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Today's "Grisly Bear Market" News
[url=http://online.wsj.com/article/SB122454498635252109.html]WSJ | Volcker Makes a Comeback as Part of Obama Brain Trust[/url]
[quote] NEW YORK -- At 81 years old, former Federal Reserve chairman Paul Volcker is getting a second chance to shape his legacy with a presidential hopeful more than 30 years his junior. Mr. Volcker has emerged as a top economic adviser to Sen. Barack Obama during a presidential campaign dominated by a global financial crisis. Their growing bond is paying dividends for each man. Mr. Volcker delivers gravitas and credibility to Sen. Obama, people in the Obama camp say, as well as ideas and approaches to the economic crisis. "Volcker whispering in Obama`s ear will make even Republicans comfortable."[/quote] [b]My Comment:[/b] This is a very welcome addition to Obama`s circle of top advisors. Volcker is in many ways [and in all the important ones] the "anti-Greenspan". Back during the presidential primary season both Hillary Clinton and John McCain mentioned Greenspan in laudatory terms, which gave me the shivers. [url=http://money.cnn.com/2008/10/20/news/international/un_meltdown.ap/index.htm]U.N.: Crisis will lead to 20M lost jobs[/url]: [i]Labor chief says the lost jobs will push the global unemployment rate above 200M for the first time ever.[/i] [url=http://www.latimes.com/news/nationworld/nation/la-na-stategaps19-2008oct19,0,3409222.story]22 States face new budget shortfalls[/url]: [i]Economists worry that shriveling tax revenues may signal the onset of a historic fiscal crisis for state governments. Pared-down spending plans crafted just months ago may have been just the start.[/i] [url=http://money.cnn.com/2008/10/21/news/economy/finance_regulation/index.htm]Lawmakers meet on finance industry reform[/url]: [i]Finance experts testify on Capital Hill over the need for regulatory restructuring of the finance industry.[/i] [quote]NEW YORK (CNNMoney.com) -- Members of Congress, fiscal experts and Wall Street lobbyists gathered on Capital Hill Tuesday to figure how to change regulation of the finance industry to shore up its foundations and prevent future crises. "We must recognize that regulation is needed to prevent systemic collapse," said Rep. Paul Kanjorski, D-Penn., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Kanjorski vowed to reign in Wall Street excesses, focusing on what he called the "shocking" behavior of executives from the battered insurance giant AIG (AIG, Fortune 500), which hosted a $440,000 conference just days after taking out a $85 billion loan from the U.S. government. To prevent future failures and abuses, Kanjorski said the Federal Reserve must monitor corporate spending and executive pay caps from companies like AIG. He called for more transparency and said the government must take measures to prevent the failure of companies that cause "disastrous, ricocheting effects elsewhere." Speaking after Kanjorski, fiscal expert Alice Rivlin, the founding director of the Congressional Budget Office, testified that blame for the problem is nationwide, and not just on Wall Street. "Americans have been living beyond our means, individually and collectively, for a long time," said Rivlin, who under the President Clinton administration served as vice chairman to the Federal Reserve Board and director of the White House Office of Management and Budget. "We have been spending too much, saving too little, and borrowing without concern for the future from whomever would support our over-consumption habit - the mortgage company, the new credit cards, or the Chinese government," she said.[/quote] [b]My Comment:[/b] That "...Wall Street lobbyists..." in the first sentence does not make me optimistic that any meaningful, effective reform will emerge from this process. Nice to see former Alan Greenspan crony Alice Rivlin say what both presidential candidates have been too pander-ous to, namely that the failure is a collective nationwide one, and that to a large extent banks and mortgage companies were simply encouraging excess whose root cause was the collective "there is a free lunch" delusion which hundreds of millions of people worldwide bought into, hook, line and sinker. However, as usual she is completely silent on the role her former mentor played in encouraging such excesses. And more "fiscal stimulus" and consumer-level "credit easing" are a complete waste of taxpayer money and precisely the last thing we need, respectively. The cure for what ails us [living beyond our means and spending money we don`t have to support inflated asset prices] is not more of what ails us. This is what Mish Shedlock likes to refer to as [url=http://globaleconomicanalysis.blogspot.com/2008/10/keynesian-claptrap-from-pimco.html]Classic Keynesian Claptrap[/url] [Although I think he is so focused on the idiocy of further artificial stimulus that he glosses over the valid points made in the Pimco article about the Paradox of Deleveraging]. [url=http://money.cnn.com/2008/10/20/markets/dollar/index.htm]Dollar rallies as credit thaws[/url]: [i]The greenback was boosted by a thawing credit market and stimulus talk by Fed chair Ben Bernanke.[/i] [quote]The interbank cost of borrowing U.S. dollars fell dramatically Monday as the overnight Libor rate fell to 1.51% from 1.67% on Friday, according to Bloomberg.com. Libor is the daily average of what 16 banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages. The overnight Libor was nearly even with the 1.5% rate the Federal Reserve charges banks to borrow. Just two weeks ago the overnight Libor had reached as high as 6.88% after the Treasury's $700 billion bailout bill was signed into law on Oct. 3.[/quote] [b]My Comment:[/b] That`s a huge drop in the Libor ... question is, will it last or will the jitters return? And even though the overnight bank lending rate has temporarily dropped to non-astronomical levels, all is far from well in the worldwide capital markets: [url=http://globaleconomicanalysis.blogspot.com/2008/10/armageddon-in-corporate-bonds.html]Armageddon in Corporate Bonds[/url]: [i]Credit markets have fallen so far that they are providing a ``once in a lifetime opportunity,'' and investors are still selling.[/i] A local [California] retailer closing which is a good barometer of the overal dismal retail climate in the U.S.: [url=http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/10/17/BU3U13JKLR.DTL&type=business]Retailer Mervyns to close its doors after holiday sales[/url]: [i]After filing for bankruptcy protection in July, Mervyns is expected to announce liquidation plans[/i] [quote]SAN FRANCISCO -- Mervyns, the 59-year-old department store chain based in Hayward, is closing up shop. The ailing retailer, which filed for Chapter 11 bankruptcy protection in July and planned to close 26 stores, said Friday that it now plans to liquidate its remaining 149 locations and shutter the business after the holiday season. "We are disappointed with this outcome but the company's declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action," said John Goodman, Mervyns' chief executive, in a statement. Mervyns plans to hire an outside liquidator to hold going-out-of-business sales during the holidays. The company said it determined liquidating its inventory was the best way to maximize value for its creditors. Company officials declined to comment beyond the press release. Mervyns, a privately held company that operates 175 stores in seven states, is the latest in a string of retailers to go belly up or file for bankruptcy reorganization in the wake of the severe credit crunch and overall dismal economy.[/quote] [b]My Comment:[/b] Fellow barometer retailer Circuit City [which unlike Mervyns is nationwide] is in similarly [url=http://globaleconomicanalysis.blogspot.com/2008/10/circuit-city-inspired-christmas.html]dire straits[/url]. |
[QUOTE]Speaking after Kanjorski, fiscal expert Alice Rivlin, the founding director of the Congressional Budget Office, testified that blame for the problem is nationwide, and not just on Wall Street.
"Americans have been living beyond our means, individually and collectively, for a long time," said Rivlin.[/QUOTE] I have a real problem with this- they (pundits,analysts, etc.) keep trying to pin a big part of this on individuals, when really a very small percentage of homeowners are defaulting (less than 5% last I saw), and countless more don't even have mortgages to default on. And while defaulting on money owed has a ripple effect, it is nothing like the possible effect that financial institutions have created with all these exotic financial instruments that are bought and sold numerous times, in different ways, such as the famous credit derivatives and credit default swaps (CDS). Those are the ones that Buffet called "financial weapons of mass destruction"; the ones that are insurance against default, but since they call them "swaps" instead of "insurance", they aren't regulated as carefully as insurance. The example on the Wikipedia page is of a company with $1 billion debt that could have $10 billion in CDS on that debt. If it goes bankrupt, and can only pay out 40 cents on the dollar, investors lose the other $600 million. Meanwhile, the CDS sellers lose $6 billion. On a $1 billion debt! Now that's what I call a ripple effect. I heard on the radio the other day that the current total CDS obligations (estimated between $50-$63 trillion) are now more than the annual total gross domestic product of the entire world economy. It wasn't the naive homebuyers getting suckered into adjustable rate mortgages they couldn't afford that created this problem; it's largely the corrupt, unregulated financial institutions. Norm |
[QUOTE=ewmayer;146070]A local [California] retailer closing which is a good barometer of the overal dismal retail climate in the U.S.:[/QUOTE]
There may be more to this case than the current economic climate. This article ([url]http://www.signonsandiego.com/news/business/20081018-9999-1b18mervyns.html[/url]) indicates that Mervyns has sued 3 private equity firms and possibly Target for an alleged fraudulent buyout deal. Ain't business grand, makes you want to be part of the corporate sector. |
Oil drops below $70 | Argentina Seizes Pensions
[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aJLIc1gYxRnM&refer=news]Emerging Market Bonds, Currencies Drop; Argentina Will Seize Pension Funds[/url]: [i]Emerging-market bonds, currencies and stocks plunged from Brazil to Russia as speculation Argentina may default added to concerns of a global recession.[/i]
[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=agqzYL8rtBjw&refer=news]Brazil May Use Federal Banks to Rescue Companies[/url]: [i]Brazilian President Luiz Inacio Lula da Silva authorized federally controlled banks Banco do Brasil SA and Caixa Economica Federal to buy stakes in financial institutions to ease a credit crunch that's hurting small and medium-size lenders.[/i] [url=http://money.cnn.com/2008/10/22/news/economy/mass_layoffs/index.htm]Mass layoffs highest since 9/11[/url]: [i]Government report says job cuts of 50 or more up significantly last month.[/i] [quote]NEW YORK (CNNMoney.com) -- The number of layoff announcements involving at least 50 workers rose in September to the highest level since the Sept. 11 terrorist attacks seven years ago, the government said Wednesday. There were 2,269 mass layoff actions, up 497 from August, according to statistics released by the Labor Department. "At large firms, basically what I see is an across-the-board, shotgun approach," said Paul Sarvadi, Chairman and CEO of human resources outsourcing firm Administaff in Houston. "If they anticipate revenues going down, then they see how much they need to cut to reach operating targets, and equate that cost to a number of people." Overall, the number of initial claims for unemployment benefits related to mass layoffs rose by 61,726 to 235,681. That was the highest level since September 2005, after Hurricane Katrina devastated the Gulf Coast.[/quote] [b]My Comment:[/b] So even if the Bush administration can claim to "have prevented another 9/11" [if one assumes that the mere fact that no mass terror attacks occurred on U.S. soil since then constitutes proof of "prevention"], but they seem to have given us another economic 9/11, and more. Rousing success, that. I suspect 2009 will prove to be an even more devastating year as far as job cuts are concerned than 2008 was, since mass layoffs tend to lag economic slowdowns. And speaking of mass layoffs: [url=http://money.cnn.com/2008/10/21/technology/yahoo_earnings/index.htm]Yahoo slashes 10% of workforce[/url]: [i]The beleaguered Internet company says it will layoff more than 1,500 employees in the fourth quarter; sales and profits for third quarter match forecasts.[/i] [url=http://money.cnn.com/2008/10/22/news/economy/credit_agencies.ap/index.htm]Rating agencies get grilled on Capitol Hill[/url]: [i]Internal documents show credit outfits knew that they inflated ratings of bonds backed by subprime loans.[/i] [quote]WASHINGTON (AP) -- There's plenty of blame to go around for the ongoing credit crisis, and a House panel investigating the meltdown Wednesday cast much of it on credit ratings agencies like Standard & Poor's for giving good-as-gold ratings to securities backed by subprime mortgage loans. Internal company documents revealed by a House investigative panel show that company executives were well aware that there was little basis for giving AAA ratings to thousands of increasingly complex mortgage-related securities, but that the companies often vouched for them anyway. The big credit ratings agencies - Standard & Poor's, Moody's and Fitch, Inc. - made enormous profits as they issued ratings on a ballooning number of mortgage-related securities, many of which were given top ratings so long as housing prices went up. Now, S&P has downgraded more than two-thirds of its AAA-rated securities, while Moody's has downgraded more than 5,000 mortgage-backed securities. [b] 'Colossal failure' [/b] "The story of the credit rating agencies is a story of colossal failure," said Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee. The California Democrat said, "Millions of investors rely on them for independent, objective assessments. The rating agencies broke this bond of trust, and federal regulators ignored the warning signs and did nothing to protect the public. The result is that our entire financial system is now at risk."[/quote] [b]My Comment:[/b] As Waxman notes, the failure was as much one on the part of government oversight as it was of [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ac8Bkp_7F4Rc&refer=news]fraud perpetrated by the ratings cartel[/url]. What Waxman does not note is that the "inherent conflict of interest" mentioned in the full article [namely that the ratings agencies get paid by the issuers of the securities they are asked to rate rather than by investors looking for objective ratings on said securities] was built into the system as part and parcel of the governmental imprimatur given to the "specially designated" rating agencies at the center of the scandal. Not that anyone will ever wind up going to prison for this trillion-dollar fraud, mind you - mustn`t go punish the white-collar criminals who committed these crimes or the regulators who failed utterly in their oversight role, since we need them to "help" the government orchestrate the massive financial-sector bailout. After all, they *are* the experts... [url=http://money.cnn.com/2008/10/22/autos/bc.na.us.chrysler.ap/index.htm]Cerberus may carve up Chrysler[/url]: [i]Chrysler LLC could be sold in pieces to other companies as its majority shareholder Cerberus Capital Management LP seeks to exit the auto business, according to a person briefed on the discussions.[/i] [b]My Comment:[/b] If the author of the above article wanted to be "mythologically correct", a turn of phrase like "Cerberus may chew up Chrysler and spit it out, times three" would have been better. Or perhaps "Dogged by losses, Cerberus faces hellish decision about Chrysler". [url=http://money.cnn.com/2008/10/22/markets/oil/index.htm]Oil dips below $70 as inventories rise[/url]: [i]Oil prices remained sharply lower Wednesday, reaching prices not seen since June of last year, after the government reported a greater-than-expected rise in crude stockpiles - an indication that the slow economy may have impacted demand for fuel.[/i] [url=http://money.cnn.com/2008/10/22/news/international/russian_oil_reserves.ap/index.htm]Russia may divert oil to affect price[/url]: [i]One of the world's largest oil producing countries is considering storing crude to gain more influence over global prices.[/i] [quote]MOSCOW (AP) -- Russia's top energy official said Wednesday that the nation may set aside an oil reserve to influence global prices - but won't cut output, news reports said. Deputy Prime Minister Igor Sechin, who is in charge of the energy sector, said the government was considering creating an oil production reserve "which would allow it to work more efficiently with prices on the market." Sechin would not name the amount of the reserves, but said they should be "enough to reach efficient pricing parameters," Russian news agencies reported. He confirmed that Russia would not cut oil output, unlike OPEC nations which are expected to slash production by 1 million barrels.[/quote] [b]My Comment:[/b] so let me get this straight ... Russia thinks current oil prices are too low, so it wants to spend a whole lot of money creating an oil reserve to store some of its oil production until prices recover to more-desirable levels. Why not just pump less out of your "existing reserves", namely the ground? Strategic oil reserves make sense for net importers of oil who want to guard against supply disruptions, not for net exporters. I suspect this is just a (rather pathetic) attempt to "jawbone the markets" and drive prices higher on speculation of "what the big bad Russian bear may do". In related news, check out the the breakeven prices for oil required by some of the emerging economies [especially Venezulea and Iran] in the following Bloomberg article: [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=avyteJ5WWJ1c&refer=news]OPEC Risks Split Over Oil Production Cuts as Economies Reel, Prices Plunge[/url]: [i]OPEC, founded five decades ago to unify oil producers, risks dividing members as the group plans to cut output and raise prices just as developed nations face their worst recession since 1983.[/i] |
[quote=ewmayer;146166][B]My Comment:[/B] so let me get this straight ... Russia thinks current oil prices are too low, so it wants to spend a whole lot of money creating an oil reserve to store some of its oil production until prices recover to more-desirable levels. Why not just pump less out of your "existing reserves", namely the ground? Strategic oil reserves make sense for net importers of oil who want to guard against supply disruptions, not for net exporters.[/quote]Actually, it makes sense for exporters, too.
Let's consider an analogy: farmers storing harvested crops in silos on their farms, waiting for higher market prices that they would get in the future than they would get if they sold their harvests right away. The cost of buying the silo is amortized over several years, more than paid-for by the better prices the farmer gets for crops by timing his sales optimally. I think Russia has every right to build such an oil reserve, for its own interests. As for just pumping less: The flow of oil underground toward a well is affected by the amounts going up the pipe. Managing a producing oil well for optimum production over the long term may require adjusting its flow to rates not necessarily in line with current market conditions (about which the oil knows nothing). Having a large enough domestic oil storage allows an exporting country to manage its production and sales optimally, with the difference between the two either going into, or coming out of, storage. [quote]I suspect this is just a (rather pathetic) attempt to "jawbone the markets" and drive prices higher on speculation of "what the big bad Russian bear may do".[/quote]No, Russians aren't simplistic. |
Right-Wing Fannie/Freddie/CRA/Subprime-Blame Meme
[QUOTE=cheesehead;146210]Let's consider an analogy: farmers storing harvested crops in silos on their farms, waiting for higher market prices that they would get in the future than they would get if they sold their harvests right away. The cost of buying the silo is amortized over several years, more than paid-for by the better prices the farmer gets for crops by timing his sales optimally.[/QUOTE]
A poor analogy - unlike oil, crops not harvested in timely fashion will rot or be eaten by animals and insects. Obviously an oil-exporting nation needs some kind of short-term storage capability to buffer supply and demand fluctuations, but since the Russians aren't exactly new to this game, why the sudden loud talk about a Strategic Petroleum Reserve? And when it comes to energy exports, I believe the Russians, like so many of their oil-exporting brethren and the market commodity bulls, *have* been simplistic - they assumed that demand from the U.S. and emerging economies of the world would continue to go up in more-or-less a straight line, and that oil prices would do similarly. Now that that assumption [like the analogous one about housing in the U.S. and many other countries] has been smashed, the Russian markets are in freefall and the government is verging on panic, of course while continuing to present a brave face to the world. Like other big oil exporters, absolutely the most frightening scenario for the Russians is that the rest of the world suddenly doesn't need their oil anymore. They bet big on oil exports, failed to significantly diversify their economy, and are now paying the price for that simplistic approach. [b] Today's News Roundup [/b] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=adwYoYnTqRNo&refer=news]Goldman May Slash 3,200 Jobs, 10% of Workforce, as Credit Turmoil Worsens[/url] [quote]Goldman Sachs Group Inc., the only firm among Wall Street's five biggest to remain profitable through the credit crisis, will shed about 3,200 workers, or 10 percent of its staff, as the revenue outlook worsens, according to a person briefed on the plan who declined to be identified. The cuts add to more than 130,000 jobs eliminated in the financial industry since mid-2007, eclipsing the 83,000 lost after the Internet bubble burst in 2001.[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aE.v2SwPrzSk&refer=news]GM Will Cut More Jobs, Halt Matching Payments to Employees' 401(k) Plans[/url]: [i]General Motors Corp., the largest U.S. automaker, is suspending matching payments to employee 401(k) savings plans as it cuts costs amid a U.S. sales slump.[/i] [url=http://bigpicture.typepad.com/comments/2008/10/private-sector.html]The Right-Wing Fannie/Freddie/CRA/Subprime-Blame Meme[/url] [quote]Some people actually look at the data, while others foolishly parrot talking points. Consider this [sic] Federal Reserve Board data, compiled by McClatchy. It shows that: * More than 84% of the subprime mortgages in 2006 were issued by private lending institutions. * Private firms made nearly 83% of the subprime loans to low- and moderate-income borrowers that year. * Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA; * Only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans. * Mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans. [/quote] [b]My Comment:[/b] Aw, why let a bunch of "un-American liberal facts" get in the way of a catchy right-wing propaganda campaign? [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aRSZAUbCANHU&refer=news]Housing Prices Tumble the Most in 17 Years as Foreclosures Soar to Record[/url]: [i]U.S. home prices tumbled the most in at least 17 years in August as a record jump in foreclosures reduced property values and a global credit crisis weakened the economy, according to separate reports today.[/i] [quote]Home prices dropped 5.9 percent from a year earlier, the biggest decline since 1991, when the Federal Housing Finance Agency data starts. Foreclosure filings increased 71 percent to the highest on record in the third quarter from a year earlier, according to Irvine, California-based RealtyTrac, a seller of foreclosure data. The surge in home foreclosures is dragging down real estate prices in neighborhoods across the U.S. as houses are sold at foreclosure auctions. A recession that began in the third quarter is deepening the housing slump and adding to mortgage defaults as companies shed jobs, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association. Every foreclosure cuts the value of all surrounding homes by a total of about $220,000 as it stigmatizes the block and sells at a discounted price, according to the Federal Deposit Insurance Corp. At the end of June, U.S. banks held $9.9 billion of foreclosed properties, up from $8.5 billion three months earlier, according to an FDIC report. Every three months, another 250,000 homes enter foreclosure, the report said. A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most in records began in January 2005, according to the RealtyTrac study. A prior measure of August home prices, issued by the National Association of Realtors in Chicago on Sept. 24, showed the U.S. median sale price plummeted 9.5 percent in August to $203,100 from $224,400 a year earlier, the biggest drop on record. The Realtors' study included all homes sold, regardless of price, while the federal study excluded properties purchased with mortgages higher than the so-called conforming loan limit. For most parts of the U.S. that maximum is $417,000, though Congress voted in February to temporarily raise the cap to $729,750 in some high-cost markets.[/quote] [url=http://www.nytimes.com/2008/10/23/business/23lehman.html]Lehman Credit-Default Swaps Settled "Without Incident"[/url] [quote]"Hundreds of traders who placed bets on Lehman Brothers’ creditworthiness before it went bankrupt have settled their positions “without incident,” according to a company that tracks derivatives contracts. The company, Depository Trust & Clearing Corporation, processes large numbers of investment transactions. It said that only $5.2 billion had to change hands for all the traders to close out their positions, a much smaller amount than had been predicted a week ago. The settlement process had been seen as a major test of the market for credit-default swaps, and whether it could handle the unprecedented stress of a big Wall Street firm going bankrupt. The overall system appears to have borne the shock successfully, although individual firms might have taken painful losses they have not yet disclosed. At the same time, the contrast between this week’s orderly settlement process and last month’s financial turmoil, which also involved credit-default swaps, raised anew policy questions over the market for credit derivatives and its failure to limit systemic risk. Because the swaps are private contracts between two parties, there is still almost no information in the public domain over who holds which positions, or who might be left teetering the next time there is a major default."[/quote] [b]My Comment:[/b] The Lehman CDSs settling without issue is a big relief, but this market is clearly in dire need of transparency and regulation. [url=http://globaleconomicanalysis.blogspot.com/2008/10/s-500-crash-count-compared-to-nikkei.html]U.S. Equity Markets headed for a "Lost Decade"?[/url] [quote]In 1990 the Nikkei peaked at 38,900. It is sitting at 8,438 as I type. After 19 years of ups and downs including one big rally of 140%, the Nikkei is down a whopping 78%! If you think that can't happen here, then consider [url=]this chart[/url] of the S&P 500 over the same period. Someone buying the S&P 500 in 2000 is down 40% nine years later. Buy and hold dollar cost averaging has been an absolute disaster. You would be behind on nearly every addition no matter when you started. The important point is that we are still on track for a downside target of 450-600 on the S&P 500. That does not mean we get there, it just means it is a likely target. If we do get to the 450-600 target area, do not expect to see the stock market blasting to new highs for as long as two decades, just as happened in Japan. Indeed, from the current look of things, Japan can still be decades away from new highs.[/quote] |
More on the Russia/Oil Theme
Nice article in today`s NY Times about the potential effects of dropping oil prices in three highly oil-price-dependent economies, namely those of Venezuela, Iran and Russia. The snippet I quote below is from the Russia-related portion of the article:
[url=http://www.nytimes.com/2008/10/21/world/21petro.html?em]3 Oil-Rich Countries Face a Reckoning[/url] [quote]Still, at least in terms of its domestic economy, Mr. Halloran and other experts said Russia was better positioned to weather lower prices than were many other oil and gas producers, because it had adopted conservative fiscal practices in recent years. The country deposited a significant portion of its oil revenues into two stabilization funds, which totaled $190 billion at the beginning of this month. The Russian budget is pegged to an oil price of roughly $70 a barrel — most revenues exceeding that have gone to these so-called rainy-day funds. The Kremlin also succeeded in recent years in establishing control over many of the pipelines that transport oil and gas in the region — an achievement that will endure despite the lower prices. The Kremlin has started tapping into its stabilization funds to prop up the banking industry and the stock market, which has been hard hit by the international financial crisis, dropping by more than two-thirds since May. The government may also rescue many of Russia’s oligarchs, the industrial magnates who were thriving with the high price of natural resources but have now been suffering steep losses. These bailouts, combined with declining oil and gas revenues, could make it difficult for the Kremlin to carry out plans to modernize the country’s aging infrastructure, from highways to schools, and still promote Russian ambitions abroad. Even so, opposition politicians in Russia said they did not perceive sagging prices as undermining Mr. Putin’s power. “I think that it’s too early,” said Grigory A. Yavlinsky, an opposition leader. “The crisis at the moment is not related to the population enough. The banks are still open, and unemployment is not yet going higher. It’s a threat, but it’s only a potential threat.”[/quote] [b]My Comment:[/b] That $190 Billion rainy-day fund was a very good idea, but it could easily be wiped out by the eventual cost to rescue the Russian banks. In no small part due to its foreign-debt default in the late 1990s, Russia, unlike the U.S., can't simply "print money" [e.g. by issuing bonds] and force foreign countries to buy its debt at rock-bottom prices. [Would that the U.S. had had to live with that kind of externally imposed fiscal discipline, I know...] |
[quote=ewmayer;146298]A poor analogy - unlike oil, crops not harvested in timely fashion will rot or be eaten by animals and insects.[/quote]No, the proper analogy is that the crops could be shipped off to market as soon as they were harvested, instead of being stored on-farm (or rented silos elsewhere). Harvesting is like bringing the oil out of the ground -- the reason I mentioned flow management is that oil production is not completely deferable, either. But it's not a perfect analogy.
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Greenspan "shocked" and "'partially' wrong"
"Greenspan 'shocked' at credit system breakdown"
[URL]http://news.yahoo.com/s/nm/20081023/bs_nm/us_financial_greenspan[/URL] [quote]Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities. Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform. "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.[/quote]Note the third paragraph. Trust in the moral goodness of "family fathers" is a characteristic aspect of the "strict father" worldview of conservatives, which leads them to ignore the lessons of history about the need for regulation to curb unethical behavior of those in charge. (See also: accumulation of power by the executive branch of government). [quote]. . . "PARTIALLY" WRONG . . . Waxman cited a series of public statements by Greenspan saying the market could handle regulation of derivatives without government intervention. "My question is simple: Were you wrong?" Waxman asked. Greenspan said he was "partially" wrong in the case of credit default swaps, complex trading instruments meant to act as insurance against default for bond buyers.[/quote] |
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From [url]www.titanic-magazin.de:[/url]
Nachdem der Dax vor einiger Zeit die psychologisch wichtige Marke von 6000 Punkten durchbrochen hatte, durchbrach er nacheinander und in Rekordgeschwindigkeit die ebenfalls psychologisch wichtigen Marken von 5500, 5000 und 4500 Punkten. Sollte der Dax so weitermachen, dann könnte er in Zukunft so lange weitere psychologisch wichtige Marken durchbrechen, bis er die psychologisch unwichtige Marke Null erreicht hat, vermuten Experten. Anschließend will er nach übereinstimmender Einschätzung aller Beteiligten ein Bier trinken gehen. |
[QUOTE=hhh;146329]die psychologisch wichtige Marke[/QUOTE]
I'm dissapointed that even german media talk about psychologically important numbers. I thought you guys were supposed to be all rational and analytical. I must have had my stereotypes partially wrong or something. |
Today's Guest Host: Dieter von Sprockets
[quote=KriZp;146340]I'm dissapointed that even german media talk about psychologically important numbers. I thought you guys were supposed to be all rational and analytical. I must have had my stereotypes partially wrong or something.[/quote]
I suspect you are thinking of [URL="http://thepiratebay.org/search/sprockets/0/99/200"]these kinds of Germans[/URL]. But, your Teutonic-as-ultrarational-persons prejudice grows tedious ... now is the time on der [I]Subprimerealitätenmarktkernschmelzepanik[/I] thread ven ve dance to the bitter music of the global economic crisis, ja? Personally, I find the agony of the financial markets [URL="http://www.ms.uky.edu/%7Esills/sprockets.html"]gorgeous[/URL]. Do you find my taking such perverse pleasure disturbing? Yes, ve are doomed and I am filled with remorse, and it is most delicious. On to today`s [I]Finanznachrichten[/I]: ----------------------- [URL="http://www.telegraph.co.uk/news/worldnews/europe/russia/3248672/Russian-default-risk-tops-Iceland-as-crisis-deepens-financial-crisis.html"]Russian default risk tops Iceland as crisis deepens[/URL]: [I]Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.[/I] [quote]Hans Redeker, currency chief at BNP Paribas, said markets no longer believe Russia is strong enough to guarantee the estimated $530bn of foreign debts accumulated by its companies during the break-neck expansion of the oil boom. "The surge in Russian CDS spreads is paralysing the whole system. The government can offer very little help to the banks at this point because its own sovereign debt is in question," he said. "This crisis is starting to look like the Black Wednesday in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said. Kingsmill Bond, chief strategist at Russian investment bank Troika Dialog, said Russia's Achilles Heel is the lack of a proper rouble bond market. This had forced companies to raise half their money abroad, in foreign currencies.[/quote] [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aidfC4AnGV3U&refer=news"]U.S. Stocks Slide After Rout Overseas[/URL]: [I]Stocks in the United States continued a sharp sell-off that started in Asia and Europe after a round of dismal corporate earnings reports and economic data.[/I] [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aiJJHzH_CPLY&refer=news"]Home Resales Jump 5.5%, More Than Forecast, as Foreclosures Reduce Prices[/URL]: [I]Home resales in the U.S. rose more than forecast in September, aided by foreclosure-driven declines in prices that indicated the market was stabilizing before the latest slump in financial markets.[/I] [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aNEFXDGOYVHw&refer=news"]Crude Oil Drops on Signs OPEC Cut Won't Halt Price Slide as Economies Slow[/URL]: [I]Crude oil tumbled to a 16-month low as OPEC's decision to slash production by 1.5 million barrels a day failed to ease concern that the global economic slump is curbing fuel demand.[/I] [URL="http://www.bloomberg.com/apps/news?pid=20601086&sid=akO6Q.S1RUOY&refer=news"]IMF Said to Consider Emergency Loans of Up to Five Times Members' Quotas[/URL]: [I]The International Monetary Fund is considering loans of up to five times the quota contributions of member nations, in an unprecedented effort to avert an economic collapse in emerging markets.[/I] [URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=a5JnfkstutpI&refer=news"]`Out of Control' Wall Street Chiefs Spurned Davos Warnings, Chose to Party[/URL]: [I]Once upon a time, the World Economic Forum was the ultimate Wall Street jamboree.[/I] [quote]Now, in the riptide of the worst financial crisis since the Great Depression, WEF officials and delegates say many of the chief executive officers who gathered in Davos, Switzerland, over the last five years didn't listen to warnings from their peers. Davos organizers also say they failed to play tough with the financial-industry bosses, opting to accept their funding and let them turn Davos into a rave-up for Wall Street excesses. ``The partying crept in,'' says Klaus Schwab, the 70-year- old WEF founder and executive chairman. ``We let it get out of control, and attention was taken away from the speed and complexity of how the world's challenges built up.'' The fallout has left the WEF riddled in buyer's remorse, with officials throughout the organization asking what they have wrought and, like Wall Street, whether they offered too much of a good thing. Schwab says the delegates treated him like ``Cassandra'' whenever he questioned the logic of their wisdom on asset-price bubbles in housing, stocks and other financial instruments. WEF Chief Operating Officer Kevin Steinberg says the vast sums of money that rolled in from Wall Street celebrities for marquee billing in Davos contributed to complacency among forum organizers and often obliged them to publicly massage the viewpoints, wishes and status of their superstar guests. ``We catered to what the financial leaders wanted: solo speaking slots, luxury hotels and VIP treatment we wouldn't afford anyone else,'' Steinberg, 38, says. ``We gave them a soapbox. It was all political. We try to minimize the politics, but can't.'' [B] `Psychological Denial' [/B] In his office outside Geneva, about a three-hour drive from Davos and overlooking the French Alps, Schwab says the WEF began issuing warnings in 2003 to investment banks, insurance companies and hedge funds about the systemic risk gnawing at the foundation of the global economy. ``But the financial community didn't listen,'' Schwab says. ``They were told that any serious look at the economic fundamentals showed that we were in an unstable situation. It was denial, total psychological denial.''[/quote][B]My Comment:[/B] Other more-sober viewpoints like those of George Soros and economist Nouriel Roubini were routinely dismissed at the Davos conclaves. Pretty much a "Dude, you`re harshing my buzz" attitude from the hooker-and-booze-fueled Financial-Industry execs. [quote]In 2005, Schwab says WEF's delegates from Wall Street were eyebrow-deep in booming markets, easy money and intense pressure to take greater risks, borrow more and seek higher returns. One of WEF's sessions that year was ``Spotting the Next Bubble Before It Bursts.'' Goldman Sachs Group Inc. CEO Lloyd Blankfein ran the meeting with Syron, then CEO of Freddie Mac, the now-discredited U.S. government-sponsored mortgage buyer and reseller that along with Fannie Mae in September required a $200 billion U.S. government bailout.[/quote][B]My Comment:[/B]At yesterday`s hearing on Capitol Hill, chief bubble-blower Alan Greenspan was [finally] [URL="http://money.cnn.com/2008/10/23/news/economy/committee_regulatory/index.htm?postversion=2008102316"]grilled by several lawmakers[/URL] [especially California`s Henry Waxman, Ohio`s Dennis Kucinich and Indiana`s Mark Souder] on whether he at any point realized there was a bubble in housing. That prompted the now-usual obfuscation and denial by Greenspan, who went on to classify the resulting crisis as "a once-in-a-century event", implying that it was unforeseeable and any regulation capable of preventing such a debacle would necessarily be "onerous". Liar - all it would have taken was some attention to the kinds of [URL="http://bigpicture.typepad.com/comments/2008/10/fed-bubbles.html"]basic economic factors which are indicative of an asset bubble[/URL] and a willingness to take the measures needed to keep it from inflating out of control. Instead, Greenspan and his cronies did exactly the opposite, first by denying the obvious, and at the same time implementing policies [e.g. too-low interest rates for years on end and complete lack of oversight of irresponsible and predatory lending] and encouraging "exotic" mortgages and the kind of securitization of same which deliberately obscured their toxicity. Mish Shedlock`s take on yesterday`s proceeding on The Hill is [URL="http://globaleconomicanalysis.blogspot.com/2008/10/greenspan-admits-flaw-in-his-market.html"]here[/URL]. |
One failed bank gets the housing fix right
[url=http://money.cnn.com/2008/10/24/autos/chrysler_cuts/index.htm]Chrysler to cut 1 out of 4 white-collar jobs[/url]: [i]About 5,000 workers will be asked to leave the company by the end of the year.[/i]
[url=http://money.cnn.com/2008/10/24/real_estate/indymac_solution/index.htm?source=yahoo_quote]One failed bank gets the housing fix right[/url]: [i]When the FDIC seized mortgage lender IndyMac it was one of the biggest bank failures ever. Now the Calif.-based outfit might just help lead us out of the housing mess.[/i] [quote]NEW YORK (Money) -- The battered economy is in desperate need of a housing fix, and one failed bank just may have the answer. Yesterday FDIC Chairwoman Sheila Bair told the Senate Banking Committee about the success her agency has had in helping struggling borrowers at IndyMac, which the FDIC took over this summer. Bair, the nation's leading bank regulator, thinks this foreclosure prevention program can work for other banks. "Our hope is that the program we announced at IndyMac Federal will serve as a catalyst to promote more loan modifications for troubled borrowers across the country," she told the committee. She's not alone. While individual lenders, loan servicers and non-profit foreclosure prevention outfits have been chipping away at the staggering housing crisis on a case by case basis, IndyMac, under the FDIC's leadership, became the first bank to establish a set protocol to modify home loans. ... IndyMac services more than 60,000 loans that are either more than 60 days past due, in bankruptcy, in foreclosure or are otherwise not currently being paid. About two-thirds of those customers are eligible for the program, according to Bair, and more than 3,500 IndyMac borrowers have had their loans modified to affordable levels so far. Borrower payments have been cut on average by $380, she said. Currently most lenders assess each loan on a case-by-case basis, which takes a tremendous amount of time and resources, and can hold up the process for months. Establishing set rules that a lender can apply to thousands of borrowers will speed the process, and help right the housing market more quickly Under IndyMac's program, the lender modifies a loan so that the borrower's new mortgage payment, including insurance and taxes, eats up no more than 38% of their pre-tax income. This percentage, known as a debt to income ratio, topped 50% for some loans during the boom. To achieve this lower payment, IndyMac can lower the interest rate, extend the life of the loan to, say, 30 or 40 years, defer some principal to the final years of the loan, or a use a combination of these strategies. IndyMac is also trying to simplify the process for borrowers. It is overnighting loan forms to eligible customers with a signature required upon receipt. "It doesn't show up with your regular mail, coupons and junk mail, because the key is getting the consumer to open it," said FDIC spokesman David Barr. The papers clearly spell out a borrower's new loan terms, including the interest rate and monthly payments over the life of the loan. The borrower simply signs and returns the documents with the first lower monthly payment.[/quote] [b]My Comment:[/b] Kudos to Ms. Bair for her strong advocacy of the we-need-to-help-struggling-borrowers-not-just-bail-out-banks approach, which is the *only* government intervention to date - and surely the least expensive one - to address the root problem. Note that the FDIC-promoted IndyMac loan modification program DOES NOT FORGIVE DEBT, it simply restructures it according to some mix of the above-mentioned options in order to make the ongoing servicing cost more manageable. Thus it avoids both the moral hazard inherent in the government`s bailouts of the banks, and also avoids the massive expense of the latter kinds of top-down interventions. While the basic nature of the housing bubble means that restructured loans will still eat up much more of the borrower`s capital over their lifetimes than the purchase of a non-bubble-priced home would have, we can`turn back the clock on the bubble, so this seems the most sensible approach to dealing with the problem. |
Ayn Rand
Just heard a radio interview describing Alan Greenspan as an Ayn Rand devotee/follower/worshipper or something. (Edit: "acolyte", that's the word)
My recollection of Ayn Rand (it's been a while) is: "Government get out of the way and let the mediocre fail. The competent entrepreneurs and free market will do what's best." Is that accurate? Do I recall correctly that her novels described some very economically-grim times? [URL]http://www.time.com/time/printout/0,8816,1842879,00.html[/URL] "What Would Ayn Rand Have Done?" [quote]... the Ayn Rand Center for Individual Rights, an outpost of free-market, anti-government thinking located just a few blocks from the newly aggressive and highly interventionist Department of Treasury in downtown Washington.[/quote] |
Assuming my Ayn Rand recollections are correct, I predict that she would, as many others have, oppose any government rescue intervention, but instead prefer to just let the world descend into financial lockup and another Great Depression.
In a way, I admire the intellectual purity of such a stand ... but I cannot approve or even tolerate its heartlessness. I've had too much personal experience with sociopathic (i.e., unable to empathize, but not necessarily violent) individuals to refrain from condemning the idea that such an unempathetic philosophy is complete enough for humanity. I don't know much about Ayn Rand's worldview or political philosophy in detail, but it seems to be at least _partially_ related to the "strict father" worldview I'm fond of quoting (you may have noticed). The "strict father" worldview is not a complete one, but is rather one extreme end of a valid spectrum of human worldviews. The "nurturant parent" worldview at the other end of that spectrum isn't complete either, and is equally extreme, but does also, like the "strict father" view, contain enough truth about human nature to deserve equal consideration instead of the contempt that some conservatives thoughtlessly spew. Folks at each end of that spectrum need to learn, if they haven't already, that their preferred worldview is neither the only valid view nor complete. Our ideal should be to incorporate the best from each end of that spectrum, while screening out the worst from each. Overregulation isn't desirable; it may indeed, as conservatives point out, stifle innovation. But I wish that all conservatives would learn from our current troubles that underregulation is just as bad. - - - |
Happy 1st Birthday, Subprime Thread!
It`s really been a rather uneventful year, hasn`t it? I shall endeavor to make things more exciting around here in 2009...
[url=http://www.nytimes.com/2008/10/28/business/economy/28econ.html?_r=1&ref=business&oref=slogin]AP: Prices Decline but New-Home Sales Rose Last Month[/url]: [i]Sales of new homes recorded an unexpected increase in September as median home prices dropped to the lowest level in four years.[/i] [quote]WASHINGTON — Sales of new homes recorded an unexpected increase in September as median home prices dropped to the lowest level in four years. The Commerce Department reported Monday that sales of new single-family homes rose 2.7 percent last month to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from the August level. The median price of a new home sold in September declined 9.1 percent from a year ago to $218,400, the lowest price level since September 2004, a period when home prices were rising rapidly as the country experienced a five-year housing boom. The surprising increase in September sales still left them 33.1 percent below the level of a year ago as the country is battered by the worst housing slump in decades. The report on a rise in new home sales followed news last week that sales of existing homes rose in September by 5.5 percent, the largest monthly gain in more than five years. Analysts are not convinced that the sales increases are signaling a bottom for the housing market. They note that the September gains came before the latest upheavals in financial markets which have raised new worries about the overall state of the economy.[/quote] [b]My Comment:[/b] Despite the fact that September`s new-home sales were the [url=http://money.cnn.com/2008/10/27/real_estate/September_new_home_sales/index.htm?postversion=2008102713]worst in over a quarter--century[/url], it is still encouraging that "if you price it affordably, the buyers will come, even though credit is tight" [a.k.a. good old-fashioned supply and demand fundamentals] are not dead and gone. The sheer tightness of mortgage credit means that people [or institutions] buying housing now are in a much better position to service the debt [even if there are further price declines before the bottom is finally reached] than at just about any point in the past decade. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aFozRIrhJHM4&refer=news]General Motors Said to Ask U.S. Treasury for Aid in Chrysler Merger Talks[/url]: [i]General Motors Corp., the largest U.S. automaker, has asked the Treasury Department for financial aid to help complete a merger with Cerberus Capital Management LP's Chrysler LLC, two people with knowledge of the matter said.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aSbq7pnoWhZg&refer=news]Capital One, SunTrust Are Among 14 Banks Getting $31 Billion From Treasury[/url]: [i]Fourteen regional U.S. banks, including SunTrust, Capital One, KeyCorp and PNC Financial Services Group Inc., accepted at least $31 billion in government cash as the Treasury rolled out the second half of its $250 billion package to shore up lenders and thaw frozen credit markets.[/i] [quote]``This is just unprecedented,'' said BMO Capital Markets analyst Peter Winter. ``What the government has said is that you can't let the financial system fail, and if this doesn't work they'll come up with another plan.'' The U.S. capital infusions come as governments worldwide do all they can to ensure the stability of banks. Kuwait's central bank said it will guarantee deposits at Gulf Bank KSC, which remains solvent after clients defaulted on currency derivatives contracts, the state-run Kuwait News Agency reported. Paulson already gave $125 billion to nine of the biggest U.S. lenders. Some banks are raising money on their own. Mitsubishi UFJ Financial Group Inc., the Japanese bank investing $9 billion in Morgan Stanley, said it will sell as much as 990 million yen ($10.7 billion) of stock to replenish its capital. Japan's biggest bank may sell as much as 600 billion yen of common shares in the 12 months starting Nov. 4.[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBQQ_qM_aIos&refer=news]Morgan Stanley Kept Money Funds Liquid With $23 Billion Purchase of Assets[/url]:[i]Morgan Stanley clients withdrew almost one-third of their cash from money-market accounts last month, forcing the firm to buy $23 billion of securities held by the funds to keep them afloat.[/i] [b]My Comment:[/b] Your tax dollars at work... [url=http://www.bloomberg.com/apps/news?pid=20601086&sid=ahCDEOY40kqM&refer=news]Emerging-Market Stocks, Currencies Drop; China, India, Hungary Lead Rout[/url]: [i]Emerging-market stocks dropped to a four-year low as Ukraine and Hungary became the latest countries to receive help from the International Monetary Fund and concern deepened that the global economy will fall into a recession.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a0jln3.CSS6c&refer=news]Evil Wall Street Exports Boomed With `Fools' Born to Buy Securitized Debt[/url]: [i]Tom Bosh lowered the telephone receiver into its cradle, making a decision on the way down. ``We're not buying any more,'' he told his traders at Bank of New York Co. ``Nothing.''[/i] [quote]It was May 2007, and Bosh, who managed $25 billion from the bank's 13th-floor trading room above Times Square, had just hung up on Ralph Cioffi at Bear Stearns Cos. a dozen blocks away. Bosh had invested $50 million in notes from an issuer Cioffi controlled, and he was ready to pull the plug. ``I had a bad feeling,'' Bosh, 45, recalled. ``Cioffi was just bulldogging everyone. He was saying, `These assets are good, the collateral is paying down, and I know more than you.' That type of attitude.'' Bosh's premonition, a month before two of Cioffi's funds blew up, struck a death knell for structured finance, the system Wall Street banks devised to fuel more than two decades of unprecedented borrowing. The system allowed financial companies to lend beyond their capacity and outside the reach of regulators -- until it crashed this year. While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion. [b] Biggest U.S. Export [/b] The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion. The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S. ``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.'' [/quote] [b]My Comment:[/b] What a great economic model we`ve developed here in the U.S. over the past several decades - buying and selling each other ever-more-overpriced equities and real estate masquerade as "economic growth", and the gargantuan Ponzi scheme based on toxic debt known as "securitization" became our largest export industry. But as president Bush and the I`m-not-Bush-I-just-vote-like-him 2008 model "Maverick John McCain" spent much of the past year reminding us, "the fundamentals of the economy are sound". The article details some of the banks [especially in Europe] which binged on the resulting toxic paper ... in particular, the 3 just-nationalized Icelandic banks together bought a colossal $228 Billion worth of the stuff, more than 20 times Iceland`s GDP. Utter madness ... and while researching this story, I found [url=http://www.iht.com/articles/2008/04/02/business/icebank.php]this very interesting 2 April news story[/url] which shows that it`s not just Bush and Maverick McCain who are prone to lying about the state of their nation`s economy: [quote]REYKJAVIK: Icelandic officials are seeking to reassure investors that the country's economy and banks are stable, after a sharp decline in the national currency undermined confidence. [b] "The economy is fundamentally sound,"[/b] Ingimundur Fridriksson, the deputy governor of the Central Bank of Iceland, said Tuesday . The banks "are affected by the situation in the global financial markets like banks everywhere," though they have [b]"virtually no subprime exposure."[/b] The central bank raised its benchmark interest rate to a record 15 percent last week to shore up confidence after the currency and stocks slumped and the cost of insuring bank debt soared. Standard & Poor's on Tuesday cut its outlook on Iceland's credit rating to negative, citing concern that the global credit crunch will push the government to aid the island's three largest banks; Kaupthing Bank, Landsbanki Islands and Glitnir Banki. The banks [b]"can ride out the storm,"[/b] said Richard Portes, president of the Center for Economic Policy Research. "Market funding is assured for the coming year; they have no toxic waste. Unlike virtually every other major bank in the world, the Icelandic banks didn't buy any of that garbage." The currency, the krona, has tumbled 22 percent against the euro this year. The euro was worth 118 kronur on Wednesday, while the dollar purchased 76 kronur. David Oddsson, chairman of the central bank's board of governors, said Friday that the slump in the krona was due to [b]speculative attacks from "unscrupulous dealers."[/b] The three biggest banks in Iceland have expanded beyond the borders of the $16 billion economy, financing their growth by selling debt. Higher credit costs on world markets, which are making that strategy more costly, have raised concern about that strategy. The three lenders account for about 80 percent of Iceland's gross external debt, five times greater than gross domestic product. Fitch Ratings cut its outlook on the banks to negative from stable Tuesday. It has a long-term debt rating of A on the banks, while the sovereign foreign debt is rated A+, the fifth-highest ranking. An investor in the credit default swap market wanting to insure against default on €10 million, or $15.6 million, of five-year debt at Kaupthing had to pay €954,000 up front Wednesday, according to CMA Datavision. That is down from €1.45 million Tuesday, before [b]a successful stock offering by Lehman Brothers stoked a rally in global equities.[/b] [u]The credit default swaps "are completely out of touch with reality," Portes said. "They don't mean anything."[/u][/quote] [b]My Comment:[/b] What a colossal load of delusional thinking and flat-out lying - Your banks buy over $200 Billion of above-market-yielding securitized debt and you have no clue what that debt might be composed of, or that it might be just a tad less than risk-free? We`ve seen this playbook before though, haven`t we? Lie #1: "The economy is fundamentally sound." Lie #2: "Banks are well-capitalized". Delusion #1: "That stench-emitting steaming pile of securitized debt must belong to someone else, because *ours* doesn`t stink one bit." Delusion #2: "Speculators are to blame". Delusion #3: "Credit markets have no clue what they`re talking about ... we are triple-A all the way, baby!" [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aVann0.cv9Tw&refer=news]Broken Securities Industry Still Has $20 Billion Available to Pay Bonuses[/url]: [i]Five straight quarters of losses and a 70 percent slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.[/i] |
[QUOTE=ewmayer;146818][url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aSbq7pnoWhZg&refer=news][b]Capital One[/b], SunTrust Are Among 14 Banks Getting $31 Billion From Treasury[/url]: [i]Fourteen regional U.S. banks, including SunTrust, Capital One, KeyCorp and PNC Financial Services Group Inc., accepted at least $31 billion in government cash as the Treasury rolled out the second half of its $250 billion package to shore up lenders and thaw frozen credit markets.[/i][/QUOTE]
Gives a whole new meaning to "What's in your wallet?", doesn't it? |
Emerging-Market Currency Crisis Threatens Europe
[url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3260052/Europe-on-the-brink-of-currency-crisis-meltdown.html]Europe on the brink of currency crisis[/url]: [i]The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.[/i]
[quote]Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992. “This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon. Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits. The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect. They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles. Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn. Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America. Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund. Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama. Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.[/quote] [b]My Comment:[/b] It seems that whenever my birth country Austria becomes more than a bit player on the European stage, it`s time to worry. Ditto for Iceland, Hungary, etc. The wild recent action in the Japanese Yen is a symptom of the underlying problem here - the spectacular unwind of the Yen carry trade is having a ripple effect: [quote]Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc. The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns. The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world. Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire. ... Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik. The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months. ... A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states. The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined. Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates. Didn’t they tell you? [/quote] [b]My Comment:[/b] Maybe the U.S. government can bail out these folks, too. |
Huge Rally on Wall Street
[url=http://money.cnn.com/2008/10/28/markets/markets_newyork/index.htm]Dow's 2nd best day ever[/url]: [i]The Dow rallied as much as 906 points during Tuesday's session, as investors dove back into stocks near the end of one of the worst months in Wall Street history.[/i]
[url=http://money.cnn.com/2008/10/28/real_estate/August_Case_Shiller/index.htm]Home prices see another record plunge[/url]: [i]10 major markets have seen home values fall 17.7% over the past 12 months, and experts expect the declines to continue.[/i] [url=http://money.cnn.com/2008/10/28/news/international/iceland_interest_rates.ap/index.htm]Iceland central bank raises interest rate to 18%[/url]: [i]Finance officials hope to avert a run on the island nation's currency and secure a $2 billion IMF loan.[/i] [url=http://money.cnn.com/2008/10/28/news/international/pakistan_IMF.ap/index.htm]Pakistan needs IMF loan[/url]: [i]Pakistan must secure a loan from the International Monetary Fund within a week, the German foreign minister said Tuesday, as the country scrambles for aid to avert a run on its currency and a default on its international debt.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=apdgro88sMKM&refer=news]Consumer Confidence Plunges to Record Low Amid Stock Slump, Credit Freeze[/url]: [i]U.S. consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit, raising the risk spending will tumble.[/i] [b]My Comment:[/b] "Frugality is the new reality." [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a.L4ANKEKyjo&refer=news]Whirlpool Will Cut 5,000 Jobs by 2010 as Housing Slump Hurts Sales, Profit[/url]: [i]Whirlpool Corp., the world's largest appliance maker, will cut 5,000 jobs, or 6.8 percent of its workforce, and forecast lower annual profit as the global credit crunch and U.S. housing slump clips appliance sales.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601086&sid=a7IBZCP48sIg&refer=news]Volkswagen to Send 1,200 Workers Home on 10-Day Leave in Brazil`s South[/url]: [i]Volkswagen AG, Europe's largest carmaker, will send 1,200 workers at a plant in southern Brazil on paid leave in November for 10 days.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aBsmVntzdTYU&refer=news]GM's Wagoner Personally Lobbies for Federal Aid Amid Chrysler Merger Talks[/url]: [i]General Motors Corp. Chief Executive Officer Rick Wagoner is personally leading a lobbying push for federal aid as the biggest U.S. automaker seeks to merge with Chrysler LLC, people close to the discussions said.[/i] [quote] Oct. 28 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner is personally leading a lobbying push for federal aid as the biggest U.S. automaker seeks to merge with Chrysler LLC, people close to the discussions said. Wagoner, 55, was in Washington yesterday and also met last week with Treasury Department officials, said the people, who asked not to be identified because the talks are private. GM has asked for government funds to help combine with Cerberus Capital Management LP's Chrysler, people have said. GM is among automakers eligible for $25 billion in low- interest borrowing to retool plants, while auto lenders may get funding from the $700 billion bailout fund to buy bad home loans and other troubled assets. GM may want $10 billion in government aid, two people familiar with the discussions said. Treasury Secretary Henry Paulson would prefer any funding for Detroit-based GM come from the low-interest loans, not the $700 billion banking-system rescue, people familiar with the matter have said.[/quote] [b]My Comment:[/b] As usual, Hank "Son of Sachs" Paulson`s priorities appear crystal-clear: "I extorted this here $700 Billion for Goldman, erm, I mean, 'the distressed financial sector', and you silly goods-producing union-labor rabble can`t have any of it - it`s all mine, mine, MINE!" Not that I shed any hot tears for the horribly-mismanaged, over-priced-labor-afflicted Detroit automakers, but the given the choice between wasting $10 Billion in taxpayer money by throwing it at Wall Street versus Detroit, I`d take the latter any day. By the way, even if the government ends up backstopping a GM-Chrysler merger, thus averting what would surely be an imminent bankruptcy for at least one of the 2 firms, expect a gigantic wave of plant-closing and layoffs to result - I estimate an eventual total of 50,000 - 100,000 jobs lost. Finally, in a sad story with an unintentionally amusing headline: [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=appDj0vq857U&refer=news]Polish Immigrants Flee Slumping Irish Economy, Hurting Beer, Food Sales[/url] [quote] Oct. 28 (Bloomberg) -- When the European Union expanded eastward in 2004, Ireland opened its doors to workers entering from former communist states to help maintain record economic growth. Now, immigrants are heading for the exit. The number of people leaving Ireland next year will outstrip those moving to the country for the first time in 14 years, according to Economic and Social Research Institute in Dublin. The biggest exodus will be among the 170,000 workers who arrived the past four years from Poland and other east European states. ``It's a very hard situation,'' said Artur Kawczynski, 30, who lost his factory job in Galway on Ireland's west coast 10 days ago. ``I rang my friends in Poland to ask what job opportunities there are like.'' Immigrants like Kawczynski fed the manufacturing and building booms that helped double the size of Ireland's economy during the past 10 years and made it the most dynamic in western Europe. Now the seizure in credit markets has plunged the country of 4.4 million people into its first recession in two decades, pushing unemployment to an 11-year high. Economic growth remains above 5 percent in Poland.[/quote] [b]My Comment:[/b] This lends new meaning to the advice-to-the-soon-to-be-job-hunter phrase, "Time to polish your résumé..." [b]Bloomberg In-Depth:[/b] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aPxfNBXGvA4g&refer=news]Lehman Toxic Debt Advice Led Leipzig's Landesbank to Ruin via Dublin Fund[/url]: [i]Teachers at the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget surplus to ease staff shortages across the state of Saxony.[/i] [quote]Those hopes have faded as a result of bets made by state- owned Landesbank Sachsen Girozentrale on structured investments backed by mortgages in the U.S. The German lender loaded up on asset-backed securities and derivatives manufactured and sold by Wall Street amounting to more than 27 times the bank's equity. Now Saxony, which pledged taxpayer money as a guarantee against losses, is on the hook for 2.8 billion euros ($3.5 billion). ``They gambled away money needed for Saxony's teachers,'' said Wolfgang Renner, 55, who teaches math and physics at the 106-year-old yellow-brick school in Freiberg, named for a former Communist Party leader. It doesn't take a degree in mathematics to calculate the potential damage in nearby Leipzig, where Sachsen is based and where Gottfried Wilhelm von Leibniz, the 17th-century polymath who invented calculus, was born. Plans to replace thousands of retiring teachers and build new roads are now in jeopardy. ``As Saxony politicians, we pray every day that the guarantee won't be used,'' said Mario Pecher, a lawmaker in Dresden, the state capital flattened by Allied bombing in World War II. ``There's a Damocles sword hanging over our heads.'' `Irresponsible' Loans The bank's near collapse in August 2007 was proof of how far and wide U.S. investment banks had peddled toxic repackaged mortgages. It was also a harbinger of worse to come -- a global credit contagion that led to bailout packages from Germany to Iceland to the U.S. aimed at shoring up bank capital by partially nationalizing firms and guaranteeing lending until the storm passes. Two days after a 50 billion-euro Oct. 5 rescue of Munich- based Hypo Real Estate Holding AG, Germany's second-largest commercial-property lender, German Chancellor Angela Merkel told an emergency session of parliament that ``irresponsible'' loans in the U.S. had helped destroy faith in the global financial system. Germany's Landesbanken, whose state ownership, high credit ratings and low borrowing fees whetted their appetite for asset- backed securities earlier this decade, accounted for $22 billion of the more than $650 billion in writedowns and credit losses linked to the U.S. subprime-mortgage market. The Sept. 15 bankruptcy of Lehman Brothers Holdings Inc., the New York-based securities firm that helped set up Sachsen's biggest offshore conduit, may cost the Landesbanken half a billion euros more. `Gambled Away Billions' The demise of Sachsen is a story of overreaching and of how Wall Street banks exported financial technology and products whose risks were not fully understood, according to interviews with two dozen bankers, board members, credit analysts and politicians. In the end, the citizens of Saxony will probably be left holding the bag. ``They made huge bets with taxpayers' money, they gambled away billions and nobody has been held responsible,'' said Andreas Schmalfuss, a member of the parliamentary committee probing Sachsen's collapse. Schmalfuss and local prosecutors are looking at whether former top executives at the bank misrepresented risks in annual reports, improperly used funds and put Sachsen in danger by setting up an off-balance-sheet conduit in Ireland to buy more asset-backed securities than it should have. [/quote] [b]My Comment:[/b] This same story is being played out in various sizes and guises all over the globe. It always ends the same way: "Taxpayers will be left holding the bag." One paragraph in the denouement portion near the end of the above article is rather ironic: [quote]In July, Saxony and LBBW hired an outside bank to help them clean up the mess. [b]The firm they selected was the asset management arm of Lehman Brothers[/b], the bank that advised Sachsen on setting up [its Irish high-leverage asset-acquisition subsidiary] Ormond Quay in 2004. [/quote] |
IMF Faces "Nuclear Option" of Printing Money
[url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3269669/IMF-may-need-to-print-money-as-crisis-spreads.html]IMF may need to "print money" as crisis spreads[/url]: [i]The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money.[/i]
[quote]The Fund is already close to committing a quarter of its $200bn (£130bn) reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia. Neil Schering, emerging market strategist at Capital Economics, said the IMF's work in the great arc of countries from the Baltic states to Turkey is only just beginning. "When you tot up the countries across the region with external funding needs, you get to $500bn or $600bn very quickly, and that blows the IMF out of the water. The Fund may soon have to start calling on the West for additional funds," he said. Brad Setser, an expert on capital flows at the Council for Foreign Relations, said Russia, Mexico, Brazil and India have together spent $75bn of their reserves defending their currencies this month, and South Korea is grappling with a serious banking crisis. "Right now the IMF is too small to meet the foreign currency liquidity needs of the larger emerging economies. We're in a dangerous situation and there is the risk of extreme moves in the markets, as we have seen with the Brazilian real. I hope policy-makers understand how serious this is," he said. The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing `AAA' bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits. The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world's central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis. "The IMF can in theory create liquidity like a central bank," said an informed source. "There are a lot of ideas kicking around." For now, Eastern Europe is the epicentre of the crisis. Lars Christensen, a strategist at Danske Bank, said the lighting speed and size of Ukraine's bail-out suggest the IMF is worried about the geo-strategic risk in the Black Sea region, as well as the imminent risk a financial pandemic. "The IMF clearly fears a domino effect in Eastern Europe where a collapse in one country automatically leads to a collapse in another," he said.[/quote] [b]My Comment:[/b] The speed with which this house of cards is collapsing is simply breathtaking. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aQBuRDY.h_v0&refer=news]Chrysler Will Drop First Hybrids as Plant Shuts Down, Gasoline Prices Fall[/url]: [i]Chrysler LLC, the automaker considering a combination with General Motors Corp. to survive, has been forced to kill its only gasoline-electric model because of poor sales of its largest sport-utility vehicle.[/i] [quote]The hybrid versions of the Dodge Durango and Chrysler Aspen SUVs, which went on sale this month, are produced at the Newark, Delaware, factory that Chrysler said last week will shut by Dec. 31. The plant also makes gasoline-only versions of those models. Todd Goyer, a Chrysler spokesman, confirmed the hybrid decision today. ``This vehicle would have done a lot better three or four years ago,'' when demand for SUVs was greater, Jim Hall, principal at 2953 Analytics in Birmingham, Michigan, said of the Chrysler gasoline-electric models. Chrysler's decision leaves it without plans for any new hybrid models for at least a year. No other major automaker is more dependent on pickup trucks, SUVS and minivans, which have lost sales this year because of high gasoline price. Chrysler already is playing catch-up to competitors such as Toyota Motor Corp., which has sold hybrid models for more than a decade.[/quote] [b]My Comment:[/b] A hybrid version of a moster gas-guzzling SUV like the Durango or Aspen is an idiotic pander-to-the-green-theme idea anyway. Yeah, I know, an SUV that gets better gas mileage is better than no improvement, but improving their SUV fleet mileage from [say] 15mpg to 20mpg doesn`t get us close to ending our dependence on foreign oil. 20mpg is still woefully short of what an efficient hybrid car gets, and the vast majority of SUV drivers don`t really need a large vehicle to haul around anything, except perhaps for their oversized American-fast-food-inflated asses. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aIA145PNvvXw&refer=news]Pulte Chairman Sells More Than $7 Million of Shares to Meet Margin Calls[/url]: [i]William Pulte, founder and chairman of Pulte Homes Inc., the third-largest U.S. homebuilder by revenue and market value, sold 760,000 shares, worth more than $7 million, to satisfy margin calls, according to a statement distributed by PR Newswire.[/i] [b]My Comment:[/b] "Who is this Margin dude and why does he keep calling me?" [url=http://www.bloomberg.com/apps/news?pid=20602007&sid=ayXMdrVk8rZs&refer=govt_bonds]Non-Agency Mortgage Bonds Fall Amid Selling Concern[/url]: [i]Subprime, Alt-A and prime-jumbo mortgage securities fell this month as bond holders were forced to sell assets, driving some prices to record lows.[/i] [quote]The least protected bonds originally rated AAA and backed by Alt-A mortgages with five years of fixed rates slipped to about 15 to 25 cents on the dollar last week, according to a RBS Greenwich Capital report yesterday. The bonds, issued in 2006 and 2007, were at the high-20s to mid-30s in early September. ``Super-senior'' bonds from the same groups of loans were selling in the ``mid-50s to mid-60s,'' down from 60 to 70 cents. The non-agency U.S. home-loan bonds, an almost $2 trillion market, fell from 100 cents on the dollar last year as foreclosures soared and home values tumbled. Prices have slumped as financial firms sell assets to bolster capital, declining debt values force funds to unload securities and tighter lending prompts bond buyers to seek lower purchase prices. ``Concerns about potential forced liquidations from hedge funds and other institutions weighed negatively on the market'' this month, Desmond Macauley and Joseph Ruszkowski, asset-backed mortgage strategists at Greenwich, Connecticut-based RBS Greenwich, wrote in the report. Non-agency mortgage bond prices have also fallen along with optimism about the $700 billion U.S. financial-market rescue plan signed into law on Oct. 3, the report said. Enthusiasm dimmed because the program began with capital injections into banks, instead of mortgage-asset purchases, they wrote. [/quote] [b]My Comment:[/b] This is precisely the kind of toxic MBS debt Paulson and Bernanke - in their first proposal for "how to waste $700 Billion in taxpayer money"- wanted to pay "whatever they deemed a fair price" for. [Bernanke specifically suggested an above-market price, at the same time insisting 'there was no market' for these.] |
Wild Price Action in Volkswagen Stock
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Here`s a story I came across in yesterday`s online edition of [i]Die Welt[/i] - translation is mine. Long story short: Porsche stealthily buys up nearly half VW share float and acquires options on another 30%, causing the price to rise handsomely and provoking a large short interest in shares of VW. The remaining "free float" is tiny [only ~6% of the total], so when Porsche then publicly announces it intends to acquire a majority stake in VW, it spurs perhaps the wildest short-covering rally in history, as shorts [especially the naked kind] are caught with their pants down and forced to cover at whatever price they can get shares for. The stock, already 3-4x overpriced according to some analyst estimates, quintuples in less than 48 hours, briefly making VW the most valuable company [in terms of nominal market capitalization] on earth. Meanwhile, the finance minister of Lower Saxony, which is the 2nd-largest shareholder, says he does not intend to sell any of the state`s holdings [at what would surely be a massive profit] because "we are not speculators". Of course a short while after finishing translating the article below, a friend sent me [url=http://biz.yahoo.com/rb/081028/business_us_volkswagen.html]this English-language article[/url], which says more or less the same thing. Sigh...:
[url=http://www.welt.de/finanzen/article2637841/Porsche-weist-Aktien-Manipulationsvorwurf-zurueck.html]Porsche denies accusations of stock price manipulation[/url]: [i]Germany`s largest fund management company DWS has accused the automaker of manipulating the price of Volkswagen stock. Now Porsche has launched a counteroffensive. Cause and Effect are being mistaken for each other, according to the luxury-car manufacturer.[/i] [quote]Porsche says it is not responsible for the recent price gyrations in common shares of Volkswagen. "We categorically deny the accusations of stock price manipulation," said a Porsche spokesperson Tuesday in Stuttgart. Cause and Effect are being mistaken for each other, according to Porsche. "The responsible parties are those who bet huge sums of money on a falling VW share price", said the spokesperson. DWS, Germany`s largest fund management company, attacked Porsche over the steep price jump in VW shares. After a 150 percent jump on Monday, shares on Tuesday rose another 100 percent, and topped the 1000-Euro mark in intraday trading. In terms of on-paper market capitalization Volkswagen even topped that of Exxon Mobil and for a few minutes became the World`s most valuable company. "I strongly decry the irresponsible fashion in which Porsche has manipulated the price of VW stock", said DWS CEO Klaus Kaldemorgen in an interview with "Financial Times Deutschland". "For outside investors it is incomprehensible what Porsche is doing." According to several sources the German stock exchange currently has "no plans for a trading halt of VW shares". A spokesperson said "The exchange must follow its own regulations." The stock would only be halted if the fraction of freely tradable shares dropped below the five percent threshold. Currently the free float stands at roughly six percent. In the wake of the latest price explosion in VW stock the German Investor Protection Organization (SdK), the second-largest Investor Protection group in Germany, has demanded a suspension of trading of VW shares. In an interview with [i]Deutsche Welle[/i] Klaus Schneider, the head of SdK, said "The price action in VW is falsely distorting the Dax and the the Eurostoxx indices. In that respect the requirements for a trading suspension are satisfied." Schneider described the valuation of VW shares as "beyond reason". The fair value, based on comparison with BMW or Mercedes, could be "only in the range of 50 to 70 Euro". Despite the price rise, the second-largest holder of VW, the state of Lower Saxony, does not intend to sell its stake. "That is a very attractive price", finance minister Hartmut Möllring said to Dow Jones Newswires. "But we are not speculators and daytraders here". According to reports in "Financial Times", the losses by hedge funds betting on falling prices currently lie in the range of over 40 Billion Euro. As the number of free-floating VW shares has contracted sharply, their purchase has become ever more difficult, driving the price upward. At end of trading on Monday the market capitalization of VW totalled 153 Billion Euro, more than the sum total of all other European and American automakers combined. According to reports, Porsche currently owns over 42.6 percent of VW shares and has options on a further 31.5 percent. In the coming weeks the Stuttgart firm will try to pass the 50-percent hurdle. For 2009 Porsche plans an agreement of control, at which point it will have a 75 percent stake in VW. According to Porsche the Sunday announcement was intended to give short-sellers "A chance to close out their positions calmly and without greater risk.".[/quote] [b]My Comment:[/b] If Porsche really had the peace of mind of the short sellers at heart, it could have sold back a small portion of its shares [at a handsome profit, no less] allowing shorts to cover at a lower price than 1000 Euros. Not that we especially pity the shorts - they took a gamble and lost, it happens, although not usually this spectacularly. The finance minister of Lower Saxony is a fool for not taking some profit at these once-in-a-lifetime windfall prices. Just because you don`t support stock speculation doesn`t mean you should pass up the opportunity to profit at the expense of the speculators. Even selling a small portion of its stake would allow Lower Saxony to handsomely beef up its rainy-day fund, and that money might come in very handy in the next few years, as the global recession really starts to bite. And here is the 5-day price chart for VW which graphically illustrates the madness: |
Fed Cuts Key Rate to 1% | Fannie Takes Charge
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=awpa6f1vDwlg&refer=news]Fed Cuts Key Rate to 1% as Central Banks Race to Avert Worldwide Recession[/url]: [i]The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era.[/i]
[b]My Comment:[/b] The parallels to the late-80s Japanese real estate bubble and the ensuing [and spectacularly misguided policy] of lowering interest rates to near zero - i.e. easing credit in an attempt to fix a problem caused by too much easy credit - grow ever more striking. [url=http://money.cnn.com/2008/10/24/magazines/fortune/buyandhold_okeefe.fortune/index.htm]Investor Daily: Is buy-and-hold dead and gone?[/url]: [i]As volatile and scary as stocks look now, here are three big reasons not to abandon your investing strategy.[/i] [quote](Fortune magazine) -- That's about the craziest thing I've ever heard!" shouts Jeremy Siegel through the phone when I mention the headline of this story. "I mean, what's the rationale for anyone saying that?" I had called up the Wharton professor because he's one of the high priests of buy-and-hold investing. In his classic book, Stocks for the Long Run, Siegel analyzed 200 years' worth of U.S. market returns and concluded that patient, consistent investment in stocks over a long period is the most effective strategy for wealth creation among regular folks.[/quote] [b]My Comment:[/b] That works great if you have a 200-year time horizon. OK, I`m being somewhat facetious there - but if the "big crises" [e.g. Great Depression, dot-com bubble collapse, 2008 Global Financial Crisis] teach us anything, it`s that while buy & hold is a great long-term strategy for non-cataclysmic times, the really big whoppers of bear markets, the ones where one can easily lose 50% or more of one`s patiently-accumulated buy-and-hold gains, don`t just sneak up on us on stealthy little cat feet. Prior to each of the above trio of examples, there were plenty of warning signs that something was seriously amiss, and that a giant speculative asset bubble of some kind was beginning to unwind. And if you can get yourself to put aside the normal buy-and-hold thinking during those rare-but-foreseeable market periods, you will be far better off than a 100% buy-and-holder. Also, if the Japanese real estate bubble of the late 80s teaches us anything, it`s that real-estate bubbles are among the worst kind, because the recovery period may require decades. Aside from the mini-stock-bubble in the Nikkei index in the early 200s [coincident with the U.S. stock and RE bubble], the Japanese market has still not recovered, three decades later. That is a time horizon long enough to put a giant red caution flag next to any "buy and hold" advice being offered currently. Sure, if you`ve been doing that and have already lost a lot of money, at this point it`s probably best to try to ride it out, but the point is that any asset manager who didn`t see the plentiful warning signs a year or more ago and failed to advise his clients to park some of their money in cash or bear-market hedging vehicles [e.g. gold and Treasuries] failed in his duties. The rest of the article gives all the usual bromides about "don`t try to time the markets", "you can`t ever hope to get out at exactly the exact high or get back in at the ensuing low", et cetera, and tries to invoke the mystical "Warren Buffett is buying now" mantra to bolster their claims. But notice - has Warren been indiscriminately buying an index-fund-like portfolio all along? He has not. He only recently bought a stake in e.g. Goldman Sachs, one the price had fallen appreciably from its recent levels, and Warren being Warren, he got what amounts to a roughly 20% discount on his purchase. Also, notice that Warren`s Berkshire Hathaway holding-company stock hasn`t exactly been a market beater this year. [url=http://biz.yahoo.com/ap/081029/fannie_mae_charge.html]Fannie Mae to take charge on deferred tax asset[/url] [quote]WASHINGTON (AP) -- Mortgage giant Fannie Mae, which was taken over by the government in September, said Wednesday it will record a charge related to deferred tax assets against its third-quarter earnings. Fannie Mae said the amount of the charge, called a valuation allowance, has not been determined, but "it is likely to be substantially all of the value of the deferred tax asset as of Sept. 30." Fannie Mae had $20.6 billion of deferred-tax assets as of June 30, though it was not known if the third quarter write-off was to be more than that. A deferred tax asset can emerge from operating losses, and can be held and used to reduce future tax expenses. Companies must be able to show they will be profitable if they intend to use the tax asset for earnings in later periods. Fannie Mae is absorbing a blow to its capital this quarter with the valuation charge on the assets, raising questions about its profitability moving forward. The Washington, D.C.-based company said it will give further information on how the write-off affects earnings when it releases third-quarter results. The company has a Nov. 7 deadline to report. Fannie Mae and Freddie Mac, which own or guarantee nearly half of U.S. home loans, were taken over by the government in September as their mounting defaults and foreclosures threatened the entire mortgage market. The mortgage finance agencies now operate in a conservatorship that enables the government to inject up to $100 billion in each company in exchange for ownership stakes of almost 80 percent. They also are facing a federal grand jury investigation into their accounting practices -- including the use of deferred tax assets.[/quote] [b]My Comment:[/b] This news sounds bad on its face, but the markets appeared to cheer it. The probable reason is that the market isn`t expecting either Fannie of Freddie to return to profitability soon, and in that light this kind of "coming clean" seems better than announcing some kind of truly dreadful off-balance-sheet badness. |
U.S. GDP Contracts | Global Shipping Collapsing
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aHanX6NTfSfw&refer=news]U.S. Economy Shrank 0.3% in the Third Quarter as Consumer Spending Dropped[/url]: [i]The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be the worst recession in a quarter-century and boosting the chances of Barack Obama and fellow Democrats in next week's elections.[/i]
[b]My Comment:[/b] Barry Ritholz` take on the GDP numbers [url=http://bigpicture.typepad.com/comments/2008/10/gdp-negative-03.html]is here[/url]. [quote]Thank goodness for Federal, State and Local government spending, and for exports: Real personal consumption expenditures: -3.1% Durable goods -14.1% Nondurable goods -6.4% Services expenditures +0.6% Bloomberg notes that the 6.4% rate of decline in spending on non-durable goods, like clothing and food, was the biggest since 1950.[/quote] [url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3275375/Investors-shun-Greek-debt-as-shipping-crisis-deepens.html]Investors shun Greek debt as shipping crisis deepens[/url]: [i]]Freight rates for shipping are crashing at the fastest pace ever recorded as banks shut off credit lines to the industry, precipitating a sudden crunch in world trade.[/i] [b]My Comment:[/b] If you`re not familiar with the Baltic Dry Index, the above article provides a nice primer. [url=http://money.cnn.com/2008/10/29/news/companies/gm_global_sales/index.htm]GM global sales plunge[/url]: [i]No. 1 U.S. automaker sees weakness in U.S. demand spreading to overseas markets where sales had been strong.[/i] [quote]NEW YORK (CNNMoney.com) -- General Motors reported sharply lower global sales as weakness in the nation's leading automaker's domestic sales spread to overseas markets. GM (GM, Fortune 500) said that overall sales were down 11.4% worldwide in the third quarter compared to the same period a year earlier. That was a much steeper decline than the 2.9% drop seen in first half of the year. European sales, which had been up 2.8% in the first half of the year, plunged 12% in the quarter, while the Asian Pacific region saw sales slow to a 2.6% growth rate from nearly 10% growth in the first half of the year. North America, GM's home market, had already been weak, with sales down 15.3% in the first half of the year, but its sales weakened even further in the third quarter, dropping nearly 19% compared to a year earlier.[/quote] [url=http://money.cnn.com/2008/10/30/news/companies/exxon_earnings/index.htm]Exxon Mobil: Biggest profit in U.S. history[/url]: [i]Largest U.S. oil company surges past analyst estimates to post net income of $14.83 billion.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=adtjOhAF5mEk&refer=news]Bernanke Signals Door 'Open' for Cutting Rates to Lowest Level on Record[/url]: [i]Federal Reserve Chairman Ben S. Bernanke signaled he's ready to cut interest rates to the lowest level on record should the central bank's actions fail to stem the deepening economic slump.[/i] [b]My Comment:[/b] Bernanke might first investigate how well the ZIRP [zero-interest-rate policy] worked for Japan in the decades following their real-estate bubble`s collapse. He would probably reply to the effect of "this is not Japan", to which the response would be, "Not yet...". [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=azqu9qzFzXMI&refer=news]American Express to Cut 7,000 Jobs, Take $290 Million Charge, Freeze Hires[/url]: [i]American Express Co., the largest U.S. credit-card company by purchases, will slash 7,000 jobs, or about 10 percent of its staff, and may take a charge of as much as $290 million in the fourth quarter tied to the cuts.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601086&sid=adJxR7IUcJuk&refer=news]Emerging-Market Stocks Exit Bear Market With Three-Day Surge of About 20%[/url]: [i]Emerging-market stocks climbed out of a bear market after surging more than 20 percent in three days, while bonds and currencies climbed, as the U.S. agreed to pump as much as $90 billion into Brazil, Mexico and South Korea and the International Monetary Fund approved an emergency loan program.[/i] [b]My Comment:[/b] The key question is whether this is just a classic bear-market short-tern relief rally or something that will prove to have legs. I suspect the former, especially in light of [url=http://globaleconomicanalysis.blogspot.com/2008/10/fed-expands-swap-o-rama-to-brazil.html]this action by the Fed[/url]. Might be a nice chance to pick up some EEV/FXP/etc shares at a steep discount to their recent levels, though. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aX6xQJdexEEo&refer=news]Wall Street Firms Won't Surrender Bonuses Amid Outcry, Veteran Bankers Say[/url]: [i]Wall Street's chief executives will hunker down and pay bonuses this year in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry, industry veterans say.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aYJZOB_gZi0I&refer=news]Greenspan Slept as Off-Balance-Sheet Toxic Debt Escaped Regulator Scrutiny[/url]: [i]As George Miller welcomed 60 bankers to the chandeliered Charlotte City Club one evening in September, the focus was on more than the recent bankruptcy of Lehman Brothers Holdings Inc. From their 31st-floor perch, members of the American Securitization Forum, which Miller leads, fretted about the future of their $10.7 trillion industry.[/i] [quote]The bankers were warned that a Financial Accounting Standards Board plan would force trillions of dollars back onto balance sheets, requiring cash reserves to soar. Their business of pooling and reselling assets had dropped 47 percent in the first six months of the year, and the industry couldn`t afford another setback. The next day, Miller, 39, the forum`s executive director, took that message from North Carolina to a Senate hearing in Washington examining the buildup of off-balance-sheet assets. ``There are great risks to the financial markets and to the economy of moving forward quickly with bad rules,`` he said of FASB`s proposal. Miller was trying to preserve an accounting rule for off- the-books assets that helped U.S. banks export toxic debt around the world. It is a loophole that Jack Reed, the Rhode Island Democrat who chairs the Senate securities subcommittee, said had contributed ``to the severity of the current crisis.`` The damage to date: more than $680 billion dollars in losses and writedowns, about one-third of that by European banks. [b] Unregulated Derivatives [/b] Efforts by lobbyists have delayed FASB decisions and kept key parts of the American financial system beyond the reach of regulators. Their victories included ensuring that over-the- counter derivatives stayed unregulated and persuading the Securities and Exchange Commission to let investment banks reduce capital requirements. That allowed them to increase borrowing and magnify profits. Bank watchdogs also didn`t move to tighten mortgage-industry standards until after the collapse of the subprime market. Today, a road snakes from the foreclosed homes of California and Ohio to the capital cities of Europe, where politicians and bankers have struggled to contain a widening credit crisis by pumping hundreds of billions of euros into the financial system. The road was paved with decisions like ones by FASB that allowed banks to keep shifting assets into blind spots outside the view of shareholders and industry overseers.[/quote] [b]My Comment:[/b] Miller to the Senate: "Not so FASB, my dear senators ... remember the Prime Directive of American financial regulation: 'If it might possibly be bad for business, it must be killed'." [quote]That`s ironic to Donald Young, an investor advocate and FASB board member from 2005 until June 30. He testified at the same Senate hearing on Sept. 18 that both the Fed and the SEC joined the banks they oversaw in resisting proposals for more disclosure of off-the-books assets. ``There was an unending lobbying of FASB`` by companies and regulators, Young told the committee. [b] `Lack of Transparency` [/b] The former FASB board member made a similar point in a June 26 letter to Senator Reed. ``We lacked the ability to overcome the lobbying efforts that effectively argued that if we made substantive changes we would hamper the credit markets and hurt business,`` Young wrote. ``Our inaction did not hamper credit markets -- it helped to destroy them.`` [/quote] [b]My Comment:[/b] "Unending lobbying" ... we`ve heard this story before, e.g. with Fannie and Freddie. This is the part of the story the now-loudly-posturing and self-righteous-sounding Washington lawmakers don`t talk about very much. [quote]The accounting standards board, housed in a corporate office park in Norwalk, Connecticut, an hour northeast of New York City, operates in an unusual position between the public and private sectors. It was set up in 1973 as an independent rulemaking group, though the SEC gets a say in who is named to the board and can override its rules.[/quote] [b]My Comment:[/b] so much for the "independent" thing. [quote]Ten years ago, Wall Street was enjoying a bull market fed by a booming dot-com industry, a Fed chairman, Alan Greenspan, who trusted the market to correct its own ills, and a Congress amenable to lightening the touch of regulators. In 1998, the imminent collapse of hedge fund Long-Term Capital Management forced the Fed to organize a bailout by Wall Street. Investment banks had loaned the fund billions and were among counterparties in more than $1 trillion in derivative contracts used to hedge investment risks. [b] Greenspan, Rubin [/b] That same year Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt opposed an attempt by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. In 2000, Congress passed a law keeping them unregulated. Levitt said he went along with concerns by Greenspan and Rubin that Born`s action might throw derivatives contracts into ``legal uncertainty.`` He said he now regrets that he didn`t press a presidential advisory group ``to take a closer look`` at the issue. Rubin said in an interview that ``you could have had chaos`` if Born`s plan found existing derivatives contracts invalid because they weren`t traded on an exchange. Both Born and Greenspan declined to comment. Outstanding credit-default swaps, derivative contracts used to hedge or speculate on a company`s debt, would grow to $62 trillion from $631 billion in 2001. While the swaps spread risk, as intended, they also helped spread fear. Ninety percent of the trades were concentrated in the hands of 17 banks, according to the Federal Reserve Bank of New York. That left them exposed to losses if one failed, as Lehman Brothers did in September, and contributed to the unwillingness to lend to each other that`s at the center of the recent credit squeeze.[/quote] [b]My Comment:[/b] That number ,seventeen, is suspiciously close to the number of institutions (18) currently designated as [url=http://en.wikipedia.org/wiki/Primary_dealers]Primary Dealers[/url]. Mere coincidence, do you think? [quote][b]3 Percent Rule [/b] FASB had issued off-balance-sheet accounting standards in June 1996 to deal with the growth in securitizations. They were replaced in 2000 by FAS 140, which required more disclosures and rules for dealing with collateral. Companies were allowed to push an entity off their books if an outside party put up as little as 3 percent of the capital. Houston-based Enron Corp. declared bankruptcy in late 2001 when it was forced to put trusts back on its balance sheet because it hadn't met the 3 percent rule. The Enron scandal put pressure on FASB to make it harder for companies to keep assets hidden. In January 2003, it proposed a new rule, known as FIN 46, which increased the outside-party requirement to 10 percent. Traficanti, deputy controller of Citigroup, wrote that the proposed change would have a ``significant impact,'' forcing the lender to move the entities to the balance sheet and raise more capital. In December 2003, FASB published FIN 46R, a revision that gave the banks more flexibility to keep off the books investment vehicles they managed for a fee. [/quote] [b]My Comment:[/b] In the wake of Enron, you give the banks [b]more flexibility[/b] to hide their exposurte to risky debt? Madness. But wait - it gets even worse: [quote]In 2004, the SEC allowed the biggest securities firms -- Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman and Bear Stearns Cos. -- to set up a system giving the commission oversight of the investment banks' holding companies, rather than just their brokerage units, as had been the case. [b] Increased Leverage [/b] With the change, approved in April that year, the Wall Street firms avoided having their operations in Europe regulated by the European Union. They were also able to reduce the amount of cash their broker-dealer units had to set aside as a cushion against unexpected losses by as much as 30 percent, Annette Nazareth, then head of the SEC's market-regulation staff, said in an interview. Nazareth, who later became an SEC commissioner, is now a partner at New York law firm Davis Polk & Wardwell. That allowed the banks to increase their leverage, the ratio of borrowed funds to each dollar of equity capital held, and to invest even more heavily in subprime-related securities. Bear Stearns increased its leverage to 33.5-to-1 after the rule change from 26.4-to-1.[/quote] [b]My Comment:[/b] But wait - it gets even worse: [quote]The continued delays and revisions of FASB's off-balance- sheet rules let financial institutions keep the scope of their assets from public view. In May 2007, after the subprime mortgage crisis began to unfold, the accounting board proposed abolishing QSPEs altogether. It approved the move this April. [b] `Time Bombs' [/b] Under FAS 140, entities are allowed to be kept off the books only if their activities are beyond the control of the sponsor. The problem, FASB Chairman Robert Herz said in a Sept. 18 speech in New York, was that the QSPE concept was ``stretched'' by the addition of subprime loans, which require ``active management and large-scale restructuring'' by the lender. ``We now know with hindsight that some of these entities, treated as Qs for accounting purposes, were effectively ticking time bombs,'' Herz said, referring to rising subprime defaults. ``And the bombs started to explode.'' Switching metaphors, he added: ``Unfortunately, it seems that some folks used Qs like a punch bowl to get off-balance- sheet treatment while spiking the punch. That has led us to conclude that now it's time to take away the punch bowl.'' In July, FASB decided to keep the bowl on the table a little longer, postponing by a year the effective date of the changes, to Nov. 15, 2009. The decision came after major banks, a member of Congress, Miller's securities association and other trade groups complained that the board was moving too fast and that the results would be confusing for investors.[/quote] [b]My Comment:[/b] "Hey, confusing investors is *our* job..." |
Mish Shedlock comments on the GDP numbers
[url]http://globaleconomicanalysis.blogspot.com/2008/10/gdp-negative-as-consumer-spending-falls.html[/url]
[quote][italics marks text from the official government report] [i] The decrease in real GDP in the third quarter primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased. Most of the major components contributed to the downturn in real GDP growth in the third quarter. The largest contributors were a sharp downturn in PCE for nondurable goods, a smaller decrease in imports, a larger decrease in PCE for durable goods, and a deceleration in exports. Notable offsets were an upturn in inventory investment and an acceleration in federal government spending. Final sales of computers contributed 0.06 percentage point to the third-quarter change in real GDP after contributing 0.17 percentage point to the second-quarter change. Motor vehicle output contributed 0.09 percentage point to the third-quarter change in real GDP after subtracting 1.01 percentage points from the second-quarter change. [/i][b] Ridiculous Numbers [/b] Notice how an "acceleration in federal government spending" made a positive contribution to GDP. All government spending, no matter how wasteful or unproductive, is assumed to provide a positive contribution to output. Motor vehicles adding to GDP is absurd, as is final sales of computers. Computers are hedonically adjusted (all finished items are but computers are the worst offenders). For those not familiar with the term here is how it works. Computer are getting more powerful every year and prices are dropping as well. For example a computer today sells for $500 that would have cost $10,000 ten years ago. Even though the computer sells for $500, the government claims it sold for $10,000 (adjusted slowly over time). This is preposterous and a huge reason why we were really in a recession long ago. The first 2% of GDP (my estimate) represents transactions that never took place at the price government claims. [b] Unemployment Forecast 8% [/b] I forecast unemployment to hit 8% in 2009 about a year ago. It seems everyone is latching on to that number now. I had 6% forecast for 2008 in December of last year when the rate was 4.7% or so. Unemployment is 6.1% now. Rather than picking a new target now, let's see what happens in the remaining few months of the year. It is clear my 6% figure for 2008 was too optimistic and so 8% in 2009 is likely to be too optimistic as well. Right now I expect unemployment will hit 6.5% or higher by the end of the year, and 6.8-7.0% is not out of the question. Certainly the numbers next Friday will be miserable. Congress will soon be talking jobs programs. 2009 rates to be a miserable time to find a job. Consumer spending is going to crash.[/quote] |
State Pension Funds Blowing Up All Over the U.S.
[b]International:[/b]
[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aFsvZ1XKaO9U&refer=news]Argentina's Credit Rating Cut by S&P as Default, Political Concerns Mount[/url]: [i]Argentina's debt ratings were cut by Standard & Poor's for the second time since August amid mounting concern the global financial crisis and a tumble in commodity export prices will lead to default.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=awd1vGnyyBJQ&refer=news]`Panic' Strikes Hungary, Poland Borrowers as Banks Cut Dollar, Franc Loans[/url]: [i]Imre Apostagi says the hospital upgrade he's overseeing has stalled because his employer in Budapest can't get a foreign-currency loan.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a2df9V.O__gc&refer=news]Gulf Citizens Beg for Bailouts as Stock Rout, Oil Slump Spell End for Boom[/url]: [i]Abdullah Hajeri led a march on the Emir's palace in Kuwait this week, demanding the oil-rich nation's ruler stop stocks from plunging. Adnan Mohammed Saleh, down the Persian Gulf coast in Dubai, said he wants more government protection from the global financial crisis.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=auqam0SXjfvQ&refer=news]Leaden Hall Girls Tend to Tomatoes as U.K. Schools Confront Credit Famine[/url]: [i]Growing food is on the curriculum at Leaden Hall private school for girls in southwest England, and students can thank the credit crisis.[/i] [b]My Comment:[/b] Learning to grow one`s own food is auseful [and very healthy] exercise irrespective of one`s level of means - the entire developed world is going to get a painful but much-needed lesson in learning to live with less in the next few years. IMO wartime-style rationaing and do-it-your-self-ishness is something every generation should have to go through at least once in their lifetimes, [b]U.S.:[/b] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a6inoUkHlr0w&refer=news]U.S. Consumer Spending Falls as Confidence Drops; Purchasing Survey Slumps[/url]: [i]U.S. consumer spending tumbled in September and a purchasing managers' survey showed the biggest deterioration since 1968, foreshadowing a deepening economic slump.[/i] [url=http://money.cnn.com/2008/10/30/technology/motorola_earnings.ap/index.htm]Motorola to cut 3,000 jobs[/url]: [i]The communications equipment maker posts a hefty loss and postpones the spinoff of its cell phone unit.[/i] [url=http://money.cnn.com/2008/10/31/news/economy/reserve_primary_fund.ap/index.htm]"BrokeBuck Mountain": Money-market fund returns first $26B to investors[/url]: [i]Reserve Primary Fund 'broke the buck' in September amid a rush of redemption calls.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aYyk2_TLjGao&refer=news]U.S. Homeowners With `Underwater' Mortgages Climb to 20% as Prices Plunge[/url]: [i]Almost 20 percent of U.S. mortgage borrowers owed more on their loans in the third quarter than their house was worth as foreclosures depressed prices and the economy weakened, according to First American CoreLogic.[/i] In a related perspective, Barry Ritholz of [i]The Big Picture[/i] comments on the various underwater-mortgage bailouts being proposed: [url=http://bigpicture.typepad.com/comments/2008/10/moral-hazard-of.html]Moral Hazard of the Coming Mortgage Bailout[/url] [quote]Herein lies the simple problem in trying to “save” so many mortgages: A huge swath of them [u]should not be saved[/u]. Some of that is due to price, some of it is due to not wanting to reward irresponsible behavior, but the bulk of it is simply because the people living in these homes cannot reasonably afford to pay for them, even after a 20-30% workout. There are now more than 10 million “home-owers” underwater, with their mortgages greater than the present value of their homes. Since they have little skin in the game — thanks to banks that did away with down payment requirements — there is little incentive for them to tough it out. Not surprisingly, it is FDIC Chairman Sheila Bair who is leading the push towards a mortgage workout plan. She wants policy makers to take action to help people stay in their homes — thereby taking pressure off of the FDIC, which insures the banks. Why? More foreclosures = more bank failures = bigger FDIC obligations. The problem with this current rescue plan is that it is designed to “prevent the continued downward spiral of the housing market.” But that is EXACTLY what the housing market needs — overpriced homes that are not selling need to come down in price. We had a normal price increase from 1996-2001, and then a near vertical set of price gains from 2002-06. Any framework for systematically modifying loans that fails to comprehend that is doomed to failure.[/quote] [url=http://globaleconomicanalysis.blogspot.com/2008/10/pension-time-bomb-explodes.html]Pension Time Bomb Explodes In US and Canada[/url]: [i]The ticking time bomb of overpromised, underfunded public pension plans has finally exploded.[/i] [quote][from a linked article][i] The nation's largest public pension fund, the California Public Employees' Retirement System, is warning local and state entities it may need a taxpayer bailout to continue paying retirees. With stock market losses topping $50 billion since July 1st, CalPERS is on track to needing help in just two years if the nose dive continues on Wall Street. Local government and state retirees are guaranteed a certain amount, so the money has to be there. "What this really is, is compensation. It's part of an employee's compensation package," said Macht. Taxpayer groups are upset that Californians have to foot the bill when many employers have moved away from pension plans.[/i] A huge taxpayer backlash against overly generous public pension plans is brewing. Boomers with destroyed stock funds and IRAs are not going to want to have taxes increased so that public workers can get 90% of their salaries for the rest of their lives during retirement. Vallejo California went bankrupt over benefits earlier this year. Expect to see more cities and counties take that action if the stock market continues to decline from these levels.[/quote] [b]My Comment:[/b] The $50 billion lost by CalPERS this year would cover the entire budget shortfall for the state several times over. What a disaster. |
For you, ernst:
[URL="http://www.funnyordie.com/videos/cbabb3addc/bailout-rejected-please-help-the-rich-from-fod-team"]Help bailout the rich[/URL] |
[QUOTE=rogue;147416]For you, ernst:
[URL="http://www.funnyordie.com/videos/cbabb3addc/bailout-rejected-please-help-the-rich-from-fod-team"]Help bailout the rich[/URL][/QUOTE] Hell, yeah - enough of this namby-pamby "fruits of one's own labors" socialist claptrap. -------------------------- [b]World:[/b] [url=http://www.reuters.com/article/marketsNews/idINLO21083820081024?rpc=44]Reuters | Swedish truck makers hit as Europe slams on brakes[/url] [quote] STOCKHOLM, Oct 24 (Reuters) - Sweden's two top-flight truck makers Volvo and Scania posted lower-than-expected third-quarter pretax earnings on Friday and painted a bleak picture of truck markets hit by the global financial crisis. Order intake at the two rivals gave evidence of the sharp decline in demand in Europe, their main market, Scania's falling 69 percent from a year ago. Volvo found itself faced with nearly as many cancellations as new bookings in the quarter.[/quote] [url=http://money.cnn.com/2008/10/31/news/companies/jpmorgan_mortgage.ap/index.htm]JPMorgan will modify mortgages[/url]: [i]In an effort to avoid foreclosures on $70B worth of loans, the bank will review each mortgage, including those from WaMu and EMC.[/i] [url=http://money.cnn.com/2008/11/03/news/international/china_manufacturing.ap/index.htm]Chinese manufacturing in steep decline[/url]: [i]Weak demand for exports sends key manufacturing index to three-year low. China's stocks fall to two-year low, as economy slows to five-year low.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aBJ_0ULSgrjY&refer=news]Lehman `Good for Retirement' Notes Prove Worthless for `Livid' UBS Clients[/url]: [i]UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.[/i] [quote] Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless. Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington. ``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.'' Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch. Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states. [/quote] [b]My Comment:[/b] "Hey, we never said it was good for *your* retirement ... but it sure was good for ours." [b]U.S.:[/b] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=afRIrkrdlQkE&refer=news]U.S. Manufacturing Contracts at Fastest Pace Since 1982 as Crisis Deepens[/url]: [i]Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as the credit crisis deepened and companies reduced orders.[/i] [url=http://biz.yahoo.com/ap/081103/circuit_city_store_closings.html?.v=17]Circuit City to Shut 155 Stores, Reduce New Outlets as Consumers Stay Away[/url]: [i]Circuit City Stores Inc., the unprofitable electronics retailer, will close 155 U.S. stores and renegotiate leases on some of the remaining 566 locations to conserve cash.[/i] [quote]Based on nearly 43,000 employees as of Feb. 29, 17 percent could be up to about 7,300 workers. But the company said the number would likely be lower in part because employees in some markets may become employed at other stores. It would not give further details.[/quote] [b]My Comment:[/b] A rough estimate [based on the fact that CC is closing ~20% of its stores, and has ~45,000 full-time employees] tells me this translates to on the order of 5000 - 10000 full-time job cuts, and likely a similar number of part-time positions. The bit about shifting employees from shuttered stores o ones which will remain open is not credible, since business at the better-performing stores is surely down in a big way, as well. If anything, those stores have also been laying off or reducing hours for employees. [url=http://money.cnn.com/2008/10/31/news/companies/gm_chrysler/index.htm]Treasury says no aid for GM, Chrysler[/url]: [i]Merger between two automakers appears to be off until after the election, as Treasury says it will not provide the Detroit companies with aid, the Detroit Free Press reported.[/i] [b]My Comment:[/b] They said "no", but they meant "let the next poor Treasury schlub deal with this hot potato." [url=http://money.cnn.com/2008/10/30/technology/motorola_earnings.ap/index.htm]Motorola to cut 3,000 jobs[/url]: [i]The communications equipment maker posts a hefty loss and postpones the spinoff of its cell phone unit.[/i] |
[QUOTE=ewmayer;147732][url=http://biz.yahoo.com/ap/081103/circuit_city_store_closings.html?.v=17]Circuit City to Shut 155 Stores, Reduce New Outlets as Consumers Stay Away[/url]: [i]Circuit City Stores Inc., the unprofitable electronics retailer, will close 155 U.S. stores and renegotiate leases on some of the remaining 566 locations to conserve cash.[/i]
[b]My Comment:[/b] A rough estimate [based on the fact that CC is closing ~20% of its stores, and has ~45,000 full-time employees] tells me this translates to on the order of 5000 - 10000 full-time job cuts, and likely a similar number of part-time positions. The bit about shifting employees from shuttered stores o ones which will remain open is not credible, since business at the better-performing stores is surely down in a big way, as well. If anything, those stores have also been laying off or reducing hours for employees.[/QUOTE] These problems are not new for Circuit City. They would have closed most of those stores in the next year anyways regardless of the current financial climate [QUOTE=ewmayer;147732][url=http://money.cnn.com/2008/10/31/news/companies/gm_chrysler/index.htm]Treasury says no aid for GM, Chrysler[/url]: [i]Merger between two automakers appears to be off until after the election, as Treasury says it will not provide the Detroit companies with aid, the Detroit Free Press reported.[/i] [b]My Comment:[/b] They said "no", but they meant "let the next poor Treasury schlub deal with this hot potato."[/QUOTE] [b]My Comment:[/b] Let them fail! GM brought most of it's pain upon itself and everyone has known about it since the 70's. They thought they could sell enough cars to stave off the problems of the $50B in pension obligations they have. The sad thing is that IIUC the US government will cover 80% of those pensions if GM goes bankrupt. |
[QUOTE=rogue;147743][b]My Comment:[/b] Let them fail! GM brought most of it's pain upon itself and everyone has known about it since the 70's. They thought they could sell enough cars to stave off the problems of the $50B in pension obligations they have. The sad thing is that IIUC the US government will cover 80% of those pensions if GM goes bankrupt.[/QUOTE]That is the whole problem with the capitalisation pension schemes (that everybody was promoting everywhere) as opposed to the redistribution schemes. All those people saving for pensions their whole working live and now getting nothing ! Of course they though it was normal to get a 25% yearly earnings on their capital, they endorsed the multiple layoffs and delocalisations, the option markets, the "leveradging", the derivative markets and so on to see their funds prosper. It is reaping time now.
Jacob |
Auto Sales Plunge | UK: Iceland "Terrorist State"
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a5PrXcWxGKQ0&refer=news]Auto Sales in U.S. Plunge; October Was the Worst Month Since 1945, GM Says[/url]: [i]U.S. auto sales plummeted 32 percent in October to the lowest monthly total since January 1991, led by General Motors Corp.`s 45 percent slide, as reduced access to loans and a weaker economy kept consumers off dealer lots.[/i]
[quote]Ford Motor Co. reported a 30 percent drop in car and light- truck sales from a year earlier and Toyota Motor Corp.`s declined 23 percent. Honda Motor Co.`s slid 25 percent, Nissan Motor Co.`s were down 33 percent and Chrysler LLC`s fell 35 percent. "If you adjust for population growth, it`s the worst sales month in the post-World War II era" for the industry, said Mike DiGiovanni, GM`s chief sales analyst, on a conference call. "Clearly we`re in a dire situation." Industrywide U.S. auto sales fell for the 12th straight month, extending the longest slide in 17 years. Tight credit, falling consumer confidence and the weakening economy, the same forces that suppressed buying in September, hurt automakers again last month. October total sales dropped to 838,156 from 1.23 million, according to Autodata Corp. The last time light-vehicle sales were lower was 822,200 in January 1991, according to Autodata. The seasonally adjusted annual sales rate for the month was 10.6 million, the lowest since February 1983, the Woodcliff Lake, New Jersey-based provider of industry statistics said in a statement. The October 2007 rate was 16 million, Autodata said. "People are feeling a hell of a lot less flush than they`ve felt in the better part of a generation," said Joe Phillippi, an analyst at AutoTrends Consulting in Short Hills, New Jersey. "Everybody is taking it on the chin right now."[/quote] [url=http://www.nytimes.com/2008/11/02/world/europe/02iceland.html?em]Iceland, Mired in Debt, Blames Britain for Woes[/url] [quote]LONDON — No one disputes that Iceland’s economic troubles are largely the country’s own fault. But there may be more to the story, at least in the view of Iceland’s government, its citizens and even some outsiders. As grave as their situation already was, they say, Britain — their old friend, NATO ally and trading partner — made it immeasurably worse. The troubles between the countries began three weeks ago when Britain took the extraordinary step of using its 2001 antiterrorism laws to freeze the British assets of a failing Icelandic bank. That appeared to brand Iceland a terrorist state. “I must admit that I was absolutely appalled,” the Icelandic foreign minister, Ingibjorg Solrun Gisladottir, said in an interview, describing her horror at opening the British treasury department’s home page at the time and finding Iceland on a list of terrorist entities with Al Qaeda, Sudan and North Korea, among others. In a volatile economic climate, in which appearance matters almost as much as reality, being associated with terrorism is not a good thing. “The immediate effect was to trigger an almost complete freeze on any banking transactions between Iceland and abroad,” said Jon Danielsson, an economist at the London School of Economics. “When you’re labeled a terrorist, nobody does business with you.” The Icelandic prime minister, Geir H. Haarde, accused Britain of “bullying a small neighbor” and said the action was “very out of proportion.” In a recent speech in Beijing, Sir Howard Davies, a former deputy governor of the Bank of England and now the director of the London School of Economics, said that Britain had used a “beggar thy neighbor” approach to Iceland. And an online petition signed so far by more than 20 percent of Iceland’s population said the British prime minister, Gordon Brown, had sacrificed Iceland “for his own short-term political gain,” thereby turning “a grave situation into a national disaster.” Iceland’s financial problems had been brewing for some time. This past spring, the country’s banks, bloated with foreign deposits and debts, began to falter. This fall, as the financial crisis deepened, the government took over two of the country’s three largest banks. Britain’s government, alarmed about the tens of thousands of accounts held by its citizens, companies, local governments and charities, froze the British assets of one of the failed banks, Landsbanki. It also seized the assets of Kaupthing Singer & Friedlander, the British subsidiary of another Icelandic bank, Kaupthing. “The Icelandic government, believe it or not, told me yesterday that they have no intention of honoring their obligations here,” Alistair Darling, the chancellor of the Exchequer, declared the day Britain seized the assets. The Icelandic government disputed that, saying it was merely asking for time to make good on its obligations. Whatever the case, reaction was immediate and severe, particularly when Mr. Brown said the following day — inaccurately — that “we are freezing the assets of Icelandic companies in the U.K. where we can.” Iceland’s ambassador to Britain, Sverrir H. Gunnlaugsson, said in an interview that this statement was particularly damaging. “There was a perception in the U.K. press and among suppliers that everything Icelandic had been frozen,” he said. “The word was put out belatedly that this was not the case.” Icelanders say that it is now nearly impossible to get foreign currency into or out of the country. Many banks have refused even to transfer money to Iceland. Importers are having difficulty paying their foreign bills, and exporters are having trouble getting paid by their foreign customers. Many people in Iceland are also furious about what happened to Kaupthing Singer & Friedlander. The British government’s seizure of its assets precipitated the immediate collapse of its parent bank, Kaupthing, which the Icelandic government had been propping up and had hoped would survive. “Kaupthing was the last, best hope of the Icelandic banking system, and it was killed there and then,” Andres Magnusson, an editorial writer for Icelandic Financial News, said in an interview. “This really was the last straw. A lot of Icelanders are asking, ‘Excuse me: who’s the terrorist here?’ ”[/quote] [b]My Comment:[/b] Is this about the regrettable "pillaging and rapine" thing? Because we apologized formally for that 900 years ago. and you can see that the longboats are still parked... |
Barack Obama, 44th President of the United States
[url=http://www.rgemonitor.com]Nouriel Roubini[/url] discusses the economic and policy issues facing the new administration:
[quote]The 2008 U.S. Presidential election was historic itself owing to the candidates’ profile. But the timing of the elections as the U.S. and global economy are in the midst of the worst financial crisis and recession in decades reminds us of the Great Depression era and the 1980s recession when incoming Presidents Roosevelt and Reagan faced immense challenges to cure the economy’s woes. By the time Obama takes his oath in January 2009, he will face an economy which is still in a middle of a severe and prolonged recession where households will continue to face unaffordable mortgage and other debt, declining value of homes (that financed their consumption all these years), risk of debt default or foreclosure, tight access to credit with stringent borrowing conditions, erosion of their retirement savings amid the bearish stock market, over a million lay-offs taking the unemployment rate to 7-8% and critical foreign policy challenges. Therefore, immediate challenges for Obama will include cushioning the consumers (who account for over two thirds of GDP) from the economic slowdown by means of a large fiscal stimulus package and acting on a government guaranteed mortgage modificationprogram. In fact, he has already called for fiscal stimulus in the form of grants for state and local governments, infrastructure spending to create jobs, scrap tax on unemployment insurance, tax cuts for lower income-groups and small businesses, tax credits for firms that create jobs and government aid for the ailing auto industry. Some of the tax cuts would be financed by taxing the windfall profits of oil companies. Part of his program would allow households to draw up to $10,000 from retirement funds during 2008-09 without any tax penalty. Obama also called for a ninety-day moratorium on foreclosures, modification of bankruptcy laws, a $10 bn foreclosure-prevention fund and 10% mortgage tax credit for the middle-class. But more importantly he has emphasized preventing taxpayer funded bailout of banks and giving golden parachutes to CEOs of failing institutions. He has also strongly endorsed greater financial sector oversight, control and reporting with the creation of a financial market oversight commission to oversee liquidity, capital and disclosure requirements and plans to streamlining regulatory agencies to prevent overlap and assign greater role to the Securities and Exchange Commission (SEC) to prevent market manipulation and to the Federal Reserve to carry out regulation. The Democratic Congress will also influence on asset markets, business sentiment and financial sector regulation, as well as on the country’s energy policy and oil sector, health insurance and pharma sector, tax incidence on high income-groups and corporate sector, pre-conditions under trade talks and role of labor unions. [b] Tax Policy and Fiscal Deficit [/b] Obama will face a swelling fiscal deficit which might be pushed over $1trillion in the next few years. Mounting fiscal costs of the housing and financial sector bailout and fiscal stimulus measures to sustain aggregate demand will impact the budget while the downturn puts a dent in tax revenues. Ballooning Medicare and Social Security bills will only add to his challenges. A redistribution-oriented tax policy which gives larger tax cuts to a greater number of low and middle-income groups while raising taxes on the high-income group is at the center of Obama’s proposals. When Bush’s tax cuts expire in 2011, Obama plans to raise the federal individual income tax rate from the current 33% and 35% to 36% and 39.6% for the over $200,000 and $250,000 income-groups respectively. Tax cuts would be kept at the current rate for the rest of the income groups. However, the total tax incidence might be higher when combined with the State and other taxes. The new administration also plans to remove various exemptions and deductions for the high-income groups while extending several tax breaks and credits for the low and middle-income groups, retirees, homeowners, and students. For the corporate sector, the plan is to cut the tax rate to below 35% and act stringently to broaden the corporate tax base and reduce loopholes, crack down on international tax havens and tax distortions and have a shareholder vote on CEO pay. The plan also includes tax breaks for firms that keep headquarters in the U.S. Capital gains and dividend tax rates are expected to go up to 20% for the above $250,000 income group. Moreover, carried interest of private equity and hedge-funds will be taxed as ordinary income (at a higher rate) rather than as capital gains. In order to finance the Social Security shortfall from the oncoming fiscal burden of baby boomers, the new president plans to raise the earnings cap on payroll taxes from the current $102,000 income cap to the over-$250,000 income-group. The Social Security plan will also include a job-portable and tax-deferred Retirement Fund. While Obama has pledged to follow the pay-as-you-go rule to contain the fiscal deficit, his proposals to increase spending on lower and middle income groups, infrastructure, research and technology would nevertheless raise the national debt with possible impact on Treasury yields and sources of debt financing. A Democratic Congress might strengthen the stance to raise taxes especially amid criticism that recent tax cuts dented the fiscal deficit, created investment distortions, and raised income and wealth inequality. But the economic slowdown might limit or delay the administration’s ability to raise taxes. Moreover, there have been concerns about possible impact of these policies on U.S. competitiveness and impact on investment and small businesses. [b] Health Care Reform [/b] In a country with around 47 million uninsured and the middle-class battling with rising health insurance premiums and job-immobile coverage, Obama will face an immense challenge to undertake the impending health care reform and ensure quality healthcare - that presently fails to match with even other developed countries. The President has endorsed a universal health insurance coverage which will have mandates only for children. The plan includes the creation of a regulated National Health Insurance Exchange where individual insurance can be purchased. Low and middle-income households will benefit of subsidized premiums. Firms that do not offer insurance to their employees will face a tax penalty. The improvement in the insurance coverage, in the next few years, might come with a high price tag. [b] Trade Policy [/b] Regarding trade, Obama has pressed on including on labor and environmental standards in trade agreements. He has also proposed to raise duties on Chinese imports to offset the undervalued Yuan and dumping of goods and also take measures against their violation of intellectual property rights. Part of the plan also includes greater scrutiny of investments by Sovereign Wealth Funds. Even as the global recession is increasing risk of slowdown in global trade and possible rise in protectionism, this might be exacerbated by a Democratic Congress that favors conditional trade agreements. The current financial crisis and rising significance of Sovereign Wealth Funds might also increase Congress’ aversion to financial globalization and inward foreign investment. But aversion to trade might be overrated as they realize the risk of unilaterally withdrawing from global trade. While fair trade might be the way for survival ahead, U.S. insistence on non-tariff barriers to protect some sectors and jobs from import competition might isolate it from trade deals and possible gains from multilateral trade talks. [b] Labor and Middle-Class [/b] However, the most important and significant challenge that Obama will face is alleviating the American middle-class woes due to the recession but also due to the impact of globalization on workers in the recent years. While the lower and middle-income groups have benefited from trade via cheaper imports, the net benefits from globalization are still being heavily debated.. In the most recent years, real wages have remained stagnant for the middle-class in spite of rising cost of living. In this respect, Obama has offered to raise the minimum wage adjusted for inflation and introduce laws to make organizing unions easier. He has proposed to reform the Trade Adjustment Assistance, wage insurance and worker retraining programs. [b] Foreign Policy [/b] While economic policy issues make take the fore and constrain foreign policy, many global leaders will be watching the new foreign policy team for clues of the new administration’s priorities. No shortage of challenges await – a resurgent Russia resenting NATO’s involvement in its near abroad, an Iran that remains dedicated to nuclear proliferation despite sanctions etc. Obama’s foreign policy vision has centered around multilateralism and revived diplomacy - something for which European allies have been longing - to further US interests at a time when the U.S. military is engaged in two wars. Iraq and Afghanistan will likely consume much of the administration’s focus - Obama has pledged to withdraw troops from Iraq within 16 months of taking office and counter resurgent Qaeda and Taliban forces in Afghanistan. Meanwhile, economic and not political ties may continue to define the U.S. relationship with key Asian economies, including China, its largest creditor. But finding common ground with China, the second largest consumer and importer of oil, may be required to meet energy policy and anti-climate change goals. Obama has stressed conservation and use of alternative fuels to meet America’s energy needs in order to reduce US oil imports and its trade deficit. However, the lower price of oil and worsening economic outlook expenditures may reduce some of the political will around cap and trade policies as well as reducing pressure to begin offshore drilling.[/quote] |
Wall Street Grumpy Again | GM's "Time is Short"
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a4dQtLxVSHEY&refer=news]U.S. Stocks Drop on Concern Obama Will Struggle to Reverse Slowing Economy[/url]: [i]U.S. stocks fell as reports showing the most private-sector job losses in six years and a slump in service industries spurred concern the economy will worsen even as President-elect Barack Obama takes steps to stimulate growth.[/i]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aem3jfKbrFrk&refer=news]Service Industries Contract More Than Forecast as Americans Pare Spending[/url]: [i]Service industries in the U.S. contracted the most on record in October as credit dried up and consumers reined in spending.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBP4NHggajGI&refer=news]Fuld Will Be Terminated by Lehman Without Bonus by Year-End, Lawyer Says[/url]: [i]Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld, who received $34.4 million in pay in 2007, will be ``terminated'' by the bankrupt company without any bonus, said a lawyer for Lehman.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ayygzvqLTZFo&refer=news]GM's `Time Is Very Short' as U.S. Studies Aid Request, Adviser Altman Says[/url]: [i]General Motors Corp., hammered by the worst auto market in 25 years, needs U.S. aid because ``time is very short'' to stop its collapse, says Roger Altman, the former Treasury official advising GM in merger talks with Chrysler LLC.[/i] [quote]Former Treasury Secretary John Snow, now chairman of Cerberus, joined the call for federal help for automakers today, telling CNBC that the government needs to ensure ``that a vital industry like autos, which is such a big part of the overall economy, doesn't lead us into a deeper and harsher downturn.'' A collapse of three U.S. automakers in 2009 would cost almost 3 million jobs in the first year and reduce personal income by $150.7 billion, according to a study released today by the Center for Automotive Research in Ann Arbor, Michigan. The study takes the worst-case scenario of a shutdown of U.S. automotive production. [/quote] [b]My Comment:[/b] A lovely illustration of the incestuous relationship between big business and Washington here - Altman the former Treasury official now on the GM payroll, John Snow the former Treasury Secretary, now CEO of Cerberus Capital Managament, chief shareholder of Chrysler. Of course the U.S. auto industry will be considered as "too big to fail" by the government - we can only hope that at least under an Obama administration, the eventual bailout will be structured in such a way that it forces the automakers to embrace green tech and thus make themselves viable in the global economy, where cheap gasoline is not considered a basic right, nor necessarily even desirable. I do agree that the amount of money committed so far to prop up the banks is disproportionately large relative to what would be needed to keep the carmakers from collapse. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a8.hb3VjdnTc&refer=news]U.S. Luxury Retailers Face the Grimmest Holiday Season as Economy Withers[/url]: [i]Luxury retailers may suffer the industry's biggest reversal of fortune during the holidays as the global financial crisis dents the wealth of the richest Americans.[/i] [quote] Nov. 5 (Bloomberg) -- Luxury retailers may suffer the industry's biggest reversal of fortune during the holidays as the global financial crisis dents the wealth of the richest Americans. Sales at Saks Inc., Nordstrom Inc. and Neiman Marcus Group Inc. stores open at least a year may decline as much as 3 percent in November and December after advancing 5.2 percent a year earlier, according to the International Council of Shopping Centers trade group. The 8.2 percentage point swing may be the biggest of the seven retail segments that the New York-based ICSC tracks. The drop in demand may signal that America's wealthiest consumers are retrenching more than the rest of the country, avoiding luxury purchases while the U.S. loses more jobs and home foreclosures rise. ``Conspicuous consumption is less fashionable,'' said Melissa Otto, a senior investment analyst at American Century Investments in New York who tracks the luxury retail market. ``There is a psychological ethos now that people don't want to jump out and be big spenders.''[/quote] [b]My Comment:[/b] Or maybe it`s less self-consciousness about the appearance of profligacy as the fact that many rich folks have had their net worth get absolutely hammered in the past year, while still having a lot of big bills to pay. Apparently not even the GOP clothes-buying spree for Sarah Palin was enough to rescue Saks and Neiman Marcus from a dismal projection. Maybe they should consider stocking a line of winter wear made from Genuine USA Moose Fur. |
ECBs Slash Rates | Funding Drought Slams China
[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aNqiUv0DquYc&refer=europe]Bank of England Leads European Central Banks in Rate Cut as Economies Slow[/url]: [i]The Bank of England led European central banks in reducing borrowing costs to counter the worst financial crisis in almost a century, cutting its key rate by 1.5 percentage points to the lowest level since 1955.[/i]
[quote]``It's absolutely staggering and deeply impressive,'' said Brian Hilliard, director of economic research at Societe Generale in London. ``They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.'' [/quote] [b]My Comment:[/b] You mean, like the huge impact the U.S. fed`s rate-cutting binge of the past year has had? Excuse me if I remain skeptical as to whether a loosening of credit can fix a problem caused by years of too-loose credit. [In order to spare the sensibilities of our French colleagues, I shall omit the obligatory "Toulouse LaCredit" joke here]. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=asZx8ckPF_A8&refer=home]Funding Drought Slams Chinese Plans as Banks Shun Plea to Lend[/url] [quote] Nov. 5 (Bloomberg) -- Wang Yi, who employs 300 people making children's raincoats on China's east coast, is worried his company won't survive the next year as exports dry up. The apparel manufacturer, which supplies European supermarket chains Tesco Plc and Aldi Group, needs a 600,000 yuan ($88,000) loan by Jan. 31 to stay afloat. China's state-owned banks rejected his previous applications. ``There's no point trying them again,'' says Wang, 40, standing in his two-story factory in Pinghu, about 90 kilometers (56 miles) southwest of Shanghai, where one floor is half empty. ``They prefer big customers.'' China's largest banks, with 4 trillion yuan of cash, are resisting government efforts to boost lending to 42 million small and medium-size companies that drove the economic boom of the past decade. On Nov. 2, the central bank scrapped curbs on loans after three interest rate cuts in seven weeks failed to revive economic growth that has sagged to its slowest in five years. Half the nation's toy exporters have closed this year, and 67,000 smaller enterprises filed for bankruptcy in the first half, according to government statistics. Companies with assets of less than 40 million yuan provide three-quarters of urban jobs and 60 percent of China's gross domestic product. [/quote] [url=http://money.cnn.com/2008/11/06/news/economy/Oct_retailsales/index.htm]Store sales hammered but Wal-Mart escapes[/url]: [i]October retail sales could be the worst in eight years as more Americans rein in spending.[/i] [url=http://money.cnn.com/2008/11/05/news/companies/Ambac_junk.ap/index.htm]Ambac's debt rating is junk[/url]: [i]Moody's downgrades the bond insurer after losses connected to U.S. mortgages.[/i] [b]My Comment:[/b] ABK stock slid from around $30 at beginning of the year to around $1 in mid-summer, then rose to nearly $10 in the next 2 months. [Whence the renewed optimism, I have no clue]. Back to the dollar discount days. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aysPWk5McSco&refer=news]Citigroup, Goldman Said to Fire Staff as Part of Plans to Cut 12,000 Jobs[/url]: [i]Citigroup Inc. and Goldman Sachs Group Inc., faced with a weakening economy and the prospect of mounting losses, began firing workers as part of the firms' plans to cut more than 12,000 jobs, people with knowledge of the matter said.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aJzpw_m1iC4M&refer=news]Credit-Default Swap Disclosure Hides Truth on Risk Held by World's Banks[/url]: [i]The most comprehensive report on unregulated credit-default swaps didn't disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world's biggest insurer.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=abzUznAkXG80&refer=news]DeCode Genetics' Science Can't Keep Gene-Finder Solvent in Credit Crunch[/url]: [i]Kari Stefansson, DeCode Genetics Inc.'s chief executive officer, made good on a promise to create new ways to identify disease-linked genes. Now his company is struggling to survive after taking too long to convert its many discoveries into profits.[/i] [quote] Nov. 6 (Bloomberg) -- Kari Stefansson, DeCode Genetics Inc.'s chief executive officer, made good on a promise to create new ways to identify disease-linked genes. Now his company is struggling to survive after taking too long to convert its many discoveries into profits. Stefansson, 59, may have to sell assets, including gene tests for cancer and heart disease and a genetic profiling service, to save DeCode, the company said in an Oct. 15 statement. After burning through $676.2 million, DeCode has few prospects for raising cash amid the global credit crunch and in a country struggling with a collapsed banking system. DeCode, based in Reykjavik, Iceland, has been among the most prolific in using new techniques to identify genetic variations that raise the risk of disease, said Eric Topol, director of the Scripps Translational Science Institute in San Diego. In a conference call tomorrow, Stefansson may detail his plans to sell off DeCode's assets and salvage what is left of the company's gene research. ``Their contributions are enormous,'' Topol said in a Nov. 4 telephone interview. ``They've made more contributions to the discovery of key gene pathways than any academic institution. What their troubles portray is that being a discovery engine isn't enough to make a profitable business.'' The Iceland government took control of the country's banks last month after they were unable to secure funding. DeCode has $24 million in cash and marketable securities and needs about $60 million to $65 million to fund operations for a year, according to the company's regulatory filings. Stefansson declined to be interviewed for this story. [b] 12-Year History [/b] DeCode, which traded at $28.75 a share on Sept. 11, 2000, after a July initial public offering, fell 11 cents, or 24 percent, to 34 cents in Nasdaq Stock Market composite trading at 10:04 a.m. New York time. Two years ago, Stefansson was explaining how the company he founded in 1996 with money from American venture capitalists and a genealogical-database license from the Icelandic government was about to remake drug making. DeCode was on its way to putting five molecules into human testing by the end of 2006, and had published research linking separate pieces of DNA to heart attacks and diabetes. The company had $140 million in cash and marketable securities, and was preparing to raise more money with sales of stock and convertible debt. The company planned to use its gene science to remove time and guesswork from drug development. That would be a boon to patients, who risk side effects in drug trials and often wait years for effective therapies, Stefansson said. DeCode expected to cut drug-development costs by finding key proteins involved in heart disease, diabetes, and other conditions. [b] `Great Idea' [/b] ``It sounded like a great idea at the time,'' said Paul Abel, who manages the $20 million Kinetics Medical Fund, including 11,000 DeCode shares, in White Plains, New York. ``We all should have considered how long it would take to go from identifying a genetic marker to development of a pharmaceutical.'' A former Harvard Medical School professor, Stefansson appeared to have the perfect strategy to take advantage of Iceland's precious resource: its population. Because of their isolation, Icelanders' genes are remarkably alike and can be paired with birth, marriage and medical records that stretch back 1,000 years.[/quote] [b]My Comment:[/b] Rest of the Bloomberg piece details just how difficult it is to take s great scientific idea and turn it into a revenue-producing drug or medical device. Well worth reading the full thing. |
U.S.: 1.2 Million Jobs Lost So Far in 2008
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aeu6SZDZwX0Y&refer=news]Jobless Rate in U.S. Jumps to 6.5%, Highest Since 1994, as Payrolls Tumble[/url]: [i]The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.[/i]
[b]My Comment:[/b] Note that the official figures released by the BLS, bad as they look, are likely [url=http://globaleconomicanalysis.blogspot.com/2008/11/jobs-contract-10th-straight-month.html]wildly optimistic[/url]. [url=http://money.cnn.com/2008/11/07/news/companies/gm/index.htm]GM: Almost out of cash[/url]: [i]No. 1 automaker posts huge loss - says it has made case to Washington for rescue.[/i] [quote]NEW YORK (CNNMoney.com) -- General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months. GM, the nation's largest automaker, reported it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share. But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=acoLPkTch4fA&refer=news]Ford Has $2.98 Billion Operating Loss, Burns $7.7 Billion Cash in Quarter[/url]: [i]Ford Motor Co., with U.S. sales shredded by the worst financial crisis since the Great Depression, posted a third-quarter operating loss of $2.98 billion and said it used up $7.7 billion in cash.[/i] [url=http://www.mercurynews.com/ci_10916051?source=most_viewed]Schwarzenegger proposes "drastic" 1.5-cent sales tax increase to close California budget gap[/url] [quote]SACRAMENTO — Reacting to a gaping $11.2 billion hole in the California state budget he signed just six weeks ago, Gov. Arnold Schwarzenegger today announced a proposal to raise the state sales tax by 1.5 cent. In addition, he proposed implementing a brand new tax on services, such as those offered by veterinary clinics, auto repair and golfing fees. He also plans to implement a tax on producers that extract oil from California ground, and increase alcohol excise taxes by five cents a drink His tax package would bring $4.7 billion new revenue. Most of the rest of the budget shortfall would come in the form of cuts to education, prisons, public safety, Medi-Cal and social services. Although the Republican governor spent the spring and summer telling Californians the state suffered from a spending problem that led to a $15 billion budget deficit, the world economic downturn has since pushed the state into having a revenue problem. "A drastic situation like this," Schwarzenegger told a news conference, "takes drastic measures." Anticipating the tax proposal, Republican legislative leaders this week said they would oppose any such plan. Schwarzenegger, however, was hopeful lawmakers would understand the unprecedented situation and vote to revise the budget.[/quote] [b]My Comment:[/b] The irony of this (which would raise the total sales tax to 10% or more in CA) is that it will hurt retail sales, which not only hurts the CA economy but partially negates the revenue gain for the state. Also, it will drive a lot of purchases online and out of state. Regarding the 5-cents-a-drink increase in the alcohol excise tax, expect many bars and restaurants to magically transmute that into a 50-cent-per-drink price hike for the "end user". I recall a wave of similar price gouging that occurred in much of Europe when the shift to the common currency occurred. In Hedge-Fund news, Myron Scholes, 1997 Nobel laureate in economics, is at again: [url=http://www.bloomberg.com/apps/news?pid=20601087&sid=aWQVwbD5Hfxw&refer=home]Scholes's Platinum Grove Fund Halts Withdrawals After Losses[/url] [quote] Nov. 6 (Bloomberg) -- Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc. ... Scholes, 67, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management LP, the hedge fund that lost $4 billion a decade ago after a debt default by Russia. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at Long-Term Capital. [/quote] [b]My Comment:[/b] A beautiful mind, but a terrible risk manager. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aTggCqpUzKXM&refer=news]Dublin's Early Christmas Lights Fail to Boost `Basket Case' Irish Economy[/url]: [i]Christmas is coming early to Dublin this year as city officials try to dispel the gloom from the country's first recession in two decades.[/i] [quote] Nov. 7 (Bloomberg) -- Christmas is coming early to Dublin this year as city officials try to dispel the gloom from the country's first recession in two decades. Mayor Eibhlin Byrne will switch on the Irish capital's festive lights display on Nov. 9, before cities such as London, New York and Edinburgh, after bringing the ceremony forward by three weeks from last year. ``For retailers, it's not an easy time,'' said Byrne. ``We are harking back to John F. Kennedy and we are asking not what your city can do for you but what you can do for your city.'' Irish shoppers powered the fastest-growing economy in Western Europe over the last five years. Now, consumers are cutting spending as unemployment rises and property prices slump. Gerry Harvey, chairman of Sydney-based electronics and furniture retailer Harvey Norman Holdings Ltd., which has four Dublin stores, described Ireland's economy as ``a basket case.'' ``They are putting on the lights early to make people spend their money,'' said Margaret O'Hara, 70, browsing on Henry Street, one of the city's main shopping boulevards. ``The shops are not doing business. There's no bustle there.'' There are signs of the slowdown throughout the city of 1 million people. Across the River Liffey, which divides Dublin, a 22,000 square-foot store housed in a converted 18th century building lies idle, after a franchise of London-based furniture retailer Habitat Ltd. closed down its outlet in May, blaming declining sales on a slump in the property market. [/quote] [b]My Comment:[/b] Clearly, people in debt over their heads and deeply concerned about the economy and where their next paycheck is coming from will instantly turn into wild spenders upon seeing Christmas lights. It`s like cocaine-addicted lab rats, you see... [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aWVv.Qzz7XN0&refer=news]Elko Glitters as Gold Helps Town Avoid `Going to Hell in a Hand Basket'[/url]: [i]Jim Winer is so confident the gold- mining town of Elko, Nevada, will sidestep the recession barreling down on the U.S. that he's developing houses, offices and a shopping mall.[/i] [quote]``Everyone's hiring,'' said Winer as he drove past the site of a 55,000-square-foot office complex he's building for Denver- based Newmont Mining Corp. ``Business is really good.'' The desert town is booming as investors seek refuge in gold while U.S. home prices slump, foreclosures rise and stocks recede. ``Help Wanted'' signs beckon along the main street as retailers and hoteliers gear up for growth in the heart of the biggest U.S. gold-producing area. ``As long as the economy is going to hell in a hand basket, Elko is going to be just fine,'' said Wendy Ispisua, who sells houses in the town's suburb of Spring Creek. Gold has performed better than equities since it started climbing from $253.90 an ounce in July 1999. While bullion prices have almost tripled since then, the Dow Jones Industrial Average has fallen by a fifth. The Dow has lost about a third since recording its highest-ever close on Oct. 9 last year, while gold is little changed. Gold traded at $733.90 an ounce in New York yesterday after touching a record of $1.033.90 in March. Newmont Mining Chief Executive Officer Richard T. O'Brien said prices will climb once the inflationary impact of a worldwide bailout of banks becomes evident. [b] `Bullish' on Gold [/b] ``As we see the U.S. continue to print money, I think we will see gold prices come back,'' O'Brien said in an Oct. 29 conference call with investors. ``We remain bullish on the long- term prospects for the gold price.'' [/quote] [b]My Comment:[/b] I`m sure the gold bulls remained bullish on gold ever since the big spike back in '80s ... they were bullish on gold as it massively underperformed equities for the past 25 years. They were bullish that gold would soon hit $2000 per ounce this past summer. Now that they got lots of suckers to buy at $1000 and quickly lose 30% of their investment, they are - you guessed it - bullish that gold will come back. That`s why we call these types of folks "permabulls". [url=http://money.cnn.com/2008/11/06/news/companies/fidelity_layoffs/index.htm]Fidelity to cut nearly 1,300 jobs[/url]: [i]World's largest mutual fund company to cut 1,300 jobs now, and more later, adding to layoffs from Janus, AllianceBernstein.[/i] [quote]NEW YORK (CNNMoney.com) -- Fidelity Investments, the largest U.S.-based mutual fund company, is the latest to announce layoffs, which it blames on the economic crisis. Fidelity said on Thursday that it would cut 2.9% of its 44,400-employee work force, which translates to about 1,300 lost jobs. "We are trying to implement these cuts in a thoughtful and measured way," said Fidelity spokeswoman Anne Crowley, noting that many of the cuts would be management positions. "The de-layering of management, we believe, will help." Fidelity is privately-held and based in Boston. Crowley said the cuts would be spread evenly throughout its U.S. locations. She said the company is still hiring in the customer services area. If misery loves company, the laid-off workers will find plenty of both. The U.S. economy has shed some 760,000 jobs so far this year, through September. The firm said another round of layoffs would occur in the first quarter of 2009. The company did not specify the number for the second round of cuts, but Crowley said it would be less than the 2,500 cuts that were projected in recent media reports. The announcement follows two other recently-reported layoffs from mutual companies. Janus Capital Group Inc. is cutting 115 jobs, which equals nearly 10% of its work force. AllianceBernstein Holding LP (AB) did not specify its number of pink slips.[/quote] |
now we are entering a general bloodbath stage. Circuit City filed bankruptcy (no surprise) and other major companies are releasing earnings that include major writedowns of tax and goodwill assets (Nortel). On a technical level, writedowns are not that significant against a company's operating position, but the market takes a very dim view of such actions.
Look for similar actions by more major companies as the subprime/credit/asset bubble bloodbath continues. Expect world governments to continue trying to fill up huge economic holes with bundles of cash. DarJones |
China Unveils Massive Stimulus Package
[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=ajVKL6h0rTVw&refer=china]China Announces $586 Billion Stimulus Plan, Tax Cuts to Boost the Economy[/url]: [i]China, the biggest contributor to world growth, unveiled a 4 trillion yuan ($586 billion) plan to sustain its economy, spurring gains in stocks, metals and oil. [/i]
[b]My Comment:[/b] Mish Shedlock details [url=http://globaleconomicanalysis.blogspot.com/2008/11/peter-schiff-hugely-right-enormously.html]just how badly things are deteriorating in China[/url]. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aMsaYg2yC3xE&refer=news]Ruble Devaluation Looms as Oil Depletes Surplus; Troika Sees 30% Decline[/url]: [i]Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble. [/i] [url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTsViplkexgw]Deutsche Post to Scrap 14,900 Jobs, U.S. Express Service as Economy Slumps[/url]: [i]Deutsche Post AG, Europe's biggest mail carrier, will eliminate 14,900 jobs and scrap domestic express deliveries in the U.S., where the economic slump exacerbated the unit's losses.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a__sWuaTWZXw&refer=news]AIG Bailout Swells to $150 Billion as Insurer Reports Fourth Straight Loss[/url]: [i]American International Group Inc. got a $150 billion government rescue package, almost doubling the initial bailout of less than two months ago as the insurer burns through cash at a record rate. [/i] [url=http://money.cnn.com/2008/11/10/news/companies/gm.ap/index.htm]GM shares hit 60-year low on downgrade[/url]: [i]Barclays analyst says automaker may not have enough cash to operate in next quarter; government bailout likely.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a0Vg0XjJ_wOE&refer=news]Circuit City Files for Bankruptcy Amid Competition From Best Buy, Wal-Mart[/url]: [i]Circuit City Stores Inc. filed for bankruptcy amid rising competition from Best Buy Co., Wal-Mart Stores Inc. and online electronics retailers. [/i] [quote]The Richmond-based company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City plans to stay in business while it comes up with a plan to restructure. ``It's very incongruent for retailers to file bankruptcy before Christmas,'' Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview. ``You're going to see a record number of retailer bankruptcies and closings.''[/quote] [b]My Comment:[/b] CC is [or was] the second-biggest U.S. electronics retailer. It`s going to be a [url=http://www.urbandictionary.com/define.php?term=fugly]fugly[/url] Christmas for retailers. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a5gjapTko3oY&refer=news]Fannie Mae Posts Record $29 Billion Quarterly Loss After Asset Writedowns[/url]: [i]Fannie Mae posted a record quarterly loss as new Chief Executive Officer Herbert Allison slashed the value of the mortgage-finance provider's assets by at least $21.4 billion and said it may need to tap federal funds next year. [/i] [b]My Comment:[/b] A lot of the posted loss was due less to deterioration on the business as to the kind of thorough housecleaning and healthy revenue-model skepticism that was completely absent under Daniel "My name is" Mudd in Fannie`s pre-conservastorship days. But as of today, Fannie officially has negative net equity value. [url=http://www.ksla.com/Global/story.asp?s=9247633]Postal Service Looks To Cut 40,000 Jobs In First Layoff In History[/url] [quote]SHREVEPORT, LA (KSLA) - "We lost 2 billion dollars and like any other business we have to stay afloat." And to keep from sinking, the United States Postal Service is considering cutting thousands of jobs nationwide. Lavelle Pepper with the post office in Shreveport says they too are feeling the affects of the same disease hitting the country... a struggling economy. "We employ about 685,000 people. If we do layoffs it would include clerks, carriers, mail handlers across all crafts." Pepper says the postal service is looking to eliminate 40,000 jobs nationwide. There's not an exact number on how many of those could be from the Ark-La-Tex. Pepper says workers who are not part of union with six or less years of service would likely be the first on the chopping block. "We've identified 16 thousand people that are not covered under contract. We'll see what those numbers add up to." The postal service is also offering early retirement packages to workers over the age of 50 who have more than 20 years on the job. But according to pepper it may not be enough. "The preliminary numbers look like it's not going to be enough and we may have to do something else." But despite what may happen, Pepper says customers will not feel the pain they're going through. "The general public when it takes place won't se any decrease in service.. They largely won't know about it."[/quote] [b]My Comment:[/b] Right, we won`t know about it ... until they raise postage rates yet again. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aN26ZWOziGwk&refer=news]Scholes, Thiel Are Losers as Hedge Funds Decline for Fifth Straight Month[/url]: [i]Hedge funds run by Jeffrey Gendell and John Burbank III posted their worst monthly losses in October. Peter Thiel gave back gains made earlier in the year. Nobel-prize winner Myron Scholes froze his biggest fund. [/i] [quote]Gendell`s Tontine Capital Partners LP fund, based in Greenwich, Connecticut, [u]plunged 65.7 percent in October[/u], extending its decline for the year to 76.8 percent, according to investors. [u]Burbank's Global Strategy fund fell 38 percent in the month[/u] and 44 percent year-to-date, according to a letter to clients of his San Francisco-based based Passport Capital Management LLC. Ken Griffin, founder of Citadel Investment Group LLC, lost 22 percent last month in his Kensington and Wellington funds, extending the year-to-date-slide to 39 percent, according to people familiar with the firm. Chicago-based Citadel, which oversees $16 billion, held a conference call with investors Oct. 24 to dispel speculation that it was liquidating. Griffin, 40, told Citadel bondholders that the firm had $8 billion in untapped bank credit and 30 percent of its assets in cash, and faced ``modest'' client redemptions. [b] Gains Evaporate [/b] Some managers have seen gains from the first half of the year evaporate. Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Thiel, slumped 18 percent in October, according to estimates given to investors. The San Francisco-based firm's Clarium LP fund reported a year-to-date decline of 2.8 percent, wiping out the 58 percent gain from the first half.[/quote] [b]My Comment:[/b] those kinds of staggering one-month losses tell me that many of these funds are still leveraged to the hilt, perhaps in an attempt to recoup their losses of earlier this year. But for a fund like Clarium, which has booked a hefty gain for the year, to keep rolling the dice ... the managers of these things are prime candidates for Gambler`s Anonymous. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aZ1syPZH.RzY&refer=news]Bloomberg In-Depth: The Final Days of Lehman Brothers[/url]: [i]It was the afternoon of Sept. 9, and tensions were rising in the 31st-floor office of Lehman Brothers Holdings Inc. Chief Executive Officer Richard S. Fuld Jr. [/i] [quote]Nov. 10 (Bloomberg) -- It was the afternoon of Sept. 9, and tensions were rising in the 31st-floor office of Lehman Brothers Holdings Inc. Chief Executive Officer Richard S. Fuld Jr. That morning news broke that the Korea Development Bank had pulled out of talks to buy a stake in the New York-based securities firm. By 1 p.m., Lehman's already battered stock had plunged another 43 percent. Fuld was rat-a-tatting orders to associates seated at a table in his corner office, one wall of which featured photographs of lions taken by the boss himself in Africa. Herbert ``Bart'' McDade, installed as president in June, Vice Chairman Thomas A. Russo and Chief Financial Officer Ian T. Lowitt had been in and out of Fuld's lair all morning. Now the CEO was staring daggers at responses he deemed too slow or too fuzzy to help right his listing ship, said a person familiar with events that day. And he was lashing out at the injustice of it all. ``Here we go again,'' Fuld erupted at one point, the person recalled. ``Perception trumping reality once more.'' It was vintage Fuld, a man so physically imposing, so volcanically explosive that, even at age 62, he scared underlings and competitors alike. He was raging on the captain's bridge, while a storm engulfed the company he had willed into becoming one of Wall Street's finest. Couldn't the short-sellers see how much he had done to shed bad assets? Couldn't they understand what a great franchise it still was? Fuld was grounded enough in reality to know one thing: ``We've got to act fast,'' he said, ``so this financial tsunami doesn't wash us away.'' [b] Financial Armageddon [/b] Six days later -- 158 years after its founding as a cotton brokerage in Alabama -- Lehman Brothers was gone. Treasury Secretary Henry M. Paulson Jr. said he didn't want to use taxpayer money to save Lehman, as the government had done in March when it pledged $29 billion to facilitate the sale of failing Bear Stearns Cos. to JPMorgan Chase & Co. Federal Reserve Chairman Ben S. Bernanke insisted there was nothing the government could have done in the end, even though Fuld had warned that Lehman's collapse could trigger a financial Armageddon. Fuld's failure to save Lehman, after rescuing it three times before, is a story about how the most indomitable man on Wall Street became addicted to leverage and intoxicated with the power it brought. It is a tale about the inability to repair a financial model wrecked by a lack of limits and transparency, a story pieced together from interviews with former Lehman executives and outsiders familiar with the firm. Isolated, surrounded by acolytes and unaware of the rivalries tearing his firm apart, Fuld was too prideful to accept the fast-eroding value of the empire he had built, too slow to cut a deal. [/quote] |
CRA is not the cause for the foreclosure crisis
Just in case any reader is still in the blame-CRA crowd:
Consumers Union says, "CRA is not the cause for the foreclosure crisis" [URL]http://www.consumersunion.org/pub/homepagerighttop/006247.html[/URL] [quote] [B]Statement from National Civil Rights, Consumer, Community Development and Housing Groups Regarding Attacks on the Community Reinvestment Act (CRA)[/B] Washington, DC – The following group of civil rights, consumer, community development, and housing groups today made the following statement: Recent conversations pointing to the Community Reinvestment Act as the cause of the foreclosure crisis and credit market crisis are an attempt to deflect attention away from the real problem affecting our financial system. That problem is failed regulatory policy and oversight. For more than a decade, community leaders, civil rights proponents and housing groups have raised concerns about unfair, deceptive and abusive lending practices that have undermined homeownership aspirations for millions of working families. Those pleas for better regulatory policy and oversight not only went ignored, in some cases they were contradicted by regulatory policy that made predatory lending more virulent and prevalent in low-income neighborhoods and communities of color. Over that same period, thousands of pages of local, state and federal testimony, peer reviewed policy papers and speeches (many from the groups signed onto this statement) have forewarned of a pending crisis stemming from lax regulatory oversight and enforcement. Yet no serious federal response was made. As Harvard University law professor Elizabeth Warren has artfully stated, consumers had better protection buying a toaster or microwave oven than they had when purchasing the family home. One example of regulatory failure is that many vital financial institutions – and the products they created and sold -- were not covered by meaningful regulation. Some market players clearly knew their actions were creating a potential market crisis. A Securities and Exchange Commission (SEC) Report recently found that in December of 2006 one analytical manager at a prominent credit rating agency wrote to another senior analytical manager to say “let’s hope we are all wealthy and retired by the time this house of cards falters.” Improved regulation of the financial system – including brokers, lenders, appraisers, rating agencies and securitizers – was essential. If the Community Reinvestment Act – and other appropriate regulation -- had been applied to independent mortgage companies and other non-bank financial institutions, it is likely that our nation would not be confronted with a foreclosure crisis. Critics of the law conveniently ignore that about 75 percent of sub-prime loans were not covered by CRA. They also ignore the fact that most reckless and damaging subprime lending occurred between 2003 and 2007, long after CRA’s passage in 1977. CRA exams provide clear and strong incentives for banks to make safe and sound loans and penalize them for making loans that are unfair and abusive. CRA is an antidote, not a cause of the current crisis. Signed by: Accion USA / Chicago / New Jersey / New York Center for American Progress Center for Responsible Lending CDFI Coalition Consumer Action Consumer Union Consumer Federation of America Dēmos: A Network for Ideas & Action Enterprise Community Partners Housing Assistance Council Lawyers' Committee for Civil Rights Under Law Leadership Conference on Civil Rights Local Initiatives Support Corporation NAACP National Association of Consumer Advocates National Alliance of Community Economic Development Associations National Community Reinvestment Coalition (NCRC) National Consumer Law Center (on behalf of its low income clients) National Council of La Raza National Council of Negro Women National Housing Conference National Housing Institute National League of Cities National Low Income Housing Coalition National NeighborWorks Association National Policy and Advocacy Council on Homelessness (NPACH) National Rural Housing Coalition National Urban League Opportunity Finance Network Rainbow PUSH Coalition US Conference of Mayors [B]Contact[/B]: Pamela Banks 202-462-6262 [/quote] |
I can make a very good argument that CRA is bad regulation for banks that it applies to. In a nutshell, 86% of mortgage loans made over the last 3 years were by institutions to whom CRA did not apply. Of the remaining 14%, only a small portion were actually CRA driven loans. The tenets of CRA cause otherwise un-credit-worthy people to be able to get loans. Any way you slice this, the result is that banks to whom CRA applies will be hurt by loan defaults. Just don't blame CRA for the financial meltdown that was caused by non-CRA loans.
DarJones |
GSEs to Restructure Mortgages | Radioactive Beer
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aDBGRC.3CRSs&refer=news]Citigroup, Fannie, Freddie Will Limit Foreclosures, Restructure Mortgages[/url]: [i]Mortgage companies Fannie Mae and Freddie Mac and Citigroup Inc. plan to cut home-loan payments for hundreds of thousands of borrowers facing foreclosures, following similar moves by the nation's biggest banks. [/i]
[quote]Fannie Mae and Freddie Mac will reduce principal or interest rates on some loans and extend the terms of others, people briefed on the matter said. The Federal Housing Finance Agency, which seized control of Fannie and Freddie in September, scheduled a press conference at 2 p.m. in Washington to announce the plan. Congress has been urging financial-services companies to work with borrowers after foreclosures rose to the highest on record in the third quarter. JPMorgan Chase & Co., the biggest U.S. bank, said last month it would stop foreclosures on some loans as it works to make payments easier on $110 billion of problem mortgages, while Bank of America Corp. said it has modified 226,000 loans this year. ``If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, Bloomberg's most accurate economic forecaster for 2008. Citigroup, the fourth-largest U.S. bank by market value, will contact about 500,000 homeowners with $20 billion in mortgages during the next six months, the New York-based company said in a statement today. ... Citigroup plans to reach out to loan holders who live in their homes and have ``sufficient income for affordable mortgage payments,'' the statement said. The bank will extend a moratorium on foreclosures to those who meet these criteria. The Fannie Mae and Freddie Mac plan won't include money from the Treasury's $700 billion bank rescue package, the people familiar with the matter said. The House Financial Services Committee has scheduled a hearing tomorrow on loan modifications. [/quote] [b]My Comment:[/b] I hope they - especially on the Fannie/Freddie end of things, where taxpayer dollars rather than shareholder value is at stake - really are very careful to only engage in loan modification with borrowers who have at least a snowball`s chance in hell of servicing the mortgage. I cannot help but wonder: if the U.S. gvernment and Treasury had focused on this kind of "bottom up" bailout approach to begin with rather than throwing huge sums of money at the banks and hoping that would magically solve the mortgage crisis, how much of the $700B-plus bailout would have been necessary? [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=apRDGKM7Sbi8&refer=news]Bonuses for Bailed-Out Wall Street Should Go to Zero, U.S. Taxpayers Say[/url]: [i]U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated. [/i] [quote]Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it's ``not unduly rewarding the management of financial firms receiving government assistance.'' While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms' most productive workers. ``There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,'' said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. ``Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.''[/quote] [b]My Comment:[/b] Since it was Big Finance`s "most productive", their "best and brightest" who did so much of the "financial innovating" which helped get us here, I will lose little sleep at the prospect of these folks transferring their dubious "allegiance" elsewhere. [url=http://money.cnn.com/2008/11/11/news/companies/general_growth/index.htm]No. 2 mall operator warns of bankruptcy[/url]: [i]General Growth Properties blames weak retail sales and a credit market freeze.[/i] [quote]NEW YORK (CNNMoney.com) -- General Growth Properties Inc., the No. 2 mall operator in the United States, has warned that an ongoing slump in retail sales, combined with the credit market lockdown, has pushed the company to the brink of bankruptcy. Chicago-based General Growth Properties (GGP) said in an SEC filing late Monday that it has $900 million of property secured debt and $58 million of corporate debt that's coming up for renewal by Dec. 1. It also faces another $3.07 billion in debt that matures in 2009. But "given the continued weakness of the retail and credit markets," the mall operator fears it may not be able to refinance its loans at lower rates to meet its short-term cash needs. General Growth Properties (GGP) shares tumbled 66% to 46 cents in Tuesday trading on the New York Stock Exchange. GGP announced in August that it would might sell some assets to raise capital for servicing its debt. The company currently operates more than 200 malls in 44 states, including the Paramus Park Mall in New Jersey, Cumberland Mall in Atlanta, Water Tower Place in Chicago and the Glendale Galleria in California. "Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern," the company said in the filing. Retail real estate experts say other large mall operators could also find themselves in the same situation as GGP. That's because several of the leading mall operators have significant debt that's coming up for renewal at the end of 2008 and early 2009. But given the tight credit environment and dismal forecasts for retail sales in the fourth quarter, analysts said lenders probably won't refinance those loans at lower rates. If GGP does file for bankruptcy, the company's real estate portfolio could be broken up and its malls acquired by other mall operators, said Ivan Friedman, president & CEO of RCS Retail Real Estate Advisors. "General Growth has some very valuable properties," he said. [/quote] [b]My Comment:[/b] "If GGP does file for bankruptcy, the company's real estate portfolio could be broken up and its malls acquired by other mall operators" ... where are these flush-with-cash, sales-are-booming "other mall operators" supposed to come from, exactly? [b]Hidden Costs of Recycling: The Radioactive Beer Scout[/b] [Apologies to [url=http://www.dangerouslaboratories.org/radscout.html]this fellow[/url] for shamelessly punning on his story title] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aKNgo0CVJg9s&refer=news]Radioactive Beer Kegs Threaten Public, Boost Costs at ArcelorMittal, Nucor[/url]: [i]French authorities made headlines last month when they said as many as 500 sets of radioactive buttons had been installed in elevators around the country. It wasn't an isolated case. [/i] [quote]Abandoned medical scanners, food processing devices and mining equipment containing radioactive metals such as cesium-137 and cobalt-60 are often picked up by scrap collectors and sold to recyclers, according to the International Atomic Energy Agency, the UN's nuclear arm. De Bruin said he sometimes finds such items hidden inside beer kegs and lead pipes to prevent detection. Smelting such items contaminates recycled metal used to make new products and the furnaces that process the material. Cleanups cost as much as $30 million, according to the Brussels-based Bureau of International Recycling, which represents metal, paper and glassmakers. The danger increases when metal prices rise, pushing scavengers to pick up and sell more material, said Martin Magold, who led a Geneva-based UN team that tracked radioactive metal shipments in Europe. Prices for scrap steel quadrupled to $665 a ton in Rotterdam over the past five years. After peaking on July 3, prices dropped to $115.50 last week as the slowing global economy eroded demand. ``Because of high scrap prices, any little piece is being sold for recycling,'' Magold said. ``Alarms will go up dramatically in coming years.'' Nucor Corp., the biggest U.S.-based steel producer, has spent more than $1 million installing and upgrading radiation detection equipment at its plants, said Steve Roland, environmental director for the Charlotte, North Carolina company. ``Orphaned sources are a significant problem worldwide for the recycling industry,'' Roland said. ``Anything governments can do to remove sources from commerce and hold people accountable for the loss is to our benefit.'' [b] Cancer, Birth Defects [/b] Chronic exposure to low doses of radiation can lead to cataracts, cancer and birth defects, according to the U.S. Environmental Protection Agency. A study of 6,252 Taiwanese people who lived in apartments built with radioactive reinforcing steel found that 117 cancer cases were diagnosed from 1983 to 2005. The research showed a statistically significant increase in leukemia and breast cancer. ``People don't understand the risk,'' said Dr. Peter Chang, a professor of environmental health at Taiwan's National Medical Center who developed the study. ``We have an extreme lack of education.'' [b] Spanish Cloud [/b] In 1998, equipment containing cesium-137 was smelted at a foundry in Los Barrios, Spain, operated by Acerinox SA, the world's largest stainless steel producer. Radiation spread over Italy and France, triggering concern that a reactor had melted down in Russia, according to an IAEA report on the incident. While only six people were exposed to radiation, the cleanup, hazardous waste storage and interruption of business cost the company an estimated $25 million, the report said. At the time, Acerinox had radiation detectors installed in parts of the factory and assumed the scrap it purchased had been inspected by the dealer, said Juan Garcia, a Madrid-based spokesman for the company. Acerinox has since improved security by spending about 100 million euros ($129 million) on ``advanced contamination-detection technologies,'' he said. The event also led Spain to rewrite rules governing the scrap metal industry and to create an agency that helps recyclers dispose of radioactive materials. The IAEA may recommend that governments increase monitoring of scrap shipments at international borders and recyclers screen all material entering their plants, according to draft guidelines circulated by the agency. [b] ArcelorMittal Scanners ]/b] Many large metal producers in the U.S. and western Europe say they already screen for nuclear material. ``All our steelworks are equipped to verify possible radioactivity contamination of the scrap shipments,'' Jean Lasar, a spokesman for Luxembourg-based ArcelorMittal, the world's biggest steelmaker, said in an e-mail. Much of the contaminated scrap originates in or passes through countries with inadequate licensing regulations and detection equipment. [b] For example, about 1,000 radio-electronic thermal generating units were misplaced after the collapse of the Soviet Union, said Abel Gonzalez, a former IAEA inspector who helped retrieve such orphaned sources in Russia. The devices, used to power remote lighthouses, each contain as much radiation as was released by the Chernobyl meltdown in 1986, he said.[/b][/quote] [b]My Comment:[/b] Is that a head of regular or quantum froth on your beer there? Interestingly, beer [and not just by way of its being consumed in mass quantities] in fact figures prominently in the history of nuclear physics - the idea for the [url=http://en.wikipedia.org/wiki/Bubble_chamber]bubble chamber[/url] was conceived by an off-duty physicist while examining the [url=http://units.sla.org/division/dpam/pam-bulletin/vol09/no4/may1982.pdf]rising bubbles in a glass of beer[/url]. [I had the privilege of imbibing more than a few beers at the very same [url=http://arborwiki.org/city/Pretzel_Bell]Pretzel Bell[/url] restaurant in Ann Arbor before it closed in the late 80s]. I notice laureate Glaser now denies that the bubbles in the beer were the actual *inspiration* for the bubble chamber, but come on, even were that true, why ruin a great anecdote with some ugly facts, I say. |
[quote=Fusion_power;148853]The tenets of CRA cause otherwise un-credit-worthy people to be able to get loans.[/quote]No, the CRA encourages banks not to "redline" by ruling out loans to entire neighborhoods. It provides for periodic examinations of banks to determine whether they comply.
It does _not_ require that any bank make a loan to a noncreditworthy person. What it _does_ is encourage banks to stop using a creditworthy person's location or neighborhood as reason to deny a loan. From [URL]http://www.federalreserve.gov/DCCA/CRA/default.htm[/URL]: [quote]Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.[/quote] - - - BTW, I've seen other accusations that this "19[B]9[/B]7" law passed during the "[B]Clinton"[/B] administration was responsible for the subprime, etc., etc. But the law was passed in 19[B]7[/B]7, not 1997. This, of course, fits less well with some of the blame-CRA idea, so the digit substitution is easy. Wikipedia's article ([URL]http://en.wikipedia.org/wiki/Community_Reinvestment_Act[/URL]) has a list of changes since 1977. None is listed as occurring in 1997. |
Housing Bubble Timeline PPT | More on the CRA
Online article with a link to a fantastic Powerpoint presentation from the Milken Institute about the origins and effects of the housing bubble - fantastic use of charts here:
[url]http://www.windsofchange.net/archives/looks_like_cra_didnt_cause_it_after_all.php[/url] The article also notes something that didn`t make it into the Powerpoint, but emerged in the ensuing Q&A session: [quote]...One quote is worth noting immediately. In response to an audience question that asked, in short, whether the CRA requirements imposed by Congress were at the root of the problem, the answer was a resounding "no". [b][i] We looked at CRA pools and the [post-default] returns on them is higher than the equivalent return on conventional pools. [/i][/b] In a nutshell, they blame the crisis on three things: * A massively overleveraged financial sector (with FHLMC as the worst culprit); * Horrible underwriting at every level from loan origination to S & P; * 'Toxic' loan products which - combined with poor underwriting - allowed unqualified borrowers to take out loans they never could have been expected to repay. Those loans were immediately securitized into the highly overleveraged financial institutions - instead of being held by the originating institutions which would have had skin in the game as to real loan quality - and when they unsurprisingly blew up, the negative leverage effects killed the institutions. This was, of course, made worse by the array of poorly designed (but fee rich!) risk-managing tools that made up much of the secondary markets[/quote] I saw a similar presentation on C-SPAN several weeks ago that also nicely illustrated how well CRA loans perform relative to their peers - they are only slightly worse-performing than the "gold standard" prime conforming loans, and massively better than all the "financially innovative" mortgage-loan products that arose in the past 5-10 years, e.g. subprime, Alt-A, neg-am, pay-option ARM, etc. On the same topic, here`s an online posting at Aaron Krowne`s Mortgage-Lend-Implode-o-Meter site which takes apart the lies and distortions in one McCain-campaign ad about the CRA and community groups like ACORN: [url]http://ml-implode.com/viewnews/2008-10-16_TheFactsAboutACORNCRAProgramsandtheMortgageCrisis.html[/url] And here`s a [url=http://www.jchs.harvard.edu/publications/governmentprograms/cra02_sec4.pdf]Harvard University study[/url] which goes into much detail about historical lending patterns under the CRA and their possible influence on recent trends: [quote]Any effort to isolate the impact of CRA on mortgage lending to lower-income people and communities must account for the significant changes in the structure of the mortgage industry over time. As noted throughout this report, CRA was designed at a time when depository institutions dominated mortgage lending activities. In that era, deposits were the single most important source of mortgage capital and prime lenders (as opposed to subprime or manufactured housing lenders) conducted virtually all home purchase and refinance lending. The growth of independent mortgage companies, the rise of secondary market funding, and the advent of a whole new array of mortgage products (some of which are originated electronically) have dramatically changed the mortgage landscape. So have the rise of ‘non-bank’ financial services industry players, including insurance companies, investment houses and others, who have extended their business lines to include traditional banking and mortgage lending activities. Moreover, detailed HMDA data on the characteristics of loans and lenders were not available until 1993. As a result, for most of CRA’s history, it was impossible to conduct any detailed comparisons of the lending patterns of CRA-regulated entities and others operating in market. Several observations flow from these comments. The first relates to the dramatic rise in subprime and manufactured home lending, and to the equally significant differences in loan product mix between CRA lenders and their affiliates, and non-covered institutions. Because independent mortgage companies accounted for most of the growth in subprime and manufactured home lending, comparisons of the level of growth of lower-income lending between CRA-regulated entities and others should carefully control for the differing product mix. Said another way, absent a careful accounting for the differing mix of loans made by regulated and non-regulated lenders, comparisons of CRA-eligible lending by each group will not be ‘apples to apples,’ and in fact will count subprime and manufactured home loans (with their generally higher interest rates and fees) as the same as conventional prime loans. The second observation relates to the rise of out of assessment area lending by mortgage company affiliates or subsidiaries of CRA-regulated institutions. By the 1990s most of the larger, CRA-regulated entities formed and/or acquired mortgage banking subsidiaries or affiliates capable of operating outside of their CRA-designated assessment areas (defined here as the county, or counties, where a CRA-regulated entity operated deposit-taking branches). Today less than half of all mortgage lending by banking organizations (and less than a third of mortgage loans made by any entity) occurs within the assessment area of a CRA-regulated entity. This issue is important because bank and thrift regulators examine all lending as part of their safety and soundness and Fair Lending oversight, but only assessment area loans are subject to the further, detailed review mandated by CRA. In assessing the impact of CRA on residential mortgage lending it is therefore important to identify three different sets of loans: loans made by CRAregulated entities within their CRA assessment area (‘Assessment Area Lending’), loans made by CRA-regulated entities outside of their CRA assessment areas (‘Out of Area Lending’), and loans made by entities not regulated by CRA (‘Non-CRA Regulated Lending’). Next, it is important to understand that some of CRA’s impact on mortgage lending may have occurred prior to 1993, the date when detailed HMDA data are first available. Moreover, legislative and regulatory changes, along with equally important increases in the enforcement of Fair Lending legislation, combined in the 1980s to increase the incentives of CRA-regulated entities to seek out ways to serve lower-income and minority communities. As a result, the gains achieved in the 1980s as CRA-regulated entities searched out ‘new market’ opportunities may have carried over to the current period to the benefit of CRA-regulated entities and other market participants alike, and contributed to the surge in lower-income lending that occurred in the 1993 to 2000 period. [u] Whether CRA (along with expanded Fair Housing enforcement) worked to overcome barriers relating to discrimination and/or information barriers linked to lower-income borrowers or communities may be less important than its role in promoting the explosion of borrower and loan performance information that has occurred over the past quarter century. Although some of the most detailed information about borrowers and loan performance remains proprietary, much has seeped into the general marketplace to the benefit of all market participants. This represents a marked contrast to the paucity of borrower and loan performance information that was available when CRA was enacted in 1977. In short, beyond any direct effect CRA may have had on the lending of CRA-regulated entities, it is likely also to have had an indirect impact on the lending patterns of non-covered lenders, as ‘lessons learned’ by CRA-regulated entities were absorbed by other market participants. [/u] ... Exhibit 18 also demonstrates that over the 1993-2000 period, the CRA-eligible share of prime home purchase lending advanced broadly among all lender types. The strong economy, technological advances, and increased competition surely played a role in this general advance of CRA-eligible prime lending. Indeed, by the end of the period, the CRA-eligible share of prime loans made by independent mortgage companies eclipsed that of banking organizations. In the presence of CRA, which applies only to regulated lenders operating in their assessment areas, the more rapid growth of CRA lending by independent mortgage companies merits further attention. In particular, critics of CRA have cited similar findings to argue that CRA is unnecessary. They argue that if entities that fall outside of CRA’s reach are as likely to make prime loans to lowerincome borrowers as regulated entities, competitive pressures must be insuring that markets for lower-income lending remain active and viable, and there is little need for CRA. The standard rebuttal to such a challenge is that CRA itself established and helps maintain the conditions that enable independent mortgage companies to succeed in their efforts to reach lowerincome borrowers and communities. The Act accomplished this first by demonstrating that market opportunities existed in serving previously neglected borrowers and areas, and second by enforcing ongoing credit access in lower-income places ensuring that housing markets in these areas remain viable. This line of argument further suggests that the gains in credit access that lower-income borrowers and areas enjoyed over the 1990s amid unprecedented national economic growth will not endure without regulatory oversight during less favorable economic times.[/quote] |
Paulson Scraps Plan to Buy Troubled Assets
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aU8ijqyX6ZO8&refer=news]Paulson Scraps Plan to Buy Troubled Assets, Shifts Focus to Consumer Loans[/url]: [i]U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets. [/i]
[quote] Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets. ``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.'' Paulson's remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn't delivered what was promised. Paulson sold the rescue plan as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion in TARP funds after using most of the first half to buy bank stakes. Lawmakers will ``put his feet to the fire,'' said Kevin Petrasic, a former official at the Office of Thrift Supervision, now an attorney with the Paul, Hastings, Janofsky & Walker law firm in Washington. ``I'm not sure how you get around dealing with what is clearly the congressional intent.'' Paulson said he has no regrets for the revised plan. ``I will never apologize for changing a strategy or an approach if the facts change,'' he said at a press conference.[/quote] [b]My Comment:[/b] Will you apologize for changing a strategy or an approach if the initial strategy or approach was deeplu flawed, misguided and doomed to fail? [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aCIytV1_Ii7M&refer=news]U.S. Slump May Be Longest in Three Decades as Economy `Fell Off a Cliff'[/url]: [i]The U.S. downturn will be the longest in three decades, and the drought in consumer spending may be the worst ever, according to economists surveyed by Bloomberg News. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aRIAzzUj87tE&refer=europe]Germany's IG Metall, Employers Agree on 4.2% Wage Increase Over 18 Months[/url]: [i]Germany's IG Metall labor union agreed to pay increases of 4.2 percent for its 3.2 million members at companies such as Volkswagen AG and Siemens AG, lifting the threat of strike action. [/i] [quote]``With this outcome we've sought to protect job security for workers in our industry over the next couple of years,'' Gesamtmetall [workers union] President Martin Kannegiesser told reporters. ``We recommend this pay agreement for all unions and states throughout Germany.'' The outlook for companies is worsening and the wage deal offers them ``flexibility,'' he said. [/quote] [b]My Comment:[/b] How does increasing the chances of a corporate bankruptcy by one of the companies having to pay these higher wages in the face of a massive worldwide economic downturn "protect job security for workers in [your] industry" and give the companies "flexibility", exactly? Inquiring minds would very much like to know how that works. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aTTGqbAfZWjI&refer=europe]Russian Debt Risk Jumps After Ruble Trading Band Widened, Rates Increased[/url]: [i]The cost of protecting against a default by Russia soared after the central bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=abM29KiepBow&refer=china]Retail Sales Climb 22% in China as Crisis Fails to Damp Consumer Spending[/url]: [i]China's retail sales rose 22 percent, close to the fastest pace in nine years, signaling that domestic demand may help the fourth-biggest economy withstand a looming global recession. [/i] [b]My Comment:[/b] I would be very interested to know what portion of that retail spending is fueled by increased consumer debt. [url=http://money.cnn.com/2008/11/12/news/companies/best_buy/index.htm]Best Buy: 'Most difficult climate we've ever seen'[/url]: [i]No. 1 electronics retailer cuts profit forecast, blames continued weakness in consumer spending heading into critical holiday shopping period.[/i] [quote]NEW YORK (CNNMoney.com) -- Best Buy, the No. 1 electronics retailer, cut its full-year profit forecast Wednesday, citing continued weakness in consumer spending that it says has been exacerbated by the "recent turmoil in the financial markets." The company also said "uncertainty regarding future consumer spending" would limit its ability to project revenue for the critical holiday shopping season. That's a huge problem since the November-December holiday shopping months typically account for 50% or more of retailers' annual profits and sales. "In 42 years of retailing, we've never seen such difficult times for the consumer," Brian Dunn, president and chief operating officer of Best Buy, said in a statement. "People are making dramatic changes in how much they spend, and we're not immune from those forces." [/quote] [b] In-Depth: Demise of the Ospraie Hedge fund Empire [/b] [url=http://money.cnn.com/2008/11/12/news/companies/ospraie_demos.fortune/index.htm]The collapse of a $9B hedge fund empire[/url]: [i]Dwight Anderson built his $9 billion Ospraie hedge fund empire betting on volatile commodities markets. His world came undone this summer.[/i] [quote]the fall of Ospraie is particularly telling. It is a vivid reminder that the best business minds of a generation were drawn to hedge funds, whether managing a portfolio through good times and bad - the definition, after all, of a hedge fund - was their special talent or not. In a bull market Ospraie's focus on diligence was richly rewarded. But in an irrational bear market, Ospraie's buy-and-hold philosophy made it especially vulnerable.[/quote] [b]My Comment:[/b] I keep hearing this mournful "why is the market being so irrational?" refrain from the Wall Street investment-bank and hedge-fund crowd. None of them appears willing to entertain the apparently-radical notion that [b]it was the decades-long Greenspan-era perma-bull-market which was irrational[/b], in that it was fueled by a once-in-a-lifetime massive inflow of retirement and foreign capital, artificially low interest rates, and unreasonable expectations about long-term returns, risk/reward balances and healthy company price/earnings valuations. Perhaps the bear market, while not immune to irrational fear-driven volatility, is the long-needed fair-value reckoning coming due at last. |
[QUOTE=ewmayer;149035][url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aRIAzzUj87tE&refer=europe]Germany's IG Metall, Employers Agree on 4.2% Wage Increase Over 18 Months[/url]: [i]Germany's IG Metall labor union agreed to pay increases of 4.2 percent for its 3.2 million members at companies such as Volkswagen AG and Siemens AG, lifting the threat of strike action. [/i]
[b]My Comment:[/b] How does increasing the chances of a corporate bankruptcy by one of the companies having to pay these higher wages in the face of a massive worldwide economic downturn "protect job security for workers in [your] industry" and give the companies "flexibility", exactly? Inquiring minds would very much like to know how that works.[/QUOTE]You could ask yourself the question what effect lowering everybodies wages will have on the economic situation. IG Metall has accepted a pay rise lower than the past inflation, in other words they have accepted a lowering of wages since there is no indexing mechanism for wages in Germany. Unlike Belgium where wages are indexed on cost of living increase, this is not the case in Germany : this means that the periodic negotiations over pay increase are there to compensate inftation. Jacob |
Jobless Claims: 7-Year High | Germany in Recession
[b]World:[/b]
[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=a19MPg9apju0]Russia Stocks Slide, Kuwait Shuts as Oil Roils Emerging Markets[/url]: [i]Russian stocks plunged and Kuwait suspended trading as the slump in oil to below $55 a barrel roiled emerging markets and increased concern that the ruble will be devalued. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aGnhfqtiHogU&refer=news]Mukesh Ambani, Lakshmi Mittal Lead $200 Billion Loss Among India's Richest[/url]: [i]Mukesh Ambani and Lakshmi Mittal led India's richest in losing $200 billion this year as the global financial crisis triggered a plunge in stocks and property values, Forbes Asia said. [/i] [quote]The combined wealth of India's 40 wealthiest people slumped 60 percent to $139 billion, the magazine said today in an e-mailed release. Mittal, 58, lost his top position to Mukesh Ambani of Reliance Industries Ltd. Mittal lost $30.5 billion after the world's biggest steelmaker ArcelorMittal extended production cuts. The net worth of Mukesh Ambani, 51, dropped 58 percent after demand for petrochemicals made by Reliance Industries slumped and oil refining margins shrank. There are 27 Indians with a net worth of $1 billion or more, compared with 54 last year. The key Sensitive index declined 53 percent this year and is set for its worst annual performance on record. At the same time, there are 456 million Indians who live on less than $1.25 a day, according to the World Bank. ``Indians who felt the heat of the meltdown have not exactly become paupers,'' said Anup Kumar Sinha, professor at the Indian Institute of Management Calcutta, in Kolkata. ``They will probably realize anew the importance of the real economy and reconcile to the vagaries of the financial markets.'' [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=a_qbnSsVFQDI&refer=china]China's Industrial-Output Growth Slumps, Adding to Risk of Deeper Slowdown[/url]: [i]China's industrial output grew at a slower pace than any economist forecast in October, stoking concern that the biggest contributor to global growth is running out of steam. [/i] [quote]``China's economy is losing momentum faster than expected: the central bank needs to act,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``We hope this is the worst quarter and things start looking better next year because of the infrastructure plan.'' [/quote] [b]My Comment:[/b] Dream on, dude. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=asVhpVLebe1Q&refer=europe]Germany Enters Recession With Sharpest Two-Quarter Contraction Since 1996[/url]: [i]The German economy, Europe's largest, contracted more than economists expected in the third quarter, pushing the nation into the worst recession in at least 12 years. [/i] [quote]Ralph Solveen, an economist at Commerzbank AG in Frankfurt, expects a ``marginal'' recovery in the second half of next year. ``The German economy would have cooled regardless of the financial crisis, which just gave it the final push into recession,'' he said. ``The factors that slowed German growth earlier this year such as high inflation, a strong euro and tight monetary policy are all disappearing, which should feed through to the economy next year.'' [/quote] [b]My Comment:[/b] Träum weiter, Mensch... [url=http://www.telegraph.co.uk/finance/financetopics/recession/3446686/Ken-Clarke-warns-Britain-is-on-the-brink-of-meltdown.html]Ken Clarke warns Britain is on the brink of 'meltdown'[/url]: [i]Kenneth Clarke, the former Conservative Chancellor, has warned the economy is on the brink of "meltdown" and unemployment could reach three million.[/i] [quote]Mr Clarke, 68, said the British economy is headed for a "catastrophic crisis" that will be "far worse than anything that has occurred in my lifetime". "There will be a very serious recession next year," he said in an interview with Telegraph TV. "I think the big problem in 2009 will be the catastrophic fall in consumer spending demand, spending in shops will get worse." Mr Clarke, who as Chancellor of the Exchequer between 1993 and 1997 led Britain's recovery from Black Wednesday, called for a temporary cut in VAT to boost spending. [/quote] [b]My Comment:[/b] Cutting the VAT is robbing Peter to pay Paul - the fundamental issue in the UK [as in the US and elsewhere] is that consumers are massively overleveraged and thus the only long-term "fix" is for them to pay down their debt, which requires cutting back on spending, VAT or no VAT. And that`s for the ones not so deep underwater that their only way out is to file personal bankruptcy. [b]U.S.:[/b] [url=http://biz.yahoo.com/ap/081113/jobless_claims.html]AP | Jobless claims jump unexpectedly to 7-year high[/url]: [i]The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.[/i] [b]My Comment:[/b] Why the "unexpectedly"? As with the dramatic drop in consumer spending, there is nothing unexpected about it. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBlCucXR33Jw&refer=us]Obama Pushing for $50 Billion Automaker Rescue, Czar to Oversee Companies[/url]: [i]President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush's support, people familiar with the matter said. [/i] [url=http://biz.yahoo.com/rb/081113/business_us_intel_shares.html?.v=1]Tech shares fall after Intel warning[/url]: [i]U.S. technology shares slumped on Thursday morning after Intel Corp slashed its revenue forecast, in the latest sign of falling global demand for computers and other electronic products.[/i] [quote]Several analysts lowered their price targets on Intel and other tech companies, after the biggest maker of chips for personal computers said it expects fourth-quarter revenue of $9 billion, plus or minus $300 million. That was much worse than Intel's October forecast of $10.1 billion to $10.9 billion, and far short of the average analyst estimate of $10.3 billion according to Reuters Estimates.[/quote] |
Stunned Icelanders Struggle After Economy’s Fall
[url=http://www.nytimes.com/2008/11/09/world/europe/09iceland.html?em]NY Times | Stunned Icelanders Struggle After Economy’s Fall[/url]
[quote][i]By SARAH LYALL Published: November 8, 2008[/i] REYKJAVIK, Iceland — The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.” This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month — the failure of Iceland’s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad — felt like a bad dream, Iceland has now awakened to find that it is all coming true. It is not as if Reykjavik, where about two-thirds of the country’s 300,000 people live, is filled with bread lines or homeless shanties or looters smashing store windows. But this city, until recently the center of one of the world’s fastest economic booms, is now the unhappy site of one of its great crashes. It is impossible to meet anyone here who has not been profoundly affected by the financial crisis. Overnight, people lost their savings. Prices are soaring. Once-crowded restaurants are almost empty. Banks are rationing foreign currency, and companies are finding it dauntingly difficult to do business abroad. Inflation is at 16 percent and rising. People have stopped traveling overseas. The local currency, the krona, was 65 to the dollar a year ago; now it is 130. Companies are slashing salaries, reducing workers’ hours and, in some instances, embarking on mass layoffs. “No country has ever crashed as quickly and as badly in peacetime,” said Jon Danielsson, an economist with the London School of Economics. The loss goes beyond the personal, shattering a proud country’s sense of itself. “Years ago, I would say that I was Icelandic and people might say, ‘Oh, where’s that?’ ” said Katrin Runolfsdottir, 49, who was fired from her secretarial job on Oct. 31. “That was fine. But now there’s this image of us being overspenders, thieves.” Aldis Nordfjord, a 53-year-old architect, also lost her job last month. So did all 44 of her co-workers — everyone in the company except its owners. As many as 75 percent of Iceland’s private-sector architects have probably been fired in the past few weeks, she said. In a strange way, she said, it is comforting to be one in a crowd. “Everyone is in the same situation,” she said. “If you can imagine, if only 10 out of 40 people had been fired, it would have been different; you would have felt, ‘Why me? Why not him?’ ” Until last spring, Iceland’s economy seemed white-hot. It had the fourth-highest gross domestic product per capita in the world. Unemployment hovered between 0 and 1 percent (while forecasts for next spring are as high as 10 percent). A 2007 United Nations report measuring life expectancy, real per-capita income and educational levels identified Iceland as the world’s best country in which to live. Emboldened by the strong krona, once-frugal Icelanders took regular shopping weekends in Europe, bought fancy cars and built bigger houses paid for with low-interest loans in foreign currencies. Like the Vikings of old, Icelandic bankers were roaming the world and aggressively seizing business, pumping debt into a soufflé of a system. The banks are the ones that cannot repay tens of billions of dollars in foreign debt, and “they’re the ones who ruined our reputation,” said Adalheidur Hedinsdottir, who runs a small chain of coffee shops called Kaffitar and sells coffee wholesale to stores. There was so much work, employers had to import workers from abroad. Ms. Nordfjord, the architect, worked so much overtime last year that she doubled her salary. She was featured on a Swedish radio program as an expert on Iceland’s extraordinary building boom. Two months ago, her company canceled all overtime. Two weeks ago, it acknowledged that work was slowing. But it promised that there would be enough to last through next summer. The next day, everyone was herded into a conference room and fired. Employers are hurting just as much as employees. Ms. Hedinsdottir has laid off seven part-time employees, cut full-time workers’ hours and raised prices. The Kaffitar branch on Reykjavik’s central shopping street was perhaps half full; in normal times, it would have been bursting at its seams. While business is dwindling, costs are soaring. When the government took over the country’s failing banks in October, Ms. Hedinsdottir’s latest shipment of coffee — more than 109,000 pounds — was already on the water, en route from Nicaragua. She had the money to pay for it, but because the crisis made foreign banks leery of doing business with Iceland, she said, she was unable to convert enough cash into foreign currency. “They were calling me every day and asking me what the situation was, and they got really nervous,” Ms. Hedinsdottir said of her creditors. They got so nervous that they sent the coffee to a warehouse in Hamburg, Germany, where it now sits while she tries to find the foreign currency to pay for it. Her fixed costs are no longer fixed. Five years ago, the company built a new factory, borrowing the 120 million kronur — about $1.5 million — in foreign currencies. But the currency’s fall has increased her debt to 200 million kronur. This summer, her monthly payments were 2.5 million kronur; now they may be double that — the equivalent of $38,500 in Iceland’s debased currency. “My financial manager is talking to the banks every day, and we don’t know how much we’re supposed to pay,” Ms. Hedinsdottir said. In a recent survey, one-third of Icelanders said they would consider emigrating. Foreigners are already abandoning Iceland. Anthony Restivo, an American who worked this fall for a potato farm in eastern Iceland and was heading home, said all of the farm’s foreign workers abruptly left last month because their salaries had fallen so much. One man arrived from Poland, he said, then realized how little the krona was worth and went home the next day. At the Kringlan shopping center on the edge of Reykjavik, Hronn Helgadottir, who works at the Aveda beauty store, said she could no longer afford to travel abroad. But the previous weekend, she said, she and her husband had gone for a last trip to Amsterdam, a holiday they had paid for months ago, when the krona was still strong. They ate as cheaply as they could and bought nothing. “It was strange to stand in a store and look at a bag or a pair of shoes and see that they cost 100,000 kronur, when last year they cost only 40,000,” she said. In Kopavogur, a suburb of Reykjavik, Ms. Runolfsdottir, the recently fired secretary, said she had worried for some time that Iceland would collapse under the weight of inflated expectations. “If you drive through Reykjavik, you see all these new houses, and I’ve been thinking for the longest time, ‘Where are we going to get people to live in all these homes?’” she said. The real estate firm that used to employ Ms. Runolfsdottir built about 800 houses two years ago, she said; only 40 percent have been sold. By Icelandic law, Ms. Runolfsdottir and other fired employees have three months before they have to leave their jobs. At the end of that period, she will start drawing unemployment benefits. Meanwhile, her husband’s modest investment in several now-failed Icelandic banks is worthless. “They were encouraging us to buy shares in their firms until the last minute,” she said. She feels angry at the government, which in her view has mishandled everything, and angry at the banks that have tarnished Iceland’s reputation. And while she has every sympathy with the hundreds of thousands of foreign depositors who may have lost their money, she wonders why the Icelandic government — and, in essence, the Icelandic people — should have to suffer more than they already have. “We didn’t ask anyone to put their money in the banks,” she said. “These are private companies and private banks, and they went abroad and did business there.” Despite all this, Icelanders are naturally optimistic, a trait born, perhaps, of living in one of the world’s most punishing landscapes and depending for so much of their history on the fickle fishing industry. The weak krona will make exports more attractive, they point out. Also, Iceland has a highly educated, young and flexible population, and has triumphed after hardship before. Ragna Sara Jonsdottir, who runs a small business consultancy, said she had met for the first time with other businesses in her office building. “We sat down and said, ‘We all have ideas, and we can help each other through difficult times,’ ” she said. But she said she was just as shocked as everyone else by the suddenness, and the severity, of the downturn. When the prime minister, Geir H. Haarde, addressed the nation at the beginning of October, she said, her 6-year-old daughter asked her to explain what he had said. She answered that there was a crisis, but that the prime minister had not told the country how the government planned to address it. Her daughter said, “Maybe he didn’t know what to say.”[/quote] |
Is anyone else, reading about Iceland, reminded of Enron? Not that there was dishonesty (rather than poor judgement) at the top in Iceland's case, but in their similar apparent rises and sudden falls?
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[QUOTE=cheesehead;149185]Is anyone else, reading about Iceland, reminded of Enron? Not that there was dishonesty (rather than poor judgement) at the top in Iceland's case, but in their similar apparent rises and sudden falls?[/QUOTE]
I have been reading ewmayers post here about Iceland. Because I am in the middle of the situation here in Iceland and I am curious about the abroad news about the situation. Big thanks for the updates here. How the Icelandic government has been sleeping on their duty for years and how clueless they were when the crises hit them/us in the face is embarrassing. Poor judgment in so many situations for years says how the system has been running here. Cheers. |
[QUOTE=japelprime;149283]I have been reading ewmayers post here about Iceland. Because I am in the middle of the situation here in Iceland and I am curious about the abroad news about the situation. Big thanks for the updates here. How the Icelandic government has been sleeping on their duty for years and how clueless they were when the crises hit them/us in the face is embarrassing. Poor judgment in so many situations for years says how the system has been running here.
Cheers.[/QUOTE] Glad to be of service, JP - I admit I will always have a bit of a soft spot for Iceland after spending several weeks there in the summer of '95 and enjoying the hospitality of your countrymen. One's government being asleep at the financial-regulatory switch is a familiar refrain for us as well in the U.S. [and UK, and Australia, and Spain, and Germany, and...] - obviously in Iceland the issue was tremendously magnified by the fact that the banking sector grew out of all proportion to the national economy, so the problem is literally "too big to bail". I wish you all the best - we can only hope that after what is sure to be a wrenching transition-back-to-basics, the Icelanders will use the same Nordic tenacity that allowed them to survive for the past 1000+ years to once again recover some measure of the high standard of living they have enjoyed for the past 50 years, but this time [as elsewhere] based on a long-term-sustainable economic model. All the best to you, -Ernst |
[quote=japelprime;149283]I am in the middle of the situation here in Iceland and I am curious about the abroad news about the situation. Big thanks for the updates here. How the Icelandic government has been sleeping on their duty for years and how clueless they were when the crises hit them/us in the face is embarrassing. Poor judgment in so many situations for years says how the system has been running here.
Cheers.[/quote]1) I share Ernst's admiration of your country's and people's history and good wishes for your future. 2) Is there in Iceland, as in the US, a political faction that characteristically opposes business regulation and another that characteristically favors business regulation? Or is Iceland's politics not divided that way so much as here? 3) I have a very, very tiny connection to Iceland in that, about 15 years ago, I programmed a variation of my company's ATM software for one of your then-still-virtuous banks. I recall that, among other more-complicated currency considerations, it involved substituting "kronur" wherever our standard ATM screen display text had "dollars". The only other detail I recall is that it was dual-currency (Might that have been an early part of that bank's international venturism?). 4) Among the things I admire about Iceland is that a few years ago it was the only country to offer sanctuary to Bobby Fischer upon his deportation from Japan. (Fischer has needed such sanctuary ever since the US issued a warrant for his arrest back in the 1980s(?) because he violated a US embargo by travelling to a Balkan country in order to play a chess match with Boris Spassky. The embargo has long expired, but not the warrant.) |
GM Collapse Could Cost $200B | Japan Seniors Crime
[url=http://money.cnn.com/2008/11/14/news/companies/citigroup_layoffs/index.htm]Citigroup to lay off another 10,000 - report[/url]: [i]Financial services company said to be gearing up for more job cuts, rate hikes for cardholders.[/i]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ad09qxbiElB8&refer=news]GM Collapse Would Cost U.S. Taxpayers Up to $200 Billion, Forecaster Says[/url]: [i]General Motors Corp., seeking a federal bailout as its cash dwindles, would cost the government $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=as80aWlHdA1M&refer=news]Poverty, Pension Fears Drive Japanese Seniors to Shoplift, Pick Pockets[/url]: [i]More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society. [/i] [quote] Nov. 14 (Bloomberg) -- More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society. Criminal offences by people 65 or older doubled to 48,605 in the five years to 2008, the most since police began compiling national statistics in 1978, a Ministry of Justice report said. Theft is the most common crime of senior citizens, many of whom face declining health, low incomes and a sense of isolation, the report said. Elderly crime may increase in parallel with poverty rates as Japan enters another recession and the budget deficit makes it harder for the government to provide a safety net for people on the fringes of society. ``The elderly are turning to shoplifting as an increasing number of them lack assets and children to depend on,'' Masahiro Yamada, a sociology professor at Chuo University in Tokyo and an author of books on income disparity in Japan, said in an interview yesterday. ``We won't see the decline of elderly crimes as long as the income gap continues to rise.'' Crime rates among the elderly are rising as the overall rate for Japan has fallen for five consecutive years after peaking in 2002. Over 60s accounted for 18.9 percent of all crimes last year compared with 3.1 percent in 1978, with shoplifting accounting for 80 percent of the total, the report said. The trend has captivated Japan's media, which include regular accounts of the latest thief or pickpocket as well as undercover footage of people shoplifting food in convenience stores and supermarkets. ... ``Some elderly, particularly men who lost their wives, even turn to crimes to be put in jail so they can be fed three times a day,'' Yamada said. Still, Japan's weakening economy is not the only cause of elderly crime, Yamada said. The current generation of seniors grew up in the confusion of the aftermath of World War II, when crime rates in Japan were at their highest, he said. ``They don't feel guilty because they were the generation who recorded the highest youth crime rates when they were young.''[/quote] [b]My Comment:[/b] No more Geritol for you, Oldster-san. On the plus side, Friday was reported as being a rare Godzilla-free day in Tokyo. [url=http://money.cnn.com/2008/11/14/news/companies/freddie_mac/index.htm]Freddie: $25B loss, taps tax dollars[/url]: [i]Mortgage finance firm reports huge quarterly loss - Treasury pumps in $14 billion backstop.[/i] [quote]NEW YORK (CNNMoney.com) -- Freddie Mac reported a $25 billion quarterly loss Friday that forced the mortgage finance giant to tap $100 billion in bailout money set aside by the government. The loss triggered a $13.8 billion Treasury Department investment in Freddie (FRE, Fortune 500). The firm is likely to get the money by the end of the month; Treasury will receive preferred shares in return. A Treasury spokeswoman did not have any immediate comment. Treasury and regulator Federal Home Finance Authority announced on Sept. 7 that they had taken control of Freddie and Fannie Mae, the other giant mortgage finance company, when it became clear that mounting losses on bad mortgages would cause them to run out money. At the time, the Treasury committed $100 billion apiece to back up the two firms. Friday's announcement is the first major investment of taxpayer cash into the firms during the current crisis. Freddie's third-quarter loss came to $19.44 a share, far larger than the $1.2 billion, or $2.07 a share it lost in the year-earlier period. Much of that loss came from a $14 billion non-cash charge to write down the value of tax credits it had built up. Doubts about the ability of the company to make money in the future and utilize those tax credits caused that charge. It also took a $9 billion charge to write down the value of securities it held on its books. But even without those charges, the company's performance was significantly worse than in previous quarters. Freddie's losses from credit-related expenses, essentially those on the loans that it backs or owns, soared to $6 billion, compared to $2.8 billion in the second quarter and $1.4 billion in the year-earlier period. Losses from non-interest expense also soared to $1.4 billion. The total number of loans that are either 90 days or more past due or in foreclosure soared to 167,807 as of Sept. 30, up 46% from three months earlier. It set aside an additional $5.7 billion during the quarter to deal with the rising loan losses. 2 firms, $54 billion in losses The stunning hit to Freddie Mac comes four days after the much larger Fannie Mae reported a $29 billion loss. Fannie has yet to start drawing on its $100 billion Treasury backstop, although it said it may have to tap into the money soon if losses continue at the current pace in the fourth quarter. ... Jaret Seiberg, a financial services analyst at the Stanford Group, said the losses for Fannie and Freddie weren't really much of a surprise, given that the federal government has continued to depend on the firms to keep money flowing to the battered home loan market. "Fannie and Freddie have become creatures of the federal government, and they're being used to achieve policy aims, not profit aims," said Seiberg. "You could have run them much more conservatively, put them in run-off mode. You could have allowed them to conserve capital rather than put it to work. But that would have been far worse for the economy." On Tuesday, Treasury and the FHFA announced a new loan modification program aimed at home owners behind in their mortgage payments by three months or more whose home loans are either owned or guaranteed by Fannie or Freddie. Under the program, interest rates on the loans could be reduced or payment schedules stretched out so that homeowners could better afford their loans.[/quote] [b]My Comment:[/b] The Treasury/FHFA proposal sets up a power struggle within the Bush administration between the Paulson plan and the one [url=http://money.cnn.com/2008/11/14/news/economy/fdic_bair/index.htm]proposed by the FDIC`s Sheila Bair[/url]. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aELLkr3l7JYk&refer=news]Kashkari Takes a Beating From Congressmen on AIG, TARP, Christmas[/url]: [i]On Capitol Hill today, Neel Kashkari became the ``chump'' who stole Christmas. [/i] [quote]Kashkari, who oversees the Treasury's $700 billion financial rescue plan, came under fire at a congressional hearing, notably by Maryland Democrat Elijah Cummings. Cummings was angry about reports American International Group Inc., which got an expanded $150 billion government bailout this week, is setting aside $503 million in compensation for executives. ``I'm just wondering how you feel about an AIG giving $503 million worth of bonuses on the one hand, and accepting $154 billion from hard-working taxpayers,'' Cummings asked Kashkari. ``What really bothers me is all these other people who are lining up. They say, well, is Kashkari a chump?'' [/quote] [b]My Comment:[/b] In their defense, the members of the panel acknowledged that they were taking our their frustrations with the treasury as a whole on Kashkari. Like the Southwest Airlines ad series which fetaures fictional people getting themselves into horribly embarassing pickles put it, "Wanna get away?" |
[QUOTE=cheesehead;149353]1) I share Ernst's admiration of your country's and people's history and good wishes for your future.[/QUOTE]
Thanks Guys [QUOTE=cheesehead;149353]2) Is there in Iceland, as in the US, a political faction that characteristically opposes business regulation and another that characteristically favors business regulation? Or is Iceland's politics not divided that way so much as here?[/QUOTE] We have same political faction here. For the last 12 years we have parties in majority that have not want to much business regulation. Probably costing us the setback. The governments have been selling state property’s last 10 years to people that is “politicaly correct” some will call upon corruption. [QUOTE=cheesehead;149353]3) I have a very, very tiny connection to Iceland in that, about 15 years ago, I programmed a variation of my company's ATM software for one of your then-still-virtuous banks. I recall that, among other more-complicated currency considerations, it involved substituting "kronur" wherever our standard ATM screen display text had "dollars". The only other detail I recall is that it was dual-currency (Might that have been an early part of that bank's international venturism?).[/QUOTE] Maybe you will have opportunity to come back now to change the programs as our króna is almost dead. There has been much pressure going on throwing our matador currency out in favor for euro. [QUOTE=cheesehead;149353]4) Among the things I admire about Iceland is that a few years ago it was the only country to offer sanctuary to Bobby Fischer upon his deportation from Japan. (Fischer has needed such sanctuary ever since the US issued a warrant for his arrest back in the 1980s(?) because he violated a US embargo by travelling to a Balkan country in order to play a chess match with Boris Spassky. The embargo has long expired, but not the warrant.)[/QUOTE] He had old friends here that advocated for him his lasts years. He was a great chess player and sad how things ended up for him. His sickness in the end could be taken care of but he refused any help. Looks like he was fed up in his- and our world. Cheers |
Massive Job Cuts at Citgroup | PPI Has Record Drop
[url=http://money.cnn.com/2008/11/18/real_estate/home_prices_third_quarter/index.htm]Home prices in record 9% decline[/url]: [i]Foreclosures take heavy toll on home prices but bargain hunters are re-entering worst-hit markets.[/i]
[url=http://money.cnn.com/2008/11/17/news/companies/citigroup/index.htm]Citigroup to cut more than 50,000 jobs[/url]: [i]New York City-based bank unveils massive layoff plan -- the latest step by the embattled firm to slim down in response to the economic slowdown.[/i] [url=http://money.cnn.com/2008/11/14/news/companies/sun_microsystems/index.htm]Sun Microsystems to cut up to 6,000 jobs[/url]: [i]In cost-cutting move, the computer company said it would reduce its payroll by up to 18% and restructure its software business operations.[/i] [b]My Comment:[/b] Apparently Sun`s dire straits didn`t prevent its top execs from paying themselves [url=http://cbs5.com/local/Sun.Microsystems.CEO.2.824726.html]handsome bonuses[/url] this year. [url=http://money.cnn.com/2008/11/18/news/economy/internet_retail_sales.ap/index.htm]Internet retail growth rate at 7-year low[/url]: [i]Online sales rose only 1% in October, marking the sixth straight month of slowing rates.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aCC.aK6XbpoA&refer=news]Producer Prices Plunge 2.8%, Most on Record, as Commodities Demand Shrinks[/url]: [i]Prices paid to U.S. producers plunged in October by the most on record as the faltering global economy caused demand for commodities to dry up. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=at8cHVhFPcDo&refer=news]Paulson Clashes With Congress, Warns Against Using Bailout as a `Panacea'[/url]: [i]Treasury Secretary Henry Paulson rejected using the government's financial-rescue program as a ``panacea'' for economic difficulties, clashing with lawmakers who want the funds to help beleaguered homeowners and automakers. [/i] [quote]``The rescue package was not intended to be an economic stimulus or an economic recovery package,'' Paulson said in testimony to the House Financial Services Committee in Washington. The $700 billion Troubled Asset Relief Program was designed to stabilize financial markets and the flow of credit and ``is not a panacea for all our economic difficulties.'' [/quote] [b]My Comment:[/b] Exactly right, Mr. Hank - using any of the $700B bank-bailout money which you recently flip-flopped on how to spend would be like using a pot of [url=http://www.seinfeldscripts.com/TheShoes.html]bouillabaisse as a toilet[/url]. These monies are strictly for the vital purpose of allowing the Big Finance players to keep paying their executives` outsized compensation packages. clearly doing so is vital to retaining all this wonderful "top talent" whose "creativity" [I find "greed", albeit accurate, sounds rather harsh, so let`s make nice and put a positive spin on things, shall we] helped engender our current state of affairs. Interestingly, one exception to the gimme-my-bonus-goddammit crowd is none other than Paulson`s old form Goldman Sachs, whose execs just announced that they will [url=http://www.cnbc.com//id/27772063?__source=yahoo|headline|quote|text|&par=yahoo]forgo their 2008 bonuses[/url]. There, there - before you cry too many tears for Mr. Blankfein & Co., realize that if he lives frugally and pinches every penny, his $70 million bonus of last year should help get him through a few lean years, if only just. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a1HcUpkbu5n8&refer=news]China Surpasses Japan as Top Holder of Treasuries With Almost $600 Billion[/url]: [i]China surpassed Japan in September to become the biggest foreign holder of U.S. Treasuries, as foreign investors sought the relative safety of government debt as stocks plunged 9.1 percent that month. [/i] [quote]“The details of the report paint a much more positive picture of cross-border investments than expected,” said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. “China, along with others, is showing more demand than anticipated for U.S. assets.” [/quote] [b]My Comment:[/b] Translation: Americans, meet your future masters - and don`t say you weren`t warned. Now make yourself feel better by doing some power shopping at Target or Wal-Mart! You deserve it! |
Wednesday, 19 Nov: Deflation is Here
[Forgot to post my collected news links yesterday]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a9qvRz4kZN18&refer=news]U.S. Consumer Prices, Housing Starts Fall, Signal Worst Slowdown Since '83[/url]: [i]The cost of living in the U.S. fell by the most on record and construction began on the fewest homes ever last month, evidence the economy is in the worst recession in at least a quarter century. [/i] [quote]The consumer price index plunged 1 percent last month, the most since records began in 1947, the Labor Department said in Washington. Commerce Department figures showed housing starts tumbled to an annual rate of 791,000, indicating the industry’s contraction may extend into a fourth year. Today’s CPI report signals [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=awlaebKn1pSQ&refer=news]deflation[/url], or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts. “The economy’s really just in horrific shape,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will “take rates as low as they have to” to avoid “a deflation-type scenario, which now all of a sudden is very possible.”[/quote] [b]My Comment:[/b] Rather ironic that Ben Bernanke`s PhD thesis was on the deflationary spiral that occurred during the Great Depression. Like Bernanke, Mr. LaVorgna is clueless as what to do, because interest rate cuts in this environment are useless - the cure for what ails you [decades of much-too-easy credit] is not more of what ails you. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=audPiEzX.fNY&refer=news]Chrysler Considered, Abandoned Bankruptcy Before Aid Push, Nardelli Says[/url]: [i]Chrysler LLC Chief Executive Officer Robert Nardelli said his company studied a prearranged bankruptcy before dismissing the idea as unworkable and approaching the U.S. government for money to survive. [/i] [b]My Comment:[/b] "Unworkable" translates to: "Why file Chapter 11 when you can get the taxpayers to bail you out? everybody else is doing it, why not us?" Just play the "systemic risk" card, tell congress that "letting us fail would plunge the entire economy into the second Great Depression ... and would mean that the terrorists have won, and stuff", and presto! Here`s your multibillion-dollar bailout check, make sure to spend it all on lavish executive bonuses and shareholder dividends before you really do file for bankruptcy. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=akjMX_T7CsDY&refer=europe]BASF to Temporarily Close 80 Plants, Trim Output at Others; Profit to Fall[/url]: [i]BASF SE, the world's largest chemical company, lowered its profit forecast for the second time and plans to idle 80 factories after customers in the auto, construction and textile industries reduced orders. [/i] [quote]The German maker of styrene for cups and waterproof coatings for clothes fell the most in 16 years in Frankfurt trading after abandoning a goal to match last year's profit. Ludwigshafen-based BASF said it will halt or curtail production at plants in Germany, Belgium, the U.S. and China, forcing about 20,000, or one-fifth of its employees, to reduce overtime, work shorter hours and take unused vacation. BASF, which supplies catalytic converters to Volkswagen AG and concrete additives to Hyundai Engineering & Construction Co., said demand dropped ``significantly'' since the end of October as customers struggled to get credit and reduced inventories after world economies slumped. Dow Chemical Co., the largest U.S. chemical maker, said Nov. 14 it will take ``radical actions'' to reach earnings targets next year.[/quote] [b]My Comment:[/b] What is needed is less "radical actions to reach earnings targets" which were based on bull-market trends, but rather prudent actions to ensure survival and long-term viability of one`s concern through what is shaping up to be a brutal multiyear recession. Slashing payrolls is of course a quick short-term fix which boosts "earnings", but how those job cuts and hours reductions are done can have a big effect on long-term prospects. If you simply slash payrolls and don`t take care to retain top talent and business units with excellent long-term prospects, placating your shareholders now could prove ruinous [or at best very costly] later on. On the other hand, given the rapidity of the slowdown of European industrial activity - especially in the automaking sector, which collectively is one of BASF's biggest customers, they probably had little choice but to cut as much and as quickly as reasonably possible. [url=http://money.cnn.com/2008/11/19/news/economy/housing_starts/index.htm]Housing starts, permits at record lows[/url]: [i]Key indicators plummet in October, spelling more bad news for the economy.[/i] [quote]Housing starts reached an annual rate of 791,000 last month, the lowest level since the department began tracking starts in 1959. The rate tumbled 4.5% from the revised reading of 828,000 in September. Building permits fell 12% to an annual rate of 708,000 in October, breaking the previous low of 709,000 in March 1975. The annual rate for September was revised to 805,000.[/quote] [b]My Comment:[/b] If you adjust for the increase in U.S. population since 1959 and 1975, respectively, things look much worse than the simple absolute "lowest in X decades" comparisons indicate. Near-term prospects for recovery are pretty much summed up by the fact that Homebuilders' confidence in the housing market [url=http://money.cnn.com/2008/11/18/news/economy/builders_confidence/index.htm]plunged to new record low[/url] last month. [url=http://www.bloomberg.com/apps/news?pid=20602007&sid=a.SS7_usmSqk&refer=govt_bonds]American Express Delinquencies Rise to 4.4 Percent, Defaults at 7 percent[/url]: [i]American Express Co. had its highest monthly increase in credit-card delinquencies on record in October as jobless claims rose, according to FBR Capital Markets. [/i] [quote]Late payments rose 35 basis points to 4.4 percent last month, according to a report yesterday from FBR analysts led by Scott Valentin in Arlington, Virginia. The default rate increased 33 basis points to 6.96 percent, the highest since November 2005, the report said. The report didn't say what the previous record for delinquencies was. A basis point is 0.01 percentage point. American Express has been battered by rising delinquencies and higher funding costs. The New York-based company became eligible for government funds when it won Federal Reserve approval to become a commercial bank on Nov. 11 as frozen credit markets choked off affordable financing. Becoming a bank won't relieve American Express from having to borrow money in the bond market, the analysts said. ``We do not believe that American Express will be able to grow deposits to a significant enough level that meaningfully reduces its dependence on capital markets-related funding,'' the analysts wrote. There were no sales of bonds backed by credit-card payments in October, the first time since 1993, when the asset-backed securities market was in its infancy. Yields on top-rated credit card bonds relative to benchmark interest rates reached a record high of 525 basis points more than the London interbank offered rate, or Libor, last week, according to Bank of America Corp. data. [/quote] |
Stocks: Let's Party Like It's ... 19917
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aawjZ5YkJ2JE&refer=news]Stocks in U.S. Tumble, Sending S&P 500 Index Below Lowest Close Since 1997[/url]: [i]U.S. stocks slid and the Standard & Poor's 500 Index plunged to its lowest level in 11 years after economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry. [/i]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aYq97me3bUCw&refer=news]Fannie, Freddie Will Suspend Foreclosures Through Jan. 9 to Help Borrowers[/url]: [i]Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a6szHA.vC6Uk&refer=news]Auto-Rescue Agreement Reached by Senate Bipartisan Group; GM, Ford Surge[/url]: [i]A group of U.S. senators has reached a bipartisan agreement on aiding U.S. automakers, said an aide to Democratic Senator Carl Levin of Michigan. [/i] [b]My Comment:[/b] GM shares, which plunged below $2 this morning, before this announcement, nearly doubled within the hour afterward before settling back around the day`s opening price of $3. This could all still easily fall apart, although (as happened previosuly with Paulson`s dire-threat-backed $700B TARP program) lawmakers are under heavy pressure to not let the U.S. automakers outright collapse. By the end of the day the early hopes for a quick bailout compromise [url=http://money.cnn.com/2008/11/20/news/economy/auto_industry_bailout/index.htm]had faded again[/url], with House Democratic leaders saying they will return week of Dec. 8 if companies can show they have a 'viable' turnaround plan. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=anVS4Mooik1I&refer=news]Jobless Claims Approach Highest Level Since 1982 as U.S. Recession Deepens[/url]: [i]The number of Americans filing for unemployment benefits approached a 26-year high, and a gauge of the economy's future performance dropped, sending yields on benchmark Treasuries to record lows. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aM0sF63PMJN0&refer=news]JPMorgan Will Fire 3,000 in Investment Banking, Freeze Some Base Salaries[/url]: [i]JPMorgan Chase & Co., the largest U.S. bank, plans to fire about 10 percent of its investment banking staff, or about 3,000 people, as the global economy slides into recession, a person familiar with the bank said. [/i] |
CEO -- Chief embezzlement officer.
CFO -- Corporate fraud officer. BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius. BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry and the husband gets no sex. VALUE INVESTING -- The art of buying low and selling lower. P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing. BROKER -- What my broker has made me. STANDARD & POOR -- Your life in a nutshell. STOCK ANALYST -- Idiot who just downgraded your stock. STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves. FINANCIAL PLANNER -- A guy whose phone has been disconnected. MARKET CORRECTION -- The day after you buy stocks. CASH FLOW -- The movement your money makes as it disappears down the toilet. YAHOO -- What you yell after selling it to some poor sucker for $240 per share. WINDOWS 2000 -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share. INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse or behind bars! PROFIT -- an archaic word no longer in use |
My investments are so safe I'm sleeping like a baby....
I wake every 2 hours and cry. |
Nordic Countries to Lend Iceland $2.5 Billion
[url=http://www.nytimes.com/aponline/world/AP-EU-Nordics-Iceland.html?_r=1&em]Nordic Countries to Lend Iceland $2.5 Billion[/url]
[quote]HELSINKI, Finland (AP) -- Four Nordic countries will lend Iceland $2.5 billion (euro1.98 billion) to help the country recover from its economic meltdown, their finance ministries said Thursday. The decision by Finland, Sweden, Norway and Denmark came after the International Monetary Fund announced it had approved a $2.1 billion (euro1.66 billion) support package for Iceland. ''We stress that, as outlined in the IMF program, an ambitious multiyear fiscal consolidation program will help Iceland stabilize the economy, including the exchange rate, and reduce public debt over the medium-term,'' the finance ministries said in a joint statement. Finnish Finance Ministry spokesman Martti Hetemaki said the share of each country had not yet been decided, but that Finland would have to borrow money to finance its contribution. ''We have a joint desire among the Nordics to help Iceland in extremely difficult economic conditions,'' Hetemaki said. ''The money will be used to stabilize the currency and finance its imports.'' Last month, Icelandic Prime Minister Geir Haarde told his Nordic partners in Helsinki that his country needs some $6 billion to recover from the meltdown. Norway loaned Iceland $242 million last month, but said it would provide more. Iceland has already called on a swap facility, drawing $256 million each from the Norwegian and Danish central banks, but has not used the total of $636 million from each. A similar deal with Sweden's central bank has also been offered. Approval of IMF's support package to Iceland had been held up because of a British-Icelandic dispute over Britons' accounts in failed Icelandic banks, but the dispute was settled Sunday. Iceland's banking system has collapsed amid the global credit crunch. The country's currency, the krona, has lost half its value since January. Banking transactions to and from the island nation in the middle of the North Atlantic have seized up, leaving its population of 320,000 virtually stranded. [/quote] |
Geithner Chosen to Be Treasury Secretary
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a7V42kGHp.4o&refer=news]Geithner Chosen to Be Treasury Secretary; Summers to Serve in White House[/url]: [i]President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said.[/i]
[quote] Nov. 21 (Bloomberg) -- President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said. Geithner helped lead the U.S. response to the deepest financial crisis in seven decades, including the takeover of American International Group Inc. and Bear Stearns Cos. rescue, and decision to let Lehman Brothers Holdings Inc. fail. Both he and Summers are veterans of managing financial turmoil, working together on the Asian financial crisis of 1997- 98 and staving off a Mexican default earlier that decade. They will be charged with shepherding Obama’s plans for a fiscal stimulus to cushion an economy that analysts say is in its deepest recession in a quarter century. Geithner is “extremely able, but also helps provide some continuity,” House Financial Services Committee Chairman Barney Frank said today in a telephone interview. “He ought to be very reassuring to the markets.” The U.S. stock market’s benchmark index climbed from an 11- year low after news of Obama’s pick. Summers, Bill Clinton‘s last Treasury secretary and now a professor at Harvard University, would have a post that positions him to succeed Ben S. Bernanke as Fed chairman, central-bank watchers said. [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a3ArjWNoRSKw&refer=news]Citigroup May Get U.S. Government Rescue After Stock's Skid, Investors Say[/url]: [i]Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.[i] [quote]Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September. “There is no question that Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.” While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating agencies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt. [/quote] [b]My Comment:[/b] Citi may have $2 trillion of stated assets, but added to that is roughly $1 trillion of [url=http://globaleconomicanalysis.blogspot.com/2008/07/citigroups-11-trillion-in-mysterious.html]mystery assets[/url] hidden off their balance sheet. |
If you spend enough money, it will end!
U.S. Sen. Charles Schumer, a New York Democrat who is part of the majority leadership team in the Senate, told ABC's "This Week" that an economic recovery package between $500 billion and $700 billion is needed and could be ready by the time Obama takes office on January 20.
"I think it has to be deep. In my view it has to be between five and seven hundred billion dollars," Schumer said. Dig a hole, pour money in, eventually, the hole will get full. Why is it that all these politicians think we can spend our way out of the depression we are currently in? Don't get me wrong, there are things that can be done to ease the blow, but there is no way to spend enough money to avert the ongoing fiscal logjam. The pump is broken, it does not need priming. It needs a new pump. DarJones |
[QUOTE=Fusion_power;150391]U.S. Sen. Charles Schumer, a New York Democrat who is part of the majority leadership team in the Senate, told ABC's "This Week" that an economic recovery package between $500 billion and $700 billion is needed and could be ready by the time Obama takes office on January 20.
"I think it has to be deep. In my view it has to be between five and seven hundred billion dollars," Schumer said. Dig a hole, pour money in, eventually, the hole will get full. Why is it that all these politicians think we can spend our way out of the depression we are currently in? Don't get me wrong, there are things that can be done to ease the blow, but there is no way to spend enough money to avert the ongoing fiscal logjam. The pump is broken, it does not need priming. It needs a new pump. DarJones[/QUOTE] The one thing I like about the package is that it isn't a "bail-out". If it is designed to employ companies and people to help fix the problems with the nation's infrastructure, then it will be a good use of the money. I'm concerned that it might not be wisely spent. For example, will it be used to build a bunch of "bridge to nowheres" just to employ people or will it be spent on worthwhile projects, such as replacing bridges and roads where needed. |
[quote=Fusion_power;150391]The pump is broken, it does not need priming. It needs a new pump.[/quote]Can you explain that in non-figurative terms, please?
|
Black-Scholes PDE and model
A local search tells me that the [URL="http://en.wikipedia.org/wiki/Black-Scholes"]Black-Scholes[/URL] formula has not been mentioned on this forum. Because this forum has a strong mathematical orientation I felt that it this formula deserved brief mention in the role of a footnote. Keith Devlin's book "The Language of Mathematics." says: [QUOTE]The Black-Scholes formula provides a means for determining the price to put on a particular derivative. By turning what would otherwise be a guessing game into a mathematical science, the Black-Scholes formula made the derivatives market into the hugely lucrative industry it is today.
So revolutionary was the very idea that you could use mathematics to price derivatives that initially Black and Scholes had difficulty publishing their work. When they first tried in 1970, the University of Chicago's [I]Journal of Political Economy[/I] and Hardvard's [I]Review of Economics and Statistics[/I] both rejected the paper without even bothering to have it reviewed[/QUOTE][QUOTE]So great was the role played by the Black-Scholes formula (and extensions due to Merton) in the growth of the new options market that, when the American stock market crashed in 1978, the influential business magazine [I]Forbes[/I] put the blame squarely on that one formula. Scholes himself has said that it was not so much the formula that was to blame, but rather that marketeers had not grown sufficiently sophisticated in using it.[/QUOTE] Looking around it seems that it is used primarily in options contract calculations but Google finds about 73,300 hits for "Black-Scholes" "Mortgage Backed Securities" [URL="http://www.forbes.com/opinions/2008/04/07/black-scholes-options-oped-cx_ptp_0408black.html"]Whither Black-Scholes?[/URL] is a commentary by a derivatives consultant that states that that the formula is not needed or used much and the volatility input into the formula is frequently "fudged." |
Ch,
Efforts so far have been to treat the financial market meltdown like a broken pump that needs to be re-primed to get it to function. My position is that markets expanded too much with CDS and MBS which destabilized the entire market. If they don't do something to repair the underlying market structure, no amount of credit extended to banks/brokerages will be enough to fix the problems. Very specifically, Credit Default Swaps must be dealt with along with shutting down most of the unregulated activities that sent the market out of control in the first place. I am not a proponent of market regulation, but the glaringly obvious conclusion is that some regulation was needed several years ago to forestall the current market going over a cliff. DarJones |
"Well Capitalized" Citigroup gets a govt lifeline
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a957XI5bBv7g&refer=news]Citigroup Gets $306 Billion Shield From Losses, Capital After Stock Dive[/url]: [i]Citigroup Inc. received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week. [/i]
As to the apparent double standard the government has with respect to bailout-money-for-banks versus bailout-money-for-everybody-else... [url=http://money.cnn.com/2008/11/24/markets/thebuzz/index.htm]Why Citigroup got Detroit's money[/url]: [i]The government wants the Big Three to prove they are worthy of a $25 billion loan but Citigroup didn't have to twist any arms to get another $20 billion.[/i] [quote]Even though a collapse of one or more of the Big Three could have major negative implications on the economy, particularly the unemployment rate, he said preventing a Citigroup bankruptcy could forestall an even worse shock to the already fragile financial system. "This is dramatically different. Essentially, what the government needed to do is under no circumstances allow Citigroup to fail. You can't have a financial world without the major banks," he said. David Resler, chief economist with Nomura Securities International, added that he thinks bankruptcy could be an option for the Big Three whereas a bankruptcy for a bank would mean liquidation, similar to what happened with Lehman Brothers in September. And that is not something he thinks the government would allow to happen. "Citi stands at the center of the financial system. It's a huge company whose relations are intricately woven throughout the entire economy. The intent is shoring up the system in this near-term crisis, not necessarily one company," Resler said. Sure, there are some who argue that bankruptcy for an automaker would also be its death knell. [u]But even if one or more of the Big Three go away, some suggest that the government may allow this simply because the Big Three deserves to fail because of decades of mistakes[/u].[/quote] [b]My Comment:[/b] ...Unlike Citi and its fellow Big Finance brethren, who have been sterling corporate citizens all that time, and are helpless innocent victims of reckless "predatory borrowing" on the part of greedy homebuyers with poor credit scores. (Yes, irony is truly dead). [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=an3k2rZMNgDw&refer=news]Fed Pledges Exceed $7.4 Trillion in Rescue of Companies With Frozen Credit[/url]: [i]The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. [/i] |
Did we say $7.6 Trillion? We spoke too soon...
[url=http://www.marketwatch.com/news/story/fed-unveils-800-billion-plan/story.aspx?guid={C3B72C58-6CB5-4DB1-B986-8A65E005FDE4}&siteid=yhoof]Fed unveils $800 billion plan to bolster consumer lending, housing[/url]: [i]Move aims to normalize rate spreads for asset-backed securities [/i]
[quote]NEW YORK (MarketWatch) -- The Federal Reserve unveiled new steps Tuesday to lower borrowing costs for consumers and home buyers. The Fed announced what it called a term asset-backed-securities loan facility, a plan under which it will lend up to $200 billion to support the issuance of debt backed by consumer and small-business debt, such as credit-card loans, student debt, auto loans and loans backed by the Small Business Administration. In addition, the Fed said it would purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae. In general terms, economists welcomed the new Fed actions, but some critics complained it did not make sense to encourage Americans to borrow more money. The facility is designed to generate increased credit availability and to support economic activity by facilitating renewed issuance of consumer and small-business asset-backed securities at what the Fed called "more normal interest-rate spreads." On Nov. 12, Treasury Secretary Henry Paulson laid out some details for the next stage of the government's financial-market rescue package when he announced that he had shelved the original plan to buy troubled mortgage assets while turning his attention to nonbank financial institutions and consumer finance. Some of the money saved from not buying mortgage assets would be used to shore up the market for credit-card receivables, auto loans and student loans, according to Paulson. "This market, which is vital for lending and growth, has for all practical purposes ground to a halt," he said. As an example of the trouble consumer lenders are having, credit-card giant American Express Co. -- on the same day that Paulson said the Fed's latest plan was on the way -- sought government help to steer it through the financial crisis, and Capital One Financial Corp.[/url]: [i]received preliminary approval for $3.55 billion in U.S. investment. U.S. government officials said the new ABS program is designed to go around banks to cash-strapped investors.[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aHwqWQnFqZLE&refer=news]Brazil Caught by Credit Squeeze Forcing Farmers to Cut Coffee, Corn Yields[/url]: [i]Coffee farmer Joao Carlos Terra says his trees will yield about a third less than planned next year because he can’t get a big enough loan to buy fertilizer and pesticide as the global credit crunch bites in Brazil. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601081&sid=aABno5V46VGI&refer=australia]BHP Billiton Withdraws $66 Billion Stock Offer for Rio Tinto, Cites Crisis[/url]: [i]BHP Billiton Ltd. abandoned its year-long pursuit of Rio Tinto Group, blaming the rout in commodities prices and the credit-market squeeze for derailing the biggest hostile takeover. [/i] [quote]Marius Kloppers, chief executive officer of the world’s largest mining company, said the combination of $40 billion in new debt and regulatory hurdles made the $66 billion bid too risky at a time when the slowing world economy reduced demand for raw materials. Rio plunged as much as 43 percent in London trading, while Melbourne-based BHP shares jumped 21 percent. As recently as August, Kloppers was bullish on commodities and increasing demand from China justifying his bid. After spending $450 million on the bid, he’s confronting a 50 percent drop in copper prices and a 45 percent decline in oil as the world’s biggest economies face their first simultaneous recessions since World War II. “The withdrawal of the bid paints a very gloomy picture,” Charles Cooper, an analyst at Evolution Securities Ltd. in London, wrote in a report. “The outlook for commodities is set to remain weak, inventories will build and prices will fall, adversely affecting company earnings and valuations.” [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a_6BKzvwAYCY&refer=news]Goodwin's $140 Billion Binge May Doom RBS to U.K. Control After Stock Sale[/url]: [i]During nine years at the helm of Royal Bank of Scotland Group Plc, Fred Goodwin excelled at beating his peers. [/i] [quote]In 2000, he pulled in the richest paycheck among British bank chief executive officers. He carried out the world’s largest bank merger, making RBS Europe’s No. 1 lender as of June 2008, with assets of 1.73 trillion pounds. Goodwin even once bragged that the bank topped the corporate tax rolls, paying more to the Inland Revenue than any other U.K. firm. Under Goodwin’s tutelage, RBS also became Europe’s biggest backer of leveraged buyouts. In November, RBS was about to chalk up one final superlative: It may become the recipient of the largest direct investment by a European government in a bank since the global financial crisis began last summer. The U.K. was preparing to invest as much as 20 billion pounds ($30 billion) in RBS after the bank wrote down more than 7 billion pounds in bad loans and investments in the first 10 months of 2008 and may report its first-ever annual loss. RBS said in October that Goodwin, 50, would be stepping down the following month. “It’s absolutely catastrophic,” Stephen Cockburn, managing director of London-based fund manager The Investment Company Plc, says of the bank’s decline. He has watched the RBS shares he bought for 366.5 pence each in March dwindle to 50.8 pence apiece on Nov. 24. Cockburn blames the straits RBS is in on Goodwin’s breakneck expansion as CEO, which included $140 billion of takeovers, starting with the purchase of National Westminster Bank Plc in 2000. The most recent example was the 72 billion euro ($90 billion) purchase of ABN Amro Holding NV in 2007 with partners Banco Santander SA of Spain and Fortis of Belgium after a bidding war with Barclays Plc. ‘Folly’ “The folly was to go ahead with ABN Amro, to outbid Barclays and then, when the storm clouds were gathering on the horizon, to go ahead with it,” Cockburn says. “It was megalomania on the part of the management.”[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=amoF72Pxf4.Q&refer=news]AIG Freezes Executive Compensation, Says Chief Liddy Will Take $1 Salary[/url]: [i]American International Group Inc., the insurer bailed out by the U.S., said its top seven leaders won’t receive salary increases or bonuses this year. [/i] [quote]Chief Executive Officer Edward Liddy will take a $1 salary this year and next, and another 50 executives will forego pay raises through 2009, the New York-based company said today in a statement.[/quote] [b]My Comment:[/b] Ahem, I believe you mean the AIG execs will "forgo" their usual pay raises. To paraphrase the right reverend Dr. Bob Silverman, you can lead a spell checker to the font of all verbiage, but you can`t make it think. In this case, CEO Liddy really is getting a bit screwed, seeing as he only jopined AIG in September, post-bailout. Ah well, nothing a few company-sponsored executive retreats to cushy resorts won`t help assuage. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=a9a5EurW52oc&refer=europe]Volkswagen, Porsche Halt Production as Slump Hits Europe's Auto Heartland[/url]: [i]Volkswagen AG and Porsche SE said they’ll suspend production at their hometown plants in coming weeks as the global recession reaches to the heart of the German automotive industry, Europe’s biggest. [/i] [quote]VW will shutter its factory in Wolfsburg from Dec. 18 to Jan. 11, according to a company official who declined to be identified. Porsche will halt output in Stuttgart for seven days between now and the end of January. Each plant is its owner’s biggest and located at the global headquarters. Volkswagen employs 44,000 people in Wolfsburg, a quarter of its 175,000-strong German workforce. Production is being cut after vehicle sales fell 5.1 percent last month, even with a lineup of models such as the Golf and Polo that is regarded as well-suited to customer requirements for smaller, less-costly and more fuel-efficient cars. Porsche suffered a 50 percent drop in deliveries in October, including a 40 percent decline in sales of its trademark 911 sports car. “I don’t think that Porsche’s customers have suddenly fallen into poverty, but they’re reacting to the fact that it may be inappropriate to pull up in a new Porsche when their neighbor’s house is being foreclosed,” said Christoph Stuermer, an analyst at research firm IHS Global Insight in Frankfurt. For VW, the closure shows the new Golf “can’t defy gravity,” he said. [/quote] [b]My Comment:[/b] BTW, it recently emerged who the [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aPRkhfFACd9w&refer=europe]biggest victim[/url] of the recent post-Porsche-takeover-announcement short squeeze in VW shares was. It couldn't have happened to a nicer bunch of "Volks". |
Careful where you throw those spelling rocks Ewmayer, you "jopined" the volks needing a spellchecker.
DarJones |
[QUOTE=Fusion_power;150685]Careful where you throw those spelling rocks Ewmayer, you "jopined" the volks needing a spellchecker.
DarJones[/QUOTE] Foist by my own leotard, eh? Volks who live in straw huts shouldn't stow thrones, and all that. |
Geithner Gets It | Obama Taps Volcker
[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=auS77akg6dq0&refer=news]UK | Brown's `Churchill' Moment Masks Failure of U.K. Bank Regulator He Created[/url]: [i]Gordon Brown isn’t known for making quick decisions. He agonized for months over whether to call early elections after becoming U.K. prime minister in June 2007, before deciding against it. [/i]
[quote]Brown finds himself defending his own handiwork: the U.K.’s financial regulator, the Financial Services Authority. He created the FSA, which oversaw banks during the meltdown, in his first year as chancellor of the exchequer, in 1997. The agency is a proponent of “principles-based” regulation, which means it oversees the financial system via a set of 11 broad-based principles rather than the thousands of specific rules enforced by the U.S. Securities and Exchange Commission. Unlike the SEC, which regulates only the securities industry and mutual funds, the FSA is responsible for all financial institutions: insurance companies, mutual funds and commercial, mortgage and investment banks. It also regulates hedge fund managers. For years, Brown held up principles-based regulation as a model. The first two principles are “a firm must conduct business with integrity” and “a firm must conduct its business with due skill, care and diligence.” One admirer was Paulson, who praised the British system. ‘Run on the Rock’ Then came Sept. 14, 2007, when thousands of depositors lined up at branches of Newcastle-based mortgage lender Northern Rock Plc demanding their money. It was the first run on a British bank in more than 140 years, and a subsequent Parliamentary probe blamed the FSA’s lack of oversight for the bank’s failure. Limping under a mountain of debt, Northern Rock was taken over by the government in February. In the year after “the run on the Rock,” as it was called in the British press, HBOS, RBS and other British banks faced their own funding crises and agreed to a government bailout. “The problem with Brown is that he’s an architect of a lot of this mess, so he has a certain credibility problem,” says David Green, who spent 30 years as a senior supervisor at the Bank of England and then six years heading international policy at the FSA. [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBRSRlsnpVG4&refer=news]Sales of New Houses in U.S. Fall to Lowest Level Since 1991 on Loan Freeze[/url]: [i]New-home sales in the U.S. fell in October to the lowest level in 17 years as the credit crunch deprived potential buyers of needed financing. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=avJf8_IHl0Hc&refer=news]Stocks in U.S. Climb as Technology Shares Gain on Valuations; Apple Rises[/url]: [i]U.S. stocks gained for a fourth day as investors snapped up technology shares trading near their cheapest level on record, overpowering earlier declines spurred by economic data depicting a deepening recession. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aseCcnKEO7is&refer=us]Volcker Will Lead New White House Economic Panel Aimed at Reviving Growth[/url]: [i]President-elect Barack Obama named former Federal Reserve Chairman Paul Volcker to head a new White House economic board that will propose ways to revive growth as the U.S. grapples with an “economic crisis of historic proportions.” [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aLhGIk6PuZBY&refer=us]U.S. Durable-Goods Orders, Consumer Spending Tumble as Recession Deepens[/url]: [i]U.S. business investment weakened last month and consumers are retrenching worldwide, reports today showed, heightening pressure on policy makers to take stronger steps to combat the credit squeeze. [/i] [quote]Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001, while British households slashed expenditures last quarter by the most in 13 years, government agencies said today. A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up. The intensifying global economic downturn spurred China's central bank to cut its benchmark interest rate by the most in 11 years today, while the European Union proposed $259 billion in stimulus measures. In the U.S., President-elect Barack Obama held his third press conference in as many days to name former Federal Reserve Chairman Paul Volcker as an economic adviser. [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=apmehm8f5JA0&refer=news]Geithner Struggled to Rally Action After Spotting Dangers of Default Swaps[/url]: [i]Timothy Geithner was among the first policy makers to shine a light on the unregulated $47 trillion credit-default swap market back in 2005. The New York Federal Reserve president has struggled since then to get dealers to carry out reforms. [/i] [quote]The industry has yet to launch a structure to safeguard against market-wide losses in case a dealer fails, though its leaders expect to get one off the ground by the end of the year. Geithner, selected yesterday by President-elect Barack Obama to be his Treasury secretary, has made clear that such a step is crucial to help contain the mushrooming credit crisis. “In classic Tim and New York Fed style, the work has been done behind the scenes, among technocrats, largely by consensus,” said Adam Posen, a former Fed official who is now at the Peterson Institute for International Economics in Washington. “The downside is that it takes awhile to get consensus.” Geithner may not have the luxury of time in his new job as he faces a credit crisis that has morphed into a global recession. As Obama’s chief economic spokesman, it will be up to Geithner to take the lead in quelling the turmoil in financial markets and turning the economy around. [/quote] [b]My Comment:[/b] A promising sign - like the incoming president, the man likely to be the next Treasury Secretary [b]actually gets it[/b]. One can only hope that his newfound bully pulpit will help speed the much-needed reforms he has been advocating for years. |
Use Your Gift Cards! | MotWee Awards
Sign of the times - saw this list [for an updated and more-thoroughly-vetted list, [url=http://www.snopes.com/politics/business/storeclosings.asp]see here[/url]] floating around the web:
[quote] Watch those store money cards, gift certificates gift cards, and credit slips! Stores that informed the Security Exchange of closing plans between October 2008 and January 2009. PLEASE PASS THIS ON TO ALL YOUR FAMILY AND FRIENDS. Circuit City stores... most recent (? how many) Ann Taylor- 117 stores nationwide are to be shuttered Lane Bryant, Fashion Bug ,and Catherine's to close 150 store nationwide Eddie Bauer to close stores 27 stores and more after January Cache will close all stores Talbots closing down all stores J. Jill closing all stores GAP closing 85 stores Footlocker closing 140 stores more to close after January Wickes Furniture closing down Levitz closing remaining stores Bombay closing remaining stores Zales closing down 82 stores and 105 after January. Whitehall closing all stores Piercing Pagoda closing all stores Disney closing 98 stores and will close more after January. Home Depot closing 15 stores 1 in NJ ( New Brunswick ) Macys to close 9 stores after January Linens and Things closing all stores Movie Galley Closing all stores Pacific Sunware closing stores Pep Boys Closing 33 stores Sprint/ Nextel closing 133 stores JC Penney closing a number of stores after January Ethan Allen closing down 12 stores. Wilson Leather closing down all stores Sharper Image closing down all stores K B Toys closing 356 stores Lowes to close down some stores Dillard's to close some stores. [/quote] Several of us passengers on the Southbound #53 bus last night were giving directions to someone unfamiliar with the various bus routes who needed to hook up with another line. At one point the advice turned into something resembling the above list: "OK, you get off at Stevens Creek Blvd and catch the Eastbound #23. You`ll pass a Mervyn's with a giant GOING OUT OF BUSINESS SALE sign on its facade, and a couple miles later you`ll see a Circuit City store that`s going to close soon. That's where you get off to catch the #58..." [b]Citigroup Rescue: Paulson Proven Grossly Wrong Yet Again[/b] Our Moron of the Week (and retroactively for the many weeks we have neglected to bestow the cherished MotWee) is multiple previous awardee, Hammerin` Hank Paulson: [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ar.ByjvMr3YI&refer=news]Citigroup's $306 Billion Rescue Fueled by Domino's Pizza as Shares Crashed[/url]: [i]The deal to rescue the world's best- known bank was pieced together by regulators over Domino's pizza in near-empty offices one block from the White House. [/i] [quote][u]On Nov. 18, five days before he was forced to bail out Citigroup, Treasury Secretary Henry Paulson told Congress he was handing over to President-elect Barack Obama ``a significantly more stable banking system where the failure of a systemically relevant institution is no longer a pressing concern rattling the markets.'' [/u] The next day, Citigroup shares fell 23 percent to their lowest since May 1995. The bank said it would wind down seven failed off-balance-sheet funds. That ended attempts by Chief Executive Officer Vikram Pandit, who announced two days earlier he was eliminating 52,000 jobs, to salvage the investments after at least $2.2 billion of writedowns this year. Then things got even worse. Citigroup declined 26 percent on Nov. 20 as investors became increasingly concerned that a U.S. recession would weaken banks further. Even a pledge that morning by Saudi billionaire Prince Alwaleed bin Talal to boost his stake in the New York-based bank from under 4 percent to 5 percent couldn't buoy the shares. Pandit and Chief Financial Officer Gary Crittenden held a worldwide conference call the next morning to reassure employees, said two people who listened to it. Pandit said he didn't plan to sell the Smith Barney brokerage unit or to disassemble the company, according to the people. The call came as the board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet the same day at bank headquarters. `No Real Plan' Citigroup shares fell 20 percent more, prompting analysts and investors to predict that the U.S. government would rescue the bank while corporate-governance critics blamed directors for the company's predicament. [/quote] [b]My Comment:[/b] Paulson should just STFU at this point, try not to screw things up even more than they already are, are slink away with his tail between his legs like our current president will soon be doing. But enough gloom and doom for now - Happy Thanksgiving to our American readers! |
I liked this commentary re the housing bubble. Note that Obama has some horrible 'tulip bubble' type ideas for 'helping' underwater mortgagees.
[url]http://www.cbsnews.com/stories/2008/11/25/politics/otherpeoplesmoney/main4632742.shtml[/url] DarJones [QUOTE]Now these same Washington soothsayers are predicting that today's economic troubles can be ameliorated by propping up real estate prices. Reps. Frank and Nancy Pelosi said last week that it's "essential" to partially guarantee 1.5 million mortgages, and President-elect Barack Obama also wants "direct, immediate assistance for homeowners." (See related CBS News video.) Meanwhile, the Bush administration is horrified that Americans are saving money and banks are returning to the tighter lending rules they used a few years ago. It announced this week two different programs totaling $800 billion that could, in part, goose house prices by lowering mortgage rates. On Capitol Hill, house builders have been swarming like houseflies. Toll Brothers wants Congress to "stimulate demand by reducing mortgage rates and fees" and creating more tax incentives to buy homes. The Wall Street Journal reported on Monday that builders are "ramping up" lobbying efforts. In reality, more government intervention will do more harm than good. The sooner prices are allowed to naturally fall to normal, post-bubble levels, and the sooner that houses become affordable, the sooner the economy can heal itself and start growing instead of contracting. By way of analogy, imagine a reprise of the Dutch tulip mania of 1637. Say the price of tulip bulbs has grown handsomely in the last few years, and impressive fortunes were made by early speculators. Bidding wars erupt, with the winners hoping to resell them the bulbs at a handsome profit months or years later. Cable TV hosts proclaim that a golden age of prosperity has dawned. Prized bulbs change hands for $1 million each, and skeptics are reviled as doomsayers. Eventually this boom leads to a bust, as new buyers become scarce, and the price of tulip bulbs suffers a dizzying fall down to $10 each. Speculators complain to Congress. Politicians pledge to use tax dollars to purchase bulbs for $1,000 or $10,000, invoking phrases like "stability" and "liquidity crisis," or offering taxpayer-backed loan guarantees to speculators. This would sound silly for tulips, but it's close to what's happening for houses. All this will do is slow -- and not arrest -- the process of prices falling. Not even the president of the United States can veto the laws of supply and demand. It's difficult to convince someone to buy a tulip bulb (or house) today if he thinks the price will be a lot lower in a year. Worse, government spending diverts funds away from productive purposes, including investment, education, and infrastructure. [/QUOTE] |
Panic In China Over Jobs | Sarkozy Voodoo Dolls
[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=aJqSdOV0G6W0&refer=news"]European Retailers `Going to the Wall' as Recession Bites: Chart of Day[/URL]: [I]Store failures may accelerate after Woolworths Group Plc and MFI Retail Ltd. went into administration, reeling from the worst slump in European retail sales in at least five years.[/I]
[URL="http://globaleconomicanalysis.blogspot.com/2008/11/panic-in-china-over-jobs-economy-cotton.html"]Panic In China Over Jobs, Economy, Cotton[/URL]: [i]China’s biggest interest-rate cut in 11 years highlights government concerns that the country risks spiraling unemployment, social unrest and the deepest economic slowdown in almost two decades.[/i] [URL="http://www.bloomberg.com/apps/news?pid=20601085&sid=azH_4y9zATVs&refer=europe"]Porsche's Options Strategy Poses Debt Risk in Case Volkswagen Shares Drop[/URL]: [i]Porsche SE, which earned six times more through Volkswagen AG derivatives than by selling cars this year, may run into trouble over the options that helped it build its stake in Europe’s largest carmaker, analysts said.[/i] [quote]Porsche’s tactic is a “daunting mix of risk and reward” that may force it to buy Volkswagen shares if they fall toward 200 euros, leaving the maker of the 911 sports car highly indebted, Citigroup Inc. said in a report dated yesterday. Separately, Sanford C. Bernstein Ltd. said Porsche faces “material” risk should Volkswagen shares near 242 euros. Analysts have speculated that Porsche has financed the acquisition of calls by selling puts, which would force the carmaker to buy VW shares if the contracts are exercised. Porsche said this week that its Volkswagen options bets produced a gain of 6.83 billion euros ($8.8 billion) in fiscal 2008. The company made 1 billion euros from selling vehicles. Are Porsche’s management “the smartest guys in the room” or “in trouble?” wrote Max Warburton, an analyst at Bernstein in London, in a note today. “In our view, Porsche is still in control, but possibly at considerable risk until the put options apparent in its balance sheet expire by July 2009.” [/quote] [URL="http://www.bloomberg.com/apps/news?pid=20601085&sid=aad8a.Fze2YE&refer=europe"]Sarkozy Voodoo Dolls Must Be Sold With Warning Label, Appeals Court Rules[/URL]: [I]French President Nicolas Sarkozy voodoo dolls can still be sold by a publisher as long as they come with a warning that sticking pins in the toy is an affront to his dignity, a Paris court ruled today.[/I] |
A Japanese car company and an American car company decided to have a canoe race. Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile. The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing. Feeling a deeper study was in order, they hired a consulting company and paid them a large amount of money for a second opinion. The consulting company advised, of course, that too many people were steering the boat, while not enough people were rowing. Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents, and 1 assistant superintendent steering manager. They also implemented a new system that would give the 1 person rowing the boat a greater incentive to work harder. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days to train and bonuses. The next year the Japanese won by two miles. Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles and canceled all capital investments for new equipment. The money saved was distributed to the senior executives as bonuses. |
Ernst,
What's your general opinion of Joe Nocera, whose blog for The New York Times is "Executive Suite" ([URL="http://executivesuite.blogs.nytimes.com/%29?"]http://executivesuite.blogs.nytimes.com/)[/URL] ? He's recently published two e-mail messages sent to him by an executive who works for "one of the country's biggest banks". The first is at [URL]http://executivesuite.blogs.nytimes.com/2008/10/30/peeking-under-the-kimono-a-big-banker-speaks-out/[/URL] and champions local community banks over big banks. It (the e-mail sent to Nocera) begins: [quote]I’m a 35-year veteran in the banking industry. And I’ve spent the better part of my career working for the big banks as a small business banker and credit underwriter. Small business lending, in industry terms, is defined as a business that has less than $20 million in revenue and that borrows less than $5 million. I’ve been a lender for most of those years and I’ve been appalled at the changes in the industry. The government has already done plenty for the big banks. It needs to stop worrying about them now. Instead, it need to pump money into the local community banks because those are the bankers who understand their markets, and know the businesses in their markets. ...[/quote]The second e-mail is at [URL]http://executivesuite.blogs.nytimes.com/2008/11/25/the-worst-is-yet-to-come-anonymous-banker-weighs-in-on-the-coming-credit-card-debacle/?em[/URL] and is about what Nocera terms "the coming credit card debacle": [quote]Today, we are bailing out the banks because of their greedy and deceptive lending practices in the mortgage industry. But this is just the tip of the iceberg. More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts. . . . As a banker, let me describe what we do wrong when we accept and review an application for a credit card. ... . . .[/quote] |
Economy Contracts Further | Viva Bargain Hunting!
[QUOTE=cheesehead;151434]Ernst,
What's your general opinion of Joe Nocera, whose blog for The New York Times is "Executive Suite" ([URL="http://executivesuite.blogs.nytimes.com/%29?"]http://executivesuite.blogs.nytimes.com/)[/URL] ?[/QUOTE] Not a regular reader - there's only so many econo-blogs I have time to regularly peruse - but he`s spot on with his take on the coming tsunami of credit-card defaults. Please keep the interesting bits from his blog coming. ---------------- [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aqMuAUNshxj0&refer=news]Switzerland Feels Iceland's Pain With Banks Teetering on Vanishing Credit[/url]: [i]An isolated European country with an economy geared toward finance and winter sports is no longer a monetary bastion as credit evaporates around the globe. Banks teeter, the once-impregnable currency depreciates and a proudly independent people question whether a centuries-old go-it-alone strategy can survive.[/i] [url=http://money.cnn.com/2008/12/01/news/economy/ISM_November/index.htm]Manufacturing index at 26-year low[/url]: [i]Purchasing managers survey shows overall economy is in contraction for second straight month.[/i] [quote]"Manufacturing is in freefall," said Ian Shepherdson, chief U.S. economist at research firm High Frequency Economics, in a note to clients. "This survey promises continued recession." The part of the index that measures prices paid by manufacturers for raw materials plummeted 11.2 points in November to 25.5. It was the lowest reading since May 1949, nearly 60 years, when it registered 20.1. While lower prices can provide some relief for struggling businesses and consumers, the dramatic decline in prices over the last few months has many economists worried about the prospect of deflation. Deflation occurs when prices fall as a result of weak consumer demand. That can force businesses to cut costs by eliminating jobs, which undermines consumers' purchasing power and further weakens demand.[/quote] [b]My Comment:[/b] Note that perhaps the truest measure of inflation/deflation - consumers` aggregate purchasing power [which results from both real wealth and access to credit] is not measured in any direct way by any of the government statistics. One of the key results of the easy credit of the last decade - the housing-price bubble - was highly inflationary, but appeared nowhere in government inflation figures, just as the ensuing collapse in housing prices and accompanying credit tightening and plunge in consumer purchasing power are not appearing in the statistics except via second-order effects such as dropping demand for consumer discretionaries. So of course most economists are "surprised" by signs of deflation, because they, like the folks at the Fed, have been looking at "the wrong part of the elephant". [url=http://money.cnn.com/2008/11/30/news/economy/holiday_shopping_sun/index.htm]Holiday shopping off to surprisingly strong start[/url]: [i]Reports show Black Friday gains, but caution that key retail season may still end up weak.[/url] [quote]NEW YORK (CNNMoney.com) -- Stores and online merchants were busier this weekend than they were a year ago, according to figures out Sunday, but signs persist that holiday shopping will suffer in the weakest economic climate in decades. The National Retail Federation (NRF), an industry trade group, said shoppers spent $41 billion in the 4-day Thanksgiving weekend. The average shopper spent $372.57, up 7.2% from the $347.55 spent last year. "Pent-up demand on electronics and clothing, plus unparalleled bargains on this season's hottest items helped drive shopping all weekend," said NRF President and CEO Tracy Mullin, in a statement. "Holiday sales are not expected to continue at this brisk pace, but it is encouraging that Americans seem excited to go shopping again." To underscore its caution, the NRF reiterated its forecast that 2008 holiday spending will rise just 2.2%, to $470.4 billion, the smallest gain in six years. The weak economy was also reflected in the fact that more than half of shoppers, 54.7%, went to discount stores such as Wal-Mart, according to the NRF. Department stores were visited by 43% of shoppers, up from last year, while 36% visited specialty stores and 34% shopped online. Another indication of the economy's impact: the NRF said that of the 73.6 million people who shopped in stores and online Friday, 23.3% were at it before 5 a.m., when many merchants offered huge discounts on selected items. More than half of shoppers, 57.6%, were in stores and online by 9 a.m.[/quote] [b]My Comment:[/b] So, overal sales may have been up, but I expect profits were down hugely, since so many people were "only buying the bananas", i.e. the loss-leader mega-discount items. Here in the U.S., rumor has it that the best time to buy that huge plasma or LCD flat-screen TV you've been dreaming of will be after February's Super Bowl [the U.S. Football national championship, in terms our overseas readers will better understand]. |
[QUOTE=cheesehead;151434]The second e-mail is at [URL]http://executivesuite.blogs.nytimes.com/2008/11/25/the-worst-is-yet-to-come-anonymous-banker-weighs-in-on-the-coming-credit-card-debacle/?em[/URL] and is about what Nocera terms "the coming credit card debacle":[/QUOTE]In a lot of european countries, a bank that gives a loan to someone whithout properly verifying the repayment capacity, or gives a loan to someone that cannot repay (because to much in debt already, not sufficient income, ...) can see the loan forfeited (the customer does not ow the bank anything anymore.) Those laws have been passed to force banks to check before lending and to cut the business of credit sharks who offer to centralise all debts (and that in reality, first take their commission and then try to reschedule the loans.
Jacob |
The long and short of it re the credit card crisis is that lenders will dramatically reduce credit lines and/or cancel cards. This will affect people like me with a $20,000 credit line on a credit card even though I routinely use my card for business purchases and pay it down or pay it off every month. My credit rating is very high so in the past I have not had any issues borrowing. The problem gets down to the fact that I use the credit card to purchase supplies for my business and without the proper amount of credit, I won't be able to buy supplies using the card. That means I now have to operate my business on a cash basis as much as possible. I have that flexibility as a small busines that is cash flow positive, but there are tons of other businesses that aren't.
Lets translate that into trickle down economics. It is finally going to trickle over virtually every person who has a mortgage or a credit card. That means virtually every family in the U.S. Get ready folks, whatever you felt up to this point was minor. DarJones |
It's Official: Recession Began 1 Year Ago
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[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=al4iyIoRhvao&refer=news]U.S. Recession Began Last December, Making Contraction Longest Since 1982[/url]: [i]The U.S. economy entered a recession a year ago this month, the panel that dates American business cycles said today, making this contraction already the longest since 1982. [/i]
[b]My Comment:[/b] The surprise is not that the U.S. went into recession a full year ago, it's that it only took the official gubbermint number-jugglers a mere year to realize what was quite obvious from anyone following the deflation of the housing bubble, which was well underway by that point. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ajcLVDMwN5To&refer=news]Bernanke Says Fed May Purchase Treasuries, Citing Reduced Rate-Cut Options[/url]: [i]Federal Reserve Chairman Ben S. Bernanke said he has “obviously limited” room to lower interest rates further and may use less conventional policies, such as buying Treasury securities, to revive the economy. [/i] [quote]Bernanke’s comments pushed Treasury yields to record lows. Bernanke has created more than $2 trillion of emergency lending programs in the past year, using the Fed’s balance sheet and money-creation authority to cushion the economy from the worst financial crisis in seven decades. The central bank may lower its benchmark interest rate to zero, economists said. [/quote] [b]My Comment:[/b] This is just simply the snake eating its own tail at this point - the Fed's balance sheet consists mostly of U.S. treasuries, and since the balance sheet has been shredded by all the emergency lending programs, the Fed must either create new money out of thin air by its printing authority, or borrow money from the Treasury, typically by way of ... borrowed Treasuries. Ain`t it cool? Whichever way you slice it, it ends up at the "magic money printing press". [url=http://money.cnn.com/2008/12/01/news/economy/emergency_california.ap/index.htm]Schwarzenegger declares emergency[/url]: [i]The state's governor calls lawmakers into a special session to address the state's $11.2 billion deficit.[/i] [quote]SACRAMENTO, Calif. (AP) -- Gov. Arnold Schwarzenegger declared a fiscal emergency Monday and called lawmakers into a special session to address California's $11.2 billion deficit. The state's revenue gap is expected to hit $28 billion over the next 19 months without bold action. The emergency declaration authorizes the governor and lawmakers to change the existing budget within the next 45 days. Without quick action, the state is likely to run out of cash in February. Schwarzenegger and Democrats have proposed a combination of tax hikes and spending cuts, but Republican lawmakers are steadfast in their refusal to raise taxes. Lawmakers failed to reach a compromise during the special session Schwarzenegger declared last month, pushing the problem to a new Legislature that was being sworn in Monday. The crisis worsens each week, so the Republican governor did not want to waste any time in declaring a special session, said his spokesman, Aaron McLear. "It's important that we start on Day One so the new Legislature can start immediately to solve our fiscal crisis," he said. There appeared to be little reason to believe that Republican lawmakers would budge on their opposition to tax increase. "If anything, I think our resolve (against raising taxes) is deeper than it has ever been because of the economic realities," Senate Minority Leader Dave Cogdill said Monday. Democrats don't have the two-thirds majority in either the Assembly or Senate that is required to pass tax increases or a state budget.[/quote] [b]My Comment:[/b] This is shaping up to be interesting game of budgetary "chicken". [b]Image of the Day:[/b] Courtesy of [url=http://ozmad.net/forums/showthread.php?t=468]ozmad.net[/url] - very clever play on Bernanke's "Helicopter Ben" nickname: |
[quote=ewmayer;151562][URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=al4iyIoRhvao&refer=news"]U.S. Recession Began Last December, Making Contraction Longest Since 1982[/URL]: [I]The U.S. economy entered a recession a year ago this month, the panel that dates American business cycles said today, making this contraction already the longest since 1982. [/I]
[B]My Comment:[/B] The surprise is not that the U.S. went into recession a full year ago, it's that it only took the official gubbermint number-jugglers a mere year to realize what was quite obvious from anyone following the deflation of the housing bubble, which was well underway by that point.[/quote]Your statement that "it only took the official gubbermint number-jugglers a mere year to realize what was quite obvious from anyone following the deflation of the housing bubble", is unjustified on two counts. First, "the panel that dates American business cycles" is _not_ a government agency. As the article explains, "The [URL="http://www.nber.org/cycles.html"]declaration[/URL] was made by a committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts." Secondly, the committee _has_ to wait for several months to a year after a business peak or trough occurs in order to be able to determine that it's not just a temporary fluctuation that will reverse again in a month or two. Otherwise, it could be in the same position as all the folks who've hastily declared that we reached a global Hubbert's Peak recently, just because there was a drop in global oil production for a while. As I've been saying, we won't be able to determine when Hubbert's Peak occurs until after it has happened and we see evidence that the decline isn't temporary. The same principle applies to defining business cycle peaks and troughs. |
[quote=ewmayer;151562][URL="http://money.cnn.com/2008/12/01/news/economy/emergency_california.ap/index.htm"]Schwarzenegger declares emergency[/URL]: [I]The state's governor calls lawmakers into a special session to address the state's $11.2 billion deficit.[/I]
[quote] . . . Schwarzenegger and Democrats have proposed a combination of tax hikes and spending cuts, but Republican lawmakers are steadfast in their refusal to raise taxes. . . . There appeared to be little reason to believe that Republican lawmakers would budge on their opposition to tax increase. "If anything, I think our resolve (against raising taxes) is deeper than it has ever been because of the economic realities," Senate Minority Leader Dave Cogdill said Monday.[/quote][B]My Comment:[/B] This is shaping up to be interesting game of budgetary "chicken".[/quote]... and it's another illustration of what the three-decades-ago change in conservative fiscal strategy that I've been pointing out means: Certain conservative strategists (not all of them, but the ones who crafted or sympathize with the think-tank changes back in the 1970s that I've described elsewhere) are quite willing to send this nation, or the entire world if necessary, into a financial tailspin in order to accomplish what they cannot achieve at the ballot box: destroying the "liberal" aspects of government. This is real hard-ball, folks. Too bad it's short-sighted hardball. The conservative refusal to acknowledge partial legitimacy of the other end of the political spectrum leads them to stage ever-more-arrogant power plays. (Notice any resemblance to certain recent activities in Mumbai?) But their refusal to acknowledge some fundamental truths about human nature means that these escalating attempts cannot achieve what they want in the long run, because basic human nature, which includes the entire liberal-conservative spectrum despite conservative (or liberal) denial of that, will not allow it. (Ditto for Islamic extremists.) Now, I'm [I]not[/I] claiming that the Republican refusals to roll back part of the tax cuts they achieved in the past are on the same level as terrorist bombing and shootings. What I'm saying is that there are parallels in the reasoning behind them. I don't expect that those parallels will be obvious to conservatives/Republicans (as they would not be in a mirror-image case, either); I'm trying to develop ways of explaining what I see. OTOH ... sufficiently severe financial catastrophes can kill as many innocent-bystander-type people as, or more than, terrorist shootings and bombings, although the toll won't be so easily apparent and readily totaled because the chains of causation will be longer and more complicated in the financial case. Respect for the other side, and thus willingness to agree to practical compromise, is one way to avert the catastrophes that loom as logical consequence of the goals of ideological extremists in both types of spectrum. |
[QUOTE=cheesehead;151614]Your statement that "it only took the official gubbermint number-jugglers a mere year to realize what was quite obvious from anyone following the deflation of the housing bubble", is unjustified on two counts.
First, "the panel that dates American business cycles" is _not_ a government agency. As the article explains, "The [URL="http://www.nber.org/cycles.html"]declaration[/URL] was made by a committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts." Secondly, the committee _has_ to wait for several months to a year after a business peak or trough occurs in order to be able to determine that it's not just a temporary fluctuation that will reverse again in a month or two. Otherwise, it could be in the same position as all the folks who've hastily declared that we reached a global Hubbert's Peak recently, just because there was a drop in global oil production for a while. As I've been saying, we won't be able to determine when Hubbert's Peak occurs until after it has happened and we see evidence that the decline isn't temporary. The same principle applies to defining business cycle peaks and troughs.[/QUOTE] From the report you linked: [quote]The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.[/quote] That`s a good methodology, but how many consecutive months of large payroll declines do you need to figure out that it`s not just a several-month statistical blip you`re seeing? Latest estimate is that U.S. employers shed 1.2 million jobs in the first 10 months of 2008 and over 300,000 more were lost just in November. Viewed in the context of a deeply distressed financial sector [banks not gonna be in a lending mood any time soon, despite massive government pressure for them to start doing so], extremely tight credit [= little money for new business creation], a massively overbuilt housing sector and an imploding commercial real estate scene [all those hundreds of thousands of construction-related jobs aren't coming back any time soon], the trend is glaringly, starkly obvious and has been so [except to professional economists, apparently] for most of the year. [quote]The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy.[/quote] Note: the estimates of GDP - which *are* issued by the "gubbermint" and thus subject to a heavy dose of what John Williams [the phrase is often incorrectly attributed to Kevin Phillips] dubs [url=http://en.wikipedia.org/wiki/Pollyanna_Creep]Pollyanna creep[/url] - are used as indicators of "economic activity", which (especially in a consumer-driven economy like that of the U.S.) includes a huge consumer-spending component. Now during the peak housing bubble years, consumers felt wealthy because of the annual double-digit appreciation in home prices and access to easy credit, much of it tied to the value of those overpriced homes. That was one of, if not the, key thing driving consumer spending - it sure wasn`t a concomitant rise in real incomes - which made the GDP growth figures look very robust year-over-year. In other words, debt expansion masquerading as economic growth. Now, over a year of [often massive] monthly declines in the Case-Schiller home price index and the aforementioned drying up of credit tell anyone with half a brain that consumer spending is sooner or later going to drop accordingly, and so must the bubble-inflated GDP numbers. Why do we need a full year to at least tentatively indicate that this may be happening? Instead, until very recently we still had economists [government and private] "expecting" a recovery in the 2nd half of 2008 ... oh wait, make that late 2008 ... did I say late 2008? I meant, of course, sometime in 2009, only a slight weakening in GDP growth, etc. These are not subtle trends underlying what`s going on - at no point in the last half-century have the basic macro trends been more starkly obvious, yet nearly all of professional economists continue to be "surprised" at the severity of the downturn. [i][Regarding the California budget crisis][/i] [QUOTE=cheesehead;151617]Certain conservative strategists (not all of them, but the ones who crafted or sympathize with the think-tank changes back in the 1970s that I've described elsewhere) are quite willing to send this nation, or the entire world if necessary, into a financial tailspin in order to accomplish what they cannot achieve at the ballot box: destroying the "liberal" aspects of government.[/QUOTE] And note that the CA Republicans themselves admit that while insisting on "no new taxes", they have no alternative proposals for making up the revenue shortfall. That makes the difference between "principled" and "idiotic". --------------------- [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=avqIUcruoRX8&refer=us]GM, Ford, Toyota, Honda U.S. Sales Slump More Than 30% as Consumers Retrench[/url]: [i]General Motors Corp., Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. said November U.S. sales tumbled more than 30 percent as the recession and Detroit automakers’ aid pleas kept buyers away from showrooms. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aYCmfeHtJvBA&refer=us]`Astonishing' U.S. Stock Swings May Last Seven More Months, Futures Show[/url]: [i]U.S. stock swings will be more than triple the average for the next seven months as investors contend with a global recession and the worst returns since the 1930s, volatility futures show. [/i] [quote]The recession in the U.S., which the National Bureau of Economic Research said yesterday began a year ago, and the 48 percent plunge by the S&P 500 since its October 2007 record drove up the price of options. Futures suggest the market will keep whipsawing investors, elevating the price of equity derivatives as insurance against declines. The S&P 500 rose or fell 4 percent or more on 26 days since Sept. 15, as bank writedowns and losses from the U.S. mortgage market’s collapse approached $1 trillion worldwide. The last time the S&P 500 had as many 4 percent moves was 1933, when it happened 38 times, according to data compiled by Bloomberg.[/quote] [b]My Comment:[/b] So with another dozen 4-percent-or-more days in the S&P this month - within the realm of possibility - we would be looking at having as many such high-volatility days in the last 4 months of this year as during the entire previous record-volatility year, 1933. Wild stuff, this. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=azGBEQQJhY24&refer=news]U.S. Should Sell 100-Year Bonds as Deficit Soars, BlackRock's Fisher Says[/url]: [i]BlackRock Inc.’s Peter Fisher said the U.S. Treasury should consider selling 100-year bonds to ease the federal government’s borrowing costs as it faces a budget deficit expected to top $1 trillion.[/i] [b]My Comment:[/b] Great idea! Why make our children and grandchildren pay for our misdeeds when we can instaed make their children and grandchildren do it instead? [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ay7HZbCLGLEA&refer=news]China Is `Heart of Global Slowdown' as Property Slump Stalls Driver of GDP[/url]: [i]House prices in Shanghai, Shenzhen and Guangzhou are plunging, and the global economy may grind almost to a halt next year because of it. [/i] [quote]“China is now at the heart of the global slowdown,” said Jim Walker, chief economist at Asianomics Ltd., an economic advisory firm in Hong Kong. “It means that global growth is probably going to be dragged down close to zero next year.” Walker, voted best regional economist in an Asiamoney magazine brokers' poll for 11 years through 2004 when he worked for CLSA Asia Pacific Markets, estimates China will grow zero to 4 percent next year, with a 30 percent chance of a contraction. [/quote] [b]My Comment:[/b] Those growth estimatesd seem to get lower by the week - just last week the latest downward-revised estimates were in the 8% GDP grwoth range. With millions of workers - many migrants from the rural countryside - losing their jobs each month and many returning to their home districts with few job prospects [especially as much of the former farmland has been converted to nonfarm use, often after illegal exporpriation by corrupt local officials - today`s WSJ has an in-depth article on this], we have a recipe for big-time social upheaval. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aHtRaTHvY4wQ&refer=news]Iceland's Crisis Sends Viking Descendants Back to Native Norway for Jobs[/url]: [i]Almost 1,200 years after Viking chief Ingolfur Arnarson left Norway to found Reykjavik, the crisis engulfing Iceland is forcing his descendants home. [/i] [quote]“There are no jobs here,” said Baldvin Kristjansson, an 18-year-old former container repairman from western Iceland, at a European job fair in Reykjavik. “I’m going to move away and go to Norway.” The Atlantic island of 320,000, suffering from its worst financial crisis since gaining independence in 1944, faces the biggest exodus in a century. Iceland’s $7.5-billion economy may shrink about 10 percent next year, according to the International Monetary Fund, which is helping provide a $4.6 billion bailout package. About half of Icelanders aged between 18 and 24 are considering leaving the country, Reykjavik-based newspaper Morgunbladid said, citing a survey of 1,117 people between Oct. 27 and Oct. 29. “Tens of thousands” will depart, estimated Jesper Christensen, chief analyst at Danske Bank A/S, the biggest lender in neighboring Denmark. Iceland’s biggest wave of emigration was in the late 1800s and early 1900s. Then, 15,000 out of a total population of 70,000 left, joining a flow to North America from countries including Norway, Sweden and Ireland.[/quote] [b]My Comment:[/b] Even if only one in ten of the folks [not just in th 18-24 age bracket mentioned in the article] who are considering leaving eventually do so, those are staggering numbers. |
[quote=ewmayer;151677]That`s a good methodology, but how many consecutive months of large payroll declines do you need to figure out that it`s not just a several-month statistical blip you`re seeing?[/quote]Tsk, tsk ... that would be tunnel vision. Payroll numbers are just _one_ of the multiple different indicators the committee considers. (Don't I recall correctly that there was a brief discussion here about the term "jobs recession", whose characteristic was that the decline in employment was not matched by declines in certain other indicators?) I've read that much of the time not all indicators point the same way. That's why they consider multiple indicators, instead of only "the biggest factor".
From that same article: [quote=http://www.bloomberg.com/apps/news?pid=20601103&sid=al4iyIoRhvao&refer=news]The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes.[/quote]Notice how "payrolls" is listed as only one of five different types of activity there? Think about it: payrolls can decline while the other four simultaneously rise! And note how it says "a sustained period of time", not "the past month" or something like that. [quote=ewmayer]Viewed in the context of a deeply distressed financial sector [banks not gonna be in a lending mood any time soon, despite massive government pressure for them to start doing so], extremely tight credit [= little money for new business creation], a massively overbuilt housing sector and an imploding commercial real estate scene [all those hundreds of thousands of construction-related jobs aren't coming back any time soon], the trend is glaringly, starkly obvious and has been so [except to professional economists, apparently] for most of the year.[/quote]So what? The article concerned a declaration of a date for a turning point. My search for the character string "trend" finds no occurrences in the article. It's about the establishment of a certain date, not the existence or recognition of any trend. [quote]Note: the estimates of GDP - which *are* issued by the "gubbermint" and thus subject to < snip > driving consumer spending - it sure wasn`t a concomitant rise in real incomes[/quote]See? You yourself have noticed that different economic indicators sometimes don't act in concert. [quote]In other words, debt expansion masquerading as economic growth.[/quote]So, if the committee had declared the start date of a recession based on only one indicator or hastened to make a declaration as soon as a trend was apparent, it might have been fooled by some masquerade. [quote]Now, over a year of [often massive] monthly declines in the Case-Schiller home price index and the aforementioned drying up of credit tell anyone with half a brain that consumer spending is sooner or later going to drop accordingly, and so must the bubble-inflated GDP numbers. Why do we need a full year to at least tentatively indicate that this may be happening?[/quote]The declaration was not about an indication, tentative or not, of some current trend. That isn't the committee's purpose. And the [U]actual[/U] declaration was not a tentative anything -- it was a definitive historical determination. [quote]Instead, until very recently we still had economists [government and private] "expecting" a recovery in the 2nd half of 2008 ... oh wait, make that late 2008 ... did I say late 2008? I meant, of course, sometime in 2009, only a slight weakening in GDP growth, etc. These are not subtle trends underlying what`s going on - at no point in the last half-century have the basic macro trends been more starkly obvious, yet nearly all of professional economists continue to be "surprised" at the severity of the downturn.[/quote]So what? The committee's declaration wasn't about any trends or predictions of the future. - - - Ernst, One of your comments posted just after that article link at the top of post #756 was unjustified. Perhaps you misunderstood part of the article. It was a rare mistake; 97% of what you post is on-target. When I see one of your rare mistakes, I post corrections if I think they're needed to keep other readers from being misled into thinking it's part of the 97%. I happen to be particularly keen to see that comments about the National Bureau of Economic Research's connection to business cycle determinations are correct because I think that certain parts of economics have important implications for political decisions made by Americans ... so in post #757 I pointed out the technicalities that made that particular comment in #756 unjustified. Now, in apparently attempting to refute my correction, you keep citing things that undermine that very attempt! I forgive you. Just go on. |
November jobs nightmare | UAW wants to help
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aRtykQ8tqETY&refer=news]Service Industries in U.S. Contract at Record Pace; Job Losses Accelerate[/url]: [i]Service industries in the U.S. contracted the most in at least 11 years, and a measure of private payrolls showed job losses accelerated, signaling the economy’s decline deepened last month. [/i]
[quote]The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 37.3 in November, the lowest level since records began in 1997. ADP Employer Services said companies eliminated 250,000 jobs, the most since November 2001. Today’s figures suggest a prolonged blow to the economy from the increased financial turmoil of September and October. Economists at Goldman Sachs Group Inc. and Wachovia Corp. boosted estimates for November job losses ahead of the government’s report in two days, raising the median forecast to the biggest payroll drop in 26 years as employers from Citigroup Inc. to General Motors Corp. stepped up the pace of firings. “What we’ve seen since mid to late September is that business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.” ... The Labor Department’s November jobs report may show payrolls fell by 330,000, the biggest decrease since 1982, according to a Bloomberg News survey of economists. John Silvia, chief economist at Wachovia in Charlotte, North Carolina, lowered his forecast for November payrolls by 100,000 to a decline of 450,000, following the ISM report. Goldman Sachs economist in New York projected job losses reached 400,000 last month. [/quote] [b]My Comment:[/b] Those are huge job losses, and they appear to be accelerating. 2009 looks to be ugly in terms of unemployment. [url=http://money.cnn.com/2008/12/03/news/companies/uaw/index.htm]UAW agrees to help automakers[/url]: [i]Union chief Ron Gettelfinger says workers will work on changes in labor contract, a key to winning support for federal bailout of GM, Ford and Chrysler.[/i] [url=http://money.cnn.com/2008/12/03/news/companies/bally_bankruptcy.ap/index.htm]Bally Total Fitness files for Chapter 11 again[/url]: [i]Gym operator with hefty debt load falls victim to credit crunch, files for bankruptcy protection for the second time in less than 2 years. [/i] [url=http://money.cnn.com/2008/12/03/news/companies/goldman_morgan/index.htm]Nightmare on Wall Street continues[/url]: [i]Goldman Sachs and Morgan Stanley brace for another bad quarter following abysmal performances across their various businesses.[/i] [quote]NEW YORK (CNNMoney.com) -- The hits just keep on coming for Wall Street. Later this month, the once venerated investment banks Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) will reveal their results for the fourth quarter and full year. Neither firm has set a date for the reports, but most industry trackers are betting the numbers will be abysmal, particularly for Goldman Sachs. A growing number of analysts have slashed their estimates for the New York City-based bank in recent weeks, saying they expect it to report a loss of about $900 million, or $1.82 a share, its first loss ever since the company went public in 1999. A month ago, analysts anticipated the company would report a profit of $2.35 a share, according to Thomson Reuters. And there are concerns that the losses could be even higher. Credit Suisse analyst Susan Roth Katzke warned earlier this week that Goldman Sachs could book a quarterly net loss of as much as $4 a share.[/quote] [b]My Comment:[/b] A modest proposal: Instead of throwing multi-hundred-billion-dollar chunks of bailout money at Wall Street firms, he government should simply lift the Federal Reserve`s current monopoly on printing of currency and extend the same right to the Big Finance firms. Problem solved. |
Clint Reilly: Ode to Mervyn`s
Clint Reilly is a Bay Area businessman who has been self-publishing his weekly online economic commentary by taking out ads in local newspapers. His latest weekly article describes how private-equity "vulture" investors effectively looted the 60-year-old Mervyn`s discount retailer chain and doomed it to bankruptcy:
[url=http://www.clintreilly.com/?p=276]Clint Reilly: Ode to Mervyn`s[/url] [quote]At its height, the Mervyn’s chain included 300 stores in 16 states with 33,000 employees and annual sales of $4 billion. The company stayed true to its Bay Area roots by hiring Joe Montana and Kristi Yamaguchi – local celebrities with national appeal – as spokespeople. In 2004, Target Corporation sold Mervyn’s to a private equity partnership. That was the beginning of the end. A November 22, 2008 Wall Street Journal story chronicles the downward spiral: “Cerberus Capital Management LP and a group of private equity investors bought Mervyn’s from Target Corporation in 2004 for $1.25 billion. The investor group, which structured the buyout as two separate purchases – one for retail operations and one for the chains valuable real estate holdings, has earned more than $250 million in profits…The Mervyn’s store chain, by contrast, is in liquidation…” By stripping out Mervyn’s valuable real estate, selling premium parcels and then leasing its own buildings back to the store at exorbitant rates, Cerberus guaranteed a big profit for itself and bankruptcy for Mervyn’s.[/quote] [b]My Comment:[/b] Note that the all-too-appropriately-named Cerberus Capital is also the majority owner of none other than the Chrysler Corporation. In other words, they are currently busy asking the government for a multi-billion-dollar taxpayer-funded bailout of their Chrysler equity stake. [url=http://www.marketwatch.com/news/story/treasury-may-set-mortgage-rates/story.aspx?guid={2997E462-B056-43E3-AF13-70EB82403632}&siteid=yhoof]Treasury may set mortgage rates at 4.5% to boost sales[/url]: [i]The Treasury Department is contemplating a proposal that would cut mortgage rates for new loans for homes, according to the Wall Street Journal.[/i] [quote]The plan would employ Fannie Mae and Freddie Mac to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates. The measure is under consideration as part of the Treasury Department's continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported. As part of the proposal under consideration, Treasury would buy mortgage securities backed by Fannie Mae and Freddie Mac, in addition to those guaranteed by the Federal Housing Administration. Fannie Mae and Freddie Mac guarantee a significant chunk of all new mortgages in the United States. It's unclear whether the proposal would create refinancing opportunities, which analysts said would be even more positive for the beleagured housing industry and battered home buyers.[/quote] [b]My Comment:[/b] 4.5% would be quite a sweet rate for a fixed-rate mortgage. Part of me wonders whether this just another misguided asttempt to prop up the fast-deflating housing-price bubble, though. |
Job Cuts at AT&T | Fifty ways to beat deflation
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=apPrRbnba6C8&refer=news]AT&T Will Fire 12,000 Workers, About 4% of Total, Take $600 Million Charge[/url]: [i]AT&T Inc., the largest U.S. phone company, will cut 12,000 jobs and reduce spending next year, striving to become leaner as the U.S. economy falters.[/i]
[url=http://money.cnn.com/2008/12/03/real_estate/mortgage_applications/index.htm]Mortgage applications more than double[/url]: [i]Bankers' group cites Fed's bailout of Fannie and Freddie for plummeting rates, with refinancing leading the way.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aJkqZZqsJ2c0&refer=europe]Trichet Sees Economy Shrinking in '09 as ECB Cuts Rate by Most in 10 Years[/url]: [i]European Central Bank President Jean- Claude Trichet said the euro region’s economy will shrink next year for the first time since 1993 after the bank delivered the biggest interest rate cut in its 10-year history.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=aNYTcHIr7Jvc&refer=china]China Urges U.S. Government to Counter Crisis, Prepares for `Worst Case'[/url]: [i]Chinese officials urged the U.S. to do everything possible to restore calm to financial markets and said they are preparing for a “worst-case scenario” as the global crisis deepens.[/i] [quote][Chinese central bank head] Zhou told U.S. officials that, while China remained confident of maintaining growth in the world’s fourth-biggest economy, it needed to prepare for the worst, central bank official Jin Qi said. “We hope that the U.S. can take all necessary measures to stabilize its financial markets and economy as soon as possible and ensure the safety of China’s assets and investments in the U.S.,” Wang said. “To work together to tackle the financial crisis is the most pressing task that we are facing.” Zhou urged the U.S. to increase savings, after excessive consumption and debt helped to trigger the crisis. [/quote] [b]My Comment:[/b] Slashing spending in order to pay down debt [a negative-balance-sheet version of increasing savings] is precisely what Americans are doing as we speak. The problem for cvhina is that so much of its double-digit annual economic growth of the past decade was fueled by that excess American consumption. That leads to only one conclusion: more pain aheasd for the Chinese Economic Dragon. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a2jrSPqYhVzY&refer=news]Dubai Speculators Quit as Lending Drought Bursts Desert Property Bubble[/url]: [i]The classified ads in Dubai read like an obituary for a real-estate market that until a few months ago seemed immune from the global credit crisis.[/i] [quote]A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov. 25 edition of Gulf News, the United Arab Emirates’ biggest newspaper, with the headline: “DIRECT FROM OWNER DISTRESS SALE!!!” [u]Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 percent.[/u] “There is panic in the market,” said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties. [/quote] [b]My Comment:[/b] Price appreciation of 5% per DAY - insanity. Anyway, Sebat is wrong about where the panic is - it`s not in the market per se, what we have there is an inevitable correction of speculative excess. The panic is among the speculators who thought the party was going to last forever, or that they would know when to get out with their profits intact. Alas for them, gambling fever doesn't work that way. [b]Song of the Day[/b] With apologies to an obscure [url=]Paul Simon ditty[/url], Mish Shedlock has a tuneful way to start your morning today: [url=http://globaleconomicanalysis.blogspot.com/2008/12/50-ways-to-beat-deflation.html]50 Ways To Beat Deflation[/url] [quote][b]50 Ways To Beat Deflation [/b] The problem is all inside your head, Ben said to me The answer is easy if you wreck the currency I'd like to reinflate your weak economy There must be fifty ways to beat deflation He said it really is my habit to intrude Furthermore, I hope my actions won't be historically misconstrued I`m sick of all these pundits yelling "OMG We`re Screwed" There must be fifty ways to beat deflation Fifty ways to beat deflation Just bail out a bank, Hank Mail out some checks, Rex You dont need to be coy, Roy Just give 'em for free Stamp up the moss, Ross You don't need no Congress Just shell out the bread, Fred And do it for free Just buy up some bonds, Ron Quantitative ease, Louise You dont need to be coy, roy Just give it for free Lower the rates, Nate You dont need a Senate debate Just drop it from planes, Jane And do it for free He said that hoarding cash won't do to ease our pain I know there's something that will make you lend again I said I appreciate that and would you please explain About the fifty ways He said I gave a speech on this way back in 2002 And it'll work if we all just see it through But that guy Mish thinks my head is full of poo There must be fifty ways to beat deflation Fifty ways to beat deflation[/quote] |
[quote=ewmayer;151958]
[B]Song of the Day[/B] With apologies to an obscure [URL="http://Paul%20Simon%20ditty"]Paul Simon ditty[/URL][/quote]... one of my favorites. There's at least one other financial-crisis parody: [URL]http://www.amiright.com/parody/70s/paulsimon92.shtml[/URL], not to mention more standard topics: [URL]http://www.amiright.com/parody/70s/paulsimon110.shtml[/URL] [URL]http://www.amiright.com/parody/70s/paulsimon62.shtml[/URL] :smile: |
U.S. Employers Cut Most Jobs in 34 Years
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aLgwfpZSD.R0&refer=news]Employers in U.S. Cut 533,000 Jobs, Most in 34 Years, as Recession Deepens[/url]: [i]U.S. companies slashed payrolls last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.[/i]
[quote]Employers cut 533,000 jobs, bringing losses so far this year to 1.91 million, the Labor Department said today in Washington. November’s drop exceeded all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993. “It’s unbelievable,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “We’re well on our way to the worst recession of the postwar period.” The plunge may spur incoming President Barack Obama to come up with an even bigger fiscal stimulus package than economists’ projections of about $700 billion. Today’s figures also will add to pressure on the Federal Reserve to take radical steps to revive credit markets and on lawmakers to bail out the auto companies. “This is a huge downshift, much larger than we thought,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington, who will be Vice President-elect Joe Biden’s chief economist in the new administration. “The upper bound on a stimulus package is going up, not down. As the hole gets larger, the amount you need to fill it gets larger.” [/quote] [b]My Comment:[/b] Note that the 6.7% is the government`s Pollyanna-ized unemployment figure, which ignores people who have given up looking for a job, who have gone from working full to part-time, and a host of other "severely underemployed" categories. I predict that even that optimistic figure will hit the 8-9% range next year, which would imply that real unemployment is running close to 15% [That number, officially dubbed U-6 by the BLS, is currently [url=http://globaleconomicanalysis.blogspot.com/2008/12/jobs-contract-11th-straight-month.html]running at 12.5%[/url], up a whopping 4% from a year ago.]. In related news: [url=http://money.cnn.com/2008/12/05/markets/oil/index.htm?postversion=2008120511]Jobs report sends oil under $42[/url]: [i]Crude falls on fears of slowing U.S. demand after government reports worst monthly job losses since 1974.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=acuPdrV_UdoQ&refer=news]Mortgage Delinquencies, Foreclosures Rise to Record as Home Prices Plummet[/url]: [i]One in 10 Americans fell behind on their mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled. [/i] [quote]The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue. [/quote] [b]My Comment:[/b] So the total percentage of non-current mortgages is 6.99+2.97 = 9.96%. That means that what conservative syndicated columnist George Will wrote earlier this year in a highly optimistic op-ed, namely the glass-half-full argument that "Over 90% of mortgages are current", is still true, even if just barely. I`m suddenly feeling a warm glow of bullish optimism ... think I`ll go hit one of the many going-out-of-business sales in my area and treat myself to a shopping spree. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aoldg4h2O2xg&refer=news]Auto Industry Failure Would Be a `Disaster,' Exacerbate Crisis, Frank Says[/url]: [i]Failure to aid U.S. auto companies and keep them out of bankruptcy “would be a disaster,” House Financial Services Chairman Barney Frank said as members of his committee said they back some type of support for the companies. [/i] [b]My Comment:[/b] And a taxpayer-funded bailout of the Big Three could equally well prove a fiscal disaster, especially as the latest "new and even higher" $34 Billion bailout they are asking for is likely to be only a down payment. Mark Zandi, chief economist at Moody`s estimates that the real figure could reach $125 Billion. I don`t see Cerberus Capital Management, the private-equity fund which owns 80% of Chrysler and which [as documented in a recent post] ruthlessly stripped the Mervyn`s department store chain of its valuable real-estate holdings and promptly forced Mervyn`s to lease them back from it at usury rates, thus effectively dooming the chain the bankruptcy - I don`t see them offering to pony up any of their billions to help bail out Chrysler. Why should the taxpayer in effect bail out a bunch of scumbag vultures like that? [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a1h2BUaxX.wM&refer=news]Sarkozy Morphs from `President Bling-Bling' to Champion of Working Class[/url]: [i]At 4 a.m. on Sept. 30, as the collapse of Lehman Brothers Holdings Inc. was shaking up investors on six continents, President Nicolas Sarkozy convened an emergency meeting at the Elysee Palace in Paris to broker the bailout of French-Belgian bank Dexia SA. For an hour, he grilled Finance Minister Christine Lagarde and Bank of France Governor Christian Noyer on the terms of the 6.4 billion euro rescue plan, says François Perol, Sarkozy’s economic adviser. [/i] [quote]One of his top requirements: Dexia Chief Executive Officer Axel Miller must leave and forfeit his 3.7 million euro severance paycheck. With that gesture, Sarkozy, who took office pledging to instill a work-hard, get-rich ethos in a country known for its disdain for money, turned into something more familiar to the French: a politician who intervenes in private companies, subsidizes jobs and bashes the bosses. “By conveying the message that the state can do better than free markets, Nicolas Sarkozy is appealing to the French’s old instinct for protection,” says Philippe Waechter, chief economist at Natixis Asset Management in Paris. “He seems to be turning his back on his reformist agenda meant to give the French economy more inner resilience.” Sarkozy, 53, began his presidency in May 2007 as an outspoken admirer of billionaire industrialists. He celebrated his election with his wife, former fashion model Cecilia Ciganer- Albeniz, on the 60-meter-long (197-foot-long) yacht of Vincent Bollore, who built a transportation empire that operates ports in Africa and distributes oil products in Europe. Charles de Gaulle By August, the president had cut taxes by 8 billion euros ($10 billion) for workers and small business investors, in a bid to encourage more of the French to become entrepreneurs like Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton SA. Seventeen months later, with the financial crisis having pushed Europe into its first recession in almost a decade, Sarkozy is backing away from his flirtation with laissez faire and rediscovering another French concept -- dirigisme, or state intervention. [/quote] [b]My Comment:[/b] Why, the sheer "gaulle" of the man ... puns aside, I thought the French disdain was not so much for money but rather for having to work for it. Shows you how much I know about our 35-hour-work-week continental friends. I`d ask one of my French friends to clarify, but he`s having trouble getting to work these days ... seems the public-transit workers are striking in protest against the postal workers being on strike. Or something like that. [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=akvj96Z9xjTE&refer=china]China November Car Sales Drop 10%, Most in Three Years, on Cooling Economy[/url]: [i]China’s November car sales plunged 10 percent, the biggest decline in more than three years, extending a global rout in auto demand that has caused carmakers to seek government support. [/i] |
Here is a question to do a bit of thinking on. The dotcom bubble exploded in 1999, the housing bubble exploded in 2008, what about the oil bubble?
In other words, were high oil prices a result of a speculative bubble that sent gasoline prices from $.97 in 1999 to $4.11 in 2008? If so, what is a sustainable price for oil in the forseeable future? Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation, gas should be about $1.30 per gallon today. This is a major variance vs the price at any time in the last 5 years. Consider that from the highest price point for gas in July 2008, within 2 months, U.S. consumption had dropped by no more than 3%. How on earth does a drop of 3% in consumption lead to a 75% drop in price of oil? The only pattern to explain the precipitous price drop is that it was a speculative bubble to start with. Granted that oil prices have been artificially manipulated for years, still the evidence seems to say we have seen an abrupt price bubble deflating. DarJones [url]http://www.portfolio.com/views/columns/economics/2007/12/17/Why-Oil-Prices-Will-Drop[/url] [url]http://www.eia.doe.gov/basics/quickoil.html[/url] |
[QUOTE=Fusion_power;152164]In other words, were high oil prices a result of a speculative bubble that sent gasoline prices from $.97 in 1999 to $4.11 in 2008? If so, what is a sustainable price for oil in the forseeable future?
Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation, gas should be about $1.30 per gallon today. This is a major variance vs the price at any time in the last 5 years. [/QUOTE] You're assuming $0.97/gal in 1999 was a fair price. You're cherry-picking a low price in the past as your initial condition. What about the demand from developing economies over the last 10 years? What about the (understandable) worries from the Peak Oil enthusiasts? What about futures contracts? The dynamics of the price of oil are a little more complicated than: "Let me (arbitrarily) pick a nice low price from a few years ago, and then (arbitrarily) assume oil follows a simple inflation model, and then extrapolate to the present so I can carp about the high price I had to pay for gas" Markets aren't that simple. |
[quote=Fusion_power;152164]Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation[/quote]I presume you mean inflation-aside-from-energy-costs.
[quote], gas should be about $1.30 per gallon today.[/quote]masser already said what I would about cherry-picking. Here's a proposal: For fairness, let's base _all_ inflation and oil/gas price comparisons on Jan. 1 1973, just before the Arab oil embargo that radically changed the situation. There's been no comparable event since then that has shaken up the relationship between oil-importing and oil-exporting nations like that did. - - - Alternatively, a base date for fair comparisons of inflation and oil/gas price comparisons could be the date of the Hubbert's Peak for U.S. domestic oil production, which was, not coincidentally, only slightly earlier than the Arab oil embargo. Then it would become clearer that the fundamental three oil ages are: 1) Before Hubbert's Peak of domestic oil production in the leading oil-consuming nation, 2) After Hubbert's Peak of domestic oil production in the leading oil-consuming nation, but before Hubbert's Peak of global oil production, and 3) After Hubbert's Peak of global oil production (That these are or will be not precisely datable is not important. Draw the curves. Eyeball the maxima. Round to the nearest January 1. Or use your favorite stock-market charting algorithm -- higher highs and all that.) Just as there was a shakeup accompanying the transition from 1 to 2, I expect there is/will be a (different kind of) shakeup accompanying the more drawn-out transition from 2 to 3. That's not a bold prediction. It'll probably be obvious in retrospect. |
[QUOTE=Fusion_power;152164]The only pattern to explain the precipitous price drop is that it was a speculative bubble to start with. Granted that oil prices have been artificially manipulated for years, still the evidence seems to say we have seen an abrupt price bubble deflating.[/QUOTE]Stockpiling, reducing or increasing production are just fair methods do influence the price of a commodity. Is it because other countries are doing it and that you suffer the consequences that you call this artificial manipulation ?
About the fair price of oil, does one count only the production costs (extraction, refining, transport and distribution) or should one count the fact that a resource that took millions of years to come into existence is used. In other words shouldn't the price take into account the fact that we are using the capital (you can not keep the cake and eat it.) If so the price of oil is nowhere near its real value. Jacob |
It seems that oil prices touch a few nerves.
The .97 price in 1999 was not cherrypicking. It was just a convenient point before the inexorable price rises that took place over the next few years. 1. in 1965 gas was $.21 per gallon 2. in 1971, gas was still in the $.30 cent range. 3. in 1972, gas went to $.50 4. in 1978 I paid $.79 per gallon 5. in 1980 I paid $1.16 per gallon 6. in 1990, I paid $1.30 7. in 1995, I paid $1.15 8. in 1999, I paid just over $1.00 9. in 2004 I paid $1.80 10. in 2008, I paid $4.05 11. in late 2008, I am now paying about $1.40 Just so you 'cherry pickers' can get your teeth into that, the cost of production in 1965 was about $5 per barrel and today is about $30 per barrel. Using that differential, the price of gas would be expected to be about 6 times as high today as it was in 1965. That yields somewhere between $1.20 and $1.50 as the expected price of gas today. I am not making any arguments about fair prices or underlying supply/demand fundamentals. My position is very simple. The price of oil reached a speculative peak in July 2008 and collapsed thereafter. Interesting to me is that it happened to unwind at a time when the economy was already fragile from the real estate fiasco. DarJones |
Jobless Data Could Have Been Worse | IOU, CA
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aJikdmHyr2vk&refer=news]Record Number of U.S. Part-Time Workers Prevented a Bigger Jump in Jobless[/url]: [i]More Americans than ever worked only partial days in November as the deepening recession prompted companies to cut full-time employment. [/i]
[quote]The number of Americans saying they worked part-time last month due to economic reasons -- either because their hours were cut or they couldn’t find full-time jobs -- surged to 7.32 million, the most since records began in 1955, from 6.7 million in October, the Labor Department reported today. The increase in part-time workers helped prevent the jobless rate -- which rose to 6.7 percent last month from 6.5 percent in October -- from climbing even more. Counting part- timers who would prefer full-time work, as well as discouraged workers who are no longer looking for jobs, the jobless rate would have jumped to 12.5 percent from 11.8 percent in October. “The job market has gotten so bad, that people are giving up hope of even finding anything,” said Stephen Stanley, chief U.S. economist at Greenwich Capital Markets in Greenwich, Connecticut. While the U.S. unemployment rate reported by the Labor Department for last month was the highest since 1993, the median forecast of economists surveyed by Bloomberg News projected an even bigger increase, to 6.8 percent. Helping keep the jobless rate in check was a decline of 422,000 in the size of the labor force, defined as all those either employed or looking for work. The number of discouraged workers who stopped looking for work and left the labor force rose to 608,000, the most since records began in 1994, from 484,000 in October. The 28 percent increase in the number of people not working a full day because of slack business conditions over the last three months is the biggest since 1975. [/quote] [url=http://www.bloomberg.com/apps/news?pid=20601087&sid=a2TUhalNFDds]California Eyes IOUs for Second Time Since Great Depression[/url]: [i]California, the world’s eighth-largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said. [/i] [quote]In a letter to legislative leaders Dec. 1, Genest said the state “will begin delaying payments or paying in registered warrants in March” unless an $11.2 billion deficit is closed or reduced. California, which approved its budget less than three months ago, may run out of cash by March, state officials say. Governor Arnold Schwarzenegger warned that the state may issue the warrants, which are a promise to pay with interest, to suppliers and contractors as the seizure in credit markets may make it too costly to borrow. “It’s getting worse very quickly,” Schwarzenegger, a 61- year-old Republican, told reporters Dec. 1 after declaring a fiscal emergency and ordering the Legislature into a special session to find ways to close the deficit. “It’s like an avalanche in that it gains momentum. And that’s what we’re in right now, so it’s a real crisis.” California is reeling more than any other state from budget woes that pushed the nation’s governors to seek help from Congress. States say federal money is needed to ease the pain from spending cuts and tax increases that would be a further blow to an economy in the throes of a recession. The warrants would be given to landscapers, carpet cleaners, construction firms, food-service companies and other state vendors. They would pay an interest rate of as much as 5 percent, based on state law. California last issued the IOUs in 1992 when lawmakers and then-Governor Pete Wilson deadlocked on a budget for 61 days past the start of the fiscal year. ... California Controller John Chiang said that the state’s cash account will decline to $882 million by February, below its preferred cushion of $2.5 billion, and will be negative $1.9 billion by March. Tax collections have been hammered as the collapse of the real estate market eliminated 136,000 construction jobs in the state in the past two years and led consumers to curb spending. California leads the nation in home foreclosures, its 8.2 percent unemployment rate is the third-highest in the U.S., and the wealthiest 1 percent of citizens pay almost half its personal income taxes, making it sensitive to swings in the stock market. ... California’s two-year budget shortfall is about $28 billion, accounting for one-third of the deficits faced by U.S. states, according to figures from the National Conference of State Legislatures in Denver. U.S. states may collect at least $97 billion less than they need to pay their bills over the next two years, the group reported yesterday. ... The budget deficit has grown even as California cut spending on health care, universities and welfare programs. Schwarzenegger proposed a tax increase for the first time since he took office in 2003 as Democrats agreed to slash $8 billion in spending. Republicans, who have enough support to block a two-thirds majority needed to pass a tax increase, have made sure the measure has failed. “This is not blind ideology on the part of Republicans, but our sincere belief that higher taxes will hurt the economy and lead to more uncontrolled spending,” said Assembly Republican leader Mike Villines. Schwarzenegger’s declaration of a fiscal emergency gives lawmakers 45 days to plug the shortfall. If they fail in that time, they are barred from doing any other legislative work until they do. The declaration came after lawmakers were unable to agree on a plan to close the gap during a three-week special session that expired Nov. 30. [/quote] [b]My Comment:[/b] Besides being a way to defer the hard issue of how to close the budget deficit, this raises many questions, such as: Will recipients of the IOUs be able to borrow against them [preferably at no worse a rate than he warrants promise to pay] in order to pay their employees and business expenses? Much as I don'` want to see the state end up in bankruptcy, some kind of structured bankruptcy [not dissimilar from that being discussed for the U.S. automakers] may be the only way to force all the various special interest groups and powerful unions [such as the teachers, police, firefighters, prison guards, to say nothing of the CA state government employees] to give something up. Of course it`s going to be painful - there are simply no pain-free cures for the national disease, chronic living-beyond-our-means-itis. To delve further into the issue of the state-budgetary sacred cows, let` examine the state of Minnesota, which has a [url=http://www.startribune.com/politics/state/35539039.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aULPQL7PQLanchO7DiUs]similarly severe budget headache[/url] as California: [quote]Warning that Minnesotans are facing a time of "pain and sacrifice," officials Thursday said they would slash state spending and rethink the role of government in the aftermath of a towering deficit that tops $5.2 billion over the next two and a half years. Government will have to change "in a historic way," he said. As part of that, he said, "there's no question that there will be spending cuts in programs that have existed for a while." For starters, Pawlenty said he is ordering state agencies to cut 10 percent of discretionary spending. Only public safety, corrections, the military and veterans affairs will be spared.[/quote] [b]My Comment:[/b] Please tell me why in such an acute crisis, "only" public safety, corrections, the military and veterans affairs should be spared. That`s a mighty big "only" laundry list there. To put rough numbers on things: For every cop or firefighter whose exceedingly generous pension agreement [which often guarantee annual pensions approaching 100% of the salary at retirement] remains immune to modification, one or two schoolchildren's annual education expenses go unfunded. Some wonderful priorities there. |
Deadbeat Trump Sees "Act of God" in Recession
[url=http://www.cnbc.com/id/28069720]Donald "I`m Not a Deadbeat, I`m a Victim of a Biblical Plague" Trump Sees "Act of God" in Recession[/url]
[quote]Guess who is complaining that condominiums in Donald Trump’s latest big project are ridiculously overpriced. Donald Trump is. But he isn’t cutting the prices. He says the banks won’t let him. The project is the Trump International Hotel and Tower in Chicago, which is to be the second-tallest building in that city (after the Sears Tower). By Mr. Trump’s account, sales were going great until “the real estate market in Chicago suffered a severe downturn” and the bankers made it worse by “creating the current financial crisis.” Those assertions are made in a fascinating lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank AG says is due and payable. Rather than have to pay the $40 million, Mr. Trump thinks the bank should pay him $3 billion for undermining the project and damaging his reputation. He points to a “force majeure” clause in the lending agreement that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering “any other event or circumstance not within the reasonable control of the borrower,” and Mr. Trump figures that lets him out, even though construction is continuing. “Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” he said in an interview. “A depression is not within the control of the borrower.” He wants a state judge in the Queens borough of New York to order the bank to delay efforts to collect the loan until “a reasonable time” after the financial crisis ends. Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable. Mr. Trump, it may be noted, does not think remorseful condominium buyers are in a similar position. When I asked him if he would let them walk away from contracts to buy apartments at predepression prices, he said he would not. “They don’t have a force majeure clause,” he said.[/quote] [b]My Comment:[/b] Ha, ha, what a slimebag ... if Trump is worried about his "reputation as a Billion-dollar con artists who manages to lose huge sums of money on virtually every one of his high-profile projects yet still to talk a bunch of rich fools into backing his next money-losing-but-very-high-profile-after-all-it-sports-the-Trump-logo venture" being damaged, I think he should have no worries on that score, as ever doth grow the thundering herd of Greater Fools. [url=http://money.cnn.com/2008/12/07/news/companies/automaker_help_obama/index.htm?postversion=2008120808]Obama: Carmakers Need Change at the Top[/url]: [i]President-elect demands restructuring as key senator says GM's Wagoner should resign.[/i] [quote]NEW YORK (CNNMoney.com) -- President-elect Barack Obama announced support Sunday for a short-term government bailout of the nation's carmakers that is tied to industry restructuring, and he accused auto executives of a persistent "head-in-the sand approach" to long-festering problems. In an appearance on NBC's "Meet the Press" and later at a news conference, Obama at one point suggested some executives should lose their jobs. A leading Congressional Democrat, Sen. Christopher Dodd of Connecticut, was more blunt. Rick Wagoner, the chief executive of General Motors Corp., "has to move on," said Dodd on CBS' "Face the Nation." Congressional Democrats and the Bush White House had reached an agreement in principle to provide stopgap support for the U.S. auto industry, congressional and industry sources said late Friday. The deal would keep the most troubled companies out of bankruptcy court at least through the end of March. Two officials familiar with the compromise talks told CNN that the working target is $15 billion to $17 billion in bridge loans. While the money is less than the $34 billion automakers were asking for in testimony before Congress last week, the package is designed to keep them operating so that the new Congress and the Obama administration will have at least a couple of months to draft and pass a longer-term solution. The break came Friday evening when House Speaker Nancy Pelosi, D-Calif., backed off her opposition to using funds from a fuel-efficiency research program, two congressional officials told CNN. Congressional Republicans and President Bush had supported the idea of tapping the $25 billion approved for that fund. Democrat leaders had been arguing that the Treasury Department should help the automakers using money from the $700 billion set aside for banks and Wall Street firms. The Troubled Asset Relief Program, or TARP, was established in October. A congressional source stressed that the agreement does not represent a final bill. A statement from Pelosi said that assistance should be tied to restructurings and come with taxpayer protections.[/quote] [b]My Comment:[/b] Hooray - finally some common sense. Would that Hank "Tool of Wall Street" Paulson had attached similar strings to the relatively-much-larger bailout of his buddies` banks and brokerages ... but "his buddies`" pretty much tells us what we need to know about that. Hell, the latest mammoth bailout of Citigroup, which put taxpayers on the hook for as much as $300 Billion of Citi`s toxic debt, didn`t even contain a modest limits-on-executive-compensation provision, and theoretically allows Citi to continue paying dividends on its common stock "subject to approval". [While such a request would not likely be approved, the fact that it's even a possibility stinks]. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aVd77NOyy2eA&refer=news]Majority of Modified U.S. Mortgages Fail Within Six Months, Regulator Says[/url]: [i]Most U.S. mortgages modified by lenders to help keep struggling borrowers in their homes fell back into delinquency within six months, the chief regulator of national banks said. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aV7B4AgWmd8Q&refer=europe]Europe's High-Yield Default Rate Will Rise Tenfold to 12.5%, Moody's Says[/url]: [i]Defaults by high-risk, high-yield companies in Europe will increase to 12.5 percent in the next 12 months, almost 10 times the current rate, according to Moody’s Investors Service. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aMV8_J49diKs&refer=news]GM's Implosion Turns Detroit Into Urban Prairie as Farms Fill Vacant Lots[/url]: [i]General Motors Corp., Ford Motor Co., and Chrysler LLC are fighting for their lives. Large stretches of Detroit are already dead. [/i] [quote]With enough abandoned lots to fill the city of San Francisco, Motown is 138 square miles divided between expanses of decay and emptiness and tracts of still-functioning communities and commercial areas. Close to six barren acres of an estimated 17,000 have already been turned into 500 ``mini- farms,'' demonstrating the lengths to which planners will go to make land productive. The city, like the automakers, has to shrink to match what's left, said June Thomas, a professor of urban and regional planning at the University of Michigan in Ann Arbor. ``The issue is how,'' she said. ``There's no vision.'' The 11th-largest U.S. city is running out of options and money as its three biggest corporate citizens seek a federal bailout and the economy contracts. While Detroit isn't even sure how short of revenue it is, the latest estimate from the mayor's office puts the deficit at $200 million and climbing on an annual budget of $3.1 billion. The population of the once vibrant manufacturing hub that grew up around the 20th century expansion of the auto business has contracted to less than 850,000 from a peak of 1.9 million in the 1950s. More fallout is expected as the area's biggest industry eliminates jobs. ``People are moving out of the city, trying to find work,'' said David Martin of Wayne State University's Urban Safety Program. Those who stay ``can't afford to move out.''[/quote] [b]My Comment:[/b] Bulldozing about a hundred thousand "Crack Available Here!" not-quite-so-vacant-as-intended houses would be a good start ... but apparently Detroit can`t even figure out where to get money for that. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=afquUqTFjEkc&refer=news]Obama Bonds Poised to Give Investors Taste of Japan From Lost Decade Debt[/url]: [i]Japan’s biggest bond investors say Barack Obama has room to unleash a flood of Treasuries without driving up borrowing costs as he tackles the worst economy since World War II. [/i] [quote]The U.S. is starting to look like Japan in the 1990s, when the Bank of Japan struggled to revive growth as the combination of deflation and recessions stranded the nation in the so-called Lost Decade. Yields on Treasuries are falling as the government sells a record amount of debt to prop up the American economy. Two-year note yields have fallen to 1 percent, compared with 0.57 percent for Japanese government bonds of similar maturity. The gap last week touched the narrowest since 1992. “History repeats itself,” said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., which manages the equivalent of $200 billion and invests on behalf of Japan’s biggest bank. “Based on our experience in Japan, the same thing will happen in the U.S. The U.S. has more room to borrow.” Bando bought Treasuries, as did Mizuho Asset Management Co., which oversees $41.9 billion and bet all year that inflation in the U.S. will turn into deflation, buoying government debt. JPMorgan Asset Management Japan Ltd., part of the largest U.S. lender, is buying Treasuries, speculating the Federal Reserve will purchase the securities to keep yields down and spur the economy, just as the Bank of Japan did a decade ago. [/quote] [b]My Comment:[/b] History indeed appears to be repeating itself, despite the strenuous denials of Fed Chairman Bernanke. If it walks like a ZIRP, and quacks like a Quantitative Easing... |
[quote=Fusion_power;152264]the economy was already fragile from the real estate fiasco.[/quote]Not exactly.
The [I]housing-related [U]sector[/U][/I] of the U.S. economy was already fragile from the "real estate fiasco". But that's all. The rest of the [I]global[/I] economy had been made fragile only by the fifty-or-so trillion dollars of [I][U]unregulated[/U] derivatives[/I] that leveraged U.S. mortgages by ratios typically in the 20:1 neighborhood and forged a dependent connection from the mortgage market to normally-unrelated or only-peripherally-related financial institutions. Without those [I][U]unregulated[/U] highly-leveraged derivatives[/I], we would now have only a national housing slump similar to other housing slumps the U.S. has had in the past, not a global crisis that's on the verge of bankrupting some of the world's largest corporations who normally would have no particular dependence on, or only an indirect connection with, housing. Blaming this enormous crisis, that sparks comparisons with the Great Depression, on only housing or subprime mortgages is like saying that mountains are built by moles. Was "Great Depression" as frequently-uttered a phrase the last half-dozen times we had a housing downturn as it has been recently? No. Those who champion the free market above all and tend to characterize all regulation as unnecessary need to face the fact that history has shown over and over that a certain amount of regulation is necessary to protect the public from certain disastrous consequences of unrestrained profit-seeking. In the case of credit default swaps and other mortgage-related derivatives, it could have been as simple as requiring regular reports that publicly revealed the extent to which derivatives' leveraging had occurred, plus simply requiring that the true nature and riskiness of such derivatives be clearly revealed to prospective purchasers. For example: A local school board here in the Milwaukee area is in serious financial trouble because they purchased mortgage-related derivatives (CDSes, IIRC) [I]without understanding their true nature and riskiness[/I], according to testimony by the person responsible for recommending them to the board. He, and thus they, were "assured" by a salesperson that the derivatives were as safe as school-board investments ought to be. We have regulations to prevent this kind of snake-oil marketing of other types of securities. Folks are not prevented from getting seriously rich by regulations that require securities-selling people to inform prospective buyers of some basic facts about securities. There's no reason not to have done the same for mortgage derivatives except for an unjustified ideological opposition to regulation by those who were in a position to do something about those derivatives before they got so big they threatened to bring down the global economy. [quote]Interesting to me is that it happened to unwind at a time when ...[/quote]It happened because the leveraged mortgage derivatives made the U.S. housing market practically directly connected to so many other sectors of the global economy. The oil speculation began to founder when the institutions that lent money to the speculators began to founder, themselves, on the shoals of mortgage derivatives. There were [i]fifty trillion dollars[/i] of mortgage derivatives. Lehman Brothers failed because they had so heavily invested in mortgage derivatives. What's-its-name money-market fund "broke the buck" because its Lehman Brothers securities became worthless so rapidly. That first-ever, and so sudden, "breaking of the buck" scared all other lenders out of lending anything, bringing the global financial wheels to an abrupt halt. None of those would've happened without the derivatives. A plain unleveraged housing slump wouldn't have made Lehman Brothers fail like that. |
[QUOTE=cheesehead;152572]Without those [I][U]unregulated[/U] highly-leveraged derivatives[/I], we would now have only a national housing slump...[/QUOTE]
Or more likely, we never would have had the housing bubble. |
Fannie, Freddie: "We Were Following the Markets"
[QUOTE=cheesehead;152572]What's-its-name money-market fund "broke the buck" because its Lehman Brothers securities became worthless so rapidly. That first-ever, and so sudden, "breaking of the buck" scared all other lenders out of lending anything, bringing the global financial wheels to an abrupt halt. None of those would've happened without the derivatives. A plain unleveraged housing slump wouldn't have made Lehman Brothers fail like that.[/QUOTE]
That would be the famous Reserve Primary Fund, the granddaddy of money-market funds. There was a nice article about how Reserve got itself into trouble in [URL="http://www.cjr.org/the_audit/wsj_is_super_on_reserve_primar.php"]yesterday's Wall Street Journal[/URL]: [quote]All this heightens a unique Wall Street drama: of a financier who pioneered a way for small savers to earn more, grew rich in the process, preached a principle of extremely cautious investing for decades, and then abandoned that principle — in time to see the credit crisis decimate his empire… For years, Mr. Bent railed against investing money funds’ cash in anything riskier than Treasury bills and bank certificates of deposit. He singled out for scorn commercial paper, short-term corporate debt that’s commonly unsecured. “Commercial paper is anathema to the concept of the money fund,” Mr. Bent told Reuters in 2001. “People prostituted the concept by putting garbage in the funds and reaching for yield.” The following year, he told Investor’s Business Daily that “we don’t drink, smoke or buy commercial paper.” Yet in 2006, with the Primary Fund underperforming rivals, it went on a commercial-paper buying spree. It acquired so much of this higher-yielding but riskier asset that by September 2008, the fund’s yield was tops in its class. But $785 million of that paper was Lehman’s.[/quote][B]My Comment:[/B] Not to casually dismiss Mr. Bent`s sudden abandonment of decades-long investment principles in order to chase the fast money, but it was pecisely this "yield chasing" that was running rampant for most of the past decade and which - along with lax or zero government regulation - helped create the market for all those exotic derivatives. And why were yields on U.S. Treasuries no longer sufficient for even the stodgiest investor? Part is human greed, but another part is the Fed's reckless low-interest-rate policy for the years following the twin shocks of the dotcom crackup and 9/11. As ever, all roads lead back to Mr. Bubble, Alan Greenspan. Of course the masters he purported to serve [and not just the Republican ones] liked the illusion of economic prosperity which that flood of EZ credit brought about. Getting back to Reserve, it was competing with many other funds for the same investor dollars, and if your competitor is offering a higher "risk free" yield than you are and has the rating agencies` AAA+++ imprimatur to back up their no-risk claims, what choice do you have if you want to remain competitive? It`s like steroids in sports - as long as there is little effective testing for them, competitors using them have a huge advantage, so everyone else is under huge pressure to "use or lose". ------------------------- This story ties in well with the discussion about mortgage derivatives: [URL="http://money.cnn.com/2008/12/09/news/economy/fannie_freddie_hearing/index.htm"]Fannie, Freddie ignored warning signs[/URL]: [I]Congressional hearing investigates role that the government sponsored mortgage financers played in the credit crisis.[/I] [quote]Committee members repeatedly referred to a 2005 Fannie Mae document outlining future corporate strategy. The document acknowledged that more private investors were investing in risky loans, and it spelled out the potential consequences of taking on that risk. "The risk in the environment has accelerated dramatically," the document stated. The document laid out Fannie's options. If it stayed the course, the company would "maintain our strong credit discipline." But if it met the market, the company would "accept higher risk and higher volatility of earnings" and could face "higher credit losses" and "increased exposure to unknown risks." Sen. John McCain, R-Ariz., during his recent failed presidential bid, said, "Fannie and Freddie were the catalysts, the match that started this forest fire." Waxman was unwilling to go quite so far, saying the Fannie document shows that executives made unwise decisions, but lenders are to blame for starting the fire. "The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies," Waxman said. "But it is a myth to say they were the originators of the subprime crisis. Fundamentally, they were following the market, not leading it." [B] "GSEs only performing their function" [/B] Some of the CEOs argued their actions may have added fuel to the fire, but they weren't the originators of the risky loan market. Syron, CEO of Freddie Mac from 2003 until September 2008, said that both Fannie and Freddie had to enter the non-traditional part of the market as the private lending sector shifted toward those kinds of mortgages. "It is not at all surprising that these two firms would get hit hard by the biggest housing collapse in 75 years," said Syron. "If you are going to take the mission of promoting low-income lending seriously, then you are, by definition, going to take on a somewhat greater level of risk." Raines, the chief executive of Fannie Mae from 1999 to 2004, said the roots of the credit crisis were in place long before the government sponsored enterprises, or GSEs, began buying up risky loans. "Fannie Mae did not cause the current crisis," said Raines. "If anything, Fannie Mae played catch-up to the banks and investment banks who drove the securitization of the most toxic subprime mortgages." Raines said that while Fannie and Freddie hold some responsibility for not appropriately managing their own credit risk, regulators must share in the blame. He argued that government officials -- he named the Federal Reserve, Federal Trade Commission, Department of Housing and Urban Development, among others -- were asleep at the switch. The regulators, he said, failed to use their authority to put a stop to extremely dangerous lending practices. "While regulations did not force financial institutions to make bad loans, the absence of consumer protection regulation allowed many bad loans to be made to the detriment of consumers," he said. "There must be greater protection of consumers from financial products they cannot reasonably be expected to understand."[/quote][URL="http://money.cnn.com/2008/12/08/news/economy/Cuomo_Thain/index.htm"]Merrill CEO drops $10M bonus bid[/URL]: [I]John Thain asks the battered brokerage's compensation committee to skip his bonus this year.[/I] [quote]NEW YORK (CNNMoney.com) -- Merrill Lynch's chief executive John Thain has dropped his request for a $10 million annual bonus after being blasted by New York Attorney General Andrew Cuomo. Thain requested at a board meeting on Monday that Merrill's compensation committee not award him a bonus for 2008, and the board of directors accepted that request, Merrill Lynch said. Thain had reportedly previously asked for a bonus of up to $10 million, which prompted Cuomo to send a strongly worded letter to Merrill's board of directors in which he called Thain's request for a bonus "nothing less than shocking." [/quote][B]My Comment:[/B] Interesting that Thain only dropped his bonus request after the withering criticism from New York AG Cuomo and some bad publicity in yesterday WSJ. Apparently until just now he thought nothing untoward about asking for a fat bonus - which illustrates that the mind-set of Wall Street is far too entrenched to be changed by a few li'l old "global economic crash resulting from Wall Street greed" peccadillos. |
GMAC On the Brink | S&P 500 to 400?
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[url=http://money.cnn.com/2008/12/10/news/companies/gmac/index.htm]GMAC on the brink[/url]: [i]General Motors' finance unit is falling short of capital requirements it needs to become a bank holding company and access needed cash from the government.[/i]
[quote]NEW YORK (CNNMoney.com) -- GMAC Financial Services, the finance unit tied to automaker General Motors, said Wednesday it is coming up well short in its efforts to raise the capital it needs to become a bank holding company, a move the unit is counting on to gain access to needed funds from the Treasury Department and Federal Reserve. The unit, which is 49% owned by General Motors and 51% owned by private equity firm Cerberus Capital Management, had applied to become a bank holding company last month but warned Wednesday that it may have to pull the application. The looming failure is another blow to embattled automaker GM (GM, Fortune 500). GMAC needs to reach $30 billion in capital in order to qualify as a bank holding company. It was looking to do that by offering investors holding about $38 billion of its notes the opportunity to exchange their bonds for new notes and preferred stock, and a limited amount of cash. The preferred stock would have counted towards its required capital. So far the offer, which has been extended through 5 p.m. ET Friday, has raised only about $8.3 billion in new capital. The company had $9 billion in capital on hand at the end of the third quarter. GMAC had been hoping to become a bank holding company since that status would allow the firm to tap into the Troubled Asset Relief Program, the $700 billion in bailout funds set up for Wall Street firms and banks in October, as well as the Fed's discount window, the method that the central bank uses to loan money to directly to banks and other finance firms.[/quote] [b]My Comment:[/b] Cerberus again - those scumbags have their tentacles all over the auto industry [80% stake in Chrysler, 51% of GMAC]. [url=http://money.cnn.com/2008/12/09/news/companies/bankofamerica_credit/index.htm]BofA Concedes to Chicago Factory Workers[/url]: [i]Bank of America said Tuesday it is prepared to extend credit to a Chicago window and door maker whose laid-off workers staged a five-day "sit-in" after the factory closed.[/i] [quote]All Republic Windows & Doors LLC workers were laid off when the factory closed Dec. 5. Some have participated in a sit-in to protest the shutdown. The factory closed after Bank of America canceled its financing. The workers said the company notified them three days before the impending shutdown. Federal law requires either 60 days notice or 60 days pay for the laid-off workers. Bank of America (BAC, Fortune 500) spokeswoman Diane Wagner said Republic Windows & Doors LLC maxed out its financing, and the bank had been "working with Republic for quite some time." In a statement, the Charlotte, N.C.-based bank said it sent a letter to the manufacturer indicating that it may provide a limited amount of additional loans to Republic. Republic management chose not to pay its workers for severance, vacation, and other claims they are legally entitled to, Wagner added. "We're worried about the employees first, and we'll worry about ourselves after."[/quote] [b]My Comment:[/b] It seems Republic management was at least as much at fault here as the bank, if not more, since the bank may have been unreasonable but did nothing illegal, whereas company management clearly acted illegally in not giving any notice nor providing for severance -- except probably for themselves. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aKNSK0gYlqB0&refer=news]James Tobin's Q Ratio Indicates `Horrific' Stock-Market Bottom, CLSA Says[/url]: [i]A global stock slump may have further to go, according to Tobin’s Q ratio, which compares the market value of companies to the cost of their constituent parts, CLSA Ltd. strategist Russell Napier said. [/i] [quote]The ratio, developed in 1969 by Nobel Prize-winning economist James Tobin, shows the Standard & Poor’s 500 Index is still too expensive relative to the cost of replacing assets, said Napier. While the 39 percent drop in the index this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in, he said. The S&P may plunge another 55 percent to 400 by 2014, Napier said. “The Q has come down to its average, however it’s not always stopped at the average,” said Napier, Institutional Investor’s top-ranked Asia strategist from 1997-1999. “It has tended to go significantly below that in long bear markets.” Shares have fallen this year as the worst financial crisis since the Great Depression caused almost $1 trillion of bank losses and dragged the world’s largest economies into recessions. The MSCI World Index has tumbled 44 percent in 2008, set for the biggest annual decline in its four-decade history. The S&P 500 increased 0.8 percent to 895.31 as of 9:54 a.m. in New York as investors speculated lawmakers will approve a $15 billion bailout to keep automakers afloat. Bear-Market Scholar Napier, who teaches at Edinburgh Business School and advised clients to buy oil in 2002 before it tripled, based his S&P 500 forecast on the Q ratio for U.S. equities as well as the 10-year cyclically adjusted price-to-earnings ratio, another measure of long-term value. Before the trough in 2014, investors are likely to see a so- called bear market rally for the next two years as central bank actions delay the onset of deflation, Napier said. [/quote] [b]My Comment:[/b] Truly scary [hypothetical] numbers there - note that time horizons past 2010 are well beyond what the blinkered idiots in the mainstream financial media usually consider. [b]News Roundup:[/b] [url=http://money.cnn.com/2008/12/10/news/economy/wholesale_inventories.ap/index.htm]Wholesale inventories, sales plunge in October[/url]: [i]Drop of 1.1% marks the biggest cutback in inventories since the period following the 9/11 attacks.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ac9AV.yzTCNw&refer=news]Goldman Draws Ire for Advising Bets Against New Jersey With Default Swaps[/url]: [i]Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601081&sid=aLXQVitDbRAg&refer=australia]Rio Tinto to Cut 14,000 Jobs, Eliminate $5 Billion Spending to Lower Debt[/url]: [i]Rio Tinto Group, the world’s third- largest mining company, will eliminate 14,000 jobs, reduce capital spending by more than half and sell “significant assets” as demand for metals sinks in the global recession. [/i] [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=ao5xLQy21pYk&refer=china]China's Exports Decline for the First Time in Seven Years as Demand Slumps[/url]: [i]China’s exports fell for the first time in seven years, more evidence that recessions in the U.S., Europe and Japan are driving the world’s fourth-largest economy into a slump. [/i] [b] Chart of the Day:[/b] Canada-based Nortel Networks, which nearly hit $1000 per share during the peak of the 2000 dotcom mania and not too long ago traded close to $20, trading today below 40 cents: Imaginary [but not terribly far-fetched] headline for this one: "After share price plunges 99% this year, S&P downgrades NT to 'accumulate' on bankruptcy fears". |
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