Econ 2009

[ewmayer]

Re. above discussion of the Marx brothers: We're not a socialist commune ... we're an anarcho-syndicalist collective ...


Today`s macro-economic news summary from the U.S. can be pretty much summed up as Markets Cheer Worst back-to-back GDP performance in 50 years.


Chrysler Bankruptcy, Fiat Alliance Said to Be Announced by Obama Tomorrow: President Barack Obama plans to announce tomorrow that Chrysler LLC will be placed into Chapter 11 bankruptcy, leading to an alliance with Italian automaker Fiat SpA, people involved in the matter said.


Stocks in U.S. Advance as Most S&P 500 Companies Beat Earnings Estimates: U.S. stocks rose, driving the Standard & Poor’s 500 Index toward its biggest monthly advance since 2000, as companies beating profit forecasts outnumbered those that trailed by 10-to-1 and investors speculated bank losses have peaked.

My Comment: The article neglects to mention how much those earnings estimates have been lowered in the past months, i.e. the "I can kick butt in the pole vault if I lower the bar 15 feet" phenomenon, but shhh! Don`t tell the rampaging bulls ... they`re flying high from smoking all those "green shoots" right now, it would be unkind to harsh their buzz with real data like unemployment and GDP.


Spotted in a They Named Names thread on Barry Ritholtz`s blog:

As a registered Republican ... I totally agree with your criticism of Obama, but looking from his perspective, I can understand why The Big O has chosen not to wean us off our habit of relying on money printing, government bailouts, and mountains of debt. Think of the US electorate as 130 million or so crack addicts. You aren`t going to get re-elected if all of a sudden, you take away the crack.

[cheesehead]

Originally Posted by ewmayer

Spotted in a They Named Names thread on Barry Ritholtz`s blog:

Does the registered Republican understand that it has been Republicans who have been addicting this country to relying on money printing and mountains of debt since 1980?

Total debt run up during Republican administrations from 1980 through fiscal year 2008: $ 8 trillion.

Total debt run up during all other presidential administrations in the other 200 years of U.S. history since 1788 (ratification of Constitution): $ 2 trillion.

[ewmayer]

Originally Posted by cheesehead

Okay, tell us how you would simultaneously minimize the "wolf" probability, minimize the chance of unnecessarily impacting the world economy, and maximize the chance of catching a potential pandemic before it's too late to prevent its full flowering

The worst-case airline-vectored scenario involves airborne transmission, so let's focus on that: One thing I have long advocated would be to equip all passenger planes operating in and out of the U.S. with a simple kind of air-sampling system, just a compact shoebox-sized sampler which would collect swatches of floating particulates down to virus size. These would be cyclable, i.e. a new swatch would be exposed every 8-24 hours, and designed so a month's worth of swatches at a time would come in a preloaded cassette that would be swapped out as part of routine maintenance. The used cassettes would be cold-stored for some period of time - if small enough, this could be literally years, which could prove important in a forensic-pathogenics sense.

In case of a major outbreak where airborne transmission is suspected, part of the sdtandard emergency response would be to collect the swatches from every airliner daily and send them to a CDC or WHO-approved lab to test for the pathogen implicated in the outbreak. That way if passengers on a flight have been exposed we'd know fairly quickly, but would not have shut down air travel or inconvenience passengers in any way.

Other routes/modes of transmission require thought: For instance, is it feasible in case of a really nasty bug to collect nasal swabs at border crossings?

You're right about not shutting down the economy to an inordinate degree, but that does need to be weighed against the spanish-flu type scenario, i.e. the very real probability of a pandemic which ends up killing on the order of 1% or more of the world's population? What's 100 million lives worth these days? But merely looking for "obviously ill" people at airports is idiotic, in my opinion. We need to be just a little smarter than that.

Compare sampling-based proposals such as the above one to the amount of money being spent on e.g. near-earth asteroid detection - not that I'm against the NEO search, I just want the $ spent on such catastrophe-prevention efforts to be roughly proportional to the potential lives saved.

Originally Posted by cheesehead

Does the registered Republican understand that it has been Republicans who have been addicting this country to relying on money printing and mountains of debt since 1980?

Total debt run up during Republican administrations from 1980 through fiscal year 2008: $ 8 trillion.

All true, but is more of what ails us really a likely cure for what ails us? do we really want to spend trillions to "loosen credit markets" when it was too-loose credit markets that were at the root of the current crisis? I voted for Obama, but I have a real issue with him letting the same kind of Keynesian Klown Kabal as under Bush running his economics effort.

p.s.: I forgot to include a link with my "they named names" reference in my post above - added, so you can read the article and browse the reader replies.

[cheesehead]

Originally Posted by ewmayer

All true, but is more of what ails us really a likely cure for what ails us?

The ultimate homeopathy test, eh?

I don't claimed that the Bush/Obama plan is a better way to proceed than any possible alternative. (Go ahead; try to find a quote where I said so!) I've noted that it's in line with the mainstream Keynesian view, but not that I think that is the best possible view. I've questioned several aspects, and am mightily scared of the consequences if they turn out badly. But the GOP hasn't proposed any coherent alternative, other than a drumbeat of "No" !

All I wrote in what you quoted was a challenge to Republicans to admit a truth about their own party. I think that if they were to do so, they could be a more effective opposing force than the Spector-less GOP now is.

do we really want to spend trillions to "loosen credit markets" when it was too-loose credit markets that were at the root of the current crisis?

Now, Ernst, that's just pathetic rhetoric. You're using "loosen" and "too-loose" in two different senses, but pretending that they're parallel. C'mon.

[ewmayer]

Originally Posted by cheesehead

You're using "loosen" and "too-loose" in two different senses, but pretending that they're parallel. C'mon.

Not at all - the government/Treasury/Fed wonks keep talking about getting folks to start spending again by way of "getting credit to flow". Since U.S. household debt is at historically unprecedented levels (i.e. many if not most households are flat broke in terms of net equity and are only able to function by hitting the plastic get-into-debt-ez card), where do you think that "consumer led recovery" is supposed to come from? That's the broken U.S. Ponzi-economic model I've been talking about week in and week out for over a year in this thread and the previous 2008 version thereof. Did you miss the memo?

Credit markets are all about people and corporations *borrowing* money to buy stuff. If that "stuff" is put to productive use such credit can prove exceedingly useful - but would you characterize our collective decades-long binge of bidding up home and equity prices to simply insane valuations, building huge homes we need to store all our foreign-made crap and huge SUVs to seat our overfed butts and providing the ever-increasing-proportion of public-sector employees (read: government employees, bureaucrats, functionaries and other taxpayer-funded parasites) with cushy early retirement and unbelievably generous overtime and sick-leave policies as "productive"?

What did you think I meant by credit markets having been "too loose" and the government's ongoing multitrillion-dollar (much of which is borrowed money, fittingly, and the rest courtesy of Uncle Ben's Magic Electronic Money-Printing Press) efforts to "loosen them" again after last year's Big Freeze?

Allow me to illustrate the issue via a clear graphic - this is courtesy of ZeroHedge, in a recent article in which they examine the structural similarities/disparities between 1982 - the low-point start of the last great multidecadal bull market - and today, which most of the mainstream media are dutifully touting as the likely low point of the current contraction -- a suitable title for the graphic would be "What's Wrong With This Picture?":

[garo]

Apropos socialism:

“One great problem that we have before us is to preserve the rights of property; and these can only be preserved if we remember that they are in less jeopardy from the Socialist and the anarchist then from the predatory man of wealth. It has become evident that to refuse to invoke the power of the nation to restrain the wrongs committed by the man of great wealth who does evil is not only to neglect the interest of the public, but is to neglect the interests of the men of means who acts honorably by his fellows."

Teddy Roosevelt, May 30, 1907

[ewmayer]

Originally Posted by garo

Apropos socialism:

“One great problem that we have before us is to preserve the rights of property; and these can only be preserved if we remember that they are in less jeopardy from the Socialist and the anarchist then from the predatory man of wealth. It has become evident that to refuse to invoke the power of the nation to restrain the wrongs committed by the man of great wealth who does evil is not only to neglect the interest of the public, but is to neglect the interests of the men of means who acts honorably by his fellows."

Teddy Roosevelt, May 30, 1907

Barry Ritholtz has a blog posting today which echoes that sentiment, titled US vs Europe: Who is the Welfare State?:

Today is May Day, and while International Workers’ Day (Labour Day in the UK), means little in the USA, its a big holiday in Europe. Banks and markets are closed on the continent, (England celebrates on Monday).

Speaking with Mike Panzner this morning (his clients are mostly Europeans) made me think about this: Which region is the true Socialist state?

-Europe has cradle to grave health care plans, generous unemployment benefits, and free or subsidized college costs.

-The US gives away public assets (oil, gas, mineral rights) for pennies on the dollar, has huge subsidies and tax breaks, and bails out reckless speculators.

It turns out that both regions are welfare states — only in Europe, the natural population (i.e., people) is the recipient, while in the US, the corporate population is the beneficiary.

Macroeconomics-interested readers will also want to read the post right below that one, which notes that if it were not for a plunge in imports to the U.S. in Q1 2009, the recently-reported Q1 GDP number would have reflected a horrendous contraction of -12% (annualized), rather than the merely-dire -6% which Wall Street took as a sign that the economy was improving. ("Ignore that negative first derivative, folks ... it's the much-nicer-looking second derivative that you want to focus on ... and if that looks bad, too, try the 3rd ... and the 4th ... or just feed some rosy-sounding 'worst is behind us ... green shoots ... glimmers of hope' bullcrap to the media.")

Food for thought: In putting the obligatory this-sounds-bad-but-trust-me-it's-really-a-good-thing spin on the Chrysler bankruptcy (or more accurately, the most-recent Chrysler bankruptcy) yesterday, Obama said that going into bankruptcy is "not a sign of weakness". That's right, in the modern American economy - the greatest economy on Earth, goddammit - bankruptcy is something the best of the best aspire to, a sign that a corporation has achieved true greatness. Think Lehman Brothers, AIG, Fannie and Freddie, and now Chrysler. Why, most corporations would give their right arm to get their name added to that list of luminaries. So let's review our U.S. Ponzi-economic Newspeak:

- Down is Up;
- Red is Black (or perhaps Green);
- Solvency is Weakness;
- Bankruptcy is Strength;
- Less Negative is Positive;
- Borrowing is Saving;
- Credit is Wealth;
- Spending your own money is bad;
- Spending other people's money is good;
- Prudence is punished;
- Risk is its own reward.

Did I leave anything out? I was gonna throw in "Housing prices can go up at double-digit percentage rates per year forever, even while real incomes stay flat", but it just seem sufficiently short and snappy.

[only_human]

Originally Posted by AES

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

http://www.thenation.com/doc/20090420/hayes

Originally Posted by only_human

This is a howling outrage and I wonder why the MSM still have not picked it up. [edit: many sites have now picked up on this]
(google search )link:http://www.thenation.com/doc/20090420/hayes finds only 4 external sites linking to that thenation.com page. The actuality of the kind of gaming the system that this article talks about indicates a larger problem yet; businesses will seek out money regardless of the funding intent - anything else would be a disservice to the bottom line and shareholders; generally no other direct obligations exist.

Web articles on this:
(Google)View all web results for alternative-fuel-tax-credit paper mills

News articles:
Google News date sorted search on "alternative-fuel tax credit" paper mills

Alternative fuel tax credit, reduced spending, boost International Paper's 1st-qtr profit

For IP, the program gave the company a $330-million tax credit in the first quarter, boosting its net income to $257 million, or 61 cents per share, from $133 million, or 31 cents per share, a year earlier.

Looking ahead, IP is in line to receive slightly more than $1 billion this year from its participation in the alternative fuel cash tax credit program.

Although several senators want to cut paper companies from the program, resistance from colleagues is expected to keep that from happening any time soon.

[ewmayer]

It seems the swine "flew" over to a different thread, so I'll have to content myself with talking about the pigs on Wall Street...

U.S. Stocks Gain as S&P 500 Almost Erases Decline for Year; Alcoa Advances: U.S. stocks rose, pushing the Standard & Poor’s 500 Index to within 0.8 percent of erasing its 2009 loss, after home sales topped estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.

“There’s tremendous potential for recovery,” John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $200 billion, said in a Bloomberg Radio interview. “It’s possible investors will pile into stocks as soon as there is some whiff of better economic news.”

My Comment: Dude, what rock have you been living under? That`s what they've been doing now for 8 straight weeks. And it`s not like that there hasn't been plenty of bad news - it`s just been getting ignored/discounted in the "Worst is over! Dow to 30000!!" euphoria. It will be interesting to see if a year down the road the markets will have proven to have been forward-looking and oh-so-perspicacious or whether a phrase like "stampeding herd of delusional fools" will prove more apt.


Stunning statistic from a recent Barron`s article: When one factor the homes-owned-free-and-clear (roughly 1/3 of all homes) from the statistical analyses of the U.S. housing market, the remaining 2/3 of homeowners - the ones with a mortgage - have an average home equity of just 15%:

Interesting discussion on negative equity in this week’s Barron’s. Citing Stephanie Pomboy’s recent missive, Alan Abelson takes a closer look at some of the negative details around corporate profitability and homeowner equity.

When it comes to Homeowners Equity, the official data is misleading. Why? Pomboy notes the Fed data is accurate but misleading. It includes both the homes with mortgages and those owned free and clear.

Why is this significant? About a third of homes have no mortgages whatsoever. The unencumbered properties improve the homeowners equity data from the Fed’s Flow of Funds report. Add in 33% of homes with 100% equity and it skews the data. The total looks better.

Before you say “So What?” consider the following: We know that those homeowners that do not have mortgages — i.e., 100% equity — cannot default. So if we want to understand the potential further mischief real estate land can cause, it is the mortgaged properties we should be watching. Back out the third of home owners that have no mortgage — the 33% of homes with 100% equity — and the Fed’s measure of 43% net equity drops precipitously.

Thus, Pomboy’s assertion that it would be more informative to say that those homes with a mortgage have homeowners equity of less than 15%.

My Comment: The data "are", Barry ... the data "are".


Obama Seeks to End Tax-Haven Strategies That Save Companies $190 Billion: President Barack Obama proposed raising about $190 billion over the next decade by outlawing three offshore tax-avoidance techniques used by U.S. companies such as Caterpillar Inc. and Procter & Gamble Co. He also would make it riskier for Americans to stash money in tax-haven banks.[/i]

My Comment: $190 Billion is a whole lot of money ... that`s, like, almost as much as the government has thrown at AIG in the past 6 months. And it's almost 10% of what this year`s federal budget deficit will end up being. It appears that under the new administration, the only officially sanctioned way to rip off the government to the tune of billions will be to run a huge financial institution into the ground and then cry, "too big to fail!"

I was, however, impressed that certified tax cheat (now Treasury head) Tim "TurboTax Timmy" Geithner was able to stand next to the president and keep a straight face during the proceedings...stone-cold icewater in that man`s veins, very impressive.


And speaking of the shadow government that is Goldman Sacks-and-Pillages (note Geithner never himself worked for GS, but his chief of staff is a former Goldman lobbyist, his predecessor Paulson of course ran Goldman, and Goldman was a major Obama campaign donor), we have a tiny conflict of interest concerning Geithner`s replacement as head of the New York Federal Reserve:

WSJ Online: New York Fed Chairman's Ties to Goldman Raise Questions

The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.

During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy.

My Comment: I mean, really, these guys are just rubbing our noses in it here - they know they run the financial show in Washington, could take the markets down in an instant if they chose to do so (Don`t believe me? check out some of the recent articles on ZeroHedge about the percentage of NYSE daily trading volume which is due to program trading by a single company - Goldman Sachs), and that gives them the kind of leverage that they can flout whichever laws they want with impunity.

[cheesehead]

Originally Posted by ewmayer

My Comment: The data "are", Barry ... the data "are".

< snip >

and that gives them the kind of leverage that they can flout whichever laws they want with impunity.

Ernst, Barry's on line 2 with some kind of complaint about that last clause.

[ewmayer]

Originally Posted by cheesehead

Ernst, Barry's on line 2 with some kind of complaint about that last clause.

Tell him he'll have to wait - I have a Mr. Blankfein on line 1, not sure what he wants but he sounds upset. This could take a while.

On to today's rant against Ponzi economics:

Bernanke: Economy to turn up in '09: Federal Reserve chairman says recovery will begin later this year, but there will be several more bumps in the road.

My Comment: "Bumps" ... like "all of next year", you mean? Let`s hear what our more-sober-minded cousins in Europe have to say about their own prospects for economic recovery:


European Economy "will shrink 4%" in 2009, no recovery until late 2010: EU economies will contract by 4% in 2009, the European Commission has forecast - more than twice what it predicted at the start of the year.

"The European economy is in the midst of its deepest and most widespread recession in the post-war era," said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia.

"But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year."

My Comment: Pesky continental pessimists, trying to pee on Bennie B`s green-shoots parade...Anyway, it would be positively catastrophic if throwing several trillions of dollars in new-printed money at the problem and effectively guaranteeing debts of the entire U.S. banking, credit-card and commercial-loan industry *failed* to produce some "green shoots", even if those are mostly in the form of "better than expected" taxpayer-sponsored bank earnings and much of that money being used by the recipients not to ease credit but instead to speculate in the stock market, bid up their own shares, squeeze short sellers, etc.

But note the hearty dose of typical central-banker self-important claptrap: Take credit for "things not being worse than they are" due to your "heroic efforts" - well, it`s not like we can turn back the clock and rerun the experiment a second time now, is it? One could argue that it was central banks (especially the U.S. Fed) and their manipulation of interest rates and sweeping under the rug of systemic risk in their effort to stave off the (needed) contraction in the wake of the 2000 dotcom bubble`s collapse that did much to contribute to the current, much bigger, crisis. But instead the central wankers bankers pat themselves on the back for doing such great things to Save The World, engage in a huge power grab orgy, and prepare to get back to serial bubble-blowing and "free"-markets-meddling as usual.

Coca-Cola, Oracle, Intel Use Cayman Island Addresses to Avoid U.S. Taxes: Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.

My Comment: It seems the IRS has been turning a blind eye to the multibillion-dollar corporate tax cheats for years - but I`m sure using their auditors to go after small-fry (relatively speaking) individuals for a few $10k here and there is a far better use of their (taxpayer-funded) resources. I expect the real reason is that individuals (unless their name is Warren Buffett or something similalrly billionaire-ish) can't hire influential lobbying firms and influence lawmakers to be "more responsive" to their needs. It was of course all part of the "business friendly" practices of the Bush administration. U.S. is giving Swiss banks a hard time about aiding tax dodgers ... seems we should first have looked in our own back yard.


Bankruptcy Sleuths Trace Missing Cash to Traders' Receipts for Lap Dancers: As Sentinel Management Group Inc. neared collapse in August 2007, piling up $950 million in losses, the Northbrook, Illinois-based investment firm wrote clients, saying it was yet another victim of the credit crunch -- an asset manager that grew too fast as it tried to ratchet up gains for customers.

The Securities and Exchange Commission didn’t buy the explanation of the 28-year-old company, which had about $1.4 billion under management, most of it for futures or commodities traders and hedge funds.

After a week-long examination, the SEC filed a civil suit against Sentinel in U.S. District Court in Chicago, accusing the company of, among other things, using client money to secure a $500 million credit line.

“The clients had no way of knowing that their assets had been used by Sentinel to obtain financing for its own purposes,” the SEC complaint says.

The task of unwinding Sentinel’s affairs and recovering money for an estimated 200 customers now falls to 56-year-old Frederick Grede, a former Chicago Board of Trade executive who is among the nation’s more than 1,400 federally appointed bankruptcy trustees.

These trustees -- along with overseers known as receivers -- find themselves in brisk demand these days as they sort through an avalanche of companies felled by the credit crisis and an assortment of alleged crooks and con artists who may have played a role in it.

...As he delved into Sentinel’s demise, [bankruptcy trustee Frederick] Grede says the case began to look like a parable of the current economic crisis. Grede laid out that case in a lawsuit filed in October 2007 in Chicago’s U.S. bankruptcy court against Sentinel’s chief trader, Charles Mosley, and its controlling shareholders, CEO Eric Bloom and his father, Philip Bloom, the company’s founder.

In that suit, he alleges that the company defrauded and misled clients with “phony” returns while assuring those customers their cash was being parked in safe, liquid commercial paper or U.S. Treasuries. Grede says Sentinel was actually making huge bets on unorthodox 30-year instruments that turned out to be another example of financial engineering gone awry -- and hiding those bets with misleading accounting.

Grede says he began to understand Sentinel’s fondness for those instruments as he probed the machinations of Mosley, who had an alleged fondness for boozy lap dances, limousine rides and, according to additional lawsuits filed by Grede against outside brokers, bribes.

“I call it leverage gone wild,” Grede says.

My Comment: Indeed, "leverage gone wild" is as good a parable of the current economic crisis as any.


Wall Street Is Seen Emerging From Collapse Much Like Pre-Crisis Industry: Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.

“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. “I am far from convinced there was something inherently wrong with the system.”

My Comment: Wow, talk about denial and hubris - what, it was evil magic subprime gnomes who live under mushrooms deep in the forest and come out at night to play havoc with the balance sheets and loan portfolios of the banking sector that caused the meltdown? That`s right folks - your taxpayer dollars are being spent at an unprecedented rate so the Wall Street crooks - aside from a few highly-publicized fall guys like Bernie Madoff - don`t have to learn a single painful lesson from their own misdeeds. Ain`t America great?