Econ 2009
 

Continuation of the now-rather-overlarge [URL="http://www.mersenneforum.org/showthread.php?t=9526"]Global Financial Crisis[/URL] thread. We begin by looking back: Bloomberg's obituary for 2008 begins thusly:

[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=ataVotdLreS0&refer=news"]Journal of a Plague Year: Faith in Markets Cracks Under $30 Trillion Loss[/URL]
[quote]It has been a year of record misery: the largest bankruptcy, bank failure and Ponzi scheme in U.S. history; $720 billion in writedowns and losses by financial institutions; $30.1 trillion in market valuation wiped out.

The biggest loss and the hardest thing to recover, though, may be something that can’t be precisely measured -- confidence in the markets and the firms that rely on them.

“The wholesale funding model lost its credibility,” said David Hendler, senior analyst at New York-based CreditSights Inc. “That started the semi-nationalization of funding in the financial markets. It’s a real chink in the armor of capitalism as supposedly the best process for allocating capital. The government is now deciding who gets access to capital.”

For Paul DeRosa, a principal of Mount Lucas Management Corp., a $1 billion hedge fund in Princeton, New Jersey, most unnerving was that the credit crisis revived something that, like the bubonic plague, was supposed to be a relic of the past.

“We had what was for all intents and purposes a systemic bank run for the first time in 70 years,” said DeRosa, whose fund is up 25 percent this year. “This ended our belief that financial panics were a thing of the past. That’s why this is a transcendent event.”

The price tag has been transcendent, too. Global stock markets lost about half of their value in 2008, or $30.1 trillion dollars. In the U.S., $7.2 trillion of shareholder value was wiped off the books, as the Standard & Poor’s 500 Index fell 39 percent through Dec. 30 and the Nasdaq Composite Index dropped 42 percent. [/quote]So, predictions for 2009? My attitude can be summed up roughly as, "If you thought 2008 was bad...". Hope I'm wrong, though.

[QUOTE=ewmayer;156147]So, predictions for 2009?[/QUOTE]"Well, at least it ain't 1930."

Before this is over, you may say "wish this was 1930".

On a different tack, I made a large payment on a loan for 130 acres of land. While I was at the local bank, I talked with the lady loan officer. I asked her what effects were they feeling from the market crisis and were they still lending money. Her reply was that yes they were still lending and they had never stopped lending, but that very few people were borrowing money. Now think about this for a minute. This is a well run local bank that has loaned money within this community for many years. They have access to money to lend, but nobody wants to borrow. If you are in the business of lending money, then the way you make money is from lending. This banks revenues are going to be hurt by the global market malfunction because of the simple effect that their source of profit has been curtailed.

Just some thoughts for the 1st day of a new year.

DarJones

Where did all the money go?
 

Kathleen Pender, writer of the San Francisco Chronicle [i]Net Worth[/i] column, has a nice description of the answer to the above question, containing a startling statistic which I have highlighted in bold:

[url=http://feeds.sfgate.com/click.phdo?i=558cc9ce0ae83d8c971d8a2de5a7aaa0]Investors ask: Where did all that money go?[/url]
[quote]Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito ... says that [b]from the market`s bottom in 2003 until its peak in 2007, the market value of all publicly traded stocks worldwide grew from about $20 trillion to about $45 trillion.

During this period, only about $1.5 trillion in cash went into the market.[/b] Debt accounted for some of the remaining increase in market capitalization, but most of it existed only on paper.

"Market cap and money aren`t necessarily related," he says.

Suppose a company has 1 million shares of stock priced at $100 each, giving it a market value of $100 million. Over the next few days, someone buys $5 million worth of stock. Speculation drives the share price to $140, and suddenly the company has a market value of $140 million.

In this case, a $5 million investment has created a $40 million increase in market value.

Is the company really worth $140 million? Not if everyone tried to sell their stock at once. The first person might get $140, but everyone else would get less, probably much less.

"It`s not different than a Ponzi scheme, a legal one," Biderman says.

The same thing happens in real estate. Suppose the house next door sells for $700,000. Suddenly, every family on the block thinks their house is worth $700,000. [i][EWM: And even if they don`t, the city tax assessor`s office will surely set them straight.][/i] But if everyone on the block put their house on the market, everyone could not get $700,000.

Multiply that by just about every asset class in the world, and you`ll get a sense of what happened last year.[/quote]
[b]My Comment:[/b] So the short answer is: "That money never really existed in the first place", but laissez-faire monetary policy, the institutionalized global financial-market Ponzi scheme which is Fractional Reserve Lending (which allows a given amount of capital to be lent out simultaneously many times over, "magically" creating the appearance - and at least until the pool of Greater Fools runs dry, the practical effects - of many shekels when there is really just one), an unprecedented amount of capital (both real and borrowed) flowing into equity markets from the combination of a tidal wave of middle-aged baby boomers and government-encouraged equity investments by way of retirement accounts, and a multidecadal collective delusion that equity markets and real estate could sustainably appreciate "above market" in perpetuity, made it all too easy to ignore the "where is all this money coming from?" question.

[QUOTE=ewmayer;156308]Kathleen Pender, writer of the San Francisco Chronicle [i]Net Worth[/i] column, has a nice description of the answer to the above question, containing a startling statistic which I have highlighted in bold:

[url=http://feeds.sfgate.com/click.phdo?i=558cc9ce0ae83d8c971d8a2de5a7aaa0]Investors ask: Where did all that money go?[/url]

[b]My Comment:[/b] So the short answer is: "That money never really existed in the first place", but laissez-faire monetary policy, the institutionalized global financial-market Ponzi scheme which is Fractional Reserve Lending (which allows a given amount of capital to be lent out simultaneously many times over, "magically" creating the appearance - and at least until the pool of Greater Fools runs dry, the practical effects - of many shekels when there is really just one), an unprecedented amount of capital (both real and borrowed) flowing into equity markets from the combination of a tidal wave of middle-aged baby boomers and government-encouraged equity investments by way of retirement accounts, and a multidecadal collective delusion that equity markets and real estate could sustainably appreciate "above market" in perpetuity, made it all too easy to ignore the "where is all this money coming from?" question.[/QUOTE]

Do the arithmetic....

To go from $20T to $45T in 5 years is about 15% a year. The long-term
historical average for equities has been about 8%/year. 15%/yr is
indeed an extraordinary growth rate. At 8%/yr, the market value
should now be about (1.08)^5 * $20T... = $29T. Add another $1.5T
for the actual investment and we get a market value of $30.5T.

So we must ask why the market collapsed to a value significantly LOWER
than what the long-term average would yield? IMO, it is simple panic.

Comments?

[QUOTE=R.D. Silverman;156388]Do the arithmetic....

To go from $20T to $45T in 5 years is about 15% a year. The long-term
historical average for equities has been about 8%/year. 15%/yr is
indeed an extraordinary growth rate. At 8%/yr, the market value
should now be about (1.08)^5 * $20T... = $29T. Add another $1.5T
for the actual investment and we get a market value of $30.5T.

So we must ask why the market collapsed to a value significantly LOWER
than what the long-term average would yield? IMO, it is simple panic.

Comments?[/QUOTE]


We need some laws implementing structural changes in the way Wall Street
does business.

(1) Perhaps we should disallow buying ANY equity on margin......Just an idea.

(2) There should be no 'secondary' lending. If you are a financial
institution and want to lend money, go ahead. But now, YOU take the
risk. It should be illegal to sell the loan to another party.

(3) We [b]BADLY[/b] need laws that restrict the way financial (and other)
companies compensate their employees.

(a) The way companies give out bonuses now [b]strongly[/b] encourages
short-term risky behavior on the part of employees.

(b) Employees are not the owners of public companies. But they act as
if they are. Money handed out in bonuses most properly belongs to the
[b]STOCKHOLDERS[/b]. These bonuses amount to legalized stealing
from the stockholders. I see a couple of possibilities.. One is that any
compensation scheme including one in which bonuses are given must
be approved at the annual stockholders meeting. Any bonus scheme
should also apply equally to [b]all[/b] employees and not just the traders
and managers who take these absurd risks. Golden parachutes should
also require stockholder (and not just board approval).
A second possibility (and one that I like) is that Congress should pass a
law stating that total compensation (including salary, stock options,
stock grants, perks such as limo rides etc) should have a ceiling that
is at most (say) 20 times the corporate median compensation. I don't
but the horsesh*t argument that these ridiculous bonuses are needed
to attract 'talent' or to 'retain' employees.

Above all, bonuses need to be tied to overall CORPORATE performance.

(c) Senior Managers always argue that they deserve these bonuses because
they are responsible for seeing that the company does well and that they
should be compensated when it does do well.

Perhaps true.

However, it equally applies that if a company does poorly, that these
same managers must be held accountable. If layoffs are necessary, then
they should be the first ones out the door. And they should only be
entitled to the same layoff compensation as ALL OTHER employees.
They should also be the last ones hired back in case the company does
hire back any laid off employees.

An alternative to this scheme might be that layoffs must occur in order
of compensation; The highest paid employees get laid off first. Firstly,
because they are the ones who most probably can survive such a layoff
and secondlyy because it would minimize the number of employees laid off.

Public corporations are given certain advantages under our legal system.
Perhaps these advantages should also require that the social impact
of layoffs be minimized.

[QUOTE=R.D. Silverman;156397](b) Employees are not the owners of public companies. But they act as
if they are. Money handed out in bonuses most properly belongs to the
[b]STOCKHOLDERS[/b]. These bonuses amount to legalized stealing
from the stockholders.[/QUOTE]Well, responsible stockholders should demand that the board not allow such compensation. Those that invest, should not do so blindly.

[QUOTE=Uncwilly;156409]Well, responsible stockholders should demand that the board not allow such compensation. Those that invest, should not do so blindly.[/QUOTE]


In principle yes. But who controls the agenda at annual meetings? Are
stockholders ever allowed to vote on compensation schemes? Not AFAIK.
Perhaps all we need is a law stating that such a vote MUST be taken
at annual meetings. Otherwise, I see no chance of it ever happening
in practice. Indeed, I know of no mechanism whereby the corporate
compensation/bonus scheme is even made available to the stockholders.
I have never seen an annual report that contains such information. And
you can be sure that if the law does not require it, then it will never be
included. Can a single (or even a group of) stockholder(s) even demand that
such information be made available and voted upon at the annual meeting?
Can the board prevent such a thing? I do not know the laws on this.

If I, as a stockholder stood up at a meeting and demanded that the
information be made available, could I even get a vote taken on such a
demand? Could I then ask for a vote on a proposal to limit compensation and
bonuses?

Comments?

How often does it happen that a stockholder revolt derails anything at all proposed by company management? IIRC half the equity in public companies is owned by huge mutual funds that agree by default with everything the board proposes. Incidentally, this year was the first I remember when revolts by stockholders actually appeared in the news; they never won.

[QUOTE=R.D. Silverman;156388]To go from $20T to $45T in 5 years is about 15% a year. The long-term
historical average for equities has been about 8%/year. 15%/yr is
indeed an extraordinary growth rate. At 8%/yr, the market value
should now be about (1.08)^5 * $20T... = $29T. Add another $1.5T
for the actual investment and we get a market value of $30.5T.

So we must ask why the market collapsed to a value significantly LOWER
than what the long-term average would yield? IMO, it is simple panic.[/QUOTE]

For the same reasons that frenzied buying can artificially inflate prices, panic selling can drive prices below fair valuations. It is arguable whether that is the case in equities currently, but note that the housing bubble still has a ways to go to revert to long-term historical means. I suspect for the next few years, equities will follow housing.

It is also debatable whether the 8% figure used by most investment planners is genuinely sustainable in the truly long term, i.e. whether there has genuinely been (on average) an 8% growth in the value of goods and services in the global economy for the past century. To some degree simple population growth (and ignoring the effects of concomitant depletion of finite resources, which one can only do up to a point) support such a figure in the emerging economies of the world, but 8% in the developed world, where population growth has flattened out? That seems far-fetched to me.

--------------------

[url=http://money.cnn.com/2009/01/02/news/economy/ISM/index.htm]Manufacturing index at 28-year low[/url]: [i]Purchasing managers' report shows that December activity is contracting, remains recessionary. [/i]


[url=http://money.cnn.com/2008/12/31/news/economy/retail_closures/index.htm]Thousands of stores to disappear in '09[/url]: [i]Experts say disastrous holiday sales will force many more merchants into bankruptcy - and ultimately into liquidation.[/i]


[url=http://money.cnn.com/2008/12/31/smallbusiness/secondhand_sales_up.smb/index.htm]Secondhand stores shine in weak retail market[/url]: [i]As thrifty customers turn to secondhand goods, resale stores are profiting from the recession.[/i]
[quote]On a Wednesday afternoon in late December, the average wait to sell clothing at Buffalo Exchange, a Manhattan consignment shop, was about 25 minutes. Beyond the front counter, where the consignors sought pocket cash and tax deductions, nearly a dozen shoppers squeezed themselves between overstuffed racks in the 450-square-foot space, seeking bargains amid used designer jeans and last season's cashmere sweaters.

"You should see this place on weekends," said the store's assistant manager. "The lines get to be at least 10 people deep."

The month-old shop, which already possesses the slight musty smell typical to thrift stores, is the first Manhattan location for Buffalo, a Tucson-based secondhand-clothes retail chain with 34 stores across the nation. The new store's crowds are indicative of both Buffalo Exchange's continuing success - the privately held company says it has $50 million in annual revenue and is concluding its third consecutive year of sales growth - and also of the resale market's overall performance. Secondhand shops are a bright spot in today's downtrodden retail industry.[/quote]
[b]My Comment:[/b] This is good both for consumers` balance sheets and for the environment. But I fear China Inc is not going to look favorably on the trend - Americans buying stuff they didn`t much need to start with and then quickly discarding it has been the basis for much of the Asian export economy of the past few decades.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=adSjgYBSjy6o&refer=news]Buffett's Berkshire Has `Nowhere to Hide' Amid Worst Drop in Three Decades[/url]: [i]Billionaire Warren Buffett’s Berkshire Hathaway Inc. slumped 32 percent last year, the worst performance in more than three decades, as the U.S. recession forced down the value of the firm’s equity holdings and derivative bets.[/i]

[b]My Comment:[/b] One wonders whether the opportunity to buy BRK-A at the current sub-$100K valuation [or even better, for 20% less during the late November meltdown] will prove to be a steal a few years down the road, or whether 2009 will prove to be another "year of the unprecedented", with back-to-back huge yearly declines in equity valuations.

[quote=R.D. Silverman;156397]We need some laws implementing structural changes in the way Wall Street
does business.[/quote]What's your opinion on reinstating the separation between commercial banking and investment banking (a la Glass-Steagall Act, with which I am only vaguely familiar)?

A surefire, simple way to fix the economy
 

...But before we get to my modest proposal, tentatively titled "[b]A[/b] [b]S[/b]urefire [b]W[/b]ay to [b]I[/b]mprove [b]P[/b]ersonal [b]E[/b]xpenditures via [b]S[/b]ubsidies", today`s news roundup:

Interesting mini-interview and non-mea-culpa ("It`s really someone else`s culpa") with former chief NAR shill David Lereah:

[url=http://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm]Confessions of a Real Estate Bull[/url]:

I’m reminded of Thomas Mann’s famous novel, "Confessions of the confidence man Felix Krull". Not that he actually takes any responsibility for perhaps promoting the mentality which helped drive the housing bubble, mind you – the old self-distancing “mistakes were made” ploy. Dubya Bush is using that one quite frequently these days, too.


I see the post-disappointing-holiday-retail sales rolling of heads has begun in earnest:

[url=http://money.cnn.com/2009/01/05/news/companies/borders_ceo.reut/index.htm]Borders replaces CEO amid weak sales[/url]: [i]The book superstore shakes up management, appoints Ron Marshall, a turnaround specialist, as CEO.[/i]


[url=http://money.cnn.com/2009/01/02/news/economy/governors_trillion.reut/index.htm]Governors ask Uncle Sam for $1 trillion[/url]: [i]Five Democratic leaders seek aid for all 50 states to maintain education, welfare, infrastructure, as recession worsens. [/i]
[quote]The governors of New York, New Jersey, Massachusetts, Ohio and Wisconsin - all Democrats - said the initiative for the two-year aid package was backed by other governors and follows a meeting in December where governors called on President-elect Barack Obama to help them maintain services in the face of slumping revenues.

Gov. David Paterson of New York said 43 states now have budget deficits totaling some $100 billion as tax revenues plunge.

"It`s clear that the federal government needs to step in and jump-start the economy," said Gov. Deval Patrick of Massachusetts.

The latest package calls for $350 billion to create jobs by building or repairing roads, bridges and other public works; $250 billion to maintain education; and another $250 billion in "counter-cyclical" spending such as extending unemployment benefits and food stamps, which are typically a responsibility of the states.

The remainder would be used to fund middle-class tax cuts, stimulate the embattled housing market and stem the tide of home foreclosures through a loan-modification program.[/quote]
[b]My Comment:[/b] I want a pony, pleeeeeeeeeeeeaaase ... seriously, the same folks who (along with their typically-dysfunctional-even-in-good-times state legislatures) somehow managed to piss away all the windfall tax revenues which accrued during the housing bubble and got precisely zilch of value for their non-state-employee citizenry from the massive spending increases, now wants the biggest bailout in history. Time to really crank up the Federal money-printing presses ... we might even need to lease some from Zimbabwe, I hear that money-printing is the one industry in that country which is thriving. I`d suggest hunting around for some vintage Weimar-era money-printing equipment, but I fear that would not be able to handle the high-tech antiforgery innovations needed for today`s soon-to-be-worthless currency. One hopes that all the high-tech innovations of the past half-century won`t interfere with the lovely clean-burning abilities of the paper currency, though - at least in Weimar and Zimbabwe, the money was still useful for lighting fires with.

Interesting bit about the "counter-cyclical spending", though - so that would seem to imply that in the boom years, the states were busy sending all that money left over from their of-course-prudent spending on education, infrastructure, unemployment and food stamps back to the Federal government, yes? "No, no, take it - our property tax revenues are up 20% from last year, we`ve got way more money than we know what to do with...". Yeah, I though not.

And speaking of ways to blow an even more colossal hole in the already-shredded federal current-account deficit, followed by my above-promised economic A.S.S.W.I.P.E. stimulus program:

[url=http://money.cnn.com/2009/01/05/news/economy/obama_stimulus/index.htm]Obama: $300 billion in tax cuts[/url]: [i]President-elect begins push on Hill for rescue proposal. On tap: Breaks for workers and businesses, energy and road and school construction.[/i]
[quote]Obama would offer a tax cut equal to $500 a year for individuals and $1,000 for couples. The credit would work essentially as a payroll tax credit, meaning the money could be delivered fairly quickly. Companies could simply reduce the tax they withhold from employees` paychecks.

The tax credit is likely to be offered only to those below a certain income level, but the Obama team hasn`t specified where the cut-off point would be. The credit also would be refundable, meaning that even tax filers without any tax liability -- typically very low-income workers -- would receive one.

[b]Business break for losses:[/b] Obama is considering a tax break for businesses that book losses in 2008 and 2009.

The stimulus plan may extend what`s called the net-operating loss carryback to five years, up from two years currently. The provision lets companies apply their losses to past and future tax bills so that they can get money back on taxes they`ve already paid or would otherwise have to pay.[/quote]
[b]My Comment:[/b] How about funding the tax break for the middle class by repealing the Bush tax cuts for the wealthy, and going after corporations using offshore accounting schemes to bilk the government out of hundreds of billions of dollars per year? Ah yes, I`d forgotten, this needs the proper amount of pandering to Republicans in order to "have bipartisan support".

[b]Everyone Get Aborad the A.S.S.W.I.P.E. express:[/b]

But I have a better idea: Since everyone in mainstream economics agrees that the key to getting out of the recession is to get American consumers spending like mad again, why do all this complicated "targeted spending and tax cuts" flummery? I say cut straight to the heart of the matter, and cut a government check for one million dollars - that`s right, a cool million - to every American taxpayer. THAT`s the way to stimulate consumption, THAT`s the way to perk the housing market back up into bubbleicious territory - instantly tax revenues for every level of government would rise dramatically, states would have no trouble closing their budget deficits, all those tax revenues would leave plenty over for infrastructure spending - problem solved. You only need to get someone to buy a hundred trillion dollars` worth of newly-minted government debt - and hey, if that proves to be a tough sell because the tightwad Asians and Russians balk at buying the tidal wave of New! Improved! Now even-lower-yielding zero-yield 100-year coupons, no problemo - you just print the needed funds. See how easy that was? Sheesh, why do people have to make things so damn complicated?

[i]Aside: We contemplated calling the new program the "Widescale Million-Dollar Economic Stimulus Program" or WMD ESP for short, but someone suggested that that might be too easily confused with the Bush administration's post-9/11 "we just know that Saddam has WMDs and is in bed with Al Qaeda - trust us, our psychic hotline is never wrong" Iraq Intelligence boondoggle.[/i]

[QUOTE=Fusion_power;156207]Before this is over, you may say "wish this was 1930".[/QUOTE]

I take it you've cashed out your retirement portfolio, then?

Myself, I'm looking for ways to invest more heavily in the US stock market.

CR I would hold off another year if I were you. But then I am not you, so .....

There are certainly some ways in which it looks as if the October drop was a separate event to the ongoing slump, and some companies (particularly in the energy sector) which have managed to treat October as a V-shaped groove in a reasonably flat share price.

I bought in quite heavily in November, have managed to relax as things went down a further 10%, and they've now made that back; I admit to adjusting the parameters of my stop-loss orders most evenings when I see that something's made a profit. The Lloyds TSB bet has not been a good one.

Victim of Porsche`s VW Short Squeeze in Suicide
 

[url=http://money.cnn.com/2009/01/06/news/newsmakers/merckle/index.htm]German billionaire commits suicide[/url]: [i]One of top 100 richest people in world, Adolf Merckle ran into deep financial trouble with his companies amid the economic crisis.[/i]
[quote]German billionaire Adolf Merckle, one of the richest men in the world, committed suicide on Monday after his business empire got into trouble in the wake of the international financial crisis, Merckle's family said Tuesday in a statement.

Merckle, 74, was hit by a train in the southwestern town of Ulm, police said.

His family said the economic crisis had "broken" Merckle.

He was number 94 on the Forbes list of the world's richest people, with a business empire that included interests as diverse as cement-maker HeidelbergCement and generic drug-maker Rationpharm. [b]But he lost hundreds of millions of dollars, including company capital, betting against Volkswagen stock last year.[/b]

The state government of Baden-Wuerttemberg rejected his petition for financial assistance, and he entered bailout talks with several German banks.

"The financial troubles of his companies, induced by the international financial crisis and the uncertainty and powerlessness to act independently which the financial problems brought about, broke the passionate family business man, and he took his own life," his family wrote in a press release.[/quote]
[b]My Comment:[/b] The ultimate form of "gambler`s ruin" there. Interested readers should see my notes in the [url=http://mersenneforum.org/showthread.php?p=147096]Global Financial Crisis thread[/url] about the vicious short squeeze in VW shares last Fall.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=acxj.i6VJoJ4&refer=news]U.S. Factory Orders, Home Sales Contract as Companies, Consumers Retrench[/url]: [i]The U.S. economy ended the year in a steep decline, with factory orders, home sales and service industries all contracting further, reports showed today. [/i]

[b]Financial-Industry Lies and the Lying Financial-Industry Liars Who Tell Them:[/b]

[i][Apologies to [url=http://www.amazon.com/Lies-Lying-Liars-Tell-Them/dp/0525947647]Mr. Al Franken[/url]][/i]

[url=http://money.cnn.com/galleries/2008/fortune/0812/gallery.parloff_quotes.fortune/]Why Wall Street could go to jail[/url]: [i]Corporate officers were making reassuring statements about financial prospects just days before Armageddon hit their companies -- and investors` portfolios. Here's some prominent cases.[/i]
[quote][b]AIG:[/b] [i]Saved by federal bailout on Sept. 16, 2008, with federal loan commitments and investments now totaling $150 billion. Under scrutiny by federal prosecutors and the SEC.[/i]

"It is hard for us, without being flippant, to even see a scenario ... within any kind of realm of reason that would see us losing $1 in any of these [credit default swap] transactions." -- [i]Joseph Cassano, head of AIG Financial Products, August 2007[/i]

"We are confident in our marks and the reasonableness of our valuation methods. We have a high degree of certainty in what we have booked to date." -- [i]CEO Martin Sullivan, Dec. 5, 2007[/i]

[i]Outside auditors had warned Sullivan a week earlier of possible "material weaknesses" in AIG Financial Product's accounting.[/i]

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[b]Bear Stearns hedge funds:[/b] [i]After two funds collapsed, portfolio managers Ralph Cioffi and Matt Tannin were charged by Brooklyn federal prosecutors with securities fraud. They have pleaded not guilty.[/i]

"If we believe the [Bear Stearns internal report is] ANYWHERE CLOSE to accurate, I think we should close the funds now.... If [the report] is correct, then the entire subprime market is toast." -- [i]Tannin in internal e-mail to Cioffi on April 22, 2007[/i]

"So from a structural point of view, from an asset point of view, from a surveillance point of view, we`re very comfortable with exactly where we are." -- [i]Tannin to investors on April 25, 2007[/i]

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[b]Bear Stearns parent:[/b] [i]Sought emergency funding from the Federal Reserve on March 13, 2008, and was then sold to J.P. Morgan. Brooklyn U.S. prosecutors poked around, but there appears to be no active inquiry.[/i]

"Our liquidity and balance sheet are strong.... We don`t see any pressure on our liquidity, let alone a liquidity crisis." -- [i]CEO Alan Schwartz to CNBC on March 12, 2008, less than 36 hours before the company`s collapse[/i]

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[b]Countrywide Financial:[/b] [i]Sold to Bank of America on Jan. 11, 2008, after its stock price had fallen almost 90% over eight months. Now under scrutiny by SEC and state AGs.[/i]

An analyst report suggesting that Countrywide faced liquidity problems "was totally irresponsible and baseless." On the contrary, "every one of these [crises] you come out of stronger, better, and with less competition." -- [i]CEO Angelo Mozilo to CNBC on Aug. 23, 2007[/i]

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[b]Fannie Mae:[/b] [i]Regulators seized Fannie and Freddie on Sept. 7, 2008. Now under scrutiny by Department of Justice investigators and the SEC.[/i]

"There are no current plans to go back to the market for capital because we have all of those other levers that are turned on, producing capital, putting us into an increasingly - into a comfortable position based on where we are in the market right now." -- [i]CEO Daniel H. Mudd, Feb. 27, 2008[/i]

"We will go into the belly of this cycle with about $48 billion in core capital, which is about $17 billion above our statutory capital level." -- [i]CEO Mudd seeking $6 billion in new capital on May 6, 2008[/i]

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[b]Lehman Brothers:[/b] [i]Filed for Chapter 11 protection on Sept. 15, 2008, the largest bankruptcy in history. Now under scrutiny by federal prosecutors in Brooklyn, Manhattan, and Newark.[/i]

"We are on the right track to put these last two quarters behind us." -- [i]CEO Richard Fuld on Sept. 10, 2008, five days before the bankruptcy filing[/i]

"Our liquidity pool also remains strong at $42 billion.... Throughout the market volatility of the past six months, our liquidity and funding framework has served us extremely well, and we remain focused on increasing the funding available in our bank entities and mitigating any liquidity risks to our secured and unsecured funding positions." -- [i]Lehman Brothers CFO Ian Lowitt, Sept. 10, 2008[/i]

-----------

[b]Merrill Lynch:[/b] [i]After taking more than $30 billion in writedowns, Merrill agreed to be sold to BofA on Sept. 15, 2008. Now under scrutiny by SEC and state AGs from New York and Massachusetts.[/i]

"I think proactive, aggressive risk management has put us in an exceptionally good position.... We have seen significant reductions in our exposure to lower-rated segments of the market." -- [i]CFO Jeffrey N. Edwards, July 17, 2007[/i]

-----------

[b]Wachovia:[/b] [i]On Sept. 29, 2008, Wachovia agreed to sell its bank units to Citigroup in a deal backstopped by the FDIC. The whole company was later sold to Wells Fargo instead. Not believed to be under investigation.[/i]

"They are obsessed with conservative underwriting.... They have no subprime origination." -- [i]CEO G. Kennedy Thompson, announcing the acquisition of giant mortgage lender Golden West Financial on May 8, 2006[/i]

"Our view regarding the quality of the Golden West underwriting practices has just continued to grow stronger." -- [i]Chief risk officer Don Truslow on April 16, 2007[/i]

"Because the way these [`pick a payment option,` adjustable-rate mortgage] loans are underwritten, we`re not seeing any meaningful increases in losses in the portfolio, and we don`t expect to see any rises in losses as we look forward over the next few quarters." -- [i]Truslow on July 20, 2007[/i]

-----------

[b]Washington Mutual:[/b] [i]Seized on Sept. 25, 2008, by bank regulators, the largest bank failure in U.S. history. Then sold to J.P. Morgan. Under scrutiny by federal prosecutors in Seattle and by the SEC.[/i]

"As you`ll recall, I have been pretty pessimistic on the housing market for the last couple of years... so... we`ve been diversifying our mix of businesses.... We tightened underwriting, we decreased production volume by about half in the subprime area... and we decreased the subprime portfolio.... As the housing market has softened as expected, what I have really seen is a continued very good performance out of most parts of the portfolio." -- [i]CEO Kerry K. Killinger on Jan. 17, 2007[/i][/quote]
[b]My Comment:[/b] Let`s not forgot Merrill Lynch CEO John Thain`s [url=http://bespokeinvest.typepad.com/bespoke/2008/07/merrill-managem.html]repeated lies[/url] last year about Merrill`s alleged non-need for further cash-raising, But of course when it comes to repeated and egregious lying, our own soon-to-be-former U.S. Treasury Secretary Hnery Paulson is [url=http://globaleconomicanalysis.blogspot.com/2008/09/lies-from-paulson-keep-stacking-up-what.html]without peer[/url], and thus deserving of the Most Mendacious Megalomaniac Award for 2008. But the "there appears to be no active inquiry", "Not believed to be under investigation" and the even-more-laughable "Now under scrutiny by [the] SEC" notes above indicate that few if any of these crooks will see the inside of a jail cell, much less even face any fines.

I object to placing Daniel Mudd in company of most of the scalawags you listed Ewmayer. Don't get me wrong, he made egregious mistakes, but I believe a case can be made that he was doing his best to meet the mandate of his business. In other words, active larceny (lehman and others) is not the same as stupidity.

Whether for good or bad, Merckle is now dead. His previous actions are now written off.

DarJones

[quote][URL="http://money.cnn.com/2009/01/06/news/newsmakers/merckle/index.htm"][/URL][B]Financial-Industry Lies and the Lying Financial-Industry Liars Who Tell Them:[/B][/quote]Unfortunately, they lack the finesse and wit of the Iraqi Minister of Information. Imagine the possibilities.

[QUOTE=Xyzzy;157248]Unfortunately, they lack the finesse and wit of the Iraqi Minister of Information. Imagine the possibilities.[/QUOTE]Ah, Comical Ali. I remember him well. Where is he now?


Paul

[quote=Fusion_power;157241]I object to placing Daniel Mudd in company of most of the scalawags you listed Ewmayer.[/quote]That was, of course, a choice of the Fortune article author, Roger Parloff, not Ernst's decision. All Ernst did was refrain from excluding any of the nine cases included by that author.

U.S. Enters Era of "Zimbabwe-nomics"
 

[url=http://money.cnn.com/2009/01/07/news/economy/cbo_2009_budget_outlook/index.htm]$1.2 trillion deficit looms[/url]: [i]Housing collapse and financial turmoil leads to steep rise in estimated U.S. shortfall for '09, Congressional Budget Office says.[/i]
[quote]The U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of gross domestic product, the Congressional Budget Office said Wednesday.

The dramatic jump compares to a $455 billion deficit in fiscal year 2008 and $161 billion in 2007. The estimate does not account for the massive spending and tax cuts proposed in President-elect Barack Obama's economic rescue plan.

The CBO's deficit forecast for fiscal year 2010 is better, but still at historically high levels. The agency projects that the annual budget shortfall will be $703 billion, or 4.9% of GDP.[/quote]
[b]My Comment:[/b] Given that the CBO`s latest estimate is more than double their previous one, any forecast for 2010 is a complete joke - just take whatever they say, double it to get a wildly optimistic lower bound, add a trillion to account for all the off-balance-sheet accoutning tricks used by the government to hide e.g. the true costs of the Iraq war, and then you might be somewhere in the right ballpark. But what`s a trillion plus or minus? The Treasury printing presses are cranking away at high speed and can easily handle the added demands. Zimbabwe-nomics, we'll call it.


Fortune.com has a hilariously disingenuous article today about Social Security not-really-being-a-Ponzi-scheme:

[url=http://money.cnn.com/2009/01/06/news/economy/social.security.fortune/index.htm]Social Security a Ponzi scheme? No way[/url]: [i]Some commentators are finding a tempting comparison between the Madoff scandal and the Social Security system. Here`s why it`s wrong.[/i]
[quote] It was inevitable that once the phrase "Ponzi scheme" returned to the news in the wake of Bernard Madoff`s alleged swindle, a chorus of angry voices would rise to condemn Social Security as, in their words, "the biggest Ponzi scheme of them all."

Their argument -- gaining momentum on the web, among some television commentators, and elsewhere (for examples, see [url=http://tsfiles.wordpress.com/2008/12/22/the-ponzi-scheme-that-is-social-security/]"The Ponzi Scheme That is Social `Security,` "[/url] [url=http://www.cnbc.com/id/28241636]"The Real `Mother Of All Ponzi Schemes`: Social Security"[/url] or [url=http://www.ocregister.com/articles/money-government-madoff-2260698-security-social]"Madoff only the No. 2 Ponzi scheme"[/url]) -- has a certain appeal because there are indeed some superficial similarities.

Essentially, here`s their pitch: a Ponzi scheme is a fraud in which money from one group of people is used to pay promised returns to another group of people. The money isn`t invested, it`s just transferred, and at some point the scheme collapses because there`s not enough income to satisfy withdrawals. (Madoff reportedly confessed to one of his sons that his $50 billion investment business fit that description.) Social Security`s critics say it`s a multitrillion-dollar Ponzi scheme because although individuals have "accounts," in fact the government uses income from current workers to pay benefits. When benefits exceed income, they say, the system will crumble, just like Madoff`s.

It`s hard to knock down such a persistent and seemingly elegant analogy. But since it creates a false impression of Social Security, and since I for one consider real Ponzi schemes too important and interesting to obfuscate, it`s worth rebutting this myth.[/quote]
[b]My Comment:[/b] Which "myth", exactly? That Social Security is in fact using current payments to pay benefits rather than saving them for the payers is a fact, not a myth. So it sure sounds like a Ponzi scheme in the sense that is is effectively functioning like one - in effect that is as intended by its creators - from the first of the linked articles above:
[quote]"In 1935, President Roosevelt introduced a controversial “social insurance” to prevent the crushing poverty that hit many Americans in their old age during the Great Depression. As part of his New Deal, Social Security provided benefits to retirees and the unemployed, financed by taxes on current worker’s wages."[/quote]
[b]My Comment:[/b] That would be fine if payouts were managed in such a way that the system does not consistently pay out more per worker currently receiving benefits than said worker [on average, including interest] contributed, i.e. that is does not require and ever-greater influx of workers/payments in order to remain long-term viable. That is not the case, and the system`s own trustees readily admit as much. Also from the above linked article:
[quote]"There’s one similarity between Social Security and Ponzi scheme that is irrefutable: the early investors/retirees get the better end of the deal. The first person to receive monthly retirement check was Ida May Fuller of Ludlow, Virginia. Ida retired in November 1939 at the age of 65 and started collecting her checks in January 1940. She lived to be 100 years old, and during her lifetime, she collected $22,888.92 in Social Security benefits. Ida put in a total of $24.75 into the system, thus giving a return of over 90,000%!"[/quote]
[b]My Comment:[/b] Of course that is an extreme case, but persistently paying out even a few % more per beneficiary than they paid in makes the system unsustainable, and thus effectively a Ponzi scheme.
[quote]First, in the case of Social Security, no one is being misled. Madoff allegedly falsely claimed to have discovered a "black box" method of earning impressive results, and by doing so enticed individuals and organizations to invest with him. Social Security is exactly what it claims to be: A mandatory transfer payment system under which current workers are taxed on their incomes to pay benefits, with no promises of huge returns. (Of course, it's true that if Madoff had the power to require participation, he would have had an easier time keeping his alleged scheme rolling.)[/quote]
[b]My Comment:[/b] So even though the 2 schemes function in essentially the same Ponzi-like way, the fact that Madoff, lacking the Federal government`s power to compel participation, actually had to resort to clever pitching to attract participants, somehow makes his scam more egregious? Oof, we are on slippery ethical turf here, folks.
[quote]Second, Social Security isn`t automatically doomed to fail. Played out to its logical conclusion, a Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted. That`s when the last people to participate are out of luck; the music stops and there`s nowhere to sit.

It`s true that Social Security faces a huge burden -- and a significant, long-term financing problem -- in light of retiring Baby Boomers. (The latest projections anticipate Social Security tax revenues to fall below costs in 2017 and the Social Security Trust Funds to be exhausted in 2041.) But Social Security can be, and has been, tweaked and modified to reflect changes in the size of the taxpaying workforce and the number of beneficiaries. It would take great political will, but the government could change benefit formulas or take other steps, like increasing taxes, to keep the system from failing.[/quote]
[b]My Comment:[/b] So having the power to increase the amount the required participants are forced to pay in order to keep the scheme viable somehow makes it less of a Ponzi scheme? Again, the logic there escapes me.
[quote]Third, Social Security is morally the polar opposite of a Ponzi scheme and fundamentally different from what Madoff allegedly did. At the height of the Great Depression, our society (see "Social") resolved to create a safety net (see "Security") in the form of a social insurance policy that would pay modest benefits to retirees, the disabled and the survivors of deceased workers. By design, that means a certain amount of wealth transfer, with richer workers subsidizing poorer ones. That might rankle, but it's not fraud.

Charles Ponzi, for whom the scheme is named, was unencumbered by such high-minded ideals. [/quote]
[b]My Comment:[/b] Oh, boy, that`s gotta be the best one yet - Social Security is not a Ponzi scheme because unlike a "real" Ponzi scheme, its ideals are "high-minded". I say bullshit - that simply means that Social Security is a Ponzi scheme which by fiat happens to be legal, just like it would be illegal for you or me to print U.S. currency to pay our debts (irrespective of whether they are "high-minded" debts or not), whereas the U.S. Treasury is allowed to do so. But just because the government has rigged the system to make it legal, does not make it "morally right". And it`s not just "leftist antigovernment bloggers" who are calling Social Security what it is - congressman Ron Paul, perhaps the only one of the recent batch of presidential candidates who has a realistic grasp of how bad the fundamentals of the U.S. economy are, [url=http://housingdoom.com/2009/01/06/ron-paul-social-security-fractional-reserve-banking-are-ponzis-that-dwarf-madoff/]calls both Social Security and Fractional Reserve Banking[/url] what they are, namely Ponzi schemes. Having the power to designate a scam as "legal" and to compel lots of people to participate, does not make it less of a scam.

I have seen others claim that the stock market is also a Ponzi scheme: people who are getting older sell off their stocks into other things that are more stable, and a new generation of younger investors who think they can handle the long term risks buy them, at higher and higher (inflation-and-speculation-adjusted) prices. Of course, that may not even be true on average anymore, with all the huge institutional investors passing giant blocks of equities back and forth.

Really, what other choices does anyone have nowadays for accumulating enough to live on as retirement approaches? Social Security inflation-adjusted upwards about 6% this year; seen any bank accounts that pay 6% interest after taxes?

Shadow RE Market | India's Madoff | Asian Shorts
 

[URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=apFMheiIZtPo&refer=news"]No Recovery for Real Estate as Speculators Dominate Increase in Purchases[/URL]: [I]As the U.S. housing recession enters its fourth year, there’s no sign of a recovery because speculators account for most of the rise in sales. [/I]
[quote]While the purchases are trimming the inventory of unsold properties, most of those bought by speculators will likely return to the market when prices rise again, hampering any recovery, said Nobel laureate economist Joseph Stiglitz and Yale University Professor Robert Shiller in interviews.

“We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” said Stiglitz, a Columbia University professor of economics. “We could see a double-dip in the housing recession if that happens.” [/quote][B]My Comment:[/B] The other potential scenario, also leading to a second, much-deeper dip, is if the speculators turn out to have called the bottom too early, home prices continue to fall through 2009, and the speculators - especially any that took advantage of current rock-bottom interest rates to leverage up - are forced to cut their losses and dump their inventory back on the market at a loss. Given that prices in most of the country still would need to fall another 20-30% to get back anywhere close to long-term historical means (e.g. Case-Shiller), that scenario is not at all far-fetched.
[quote]There were an average 3,100 foreclosures per day in the U.S. in November, according to RealtyTrac Inc., an Irvine, California real estate data company. That’s triple the 1,000 per day average in 1933, the worst year of the Great Depression, according to the Federal Reserve Bank of St. Louis. The repossessed properties offer opportunities for investors, who typically buy homes at auction and rent them out until prices increase and they can sell.

‘Flippers’ Rule

“You don’t have it in strong hands, you have flippers,” said [Yale economics professor Robert] Shiller, who helped create the S&P/Case Shiller real estate price indexes. “These speculators are preventing the market from crashing now, and when they get out it could fall again.”

U.S. real estate prices and sales may begin to stabilize in 2010, said Stiglitz. A worsening economy and growing speculation will delay the recovery further, he said.

“Assuming we don’t overshoot, we could be back at equilibrium in 12 to 18 months, but there are reasons to believe we might overshoot,” Stiglitz said.[/quote][B]My Comment:[/B] Wouldn`t that be "undershoot"?
[quote]Dario Moscoso of San Diego tracks notices of default and negotiates directly with banks if a home doesn’t sell at auction. He bought a three-bedroom foreclosed house in San Diego three weeks ago for $490,000, half of what it would have fetched a year ago. He’s renting it for $2,500 a month and plans to sell when prices rebound.

“We hope to put it back on the market in about a year,” Moscoso, 52, said in an interview. “We’ll gauge the market and see how it goes.”

The “speculative fervor” blamed by former Federal Reserve Chairman Alan Greenspan in July, 2005, for causing a price bubble is returning at the bottom of the property market in part because investors have the edge in buying foreclosures, said Dean Baker, co-director of the Center for Economic and Policy Research.

Baker said he considered buying a Washington home at a foreclosure auction last year until he learned the terms of the sale. Winning bidders had to complete the deal within 30 days, half the time of a standard home purchase, or lose their deposits. It was a risk he didn’t want to take.

No Competition

“Regular homebuyers are excluded from the foreclosure market because the rules favor professional investors and that lack of competition is driving down prices,” Baker said. “This is a place where the government could step in and stop housing’s downward spiral by encouraging a more user-friendly process.” [/quote][B]My Comment:[/B] Oh, puhleeeze, spare us the now-completely-discredited Keynesian "Government needs to step in and help keep the speculative bubble inflated" nonsense. You think those same houses being bought by the RE investors would magically appreciate in value if they stayed on the market, or that easing the purchase-time rules would lead to a price war among the smaller retail investors? In the current climate, only complete idiots would let themselves get sucked into a bidding war for property X, when they know that it`s highly likely that there`s an as-good-or-better deal to be had a couple doors down, or a few months down the road. Also, having to complete the dela within 30 days doesn`t exclude the non-RE-investors, it only excludes the wafflers, weak-credit types and those who don`t have the cash for a reasonable down payment - in other words, the same kinds of folks who, during the RE bubble, were having money flung at them by the banks if they could fog a mirror, even if they had no prayer of being able to servive the loan in the absence of a doubling or tripling of their income.


[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=aMO872ajaRus&refer=news"]Madoff Swindle Hits Hard in Boston, Home to Victim Shapiro, Ponzi Himself[/URL]: [I]Carl Shapiro’s name is chiseled into Boston’s largest academic and medical centers, testament to the roughly $80 million that he showered on the city in the past decade. Now it comes with a Bernard Madoff-sized asterisk. [/I]
[quote] Jan. 8 (Bloomberg) -- Carl Shapiro’s name is chiseled into Boston’s largest academic and medical centers, testament to the roughly $80 million that he showered on the city in the past decade. Now it comes with a Bernard Madoff-sized asterisk.

Shapiro, a 95-year-old philanthropist, lost $545 million to Madoff, ranking him among the biggest individual victims of the world’s largest Ponzi scheme, data compiled by Bloomberg show. Now Boston, Carlo Ponzi’s adopted hometown, is bracing for the financial fallout.

“As a percentage of the population and significance of the charities involved, Boston was hardest-hit,” said Mark T. Williams, a professor at Boston University School of Management and a former Federal Reserve bank examiner. Shapiro “is Mr. Boston,” Williams said. “If Mr. Boston is hit, what do you think that does to Boston?”

Just as in Madoff’s base of New York, the alleged swindler targeted Boston’s wealthy Jewish families. Shapiro was atop the list. His 47-year-old namesake foundation, at 75 Park Plaza, lost $145 million because of Madoff. Shapiro and his wife, Ruth, are personally on the hook for about $400 million. [/quote][B]My Comment:[/B] Long list of Boston-area hospitals and colleges listed in that article which will be feeling the financial fallout from the fraud. And speaking of multibillion-dollar frauds:


[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=akJyO8yxmXTY&refer=news"]Satyam Chairman's Falsified Reports Threaten Software Developer He Created[/URL]: [I]Ramalinga Raju built Satyam Computer Services Ltd. into India’s fourth-biggest software maker over two decades. He undermined the company’s future with revelations that he overstated profit and falsified assets for years, triggering a scandal that’s being compared to Enron Corp. [/I]
[quote]Satyam fell 78 percent yesterday after Raju told the Hyderabad-based company’s board that 50.4 billion rupees ($1.03 billion) of the 53.61 billion rupees of cash and bank balances the company reported on Sept. 30 were non-existent, according to a letter delivered to the Bombay Stock Exchange.

“There is a clear danger of customers deserting Satyam if rapid steps aren’t taken,” said Apurva Shah, head of research at Mumbai-based brokerage Prabhudas Lilladher Pvt. “That may put the viability of the company in question.”

The scandal shook confidence in India’s stock market, sending the Sensex index down 7.3 percent yesterday, its biggest drop in more than 10 weeks. Securities & Exchange Board of India Chairman C.B. Bhave said the disclosure was of “horrifying magnitude,” and the markets regulator ordered a probe into trading of Satyam shares.

...

The fall of the 54-year-old entrepreneur, a pioneer of India’s software industry, began three weeks ago when Satyam proposed paying $1.6 billion for two companies connected to Raju. The plan was scrapped 12 hours later, after investors called it a “woeful misuse of cash.” Yesterday, Raju said the sale was designed to plug the hole in Satyam’s balance sheet.
[B]
Golden Peacock
[/B]
As recently as September, the London-based World Council for Corporate Governance gave Satyam its Golden Peacock Award. The council yesterday withdrew the prize because [b]Satyam, which means truth in Sanskrit[/u], had withheld material facts. Raju received CNBC’s Corporate Citizen of the Year award in Asia in 2002 and was named Ernst & Young Entrepreneur of the Year in 2007, according to Satyam’s Web site. [/quote][B]My Comment:[/B] I wonder if his parents are planning to "withdraw the name we gave him"...

[B]China Update:[/B]

[URL="http://www.bloomberg.com/apps/news?pid=20601089&sid=aybHk5Gqh_l4&refer=china"]China Exports Probably Fell Most in a Decade as Global Recession Deepened[/URL]: [I]China’s exports probably fell the most in a decade in December amid a deepening global recession, making it more likely extra measures will be implemented to stimulate growth. [/I]

[URL="http://www.bloomberg.com/apps/news?pid=20601089&sid=aSDx2cj9qbcs&refer=china"]Lenovo Forecasts First Loss Since 2006, Will Cut 2,500 Jobs; Shares Plunge[/URL]: [I]Lenovo Group Ltd. forecast its first loss in three years and will cut 11 percent of employees as the global recession reduces demand for computers, prompting the stock’s steepest decline since 1998. [/I]

[B]My Comment:[/B] The increasingly-dire news coming out of China and the rest of Asia makes the recent sucker`s rally in the Asisa indices even more inexplicable than the ones in the U.S. and Europe - but it also makes the rally highly shortable. That's what I`m doing, anyway - my one set of long trades late last year wiped out all my hard-won gains of the first 9 months on the short side - I don`t intend to repeat that mistake. However, most of my favorite short-ETF plays were brutalized even more than my long bet in the last 2 months of 2008, so I probably lost less by going long than I would have by continuing the short strategy that worked so well [note you should only dabble in this if your heart can stand the stress - the price fluctuations can be absolutely insane] for most of the year.

India's Ken Lay or Skilling but not India's Madoff, at least not yet.

Another Dismal Jobs Report | Consumers Borrow Less
 

[url=http://money.cnn.com/2009/01/09/news/economy/jobs_december/index.htm]Worst year for jobs since '45[/url]: [i]Annual loss biggest since end of World War II. Unemployment rate rises to 7.2%.[/i]
[quote]The hemorrhaging of American jobs accelerated at a record pace at the end of 2008, bringing the year's total job losses to 2.6 million or the highest level in more than six decades.

A sobering U.S. Labor Department jobs report Friday showed the economy lost 524,000 jobs in December and 1.9 million in the year's final four months, after the credit crisis began in September.

The unemployment rate rose to 7.2% last month from 6.7% in November - its highest rate since January 1993.

The steep annual drop in jobs marked the highest yearly job-loss total since 1945, the year in which World War II ended.

"We're seeing a complete unraveling of the labor market and are on track for getting beyond 10% unemployment," said Lawrence Mishel, president of the Economic Policy Institute.

The total number of unemployed Americans rose by 632,000 to 11.1 million.

November, in which 584,000 jobs were lost, and December marked the first time in the 70-year history of the report in which the economy lost more than 500,000 jobs in consecutive months.

"We have a bigger economy now, but even on a proportional basis, the last months have been the worst since [1945]," said Kurt Karl, head of economic research at Swiss Re. "It's just an enormous acceleration of job losses."[/quote]
[b]My Comment:[/b] As has been common the past year, the numbers reported by the BLS, bad as they are, are likely [url=http://globaleconomicanalysis.blogspot.com/2009/01/jobs-contract-12th-straight-month.html]wildly optimistic[/url]. I predict we could see total "official" job losses as high as 4-5 million in the U.S. in 2009.


[url=http://money.cnn.com/2009/01/08/news/economy/consumer_credit/index.htm]Consumers borrow less than expected[/url]: [i]The Federal Reserve says borrowing by consumers fell by $8 billion in November, falling at a much faster rate than economists had expected.[/i]
[quote]Consumer borrowing decreased sharply in November as the weak economy continued to weigh on household budgets.

The Federal Reserve said Thursday that consumer borrowing fell by $8 billion in November to $2.571 trillion from an upwardly revised $2.579 trillion in October.

The annual rate of consumer borrowing fell by 3.7% in the month. In October, the annual rate fell by only 1.3%.

Credit card borrowing, or revolving debt, declined at an annual rate of 3.4%. Non-revolving borrowing, including student and auto loans, fell $5.2 billion, or 2.1% on an annual basis.[/quote]
[b]My Comment:[/b] Pay down your debts ... the only long-term way out of this crisis. Meanwhile, the one place where no such sane fiscal restraint is being contemplated is the U.S. government, which under the incoming administration is busily preparing to crank government spending - all of it necessarily borrowed (or failing that newly printed) money - up to utterly unprecedented levels. "Excess spending ... to cure the ails resulting from decades of excess spending". Sheer insanity. On the "failing that" point, there are signs that foreign governments, most of which have fiscal problems of their own these days, are [url=http://www.iht.com/articles/2009/01/07/business/yuan.php]beginning to question the wisdom[/url] of investing most of their national wealth in (currently record-low-yielding) IOUs from Uncle Sam:


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aE4Cp_e.pnZE&refer=news]London's Boom Time Bill Comes Due, Forcing Bankers to Buy Coffee on Credit[/url]: [i]Jane Casulli has been selling coffee and sandwiches in London’s financial district for 10 years and survived the dot-com bust. She says this meltdown is different.[/i]
[quote]Sales at her cafe, a two-minute walk from the local offices of Swiss investment bank UBS AG, plunged 50 percent in the last two months of 2008, and some regulars are requesting monthly tabs to cover their morning lattes.

“Customers are now asking how much things cost and bringing sandwiches from home,” she says. “People aren’t leaving their offices. Every day looks like a Sunday.”

The U.K. economy may shrink more than those of the U.S., Japan and euro region in 2009 after rising house prices and easy credit led Britons to run up 1.44 trillion pounds ($2.18 trillion) of debt, making them among the world’s biggest borrowers. The country’s gross domestic product may contract by 2.9 percent this year, with as many as 2 million people claiming unemployment benefits, the Centre for Economics and Business Research, a London-based study group, said. [/quote]

Peter Schiff Interview on Russian TV
 

I watch the broadcasts of [i]Deutsche Welle[/i] and [i]Russia Today[/i] on the International Channel at least several times a week - 2 nights ago RT had an interesting interview with Peter Schiff, founder of Euro Pacific Capital, and one of the better-known "housing market doom and gloomers" who were proven right in spades last year. Now note that RT often spins thing in order to get a juicy anti-American angle [around the time Obama won the democratic party nomination, they sent an intrepid reporter to most redneck set of saloons in the Texas outback they could find in order to get the alleged "man on the street" perspective - they forgot to ask the various "men on street" how long they had been grand wizards in the KKK], but this interview is of the kind one wishes more of the American mainstream financial media would carry. Found a link to it on Lew Rockwell`s site:

[url=http://www.lewrockwell.com/blog/lewrw/archives/024772.html]Russia Today Interviews Peter Schiff[/url]

Global Capitalism's Winter of Discontent
 

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ai1qca78_ezs&refer=news]Capitalism Freezes in Winter of Discontent From China to Russia to Nigeria[/url]: [i]As capitalism staggers through its first globalized economic crisis, the costs won’t be measured only in dollars and cents.[/i]
[quote] Jan. 12 (Bloomberg) -- As capitalism staggers through its first globalized economic crisis, the costs won’t be measured only in dollars and cents.

From newly rich Russia to eternally impoverished sub- Saharan Africa, social strains are threatening the established political order, putting some countries’ very survival at risk.

In the past month, Nigerian rebels threatened renewed warfare against foreign oil producers, Russia sent riot police from Moscow to quell an anti-tax protest in Siberia and China’s communist leadership warned of social agitation as the 20th anniversary of the Tiananmen Square massacre looms.

The disillusionment and spillover effects of the global recession “are not only likely to spark existing conflicts in the world and fuel terrorism, but also jeopardize global security in general,” says Louis Michel, 61, the European Union’s development aid commissioner in Brussels.

Somewhere in the wreckage may lurk an unexpected test for U.S. President-elect Barack Obama, 47, one that upstages his international agenda just as Afghanistan’s backwardness and radicalism led to the Sept. 11 attacks that defined the era of George W. Bush only eight months into his term.

Among the possible outcomes: instability in Pakistan, a more aggressive if economically stricken Iran, a collapsing Somalia, civil disorder in copper-dependent Zambia, a strengthened, drug-financed insurgency in Colombia and a more warlike North Korea. [/quote]
[b]My Comment:[/b] They forgot to mention "potential loss of U.S. global pre-eminence". Or perhaps that is covered by the "unexpected test" bit.


[url=http://money.cnn.com/2009/01/12/news/bush.tarp/index.htm]Obama: Give Me the Money[/url]: [i]A top aide to the president-elect tells Congress it's urgent that $350 billion in remaining bailout funds be put to work.[/i]
[quote]How the new administration plans to spend the second half of the TARP funding has emerged as a major issue on Capitol Hill.

Lawmakers on both sides of the aisle have expressed unhappiness with the way Treasury Secretary Henry Paulson has used the first $350 billion. They object to how Treasury made direct investments in banks with few strings attached and no process for tracking how the banks are using the money. [/quote]
[b]My Comment:[/b] That`s right, "We have far better pet pork-barrel projects of our to waste the money on."


[url=http://money.cnn.com/2009/01/12/news/economy/economy_job_loss/index.htm]Economy could lose 2M jobs in '09 - report[/url]: [i]Conference Board says there's no sign that labor market will improve any time soon.[/i]
[quote]Wachovia chief economist John Silvia says that nothing has really changed in this month's report.

"I know that this is frustrating for a lot of people because they would like to see a change in the trend," Silvia said. "But what we're seeing is the same as before."

However, Silvia also said that the worst may be behind us and that 2 million more jobs seems a bit aggressive an assessment.

"A lot of companies have already cleared the decks in 2008," Silvia said. "Given that we've already claimed a loss of 2.6 million jobs, we can probably expect to see another million and a half."[/quote]
[b]My Comment:[/b] Dream on, dude - we lost most of the 2.6M jobs in the last quarter of 2008, a whole more companies are going to be "clearing the decks" this year (just look for the coming wave of bankruptcies in the retail sector), millions of housing-bubble-created jobs aren`t going to be coming back, and last but not least, every single such "worst is behind us", "things should pick up in [throw a dart at a calendar]" prediction I`ve heard in the past year and a half has been abjectly wrong, perhaps because every single one of them completely ignored fundamentals and instead simply used past recessions as a predictor or current trends. You can actually get paid for that? Wow.


[url=http://money.cnn.com/2009/01/12/news/companies/walmart_leescott/index.htm]Wal-Mart CEO: Spending less has upside[/url]: [i]Scott speaks of 'fundamental change' in consumers' behavior, says retailers will feel more pain in 2009.[/i]
[quote]Outgoing Wal-Mart CEO Lee Scott said the recession may have caused a "fundamental change" in the incessant shopping habits of Americans - which will hurt retailers but will benefit society as a whole.

Scott, citing his recent meeting with young shoppers, said many had given up eating out, going to the movies and shopping.

"Everyone has given up something and said how good they felt about it," he said. "I think in some ways it is healthy [for society], even though for us retailers it's not good."[/quote]
[b]My Comment:[/b] Impressive - a corporate CEO (albeit an outgoing one) putting the good of society ahead of short-term profit concerns. Note, however, that discount retailers like Wal-Mart have been far less affected by the ongoing consumer retrenchment than high-end retailers, whose pin has been the discounter`s gain. So one should perhaps take Mr. Scott`s comments with a proverbial grain of NaCl.

[quote=ewmayer;158285]They forgot to mention "potential loss of U.S. global pre-eminence".[/quote]
From [URL]http://www.npr.org/templates/story/story.php?storyId=99156039[/URL]

"Army Training Turns To Tackling Counterinsurgency"

The first of a four-part series

[quote=NPR]"...

Obviously we can't go back to the extreme we were in 2003 where the force knew nothing about counterinsurgency," says Maj. Neal Smith, the operations officer of the Army and Marine Corps Counterinsurgency Center. He teaches people how to fight the kind of wars we're in now in Iraq and Afghanistan. "But we also can't go to a force where if a tank division is needed someday — no one knows how to move, defend, attack or move to contact anymore."

But even he worries about what today's soldiers are being taught: — how to fight a classic ground war.

"The risk we run as a force is that we have a generation of officers [who] have spent 5-6 years [at war] that never have done their conventional competency," Neal Smith says. "And if we were expected on short notice to fulfill that conventional competency, we would struggle very hard to do it as well as we did in 2003 during the attack to Baghdad."

The problem is there simply isn't enough time to teach people how to fight both conventional and unconventional wars — the soldiers are simply at war too much and troops now have only about 12 months between deployments.[/quote]


[quote=ewmayer;158285]Or perhaps that is covered by the "unexpected test" bit.[/quote]

[quote=NPR]"The reality is we really only have enough time to prepare soldiers for the next mission they're going to face," says Lt. Gen. William Caldwell, who runs the Combined Arms Center for the Army. He oversees 18 different schools and training centers, including the National Training Center. "Then as time permits, we'll operate across the whole continuum of intensity of ops."

The Army says they won't even be able to really begin training for all kinds of warfare until 2010 at the earliest, so for now, the focus is on hearts and minds, not tanks and artillery.[/quote]And ya know, if there's an "unexpected test" that requires tanks and artillery, Republicans will blame Obama for any missing training or resources, not Dubya. Just like they griped about Clinton's supposed downsizing of the army even though the downsizing was started by Reagan, continued by Bush the Elder, and by the time Clinton took office all the downsizing was in progress or had already occurred.

Conservatives talk a good game about responsibility, but don't have the gumption to apply that to their elected leaders.

The Case Against Government Meddling
 

Richard, this can also be used as part of the "case against the Federal Reserve" argument in the [url=http://mersenneforum.org/showthread.php?t=11279]Reduce Your Debt!![/url] thread in the Lounge:

[url=http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-meddlers-cant-tame-the-market.aspx]The meddlers can't tame the market[/url]: [i]Trying to rescue the banks or the automakers from the risks of capitalism is a doomed enterprise. That's because, as we're all suddenly learning, the market is a savage place.[/i]
[quote]Capitalism, free enterprise and free markets have all been given a bad name. Not because they are inherently bad but because of the people who have meddled with them.

When government knuckleheads interfere with capitalism, you can bet the law of unintended consequences will be quick to rear its head.
[u]
Interfering with the markets was a function of the Federal Reserve during Alan Greenspan`s reign. That meddling was a major contributor to the tremendous edifice of debt and speculation that had built up over the past 20 years.
[/u]
Now it has come toppling down, most recently on more than 50,000 Citigroup employees -- casualties of Citi`s appetite for risky investments.

I`m sure some of these newly and soon-to-be jobless would like to know just what Citigroup director (and former Treasury chief) Bob Rubin was doing to receive his huge compensation package, since he obviously didn`t stop management from acting like fools.

Meanwhile, Gov. Mark Sanford of South Carolina recently noted two successful examples of capitalism unimpeded by outside interference: the vibrant auto industry in his state and the steel industry in Alabama. Had the latter industry been bailed out in Pittsburgh, the good steel-producing jobs in Alabama would not exist.

Now Congress is debating the bailout of General Motors (GM, news, msgs) et al. But without a radical restructuring, a bailout would be a waste of money.

Equally flawed is the call for more regulation. What helped get us into this mess was not a lack of regulation but the failure to enforce the laws already in place.

Had the Fed, the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Office of Thrift Supervision done their jobs, there`s no way all the financial institutions could have become so badly impaired, and consumers would never have been allowed to borrow so much money.

...

We have just come through a decade-plus in which the Fed intervened "successfully" enough so that folks came to look upon the stock market (and then the real-estate market) as pet kittens that spit out hundred-thousand-dollar bills. Markets are not like that at all. They are more like savage beasts looking to rip your head off.

The era of "pet markets" that effortlessly make people rich is definitely behind us.[/quote]
[b]My Comment:[/b] Government bailouts of the U.S. automakers similarly aren`t going to keep large numbers of car dealers who can`t sell enough cars at enough of a profit to keep operating [url=http://globaleconomicanalysis.blogspot.com/2009/01/gm-expects-to-lose-500-us-dealerships.html]in business, either[/url].

Yes, Greenspan didn't steer the Fed correctly.

But Volcker did, when stopping inflation three decades ago.

It's not the institution's fault; it's the leaders thereof.

[QUOTE=cheesehead;158302]Yes, Greenspan didn't steer the Fed correctly.

But Volcker did, when stopping inflation three decades ago.

It's not the institution's fault; it's the leaders thereof.[/QUOTE]

Fed opponents would argue that giving any institution the powers of the Fed is an invitation to abuse and governmental meddling, which will necessarily interfere with the functioning of the (formerly) free markets. Would the inflation you mention Volcker as heroically having arrested ever have existed in the absence of the Fed and under a gold standard? It would not. Another example of the Fed "fixing" a problem it helped create. Just like it's now trying to "fix" the effects of the collapsing housing bubble, all while arrogating ever more power unto itself. I cite corollary 2 of Mish's [url=http://globaleconomicanalysis.blogspot.com/2008/04/fed-uncertainty-principle.html]Fed Uncertainty principle[/url]:
[i]
"The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing."[/i]

Very well; there needs to be something better than the Fed. (But I want to see evidence better than has been presented so far in the [URL="http://mersenneforum.org/showthread.php?t=11279"]Reduce Your Debt!![/URL] thread.)

Are there any leading-candidate ideas for a replacement? (Simply going straight back to the gold standard isn't practical AFAIK; there need to be some intermediate steps.)

"Dream on, Dude": 12 January Edition (cont.)
 

[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=av6vCWcS.7Y0&refer=china]Morgan Stanley Sees 25% Gain for Asia Stocks Excluding Japan on Rate Cuts[/url]: [i]Morgan Stanley predicts Asian stocks excluding Japan may gain at least 25 percent this year, spurred by interest-rate cuts in countries such as China.[/i]
[quote] Jan. 12 (Bloomberg) -- Morgan Stanley predicts Asian stocks excluding Japan may gain at least 25 percent this year, spurred by interest-rate cuts in countries such as China.

The MSCI Asia-Pacific excluding Japan Index may reach 315 in 2009, the bank said. That represents a 27 percent gain from the Jan. 9 level of 247.43. Morgan Stanley expects the MSCI Emerging Markets Index to reach 810 in 2009, representing a 42 percent advance from the Dec. 9 close of 571.25.

“Policy is being aggressively eased in Asia, with far more to come given collapsing inflation disappears and weak near-term growth,” Morgan Stanley Asia-Pacific strategist Malcolm Wood wrote in a 2009 outlook note.[/quote]
[b]My Comment:[/b] So a vague fell-good "policy easement" trumps good old fundamental "export economy grinds to a halt"? I think not. (And yes, I have put my money where my mouth is - loaded up on FXP and EEV starting at the end of last year, after dumping my underwater long positions for tax-loss purposes.)

I was at a party this past weekend and heard the comment "The media planned and caused the economic meltdown so that Obama would get elected."

:missingteeth:

This person admitted that there was a housing bubble, but said that the media deliberately burst the bubble before the election to discredit Bush and the Republicans. If the media wanted to get Bush and the Republicans out of power, they would have burst the bubble in 2004...

Isn't that akin to saying that the CIA waited until after Bush was in the White House before it flew planes into the World Trade Center?

Retail Update - UK "Horrid" | No-Bling Xmas
 

[url=http://money.cnn.com/2009/01/13/news/economy/treasury_budget_deficit_Dec08/index.htm]U.S. deficit soars to $485.2 billion[/url]: [i]The budget gap in first three months of the fiscal year surpasses the level recorded for all of '08.[/i]
[quote]NEW YORK (CNNMoney.com) -- The federal budget deficit expanded by $83.6 billion in December, the Treasury Department reported Tuesday, bringing the total deficit for the first three months of the 2009 fiscal year to $485.2 billion.

By comparison, the budget deficit for all of fiscal year 2008 was $455 billion. In fiscal 2007, it was $161 billion.

The deficit has ballooned in the first quarter of the fiscal year as the Treasury, Federal Reserve and FDIC began spending record amounts on the $7.2 trillion committed so far to bailouts, financial stabilization efforts and capital investments. The numerous emergency actions began as a result of the credit crisis that started in mid-September.

A decline in tax receipts, stemming from the 1.5 million jobs lost in the first three months of the fiscal year, also contributed to the soaring deficit.

Budget experts have projected that the federal deficit for this fiscal year, which began Oct. 1, will be nearly $1.2 trillion. But that total doesn't count the economic recovery package that President-elect Barack Obama has started to push forward.[/quote]
[b]My Comment:[/b] So we're looking at a 2009 account deficit of over $2 Trillion - very nice. Wonder which fool is gonna be willing to buy up all that debt at the current near-zero yields?


[url=http://news.bbc.co.uk/2/hi/business/7825213.stm]UK economy downturn 'frightening'[/url]: [i]Business leaders warn of 'bleak' 2009 Business leaders have painted a bleak picture of the UK economy, with a survey suggesting a "frightening deterioration" towards the end of 2008.[/i]
[quote]The British Chambers of Commerce (BCC) said its survey results were "awful" and the worst since it began in 1989.

Elsewhere, a separate report suggested it had been the worst December for UK retail sales in at least 14 years.

On 23 January, official figures are set to confirm the UK is in recession with six months of negative growth.

The British Retail Consortium figures on sales from the High Street and online said that like-for-like sales in December were down 3.3% on a year ago while total sales shrank 1.4%.

This is despite the government cut in value added tax (VAT), which took effect in December.

This made for the worst December since the survey began in 1995[/quote]


[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLDM5kKBQPOU]Shane Co., U.S. Jewelry Retailer, Seeks Bankruptcy[/url]
[quote]Jan. 12 (Bloomberg) -- Shane Co., the family-owned jewelry retailer with 23 stores in 14 states, sought bankruptcy court protection blaming “disappointing” holiday sales and a “grim” outlook on the deepening U.S. recession.

The 38-year-old company, based in Centennial, Colorado, listed both assets and debt of $100 million to $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Denver. The company lined up turnaround financing from an unspecified source, Shane said in a statement.

“The severity of this past holiday season dramatically impacted existing liquidity requiring the company to seek this bankruptcy protection,” Chief Executive Officer Tom Shane said in the statement. “The company plans to continue operating the business without interruption.” [/quote]
[b]My Comment:[/b] Translation into [i]Da Ali G Show[/i]-ese: "Check it - Nobody be `avin da cash to be buyin` da bling dis year". We have a Shane store in Cupertino, in the same little shopping complex where I get my coffee and newspaper on weekends - I`ve come to call it "The Crystal Palace". In better years there would be a steady stream of couples going in and out on weekends - on exit, the women would typically be all smiles and chatty as can be, and the guys would have looks ranging from bemused to dazed to "what just happened?"


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ayk5zzO8QL5U&refer=news]Hedge Funds Lost $350 Billion Last Year, Most on Record, Amid Market Rout[/url]: [i]Hedge funds lost $350 billion globally in 2008, the most on record, as the biggest financial crisis since the Great Depression crippled returns and caused investors to pull money out, according to an industry report. [/i]


[b]A Metaphor for Government Meddling:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601081&sid=amfpa2qUCNA4&refer=australia]Eradication of Cats on Faraway Macquarie Devastates Island`s Environment[/url]: [i]Eradicating the cat population on Macquarie, a remote island between Australia and Antarctica, has damaged the local environment, allowing rabbits to rapidly reproduce in their absence.[/i]
[quote]Wiping out the feral cats that were introduced on Macquarie in the 19th century to control rabbits, brought to the island by sealers as a source of food, has instead led to a rabbit explosion, the British Ecological Society’s Journal of Applied Ecology reported. Hungry rabbits and rats have caused 40 percent of Macquarie’s native flora to vanish, helping erode island slopes.

“The lessons for conservation agencies globally is that interventions should be comprehensive, and include risk assessments to explicitly consider and plan for indirect effects, or face substantial subsequent costs,” said Dana Bergstrom of the Australian Antarctic Division, which administers the island.

Macquarie, a United Nations World Heritage Site, is among the island ecosystems where plants and animals introduced by humans as a source of food have overrun native species. Rats eat rare bird and reptile eggs on Ecuador’s Galapagos Islands while Brown tree snakes, which came to Guam in ship cargo holds, prey on native lizards and birds, according to the U.S. Department of Agriculture.

Rabbits, first brought to Macquarie in 1878, became the main prey of feral cats that arrived earlier. The rabbit population reached 130,000 in 1978, then fell to 20,000 as the result of a viral disease introduced to reduce their numbers. The cats lost their main source of food, resorting to eating native burrowing birds, and were then eradicated from the island in 2000.[/quote]
[b]My Comment:[/b] Why do I post this in the Econ 2009 thread?, you ask. The reason is that is such a perfect metaphor for the typical effects of governmental meddling in complex interconnected systems - in this case an ecological one [complex predator-prey dynamics in an island ecosystem], but in the financial markets we have similar meddling-with-what-you-don`t-really-understand going on. And I expect the end result will be the same kind of "King Merdas Effect" - whatever the government meddlers touch is only made worse as a result, and turns to complete shit. let`s review the MacQuarie Island case:

- Rabbits introduced in the early 1800s as food for whalers multiply rapidly, as do the rats carried by the same ships. The combination of rabbits competing for limited food and rats preying on eggs decimates the island`s small native fauna;

- Cats introduced in the late 1800s to keep the rabbits and rats in check. Of course the cats also eat the native fauna.

- In the 1980s some governmental agency decides that the rabbit population is still too great, so a virus is introduced in an effort to wipe out the bunnies. This eliminates the cats` main source of food, so they revert to - you guessed it - decimating the island`s remaining native fauna;

- Some governmental agency decides that we can`t have the cats eating the native fauna, so in the late 1990s the cats are eradicated. But alas the virus used to decimate the rabbits hasn`t killedf them all, so once the cats are gone, the remaining rabbit population - now dominated by virus-resistant rabbits - explodes.

And, just as with the housing bubble collapse, I'll betcha somewhere the meddling bureaucrats who only made things worse (and at great expense, most likely) are saying "it was a series of completely unforeseen events - we were caught completely off guard - no one could have possibly predicted this..."

Germany to ban excessive government borrowing
 

[url=http://www.ft.com/cms/s/0e87d8ee-e182-11dd-afa0-0000779fd2ac,dwp_uuid=7c485a38-2f7a-11da-8b51-00000e2511c8,print=yes.html]Germany to ban excessive government borrowing[/url]: [i]Germany will change its constitution to ban excessive public borrowing and impose strict new rules to ensure the extra debt created by its latest fiscal stimulus package is paid off as soon as possible, Angela Merkel, the chancellor, said on Tuesday.[/url]
[quote]Underlining Berlin’s concern about the erosion of fiscal discipline in Europe, the chancellor said she was determined to balance public-sector budgets in the medium term.

“We will have to borrow more,” she said. “But we must also be credible vis-à-vis future generations when we say we intend to repay this debt.”

Ms Merkel’s comments were made as she unveiled a two-year €49.25bn ($65.5bn, £44bn) package of growth measures, including public investments and tax cuts. These will raise the amount Berlin is spending to fight the economic crisis this year to 1.5 per cent of gross domestic product.

Under the constitutional amendment outlined on Tuesday it will be illegal for any government to raise the state’s public deficit above 0.5 per cent of GDP “in normal economic times”. For 2008, such a rule would have capped borrowings at €12bn.

The finance ministry is also to set up a “redemption fund”, with binding rules that commit the government to repaying the cost of the stimulus package by a set time. The fund would be similar to one created in 1995 to manage the repayment of the €171bn in extra borrowings linked to German unification – a goal finally met last year.

This measure could force future governments to tap windfall tax revenues to repay debt once economic growth reached a given threshold, Ms Merkel said. Alternatively, it could earmark Bundesbank profits for debt repayment.

Ms Merkel is keen for Germany to remain a fiscal role model despite adopting the biggest stimulus since the federal republic was created 60 years ago – and the largest in Europe since the start of the financial crisis.

Senior members of the chancellor’s coalition gave warning on Tuesday that Berlin was facing a borrowing spiral that would take decades to reverse.

“I am expecting a federal deficit of €60bn this year,” Steffen Kampeter, public finance expert for Ms Merkel’s Christian Democratic Union in parliament, said. This would be €20bn above the postwar record. “The government is giving the impression that it is again opening the deficit floodgates.”[/quote]
[b]My Comment:[/b] Meanwhile, here in the good old land-of-endless-credit USA, our public officials seem relatively unconcerned about a debt expansion of $2 Trillion (on the order of 15-20% of GDP) THIS YEAR ALONE, which is going to be added to roughly $50 Trillion of unfunded current-account obligations. Whatever will future generations think of us?

I think it is amazing that Germany which is the only government to be behaving somewhat responsibly in this crisis - actually incredibly responsibly considering what all the other governments are doing - was pilloried for standing in the way of the grand stimulus plans for reviving the global economy.

I'm moving all me cash to Germany :smile:

Nortel Networks declared bankruptcy today.

[url]http://ca.news.finance.yahoo.com/s/14012009/2/biz-finance-stocks-look-lower-open-nortel-seeks-u-s.html[/url]

[QUOTE]TORONTO - North American stock markets are in for a sharply lower open as Canadian tech giant Nortel Networks (TSX: NT.TO) filed for bankruptcy protection in the U.S. and American retail sales for December came in far worse than expected.

The telecom's stock has been halted on the TSX. It finished at 38.5 cents Tuesday, down 12.5 cents.

In mid-2000 before the tech wreck, those shares were worth more than $1,100 each, adjusted for a stock consolidation that took place in late 2006.

The bankruptcy filing came two days before Nortel is due to repay a $107-million interest debt on bonds.

Last month, it was reported that the company hired legal advisers to explore bankruptcy court protection from creditors, but Nortel said at the time that a filing was not imminent. [/QUOTE]

Just as an fyi, I work for Nortel and have for 28 years.

I will be here doing my job and supporting my customers.

DarJones

[QUOTE=Fusion_power;158726]Nortel Networks declared bankruptcy today.[/QUOTE]
Ya beat me to it, Dar - good luck to you and your fellow NT employees.

[url=http://money.cnn.com/2009/01/14/technology/nortel_bankruptcy.reut/index.htm]Nortel files for bankruptcy[/url]: [i]Canadian telephone equipment maker files for Chapter 11 protection a day before deadline on $107M interest payment.[/i]
[quote]TORONTO (Reuters) -- Nortel Networks Corp., North America's biggest maker of telephone equipment, filed for bankruptcy protection Wednesday, as the global economic downturn further erodes its once high-flying business.

The filing came a day before the Toronto-based company was due to make an interest payment of about $107 million.

Nortel (NT) and a number of its affiliates filed for Chapter 11 bankruptcy protection in the United States, according to a court filing.

Its shares plunged more than 76% to 7.5 cents in electronic pre-market trading.

"Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," said Duncan Stewart, an analyst at DSAM Consulting in Toronto.

"Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern."

According to the court filing in U.S. bankruptcy court for the district of Delaware, Nortel's major creditors include Bank of New York Mellon, with claims valued at nearly $4 billion.

Nortel's shares have tumbled along with the company's fortunes, sinking into penny-stock territory in recent months. In mid-2000, at the zenith of the company's success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.[/quote]
[b]My Comment:[/b] See the stock chart I posted [url=http://mersenneforum.org/showthread.php?p=152743&highlight=nortel#post152743]here[/url] (it`s at the bottom of the post) for a graphic illustration of Nortel`s comedown since the high-flying days of the dotcom bubble.


[url=http://money.cnn.com/2009/01/14/news/economy/nrf_holidaysales/index.htm]Holiday sales: Much worse than feared[/url]: [i]Retail group says combined November-December sales fell 2.8%, after expecting a modest gain.[/i]
[quote]NEW YORK (CNNMoney.com) -- The retail industry's leading trade group blamed a "deep recession, severe winter weather and five fewer shopping days" for a 2.8% drop in 2008 holiday sales - a far worse outcome than the industry expected.

The National Retail Federation had originally forecast holiday sales for the combined November-December shopping months to grow 2.2%, which would still have been the weakest pace of gain in at least six years.

As it was, it turned out to be the first-ever decline in the measure since the group initiated it in 1995.

The two-month holiday period can account for as much as 50% of retailers' annual profits and sales.

"The current economic crisis proved to be more challenging than any had anticipated," NRF Chief Economist Rosalind Wells said in a report "Consumers showed they were more than willing to wait out retailers this year causing increased pressure on prices."[/quote]
[b]My Comment:[/b] Where these folks got the idea that retail sales would grow versus last year, given the current economic climate, is absolutely beyond me.


[url=http://money.cnn.com/2009/01/14/news/companies/citigroup/index.htm]Citi plunges as investors brace for break-up[/url]: [i]In the first step of an expected overhaul, the bruised bank is selling 51% of Smith Barney to Morgan Stanley; Citi bumps earnings release to Friday.[/i]
[quote]NEW YORK (CNNMoney.com) -- Citigroup said late Tuesday that it plans to merge its Smith Barney brokerage division with that of peer Morgan Stanley, a move that is expected to mark the beginning of a break-up of the troubled banking giant.

A source close to the matter indicated that the company will unveil a reorganization plan in the coming weeks. The Wall Street Journal reported that the company could time the announcement to coincide with its fourth-quarter results.

Citigroup was originally expected to announce those results on Jan. 22. But the bank announced Wednesday morning that it was moving the release to this Friday.

A company spokesman declined to comment on speculation about a restructuring.

Investors, however, appeared little encouraged by the news. Citigroup shares plunged 16% in Wednesday morning trading. Morgan Stanley stock lost more than 8%.[/quote]
[b]My Comment:[/b] C shares down over 20% as I write this. Bloomberg has a commentary which can be summarized as "this was a long time coming":

[url=http://www.bloomberg.com/apps/news?pid=20601039&sid=aC4YL4ER3R4I&refer=columnist_reilly]Citigroup Crisis Is Emblem of Capital Drought[/url]: [i]Time and again, big banks such as Citigroup Inc. argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.[/i]
[quote]For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn’t work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn’t done the trick either.

The reason is pretty simple. This has never been a liquidity crisis. It’s a capital crisis. Namely, investors don’t think banks have enough of it, especially when it comes to tangible common equity. [/quote]
[b]My Comment:[/b] The government did much more than merely "go along" with that thinking - the Bernanke-led Fed actively promoted that fiction, and wasted hundreds of billions in taxpayer dollars trying to maintain the illusion. On a jobs-related note, Mish, in his [url=http://globaleconomicanalysis.blogspot.com/2009/01/citigroup-goes-to-sleep.html]commentary on the Citigroup breakup[/url], notes that Citi currently has a whopping total of 140,000 IT positions - I fear a lot of those good-paying jobs are alas going to disappear this year.


[b]Christmas is Over:[/b]

The Santa Claus market rally proved to have been a good one to short - hopes of that stretching into an "Obama Inaugural Rally" appear to have vaporized.

As I wrote my investment buddy garo last week, the late-December rally reminded me very much of last year's "April Fools" rally, a monthlong bout of delusional optimism which occurred in the face of unmistakably horrid numbers coming out of the real estate markets and the banking system. Last April was a brutal month for those of us who had gone short and sat there shaking our heads in disbelief as the markets shrugged off one multibillion-dollar bank writedown and dilutive capital-raising effort after another, but anyone who stuck it out [and managed to avoid getting a margin call followed by a forced position liquidation] was rewarded handsomely.

These days the "running of the bulls" bear market rallies tend be ever-shorter and ever-weaker. That means a healthy degree of fear has penetrated even the lair of the most hard-core permaBulls, the Abby Joseph Cohens and Jim Cramers of the world - but it also makes playing the short side a lot trickier.

Latvia Is Shaken by Riots Over Its Weak Economy
 

[url=http://www.nytimes.com/2009/01/15/world/europe/15latvia.html?_r=1&ref=world]Latvia Is Shaken by Riots Over Its Weak Economy[/url]
[quote]Violent protests over political grievances and mounting economic woes shook the Latvian capital, Riga, late Tuesday, leaving around 25 people injured and leading to 106 arrests.

In the wake of the demonstrations, President Valdis Zatlers threatened Wednesday to call for a referendum that would allow voters to dissolve Parliament, saying trust in the government, including in its ability to deal with growing economic problems, had “collapsed catastrophically.”

For years, Latvia boasted of double-digit economic growth rates, but it has been shaken by the global economic downturn. Its central bank has spent a fifth of its reserves to guard against a steep devaluation of its currency, the lat, and experts expect a 5 percent contraction of the country’s gross domestic product in 2009. Salaries are expected to fall substantially, and unemployment to rise.

The violence followed days of clashes in Greece last month over a number of issues, including economic stagnation and rising poverty as well as widespread corruption and a troubled education system. In Bulgaria on Wednesday, separate riots broke out in the capital, Sofia, after more than 2,000 people — including students, farmers and environmental activists — demonstrated in front of Parliament over economic conditions, Reuters reported.

Mr. Zatlers has long been aligned with the governing coalition, so his threat to dissolve Parliament came as a surprise — and was testament to nervousness about how economic troubles in the region could intersect with simmering political grievances.

The rioting broke out Tuesday after around 10,000 people protested in historic Dome Square over the economic troubles and grievances involving corruption and competence of the government.

Several hundred protesters lingered after most of the crowd had left and started throwing snowballs and cobblestones at government buildings.

Several demonstrators also threw Molotov cocktails, according to Mareks Mattisons, a spokesman for Latvia’s Interior Ministry. In a public statement on Wednesday, President Zatlers denounced the violence, but said it was more important to ask “why people gathered in Dome Square.”

“We must not face further confrontation, we must do the things that are demanded by the public,” he said. “I refer to constitutional amendments, a plan to stimulate the economy, and reform of the national system of governance.”

Krisjanis Karins, a member of Parliament and former leader of the opposition New Era party, said the violence showed that financial woes had injected a new vehemence into old political complaints.

Protests in Latvia, he said, tended to follow a pattern of “standing, singing and just going home,” but the young protesters who showed up on Tuesday evening “seem to think the Greek or French way of expressing anger is better,” he said.

“In our neck of the woods, this just doesn’t happen,” he said. “But it did this time. Everyone is trying to figure out how much of this was provoked. Who are these people? Where did they come from?”

Whatever the answer, he said, Tuesday’s protests seem likely to force political change.

“In six months, we’re going to look back and yesterday will be a watershed,” he said. “I would be deeply surprised if it were not.”

President Zatlers made a series of strict demands of the Parliament, including a constitutional amendment that would allow voters to dismiss Parliament, and a new supervisory council to oversee economic development and the state’s use of loans.

He called for “new faces in the government,” chosen for competence rather than “their influence in the relevant party.” He said the changes must be made by March 31, or else he would propose a referendum that could dissolve Parliament.

“Only with such specific work can we calm the public down and offer at least a bit of hope that the process in this country will develop in a favorable direction,” he said. [/quote]

I've thought about this a bit and decided to post a few internal thoughts about a company going through bankruptcy. Here are the basics.

1. Nortel borrowed heavily to finance overall operations as a routine measure. This heavy borrowing led to serious vulnerability in a market downturn of the current magnitude. In Nortel's favor is a current cash position that is still close to $2 billion and a 4th quarter performance that while not stellar is solid in the face of utter market weakness.

2. The basic objective of the bankruptcy will be to continue daily operations while shedding billions of debt. More to be said on this later.

3. Who will be hurt worst? unsecured creditors, stockholders, terminated employees, etc. You can look up the meaning of unsecured creditors and stockholders are the people who purportedly own the company. Their position will essentially be wiped out. The terminated employees include any who were terminated in the last 3 months who are still covered under a severance package. In other words, employees who are still drawing a paycheck. Any new terminations will be done without severance, in other words, those employees will be kicked out without a fare the well.

4. The crucial balancing act is in retaining customers during this process. We are fortunate to have really good relationships with most of our customers at this time. The logistics of maintaining service are complicated by the need to purchase materials, turn them into products, and market the result. Nortel long ago farmed out most manufacturing operations which means we don't purchase raw materials and then manufacture hardware, instead, we purchase finished goods. Now how do you think companies feel about selling to a company in the first stages of bankruptcy? Essentially, they are unsecured creditors. One of the first steps of the bankruptcy was to reach agreements with these critical suppliers. Most now have agreements in place and the remaining few are being addressed.

5. I received a copy of a letter issued by Mike Zafirovski to the director of AT&T, forwarded to me from an AT&T employee. I forwarded that letter to my immediate management with a comment that "We deal with these people day to day. I want to retain their trust and respect." and "I am talking to some people in AT&T with the clear message that we are here and we will be here to support their projects. I would suggest we have the other engineers use a consistent message without getting tied up in financial specifics." So one of the key elements in this restructuring bankruptcy will be keeping key employees in position and maintaining communication with customers.

6. A really big concern is morale of employees. How do you keep people working at a high level of performance with so much uncertainty in their lives? I have quite a bit to say on this issue, but will save it for another post.

DarJones

Many thanks for the insights into the Nortel bankruptcy, Dar.

Speaking of insolvency, here in California the day of forced budget reckoning draws ever closer, as our state legislators continue to dither, refuse to make hard choices which would upset their various labor-union constituents (teachers, firefighters/police, medical workers, state employees, etc, all have incredibly powerful lobbies here, and none of them wants to give up a single god-damned thing in order to help close the yawning fiscal deficit) - and as I recently found out, interestingly enough there is no provision in law for a state-level bankruptcy, as there is for municipalities. So if they run out of money and cannot close their budget gap via expenditure-slashing, states have relatively few options:

1. Federal help;
2. Issuance of bonds (an unlikely option for a state which is insolvent)
3. Fire sale of assets - anybody want to buy a hundred-year lease for Yosemite? (I know, its a national park, but perhaps the state could still find some way to "rent it out" for $);
4. Default on its existing debt - this is the "unthinkable", the "nuclear option" - but then again, we've had a whole lot of "unthinkable" stuff happen in last several couple of years.

-----------------------

Forgot to post this last night before leaving work:

[url=http://money.cnn.com/2009/01/15/news/economy/jobless_claims/index.htm]Jobless claims surge[/url]: [i]Number of Americans filing for unemployment benefits breaks half-million mark for first time in 2009.[/i]
[quote]The last time jobless claims exceeded the half-million mark was the week that ended Dec. 20, when claims surged to a 26-year high of 589,000.

Ian Shepherdson, an economist with High Frequency Economics in New York, said that the impact of the Christmas and New Year's Day holidays continue to cloud the data of the weekly report.

However, he thinks that that jobless claims will rise and he doubts that the peak in claims will be reached before fall.

"The weekly numbers are always volatile, but we think a peak above 750,000 is a reasonable, if very depressing, expectation," Shepherdson wrote in a research note.[/quote]
[b]My Comment:[/b] So much for the ridiculously optimistic predictions by many "experts" of "only" 2-3 million job losses in the U.S. in 2009 - we could pass the 2M mark by April at this rate, and not even the deficit-swelling [url=http://money.cnn.com/2009/01/15/news/economy/house_stimulus_bill/index.htm]$850 Billion stimulus package[/url] being crafted in Washington is going to provide more than a band-aid for that, especially since much of it is going to amount to little more than [url=http://globaleconomicanalysis.blogspot.com/2005/09/thoughts-on-davis-bacon-act.html]grossly overpaying[/url] for various politicians` pork-barrel projects without laying any kind of real foundation for long-term quality job creation. The only part of the package that has a chance of doing the latter is the various [url=]http://money.cnn.com/2009/01/14/technology/renewable_manufacturing/index.htmgreen-tech initiatives and tax breaks[/url] included in the stimulus package.


[url=]CRE Loan Distress Levels Escalating Rapidly[/url]
[quote]The distressed loan situation in commercial real estate is taking a striking turn for the worse, according to a CoStar Group analysis of December loan information on more than 83,000 loans in commercial mortgage backed securities.

The amount of loans placed in special servicing - generally an indication of a delinquency or failure to pay off a mature loan - rose dramatically in the fourth quarter - from about $400 million per month in September to more than $1.6 billion in November.

And that trend is likely to continue in the near term as the number of loans identified by CMBS servicers as having potential credit issues more than doubled from about $3.5 billion per month to about $7.5 billion in November.

In preparation for its first market outlook presented last week, CoStar also undertook its first-ever analysis of delinquent and distressed properties in the CMBS market, examining loans with a total value of more than $700 billion.

CoStar identified nearly 1,200 commercial real estate loans that were either delinquent in loan repayments or had reached maturity without pay off of the loan. The principal and interest outstanding on those loans as of mid December totaled nearly $8.2 billion.[/quote]
[b]My Comment:[/b] One of the readers of the above article comments in Haiku form thusly:

[i]Polygon strip malls
across these States
drying up like
beached starfish.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aOLOY6TymFKg&refer=news]Intel Fourth-Quarter Profit Drops 90% as U.S. Recession Curbs Chip Demand[/url]: [i]Intel Corp., the world’s biggest maker of semiconductors, said fourth-quarter profit dropped 90 percent after the recession curbed demand and forced the company to write down the value of its investments. [/i]

Friday Economic Potpourri
 

[url=http://money.cnn.com/2009/01/16/news/companies/circuit_city/index.htm]Circuit City to shut down[/url]: [i]Court filing shows bankrupt electronics retailer seeks approval to sell merchandise in its remaining 567 stores.[/i]
[quote] Bankrupt electronics retailer Circuit City Inc. said Friday it has asked for court approval to close its remaining 567 U.S. stores and sell all its merchandise.

The company said it has 30,000 employees.

"We are extremely disappointed by this outcome," James Marcum, acting CEO for Circuit City, said in a statement. "We were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company."

In a filing with the U.S. Bankruptcy Court for the Eastern District of Virginia, Circuit City - the No. 2 electronics retailer after Best Buy (BBY, Fortune 500) - said it had reached an agreement with four companies to start the liquidation process.

The company said the sale would begin Saturday and run until March 31, pending court approval.

"This is very significant. It shows you how bad things are for the the retail industry," said George Whalin, president and CEO of Retail Management Consultants.

Whalin said management mistakes over the past few years combined with the recession brought down Circuit City.

"This company made massive mistakes," he said, citing a decision to get rid of sales people and other mismanagement.

What`s more, given the credit market freeze, Whalin added that no manufacturer wants to sell to any retailer who doesn`t have money to pay for the merchandise.[/quote]
[b]My Comment:[/b] First big one of the post-holiday retailer bankrupticies. Plenty more to come.


[url=http://money.cnn.com/2009/01/15/pf/benefits_cut/index.htm]Benefits on the chopping block[/url]: [i]A growing number of companies are scaling back health coverage, among other benefits, to save money. But that could cost employees less too.[/i]


[url=http://money.cnn.com/2009/01/14/real_estate/appraisal_reform/index.htm]Taming inflated home appraisals[/url]: [i]New guidelines aim to reduce the pressure that real estate appraisers feel to boost home values.[/i]
[quote]Washington policy makers have taken aim at one of the main contributing causes to the housing crisis: inflated appraisals.

When home prices were soaring, one of the driving factors was that appraisers, pressured by loan officers and mortgage brokers, kept hyping home values. Not only did homebuyers wind up paying more, but the exotic mortgage products they needed to finance their purchases later exploded, setting off the financial and economic turmoil the nation is facing today.

Now, the Federal Housing Finance Agency (FHFA), the government agency created to oversee Fannie Mae and Freddie Mac, has announced a plan to curb the influence that loan originators exert on appraisers to overvalue homes. A new Home Valuation Code of Conduct, which will take effect this May, is an attempt to improve the reliability of appraisals for mortgages sold to the two companies. The guidelines prohibit lenders from coercing, extorting, colluding with, intimidating or bribing appraisers into making inaccurate appraisals.[/quote]
[b]My Comment:[/b] Had the various laws and lending-and-mortgage-industry "guidelines" and "standards" already on the books not been deliberately ignored on a massive nationwide scale by everyone from the consumers lying about their incomes and deluding themselves into believing they could actually service an 80-percent-of-income mortgage, to appraisers getting paid to inflate appraisals by mortgage companies who then quickly sold the resulting crapMortgages to investment banks and te GSEs, who then handsomely paid the government-sponsored ratings agencies to rate their junk paper AAA, who did so for years right under the noses of their supposed government regulators - well, we never would have had the housing bubble, would we? Does anyone really believe that simply writing a new set of "guidelines" will magically ensure they actually followed? Classic feel-good legislation at its finest here.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aQHIoX4ejmAg&refer=news]Bank of America Has First Loss in 17 Years, Gets $138 Billion U.S. Bailout[/url]: [i]Bank of America Corp., the largest U.S. bank by assets, posted its first loss since 1991 and cut the dividend to a penny after receiving emergency government funds to support the acquisition of Merrill Lynch & Co. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=axrPltisggLY&refer=news]U.S. Consumer Prices, Industrial Production Tumble on Record Drop in Sales[/url]: [i]Consumer prices and industrial production tumbled in the U.S. as a record slide in retail sales destroyed companies’ pricing power and idled more than a quarter of factory capacity. [/i]
[quote]The cost of living fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said today in Washington. Industrial output shrank 2 percent, and the capacity-utilization rate slid to 73.6 percent, the Federal Reserve said. A private survey showed consumer sentiment little changed in January.

The figures indicate a deepening threat to earnings at businesses from manufacturers to retailers. A survey of chief executive officers today showed the lowest level of confidence in at least three decades. Further declines in prices would raise the danger of deflation, which would deepen the recession by making debts harder to pay off.

“Companies in many different areas are cutting prices in order to try to preserve business,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We don’t have evidence yet that the rate of decline” in the economy is slowing, he said. [/quote]
[b]My Comment:[/b] In fact, the rate of decline appears to be increasing, with mass layoffs and fear about jobs taking even more spending out of the economy than mere housing-price and equity-portfolio drops would account for. If it looks like a depression, and acts like a depression...


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=azQAixzrw_y4&refer=news]Trichet Vision Unravels as Investors Demand Higher Rates From Spain, Italy[/url]: [i]European Central Bank President Jean-Claude Trichet’s vision of economies converging behind the shield of a shared currency may be unraveling. [/i]
[quote]The gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany has ballooned to the widest since before they joined the euro. The difference may grow further as Europe’s worst recession since World War II hurts budgets and credit ratings across the region.

Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

“It will act as an additional braking mechanism on these economies,” said Julian Callow, chief European economist at Barclays Capital in London. “For the ECB it makes it harder to determine the future evolution of the economy.”

Trichet has asserted that the ECB, which was modeled on the Bundesbank, and the prospect of euro membership helped some nations import the credibility built up by Germany in the decades after World War II. In May, Trichet said the euro prompted a “convergence of market interest rates” to the level set by “the most credible national currencies” before monetary union.[/quote]
[b]My Comment:[/b] You can`t simply "import credibility" - you can at best try to fake or "borrow" it, as the aforementioned EU member states did, but that game only works as long as times are good. The funny thing is that the EU member states whose debt is now being increasingly shunned look like Extreme Savers in term of their debt-to-GDP ratios compared to the insolvent Debt Bomb that is the good ole U.S. of A. Ooh, "Spain’s deficit could top 6 percent this year" - six percent is for pansies, real deadbeat countries gotta have at least 10% there. Throw in a taxpayer bailout and quasi-nationalization of your entire banking system, irresponsible mortgage lenders and profligate consumers, and you too can reach "manly debt numbers" territory.


[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=an1lSsWKeDs0&refer=china]Central Bank's Zhang Attacks Paulson's `Gangster Logic,' on Savings Rates[/url]: [i]A Chinese central bank official attacked reported comments by U.S. Treasury Secretary Henry Paulson that China’s high savings rate helped trigger the global credit crisis. [/i]
[quote]“This view is extremely ridiculous and irresponsible and it’s ‘gangster logic,’” Zhang Jianhua, the bank’s research head, said. His comments were in an interview with the state-run Xinhua News Agency, posted on a government Web site today.

Commentaries by China’s state media this month had already accused Paulson and Federal Reserve Chairman Ben S. Bernanke of playing a “blame game” over the cause of the crisis.

Friction between the two nations includes a U.S. complaint to the World Trade Organization last month that China uses prohibited subsidies to boost exports. The U.S. also regards China’s currency, the yuan, as undervalued and a factor in global trade imbalances.

Massive savings accumulations in countries such as China helped to trigger the crisis by squeezing interest rates and pushing investors toward riskier assets, the Financial Times reported Jan. 2, quoting Paulson.

Zhang countered that U.S. policies that aggravated imbalances in that nation’s economy, which was excessively dependent on consumer spending, were a key cause. He also cited failures in corporate governance and risk management at investment banks. [/quote]
[b]My Comment:[/b] Don`t often find myself saying this, but I goota agree with the Chinese Central Bank official here. None of the usual sources of friction between U.S. and China over trasde imbalances, protectionism and currency manipulation would be a big dea if the U.S. weren't such a colossal nation of put-it-on-my-credit-card spendthrifts.


[b]And On a More Humorous Note:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aYRTVXV1dnuE&refer=news]Film, Porn Shoots Welcomed by Los Angeles Homeowners Squeezed by Recess[/url]: [i]Jayshree Gupta reclined on an English-style sofa in her Beverly Hills penthouse as crews buzzed around taping protective paper over the hardwood floors and wheeling in crates of camera gear. [/i]
[quote]She was hosting a television-commercial shoot. It meant allowing dozens of strangers and 400-pound klieg lights into her home for a full day, and it was worth every minute, Gupta said.

“I am doing it because I need money to maintain my lifestyle,” she said, perched near a portrait of herself painted by her friend Barbara Carrera, the Bond girl in 1983’s “Never Say Never Again.” “A lot of my money is either gone or tied up. Right now I am hurting.”

Gupta, a clothing and jewelry designer, is among an increasing number of recession-pinched Los Angeles homeowners turning to Hollywood for help, offering their houses as sets for feature films, commercials and even adult movies.

“We are getting a lot of calls,” said Joseph Darrell, whose Los Angeles-based Joe Darrell Location Service represents Gupta. “They say, ‘Can you help me to bring a production to my home, because I have trouble making my payments.’”

The daily fee paid for the sort of work done at Gupta’s 3,000-square-foot condo in the city’s signature 90210 ZIP code is usually $2,000 to $3,000, Darrell said. That would cover about half of her monthly household bills, including maid service.

“I am praying, praying, for more productions to come in,” Gupta said. [b]“I thought it was a brilliant idea to help myself.”[/b][/quote]
[b]My Comment:[/b] My, we are just a bit full of ourself, aren`t we?
[quote]Famous homes have starred in movies, including 1997’s “L.A. Confidential,” which showcases Richard Neutra’s 1929 Lovell House near the Griffith Observatory. Hollywood has also thrown unknown homes into the limelight, including one in Studio City used for exterior shots of the residence on the 1970s sitcom “The Brady Bunch.”

Another upside: Income from residential filming for fewer than 15 days a year isn’t subject to federal taxes, according to the Internal Revenue Service. [/quote]
[b]My Comment:[/b] Cool ... so up to 14 days of NastyPorn filming are tax-free.
[quote]Jerry Mendoza says he’s willing to go to an extreme he wouldn’t have before the real estate slump. It hit Southern California hard, with the median home price in a six-county region falling a record 34 percent in November to $285,000, according to research company MDA DataQuick.

His four-bedroom house in suburban Burbank, which Mendoza built in 2006, didn’t sell for the $1.3 million he asked, and when renters left in November he began leasing it for filming. The most he received for a day was $1,300, he said. So he posted an Internet notice that the property, which has an eight-person hot tub, was available to the adult-film industry, which he had heard pays as much as $5,000 a day.

A few months ago, “I probably would’ve said, ‘You want to do what in here?’” he said. “That’s reserved for me and the missus.” [/quote]
[b]My Comment:[/b] You and the missus film home pornos? Well, if you need the money that badly, I guess they must not be selling too well.

Today was payday... Except that it wasn't for any employee of Nortel in the USA.

Long story short, the money for payroll was transferred to Bank of America several days ago. Payroll information was sent indicating amounts to disburse. Unfortunately, someone seems to have forgotten to PAY BofA for the work involved and BofA refused to handle the payroll. End result, nobody who works for Nortel in the USA received a paycheck. This was very much an unintended consequence of the bankruptcy filing. It resulted in apologies from several managers and the CEO. Please note that the exact reason payroll was not handled has not been stated, however, from some internal emails, this appears to be what happened.

On a positive note, employee morale is still very high. We have a vested interest in seeing this company survive.

DarJones

UK Bank Bailout Cost Soars | Prisons to Nowhere
 

[url=http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5536899.ece]Treasury’s £100bn lifeline[/url]: [i]New bailout of British lenders will take the government stake in Royal Bank of Scotland to 70%[/i]
[quote]The [UK] Treasury will tomorrow drastically revise the terms of last October’s bank bailout and say it will guarantee at least £100 billion of new lending.

Britain’s bank bosses are on standby to be called to Downing Street today or tomorrow to hear details of the new rescue plan.

Three key proposals are being finalised. The government will offer guarantees on new consumer loans, outline plans to ringfence “toxic” assets on bank balance sheets and propose to refinance the preference shares that were used to rescue Royal Bank of Scotland and HBOS. [/quote]
[b]My Comment:[/b] Note that RBS just [url=http://money.cnn.com/2009/01/19/news/international/rbs.reut/index.htm]reported a record loss of $30 Billion[/url], much of it related to their own speculative bubble investment, the ill-fated purchase of ABN AMRO in 2007. If the UK government thinks throwing ever-increasing amounts of public funds at the insolvent banks will spur lending they are as mistaken as the U.S. Federal Reserve - banks will hoard the cash in expectation of further losses in their rotten loan portfolios to come, just as they are doing here.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=adK3f_OiMeWU&refer=news]California's Unemployment Empire Finds Public Works Spending No Cure-All[/url]: [i]An hour’s drive through California’s Riverside County takes in neighborhoods of deserted homes, boarded-up businesses, busy unemployment offices -- and crews working on millions of dollars in new public projects.[/i]
[quote]Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Riverside also has almost $1 billion worth of public-works projects underway or planned, from widening roads to building a new jail. The county illustrates both the promise and the limitations of the spending President-elect Barack Obama proposes to pull the U.S. economy out of a recession that may become the longest since the Great Depression.

...

Riverside County didn’t set out to create jobs through public projects, which were needed in any case to accommodate a rapidly growing population that’s now 2.09 million, said Bill Luna, the county’s chief executive. Still, it became clear that such spending, if pushed through years sooner than originally planned, could help offset rising unemployment, said Roy Wilson, immediate past chairman of the board of supervisors.

“Creating one job is making a difference,” said Leroy Mathews, project superintendent on a new $12 million fire station and training center in the unincorporated Thousand Palms area, which employs 30 to 40 construction workers a day. “I just don’t know how much.”

The county’s largest project, a new $300 million jail in the unincorporated Whitewater area, will take up to two years to build and create as many as 4,500 jobs, officials said. It’s being paid for in cash after the county sold investors its share of future revenue from the 1998 tobacco-industry settlement, Luna said.

“Infrastructure investments are absolutely the best way to respond,” said [consultant John] Husing, who has studied the Inland Empire for 44 years. Even so, “it will take some time for money to change hands and for people to add jobs outside construction.” [/quote]
[b]My Comment:[/b] Wasting one-time-windfall money on bridges-to-nowhere-style projects and to build more prisons which will mainly be used to turn nonviolent drug offenders into hardened career criminals (all at taxpayer expense) doesn`t strike me as being in any way, shape or form "absolutely the best way to respond".


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a1JVGaW3TqqA&refer=news]Ukraine Bonds Point to Default as Putin Takes `Upper Hand' in Gas Dispute[/url]: [i]Four years after Ukraine embraced the West with the election of President Viktor Yushchenko in the Orange Revolution, the former Soviet nation’s economy is collapsing and investors expect the country to default. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aCL_6e5SsFVI&refer=europe]Spain's Long-Term Sovereign Credit Rating Lowered to AA+ From AAA by S&P[/url]: [i]Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit. [/i]
[quote]The risk of losses on Spanish government debt rose to a record today, credit-default swaps showed, after S&P lowered the rating one step to AA+ and assigned it a “stable” outlook. It was S&P’s first reduction in Spain’s rating and puts it on the same level as Belgium and Hong Kong.

The cost of economic stimulus packages and bank bailouts is boosting budget deficits around the euro-region, fueling concern governments will have difficulty paying their debt. S&P cut Greece’s rating one step to A- on Jan. 14. A day earlier, it threatened to downgrade Portugal’s debt. S&P also reduced the outlook on Ireland’s rating to negative from stable.

“The only country that should be able to keep its AAA rating is Germany,” said Jose Carlos Diez, chief economist in Madrid at Intermoney SA, Spain’s largest bond dealer. “There should be a question mark over the rest.” [/quote]
[b]My Comment:[/b] The metaphorical elephant in the proverbial bedroom here is the U.S.'s credit rating, which also deserves to be cut. But since the U.S. government is effectively the Godfather of the ratings cartel, you know that won`t ever happen, except possibly - just as happened with the subprime-mortgage-bond-rating racketeering fraud - long after it would actually serve any of its intended purposes.

[QUOTE]My Comment: Wasting one-time-windfall money on bridges-to-nowhere-style projects and to build more prisons which will mainly be used to turn nonviolent drug offenders into hardened career criminals (all at taxpayer expense) doesn`t strike me as being in any way, shape or form "absolutely the best way to respond".[/QUOTE]Off the cuff, the latest cost figures I believe for incarceration in California are about $42,000 per prisoner, per year. Health Care for them is about $15,000 per year.

Bankenstein's Monster
 

Economist Paul Krugman sets aside his all-too-frequent Keynesian "stimulus up da wazoo!" blather for once and has some sensible things to say about government policy toward zombie financial institutions:

[url=http://www.nytimes.com/2009/01/19/opinion/19krugman.html?_r=1&ref=opinion]New York Times | Wall Street Voodoo[/url]
[quote]Old-fashioned voodoo economics — the belief in tax-cut magic — has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.

But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.

To explain the issue, let me describe the position of a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.

On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets — say, $400 billion worth — are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion.

So Gotham is a zombie bank: it’s still operating, but the reality is that it has already gone bust. Its stock isn’t totally worthless — it still has a market capitalization of $20 billion — but that value is entirely based on the hope that shareholders will be rescued by a government bailout.

Why would the government bail Gotham out? Because it plays a central role in the financial system. When Lehman was allowed to fail, financial markets froze, and for a few weeks the world economy teetered on the edge of collapse. Since we don’t want a repeat performance, Gotham has to be kept functioning. But how can that be done?

Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham’s current shareholders — and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what’s now supporting Gotham’s stock price.

A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners.

The current buzz suggests, however, that policy makers aren’t willing to take either of these approaches. Instead, they’re reportedly gravitating toward a compromise approach: moving toxic waste from private banks’ balance sheets to a publicly owned “bad bank” or “aggregator bank” that would resemble the Resolution Trust Corporation, but without seizing the banks first.

Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, recently tried to describe how this would work: “The aggregator bank would buy the assets at fair value.” But what does “fair value” mean?

In my example, Gothamgroup is insolvent because the alleged $400 billion of toxic waste on its books is actually worth only $200 billion. The only way a government purchase of that toxic waste can make Gotham solvent again is if the government pays much more than private buyers are willing to offer.

Now, maybe private buyers aren’t willing to pay what toxic waste is really worth: “We don’t have really any rational pricing right now for some of these asset categories,” Ms. Bair says. But should the government be in the business of declaring that it knows better than the market what assets are worth? And is it really likely that paying “fair value,” whatever that means, would be enough to make Gotham solvent again?

What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value” purchases of toxic assets.

Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.[/quote]
[b]My Comment:[/b] Ah, the high cost of political taboo-word avoidance in America - in this case the taboo word is "nationalization", which is alas too close to that other pariah word, "socialism". I suspect to most Americans, any traces of "nationalization" and whiffs of "socialism" inevitably combine to yield "national socialism".

[QUOTE=ewmayer;159468][b]My Comment:[/b] Ah, the high cost of political taboo-word avoidance in America - in this case the taboo word is "nationalization", which is alas too close to that other pariah word, "socialism". I suspect to most Americans, any traces of "nationalization" and whiffs of "socialism" inevitably combine to yield "national socialism".[/QUOTE]I suspect that any whiff of "socialism" reeks like the worst pariah word : communism[sup]*[/sup]. The consequence is that the government is happily socialising debts.

Jacob

[sup]*[/sup][size=-2]Since this is an all public forum, should I have used spoiler tags and a warning before using that word ? :-)[/size]

So-Called Experts | California in Perspective
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=adGy_VIX8UPo&refer=news]Analysts Cut Estimates by Record as S&P 500 Gets Off to Second-Worst Start[/url]: [i]The Standard & Poor’s 500 Index is off to its second-worst start as analysts cut profit estimates by a record 83 percentage points and companies signal worse to come. [/i]
[quote]The benchmark index for U.S. equities fell 5.9 percent in the first 11 trading days of 2009, second only to last year’s 6.5 percent drop, according to data compiled by Bloomberg going back to 1928. The decline erased about half of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated.

“Analysts’ expectations have to come down, and they have to come way down,” said Roland Lescure, who oversees $128 billion as chief investment officer of Groupama Asset Management in Paris. “The fourth quarter has been dreadful.”

Stocks tumbled as Wal-Mart Stores Inc., Alcoa Inc. and Time Warner Inc. cut profit forecasts and signaled the U.S. recession that began in the banking industry spread through the economy. Wall Street stock pickers, who were cheerleaders for equities as the S&P 500 tumbled the most since 1937, now forecast a 28 percent drop in profits for the fourth quarter after saying in March that earnings would rise as much as 55 percent.

Forecasts have been too optimistic since the period ended September 2007, when the profit slump began. Analysts failed to anticipate the S&P 500 earnings decline by an average 7.7 percentage points, based on estimates at the beginning of each reporting season compiled by Bloomberg. [/quote]
[b]My Comment:[/b] "The analysts" were wrong all last year, at every turn, on every issue of substance. Despite the dreadful news about job losses and continued deterioration in virtually every barometer of economic fundamentals, "The analysts" for the most part were making bottom calls in December, "time to start buying is now", "foresee a robust recovery in 2nd half of 2009", "don't want to miss the recovery train once it leaves the station", et cetera. As I noted around new year, the one scenario nothing in current market "experts" lifetimes has prepared them for is a multiyear plunge in economic conditions, accompanied by a continued selloff in all these "bottom has been hit, or at least is near" equity indices. Whoopsie! Sorry `bout that, folks, hope you got a vegetable garden planted to help see you through your retirement years, because that 401(k) we`re managing for ya? Well, it ain`t doing so well.
[quote]“There is a lot of noise out there that causes you to doubt what you are doing,” said Brian Piccioni, an analyst at BMO Capital Markets who covers technology companies. Piccioni reduced his estimate for Santa Clara, California-based Intel’s earnings by half on Jan. 16. [/quote]
[b]My Comment:[/b] Given that January 16th was the date that Intel announced its Q4 earnings had plunged 90% year-over-year, not a terribly perspicacious or ballsy call by Mr. Piccioni there, was it? Note to Brian P: We have seen the "lot of noise", and most of it is coming from you and your fellow non-analyzing, after-the-fact-restating-of-the-obvious analysts. Must be great to get paid handsomely for being wrong about everything that isn't already in your rear-view mirror, though.


[url=http://www.mercurynews.com/localnewsheadlines/ci_11465543?nclick_check=1]How big is California`s budget hole? Try these numbers on for size[/url]
[quote]SACRAMENTO — If Gov. Arnold Schwarzenegger were to fire every employee in state government tomorrow, it would easily patch California`s enormous deficit, right? Not even close.

But surely shutting down all state prisons would do the trick? That, too, would only get him about a quarter of the way there.

Now what if he were to close every prison and cut off funding for health care and other services for the poor? Now we`re in the ballpark.

Schwarzenegger on Thursday delivered his annual State of the State address, and there was only one topic on his mind: A budget deficit that`s ballooned to $40 billion through mid-2010.

How does the average taxpayer begin to make sense of that sum? Not easily.

"It`s like a number that`s out there, but it`s so big that it almost becomes meaningless," said Adrienne Gates, a 50-year-old San Jose resident who keeps fairly close tabs on news out of Sacramento. "It`s like hearing stories about how fast the universe is expanding."

Even state lawmakers seem only now to be coming to grips with the enormity of their problem, after months of finger-pointing. No matter how big the shortfall got over the past year, Democrats and Republicans hewed to their long-held opposition to deep program cuts or tax increases.

It`s been only this month, with the state literally on the verge of not being able to pay many of its bills, that signs have emerged that both sides realize they`re going to have to make major concessions.

"There isn`t a real will to hunker down until you have to," said Barbara O`Connor, director of the Institute for the Study of Politics and Media at Sacramento State University. "But it`s reached the point where they don`t have a choice. Polemics don`t work."

Still, even a governor and Legislature in perfect ideological harmony would struggle to close a deficit this big. Consider that $40 billion is the amount the state shells out of its general fund each year for the public school system.

Payroll for California`s roughly 230,000 civil servants tallies a mere $18 billion — not including legislative aides or people who work for the state`s courts or university systems. (Those 149,000 additional folks aren`t under the governor`s control, but even if Schwarzenegger could fire them, their salaries wouldn`t be enough to patch the $40 billion deficit.)

California`s shortfall is larger than the entire yearly budget of every other state except New York. It exceeds the gross domestic product of more than 100 countries, including Syria, Costa Rica and Kenya.[/quote]
[b]My Comment:[/b] No provision in U.S. law for a state-level bankruptcy ... we are so screwed. Government will likely be forced to step in and construct what amounts to an "effective chapter 11 filing", by forcing the state, its major creditors and the various employee unions to the table to share the fiscal pain. At least I hope that`s what Washington does - I suspect even the Keynesian "stimulus checks for all!" crowd are starting to get the idea that it might be good to attach some strings to all that "free money" they`re throwing at the problem.


[b]On a Humorous Note...[/b]

Saw this pithy comment in a Yahoo! Finance message board thread titled "Investors await Obama`s signals on China`s yuan":
[quote][i]
"Obama dont know his mama when it comes to economics, so they key question is, `who are his advisors, and what are they going to advise?`"
[/i]
They will advise doing everything to keep the spigot of Chinese credit open - in the final analysis, China sends us free crap, and we pretend we are going to pay them back with real exports sometime in the distant future. The entire American military is predicated on foreigners sending the US lots of free crap.

That is what an empire is.

This will continue to work until the day it doesn`t any longer, then - Kaput! An economic implosion will pull both countries into the black hole of a sudden economic singularity the like of which you could not imagine on your most pessimistic day.[/quote]
[b]My Comment:[/b] An interesting "heard on the street" definition of an empire there. If one relaxes the "consenting countries" aspect of the above example and allows for coerced "sending of free crap" (the now-out-of-fashion term for this is "tribute", in the "render unto Caesar" sense of the Christian gospel) and "coerced cut-rate labor", it does seem to accurately describe most empires, ancient and more recent.

Desperate Measures By Bank of England
 

[url=http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/Reform-plan-raises-fears-of-Bank-secrecy.html]Reform plan raises fears of secret money-printing by BofE[/url]: [i]The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.[/i]
[quote]The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses." [/quote]
[b]My Comment:[/b] Can you say "Weimar"? Or perhaps Zimbabwe is a more up-to-date analogy, as in, "If printing money were a route to economic prosperity, then Zimbabwe would be an economic superpower." This reeks of desperation.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a5H.yyBoBo34&refer=news]U.S. Stocks Slide to Worst Inauguration Day Drop in Dow Industrial History[/url]: [i]U.S. stocks sank, sending the Dow Jones Industrial Average to its worst Inauguration Day decline, as speculation banks must raise more capital sent financial shares to an almost 14-year low. [/i]
[quote]State Street Corp., the largest money manager for institutions, tumbled 59 percent after unrealized bond losses almost doubled. Wells Fargo & Co. and Bank of America Corp. slumped more than 23 percent on an analyst’s prediction that they’ll need to take steps to shore up their balance sheets. The Dow’s 4 percent slide was the most on an Inauguration Day in the measure’s 112-year history, according to data compiled by Bloomberg and the Stock Trader’s Almanac.

“All the banks are going to have to recapitalize,” said Greg Woodard, portfolio strategist at Manning & Napier Advisors Inc., which manages $16 billion in Fairport, New York. “That’s not done. That’s in front of them, and we don’t want to try to get in front of that trade.”

The S&P 500 plunged 5.3 percent to 805.22. The S&P 500 Financials Index fell 17 percent to below its lowest closing level since March 1995 as concern European banks need more capital also weighed on the group. The Dow average slid 332.13 points to 7,949.09. Both the Dow and S&P 500 retreated to two- month lows.

The S&P 500 is off to its worst start to a year, shattering the biggest rally since World War II, as analysts cut earnings estimates by a record 83 percentage points and companies signal worse to come.

The S&P 500 is down 11 percent in the first 12 trading days of 2009, exceeding last year’s 9.2 percent drop, according to data compiled by Bloomberg going back to 1928. The decline helped erase more than two-thirds of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated.

‘Effectively Insolvent’

U.S. financial losses from the credit crisis may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year’s economic and stock-market meltdowns.

“If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion,” Roubini said at a conference in Dubai today. “This is a systemic banking crisis.”

Europe’s Dow Jones Stoxx 600 Index retreated 2.1 percent today, led by banks and technology companies. It fell almost 2 percent yesterday after Royal Bank of Scotland Group Plc forecast the biggest-ever loss by a U.K. company. The MSCI Asia Pacific Index retreated 2.1 percent today. [/quote]
[b]My Comment:[/b] A fitting welcome for Preident Obama, from his good friends Bush, Greenspan & Co.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=awC04hzCTxew&refer=news]Intel May Report First-Quarter Loss, Breaking 21-Year Run of Profitability[/url]: [i]Intel Corp., the world’s largest chipmaker, may report a loss in the first quarter, breaking a more than 21-year run of profitability, Chief Executive Officer Paul Otellini told employees. [/i]

[quote]The Dow’s 4 percent slide was the most on an Inauguration Day in the measure’s 112-year history[/quote]Note that in those 112 years there were only 28 previous Inauguration Days, so let's not assign too much significance to this latest example of financial pages' constant desperation to cite "records".

- - -

OTOH, 4 percent in one day ... makes me glad I procrastinated in my "get-back-into-the-market" plan.

Ha, ha, various morons on the Yahoo! finance Citigroup message board are already blaming Obama for their getting a huge haircut today ... that's right, Obama was instigating this whole worldwide housing-bubble Ponzi finance scam years ago...and the fact that things are still broken, here, a whopping 8 hours into his presidency, clearly makes him a failure.

Heard a joke yesterday, based on a recent poll showing that 27% of Americans (or some similar number) still believe Bush did a good job: "They say you can fool some of the people of of the time - well, now we know who those people are."

From Tulip Bulbs to Tea Leaves
 

[b]Today`s Lesson in Bubble Economics: From Tulip Bulbs to Tea Leaves[/b]

[url=http://www.nytimes.com/2009/01/17/world/asia/17tea.html]A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts[/url]
[quote]MENGHAI, China — Saudi Arabia has its oil. South Africa has its diamonds. And here in China’s temperate southwest, prosperity has come from the scrubby green tea trees that blanket the mountains of fabled Menghai County.

Over the past decade, as the nation went wild for the region’s brand of tea, known as Pu’er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu’er.

But that was before the collapse of the tea market turned thousands of farmers and dealers into paupers and provided the nation with a very pungent lesson about gullibility, greed and the perils of the speculative bubble. “Most of us are ruined,” said Fu Wei, 43, one of the few tea traders to survive the implosion of the Pu’er market. “A lot of people behaved like idiots.”

A pleasantly aromatic beverage that promoters claim reduces cholesterol and cures hangovers, Pu’er became the darling of the sipping classes in recent years as this nation’s nouveaux riches embraced a distinctly Chinese way to display their wealth, and invest their savings. From 1999 to 2007, the price of Pu’er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu’er, before tumbling far below its preboom levels.

For tens of thousands of wholesalers, farmers and other Chinese citizens who poured their money into compressed disks of tea leaves, the crash of the Pu’er market has been nothing short of disastrous. Many investors were led to believe that Pu’er prices could only go up.

“The saying around here was ‘It’s better to save Pu’er than to save money,’ ” said Wang Ruoyu, a longtime dealer in Xishuangbanna, the lush, tea-growing region of Yunnan Province that abuts the Burmese border. “Everyone thought they were going to get rich.”

Fermented tea was hardly the only caffeinated investment frenzy that swept China during its boom years. The urban middle class speculated mainly in stock and real estate, pushing prices to stratospheric levels before exports slumped, growth slowed and hundreds of billions of dollars in paper profits disappeared over the past year.

In the mountainous Pu’er belt of Yunnan, a cabal of manipulative buyers cornered the tea market and drove prices to record levels, giving some farmers and county traders a taste of the country’s bubble — and its bitter aftermath.

At least a third of the 3,000 tea manufacturers and merchants have called it quits in recent months. Farmers have begun replacing newly planted tea trees with more nourishing — and now, more lucrative — staples like corn and rice. Here in Menghai, the newly opened six-story emporium built to house hundreds of buyers and bundlers is a very lonely place.

“Very few of us survived,” said Mr. Fu, 43, among the few tea traders brave enough to open a business in the complex, which is nearly empty. He sat in the concrete hull of his shop, which he cannot afford to complete, and cobwebs covered his shelf of treasured Pu’er cakes.

All around him, sitting on unsold sacks of tea, were idled farmers and merchants who bided their time playing cards, chain smoking and, of course, drinking endless cups of tea.

The rise and fall of Pu’er partly reflects the lack of investment opportunities and government oversight in rural Yunnan, as well as the abundance of cash among connoisseurs in the big cities.

Wu Xiduan, secretary general of the China Tea Marketing Association, said many naïve investors had been taken in by the frenzied atmosphere, largely whipped up by out-of-town wholesalers who promoted Pu’er as drinkable gold and then bought up as much as they could, sometimes paying up to 30 percent more than in the previous year.

He said that as farmers planted more tea, production doubled from 2006 to 2007, to 100,000 tons. In the final free-for-all months, some producers shipped their tea to Yunnan from other provinces, labeled it Pu’er, and then enjoyed huge markups.

When values hit absurd levels last spring, the buyers unloaded their stocks and disappeared. [url=http://www.nytimes.com/2009/01/17/world/asia/17tea.html][Continued][/url][/quote]

Ugly Jobless Numbers | Denial Not a River in China
 

[i]Edit: A snappy title for my post yesterday about the Chinese tea mania only occurred to me this morning: "For richer or Pu`er". Ah, well, better late than never. :)[/i]

[url=http://money.cnn.com/2009/01/22/news/economy/jobless_claims/index.htm]Jobless claims surge to 26-year high[/url]: [i]Number of Americans filing unemployment insurance hits 589,000, highest since November 1982. [/i]

[b]My Comment:[/b] If those kinds of numbers persist through the rest of the year, we are looking at 7 million job losses, more than 3 times what "most economists" have predicted.


[url=http://money.cnn.com/2009/01/22/news/international/china_growth.reut/index.htm]China`s economic growth slows sharply[/url]: [i]Gross domestic product slumped in the fourth quarter as the global financial crisis deepened. [/i]
[quote]BEIJING (Reuters) -- China`s economic growth slumped to 6.8% last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9% as the full force of the global financial crisis struck home.

Fourth-quarter growth in gross domestic product, measured from a year earlier, dropped from the 9% clip of the July-September quarter but was close to market expectations of a 7% reading.

The slowdown in 2008 snapped a five-year streak of double-digit growth that has turned China into the third-largest economy in the world after the United States and Japan.

"The international financial crisis is deepening and spreading with continuing negative impacts on the domestic economy," the National Bureau of Statistics said in a statement on Thursday accompanying the release of the figures.

A record 35% plunge in Japanese exports in December from year-earlier levels, as well as a sharp contraction in South Korea`s economy in the fourth quarter, suggests there will be no relief any time soon for Asia`s export-dependent economies, including China.

Many economists, especially those at Western banks, believe China will expand by no more than 5-6% this year, which would be the weakest performance since 1990.[/quote]
[b]My Comment:[/b] 5-6% sounds ravingly optimistic ... but given that we have to rely on the Chinese government for these statistics, whatever their internally-greed-upon economic growth target is, is what "economic growth" will be.
[quote]Others agree the economy will remain weak in the first half but think Beijing will hit its target of 8% growth for all of 2009 as November`s $585 billion stimulus package and much easier monetary policy kick in.[/quote]
[b]My Comment:[/b] government stimulus != economic growth.
[quote]"The government has realized the fact that the economy is declining and regards the 8% target as a political task. Therefore, I think we can achieve the goal," said Jin Yanshi, chief economist at Sinolink Securities in Shanghai.[/quote]
[b]My Comment:[/b] Of course you can achieve it - just get some top bureaucrat to write "8% GDP growth in 1Q2009!" on a piece of paper, announce it to the media, and there you go.
[quote]This was the line taken by the head of the statistics office, Ma Jiantang, who said the swoon in growth would be short-lived.

"As long as we can boost domestic demand and increase investment, we can absolutely achieve the 8% GDP growth target in 2009," he told a news conference.[/quote]
[b]My Comment:[/b] Good luck with that, but it hasn`t worked here in the U.S., and with millions of Chinese workers getting laid off each month, it won`t work there, either.
[quote]Ma acknowledged that December`s data showed the economy had been hit hard. Still, inflation-adjusted retail sales and fixed-asset investment held up well, while annual industrial production growth recovered to 5.7% from November`s record low reading of 5.4%.[/quote]
[b]My Comment:[/b] Right - the bad November numbers spooked investors and consumers, so you came up with some better ones for December. See how easy that was?
[quote]Many economists are skeptical about the quality of China`s statistics, which they say are susceptible to political manipulation. The result, these critics say, is that trends in various data series often appear too smooth to be convincing.

Still, Thursday`s GDP figures were consistent with recent data showing falling power consumption and declines in November and December in both exports and imports as the bottom fell out of the world economy.[/quote]
[b]My Comment:[/b] 6.8% announced GDP growth is most certainly *not* consistent with "falling power consumption and declines in November and December in both exports and imports". What, did you simply copy the official Xinhua bulletin?
[quote]"Q4 GDP growth of 6.8% holds little water," said Bian Xubao, an analyst with Qilu Securities in Jinan, using the Chinese phrase that describes when figures are artificially inflated.[/quote]
[b]My Comment:[/b] Or better - using the Chinese phrase that describes when figures are "total bullcrap". The reality is, Asian governments are panicking about the collapse of their export economies and most have little domestic consumption they can ratchet up. One more nail in the coffin of the [url=http://en.wikipedia.org/wiki/Decoupling#Decoupling_and_the_stock_market_declines_of_January_2008]decoupling hypothesis[/url].

Of course, it would also be helpful if the Chinese government discontinued their bizarre practice of "measuring in 2007 and announcing for 2008":

[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=aQmmms3xufOc&refer=china]Roubini Says China Is in Recession Despite `Massaged' Economic Growth Data[/url]: i]China is in a recession despite government statistics today showing the world’s third-largest economy expanded in the fourth quarter from a year earlier, according to Nouriel Roubini, the New York University professor who predicted last year’s economic crisis. [/i]
[quote]“China is in a recession regardless of what the highly massaged official numbers claim,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, wrote in a note today on his Web site. “When growth is slowing down sharply the Chinese way to measure GDP is highly misleading.”
[u]
Unlike the U.S. and western Europe, China’s figures on gross domestic product measure growth from the same quarter a year ago rather than the previous three months[/u]. The year-on-year figures fail to capture the economy’s slowdown at the end of 2008 because growth was so high in the preceding quarters, Roubini wrote.

...

Investors should buy China’s agriculture, water treatment, power generation and infrastructure stocks because the companies won’t be hurt by the nation’s slowing economy, investor Jim Rogers said in an interview today.[/quote]
[b]My Comment:[/b] I generally respect Rogers, except when he talks about Asia - he moved to Asia years ago with his lovely wife Paige and has become a notorious China permabull.
[quote]“There is a lot happening in China and there will be those that will hold up well,” said Rogers, who correctly predicted the start of the commodities rally in 1999 and wrote books on investing including “A Bull in China: Investing Profitably in the World’s Greatest Market.” [/quote]
[b]My Comment:[/b] And didja correctly predict the abrupt and brutal *end* of the commodities bull market last year? Yah, thought not.


[url=http://www.telegraph.co.uk/comment/columnists/iainmartin/4295219/Gordon-Brown-brings-Britain-to-the-edge-of-bankruptcy.html]Gordon Brown brings Britain to the edge of bankruptcy[/url]: [i]Iain Martin says the Prime Minister hasn't 'saved the world' and now faces disgrace in the history books[/i]
[quote]They don't know what they're doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.

Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their "financial innovation".

Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.

We're some way from a similar event. But do not underestimate the gravity of the emergency and potential for disgrace.

The Government's bail-out of the banks in October with £37 billion of taxpayers' money was supposed to have "saved the world", according to the PM, but now it is clear that it has not even saved the banks. Our money kept the show on the road for only three months.

As the Liberal Democrats' Treasury spokesman Vince Cable asks: where has the £37 billion gone? The answer, as Cable knows, is that it has disappeared down the plug hole.

It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy[/quote]

[URL="http://www.nytimes.com/2008/11/19/business/economy/19ports.html?_r=1"]A Sea of Unwanted Imports [The New York Times. November 18, 2008][/URL][QUOTE]The mothballing of cars is nothing new for Detroit, where thousands of unwanted American-made cars have been parked over the last two years at Michigan’s state fairground and in lots at its airports.

It is more unusual to see a lot at the California port filled with thousands of unsold Mercedeses, most of them gathering dirt on the plastic white film that protects their hoods and trunks. Some appeared to have been stashed at the port for several months.[/QUOTE][QUOTE]Not far away, metal, cardboard, paper and plastic are piling up in the lot of Corridor Recycling. The company takes in refuse from around the country, then bales it for shipment to China. The cardboard is used to make new boxes while used shrink wrap is turned into shoe soles and insulation for sleeping bags and coats.

For much of this year, the company shipped about 25 containers a day, each filled with 23 tons of refuse to be recycled. But after the Olympics, demand slowed for recycled metal. In October, demand for everything else took a sharp downturn, and for the last two weeks the company has not shipped a single container.[/QUOTE]
[URL="http://www.nytimes.com/slideshow/2008/11/17/business/1117-PORTS_index.html"]Slideshow: Pileup at the Port[/URL]
I like the slide show of temporary storage of recyclables and imported cars and the chart showing the increased auto supply accumulation (3 or 4 months versus 2 months in '07). Also interesting is that the recyclable materials economy actually involves shipping bulk material to China where this material has plummeted in demand. I looked for some remembered slide shows of giant lots of unsold Hummers but didn't find them. Anyway they predated the recent economic events and were more a manifestation of gas prices. So where are big cars selling now?:[URL="http://www.thenational.ae/article/20090114/BUSINESS/113863463/-1/OPINION"]‘Nobody buys those things anymore, but Saudis love them’[/URL][QUOTE]It so happens that all three models – the Marquis, the Town Car and the Crown Victoria – are made by a single company, the Ford Motor Company, at a single factory in Ontario, Canada. Saudi Arabia has emerged as Ford’s largest market for these cars anywhere. Their popularity helped push Ford’s sales in the Middle East up 23 per cent last year.[/QUOTE][QUOTE]Some Saudis say they will keep buying the Fords as long as they are made, that there is no better choice for long Saudi drives, such as the 846km, seven-hour drive separating Riyadh from Jeddah. “American cars are more comfortable for long trips across Saudi,” said Riyadh resident Essam Bukhamseen of his own cross-country commutes. “When you sit in an American car you feel like you’re sitting at home.”[/QUOTE]

I really like what this guy has to say. He is much closer to dealing with the real problem of the zombie banks than anyone else.

[url]http://www.cnn.com/2009/POLITICS/01/26/stiglitz.finance.crisis/index.html[/url]


[QUOTE] (CNN) -- America's recession is moving into its second year, with the situation only worsening.

The hope that President Obama will be able to get us out of the mess is tempered by the reality that throwing hundreds of billions of dollars at the banks has failed to restore them to health, or even to resuscitate the flow of lending.

Every day brings further evidence that the losses are greater than had been expected and more and more money will be required.

The question is at last being raised: Perhaps the entire strategy is flawed? Perhaps what is needed is a fundamental rethinking. The Paulson-Bernanke-Geithner strategy was based on the realization that maintaining the flow of credit was essential for the economy. But it was also based on a failure to grasp some of the fundamental changes in our financial sector since the Great Depression, and even in the last two decades.

For a while, there was hope that simply lowering interest rates enough, flooding the economy with money, would suffice; but three quarters of a century ago, Keynes explained why, in a downturn such as this, monetary policy is likely to be ineffective. It is like pushing on a string.

Then there was the hope that if the government stood ready to help the banks with enough money -- and enough was a lot -- confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.

Remarkably, Bush administration Treasury Secretary Henry Paulson and company simply didn't understand that the banks had made bad loans and engaged in reckless gambling. There had been a bubble, and the bubble had broken. No amount of talking would change these realities.

It soon became clear that just saying that we were ready to spend the money would not suffice. We actually had to get it into the banks. The question was how. At first, the architects of the bailout argued (with complete and utter confidence) that the best way to do this was buying the toxic assets (those in the financial market didn't like the pejorative term, so they used the term "troubled assets") -- the assets that no one in the private sector would touch with a 10-foot pole.

It should have been obvious that this could not be done in a quick way; it took a few weeks for this crushing reality to dawn on them. Besides, there was a fundamental problem: how to value the assets. And if we valued them correctly, it was clear that there would still be a big hole in banks' balance sheets, impeding their ability to lend.

Then came the idea of equity injection, without strings, so that as we poured money into the banks, they poured out money, to their executives in the form of bonuses, to their shareholders in the form of dividends.

Some of what they had left over they used to buy other banks -- to pursue strategic goals for which they could not have found private finance. The last thing in their mind was to restart lending.

The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative.

And the social returns have even been less -- the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.

But this ever-present problem has now grown worse. In effect, the American taxpayers are the major provider of finance to the banks. In some cases, the value of our equity injection, guarantees, and other forms of assistance dwarf the value of the "private" sector's equity contribution; yet we have no voice in how the banks are run.

This helps us understand the reason why banks have not started to lend again. Put yourself in the position of a bank manager, trying to get through this mess. At this juncture, in spite of the massive government cash injections, he sees his equity dwindling. The banks -- who prided themselves on being risk managers -- finally, and a little too late -- seem to have recognized the risk that they have taken on in the past five years.

Leverage, or borrowing, gives big returns when things are going well, but when things turn sour, it is a recipe for disaster. It was not unusual for investment banks to "leverage" themselves by borrowing amounts equal to 25 or 30 times their equity.

At "just" 25 to 1 leverage, a 4 percent fall in the price of assets wipes out a bank's net worth -- and we have seen far more precipitous falls in asset prices. Putting another $20 billion in a bank with $2 trillion of assets will be wiped out with just a 1 percent fall in asset prices. What's the point?

It seems that some of our government officials have finally gotten around to doing some of this elementary arithmetic. So they have come up with another strategy: We'll "insure" the banks, i.e., take the downside risk off of them.

The problem is similar to that confronting the original "cash for trash" initiative: How do we determine the right price for the insurance? And almost surely, if we charge the right price, these institutions are bankrupt. They will need massive equity injections and insurance.

There is a slight variant version of this, much like the original Paulson proposal: Buy the bad assets, but this time, not on a one by one basis, but in large bundles. Again, the problem is -- how do we value the bundles of toxic waste we take off the banks? The suspicion is that the banks have a simple answer: Don't worry about the details. Just give us a big wad of cash.

This variant adds another twist of the kind of financial alchemy that got the country into the mess. Somehow, there is a notion that by moving the assets around, putting the bad assets in an aggregator bank run by the government, things will get better.

Is the rationale that the government is better at disposing of garbage, while the private sector is better at making loans? The record of our financial system in assessing credit worthiness -- evidenced not just by this bailout, but by the repeated bailouts over the past 25 years -- provides little convincing evidence.

But even were we to do all this -- with uncertain risks to our future national debt -- there is still no assurance of a resumption of lending. For the reality is we are in a recession, and risks are high in a recession. Having been burned once, many bankers are staying away from the fire.

Besides, many of the problems that afflict the financial sector are more pervasive. General Motors and GE both got into the finance business, and both showed that banks had no monopoly on bad risk management.

Many a bank may decide that the better strategy is a conservative one: Hoard one's cash, wait until things settle down, hope that you are among the few surviving banks and then start lending. Of course, if all the banks reason so, the recession will be longer and deeper than it otherwise would be.

What's the alternative? Sweden (and several other countries) have shown that there is an alternative -- the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance.

It is standard practice to shut down banks failing to meet basic requirements on capital, but we almost certainly have been too gentle in enforcing these requirements. (There has been too little transparency in this and every other aspect of government intervention in the financial system.)

To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet.

Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.

There are several other marked advantages. One of the problems today is that the banks potentially owe large amounts to each other (through complicated derivatives). With government owning many of the banks, sorting through those obligations ("netting them out," in the jargon) will be far easier.

Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures. The question facing us is, to what extent do we participate in the upside return?

Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets.

We are moving in unchartered waters. No one can be sure what will work. But long-standing economic principles can help guide us. Incentives matter. The long-run fiscal position of the U.S. matters. And it is important to restart prudent lending as fast as possible.

Most of the ways currently being discussed for squaring this circle fail to do so. There is an alternative. We should begin to consider it.[/QUOTE]

As you can see, he does everything but call a zombie a zombie.

DarJones

Iceland Govt Collapses | Mass-Layoff Monday
 

[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=avntV39aM_7I&refer=europe]Iceland's Coalition Splits, Prime Minister Seeks to Dissolve Government[/url]: [i]Icelandic President Olafur Ragnar Grimsson accepted the break-up of the coalition government of Prime Minister Geir Haarde and asked the current Cabinet to stay in post until a new government is formed.[/i]

[b]My Comment:[/b] I am 100% certain that Iceland's government will be far from the last to collapse as a result of the implosion of the global credit bubble and resulting financial crisis. Roughly [url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4278642/Monetary-union-has-left-half-of-Europe-trapped-in-depression.html]half the EU countries[/url] are in dire straits already, and there are riots and a large-scale fraying of the social fabric in a significant number of those (e.g. Greece, Bulgaria and the Baltic states, just off the top of my head).


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aDKiShZMG5Q0&refer=news]Housing Prices, Starts in U.S. Decline at Record Pace as Recession Deepens[/url]: [i]U.S. builders broke ground in December on the fewest houses since record-keeping began as sales and credit dried up, signaling the real-estate slump will keep hurting economic growth.[/i]
[quote] Housing starts fell 16 percent last month to an annual rate of 550,000 that was less than forecast and the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington. Building permits, an indicator of future projects, were also at a record low.

Builders, whose shares have lost 76 percent of their value over the last three years, are slashing prices to compete with a record number of foreclosed homes coming onto the market. Barack Obama’s advisers say the president will use up to $100 billion in financial-rescue funds to ease the mortgage crisis.

“Homebuilders have no choice,” said Ryan Sweet, an economist at Moody’s Economy.com Inc. in West Chester, Pennsylvania. “The market is bloated with excess supply and demand is weak. The pace of housing starts will remain depressed until 2011.” Economy.com projected starts would drop to a 580,000 pace. [/quote]


[url=http://money.cnn.com/2009/01/26/markets/thebuzz/index.htm]The market's illogical rally[/url]: [i]Despite a slew of layoff announcements, stocks were up Monday as investors focused more on a big merger and hopes that the worst may be over for banks.[/i]
[quote]NEW YORK (CNNMoney.com) -- It should have been an ugly morning for the markets.

Home Depot, Caterpillar, Sprint Nextel, John Deere and ING all announced [url=http://money.cnn.com/2009/01/26/news/companies/Home_depot/index.htm]sizable[/url] [url=http://money.cnn.com/2009/01/26/news/companies/caterpillar/index.htm]job cuts[/url]. This is further proof that this recession is hitting all sectors of the economy and all areas of the globe. It is not good news.

But stocks didn't plunge Monday morning despite all this doom and gloom. In fact, the Dow gained more than 100 points in early trading while the S&P 500 and Nasdaq both shot up about 2%. Say wha?

The layoff news may have been tempered somewhat by the announcement that Pfizer was buying rival drugmaker Wyeth for about $68 billion.

The merger is the biggest in nearly three years and could usher in a wave of consolidation in the healthcare sector. It may also signal cash-rich companies in other industries to take advantage of fallen stock prices and make some purchases of their own.
Talkback: Are more job cuts and other bad economic news already priced into stocks?

"Even with all the negative news on the unemployment front, the Pfizer deal shows that companies are signaling there is some value in the market here," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, an investment research firm based in Shrewsbury, N.J.

Bank stocks, which have been hit hard so far this year due to fears of rising losses and nationalization speculation, also skyrocketed higher Monday morning.

It appears that investors may have been reassured by the news from beleaguered British bank Barclays (BCS), which said Monday morning that it posted a profit in 2008 despite massive writedowns and that it would not need new capital.

Shares of Barclays U.S.-listed stock surged nearly 60% and several large beaten down U.S. banks, such as Citigroup, Bank of America and Wells Fargo, all rallied as well.

Finally, two bits of economic data were released Monday morning - and each was better than expected. The Conference Board`s leading indicators rose 0.3% compared to the 0.2% drop economists were forecasting. Even more surprisingly, existing home sales rose 6.5% in December.[/quote]
[b]My Comment:[/b] How many times in the past year have we had short-lived rallies in the financials based on "hopes that the worst may be over for banks" and rallies in individual bank/brokerage shares based on the institution issuing a (similarly short-lived) "we anticipate no further writedowns or capital-raising will be required"? Anyone who believes that at this point is a delusional fool. The mega-drugmaker merger of Pfizer and Wyeth may be exciting news to the folks making money from financing the deal, but will likely lead to lots of layoffs. The uptick in home sales is nice to see, but nearly half of those sales were distress sales and I expect a similar fraction were to investors rather than private homebuyers, so is more reflective of a deeply distressed market and blood-in-the-water bargain-hunting rather than any kind of housing-market "recovery". (I use quotes because thew word "recovery" in the sense the realtors and most politicians use it when speaking of the U.S. housing market is a contradiction in terms - most of them are dreaming of a "recovery" to the overheated, overpriced, overleveraged, rampantly speculative bubble-market of 2006-2006 - that`s not a sustainable equilibrium, folks.)

Update: I see today's "HUGE BANK RALLY!!!" (at least for the above-named U.S. banks) was very short-lived indeed,and that the job cuts at Pfizer weren`t long in coming:

[url=http://money.cnn.com/2009/01/26/news/economy/job_cuts/index.htm]Bloody Monday: More than 50,000 jobs lost[/url]: [i]Six companies announce massive job cuts in a scary start to the week.[/i]
[quote]NEW YORK (CNNMoney.com) -- The final week of January began with a bloodbath for the job market, as more than 50,000 more cuts were announced on Monday alone.

At least six companies from manufacturing and service industries announced cost-cutting initiatives that included slashing thousands of jobs.

...

Construction machinery manufacturer Caterpillar said Monday it will cut 20,000 jobs amid a "very challenging global business environment." The company had already planned to cut 15,000 workers since the fourth quarter of 2008, but added another 5,000, bringing the total to 20,000.

Sprint Nextel Corp. will cut a total of about 8,000 jobs by March 31, the company said in a release. The telecommunications company`s plan is to reduce internal and external labor costs by about $1.2 billion on an annual basis.

Home Depot, the world`s largest home improvement retailer, announced Monday it will eliminate its EXPO design center business and cut 7,000 associates, or approximately 2% of the company`s total workforce. The company blamed a lack of demand for big ticket design and decor projects.

Dutch financial group ING said Monday it will take a 2008 loss of $1.3 billion and cut 7,000 jobs. The company could not comment on where the cuts would take place. ING employs around 130,000 people across 50 countries.
[u]
Pfizer said in an earnings report it would cut 10% of its staff of 81,900 and close five of its manufacturing plants. The drugmaker recently announced that it was cutting up to 8% of its research staff, or up to 800 jobs. The company already cut 4,700 jobs in 2008.[/u][/quote]
[b]My Comment:[/b] One wonders: for every announced job cut, how many unannounced ones (on average) are taking place? Despite the grim news on all fronts, economists continue to be eager to prove how clueless and truly "dismal science"-y they are:
[quote][Robert Brusca, chief economist at Fact and Opinion Economics] said he agreed with many economists' predictions that the recession will end after the second quarter of 2009. Americans might feel the job market start to bounce back a bit sooner than expected, he said.

"These recessions are like geometry," Brusca said. "It looks like we`ll have a V-shaped cycle, in that we`re going into this with very sharp losses. This intense-phase recession will probably recover fairly quickly, with the job market coming out it at the same angle it came in."

In the short term, the economy and the job market are in trouble, Brusca said. But "it doesn`t look like the bottom is falling out of the economy," he said.

And there`s a silver lining to the gloomy clouds over America`s economy.

"The good news is it`s so bad right now that we will have a definite, noticeable recovery when it comes," Brusca said. "We`re getting a lot of adjustment out of the way early."[/quote]
[b]My Comment:[/b] Recessions may indeed "be like geometry", but apparently most economists' knowledge of recessionary geometry is limited to the V-shaped curve the past few recessions have had. So basically, the very same group of folks who excuse their mispredictions with pithy phrases like "past performance no guarantee of future results" once again fails to heed its own advice. Anyway, the predictions by "most economists" that the current recession will prove to be V-shaped are based on nothing more than this kind of "duh - that`s what the last few looked like" mystic chart-ology, because all reasonable measures of economic fundamentals and the utter lack of success of "the usual" government anti-recession interventions tell us that this ain`t your run-of-the-mill recession here. And if what has happened in the past 12 months doesn`t strike Mr. Brusca and his fellow "econ-o-misseds" as "the bottom falling out", I sure don`t want to see what would. So the "silver lining" boils down to "Once you've plunged halfway into the abyss, you have less far to fall than you did to start with"? Oh-kay - that doesn't make the landing any softer, if I understand my physics correctly. (I know, how dare I interject a gratuitous and completely-uncalled-for reference to a real science into an economic discussion. I apologize unreservedly for my shocking lack of couth.) And there are many more letters in the alphabet - even the specialized recessionary one - than V ... consider "U", for instance, or even "L".


[b]Today's Econo-smackdown:[/b] Mike "The Other **** Pacific Fund" Shedlock takes Peter Schiff to task:

[url=http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html]Peter Schiff Was Wrong[/url]
[quote][b]Schiff's Investment Thesis[/b]

* US Dollar Will Go To Zero (Hyperinflation).
* Decoupling (The rest of the world would be immune to a US slowdown.
* Buy foreign equities and commodities and hold them with no exit strategy.
[b]
12 Ways Schiff Was Wrong in 2008
[/b]
* Wrong about hyperinflation
* Wrong about the dollar
* Wrong about commodities except for gold
* Wrong about foreign currencies except for the Yen
* Wrong about foreign equities
* Wrong in timing
* Wrong in risk management
* Wrong in buy and hold thesis
* Wrong on decoupling
* Wrong on China
* Wrong on US treasuries
* Wrong on interest rates, both foreign and domestic

That's a lot of things to be wrong about, especially given all the "Peter Schiff Was Right" videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.[/quote]
[b]My Comment:[/b] Ouch. Full article is worth a read, not so much for the clash-of-the-huge-egos "I was right and Schiff was wrong but he gets all the YouTube airtime, dammit" posturing but because of all the macroeconomic background mixed in there.

[URL]http://www.nytimes.com/2009/01/25/business/economy/25view.html[/URL]

(probably requires registration at nytimes.com)

"Economic View - Six Errors on the Path to the Financial Crisis"

[quote=ALAN S. BLINDER]WHAT’S a nice economy like ours doing in a place like this? As the country descends into what is likely to be its worst postwar recession, Americans are distressed, bewildered and asking serious questions: Didn’t we learn how to avoid such catastrophes decades ago? Has American-style capitalism failed us so badly that it needs a radical overhaul?

The answers, I believe, are yes and no. Our capitalist system did not condemn us to this fate. Instead, it was largely a series of avoidable — yes, avoidable — human errors. Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again. And we can do so without ending capitalism as we know it.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the [URL="http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html?inline=nyt-org"]Commodity Futures Trading Commission[/URL], sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. While her specific plan may not have been ideal, does anyone doubt that the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago?

SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile.

A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common.

Why wasn’t this insanity stopped? There are two answers, and each holds a lesson. One is that bank regulators were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor, who saw the problem brewing years before the fall.

The other answer is that many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator. That regulatory hole needs to be plugged.

FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. The broad contours of the foreclosure tsunami were clear more than a year ago — and people like Representative [URL="http://topics.nytimes.com/top/reference/timestopics/people/f/barney_frank/index.html?inline=nyt-per"]Barney Frank[/URL], Democrat of Massachusetts, and [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html?inline=nyt-per"]Sheila C. Bair[/URL], chairwoman of the [URL="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org"]Federal Deposit Insurance Corporation[/URL], were sounding alarms.

Yet the Treasury and Congress fiddled while homes burned. Why? Free-market ideology, denial and an unwillingness to commit taxpayer funds all played roles. Sadly, the problem should now be much smaller than it is.

LETTING [URL="http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-org"]LEHMAN[/URL] GO The next whopper came in September, when Lehman Brothers, unlike [URL="http://topics.nytimes.com/top/news/business/companies/bear_stearns_companies/index.html?inline=nyt-org"]Bear Stearns[/URL] before it, was allowed to fail. Perhaps it was a case of misjudgment by officials who deemed Lehman neither too big nor too entangled — with other financial institutions — to fail. Or perhaps they wanted to make an offering to the moral-hazard gods. Regardless, everything fell apart after Lehman.

People in the market often say they can make money under any set of rules, as long as they know what they are. Coming just six months after Bear’s rescue, the Lehman decision tossed the presumed rule book out the window. If Bear was too big to fail, how could Lehman, at twice its size, not be? If Bear was too entangled to fail, why was Lehman not?

After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.

TARP’S DETOUR The final major error is mismanagement of the [URL="http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/bailout_plan/index.html?inline=nyt-classifier"]Troubled Asset Relief Program[/URL], the $700 billion bailout fund. As I wrote here last month, decisions of [URL="http://topics.nytimes.com/top/reference/timestopics/people/p/henry_m_jr_paulson/index.html?inline=nyt-per"]Henry M. Paulson Jr.[/URL], the former Treasury secretary, about using the TARP’s first $350 billion were an inconsistent mess. Instead of pursuing the TARP’s intended purposes, he used most of the funds to inject capital into banks — which he did poorly.

To illustrate what might have been, consider Fed programs to buy [URL="http://topics.nytimes.com/top/reference/timestopics/subjects/c/commercial_paper/index.html?inline=nyt-classifier"]commercial paper[/URL] and mortgage-backed securities. These facilities do roughly what TARP was supposed to do: buy troubled assets. And they have breathed some life into those moribund markets. The lesson for the new Treasury secretary is clear: use TARP money to buy troubled assets and to mitigate foreclosures.

Six fateful decisions — all made the wrong way. Imagine what the world would be like now if the housing bubble burst but those six things were different: if derivatives were traded on organized exchanges, if leverage were far lower, if subprime lending were smaller and done responsibly, if strong actions to limit foreclosures were taken right away, if Lehman were not allowed to fail, and if the TARP funds were used as directed.

All of this was possible. And if history had gone that way, I believe that the financial world and the economy would look far less grim than they do today.

For this litany of errors, many people in authority owe millions of Americans an apology. [URL="http://topics.nytimes.com/top/reference/timestopics/people/c/richard_a_clarke/index.html?inline=nyt-per"]Richard A. Clarke[/URL], former national security adviser, set a good example when he told the commission investigating the 9/11 attacks that he wanted victims’ families “to know why we failed and what I think we need to do to ensure that nothing like that ever happens again.” I’m waiting for similar words from our financial leaders, both public and private.

[i]Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.[/i][/quote]

BTW, regarding the failure of the first $350 billion TARP funds to produce results, and banks' not reporting what they did with the money:

I recently read an article pointing out that there are minimum capital requirements for banks (banks are required to have a net asset value exceeding a certain percentage of their outstanding loans), and that the sudden failure of Lehman Brothers brought lending to a standstill not just because of lenders' fears of not being repaid, but also because major banks suddenly found themselves below the minimum capital requirements [I]and thus were legally [U]barred[/U] from extending further credit, whether they wanted to or not.[/I] As I recall, the article explained that, at least in some cases, the TARP funds simply brought those banks' net asset values back up to the minimums so that they weren't in violation of their charters, but did not necessarily provide enough extra to allow them to actually make any significant amount of new loans.

I don't recall what the article said about how much of the TARP funds was used for that purpose. And, of course, that does not invalidate complaints about use of the funds for executive bonuses and mergers instead of loans.

I'm not sure that "minimum capital requirement" was the exact phrase used, and I can't find the bookmark I thought I had saved for that article. Can anyone help find it?

Blinder's points are well-taken, but notice how carefully he (a former Fed governor) avoids directly mentioning the malfeasance on the part of the Fed in connection with the original blowing of the housing bubble - that would get him a lifetime disinvitation to cocktail parties at the Greenspans.

So let me clarify one of Blinder's oh-so-carefully-phrased-to-avoid-directly-implicating-the-Maestro sentences: Just who were these shadowy, feckless "bank regulators" who so callously ignored the warnings of the Fed governor Edward Gramlich? Well, the chief among them was none other than Gramlich's boss, Alan Greenspan. See how easy that was? Unless you have your "Fed Blinders" on, that is.

[QUOTE=ewmayer;160582]Blinder's points are well-taken, but notice how carefully he (a former Fed governor) avoids directly mentioning the malfeasance on the part of the Fed in connection with the original blowing of the housing bubble - that would get him a lifetime disinvitation to cocktail parties at the Greenspans.

So let me clarify one of Blinder's oh-so-carefully-phrased-to-avoid-directly-implicating-the-Maestro sentences: Just who were these shadowy, feckless "bank regulators" who so callously ignored the warnings of the Fed governor Edward Gramlich? Well, the chief among them was none other than Gramlich's boss, Alan Greenspan. See how easy that was? Unless you have your "Fed Blinders" on, that is.[/QUOTE]

He also avoids one of my pet peeves:

The way salaries and bonuses were paid to employees of financial
companies strongly encouraged the very risky behavior of those
companies. It made decision makers look good in the very short term;
they got very large bonuses, and they took on a disastrous amount
of risk. Because, after all, once they got their large bonus, the future
was someone else's problem.

I just heard that frequently in a recessive economy, the layoffs actually peak during the recovery phase. About 6-9 months into the recovery (like the recession, not determined until later) the maximum number of layoffs happen.

Newtonian Economics:

For every desperate economic action, there is an equally desperate economic reaction.

Don't know where this came from, but seems apropos. Watch for kneejerk reactions from governments around the world.

Uncwilly, I would not in any way shape or fashion imagine that the current layoff mania is associated with a 'recovery'. The signs on this one say it will be the great granddaddy of all recessions. !929 to 1936 by comparison with today will look like a firecracker next to a stick of dynamite.

DarJones

UK "Within Hours" of Banking Collapse last October
 

[url=http://market-ticker.denninger.net/archives/746-Its-Always-Best-To-Lie-To-The-Public.html]Denninger | It`s Always Best To Lie To the Public[/url]
[quote][url=http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html]British-style "honest government"[/url]:
[i]
"Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown`s Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was `very close` to a complete banking collapse after `major depositors` attempted to withdraw their money en masse.

The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals. "
[/i]
And later on....
[i]
"But 60-year-old Lord Myners was accused last night of being `completely irresponsible` for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure. "
[/i]
Absolutely.

Not only should one lie when in government but one should [b]keep lying[/b] as long as is humanly possible.[/quote]
[b]My Comment:[/b] To quote the eminent philosopher and onetime member of the classic hardcore punk band [url=http://en.wikipedia.org/wiki/Black_Flag_(band)]Black Flag[/url], Lord Viscount Henry Rollins:
[i]
[b][url=http://www.lyricsfreak.com/r/rollins+band/liar_20118443.html]Liar[/url][/b]

I don't know why I feel the need to lie and cause you so much pain
maybe it's something inside, maybe it's something I can't explain
'cause all I do is mess you up and lie to you
I'm a liar, ooh, I'm a liar
but if you'll give me another chance I swear I'll never lie to you again
'cause now I see the destructive power of a lie,
they're stronger than truth
I can't believe I ever hurt you, I swear I will never lie to you again
please, just give me more chance, I'll never lie to you again, no,
I swear, I will never tell a lie, I will neer tell a lie, no, no
Ha Ha Ha Ha Ha Ha Ha Ha Ha! Sucker! Sucker! Sucker!

I am a liar, yeah, I am a liar, yeah, I am a liar
I lie you, I feel good, I am a liar, yeah
I lie, ooh, I lie, yeah, I lie
I'm a liar, I lie, I like it, I feel good, I like it, and again
I like it again and I'll keep lying ... I promise
[/i]
Things in the UK are looking so dire that the government is considering paying companies to go to a [url=http://globaleconomicanalysis.blogspot.com/2009/01/return-of-three-day-work-week.html]three-day work week[/url] as an alternative to mass unemployment. This begs the question: Where does the government get the money to pay for such a scheme? See my note of last week about the return of "stealth money printing" in the UK - that may have something to do with it.


[b]Ukraine on the Brink of Financial Ruin:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=azXUqqvHpeMY&refer=news]Ukraine Stares Into Economic-Political `Abyss' After Russia Gas Agreement[/url]: [i]For Europeans, last week’s resumption of Russian natural gas shipments ended a two-week energy dispute. For Ukraine, it may have ended any hope of weathering the global financial crisis.[/i]


[b]Do the Funky Ponzi, Everyone![/b] - One could say Mr. Cosmo`s clients were left "with mouth agape":

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ac3yHzOgMnIs&refer=news]Cosmo Accused of $370 Million Scheme, Losing $80 Million on Futures Trades[/url]: [i]Nicholas Cosmo, founder of Agape World Inc. in Hauppauge, New York, was charged with defrauding 1,500 investors of more than $370 million, U.S. authorities said.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aw53BS00RX9E&refer=news]Fugitive Fund Manager Nadel Is Arrested in Florida on U.S. Fraud Charges[/url]: [i]Florida hedge-fund adviser Arthur Nadel was arrested in Florida by the Federal Bureau of Investigation and has been charged with securities fraud.[/i]

But getting away from the small fry and back to the real big-time crooks (at least the ones not currently or recently working for the Federal Reserve or Treasury - strictly private-sector crookery here):

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=atB2xSOtdD8U&refer=news]Cuomo Subpoenas Thain Over Bonuses Paid Before Merrill Lynch's Takeover[/url]: [i]New York Attorney General Andrew Cuomo subpoenaed former Merrill Lynch & Co. head John Thain and Bank of America Corp. Chief Administrative Officer J. Steele Alphin to testify about executive bonuses paid by Merrill just before its takeover by Bank of America.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=au4Y7Cudw2Xo&refer=news]Madoff Enablers Who Say They Were Duped Winked at Suspected Front-Running[/url]: [i]For Swiss banker Werner Wolfer, the memory of his first encounter with one of Bernard Madoff’s emissaries nine years ago is as clear as the waters of Lake Geneva. [/i]
[quote]To hear Patrick Littaye talk, the Wall Street money manager could walk on those waters. “It was like a religion,” Wolfer, 57, says of the promise of steady returns, which would be echoed by other acolytes. “These people firmly believed in the story.”

Littaye, 69, was co-founder of New York-based Access International Advisors LLC, one of more than a dozen feeder funds that acted as middlemen between investors and Madoff. Wolfer visited Littaye at his office near the Champs Elysees in Paris in 2000, after becoming chief investment officer at Banque Marcuard Cook & Co. in Geneva, to learn more about how Madoff made his money.

Banque Marcuard, a private bank catering to the wealthy and now part of Swiss lender St. Galler Kantonalbank, had invested about $50 million of its clients’ money directly with Madoff in the mid-1990s on Littaye’s recommendation.

Banque Marcuard made money with Madoff along with its clients. They paid fees based on the profits Madoff reported, which averaged a net of 11 percent a year. There was never a losing year, regardless of whether markets went up or down. The proof was in the trading statements sent to clients every month.
[b]
‘It All Looked So Good’
[/b]
“It all looked so good,” says Wolfer, who has a master’s degree in economics from the University of St. Gallen.

The truth turned out to be something else -- and far more complex than a criminal masterminding a $50 billion Ponzi scheme that bilked investors from Palm Beach to Paris, as Madoff allegedly confessed to doing on Dec. 11.

If the 70-year-old money manager was running a con, then his marketers like Access International, wittingly or not, were part of the scam.

The purported mission of such feeder funds was to vet hedge funds for wealthy clients. Instead, the line between victim and perpetrator was blurred. Middlemen like Littaye funneled billions of dollars to Madoff, even, in some cases, when they suspected he was engaged in questionable trading practices. In return, they reaped hundreds of millions of dollars in client fees.[/quote]


[b]AmEx Earnings Plunge:[/b]

[url=http://money.cnn.com/2009/01/26/news/companies/american_express/index.htm]American Express earnings plunge 79%[/url]: [i]Credit Card Giant reports a steep decline in earnings in the latest quarter, citing slower consumer spending and rising delinquencies.[/i]
[quote]Kenneth Chenault, AmEx`s chairman and chief officer, cited a 10% decline in overall cardmember spending as well as a rising number of late payments for the company`s latest performance.

"Our fourth quarter results reflect an operating environment that was among the harshest we have seen in decades," Chenault said in a statement.

Looking ahead to 2009, Chenault warned of soft spending by its cardholders, and added that he expected delinquencies and uncollectible card balances would continue to climb.

American Express investors cheered the news though. The stock, which finished 5% lower Monday, gained over 3% in after-hours trading.[/quote]
[b]My Comment:[/b] Regarding the after-hours pop, see the "delusional fools" comment in my post above.

Dirty Secrets of Going-Out-of-Business Sales
 

[url=http://money.cnn.com/2009/01/27/news/economy/treasury_banks/index.htm]Treasury: $386M to healthy banks[/url]: [i]The government bolsters viable local banks with cash infusions designed to boost lending.[/i]

[b]My Comment:[/b] Since when do "healthy" banks need cash infusions in order to remain viable? More importantly, does this mean John-Thain-it`s-good-to-be-the-King-style [url=http://globaleconomicanalysis.blogspot.com/2009/01/merrill-lynch-ceo-thain-spent-35115-for.html]$35,000 office commodes[/url] for the bank CEOs? The high-end gilt-handled commode fetish seems to be a way for Wall Street CEOs to say to the world: "My royal flush beats your hand, you lot of mangy peasants."


[url=http://money.cnn.com/2009/01/23/news/companies/dirtysecrets_sales/index.htm]Little secrets of `out-of-business` sales[/url]: [i]Do `closeout` sales mean the lowest prices? Not always. And where did all that extra merchandise come from?[/i]
[quote]They`re seen as either big-time bargains or big-time scams. What really goes on at a "going-out-of-business" sale is something in between, according to experts.

"Consumers think this is the time for bargains. That`s not true," said George Whalin, president and CEO of Retail Management Consultants.

Thousands of retail stores are expected to disappear in 2009. But most big chains don`t run those out-of-business sales themselves - Linens `N Things, Whitehall Jewelers and, most recently, Circuit City, all hired liquidation firms to handle the process for them.

The liquidator buys the merchant`s inventory and sets final clearance sales. They guarantee the store`s creditors a payment upfront, and need to sell enough merchandise to recoup money for themselves.

"Would I love to offer a 60% discount and be out in two weeks? Yes. But it`s not likely," said Jim Schaye, CEO of Hudson Capital Partners LLC, one of four firms managing the liquidation of electronic retailer Circuit City.[/quote]
[b]My Comment:[/b] The reason it`s unlikely is that Mr. Schaye and his fellow liqudators-for-hire would much rather mislead consumers into *believing* they are getting something like a 60% discount while in reality offering soemthing like 10% or no discount at all (see below), or sell used products and stuff left over from one of their previous liquidation sales under the rubric of their current one, or engage in any number of other shady business practices designed - not suprisingly - for the express purpose of maximizing revenues extraction. This would not be in any way objectionable if the scale of dubious practices liquidators are legally allowed to engage in were not so large:
[quote]He said he and the other liquidators needed a "fairly sizeable" recovery in order to help Circuit City repay its creditors.

"We want to make sure everything is fairly priced," he said. "Do we get it right every time? No."

Because the liquidators don`t want to lose money, it`s not uncommon for clearance sales to begin at 10% to 30% off for the first few weeks, with deeper discounts staggered over the period closer to the end of the closeout sale.
[u]
However, Whalin said liquidators sometimes set those discounts based on manufacturers` prices - which can be 10% to 15% higher - rather than the price at the store when it closed.

Consequently, he said, consumers could end up paying more than they would have just before the "out-of-business sales" signs went up.
[/u]
"This isn`t necessarily right. It`s almost a scam and there`s nothing illegal about it," said Marshal Cohen, chief retail analyst with NPD Group. "Buying at a liquidation really is caveat emptor."
[b]
Cohen`s suggestion to consumers: "You`ll get the absolute best prices a week before [a retailer`s] liquidation sale start." Assuming you can get to the liquidating store ahead of the sale.
[/b]
Andy Gumaer, CEO of Great America Corp., which also is handling Circuit City`s liquidation, said his company is setting discounts off the store`s price prior to liquidation. He said he would honor prices in Circuit City`s final sales circular.
[u]
Liquidators looking to make a few extra bucks sometimes sneak in goods that aren`t part of the merchant`s original inventory and add it to the mix, according to Whalin.
[/u]
"This happens frequently in furniture liquidation sales," he said.

Hudson Capital`s Schaye, who was involved in closing out Mervyns and Linens `N Things stores, said he`s aware of stores that added merchandise, but that he personally "doesn`t like the practice."
[u]
Cohen said liquidators also go all out to make products less identifiable as "refurbished" or "previously opened."
[/u]
"Just be aware of that because most liquidation sales are final," Cohen said.

One thing common to liquidation sales is that the discounts grow as the liquidators near the deadline for closing the stores.

"Anyone who has looked at liquidation sales knows that they are staggered over time," said Edgar Dworksy, a consumer advocate and editor of Consumerworld.org. "This isn`t new."

He advised consumers to do their research. "Is a 10% discount at Circuit City better than anything else out there? Don`t buy if it`s not because you have zero percent return rights [in a liquidation]," he warned.

In general, Dworsky cautioned that he wouldn`t "put anything past liquidators" when it comes to "playing a game with pricing."[/quote]

We tend to lose sight of the human element in this megarecession. I am currently working for a company that declared bankruptcy. This means my retirement fund has been decimated, my 401k is seriously down, and my prospects for still having a job a year from now are dismal. This is not an encouraging situation given that I have worked for Nortel for 28 years. Still, I am not at all badly situated at present compared to the man in California who killed his 5 kids, his wife, and himself apparently because both he and his wife had lost their jobs. I won't go into the mental illness aspects of that, just suffice to say that the number of economic suicides is bound to rise.

The one thing I can see because of my gardening hobby is that more people will have gardens this year than at any time in recent history. Seed sales are booming for retailers. My plant sales are steady and increasing daily. From a certain perspective, I could almost make a living selling plants.

One of the healthiest things we can do is to plant something and help it grow. Numerous studies have shown that people who garden are happier on average than people who don't. I might argue that fishermen are happier still, but for now, gardeners are definitely on a positive track.

Each of us has the ability to encourage people who are down because of the economy. It doesn't matter if it is someone facing foreclosure on their house or just someone with a 401k that is in the toilet. The important thing is to listen and do what we can for people who need help.

DarJones

[QUOTE=Fusion_power;160771]Still, I am not at all badly situated at present compared to the man in California who killed his 5 kids, his wife, and himself apparently because both he and his wife had lost their jobs. I won't go into the mental illness aspects of that, just suffice to say that the number of economic suicides is bound to rise.[/QUOTE]He and his wife were being investigated for fruad regarding their jobs. This was not a case of being down-sized, let go, etc. They were being out and out fired, because of what they were supposed to have done.
[url]http://abclocal.go.com/kabc/story?section=news/local/los_angeles&id=6627049[/url]

Jumbo Mortgage Defaults Soar | Bad Bank!
 

Today`s [i]Wall Street Journal[/i] has an alarming article about the soaring default rate on "jumbo prime" mortgages - these are the kinds of loans which were typically made on bubble-priced homes in already-expensive housing markets like the SF Bay Area and San Diego, California. A default on one of these is proportionally more costly in terms of wiped-out equity compared to lower-priced properties, and the total sales volume in dollar terms dwarfs that of the subprime market sector:

[url=http://www.newser.com/story/49203/jumbo-mortgage-defaults-soar.html]Jumbo Mortgage Defaults Soar[/url]
[quote]Jumbo mortgages are now going south at an alarming rate, reports the Wall Street Journal, as affluent Americans face mounting layoffs and see their stock portfolios shrivel. [u]Nearly 7% of prime jumbo loans—which average $750,000—were at least 90 days delinquent at the end of 2008, up from 2.6% a year earlier[/u]. That's three times the default rate of non-jumbo prime loans.

“There is more pain to come,” says an analyst, as banks and investors start feeling the fallout. Particularly hard hit will be JPMorgan, which loaded up on jumbo mortgages in 2007 and held on to them last year. "We were wrong," says CEO Jamie Dimon. "We obviously wish we hadn't done it." [/quote]
[b]My Comment:[/b] So much for the right-wing idiots who keep blathering about the mortgage crisis allegedly being caused by loans made under the [url=http://en.wikipedia.org/wiki/Community_Reinvestment_Act]Community Reinvestment Act[/url]. Not only is the default rate for CRA loans extremely low - similar to that of "gold standard" conforming prime loans - but every jumbo default probably equals roughly ten CRA loan defaults in terms of monetary impact.

[b]Bad Bank - No Soup for You![/b]

Looks like the Obama administration is looking to set up as (supersized) version of the [url=http://en.wikipedia.org/wiki/Resolution_Trust_Corporation]Resolution Trust Corporation[/url] set up in the late 80s to absorb and dispose of the assets of institutions done in by the savings and loan crisis:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aIFp47d1.8e8&refer=news]FDIC May Run `Bad Bank' in Obama Plan to Remove Toxic Assets, Spur Lending[/url]: [i]The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said. [/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=amsH7n4KAZzI&refer=news]U.S. Stocks Surge, Extend Global Rally on Bank-Bailout Plan; Yahoo Climbs[/url]: [i]U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc. and Germany’s SAP AG reported better-than-estimated earnings.[/i]

From the first Bloomberg article above:

[quote]FDIC Chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks’ balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama’s team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.

“It doesn’t make sense to give the authority to anybody else but the FDIC,” said John Douglas, a former general counsel at the agency who now is a partner in Atlanta at the law firm Paul, Hastings, Janofsky & Walker. “That’s what the FDIC does, it takes bad assets out of banks and manages and sells them.”

The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators and some management teams could be ousted as the government seeks to provide a shield to taxpayers. [/quote]
[b]My Comment:[/b] It beats simply throwing hundreds of billions at the banks with no strings attached, Hank-Paulson-style. But given the trillions of toxic assets on (and off) banks` balance this thing could mushroom into a monster, making the "orderly disposal" issue much more of a problem than it was with the RTC.

[b]Boeing Slashes Workforce:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a8iAOfphtXQU&refer=news]Boeing Will Eliminate 10,000 Jobs After Posting Loss on Recession, Strike[/url]: [i]Boeing Co. said it plans to cut 10,000 jobs, or about 6 percent of its workforce, after a strike, program delays and a global recession contributed to a fourth- quarter loss. [/i]

[b]Swell Day for Wells "How Far Will it Go" Fargo shares[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aANrsEiVm2Gg&refer=news]Madoff Costs Wells Fargo $294 Million as Bank's Clients Can't Repay Loans[/url]: [i]Wells Fargo & Co. wrote off $294 million because Bernard Madoff’s alleged Ponzi scheme wiped out some of its customers and left them unable to pay their loans, said Chief Financial Officer Howard Atkins. [/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=azbm3O_otJDo&refer=news]Wells Fargo Has First Loss Since 2001; Shares Jump as Bank Keeps Dividend[/url]: [i]Wells Fargo & Co., the second- biggest U.S. home lender, reported its first quarterly loss since 2001 after acquiring Wachovia Corp. The stock rose 19 percent in New York trading after the bank maintained its dividend and said it doesn’t need more federal aid. [/i]
[quote]The fourth-quarter net loss of $2.55 billion, or 79 cents a share, compares with profit of $1.36 billion, or 41 cents, a year earlier, the San Francisco-based company said today in a statement. Wachovia recorded a loss of $11.2 billion. Excluding one-time items, profit was 41 cents a share, beating the 33-cent average estimate of analysts surveyed by Bloomberg.

Wells Fargo averted the worst of the 2008 financial meltdown, enabling Chairman Richard Kovacevich and Chief Executive Officer John Stumpf to buy Wachovia for $12.7 billion. While the bank built reserves to deal with defaults on Wachovia’s $122 billion in option adjustable-rate mortgages, it didn’t cut its 34-cent dividend or ask for a second injection of U.S. capital like Bank of America Corp., which was saddled with greater-than-expected losses after buying Merrill Lynch & Co. [/quote]
[b]My Comment:[/b] Ah, the famous "excluding one-time charges..." ruse. Translation: "Excluding the stuff that lost us money, we made money". Expect many more "one-time charges" related to Wachovia`s toxic mortgage portfolio, as well as the defaults to come in WFC`s own (non-acquired) mortgage book. (Someone remind me to check in a couple months and see what Wells Fargo shares are doing then - currently up 25% for the day, to around $20.)


On the bright side, it`s apparently a good time to be a bankruptcy lawyer:

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=agfjWe9ZN25Y&refer=news]Bankruptcy Lawyers Seek $18.50 a Minute as Creditors' Recoveries Shrink[/url]: [i]Lawyers at Kirkland & Ellis LLP, home to former Whitewater prosecutor Ken Starr, are asking as much as $1,110 an hour for bankruptcy work while creditors are recovering less of their loans through company restructurings. [/i]

Few $ for Star$$ | End of Saturday Mail Delivery?
 

The horrid earnings reports and mass layoffs keep coming:

[url=http://finance.yahoo.com/news/Starbucks-1Q-profit-falls-69-apf-14186781.html]Starbucks 1Q profit falls 69 percent[/url]: [i]Coffee retailer to close 300 underperforming stores in addition to the 600 it already planned to close in the U.S., lay off 6,700 workers[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a.U6f5OuF6C0&refer=news]Qualcomm Profit Falls 55% as Recession Curbs Demand for Mobile-Phone Chips[/url]: [i]Qualcomm Inc., the world’s biggest maker of mobile-phone chips, reported a drop in first-quarter profit after the recession stifled demand and hurt its investments.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aUWvyD0zVWKM&refer=news]Allstate to Eliminate 1,000 Jobs After Posting First Annual Loss Since IPO[/url]: [i]Allstate Corp., the largest publicly traded U.S. home and auto insurer, will cut 1,000 jobs after the falling value of investments caused the company’s first annual loss as a public firm. Shares dropped 11 percent in extended trading. [/i]

[b]No More Saturday Mail Delivery?[/b]

Another sign things are getting really bad - The U.S. Postal Service may discontinue Saturday mail delivery (They don't say which day of the week, but Saturday seems most likely):

[url=http://money.cnn.com/2009/01/28/news/economy/postal_service/index.htm]USPS may cut day of mail delivery[/url]: [i]Economic downturn has caused a steep decline in mail volume, postmaster says.[/i]
[quote]The U.S. Postal Service may be forced to eliminate a day of mail service because the economic downturn has led to plummeting volume and revenue, the postmaster general said in Senate testimony Wednesday.

Postmaster General John E. Potter told a U.S. Senate subcommittee he wanted to eliminate the requirement to deliver mail six days a week to every address in America.

If the recession continues to hammer at USPS revenue, six-day delivery may not be possible, Potter said. Federal law has mandated the six-day schedule since 1983.

In fiscal 2008, total mail volume fell by more than 9 billion pieces - 4.5 % -compared to the previous year, Potter said. And the agency suffered a greater-than-expected net loss of $2.8 billion last year, he added.

USPS is "a vital economic engine in our national economy," Potter said, noting that USPS is the country's second-largest employer and the mail affects both jobs and commerce.

"The mail system is a nationwide logistics network second to none," Potter said. "Working to protect the viability of the mail will produce benefits that reach far beyond the boundaries of the Postal Service."

"We could experience a net loss of $6 billion or more this fiscal year," Potter told the subcommittee. That shortfall would exceed the Postal Service's credit limit under current law.

"We believe that legislative relief is necessary to preserve the nation's mail system," Potter said.

He also asked Congress to change the payment schedule for funding its retirees' health benefits.

The Postal Law of 2006 requires accelerated prepayment of future retiree health care costs. USPS "is the only public or private entity required to prepay health benefit premiums at these extremely high levels," Potter said.[/quote]

New Home Sales Lowest On Record | Ford Gored
 

[B]Update: [/B] Looks like the day the USPS has in mind for cutting mail service is Tuesday, not Saturday as I surmised yesterday. That will likely be more palatable for residential customers (including working folks like me who only ever have time to get the post office on Saturdays), but I expect business customers will not be pleased.

-------------

[URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=a8s4ZpoO6lMQ&refer=news"]U.S. New-Home Sales Decline to Lowest Level on Record Amid Credit Freeze[/URL]: [I]Sales of new homes in the U.S. fell in December to the lowest level since reporting began in 1963, creating an unprecedented glut of unsold properties that casts doubt on any recovery in the industry this year.[/I]
[quote]Unadjusted for seasonal patterns, only 23,000 Americans bought new homes last month, with just 2,000 purchases in the Northeast region.

Economists had forecast new home sales would drop to a 397,000 pace, according to the median forecast in a Bloomberg survey of 70 economists. Estimates ranged from 345,000 to 412,000. Commerce revised the November sales pace down to 388,000 from the 407,000 rate previously reported. [/quote][B]My Comment:[/B] "Economists - Wrong and Wronger"


[URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aRwX199MH0SU&refer=news"]Ford Burns $5.5 Billion in Cash, Taps Revolving Loan After Worst Loss Ever[/URL]: [I]Ford Motor Co., the only U.S. automaker shunning federal loans, burned $5.5 billion in cash in the fourth quarter and said it will tap a revolving credit line after the worst annual performance in its 105-year history.[/I]
[quote]The second-biggest U.S. automaker posted a full-year loss of $14.6 billion, eclipsing 2006’s record of $12.6 billion. Cash in Ford’s automotive business fell to $13.4 billion, the company said today in a statement.

“These losses are not sustainable,” Sean Egan, president of bond ratings firm Egan-Jones Ratings Co., said in a Bloomberg Television interview. “Even if they draw down their lines and the money from the government, it begs the question of whether or not the overall situation is going to improve.” [/quote][B]My Comment:[/B] I don`t believe for one second that Ford isn`t going to need a major government bailout before end of this year. Our federal government seems to have lost all restraint when it comes to throwing (borrowed) money at the problem, but "throwing money at the undeserving" is nothing new in Washington, D.C.:


[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=aYYHKPn4DOe8&refer=news"]Hidden Bonuses Enrich Government Contractors as Taxpayers Pay $100 Billion[/URL]: [I]U.S. Senator Kit Bond shifted in his chair at a 2005 congressional hearing, poised with a question on national security. He turned to Treasury Secretary John Snow, who was seated at a witness table.[/I]
[quote]Was Snow sure, asked Bond, a Missouri Republican, that a Treasury Department computer on order for $8.9 million would help detect terrorist money laundering?

“Yes, absolutely,” Snow said.

A year later, in July 2006, the U.S. Treasury Department abandoned the project. The computer didn’t work. The department had spent $14.7 million -- a 65 percent increase above the original budget -- for nothing.

There was a final ignominy: Under the terms of the contract, Electronic Data Systems Corp., the vendor, collected a bonus of $638,126.

As the federal government’s $700 billion bailout of banks sputters, there’s an object lesson for the new administration of President Barack Obama: Federal departments, including Treasury itself, routinely squander tens of billions of dollars a year in taxpayer money as they farm out public business to private corporations.

Obama, like presidents before him, said during his bid for the White House that he wanted to curtail waste in government. With contracting, he faces a mismanaged system that accounts for almost 40 cents of every federal dollar spent outside of mandatory obligations such as Social Security and Medicare.

When compared with all federal contracting, just a fraction of U.S. spending waste comes from so-called earmarks, which elected officials often criticize as the unnecessary pet projects of politicians.

The “Bridge to Nowhere” in Alaska, for example, had a price tag of $398 million. By contrast, the government spent $368.4 billion on all contracts in 2008, and Republican Oklahoma Senator Tom Coburn estimates that about $100 billion of that was wasted. [/quote]
[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=alINrCmj3dgU&refer=news"]Citigroup Guarantees Test Obama Pledge to Tell Public More on Bailout Risk[/URL]: [I]U.S. government guarantees on securities totaling $419 billion for bank bailouts provide an early test of President Barack Obama’s pledge to be open with taxpayers about what they have at risk in the credit crisis.[/I]
[quote]Bloomberg News asked the Treasury Department Jan. 26 to disclose what securities it backed over the past two months in a second round of actions to prop up Bank of America Corp. and Citigroup Inc. Department spokeswoman Stephanie Cutter said Jan. 27 she would seek an answer. None had been provided by the close of business yesterday.

As Congress debates an $875 billion economic stimulus bill, the guarantees represent a less publicized commitment. The public’s stake has grown along with assurances tying the Treasury to the fate of corporate loans and securities backed by home mortgages, car loans and credit card debt.

“Guarantees are only meaningful if there’s a real chance that someone will have to pay out for them,” said Representative Alan Grayson, a Florida Democrat and a member of the House Financial Services committee that is reviewing the bailouts. “The conception that guarantees cost nothing is a misconception.”

Obama promised a new era of government openness as he took office last week, issuing a statement telling agencies “to adopt a presumption in favor of disclosure” in responding to requests under the Freedom of Information Act. Treasury Secretary Timothy Geithner and Lawrence Summers, head of the National Economic Council, said they would emphasize accountability and transparency in using the second half of a $700 billion bank bailout fund.

Late yesterday, Geithner’s office put hundreds of pages about the fund on the department’s Web site. They did not include documents describing the guaranteed assets. [/quote][B]My Comment:[/B] This issue of disclosure will provide a very useful "OK, you`ve talked the talk..." test for the Obama administration.

Biggest GDP Drop Since 1982 | Amazon Shines
 

[url=http://money.cnn.com/2009/01/29/news/economy/jobless_claims/index.htm]Continuing jobless claims set record[/url]: [i]Americans living on unemployment checks at highest level since tracking started in 1967. New filings rise to 588,000.[/i]


[url=http://money.cnn.com/2009/01/30/news/economy/gdp/index.htm]Economy: Sharpest decline in 26 years[/url]: [i]Economic activity shrank by 3.8% in last three months of 2008, according to the government's gross domestic product report.[/i]
[quote]Hit by tight credit and soaring job losses, Americans slammed the brakes on spending in the quarter.

Consumer spending fell at a 3.5% annual rate, which was the seventh biggest drop on record. Spending on big-ticket durable goods plunged at a 22% pace, the largest decline since 1987. Consumer spending accounts for more than two-thirds of overall economic activity.

But it wasn't just consumers pulling back. Fixed investment in equipment and software, taken as an indication of business spending, plunged at an annual 28% rate. That's the biggest drop in 50 years.

Healthy export demand helped to lift U.S. economic growth earlier in 2008, but that strength vanished in the fourth quarter, as exports fell at nearly a 20% annual rate, the sharpest decline since 1974. That set off more concerns about the slowdown in the global economy.

"I don't want to say we were counting on the global economy to bail us out. But if it turns into a big drag, we've got more of a problem," said Gus Faucher, director of macroeconomics for Moody's Economy.com.
[b]
More warning signs
[/b]
Faucher and other economists noted that the biggest surprise in the report was the sharp growth in business inventories.

Economists say that was false growth brought about by businesses being unable to sell the goods they had on hand. Excluding the growth in inventories, GDP would have fallen by 5.1%

"When the economy is dropping fast it is hard for firms with plummeting sales to halt inventory accumulation," said Robert Brusca of FAO Economics.[/quote]

[b]
TARP Return to Date: -1065% | Ritholz v Geithner
[/b]
Barry Ritholz comments on Tim Geithner`s new job and [url=http://www.ritholtz.com/blog/2009/01/who-is-the-treasury-secretarys-boss/]The Moral Hazard of the "Bad Bank" Proposal[/url]:
[quote]I’ve been closely following the various (new & improved!) bailout plans for the big banks — from the modified TARP to the recapitalizations to the “bad bank” plan.

I’ve noticed something I find a bit disturbing about our new Treasury Secretary: He has not yet fully come to terms with his new job, role — and boss. Granted, he’s been in the job for only two days. But given the extraordinary circumstances the financial sector and the economy is in, it is important for the Treasury Secretary to get up to speed as soon as possible.

Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!

Yesterday’s 13% surge in bank stocks is a clue as to what an obscene taxpayer giveaway this “bad bank” plan is — its free money for the firms that caused the problems, many of whom still have the same incompetent management in place that caused the problem. Purging toxic assets from bank balance sheets, without punishing the management, shareholders and creditors of these institutions for their horrific judgment will only encourage more of the same in the future. Its moral hazard writ large.[/quote]
[b]My Comment:[/b] and the estimated [url=http://www.ritholtz.com/blog/2009/01/bailout-rate-of-return-1096/]rate of return[/url] on the government`s "investment" of taxpayer money to prop up the banks via ex-Treasury-head Paulson's TARP (which has indeed lived up to its name of "Troubled Asset Relief Program" - but with "Troubled" describing the state of the program better than that of the problems it was intended to address) ain`t looking so good, either.


[b]Amazon.com Provides a Rare Bright Spot in a Dismal Retail Landscape:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=azWfYjAPOF_A&refer=news]Amazon.com Profit Rises After Discounts Lure Holiday Shoppers; Shares Gain[/url]: [i]Amazon.com Inc., the world’s largest Internet retailer, posted an 8.7 percent rise in fourth-quarter profit after promotions and discounts lured consumers to its Web site. Sales beat estimates, sending the shares up 9.4 percent. [/i]
[quote]Internet retailers slashed prices over the holidays to lure budget-minded shoppers reeling from the recession. Amazon.com will probably keep discounting goods this year, at the expense of profit, as it tries to fuel sales and ward off competition, Tim Boyd, an analyst at Broadpoint AmTech, said in a report.

“Amazon has a tough decision to make in 2009,” Boyd said. “Will it attempt to grow its top line come hell or high water, or will it instead try to preserve its gross margin? It cannot do both.” [/quote]
[b]My Comment:[/b] I used to rag on Amazon back in the early 2000s, when they were expanding at a breakneck clip, attempting to sell everything from books to furniture and even cars, and seemed to have no clear plan to actually turn profitable. I must say, they seem to really have gotten the model right since then - partly because they're no longer trying to sell everything from books to furniture and even cars. ;)


[b]JPMorgan: Greatest Systemic Risk lies in Money Market Funds:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aMEFKwZEDCVs&refer=news]JPMorgan's Staley Says Money-Market Funds Pose `Greatest Systemic Risk'[/url]: [i]James “Jes” Staley, head of JPMorgan Chase & Co.’s investment unit, said the $4 trillion money-market fund industry is the “greatest systemic risk” to the financial system that hasn’t been adequately addressed. [/i]
[quote]JPMorgan Asset Management oversees about $500 billion of money-market funds, Staley said. The funds aren’t allowed to set aside capital to protect for investment losses, leaving no “margin for error” against a potential collapse, he said.

“If you’re running a money-fund and all of a sudden you think there may be a slight run or a problem in the credit markets you have to liquefy your portfolio as fast as you possibly can,” he said. “Your margin of error is zero because there’s no shock absorber or capital insurance protecting that.”

Staley said money-market funds, not banks, were responsible for the collapse of Lehman Brothers Holdings Inc. and the near bankruptcy of Bear Stearns Cos. last year. He said the funds, which typically hold highly rated, short-term debt instruments, were forced to pull their money from the firms when they saw signs of trouble. [/quote]
[b]My Comment:[/b] This is very interesting and somewhat counterintuitive to those who preach that excessive leverage and the proliferation of exotic financial instruments (derivatives, credit-default swpas, etc) are the biggest source of systemic finanical risk. Money funds don`t seem to have the leverage issues, but note that in the past decade many started investing in riskier (often leveraged) financial instruments by way of chasing yield. That was what brought down the granddady of MMFs, the Reserve Primary Fund, late last year. Coupled with zero "redemption cushion" (such as hedge funds enjoy), it`s a toxic recipe.

[b]
A "Short Course" in Depressionary Patriotism
[/b]
Saw this pithy sentiment on a Yahoo! Finance message board:
[quote]All the whiners who have lost their shirts over the past year come on here when they get their evanescent rallies to taunt [-snip-] holders and other market shorts that we're "BETTING AGAINST AMERICA" or "HOPING AMERICA FAILS".

Have the politicians and the banksters who are looting the public treasury as we speak really been this successful in convincing the average American that the pigs in Washington and the greedy banksters are equivalent to, or represent, America?

I am not betting against the hard-working American citizen working to put food on the table or fund his kids' education...or the successful, entrepreneurial company struggling to stay afloat on its own risk-management and ability to supply a good or service that people want.

But I AM betting against the pigs in Washington handing out our tax dollars or printing greenbacks on overdrive (effectively stealing from us by way of inflation) to failing businesses, while stuffing the bailout bills full of perks and pork to better their own political careers. All these pieces of scum should be subjected to the guillotine, save for handful of Congressmen, including Ron Paul, who have been honestly and seeking to stop this theft from the American taxpayer.

The longer the Eight Little Piggies (read: Bush, Obama, Bernanke, Paulson, Geithner, Barnie Frank, Chris Dodd, and Nancy Pelosi) keep propping this market up like a ventriloquist's dummy, the longer we're mired in this mess and the harder we fall.

For God's sakes, Piggies, get the @#$% out of the markets so the worm-infested apples can be shaken out of the tree and capitulation--and then recovery--can finally occur![/quote]

Was There Ever a Default on U.S. Treasury Debt?
 

Saw this interesting piece on Nouriel Roubini`s RGE Monitor website today:

[i]In a very interesting piece, Alex Pollock argues that historically under sufficient threat, crisis and pressure, a clear default on Treasury bonds did occur. He cites 1933 when the United States quite clearly and overtly defaulted on its debt. This was an intentional repudiation of its obligations, supported by a resolution of Congress and later upheld by the Supreme Court. Read: [url=http://www.rgemonitor.com/globalmacro-monitor/255267/was_there_ever_a_default_on_us_treasury_debt]"Was There Ever a Default on U.S. Treasury Debt?"[/url][/i]

From the linked article (which may require a subscription to the RGE Monitor site - being a subscriber I can't tell if non-subscribers can view the page):

[quote][b]Was There Ever a Default on U.S. Treasury Debt?[/b]
[i]
Alex Pollock | Jan 23, 2009
[/i]
As the bailouts in the current bust inexorably mount, financed in rapidly increasing U.S. government debt, one might wonder whether a default on Treasury debt is imaginable. In the course of history, did the U.S. ever default on its debt?

Well, yes: The United States quite clearly and overtly defaulted on its debt as an expediency in 1933, the first year of Franklin Roosevelt's presidency. This was an intentional repudiation of its obligations, supported by a resolution of Congress and later upheld by the Supreme Court. Granted, the circumstances were somewhat different in those days, since government finance still had a real tie to gold. In particular, U.S. bonds, including those issued to finance the American participation in the First World War, provided the holders of the bonds with an unambiguous promise that the U.S. government would give them the option to be repaid in gold coin. Nobody doubted the clarity of this "gold clause" provision or the intent of both the debtor, the U.S. Treasury, and the creditors, the bond buyers, that the bondholders be protected against the depreciation of paper currency by the government. Unfortunately for the bondholders, when President Roosevelt and the Congress decided that it was a good idea to depreciate the currency in the economic crisis of the time, they also decided not to honor their unambiguous obligation to pay in gold. On June 5, 1933, Congress passed a "Joint Resolution to Assure Uniform Value to the Coins and Currencies of the United States," of which two key points were as follows:
[i]
• "Provisions of obligations which purport to give the obligee a right to require payment in gold obstruct the power of the Congress."
• "Every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment is gold is declared to be against public policy."
[/i]
"Purport"? "Against public policy"? Interesting rhetoric. In plain terms, the Congress was repudiating the government's obligations. So the bondholders got only depreciated paper money. The resulting lawsuits ended up in the Supreme Court, which upheld the ability of the government to refuse to pay in gold by a vote of 5-4. The Supreme Court gold clause opinions of 1935 make instructive reading. The majority opinion, written by Chief Justice Hughes, includes these thoughts:
[i]
• "The question before the Court is one of power, not policy."
• "Contracts, however express, cannot fetter the constitutional authority of the Congress."
[/i]
Justice McReynolds, writing on behalf of the four dissenting justices, left no doubt about their view:
[i]
• "The enactments here challenged will bring about the confiscation of property rights and repudiation of national obligations."
• "The holder of one of these certificates was owner of an express promise by the United States to deliver gold coin of the weight and fineness established."
• "Congress really has inaugurated a plan primarily designed to destroy private obligations, repudiate national debts, and drive into the Treasury all gold within the country in exchange for inconvertible promises to pay, of much less value."
• "Loss of reputation for honorable dealing will bring us unending humiliation." The clearest summation of the judicial outcome was in the concurring opinion of Justice Stone, as a member of the majority:
• "While the government's refusal to make the stipulated payment is a measure taken in the exercise of that power, this does not disguise the fact that its action is to that extent a repudiation."
• "As much as I deplore this refusal to fulfill the solemn promise of bonds of the United States, I cannot escape the conclusion, announced for the Court, that the government, through exercise of its sovereign power, has rendered itself immune from liability."
[/i]
So five of the nine justices explicitly stated that the obligations of the United States had been repudiated. There can be no doubt that the candid conclusion of this highly interesting chapter of our national financial history is that, under sufficient threat, crisis and pressure, a clear default on Treasury bonds did occur. About 250 years ago, in a celebrated essay, "Of Public Credit," David Hume wrote: "Contracting debt will almost infallibly be abused in every government. It would scarcely be more imprudent to give a prodigal son a credit in every banker's shop in London, than to empower a statesman to draw bills upon posterity." Hume would have looked down from philosophical Valhalla in 1933-35 and seen his views confirmed. What, one wonders, would he be thinking now?[/quote]
[b]My Comment:[/b] Of course all this talk of "payment in gold" and "national obligations" is so very old-fashioned and quaint ... nowadays all we have is easily-manipulable, endlessly creatable paper currency, and as long as we can continue to convince the foreign governments holding trillions of dollars of our IOUs (i.e. treasury bonds) that they'd better keep buying 'em as fast as we can print 'em because a failure of the T-bill market would cause the value of their existing bond holdings to plunge, we can finance as much national profligacy as we like. It`s nothing less than the biggest financial protection racket in world history.

[quote=ewmayer;161128][I][URL="http://www.rgemonitor.com/globalmacro-monitor/255267/was_there_ever_a_default_on_us_treasury_debt"]"Was There Ever a Default on U.S. Treasury Debt?"[/URL][/I]

From the linked article (which may require a subscription to the RGE Monitor site - being a subscriber I can't tell if non-subscribers can view the page):[/quote]Apparently not subscription-only; I can view it and the comments following it.

How much does anyone want to bet that Republicans will (a) attack Democrats' $1 trillion raising of the US national debt if the stimulus doesn't (apparently, anyway, in their view) work, but (b) refuse to take any responsibility for the part played by their own party's $[B]8[/B] trillion contribution to that debt since 1980?

Cash4Gold Scores Big | Fear and Delusion in Asia
 

[url=http://money.cnn.com/2009/02/02/news/economy/super_bowl_ads/index.htm]MC Hammer`s pain scores in Super Bowl ad[/url]: [i]NBC reaps more than $200 million in ad revenue, but most Super Bowl viewers aren`t feeling so rich.[/i]
[quote]NEW YORK (CNNMoney.com) -- It`s a telling sign of the times that one of the most popular commercials in last Sunday`s Super Bowl was from an online pawn shop.

The ad for Cash4Gold, where rapper MC Hammer is reduced to selling his bling as pitchman Ed McMahon cashes in his gold toilet, won the top spot in the Kellogg Super Bowl Advertising Review.

Tim Calkins, a marketing professor for the review, which is run by Northwestern University`s Kellogg School of Management, said this was "almost the most astonishing development on Super Bowl."

"It`s a very sad reflection of where we are in the economy right now: Sell us your precious items and we`ll melt them down into cash," said Calkins.

But it didn`t feel like a recession for NBC, the game broadcaster, which walked away with $206 million in advertising revenue, a record take. The network charged an average of $3 million for a 30-second spot, an all-time high, and it had no trouble selling out in spite of the fact that the game`s rating were 6% down from last year.[/quote]
[b]My Comment:[/b] Useful as those cash-4-gold-style services are for turning one`s jewelry into quick cash, the scam potential here strikes me as massive: you`re basically sending them your jewelry and trusting them to be honest about the weight and carat numbers. Sure, you could preweigh your bling using a jeweler`s scale and carefully document the carat-age of the various items, but what percentage of customers do you think actually do that? And the few who do and then complain to cash4gold (or similar outfit) that the weight stated by the melter-downer was lower than they recorded, you just say "sorry - our bad" and make up the difference. I`m not saying that`s actually what`s happening, just that it would be incredibly easy (and tempting) to do. Just like Whole Foods consistently overcharges me - about every second time I`m there. Interestingly, I`ve never known them to *undercharge* me. But being just one customer, I`m not in a position to establish a "pattern of overcharging" - best i can do without becoming a full-time consumer advocate is to carefully check my bill and complain when I get overcharged.


[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=a8bCEZluu3d0&refer=china]China's Manufacturing Shrinks for 6th Month as Exports Slide, Survey Shows[/url]: [i]China’s manufacturing contracted for a sixth month in January as the global recession sent growth sliding in Asia’s export-driven economies.[/i]
[quote]Feb. 2 (Bloomberg) -- South Korean exports tumbled by a record in January and Chinese manufacturing contracted as the global recession sent growth sliding in export-driven economies across Asia.

South Korea’s shipments fell 32.8 percent from a year earlier, the Ministry of Knowledge Economy said. Manufacturing in China shrank for a sixth month, the CLSA China Purchasing Managers’ Index showed.

Plunging export demand is dragging down economies across Asia and the Pacific, where Japan and Hong Kong are already in recessions and Taiwan, South Korea and Australia are getting closer. South Korean steelmaker Posco will extend production cuts and Rio Tinto Group, the biggest iron-ore miner in Australia, may sell shares to raise cash after commodity prices plummeted.

“Things are getting worse as the global recession spills over to China and other emerging economies,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul.

Japan’s factory output slumped by a record in December from November, the government said last week, and Australia’s manufacturing contracted for an eighth month in January, a report showed today. Australia faces a “collapse in government revenues,” according to Prime Minister Kevin Rudd, as the global and domestic economies slow.

The MSCI Asia-Pacific Index fell 2.1 percent as of 4:10 p.m. in Tokyo, extending its decline to 9 percent this year.
[b]
Worst on Record
[/b]
South Korea’s shipments fell by the most since figures were first compiled in 1957, and at almost twice the pace of December’s decline. The trade report is among the region’s first economic releases for January.

“An outright recession is inevitable,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “This is an early indicator for the region, and the drop suggests exports in Asia won’t be good.”

The Chinese purchasing managers’ index rose to a seasonally adjusted 42.2 from 41.2 in December, CLSA Asia-Pacific Markets said today. A reading below 50 shows a contraction.

The Chinese economy will “likely get much worse before getting better,” said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.

Chinese manufacturers shed jobs last month at the fastest pace since the index began in 2004, the CLSA survey showed.

About 20 million migrant workers have lost their jobs because of the nation’s economic slowdown, Chen Xiwen, a senior rural planning official said at a briefing in Beijing today.[/quote]
[b]My Comment:[/b] But, as the China permaBulls like to say, never let some ugly facts get in the way of a comforting delusion:


[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=aEj4GleNbJGw&refer=china]China's World-Beating Stocks Keep BlackRock, Barclays Bullish on Economy[/url]: [i]The world’s largest money managers say China’s steepest monthly stock gain in more than a year shows the fastest-growing major economy will avert a recession.[/i]
[quote]“China is going to do what it has to do to keep the economy humming,” Koesterich, the San Francisco-based head of investment strategy at Barclays Global Investors, said in a Bloomberg Television interview Jan. 26. “They can enjoy faster growth than the rest of the world in 2009 and in 2010 as well.”

...

“The Chinese have a pretty strong pro-growth agenda at the moment and they tend to do whatever it takes to stabilize the growth slowdown,” said Urwin, the head of asset allocation at BlackRock in London. [/quote]
[b]My Comment:[/b] So the Chinese government can just wave its magic "whatever it takes" wand and miraculously get broke western consumers to restart their decade-long cheap-stuff-buying binge, thus reviving the Asian export economy? What planet are you guys living on?

Lean Times, Mean Companies | California $ Woes
 

On a more-upbeat note, CNN/Money has a nice piece today titled [url=http://money.cnn.com/galleries/2009/smallbusiness/0901/gallery.founded_in_a_recession.smb/index.html]6 companies born during downturns[/url] - my personal favorite is the one on IBM:
[quote][b]Company:[/b] IBM
[b]Ticker:[/b] IBM
[b]Industry:[/b] Computer
[b]Founded during:[/b] The Long Depression, 1873-1896

Aptly named, this era comprised a series of unfortunate events. The Vienna Stock Exchange fell. The Coinage Act of 1873 demonetized silver, pushing investors away from making long-term loans. U.S. banks collapsed twice, causing the Panic of 1873 and the Panic of 1893.

But three startups - the Tabulating Machine Company, the International Time Recording Company and the Computing Scale Corporation - developed technologies during this 23-year period that were in demand despite the sour economy. A time clock for recording workers' hours, for example, was needed as industrial production at the end of the century surged. Also, a tabulating machine was vital during the immigration wave, to tally up the expanding population. These three companies merged in 1911 as the Computing-Tabulating-Recording Company, which changed its name to IBM several years later.[/quote]
[b]My Comment:[/b] It`s a niggle, but before they officially switched to a KFC-style acronymized company name, they were sometimes referred to by their full name, as the [url=http://en.wikipedia.org/wiki/IBM]International Business Machines Corporation[/i]. Another interesting nugget - especially for compute geeks like those who frequent this forum - is that the aforementioned Tabulating Machine Company was founded by none other than computing pioneer Herman Hollerith, inventor of the punched card which revolutionized the U.s. census, about whom Wikipedia writes:
[i]Other than his inventions, Hollerith "was said to cherish three things: his German heritage, his privacy and his cat Bismarck."[/i]

The cat, of course, had the full name "Klaus von Bismarck".

(Luckily for me, tomatoes are out of season around here just now).


[url=http://money.cnn.com/2009/02/02/news/economy/california_budget_crisis/index.htm]California delays $3.5B in payments[/url]: [i]Golden State won't be able to meet its obligations to taxpayers, vendors and others until a budget deal is reached.[/i]
[quote]NEW YORK (CNNMoney.com) -- Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies.

With the governor and state lawmakers locking horns on resolving California's budget crunch, the controller Monday halted checks covering these obligations so the state could continue funding its school system and making its debt payments.

The delay will inflict more pain on the already sorry condition of the Golden State, which is facing a $40 billion budget gap. People won't have tax refund money to spend, businesses won't get paid for their services and agencies won't have funds to help the needy until the budget situation is addressed.

Nearly $2 billion in personal state income tax refunds are being held up, according to state estimates. Last year, some two million Californians received refunds in February.

"People are going to be hurt starting today," said Garin Casaleggio, a spokesman for Controller John Chiang.

Also on hold are $515 million in payments to the state's vendors and $280 million to help people with developmental disabilities. Other public assistance agencies will be left waiting for hundreds of millions of dollars.

Gov. Arnold Schwarzenegger and legislative leaders are behind closed doors trying to hammer out a solution to the state's budget crisis, which also includes a $15 billion budget deficit for 2008-2009 and a projected $25 billion gap for 2009-2010. The governor has proposed draconian spending cuts in virtually every department, as well as hefty tax increases, to close the widest deficit in its history.[/quote]
[b]My Comment:[/b] Oh lordy, this is promising to get very ugly. Think Iceland-style mass protests.

[QUOTE=ewmayer;161403][url=http://money.cnn.com/2009/02/02/news/economy/super_bowl_ads/index.htm]MC Hammer`s pain scores in Super Bowl ad[/url]: [i]NBC reaps more than $200 million in ad revenue, but most Super Bowl viewers aren`t feeling so rich.[/i]

[b]My Comment:[/b] Useful as those cash-4-gold-style services are for turning one`s jewelry into quick cash, the scam potential here strikes me as massive: you`re basically sending them your jewelry and trusting them to be honest about the weight and carat numbers. Sure, you could preweigh your bling using a jeweler`s scale and carefully document the carat-age of the various items, but what percentage of customers do you think actually do that? And the few who do and then complain to cash4gold (or similar outfit) that the weight stated by the melter-downer was lower than they recorded, you just say "sorry - our bad" and make up the difference. I`m not saying that`s actually what`s happening, just that it would be incredibly easy (and tempting) to do.[/QUOTE]In addition to these concerns, this commercial prompts additional negative associations of bad economy and hardship very much in keeping with the topic of this thread since one of the commercial's two personalities, Ed McMahon, recently almost lost his house due to foreclosure and was saved by the personal intervention of Donald Trump: [URL="http://www.google.com/url?sa=U&start=1&q=http://articles.latimes.com/2008/aug/14/home/hmw-hotpropmcmahon14&ei=-2WHSYfFBor2sAOY1bGdBg&usg=AFQjCNH2zUSP-8cyLgbE5Utw43nFbPhq6Q"]Donald Trump to buy Ed McMahon's house - Los Angeles Times[/URL][QUOTE]August 14, 2008

It’s “The Donald” to the rescue.

Mega-developer and TV personality Donald Trump has agreed to buy Ed McMahon’s Beverly Hills house for an undisclosed amount and allow McMahon to continue living in it. Details of the deal are still being ironed out, but Trump’s interest is regarded as an act of benevolence.

“I don’t know the man, but I grew up watching him on TV,” Trump said in an exclusive interview with The Times.

McMahon, 85, was facing foreclosure within two weeks on his Beverly Hills home of 18 years. The aging television icon, who was Johnny Carson’s sidekick for three decades, defaulted on $4.8 million in mortgage loans with Countrywide Financial Corp. He said in interviews that he was unable to work because of a neck injury that occurred about 18 months ago.[/QUOTE]

"ABC News: Iceland's Warning to the World

After Economic Collapse Island Nation Experiencing Political Unrest And Protest"

[URL]http://abcnews.go.com/International/story?id=6784835[/URL]

[quote=Ralf Hoppe][I]First came the financial crisis, then the uproar: Iceland is the first European country to suffer the full effects of the global financial crisis. Is this a taste of what's in store for the rest of the world?

. . .

[/I]Recently, she says, the wrath of the people was so great that the crowd was on the verge of storming the Althing, dragging out the government, and hanging them from the huge Christmas tree. The tree is no longer there.

"Some of the demonstrators torched it," she says. "That was quite a fire."

. . .[/quote]

Superbowl ad -- Hyunday Customer Assurance
 

Another Superbowl was called [URL="http://www.hyundaiusa.com/financing/HyundaiAssurance/HyundaiAssurance.aspx"]Hyundai Assurance[/URL] which says "buy a car from Hyundai, and if you lose your job in the next 12 months, return it with no further obligation and no black marks on your credit record."
Restrictions apply (of course) but basically if you buy or lease a Hyundai and in the first year end up having it returned due to[LIST][*]Involuntary unemployment[*]Physical disability[*]Loss of driver's license due to medical impairment[*]International employment transfer[*]Self-employed personal bankruptcy[*]Accidental death[/LIST]-- they will accept up to a $7500 loss. Above $7500, they subtract $7500 and only require the difference above that (and still let you walk away without further financial obligation and with your credit intact)

This sounds like a nice offer and certainly is responsive to the current economic climate. It's not often these days that someone promises not to step on your neck after you've been knocked down, lost your job, lost your car and just about everything else.

[QUOTE=cheesehead;161428]"ABC News: Iceland's Warning to the World

After Economic Collapse Island Nation Experiencing Political Unrest And Protest"

[URL]http://abcnews.go.com/International/story?id=6784835[/URL][/QUOTE]

I am waiting for people, en masse, to start defaulting on their credit
card debt. I can feel their attitude:

I am out of work because of banker/investor greed? I have lost half of
my retirement funds while bankers are still getting large bonuses?

Then screw them.........

Automakers Offer Buyouts | Gritty Britty Litter
 

[url=http://money.cnn.com/2009/02/03/news/companies/auto_sales/index.htm]Ford sales plunge 39%[/url]: [i]January sales tumble more than expected at Ford, as battered auto industry is poised for worst month in more than 25 years.[/i]


[url=http://money.cnn.com/2009/02/03/news/companies/gm_buyouts/index.htm]GM offers buyouts to all hourly workers[/url]: [i]GM follows move by Chrysler to further cut labor costs, offering its factory workers chance to cash out.[/i]
[quote]NEW YORK (CNNMoney.com) -- General Motors is offering buyouts to virtually all of its remaining hourly workers, becoming the latest automaker to try to cut labor costs by giving nervous workers an incentive to leave the company.

The move follows a similar move by Chrysler LLC, which made an offer to its hourly workers on Monday.

The GM offer, which takes effect Friday, is less lucrative than the deal proposed by Chrysler, or even offers that GM has made to its hourly staff in the past. The automaker will give most of its 62,000 U.S. hourly workers $20,000, as well as a voucher good towards the purchase of a GM car worth $25,000.

In the past, GM offered between $45,000 to $62,500 to workers to retire early, and $140,000 to employees who left the company and agreed to give up post-retirement health care coverage. Those offers were all cash.

Chrysler's offer is for to $50,000 to virtually all of its 27,000 U.S. hourly workers, along with a voucher good for up to $25,000 on the purchase of a vehicle.

"Given our financial situation, we feel this is a responsible," said Sherrie Childers Arb, a GM spokeswoman. She said the company has not set a target for how many workers it wants or expects to take the offer.

The UAW agreed last week to eliminate a so-called "jobs bank" at GM as well as at Chrysler and Ford. The jobs bank had provided near full pay to UAW members whose positions were eliminated.

Childers Arb said the company believes a significant number of workers will take the offer, even if they had turned down previous, more generous offers, especially with the changes in their contract and the less certain outlook for GM.[/quote]
[b]My Comment:[/b] Now, for a worker in his 50s who still has several decades of living which will require some kind of pension income and health coverage this might seem like a bad deal. But if folks taking the buyout offers do the prudent thing and invest the money in the stock market, figure 8% gain per year ... after all, we all know that over the long haul, nothing beats the stock market in terms of making your money grow. Except real estate, that is.

[b]Latin America Update:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aOKYVJybRQ10&refer=news]Brazil's Industrial Production Plunges 14.5% in December, Most in 17 Years[/url]: [i]Brazil’s industrial output fell the most in at least 17 years as companies across the country slashed production to adjust to plunging demand. [/i]
[quote]Factory production declined 14.5 percent in December from the year-ago month, the biggest decline since the statistics agency began tracking annual output in 1992. The drop exceeded all 22 forecasts in Bloomberg survey of economists. Output fell a revised 6.4 percent in November.

“If this number doesn’t take your breath away, I don’t know what would,” said Tony Volpon, chief strategist at CM Capital brokerage in Sao Paulo. “There are really few adjectives to describe just how bad the December number was.” [/quote]
[b]My Comment:[/b] ...And even fewer adjectives one can use in polite company.
[quote]Economists covering Brazil expect economic growth of 1.8 percent in 2009, the slowest since 2003, when the economy grew 1.2 percent, according to the median forecast in a central bank survey published yesterday. Finance Minister Guido Mantega last night said he expects positive growth this year. He didn’t provide a forecast. [/quote]
[b]My Comment:[/b] Yeah, ya wish ... those forecasts are going to prove so far off the mark as to be beyond ludicrous. Or better, "There are really few adjectives to describe just how bad these forecasts will turn out to be."


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=arRinmnrGtyE&refer=news]Ramirez Pumps Cash for Chavez as $40 Crude Imperils Venezuelan Oil Output[/url]: [i]Rafael Ramirez, president of Petroleos de Venezuela SA, takes the stage at a stadium packed with thousands of beneficiaries of the state oil company’s schools and health clinics, known as missions. [/i]
[quote]Ramirez, who’s also the country’s oil minister, supplied his government with $34 billion in royalties and taxes in the first nine months of 2008, more than half the national budget. Such funds have enabled Chavez to provide education, health care and low-cost food for what he terms the “Bolivarian Revolution.”

As Chavez drains cash from PDVSA, as his company is known, the Western Hemisphere’s biggest petroleum exporter is falling behind on investment and output targets, said Jorge Pinon, an energy fellow at the Center for Hemispheric Policy at the University of Miami. With crude down 73 percent from a July 11 peak of $147.27 a barrel, Ramirez will have to further trim oilfield spending to maintain payments to his boss, Pinon said.

“He is willing to compromise PDVSA’s role on behalf of the political mission of the state,” Pinon said.

Ramirez declined two written requests for an interview. Chavez wasn’t immediately available to comment, said an official in the presidential press office who declined to give her name because she isn’t an authorized spokeswoman.

Venezuela’s 2009 budget is based on an oil price of $60 a barrel. Crude fell $1.60 to $40.08 a barrel in New York yesterday. [/quote]
[b]My Comment:[/b] You guys are so screwed ... your pal Ahmadinejad in Iran finds himself in similar straits, as does would-be petro-potentate Putin of Russia. (Yeah, I know Medvedev is nominally the president, but we all know who *really* runs Russia, and he goes by the nickname "Big bad Daddy Vladdy").


[b]Norway Oil Fund Feeling the Chill:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aBMkhtkUBEds&refer=news]Norway Oil Fund Losses in Lehman Shares Exacerbate Kingdom's Worst Return[/url]: [i]Every weekday when he’s in Oslo, Yngve Slyngstad takes the elevator to his office at Norway’s central bank, logs on to his computer and checks about $300 billion of international investments. [/i]
[quote]It’s made miserable reading since January 2008, when Slyngstad became chief executive officer of the Government Pension Fund-Global, the world’s third-largest sovereign wealth pool.

Built on the oil revenue that’s transformed Norway into one of the richest and best places to live on the planet, the fund lost 14.5 percent of its value through September. The third quarter was the worst in its 18-year history. [/quote]


[b]"Fine for Littering", UK Style[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=anU9O_y0cJJM&refer=europe]Britons Turn to Cat Litter as Cheap Way to Grit Snowy Streets, Tesco Says[/url]: [i]Britons struggling to contend with a recession and the country’s worst winter storm since 1991 are turning to cat litter as a cheap way of gritting snowy streets, according to Tesco Plc, the U.K.’s largest retailer. [/i]
[quote]Cat litter sales climbed 30 percent yesterday compared with the same day last week, Tesco said today by e-mail. The retailer is tripling supplies to cope with demand after Britain was covered in as much as 28 centimeters (11 inches) of snow.

Tesco lightweight cat litter, which sells for around 1.16 pounds ($1.65) per 10 liter bag, is also suitable for preventing slippage on icy roads. U.K. sales can rise by as much as 70 percent compared with a normal week, according to the retailer. [/quote]
[b]My Comment:[/b] I`m sure it`s more environmentally friendly than road salt ... and I expect winter-loving outdoor cats (if there exist any such mythical beasts) enjoy it, as well: "Pooping in a winter wonderland", as it were.

Obama Orders Salary Cap for Execs at Bailout Firms
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a6fHgp5yAPLw&refer=news]Obama Orders $500,000 Pay Cap for Executives at Companies Getting Most Aid[/url]: [i]President Barack Obama called bonus payouts at banks getting rescue funds “shameful” as he and Treasury Secretary Timothy Geithner announced the government will require financial companies getting aid in the future to cap compensation of top officials at $500,000 a year.[/i]
[quote]Reacting to public outcry over bonuses paid to bankers getting government bailout money, the administration is imposing conditions that would force greater transparency for expenses such as corporate jets, office renovations, entertainment and holiday parties, and restrict executives’ severance pay.

While pay would be limited, there are provisions that would allow additional compensation in the form of restricted stock that can’t be sold until taxpayers have been paid back with interest. Senior executive compensation plans also must be submitted to a non-binding shareholder resolution.

The compensation cap may be waived for companies getting aid through what the administration terms “generally available capital access programs,” through full public disclosure and submission of a resolution to shareholders if requested.

Companies also must have in place provisions to reclaim, or “claw back,” bonuses and incentives from the top 25 senior executives if they are found to engage in deceptive practices.

House Republican Leader John Boehner said he “applauds” Obama’s executive pay proposals.

“If anyone is looking for the taxpayer to help bail their company out, these type of executive pay caps are appropriate,” Boehner said today.

Not Retroactive

The rules won’t be applied retroactively to companies that already have received aid from the Treasury Department through the $700 billion Troubled Asset Relief Program fund. [/quote]
[b]My Comment:[/b] Long-overdue and much-needed - but too bad they can`t make it retroactive. Hank Paulson made sure to take good care of his bankster buddies last year when proposing the TARP and rushing it through congress. Of course, the mere fact that top management will get to keep their jobs is [url=http://globaleconomicanalysis.blogspot.com/2009/02/triage-for-troubled-assets.html]upsetting to many[/url].


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aLqmR5ZB_RYI&refer=news]Summers Warns Deflation Is `Real Risk' for U.S., Stimulus Package Needed[/url]: [i]White House economics director Lawrence Summers urged swift passage of a stimulus bill and pledged further taxpayer funds for major banks, warning that the economy is in danger of sustained declines in consumer prices. [/i]

[b]My Comment:[/b] Deflation is more than a risk, deflation is in fact here and has been for over a year, first in the form of plummeting home prices, then in the prices of equity markets, then in commodities and raw materials, and now in just about everything except gold and NFL ticket prices. Much of that deflation is a painful-but-long-overdue correction of e.g. housing and stock prices back toward historical means relative to incomes and earnings - the real danger, as Summers is keenly aware of, is a self-reinforcing deflationary spiral, i.e. an overcorrection.


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aRi.gP063ouw&refer=news]Mexico Carries Out `Extraordinary' Intervention After Peso Hits Record Low[/url]: [i]Mexico’s central bank is buying pesos in the foreign-exchange market after the currency plunged to a record low today, the bank’s press office said.[/i]
[quote]The central bank stepped into the market after the peso tumbled to a record low for a fourth straight day. The peso has weakened 32 percent against the dollar over the past six months, the worst performance among the world’s major currencies, on concern the economy will be throttled by the recession in the U.S., the buyer of about 80 percent of Mexico’s exports. [/quote]
[b]My Comment:[/b] I wonder to what extent the Peso's plunge is due not to declining exports to the U.s. but rather to the millions of Mexican migrants (legal and illegal) who have been sending billions of dollars back home from their work in the U.S. but whose jobs are now vanishing at a frightening rate.

Confessions of a Cash4Gold Employee
 

[QUOTE=ewmayer;161403]Useful as those cash-4-gold-style services are for turning one`s jewelry into quick cash, the scam potential here strikes me as massive: you`re basically sending them your jewelry and trusting them to be honest about the weight and carat numbers. Sure, you could preweigh your bling using a jeweler`s scale and carefully document the carat-age of the various items, but what percentage of customers do you think actually do that? And the few who do and then complain to cash4gold (or similar outfit) that the weight stated by the melter-downer was lower than they recorded, you just say "sorry - our bad" and make up the difference.[/QUOTE]

Ding, ding, ding! We have a winner:

[url=http://consumerist.com/5144296/10-confessions-of-a-cash4gold-employee]Consumerist.com | Confessions of a Cash4Gold Employee[/url]

[QUOTE=ewmayer;161585][b]My Comment:[/b] I wonder to what extent the Peso's plunge is due not to declining exports to the U.s. but rather to the millions of Mexican migrants (legal and illegal) who have been sending billions of dollars back home from their work in the U.S. but whose jobs are now vanishing at a frightening rate.[/QUOTE] The Central Bank of Mexico tracks this but I haven't looked at it much. [URL="http://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?accion=consultarCuadro&idCuadro=CE81&locale=en"]http://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?accion=consultarCuadro&idCuadro=CE81&locale=en[/URL] I see a drop in November and December. I didn't compare the previous year because I was not sure what data I was looking at when I attempted to do so. The following article thinks that the strong dollar is encouraging more remittances: [URL="http://www.palmbeachpost.com/business/content/business/epaper/2008/12/14/sunbiz_mexicodollar_1214.html"]Strong dollar means Mexico migrants send more home[/URL] AP Dec 12, 2008

[QUOTE=ewmayer;161593]Ding, ding, ding! We have a winner:

[url=http://consumerist.com/5144296/10-confessions-of-a-cash4gold-employee]Consumerist.com | Confessions of a Cash4Gold Employee[/url][/QUOTE]
A Los Angeles Times article reader comment lays it out thus:[QUOTE] Posted by: Johnny Carson | January 30, 2009 at 12:54 PM

has nobody read the cash4gold scam description yet?

here's the original cockeyed article:
[url]http://www.cockeyed.com/citizen/goldkit/cheat.shtml[/url]

which got picked up by consumerist:
[url]http://consumerist.com/5059452/how-to-avoid-getting-ripped-off-by-cash4gold[/url]

here's an exposé by a former employee, confirming the scam:
[url]http://www.complaintsboard.com/complaints/cash-4-gold-c87309.html#c181304[/url]

and here's cash4gold's attempt to bribe cockeyed:
[url]http://www.cockeyed.com/citizen/goldkit/reputation.shtml[/url]
[/QUOTE][URL="http://latimesblogs.latimes.com/technology/2009/01/cash4goldcom-na.html#comments"]http://latimesblogs.latimes.com/technology/2009/01/cash4goldcom-na.html#comments[/URL]
I'm thinking that they bought themselves too much attention with their Superbowl ad.

[quote=ewmayer;161593]Ding, ding, ding! We have a winner:
[/quote]

Ernst, is your middle name Mish?:smile:

[QUOTE=garo;161655]Ernst, is your middle name Mish?:smile:[/QUOTE]

Did he have a piece on the cah4gold scam-o-rama, as well? In my case a co-worker and I happened to be discussing the Super Bowl Ads on Monday morning, and he mentioned that the cash4gold business "must be a huge scam" ... that planted the seed, and then yesterday I saw a link to the Consumerist piece on one of the Yahoo finance flameBoards. Or are you referring to my preternatural powers of prognostication? ;)

--------------------

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aefa1dENDQYk&refer=news]Jobless Claims in U.S. Soar, Productivity Rises as Companies Slash Workers[/url]: [i]The number of Americans filing first- time jobless claims reached a 26-year high and companies squeezed more productivity out of their remaining staff, underscoring the deepening deterioration in the labor market. [/i]
[quote]Initial applications for unemployment benefits climbed more than forecast to 626,000 last week, a Labor Department report showed today in Washington. Productivity, a measure of employee output per hour, rose at a 3.2 percent annual rate in October to December as employers cut 1.5 million from payrolls and slashed working hours by the most since 1975, the department said.

“It’s astonishing how quickly American businesses are laying people off,” Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. “They’ve learned that they have probably had too much staff for the kind of economy they foresee and they’re laying people off left and right.”

The jobless-claims figures may foreshadow a steeper slide in payrolls in tomorrow’s January employment report. The losses threaten to exacerbate the slump in consumer spending and risk further personal bankruptcies and loan defaults.

...

A separate Commerce Department report today showed that orders placed with U.S. factories fell for a fifth month in December as domestic and international demand crumbled. Bookings tumbled 3.9 percent, more than forecast, after a 6.5 percent drop in November. Excluding transportation equipment such as cars and aircraft, orders fell 4.4 percent after a 6 percent decrease. [/quote]
[b]My Comment:[/b] That bodes ill for the mythical "2009 second-half recovery" forecast by so many "experts".


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aTu9HA5cZgQ4&refer=news]Fannie Mae Will Drop Some Credit-Score Rules to Break Refinancing `Logjam'[/url]: [i]Fannie Mae, the mortgage-finance company under U.S. government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing. [/i]
[quote]Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases, according to a notice yesterday to lenders posted on the Washington-based company’s Web site. The changes apply to loans that the company owns or guarantees.

The company, which accounts for more than 40 percent of the $12 trillion in U.S. residential mortgage debt, is seeking to break a “logjam” in refinancing and allow more homeowners to take advantage of near-record low interest rates, according to Brian Faith, a Fannie Mae spokesman. The increased flexibility for consumers isn’t large enough to significantly harm mortgage- bond investors and mortgage insurers, analysts said. [/quote]
[b]My Comment:[/b] Hmm, those "relaxed" standards sound suspiciously like the same ones that helped cause the housing-lending-and-credit-bubble debacle. On the other hand, perhaps the risk equation here is fundamentallu different in a declining market, i.e. in the face of intense downward-appraisal pressure. But still...


[url=http://www.bloomberg.com/apps/news?pid=20601081&sid=aYtOlViOxmVM&refer=australia]Commodity Shipping Index Posts Best Winning Streak Since 2007 in London[/url]: [i]The Baltic Dry Index, a measure of shipping costs for commodities, posted its longest winning streak since May 2007 as demand for iron ore cut the number of vessels available for hire. [/i]
[quote]The index tracking transport costs on international trade routes rose 182 points, or 14 percent, to 1,498 points, according to the Baltic Exchange. That’s the highest since Oct. 16 and all vessel classes gained. The index advanced 15 percent yesterday, the most since at least 1985.

“Activity has gradually been working its way through the queue of ships available,” to a point where the fleet is almost fully utilized, Kjetil Sjuve, dry cargo department manager at Lorentzen & Stemoco AS in Oslo, said by phone today.

The number of available capesize ships that typically haul iron ore, a steelmaking raw material, has fallen to almost zero, Oslo-based shipbroker Fearnley Fonds ASA said yesterday. As much as a quarter of the fleet may have been at anchor two months ago as shipping rates collapsed to below operating costs.

Chinese steel makers may be replenishing iron-ore stockpiles that by mid-January were 22 percent lower than the record set in September. The main iron ore routes to China, from Tubarao, Brazil and Western Australia are at the highest since October.

The steel industry accounts for almost half of all dry-bulk cargo at sea, according to shipping line Golden Ocean Ltd.[/quote]
[b]My Comment:[/b] While it`s good to see the Baltic Dry Index slowly rising from the dead again, one wonders whether the jump in Chinese iron ore imports will be sustained. Chinese government stimulus spending may be helping prop things up here.

"econolypse"

“Economy” + “apocalypse”

[url]http://www.doubletongued.org/index.php/citations/econolypse_1/[/url]

[QUOTE=ewmayer;161585]Treasury Secretary Timothy Geithner announced the government will require financial companies getting aid in the future to cap compensation of top officials at $500,000 a year.[/i]

[b]My Comment:[/b] Long-overdue and much-needed - but too bad they can`t make it retroactive. Hank Paulson made sure to take good care of his bankster buddies last year when proposing the TARP and rushing it through congress. Of course, the mere fact that top management will get to keep their jobs is [url=http://globaleconomicanalysis.blogspot.com/2009/02/triage-for-troubled-assets.html]upsetting to many[/url].
[/QUOTE]

I don't think the restriction goes far enough. They should limit TOTAL
compensation, not just salary. It should be made retroactive.
Restrictions on ex-post-facto may make it impossible.

And it should also apply to executives in any company who is laying
people off!! What right do those people have to keep their ridiculous
salaries while their company is dumping people on the street????:nuke::mad::censored:

BTW, a lot of smileys seem to be missing.....

Markets love horrible jobs numbers
 

[QUOTE=R.D. Silverman;161880]I don't think the restriction goes far enough. They should limit TOTAL
compensation, not just salary. It should be made retroactive.
Restrictions on ex-post-facto may make it impossible.[/QUOTE]

I believe such total-compensation clauses have been added to the package since it was originally proposed - but only in the forward-looking sense.

On to today's news roundup:

---------------------------------

[url=http://globaleconomicanalysis.blogspot.com/2009/02/jobs-contract-13th-straight-month.html]Jobs Contract 13th Straight Month; Unemployment Rate Soars to 7.6%[/url]
[quote]The official unemployment rate is 7.6%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

[b]It reflects how unemployment feels to the average Joe on the street. U-6 is 13.9%[/b]. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010.[/quote]
[b]My Comment:[/b] All the pundits blathering about how "we are nowhere near the 20-something-percent unemployment level seen in the Great Depression" are either ignoring or blissfully unaware of the fact that the above-mentioned U-6 number is closer to the way unemployment was measured before the "Great Statistical Pollyanna-ization" process of fudging the figures to give as rosy an outlook as possible began back in the 1960s. Sure, we still are a long way from massive bread lines on every major urban street corner, but some of the news footage I've seen recently of the lines of recently-unemployed at local soup kitchens and church charities here in silicon valley and the SF Bay area are looking not that far from the 1930s-era photos, except that the people are rather pudgier-looking (meaning that the lines are not yet quite as genuinely needful of the food as in the 1930s). By any reasonable measure, real unemployment is now well over 10% - that number could easily by another 3, 4 or even 5% in the coming year, at the rate things are going.


[url=http://money.cnn.com/2009/02/06/news/economy/consumer_credit/index.htm]Consumer credit: Third straight monthly drop[/url]: [i]The Federal Reserve says borrowing by consumers sank by $6.6 billion in December, nearly twice the expected drop.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=anDuRfPVtQL8&refer=news]Stocks in U.S. Climb on Speculation Job Losses to Spur Action on Stimulus[/url]: [i]U.S. stocks gained, sending the Dow Jones Industrial Average to its best two-day rally in a month, on speculation the highest unemployment rate since 1992 will force Congress to pass an economic stimulus package.[/i]

[b]My Comment:[/b] I just love the perverse psychology behind these bear-market rallies ... "Gosh, the unemployment numbers look really awful - that`s going to really put pressure on congress to pass a pork-laden stimulus bill. Let`s buy bank stocks ... rally, rally, rally!"


[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aYYoQK7Tj.rQ&refer=europe]German Industrial Output Fell 4.6% in December for Biggest Drop on Record[/url]: [i]Industrial production in Germany, Europe’s largest economy, dropped the most in at least 18 years in December as demand for plant and machinery faltered.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601081&sid=aWi9SoDtFAKA&refer=australia]Australia | Babcock & Brown Says Shareholders Wiped Out as Creditors Force Asset Sale[/url]: [i]Babcock & Brown Ltd. will be forced by creditors to sell all its assets to repay debt, wiping out shareholders after its strategy of buying ports and property on credit imploded as the global financial crisis deepened. [/i]
[quote]Chief Executive Officer Michael Larkin will lead the sale process and hand the proceeds to banks over the next two to three years, Sydney-based Babcock said in a statement today. The listed company, which had a peak market value of $7.8 billion, may be placed in administration and removed from the exchange, it said.

“There was too much greed and arrogance and not enough transparency,” said Tim Morris, an analyst at Sydney-based investment advisory Wise-Owl.com, the only researcher to rate Babcock’s shares a “sell” at the start of 2008. “The core of the problem was when they started repackaging assets and the only people making money was themselves. When you start burning people, it’s only a matter of time before the fire catches up with you.”

Babcock, an owner of property, ports and power stations around the world, becomes the biggest Australian casualty of the global credit crisis, topping a list that includes Allco Finance Group Ltd. and Centro Properties Group. Like Centro, Babcock averted liquidation because falling asset prices and scarce buyers makes this an unattractive option for creditors.

Australia’s five biggest banks have almost A$870 million of loans at risk with Babcock, while overseas lenders including Royal Bank of Scotland Plc have almost A$2 billion on the line, according to estimates by UBS AG. Babcock had interest-bearing debt of A$9.6 billion when it last published accounts in August. [/quote]


[url=http://www.rgemonitor.com/asia-monitor/255380/unemployment_in_chinaoh_boy]Asia EconoMonitor | Unemployment in China: Oh, Boy[/url]
[quote]In a press conference today, the vice head of the office of the Central Finance and Economic Leading Group (see this paper for what this organization is--it's powerful) Chen Xiwen revealed some important figures on unemployment.[/url]: [i]In a previous post, I speculated on an unemployment figure that was 35 million by the end of first quarter of 2009. According to confirmed figures, we have already surpassed that figure...

To be honest, I never thought we would reach these figures so soon, considering that these figures are based on data collected before the middle of January. I was thinking that we would reach this point after the lunar new year. Now, additional number of migrants who either stayed in cities or returned home will soon find themselves unemployed. In addition, even relatively secure urban jobs (retail, services) may begin to disappear as the impact of the export slow-down hit the service sector. Thus, we may see an unemployed force of 50 million much sooner than the end of 2009, as I previously predicted. There have been no real policy responses so far, except for marginal moves like cheaper consumer electronics in the countryside and passing out some payments to unemployed college graduates. Up until this press conference, the official Chinese government line has been that if migrant workers return home, then they are not "unemployed" per se since they can work the land. This attitude of course ignored the fact that income per capita and productivity both decline if young people stay home, not to mention frustrated expectation. Given more mouths to feed, how are they suppose to buy flat-screen TVs, even if 20% discounted! At least the government now acknowledges this as a problem, which is an important step. We will see what they do in response now.[/quote]
[b]My Comment:[/b] I wonder if the Chinese government is dithering based on ideological and "saving face" grounds, or if they are genuinely clueless as to what to do, given the staggering numbers of migrant workers losing their jobs as the Asian export-based economic model comes to a screeching halt.


[url=http://money.cnn.com/2009/02/05/real_estate/ARM_reset_lower/index.htm]Low rates defuse 'exploding' ARMs[/url]: [i]Thanks to low interest rates, resetting ARMs are no longer posing the dire threat to homeowners that many thought they would.[/i]
[quote]A wave of resetting adjustable rate mortgages had been poised to add to the flood of foreclosures as their rates jumped.

Some 420,000 hybrid ARMs are scheduled to reset in 2009, according to the Treasury Department. A year or so ago, it seemed that many of these loans were going to see their interest rates reset to as high as 12% or more.

But then interest rates started falling, hitting lows they hadn't seen in 37 years.

"Many people are actually seeing their adjustable rates fall," said Barry Glassman, a financial adviser with Cassady & Company. "Some loans are resetting even lower than some fixed-rate loans."

A ticking time bomb. Adjustable rate mortgages start out with a two or three year period of low introductory rates, sometimes called "teaser rates." After that, the interest rates start to adjust according to a set schedule - sometimes as often as monthly or as little as once a year - until the mortgage is paid off.

For the most part, this was a recipe for disaster. Many homeowners took out ARMs because they couldn't afford the monthly payments that came with a 30 year fixed-rate loan. They were counting on having the value of their homes appreciate and then refinancing. Instead, home prices have plunged a record 18.2% according to the S&P/Case-Shiller index.

But as the economy soured, interest rates dipped.

"We thought that the 8% interest loans would reset to about 12%," said Alan White, a law professor at Valparaiso University who has studied the lending industry's mortgage modification efforts, "but they only went to 9% or less."[/quote]
[b]My Comment:[/b] Instead of some of the more ludicrous housing-bubble-bailout proposals (such as giving judges the power to modify mortgage loans at whim), the government should be doing everything in its power to get folks in these ruinous scam-o-la exploding ARMs into fixed-rate mortgages. Many of them would still prove unable to service the debt, but a large middle swath would be saved from foreclosure, while still finding themselves with the responsibility to service their original mortgage amount - i.e. they wouldn't be absolved of their having overpaid for a home.


[url=http://online.wsj.com/article/SB123387976335254731.html]Deutsche Bank Fallen Trader Left Behind $1.8 Billion Hole[/url]: [i]The fall of Boaz Weinstein, once one of Wall Street's hottest traders, speaks volumes about why financial firms still are reeling from the shattered global markets.[/i]
[quote]As a chess master, poker and blackjack devotee and top trader at Deutsche Bank AG, Mr. Weinstein made big bets using complex financial instruments, generating large returns for the bank and about $40 million in annual pay for himself. But in 2008 the group he ran saddled the bank with $1.8 billion in losses, erasing more than two years of trading gains.

On Thursday, the German banking giant reported a 2008 loss of $5 billion (€3.9 billion), its first one-year loss in over five decades and a reminder that financial firms are not out of the woods. In an earnings conference call, Chairman Josef Ackermann described the market environment as a "series of earthquakes with constantly changing epicenters."

The losses are the latest reminder of the challenges faced in the new financial order. Wall Street firms long relied for much of their profit on massive risk-taking by aggressive traders deploying the firms' own money; with that game over, firms are struggling to find fresh sources of revenue.

But first they must stabilize their institutions after the holes dug by former Masters of the Universe. Last month, Deutsche Bank shut down Mr. Weinstein's operation and wound down many of his positions. He left the bank this week, with plans to start a hedge fund.

Mr. Weinstein, 35 years old, was at the vanguard of explosive growth of "proprietary" trading, in which banks gambled with large chunks of their own capital. Complex instruments let them augment their bets with borrowed money, multiplying profits when things went right but magnifying losses during bad times.

Mr. Ackermann, speaking to analysts on Thursday, said that to earn a $1.5 billion profit from proprietary trading the bank needed to risk several times that amount in capital. "You can easily lose two to three billion. That's what we have seen in 2008 and something we don't want to see again," he said.[/quote]
[b]My Comment:[/b] A better way to spin the story might be, "Having honed his catastrophic-financial-loss-generating skills at Deutsche Bank, Mr. Weinstein has decided to put them to use in private practice." But snarky quips aside, the fulla article is worth reading - fascinating tale of extreme talent done in by hubris and extreme financial leverage. The whole life-as-a-chess-game theme reminds me of the evil chessmaster character in [url=http://hogranch.com/mayer/chess_frwl.html]From Russia With Love[/url], who is done in by his unwavering belief that life can be played like a chess match. But real life is messy and can break the rules of one`s imaginary chess game as it pleases. You think things are going swimming, you`ve just castled, you've got your opponent's queen trapped in a pincers movement, and suddenly a dragon appears and incinerates your position. "There aren`t any dragons in a chess game!" you cry. "There are now," life replies.

[QUOTE=ewmayer;161911]I believe such total-compensation clauses have been added to the package since it was originally proposed - but only in the forward-looking sense.

.[/QUOTE]

No comment on the suggestion that it should be applied to companies
who are laying people off?

Hey, I know what I am going to do if I am laid off.....:smile:

I will pay everything on my credit cards, run up huge balances, then
default. I am judgment proof; Under ERISA, my IRA's (such as they are)
can't be touched, my home was declared a homestead years ago and
can't be legally touched. The only thing left would be money in
my checking account, and you can be sure that it would be spent....:smile:

So, I would then have to pay cash..... I could deal with that.:smile:

Hey! I have a terrific idea; let's organize a mass civil disobediance
in which everyone laid off defaults! :smile:

I am surprised that we have not seen large numbers of unemployed
people defaulting on their credit cards. And I would also expect
many to be defaulting on their mortgages as well; Unemployment
money isn't large, and people have to eat and heat their homes.

[QUOTE=R.D. Silverman;161926]No comment on the suggestion that it should be applied to companies who are laying people off?[/quote]
The problem is, laying people off in and of itself is not a sign that a company is poorly run. OTOH paying a huge bonus to a CEO in a year when a companyu performed poorly is a red flag.

[quote]Hey, I know what I am going to do if I am laid off.....:smile:

I will pay everything on my credit cards, run up huge balances, then
default.[/QUOTE]
"It's the American way."

Nice quote from the founder-in-chief of the Austrian school of economics (think of that as the "anti-Greenspan" school):

'There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.'

- Ludwig von Mises

[QUOTE=ewmayer;161462][b]"Fine for Littering", UK Style[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=anU9O_y0cJJM&refer=europe]Britons Turn to Cat Litter as Cheap Way to Grit Snowy Streets, Tesco Says[/url]: [i]Britons struggling to contend with a recession and the country’s worst winter storm since 1991 are turning to cat litter as a cheap way of gritting snowy streets, according to Tesco Plc, the U.K.’s largest retailer. [/i]

[b]My Comment:[/b] I`m sure it`s more environmentally friendly than road salt ... and I expect winter-loving outdoor cats (if there exist any such mythical beasts) enjoy it, as well: "Pooping in a winter wonderland", as it were.[/QUOTE]Our two young cats have been really enjoying themselves in the snow. They are only 9 months old and so it's their first winter. The older two cultivate a "been there, done that" attitude.

Paul

[quote=R.D. Silverman;161880]And it should also apply to executives in any company who is laying people off!! What right do those people have to keep their ridiculous salaries while their company is dumping people on the street????:nuke::mad::censored:[/quote]Even in normal times, some poorly-performing companies hire CEOs specifically to turn the company around, and such turnarounds often involve significant layoffs. Such CEOs move on to some other problem case once the turnaround is achieved. In such cases, compensation might justifiably be based on how much improvement the CEO makes (including a few years afterwards), and in normal times the laid-off folks (I've been there, done that) won't have much problem finding other jobs (took me a couple of weeks). So I agree with Ernst that it's the company's performance (measured honestly, and not short-term either) that should matter regarding compensation.

Now, in the current situation, some companies laying off workers had previously engaged in short-sighted or dangerously-leveraged behavior that boosted profits in a way that was not healthy or sustainable in the long run. Their CEOs should not be rewarded for _that_ (and there need to be some measures taken to discourage incentives for such risky behavior in the future). The same should apply in some part to CEOs who failed to take steps to protect their companies from the excesses of others (and that probably includes most of the rest).

I also agree with the commentator I heard this morning who not only said it was entirely appropriate for the federal government to apply compensation restrictions to companies getting federal "bailouts", but also urged that such restrictions be of sufficient nature and magnitude so that ailing companies would _seriously_ consider whether bankruptcy would be preferable to accepting those restrictions with a federal bailout. The purpose would be to encourage use of the bankruptcy system wherever it was more long-run-appropriate than bailout.

If Bush-The-Younger's administration had not already demonstrated its moral failings in previous years, its failure to apply such restrictions to those receiving its handouts in its last months would be illustrative. That is one of the things that needs to go into all future economics and history texts' chapters on our current "econolypse", along with detailed analysis of the derivatives bubble.

Furthermore, there is the unethical "deficits don't matter" attitude held by some factions of conservatives (about which I've previously editorialized) since the late 1970s, which has had the moral hazard of encouraging taking-on of high credit burdens by the general populace. That also needs to be in future texts.

Sign of the times ... hard times
 

[url=http://globaleconomicanalysis.blogspot.com/2009/02/sign-of-times-gold-for-sale-in-new.html]Here is a sign of the times, hard times.[/url]

Bob will enjoy this piece by Robert Reich:

[url=http://robertreich.blogspot.com/2009/02/more-lemon-socialism-and-why-limits-on.html]More Lemon Socialism -- And Why The Limits on Wall Street Pay Are For Show[/url]
[quote]Robert Reich
Friday, February 06, 2009

Wall Street and its allies are in a tizzy over the Obama administration`s proposed $500,000 limit on executive pay, saying it will threaten their ability to attract and retain executive talent. I do not mean to deprecate Wall Street executives when I point out that the far higher level of compensation they received in recent years has not exactly elicited talent -- at least not talent for much of anything other than the accumulation of personal wealth at the expense of millions of investors and of the economy overall. Wall Street compensation has been geared to short-term bets on high-leveraged investments, after which players quickly collect any winnings and run for cover. Many Streeters grew rich in the process but most of the rest of us are undeniably poorer. One additional pernicious side effect over the years has to lure many of America`s most talented young people into prestigious MBA programs leading to jobs on the Street at starting pay higher than most Americans ever dreamed of and, with luck and hard work, subsequent shares in the firms` Ponzi-like pickings.

If one is looking for silver linings in the devastation of Wall Street it may be that this sort of talent will henceforth be less demanded and less rewarded -- not because of Obama`s plan to limit pay of executives living off public bailouts but because the Street has imploded. The plan itself is a bit of a ruse. If truth be told, the $500,000 seems little more than a symbolic gesture designed to reassure the public that the large amounts about to be asked for the next stage of bank bailout -- likely far more than the $350 billion remaining in "TARP" (more on this in a moment) -- will not simply feather the nests of those who created the mess in the first place. The guidelines don`t actually put a cap on total pay but only on salaries (usually a small portion of total pay), and even then apply only to firms receiving "exceptional assistance" -- presumably especially large bailouts in the tens of billions of dollar range, such as went to Citigroup and AIG -- rather than to those receiving run-of-the-mill bailouts amounting to, say, under ten billion. Most firms getting bailouts may continue to pay their executives whatever they want to pay them as long as they disclose it to their shareholders and give shareholders an opportunity to express their views about it. ... [/quote]
[b]My Comment:[/b] The WSJ piece I posted yesterday on former Deutsche Bank arbitrage wiz Boaz Weinstein is a great example of Big Finance`s business of diverting much of the world`s top talent to the business of moneygrubbing and market-rigging. One of tonight`s [i]Jeopardy![/i] trivia questions was about Paul Gauguin, who was making a living as a stockbroker, only turning to art after the Paris stock exchange imploded in the 1880s. Hard times have a wonderful tendency to refocus people`s attention on things that are genuinely meaningful and rewarding in non-crassly-material ways.

There is, of course, more than one reason why a major bank could be in trouble.

Consider the possibility of hackers compromising the financial network encryption:

"Data Breach Led to Multi-Million Dollar ATM Heists"[FONT=monospace]

[URL]http://voices.washingtonpost.com/securityfix/2009/02/data_breach_led_to_multi-milli.html?hpid=sec-tech[/URL]

"[/FONT]Federal Bureau of Investigation Atlanta Field Division Press Release[FONT=monospace]"

[URL]http://atlanta.fbi.gov/pressrel/2008/at122308.htm[/URL]

[/FONT]This $9 million was small potatoes, but a missing $9 million sack of small potatoes leaves about as big a hole as a missing $9 million sack of large potatoes, within an order of magnitude.

- - -

Hmmm ... Maybe we could grasp the magnitude of the $x00-billion financial stimulus package by expressing it as the number, weight, or volume of 10-lb. sacks of small potatoes that it could buy.

"If the entire amount of the financial stimulus package were used to buy sacks of small potatoes, the average American household would need to find space to store xxxxx 10-lb. sacks of small potatoes."

We could even toss in a metric conversion clause ("... xxxxx 5-kilo sacks ...") in order to pacify the sure-to-follow EU complaint about subsidies to U.S. small-potato farmers by pretending that we would be purchasing the sacks from EU small-potato farmers (of which there are more, I think).

We'd satisfy the Buy-American crowd by requiring that all the small-potato sacks be made in the U.S.

This compromise would allow the bill to pass on a simple voice vote: "The eyes have it ..."

New Bank Rescue: TARP II + another $Trillion
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aOIOHVbliZdQ&refer=news]Stimulus Battle May Signal Tough Sell in Congress for Obama's Bank Rescue[/url]: [i]President Barack Obama’s struggle to push an economic stimulus bill through Congress may seem easy compared to what he’ll encounter when he returns to Capitol Hill for additional funds to rescue the banking system.[/i]
[quote] Feb. 8 (Bloomberg) -- President Barack Obama’s struggle to push an economic stimulus bill through Congress may seem easy compared to what he’ll encounter when he returns to Capitol Hill for additional funds to rescue the banking system.

[u]Obama will likely need to ask Congress for more money to recapitalize banks, as much as $1 trillion on top of the roughly $300 billion remaining in the current Troubled Asset Relief Program[/u], according to an estimate by former Federal Reserve economist Ward McCarthy. That will be an even tougher sell for the new president than the stimulus plan, which is headed for a Senate vote this week after passing the House with no Republican support.

That package, at least $780 billion of spending and tax cuts aimed at boosting consumer demand and creating jobs, is just a part of what it will take to pull the economy out of the 14- month-old recession. The stimulus will be effective only if credit markets, currently frozen by illiquid assets clogging banks’ balance sheets, begin to function again.

“It will take an enormous effort to build broader public support” for another bank rescue plan, said Thomas Mann, a congressional scholar at the Brookings Institution in Washington. “Had the stimulus gone through swimmingly it would have made it easier.”
[b]
Geithner’s Speech
[/b]
New steps to be outlined this week by Treasury Secretary Timothy Geithner will include fresh capital injections into banks and ways to deal with toxic securities still on their balance sheets, according to people familiar with the matter.

Geithner’s speech has been pushed back one day to Feb. 10 to avoid distracting attention from the economic-stimulus bill, White House economics director Lawrence Summers said today. That is the same day the Senate is scheduled to vote on the bill.

“There’s a desire to keep the focus right now on the economic recovery program, which is so very, very important,” Summers said today on ABC’s “This Week.”

Treasury will probably propose a combination of buying toxic bank assets, providing guarantees for other assets, and making additional capital infusions to banks, said McCarthy, now a principal at Stone & McCarthy Research Associates, an economic research firm in Skillman, New Jersey.

“The remaining TARP funds are not going to be enough for the job,” said McCarthy, who estimates that up to $1.5 trillion in government aid will be needed to save the banking system. “If they want to get the job done, they will have to scrape up more cash,” said McCarthy.

Tangible Benefits

New funding for the banking system will be all the harder to justify because the original TARP, which so far has provided almost $400 billion to more than 360 banks, hasn’t shown much in the way of tangible benefits.

“They continue to assume that if you do something and it hasn’t worked, you have to continue to do more of it,” said Representative Darrell Issa, a Republican from California. “That’s the definition of insanity.” [/quote]
[b]My Comment:[/b] Maybe we should just stop all this silly talking-in-dollar-amounts nonsense and switch to talking in the relevant powers of 10. That makes things sound much better ... instead of ugly language like "Last year we thought a few billion dollars would be enough, but it looks like it`s going to cost a couple trillion...", all of a sudden one gets the much-less-dire-sounding proposal, "Last year we thought around 'nine' would be enough, but it looks like it`s going to cost around 'twelve'...". No problem, why didn`t you say so sooner? Here`s 'three' more for ya ... I`m sure we can trust you spend it wisely.

Employment index worst in 35 years | MotWee!
 

[url=http://money.cnn.com/2009/02/09/news/economy/employment_trends_index/index.htm]Employment index worst in 35 years[/url]: [i]Business research firm says index of government and independent labor market studies shows fastest decline in employment measure since 1974.[/i]
[quote]NEW YORK (CNNMoney.com) -- Labor market indicators are tumbling at a rate not seen in 35 years, according to a report released Monday.

The Conference Board, a business research firm, said its January employment trends index fell 1% since December and 18.6% since January 2008 - the fastest decline since the 1974 recession.

"Such declines suggest considerable job losses will persist for several more months," said Gad Levanon, senior economist at the Conference Board. "It is becoming clearer that the continued worsening economic conditions are forcing many companies to make further downward adjustments to their workforce."

The firm's index has dropped for 18-straight months. The index is an aggregate of eight measures of employment, including several government labor indicators and independent employer surveys.

Last month, the Conference Board reported that the economy could lose 2 million more jobs in 2009 after shedding 3 million jobs last year. The Labor Department reported on Friday that employers slashed 598,000 jobs in January - the single highest monthly job-loss total since December 1974.[/quote]
[b]My Comment:[/b] How long do y`all think it will actually take the U.S. to get to that [url=http://www.ritholtz.com/blog/2009/02/household-employment-from-peak/]rosy-glassed[/url] 2-million-by-end-of-2009 figure? [And remember, these are the optimistic-by-design official government figures to start with]. I say end of April, perhaps May at the latest. This will be accompanied by a great "worse than expected" hue and cry in the mainstream media and much "no one could have foreseen" hand-wringing by the politicos.

[b]Big Job Cuts at Nissan:[/b]

[url=http://money.cnn.com/2009/02/09/news/international/nissan/index.htm]Nissan to cut 20,000 jobs[/url]: [i]Automaker plans cost-cutting measures after warning of fiscal year loss.[/i]
[quote]The cost-cutting measures makes Nissan (NSANY) the latest among the country's carmakers to take drastic action in the face of a worsening financial outlook.

The job reductions will bring down Nissan's head count from 235,000 to 215,000.

The company also said it is eliminating bonuses for its board of directors. And until its financial situation improves, it is reducing board members' salaries by 10%.

...

Among other steps the company said it will take are:

-- suspending part of the five-year strategy plan it unveiled last year, dubbed Nissan GT 2012. The 'G' stood for growth; the 'T' for trust. As part of the plan, the carmaker had hoped for 5 percent revenue growth on average over five years.

-- reducing labor costs in high-cost countries by 20%.

-- slashing global production by 20%.[/quote]
[b]My Comment:[/b] Notice the "we share in your pain" approach on the part of Nissan upper management ... how very un-American of them.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=awUP2iWPHQ2E&refer=news]General Motors, Chrysler May Be Placed in Bankruptcy to Protect U.S. Loans[/url]: [i]General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them. [/i]


[b]U.S. Government Bailout commitments Approach $10 Trillion:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aGq2B3XeGKok&refer=news]Taxpayers Risk $9.7 Trillion on Bailouts as Senate Debates Obama Stimulus[/url]: [i]The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a65LKxYZk4vw&refer=news]U.S. Bank Failures May Reach 1,000 on Commercial Property Loans, RBC Says[/url]: [i]As many as 1,000 U.S. banks may fail in the next three to five years, almost double the one-year tally at the height of the saving-and-loan collapse, as losses mount on commercial real-estate loans, RBC Capital Markets analysts said.[/i]


[b]Germany's New 32-Year-Old Finance Minister[/b] - Related to actor Steve Guttenberg, perhaps?

[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aFppGHAf.iJU&refer=europe]Merkel Gains Guttenberg as New German Economy Minister After Glos Resigns[/url]: [i]Chancellor Angela Merkel gained a new economy minister to help tackle Germany’s deepening recession after a “farce” triggered by Michael Glos’s surprise decision to quit the government seven months before national elections.[/i]
[quote]Karl-Theodor zu Guttenberg, 37, general secretary of the Bavarian Christian Social Union, will succeed Glos, CSU Chairman Horst Seehofer told reporters in Munich today. Guttenberg, who is of aristocratic stock, becomes the youngest economy minister in Germany since World War II.

Guttenberg “takes on a very demanding task at a time when we have to press ahead with fighting the global economic crisis,” Merkel said at the Chancellery in Berlin, backing Seehofer’s nomination for the post.

Glos tendered his resignation in a Feb. 7 letter to Seehofer, his party leader and Bavarian state premier, citing the need to make way for fresh talent. Seehofer, whose CSU is sister party to Merkel’s Christian Democratic Union, initially rejected the offer, stressing his trust in Glos in a statement posted on the CSU Web site.

“It’s a grotesque farce,” Nils Diederich, a political scientist at Berlin’s Free University, said in an interview. Glos quit because he was confined to “a supporting role” while Merkel and Finance Minister Peer Steinbrueck took charge of the response to the economic and financial crisis, he said. “It’s not a huge loss, but it doesn’t exactly signal leadership by the chancellor.” [/quote]


[b]Moron of the Week:[/b] This week`s award - I realize I have been extremely remiss in giving these out of late - goes to Bill Ackman of Pershing Square Capital Management, who apparently thinks basing an entire hedge fund on a leveraged bet on single company`s stock price is a good idea:

[quote] Feb. 9 (Bloomberg) -- William Ackman told investors in a hedge fund that invests only in Target Corp. he’s “deeply disappointed” in its performance, and that those wishing to exit can do so in full next month.

“I apologize profusely for the fund’s results to date,” Ackman said in an investor letter dated Feb. 8. Ackman also offered a fee waiver for those who invest in his other Pershing Square funds.

Pershing Square reduced its total economic exposure in Target, including options, to 10.5 percent from 12.9 percent, the firm said today in a regulatory filing. It reported a 9.7 percent stake in the Minneapolis-based discount chain. Target, like other retailers, has suffered as consumers slashed spending to cope with rising joblessness and declines in the value of their homes and stock holdings.

Target fell 8 cent to $32.94 at 2:22 p.m. in New York Stock Exchange composite trading. The shares declined 31 percent last year, compared with a 32 percent drop in the Standard & Poor’s 500 Retailing Index.

Ackman’s Pershing Square IV fund fell 40.1 percent in January, bringing the loss since inception to 89.5 percent, according to a letter sent to investors Feb. 5.
[u]
The decline in the Pershing Square IV fund was about four times that of Target shares in January because Ackman made his bet using options rather than owning the underlying stock, which tumbled 9.6 percent.[/u] Ackman said last week he will personally add another $25 million to the fund, and employees and board members will put up more cash.[/quote]
[b]My Comment:[/b] Look, if I want to bet big on Target, I can just commit 100% of my brokerage margin account to it, double down using margin (current borrowing costs there are only around 3% due to the Fed's near-zero interest rate benchmarks) and save myself the exorbitant hedge-fund management fees, while keeping my sell options open. Obviously that only allows me 2x leverage,
[quote]Ackman, 42, an activist investor, has pushed Target’s management to buy back shares, sell off the company’s credit- card loans and to place the land under its stores into a real estate investment trust that would lease the property back to the retailer. [/quote]
[b]My Comment:[/b] Translation: "Please, please, please, do whatever it takes - even if it hurts the company in the long term - to make my horribly bad bet turn good." I've seen some incredibly stupid investing "strategies" in my day, but this one has got to take the cake.

[b]On a Humorous Note...[/b]

during the past 18 months we've had a veritable [url=http://blogs.wsj.com/economics/2008/03/28/guide-to-feds-alphabet-soup/]alphabet soup[/url] of "special lending facilities" (e.g. TAF, TSLF, PDCF, OMO, TABSLF, MMIFF, CPFF, TDWP) courtesy of the Federal Reserve. I overheard some wag suggestion a suitably alphabet-bailout-soupy acronym for the mortgage-related component of the [strike]massive pork[/strike] fiscal stimulus package:

The "Mortgage Investment Loan Facility" (MILF)