There are signs the market is - at least for a time - going to level off. The big worry will be when things turn down again at some point within the next year.

Has anyone had a credit card limit slashed?

[url]http://finance.yahoo.com/banking-budgeting/article/106716/How-to-Blow-Your-Credit-Limit-Without-Spending[/url]


On a more personal note, Nortel is now shedding quite a few more employees. They have cut one engineer from my group and another who is a close friend in the Field Engineering group. These are top notch people with excellent skills and proven ability to do the job. When you cut people like this, you are no longer cutting fat, you are cutting the people who make the company run.

DarJones

[QUOTE=Fusion_power;165482]Has anyone had a credit card limit slashed?

[url]http://finance.yahoo.com/banking-budgeting/article/106716/How-to-Blow-Your-Credit-Limit-Without-Spending[/url][/QUOTE]Not a limit cut, but six months ago I had a card with a $15k limit closed because "the account has not been used in several months and must not be needed any more".

Too bad.....last month I had to put my new HD TV on another card.[QUOTE]
On a more personal note, Nortel is now shedding quite a few more employees. They have cut one engineer from my group and another who is a close friend in the Field Engineering group. These are top notch people with excellent skills and proven ability to do the job. When you cut people like this, you are no longer cutting fat, you are cutting the people who make the company run.

DarJones[/QUOTE]
Good thing the executive bonuses are probably based on total expenses slashed and not customer satisfaction, huh?

US Bails out Eurobanks | Bonuses for AIG Scammers
 

[URL="http://money.cnn.com/2009/03/15/news/economy/bernanke_60minutes/index.htm"]Bernanke: Recovery to begin next year[/URL]: [I]Federal Reserve chairman says stabilizing the banking system will be key to a full economic recovery.[/I]
[quote]"We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time," Bernanke said in a rare public interview airing on "60 Minutes," according to a transcript released by CBS.

When asked about the risks of a "new American depression," Bernanke responded, "I think we've averted that risk. I think we've gotten past that."[/quote]You mean, like you "averted" any kind of "subprime contagion last year?" We all see how spectacularly that succeeded. Middle of last year it was "Subprime problem is contained ... what recession?" End of last year it was "things are bad, but recovery in second half of 2009". Now it`s "Things are bad, but nothing that throwing a few trillion dollars of taxpayer-financed interest-free money at the banks won`t fix ... recovery in 2010." Nothing about any sustainable economic model requiring individuals and government at all levels to learn to live within their means and engage in productive economic activity rather than Ponzi economics, whether it be house-flipping, stock-jobbing or papering over ever-more-massive governmental current-account deficits. As Mish Shedlock likes to says, Bernanke may mean well but in terms of economic fundamentals he is a classic Keynesian clown. Hope you enjoyed your [URL="http://globaleconomicanalysis.blogspot.com/2009/03/cream-puff-interview-with-bernanke-on.html"]15 minutes of fame last night[/URL] on [I]60 minutes[/I], Ben.


[URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aREDkodKMHWA&refer=news"]AIG Says $105 Billion of Bailout Funds Flowed to Goldman, SocGen, States[/URL]: [I]American International Group Inc., under pressure to reveal how it spent taxpayer funds since its September bailout, said $105 billion flowed to U.S. states and banks including Goldman Sachs Group Inc., Societe Generale SA and Deutsche Bank AG.[/I]
[quote]Banks that bought credit-default swaps or traded securities with AIG got $22.4 billion in collateral, $27.1 billion in payments from a U.S. entity to retire the derivatives, and $43.7 billion tied to the securities-lending program, AIG said yesterday in a statement. States led by California and Virginia got $12.1 billion tied to guaranteed investment contracts.

“It puts a sour taste in the American taxpayer’s mouth, but you have to look at that in terms of the bigger picture,” said Donald Powell, chairman of the Federal Deposit Insurance Corp. from 2001 until 2005. “If you’re going to have any chance of recovery you probably have to stay with it.”

The disclosure may fuel a backlash over the insurer’s bailout, valued at about $160 billion as of March 2, which has already drawn expressions of anger and frustration from Congress, Treasury officials and Federal Reserve Chairman Ben S. Bernanke. [U]AIG was lambasted yesterday for awarding $165 million in retention pay to employees of the unit that sold the swaps[/U], deals that helped trigger the global credit crisis. [/quote][I]My Comment:[/I] So U.S. taxpayers have been bailing out not only domestic but also foreign banks, while the same cabal of criminal scammers who sold the CDSs are being rewarded (with yet more taxpayer money) in order to "keep them from taking their skills elsewhere." Un-fricking-believable.


BTW, The G20 summit this past week was a [URL="http://globaleconomicanalysis.blogspot.com/2009/03/g-20-summit-complete-waste-of-money.html"]complete waste of oxygen[/URL] ... I`m surprised the European participants, who so pride themselves for periodically setting mythical carbon emissions targets, didn't at least make a show of planting a few square miles of forest to offset the CO2 emissions from all that useless bureaucratic blathering.

[quote=ewmayer;165578]throwing a few trillion dollars of taxpayer-financed interest-free money at the banks won`t fix[/quote]AFAIK the treasury does charge interest on that money -- 5% annually.

[quote]requiring individuals < snip > to learn to live within their means and engage in productive economic activity rather than Ponzi economics, whether it be house-flipping, stock-jobbing[/quote]How do you propose requiring [I]that[/I]?

[QUOTE=cheesehead;165615]AFAIK the treasury does charge interest on that money -- 5% annually.[/quote]
"interest free" was a bit of an exaggeration on my part, but you're thinking only of the direct bailout monies and forgetting all the government subsidies (via guarantees and the alphabet soup of Fed/Treasury discount lending facilities) which amount to "making money available to banks at below-market rates, courtesy of the U.S. taxpayer". Toda's WSJ has a timely bit about just this in their [i]Heard On the Street[/i] segment:

[url=http://online.wsj.com/article/SB123716552977936195.html?mod=]WJS | Ratings Can Spark Triple Trouble[/url]
[quote]The curse of the triple-A credit rating could be creeping back.

The top-notch rating played a key role in stoking the excesses of the credit bubble. Without it, firms such as American International Group wouldn't have been able to write the sort of business that ended up blowing big holes in their balance sheets.

Triple-A also enabled the construction of billions of dollars of structured securities that have since turned toxic.

Investors have been looking past ratings and focusing more on fundamentals. The prices of credit default swaps have signaled for months some downgrades of triple-A companies. And last week, Fitch Ratings downgraded Berkshire Hathaway from triple-A, while Standard & Poor's did the same for General Electric.

But even in these more cautious times, the triple-A rating has the potential to distort key markets and lead to problems in the future.
[u]
Take the growing amount of bank debt issued with a government guarantee, which is typically triple-A-rated. The guarantee was made available last year as financial firms found it harder to find buyers for their debt. Since November, banks have issued more than $200 billion, according to SNL Financial.

J.P. Morgan Chase, Bank of America and GE Capital have each sold more than $30 billion of guaranteed debt. And this debt is dirt cheap. Morgan Stanley, which is rated single-A and has issued nearly $25 billion under the program, sold a guaranteed bond last week with an interest rate of just 2.25%.

The money is so cheap it could lead some banks again to make bets and loans that later turn out to be inappropriate. And the low yields could start to lull investors into believing bank balance sheets are in better shape than they really are. After all, Fitch said in its Berkshire opinion that no financial firm holding company deserves a triple-A rating due to economic and market stresses.

Although the triple-A rating is tarnished, the government still sees its usefulness. The Federal Reserve's Term Asset-Backed Securities Loan Facility, scheduled to be launched this week, lends to investors so that they can lever up purchases of triple-A-rated asset-backed bonds.[/u]

Again, dysfunction could arise. In this market, most investor demand is for triple-A bonds. That means low yields, which in turn means investors want leverage to magnify them. Such leverage, if taken too far, can destabilize markets. Even so lenders, in this case the government, will provide it because the bonds are rated triple-A.

Even U.S. Treasurys, the ultimate triple-A where panicked investors have sought sanctuary, might yet pose a risk. Sustained fiscal deficits could eventually put the rating in question. With Treasury yields at super-low levels, that would shock investors. But for years, markets never contemplated a Berkshire downgrade.[/quote]

[quote][quote]Nothing about any sustainable economic model requiring individuals and government at all levels to learn to live within their means and engage in productive economic activity rather than Ponzi economics[/quote]How do you propose requiring [I]that[/I]?[/QUOTE]
It isn't possible in any kind of a "free market" economy to *require* productive economic activity, but we (that is, the government) could certainly stop rewarding and encouraging its opposite.

[b]One Year Ago...[/b]

Bear Stearns went kablooey, but (in the following months) Messrs Bernanke and Paulson reassured us that "the subprime crisis is contained" and that "the banking system is sound". Al Franken's "Lying Liars..." book title comes to mind. The latest bullshit buzzword from Bernanke et al - I lost count of how many times he used it in last night's [i]60 Minutes[/i] interview - is "confidence". As though that is all our wonderfully sound economy is lacking in order to come roaring back. Excuse me, but "confidence" is like "self-esteem" - neither means a goddamned thing if there's no genuine basis for it. Simply invoking mystical trappings of "America is the greatest country on earth" and "we will come out of this crisis faster and stronger and leaner and meaner and wiser and even better-looking than before and blahblahblah" as if merely saying them made them true is more than mere knee-jerk patriotic claptrap, it's dangerous self-delusion. Talk is cheap.

1. I take exception to the constant maligning of Keynes. Read some of his work. It is is being horribly mis-characterized by Mish. Among other things, Keynes called for a smaller government in good times and bigger in bad times.

2. BRK losing AAA is a joke, If there is any company in the US that deserves a AAA it is BRK. It is supremely ironic that BRK and GE lose AAA on the same day.

[QUOTE=garo;165663]1. I take exception to the constant maligning of Keynes. Read some of his work. It is is being horribly mis-characterized by Mish. Among other things, Keynes called for a smaller government in good times and bigger in bad times.[/QUOTE]
Well, we seem to be getting the latter in spades - problem is, even (or perhaps especially, at least in terms of hypocrisy) we haven't ever gotten the former in any times I can remember, good or bad. At the state level, here in CA the budget doubled since 2000 - and despite the "draconian" cuts in the recent budget agreement, there were really very few cuts relative to that 2x bloating, and instead we get higher taxes (CA income tax already almost 10%) and financial hocus-pocus bullcrap like "$5 billion in revenues from borrowing against expected future state lottery proceeds."

Maybe you're right and it's not so much Keynes as the neo-Keynesians running the stimuluses-R-us bailout circus in Washington DC, but if Keynes really believed that any bureaucracy could ever willingly shrink itself - especially in good times (when it's most apt to bloat beyond belief), he was incredibly naive.

[QUOTE]2. BRK losing AAA is a joke, If there is any company in the US that deserves a AAA it is BRK. It is supremely ironic that BRK and GE lose AAA on the same day.[/QUOTE]
Note it was only Fitch that downgraded BRK - and in my opinion they have some very valid concerns about Berkshire's derivatives exposure, not to mention the whole "no company deserves a AAA rating in the current economic climate" thing. If you think BRK is so great, you're welcome to buy a share or two. ;)

[quote=garo;165663]1. I take exception to the constant maligning of Keynes. Read some of his work. It is is being horribly mis-characterized by Mish. Among other things, Keynes called for a smaller government in good times and bigger in bad times.[/quote]

Pure Keynesian theory was replaced in 1937 by the neoclassical synthesis in an attempt to explain both short-term (keynesian) equilibria and long-term (classical) equilibria.

Reading Keynes as part of the history of economics is OK. Advocating that a modern policy be based on a theory that was debunked 70 years ago, is a recipe for disaster.

The fundamentals of Keynesianism:
[quote=John Maynard Keynes]In the long term, we're all dead.[/quote]
...therefore we must spend as if there were no tomorrow, and not care about future generations holding the bag.

Paradoxically, especially among conservationists Keynesian politics remain as popular as ever! (From which you may conclude that conservationists are dishonest fools.)

1. I'm not advocating Keynes as the panacea. All I am saying is that to label the current bunch of clowns as Keynesian is wrong. They did not save during the good times or take any counter-cyclical measures which is part of Keynesian economics.

2. Again , not saying the BRK deserves AAA but that it must be a crazy universe these rating agencies inhabit where GE and BRK are classified the same. But hey Ambac and Mbia were AAA long past their sell by date.

[quote=garo;165733]They did not save during the good times or take any counter-cyclical measures which is part of Keynesian economics.[/quote]

That's true.

Now, which certified public astrologer do you suggest should be made secretary of forecasting to predict the frequency & amplitude of the next cycle?

I might also suggest that we ignore all those charlatans trying to deceive the administration with superstitious nonsense such as 'spending resonance' or 'binge spending-recession hangover causality'.

[URL="http://www.rr.com/news/economy/article/9008/7165062/Senator_suggests_AIG_execs_should_kill_themselves"]AIG execs should do this[/URL]

[quote=rogue;165783][URL="http://www.rr.com/news/economy/article/9008/7165062/Senator_suggests_AIG_execs_should_kill_themselves"]AIG execs should do this[/URL][/quote]

[URL="http://jonathanturley.org/2009/03/17/the-ultimate-bailout-senator-proposes-suicide-pact-with-business/"]http://jonathanturley.org/2009/03/17/the-ultimate-bailout-senator-proposes-suicide-pact-with-business/
[/URL]
"The problem is of course that ten of his colleagues immediately demanded $10 billion for the study of Seppuku techniques and the creation of Seppuku centers as part of the proposed second bailout bill."

More here:

[URL]http://www.reason.com/blog/show/132278.html[/URL]

(Yes, I'm blatantly promoting futile libertarian agenda)

[url=http://money.cnn.com/2009/03/17/real_estate/housing_starts/index.htm]Housing starts unexpectedly surge[/url]: [i]Government report shows construction of new homes jumped 22% in February.[/i]
[quote]NEW YORK (CNNMoney.com) -- Initial construction of U.S. homes unexpectedly surged in February, after falling for eight months, according to a government report released Tuesday.

Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. It was the first time housing starts increased since June, when they rose 11%.

Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com. Still, starts are down more than 47% from February 2008, when over 1.1 million new homes broke ground.

New construction of single-family homes, considered the core of the housing market, increased 1.1% to an annual rate of 357,000 versus 353,000 in January.
[u]
February's increase was driven by a nearly 80% increase in construction of multi-family homes. New construction of buildings with 5 or more units increased surged 80% to 212,000 from 118,000 in January. [/u][/quote]
[i]My Comment:[/i] Barry Ritholtz over at [i]The Big Picture[/i] gives a more sensible take on the numbers, noting that the alleged "rebound" was only with respect to January`s all-time lows, and the fact that most of what little activity there is appears to be concentrated in multifamily dwellings points to a "secular shift in trend from buying to renting" - again more a confirmation of the depth and likely length of the recession than anything else.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=axYLXc5SAlxg&refer=news]Credit Card Issuers Choke U.S. Businesses With Higher Rates, Credit Limits[/url]: [i]Susan Woodward isn’t renewing the lease on her music boutique and internet cafe in Jackson Hole, Wyoming, after nine years. The reason: doubling interest rates on her credit cards.[/i]
[quote]“My business is seasonal, so we count on credit to stock the store at the end of the slow season and prepare for the busy season,” said Woodward, who canceled her Citibank and Capital One credit cards in February after learning that rates would climb to 19 percent from 10 percent. She said she always made timely payments and kept low balances.

Almost three-quarters of U.S. companies with fewer than 500 employees are experiencing a deterioration in credit or credit- card terms at a time when half of them depend on credit cards as a primary source of financing, according to a December survey of 250 firms by the National Small Business Association, a trade group with more than 150,000 members. [/quote]
[i]My Comment:[/i] Sounds like the banks are so desperate for short-term profits that they are willing to alienate huge amounts of long-term business. Punish your best customers by doubling their interest rates - great business model there, guys. This reminds me so very much of the contraction in venture capital spending during the dotcom bust ... in the heady years of the dotcom bubble the VCs were tripping over each other to throw money at anyone who had a silly "webby-sounding" name and a website ... then once things predictably went south, it was nigh-impossible to find funding for even really good ideas. Banks doing the same thing today - as a result of their own easy-credit excesses of the past 5 years, now they're busy throwing the baby out with the bathwater.


[url=http://money.cnn.com/2009/03/16/news/economy/fed_meeting/index.htm]Will the Fed prop up the Treasury markets?[/url]: [i]The Fed won't cut short-term rates at its next meeting, but look for long-term rates to drop if the central bank announces plans to buy Treasurys.[/i]
[quote]NEW YORK (CNNMoney.com) -- The Chinese are getting nervous about buying U.S. Treasurys. Does that mean it's time for the Federal Reserve to start buying long-term notes?

The answer could come as soon as Wednesday, when the U.S. central bank concludes a two-day meeting. The Fed has said in its last couple of statements that it was prepared to buy long-term Treasurys as a way to try to further help the economy. But so far, it hasn't given any details about how much it would buy, or when it would start doing so.
[u]
The meeting comes in the wake of Friday's comments from Chinese Premier Wen Jiabao, who expressed concern that the more than $700 billion in Treasury debt his country holds is at risk of seeing its value fall due to rising budget deficits here.

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," said Wen at his annual news conference on Friday. "To speak truthfully, I do indeed have some worries."
[/u]
If the Fed started buying 10-year Treasury notes, that wouldn't do anything to reduce risk tied to soaring U.S. budget deficits.

But it would provide some support for the value of the bonds, especially if the Chinese start to pull back on purchases as some economists are expecting.

So far, that hasn't happened. The Chinese Treasury holdings have increased by nearly $250 billion, or just over 50%, over the 12 months ending in December. And according to a report from the Treasury Department released Monday, China bought an additional $12.2 billion in Treasurys in January.[/quote]
[i]My Comment:[/i] (I`ll try to ignore the awkward-lookingness of "Treasurys" used in lieu of "Treasuries" - oops, too late) ... Here in the world of main street finance such a scheme is called "using one credit card to pay off another" ... and while the Chinese so far have not visibly reduced their purchases of U.S. debt, with their growing need to use their capital reserves to keep their own economy from sliding into depression, it is probably just a matter a time. Also, [url=http://debtsofanation.blogspot.com/2009/03/debts-of-spenders-january-2009-tic-data.html]several other countries of note[/url] *have* reversed course recently and cut back on Treasury purchases. Between that and Premier Jiabao`s publicly voiced concerns about U.S. fiscal policy, that would seem to constitute an unmistakable shot across the bow of the good old [i]U.S.S. Profligate[/i].


[url=http://money.cnn.com/2009/03/17/technology/lashinsky_google.fortune/index.htm]The axman comes to Google[/url]: [i]New finance chief Pichette has few Web credentials - but a lot of experience cutting costs.[/i]
[quote](Fortune Magazine) -- In retrospect, Google investors should have realized last June that the search giant's era of hypergrowth was over. That's when the company announced that Patrick Pichette, the top operations executive at BCE, parent of Canada's biggest phone company, would be Google's new chief financial officer.

Pichette isn't your typical tech executive: He didn't cut his teeth in Silicon Valley, and his web credentials are thin. No, the far more relevant experience on Pichette's resume was the time he spent heading up a three-year cost-cutting and efficiency drive that reduced operating costs at Bell Canada by $2 billion.

That's right: Google (GOOG, Fortune 500), among the most chaotic, profligate, unfocused, engineering-oriented, and self-proclaimed recession-resistant of organizations, had reached outside the Googleplex for a real business executive and charged him with ensuring that Google's freewheeling culture wouldn't become its own worst enemy.
0:00 /2:42Picky hiring in Silicon Valley

Call it, in the words of redoubtable analyst Mary Meeker, "Right guy, right time." Just as Google's business has shown unmistakable signs of slowing, Pichette, a 46-year-old Canadian who was a Rhodes scholar and a McKinsey consultant in his younger days, has begun to make his mark.

Since he started as CFO on Aug. 1, Google has shut down numerous projects, facilities, and perks, from the seemingly trivial - an unneeded gourmet caf at its headquarters, the annual companywide ski trip - to the significant. The latter includes the termination of a major effort called Lively, a virtual-environment product that mimicked Second Life, and the shuttering of a failed acquisition, dMarc Broadcasting, through which Google had attempted to broker radio advertising. In January, Google publicized its first layoffs, the termination of 100 recruiters made redundant because the company has dramatically reined in its hiring. [/quote]
[i]My Comment:[/i] Isn't it amusing to see so many companies who loudly proclaimed their alleged "recession-proofness" despite never having experienced a significant economic downturn, suddenly find out that they`re not immune? That`s right, dear, "my job is recession-proof" ... I might no longer be *holding* it at the end of the recession, but the job itself will be just fine, or something.

So what is on the economic horizon? I've asked myself this repeatedly to try to get a grip on the direction our country is going.

We built a fleet of Spanish Galleons and now they are sinking right and left in the economic storm. Paired Galleons Freddie Mac and Fannie Mae are precipitously canted. Getting them back on an even keel will take about $130 Billion for Freddie and $80 Billion for Fannie. There is no way to be certain of those figures, it just represents the total hole on their balance sheet if the housing market continues to go south. Don't forget that Freddie has major exposure to Mortgage Backed Securities.

The bank Galleons Citi, J.P. Morgan, B of A, Wells Fargo, etc. are listing to port. Their balance sheet is overweighted with a combination of MBS and Credit Default Swaps. In essence, they are zombie galleons trying real hard to take a deep breath and open their eyes. In desperation, they are reeling in credit lines for anyone and everyone they think has a possibility of causing them a loss. Their next hurdle will be quarterly reports. Expect major fudging of numbers. The one thing they do NOT want to do is have to write down their toxic assets to par value because doing so will reveal them as insolvent, i.e. the emperor is not wearing any clothes!

The average Joe on the deck is about to have to walk the plank. He is being pink slipped overboard because the galleons know that every pound counts and tossing more bits of meat to the sharks will keep them afloat for a few minutes longer. The rough part for Joe is that his family sinks or swims with him. Expect unemployment to hit between 12 and 15 percent over the next 9 months. Fortunately, there is a very real possibility that Joe will be able to pick up a ride on a small boat. Several of them are zipping around the bay with sails spanking and foam flying. The one bright spot in the economy, and that only by comparison with the big businesses, is the small businesses with less than 10 employees that produce goods and services people are still buying.

The Insurance Galleon, AIG, is having conniptions. No matter how much ballast the taxpayers add, it keeps trying to go under stern first. They have $180 Billion and by all indications will need at least $50 Billion more. Their plight is made worse by all the fatcats who keep grabbing barrels of fish and jumping overboard with a paddle in hand. A barrel of fish floats nicely so they are rowing for shore with determination. Unfortunately, Congress is making a real stink about the removal of ballast from the galleon and threatening to confiscate the barrels of fish before the fatcats can come ashore. I don't know what the Captain thought he was doing, but giving bonuses to the fatcats really has the fat in the fire. There is no way on earth to justify a bonus barrel of fish when your ship is on fire and sinking. He should have let the fatcats sue and then a court could have told the fatcats to go away hungry.

And last but not least we get to the good ships GM and Chrysler. Did I say good ships? Oops. Change that to overballasted galleons. Unfortunately these galleons are weighted down with rocks in the form of employee entitlements and benefits to such an extent that the deck is barely above the waterline. Taxpayers keep adding ballast to replace the rocks but the galleons are settling lower and lower in the water. The bailout so far has been $17.4 Billion of ballast to replace rocks and these galleons have requested $22 Billion more. Now I may not be the most astute galleon observer around, but I suspect they are seriously underanticipating the real amount of ballast needed. In fact, before it is done, I would expect at least $60 Billion of ballast required to get rid of enough rocks to keep these galleons afloat. The Captain of the GM Galleon says that hauling him out on the drydocks will make him break into pieces. I say 'so be it'. You are just a galleon and when you are gone, someone will build another galleon to replace you. Hopefully they will build it of sturdier material!

I am reminded that Hitler was an avid horoscope follower. In his final days, his astrologer came to him with "good news!" the stars are favorable for everything you do or words to that effect. Do you get the idea some of the economists are astrologers?

Now do you start to see some of the reasons we should scuttle these Galleons?

DarJones

Excellent post Fusion_power.

Financial Crisis Quotation of the Day
 

[URL]http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031803201.html[/URL]

[I]The [...] lesson is that no matter how bad you think market capitalism is, the federal government has proved it is worse. Congress originally banned these very bonuses, then stripped the ban out of the stimulus bill and is now threatening confiscatory taxes on the lawful recipients. The Treasury knew about the bonuses and vouched for their legality but now wants double the money back somehow. How, exactly, the Treasury expects any straight-thinking financial entity to enter into a voluntary public-private "partnership" to solve the financial crisis given this track record is a mystery to me. [/I]

[QUOTE=__HRB__;165989]Ceterum censeo: opinionem cheesheadi est stupido et esse delendam.[/QUOTE]Am I the only who is chocked by the continuing insulting and bashing of another forum member ?

HRB : could you please stop this ? I really think you go to far.

Thanks,

Jacob

[QUOTE=S485122;166007]Am I the only who is chocked by the continuing insulting and bashing of another forum member ?

HRB : could you please stop this ? I really think you go to far.

Thanks,

Jacob[/QUOTE]I also suggest that the insults be stopped.

If he can't stop insulting people, at least he could make an attempt to produce insults that contain correct grammar, spelling and vocabulary. "cheesheadi est stupido" indeed. Now [i]that[/i] I find offensive. What are they teaching people in schools these days?

Paul

[SIZE="1"]__HRB__ stultus et inscitus est.[/SIZE]

It is about time that HRB got his very own personal avatar. My suggestion is mephitis mephitis.

This thread is about the economy. Please don't turn it into a trash others thread.

DarJones

[QUOTE=Fusion_power;166028]This thread is about the economy. Please don't turn it into a trash others thread.

DarJones[/QUOTE]Mea culpa, sed non maxima culpa.

This thread is for entertainment. 'The Economy' doesn't care what anybody here does, and nobody is going to learn anything worthwhile knowing about 'The Economy' without a textbook.

@Fusion Power
I [U]like[/U] my new avatar. This should be yours, you sublime corporate shill:
[URL]http://img.diytrade.com/cdimg/339763/4157897/0/1187448908/Mach_3_Fusion_Power.jpg[/URL]

Btw, your contribution to this thread on 'The Economy' was missing submarines firing torpedoes at the balsa-wood rafts.

@Dr. Jacob Goebbels:
Where is the point in having a "soap-box", if it's not a place to publicly vent frustration about the stupidity of mankind in general and some people in particular? [SIZE=1][SIZE=2] Go grass-mud horse.[/SIZE][/SIZE][SIZE=2]

[/SIZE] [SIZE=2]@xilman:
Non stultus et inscitus sed inscius et desidiosus sum. [/SIZE][SIZE=2]Kai den mai endiaferei ti einai i sosta lexia kai orthografia na sou po sta arxei ellenika: "[/SIZE][SIZE=2]i mitera sou einai kalamari". [/SIZE][SIZE=2]Alla boro na sou po sta kathareuousa, "ai gamisou[/SIZE][SIZE=2], malaka!". Thelis to na po;

[/SIZE]

Global Money-Printing Contest set to Commence
 

[url=http://www.telegraph.co.uk/finance/financetopics/recession/4986287/IMF-poised-to-print-billions-of-dollars-in-global-quantitative-easing.html]IMF poised to print billions of dollars in 'global quantitative easing'[/url]: [i]The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis.[/i]
[quote][UK finance Minister] Alistair Darling and senior figures in the US Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.

Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England's plan to pump extra cash into the UK economy.

However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.

Simon Johnson, former chief economist at the IMF, said: "The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them."

"The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary." [/quote]
[i]My Comment:[/i] Even if "they" don`t spend the money on cheap ready-made goods from Asia, this could be inflationary in terms of artificially inflating the prices of assets (e.g. equity markets) the recipients of the "free money" will use to park it. But hey, blowing asset bubble is the U.S. Fed`s [url=http://money.cnn.com/2009/03/18/news/economy/fed_decision/index.htm]prime role these days[/url]. And once again, this amounts to yet another way to punish the prudent: If the result is inflation, savers will see the purchasing power of their money reduced, and debtors will see their relative debt load similalrly reduced. If the money-printing binge fails to halt the ongoing global deleveraging and resulting deflation, the profligate (e.g. insovent too-large-to-fail banks) will get an endless supply of bailout money until the deflation either stops due to the money-printing deluge or of its own accord.


[url=http://money.cnn.com/2009/03/19/news/economy/bonus_tax/index.htm]]House passes Wall Street bonus tax[/url]: [i]Most Democrats supported the bill; Republicans sharply divided.[/i]
[quote]WASHINGTON (CNN) -- The House of Representatives passed legislation Thursday to try to recoup bonuses paid to Wall Street executives with taxpayer money.

The measure passed, 328-93; with most Democrats supporting it while Republicans were sharply divided.

A two-thirds majority among all members voting was required for passage.

The measure would tax individuals on any bonuses received in 2009 from companies getting $5 billion or more in money from the Troubled Asset Relief Program, or TARP. Bonuses for people with incomes over $250,000 would be taxed at a 90% rate.[/quote]
[i]My Comment:[/i] Of course it is not in Congress` power to make it retroactive... I gotta say, that last-minute smoky-backroom deal that was cut during the negotiations over the recent stimulus package and which allowed the bonuses to go unchallenged has turned into a real black eye for the Obama administration. I originally had some hopes that Geithner might prove to be slightly less a (willing) pawn of the Wall Street mafia than his predecessor Paulson was, but those have been thoroughly dashed in the past month. Some of the same congressional blowhards who`ve been railing most loudly against the "greed and corruption" of the Big Finance firms signed off on the golden parachutes - for example [url=http://news.yahoo.com/s/politico/20090318/pl_politico/30833]Chris Dodd[/url], who is rivaled in "blowhardiness" only by fellow-Friend-of-Angelo-Mozilo Barney Frank.
[quote]House Minority Leader John Boehner, R-Ohio, dismissed the bill as a "political charade" designed to protect the Obama administration and the Democratic majority in Congress.

"This bill is nothing more than an attempt for everybody to cover their butt up here on Capitol Hill," Boehner argued earlier Thursday. "It's full of loopholes. A lot of these people who are getting these bonuses likely live in London and it's not clear how raising this tax is going to recover that money."

Boehner later questioned why the bill didn't seek to recover all of the bonus money.

"The bill before us attempts to recoup 90% of these bonuses," he said. "Why 90%? ... The administration has the ability to get it all back ... This is a bad bill with bad consequences. We didn't see the bill until last night (and) nobody understands the consequences of what we're about to do. How can we possibly vote yes on a bill like this?"
[u]
A similar proposal in the Senate - which has not yet taken up the House bill - would attempt to recoup bonuses by taxing both individuals and companies.

Rangel said Wednesday that House leaders decided against penalizing companies because they could simply ask for more taxpayer money[/u].[/quote]
[i]My Comment:[/i] Oh, the delicious irony of that last bit.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a6s3AjDJAs_Y&refer=news]Citigroup Said to Commit About $10 Million for Park Avenue Executive Suite[/url]: [i]Citigroup Inc. plans to spend about $10 million on new offices for Chief Executive Officer Vikram Pandit and his lieutenants, after the U.S. government injected $45 billion of cash into the bank.[/i]
[quote]American International Group Inc. CEO Edward Liddy was lambasted by lawmakers at a hearing in Washington yesterday for allowing the insurer to allocate $165 million for bonuses to employees after taking government loans.

President Barack Obama spoke out against inappropriate spending at banks on Jan. 23, following reports that former Merrill Lynch & Co. CEO John Thain incurred more than $1 million of expenses to redecorate his personal office at the New York- based securities firm. Thain was ousted the same month, after Bank of America Corp. completed its takeover of Merrill. [/quote]
[i]My Comment:[/i] Pandit the Bandit might be able to pick up some of Thain`s sweet office furnishings on the cheap here...

[QUOTE=ewmayer;166041]
[i]My Comment:[/i] Oh, the delicious irony of that last bit.
[/QUOTE]

I agree.

13 companies getting bailout money owe back taxes
[URL="http://news.yahoo.com/s/ap/20090319/ap_on_go_co/bailout_delinquent_taxes"]http://news.yahoo.com/s/ap/20090319/ap_on_go_co/bailout_delinquent_taxes[/URL]

[QUOTE=ewmayer;165135]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aFC2imt4ZK74&refer=news]Fed Interest-Rate Policy Didn't Cause U.S. Housing Bubble, Greenspan Says[/url]: [i]The U.S. Federal Reserve’s “easy money” policies during the first part of this decade didn’t cause the housing bubble, former Chairman Alan Greenspan wrote in the Wall Street Journal.[/i]

[i]My Comment:[/i] Poor "maestro", trying desperately to shore up his shot credibility, by peddling his only-half-the-story "savings glut" hypothesis. Of course the Fed couldn`t have prevented the housing bubble (which Greenspan refused to acknowledge even existed until very recently) in 2004-2005, because by then the cows had long left the barn. But the Fed certainly could have prevented the housing bubble by not ratcheting interest rates near 0 in 2002-2002, in a desperate, misguided attempt to bail the economy out from the effects of the previous Fed-fueled bubble, the DotCom one, made worse by the aftereffects of 9/11. In order to avoid paying the piper for the earlier bubble, Greenspan et al blew an even bigger, much-nastier one. And Greenspan is on record touting the wonderful benefits of "alternative mortgage products" which allow many more Americans (especially the ones lacking the wherewithal to buy a house) to "experience the joys of home ownership", "home ownership" of course being a euphemism for "debt slavery". Lastly, the Greenspan-led Fed studiously ignored the explosion in predatory and subprime lending accompanying all the "financially innovative" new mortgage products. I repeat: What a complete and utter douchebag is our Mr. Greenspan.[/QUOTE]


I recently found the quote below; thought some of this thread's readers might appreciate it. The quote makes me wonder when we will finally get an economist in power that will make us take our collective medicine...

"It's easy for a central banker to be popular during euphoric financial times. But the political perils are severe when tough measures are needed - measures that extract a high short-term toll in the interest of longer-term economic health - as they were in the late 1970s."
--Economist Henry Kaufman

I've been waiting for this shoe to fall. We now have an extra trillion dollars in the economy. Simple math says this will cause inflation between 5 and 7 percent next year and who knows how high after that. This is composed of a base 3% rate of inflation with an extra 2 to 4 percent because the money supply increased from @$35 Trillion to $39 trillion. I arrive at these figures by starting with the $72 trillion worldwide effective supply. Half of that total is U.S. dollars. Please note that this is NOT the total amount of money in circulation, which is a much lower figure. It takes into consideration the effect of a saver putting money into a bank to draw interest, the bank then lends the money to a business that spends it for supplies, the supply seller uses part of it to purchase more raw material and saves part of it, etc. A constant cycle in other words that yields an effective $72 trillion worldwide. I would welcome critique of these calculations, there must be more accurate figures available.

[URL]http://www.cbsnews.com/blogs/2009/03/19/business/econwatch/entry4877724.shtml[/URL]

[QUOTE]The Federal Reserve's remarkable announcement on Wednesday that it would print $1.2 trillion to buy bonds and mortgage-backed securities will yield some short-term benefits, namely lowering rates on mortgages, credit cards, and other loans.

As justification for the move, the Fed said in a statement that: "Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment."

What the Fed didn't say is that the long-term risks of its actions, known as quantitative easing, are substantial. Printing money often leads to inflation, and printing large amounts of money often leads to significant inflation. (There's also the question of whether it's desirable or feasible to attempt to prop up asset prices, namely real estate.)

Fretting about higher prices -- more precisely, devaluation of the dollar -- might seem odd when stock prices, housing prices, commodity prices, and other prices have been sliding. But inflation remains a possibility in the not-so-distant future. "The question is at what price?" wrote analysts from Germany's Landesbank Baden-Wurttemberg. "Bottom line is the Fed is adding a trillion dollars to their balance sheet. In the long run, the price for these massive rescue measures might be inflation as once the economy recovers the Fed might be not able to raise interest rates quickly enough." [/QUOTE]
Now pay particular attention to that last sentence. The only tool the fed has to fight inflation is to raise the interest rate. This translates to a boomerang economy for the next several years. We went way down the scale into a severe downturn, the fed lowers interest rates to 0 to .25 percent, the economy continues downward, the fed reacts by printing 1.2 trillion dollars, this pushes us into inflation, the fed responds by increasing interest rates. Get your loans now folks, I can foresee a time of 10% and above interest rates just down the road. If they are printing $1.2 trillion, how much more money have they printed in the last year and how much will they print in the coming months?

Short term, this will raise the price of oil back into the $70 range. Basic goods such as food will go up rapidly. Your wonderful congressmen have this thing called an automatic inflation adjusted cost of living pay increase. They get a big raise. You and I get to tighten our belts until our eyes pop.

Inflation is a stealthy thief hidden from all eyes. He comes on little pig feet to snatch money from your wallet, unseen. You, like a frog put into a pan of water and gradualy heated, don't even realize he has his greedy paws in your pocket until he is already gorged and gone.

DarJones

[quote=Fusion_power;166105]I've been waiting for this shoe to fall. We now have an extra trillion dollars in the economy. Simple math says this [...][/quote]

See: [URL]http://en.wikipedia.org/wiki/Inflation_tax[/URL]

Obama Does Tonight Show | Madoff's Forebear
 

So apparently the legislation as written would be retroactive to the beginning of 2009 ... but it`s simply outrageous that the flip-flop with respect to bonuses made it into the stimulus bill to begin with. As many probably watched, Obama was on [i]The Tonight Show With Jay Leno[/i] last night - as has now become almost [i]de rigeur[/i] (ever since Bill Clinton did his "live with Saxophone" gig as a candidate), Obama also paid a visit during the presidential race, but is the first sitting president to appear on the show - a modern updating of the Rooseveltian fireside chat, perhaps. Leno - especially for a comedian - asked some surprisingly forthright, pointed questions, including why e.g. Merrill Lynch got away with paying over $3 billion in bonuses last Fall (shortly before getting bought out by Bank of America and the whole resulting omelet getting huge amounts of bailout money) without anyone going to jail as a result. Obama expressed regret for the way some of this has gone down, but still has "complete confidence in Timmay" (Geithner), blah, blah. We shall see - watching the noisy debate about the AIG-inspired [url=http://en.wikipedia.org/wiki/Bill_of_attainder]bill of attainder[/url] (not its official name, but if the shoe fits...) on C-SPAN last night was like watching an episode of a new game show, [i]Dysfunctional Family Feud[/i].


This week`s issue of Nouriel Roubini`s RGE Monitor newsletter has an interesting bit about [url=http://clicks.skem1.com/v/?u=f2019c96f16d93a9bf6c11763d476592&g=3297&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]postrecession employment trends[/url]:
[quote]M. Melinda Pitts examines labor market performance during and after previous recessions and concludes that if the current recession ended today with a 2.7% job decline, and post-recession employment growth resembled the recovery from the 1981-82 recession, then employment would return to pre-recessionary levels in approximately 14 months. But if the employment growth path is more similar to the two most recent recessions, then it would take well over eight years for employment to return to prerecession levels.[/quote]
[i]My Comment:[/i] The decade-length recovery scenario strikes me as by far the more plausible one at this point, due not only to the continuing steep job losses, but simply that the fundamentals of the U.S. economy became so massively distorted in the past 20 years thanks to the workings of the Greenspan School of Bubble Economics. Most of the "Economic Growth" of the past decade (if not longer) was a sham, driven by paper asset-price appreciation in the non-productive FIRE (finance, insurance, real estate) component of the economy. Without a healthy productive economy to underpin it, the whole thing became increasingly hollow, and while Obama clearly understands this, his cabal of neo-Keynesian Greenspan acolytes is busily trying to paper over the rot. That ain`t going to repair itself in a mere one or two years, and many of the fiscal policies being used to try to force-fix it are only going to draw out the painful healing process. The recovery, when it does occur, may well happen in spite of current quick-fixit efforts, rather than because of them. Given the woefully inadequate U.S. savings rate and massive job losses in many other countries as well, any hopes for a consumer-led recovery are [url=http://globaleconomicanalysis.blogspot.com/2009/03/paycheck-away-from-ruin.html]null and void[/url]:
[quote]A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.[/quote]


[url=http://money.cnn.com/2009/03/20/news/economy/california_unemployment.reut/index.htm]California unemployment jumps to 10.5%[/url]: [i]February jobless rate in the most populous state far exceeds national 8.1% unemployment rate.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ajvc.HUwoK44&refer=news]GM, Chrysler May Need `Considerably' More Than $21.6 Billion, Rattner Says[/url]: [i]General Motors Corp. and Chrysler LLC may need “considerably” more government aid than their request for as much as $21.6 billion, said Steven Rattner, the U.S. Treasury’s chief auto adviser.[/i]
[quote]Rattner said any decision about GM and Chrysler management would be tied to the ultimate configuration of the companies “and I’m not in a position to comment on that today.”

GM Chief Executive Officer Rick Wagoner and Chrysler’s Robert Nardelli have been “exceptionally cooperative,” “thoughtful,” and “energetic,” Rattner said.
[u]
“They’re good guys really trying hard to run those companies,” Rattner said. “I have nothing bad to say about them.”[/u][/quote]
[i]My Comment:[/i] Then allow me to say something bad about them ... they are both grossly incompetent, short-term-gain-fixated buffoons who profited handsomely while their companies slid to the edge of bankruptcy. Even then, they had not even the vaguest outlines of a plan to alter their business model to something that at least might stop the bleeding and lay the groundwork for a viable 21st-century auto company, and now that the government has forced them to come up with one, they are simply making it up as they go along, and telling their new masters what they want to hear, while the bailout amounts continue to skyrocket. These so-clearly-incompetent CEOs should have been ousted as soon as their companies started feeding from the federal bailout teat.


[B]Madoff's 19th Century Forerunner Sadleir Shows Rules Can't Stop a Swindler[/B]

[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aubn7xruEvI8&refer=europe]Madoff's 19th Century Forerunner Sadleir Shows Rules Can't Stop a Swindler[/url]: [i]John Sadleir, a British member of parliament, newspaper publisher, bank and railroad chairman, lay down under a bush on London’s Hampstead Heath and sipped poison prussic acid from a silver jug.[/i]
[quote]His suicide on Feb. 16, 1856, exposed a fraud that would wipe out at least three companies and cause “ruin and misery and disgrace to thousands -- aye to tens of thousands,” as Sadleir correctly predicted in a final letter to a friend.

Charles Dickens, Anthony Trollope and at least three other Victorian novelists used Sadleir as the inspiration for fictional villains. And in a note that foreshadowed the response to Bernard Madoff, who last week pleaded guilty to defrauding investors of as much as $65 billion, politicians found him an inspiration for increased regulation.

“Whenever frauds like Sadleir’s or Madoff’s are exposed, people clamor for government regulation,” said George Robb, a professor at William Patterson University in Wayne, New Jersey, and author of “White-Collar Crime in Modern England: Financial Fraud and Business Morality 1845-1929” (Cambridge University Press, 1992). “The problem with regulation is it’s always reactive, they solve the last scandal. In 10 years people forget and crooks figure out a way to circumvent it.”

Less than a year after Sadleir’s death, two more bank frauds came to light, one of which also ended in suicide, according to Robb. The scams helped accelerate the Banking Crisis of 1857, a panic that started in the U.S. and spread to the U.K., prompting one of the last bank runs in Britain until Northern Rock Plc, the U.K. bank nationalized in 2008.

Jolly Nervous

Adair Turner, chairman of the Financial Services Authority, this week called for “profound” regulatory change to prevent future financial crises.

Parliament went through a similar exercise after Sadleir’s fraud in 1856, including Treasury select committee hearings. Among the results was the introduction of limited liability banks in which each investor was liable only for the amount of money he put into the company, a change designed to protect shareholders from the misdeeds of others.

Within a decade, the U.K. had another panic, the commercial crisis of 1866, blamed in part on the limited liability rules.

C. Hoare & Co., a family-owned bank that’s operated on London’s Fleet Street since 1672, credits its status as the sole U.K. bank to reject limited liability for its success in navigating the credit crisis unscathed.

“Unlimited liability, the joy of it is it keeps you jolly nervous,” Chief Executive Officer Alexander Hoare said in an interview. “Everything apart from the shirt on our back is at risk.”

‘Same Sad Story’

Sadleir, an Irish solicitor who was 42 when he took his own life, started building his business empire with Tipperary Joint- Stock Bank. Within a year of moving to London, he became chairman of the London and County Joint Stock Banking Co., which eventually became part of National Westminster Bank, acquired by Royal Bank of Scotland Group Plc in 2000.

He became a junior lord of the U.K. Treasury, a railroad promoter who served as chairman of the Royal Swedish Railway Co., the Rome & Frascati Railway and France’s Grand Junction Railway, and led the Carson’s Creek Consolidated Mining Co. in California, according to “Prince of Swindlers, John Sadleir M.P.” by James O’Shea (Geography Publications, 1999).

“He was well-liked and well-trusted and robbed everybody that he could lay his hands on,” O’Shea said in a telephone interview. “It’s exactly the same sad story.”

Mr. Merdle

Dickens, a regular at Jack Straw’s Castle, a pub next to Sadleir’s suicide spot on Hampstead Heath in North London, used him as the basis for Mr. Merdle, a financier whose fraud and suicide is the central action of his 1857 novel “Little Dorrit.”

“He was Chairman of this, Trustee of that, President of the other,” Dickens wrote of Merdle, presaging justifications used by Madoff investors a century and half later.[/quote]
[i]My Comment:[/i] And speaking of death by poisoning, we close this week`s Econo-blogging with a witty exchange between Churchill & Lady Astor: She said, "If you were my husband I'd poison your coffee." Churchill replied, "If I were your husband, madam, I would drink it."

[QUOTE=ewmayer;166134]

My Comment: Then allow me to say something bad about them ... they are both grossly incompetent, short-term-gain-fixated buffoons who profited handsomely while their companies slid to the edge of bankruptcy.


[/QUOTE]

I have been saying this for a long time now; well before the bubble burst.

Senior corporate executives act as if they are the owners of a
corporation, rather than the stockholders. They, and the boards of
directors set up salary and bonus plans that [b]depend[/b] on
short-term gains. These salary plans allow the executives to reap
huge bonuses for themselves in the short term, at the expense of the
long-term viability of the companies. The wall street bonus plans
rewarded [b]extremely[/b] risky short-term behavior that yielded our
current long-term disaster.......And people like that idiot Carly Fiorino
got rewarded with huge golden parachutes for being complete f*ck-ups.

[quote=R.D. Silverman;166136]I have been saying this for a long time now; well before the bubble burst.[/quote]

Theoretical analysis of this phenomenon dates back to the early 1970's.
See: [URL]http://en.wikipedia.org/wiki/Principal-agent_problem[/URL]

Solutions always require understanding of incentives and competence in contract design. These are qualities publicly elected regulators don't (and cannot) possess, so they jump up-and-down and scream, exactly like the outraged chimpanzees that elected them.

Treasury Plan to Purchase Banks` Toxic Assets
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aZ7WncqBBt9g&refer=news]Treasury Announces $1 Trillion Public-Private Plan to Buy Banks' Bad Debt[/url]: [i]The U.S. Treasury announced a plan aimed at financing as much as $1 trillion in purchases of distressed assets to help a financial system that is “still working against recovery.” [/i]
[quote]The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.

Barely two months after President Barack Obama took office, he and Treasury Secretary Timothy Geithner are staking much of the new administration’s economic credibility on the theory that removing the devalued loans and securities from banks’ balance sheets will help them start lending again and help resuscitate the economy.

The Standard & Poor’s 500 Stock Index rose 3.6 percent to 796.21 at 10:26 a.m. in New York, and the S&P 500 Financials Index jumped 8.6 percent. Yields on benchmark 10-year Treasury notes were down 1 basis point at 2.62 percent.

Because the program depends on private investors stepping up, it may be weeks or months before it’s clear whether the approach will work. “You will start to see this buying up the assets” shortly after private asset managers are chosen by May, Austan Goolsbee, a member of the White House Council of Economic Advisers, said in an interview with Bloomberg Television. [/quote]
[i]My Comment:[/i] Last week`s AIG follies on Capitol Hill can`t have private-equity folks overly positive on "partnering with the government" - godforbid they actually make money from this "partnership" ... but for today the markets are lovin` TurboTax Timmy`s (henceforth to be referred to simply as TTT) [url=http://online.wsj.com/article/SB123776536222709061.html]Most Excellent Plan[/url]. From [url=]today`s WSJ[/url]:
[quote]Mr. Geithner's three-pronged program, which will be unveiled Monday, envisions the creation of a series of public-private investments to soak up $500 billion, and maybe as much as $1 trillion, in troubled loans and securities at the heart of the financial crisis. [u]To encourage investors to buy those assets, the U.S. government will offer lucrative subsidies and shoulder much of the risk[u].[/quote]
[i]My Comment:[/i] So TTT has issues with taxpayers bearing "all" of the risk, but "much of the risk" (translation: "most or nearly all, depending on your definition"), that, he has has no problem with. And the "generous subsidies" we the taxpayers surely deserve for shouldering most of the risk ... when might those be forthcoming? Aside: How much do you want to bet that the "generous subsidies" end up utterly dwarfing the AIG bonuses that caused all the fuss of late? But back to the "much, most or nearly all?" issue - as the [url=http://www.nytimes.com/2009/03/21/business/21bank.html?hp]New York Times notes[/url]:
[quote]Although the details of the F.D.I.C. part were still being completed on Friday, it is expected that the government will provide the overwhelming bulk of the money — possibly more than 95 percent — through loans or direct investments of taxpayer money.[/quote]
Yves Smith of Naked Capitalism, as quoted by [url=http://globaleconomicanalysis.blogspot.com/2009/03/geithners-plan-gigantic-confidence-game.html]Mish[/url], notes that TTT has a rather bizarre conception not only of "much" but also of the definition of "partner":
[quote]If this isn't Newspeak, I don't know what is. Since when is someone who puts 3% of total funds and gets 20% of the equity a "partner"?[/quote]
But aside from the obvious and sadly predictable throwing-good-money-after-bad aspects of the plan, the key issue, the one Geithner notably did not mention, is this: For the banks that loaded up on the toxic assets in question to regain any semblance of solvency requires someone to pay significantly close to the banks` own fake near-par valuation of the securities. (Regular readers may recall that at one point last year Fed Chair Bernanke outright advocated the government paying "above market" for the toxic junk). Generous government bribe money aside, what private-capital firm in its right mind would pay anywhere near what the banks "think" the stuff is worth? As the Bloomberg piece thankfully goes on to point out:
[quote]Critics including Paul Krugman, a winner of the Nobel Prize for economics, advocate that the government take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted that approach in the 1990s. Krugman said in a New York Times opinion piece today that Geithner’s strategy won’t work because it “assumes that banks are fundamentally sound and that bankers know what they’re doing.”

Geithner said today that his plan was the best of a limited number of options, including leaving the illiquid assets on banks’ balance sheets or having the government itself buy them all, shouldering all the risk.

‘Not Sweden’

“We are the United States of America, we are not Sweden,” the Treasury chief said. [/quote]
[i]My Comment:[/i] And that "we are different than Japan, Sweden, etc" (and the implied "we are better") attitude is perhaps the biggest problem at work here - Americans are getting a brutal lesson that they too are subject to fundamental economic rules, even if ridiculously accommodative lending policies for much of the past decade had the effect of obscuring that fact. No one - person or nation - can live beyond their means in perpetuity. Most individual Americans appear to have realized this (though perhaps not ny choice, but rather by a slashing of their credit limits), but the government is spending as if they were magically exempt from this. The problem with a fiat currency is that it allows the illusion to be sustained far too long.

NY's Paterson: "You're Fired" | The Big Takeover
 

[url=http://money.cnn.com/2009/03/24/news/economy/ny_state_layoffs/index.htm]N.Y. governor fires 8,900 state workers[/url]: [i]Union refusal of cost-cutting concessions forced governor's hand, David Paterson's office says.[/i]
[quote]NEW YORK (CNNMoney.com) -- New York Governor David Paterson ordered 8,900 state layoffs after employee unions refused concessions.

In a time of "unprecedented fiscal emergency," New York state was "left with no other option" than a state workforce reduction of about 8,900 employees to achieve the savings it needed, according to a memo from the governor's office.

In October, Paterson reached out to state employee unions to reach cost-cutting concessions together, according to the memo from director of state operations Dennis Whalen.

The state looked into a number of ways to deal with the "record budget deficits" and called upon the unions to partner with the state to reduce costs in order to avoid large-scale layoffs, Whalen's memo said.

But the labor organizations representing the state employees rejected all of Paterson's options, the memo said.[/quote]
[i]My Comment:[/i] Apparently the unions thought Paterson was bluffing ... oops. As here in my home state of California, the various unions feeding from the public trough appear to think "shared sacrifice" means "shared among the taxpayers paying our salaries and cushy benefits." I say bully for governor Paterson.


Anybody else catch the AIG-related article in the recent issue of [i]Rolling Stone[/i]? If not, check it out online:

[url=http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print]The Big Takeover[/url]: [i]The global economic crisis isn`t about money - it`s about power. How Wall Street insiders are using the bailout to stage a revolution[/i]
[quote]It`s over — we`re officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country`s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That`s $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG`s 2008 losses).

So it`s time to admit it: We`re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we`re still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.
...
The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people`s money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington`s deregulation of the Wall Street casino. "It`s all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."[/quote]

[QUOTE=ewmayer;166582]

<snip>


[/QUOTE]

In the mode of J. Swift, allow me to make a modest proposal.

Everyone in the country whose investments have tanked as a result
of our current financial mess gets together. We file a class action
law suit against all of Wall Street, all of the senior executives at companies
whose reckless behavior caused our loss, the executives at the SEC for failing in their duties, etc. etc. We demand that these people 'make us whole'....

It would mean a nice fat fee for any group of lawyers willing to undertake
such a case; I am sure there is some group of whole-hearted goniffs
willing to sue on our behalf........

[QUOTE=R.D. Silverman;166662]In the mode of J. Swift, allow me to make a modest proposal.

Everyone in the country whose investments have tanked as a result
of our current financial mess gets together. We file a class action
law suit against all of Wall Street, all of the senior executives at companies
whose reckless behavior caused our loss, the executives at the SEC for failing in their duties, etc. etc. We demand that these people 'make us whole'....

It would mean a nice fat fee for any group of lawyers willing to undertake
such a case; I am sure there is some group of whole-hearted goniffs
willing to sue on our behalf........[/QUOTE]

Even easier!!! Let's demand that Congress pass a law requiring that
all stock prices be returned to their value on (say) Dec 1, 2007.....:smile::smile::smile:

Of course, it would have to require that prices remain at that level
for some specified time. Otherwise, the mass reaction would be to
sell, sell, sell, immediately and prices would immediately drop back to
what they are now.... :smile::smile::smile:

[QUOTE=R.D. Silverman;166663]Even easier!!! Let's demand that Congress pass a law requiring that
all stock prices be returned to their value on (say) Dec 1, 2007.....:smile::smile::smile:

Of course, it would have to require that prices remain at that level
for some specified time. Otherwise, the mass reaction would be to
sell, sell, sell, immediately and prices would immediately drop back to
what they are now.... :smile::smile::smile:[/QUOTE]Dead easy, and the prices wouldn't drop at all.

The Fed prints dollars and uses them to buy any stock that the stock holders wish to sell. The US government, in effect, buys the corporations with money it creates for itself.

It's been tried many times before in history.


Paul

Signs of Stress in U.S., UK Govt Bond Auctions
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ayGYMQunti1w&refer=news]Stocks in U.S. Drop as Treasury Auction Draws Higher Yield Than Forecast[/url]: [i]U.S. stocks retreated, erasing an earlier rally, after higher-than-forecast yields in a Treasury auction of five-year notes spurred concern government attempts to lower interest rates will fail amid record sales of bonds.[/url]
[quote]Treasury notes declined after the auction of $34 billion in five-year notes drew a yield of 1.849 percent and as a U.K. government debt auction failed. The last time the U.K. was unable to attract enough investors was in 2002 when it tried to sell 30-year inflation-protected bonds. The U.K.’s FTSE 100 Index slipped 0.3 percent, trailing a 0.3 percent advance in the Dow Jones Stoxx 600, Europe’s regional benchmark index.

Benchmark stock indexes rallied earlier as unexpected growth in durable-goods orders and new-home sales spurred speculation the economy is stabilizing. [/quote]
[i]My Comment:[/i] Forget about the daily market bulls-v-bears and statistics-misuse-to-paint-a-rosy-picture bullshit here - the real interesting stuff is in the bond auctions part of the story. If there were a major govt bond auction failure for the US or UK, the phrase "And just when you thought things couldn't get much worse..." would instantly come into play. PBS [i]Frontline[/i] last night had a special on the U.S. national debt - at the end of the program they showed the operations rooms (whose precise location is kept secret - likely an underground bunker) where the U.S. debt auctions occur, and mentioned just how much is at stake there. One "not filled" there and the wheels of government could begin to grind to a halt in a very short time span. Now let`s turn to the UK, which is similarly (relative to GDP) indebted as the U.S., but lacks the luxury that comes with owning the "reserve currency of world commerce" brand:

From the Bloomberg article on the [url=http://www.bloomberg.com/apps/news?pid=20601102&sid=ab62rFruCiiM&refer=uk]UK Bond auction failure[/url]:
[quote]Brown’s government aims to sell a record 146.4 billion pounds of debt this fiscal year and as much as 147.9 billion pounds in 2010 as he tries to pull Europe’s second-largest economy out of its worst recession since 1980. The prime minister’s plan drew criticism yesterday when Bank of England Governor Mervyn King said the government should be “cautious” about spending and deficits.

“This is a warning signal investors are sending to the government,” said Neil Mackinnon, chief economist at hedge fund ECU Group Plc in London, who helps manage about $1 billion in assets and is a former U.K. Treasury official. “Investors are giving the thumbs down to the gilt market.”

...

“This sinks Brown below the waterline,” said Bill Jones, professor of politics at Liverpool Hope University. Brown’s “whole strategy is based on borrowing and now he can’t get anyone to buy his gilts. This means the prospect of going cap in hand to the IMF hovers increasingly into view.”

...

[u]Today’s auction result belies the “underlying strength” of the gilt market, Brown’s spokesman Tom Hoskin told reporters at a regular briefing in London.[/u][/quote]
[i]My Comment:[/i] My dear Mr. Paid-Liar Hoskin, you have it completely backwards - today`s auction failure belies your repeated lies about the alleged strength of the market for UK government debt.

What is truly ironic about massive-debtor nations like the U.S. and UK finally beginning to reap the harvest of their decades-long profligacy is this: If some banana republic in (say) South America or Africa gets itself into debtor`s prison, as it were, the typical remedy (assuming it wants to continue to be able to engage in world commerce) is for it to go "cap in hand" to the IMF, which usually will put together some kind of fiscal aid package, but with major strings attached, in the form of "austerity measures". Now U.S. president Obama has called for "shared sacrifice" on the part of Americans as a way out of the crisis, but all we've had to date is the U.S. government playing shell games with the debt (e.g. the Fed stepping in to buy treasury debt) and a commitment to shared sacrifice on the part of ... the future generations unlucky enough enough to follow ours. That's "austerity", American style - drive the Hummer 5% less, stuff your face at home instead of eating out, and godforbid anyone would actually dare to ask you to start *paying* for all those government entitlement programs (and grossly oversized military, and unconscionably wasteful national health care 'system', &c.) you've come to believe are your natural-born right. Well, guess what? It seems our banana harvest of late has been of "subprime quality", and if we stop being able to fob off our excesses on some foreign-sucker-who-thinks-we`re-actually-gonna-pay-him-back-someday bondholders, it`s game over.


[url=http://money.cnn.com/2009/03/25/real_estate/new_hope_plan/index.htm]Lost HOPE: Program saves just one home[/url]: [i]HOPE for Homeowners has been a failure. But Congress thinks some tweaks will revive it.[/i]
[quote]If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.
[u]
In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure.[/u] This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

"As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman Brian Sullivan. "And only insured one loan. Needless to say, the program isn't working terribly well."[/quote]
[i]My Comment:[/i] Hey, maybe with another couple hundred billions in backing, they could double the number of homeowners helped by the program.

[quote=xilman;166666]Dead easy <snip>
[/quote]

Which gives me an idea...

Why don't we have the military simply shoot everybody who has suffered a loss. It would only be a one-time thing, so according to our administration, that's perfectly OK then, since the military can always stop shooting people once the economy has recovered.

The government can create jobs by hiring people to dig graves, thereby speeding up economic recovery. Maybe after the recovery, we'd have to subsidize shooting people just a little to save some of those jobs. But this is a small price to pay, if you just think of the children of all those suddenly unemployed grave-diggers!

But wait! It gets even better: the less people, the lower the CO2-emissions! So, this would revive the economy AND fight global warming!

Win-win!

If we start by shooting people that have suffered the largest absolute losses (i.e. rich people), this policy will have full backing by Joe Biden, who as we all know, isn't rich. Then when the Republicans take over in 4 years, we'll finally be able to get rid of poverty (i.e. black people), by calling poverty "has-been-rich" and booby-trapping Harlem with M18A1 Claymores. Maybe some clerical errors can be made so that the same thing happens in San-Fransico (homosexuals!).

Full disclaimer: I have a PhD in grave digging, long positions on shovels, funeral decorations and protest-sign manufacturers, but am delta-neutral through shorts in the birthday-cake manufacturing sector and Hallmark, inc.

[URL="http://jurist.law.pitt.edu/paperchase/"]FBI director says financial fraud cases are limiting ability to fight other crime [/URL] [jurist.law.pitt.edu/paperchase]
Fiscal Year 2007: 120 agents investigating mortgage fraud cases
Fiscal Year 2008: 180 agents investigating mortgage fraud cases
Currently: over 250 agents are assigned to mortgage fraud and related cases

"In FY 2009 there have already been 28,873 mortgage fraud Suspicious Activity
Reports (SARs) filed, which is on pace to nearly double the total in FY 2008."

"Last month, the FBI announced [JURIST report] that it was looking at shifting a number of agents from national security and counter terrorism activities to investigations involving financial fraud."

Bullish Bottom-Caller Baumohl Bungles Basic Stats
 

[url=http://money.cnn.com/2009/03/26/news/economy/gdp/index.htm]GDP: Worst in 26 years[/url]: [i]The nation's gross domestic product declined by 6.3% in the fourth quarter -- the biggest drop since 1982.[/i]
[quote]The economic problems have obviously not ended with the fourth quarter report. Economists surveyed by the National Association for Business Economics forecast a 5% rate of decline in the first quarter, which ends Tuesday, followed by a 1.7% drop in the second quarter.

Still, Bernard Baumohl, executive director of The Economic Outlook Group, said that some recent economic readings on housing and retail sales that have come in better than expected in the last couple of weeks [u]suggest that the recession may be approaching a bottom[/u].[/quote]
[i]My Comment:[/i] Oh, puhleeze ... the "better than expected" February new-home sales were nothing but a [url=http://www.ritholtz.com/blog/2009/03/new-home-sales-fell-41-in-february-2009/]flagrant misrepresentation of statistics[/url], neglecting not only that "4.7 percent (±18.3%)" equates to "statistically insignificant due to large error" but also (if you optimistically assume that the +4.7% at least has the sign of the underlying true datum right) that February is typically better than January, March is typically better than February, etc. It`s called "seasonality". Year-over-year February sales, the more-meaningful point of comparison, were horrendous, and a massive percentage of the sales that were going on were foreclosure/bank-owned/distress sales. The only bright spot in that is that it confirms that some semblance of free-market sanity is returning to the housing market, in the sense that once prices drop to a multiple of income which is not a double-digit number (as was common during the height of the bubble), there are buyers to be found - but they`re (sensibly) wary of paying too much, and actually have to have a *job*, proof of income, and some money for a down payment. The can-you-fog-a-mirror mortgage-eligibility tests are alas a thing of the past now.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aESNzbD54ZTc&refer=news]Geithner Says U.S. Needs `New Rules of Game' to Avert Another Bank Crisis[/url]: [i]U.S. Treasury Secretary Timothy Geithner said regulation of the U.S. financial system needs a broad overhaul to heal a crippling lack of confidence caused by the credit crisis.[/i]

[i]Translation:[/i] "Give me, Benny B and our Big-Finance-insider buddies even more unchecked power to loot the system and enrich the few."


[url=http://www.bloomberg.com/apps/news?pid=20601095&sid=a9h1ViVxIwXk&refer=east_europe]EU Risks Paralysis as Czech Government Collapse Snarls Lisbon Treaty Bid[/url]: [i]The collapse of the Czech government threatened a new setback for the European Union’s stalled governing treaty, distracting the bloc’s leadership just as President Barack Obama presses for bolder European steps to confront the recession.[/i]
[quote]Topolanek, set to host Obama in Prague next week, raised further questions about his management of EU affairs by yesterday accusing the new U.S. administration of deficit spending and protectionism that will put the U.S. on a “road to hell.”[/quote]
[i]My Comment:[/i] Another government falls as a result of the financial crisis ... the quote I use above is an interesting subtext to the Story. Topolanek may be a bit of a blustery nut, but I have to say I am sympathetic to his and Czech president Klaus` warnings about the dangers of the unchecked growth of the EU transnational bureacracy, and the larger EU countries talking a good game about pan-Europeanism as long as times were good, but then screwing the fledgling economies by way of protectionist measures as soon as [i]la merde[/i] hit [i]le fan[/i].


[url=http://www.bloomberg.com/apps/news?pid=20601102&sid=amPQ1sDv8PFU&refer=uk]Brown `Terribly Fragile' After First Failed Bond Auction in Seven Years[/url]: [i]The first failed British bond auction in more than seven years leaves Prime Minister Gordon Brown’s reputation for economic competence even more tarnished as he battles recession and a rising tide of voter anger.[/i]
[quote]Brown, who had the backing of 30 percent of the electorate in a ComRes Ltd. poll last week, must now cope with what amounts to a vote of no confidence by investors in his ability to end the recession. Bank of England Governor Mervyn King, his ally for much of the past decade, warned a day earlier that there’s no more money for further spending.

“The notion that Brown is leading us to the promised land is laughable,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group Plc in Solihull, England. “He cannot get to grips with how other people see this country now, as the sick man of Europe.”

Chancellor of the Exchequer Alistair Darling brushed aside concerns about the gilt auction, noting that a sale of bonds today was fully covered.

“You always have to be careful about reading too much into one particular auction,” Darling said in response to a question in Parliament in London today.[/quote]
[i]My Comment:[/i] Rather like avoiding reading too much into a single data point on home sales (as noted above), eh?

[quote=ewmayer;166773]and the larger EU countries talking a good game about pan-Europeanism as long as times were good, but then screwing the fledgling economies by way of protectionist measures as soon as [I]la merde[/I] hit [I]le fan[/I].
[/quote]

Any evidence for that? It is nigh on impossible to have protectionism within the EU - notwithstanding all the British jobs for British workers rhetoric - and all the Germans have done by way of screwing the smaller countries is telling them we won't bail you out.

Unemployment Now Above 10% in 7 States
 

[url=http://money.cnn.com/2009/03/27/news/economy/state_unemployment/index.htm]Unemployment jumps in 49 states[/url]: [i]Michigan's jobless rate - 12% - is highest in nation. Wyoming is lowest. Nebraska escapes with tiny decline.[/i]
[quote]The near-collapse of the auto industry pushed Michigan's unemployment rate up to 12% in February, seasonally adjusted, according to the U.S. Department of Labor.

Sky-high unemployment rates were also reported in South Carolina (11%), Oregon (10.8%), North Carolina (10.7%), California and Rhode Island (10.5% each), and Nevada (10.1%).

The most drastic month-to-month increases in the unemployment rate were reported in North Carolina and Oregon, which each saw an increase of 1%. New Jersey also saw a dramatic surge, climbing 0.9% in February.[/quote]
[i]My Comment:[/i] Seven states now with unemployment above 10% - how many will be in that category by end of the year, do you think?


[url=http://www.chicagotribune.com/news/politics/obama/chi-rahm-emanuel-profit-26-mar26,0,5682373.story?page=1]Rahm Emanuel's profitable stint at mortgage giant[/url]: [i]Short Freddie Mac stay made him at least $320,000[/i]
[quote]Before its portfolio of bad loans helped trigger the current housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a top federal regulator.

One of those allegedly asleep-at-the-switch board members was Chicago's Rahm Emanuel—now chief of staff to President Barack Obama—who made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.

As gatekeeper to Obama, Emanuel now plays a critical role in addressing the nation's mortgage woes and fulfilling the administration's pledge to impose responsibility on the financial world.

Emanuel's Freddie Mac involvement has been a prominent point on his political résumé, and his healthy payday from the firm has been no secret either. What is less known, however, is how little he apparently did for his money and how he benefited from the kind of cozy ties between Washington and Wall Street that have fueled the nation's current economic mess.[/quote]
[i]My Comment:[/i] Apparently Emanuel was also one of the top administration officials present at those back-room meetings where the bonuses to TARP recipients were reinstated ... one wonders to what extent Obama et al may be deliberately allowing Geithner to take most of the heat for that.


Great article by Simon Johnson in the latest issue of [i]The Atlantic Monthly[/i] on the “triumph” of the U.S. banking oligarchs:

[url=http://www.theatlantic.com/doc/print/200905/imf-advice]The Quiet Coup[/url]: [i]The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government.[/i]
[quote]But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.[/quote]


Matt Taibbi, author of the provocative [i]Rolling Stone[/i] piece on AIG et al which I linked a few days ago, has a followup in response to a former employee of the AIG FP unit who had a boo-hoo-you-should-really-feel-sorry-for-us-overpaid-douchebags-at-AIG op-ed in Wednesday`s [i]New York Times[/i]:

[url=http://www.alternet.org/workplace/133627/aig_exec_whines_about_public_anger%2C_and_now_we're_supposed_to_pity_him_yeah%2C_right/]AIG Exec Whines About Public Anger, and Now We're Supposed to Pity Him?[/url]: [i]AIG exec Jake DeSantis' NY Times letter asking for us to chill out about his poor overworked employees is a sick joke.[/i]
[quote][i]"I take this action after 11 years of dedicated, honorable service to AIG. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down." via Op-Ed Contributor -- [url=http://www.nytimes.com/2009/03/25/opinion/25desantis.html]"Dear AIG, I Quit!"[/url] -- NYTimes.com[/i]

Like a lot of people, I read Wednesday's New York Times editorial by former AIG Financial Products employee Jake DeSantis, whose resignation letter basically asks us all to reconsider our anger toward the poor overworked employees of his unit.

DeSantis has a few major points. They include: 1) I had nothing to do with my boss Joe Cassano`s toxic credit default swaps portfolio, and only a handful of people in our unit did; 2) I didn`t even know anything about them; 3) I could have left AIG for a better job several times last year; 4) but I didn`t, staying out of a sense of duty to my poor, beleaguered firm, only to find out in the end that; 5) I would be betrayed by AIG senior management, who promised we would be rewarded for staying, but then went back on their word when they folded in highly cowardly fashion in the face of an angry and stupid populist mob.

I have a few responses to those points. They are 1) Bullshit; 2) bullshit; 3) bullshit, plus of course; 4) bullshit. Lastly, there is 5) Boo-Fucking-Hoo. You dog.

AIGFP only had 377 employees. Those 400-odd folks received almost $3.5 billion in compensation in the last seven years, a very large part of that money coming from the sale of credit default protection. Doing the math, that averages out to over $9 million of compensation per person.

Ask yourself this question: If your company made that much money, and the boss of the unit made almost $280 million in just a few years, exactly how likely is it that you wouldn`t know where that money was coming from?

Are we supposed to believe that Jake DeSantis knew nothing about Joe Cassano`s CDS deals? If your boss and the top guys in your firm were all making a killing selling anything at all -- whether it was rubber kayaks, generic Levitra or credit default swaps -- you really wouldn`t bother to find out what that thing they were selling was? You`d really just mind your own business, sit at your cubicle and put your faith in the guys up top to fill you in if there was something you needed to know?

This would be a believable claim for an employee of some other wing of AIG, a company with well over 100,000 employees. But DeSantis works for tiny, 377-person AIGFP, a unit that had only two offices -- one in London and one in Greenwich, Conn.

And we`re talking about financial professionals, the most shameless group of tirelessly envious gossips ever to walk the face of the earth. The likelihood that Cassano would pull in $280 million for himself, and his equally greedy, hopelessly jealous employees wouldn`t know not only exactly how he made that money but every last ugly detail about his life -- from what skank he`s sleeping with to what side of his trousers he hangs on -- is almost zero.

I know plenty of people who work in this world, and I`ve met very few who didn`t hate with every cell in their bodies anyone in their own companies who made more money than they did or got bigger bonuses at Christmastime. Gossiping about each others` bonuses, and bitching about each others` compensation, is the national pastime for these people.[/quote]
[i]My Comment:[/i] Taibbi may be a pottymouth, but genteel "let`s all remain calm and try to get to the bottom of this..." does seem rather inappropriate given the level of fiscal malfeasance involved here.

[b]
Friday Funnies:[/b] Dilbert pretty much nails the kind of pathological thinking that appears to be rampant in the boardrooms of Big Finance.

Swiss banks ban top executive travel

[URL="http://www.ft.com/cms/s/0/df9ce572-1a36-11de-9f91-0000779fd2ac.html?nclick_check=1"]http://www.ft.com/cms/s/0/df9ce572-1a36-11de-9f91-0000779fd2ac.html?nclick_check=1[/URL]

[quote=ewmayer;166914][B]Friday Funnies:[/B] Dilbert pretty much nails the kind of pathological thinking that appears to be rampant in the boardrooms of Big Finance.[/quote]

Not only in Big Finance, but unfortunately Dilbert is suffering a little from Garfielditis. I think the emo-math-nerd at [URL="http://xkcd.com/"]xkcd[/URL] makes a much better point.

"Cards of shame"

[url]http://money.cnn.com/galleries/2009/fortune/0903/gallery.baseball.fortune/index.html[/url]

[quote][SIZE=3]They're not your usual baseball cards. Topps Company will be issuing trading cards of confessed swindler Bernie Madoff as part of a series featuring the 'world's biggest hoaxes, hoodwinks and bamboozles,' due out early this summer. Here's a sampling.[/SIZE][/quote]

Wizard of ID for Sunday, 3/29

[quote=schickel;167212]Wizard of ID for Sunday, 3/29[/quote]

Arrrrrrgh!

It would have been so much more accurate had the small business owner written:

"I have worked hard and done everything right, but I cannot get a loan from the First Bank of Id to expand my business."

Carmakers flunk viability test | GM`s Wagoner Out
 

Not surprisingly, U.S. automaker-related stories top today`s news cull:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aitR5RV13Dkw&refer=news]Obama Says GM, Chrysler Have One Final Chance to Restructure or Lose Aid[/url]: [i]President Barack Obama gave General Motors Corp. and Chrysler LLC deadlines to “fundamentally restructure” or lose government aid that has kept them alive.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aF88onPEJ25A&refer=news]Chrysler, Fiat Agree to Alliance to Prevent Bankruptcy by U.S. Automaker[/url]: [i]Chrysler LLC and parent Cerberus Capital Management LP have a “framework” for an alliance between the U.S. automaker and Italy’s Fiat SpA, meeting a requirement for receiving $6 billion more in federal aid.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aAaIGx9s_otI&refer=news]GM's Wagoner May Get Pensions Valued at $20.2 Million, No Severance Pay[/url]: [i]General Motors Corp. Chief Executive Officer Rick Wagoner may be eligible for pensions valued at $20.2 million as of the end of 2008, according to a regulatory filing. He isn’t eligible for severance pay.[/i]

Back on 20 March I commented on a news story which quoted the Obama administration`s "car czar" (or "auto-crat" ... take your pick) thusly:
[quote][Steven Rattner, the U.S. Treasury’s chief auto adviser] said any decision about GM and Chrysler management would be tied to the ultimate configuration of the companies “and I’m not in a position to comment on that today.”

GM Chief Executive Officer Rick Wagoner and Chrysler’s Robert Nardelli have been “exceptionally cooperative,” “thoughtful,” and “energetic,” Rattner said.

“They’re good guys really trying hard to run those companies,” Rattner said. “I have nothing bad to say about them.”[/quote]
[i]My Comment:[/i] So, Steve, were you lying or did Wagoner`s performance "suddenly deteriorate" in the last 10 days to the point where you had to force him out? Or was this a case of "While I have nothing bad to say *about* him, I did have something bad to say *to* him"?

Barry Ritholtz comments on GM, in particular the why-the-disparate-treatment-of-the-automakers-and-the-banks aspect:

[url=http://www.ritholtz.com/blog/2009/03/how-gm-became-uncle-sams-bitch/]How GM Became Uncle Sam`s Bitch[/url]
[quote]As soon as the news broke about Waggoner’s resignation, I put up a quick post, writing:
[i]
“I am no fan of Wagoners, but I have to ask the geniuses behind the bank bailouts: When are you going to ask the TARP and bailout recipients to step down? Ken Lewis being asked to step aside after many years of running BofA ? How about Blankfein? Pandit? And the rest of the TARP recipients?”
[/i]
That generated the following comment:
[i]
I think this is kinda scary that the government can now force the CEO of a private enterprise to step down. I know they received money and they want more but the fact is that they should not have received it in the first place. And GM isn’t owned by the govt. like AIG. I’m not saying Wagoner was a good CEO. Only the principle is scary.
[/i]
Private enterprise? How do you figure? Once they asked for and got $30 billion from the government, they gave up all pretenses of being a private firm. The “G” in GM now stands for government, as in Government Motors.

As soon as you become dependent upon the biggest guy in the cell block for protection, you become his bitch.[/quote]
[i]My Comment:[/i] My spellchecker is refusing to tell me precisely how many "ah"s there are in (the word pronounced like) "Beeyotch".



[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=abuPwlNJSeis&refer=news]Bernanke Plots Exit From Rescues, Returning Fed to Inflation-Fight Focus[/url]: [i]At 4:30 p.m. on March 23, on a day dominated by release of the Obama administration’s plan to save the banking system and the fourth-best day in postwar Wall Street history, the U.S. Treasury and Federal Reserve released a one-page joint statement on the division of economic responsibilities between the two agencies.[/i]
[quote][/quote]
[i]My Comment:[/i] First promoting asset bubbles left and right and then attempting to paper over the dire consequences by running the money-printing presses at full speed all while punishing the prudent for actually trying to live within their means sure strike me as a strange way to "fight inflation" - but what do I know, I`m one of the poor benighted Great Unwashed non-economics-PhDs-holders ... all my silly little brain is capable of coming up with is sorry stuff like "If we`re printing trillions of dollars, those dollars have to end up somewhere, don`t they?", and "You can`t overspend your way out of a problem you overspent your way into." Pathetically unsophisticated, I know.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=awSxPMGzDW38&refer=news]Mark-to-Market Lobbying Buoys Bank Profits 20% as FASB Prepares to Say Yes[/url]: [i]Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.[/i]
[quote]The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, [u]would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities[/u]. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.[/quote]
[i]My Comment:[/i] And we all know how good the banks` "judgment" has been of late ... this is a classic case study in the enormous power of the banking lobby in Washington, the workings "financial oligarchy" described in the Atlantic Monthly article I linked last Friday:
[quote]FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.

Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”

Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses.

‘Outrageous Threats’

“What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.

...

Conrad Hewitt, a former chief accountant at the SEC who stepped down in January, said representatives from the ABA, American International Group Inc., Fannie Mae and Freddie Mac all lobbied him over the past two years to suspend the fair- value rule.

Executives “would come to me in the afternoon with the argument, ‘You’ve got to suspend it,’” Hewitt said in a March 25 interview. The SEC, which oversees FASB, would reject their demands, and “the next morning their lobbyists would go to Congress,” he said.[/quote]
[i]My Comment:[/i] Just another way to delay the inevitable, thus giving the bank CEOs more time to dole out bonuses and maximize the size of their own golden parachutes.


In non-automaker-related government bailout news, Mish Shedlock has decided that - hold on to your hats - Terrible Timmay Geithner`s "Public-Private Partnership" plan for helping banks offload their toxic mortgage-backed assets [url=http://globaleconomicanalysis.blogspot.com/2009/03/geithners-plan-can-succeed.html]could in fact succeed[/url], as long as one is clear about the definition of "success":
[quote]Geithner does not want a fair bidding process, nor does he want to arrive at a fair market value of assets. Rather, Geithner does want to avoid a hit to bondholders, at seemingly any taxpayer cost.[/quote]

Home Prices down again | Don Quixote`s bank
 

Big a.m. rally on Wall Street today on news of ... well there really isn`t any good news, but since when did one need good news to have a big running of the bulls? Case-Shiller home price data [url=http://money.cnn.com/2009/03/31/real_estate/January_Case_Shiller/index.htm]in another record drop[/url] and now down 30 months running - but record-low mortgage interest rates are making those still-dropping-in-price homes more affordable than ever! (That`s the NAR spokesman in me talking there).


[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aomP3YFgw2o0]Spain Rescues First Bank in 16 Years as Deal Fails[/url]: [i]Spain mounted its first major bank rescue in 16 years as the state seized Caja Castilla-La Mancha after efforts to arrange its purchase by a rival failed.[/i]
[quote]The Bank of Spain said yesterday it appointed administrators to run the savings bank after removing its management. As part of the rescue, the government pledged to guarantee as much as 9 billion euros ($12 billion) of the lender’s liabilities.

“There must have been no other way out,” said Jose Carlos Diez, chief economist at Intermoney SA in Madrid. “This was not the preferred option.”

Loan defaults in Spain have tripled since the global financial crisis began in 2007, ending the country’s real estate boom and boosting unemployment to 14 percent, the highest in the European Union. The economy is in the midst of its worst recession in half a century, with the government forecasting a contraction of 1.6 percent this year. [/quote]
[i]My Comment:[/i] Spain`s RE bubble was as bad as any in Europe - similar in terms of asset-overpricedness and borrower overleveraging to those in the UK and Ireland - but (unlike in e.g. the UK and the U.S.) the Spanish banking regulators were apparently doing at least some semblance of their job, Spain`s banking system was widely considered as likely to be able to weather the resulting storm. Now the key question is: Is CCLM an isolated case or merely the first of many?


Interesting trend on the home-foreclosure front - the latest wave of walkaways from foreclosed properties appears to be on the part of none other than the owning [url=http://globaleconomicanalysis.blogspot.com/2009/03/banks-walk-away-on-foreclosures.html]banks themselves[/url]. This is an interesting new twist on the game of foreclosed-property Old Maid. What Mish`s article doesn`t mention though - and much as I enjoy Mish`s blogging, he has an annoying I-am-never-ever-ever-ever-ever-ever-wrong blindness at times - is that Mish [url=http://globaleconomicanalysis.blogspot.com/2008/02/moral-obligations-of-walking-away.html]has been encouraging underwater homeowners to "just walk away"[/url] since last year (with the usual lame "but check your local laws..."-style fine-print disclaimer), arguing that aside from a hit to their (likely already low) credit rating there was little downside to doing so. Well, if the bank that originated the loan no longer holds it and the entity that bought the mortgage (probably as part of some pool-of-crap-mortgages-CDO) is out of business, leaving the original would-be-walk-awayer liable for the property in the eyes of the city, that strikes me as very much of a downside. Not to mention that the attitude of "greedy banks screwed America, so I`m gonna screw the banks by walking away from my mortgage" is a morally reprehensible way of weaseling out of a legal contract. If you are one of the homeowners who *legitimately* was victimized by predatory lending there are perfectly legal avenues for you to pursue - but for the other 90+% (my estimate) who simply bought near the top of the market because "all my friends are making huge paper profits on the home purchase, I want some of that action too" and who are now experiencing buyer`s regret, I say tough titty. But in modern-day America such notions as "personal responsibility" and "living up to one`s end of the deal" are considered quaint, old-fashioned and dispensable by most individuals, corporations and even by our government.

David Brooks: Car Dealer In Chief
 

The New York Times` David Brooks is skeptical of the "tough love" for GM and Chrysler:

[url=http://www.nytimes.com/2009/03/31/opinion/31brooks.html?_r=1&ref=opinion]David Brooks: Car Dealer In Chief[/url]: [i]By enmeshing the White House so deeply into G.M., President Obama has increased the odds that March’s menacing threat will lead to June’s wobbly wiggle-out.[/i]
[quote]Some companies are in the steel business, some are in the cookie business, but General Motors is in the restructuring business. For 30 years, G.M. has been restructuring itself toward long-term viability.

For all these years, G.M.’s market share has endured a long, steady slide. But this has not stopped the waves of restructuring. The PowerPoints have flowed, and always there has been the promise that with just one more cost-cutting push, sustainability nirvana will be at hand.

There are many experts who think that the whole restructuring strategy is misbegotten. These experts think that costs are not the real problem. The real problem is the product. The cars are not good enough. The management is insular. The reputation is fatally damaged.

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever. That will amount to the world’s most expensive jobs program. It will preserve the overcapacity in the market, create zombie companies and thus hurt Ford. It will raise the protectionist threat as politicians seek to protect the car companies they now run.

It would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician. [/quote]

Joseph Stiglitz: Obama’s Ersatz Capitalism
 

2001 Nobel Economics Laureate Joseph Stiglitz weighs in on the Obama/Geithner bank-toxic-asset plan and comes to the same conclusion as many skeptical bloggers I`ve previously quoted:

[url=http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?_r=1&ref=opinion]Joseph Stiglitz: Obama’s Ersatz Capitalism[/url]: [i]What the Obama administration is doing with the banks is far worse than nationalization: it is the privatizing of gains and the socializing of losses.[/i]
[quote]THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.

Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.

The prospect of high compensation gave managers incentives to be shortsighted and undertake excessive risk, rather than lend money prudently. Banks made all these mistakes without anyone knowing, partly because so much of what they were doing was “off balance sheet” financing.

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.

The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Even in an imperfect market, one shouldn’t confuse the value of an asset with the value of the upside option on that asset.

But Americans are likely to lose even more than these calculations suggest, because of an effect called adverse selection. The banks get to choose the loans and securities that they want to sell. They will want to sell the worst assets, and especially the assets that they think the market overestimates (and thus is willing to pay too much for).

But the market is likely to recognize this, which will drive down the price that it is willing to pay. Only the government’s picking up enough of the losses overcomes this “adverse selection” effect. With the government absorbing the losses, the market doesn’t care if the banks are “cheating” them by selling their lousiest assets, because the government bears the cost.
[u]
The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.
[/u]
Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.[/quote]

[QUOTE=ewmayer;167619]2001 Nobel Economics Laureate Joseph Stiglitz weighs in on the Obama/Geithner bank-toxic-asset plan and comes to the same conclusion as many skeptical bloggers I`ve previously quoted:

[i]What the Obama administration is doing with the banks is far worse than nationalization: it is the privatizing of gains and the socializing of losses.[/i][/QUOTE]



Bingo!!!!

April Fools Rally 2009 | White TKO15 Greenspan
 

Start of this April reminds me of last year - markets rallying on delusional "bottom is in / this looks bad, but is really good news!" herd mentality thinking, encouraged by the CNBC pumptards. Case in point: One of the reasons for today`s rally was that the [url=http://money.cnn.com/2009/04/01/markets/markets_newyork/index.htm?postversion=2009040113]ISM's manufacturing index[/url] rose to 36.3 in March from 35.8 in February, versus forecasts for a rise to 36. Can you say "statistically insignificant? But the financial media were fixated on the 36.3-is-better-than-the-expected-36 aspect, rather than the "anything under 50 indicates ongoing contraction, and under 40 is really awful" aspects. Similarly, March auto sales were horrible, but "better than January and February!!!" by some tiny percentage, as were pending home sales ("Up 2.1%, plus or minus an error range much larger than 2.1%!!!") Sad to see how many retail investors are - once again - getting suckered into this latest "you don't want to miss the market bottom, because it`s up to the sky from here, baby!" bullshit smoke-and-vapor rally. But as the saying goes, "Fool me once - shame on you. Fool me twice - shame on me." I would add, "Fool me three or more times - wow, I must really be a gullible dumbshit who deserves to lose his money."

Sam Stovall, chief market pimp at Standard & Poors, was on PBS Nightly Business Report last night, playing up the bottom-is-in theme. At one point he actually said with a straight face, "[u]Investors should not focus on fundamentals at this point[/u] ... the markets tend to anticipate economic recovery by 6 to 9 months ...", i.e. because "the markets have decided" that the worst is behind us, it must be so. He failed to mention the possibility that - just like the last three times in the past 12 months that "the markets decided" that the bottom was in, they were simply, egregiously wrong, and each time anyone paying attention to those oh-so-ignorable fundamentals was not at all surprised, except by the fact that "the markets" kept falling into the same delusional trap, over and over again. Man, when this latest and greatest bear market rally pops, it`s going to be brutal. I can't say what the precise trigger will be for the next wave of panic selling, but I predict it will occur sometime in the next 3 months. But, on to today`s news roundup:


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a9Dlf1KAQDug&refer=news]Obama Said to Conclude Bankruptcy Is Most Likely Option for GM, Chrysler[/url]: [i]President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.[/i]


[url=http://online.wsj.com/article/SB123854595878676211.html#]Move to Ease 'Mark' Rule May Subvert Treasury Plan[/url]: [i]A new accounting rule set to be approved this week will relax mark-to-market rules for banks sitting on billions of dollars in toxic assets, making it more attractive to keep the assets on their books. Yet those changes may undermine a larger U.S. Treasury plan to rid the banks of those same assets, bankers and accounting experts say.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aFpr.Iwh44xc&refer=news]U.S. Manufacturing Shrinks for 14th Straight Month as Factories Pare Costs[/url]: [i]Manufacturing in the U.S. contracted for a 14th straight month in March as factories kept on cutting production amid the economic downturn that this month becomes the longest since the Great Depression. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601080&sid=afLHRzOvbgaQ&refer=asia]Asia's Economic Woes Deepen as Japan Tankan Confidence Falls to Record Low[/url]: [i]Asia’s economic slump deepened in March as Japanese business confidence plunged to a record low, Chinese manufacturing shrank and South Korean exports fell for a fifth month.[/i]

Not that dire economic news ever kept the market bulls from desperately seeking any kind of silver lining ... what`s our excuse to rally today? OK, here you go - note how frequently "rally" these days is accompanied by the word "speculation":

[url=http://www.bloomberg.com/apps/news?pid=20601080&sid=aC_wDXKWWX_8&refer=asia]Asian Stocks Climb on U.S. Auto Speculation, Commodity Prices; Honda Gains[/url]: [i]Asian stocks rose for the first time in three days [u]on speculation Japanese and South Korean automakers will benefit from the possible bankruptcies of General Motors Corp. and Chrysler LLC[/u].[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a2QufomIIc.w&refer=news]Hitler's Ghost Goads Bill White to Battle With Greenspan on Crisis Fixes[/url]: [i]William White’s tussle with Alan Greenspan is spilling into their retirements as world leaders meet in London to try to prevent the next financial meltdown.[/i]
[quote]White challenged the former Federal Reserve chairman’s mantra that central bankers can’t effectively slow the causes of asset bubbles when he was chief economist at the Bank for International Settlements.

As heads of state gather for tomorrow’s Group of 20 summit, several former central bankers and regulators are advising them to advance the same arguments White has made for more than a decade: raise interest rates when credit expands too fast and force banks to build up cash cushions in fat times to use in lean years.

“We started worrying about this at the same time that Alan Greenspan started worrying about irrational exuberance” in 1996, said White, a Canadian who has remained in Basel, Switzerland, since retiring from the BIS in June. “The difference was he stopped worrying about it, or at least he stopped worrying about it publicly, and we didn’t.”[/quote]
[i]My Comment:[/i] Given that the Greenspan Fed, by way of its three-pronged idiocy of (a) lowering interest rates too much and for too long in efforts to mitigate recessions and micromanage the business cycle, (b) following Greenspan`s religious belief in the efficacy of self-regulating markets and (c) being grossly negligent in its charge to oversee lending practices and standards, was the main *cause* of the 2 biggest speculative asset bubbles in history, White`s stance seems entirely reasonable to me. The best way to prevent is to not cause. But lets hear what Greenspan`s crony apologists have to say:
[quote]Mark Gertler, a New York University economics professor who has collaborated on research with Fed Chairman Ben Bernanke, Greenspan’s successor, said that the U.S. housing boom and bust weren’t caused by low interest rates in 2003 and 2004. The problem stemmed from the decline in subprime mortgage lending standards and from leaving investment banks essentially unregulated even as they held mortgages and issued short-term liabilities like commercial banks, he said.

“The first-order cause of this crisis was the regulatory system was way out of whack,” Gertler said. “It’s not the case that you can get at this alone with interest-rate policy; it really requires smart regulatory policy.”[/quote]
[i]My Comment:[/i] Here is the table "Purpose of the Federal Reserve" from [url=http://en.wikipedia.org/wiki/Federal_Reserve#Purpose]Wikipedia[/url] - I`ve underlined key functions that are directly relevant to Gertler`s whining about "the regulatory system":
[i]
Current functions of the Federal Reserve System include:[url=http://en.wikipedia.org/wiki/Federal_Reserve#cite_note-pe-12][13][/url][url=http://en.wikipedia.org/wiki/Federal_Reserve#cite_note-mission-14][15][/url][list][*][u]To address the problem of banking panics[/u][*]To serve as the central bank for the United States[*]To strike a balance between private interests of banks and the centralized responsibility of government
o [u]To supervise and regulate banking institutions[/u]
o [u]To protect the credit rights of consumers[/u][*]To manage the nation's money supply through monetary policy to achieve the sometimes-conflicting goals of
o maximum employment
o [u]stable prices, including prevention of either inflation or deflation[/u][url=http://en.wikipedia.org/wiki/Federal_Reserve#cite_note-15][16][/url]
o moderate long-term interest rates[*][u]To maintain the stability of the financial system and contain systemic risk in financial markets[/u][*]To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
o To facilitate the exchange of payments among regions
o To respond to local liquidity needs[*]To strengthen U.S. standing in the world economy[/list][/i]
I also highlighted the bit about "stable prices" because that is directly at odds with the Fed`s consistently expansionary (i.e. inflationary) monetary policy, because that feeds right back into the theme of the Fed creating asset bubbles:
[quote]At one end of the spectrum are economic thinkers, such as those of the Chicago School or the Austrian School, who want the Federal Reserve System abolished.[url=http://en.wikipedia.org/wiki/Federal_Reserve#cite_note-hoover-121][122][/url] They criticize the Federal Reserve System’s expansionary monetary policy in the 1920s, arguing that the policy allowed misallocations of capital resources and supported a massive stock price bubble.[/quote]

Here's a chance to test the accuracy and insight of one of my favorite sources of geopolitical/military/economic information, Stratfor ([URL]http://www.stratfor.com/[/URL]).

On Monday, before Obama left for Europe, they published an article predicting the various outcomes of the phases of the trip.

"The United States, Germany and Beyond"

[URL]http://www.stratfor.com/weekly/20090330_united_states_germany_and_beyond[/URL]

I'm not going to quote details of their predictions for the first three phases (G-20, NATO summit, EU meeting), which they expect not to produce anything significant [I]for the reasons they set forth in the article[/I], but they _do_ think that important (and surprising to the American public, perhaps) things may well happen at the final stop: Turkey.

Here's their summary:

[quote]From our point of view, the talks in Europe are locked into place. A fine gloss will be put on the failure to collaborate. The talks in Turkey, on the other hand, have a very different sense about them.[/quote]That summary is preceded by:
[quote]But let’s remember that Obama’s trip doesn’t end in Europe, it ends in Turkey. Turkey is a NATO member but has been effectively blocked from entry into the EU. It is doing relatively well in the economic crisis, and has a substantial military capability as well. The United States needs Turkey to extend its influence in Iraq to block Iranian ambitions, and north in the Caucasus to block Russian ambitions. [URL="http://www.stratfor.com/analysis/20090319_turkey_u_s_strengthening_ties_ankara_rises"]Turkey is thus a prime candidate for an enhanced relationship with the United States[/URL]. Excluded from Europe out of fears of Turkish immigration, economically able to stand on its own two feet, and able to use its military force in its own interest, it doesn’t take a contortionist to align U.S. and Turkish policies — they flow naturally.

However planned, Obama’s visit to Turkey will represent a warning to the Germans and others in its orbit that their relationship with the United States is based, as Merkel put it, on national interest, and that Germany’s interests and American interests are diverging somewhat. It also drives home that the United States has options in how to configure its alliance system, and that in many ways, Turkey is more important to the United States than Germany is.

Obama has made the case for multilateralism. Whatever that means, it does not have to mean continued alignment with all the traditional allies the United States had. There are potential new relationships and potential new arrangements. The inability of the Europeans to support key aspects of U.S. policy is understandable. But it will inevitably create a counter pressure on Obama to transfer the concept of multilateralism away from the post-World War II system of alliances toward a new system more appropriate to American national interests.
[/quote]As I said, Stratfor explains why they expect nothing spectacular from the first three phases in their article.

But I confidently predict that we'll see Republicans blame Obama for those whiffs, without acknowledging that McCain (or Romney) would have had even less chance of getting anything changed on such a trip. The GOP won't cite all the reasons Stratfor does that have to do with Europe's own internal situations; they'll continue to pretend, at least publicly, that the U.S. still ought to be able to push the rest of the world around (if we had a [I]Republican[/I] president, that is).

Not that far-left liberals would necessarily be more perceptive overall, of course. (But I haven't studied that end as much as the right-wing, so I opine less about them.)

- -

Stratfor has to be careful not to make an out-and-out bald straightforward prediction about the Turkey phase, but I have less to risk, so I'll predict:

We will see something new and front-page-worthy come out from Obama's visit to Turkey, something along the lines Stratfor mentions in the article linked from within the first paragraph of the above quote

("Turkey, U.S.: Strengthening Ties as Ankara Rises" at [URL]http://www.stratfor.com/memberships/134070/analysis/20090319_turkey_u_s_strengthening_ties_ankara_rises[/URL];

You'll get a membership pitch after you request this article be e-mailed to you, but just ignore/skip that. Stratfor will e-mail the article either way and won't bug you later.)

or involving factors mentioned in this companion article:

"Turkey and Russia on the Rise" at [URL]http://www.stratfor.com/weekly/20090317_turkey_and_russia_rise[/URL]. (Should involve no membership pitch if you access it in the not-too-distant future)

I am not convinced by this article from Stratfor. I too don't expect much from G20 but I find the gloss the Stratfor article puts on the whole issue of relationships with Germany vs. Turkey rather self-serving and inaccurate. More opinion and less facts.

Claim 1: [Turkey] is doing relatively well in the economic crisis.

Is that why they were one of the first countries in line for an IMF bailout? Statistics here [URL]http://stats.oecd.org/WBOS/Index.aspx?QueryName=350&QueryType=View&Lang=en[/URL] show that Turkey has been in recession since Q2 2008 and its rate of contraction is much greater than Germany.

Claim 2: US needs Turkey to extend its influence in Iraq to block Iranian ambitions.

But that does not mean it is in Turkey's interests to do so. After all the US needed Turkey to allow the use of its airspace for the invasion of Iraq but that did not happen. That was what put a kibosh on US-Turkish ties and we should see a gradual warming of those ties in keeping with the new administration and its multi-lateral approach. To read any more into it would be imprudent in my opinion.

Claim 3: Obama’s visit to Turkey will represent a warning to the Germans...

Maybe, but the important question is if Germany cares. Germany needs the US far less than Turkey does so it is much less likely to subvert its national interest to curry favour with the US. Even then it is a bit of a stretch to suppose that Turkey would want to do that. If anything, the refusal to allow overfly permission during the Iraq invasion and the recent spat between the Turkish and Israeli presidents shows that Turkey is keen to display its independence from the US and NATO. It has a lot to do with the internal politics of the country too but that is the case with every country.

Finally I think that the importance of Western Europe (WE) to the US in terms of strategic alliances has been diminishing for quite a while - since the USSR broke up. The US has tried to create other alliances - such as those in the Caucus and Eastern Europe - with limited success. But Europe remains a far far bigger trading partner than all of these countries put together. So while the US may get servility from Eastern Europe and the Caucus, it should not be seen as a threat to WE but simply a changing reality that WE doesn't need the US any more like it did in the aftermath of WWII.

Banks get more leeway to fudge ... Rally time!!!
 

Another huge rally! rally!! rally!!! day, on hopes that the G20 summit will prove to be more than huge waste of oxygen and expensive food and drink, and news that the Financial Accounting Standards (lowering) Board (FASlB) [url=http://money.cnn.com/2009/04/02/news/fair.value.fortune/index.htm]signed off on changes to accounting rules[/url] for "hard to value" assets, replacing the old mark-to-market (M2M) standard - which most of the insolvent banks had been doing their best to circumvent anyway - with a looser "mark to model" standard, giving the banks much more leeway to "use their own judgment" in the kinds of "modeling" they use to value their own worthless assets. Another attempt to delay the inevitable revelation that emperor has no clothes (i.e. that most of the banks pushing for this are insolvent), but the Wall Street gamblin` crowd appears to think this kind of accounting flummery magically improves the real bottom line for the banks. I must say, I`m going to enjoy seeing this mightily orchestrated house of cards come tumbling down, and the ensuing hundreds of desperate and borderline analphabetic (and in all-caps, to boot) posts on the Yahoo message boards for [url=http://messages.finance.yahoo.com/mb/C]Citigroup[/url] and [url=http://messages.finance.yahoo.com/mb/BAC]Bank of America[/url], with titles like (this is for Citi, based on recent pricing) "BOT THIS POS @4.00 - WAT TO DO PLZ HELP!!!"

Now on the real news, all that "fundamental stuff" the market pumpers want you to ignore as you run out and use your 201(k) money to bid up the price of insolvent companies:

GM, desperate to boost its dismal sales by any means necessary and apparently with little to lose, has given its GMAC financing arm the go-ahead to [url=http://globaleconomicanalysis.blogspot.com/2009/04/subprime-financing-resumes-at-gmac.html]resumed subprime lending[/url]:
[quote]GMAC Financial Services said it will resume making car and truck loans to subprime borrowers and will lower inventory financing costs for cash-strapped auto dealers, part of a series of moves intended to spur sales at General Motors Corp.

The moves announced Wednesday come as the embattled automaker races to restructure and get customers back into its showrooms amid growing risk that it will be pushed into bankruptcy by the Obama administration.

GM, whose U.S. sales plunged 51 percent in the first two months of this year, also began rolling out a program that will cover some payments for customers who lose their jobs after buying a car, an incentive intended to bring back shoppers worried about job security amid the recession.[/quote]
[i]My Comment:[/i] Note that you and I (i.e. the American taxpayer) is now on the hook for these kinds of desperate gambles by failed-but-kept-alive-as-zombie corporations. As Mish notes, "This is exactly the kind of economic stupidity one should expect to see when government interferes in the market."


[url=http://money.cnn.com/2009/04/02/news/economy/jobless_claims/index.htm]Record high in jobless claiming benefits[/url]: [i]The number of people filing initial claims for unemployment benefits unexpectedly rose last week, while those filing continuing claims hit an all-time high for the 10th straight week, according to a government report released Thursday.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aFmpNuQFy6VU&refer=us]Home-Equity Loan Delinquencies Hit Record on Job Cuts, Deepening Recession[/url]: [i]Late payments on home-equity loans rose to a record in 2008’s fourth quarter as job losses and the deepening recession put a strain on borrowers, the American Bankers Association reported.[/i]


[url=http://money.cnn.com/2009/04/02/news/economy/greenberg_aig/index.htm]Former AIG chief: Bailout not working[/url]: [i]Former AIG Chief Executive Maurice "Hank" Greenberg, blaming his successors for the mistakes that led to the company's failure, told Congress Thursday that the government's plan to unwind the giant insurer is not working and threatens its ability to pay back the billions it has received in taxpayer funds.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBylKIZGlke0&refer=us]G-20 Agrees to Executive-Pay Limits, Pledges $1 Trillion for World Economy[/url]: [i]World leaders agreed on a regulatory blueprint for reining in the excesses that fed the worst financial crisis in six decades and pledged more than $1 trillion in emergency aid to cushion the economic fallout.[/i]
[quote]The Group of 20 policy makers, meeting in London, called for stricter limits on hedge funds, executive pay, credit- rating companies and risk-taking by banks. They also boosted the resources of the International Monetary Fund and offered cash to revive trade to help governments weather the economic and social turmoil. They sidestepped the question of whether to deliver more fiscal stimulus in their own economies. [/quote]
[i]My Comment:[/i] Notice all the weasel words: "blueprint"..."pledge"..."called for"..."offered" - so basically "we pledge to offer a blueprint which will call for" something or other really-great-for-the-world-economy, then? I feel convinced this will solve all our problems already.


And lastly for today, Barry Ritholtz has an interesting post about [url=http://www.ritholtz.com/blog/2009/04/why-newspapers-are-dying-not-what-you-think/]The real reason newspapers are dying[/url] - and it`s not the internet, he claims.

[quote=garo;167780]I am not convinced by this article from Stratfor.[/quote]Fine. I never expected anyone to be "convinced".

The main point I made is about the article's prediction about an event that has not yet happened -- Obama's meeting in Turkey. How would you expect anyone, let alone yourself, to have been "convinced" by a prediction that cannot yet be compared to actual outcome?

I didn't argue that I was, or anyone should be, convinced by this article's predictions, before the events referred-to actually take place! When I write of my own opinion of Stratfor, it is on the basis of cumulative experience of comparing what they say to what has happened over a few years, not any single article.

So, I ask: Of just [U]what[/U] would you have been "convinced" if you [I]had[/I] already been "convinced" by the time of your posting?

[quote]I too don't expect much from G20 but I find the gloss the Stratfor article puts on the whole issue of relationships with Germany vs. Turkey rather self-serving[/quote]How do you mean "self-serving"?

How does the article self-serve Stratfor, other than as a quite legitimate way of demonstrating that they analyze the situation correctly (by publishing their predictions ahead of the events predicted, rather than waiting until afterward)?

Perhaps in my references to Stratfor I have failed to mention that I am NOT a paying subscriber. I'm simply on their mailing list for about-weekly free articles. I could get the same content by browsing their website weekly, but of course this is more convenient.

I'm not recommending that anyone else pay to subscribe (nor am I recommending that anyone else NOT subscribe to their paid service). I suggest that if you find their (free) articles useful, as I have, then you might want to subscribe to their mailing list for [I]free[/I] articles, as I have, or else simply check their website once in a while (just as Ernst is a regular reader/quoter of Mish -- although I don't actually [i]know[/i] that Ermst is NOT a paying subscriber to Mish, but it seems unlikely).

OK perhaps my choice of words was not good enough. But I'm still not convinced that Obama's visit to Turkey will be a big deal. We'll soon see!

But going back to the article, could you comment on the substantive points I made? I find that a lot of your posts are so full of quibbling over minor things that the main issue gets buried. So let's get back to that.

[quote=garo@cheesehead;167846]But going back to the article, could you comment on the substantive points I made? I find that a lot of your posts are so full of quibbling over minor things that the main issue gets buried. So let's get back to that.[/quote]

ROFL! Good luck.

[quote=garo;167780]Claim 1: [Turkey] is doing relatively well in the economic crisis.

Is that why[/quote]I have no great expertise about Turkey. Whether Turkey's doing better-than-average or not, so be it.

[quote]Claim 2: US needs Turkey to extend its influence in Iraq to block Iranian ambitions.[/quote]I agree.

[quote]But that does not mean it is in Turkey's interests to do so.[/quote]No, but so what? Country-to-country negotiation often involves finding, and agreeing to, a we'll-do-something-you-want if you'll-do-something-we-want tradeoff.

[quote]After all the US needed Turkey to allow the use of its airspace for the invasion of Iraq but that did not happen. That was what put a kibosh on US-Turkish ties and we should see a gradual warming of those ties in keeping with the new administration and its multi-lateral approach. To read any more into it would be imprudent in my opinion.[/quote]Perhaps Stratfor's analysts are aware of a wide range of things that the U.S. could potentially do for Turkey in exchange for asking Turkey to help us with Iraq? Seems to me that the most powerful nation on Earth would usually have [I]lots[/I] of unobvious options it hasn't revealed publically. The Obama administration probably has different views on that range of options than the Bush administration had, so who knows how many things not offered to Turkey in the past might turn out to be available under a new administration?

What seems imprudent to me is to categorically rule out any surprising results ahead of time.

[quote]Claim 3: Obama’s visit to Turkey will represent a warning to the Germans...

Maybe, but the important question is if Germany cares.[/quote]Oh, come on ... Of course it does.

[quote]Germany needs the US far less than Turkey does so it is much less likely to subvert its national interest to curry favour with the US.[/quote](What was it someone said about opinions versus facts?)

Are you saying that you [I]know[/I] that there are no possible diplomatic tradeoffs the United States could offer, such as I suggest above with Turkey, to which Germany could agree without "subverting" its national interest?

There's a [U]wide[/U] spectrum of options out there, with various pros/cons.

Of course, Germany will weigh its options, and US moves with Turkey may adjust those weights a bit. It's not just b&w. So what if there's no single identifiable thing Germany would fall all over itself to do to "curry favor"? The point is that the US could figuratively rest a thumb on one side of Germany's scales by striking deals with Turkey.

[quote]Even then it is a bit of a stretch to suppose that Turkey would want to do that. If anything, the refusal to allow overfly permission during the Iraq invasion and the recent spat between the Turkish and Israeli presidents shows that Turkey is keen to display its independence from the US and NATO.[/quote]Yes, it is.

But did the article claim that anything Turkey could do for the U.S. in Iraq [I]would necessarily have to be done out in the open for all to see[/I]? Did it?

Subtlety and covertness [I]do[/I] exist as properties of some of any country's options.

[quote]Finally I think that the importance of Western Europe (WE) to the US in terms of strategic alliances has been diminishing for quite a while - since the USSR broke up. The US has tried to create other alliances - such as those in the Caucus and Eastern Europe - with limited success.[/quote]... and you've determined, somehow, that the only possible future is a linear continuation of the past?

I'm hearing all the time that many other countries now have a different view of their possible relationships with the U.S. than they did before Obama's election. Am I a victim of propaganda in that regard? If not, why isn't it possible that the future may be different from the past?

[quote]But Europe remains a far far bigger trading partner than all of these countries put together. So while the US may get servility from Eastern Europe and the Caucus,[/quote]Do you see all international relationships as a matter of subversion and servility? Can you imagine that servility is not necessarily the objective in [I]all[/I] regards?

[quote]but simply a changing reality that WE doesn't need the US any more like it did in the aftermath of WWII.[/quote]One moment you're arguing that the future will be a linear continuation of the past; the next you're saying that reality is changing! :smile:

@cheesehead: Obviously we will have to wait and see. In the meanwhile, anal-ysts from Stratfor who may or may not be privy to some non-public information are saying that it will be a big deal. And you agree with them saying that the deal to be struck may happen behind closed doors so we the public won't really find out if some super-duper deal goes on in the background and shows Germany which side their bread is buttered on. So we have no quantifiable way of knowing whether these anal-ysts will be right or wrong. Meanwhile the anal-ysts make elementary mistakes such as being dead wrong about the impact of the recession on Turkey.

Sounds suspiciously like the super-duper Geithner stress tests. We won't reveal the results but we are confident it will lead to Good Things(TM).

PS:
[quote]Do you see all international relationships as a matter of subversion and servility? Can you imagine that servility is not necessarily the objective in [I]all[/I] regards?[/quote]Not in all but in most regards, yes international relationships of the US with weaker nations have had servility as the objective. And I might add the same was true for the former USSR and currently for China.

[url]http://www.guardian.co.uk/world/cartoon/2008/nov/10/barack-obama-foreign-relations-puppy[/url]

"Please Ignore that Social Security is Insolvent"
 

Mish comments on the recent news about the U.S. Social Security "Trust Fund":

[url=http://globaleconomicanalysis.blogspot.com/2009/04/social-security-there-is-no-trust-there.html]Social Security: There Is No Trust; There Is No Fund[/url]: [i]Social Security is back in the limelight where once again its problems will no doubt be ignored.[/i]
[quote]Please consider [url=http://www.washingtonpost.com/wp-dyn/content/article/2009/03/30/AR2009033003291.html]Recession Puts a Major Strain On Social Security Trust Fund[/url].
[i]
The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.
[/i]
[Mish] Comment: Therein lies the rub. There is no fund per se. It's all been spent, and then some.
[i]
"It suggests we better get working on Social Security and stop burying our heads in the sand," said Sen. Judd Gregg (N.H.), the senior Republican on the Senate Budget Committee. "The Social Security trust fund, though technically in balance, is going to put huge pressures on taxpayers very soon."
[/i]
[Mish] Comment: There is negative money in the fund so it's complete nonsense to claim it is "technically in balance".
[i]
Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 -- so long as the Treasury repays its debts.
[/i]
[Mish] Comment: "...So long as the Treasury repays its debt" And exactly how likely is that? Has anyone looked at Obama's budget?
[i]
The trust fund has long taken in more in revenue from payroll taxes and other sources than it pays out in benefits. Last August, the CBO predicted that surplus would exceed $80 billion this year and next, then rise to around $90 billion before slowly evaporating by 2020. But the rapidly deteriorating economy -- particularly the loss of more than 4 million jobs -- has driven those numbers much lower much faster, with the surplus expected to hit $16 billion this year and only $3 billion next year, then vanish entirely by 2017.

In his budget, Obama predicted that the trust fund surplus would hit $30 billion this year, according to Mark Lassiter, a spokesman for the Social Security Administration.

But that number, too, is far less than the $80 billion the trustees had forecast for 2009. In addition to declining revenues, Lassiter said the system is likely to incur higher expenses due to big jumps in new retirement and disability claims. Both are expected to rise by at least 12 percent this year compared with 2008.
[/i]
[Mish] Comment: Can we stop with the nonsense? Revenues exceed payouts but that does not mean there is a fund. Every penny and then some has been borrowed and spent. And even the so called surplus is falling like a rock, a decade faster than expected.[/quote]

Unemployment at 25-Year High | Borat Stimulus
 

[url=http://money.cnn.com/2009/04/03/news/economy/jobs_march/index.htm]2 million jobs lost so far in '09[/url]: [i]Unemployment rate spikes to 8.5%, a 25-year high, as 663,000 jobs lost in March. 5.1 million jobs have now been lost since the beginning of 2008.[/i]
[quote]Employers trimmed 663,000 jobs from their payrolls last month, roughly in line with forecasts of a loss of 658,000 jobs, according to economists surveyed by Briefing.com.

For the first three months of the year, 2 million jobs have been lost, and 5.1 million jobs have been lost since the start of 2008.

To put the three-month loss in context, if no more jobs are lost over the next nine months, 2009 would still be the fourth worst year for job losses since the government started tracking the number of workers in 1939.

March's monthly loss is up slightly from the loss of 651,000 jobs in February, although it's less than the number of jobs lost in January. That figure was revised up to a loss of 741,000 jobs -- which now stands as the biggest monthly drop in 59 years.[/quote]
[i]My Comment:[/i] 2 million through March - exactly as I predicted last month, as many jobs lot in 3 months as "most economists" said we would lose in all of 2009. Given that the originally-announced January number was revised significantly upwards, it is not unlikely that February and March may similarly prove to be even-worse-than-announced when the final tallies are in a few months from now. Predictably, Wall Street rallied (albeit moderately compared to yesterday) yet again on all this fabulous economic recovery news. Guess they figure that all that payroll-slashing will boost profit margins...I know that hope springs eternal (and in general that's not a bad thing, as long as you don't bet the farm on the hope and the hype), but the disconnect between what's happening on Main Street and the irrational exuberance that has come roaring back on Wall Street is, quite frankly, stunning.

But dire as the above 8.5% unemployment figure is, it underestimates the true level of malaise:
[quote]Employers cut back the number of hours for their workers as well. The average hourly work week fell to 33.2 hours, the lowest level on record going back to 1964.

There also was an increase in the number of people working part-time jobs who want to get a full-time job. A record 9 million Americans were "underemployed" in March.

Including those people along with discouraged job seekers no longer counted in the main unemployment rate, the government's so-called underemployment rate stood at 15.6% in March.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aoRb2zWVSFa8&refer=news]FASB Shift Won't Spur Bank Rally Because of Loan-Loss Growth, Goldman Says[/url]: [i]The relaxation of fair-value accounting rules won’t prevent bank shares from falling because growth in bad loans is accelerating, according to Goldman Sachs Group Inc.[/i]
[quote]“Our core view is that banks will not bottom until underperforming asset growth decelerates,” Richard Ramsden, a New York-based analyst at Goldman Sachs, wrote in a report today. “Loans are going bad faster than banks earn money.”

Bank stocks in the Standard & Poor’s 500 Index advanced 4.2 percent yesterday after the Financial Accounting Standards Board relaxed so-called mark-to-market rules that Citigroup Inc. and Wells Fargo & Co. said don’t work when markets are inactive. The changes allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities.[/quote]
[i]My Comment:[/i] Like I said, it`s just accounting hocus-pocus to enable the banks to put lipstick on the pig. Note the clever wording "inactive markets" translates to: no one (excpet the government) is willing to pay anywhere near what you are valuing your bad-loan portfolios at. Rather like the housing market being "inactive" in areas where prices are still too high.
[quote]U.S. regulators may force Bank of America, Citigroup and at least a dozen of the nation’s biggest financial institutions to write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.

Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.

Lower valuations would lead to new writedowns and capital injections from the $134.5 billion remaining in the Troubled Asset Relief Program, Nobel Prize-winning economist Joseph Stiglitz said.[/quote]
[i]My Comment:[/i] There you have it - banks have little incentive to mark their assets down to market value (and the FASB ruling now lets them avoid even having to make the pretense of doing so) because they know that the longer they delay, the more likely it is that the government will simply bail them out by taking the toxic garbage off their hands, at taxpayer expense, for far above market value. If I had a rusty car with no engine or tires sitting in my front yard, and the city (FDIC) cited me for it and said to move it, but I knew that if I let it sit and rust away long enough the county (U.S. Treasury) would come in and take it off my hands for 85% of its non-rusted, fully operational value, which option would I choose?


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aEDHFtFqc_ko&refer=news]Timothy Geithner's Non-Recourse Gift That Keeps on Giving to Bill Gross[/url]: [i]Treasury Secretary Timothy Geithner’s plan to rid banks and markets of devalued assets may be a boon for Pacific Investment Management Co.’s Bill Gross.[/i]
[quote]The plan may reward investors with 20 percent annual returns on “really ‘toxic’” mortgages bought at 45 cents on the dollar by allowing them to borrow six times their money with “non-recourse” government-backed debt, New York-based Credit Suisse Group AG analysts Carl Lantz and Dominic Konstam wrote in a March 27 report. That loan would be worth 15 cents to an investor seeking the same return who can’t use borrowed money.

Geithner’s Public-Private Investment Program, or PPIP, promises to boost prices enough to encourage banks, insurers and hedge funds to sell their mortgage holdings, freeing them to make loans while creating a potential windfall for investors. [u]Federal Reserve Chairman Ben S. Bernanke said March 20 that “credit market dysfunction” is countering efforts to fix the economy[/u].[/quote]
[i]My Comment:[/i] No, it`s Bernanke and Geithner`s et al's abandonment of any semblance of free markets and socializing of risk that`s hampering any economic recovery. But for government-connected "private" asset funds like PIMCO and its pimp-in-chief Bill Gross, bailouts are great business. Gross may end up making as much at taxpayer expense in the next few years as in his entire long career to this point. A kind of Daddy Warbucks of the financial crisis.


[url=http://www.bloomberg.com/apps/news?pid=20601095&sid=aXTTPXsgy3eQ&refer=east_europe]Kazakhstan's Biggest Bank May Fail After Bailout, Former BTA Chairman Says[/url]: [i]BTA Bank, Kazakhstan’s largest lender, may fail after a state takeover, dragging down other large banks and leaving the state unable to rescue them from default, BTA’s ousted chairman said.[/i]
[quote]BTA’s failure would lead to ratings cuts for Kazkommertsbank and Halyk Savings Bank, Kazakhstan’s second- and third-largest lenders, triggering technical defaults and cross defaults and allowing investors to demand early debt repayment, Ablyazov said, adding that he owns a stake in BTA of less than 10 percent.

He said the banks would then have to restructure their debts, and that the state may not have enough money to support them.

...

“When the government stepped in, BTA needed a liquidity injection, but I’m sure they might have wanted to do it differently,” HSBC Bank Kazakhstan CEO Simen Munter said in an interview today. “The way it was done created a lot of acrimony.” [/quote]
[i]My Comment:[/i] If they need another liquidity injection, maybe they could get Borat to give them one of his trademark "liquid explosions".

[quote=garo;167889]And you agree with them saying that the deal to be struck may happen behind closed doors so we the public won't really find out if some super-duper deal goes on in the background and shows Germany which side their bread is buttered on. So we have no quantifiable way of knowing whether these anal-ysts will be right or wrong.[/quote]Re-examine what I wrote:
[quote=cheesehead;167700]We will see something new and front-page-worthy come out from Obama's visit to Turkey[/quote]By "front-page-worthy", I meant the sort of news story that is placed on front pages of newspapers. If we hadn't recently seen major newspapers going out of business, and if it weren't common nowadays to get our news from the Web, I would have phrased it, "We'll see a front-page story about something new coming out of Obama's visit to turkey."

What I'm referring to is something that will be a lead item in the news media in the next week, during or shortly after Obama's visit to Turkey. I wasn't trying to reserve the option that something in secret [I]would be front-page news if only it could be revealed publicly.[/I]

I'd appreciate it if you'd stop being so suspicious of hidden meanings behind every sentence I write, and stop placing such unfavorable interpretations on my postings. I'm getting to the point that my fingers hurt after I'm [strike]typing[/strike] keying for a while, so it's literally a pain to have to spell out all these things to counter your unwarranted cynicism, pessimism and paranoia. Try balancing with a bit of positive imagining in your interpretations once in a while.

(Note to readers: Will Garo exaggerate that last part to make it seem that I'm Pollyanna or I'm asking him to be? I hope not. [i]I'm a moderate! and I'll keep proving that no matter how many times I have to beat someone on the head with it![/i] Stay tuned. :-)

- -

Re: my references to secret negotiations --

Are you so naive as to expect that all good negotiations must necessarily be public, or that secret negotiations are necessarily evil? When a diplomat is trying to find an acceptable mutual bargain for two countries to accomplish something good and positive on each side, it still is legitimately desirable to negotiate in private so that each sides' options that may not be used in the final deal are not blared out for all to see.

Suppose the U.S. presents Turkey with a choice of any two of five things the U.S. could do for Turkey in exchange for Turkey's intervention in Iraq. Turkey selects two and the countries shake hands on it. It's not in the U.S.'s interest to have the three nonselected options publicly known, and may not be in Turkey's either. And all that could apply to a final deal that will be completely revealed to the public -- no covert stuff included.

Money matters in Mexico
 

Various things seem be stirring in Mexico. The biggest two items are the activation of an IMF Flexible Credit Line of 47 billion dollars and the drawing on a 30 billion dollar currency swap line with the U.S. Federal Reserve.
[URL="http://www.forbes.com/2009/04/02/mexico-imf-credit-business-oxford.html"]IMF Aid Boosts Mexico's Credibility[/URL] (Forbes) and [URL="http://www.alertnet.org/thenews/newsdesk/N01491861.htm"]Mexico asks to tap $47 bln IMF credit line[/URL]

The currency swap line was established in October last year and was set to expire at the end of April but was extended in February to the current end in October 2009.
[QUOTE]3rd of April 2009
First drawing of the Federal Reserve swap line and auction from US dollar loan facility.
The Bank of Mexico announces that it will draw on its swap line with the Federal Reserve. This line was announced to the public on the 29th of October 2008 and will mature on the 30th of October 2009. The proceeds from the swap transactions with the Federal Reserve will be used to finance auctions of dollar loans to domestic credit institutions. The first auction will be held on the 21st of April for an amount of up to USD 4 billion with a maturity of 264 days. The Bank of Mexico will set a minimum interest rate based on the relevant Overnight Index Swap rate plus a spread of 50 basis points. While the maximum tenor of individual drawings under the swap line is 88 days, the Bank of Mexico stands ready to request additional draws from the swap line to fund the longer-maturity loans or, if needed, to use other sources of financing. The purpose of these loans is to provide financing to private sector participants who face pressures in obtaining term dollar funding.[/QUOTE]The above quote from [URL="http://www.banxico.org.mx/sitioIngles/index.html"]http://www.banxico.org.mx/sitioIngles/index.html[/URL] this PDF: [URL="http://www.banxico.org.mx/documents/%7B79B96C47-A63D-79BF-4357-EECF2C62C7EB%7D.pdf"]First drawing of the Federal Reserve swap line and auction from US dollar loan facility[/URL]

Remittances are 3% down in February versus the previous February but not nearly the 12% hit that that January took: [URL="http://www.forbes.com/feeds/ap/2009/04/01/ap6243698.html"]Mexican remittances fall 3 percent in February[/URL] (AP/Forbes)

Other news is that the [URL="http://www.reuters.com/article/worldNews/idUSTRE5325PG20090403"]Drug war hits Mexican economy in crisis[/URL].[QUOTE]U.S. President Barack Obama will visit Mexico this month, and is sending high-tech gear and hundreds more agents to the border to fight the smuggling of drugs, weapons and cash.[/QUOTE] I found this assertion surprising:[QUOTE]Tourists, a big source of foreign exchange earnings, are still coming to Mexico, attracted by the weak peso currency and most are so far unfazed by the drug violence. The number of tourists is up slightly so far this year despite travel warnings by the U.S. and Canadian governments.[/QUOTE] [URL="http://www.gallup.com/poll/117271/Americans-Concerned-Mexico-Drug-Violence.aspx"]Most Americans Concerned About Mexico's Drug Violence[/URL][QUOTE]A new Gallup Poll finds 79% of Americans saying they are concerned about "drug violence in Mexico," including 51% who are "very concerned."[/QUOTE]
I think it is fair to say that the U.S. is paying attention to Mexico at the moment as demonstrated by Secretary of State Hillary Clinton's visit last week and President Obama's visit scheduled this month.

"Fed 'extremely uncomforable' about bailouts"

[URL]http://news.yahoo.com/s/ap/20090403/ap_on_bi_ge/bernanke[/URL]

[quote]CHARLOTTE, N.C. – While acknowledging that the Federal Reserve was "extremely uncomfortable" about last year's bailouts of big financial companies, Fed Chairman Ben Bernanke said Friday the central bank's strategy to ease the financial crisis is working.

Bernanke was referring to the Fed's unprecedented decisions last year to step in and financially back JPMorgan Chase & Co.'s takeover of then-troubled investment house Bear Stearns and throw its first of four financial lifelines to insurance giant American International Group Inc.


In remarks during a Fed conference in Charlotte, N.C., Bernanke said the central bank was forced to take action because the collapse of those companies would have dealt a serious blow to the financial system and the national economy.

.
.
.[/quote]

Well we got a surprise all right and a rather pleasant one and at the NATO/EU summits unlike the Stratfor anal-ysts predicted.

Garo, you're really out to put Stratfor in a negative light any way you can, right down to the consistency of your puerile-level punctuation of "analysts", aren't you?

What is the basis for that intense dislike? That they didn't publish the same line about Gaza that you did, or what?

I hope you're not going to repeat your argument that Stratfor is incompetent because its articles aren't encyclopedaic.

Well, I just don't like their fear-mongering political agenda and posing as knowledgeable insiders with some insight into the shadowy world of realpolitik. Their condescending tone reminds me of The Economist. It has nothing to do with Gaza, my dislike (not intense but just normal) predates that conflict.

And there are precious few facts in their reports - generally just opinions which they prop up through constant allusions to "classified" information and "intelligence". In a word: HOGWASH.

Meanwhile, back to the thread topic, here is a defence of Stratfor's economic articles by its founder. Anyone who has been reading this thread and its predecessors carefully will see plenty of weasel words and basically a lack of honesty in being able to admit that they have no frigging clue as to the size of the problem. And yes you will have to evade the membership pitch yet again.

[URL]http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/10/16/the-international-economic-crisis-and-stratfor-s-methodology.aspx[/URL]

[quote=garo;168265]Well, I just don't like their fear-mongering political agenda and posing at knowledgeable insiders with some insight into the shadowy world of realpolitik. Their condescending tone reminds me of The Economist. It has nothing to do with Gaza, my dislike (not intense but just normal) predates that conflict.

And there are precious few facts in their reports - generally just opinions which they prop up through constant allusions to "classified" information and "intelligence". In a word: HOGWASH.[/quote]Thank you for your answer.

You are welcome.

Larry Summers: Lifestyles of the Conflicted Rich
 

Barry Ritholtz summarizes some recent disclosures about the in-bed-with-Big-Finance-ness of top White House economic adviser Lawrence Summers:

[url=http://www.ritholtz.com/blog/2009/04/summers/]Larry Summers: Wrong Man for the Job[/url]
[quote]I have been wondering why the new administration has continued carrying out the ruinous, misguided policies of the Bush administration when it came to the banks. I simply couldn’t figure out why the hell we were giving away trillions of dollars on absurdly favorable terms to a group of incompetent managers — reckless speculators, really — who destroyed their own companies.

Perhaps this helps shed some light:
[i]
“Top White House economic adviser Lawrence Summers received about $5.2 million over the past year in compensation from hedge fund D.E. Shaw, and also received hundreds of thousands of dollars in speaking fees from major financial institutions.

A financial disclosure form released by the White House Friday afternoon shows that Mr. Summers made frequent appearances before Wall Street firms including J.P. Morgan, Citigroup, Goldman Sachs and Lehman Brothers. He also received significant income from Harvard University and from investments, the form shows.

In total, Mr. Summers made a total of about 40 speaking appearances to financial sector firms and other places, with fees totaling about $2.77 million. Fees ranged from $10,000 for a Yale University speech to $135,000 for an appearance paid for by Goldman Sachs & Co.

The disclosure — in a financial report that is required for federal office holders — comes as Mr. Summers is involved in shaping the Obama administration’s policy decisions on the financial meltdown as well as the broader recession. Among the many decisions the economic team has wrestled with has been whether to step up regulation of hedge funds, one of the most contentious subjects during a summit of world leaders this week. [u]European nations pushed for tougher rules, while the Obama administration preferred a less stringent approach[/u].” (emphasis added)
[/i]
Let’s review: Summers, along with Robert Rubin, pushed for the repeal of Glass Steagall, and supported the Commodity Futures Modernization Act; If memory serves, he was also around during the LTCM bailout.

If the history books eventually judge the Obama administration a failure, they may have to point to one horrific appointment as the root cause of the misguided policies: The “Smart Guy” who decided to continue the “Dumb Guy’s” policies.[/quote]
[i]My Comment:[/i] The mention of [url=http://www.google.com/url?sa=U&start=1&q=http://en.wikipedia.org/wiki/D._E._Shaw_%26_Co.&ei=03naSc27FpC6tQPt05TOBg&usg=AFQjCNHt-A7_12uORIF8amnK-oJOTAnqZQ]D.E. Shaw[/url] is interesting on a personal level: A couple years back I found myself on the receiving end of a high-pressure, very persistent recruiting pitch from an HR firm under contract to D.E. Shaw. As I have zero background in Big Finance and my only personal experience with the hedge fund industry is my purchase of a pair of Fiskars brand heavy-duty long-handled pruning shears a few years ago, you might well be wondering what D.E. Shaw's interest in someone like myself might be. The obvious guess, that they were looking for math/computation geeks for their quantitative analysis group, is incorrect - in fact, it was my silicon-modeling experience they were interested in. Apparently they had budgeted some outlandish sum (no amounts were discussed, but one can infer lower bounds from the nature of the project) to fund R&D on a custom-designed, super-secret proprietary supercomputer. Apparently even the massively parallel DoD Blue Gene and Earth-Simulator-style setups weren`t enough for these folks - they wanted something way beyond even those. Delusional? Perhaps. But it gives you an idea of just how flush with cash and full of itself the hedge fund industry was at the height of the credit/housing bubble. (On the other hand, it`s probably unfair to lump DES in with the rest of the hedge-fund rabble ... these guys appear to be playing the quant/hedgie game at a level well above most of the mere money-grubbing hedgies, the ones blowing up left and right since the post-RE-bubble recession started.) But alas, tantalizing as the lure of working for "most intriguing and mysterious force on Wall Street" may have been, I opted to pass, since the requisite level of Deep Cover would very likely have interfered with my blogging.


[url=http://www.ritholtz.com/blog/2009/04/larry-summers-wrong-man-for-the-job-part-ii/]Larry Summers: Wrong Man for the Job, Part II[/url]
[quote]The fun never stops around here. Yesterday, we noted the rampant conflict of interest that Summers works under. The latest brick thrown thru the glass that was Larry Summers reputation: His oversight of the Harvard endowment:
[i]
“Back in 2002, a new employee of Harvard University’s endowment manager named Iris Mack wrote a letter to the school’s president, Lawrence Summers, that would ultimately get her fired.

In the letter, dated May 12 of that year, Mack told Summers that she was “deeply troubled and surprised” by things she had seen in her new job as a quantitative analyst at Harvard Management Co.

She would go on to say, in later e-mails and conversations, that she felt the endowment was taking on too much risk in derivatives investments, and that she suspected some of her colleagues were engaging in insider trading, according to a separate letter written by her lawyer that summarized the correspondence.

On July 2 Mack was fired. But six years later, the kinds of investments she allegedly warned about did blow up on Harvard. The endowment plunged 22 percent last summer, in part due to the collapse of the credit markets. As a result, the school is cutting costs and under criticism that it took on too much risk in its investment portfolio.”
[/i]
As bad as that is, it gets worse: Despite of the confidential nature of the letter, Summers apparently forwarded the letter to her boss. She was fired soon after

Harvard’s endowment is down 40% since late 2007 — and that’s not counting its private equity investments, some of which are being shopped at 40 - 60% off listed value.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=agPfpHrb0n5c&refer=news]Mayo Says Bank Loan Losses Will Exceed the Levels Seen in Great Depression[/url]: [i]Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight” rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.[/i]
[quote]U.S. stocks dropped after Mayo gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Mayo said in a report today.

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote. “New government actions might not help as much as expected, [u]especially given that loans have been marked down to only 98 cents on the dollar, on average[/u].”

The 46-year-old Mayo gained a reputation for independence at Frankfurt-based Deutsche Bank for his willingness to put a “sell” rating on banks and to criticize investors and companies for trying to curb objective analysis. At Deutsche, Mayo had “sell” or “hold” ratings on all 18 companies he covered, according to data compiled by Bloomberg. CLSA is an affiliate of New York-based Calyon Securities. [/quote]
[i]My Comment:[/i] That objectivity and skepticism is not appreciated by The Matrix ... LOL, 98 cents on the dollar! Only an idiot would pay pay even half of that for most of the garbage loan portfolios the banks are holding and refusing to mark down. Correction: only an idiot ... or a U.S. taxpayer, thanks to Terrible Timmay Geithner`s socialized-loss plan for the banks.

We now return to our previously scheduled irrationally exuberant financials-led stock rally...

Here's Stratfor's interim take after Obama's first speech in Turkey but before the end of the trip:

"Obama's Strategy and the Summits"

[url]http://www.stratfor.com/weekly/20090406_obamas_strategy_and_summits[/url]

Non Sequituir for 4/6/09:

[quote=cheesehead;168340]Here's Stratfor's interim take after Obama's first speech in Turkey but before the end of the trip:

"Obama's Strategy and the Summits"

[URL]http://www.stratfor.com/weekly/20090406_obamas_strategy_and_summits[/URL][/quote]

Good article. Much better than the previous one.

Corp. Bond Defaults Spike | GM Readies Chapter 11?
 

[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=afIlin8GVb6c]Corporate Bond Default Rate Highest Since Great Depression[/url]: [i]Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody’s Investors Service.[/i]
[quote]The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7 percent from 4.1 percent at the end of last year, Moody’s said in a report today. So far this year, 79 companies rated by Moody’s have defaulted, the New York-based ratings firm said.

Almost $1.3 trillion of losses and writedowns at financial institutions worldwide, combined with the deepest economic slowdown since World War II, have weakened companies’ finances, reducing their ability to pay debt. The global default rate will peak at 14.6 percent in the final quarter of the year, Moody’s predicted, lower than last month’s 15.3 percent forecast.

In the U.S., the default rate at the end of the first quarter was 7.4 percent, up from 4.5 percent at the end of 2008, and in Europe it jumped to 4.8 percent from 2 percent at the end of the final quarter of last year.

European default forecasts remain the highest and are expected to peak at 21 percent in the fourth quarter, down from the 22.5 percent the ratings firm’s model calculated last month.[/quote]
[i]My Comment:[/i] An estimated debt default rate of over 20% in Europe - wow. Note that I wouldn`t trust an outfit like Moody`s on anything requiring subjective judgment (e.g. debt ratings, especially of, oh, say, Warren Buffett`s Berkshire Hathaway holding company), but in this case these are actual data they are summarizing.


[url=http://money.cnn.com/2009/04/07/news/companies/gm_prep_bankruptcy.reut/index.htm]GM braces for possible bankruptcy[/url]: [i]Automaker plan would split the company into profitable and less-profitable divisions.[/i]
[quote]NEW YORK (Reuters) -- General Motors Corp. is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters Tuesday.

A plan to split the company into a new company made up of the most successful units, and an 'old company' of its less-profitable units is gaining momentum and is seen as the company's best configuration for the future, said another source familiar with the talks.[/quote]
[i]My Comment:[/i] Looks like the "new" Fritz-Henderson-led GM may not wait for the recent "get your act together" deadline set by the Obama administration to file Chapter 11.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=afmB.7qR9z2M&refer=news]OppenheimerFunds Probed by Five States Over College Savings-Account Losses[/url]: [i]OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co., is under scrutiny by attorneys general in five states for investment losses in college-savings accounts that used its bond funds.[/i]
[quote]The inquiry undertaken by the civil enforcement offices of the attorneys general is focusing on accounts that invested in Oppenheimer Champion Income Fund, which fell 79 percent in the past year, and Oppenheimer Core Bond Fund, which lost 41 percent. Oppenheimer Limited Term Government Fund and U.S. Government Trust are also being investigated.

...
Angelo Manioudakis, the manager who oversaw the bets at Champion Income, Core Bond and the two government bond funds, left OppenheimerFunds in December and other managers have been appointed to run them.

Champion Income held total-return swaps that bet that the prices of mortgage-backed securities would rise. Instead, in November, they dropped. The fund plunged 71 percent in the fourth quarter of 2008, including 54 percent in November alone.

OppenheimerFunds faces a lawsuit and arbitration claims stemming from losses by Champion Income by shareholders who invested in the fund outside of college-savings plans. The lawsuit, filed in February in the U.S. District Court in Colorado, [u]alleges that OppenheimerFunds marketed and sold the fund as a conservative high-income option[/u].[/quote]


[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNR3f9WE2L9s]Soros Says Gain in U.S. Stocks Is ‘Bear-Market Rally’[/url]: [i]George Soros, the billionaire hedge- fund manager who made money last year while most peers suffered losses, said the four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still shrinking.[/i]
[quote]“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

The Standard & Poor’s 500 Index of largest U.S. companies has climbed 24 percent since March 9 on optimism the worst of the 16-month U.S. recession is over. The economy continues to contract, and there’s a risk the U.S. falls into a depression, Soros said.

...Soros gave a mostly positive review of the President Barack Obama’s administration.

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009). [u]“Unfortunately, there’s just a little bit too much continuity with the previous administration.”[/u]

Soros said the U.S. housing market hasn’t bottomed, even as transactions in states such as California have increased.

“There are some signs of hitting bottom, but we are not there yet,” he said. “A lot has been done to forestall foreclosures.”

...Soros said the banking system is “seriously under water” with banks on “life support.”

“They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”

Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.

“This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.” [/quote]
[i]My Comment:[/i] I'm guessing Soros loaded up his short positions in the weeks leading up to this interview. ;)


[url=http://globaleconomicanalysis.blogspot.com/2009/04/neither-krugman-nor-bernanke-can.html]Krugman Keeps Pumping the "Savings Glut" Myth[/url]
[quote]"How does this end? What can make this better? One answer is a stronger European economy. This problem would be much easier if Europe was a vigorously growing economy with a positive rate of inflation.

Around the world people want to save more than business is willing to invest. We have a global paradox of excessive savings. The best thing that could happen to the economy would be to find a lot more investment opportunities, anything that provides quantum leaps into what we can do that would be worth doing even in a depressed economy."[/quote]
[i]My Comment:[/i] Classic debtor-nation economic claptrap there, about the "desirability" of inflation. Regarding the "stop saving!" rubbish, we see how well the U.S. paradigm of excessive spending worked all around us these days, don`t we? And the combination of "investment opportunities" with the potential to provide "quantum leaps" ... sounds like he might be talking about the mortgage-backed securities market there, and all the "innovative investment opportunities" it blessed us with.


[b]Today's featured Article: "From Bubble to Depression?"[/b]

There was a fascinating column in yesterday`s WSJ on housing-bubble economics by Steven Gjerstad and 2002 Nobel economics Laureate [url=http://en.wikipedia.org/wiki/Vernon_L._Smith]Vernon Smith[/url], titled [url=http://online.wsj.com/article/SB123897612802791281.html]From Bubble to Depression?[/url]. In particular they focus on why the puncturing of this last bubble was so much worse than that of the DotCom bubble a few years previously. One of their core conclusions is that both the current crisis and the Great Depression had their origins in excessive levels of consumer debt, with much of that borrowing having gone toward financing an unsustainable runup in asset prices, especially real estate. Another key conclusion echoes a point I have made frequently in this ongoing discussion, namely that the government`s gerrymandering of consumer-price (CPI) computations beyond all recognition - especially via substitution of fuzzy (and easily manipulable) concepts such as "owner`s equivalent rent" (OER) for actual housing prices and widescale application of "hedonic adjustments" (e.g. that laptop PC you just bought didn`t "really" cost $1000 - because it`s 10x faster than the last one you bought for the same price, it "cost" just $100 - never mind that with the latest Windows OS you need at least 10x more processing power to get the "owner`s equivalent work" done), they have been grossly underestimating real consumer prices in the "what folks actually pay for shit" sense for years. For instance OER led the Greenspan-led Fed to conclude that all through the Great Housing Bubble, even though the portion of incomes devoted to servicing mortgage debt skyrocketed, that "inflation was tame". Similarly the Bernanke Fed completely missed the massive asset-price *deflation* which started in 2006, and through 2007 and much last year were still "worried about inflation." Now that the economy has gone right off the rails they have of course forgotten abut inflation and are printing money like mad, never mind that all that money has to end up somewhere, begging the question, "once the deflation/deleveraging ends as it eventually must, have you not sowed the seeds for a potential hyperinflationary event?" Oh, we`ll worry about that later, seems to be the Fedster`s attitude. In other words, the Fed`s MO seems to be to serve as a boom/bust amplifier, precisely the opposite of the role their charter charges with.

Extremely worthwhile rewarding for all students of bubble-and-Ponzi-conomics.

Barry Ritholtz also comments on the same piece, and one of his (justifiably) angry readers comments thusly:
[quote]The CPI has been a fraud for years, thanks in part to the evil Allan Greenscam who helped in its implementation. (This man ought to be executed in front of a firing squad for the role he played in destroying America’s wealth and impoverishing the nation.)

The people over at [url]http://www.shadowstats.com[/url] have been estimating the CPI using both the new and old methodologies documenting the fraud.

They (BLS) have been substituting lower priced items in the basket of items used to measure price increases to artificially deflate the true cost of living. So if apples have increased in price this month, oranges will be substituted if the price is lower.

They have done this for several reasons. Social Security, Federal salaries, or any COLA (cost of living adjustments) that rely on the CPI are never inflation adjusted. This is why the elderly living on a fixed income are now impoverished and can’t pay for food, energy, medicine and housing. Their SS checks are not inflation adjusted. These people worked hard all their lives only to be impoverished by evil banksters like Allan Greenscam.

COLA payments would, of course, increase the Federal budget deficits, so America’s true deficits are hidden from view.

The phony CPI numbers are used to hide the true nature of the collapse of the US economic system.

Using the substitution methodology, Americans are now supposed to substitute dog food for chopped beef.

So last night I made a wonderful ‘meatloaf’ using Alpo, topped with wonderful tomato sauce from a Martha Steward [i][sic][/i] recipe.[/quote]

[quote=ewmayer;168394]Barry Ritholtz also comments on the same piece, and one of his (justifiably) angry readers comments thusly:[/quote]
[quote]Social Security, Federal salaries, or any COLA (cost of living adjustments) that rely on the CPI are never inflation adjusted.[/quote]Since they [I]are[/I] inflation-adjusted, I presume that he really means never [U]sufficiently[/U] inflation-adjusted.

[quote]This is why the elderly living on a fixed income are now impoverished and can’t pay for food, energy, medicine and housing. Their SS checks are not[/quote]sufficiently[quote]inflation adjusted.
. . .

COLA payments[/quote], sufficiently adjusted,[quote]would, of course, increase the Federal budget deficits, so America’s true deficits are hidden from view.[/quote]OTOH, we all know the Social Security system was paying out more than it should have to be sound. The stealth CPI adjustments could be viewed as a stealthy way to reduce Social Security (and other) payments to whittle down the imbalance. Doesn't ire the AARP as much as doing it out in the open. So it could be regarded as a practical way of making politically-unpopular but necessary adjustments ... except for its sneakiness.

The sneakiness, however, is a moral hazard. The associated refusal to face the facts of the nation's fiscal situation has only put off the reckoning.

World Economy: 1929 vs 2009
 

[url=http://www.nakedcapitalism.com/2009/04/world-economy-falling-faster-than-in.html]NakedCapitalism.bom | World Economy Falling Faster Than in 1929-1930[/url]: [i]Barry Eichengreen, an expert on the Great Depression, and Kevin O'Rourke, take issue with the notion that the current downturn is less severe than the Great Depression. While the slump in the US is not as bad, that mis-states the global picture.[/i]


[url=http://money.cnn.com/2009/04/07/news/economy/bank_stress.reut/index.htm?section=money_latest]Source: Bank 'stress test' results delayed[/url]: [i]Treasury will wait until after first-quarter earnings season to release results in order to soften impact on stocks.[/i]

[i]My Comment:[/i] The stress tests are at best a ridiculous charade, and at worst will [url=http://finance.yahoo.com/tech-ticker/article/225897/Geithners-Stress-Test-%22A-Complete-Sham,%22-Former-Federal-Bank-Regulator-Says]amount to outright fraudulent misinformation[/url].


[url=http://money.cnn.com/2009/04/07/news/economy/consumer_credit/index.htm]Consumer credit resumes pullback[/url]: [i]Government says a decrease in credit card debt paces an overall drop in consumer lending.[/i]
[quote]Consumer credit fell in February, led by a sharp decline in credit card usage, a government report said Tuesday, as the ailing economy and widespread unemployment curbed spending.

Total consumer borrowing fell a seasonally adjusted $7.4 billion, or 3.5%, to $2.564 trillion in February, according to the Federal Reserve.

Revolving credit, which includes credit card debt, tumbled $7.8 billion, or 9.7%, to $955.7 billion.
0:00 /1:01Ending credit card debt

Economists predicted a decline in total borrowing at $1.5 billion in February, according to a consensus survey from Briefing.com. January saw a revised surprise jump of $8.1 billion in total consumer borrowing.[/quote]
[i]My Comment:[/i] This is why the government`s continued calls for banks to increase lending are so misguided - you cannot lend to a person who is trying to reduce their debt load, which describes the typical overleveraged American consumer. Note that despite the "dramatic" decreases in accumulation of new consumer credit, the total outstanding credit is still massive - total consumer borrowing works out to an average of nearly $10,000 for every man, woman and child in the U.S.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=anYvL_DeRSXU&refer=news]Weil Gotshal May Reap $230 Million Legal-Fee Bonanza If GM Goes Bankrupt[/url]: [i]Weil Gotshal & Manges LLP may earn an estimated $230 million in legal fees should General Motors Corp. file for bankruptcy protection -- more than the record the firm is likely to take in advising Lehman Brothers Holdings Inc. on the largest bankruptcy in U.S. history.[/i]
[quote]GM may pay the lead bankruptcy counsel that much, topping the estimated $209 million Weil will charge Lehman, said Lynn LoPucki, who teaches bankruptcy law at the University of California, Los Angeles. Weil, a longtime GM counsel now advising the company on restructuring, hopes to take charge of the bankruptcy case if the carmaker’s out-of-court restructuring effort fails, said a person familiar with the 1,300-lawyer firm.

A bankruptcy for GM, the biggest U.S. automaker, might yield $1.2 billion for bankers, accountants and lawyers, surpassing estimated judge-approved charges of $906 million for Lehman, said LoPucki, who maintains a database to calculate fees. Energy trader Enron Corp.’s three years of bankruptcy cost $757 million, including $149.4 million paid to Weil, he said.

More than 500 Weil lawyers worked on Enron, the energy trader that collapsed in 2001, according to court papers.

...

The U.S. Treasury would have the power to knock fees down if it was lending money to help GM reorganize in court, or guaranteeing the loans. The government could shave costs by limiting the number of lawyers GM brought to court, and putting a lid on the number of committees of stakeholders recognized by the court, which GM would have to pay for, said James Shein, a professor at Northwestern University Kellogg School of Management and turnaround consultant.[/quote]

"Pulp Nonfiction"
 

This caught my attention. Forgive me if this has previously been brought to light. But, after all, we're paying for it.

[URL="http://www.thenation.com/doc/20090420/hayes"]http://www.thenation.com/doc/20090420/hayes[/URL]

[QUOTE]
Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry--handsomely--to use more fossil fuel. "Which is," as a Goldman Sachs report archly noted, the "opposite of what lawmakers likely had in mind when the tax credit was established."


The massive tax subsidy has barely been reported in the press, but it's caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. "Everybody's talking about it," paper industry analyst Brian McClay told me. "In the US and elsewhere in the world--in Canada and Brazil and Chile and Europe."
[/quote]

Non Sequituir for 4/7/09:

cooking the CPI
 

[url="http://www.bogleheads.org/forum/viewtopic.php?t=35335"]Nice thread[/url], one of a great number of them, from the Bogleheads about whether there's a government conspiracy to underreport inflation in the US

Edit: [url="http://www.bls.gov/cpi/cpiqa.htm"]Direct link[/url] to BLS FAQ on the subject

[quote=jasonp;168511][URL="http://www.bogleheads.org/forum/viewtopic.php?t=35335"]Nice thread[/URL], one of a great number of them, from the Bogleheads about whether there's a government conspiracy to underreport inflation in the US[/quote]

If you check [URL]http://en.wikipedia.org/wiki/List_of_price_index_formulas[/URL] you'll see that all formulas involve some sort of averaging, so there are degrees of freedom. Since inflation is 'bad' the administration has the incentive to understate inflation, so we expect the government's estimator will biased towards zero, which is rational behavior and not a conspiracy.

One thing that is much easier to measure and has fewer degrees of freedom is [URL]http://en.wikipedia.org/wiki/Money_supply#M1[/URL], so some economists (like me!) turn the argument around and simply state that larger money supply will eventually lead to higher prices for goods & services.

If we assume there is a constant long-term growth-rate of goods & services, the critical term is the expected change in money supply growth: C=E(d^2(log(M1(t)))/dt^2)

Specifically, if C!=0 you have a real problem, because your system is unstable.

Go, AIGies! | Roubini: CNBC's Cramer "A Buffoon"
 

As a followup to the polemical piece on AIG by Rolling Stone's Matt Taibbi, note that the Washington Post had a 3-part series at the end of last year on the same topic, which is more thorough from a historical and financial-evolutionary context. In particular it casts at least as much of the blame for AIG`s eventual fatal binge of credit-default swap selling (based on the assumption that the housing market would always - at least at the aggregated national level - go up and that AIG`s sterling credit rating would never lose its luster) on longtime AIG head Ace Greenberg, who hand-picked Joseph Cassano (the fall guy in the RS piece) to run AIG's Financial Products division, and approved of the ever-bigger dealings in the CDS market. An excellent read, but one needs to set aside a few hours for it. Links to the articles - I chose the lower-bandwidth single-page printer-friendly versions; if you want to see the originals in their full ad-sponsored glory just remove the "_pf" from the URL:

Part 1: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/28/AR2008122801916_pf.html]The Beautiful Machine[/url]: [i]Greed on Wall Street and blindness in Washington certainly helped cause the financial system's crash. But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: Risk.[/i]

Part 2: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/29/AR2008122902670_pf.html]A Crack in The System[/url]: [i]By 1998, AIG Financial Products had made hundreds of millions of dollars and had captured Wall Street's attention with its precise, finely balanced system for managing risk. Then it subtly turned in a dangerous direction.[/i]

Part 3: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123003431_pf.html]Downgrades And Downfall[/url]: [i]How could a single unit of AIG cause the giant company's near-ruin and become a fulcrum of the global financial crisis? By straying from its own rules for managing risk and then failing to anticipate the consequences.[/i]


[url=http://www.guardian.co.uk/business/2009/apr/08/cramer-roubini-mad-money-bear-sterns]Economist Roubini: US finance pundit Cramer a 'buffoon'[/url]
[quote]Wall Street's favourite jester has fallen foul of the prophet of doom. A tense feud has broken out between the outspoken tele­vision stockpicker Jim Cramer and the notoriously gloomy economist Nouriel Roubini.

Roubini, a New York University professor who famously forecast a dire world recession as far back as 2006, has taken exception to remarks on a blog by Cramer that he is "intoxicated" with his own "prescience and vision" and is refusing to see green shoots of recovery in the financial markets.

"Cramer is a buffoon," said Roubini. "He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong."

The confrontation pits two of the financial world's biggest egos against each other. While Roubini has won plaudits for correctly predicting that the credit crunch would cause a domino effect around the world, Cramer has long been a cheerleader for mass participation in the stockmarket.

Cramer's CNBC show, Mad Money, has come under repeated attack in recent months for its bullish enthusiasm in a highly volatile environment. The comedian Jon Stewart recently roasted Cramer and the broader financial media for missing warning signs of a "once in a lifetime financial tsunami".

Roubini, who believes the situation is so gloomy that leading US banks may need to be nationalised, was dismissive of Cramer: "After all this mess and Jon Stewart, he should just shut up because he has no shame."

Speaking to the Associated Press ahead of a speaking engagement in Toronto, the economist continued: "He's not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull, and he got it wrong."

With his catchphrase "boo-ya" and a variety of colourful props, Cramer, 54, is a household name in the US. A former hedge fund manager, he casts himself as a self-made man who was once so impoverished that he had to sleep in his car. He took prolonged flak last year for telling viewers that Bear Stearns was "not in trouble" just a week before the 85-year-old investment bank collapsed – a remark which, he insists, was misinterpreted and taken out of context.

But Cramer has continued to attack doom-mongers, recently referring to Roubini and the Nobel prize-winning economist Paul Krugman as part of a "nationalisation jihad" for their advocacy of public intervention in the financial sector.

Last week, Cramer told his viewers that the recent 20% rally in Wall Street markets was sufficient to judge that the downturn was past its worst: "Right now, right here, on this show – I am announcing the depression [is] over!"[/quote]
[i]My Comment:[/i] Cramer remains a very reliable contrary indicator, though.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aazS4bEfFmzs&refer=news]GM Pension Vow Seen as `Garbage' as Bankruptcy Might Wipe Out $16 Billion[/url]: [i]Den Black, a retired General Motors Corp. engineering executive, says he’s worried and angry. The government-supported automaker is going bankrupt, he says, and he’s sure some of his retirement pay will go down with it.[/i]
[quote]“This is going to wreck us,” said Black, 62, speaking of GM retirees. “These pledges from our companies are now garbage.”

As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency. As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company’s retirement programs estimates.

The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid. GM Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing.

“The core issue is fairness,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “To have workers lose a significant amount of their pension after giving a lifetime to building a company is devastating under any circumstance. It’s made all the more worse by the symbolism of a $20 million payoff at the top.” [/quote]

A 12-Step Program for Banks to Pay Back TARP $
 

[url=http://money.cnn.com/2009/04/09/news/companies/wells_fargo/index.htm]Wells Fargo predicts a $3 billion profit[/url]: [i]San Francisco-based bank forecasts earnings per share of 55 cents for first quarter, well ahead of Wall Street estimates; stock soars.[/i]
[quote]Wells Fargo attributed the latest results to strong performances in its traditional banking and mortgage businesses.

Mortgage applications surged during the quarter, with the company reporting $83 billion in applications during the month of March alone.

During the first three months of the year, Wells Fargo said it funded over $100 billion in mortgage loans, either through home purchases or refinancings, suggesting that government efforts aimed at getting banks to lend again may be having an effect.

Wells Fargo received $25 billion last year from the Treasury Department as part of the government's roundly criticized Troubled Asset Relief Program, or TARP, which was launched to help get credit flowing in the economy again.

Top executives at Wells Fargo have indicated they are eager to repay those funds following a number of government restrictions that have been implemented retroactively. Currently, the government is "stress testing" the nation's largest banks in an effort to determine if they may need to raise additional capital.

Wells Fargo also said Thursday its recent purchase of Wachovia was exceeding expectations. The company announced it planned to acquire Wachovia, which was on the verge of collapse during the height of the credit crisis, last October.[/quote]
[i]My Comment:[/i] I expect several such "positive earnings surprises" over the next few weeks, via a combination of accounting tricks (banks still valuing many toxic parts of their loan portfolios at near face value) and "your tax dollars at work" cheap-money fattening of the bottom line. Heck, if I were a big bank CEO and I wanted to have my TARP cake and eat it too, here`s a 12-step program I would use to quickly make a fat profit using the government-supplied free (or very cheap) money:

1. Take a bunch of TARP money from the government, with the aim of making a fat profit and returning the original capital as soon as possible;

2. Use the TARP money to buy back of bunch of my own company`s beaten-down shares on the cheap (think Citigroup when its shares dipped below $1 last month), and the government-financed binge of mortgage refinancings to fatten my real bottom line (even if it`s a one-time offer, since rates will likely not go any lower);

3. If I`m really ballsy, also buy a bunch of beaten-down leveraged long-financial ETFs, such as UYG or FAS;

4. About a month before real earnings are reported, coordinate a "leaked" internal memo to the effect of "earnings have been surprisingly good ... we actually expect expect to be profitable this quarter";

5. Watch stock and financial-EFT price soar and sell into the resulting rally;

6. Get FASB to change accounting rules for toxic assets to allow me to maintain the fictional valuation of my toxic loan portfolio for just a little longer, while I lobby hard to get the government to take it off my hands at taxpayer expense;

7. Watch financial share prices again drift lower as reality (crisis is far form over, most big banks still likely insolvent at any reasonable portfolio valuation) creeps back in. If I'm bored, perhaps coordinate some negative-sounding media spin about my own bank and the financial sector in general in order to drive share prices down, so I can again buy back shares on the cheap;

8. With new phony-valuation accounting rules in place and bottom line fattened by recent TARP-money stock play, announce "better than expected earnings", again watch share price soar, again sell into the ensuing rally;

9. Repeat step (7);

10. Announce that you no longer need and are paying back the TARP money. Again watch share price soar, again sell into the ensuing rally;

11. With TARP money returned and accompanying executive-compensation rules lifted, pay myself and all my henchman (henchpersons?) huge frickin` bonuses;

12. Since Geithner`s [url=http://en.wikipedia.org/wiki/PPIP]PPIP[/url] (the only means by which my bank can actually unload the worst of its toxic-loan garbage and thus stay viable) falls under the TARP umbrella and thus similarly comes with executive-compensation limits, use the window between paying back TARP money and the inevitable whoops-we-changed-our-mind-and-now-want-back-into-the-government-fold-or-under-the-tarp-if-you-will to golden-parachute outta there.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=awBH28fPFX.k&refer=news]Trade Gap in U.S. Unexpectedly Plunges to a Nine-Year Low as Demand Slumps[/url]: [i]The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.[/i]
[quote]The report showed some U.S. trading partners may not bypass the recession unscathed as American demand for Asian cars, toys and electronics plunged. The improvement in exports, the first since July, is likely to be short-lived as economies shrink worldwide.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aFTPC.EzvUsA&refer=news]`Lehman Shock' Fuels New Homeless Wave in Osaka as Factory Jobs Evaporate[/url]: [i]Within two months of losing his job packing shelves at a cold-storage company in Osaka, Toshiyuki Miki says, he was homeless. “Lehman Shock” turned his life upside down, he says.[/i]
[quote]Lacking the 60,000 yen ($600) a month he needs to pay rent, Miki, 40, sleeps in cardboard boxes under the elevated Hanshin expressway in Umeda, Osaka’s central business district. It’s his home as the global recession triggered by the implosion of Wall Street banks batters Japan. About 460,000 people have lost their jobs since the Sept. 15 collapse of Lehman Brothers Holdings Inc., according to government data.

“I never realized it would affect me in this way,” said Miki, who picked up the Japanese phrase “Lehman Shokku” from the pages of discarded newspapers. “Before, I could always find some kind of job, but now there’s nothing.”

Miki’s loss of housing shows how Japan’s 2.95 million unemployed people threaten to fuel a rise in homelessness. Prime Minister Taro Aso may unveil a 15.4 trillion yen stimulus package tomorrow, according to a document obtained by Bloomberg News. Finance Minister Kaoru Yosano said April 6 the package will include a new social safety net for non-regular workers. [/quote]
[i]My Comment:[/i] This is the how-many-eth stimulus package tried by Japan in the past 2 decades? Yeah, the previous ones worked really well ... if the aim was to indebt the government and do not a damn thing for the economy.


[url=http://www.bloomberg.com/apps/news?pid=20601095&sid=agBgxsJtNYX4&refer=east_europe]Russia Banks' Bad Loans May Quadruple to $70 Billion in 2009, Survey Shows[/url]: [i]Russian banks’ bad loans will quadruple to $70 billion this year, deepening the country’s worst financial crisis since the government’s 1998 debt default, a Bloomberg survey shows.[/i]
[quote]The World Bank said last week that a “silent tsunami” of bad debt threatens to stall a recovery in Russia, the world’s largest energy-exporting economy. The government may need to provide as much as $50 billion for bank bailouts, more than twice the amount already pledged to banks in this year’s budget, according to UniCredit SpA, Italy’s biggest bank.

...Russian banks are seeing a 20 percent increase in delinquent debt every month, OAO Sberbank Chief Executive Officer German Gref said yesterday. Russia’s biggest lender plans to increase reserves for bad debt to as much as 9 percent of loans while still posting a profit this year, Irina Kibina, a bank spokeswoman in Moscow, said by e-mail. Sberbank’s bad debt will more than triple to 8.9 percent in 2009, according to the survey. [/quote]
[i]My Comment:[/i] I smell another 1998-style Russian debt crisis coming on - unlike the U.S. they don`t have the luxury of simply printing money and issuing nearly-unlimited amounts of underpriced government debt. And their economy is overly dependent of natural resource prices, which will remain far below what the Russian government has planned around for at least the next few years, until some kind of broad-based global recovery begins to take hold.


[url=http://money.cnn.com/2009/04/08/news/companies/berkshire_moodys_downgrade.reut/index.htm]Buffett's Berkshire loses top rating[/url]: [i]Moody's cut its rating on Warren Buffett's holding company two notches, saying investment losses were hurting the company's ability to meet its funding needs.[/i]
[quote]The cut by Moody's comes nearly four weeks after Fitch stripped Berkshire of its top rating, saying it believed "AAA ratings are not appropriate at the holding company level for financial-oriented enterprises," lowering its rating to AA.

Fitch also raised so-called "key man risk," pointing to 78-year-old Buffett's lack of a publicly named successor.

Berkshire is still clinging to its triple-A rating from Standard & Poor's. But on March 25, S&P changed its outlook on Berkshire to negative, indicating a downgrade is now more likely.

S&P on Wednesday cut the ratings on all major U.S. mortgage insurers, saying the deterioration in the residential mortgage market had translated into greater delinquency rates than it had anticipated.

Moody's cut to Berkshire's ratings leaves only four other companies with its top rating: Johnson & Johnson, Exxon Mobil Corp, Microsoft Corp and Automatic Data Processing Inc.

Financial fallout. Analysts said Berkshire's downgrade reflected what investors already knew -- that no one is immune from the worst financial crisis in decades. [/quote]
[i]My Comment:[/i] The ratings agencies have over and over showed that they are very good at telling informed investors what they already knew. Still, I`m surprised Moody`s beat S&P to the punch here, since Berkshire is a major Moody`s stakeholder - nothing like a good old-fashioned huge conflict of interest, eh?

[QUOTE=AES;168447]This caught my attention. Forgive me if this has previously been brought to light. But, after all, we're paying for it.

[URL="http://www.thenation.com/doc/20090420/hayes"]http://www.thenation.com/doc/20090420/hayes[/URL][/QUOTE]

This is a howling outrage and I wonder why the MSM still have not picked it up.
[URL="http://www.google.com/search?as_lq=http%3A%2F%2Fwww.thenation.com%2Fdoc%2F20090420%2Fhayes&btnG=Search"] (google search )link:http://www.thenation.com/doc/20090420/hayes[/URL] finds only 4 external sites linking to that thenation.com page. The actuality of the kind of gaming the system that this article talks about indicates a larger problem yet; businesses will seek out money regardless of the funding intent - anything else would be a disservice to the bottom line and shareholders; generally no other direct obligations exist.

Web articles on this:
[URL="http://www.google.com/search?hl=en&q=%22alternative-fuel+tax+credit%22+paper+mills"](Google)View all web results for alternative-fuel-tax-credit paper mills[/URL]

News articles:
[URL="http://news.google.com/news?um=1&ned=us&hl=en&q=%22alternative-fuel+tax+credit%22+paper+mills&cf=all&scoring=n"]Google News date sorted search on "alternative-fuel tax credit" paper mills[/URL]

Added: I now notice that the WSJ picked up on this.
[URL="http://online.wsj.com/article/SB123921196665801805.html"]The Great Paper Caper[/URL]
"Government offers subsidy. Company takes it. Left-wing writer suffers crisis of faith."
This article strikes an iconoclastic pose and raises the issue of naivete in beliefs that free market capitalistic business would be engaged in anything other than making a profit.[QUOTE]Is he just now figuring out that corporate executives exploit opportunities to make a profit? Any free-marketeer could have told him that. Leftist economic theory is even more wrongheaded than we thought if it relies on the assumption that private-sector actors will behave in public-spirited ways.

Or perhaps his surprise is not that corporations "exploit" opportunities but that they do so in "ingenious" ways. His faith in governmental competence may be unshakable, but his illusions about private-sector incompetence have been shattered.[/QUOTE] Also note the subtle extra twist of a zinger on the issue of competence.

Germany to Nationalize Hypo Real Estate
 

only_human, thanks for the links ... lends new meaning to "papering over a problem".

[url=http://www.nytimes.com/2009/04/10/business/global/10hypo.html?ref=business]Germany Offers to Buy Out Hypo Real Estate[/url]: [i]A deal for the troubled mortgage lender would be the country’s first bank nationalization since the 1930s.[/i]
[quote]The government has sought to avoid a takeover of Hypo with no compensation for shareholders. Germany has not nationalized a bank since the 1930s, and the government’s efforts to control Hypo have raised fears of state interference in the economy. Finance Minister Peer Steinbrück has said that as a “systematically relevant” institution, with a crucial role in the housing finance market, Hypo Real Estate cannot be allowed to fail.[/quote]
[i]My Comment:[/i] I don't get why the German government seems to think letting shareholders take an "investing in the stock market carries risks" haircut has anything to do with Hypo continuing to do business under the umbrella of nationalization or receivership. Who is your chief constituency here - the German taxpayer and housing market, or Hypo shareholders? If you ask me, it all seems rather Hypo-critical.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aJiXSkZHEI4s&refer=news]Goldman Sachs May Sell Shares to Repay U.S. Government Funds, WSJ Reports[/url]: [i]Goldman Sachs Group Inc. is considering a multibillion dollar share sale to help repay a $10 billion government loan, the Wall Street Journal reported, citing people familiar with the matter.[/i]
[quote]Goldman Sachs stock has surged 47 percent this year after plunging 61 percent in 2008 amid the worst financial crisis since the Great Depression. Chief Executive Officer Lloyd Blankfein, who said last week that the past year has been “deeply humbling” for the banking industry, is due to report the company’s first-quarter earnings on April 14.

The company may sell about $5 billion in stock if it returns the government’s $10 billion in Troubled Asset Relief Program money, David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a note to investors March 27.

Banks including Goldman Sachs, which received its money as part of the first round of the program, are chafing under increased scrutiny that accompanied the bailout funds, as public outrage over bonuses and executive perks intensifies.

...Goldman Sachs, with $111 billion in cash and liquid securities, has fared better than rivals amid the crisis sparked by the meltdown of the U.S. mortgage market, the Journal said.

Once the most profitable firm on Wall Street, Goldman Sachs converted into a bank holding company in September.[/quote]
[i]My Comment:[/i] Seems at least one firm has been following the surefire 12-step program I outlined above to quickly turn TARP into gold ... the connection between profits and "bank holding company" in the last sentence has to do with the fact that a company regulated as a BHC is not allowed the kinds of extreme financial leverage (often 30:1 or more during the recent Peak Fiscal Insanity) that non-bank institutions are. Of course government-sponsored "special entities" such as Fannie and Freddie are allowed leverage exceeding 50:1, which is just nuts, and one reason the eventual bailout cost of the GSEs will likely approach or exceed a trillion dollars.


Barry Ritholtz (whose long-awaited book [i]Bailout Nation[/i] is at last on its way to press with a new publisher, after the original one, McGraw-Hill, tried to redact the more-scathing portions that reflected badly on its subsidiary, Standard & Poors) comments on [url=http://www.ritholtz.com/blog/2009/04/the-bernanke-revolution/]The Bernanke Revolution[/url], characterizing the vast expansion of the Bernanke-led Federal Reserve in the past year not so much as a power grab (Mike Shedlock`s take on it) as a "reluctant filling of the void" left by the utter denial and fecklessness-in-the-face-of-economic-crisis of the Bush administration. He also has a [url=http://www.ritholtz.com/blog/2009/04/1934-chicago-tribune-cartoon/]1934 Chicago Tribune Editorial Cartoon[/url] which shows that concerns about government throwing huge amounts of borrowed and printed money at a crisis caused by excess debt load are nothing new. And the salient question about the Rooseveltian stimulus-upon-stimulus approach of course remains: Is the bottoming and (modest) rebound of the U.S. economy in the latter half of the 1930s attributable to the huge wave of government stimulus spending, or would that kind of bottoming have occurred of its own accord? After all, economies don't grind to a complete halt because of a lack of paying jobs - people still have to eat and be clothed and have shelter and medical care, so at a very basic level there will always be the premodern subsistence/[url=]http://globaleconomicanalysis.blogspot.com/2009/04/bartering-services-to-combat-recession.html]barter economics[/url] going on, and those who were not overleveraged at the start of the deflationary spiral will still have actual capital they can employ - the thing about great economic contractions is that they ruthlessly winnow out the indebted and nonproductive parts of the economy. The question is, do artificial stimulus packages (which typically go to bailouts and make-work-style projects rather than long-term-productive activities) help ameliorate the bottoming, or do they actually make it worse by delaying the eventual "natural" bounce-back, e.g. by propping up nonproductive "zombie" businesses? Don`t get me wrong, I am all for the social-safety-net spending of the Roosevelt era, but huge amounts of money for nonproductive make-work fake economics, I have a problem with.


And speaking of dubious government stimulus spending, even the normally tight-walleted German government is not immune...

[url=http://www.bloomberg.com/apps/news?pid=20601100&sid=a40wRzs_zXyI&refer=germany]Wise Man Franz Raps Government's New-Car Subsidies as `Economic Nonsense'[/url]: [i]German Chancellor Angela Merkel’s decision to prolong bonuses for car buyers is “economic nonsense” that’s primarily aimed at winning votes in September’s national election, a senior government adviser said.[/i]
[quote]“Every decent economist would agree that this decision is economic nonsense,” Wolfgang Franz, chairman of Merkel’s council of independent economic advisers, said today in a telephone interview from Mannheim, Germany. The chancellor was guided by a “perception that voters would be angry when the money is gone.”

Merkel’s cabinet agreed yesterday to extend a program that grants consumers 2,500 euros ($3,315) when they buy a new vehicle in exchange for scrapping a car that’s at least nine years old. Originally due to expire May 31, the plan will now run through the end of this year and cause the government to more than triple the budget for payments to 5 billion euros. [/quote]
[i]My Comment:[/i] So, are you going to keep artificially propping up the domestic car industry using taxpayer money forever? Of course not, so how do you think all that artificially-stimulated demand is going to affect car sales once the subsidies end?

Ewmayer, Re Germany new car govt benefit, are you missing the point? With $5 Billion, and at $2500 per new car, that translates to two million brand new cars in Germany. With a population of @82 million people, allowing for 1 in 8 is a driver, there are 10 million drivers in Germany who will buy 2 million new cars. That means 1 in 5 cars in Germany will be BRAND NEW! Germany will have the newest cars in the world! It is ALL about Bling!

And if you believe that, let me talk to you about a bridge I own.

On a separate note, GM has received marching orders to prepare for an orderly bankruptcy. I don't like to see this happen, but given the utter inviability of GM as is, bk is the only viable option in my opinion. When will some of the economic idiots realize that we have banks that are in worse shape than GM?

DarJones

Friday catch-up
 

Collected this stuff intending to post on Friday, but never found the time:

[url=http://money.cnn.com/2009/04/10/news/economy/retail_malls/index.htm]Malls shedding stores at record pace[/url]: [i]Vacancy rates at strip malls, neighborhood markets and community centers accelerate as retailers confront spending slump, industry report says.[/i]
[quote]In just the first quarter of 2009, retail tenants at these centers have vacated 8.7 million square feet of commercial space, according to the latest report from New York-based real estate research firm Reis.

That number exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.

Reis' report shows that store vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008, and marking the largest single-quarter jump in vacancies since Reis began publishing quarterly figures in 1999.[/quote]
[i]My Comment:[/i] One certainly would not guess how dire the state of CRE is from the performance of REITs in the past month...


[url=http://www.housingwire.com/2009/04/09/credit-cost-smoke-at-mirrors-at-wells-fargo/]A Game of Credit Cost Smoke and Mirrors at Wells Fargo?[/url]
[quote]Wells Fargo & Co. (WFC: 19.61 +31.70%) managed to bring some holiday cheer into financial markets Wednesday, just ahead of the Easter holiday, with its pronouncement that it expects to post a record quarterly net income of $3 billion — or 55 cents per share — when it officially reports Q1 2009 earnings later this month. But more than a few voices are already questioning the results, warning that this quarter’s big gain is more likely to be a flash in the pan than a market turning point.

In particular, Wells Fargo reported that they will absorb just $3.3 billion in charge-offs on bad loans for the quarter, and just $4.6 billion in loss provision expense; both numbers are well below most analyst estimates, and are the primary reason Wells will report earnings trumping earlier Street estimates.

“The shocker was that they only had only $3.3 billion [in] charge offs,” said Whitney Tilson of hedge fund manager T2 Partners, in a CNBC interview Wednesday afternoon. “It’s weird, because in Q4 Wachovia and Wells Fargo together had $6.1 billion in charge-offs, and then in a quarter in which things were terrible, those charge offs fell by 50 percent … They’re going to have a lot of losses over the next couple of years, [and] anyone baselining at $3.3 billion in charge offs per quarter is crazy.”[/quote]
[i]My Comment:[/i] Also interesting is the mere fact that WFC were in such a hurry to pre-announce "expected earnings" 2 weeks early ... curious, that. Even more interesting is that the biggest beneficiary of Wells` announcement in terms of share-price rise yesterday was ... Bank of America. I`m imagining acronym-laden text-messages flying around among stricken short sellers yesterday to the effect of "WFC est EPS 2x anlst! BofA up 40pct ... WTF?!! :( :( :("


A trader [url=http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=58157&tid=352669&mid=367056]comments[/url] on the proposed reinstatement of the Great-Depression-era "uptick rule", by which a stock can only be sold short on "upticks" in its price:
[quote]I just happen to think that the uptick rule is a non-event.

In the days when it was effective, most trades were handled by trading specialists on the floor of the exchange. Prices moved up and down by 1/8ths. Those two factors provided a slowness to the overall trading volume.

Today, we have most trades handled (and placed) by programs. You can enter in prices that vary by 1/100th of a cent.

So say they put back in the uptick rule. Your typical order book is sitting there, with lots of orders offering at a range of asks, and a good set of orders sitting there with limit bids. Mexican standoff waiting for some hapless "market" order to come in.

Now say you're a hedge fund with a computer, and you want to short the bejezzus out of a stock. The last order was a market sell, and you have to wait for an uptick.

Well, use your d@mn computer to make an uptick until your short sale goes through:

1. Put in your "Sell 80,000 shares of XXX short, at market" order.
2. Then start entering in the following: "Buy 1 share at market". Do this over and over again, about 10 times per second, until the upticks you've generated by flooding the market with market buys has assisted your 80,000 share short sale. If you're shorting 80k share, buying a couple thousand in order to allow your massive sale attack to go through is a minor cost.
3. To be really effective, split your short orders among multiple exchanges, so you can harvest upticks from multiple systems.
4. To be really really effective, short against order volume being handled by your own investment bank's customers, that way you can just bypass the frickin uptick rule altogether, and just report the net of trades to the major exchanges. Your customers will never know.

Details to be filled in, but trust me, computers can be used to completely bypass the uptick rule unless we also go back to humans touching every trade, and large price bumps for each movement. The uptick rule is being milked for every bit of rumored impact they can, because when it is put in place, there will end up being very little impact.[/quote]
[i]My Comment:[/i] I love the "Mexican standoff" metaphor ... BTW, If you trade stocks and don`t understand the difference between a market and a limit order, STOP TRADING until you do - you should *never* use the former, and if your brokerage charges you a non-negligible premium for the latter, change your brokerage.


[url=http://money.cnn.com/2009/04/10/news/citigroup_loomis.fortune/index.htm]Citigroup's Place on a Roll of Shame[/url]: [i]Eleven years ago this week, banking mogul Sandy Weill took a victory lap at the Masters Tournament. Today his creation is on a government list of losers.[/i]
[quote]No banking company is today more worrisome, to more regulators, than Citigroup.

Still, Citi -- too big and interconnected to fail and pumped up by government money -- survives. So I was therefore especially startled when a FORTUNE subscriber pointed out to me that Citi is conspicuous on a list of "Failures and Assistance Transactions" that is posted, quite obscurely, on a Federal Deposit Insurance Corp. website. The data goes back to the panic year of 1934, the first year of the FDIC's operation.

In the more recent panic year of 2008, the FDIC handled 25 true failures. They ranged from tiny Hume Bank, of Hume, Mo., with its $14 million in deposits, to the very large Washington Mutual Bank, with $188 billion. (Wamu, of course, was taken over by JPMorgan Chase).

But in the midst of these failures are five items of "assistance," listed together. They are all Citigroup banks: Department Stores National Bank (deposits: $301 million); Banamex USA ($876 million); Citicorp Trust Bank FSB ($7.2 billion); Citibank (South Dakota) N.A. ($42 billion); and one of the largest holders of deposits in the nation, Citibank National Association ($230 billion).

How did Citigroup's banks get on this list? Because on Nov. 23, the U.S. government, by way of the Treasury and the FDIC -- and the Federal Reserve, as an ultimate backstop -- stepped in to guarantee up to $306 billion of Citi's assets. The FDIC's maximum exposure, which qualifies as its "assistance," is $10 billion.

Technically, the FDIC aid amounted to what it calls "open-bank assistance," and an absolute rarity this is. Before Citi rudely inserted itself into this picture, the last instance of such assistance was in 1992, when a small bank in Princeton, Texas, was propped up by the FDIC because it was judged vital to its community.

But neither competitors nor Congress liked open-bank assistance, wondering why the institutions getting it shouldn't just be allowed to fail. So a 1991 banking law called FDICIA, and a subsequent amendment to a related law, essentially barred the FDIC from granting such assistance -- except in instances of systemic risk.

And even then, the procedures set up by the law for determining that systemic risk truly existed were extraordinary. The law says that before assistance can be granted two-thirds of the boards of the FDIC and the Federal Reserve must first recommend the step and that the Secretary of the Treasury, before making a final determination, must confer with the President.

So did Treasury Secretary Henry Paulson make a trip to the Oval Office last November, or even make a phone call, to consult with President Bush and say that FDIC assistance -- and much more -- must be granted Citi? Or did the exigencies of the financial crisis sweep aside procedure?

We may know a precise answer to those questions when Hank Paulson completes the book that he is known to be feverishly writing. For now, what we know is that the second-largest banking company in the nation, Citigroup -- founded 11 years by an exuberant Weill -- will forever have its banks tabulated on the FDIC's list of "Failures and Assistance."[/quote]

Coming soon to a state near you: Taxpayer revolt
 

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a8tjEzB.d.kU&refer=news]Bernanke Bet on Keynes Has Meltzer Siding With Friedman on Inflation Risks[/url]: [i]Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money.[/i]
[quote]If history is any guide, says Allan Meltzer, the effort will end in tears. Inflation “will get higher than it was in the 1970s,” says Meltzer, the Fed historian and professor of political economy at Carnegie Mellon University in Pittsburgh. At the end of that decade, consumer prices rose at a year-over- year rate of 13.3 percent.

Bernanke’s gamble that the highest jobless rate in 25 years and the most idle factory capacity on record will hold down inflation is straight out of the late British economist Keynes. Should late Nobel-prize-winner Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” prove right, the $1 trillion or more in liquidity Bernanke has pumped into the financial system by expanding the Fed’s balance sheet may leave him to cope with surging consumer prices.

So far, investors and economic data both back up the Bernanke-Keynes view. The market in Treasury Inflation-Protected Securities as of April 6 indicated long-term inflation expectations of 2.5 percent, below the 2.8 percent average inflation rate of the past 10 years.

...John Brynjolfsson, chief investment officer at hedge fund Armored Wolf in Aliso Viejo, California, says the Fed is still in the early stages of its effort to pump up the economy.

“We’ve got at least nine innings of reflation ahead of us, ultimately ending with probably double-digit inflation,” he said in a Bloomberg Television interview on April 6. [/quote]
[i]My Comment:[/i] Indeed, deflation will likely trump all the new money until housing prices finally bottom out and the economy stops hemorrhaging jobs ... but then all that new money will be seeking a home, and inflation of one kind or another - in consumer prices, yet another Fed-fueled asset bubble, perhaps both - will be the inevitable result. But seriously, "Armored Wolf"? Dude, *totally* awesome hedge fund name, there. It`s like, all, aggressive and capital-raisy, and stuff.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aLo7f1AKca.o&refer=news]Wall Street in Wells Fargo Moment as Obama Stress Tests Earnings Euphoria[/url]: [i]No amount of enthusiasm for Wall Street earnings reported this month -- and there was plenty on April 9 to send Wells Fargo & Co. shares up 32 percent after the bank announced a record first quarter -- can overcome what President Barack Obama may soon have to say.[/i]
[quote]That’s because the results that matter, the ones that will determine whether San Francisco-based Wells Fargo and 18 other U.S. banks need more government cash, won’t be revealed until the end of April, when the Obama administration’s stress tests are completed. Treasury Secretary Timothy Geithner has said he expects some lenders will require “large” amounts of capital, and that could take the bloom off any rosy first-quarter report.

“There will be a pregnant pause until the outcome of the stress test is known,” said Dino Kos, a managing director at Portales Partners LLC in New York who has worked at Morgan Stanley and the Federal Reserve Bank of New York. “The test is ultimately about who gets diluted and how much.”

The six largest U.S. banks by assets are set to report their latest quarterly figures over the next two weeks. Analysts’ estimates compiled by Bloomberg show that four of them will post a profit. Only Citigroup Inc. and New York-based Morgan Stanley may disclose losses. [/quote]
[i]My Comment:[/i] If the government were lending me huge sums of capital at near-zero interest rates and I were lending that money out at double-digit interest rates thanks to a spate of huge credit-card-rate and fee hikes, how could I not make money? Ya gotta admit it`s a pretty sweet business model ... the same taxpayers keeping your reckless, insolvent zombie bank on life support get the shaft by way of usury-level interest rates and fees, by way of "thanks for the bailout money."

But back to the "stress tests" ... the idea that the results "matter" is laughable. Given the utter nontransparency of the process, the Treasury can report whatever it wants to - if they want to continue to prop up Federal National ZombieBancorp, they report "pass", FNZ gets a nice pop in its share price and lines up for more bailout money. If they decide to bite the bullet and nationalize one of the zombies, they report "fail" and thus have the political cover they need for doing so. (Although given Geithner`s tool-of-Wall-Street MO I consider the latter scenario extremely unlikely).
[quote]Regulators are using two economic scenarios for the tests. The first is a “baseline” forecast of 8.4 percent unemployment and 2 percent economic contraction in 2009, followed by 2.1 percent economic growth and an 8.8 percent jobless rate in 2010. The other is a “more adverse” scenario, with 8.9 percent unemployment and 3.3 percent contraction in 2009, followed by a 10.3 percent jobless rate and 0.5 percent growth in 2010.
[u]
The U.S. unemployment rate has already exceeded the baseline forecast, reaching 8.5 percent last month, the highest level since 1983. Gross domestic product probably fell at a 5 percent annual pace in the first three months of 2009, more than in the adverse scenario[/u], according to the median estimate of economists surveyed earlier this month. [/quote]
[i]My Comment:[/i] So even the Treasury's "adverse" scenario for the economy through 2010 is more rosy than things [b]already are[/b]. Oh yeah, those results - even if honestly reported (whatever the hell that means) - are gonna be *really* meaningful. About as meaningful as an "adverse" scenario back in 2006 would have been, which postulated, "What if housing prices actually stopped rising - or golly gee, actually *fell* by 5%? Not that that could *ever* happen, but let`s just imagine how bad that would be..."

And it seems the game of who-can-announce-earnings-in-advance-even-more-than-their-rivals continues:

[url=http://money.cnn.com/2009/04/13/news/goldman.earnings.report.fortune/index.htm]Goldman reports $1.8 billion profit[/url]: [i]The big investment firm also sets plans to sell $5 billion in stock, paving the way for it to repay its TARP loans.[/i]
[quote]The New York-based investment firm, which reported its results a day earlier than expected, said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.

Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day. Shares were unchanged in after-hours trading.

With the results, Goldman bounced back decisively from the last quarter of 2008, when it posted its only quarterly loss since becoming a public company in 1999.

The firm said the latest quarter's gains were driven by big profits in its fixed income business, where revenue surged to $6.56 billion - 34% above the previous record. [/quote]
[i]My Comment:[/i] Note that the announced profits exclude any profits or losses from the "United States Treasury" subsidiary of Goldman (Ticker: GS:UST), since GS:UST won`t be able to value its TARP investments in the banking sector for several years. At that point, any profits will accrue to Goldman and any losses to the U.s. taxpayer, as per usual accounting rules. Regarding the large gains in the firm`s "fixed income" business, curious readers may be wondering whether certain [url=http://globaleconomicanalysis.blogspot.com/2009/04/time-to-breakup-goldman-sachs.html]unusual computer-trading patterns at Goldman[/url] may be playing a role behind the scenes. Note the very odd self-contradiction in Mish`s take on the breathtaking computer-trading volume at Goldman compared to its peers - first he asserts that to think that Goldman and other firms might "front-run" their own news announcements and trading recommendations in order to profit (often at the expense of their own clients) is absurd:
[quote]That Goldman, Citigroup, and the now defunct Bear Stearns and Lehman, etc, could ever be in a position to front run trades based on analysis they know they are going to publish, and/or to purposely make recommendations to ignite short squeezes or selloffs based on positions they hold is simply wrong.[/quote]
...And in the very next piece of commentary he wonders if that might be exactly what happened:
[quote]Please consider the following horrendous advice last week by Citigroup. Flashback March 31, 2009 [url=http://globaleconomicanalysis.blogspot.com/2009/04/citibank-to-investors-we-suggest-you.html]Citibank to Investors: We Suggest You Bet Against Us[/url]...

With Citigroup, one should never rule out sheer incompetence as the most likely answer for anything it says or does, [u]but one also cannot help but wonder if Citigroup was on the winning side of that recommendation as a market maker[/u].

Inquiring minds will note that Citigroup's advice came out just before a ruling on mark-to-market accounting that was expected to be (and was) very favorable to every company in the XLF. The chart shows that XLF exploded North.

Was this sheer incompetence by Citigroup or something more sinister? What about recommendations from Goldman? Can anyone say for sure? Even if someone thinks they can, are the answers believable?[/quote]


In other news, Mish is predicting [url=http://globaleconomicanalysis.blogspot.com/2009/04/enough-is-enough-let-tax-revolts-begin.html]tax revolts across the U.S.[/url], especially in tax-happy states like California:
[quote]A tax revolt is brewing, and the tax-and-spenders in Sacramento and Washington appear oblivious – just as in 1978 when overtaxed Californians overwhelmingly passed Proposition 13, the landmark property-tax limitation initiative.

The revolt is long overdue. Even a prosperous populace has its limits, particularly as prosperity evaporates in the most severe recession since the Great Depression.

Like the proverbial frog in a gradually boiling pot of water, Californians apparently didn't notice taxes being elevated incrementally until they now have the highest income tax rate in the nation, the highest sales tax rate and the sixth-highest overall tax burden among the 50 states. Incredibly, tax-happy state legislators now want taxpayers to add another $16 billion in taxes to their burden by approving an initiative the lawmakers put on a May 19 special election ballot, on the heels of $12.9 billion in new taxes the Legislature itself imposed only two months ago.[/quote]
[i]My Comment:[/i] Once again I ask: California's budget has more than doubled since 2000 - what did all that extra money buy? Perhaps the city of San Jose`s spending priorities in the face of a huge budget deficit will provide a clue:

[url=http://www.mercurynews.com/valley/ci_12119850]Generous sick-leave cashouts for retirees cost San Jose millions[/url]
[quote]Former San Jose Deputy Fire Chief James H. Carter got an extra $285,000 last year — a check that exceeded the total pay of any of the city's top-ranked officials.

Former Assistant Police Chief Charles "Tuck" Younis, who now serves as chief in Los Altos, collected more than $243,000 on top of his salary and pension. Two other San Jose police officials last year took home checks for more than $200,000 each.

These retired public safety officials didn't win the lottery. Instead, they benefited from city policies that are under scrutiny as San Jose confronts staggering budget deficits: letting longtime employees cash out unused sick and vacation leave when they retire.

The policy cost taxpayers $7.8 million in 2008, up from $5.5 million the year before, according to pay data requested by the Mercury News. That's about one-tenth of next budget year's projected $78 million deficit.

City officials say the benefit exceeds what government officials get elsewhere, not to mention private-sector employees where such large cash-outs are unheard of.[/quote]

Obama Stakes His Fortunes on Failed Banksters
 

[QUOTE=ewmayer;169119][url=http://www.housingwire.com/2009/04/09/credit-cost-smoke-at-mirrors-at-wells-fargo/]A Game of Credit Cost Smoke and Mirrors at Wells Fargo?[/url][/QUOTE]

...But let`s hear what Nouriel "Dr. Doom" Roubini (these days the nickname should probably be changed to "Dr. Skeptical Realist who has been right far more often than 99.99% of mainstream economists") has to say on the matter:
[quote]A look below the surface reveals some caveats to this positive picture. As Nouriel Roubini points out in a [url=http://clicks.skem1.com/v/?u=a6ad0572de112a96efd3ed1523579598&g=3528&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]recent writing[/url]: “In brief, banks are benefitting from close to zero borrowing costs and fewer competitors; they are benefitting from a massive transfer of wealth from savers to borrowers given a dozen different government bailout and subsidy programs for the financial system; they are not properly provisioning/reserving for massive future loan losses; they are not properly marking down current losses from loans in delinquency; they are using the recent mark-to-market accounting changes by FASB to inflate the value of many assets; they are using a number of accounting tricks to minimize reported losses and maximize reported earnings; the Treasury is using a stress scenario for the stress tests that is not a true stress scenario as actual data are already running worse than the worst case scenario.”[/quote]
[i]My Comment:[/i] Hard to say when the latest "bottom is in ... we see glimmers of hope" PR campaign will finally run smack into a wall of ugly reality (yesterday`s "worse than expected" [url=http://money.cnn.com/2009/04/14/news/economy/retail_sales/index.htm]March retail numbers[/url] were but a small foretaste), but for now I still sense that delusional optimism reigns on Wall Street. For the banks, "government-sponsored earnings" in no way equates to "solvency", but the banks have done everything in their power (and have been aided by the government and the FASB in this regard) to obscure the true state of their balance sheets, and the media dutifully report the easier-to-measure earnings numbers as if those were all that mattered, It is possible that the government is taking a "if we simply throw enough money at them, then hopefully the housing market will be all fixed in a year or so and a new bull market will begin and the solvency issue will be papered over without another megabank failure along the way" approach, as described in this recent commentary by Bloomberg's Jonathan Weil:

[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNMQDysdnKRc]Obama Stakes His Fortunes on Failed Banksters[/url]:
[quote][Obama] could have ordered all U.S. financial institutions to immediately confess whatever losses they hadn’t yet recognized. And he could have backed that up by vowing to prosecute every officer, director and auditor the Justice Department could find who had approved numbers they knew to be wrong.

Obama didn’t do that. And now, six months into the government’s Troubled Asset Relief Program, his administration’s approach to the financial crisis is largely indistinguishable from its predecessor’s. The only objective, it seems, is to buy time, in hopes that an economic recovery somehow will materialize and lift the financial system back to health.

The Obama administration’s “strategy,” for lack of a better word, is to keep plying broken financial institutions with as much taxpayer money as the government can print. And so the government will keep subsidizing failed mega-banks indefinitely, rather than placing any into receivership or liquidating them. [/quote]

A couple trillion in newly-printed money will make even the biggest zombie bank solvent...but turning to the underlying fundamentals, even a few trillion may not be enough to avert the next crisis in the overall sector - returning to the Roubini piece:
[quote]Meanwhile, in the real economy credit growth to the private sector has continued to slow at a fast pace in the U.S. as well as in Europe, while U.S. credit card charge-offs rose to an all-time high in February at 8.82%. Moody’s predicts the charge-off rate index will peak at about 10.5 percent in the first half of 2010, assuming a coincident unemployment rate peak at 10 percent. In turn, Fitch warns that credit card delinquencies point to record defaults ahead. Keep also in mind that global high-yield defaults are expected to reach 15% by the end of 2009 and that the commercial real estate market has just turned.

According to recent press reports, in a report next week the IMF plans to raise its global loan and securities loss estimate to $4 trillion by the end of 2010, including about $3.1 trillion in U.S. originated losses (up from $2.2 trillion estimate as of January) and $900bn in European and Asian originated losses. Compare these numbers with U.S. originated loan and securities losses of $3.6 trillion as estimated by RGE Monitor in a January report. As outlined in our report, $1.8 trillion are expected to fall on U.S. banks alone. [/quote]


On the plus side, GM is very likely to end up in bankruptcy in the coming month, but it seems at least a bit of common sense has crept in on the "should bondholders get a haircut" front - now they just need to avoid any "protecting the bondholders is crucial to economic stability" backroom deals by Terrible Timmy Geithner and his Wall Street cronies as happened with the AIG bonuses recently:

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aOdH9vrC5WGc&refer=news]Auto Workers Essential to GM's Future Said to Win Out Over Bondholders[/url]: [i]A United Auto Workers union retiree health-care fund probably will get preferential treatment over other unsecured claims in a General Motors Corp. bankruptcy or restructuring, people familiar with the plans said.[/i]

Nation's No. 2 mall owner files for bankruptcy
 

[url=http://money.cnn.com/2009/04/16/news/companies/general_growth_bankruptcy.reut/index.htm]Nation's No. 2 mall owner files for bankruptcy[/url]: [i]General Growth Properties Inc., the second largest U.S. mall owner, filed for bankruptcy protection on Thursday in one of the biggest real estate failures in U.S. history.[/i]
[quote]Ending months of speculation, the Chicago-based mall owner, which listed total assets of $29.56 billion and total debts of $27.29 billion, sought Chapter 11 bankruptcy protection from creditors along with 158 of its more than 200 U.S. malls, while it seeks to restructure some of its debt.

Since November, General Growth has warned that it may have to seek protection from its creditors when it was unable to refinance maturing mortgages.

The company said in a statement that it planned to continue exploring strategic alternatives during the bankruptcy protection, from which it is seeking to emerge as quickly as possible through a reorganization that preserves its national business.

General Growth's filing in the U.S. bankruptcy court in Manhattan makes it one of the largest nonfinancial companies to succumb to the financial crisis in the U.S.

Before the bankruptcy protection filing, the company had defaulted on several mortgages as well as a series of bonds. It has also put several of its flagship properties up for sale.

Analysts and other real estate experts have speculated that mall owners Simon Property Group Inc and Westfield Group would be interested in buying some of General Growth's assets from bankruptcy.

General Growth has been generating enough cash flow for the company to pay monthly interest costs and expenses, but it has been unable to refinance the principal of loans and mortgages as they come due because banks and other financing sources have been reluctant to issue large mortgages and loans.

"Our core business remains sound and is performing well with stable cash flows," General Growth Chief Executive Adam Metz said in a statement.[/quote]
[i]My Comment:[/i] Now - ignoring the obligatory all-is-so-well-that-we-are-bankrupt egregious lie from Mr. Metz (who apparently studied the pre-collapse PR clips from Bear Stearns and Lehman Brothers quite carefully) - you might think that commercial real estate-related equities (REITs) might be selling off on this news, but quite to the contrary, most of GGP`s competitors are rallying hugely on the news. SRS, the popular CRE-inverse ETF, just hit its all-time low today. Logic has no place in this market ... which makes me suspect that either a whole lot of the cheap government money the banks are supposed to be lending to consumers (which the banks are wisely refusing to do to all but the most creditworthy - would that such prudence had prevailed for the preceding part of this decade) is instead going into equities, or there is a highly organized bank-earnings-season market pump job going on behind the scenes. One just needs the mainstream financial media (MSM) to cooperate in the bullish spin, lure in hordes of unwitting retail investors, then sell at the top before the bottom falls out. Far-fetched? Perhaps ... but consider that (for example) [url=http://money.cnn.com/2009/04/15/news/companies/general_electric/index.htm]GE reports earnings tomorrow[/url], and GE owns the wildly popular financial news network CNBC. It`ll be very interesting to watch in the next couple months, to see if there is a clear inflection point after which the MSM begin to spin more-or-less-the-same-fundamentals much more negatively. For instance, in today`s irrationally exuberant climate, the following story will likely get spun as bizarrely positive for the economy:

[url=http://www.bloomberg.com/apps/news?pid=20601213&sid=aRDQUt6RM.FE&]Foreclosure Filings in U.S. Climbed to Record in First Quarter[/url]: [i]U.S. foreclosure filings rose to a record in the first quarter as employers cut jobs in the recession and temporary programs to delay action on defaults came to an end, RealtyTrac Inc. said.[/i]


...much like the latest fake jobless-claims data are getting promoted as "worst is over!" indicators:

[url=http://money.cnn.com/2009/04/16/news/economy/jobless_claims/index.htm]Initial jobless claims plunge[/url]: [i]The number of people filing initial jobless claims drops 53,000 to 610,000. Continuing claims break record at 6 million.[/i]
[quote]Initial jobless claims were expected to total 658,000 in the week ended April 11, according to a consensus of economist forecasts compiled by Briefing.com.

John Lonski, chief economist for Moody's Investors Service, said he puts more of his focus on the continuing claims number - and its pessimistic outlook - than the weekly tally.

"That tells you that things are getting worse and we're going to see another rise in the unemployment rate, and that's not good news," said Lonski.[/quote]
[i]My Comment:[/i] Given that the BLS has been consistently making huge upward revisions to the initially-announced numbers ever since the jobless rate started to rocket last year, I don`t put much credence in the preliminary numbers anyway. We don`t know exactly what kind of statistical fudge goes into the BLS "black box" model they use to gerrymander the actually enumerated numbers beyond all recognition, but it is clear the model consistently and grossly underpredicts actual unemployment trends (as measured by, say, actual payroll statistics and later-revised data) in highly stressed economic times like these. To borrow terminology from thermodynamics, it`s an equilibrium model applied to a highly nonequilibrium phenomenon.

Also, let`s not forget that with overall unemployment having nearly doubled year-over-year, there are simply fewer people left to lay off - again, this is clearly a positive sign, since the next best thing to an uptrend is a "decelerating downtrend". To borrow terminology from skydiving, "the chute still refuses to open, but the downward acceleration has slowed anyway!"

[QUOTE]the chute still refuses to open, but the downward acceleration has slowed anyway![/QUOTE]

Must have reached terminal velocity!

DarJones

[QUOTE=Fusion_power;169555]Must have reached terminal velocity!

DarJones[/QUOTE]

...Which, according to CNBC, "Is a bullish sign that we are closer to the bottom than we were before!" I'm serious, this is the kind of retarded "reasoning" one sees all the time from the alleged experts on the n00zt00b.

If the U.S. economy lost half its jobs one year and another half the next, these clowns would tout it as a positive development because "job losses are only half what they were last year!!"

Reminds me of a joke I read years ago about a race between a Russian and an American. The one mile race went off without a hitch and the American won. the next day, the American newspapers read "American wins race". the Russian newspapers read "Russian comes in 2nd, American comes in next to last!"

No insult intended for Russian readers, this just happens to illustrate the kind of illogical reporting often seen in mainstream media.

DarJones

Friday cartoon, Part 1
 

Quantitative Easing, illustrated via the St. Louis Fed's Money Supply data - This is the money that's been helping to inflate the banks` tattered balance sheets and to bid up stock prices recently:

Friday cartoon, Part 2
 

"Hopiness you can believe in" or "Glimmers of nope"? Time will tell:

Friday cartoon, Part 3
 

How Hedge Funds work:

GE Capital: Tick, tick... | China Dumping $ for Cu
 

C-SPAN's Sunday evening "Q&A" installment last night was an interview with author and structured-equities specialist [url=http://www.q-and-a.org/Program?ProgramID=1228]Janet Tavakoli[/url], who had some very incisive and not-too-flattering things to say about the giant Ponzi scheme that is Wall Street Big Finance - great stuff.


The ZeroHedge blog (which has quickly become one of my favorites since I started visiting it a few weeks ago, mainly because it gives a traders-eye perspective on much of the seemingly bizarre market action of late which none of the macro-economic blogs do nearly as well) has one items of extreme interest currently: [url=http://zerohedge.blogspot.com/2009/04/one-of-biggest-threats-to-financial.html]the untold story of GE Capital[/url]:
[quote]One of the biggest threats to the financial system currently is neither Citi, nor Bank Of America, nor any other pure play bank. Over the past month the administration has made it clear that the U.S. would rather print ever more money (and funnel them directly to Citi`s coffers) and potentially face default dangers, than allow another Lehman-type event. Right now, the biggest weakness, in my opinion, is the parent company of General Electric Capital, GE Corp, which incidentally is also the owner of such consistent market bottom callers as CNBC`s Jim Cramer and Mark Haines.

[i][Lots of very scary numbers elided - read the article in its entirety for details][/i]

The last issue is a topic Zero Hedge previously wrote about in depth, discussing the potential ticking time bomb hanging over GE Capital in the form of a ratings agency downgrade and how that could be an immediate and terminal end for the finance subsidiary.

How did the finance arm of the company, which for generations has been seen as the cornerstone of the U.S. economy, find itself in such a quandary? A quick look at its various operating segments courtesy of BofA gives some preliminary insight into just which divisions have historically provided both revenues and profit, and why both the top and the bottom line at GECC may both be significantly impaired.

...It is notable that GECC has extensive exposure to Eastern Europe, which in this author`s view, will likely be the next major shoe to drop from a global fundamental perspective. As the IMF has lately become more and more antagonistic to the US` rosy worldview, once either Poland or Hungary ends up in default, the forced rapid revaluation of GECC`s portfolio could become the catalyst for the fair pricing of this highly overmarked portfolio, and a result in huge charges flowing through the income statement, killing earning per share metrics.

So while most eyes are looking at Vikram and Lewis and applauding their one time benefits from the massive governmental "bank stimulus program", the maker of your parents` microwaves and refrigerators could be lurking in the shadows, waiting to launch the next chapter in the law of unintended consequences.
[/quote]
[i]My Comment:[/i] Especially telling is that the scary balance-sheet numbers cited by the article come from the extremely well-respected industry newsletter, [i]Grant`s Interest Rate Observer[/i]. The toxic combination of extreme leverage, rapidly deteriorating loan portfolio and threat of ratings-agency downgrade (which would cause borrowing costs on all that leverage to spike) is exactly the same mix which did in AIG.


[url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html]A 'Copper Standard' for the world's currency system?[/url]: [i]Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.[/i]
[quote]China`s State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan`s TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year`s commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We`re very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China`s pockets are deep."

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.

The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.

If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.

Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.

While Beijing`s fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.
[u]
One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America`s debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.
[/u]
This is slightly disingenuous. China has the world`s largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China`s surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth`s crust is gradually depleting its accessible ores. Above all, such a policy safeguards China`s industrial revolution, while the West may one day face a supply crisis.

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard". [/quote]
[i]My Comment:[/i] You can try to inflate your way out of debt, but that has "unexpected" consequences such as these. Increased demand for hard commodities due to investors and nations seeking to hedge against a devaluation of the dollar is going to make many raw materials more expensive for everyone. thus causing an effective devaluation of all paper currencies. Higher commodities prices will also prolong the global recession.