Meltdown

• Bernanke Resets Policy by Doing Nothing as Markets Soar (BBG)
• Stocks Jump to Five-Year High as Metals Rally on Fed (BBG)
• Centre-left bigwig says hard to stay allied with Berlusconi (ANSA)
• J.P. Morgan 'Whale' Fine Put at Over $900 Million (WSJ)
• Banks’ $10 Billion Sweet Spot Sets Off Buying Spree for Lenders (BBG)
• Time to taper? Not if you look at bank loans (Reuters)
• Mortgage Lending Reaches 5-Year High (WSJ) ... and then plunges as Fed gives "all clear" for a few months
• Yellen Chances Grow as Obama Aides Test Senate Support (BBG)

A decisive tipping point in the evolution of American capitalism and democracy - the triumph of crony capitalism - took place on October 3, 2008. That was the day of the forced march approval on Capitol Hill of the $700 billion TARP (Troubled Asset Relief Program) bill to bail out Wall Street. This spasm of financial market intervention, including multi-trillion-dollar support lines provided to the big banks and financial companies by the Federal Reserve, was but the latest brick in the foundation of a fundamentally anti-capitalist régime known as “Too Big to Fail” (TBTF). It had been under construction for many decades, but now there was no turning back. The Wall Street bailouts of 2008 shattered what little remained of the old-time fiscal rules. There was no longer any pretense that the free market should determine winners and losers and that tapping the public treasury requires proof of compelling societal benefit.

Oh, and a Typhoon Is about to Hit Fukushima

New SEC Chair May Jo White's motto "you have to be tough" and plans to toss out the SEC enforcement policy that allowed almost all defendants to settle cases without admitting wrongdoing sound great; but the reality is, as the WSJ reports, the policy shift comes as the SEC turns the page on its financial crisis work. New investigations into misconduct linked to the meltdown have slowed to a trickle. And a statute-of-limitations deadline that generally restricts the sanctions the SEC can get for conduct more than five years old is looming for many cases. The SEC's crisis-related actions are producing diminishing financial returns as the following charts suggest... As one law professor noted, "they've not had the big case that everybody wanted to see... a major player being held really accountable." Perhaps more reading and less porn would be a start?

Just three weeks ago, Goldman Sachs cried 'uncle' when their market-making options algo-machine exploded in a fit of guilt causing the firm to face hundreds of millions of dollars losses (should the exchange not have DK'd the deals). Nanex has investigated the rogue algo and here are the findings... "As soon as option quotes in the affected symbols began exceeding theoretic economic values by some threshold, quotes (and therefore liquidity) on other options exchanges for those contracts would immediately disappear - bid/ask prices would go to zero at other exchanges. Within 10 seconds of starting, one algo, in effect, completely destroyed the concept of the National Market System and obliterated liquidity..." As they sadly conclude, what was the fine for shutting down an options exchange, and destroying liquidity in hundreds if not thousands of options contracts? There was no fine. Worse, they were able to get the trades busted. As in, pretend we didn't just do that. Pretty shocking. Until there are financial consequences for firms that turn on market disrupting algos, the markets, will continue to be disrupted.

There is a saying: if in doubt, ask an economist, and do the opposite.

There is also consensus among the people inhabiting the real world -the one that is found outside the ivory towers of the economics departments of all US and global Tier 1, 2 and 3 universities - that the only reason the world is currently in its sad, deplorable and deteriorating economic state (which however keeps making the rich richer), is precisely due to these same economists, whose tinkering and experimentation with DSGE models, differential equations, curved lines, and all such things all of which have no real world equivalent, and specifically due to economists like Greenspan and Bernanke. These two men, both of whom barely have seen the real world for what it is or held a real job outside of their academic outposts, who surround themselves with brownnosing sycophants and who do the bidding of Wall Street, are the primary reason for the current centrally-planned quagmire. Which is why we wonder: is the fact that some 313 economists (and counting) have signed a petition pushing for Janet Yellen (aka Freudian slip "he" if you are the president), and against Larry Summers, sufficient grounds to actually like the outspoken former Harvard head?

Yesterday we implied a difficult question when we illustrated the huge size of US Treasury bond holdings that China and Russia have between them - accounting for 25% of all foreign held debt - implicitly funding US standards of living (along with the Federal Reserve). The difficult question is "Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills?" What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own? If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria.

The last time Italy was close to a full out collapse was in November 2011 when ECB's then-recently appointed new head Mario Draghi forced Berlusconi out following an (ECB uncontrolled) plunge in Italy bonds. It is only fitting that following Bunga Bunga's latest tax fraud conviction, and the resulting power circus, it is Sylvio who threatens Italy's government, and stability, once again.

Almost three years ago we warned of the consequence of the disincentives for the working man in the US at the lower-income level. Then, last November we noted the dismal fact that 'work is punished' in America for a large majority of the non-elites. And now, as the part-time new normal becomes more and more understood in the mainstream, we ask once again... If you could stay home and relax all day and actually make more money than you do at your current job, would you do it?

• Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
• Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
• Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
• China expresses 'shock' as Japan's nuclear crisis deepens  (Reuters)
• Inquiry into China insurance firm rattles industry (Caixin)
• Cheaper rivals eat into Apple’s China tablet share (FT)
• Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
• Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
• Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
• Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)

In lieu of the Japanese government doing the right thing and finally coming clean about the epic environmental catastrophe that is Fukushima, which it hopes to simply dig under the rug even as the inconvenient reality gets worse and thousands of tons of radioactive water make their way into the ocean, one is forced to rely on third-party sources for information on this tragedy. We present a useful primer from Scientific American on Fukushima "water retention" problem and "what you need to know about the radioactive water leaking from Japan’s Fukushima nuclear plant into the Pacific Ocean."

Recently, Fox News interviewed a self-described beach bum named Jason Greenslate who was very open about the fact that he has no problem sponging off of all the rest of us.  When he was asked if he ever had any interest in actually getting a job, his response was "not whatsoever".  Instead, he says that his job is to "make sure the sun's up and the girls are out" and he would rather spend his days partying.  Of course every American should be free to live their own lives as they see fit, but the problem is that Jason Greenslate is using food stamps to help support his lifestyle. Of course the vast majority of those enrolled in the food stamp program are not like this. But there are also those such as Jason Greenslate that are openly abusing the system and making it more difficult for those that actually need the help to get it. Sadly, he is a product of the system that he was raised in.

Nuclear Regulatory Commission Is Using Obviously Faulty Models to Pretend Crumbling Nuclear Reactors Are Safe

It hasn’t been a great year for Chesapeake Energy, just coming down from a management meltdown and now giving up on its leases in New York over the state’s ban on high-volume fracking. It’s a battle that’s been on for two years over thousands of acres of natural gas leases in New York, where fracking has been banned for five years. The problem was that the landowners leased the acreage to Chesapeake before the advent of hydraulic fracturing, and now they don’t want these leases extended under the original terms, according to a report by Reuters. The report says that Chesapeake has now notified the landowners that it is giving up the fight, and that the decision should be finalized next week. But there’s more to this than a simple court case...

This insane world was created through decades of bad decisions, believing in false prophets, choosing current consumption over sustainable long-term savings based growth, electing corruptible men who promised voters entitlements that were mathematically impossible to deliver, the disintegration of a sense of civic and community obligation and a gradual degradation of the national intelligence and character. There is a common denominator in all the bubbles created over the last century – Wall Street bankers and their puppets at the Federal Reserve. Fractional reserve banking, control of a fiat currency by a privately owned central bank, and an economy dependent upon ever increasing levels of debt are nothing more than ingredients of a Ponzi scheme that will ultimately implode and destroy the worldwide financial system. Since 1913 we have been enduring the largest fraud and embezzlement scheme in world history, but the law of diminishing returns is revealing the plot and illuminating the culprits. Bernanke and his cronies have proven themselves to be highly educated one trick pony protectors of the status quo. Bernanke will eventually roll craps. When he does, the collapse will be epic and 2008 will seem like a walk in the park.