be more than enough, explaining it all in a calm slow tone of voice, but that hey, maybe if the price was right I could possibly use the better camera some other time, but not at that price of course.
A little back and forth and the guy wouldn’t lower the price.
Wearing him out a bit more, I offering him this great idea I had: I’ll buy the cheaper camera, and if its not working well for me, I’ll pay the difference for the nicer one. :-) Of course this wasn’t much of a deal for him, but I told him ok then, the 200 buck one will do fine.
After that he said he’d send me the nicer one for 300 bucks, said ok, done deal.
300 pesos is still a lot of money at a 1 dollar = 3,84 Pesos rate and I’m sure the camera is worth half in USA as almost any other electronic gadget but its still a good price locally and the camera sure is nicer than the cheaper one.

A little haggling and bargaining can go a long way if the circumstances permit, no matter if you’re trying to get a big contract or buying some smaller item on the streets.


Thursday, February 18, 2010

Buying Gold‏

Hi Ferfal,

I just ran across your blog and appreciate your practical advice. I live a simple life. I have plenty of stored food, gravity spring water, wood heat and a practically unlimited supply of wood for cutting. I have no debt, a small comfortable home, a nice amount of land and a comfortable nest egg. I never invested in the stock market, but instead have my savings in treasury bonds and IRAs. While I didn’t lose any money in the stock market crash, my money is drawing very little interest right now and I don’t think it is even keeping up with inflation. I took out a few thousand dollars for emergencies and stashed it away when the economic crisis first started, but it is in cash and I would like to start buying gold or silver but I don’t really know how to go about it. I’m afraid I would get ripped off. Do you have any advice on how to get started with buying precious metals.



Hi Geri, sounds like you have things nicely sorted out.
Buying precious metals is no different from any of the other things you learned to do around your home.
You have to learn what to look for historic prices and current ones of precious metals and smartly purchase when you find good deals.

Right now gold is a bit expensive due to the crisis and likely to go down sometime, so I would definitely buy some but not a lot, and maybe look towards silver more.
Still, gold may go up and down in price, what it will never do is lose its weight… :-) As expensive at is may be, if things turn ugly its likely to go up much more AND you managed to protect some of your savings.

For protecting your savings stick to well recognized forms of gold and silver such as American Eagles, Krugerands and Canadian Maple leafs. Do your homework so as to know the gold contents and weights, and don’t be afraid to shop around locally in some cases looking for the best prices. Online, /www.apmex.com/ seems to be good and trustworthy but still count your coins and check them well.

I’ve recommended a small amount of junk precious metals so as to have as change or to use during the first stages of a crisis, before you end up breaking down your stash of coins or when buying locally for smaller amounts. For silver, in America you’re set with some pre 65 dimes. In the rest of the world and maybe one day in USA, junk gold is more readily acceptable so having a few simple rings and gold chains makes sense. Again, know you precious metals and the gold content in 14k and 18k. Some places will sell old wedding bands or broken chains for their gold content alone. Check ebay for these and stick to reputable dealers.
American 22K $5 Gold Eagle 14K Pendant (Random Year Coin will be shipped)American 22K $5 Gold Eagle 14K Pendant (Random Year Coin will be shipped)

How much gold to buy? Its hard to set a percentage to recommend without knowing many other personal circumstances. Usually around 10% to 20% of your savings its advices but of course it depends.
Think of it this way: If the dollar keeps losing value, your gold will stay the same, probably go up some, if inflation keeps getting worse, your gold stash will again, retain value or increase in price as demand rises. If there’s a total economic collapse, the only savings you will have left will be your gold. Just think about it for a few minutes, how you’d get buy with that amount of money alone.

Wednesday, February 17, 2010

Living in High End Condos‏

Hi Ferfal,

Have read your posts about choosing the right neighborhood to live in. And that the real nice neighborhoods, stayed nice.

What was your experience/stories you've heard with the upper-end condos, that have security in the lobbies? I'd think that high-end condos have the "nice neighborhood" idea, but in a building with 40 stories. And I'd figure that stealing/breaking issues would be less since there is security in the lobby areas. Your thoughts?

Best Regards,

Jason (Philippines)

The nicer ones upgraded their security some. More guards, more cameras and lights, a perimeter wall (that goes along with the architecture of course, plants, etc ,something that looks nice)
If its an upper middle class place it will usually go that way, and probably go up in price too.
If not it may go the other way, end up with poor security (or none at all)that isn't up to it and therefore it would become pretty dangerous.
When choosing the place to live in, if you can't go for the nicer ones at least try finding one where the owners are involved and there's a greater sense of community. That way you can all discuss these issues when they become more obvious and plan accordingly, maybe talk about making an extra efford to hire some security.