Econ 2009

[ewmayer]

Originally Posted by R.D. Silverman

I don't think the restriction goes far enough. They should limit TOTAL
compensation, not just salary. It should be made retroactive.
Restrictions on ex-post-facto may make it impossible.

I believe such total-compensation clauses have been added to the package since it was originally proposed - but only in the forward-looking sense.

On to today's news roundup:

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

Jobs Contract 13th Straight Month; Unemployment Rate Soars to 7.6%

The official unemployment rate is 7.6%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 13.9%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010.

My Comment: All the pundits blathering about how "we are nowhere near the 20-something-percent unemployment level seen in the Great Depression" are either ignoring or blissfully unaware of the fact that the above-mentioned U-6 number is closer to the way unemployment was measured before the "Great Statistical Pollyanna-ization" process of fudging the figures to give as rosy an outlook as possible began back in the 1960s. Sure, we still are a long way from massive bread lines on every major urban street corner, but some of the news footage I've seen recently of the lines of recently-unemployed at local soup kitchens and church charities here in silicon valley and the SF Bay area are looking not that far from the 1930s-era photos, except that the people are rather pudgier-looking (meaning that the lines are not yet quite as genuinely needful of the food as in the 1930s). By any reasonable measure, real unemployment is now well over 10% - that number could easily by another 3, 4 or even 5% in the coming year, at the rate things are going.


Consumer credit: Third straight monthly drop: The Federal Reserve says borrowing by consumers sank by $6.6 billion in December, nearly twice the expected drop.


Stocks in U.S. Climb on Speculation Job Losses to Spur Action on Stimulus: U.S. stocks gained, sending the Dow Jones Industrial Average to its best two-day rally in a month, on speculation the highest unemployment rate since 1992 will force Congress to pass an economic stimulus package.

My Comment: I just love the perverse psychology behind these bear-market rallies ... "Gosh, the unemployment numbers look really awful - that`s going to really put pressure on congress to pass a pork-laden stimulus bill. Let`s buy bank stocks ... rally, rally, rally!"


German Industrial Output Fell 4.6% in December for Biggest Drop on Record: Industrial production in Germany, Europe’s largest economy, dropped the most in at least 18 years in December as demand for plant and machinery faltered.


Australia | Babcock & Brown Says Shareholders Wiped Out as Creditors Force Asset Sale: Babcock & Brown Ltd. will be forced by creditors to sell all its assets to repay debt, wiping out shareholders after its strategy of buying ports and property on credit imploded as the global financial crisis deepened.

Chief Executive Officer Michael Larkin will lead the sale process and hand the proceeds to banks over the next two to three years, Sydney-based Babcock said in a statement today. The listed company, which had a peak market value of $7.8 billion, may be placed in administration and removed from the exchange, it said.

“There was too much greed and arrogance and not enough transparency,” said Tim Morris, an analyst at Sydney-based investment advisory Wise-Owl.com, the only researcher to rate Babcock’s shares a “sell” at the start of 2008. “The core of the problem was when they started repackaging assets and the only people making money was themselves. When you start burning people, it’s only a matter of time before the fire catches up with you.”

Babcock, an owner of property, ports and power stations around the world, becomes the biggest Australian casualty of the global credit crisis, topping a list that includes Allco Finance Group Ltd. and Centro Properties Group. Like Centro, Babcock averted liquidation because falling asset prices and scarce buyers makes this an unattractive option for creditors.

Australia’s five biggest banks have almost A$870 million of loans at risk with Babcock, while overseas lenders including Royal Bank of Scotland Plc have almost A$2 billion on the line, according to estimates by UBS AG. Babcock had interest-bearing debt of A$9.6 billion when it last published accounts in August.

Asia EconoMonitor | Unemployment in China: Oh, Boy

In a press conference today, the vice head of the office of the Central Finance and Economic Leading Group (see this paper for what this organization is--it's powerful) Chen Xiwen revealed some important figures on unemployment.[/url]: [i]In a previous post, I speculated on an unemployment figure that was 35 million by the end of first quarter of 2009. According to confirmed figures, we have already surpassed that figure...

To be honest, I never thought we would reach these figures so soon, considering that these figures are based on data collected before the middle of January. I was thinking that we would reach this point after the lunar new year. Now, additional number of migrants who either stayed in cities or returned home will soon find themselves unemployed. In addition, even relatively secure urban jobs (retail, services) may begin to disappear as the impact of the export slow-down hit the service sector. Thus, we may see an unemployed force of 50 million much sooner than the end of 2009, as I previously predicted. There have been no real policy responses so far, except for marginal moves like cheaper consumer electronics in the countryside and passing out some payments to unemployed college graduates. Up until this press conference, the official Chinese government line has been that if migrant workers return home, then they are not "unemployed" per se since they can work the land. This attitude of course ignored the fact that income per capita and productivity both decline if young people stay home, not to mention frustrated expectation. Given more mouths to feed, how are they suppose to buy flat-screen TVs, even if 20% discounted! At least the government now acknowledges this as a problem, which is an important step. We will see what they do in response now.

My Comment: I wonder if the Chinese government is dithering based on ideological and "saving face" grounds, or if they are genuinely clueless as to what to do, given the staggering numbers of migrant workers losing their jobs as the Asian export-based economic model comes to a screeching halt.


Low rates defuse 'exploding' ARMs: Thanks to low interest rates, resetting ARMs are no longer posing the dire threat to homeowners that many thought they would.

A wave of resetting adjustable rate mortgages had been poised to add to the flood of foreclosures as their rates jumped.

Some 420,000 hybrid ARMs are scheduled to reset in 2009, according to the Treasury Department. A year or so ago, it seemed that many of these loans were going to see their interest rates reset to as high as 12% or more.

But then interest rates started falling, hitting lows they hadn't seen in 37 years.

"Many people are actually seeing their adjustable rates fall," said Barry Glassman, a financial adviser with Cassady & Company. "Some loans are resetting even lower than some fixed-rate loans."

A ticking time bomb. Adjustable rate mortgages start out with a two or three year period of low introductory rates, sometimes called "teaser rates." After that, the interest rates start to adjust according to a set schedule - sometimes as often as monthly or as little as once a year - until the mortgage is paid off.

For the most part, this was a recipe for disaster. Many homeowners took out ARMs because they couldn't afford the monthly payments that came with a 30 year fixed-rate loan. They were counting on having the value of their homes appreciate and then refinancing. Instead, home prices have plunged a record 18.2% according to the S&P/Case-Shiller index.

But as the economy soured, interest rates dipped.

"We thought that the 8% interest loans would reset to about 12%," said Alan White, a law professor at Valparaiso University who has studied the lending industry's mortgage modification efforts, "but they only went to 9% or less."

My Comment: Instead of some of the more ludicrous housing-bubble-bailout proposals (such as giving judges the power to modify mortgage loans at whim), the government should be doing everything in its power to get folks in these ruinous scam-o-la exploding ARMs into fixed-rate mortgages. Many of them would still prove unable to service the debt, but a large middle swath would be saved from foreclosure, while still finding themselves with the responsibility to service their original mortgage amount - i.e. they wouldn't be absolved of their having overpaid for a home.


Deutsche Bank Fallen Trader Left Behind $1.8 Billion Hole: The fall of Boaz Weinstein, once one of Wall Street's hottest traders, speaks volumes about why financial firms still are reeling from the shattered global markets.

As a chess master, poker and blackjack devotee and top trader at Deutsche Bank AG, Mr. Weinstein made big bets using complex financial instruments, generating large returns for the bank and about $40 million in annual pay for himself. But in 2008 the group he ran saddled the bank with $1.8 billion in losses, erasing more than two years of trading gains.

On Thursday, the German banking giant reported a 2008 loss of $5 billion (€3.9 billion), its first one-year loss in over five decades and a reminder that financial firms are not out of the woods. In an earnings conference call, Chairman Josef Ackermann described the market environment as a "series of earthquakes with constantly changing epicenters."

The losses are the latest reminder of the challenges faced in the new financial order. Wall Street firms long relied for much of their profit on massive risk-taking by aggressive traders deploying the firms' own money; with that game over, firms are struggling to find fresh sources of revenue.

But first they must stabilize their institutions after the holes dug by former Masters of the Universe. Last month, Deutsche Bank shut down Mr. Weinstein's operation and wound down many of his positions. He left the bank this week, with plans to start a hedge fund.

Mr. Weinstein, 35 years old, was at the vanguard of explosive growth of "proprietary" trading, in which banks gambled with large chunks of their own capital. Complex instruments let them augment their bets with borrowed money, multiplying profits when things went right but magnifying losses during bad times.

Mr. Ackermann, speaking to analysts on Thursday, said that to earn a $1.5 billion profit from proprietary trading the bank needed to risk several times that amount in capital. "You can easily lose two to three billion. That's what we have seen in 2008 and something we don't want to see again," he said.

My Comment: A better way to spin the story might be, "Having honed his catastrophic-financial-loss-generating skills at Deutsche Bank, Mr. Weinstein has decided to put them to use in private practice." But snarky quips aside, the fulla article is worth reading - fascinating tale of extreme talent done in by hubris and extreme financial leverage. The whole life-as-a-chess-game theme reminds me of the evil chessmaster character in From Russia With Love, who is done in by his unwavering belief that life can be played like a chess match. But real life is messy and can break the rules of one`s imaginary chess game as it pleases. You think things are going swimming, you`ve just castled, you've got your opponent's queen trapped in a pincers movement, and suddenly a dragon appears and incinerates your position. "There aren`t any dragons in a chess game!" you cry. "There are now," life replies.

[R.D. Silverman]

Originally Posted by ewmayer

I believe such total-compensation clauses have been added to the package since it was originally proposed - but only in the forward-looking sense.

.

No comment on the suggestion that it should be applied to companies
who are laying people off?

Hey, I know what I am going to do if I am laid off.....

I will pay everything on my credit cards, run up huge balances, then
default. I am judgment proof; Under ERISA, my IRA's (such as they are)
can't be touched, my home was declared a homestead years ago and
can't be legally touched. The only thing left would be money in
my checking account, and you can be sure that it would be spent....

So, I would then have to pay cash..... I could deal with that.

Hey! I have a terrific idea; let's organize a mass civil disobediance
in which everyone laid off defaults!

I am surprised that we have not seen large numbers of unemployed
people defaulting on their credit cards. And I would also expect
many to be defaulting on their mortgages as well; Unemployment
money isn't large, and people have to eat and heat their homes.

[ewmayer]

Originally Posted by R.D. Silverman

No comment on the suggestion that it should be applied to companies who are laying people off?

The problem is, laying people off in and of itself is not a sign that a company is poorly run. OTOH paying a huge bonus to a CEO in a year when a companyu performed poorly is a red flag.

Hey, I know what I am going to do if I am laid off.....

I will pay everything on my credit cards, run up huge balances, then
default.

"It's the American way."

Nice quote from the founder-in-chief of the Austrian school of economics (think of that as the "anti-Greenspan" school):

'There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.'

- Ludwig von Mises

[xilman]

Originally Posted by ewmayer

"Fine for Littering", UK Style

Britons Turn to Cat Litter as Cheap Way to Grit Snowy Streets, Tesco Says: Britons struggling to contend with a recession and the country’s worst winter storm since 1991 are turning to cat litter as a cheap way of gritting snowy streets, according to Tesco Plc, the U.K.’s largest retailer.

My Comment: I`m sure it`s more environmentally friendly than road salt ... and I expect winter-loving outdoor cats (if there exist any such mythical beasts) enjoy it, as well: "Pooping in a winter wonderland", as it were.

Our two young cats have been really enjoying themselves in the snow. They are only 9 months old and so it's their first winter. The older two cultivate a "been there, done that" attitude.

Paul

[cheesehead]

Originally Posted by R.D. Silverman

And it should also apply to executives in any company who is laying people off!! What right do those people have to keep their ridiculous salaries while their company is dumping people on the street????

Even in normal times, some poorly-performing companies hire CEOs specifically to turn the company around, and such turnarounds often involve significant layoffs. Such CEOs move on to some other problem case once the turnaround is achieved. In such cases, compensation might justifiably be based on how much improvement the CEO makes (including a few years afterwards), and in normal times the laid-off folks (I've been there, done that) won't have much problem finding other jobs (took me a couple of weeks). So I agree with Ernst that it's the company's performance (measured honestly, and not short-term either) that should matter regarding compensation.

Now, in the current situation, some companies laying off workers had previously engaged in short-sighted or dangerously-leveraged behavior that boosted profits in a way that was not healthy or sustainable in the long run. Their CEOs should not be rewarded for _that_ (and there need to be some measures taken to discourage incentives for such risky behavior in the future). The same should apply in some part to CEOs who failed to take steps to protect their companies from the excesses of others (and that probably includes most of the rest).

I also agree with the commentator I heard this morning who not only said it was entirely appropriate for the federal government to apply compensation restrictions to companies getting federal "bailouts", but also urged that such restrictions be of sufficient nature and magnitude so that ailing companies would _seriously_ consider whether bankruptcy would be preferable to accepting those restrictions with a federal bailout. The purpose would be to encourage use of the bankruptcy system wherever it was more long-run-appropriate than bailout.

If Bush-The-Younger's administration had not already demonstrated its moral failings in previous years, its failure to apply such restrictions to those receiving its handouts in its last months would be illustrative. That is one of the things that needs to go into all future economics and history texts' chapters on our current "econolypse", along with detailed analysis of the derivatives bubble.

Furthermore, there is the unethical "deficits don't matter" attitude held by some factions of conservatives (about which I've previously editorialized) since the late 1970s, which has had the moral hazard of encouraging taking-on of high credit burdens by the general populace. That also needs to be in future texts.

[ewmayer]

Here is a sign of the times, hard times.

Bob will enjoy this piece by Robert Reich:

More Lemon Socialism -- And Why The Limits on Wall Street Pay Are For Show

Robert Reich
Friday, February 06, 2009

Wall Street and its allies are in a tizzy over the Obama administration`s proposed $500,000 limit on executive pay, saying it will threaten their ability to attract and retain executive talent. I do not mean to deprecate Wall Street executives when I point out that the far higher level of compensation they received in recent years has not exactly elicited talent -- at least not talent for much of anything other than the accumulation of personal wealth at the expense of millions of investors and of the economy overall. Wall Street compensation has been geared to short-term bets on high-leveraged investments, after which players quickly collect any winnings and run for cover. Many Streeters grew rich in the process but most of the rest of us are undeniably poorer. One additional pernicious side effect over the years has to lure many of America`s most talented young people into prestigious MBA programs leading to jobs on the Street at starting pay higher than most Americans ever dreamed of and, with luck and hard work, subsequent shares in the firms` Ponzi-like pickings.

If one is looking for silver linings in the devastation of Wall Street it may be that this sort of talent will henceforth be less demanded and less rewarded -- not because of Obama`s plan to limit pay of executives living off public bailouts but because the Street has imploded. The plan itself is a bit of a ruse. If truth be told, the $500,000 seems little more than a symbolic gesture designed to reassure the public that the large amounts about to be asked for the next stage of bank bailout -- likely far more than the $350 billion remaining in "TARP" (more on this in a moment) -- will not simply feather the nests of those who created the mess in the first place. The guidelines don`t actually put a cap on total pay but only on salaries (usually a small portion of total pay), and even then apply only to firms receiving "exceptional assistance" -- presumably especially large bailouts in the tens of billions of dollar range, such as went to Citigroup and AIG -- rather than to those receiving run-of-the-mill bailouts amounting to, say, under ten billion. Most firms getting bailouts may continue to pay their executives whatever they want to pay them as long as they disclose it to their shareholders and give shareholders an opportunity to express their views about it. ...

My Comment: The WSJ piece I posted yesterday on former Deutsche Bank arbitrage wiz Boaz Weinstein is a great example of Big Finance`s business of diverting much of the world`s top talent to the business of moneygrubbing and market-rigging. One of tonight`s Jeopardy! trivia questions was about Paul Gauguin, who was making a living as a stockbroker, only turning to art after the Paris stock exchange imploded in the 1880s. Hard times have a wonderful tendency to refocus people`s attention on things that are genuinely meaningful and rewarding in non-crassly-material ways.

[cheesehead]

There is, of course, more than one reason why a major bank could be in trouble.

Consider the possibility of hackers compromising the financial network encryption:

"Data Breach Led to Multi-Million Dollar ATM Heists"

http://voices.washingtonpost.com/sec...?hpid=sec-tech

"Federal Bureau of Investigation Atlanta Field Division Press Release"

http://atlanta.fbi.gov/pressrel/2008/at122308.htm

This $9 million was small potatoes, but a missing $9 million sack of small potatoes leaves about as big a hole as a missing $9 million sack of large potatoes, within an order of magnitude.

- - -

Hmmm ... Maybe we could grasp the magnitude of the $x00-billion financial stimulus package by expressing it as the number, weight, or volume of 10-lb. sacks of small potatoes that it could buy.

"If the entire amount of the financial stimulus package were used to buy sacks of small potatoes, the average American household would need to find space to store xxxxx 10-lb. sacks of small potatoes."

We could even toss in a metric conversion clause ("... xxxxx 5-kilo sacks ...") in order to pacify the sure-to-follow EU complaint about subsidies to U.S. small-potato farmers by pretending that we would be purchasing the sacks from EU small-potato farmers (of which there are more, I think).

We'd satisfy the Buy-American crowd by requiring that all the small-potato sacks be made in the U.S.

This compromise would allow the bill to pass on a simple voice vote: "The eyes have it ..."

[ewmayer]

Stimulus Battle May Signal Tough Sell in Congress for Obama's Bank Rescue: President Barack Obama’s struggle to push an economic stimulus bill through Congress may seem easy compared to what he’ll encounter when he returns to Capitol Hill for additional funds to rescue the banking system.

Feb. 8 (Bloomberg) -- President Barack Obama’s struggle to push an economic stimulus bill through Congress may seem easy compared to what he’ll encounter when he returns to Capitol Hill for additional funds to rescue the banking system.

Obama will likely need to ask Congress for more money to recapitalize banks, as much as $1 trillion on top of the roughly $300 billion remaining in the current Troubled Asset Relief Program, according to an estimate by former Federal Reserve economist Ward McCarthy. That will be an even tougher sell for the new president than the stimulus plan, which is headed for a Senate vote this week after passing the House with no Republican support.

That package, at least $780 billion of spending and tax cuts aimed at boosting consumer demand and creating jobs, is just a part of what it will take to pull the economy out of the 14- month-old recession. The stimulus will be effective only if credit markets, currently frozen by illiquid assets clogging banks’ balance sheets, begin to function again.

“It will take an enormous effort to build broader public support” for another bank rescue plan, said Thomas Mann, a congressional scholar at the Brookings Institution in Washington. “Had the stimulus gone through swimmingly it would have made it easier.”

Geithner’s Speech

New steps to be outlined this week by Treasury Secretary Timothy Geithner will include fresh capital injections into banks and ways to deal with toxic securities still on their balance sheets, according to people familiar with the matter.

Geithner’s speech has been pushed back one day to Feb. 10 to avoid distracting attention from the economic-stimulus bill, White House economics director Lawrence Summers said today. That is the same day the Senate is scheduled to vote on the bill.

“There’s a desire to keep the focus right now on the economic recovery program, which is so very, very important,” Summers said today on ABC’s “This Week.”

Treasury will probably propose a combination of buying toxic bank assets, providing guarantees for other assets, and making additional capital infusions to banks, said McCarthy, now a principal at Stone & McCarthy Research Associates, an economic research firm in Skillman, New Jersey.

“The remaining TARP funds are not going to be enough for the job,” said McCarthy, who estimates that up to $1.5 trillion in government aid will be needed to save the banking system. “If they want to get the job done, they will have to scrape up more cash,” said McCarthy.

Tangible Benefits

New funding for the banking system will be all the harder to justify because the original TARP, which so far has provided almost $400 billion to more than 360 banks, hasn’t shown much in the way of tangible benefits.

“They continue to assume that if you do something and it hasn’t worked, you have to continue to do more of it,” said Representative Darrell Issa, a Republican from California. “That’s the definition of insanity.”

My Comment: Maybe we should just stop all this silly talking-in-dollar-amounts nonsense and switch to talking in the relevant powers of 10. That makes things sound much better ... instead of ugly language like "Last year we thought a few billion dollars would be enough, but it looks like it`s going to cost a couple trillion...", all of a sudden one gets the much-less-dire-sounding proposal, "Last year we thought around 'nine' would be enough, but it looks like it`s going to cost around 'twelve'...". No problem, why didn`t you say so sooner? Here`s 'three' more for ya ... I`m sure we can trust you spend it wisely.

[ewmayer]

Employment index worst in 35 years: Business research firm says index of government and independent labor market studies shows fastest decline in employment measure since 1974.

NEW YORK (CNNMoney.com) -- Labor market indicators are tumbling at a rate not seen in 35 years, according to a report released Monday.

The Conference Board, a business research firm, said its January employment trends index fell 1% since December and 18.6% since January 2008 - the fastest decline since the 1974 recession.

"Such declines suggest considerable job losses will persist for several more months," said Gad Levanon, senior economist at the Conference Board. "It is becoming clearer that the continued worsening economic conditions are forcing many companies to make further downward adjustments to their workforce."

The firm's index has dropped for 18-straight months. The index is an aggregate of eight measures of employment, including several government labor indicators and independent employer surveys.

Last month, the Conference Board reported that the economy could lose 2 million more jobs in 2009 after shedding 3 million jobs last year. The Labor Department reported on Friday that employers slashed 598,000 jobs in January - the single highest monthly job-loss total since December 1974.

My Comment: How long do y`all think it will actually take the U.S. to get to that rosy-glassed 2-million-by-end-of-2009 figure? [And remember, these are the optimistic-by-design official government figures to start with]. I say end of April, perhaps May at the latest. This will be accompanied by a great "worse than expected" hue and cry in the mainstream media and much "no one could have foreseen" hand-wringing by the politicos.

Big Job Cuts at Nissan:

Nissan to cut 20,000 jobs: Automaker plans cost-cutting measures after warning of fiscal year loss.

The cost-cutting measures makes Nissan (NSANY) the latest among the country's carmakers to take drastic action in the face of a worsening financial outlook.

The job reductions will bring down Nissan's head count from 235,000 to 215,000.

The company also said it is eliminating bonuses for its board of directors. And until its financial situation improves, it is reducing board members' salaries by 10%.

...

Among other steps the company said it will take are:

-- suspending part of the five-year strategy plan it unveiled last year, dubbed Nissan GT 2012. The 'G' stood for growth; the 'T' for trust. As part of the plan, the carmaker had hoped for 5 percent revenue growth on average over five years.

-- reducing labor costs in high-cost countries by 20%.

-- slashing global production by 20%.

My Comment: Notice the "we share in your pain" approach on the part of Nissan upper management ... how very un-American of them.


General Motors, Chrysler May Be Placed in Bankruptcy to Protect U.S. Loans: General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.


U.S. Government Bailout commitments Approach $10 Trillion:

Taxpayers Risk $9.7 Trillion on Bailouts as Senate Debates Obama Stimulus: The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.


U.S. Bank Failures May Reach 1,000 on Commercial Property Loans, RBC Says: As many as 1,000 U.S. banks may fail in the next three to five years, almost double the one-year tally at the height of the saving-and-loan collapse, as losses mount on commercial real-estate loans, RBC Capital Markets analysts said.


Germany's New 32-Year-Old Finance Minister - Related to actor Steve Guttenberg, perhaps?

Merkel Gains Guttenberg as New German Economy Minister After Glos Resigns: Chancellor Angela Merkel gained a new economy minister to help tackle Germany’s deepening recession after a “farce” triggered by Michael Glos’s surprise decision to quit the government seven months before national elections.

Karl-Theodor zu Guttenberg, 37, general secretary of the Bavarian Christian Social Union, will succeed Glos, CSU Chairman Horst Seehofer told reporters in Munich today. Guttenberg, who is of aristocratic stock, becomes the youngest economy minister in Germany since World War II.

Guttenberg “takes on a very demanding task at a time when we have to press ahead with fighting the global economic crisis,” Merkel said at the Chancellery in Berlin, backing Seehofer’s nomination for the post.

Glos tendered his resignation in a Feb. 7 letter to Seehofer, his party leader and Bavarian state premier, citing the need to make way for fresh talent. Seehofer, whose CSU is sister party to Merkel’s Christian Democratic Union, initially rejected the offer, stressing his trust in Glos in a statement posted on the CSU Web site.

“It’s a grotesque farce,” Nils Diederich, a political scientist at Berlin’s Free University, said in an interview. Glos quit because he was confined to “a supporting role” while Merkel and Finance Minister Peer Steinbrueck took charge of the response to the economic and financial crisis, he said. “It’s not a huge loss, but it doesn’t exactly signal leadership by the chancellor.”

Moron of the Week: This week`s award - I realize I have been extremely remiss in giving these out of late - goes to Bill Ackman of Pershing Square Capital Management, who apparently thinks basing an entire hedge fund on a leveraged bet on single company`s stock price is a good idea:

Feb. 9 (Bloomberg) -- William Ackman told investors in a hedge fund that invests only in Target Corp. he’s “deeply disappointed” in its performance, and that those wishing to exit can do so in full next month.

“I apologize profusely for the fund’s results to date,” Ackman said in an investor letter dated Feb. 8. Ackman also offered a fee waiver for those who invest in his other Pershing Square funds.

Pershing Square reduced its total economic exposure in Target, including options, to 10.5 percent from 12.9 percent, the firm said today in a regulatory filing. It reported a 9.7 percent stake in the Minneapolis-based discount chain. Target, like other retailers, has suffered as consumers slashed spending to cope with rising joblessness and declines in the value of their homes and stock holdings.

Target fell 8 cent to $32.94 at 2:22 p.m. in New York Stock Exchange composite trading. The shares declined 31 percent last year, compared with a 32 percent drop in the Standard & Poor’s 500 Retailing Index.

Ackman’s Pershing Square IV fund fell 40.1 percent in January, bringing the loss since inception to 89.5 percent, according to a letter sent to investors Feb. 5.

The decline in the Pershing Square IV fund was about four times that of Target shares in January because Ackman made his bet using options rather than owning the underlying stock, which tumbled 9.6 percent. Ackman said last week he will personally add another $25 million to the fund, and employees and board members will put up more cash.

My Comment: Look, if I want to bet big on Target, I can just commit 100% of my brokerage margin account to it, double down using margin (current borrowing costs there are only around 3% due to the Fed's near-zero interest rate benchmarks) and save myself the exorbitant hedge-fund management fees, while keeping my sell options open. Obviously that only allows me 2x leverage,

Ackman, 42, an activist investor, has pushed Target’s management to buy back shares, sell off the company’s credit- card loans and to place the land under its stores into a real estate investment trust that would lease the property back to the retailer.

My Comment: Translation: "Please, please, please, do whatever it takes - even if it hurts the company in the long term - to make my horribly bad bet turn good." I've seen some incredibly stupid investing "strategies" in my day, but this one has got to take the cake.

On a Humorous Note...

during the past 18 months we've had a veritable alphabet soup of "special lending facilities" (e.g. TAF, TSLF, PDCF, OMO, TABSLF, MMIFF, CPFF, TDWP) courtesy of the Federal Reserve. I overheard some wag suggestion a suitably alphabet-bailout-soupy acronym for the mortgage-related component of the massive pork fiscal stimulus package:

The "Mortgage Investment Loan Facility" (MILF)

[only_human]

Originally Posted by only_human

The Central Bank of Mexico tracks this but I haven't looked at it much. http://www.banxico.org.mx/SieInterne...CE81&locale=en I see a drop in November and December. I didn't compare the previous year because I was not sure what data I was looking at when I attempted to do so. The following article thinks that the strong dollar is encouraging more remittances: Strong dollar means Mexico migrants send more home AP Dec 12, 2008

February 9, 2009 Time Magazine (page 13) finds that the same percentage of Latino immigrants is sending money but the amount per person is dropping. Perhaps, in group aggregate, workers are transitioning from more lucrative construction jobs into less remunerative positions

For the first time since the Mexican central bank started keeping track, remittances to the country fell in 2008, from $26.1 billion to $25.1 billion. After oil exports, money sent home from workers abroad--mostly from the U.S.--is the largest source of foreign income in Mexico. The central bank expects remittances to keep falling in 2009, thanks in part to layoffs in the U.S. construction sector; Mexico's overall GDP is also expected to shrink. A January report from the Pew Hispanic Center showed that while the same percentage of Latino immigrants is sending money as in previous years, the amount per person is dropping. An estimated 70% sent less money in 2008 than in 2007.

Remittances by year (in billions of dollars)
2000 6.6
2001 8.9
2002 9.8
2003 15.0
2004 18.3
2005 21.7
2006 25.6
2007 26.1
2008 25.1

[ewmayer]

Thanks for the Mexican-remittance data, only_human ... I'll be *very* interested to see what the figure for 2009 ends up being. My guess is that it might threaten to drop back below $20 billion this year.

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Stimulus bill passes key Senate hurdle: Lawmakers move to put a compromise $827 billion economic stimulus plan to final vote Tuesday.

WASHINGTON (CNN) -- The Obama administration's $827 billion economic stimulus plan moved toward passage in the Senate on Monday as a compromise version of the bill cleared a key procedural hurdle.

Monday's 61-36 vote ended the prospect of a Republican filibuster that could have killed the measure, which President Barack Obama and Democratic congressional leaders say is necessary to pull the country out of an economic nosedive and create new jobs. Three Republicans -- Arlen Specter, of Pennsylvania, and Susan Collins and Olympia Snowe of Maine -- joined Democrats in voting to cut off debate on the measure. Sixty votes were needed.

"The time to act is now," said Senate Majority Leader Harry Reid, D-Nev. Reid said Americans understand recovering from the current recession will take some time -- "but they do not have patience for a Congress that points fingers, drags its feet or fails to act."

A vote on final passage is scheduled for Tuesday. Negotiators from the Senate and the House of Representatives would then have to hammer out a single bill from their differing versions, but Reid said he expected that could be done by Friday.

The nonpartisan Congressional Budget Office reported last week that the package is likely to create between 1.3 million and 3.9 million jobs by the end of 2010, lowering a projected unemployment rate of 8.7 percent by up to 2.1 percentage points.

But the CBO warned the long-term effect of that much government spending over the next decade could "crowd out" private investment, lowering long-term economic growth forecasts by 0.1% to 0.3% by 2019.

The price tag of $827 billion is roughly the same in both houses of Congress. But the version that senators advanced Monday -- which was hammered out in talks led by Collins and Nebraska Democrat Ben Nelson -- replaced billions in spending with tax cuts.

Collins said the compromise was "not perfect," but called it "bipartisan, targeted and effective." And Nelson said their version "trimmed the fat, fried the bacon and milked the sacred cows."

"It focuses like a laser beam on tax cuts for the middle class and job creation for millions of Americans," Nelson said.

My Comment: Putting aside the fact that Senator Nelson just managed the astonishing feat of using no less that four inane metaphors (one blatantly ripped off from a Bill Clinton speech) in a mere two sentences, how in the hell can one call it "effective"? It hasn`t even been enacted yet! And getting a mere *three* Republicans to help put you over the top on a cloture (filibuster-ending) vote is "bipartisan"? Whatever it is you`re smoking, Ben, it must be pretty potent stuff.

But the House version of the bill passed without any Republican votes, and most Republican senators oppose the plan. Minority Leader Mitch McConnell, R-Ky., said GOP senators were suffering from "sticker shock."

"Everybody knows the economy's in serious trouble and everybody expects the government to act," he told reporters Monday afternoon. But he said the current bill "just doesn't add up to timely, temporary and targeted, which is what we all thought this was going to be about."

McConnell said the actual cost of the package was more than $1 trillion when interest on the increased debt was included. And Sen. John McCain, the party's 2008 presidential nominee, called the package a "generational theft."

My Comment: Hmm, "generational theft" - you mean like a certain trillion-dollar-plus war started on bogus pretenses? Or the roughly $5-Trillion-dollar current-account-deficit you guys ran up under the leadership of Herr Bush? Irony is well and truly dead up on Capitol Hill.