Global Financial Crisis (Was: Subprime Meltdown)

[ewmayer]

Originally Posted by cheesehead

Editorial: Notice that you can thank the GOP for making it possible for China to have a trillion-dollar voice there.

But at least "they didn't raise your taxes" ... they just mortgaged the nation's future to pay for the profligate spending of their "smaller government".

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Today's Market terminology primer: "Whipsaw"

U.S. Stocks Drop in Rollercoaster Session; Dow Average Swings 1,000 Points: U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.

My Comment: I believe the technical term for today's wild ride is "whipsaw". There was actually a nice closing rally, which hopefully means the utter-panic selling of the past week and this morning is coming to an end. We lost over 20% market value - according to one of the cover stories in this morning's Wall Street Journal that represents over $2.5 trillion in equity valuation for U.S. stocks, and probably in the $5-10 trillion range for the global markets - in the last 8 days of trading. But remember, although the folks in charge here in the U.S. may have wiped out most of your life's savings, "they didn't raise your taxes".

The rest of the Bloomberg headlines continue to paint a grim macro picture:


Stocks Sink, Capping Worst Week in S&P 500's History; Exxon Mobil Declines: U.S. stocks sank, capping the worst week ever for the Standard & Poor's 500 Index, on concern the escalating credit crises will snuff out consumer spending.


Lehman Bonds Given Initial Value of 9.75% in Credit-Default Swap Auction: Sellers of credit-default protection on bankrupt Lehman Brothers Holdings Inc. would be forced to pay holders 90.25 cents on the dollar under initial results of an auction, setting up the biggest-ever payout in the $55 trillion market.


GE Profit Falls 12% as Markets Roil Finance Unit; Company to Meet Forecast: General Electric Co. profit declined for a third straight quarter, eroded by lower earnings at its finance arm during the deepest U.S. financial crisis since the Great Depression.


U.S. Exchanges Seeking Targeted Ban on Short Sales With `Circuit Breaker': U.S. exchanges may seek to impose a temporary ban on short sales for individual stocks that plunge, as regulators seek to rein in a practice blamed for forcing down shares of financial companies such as Morgan Stanley.

My Comment: More idiotic meddling on the part of the SEC. Instead simply reinstating the short-selling uptick rule which they foolishly abolished last year, now they're proposing actively intervening to prop up prices of individual stocks, whether there is good reason for the price of the stock to be falling or not. Hey, why not simply start enforcing minimum-price targets for all stocks trading in the U.S.? Since our financial markets are already effectively socialized/nationalized/conservator-ized, that would seem like the logical next step: "You can only buy and sell [insert name of company owned by friend of Hank Paulson or Chris Cox here] above $[insert SEC-mandated minimum price here]." Presto, fixo - magically the markets are cured of this whole "falling down" ailment.


GM, Ford, Chrysler May Face Bankruptcy on Slowdown in Auto Sales, S&P Says: General Motors Corp., Ford Motor Co. and Chrysler LLC may be forced into bankruptcy by slowing economies and dwindling U.S. auto sales, Standard & Poor's analyst Robert Schulz said.


Libor Dollar Rate Rises as Central Bank Actions Fail to Thaw Credit Market: The cost of borrowing in dollars in London for three months rose as cash injections and interest-rate cuts by 10 major central banks failed to thaw a credit freeze that put stocks on course for their worst week in 30 years.

My Comment: Now that the credit markets have called Hank & Friends` bluff, we have officially gone from "too big to fail" to "too big to bail". Homedebtors with soon-to-reset ARMs tied to the Libor are going to be wiped out.


Cost of U.S. Crisis Response Is Ballooning, Along With the Deficit, Debt: The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.


Abramovich, Deripaska, Oligarchs Lose $230 Billion in Russian Stock Rout: [i]Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt.

[Zeta-Flux]

Originally Posted by ewmayer

But at least "they didn't raise your taxes" ... they just mortgaged the nation's future to pay for the profligate spending of their "smaller government".

ewmayer, the national debt was just about doubled, in one week, by congress and senate, run by democrats. I imagine that almost every Republican who voted for the bill and who comes up for re-election will be voted out of office. That's partially because a majority of Americans (but especially the Republicans) did not want the bill. I just don't understand how you can blame the debt solely on Republicans.

On the other hand, I personally am sick of the ones we've elected. They do not represent the party of low taxes and lower spending.

[Editor's Note: Moved ensuing discussion to the "New U.S. President" thread.]

[ewmayer]

There is an op-ed by Paul Volcker in today's WSJ which seems to be very much in the spirit of what Cheesehead heard on Charlie Rose. The last 3 paragraphs [which I quote] are the salient ones, IMO:

Paul Volcker: We Have the Tools to Manage the Crisis: Now we need the leadership to use them

The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.

That rebuilding will be the job of another day -- of a new administration here in the U.S., of finance ministries and central banks working together. It must draw upon the strength of the now chastened private sector. It will require more understanding of the risks embedded in so-called financial engineering and of the perverse compensation incentives that have exalted risk over prudence.

There is, and must be, recognition of the essential role that free and competitive financial markets play in a vigorous, innovative economic system. There needs to be understanding, in that context, that financial ups and downs -- and financial crises -- will be inevitable, even with responsible economic policies and sensible regulation. But never again should so much economic damage be risked by a financial structure so fragile, so overextended, so opaque as that of recent years.

[AES]

Socialism: "(in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles."

--dictionary.com keyword: Socialism

[Fusion_power]

EU members announced various bailout plans this weekend intended to stabilize their financial markets. The total $ looks like it will be comparable to the US amount of $700 billion. The major difference is that the EU members are taking ownership stakes in the firms they rescue.

Early reports indicate the markets are reacting favorably to the news. I personally don't think they are doing enough to make a difference except in the short term prognosis. Are the lemmings er, um investors premature with their celebrations?

DarJones

[davieddy]

Originally Posted by ewmayer

And apparently a futile one at that. ;)

I didn't want to be accused of mollycoddling you fishy jokesters.

At least you rose to the bait

[ewmayer]

Germany unveils $671B bank bailout: Finance Ministry says banks will have access to 'stabilization fund' through 2009.


Fed offers unlimited support to European Central Banks: The Federal Reserve announced Monday it will offer an unlimited amount of dollars to the central banks of England, Switzerland and the European Union in an unprecedented move to provide liquidity to the global banking system.


Royal Bank of Scotland, HBOS Set to Be Taken Over by Government: U.K. Prime Minister Gordon Brown's government is set to buy majority stakes in Royal Bank of Scotland Group Plc and HBOS Plc to contain the worst financial crisis since the 1930s, two people familiar with the matter said.


Credit tight, but key lending rate eases: Bank-to-bank lending rate reverses upward trend, but remains at very high levels, as international leaders pledge to steady the global financial crisis.

My Comment: Keep your eyes on the Libor, folks - that says much more about the true state of the credit markets than any government announcements or rate cuts from the central banks.


Stocks in U.S. Rally on Bank-Bailout Plan; Morgan Stanley, GM, Ford Climb: U.S. stocks rallied after the market's worst week in 75 years, boosted by the government's plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.

My Comment: Europe and mot Asian Markets also up nicely. Will the rally have legs, or prove to be merely a brief respite?


Morgan Stanley seals deal with Mitsubishi: Embattled Wall Street firm completes deal with Japanese bank, renegotiates terms of sale of 21% stake in exchange for $9 billion.


Icelandic Shoppers Empty Shelves as Currency Woes Threaten Food Supplies: After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.


Proving yet again that "Reality has a well-known liberal bias..."

Krugman wins Nobel economics prize: The New York Times columnist, Princeton professor and Bush administration critic awarded for theory on free trade and globalization.

STOCKHOLM, Sweden (AP) -- Paul Krugman, the Princeton University scholar and The New York Times columnist, won the Nobel prize in economics Monday for his analysis of how economies of scale can affect trade patterns and the location of economic activity.

Krugman has been a harsh critic of the Bush administration and the Republican Party in The New York Times, where he writes a regular column and has a blog called "Conscience of a Liberal."

He has come out forcefully against John McCain during the economic meltdown, saying the Republican candidate is "more frightening now than he was a few weeks ago" and earlier that the GOP has become "the party of stupid."

"Krugman is not only a scientist but also an opinion maker," economics prize committee member Tore Ellingsen said. He added that Krugman's analyses tend to back free trade and his research gives no "support for protectionism."

My Comment: Interestingly, the kind of each-nation-its-own-way approaches that have dominated the governmental actions in the face of the global financial crisis [until very recently] are the ultimate expression of protectionism - are you listening, Iceland?

The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel's memory.

My Comment: "Conservatives pounced on this, sneering that 'if that hippie Krugman really had a clue, he would have won a *real* Nobel, not a fake politicized one."

The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel's memory.

...

In contrast to his treatment of U.S. financial officials, Krugman has praised leaders in Britain for their response to the global financial crisis.

In an Oct. 13 column in the The New York Times, Krugman wrote that British Prime Minister Gordon Brown and Chancellor Alistair Darling "defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up."

Whereas U.S. Treasury Secretary Henry Paulson rejected a "sort of temporary part-nationalization" involving governments giving financial institutions more money in return for a share of ownership, the British government "went straight to the heart of the problem ... with stunning speed."

Krugman said the major European economies have "in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts."

"And whaddya know," Krugman continued, "Mr. Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities."

My Comment: While my admiration for the British response is tempered by their [similarly to the U.S.] having done little to stem the tide of reckless lending which landed us in this mess, I agree that their recent responses have been far more clearly driven by the public interest, rather than the interests of the financial sector. Here in the U.S. that`s the price of having our Treasury Department be in effect a wholly-owned subsidiary of Goldman Sachs Inc.

[ewmayer]

NY Times | Op-Ed Contributor | The Rise of the Machines

The Rise of the Machines

By RICHARD DOOLING
Published: October 11, 2008

“BEWARE of geeks bearing formulas.” So saith Warren Buffett, the Wizard of Omaha. Words to bear in mind as we bail out banks and buy up mortgages and tweak interest rates and nothing, nothing seems to make any difference on Wall Street or Main Street. Years ago, Mr. Buffett called derivatives “weapons of financial mass destruction” — an apt metaphor considering that the Manhattan Project’s math and physics geeks bearing formulas brought us the original weapon of mass destruction, at Trinity in New Mexico on July 16, 1945.

In a 1981 documentary called “The Day After Trinity,” Freeman Dyson, a reigning gray eminence of math and theoretical physics, as well as an ardent proponent of nuclear disarmament, described the seductive power that brought us the ability to create atomic energy out of nothing.

“I have felt it myself,” he warned. “The glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it’s there in your hands, to release this energy that fuels the stars, to let it do your bidding. To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles — this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds.”

The Wall Street geeks, the quantitative analysts (“quants”) and masters of “algo trading” probably felt the same irresistible lure of “illimitable power” when they discovered “evolutionary algorithms” that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.

What does that mean? You’ll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, “toxic” financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers. Or maybe we are lost in space, with Dave the astronaut pleading, “Open the bank vault doors, Hal.”

As the current financial crisis spreads (like a computer virus) on the earth’s nervous system (the Internet), it’s worth asking if we have somehow managed to colossally outsmart ourselves using computers. After all, the Wall Street titans loved swaps and derivatives because they were totally unregulated by humans. That left nobody but the machines in charge.

How fitting then, that almost 30 years after Freeman Dyson described the almost unspeakable urges of the nuclear geeks creating illimitable energy out of equations, his son, George Dyson, has written an essay (published at Edge.org) warning about a different strain of technical arrogance that has brought the entire planet to the brink of financial destruction. George Dyson is an historian of technology and the author of “Darwin Among the Machines,” a book that warned us a decade ago that it was only a matter of time before technology out-evolves us and takes over.

His new essay — “Economic Dis-Equilibrium: Can You Have Your House and Spend It Too?” — begins with a history of “stock,” originally a stick of hazel, willow or alder wood, inscribed with notches indicating monetary amounts and dates. When funds were transferred, the stick was split into identical halves — with one side going to the depositor and the other to the party safeguarding the money — and represented proof positive that gold had been deposited somewhere to back it up. That was good enough for 600 years, until we decided that we needed more speed and efficiency.

Making money, it seems, is all about the velocity of moving it around, so that it can exist in Hong Kong one moment and Wall Street a split second later. “The unlimited replication of information is generally a public good,” George Dyson writes. “The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments.”

It was easy enough for us humans to understand a stick or a dollar bill when it was backed by something tangible somewhere, but only computers can understand and derive a correlation structure from observed collateralized debt obligation tranche spreads. Which leads us to the next question: Just how much of the world’s financial stability now lies in the “hands” of computerized trading algorithms?

Here’s a frightening party trick that I learned from the futurist Ray Kurzweil. Read this excerpt and then I’ll tell you who wrote it:

But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions. ... Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.

Brace yourself. It comes from the Unabomber’s manifesto.

Yes, Theodore Kaczinski was a homicidal psychopath and a paranoid kook, but he was also a bloodhound when it came to scenting all of the horrors technology holds in store for us. Hence his mission to kill technologists before machines commenced what he believed would be their inevitable reign of terror.

We are living, we have long been told, in the Information Age. Yet now we are faced with the sickening suspicion that technology has run ahead of us. Man is a fire-stealing animal, and we can’t help building machines and machine intelligences, even if, from time to time, we use them not only to outsmart ourselves but to bring us right up to the doorstep of Doom.

We are still fearful, superstitious and all-too-human creatures. At times, we forget the magnitude of the havoc we can wreak by off-loading our minds onto super-intelligent machines, that is, until they run away from us, like mad sorcerers’ apprentices, and drag us up to the precipice for a look down into the abyss.

As the financial experts all over the world use machines to unwind Gordian knots of financial arrangements so complex that only machines can make — “derive” — and trade them, we have to wonder: Are we living in a bad sci-fi movie? Is the Matrix made of credit default swaps?

When Treasury Secretary Paulson (looking very much like a frightened primate) came to Congress seeking an emergency loan, Senator Jon Tester of Montana, a Democrat still living on his family homestead, asked him: “I’m a dirt farmer. Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”

“Well, sir,” Mr. Paulson could well have responded, “the computers have demanded it.”


Richard Dooling is the author of “Rapture for the Geeks: When A.I. Outsmarts I.Q.”

[R.D. Silverman]

Originally Posted by ewmayer

NY Times | Op-Ed Contributor | The Rise of the Machines

As I said, we need to get back to VALUE BASED investing. Investments
need to be backed by something real; something tangible.

[ewmayer]

Aaron Krowne of the ML-Implode family of websites replies to my forwarding him the above "Rise of the Machines" op-ed:

That is impressive of him to note that for 600 years, "stock" had the form of sticks, broken in half, representing some amount of gold and payability of same, but then he fails to note that the problem isn't that we replaced this system with technology, but that we replaced the "payability in gold" part as well, severing the connection of money to reality.

Technology, by itself, is just a tool. There was nothing "intelligent" about the credit technology, per se -- it was very much a construct of greedy, short-term-thinking, self-delusional human beings.

An actual sentient intelligence probably wouldn't have fallen for the lie, as an analysis which reveals the folly would have been quite trivial!

The author's analysis is also dangerous by diverting culpability from the people that built up and advocated this system, to "technology" itself, which of course cannot be blamed (or arguably, stopped).

This is like having a "war" on terrorism.

-Aaron

My Comment: As you probably notice, Aaron tends to take a "gold bug's eye" point of view about our modern monetary system. I don`t advocate reversion to a gold standard, as it is simply not practicable to arbitrarily designate some otherwise-fairly-useless precious metal as "real money" and then expect its supply to expand roughly at the same rate as population growth and rising economic productivity increase the supply of "real wealth". However I do agree with the "severing the connection of money to reality" comment. The introduction of the giant Ponzi scheme known as fractional reserve lending has more to do with that than abandonment of the gold standard did, although those two things are inextricably linked.

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Government to pump billions into banks, expand deposit and loan guarantees: The federal government on Tuesday announced an extraordinary and historic direct investment in the nation's banks - the biggest bet ever made with taxpayer dollars on the U.S. financial system.

As a start, the Treasury will pump $250 billion into financial institutions. Nine of the nation's largest banks have already agreed to take the capital and in return will give preferred shares to taxpayers and accept limits on executive pay. Half of the money, or $125 billion, will go to the nine large banks.

"This is an essential short-term measure to assure the viability of America's banking system," President Bush said in comments outside the White House. "These measures are not intended to take over the free market, but to preserve it."

My Comment: If he`s talking about "preserving" the kind of unregulated financial engineering, reckless credit expansion and insane executive compensation which helped get us here, then preserving *that* would be utter folly. Luckily it's clear Bush is his usual clueless babbling self, and is now also a de facto lame-duck - he gets up onto his little rostrum every few days and spouts his pre-scripted supposed-to-be-confidence-inducing pablum, while those around him shuffle their feet, nod politely, then go about their real business, which is of course way beyond his limited powers of comprehension.


Overnight lending rate falls: Bank-to-bank rates decline, indicating that the global efforts to ease pressure in the credit markets may be working.

The credit market showed signs of confidence Tuesday, the first day that the Treasury markets were open in the United States after a weekend of global initiatives to loosen frozen lending.

The overnight bank-to-bank lending rate continued to slide, with the London interbank overnight rate (Libor) falling to 2.18% from 2.47% Friday, according to data from Bloomberg.com. That followed a sharp drop off from 5.09% Thursday.

My Comment: That is welcome news...

Treasury prices were sharply lower in a sign that demand for the safe haven investment was shrinking as investors look to get back to Wall Street.

My Comment: ...but I`m not so sure "getting back into the markets" is a good thing, as I believe there is lots more pain ahead for equities.

Stock markets around the world cheered the international moves to support struggling banks, with the Dow Jones industrial average surging in the largest one-day point gain ever Monday.

My Comment: That rally lasted all of 24 and one-half hours - big jump at the open today quickly sold off.


Macro Picture:

Roubini Predicts Worst U.S. Recession in 40 Years, Market Rally `Sputter': Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to ``sputter.''


Icelanders Sink Under Mountain of Foreign-Currency Loans as Krona Plunges: Karl Karlsson, a Reykjavik taxi driver, has canceled his winter vacation. The money he saved is being eaten up by his car loan payment, which has jumped more than 20 percent since June.


Retail shakeout: 'Worst is yet to come': Experts warn that the credit freeze combined with slumping sales - and a likely dismal Christmas season - will force out many more retailers in 2009.


GM Survival Questioned as Chevy Trailblazer's Early Death Chills Ohio Town: Gloom is spreading across Moraine, Ohio, as General Motors Corp. prepares to shut a sport-utility vehicle plant two days before Christmas, abandoning a factory in the Dayton suburb of 7,000 that stretches back to making refrigerators in 1921.

My Comment: Off-topic, but I`m fairly certain that the name of the town "Moraine" comes from the fact that it sits on or near one of large glacial moraines left by the retreat of the massive Laurentide ice sheet which covered Eastern Canada and the U.S. upper Midwest during the last 2 ice ages [Whose names, "Wisconsinan" and "Illinoisian" derive from the association with similar geogrpahic features in those nearby midwestern states]. Growing up in Ohio, one of our favorite spots to hit in our bicycling tours of the rural countryside was just such a moraine, near Seville OH, which we called "Seville Hill". These things are hundereds of feet high and miles across. This elevation map of Ohio nicely shows the moraines and other interesting geographic features resulting from the repeated glaciations and deglaciations. Ohio [and the midwest in general] may be a mostly-flat unexciting-looking landscape, but its geological history is very rich and quite fascinating.


GM closing factories in Wisconsin, Michigan: 1,200 workers in Wisconsin SUV factory to lose jobs earlier than expected; Michigan plant to cut 1,340 hourly jobs.


Pepsi to cut jobs, close plants: Drinks-and-snacks conglomerate posted softer-than-expected third-quarter earnings Tuesday and set plans to cut 3,300 jobs as the economic slowdown and changing consumer tastes hit soda sales.


Virginia orders 570 state layoffs: Governor says state nearly $1B short this year, plans cuts to college funding, puts off state employee raises.

My Comment: Nationwide, I expect several hundred thousand state workers to lose their jobs over the next few years as dire budget deficits force deep cuts.

[ewmayer]

Worst retail sales in three years: Sagging auto sales pace September downturn, as consumers pare back on all but health needs and gasoline.

NEW YORK (CNNMoney.com) -- Retail sales suffered their biggest drop in three years last month, as American households reined in spending amid a tough job market, the financial crisis and falling home values.

The Commerce Department reported Wednesday that retail sales fell 1.2% in September, nearly double the 0.7% drop expected by economists.

Retail sales have fallen for the third month in a row, the first time that has happened according to government data going back to 1992. Consumer spending accounts for nearly 70% of the economy.

A steep 3.8% decline in auto purchases help depress the overall sales for the month.

Even when volatile auto sales were stripped from the report, sales fell 0.6%, three times the 0.2% decrease economists had predicted.

The weak report shows that consumers cut down on everything except health care products and gas, according to Scott Hoyt, senior director of consumer economics at Moody`s economy.com.

"The numbers are pretty terrible. Consumers were clearly not spending," Hoyt said.

Particularly troubling is the sharp drop in retail sales from the same time a year earlier. The last time that happened was October 2002 and, prior to that, in 1991, he said.

"This report is very clearly consistent with a recession story," Hoyt said, who added that even gasoline retailers could see their sales decline in October.

My Comment: 9 straight months of job losses, consumer spending clearly plummeting, and the only "GDP growth" at all this year has been in nonproductive sectors, specifically government spending. Meanwhile, "experts" like Herr Bernanke et al are still trying to decide whether we are "officially" in a recession.


Birmingham, Alabama on the brink of bankruptcy: With $3.2 billion in debt, the county that is home to Alabama`s largest city is about to go bust. How the credit crisis went South.

For months now, [Alabama governor] Riley and other civic leaders in Alabama have been battling to avert what appears almost certain - that Jefferson County will file for Chapter 9 protection, in what would be the largest municipal bankruptcy in our nation`s history. The county has fallen hopelessly behind on payments to service the $3.2 billion it borrowed - on reckless terms - from Wall Street over the past decade to build a new sewer system. As Fortune went to press, the Jefferson County Commission was days away from a vote that could make the bankruptcy official.

...

Every decade or so, something big and scary does happen in the normally staid world of public finance: There was a near miss in the `70s when New York City almost went broke ("Ford to city: drop dead" was the famous headline in the Daily News); in the `80s the Washington Public Power Supply System (or WPPSS; the traders called it "Whoops") defaulted on $2.25 billion in loans when it stopped construction of two nuclear power plants; and California`s Orange County went into Chapter 9 in the `90s, after the county treasurer made bad bets on interest rates and lost $1.6 billion.

But the saga of Jefferson County stands apart. Unlike previous municipal meltdowns, it is a financial disaster that was to a large degree invented, packaged, and sold by Wall Street. And there are striking parallels to the wider credit crisis that has enveloped the financial world - with overeager borrowers, willing enablers, and dangerously complex financial instruments.

My Comment: Without government bailouts, hundreds of counties and several states will be facing a similar choice soon.


GM: Better off bankrupt: The automaker is in trouble, but even Chapter 11 would be better than hooking up with Chrysler.

NEW YORK (Fortune) -- GM certainly is keeping a close eye on its cash these days.

One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn`t start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.

Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.

It is a measure of GM`s desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler`s cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.

With good reason; they have history on their side. The list of unsuccessful auto mergers stretches from the present day - Daimler (DAI) and Chrysler, BMW and Rover - all the way back to Studebaker-Packard and Nash-Hudson.

My Comment: I blame short sellers for GM`s woes. It was the legions of naked short sellers hanging around GM showrooms [in the nude, obviously] and "waving their private parts at your aunties" who clearly spooked away millions of customers, and drove the price of oil through the $100 level, and kept GM from building the Chevy Volt on time, and forced GMAC to throw zero-interest financing at millions of people who didn`t have a dime to their name.


Oil drops below $76, back near 13-month low: Crude falls to $75.94 a barrel, analysts say $50 oil possible.

My Comment: The irony now being that the lower oil goes, the worse the global recession is becoming. Our pal Hugo Chavez in Venezuela will be *so* miffed, especially as his idiotic economic policies and massive oil giveaways to fellow radical leftist regimes have resulted in Venezuela`s economy only being viable if oil prices are around $100.


Blankfein`s $70 Million Payday Would Survive Paulson Compensation Limits: Goldman Sachs Group Inc.`s Lloyd Blankfein, whose $70.3 million paycheck made him Wall Street`s most highly compensated chief executive officer last year, could still earn tens of millions annually under the bank-rescue plan run by his former boss, Treasury Secretary Henry Paulson.

Executive-pay packages will be restricted for the nine banks receiving a $125 billion infusion of U.S. funds to restart lending, said Paulson, who earned $37.8 million in 2005, his last full year as Goldman`s CEO. The investment is part of a $700 billion bailout plan approved by Congress this month.

Blankfein, 54, was Wall Street`s best-paid CEO in 2007, according to data compiled by Bloomberg. He "could still make tens of millions of dollars if he continues to receive stock grants and Goldman`s stock rises," said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates.

My Comment: Actually, the whole point of a stock *grant* is that you don`t need the share price to rise to make money. So here we see the giant loophole in the "limits on executive compensation" clause of the bailout package. Crony capitalism at its finest - you din`t honestly expect Hank Paulson wouldn`t take care of his buddies, did you? Why do you think he was so averse to the govt taking equity stakes in the banks until the markets forced his hand last week?


Iceland Crisis Brings `Justice,` Vengeance to U.K. Port for 1970s Cod War: Jim Williams, who sailed through gales and Atlantic ice floes aboard British trawlers for almost 30 years, calls the crisis in Iceland ``poetic justice.``

Oct. 15 (Bloomberg) -- Jim Williams, who sailed through gales and Atlantic ice floes aboard British trawlers for almost 30 years, calls the crisis in Iceland ``poetic justice.''

Williams, 80, used to set out from Hull, his home in northern England, to catch cod 1,000 miles away off the coast of Iceland. He quit in 1973 as a dispute between the countries over fishing territory escalated, culminating in victory for Iceland and the demise of Hull's fleet two years later.

Relations between the countries are now at their chilliest since the so-called Cod War of the 1970s because hundreds of millions of pounds of U.K. savings are locked up in collapsed Icelandic banks. Iceland's struggle with the credit crisis is being marked as a reversal of fortune by the people of Hull, Europe's largest fishing port until 1975.

``People in their 40s and 50s, in a matter of a year or so they were unemployed,'' said Williams. ``You can understand the bitterness. It was disastrous. It wasn't just the industry, but the whole community.''

Prime Minister Gordon Brown threatened on Oct. 9 to freeze Icelandic company assets unless the country unlocked access to savings of British depositors who had been attracted by higher interest rates. A day later, a U.K. delegation arrived in Reykjavik to discuss who should compensate clients.

The last time talks between the countries were front-page news, about 35 years ago, it was Hull that ended up the loser as Iceland extended an exclusion zone for foreign fishermen to 200 miles from four miles in the 1950s.

My Comment: When I first saw the article headline, I thought it said "...Cold War", which made me think something was fishy. Can any Brits or Icelanders amongst our readership comment on what the *British* exclusion zone was, and currently is?