Global Financial Crisis (Was: Subprime Meltdown)

[rogue]

For you, ernst:

Help bailout the rich

[ewmayer]

Originally Posted by rogue

For you, ernst:

Help bailout the rich

Hell, yeah - enough of this namby-pamby "fruits of one's own labors" socialist claptrap.

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

World:

Reuters | Swedish truck makers hit as Europe slams on brakes

STOCKHOLM, Oct 24 (Reuters) - Sweden's two top-flight truck makers Volvo and Scania posted lower-than-expected third-quarter pretax earnings on Friday and painted a bleak picture of truck markets hit by the global financial crisis.

Order intake at the two rivals gave evidence of the sharp decline in demand in Europe, their main market, Scania's falling 69 percent from a year ago. Volvo found itself faced with nearly as many cancellations as new bookings in the quarter.

JPMorgan will modify mortgages: In an effort to avoid foreclosures on $70B worth of loans, the bank will review each mortgage, including those from WaMu and EMC.


Chinese manufacturing in steep decline: Weak demand for exports sends key manufacturing index to three-year low. China's stocks fall to two-year low, as economy slows to five-year low.


Lehman `Good for Retirement' Notes Prove Worthless for `Livid' UBS Clients: UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.

Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.

Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington.

``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.''

Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch. Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states.

My Comment: "Hey, we never said it was good for *your* retirement ... but it sure was good for ours."


U.S.:

U.S. Manufacturing Contracts at Fastest Pace Since 1982 as Crisis Deepens: Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as the credit crisis deepened and companies reduced orders.


Circuit City to Shut 155 Stores, Reduce New Outlets as Consumers Stay Away: Circuit City Stores Inc., the unprofitable electronics retailer, will close 155 U.S. stores and renegotiate leases on some of the remaining 566 locations to conserve cash.

Based on nearly 43,000 employees as of Feb. 29, 17 percent could be up to about 7,300 workers. But the company said the number would likely be lower in part because employees in some markets may become employed at other stores. It would not give further details.

My Comment: A rough estimate [based on the fact that CC is closing ~20% of its stores, and has ~45,000 full-time employees] tells me this translates to on the order of 5000 - 10000 full-time job cuts, and likely a similar number of part-time positions. The bit about shifting employees from shuttered stores o ones which will remain open is not credible, since business at the better-performing stores is surely down in a big way, as well. If anything, those stores have also been laying off or reducing hours for employees.


Treasury says no aid for GM, Chrysler: Merger between two automakers appears to be off until after the election, as Treasury says it will not provide the Detroit companies with aid, the Detroit Free Press reported.

My Comment: They said "no", but they meant "let the next poor Treasury schlub deal with this hot potato."


Motorola to cut 3,000 jobs: The communications equipment maker posts a hefty loss and postpones the spinoff of its cell phone unit.

[rogue]

Originally Posted by ewmayer

Circuit City to Shut 155 Stores, Reduce New Outlets as Consumers Stay Away: Circuit City Stores Inc., the unprofitable electronics retailer, will close 155 U.S. stores and renegotiate leases on some of the remaining 566 locations to conserve cash.

My Comment: A rough estimate [based on the fact that CC is closing ~20% of its stores, and has ~45,000 full-time employees] tells me this translates to on the order of 5000 - 10000 full-time job cuts, and likely a similar number of part-time positions. The bit about shifting employees from shuttered stores o ones which will remain open is not credible, since business at the better-performing stores is surely down in a big way, as well. If anything, those stores have also been laying off or reducing hours for employees.

These problems are not new for Circuit City. They would have closed most of those stores in the next year anyways regardless of the current financial climate

Originally Posted by ewmayer

Treasury says no aid for GM, Chrysler: Merger between two automakers appears to be off until after the election, as Treasury says it will not provide the Detroit companies with aid, the Detroit Free Press reported.

My Comment: They said "no", but they meant "let the next poor Treasury schlub deal with this hot potato."

My Comment: Let them fail! GM brought most of it's pain upon itself and everyone has known about it since the 70's. They thought they could sell enough cars to stave off the problems of the $50B in pension obligations they have. The sad thing is that IIUC the US government will cover 80% of those pensions if GM goes bankrupt.

[S485122]

Originally Posted by rogue

My Comment: Let them fail! GM brought most of it's pain upon itself and everyone has known about it since the 70's. They thought they could sell enough cars to stave off the problems of the $50B in pension obligations they have. The sad thing is that IIUC the US government will cover 80% of those pensions if GM goes bankrupt.

That is the whole problem with the capitalisation pension schemes (that everybody was promoting everywhere) as opposed to the redistribution schemes. All those people saving for pensions their whole working live and now getting nothing ! Of course they though it was normal to get a 25% yearly earnings on their capital, they endorsed the multiple layoffs and delocalisations, the option markets, the "leveradging", the derivative markets and so on to see their funds prosper. It is reaping time now.

Jacob

[ewmayer]

Auto Sales in U.S. Plunge; October Was the Worst Month Since 1945, GM Says: U.S. auto sales plummeted 32 percent in October to the lowest monthly total since January 1991, led by General Motors Corp.`s 45 percent slide, as reduced access to loans and a weaker economy kept consumers off dealer lots.

Ford Motor Co. reported a 30 percent drop in car and light- truck sales from a year earlier and Toyota Motor Corp.`s declined 23 percent. Honda Motor Co.`s slid 25 percent, Nissan Motor Co.`s were down 33 percent and Chrysler LLC`s fell 35 percent.

"If you adjust for population growth, it`s the worst sales month in the post-World War II era" for the industry, said Mike DiGiovanni, GM`s chief sales analyst, on a conference call. "Clearly we`re in a dire situation."

Industrywide U.S. auto sales fell for the 12th straight month, extending the longest slide in 17 years. Tight credit, falling consumer confidence and the weakening economy, the same forces that suppressed buying in September, hurt automakers again last month.

October total sales dropped to 838,156 from 1.23 million, according to Autodata Corp. The last time light-vehicle sales were lower was 822,200 in January 1991, according to Autodata.

The seasonally adjusted annual sales rate for the month was 10.6 million, the lowest since February 1983, the Woodcliff Lake, New Jersey-based provider of industry statistics said in a statement. The October 2007 rate was 16 million, Autodata said.

"People are feeling a hell of a lot less flush than they`ve felt in the better part of a generation," said Joe Phillippi, an analyst at AutoTrends Consulting in Short Hills, New Jersey. "Everybody is taking it on the chin right now."

Iceland, Mired in Debt, Blames Britain for Woes

LONDON — No one disputes that Iceland’s economic troubles are largely the country’s own fault. But there may be more to the story, at least in the view of Iceland’s government, its citizens and even some outsiders. As grave as their situation already was, they say, Britain — their old friend, NATO ally and trading partner — made it immeasurably worse.

The troubles between the countries began three weeks ago when Britain took the extraordinary step of using its 2001 antiterrorism laws to freeze the British assets of a failing Icelandic bank. That appeared to brand Iceland a terrorist state.

“I must admit that I was absolutely appalled,” the Icelandic foreign minister, Ingibjorg Solrun Gisladottir, said in an interview, describing her horror at opening the British treasury department’s home page at the time and finding Iceland on a list of terrorist entities with Al Qaeda, Sudan and North Korea, among others.

In a volatile economic climate, in which appearance matters almost as much as reality, being associated with terrorism is not a good thing.

“The immediate effect was to trigger an almost complete freeze on any banking transactions between Iceland and abroad,” said Jon Danielsson, an economist at the London School of Economics. “When you’re labeled a terrorist, nobody does business with you.”

The Icelandic prime minister, Geir H. Haarde, accused Britain of “bullying a small neighbor” and said the action was “very out of proportion.” In a recent speech in Beijing, Sir Howard Davies, a former deputy governor of the Bank of England and now the director of the London School of Economics, said that Britain had used a “beggar thy neighbor” approach to Iceland.

And an online petition signed so far by more than 20 percent of Iceland’s population said the British prime minister, Gordon Brown, had sacrificed Iceland “for his own short-term political gain,” thereby turning “a grave situation into a national disaster.”

Iceland’s financial problems had been brewing for some time. This past spring, the country’s banks, bloated with foreign deposits and debts, began to falter. This fall, as the financial crisis deepened, the government took over two of the country’s three largest banks.

Britain’s government, alarmed about the tens of thousands of accounts held by its citizens, companies, local governments and charities, froze the British assets of one of the failed banks, Landsbanki. It also seized the assets of Kaupthing Singer & Friedlander, the British subsidiary of another Icelandic bank, Kaupthing.

“The Icelandic government, believe it or not, told me yesterday that they have no intention of honoring their obligations here,” Alistair Darling, the chancellor of the Exchequer, declared the day Britain seized the assets.

The Icelandic government disputed that, saying it was merely asking for time to make good on its obligations.

Whatever the case, reaction was immediate and severe, particularly when Mr. Brown said the following day — inaccurately — that “we are freezing the assets of Icelandic companies in the U.K. where we can.”

Iceland’s ambassador to Britain, Sverrir H. Gunnlaugsson, said in an interview that this statement was particularly damaging. “There was a perception in the U.K. press and among suppliers that everything Icelandic had been frozen,” he said. “The word was put out belatedly that this was not the case.”

Icelanders say that it is now nearly impossible to get foreign currency into or out of the country. Many banks have refused even to transfer money to Iceland. Importers are having difficulty paying their foreign bills, and exporters are having trouble getting paid by their foreign customers.

Many people in Iceland are also furious about what happened to Kaupthing Singer & Friedlander. The British government’s seizure of its assets precipitated the immediate collapse of its parent bank, Kaupthing, which the Icelandic government had been propping up and had hoped would survive.

“Kaupthing was the last, best hope of the Icelandic banking system, and it was killed there and then,” Andres Magnusson, an editorial writer for Icelandic Financial News, said in an interview. “This really was the last straw. A lot of Icelanders are asking, ‘Excuse me: who’s the terrorist here?’ ”

My Comment: Is this about the regrettable "pillaging and rapine" thing? Because we apologized formally for that 900 years ago. and you can see that the longboats are still parked...

[ewmayer]

Nouriel Roubini discusses the economic and policy issues facing the new administration:

The 2008 U.S. Presidential election was historic itself owing to the candidates’ profile. But the timing of the elections as the U.S. and global economy are in the midst of the worst financial crisis and recession in decades reminds us of the Great Depression era and the 1980s recession when incoming Presidents Roosevelt and Reagan faced immense challenges to cure the economy’s woes.

By the time Obama takes his oath in January 2009, he will face an economy which is still in a middle of a severe and prolonged recession where households will continue to face unaffordable mortgage and other debt, declining value of homes (that financed their consumption all these years), risk of debt default or foreclosure, tight access to credit with stringent borrowing conditions, erosion of their retirement savings amid the bearish stock market, over a million lay-offs taking the unemployment rate to 7-8% and critical foreign policy challenges.

Therefore, immediate challenges for Obama will include cushioning the consumers (who account for over two thirds of GDP) from the economic slowdown by means of a large fiscal stimulus package and acting on a government guaranteed mortgage modificationprogram. In fact, he has already called for fiscal stimulus in the form of grants for state and local governments, infrastructure spending to create jobs, scrap tax on unemployment insurance, tax cuts for lower income-groups and small businesses, tax credits for firms that create jobs and government aid for the ailing auto industry. Some of the tax cuts would be financed by taxing the windfall profits of oil companies. Part of his program would allow households to draw up to $10,000 from retirement funds during 2008-09 without any tax penalty. Obama also called for a ninety-day moratorium on foreclosures, modification of bankruptcy laws, a $10 bn foreclosure-prevention fund and 10% mortgage tax credit for the middle-class. But more importantly he has emphasized preventing taxpayer funded bailout of banks and giving golden parachutes to CEOs of failing institutions. He has also strongly endorsed greater financial sector oversight, control and reporting with the creation of a financial market oversight commission to oversee liquidity, capital and disclosure requirements and plans to streamlining regulatory agencies to prevent overlap and assign greater role to the Securities and Exchange Commission (SEC) to prevent market manipulation and to the Federal Reserve to carry out regulation.

The Democratic Congress will also influence on asset markets, business sentiment and financial sector regulation, as well as on the country’s energy policy and oil sector, health insurance and pharma sector, tax incidence on high income-groups and corporate sector, pre-conditions under trade talks and role of labor unions.

Tax Policy and Fiscal Deficit

Obama will face a swelling fiscal deficit which might be pushed over $1trillion in the next few years. Mounting fiscal costs of the housing and financial sector bailout and fiscal stimulus measures to sustain aggregate demand will impact the budget while the downturn puts a dent in tax revenues. Ballooning Medicare and Social Security bills will only add to his challenges.

A redistribution-oriented tax policy which gives larger tax cuts to a greater number of low and middle-income groups while raising taxes on the high-income group is at the center of Obama’s proposals. When Bush’s tax cuts expire in 2011, Obama plans to raise the federal individual income tax rate from the current 33% and 35% to 36% and 39.6% for the over $200,000 and $250,000 income-groups respectively. Tax cuts would be kept at the current rate for the rest of the income groups. However, the total tax incidence might be higher when combined with the State and other taxes. The new administration also plans to remove various exemptions and deductions for the high-income groups while extending several tax breaks and credits for the low and middle-income groups, retirees, homeowners, and students.
For the corporate sector, the plan is to cut the tax rate to below 35% and act stringently to broaden the corporate tax base and reduce loopholes, crack down on international tax havens and tax distortions and have a shareholder vote on CEO pay. The plan also includes tax breaks for firms that keep headquarters in the U.S. Capital gains and dividend tax rates are expected to go up to 20% for the above $250,000 income group. Moreover, carried interest of private equity and hedge-funds will be taxed as ordinary income (at a higher rate) rather than as capital gains.

In order to finance the Social Security shortfall from the oncoming fiscal burden of baby boomers, the new president plans to raise the earnings cap on payroll taxes from the current $102,000 income cap to the over-$250,000 income-group. The Social Security plan will also include a job-portable and tax-deferred Retirement Fund.

While Obama has pledged to follow the pay-as-you-go rule to contain the fiscal deficit, his proposals to increase spending on lower and middle income groups, infrastructure, research and technology would nevertheless raise the national debt with possible impact on Treasury yields and sources of debt financing.

A Democratic Congress might strengthen the stance to raise taxes especially amid criticism that recent tax cuts dented the fiscal deficit, created investment distortions, and raised income and wealth inequality. But the economic slowdown might limit or delay the administration’s ability to raise taxes. Moreover, there have been concerns about possible impact of these policies on U.S. competitiveness and impact on investment and small businesses.

Health Care Reform

In a country with around 47 million uninsured and the middle-class battling with rising health insurance premiums and job-immobile coverage, Obama will face an immense challenge to undertake the impending health care reform and ensure quality healthcare - that presently fails to match with even other developed countries. The President has endorsed a universal health insurance coverage which will have mandates only for children. The plan includes the creation of a regulated National Health Insurance Exchange where individual insurance can be purchased. Low and middle-income households will benefit of subsidized premiums. Firms that do not offer insurance to their employees will face a tax penalty. The improvement in the insurance coverage, in the next few years, might come with a high price tag.

Trade Policy

Regarding trade, Obama has pressed on including on labor and environmental standards in trade agreements. He has also proposed to raise duties on Chinese imports to offset the undervalued Yuan and dumping of goods and also take measures against their violation of intellectual property rights. Part of the plan also includes greater scrutiny of investments by Sovereign Wealth Funds.

Even as the global recession is increasing risk of slowdown in global trade and possible rise in protectionism, this might be exacerbated by a Democratic Congress that favors conditional trade agreements. The current financial crisis and rising significance of Sovereign Wealth Funds might also increase Congress’ aversion to financial globalization and inward foreign investment. But aversion to trade might be overrated as they realize the risk of unilaterally withdrawing from global trade.

While fair trade might be the way for survival ahead, U.S. insistence on non-tariff barriers to protect some sectors and jobs from import competition might isolate it from trade deals and possible gains from multilateral trade talks.

Labor and Middle-Class

However, the most important and significant challenge that Obama will face is alleviating the American middle-class woes due to the recession but also due to the impact of globalization on workers in the recent years. While the lower and middle-income groups have benefited from trade via cheaper imports, the net benefits from globalization are still being heavily debated.. In the most recent years, real wages have remained stagnant for the middle-class in spite of rising cost of living.

In this respect, Obama has offered to raise the minimum wage adjusted for inflation and introduce laws to make organizing unions easier. He has proposed to reform the Trade Adjustment Assistance, wage insurance and worker retraining programs.

Foreign Policy

While economic policy issues make take the fore and constrain foreign policy, many global leaders will be watching the new foreign policy team for clues of the new administration’s priorities. No shortage of challenges await – a resurgent Russia resenting NATO’s involvement in its near abroad, an Iran that remains dedicated to nuclear proliferation despite sanctions etc. Obama’s foreign policy vision has centered around multilateralism and revived diplomacy - something for which European allies have been longing - to further US interests at a time when the U.S. military is engaged in two wars. Iraq and Afghanistan will likely consume much of the administration’s focus - Obama has pledged to withdraw troops from Iraq within 16 months of taking office and counter resurgent Qaeda and Taliban forces in Afghanistan. Meanwhile, economic and not political ties may continue to define the U.S. relationship with key Asian economies, including China, its largest creditor.

But finding common ground with China, the second largest consumer and importer of oil, may be required to meet energy policy and anti-climate change goals. Obama has stressed conservation and use of alternative fuels to meet America’s energy needs in order to reduce US oil imports and its trade deficit. However, the lower price of oil and worsening economic outlook expenditures may reduce some of the political will around cap and trade policies as well as reducing pressure to begin offshore drilling.

[ewmayer]

U.S. Stocks Drop on Concern Obama Will Struggle to Reverse Slowing Economy: U.S. stocks fell as reports showing the most private-sector job losses in six years and a slump in service industries spurred concern the economy will worsen even as President-elect Barack Obama takes steps to stimulate growth.


Service Industries Contract More Than Forecast as Americans Pare Spending: Service industries in the U.S. contracted the most on record in October as credit dried up and consumers reined in spending.


Fuld Will Be Terminated by Lehman Without Bonus by Year-End, Lawyer Says: Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld, who received $34.4 million in pay in 2007, will be ``terminated'' by the bankrupt company without any bonus, said a lawyer for Lehman.


GM's `Time Is Very Short' as U.S. Studies Aid Request, Adviser Altman Says: General Motors Corp., hammered by the worst auto market in 25 years, needs U.S. aid because ``time is very short'' to stop its collapse, says Roger Altman, the former Treasury official advising GM in merger talks with Chrysler LLC.

Former Treasury Secretary John Snow, now chairman of Cerberus, joined the call for federal help for automakers today, telling CNBC that the government needs to ensure ``that a vital industry like autos, which is such a big part of the overall economy, doesn't lead us into a deeper and harsher downturn.''

A collapse of three U.S. automakers in 2009 would cost almost 3 million jobs in the first year and reduce personal income by $150.7 billion, according to a study released today by the Center for Automotive Research in Ann Arbor, Michigan.

The study takes the worst-case scenario of a shutdown of U.S. automotive production.

My Comment: A lovely illustration of the incestuous relationship between big business and Washington here - Altman the former Treasury official now on the GM payroll, John Snow the former Treasury Secretary, now CEO of Cerberus Capital Managament, chief shareholder of Chrysler. Of course the U.S. auto industry will be considered as "too big to fail" by the government - we can only hope that at least under an Obama administration, the eventual bailout will be structured in such a way that it forces the automakers to embrace green tech and thus make themselves viable in the global economy, where cheap gasoline is not considered a basic right, nor necessarily even desirable. I do agree that the amount of money committed so far to prop up the banks is disproportionately large relative to what would be needed to keep the carmakers from collapse.


U.S. Luxury Retailers Face the Grimmest Holiday Season as Economy Withers: Luxury retailers may suffer the industry's biggest reversal of fortune during the holidays as the global financial crisis dents the wealth of the richest Americans.

Nov. 5 (Bloomberg) -- Luxury retailers may suffer the industry's biggest reversal of fortune during the holidays as the global financial crisis dents the wealth of the richest Americans.

Sales at Saks Inc., Nordstrom Inc. and Neiman Marcus Group Inc. stores open at least a year may decline as much as 3 percent in November and December after advancing 5.2 percent a year earlier, according to the International Council of Shopping Centers trade group.

The 8.2 percentage point swing may be the biggest of the seven retail segments that the New York-based ICSC tracks. The drop in demand may signal that America's wealthiest consumers are retrenching more than the rest of the country, avoiding luxury purchases while the U.S. loses more jobs and home foreclosures rise.

``Conspicuous consumption is less fashionable,'' said Melissa Otto, a senior investment analyst at American Century Investments in New York who tracks the luxury retail market. ``There is a psychological ethos now that people don't want to jump out and be big spenders.''

My Comment: Or maybe it`s less self-consciousness about the appearance of profligacy as the fact that many rich folks have had their net worth get absolutely hammered in the past year, while still having a lot of big bills to pay.

Apparently not even the GOP clothes-buying spree for Sarah Palin was enough to rescue Saks and Neiman Marcus from a dismal projection. Maybe they should consider stocking a line of winter wear made from Genuine USA Moose Fur.

[ewmayer]

Bank of England Leads European Central Banks in Rate Cut as Economies Slow: The Bank of England led European central banks in reducing borrowing costs to counter the worst financial crisis in almost a century, cutting its key rate by 1.5 percentage points to the lowest level since 1955.

``It's absolutely staggering and deeply impressive,'' said Brian Hilliard, director of economic research at Societe Generale in London. ``They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.''

My Comment: You mean, like the huge impact the U.S. fed`s rate-cutting binge of the past year has had? Excuse me if I remain skeptical as to whether a loosening of credit can fix a problem caused by years of too-loose credit. [In order to spare the sensibilities of our French colleagues, I shall omit the obligatory "Toulouse LaCredit" joke here].


Funding Drought Slams Chinese Plans as Banks Shun Plea to Lend

Nov. 5 (Bloomberg) -- Wang Yi, who employs 300 people making children's raincoats on China's east coast, is worried his company won't survive the next year as exports dry up.

The apparel manufacturer, which supplies European supermarket chains Tesco Plc and Aldi Group, needs a 600,000 yuan ($88,000) loan by Jan. 31 to stay afloat. China's state-owned banks rejected his previous applications.

``There's no point trying them again,'' says Wang, 40, standing in his two-story factory in Pinghu, about 90 kilometers (56 miles) southwest of Shanghai, where one floor is half empty. ``They prefer big customers.''

China's largest banks, with 4 trillion yuan of cash, are resisting government efforts to boost lending to 42 million small and medium-size companies that drove the economic boom of the past decade. On Nov. 2, the central bank scrapped curbs on loans after three interest rate cuts in seven weeks failed to revive economic growth that has sagged to its slowest in five years.

Half the nation's toy exporters have closed this year, and 67,000 smaller enterprises filed for bankruptcy in the first half, according to government statistics. Companies with assets of less than 40 million yuan provide three-quarters of urban jobs and 60 percent of China's gross domestic product.

Store sales hammered but Wal-Mart escapes: October retail sales could be the worst in eight years as more Americans rein in spending.


Ambac's debt rating is junk: Moody's downgrades the bond insurer after losses connected to U.S. mortgages.

My Comment: ABK stock slid from around $30 at beginning of the year to around $1 in mid-summer, then rose to nearly $10 in the next 2 months. [Whence the renewed optimism, I have no clue]. Back to the dollar discount days.


Citigroup, Goldman Said to Fire Staff as Part of Plans to Cut 12,000 Jobs: Citigroup Inc. and Goldman Sachs Group Inc., faced with a weakening economy and the prospect of mounting losses, began firing workers as part of the firms' plans to cut more than 12,000 jobs, people with knowledge of the matter said.


Credit-Default Swap Disclosure Hides Truth on Risk Held by World's Banks: The most comprehensive report on unregulated credit-default swaps didn't disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world's biggest insurer.


DeCode Genetics' Science Can't Keep Gene-Finder Solvent in Credit Crunch: Kari Stefansson, DeCode Genetics Inc.'s chief executive officer, made good on a promise to create new ways to identify disease-linked genes. Now his company is struggling to survive after taking too long to convert its many discoveries into profits.

Nov. 6 (Bloomberg) -- Kari Stefansson, DeCode Genetics Inc.'s chief executive officer, made good on a promise to create new ways to identify disease-linked genes. Now his company is struggling to survive after taking too long to convert its many discoveries into profits.

Stefansson, 59, may have to sell assets, including gene tests for cancer and heart disease and a genetic profiling service, to save DeCode, the company said in an Oct. 15 statement. After burning through $676.2 million, DeCode has few prospects for raising cash amid the global credit crunch and in a country struggling with a collapsed banking system.

DeCode, based in Reykjavik, Iceland, has been among the most prolific in using new techniques to identify genetic variations that raise the risk of disease, said Eric Topol, director of the Scripps Translational Science Institute in San Diego. In a conference call tomorrow, Stefansson may detail his plans to sell off DeCode's assets and salvage what is left of the company's gene research.

``Their contributions are enormous,'' Topol said in a Nov. 4 telephone interview. ``They've made more contributions to the discovery of key gene pathways than any academic institution. What their troubles portray is that being a discovery engine isn't enough to make a profitable business.''

The Iceland government took control of the country's banks last month after they were unable to secure funding. DeCode has $24 million in cash and marketable securities and needs about $60 million to $65 million to fund operations for a year, according to the company's regulatory filings. Stefansson declined to be interviewed for this story.

12-Year History

DeCode, which traded at $28.75 a share on Sept. 11, 2000, after a July initial public offering, fell 11 cents, or 24 percent, to 34 cents in Nasdaq Stock Market composite trading at 10:04 a.m. New York time.

Two years ago, Stefansson was explaining how the company he founded in 1996 with money from American venture capitalists and a genealogical-database license from the Icelandic government was about to remake drug making.

DeCode was on its way to putting five molecules into human testing by the end of 2006, and had published research linking separate pieces of DNA to heart attacks and diabetes. The company had $140 million in cash and marketable securities, and was preparing to raise more money with sales of stock and convertible debt.

The company planned to use its gene science to remove time and guesswork from drug development. That would be a boon to patients, who risk side effects in drug trials and often wait years for effective therapies, Stefansson said. DeCode expected to cut drug-development costs by finding key proteins involved in heart disease, diabetes, and other conditions.

`Great Idea'

``It sounded like a great idea at the time,'' said Paul Abel, who manages the $20 million Kinetics Medical Fund, including 11,000 DeCode shares, in White Plains, New York. ``We all should have considered how long it would take to go from identifying a genetic marker to development of a pharmaceutical.''

A former Harvard Medical School professor, Stefansson appeared to have the perfect strategy to take advantage of Iceland's precious resource: its population. Because of their isolation, Icelanders' genes are remarkably alike and can be paired with birth, marriage and medical records that stretch back 1,000 years.

My Comment: Rest of the Bloomberg piece details just how difficult it is to take s great scientific idea and turn it into a revenue-producing drug or medical device. Well worth reading the full thing.

[ewmayer]

Jobless Rate in U.S. Jumps to 6.5%, Highest Since 1994, as Payrolls Tumble: The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.

My Comment: Note that the official figures released by the BLS, bad as they look, are likely wildly optimistic.


GM: Almost out of cash: No. 1 automaker posts huge loss - says it has made case to Washington for rescue.

NEW YORK (CNNMoney.com) -- General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

GM, the nation's largest automaker, reported it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

Ford Has $2.98 Billion Operating Loss, Burns $7.7 Billion Cash in Quarter: Ford Motor Co., with U.S. sales shredded by the worst financial crisis since the Great Depression, posted a third-quarter operating loss of $2.98 billion and said it used up $7.7 billion in cash.


Schwarzenegger proposes "drastic" 1.5-cent sales tax increase to close California budget gap

SACRAMENTO — Reacting to a gaping $11.2 billion hole in the California state budget he signed just six weeks ago, Gov. Arnold Schwarzenegger today announced a proposal to raise the state sales tax by 1.5 cent.

In addition, he proposed implementing a brand new tax on services, such as those offered by veterinary clinics, auto repair and golfing fees. He also plans to implement a tax on producers that extract oil from California ground, and increase alcohol excise taxes by five cents a drink His tax package would bring $4.7 billion new revenue. Most of the rest of the budget shortfall would come in the form of cuts to education, prisons, public safety, Medi-Cal and social services.

Although the Republican governor spent the spring and summer telling Californians the state suffered from a spending problem that led to a $15 billion budget deficit, the world economic downturn has since pushed the state into having a revenue problem.

"A drastic situation like this," Schwarzenegger told a news conference, "takes drastic measures."

Anticipating the tax proposal, Republican legislative leaders this week said they would oppose any such plan. Schwarzenegger, however, was hopeful lawmakers would understand the unprecedented situation and vote to revise the budget.

My Comment: The irony of this (which would raise the total sales tax to 10% or more in CA) is that it will hurt retail sales, which not only hurts the CA economy but partially negates the revenue gain for the state. Also, it will drive a lot of purchases online and out of state. Regarding the 5-cents-a-drink increase in the alcohol excise tax, expect many bars and restaurants to magically transmute that into a 50-cent-per-drink price hike for the "end user". I recall a wave of similar price gouging that occurred in much of Europe when the shift to the common currency occurred.


In Hedge-Fund news, Myron Scholes, 1997 Nobel laureate in economics, is at again:

Scholes's Platinum Grove Fund Halts Withdrawals After Losses

Nov. 6 (Bloomberg) -- Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October.

The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc.

...

Scholes, 67, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management LP, the hedge fund that lost $4 billion a decade ago after a debt default by Russia. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at Long-Term Capital.

My Comment: A beautiful mind, but a terrible risk manager.


Dublin's Early Christmas Lights Fail to Boost `Basket Case' Irish Economy: Christmas is coming early to Dublin this year as city officials try to dispel the gloom from the country's first recession in two decades.

Nov. 7 (Bloomberg) -- Christmas is coming early to Dublin this year as city officials try to dispel the gloom from the country's first recession in two decades.

Mayor Eibhlin Byrne will switch on the Irish capital's festive lights display on Nov. 9, before cities such as London, New York and Edinburgh, after bringing the ceremony forward by three weeks from last year.

``For retailers, it's not an easy time,'' said Byrne. ``We are harking back to John F. Kennedy and we are asking not what your city can do for you but what you can do for your city.''

Irish shoppers powered the fastest-growing economy in Western Europe over the last five years. Now, consumers are cutting spending as unemployment rises and property prices slump. Gerry Harvey, chairman of Sydney-based electronics and furniture retailer Harvey Norman Holdings Ltd., which has four Dublin stores, described Ireland's economy as ``a basket case.''

``They are putting on the lights early to make people spend their money,'' said Margaret O'Hara, 70, browsing on Henry Street, one of the city's main shopping boulevards. ``The shops are not doing business. There's no bustle there.''

There are signs of the slowdown throughout the city of 1 million people. Across the River Liffey, which divides Dublin, a 22,000 square-foot store housed in a converted 18th century building lies idle, after a franchise of London-based furniture retailer Habitat Ltd. closed down its outlet in May, blaming declining sales on a slump in the property market.

My Comment: Clearly, people in debt over their heads and deeply concerned about the economy and where their next paycheck is coming from will instantly turn into wild spenders upon seeing Christmas lights. It`s like cocaine-addicted lab rats, you see...


Elko Glitters as Gold Helps Town Avoid `Going to Hell in a Hand Basket': Jim Winer is so confident the gold- mining town of Elko, Nevada, will sidestep the recession barreling down on the U.S. that he's developing houses, offices and a shopping mall.

``Everyone's hiring,'' said Winer as he drove past the site of a 55,000-square-foot office complex he's building for Denver- based Newmont Mining Corp. ``Business is really good.''

The desert town is booming as investors seek refuge in gold while U.S. home prices slump, foreclosures rise and stocks recede. ``Help Wanted'' signs beckon along the main street as retailers and hoteliers gear up for growth in the heart of the biggest U.S. gold-producing area.

``As long as the economy is going to hell in a hand basket, Elko is going to be just fine,'' said Wendy Ispisua, who sells houses in the town's suburb of Spring Creek.

Gold has performed better than equities since it started climbing from $253.90 an ounce in July 1999. While bullion prices have almost tripled since then, the Dow Jones Industrial Average has fallen by a fifth. The Dow has lost about a third since recording its highest-ever close on Oct. 9 last year, while gold is little changed.

Gold traded at $733.90 an ounce in New York yesterday after touching a record of $1.033.90 in March.

Newmont Mining Chief Executive Officer Richard T. O'Brien said prices will climb once the inflationary impact of a worldwide bailout of banks becomes evident.

`Bullish' on Gold

``As we see the U.S. continue to print money, I think we will see gold prices come back,'' O'Brien said in an Oct. 29 conference call with investors. ``We remain bullish on the long- term prospects for the gold price.''

My Comment: I`m sure the gold bulls remained bullish on gold ever since the big spike back in '80s ... they were bullish on gold as it massively underperformed equities for the past 25 years. They were bullish that gold would soon hit $2000 per ounce this past summer. Now that they got lots of suckers to buy at $1000 and quickly lose 30% of their investment, they are - you guessed it - bullish that gold will come back. That`s why we call these types of folks "permabulls".


Fidelity to cut nearly 1,300 jobs: World's largest mutual fund company to cut 1,300 jobs now, and more later, adding to layoffs from Janus, AllianceBernstein.

NEW YORK (CNNMoney.com) -- Fidelity Investments, the largest U.S.-based mutual fund company, is the latest to announce layoffs, which it blames on the economic crisis.

Fidelity said on Thursday that it would cut 2.9% of its 44,400-employee work force, which translates to about 1,300 lost jobs.

"We are trying to implement these cuts in a thoughtful and measured way," said Fidelity spokeswoman Anne Crowley, noting that many of the cuts would be management positions. "The de-layering of management, we believe, will help."

Fidelity is privately-held and based in Boston. Crowley said the cuts would be spread evenly throughout its U.S. locations. She said the company is still hiring in the customer services area.

If misery loves company, the laid-off workers will find plenty of both. The U.S. economy has shed some 760,000 jobs so far this year, through September.

The firm said another round of layoffs would occur in the first quarter of 2009. The company did not specify the number for the second round of cuts, but Crowley said it would be less than the 2,500 cuts that were projected in recent media reports.

The announcement follows two other recently-reported layoffs from mutual companies. Janus Capital Group Inc. is cutting 115 jobs, which equals nearly 10% of its work force. AllianceBernstein Holding LP (AB) did not specify its number of pink slips.

[Fusion_power]

now we are entering a general bloodbath stage. Circuit City filed bankruptcy (no surprise) and other major companies are releasing earnings that include major writedowns of tax and goodwill assets (Nortel). On a technical level, writedowns are not that significant against a company's operating position, but the market takes a very dim view of such actions.

Look for similar actions by more major companies as the subprime/credit/asset bubble bloodbath continues. Expect world governments to continue trying to fill up huge economic holes with bundles of cash.

DarJones

[ewmayer]

China Announces $586 Billion Stimulus Plan, Tax Cuts to Boost the Economy: China, the biggest contributor to world growth, unveiled a 4 trillion yuan ($586 billion) plan to sustain its economy, spurring gains in stocks, metals and oil.

My Comment: Mish Shedlock details just how badly things are deteriorating in China.


Ruble Devaluation Looms as Oil Depletes Surplus; Troika Sees 30% Decline: Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble.


Deutsche Post to Scrap 14,900 Jobs, U.S. Express Service as Economy Slumps: Deutsche Post AG, Europe's biggest mail carrier, will eliminate 14,900 jobs and scrap domestic express deliveries in the U.S., where the economic slump exacerbated the unit's losses.


AIG Bailout Swells to $150 Billion as Insurer Reports Fourth Straight Loss: American International Group Inc. got a $150 billion government rescue package, almost doubling the initial bailout of less than two months ago as the insurer burns through cash at a record rate.


GM shares hit 60-year low on downgrade: Barclays analyst says automaker may not have enough cash to operate in next quarter; government bailout likely.


Circuit City Files for Bankruptcy Amid Competition From Best Buy, Wal-Mart: Circuit City Stores Inc. filed for bankruptcy amid rising competition from Best Buy Co., Wal-Mart Stores Inc. and online electronics retailers.

The Richmond-based company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City plans to stay in business while it comes up with a plan to restructure.

``It's very incongruent for retailers to file bankruptcy before Christmas,'' Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview. ``You're going to see a record number of retailer bankruptcies and closings.''

My Comment: CC is [or was] the second-biggest U.S. electronics retailer. It`s going to be a fugly Christmas for retailers.


Fannie Mae Posts Record $29 Billion Quarterly Loss After Asset Writedowns: Fannie Mae posted a record quarterly loss as new Chief Executive Officer Herbert Allison slashed the value of the mortgage-finance provider's assets by at least $21.4 billion and said it may need to tap federal funds next year.

My Comment: A lot of the posted loss was due less to deterioration on the business as to the kind of thorough housecleaning and healthy revenue-model skepticism that was completely absent under Daniel "My name is" Mudd in Fannie`s pre-conservastorship days. But as of today, Fannie officially has negative net equity value.


Postal Service Looks To Cut 40,000 Jobs In First Layoff In History

SHREVEPORT, LA (KSLA) - "We lost 2 billion dollars and like any other business we have to stay afloat." And to keep from sinking, the United States Postal Service is considering cutting thousands of jobs nationwide. Lavelle Pepper with the post office in Shreveport says they too are feeling the affects of the same disease hitting the country... a struggling economy. "We employ about 685,000 people. If we do layoffs it would include clerks, carriers, mail handlers across all crafts."

Pepper says the postal service is looking to eliminate 40,000 jobs nationwide. There's not an exact number on how many of those could be from the Ark-La-Tex. Pepper says workers who are not part of union with six or less years of service would likely be the first on the chopping block. "We've identified 16 thousand people that are not covered under contract. We'll see what those numbers add up to."

The postal service is also offering early retirement packages to workers over the age of 50 who have more than 20 years on the job. But according to pepper it may not be enough. "The preliminary numbers look like it's not going to be enough and we may have to do something else." But despite what may happen, Pepper says customers will not feel the pain they're going through. "The general public when it takes place won't se any decrease in service.. They largely won't know about it."

My Comment: Right, we won`t know about it ... until they raise postage rates yet again.


Scholes, Thiel Are Losers as Hedge Funds Decline for Fifth Straight Month: Hedge funds run by Jeffrey Gendell and John Burbank III posted their worst monthly losses in October. Peter Thiel gave back gains made earlier in the year. Nobel-prize winner Myron Scholes froze his biggest fund.

Gendell`s Tontine Capital Partners LP fund, based in Greenwich, Connecticut, plunged 65.7 percent in October, extending its decline for the year to 76.8 percent, according to investors. Burbank's Global Strategy fund fell 38 percent in the month and 44 percent year-to-date, according to a letter to clients of his San Francisco-based based Passport Capital Management LLC.

Ken Griffin, founder of Citadel Investment Group LLC, lost 22 percent last month in his Kensington and Wellington funds, extending the year-to-date-slide to 39 percent, according to people familiar with the firm.

Chicago-based Citadel, which oversees $16 billion, held a conference call with investors Oct. 24 to dispel speculation that it was liquidating. Griffin, 40, told Citadel bondholders that the firm had $8 billion in untapped bank credit and 30 percent of its assets in cash, and faced ``modest'' client redemptions.

Gains Evaporate

Some managers have seen gains from the first half of the year evaporate. Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Thiel, slumped 18 percent in October, according to estimates given to investors. The San Francisco-based firm's Clarium LP fund reported a year-to-date decline of 2.8 percent, wiping out the 58 percent gain from the first half.

My Comment: those kinds of staggering one-month losses tell me that many of these funds are still leveraged to the hilt, perhaps in an attempt to recoup their losses of earlier this year. But for a fund like Clarium, which has booked a hefty gain for the year, to keep rolling the dice ... the managers of these things are prime candidates for Gambler`s Anonymous.


Bloomberg In-Depth: The Final Days of Lehman Brothers: It was the afternoon of Sept. 9, and tensions were rising in the 31st-floor office of Lehman Brothers Holdings Inc. Chief Executive Officer Richard S. Fuld Jr.

Nov. 10 (Bloomberg) -- It was the afternoon of Sept. 9, and tensions were rising in the 31st-floor office of Lehman Brothers Holdings Inc. Chief Executive Officer Richard S. Fuld Jr.

That morning news broke that the Korea Development Bank had pulled out of talks to buy a stake in the New York-based securities firm. By 1 p.m., Lehman's already battered stock had plunged another 43 percent.

Fuld was rat-a-tatting orders to associates seated at a table in his corner office, one wall of which featured photographs of lions taken by the boss himself in Africa. Herbert ``Bart'' McDade, installed as president in June, Vice Chairman Thomas A. Russo and Chief Financial Officer Ian T. Lowitt had been in and out of Fuld's lair all morning. Now the CEO was staring daggers at responses he deemed too slow or too fuzzy to help right his listing ship, said a person familiar with events that day. And he was lashing out at the injustice of it all.

``Here we go again,'' Fuld erupted at one point, the person recalled. ``Perception trumping reality once more.''

It was vintage Fuld, a man so physically imposing, so volcanically explosive that, even at age 62, he scared underlings and competitors alike. He was raging on the captain's bridge, while a storm engulfed the company he had willed into becoming one of Wall Street's finest. Couldn't the short-sellers see how much he had done to shed bad assets? Couldn't they understand what a great franchise it still was?

Fuld was grounded enough in reality to know one thing: ``We've got to act fast,'' he said, ``so this financial tsunami doesn't wash us away.''

Financial Armageddon

Six days later -- 158 years after its founding as a cotton brokerage in Alabama -- Lehman Brothers was gone. Treasury Secretary Henry M. Paulson Jr. said he didn't want to use taxpayer money to save Lehman, as the government had done in March when it pledged $29 billion to facilitate the sale of failing Bear Stearns Cos. to JPMorgan Chase & Co. Federal Reserve Chairman Ben S. Bernanke insisted there was nothing the government could have done in the end, even though Fuld had warned that Lehman's collapse could trigger a financial Armageddon.

Fuld's failure to save Lehman, after rescuing it three times before, is a story about how the most indomitable man on Wall Street became addicted to leverage and intoxicated with the power it brought. It is a tale about the inability to repair a financial model wrecked by a lack of limits and transparency, a story pieced together from interviews with former Lehman executives and outsiders familiar with the firm. Isolated, surrounded by acolytes and unaware of the rivalries tearing his firm apart, Fuld was too prideful to accept the fast-eroding value of the empire he had built, too slow to cut a deal.