Last week the financial markets swung wildly back and forth between "We're All Going To Die!" and "Hurray! We're Saved!".
At the center of this drama was the buyout of the insolvent investment bank Bear Stearns by JP Morgan Chase. Most of the attention was focused on the fact that JPM bought Bear Stearns for just $2 a share, thus giving current shareholders the shaft.
While this is a worthy characteristic to focus on, I was more interested in the fact that JPM only agreed to this deal after the Federal Reserve offered to shift $30 Billion of Bear Stearns mortgage-backed securities onto its books.

4th consecutive monthly loss of private sector jobs in March; virtually ALL new private jobs yr/yr are in bars and restaurants.

Today’s BLS report shows the economy lost -80,000 jobs in March as the private sector lost another -98,000 while 18,000 more government jobs were added – almost entirely in state/local governments for public schools and prisons. This is the 4^th consecutive monthly loss of private sector jobs that now total -300,000 since November.

Over the past 12 months the private sector added just 292,000 jobs and 188,000 of these were in restaurants and bars – “food services and eating establishments.” As has been the unique pattern for the past seven years, over the past year the private sector added “Non-supervisory/production” jobs (608,000) while eliminating (-406,000) supervisory/non-production jobs.

One of the speculations I have made from time to time is that the very assumptions underlying neoclassical economic theory are so flawed in comparison with reality that the theory, while elegant, and able to generate wonderfully pretty mathematical graphs, is deeply flawed.

One such problem is that neoclassical economic theory made use of the mathematics of 19th century Newtonian physics. And just as quantum theory and the theory of relativity gave rise to startlingly different results, if one applies 20th century physics to economic theory, the entire notion of equilibrium breaks down, and one sees radically different predicted results.

"The first stage of fascism should more appropriately be called Corporatism because it is a merger of State and corporate power"
--Benito Mussolini

Last week Treasury Secretary Paulson had a meeting with representatives from Abu Dhabi and Singapore. The meeting involved setting up "rules" for future investments in America from their Sovereign Wealth Funds.

"SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government," the agreement stated.

No one noted the obvious irony.

A sovereign wealth fund (SWF) is a state-owned fund composed of financial assets such as stocks, bonds, property or other financial instruments.

The first ironic twist of this agreement is the fact that America has spent more than half a century pushing third world nations to open their markets to unrestricted foreign investment. Refusal to comply with America's wishes all too often meant a CIA-sponsored coup.
Now we are trying to put restrictions on how former third-world nation can invest in America.

The second, and more important, ironic twist is the obvious weakness this displays. If America had a strong economy would we really care what the motivations of the SWF's were? If we weren't desperate for the money, would there even be opportunities for the SWF's to buy significant amounts of American assets?