T. Boone Pickens talks Peak Oil on prime-time national TV

ABC football announcer Brent Musberger had Pickens up in the press box at the start of the third quarter of Saturday night’s Kansas-Oklahoma State game.

The billionaire Pickens, an OSU alum, went straight to the point when Musberger asked him about Peak Oil.

“We’ve got 85 million barrels of (global) supply and 88 million barrels of demand,” Pickens said.

I hope at least a few of the football crowd was listening attentively.

As I noted in a post earlier this week, adapted from my weekly newspaper column, Pickens called $100/bbl oil by the end of this year a few months ago. Representatives of Big Oil companies and shills like Daniel Yergin scoffed.

Well, they’re not scoffing now. And, what could well be more serious, at least in economic terms, than global warming, is starting to get mainstream public airplay.

Govt accounting regs pushing CDO writedowns

Via Naked Capitalism, I read about two new developmental regulations essentially forcing more clarity and re-evaluation of CDOs. Combine that with marketplace changes and this is what you get:

The first is that new accounting rules gives companies far less latitude in how they value this paper. As the Financial Times explained it:

They are the “buckets” into which financial statement preparers must classify financial assets under FAS 157, a new US accounting standard for financial years beginning in November...

At the top of the bucket hierarchy is Level One, involving assets with prices quoted in active markets, such as mainstream stocks. Level Two contains less-traded securities and uses prices for assets very like the one being valued.

At the bottom lurks Level Three, assets with “un observable inputs”, meaning their value is calculated via a series of assumptions. Most collateralised debt obligations end up here.

While these categories may be familiar to many readers, what is not as widely know is that another rule, FASB 159, pushes institutions to put positions into the lowest bucket possible. Thus, no phony-baloney Level 3 valuation if there is a way to come up with a gridded or extrapolated Level 2 value.

The second development is that markeplace changes are forcing the revaluation of CDOs. Having first gone through re-rating subprime bonds, they are now tackling CDOs, and downgrades will force commercial banks, investment banks, pension funds, and other holders to recognize losses.

In other words, the first regulation allows less papering-over of hugely different credit ratings of different tranches within a collateralized debt obligation. The second fights artificial valuation.

Then, the market comes in, with CDOs now having to have more transparency, and says, “These ain’t worth shit.”

Yves Smith goes on to say that CDOs have a lot of leverage over other, tangentially connected, financial issues. In other words, “You ain’t seen nothing yet on fallout.”

The good point about the regs is they should help prevent future CDO excesses. Bad point is they should have been on the books years ago.

Bit of history from another Smith post: CDOs were created in 1987 by Drexel Burnham Lambert, home of junk-bond king Michael Milken. That alone is reason why we should have had more regulation of them years ago.

Mukasey vote swapped for DoD pork

Senate Majority Leader Harry Reid swapped Mike Mukasey’s nomination for the Defense Department appropriations bill, which doesn’t include Iraq and Afghanistan costs.

This was a routine appropriations bill. So what, so what the fuck, if GOP Senators were using procedural tactics to delay it? Reid could have played that same game with some bill some Republicans lusted after.

Instead, Mukasey was swapped out for military pork. No other way to put it.

The DoD regular appropriations bill is about 50 percent pork as it is. Probably would have done the country a damn bit of good, Mukasey aside, for it to sit a while.

And, Dodd got stiffed out of the chance to filibuster, and deliberately, I believe.

I hereby nominate Harry Reid for the “Get Some Conejos” prize of the week.

Health care costs — like mechanics' costs?

Just like the auto mechanic who has an incentive to overdiagnose car problems. And, just as the complexity of today’s autos means, who are you or I to challenge an overdiagnosis of car repair problems, so, who are you or I to challenge the diagnosis of a cardiologist?

Five chickenshits on Mukasey?

The four Democratic senatorial presidential candidates — Clinton, Obama, Biden and Dodd — all say they opposed Michael Mukasey’s nomination as attorney general. Yet, none of them could actually be present in the Senate to officially vote no?

That’s pretty much ditto for McCain on the Republican side, who weaseled out of having to vote either for or against Mukasey despite saying he believes waterboarding is torture.

Josh Marshall muffs first chance to explain Peak Oil

Early Thursday, the TPM editor wondered aloud how much the Bush/Cheney saber-rattling on Iran was driving the rapid ramp-up in oil prices.

I told him it, even if combined with Turkey’s saber-rattling on the Kurds, probably was no more than $10/bbl, and even that much effect was due to world supply tightness. I then noted I had written my most recent newspaper column about Peak Oil, T. Boone Pickens’ prediction of $100/bbl oil and related issues.

I implored Josh to take the opportunity to familiarize his readers who aren’t up to date with it on Peak Oil, including through referencing a website such as The Oil Drum. I bluntly juxtaposed Peak Oil to global warming by saying the U.S. could grind to a halt before the world burns to a crisp, to link two metaphors.

Well, Josh took a whack at it this evening, but kind of whiffed. I cite this sentence as proof:

Over time spiraling prices will lead to more investment and eventually more supply.

No, no, no, Josh.

King Hubbert factored in rising prices driving more marginal production techniques in more marginal production areas as part of his Peak Oil prediction methodology.

And, the statement above, to me, just doesn’t get the basic bell curve fact of Peak Oil, either.

I e-mailed Josh again, re the quoted statement of his: No. We will then, globally, be on the downslope of the bell curve and past the peak. Many analysts not named Daniel Yergin believe we are at that point RIGHT NOW.

I hope Josh, in the posts he promises for Friday, does a better job. We need major bloggers to discuss this more in hopes of getting politicians to honestly discuss it AT ALL.

John McCain should know better on the Iraq War and “honor”

McCain’s latest claim as to why we must stay in Iraq is that U.S. honor would suffer if we pull out now.

Really?

When was the last time we heard talk of “peace with honor”?

Wasn’t it from, oh, 1969-1973, as mouthed by Tricky Dick and Henry K?

Didn’t “peace with honor” get us the same peace terms as North Vietnam was seeking in 1968?

In other words, he spent an extra five years in captivity, ignoring his rejecting an out-of-sequence repatriation, for the sake of honor that got us no better peace terms than five years earlier.

How Democrats should make a popular speak-out against waterboarding

Ken Burns and PBS just recently presented us with his wonderful new documentary on World War II, reminding us what we fought against, as well as what effort and sacrifice we made to fight against the Nazis and Japanese imperialists.

Well, they both engaged in waterboarding.

Screw the right-wing wingnut blogosphere. If Rudy needs to be called a Nazi, he needs to be called a Nazi. Tie in Burns’ documentary to remind people of just who the Nazis were, and you can beat him (and other pro-torture Rethugs) over the head.

Are the Democrats going to be menschen or mice on this one?

Some early primary predictions of mine

1. Bill Richardson will break 15 percent in one of the following, and/or 10 percent in two of the following — Iowa, New Hampshire and Nevada — to maintain a claim to be a legitimate candidate.

2. Ron Paul will at least threaten the 20 percent mark in New Hampshire due to strong independent turnout for him.

3. Joe Biden will “reconsider his options” after South Carolina.

4. Some Republican candidate WILL run Giuliani-Robertson attack ads soon, most likely in South Carolina, to try to wrong foot Giuliani on Robertson’s 9/11 cause explanations. Among major or semi-major candidates, McCain would seem most likely to benefit, though if Paul finds he is polling well in New Hampshire, since he has given his own 9/11 causal explainer, he might just do that.

5. McCain will break 20, if not 25 percent in South Carolina; Huckabee will break 15 percent, as older, more likely to vote Christian Rightists will show they don’t necessarily agree with Pat Robertson (Giuliani) or Bob Jones (Romney.)

6. Chris Dodd will break double figures in either Iowa or New Hampshire, and indicate his own continued viability.

We’re No. 31!

Woo-hoooo! The U.S. has slipped to No. 31 in gender equality. The study showed we had made gains, but they had been outpaced by bigger gains in other countries. The Scandanavian countries of Sweden, Norway, Finland and Iceland held the top four spots, followed by New Zealand.

The Philippines were No. 6, for crying out loud. Family leave acts, more flextime, and more addressing of the glass ceiling would all be starters for improving our world ranking.

Wonder how much airplay smart Democratic candidates, above all Hillary, will give this?

Brookings tries to explain away subprime worries and cheats

Cutting some evidentiary corners, and looking past the CDO valuation issue for the most part, is an easy way of doing that. Take this bit of playing with the facts:

[A]mong all U.S. residential mortgage originations, subprime loans altogether comprised a cumulative total of under 13 percent from 1994 through 2005, though they rose to 19 percent in the year 2004 and 21 percent in 2005, according to the Mortgage Bankers’ Association (MBA). This means at least 87 percent of residential mortgages as of mid-2007 were not subprime loans, according to the MBA’s delinquency studies.

So, the study simply ignores 2006 and early 2007 data on subprime loans, despite the sudden increase in the percent of loans being subprime ones in 2004-05.

Brookings also claims the problem is confined to subprimes, when the number of defaults in the loan class above them, Alt-A, has also been increasing.

And, it claims there is no credit crisis even while admitting that CDOs and other mortgage securitizations have risk that it says, in not so many words, wasn’t priced to market.

The Brookings report is either ignorant or willful on the economic issue that lending institutions don’t know how many of these instruments could go bad, therefore don’t know how much money they’ll have to tie up to account for them.

It also has nothing unfavorable to say about Fed rate cuts.

The only thing I found myself in agreement with was no bailout for borrowers. On the other hand, it didn’t say anything against a bailout for lenders.

In other words, it sounds like it was written by two Wall Street bulls with connections to financial institutions.

Trinity toll road: A pig wearing lipstick

A newly-made environmentalist acquaintance, whom I shall allow to remain anonymous, said the Trinity Park in Dallas was the lipstick on the lips of the Trinity Toll Road pig.

He agreed that the 1998 issue had been sold as a park.

OK, establishment Dallas, you won.

You still lied.

Religious Right hypocrisy watch: Robertson endorses Rudy

Pat Robertson’s endorsement of Rudy Giuliani says two things, basically.
1. The Religious Right is ultimately about power, not political issues.

2. James Dobson’s threat of a third-party candidacy is thin soup; Texas Gov. Rick Perry’s endorsement of Rudy a couple of weeks back pretty much put paid on that notion; this is, in essence, the final nail. (It’s worth noting that Sam Brownback today endorsed McCain while specifically saying the GOP wouldn’t select a pro-choice candidate. Say it all you want, Sam, it doesn’t make it true.)

Congress should approve new war powers bill

I agree with George Will, surprisingly, on a major Congressional bill.

Will says the best way to prevent war with Iran is for Congress to approve Rep. Walter Jones’ Congressional War Powers Resolution. Yes, it’s shocking to agree with Will, but he’s got some very good points

Congress can, however, put the Constitution's bridle back on the presidency. Congress can end unfettered executive war-making by deciding to. That might not require, but would be facilitated by, enacting the Constitutional War Powers Resolution. Introduced last week by Rep. Walter B. Jones, a North Carolina Republican, it technically amends but essentially would supplant the existing War Powers Resolution, which has been a nullity ever since it was passed in 1973 over President Richard Nixon's veto.

Mr. Jones' measure is designed to ensure that deciding to go to war is, as the Founders insisted it be, a "collective judgment." It would prohibit presidents from initiating military actions except to repel or retaliate for sudden attacks on America or American troops abroad, or to protect and evacuate U.S. citizens abroad. It would provide for expedited judicial review to enforce compliance with the resolution and would permit the use of federal funds only for military actions taken in compliance with the resolution.

It reflects conclusions reached by the War Powers Initiative of the Constitution Project. That nonpartisan organization's 2005 study notes that Congress' appropriation power enables Congress to stop the use of force by cutting off its funding. That check is augmented by the Antideficiency Act, which prohibits any expenditure or obligation of funds not appropriated by Congress, and by legislation that criminalizes violations of the act.

At the same time, he says a Congressional failure to act would “merit its own marginalization.’ If this bill is being pushed by a Republican, and can be sold as a claim-back of legislative powers from the executive, maybe it has an outside shot of getting a veto-proof majority. I won’t hold my breath over that, but, it’s worth a shot.

Problem is, though, this goes back to my takeoff on an old cliché.

That cliché says that Congress contains 535 Secretaries of State. True, but it often contains zero Secretaries of Defense when push comes to shove.

What Will doesn’t mention is that the original War Powers Act is a nullity in part because Congress has never invoked it. If Jones’ new legislation has a similar enabling mechanism, it will become just as much a nullity until and unless Congress is willing to take full legislative responsibility for war-making decisions: both in restraining, or supporting, executive decisions, and accepting its part in responsibility for the results.

Update: The original War Powers Resolution has similar, if less explicit, language, on military actions without a declaration of war:

(c) The constitutional powers of the President as Commander-in-Chief to introduce United States Armed Forces into hostilities, or into situations where imminent involvement in hostilities is clearly indicated by the circumstances, are exercised only pursuant to (1) a declaration of war, (2) specific statutory authorization, or (3) a national emergency created by attack upon the United States, its territories or possessions, or its armed forces." (My emphasis.)

The "evacuation of U.S. Citizens" is added in Jones' bill.

At the same time, it has a "funding limitation" paragraph not in the original:

(c) Funding Limitation- Unless one of the numbered paragraphs of subsection (b) applies, after the expiration of the period specified in that subsection (including any extension of that period in accordance with that subsection), funds appropriated or otherwise made available under any law may not be obligated or expended to continue the involvement of the Armed Forces in the hostilities. This subsection does not, however, prohibit the use of funds to remove the Armed Forces from hostilities.

So, that's actually a strengthening of the original WPA.

Rather than a one-shot Petraeus "surge" report, in the absence of a declared war, we'd have the requirement for regular executive updates in exchange for continued funding.

Here’s Jones’ bill; here’s the original War Powers Resolution.

Bernanke a Street suck-up just like Greenspan

Jim Jubak points out that Big Ben, like the Greenspan God before him, is simply trying to shuffle one market catastrophe down the road to the next one. You thought balloon-note home mortgages were bad; that’s nothing compared to the balloon notes the Fed has floated Wall Street for more than a decade, starting with Countrywide’s crack-up, through the dot-com bust and on to today, Jubak says:

Over the last 20 years, first under Alan Greenspan and then Ben Bernanke, the Federal Reserve has taught Wall Street to expect a reward for bad behavior.

* Build a hedge fund on a mathematical model and a prayer, as Long-Term Capital Management did — borrowing $129 billion on just $4.7 billion in assets — and the Federal Reserve will organize a bailout.

* Bid dot-com stocks to the sky — as Wall Street analysts did with ever-higher target prices on Amazon.com (AMZN, news, msgs) and others — and the Federal Reserve will cut interest rates to 1% and keep them there.

* Put the money from that rescue to work to build skyscrapers of structured debt — until a collapse in the market for mortgages turns even low-risk AAA-rated debt spiraling to junk bond prices — and the Federal Reserve will cut interest rates.

Bernanke's Fed first cut rates in a panic by a half a percentage point in September, but the latest cut — a quarter-point on Oct. 31 — was in direct response to Wall Street.

Jon Markman says the Fed is, in essence, trying to delay a recession until after the November 2008 presidential election.
The old Fram oil filter commercial said, “You can pay me a little bit now, or a whole lot later.” Well, the next president’s going to have to do a lot of paying, and that’s another reason why I don’t get Democratic candidates not talking more about the economy. One of them could be having to lead a pretty big clean-up.

$100/barrel oil? Maybe it isn’t so laughable after all

From my newspaper op-ed column for this week:

Just a few months ago, oil baron and corporate raider T. Boone Pickens was talking about the possibility of oil prices hitting $100 a barrel by the end of this year.

At the time, to the degree his comment got any notice or reaction at all, it tended to be laughter, even derision, especially from “establishment” energy types like the major oil companies, Daniel Yergin and his Cambridge Energy Research Associates, and so forth.

Well, I’ll bet that, after a $20/bbl rise in oil prices in less than two months, nobody’s laughing now.

In terms of inflation, oil prices are now up to where they were in 1979, during the second oil embargo, the Iranian-originated embargo after the overthrow of the Shah of Iran. Gasoline prices at the pump are approaching their late-summer 2005 post-hurricane peak.
But, we haven’t had the same hurricane destructiveness of Gulf of Mexico production as caused by Hurricanes Katrina and Rita two years ago. And, nobody’s embargoing oil production, unlike 1979-80.

So, what’s causing the problem?

Part of it is recent world geopolitical instability. Oil producers wonder if Dick Cheney’s sabers rattling about Iran, or Turkey’s similar stance about the Kurdish portion of Iraq, are real.

However, those worries reflect a deeper problem. World oil supply is straining so hard to keep pace with demand that even small disruptions in output somewhere are feared to have potentially major consequences.

Some people may wonder, “Where’s Saudi Arabia in all this?”

Well, the Saudis have made noise the last couple of years about being ready to pick up any slack in the system, any time, but what if that’s just hot air?

What if Saudi production is at its peak and can’t go up any more?

Years ago, that idea, like Pickens’ prediction, would have been laughed at. Some people still laugh at it.

But, the idea of Peak Oil, like $100/bbl oil, just may not be laughable after all.

The basic concept is that oil, like coal, gold and other extracted minerals, is not a readily renewable resource. Ergo, world production will someday pump out half of the oil that is extractable. This will be less than 50 percent of total oil in the world; drops in wellhead and oilfield pressure, and other geological considerations, mean that 100 percent of the oil is never recovered from any field.

The idea first arose in relation to U.S. oil production in the 1950s. Shell Oil geologist M. King Hubbert started wondering when U.S. oil production would peak. In a 1956 paper, he said that period would be sometime between the late 1960s and early 1970s.

In the early 1970s, it became clear that U.S. production peaked in 1970, and Hubbert was hailed as an oilfield prophet.

The next idea was obvious: extend the specific analytical tools and techniques he applied to U.S. production to world production.

Hubbert did, and came up with the late 1990s. However, that clearly didn’t happen.
Unfortunately, people like the aforementioned Yergin used that fact to pooh-pooh Hubbert’s prediction in particular and the idea of a looming oil peak in general as ridiculous.

In hindsight, it instead appears that the 1973-74 and 1979-80 oil embargos, combined with separate 1979-80 Organization of Petroleum Exporting Countries price hikes, increased U.S. conservation so much as to reset the peak.
Peak Oil naysayers claim that technological improvements in conventional oilfield drilling, such as horizontal drilling, and production of nonconventional oil such as that in Canada’s oil sands, will push the peak back even further. However, Hubbert had factored in technological, exploration site and production improvements as part of his analytical tools.

Is a worldwide peak near?

I’d say it can’t be too far off. OPEC member Indonesia is now, despite the name of OPEC, an oil importer, for example. Another example: The United Kingdom has seen its North Sea reserves decline so rapidly that it is, again, an oil importer, and because of its amount of use, went from hitting its production export to becoming a net importer in just six years. Mexico, due to increasing demand and an apparent peak in its production, is seeing its exports decline by 10 percent a year and could be a net importer in not too many more years.

Dallas petroleum geologist Jeff Brown, with his Export-Land Model, has done extensive research modeling on the double whammy of major oil producers having exploding internal demand even as their production peaks.

And, Peak Oil is different from global warming.

First, with exceptions for faster temperature change in polar reasons, the effects of global warming will equalize around the world.

Not so with Peak Oil. Different countries have different oil dependencies and we are No. 1.

In other words, a country like Afghanistan or Zimbabwe, with little automotive traffic and little jet travel, has little distance to “fall” from its peak oil usage. We, on the other hand, are near, if not at, the edge of an oil consumption Grand Canyon — a precipice that could be more catastrophic than global warming fallout.

For more on Peak Oil, visit the group blog The Oil Drum at www.theoildrum.com.