Full Version: Financial Turmoil
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<h2 class="post-title">Wall Street Report Tries to Dissect Financial Meltdown</h2> August 6, 2008, 11:58 am A group of Wall Street executives released a report on Wednesday that outlined how the industry failed to foresee the financial meltdown of the last year and what companies can do to improve risk management.
The 172-page report (PDF), written by chief risk officers and senior executives at banks like Lehman Brothers, Merrill Lynch and Citigroup, also provides suggestions about technical issues at the same time as it offers a bit of a mea culpa.
“Virtually everybody was frankly slow in recognizing that we were on the cusp of a really draconian crisis,” said E. Gerald Corrigan, a managing director at Goldman Sachs and a chairman of the Counterparty Risk Management Policy Group III , which released the report.
Wall Street failed to anticipate how wide-reaching problems with mortgage bonds would spread into seemingly distant corners of the financial markets, the report said. Awash in easy money, banks doled out credit without sufficiently charging for the risk. Wall Street also created complex structures that masked connections between asset classes as well as compensation incentives that pushed traders to take risky steps for short-term gain. The industry’s failings have now translated into pain for the broader economy, the report said.
In many ways, the report acknowledged short-comings that have already been raised by Wall Street’s critics.
Mr. Corrigan, a former president of the New York Federal Reserve, formed the group in April to develop a private-sector plan for minimizing future problems in the financial markets. He said in an interview that he hoped the report’s suggestions would be adopted industry-wide within two years.
Go to Article from The New York Times »
Go to Counterparty Risk Management Group Report (PDF) »
http://dealbook.blogs.nytimes.com/2008/08/...ncial-meltdown/
The 172-page report (PDF), written by chief risk officers and senior executives at banks like Lehman Brothers, Merrill Lynch and Citigroup, also provides suggestions about technical issues at the same time as it offers a bit of a mea culpa.
“Virtually everybody was frankly slow in recognizing that we were on the cusp of a really draconian crisis,” said E. Gerald Corrigan, a managing director at Goldman Sachs and a chairman of the Counterparty Risk Management Policy Group III , which released the report.
Wall Street failed to anticipate how wide-reaching problems with mortgage bonds would spread into seemingly distant corners of the financial markets, the report said. Awash in easy money, banks doled out credit without sufficiently charging for the risk. Wall Street also created complex structures that masked connections between asset classes as well as compensation incentives that pushed traders to take risky steps for short-term gain. The industry’s failings have now translated into pain for the broader economy, the report said.
In many ways, the report acknowledged short-comings that have already been raised by Wall Street’s critics.
Mr. Corrigan, a former president of the New York Federal Reserve, formed the group in April to develop a private-sector plan for minimizing future problems in the financial markets. He said in an interview that he hoped the report’s suggestions would be adopted industry-wide within two years.
Go to Article from The New York Times »
Go to Counterparty Risk Management Group Report (PDF) »
http://dealbook.blogs.nytimes.com/2008/08/...ncial-meltdown/
Can America's Carmakers Survive? - Paul Ingrassia, Wall Street Journal
Why Pain at the Pump Hurts More Here - Tion Kwa, Washington Post
McCain's Not-So-Bright Energy Ideas - Editorial, Los Angeles Times
Say Watt, Senator Obama? - Editorial, Investor's Business Daily
The Economics of Being Green - Alice Thomson, Times of London
Why Pain at the Pump Hurts More Here - Tion Kwa, Washington Post
McCain's Not-So-Bright Energy Ideas - Editorial, Los Angeles Times
Say Watt, Senator Obama? - Editorial, Investor's Business Daily
The Economics of Being Green - Alice Thomson, Times of London
The Fed's next move is down
With the US Federal Reserve showing no stomach to fight inflation, the recent decline in commodity prices gives Fed chairman Ben Bernanke a golden opportunity to cut interest rates further to avoid the looming recession becoming a depression. - John Browne
With the US Federal Reserve showing no stomach to fight inflation, the recent decline in commodity prices gives Fed chairman Ben Bernanke a golden opportunity to cut interest rates further to avoid the looming recession becoming a depression. - John Browne
Monetary joyride
What's with this discrimination? The cop still wrote a ticket when it was clear the car broke the speed limit of its own accord and I only had my foot on the accelerator. Yet there's no ticket for central bank chiefs when global commodity prices soar.
What's with this discrimination? The cop still wrote a ticket when it was clear the car broke the speed limit of its own accord and I only had my foot on the accelerator. Yet there's no ticket for central bank chiefs when global commodity prices soar.
U.S. Stock-Index Futures Retreat on AIG's Loss, Wal-Mart Sales - Bloomberg (08/07/2008 07:53 AM) Gold Rises as Banks Report Credit Losses, Spurring Haven Demand - Bloomberg (08/07/2008 05:39 AM) Crude Oil Rises as Turkey Says Pipeline Repair May Take 2 Weeks - Bloomberg (08/07/2008 07:57 AM) US dollar down, gold up in European trading - AP (08/07/2008 07:55 AM) Treasuries Gain After Unemployment Claims Reach Six-Year High - Bloomberg (08/07/2008 08:02 AM)
The Credit Crunch - 1 year on Want to know more about why the credit crunch happened, what the key moments were, and who saw it coming? The FT In Depth on the 1 year anniversary of the credit crunch will answer all of your key questions.For full details on how serious the damage has really been to the economy around the world, and how bad it might still get, visit FT.com today.
Credit Crunch anniversary in depth
Russia's Economic Clout Powers Geopolitical Aims
- WSJ ($)
- 08/10/2008 07:13 PM
- FT
- Byron Wien
- 08/10/2008 04:58 PM
- FT
- 08/10/2008 04:57 PM
- Reuters
- 08/10/2008 01:53 PM
- AFP
- 08/10/2008 07:01 AM
- NY Times
- 08/10/2008 06:50 AM
- NY Times
- Morgenson
- 08/10/2008 06:49 AM
- NY Times
- 08/10/2008 06:47 AM
Defaults Climb, Fannie Mae Posts $2.3B Loss - D. Hilzenrath, WaPo
Fannie: Sun Will Come Out Tomorrow - Colin Barr, Fortune
Have Ben and the Fed Done Enough? - Zubin Jelveh, Portfolio
Why Their Economic Plans Don't Add Up - Jane Sasseen, BusinessWeek
The Folly of Obama’s Tax Plan - Alex Brill & Alan Viard, The American
How The Gov't Has Mismanaged The Country - Knowledge@Wharton
Budget Trickery Hurting Future Generations - Michael Granof, NY Times
Fannie: Sun Will Come Out Tomorrow - Colin Barr, Fortune
Have Ben and the Fed Done Enough? - Zubin Jelveh, Portfolio
Why Their Economic Plans Don't Add Up - Jane Sasseen, BusinessWeek
The Folly of Obama’s Tax Plan - Alex Brill & Alan Viard, The American
How The Gov't Has Mismanaged The Country - Knowledge@Wharton
Budget Trickery Hurting Future Generations - Michael Granof, NY Times
CREDIT BUBBLE BULLETIN
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday.
THE WEEK AHEAD
MARKET RAP
Movin' on down the line
Shanghai and Mumbai, for some time volatile partners in decline, went their separate ways as Indian stocks made the most of a drop in world oil prices. Yet the downward path still beckons in both markets.
R M Cutler runs his eye over the ups and downs in the week's
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday.
THE WEEK AHEADMARKET RAP
Movin' on down the line
Shanghai and Mumbai, for some time volatile partners in decline, went their separate ways as Indian stocks made the most of a drop in world oil prices. Yet the downward path still beckons in both markets.
R M Cutler runs his eye over the ups and downs in the week's
From Rice Age To a Commodity Bear - Caroline Baum, Bloomberg
The Riddle of the Impossible Surpluses - David Marsh, MarketWatch
Byrd's Anti-Trade Law Is Back - Editorial, Wall Street Journal
We're Not Yet Safe from the Credit Crisis - Roger Bootle, Telegraph
The Euro's Joyride Is At an End - Rosemary Righter, Times of London
The Riddle of the Impossible Surpluses - David Marsh, MarketWatch
Byrd's Anti-Trade Law Is Back - Editorial, Wall Street Journal
We're Not Yet Safe from the Credit Crisis - Roger Bootle, Telegraph
The Euro's Joyride Is At an End - Rosemary Righter, Times of London
THE BEAR'S LAIR
Downsizing of
finance underway
The Corrigan plan to bring US-traded derivatives under the ambit of regulators is a feeble first step in the right direction. It at least demonstrates that much of the financial services innovation of the last generation was spurious and unsound, and needs to be done away with. Pity about the meltdown that will follow. - Martin Hutchinson
THE MOGAMBO GURU
The pension-plan cookie thief
Everyone likes something for free so it should be no surprise that companies are dipping their fingers into the pension plans of regular employees to top up executives' compensation. The other term for this stuff is parasitic capitalism.
Downsizing of
finance underway
The Corrigan plan to bring US-traded derivatives under the ambit of regulators is a feeble first step in the right direction. It at least demonstrates that much of the financial services innovation of the last generation was spurious and unsound, and needs to be done away with. Pity about the meltdown that will follow. - Martin Hutchinson
THE MOGAMBO GURU
The pension-plan cookie thiefEveryone likes something for free so it should be no surprise that companies are dipping their fingers into the pension plans of regular employees to top up executives' compensation. The other term for this stuff is parasitic capitalism.
CREDIT BUBBLE BULLETIN
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday. (Aug 11, '08)
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday. (Aug 11, '08)
In This Economy Whole Foods Goes Bad - Matthew DeBord, LA Times
The Multi-Billion Dollar Olympics - Irwin Stelzer, Weekly Standard
Since '02, Wall Street Research Has Deteriorated - A.R. Sorkin, NY Times
Lessons from the Credit Crunch - Desmond Lachman, The American
Subprime Debacle Is a Bush Mess - Diane Francis, National Post
The Multi-Billion Dollar Olympics - Irwin Stelzer, Weekly Standard
Since '02, Wall Street Research Has Deteriorated - A.R. Sorkin, NY Times
Lessons from the Credit Crunch - Desmond Lachman, The American
Subprime Debacle Is a Bush Mess - Diane Francis, National Post
by Richard Benson | Aug 11
How Much Will Government Bailouts Actually Cost the American Taxpayer?
For now, Fannie Mae and Freddie Mac have been essentially nationalized and the Federal Reserve has been turned into a dumping ground for toxic waste mortgage securities beginning with the Bear Stearns bailout.
Read more >
How Much Will Government Bailouts Actually Cost the American Taxpayer?
For now, Fannie Mae and Freddie Mac have been essentially nationalized and the Federal Reserve has been turned into a dumping ground for toxic waste mortgage securities beginning with the Bear Stearns bailout.
Read more >
Did It Help to Curb Short Sales? - Floyd Norris, New York Times
President Obama Won't Revive Unions - Steven Malanga, RealClearMarkets
To Fix United Airlines, Liquidate It - Roben Farzad, Business Week
For GM, What Might Have Been... - Alex Taylor, Fortune
Sporting Events Impact Investor Moods - Mark Hulbert, MarketWatch
President Obama Won't Revive Unions - Steven Malanga, RealClearMarkets
To Fix United Airlines, Liquidate It - Roben Farzad, Business Week
For GM, What Might Have Been... - Alex Taylor, Fortune
Sporting Events Impact Investor Moods - Mark Hulbert, MarketWatch
THE MOGAMBO GURU
The world
on its head
The shambles of the US economy, from banking crisis to chaotic housing sector, hasn't prevented the strongest showing in years of the US dollar. And us poor folk, it seems, are not so poor after all. You can't make this stuff up!
CREDIT BUBBLE BULLETIN
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday. (Aug 11, '08)
THE WEEK AHEAD
MARKET RAP
Movin' on down the line
Shanghai and Mumbai, for some time volatile partners in decline, went their separate ways as Indian stocks made the most of a drop in world oil prices. Yet the downward path still beckons in both markets.
The worldon its head
The shambles of the US economy, from banking crisis to chaotic housing sector, hasn't prevented the strongest showing in years of the US dollar. And us poor folk, it seems, are not so poor after all. You can't make this stuff up!
CREDIT BUBBLE BULLETIN
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Doug Noland looks at the previous week's events each Monday. (Aug 11, '08)
THE WEEK AHEADMARKET RAP
Movin' on down the line
Shanghai and Mumbai, for some time volatile partners in decline, went their separate ways as Indian stocks made the most of a drop in world oil prices. Yet the downward path still beckons in both markets.
Dubai: The U.S.'s Back Door To Iran - Christopher Stewart, Portfolio
U.S. Economy & The 'R' Word - Harold Furchtgott-Roth, New York Sun
Big Funds Embrace Dollar - A. Evans-Pritchard, Daily Telegraph
Why the Dollar Rally Ends Here - Colin Barr, Fortune
Guns of August Give Dollar a Boost - James Saft, Reuters
U.S. Economy & The 'R' Word - Harold Furchtgott-Roth, New York Sun
Big Funds Embrace Dollar - A. Evans-Pritchard, Daily Telegraph
Why the Dollar Rally Ends Here - Colin Barr, Fortune
Guns of August Give Dollar a Boost - James Saft, Reuters
Will the Fed's Courage Pay Off? - David Wighton, Times of London
Markets Respond to a Surging Dollar - Irwin Stelzer, Weekly Standard
Gordon Brown's Problem is the Dollar - John Tamny, Daily Telegraph
In Europe, Economy Is Suffering Too - The Economist
The Case for More Energy Production - Jon Basil Utley, Reason
Markets Respond to a Surging Dollar - Irwin Stelzer, Weekly Standard
Gordon Brown's Problem is the Dollar - John Tamny, Daily Telegraph
In Europe, Economy Is Suffering Too - The Economist
The Case for More Energy Production - Jon Basil Utley, Reason
Media Has Had Election Wrong From Start
- Steven Stark, Boston Phoenix
How to Stop Putin
- Charles Krauthammer, Washington Post
Corsi, Swift Boats, Obama, The Enquirer, and Smears
- Byron York, NRO
No Excuse for Republican Smear Tactics
- Joe Klein, Time
- Steven Stark, Boston Phoenix
How to Stop Putin
- Charles Krauthammer, Washington Post
Corsi, Swift Boats, Obama, The Enquirer, and Smears
- Byron York, NRO
No Excuse for Republican Smear Tactics
- Joe Klein, Time
Gold and theout-of-whack economy
Things that are out of whack tend to get back into whack, or put another way, things that sell for half their value end up costing full price. Take gold as an example. Or silver. It is enough to make you scream "Bargain!!!"
CREDIT BUBBLE BULLETIN
Riddle of the burst bubble
Many are celebrating the bursting of the energy/commodities bubble as pressure comes off the US Federal Reserve to raise rates. Yet hedge funds are now susceptible to huge year-end redemptions and tighter credit, while the pool of players willing and able to acquire US risk assets is being depleted by the week.
Let's Drill Our Way to Lower Taxes - Andrew Moylan, Wall Street Journal
Will McCain Flip Flop on Alaskan Oil? - Stephen Hayes, Wkly. Standard
McCain's Insane Tax Proposal - Jonathan Chait, The New Republic
The Axis of Oil - Editorial, Investor's Business Daily
My Kind of Tax Flip Flop - Larry Kudlow, RealClearMarkets
Will McCain Flip Flop on Alaskan Oil? - Stephen Hayes, Wkly. Standard
McCain's Insane Tax Proposal - Jonathan Chait, The New Republic
The Axis of Oil - Editorial, Investor's Business Daily
My Kind of Tax Flip Flop - Larry Kudlow, RealClearMarkets
The US Housing Market Mess the Experts Missed - 14th Aug 08
The Case For and Against the US Dollar - 13th Aug 08
Hard Cold Numbers on the Credit Crunch - 15th Aug 08
14-Aug-2008 Foreclosure fallout: Houses go for a $1
14-Aug-2008 Driven to do less driving
14-Aug-2008 25% of home sales result in loss
14-Aug-2008 Driven to do less driving
14-Aug-2008 25% of home sales result in loss
14-Aug-2008 U.S. Home Sales Fall to 10-Year Low as Prices Tumble
13-Aug-2008 Bank of England Cuts Growth Forecasts, Jobless Climbs
13-Aug-2008 Retail sales ease in July
13-Aug-2008 Japan's economy contracts in April-June quarter
12-Aug-2008 The next wave of mortgage defaults
12-Aug-2008 One Third of New Owners Owe More Than House Is Worth
12-Aug-2008 JPMorgan Loses $1.5 Billion Since July on Debt Prices
12-Aug-2008 Financial bubbles are like epidemics
11-Aug-2008 Crybaby capitalists whine for more
11-Aug-2008 Credit Unions Report Big Mortgage-Related Losses
11-Aug-2008 Economic slide to extend into 2009
11-Aug-2008 Credit squeeze getting worse, banks say
10-Aug-2008 This credit crisis is like the plague and nobody is safe yet
09-Aug-2008 US dollar rallies as extent of worldwide recession becomes clearer
08-Aug-2008 Barclays chief says worst of crisis over
08-Aug-2008 Governments cause the credit crisis, but capitalism gets the blame
13-Aug-2008 Bank of England Cuts Growth Forecasts, Jobless Climbs
13-Aug-2008 Retail sales ease in July
13-Aug-2008 Japan's economy contracts in April-June quarter
12-Aug-2008 The next wave of mortgage defaults
12-Aug-2008 One Third of New Owners Owe More Than House Is Worth
12-Aug-2008 JPMorgan Loses $1.5 Billion Since July on Debt Prices
12-Aug-2008 Financial bubbles are like epidemics
11-Aug-2008 Crybaby capitalists whine for more
11-Aug-2008 Credit Unions Report Big Mortgage-Related Losses
11-Aug-2008 Economic slide to extend into 2009
11-Aug-2008 Credit squeeze getting worse, banks say
10-Aug-2008 This credit crisis is like the plague and nobody is safe yet
09-Aug-2008 US dollar rallies as extent of worldwide recession becomes clearer
08-Aug-2008 Barclays chief says worst of crisis over
08-Aug-2008 Governments cause the credit crisis, but capitalism gets the blame
10-Aug-2008 This credit crisis is like the plague and nobody is safe yet
09-Aug-2008 US dollar rallies as extent of worldwide recession becomes clearer
08-Aug-2008 Barclays chief says worst of crisis over
08-Aug-2008 Governments cause the credit crisis, but capitalism gets the blame
08-Aug-2008 Britain's housing bust is bringing down the economy
08-Aug-2008 Money Market `Plagued' by Libor That Fed Can't Reduce
07-Aug-2008 Defaults to Rise in Europe a Year After Crunch Began
07-Aug-2008 Tempest for a Bank That Bet on Risky Loans
07-Aug-2008 A.I.G. Posts a Large Loss as Housing Troubles Persist
09-Aug-2008 US dollar rallies as extent of worldwide recession becomes clearer
08-Aug-2008 Barclays chief says worst of crisis over
08-Aug-2008 Governments cause the credit crisis, but capitalism gets the blame
08-Aug-2008 Britain's housing bust is bringing down the economy
08-Aug-2008 Money Market `Plagued' by Libor That Fed Can't Reduce
07-Aug-2008 Defaults to Rise in Europe a Year After Crunch Began
07-Aug-2008 Tempest for a Bank That Bet on Risky Loans
07-Aug-2008 A.I.G. Posts a Large Loss as Housing Troubles Persist
Dallas Fed chief Richard W. Fisher speaks his mind in Q&A
- Dallas Morning News
- 08/17/2008 02:20 PM
- Reuters
- 08/17/2008 02:18 PM
- Reuters
- 08/17/2008 07:08 AM
- AFP
- 08/17/2008 07:07 AM
- LA Times
- 08/17/2008 07:04 AM
- LA Times
- 08/17/2008 07:00 AM
- Fortune
- 08/16/2008 07:34 PM
- NY Times
- Morgenson
- 08/16/2008 07:33 PM
- Barron's
- 08/16/2008 06:25 AM
- Barron's
- 08/16/2008 06:19 AM
We All Pay for Fed's Loose Money Follies - Benn Steil, WSJ
The Fed Can Learn from History’s Blunders - Barry Eichengreen, FT
No Quick Fix for America's War-Torn Economy - J. Stiglitz, Proj. Syndicate
The Endgame Nears For Fannie and Freddie - Jonathan Laing, Barron's
Higher Oil Won't Affect Globalization - Jacks, Meissner & Novy, VoxEU
Inflation Is a Clear and Present Danger - Brian Wesbury, Wall St. Journal
Running a Hedge Fund Is Harder Than It Looks - A. Ross Sorkin, NYT
For Obama and McCain, Wall Street Awaits - Liz Moyer, Forbes
Wall Street Has a Bad Reputation - David Weidner, MarketWatch
To Drill or Not to Drill - Taylor vs. White, Los Angeles Times
All Eyes Are On the Fed - Gerard Baker, Times of London
The Great Lobster-Price Mystery - Daniel Gross, Slate
New Jersey Is New York's Lesson in Failure - Steven Malanga, NY Post
The World Economy: A Problem Shared - The Economist
Obama Tax Plan Resembles Father's - Editorial, Investor's Business Daily
The Good and Bad of Obama's Tax Plan - John Tamny, RealClearMarkets
No Limit to Greenspan's 'Unique' Events - Caroline Baum, Bloomberg
Running a Hedge Fund Is Harder Than It Looks - A. Ross Sorkin, NYT
For Obama and McCain, Wall Street Awaits - Liz Moyer, Forbes
Wall Street Has a Bad Reputation - David Weidner, MarketWatch
To Drill or Not to Drill - Taylor vs. White, Los Angeles Times
All Eyes Are On the Fed - Gerard Baker, Times of London
The Great Lobster-Price Mystery - Daniel Gross, Slate
New Jersey Is New York's Lesson in Failure - Steven Malanga, NY Post
The World Economy: A Problem Shared - The Economist
Obama Tax Plan Resembles Father's - Editorial, Investor's Business Daily
The Good and Bad of Obama's Tax Plan - John Tamny, RealClearMarkets
No Limit to Greenspan's 'Unique' Events - Caroline Baum, Bloomberg
RCM Morning Archive
Off the Street
Obama's Capital-Gains Epiphany - James Pethokoukis, U.S. News
A Scramble for Alpha - Vinny Catalano, Blue Marble Research
M2 Growth Suggests '70s Inflation Won't Return - Mark Perry, Carpe Diem
Corporate Tax Rate Is Complex & Distortionary - Mike Moffatt, About.com
Is the Buck Really Back? - Claus Vistesen, Seeking Alpha
More on the Roots of the Bailout - Arnold Kling, EconLog
Transcripts & Videos
State of the U.S. Economy - Pethokoukis & Tamny, Bloggingheads TV
Henry Cisneros on Fannie & Freddie - Liz Claman, Fox Business
Monday Wrap-Up of Market Drop - Bloomberg
BofA's Rosenberg Sees Prime Mortgage Losses Rising - Financial Times
Off the Street
Obama's Capital-Gains Epiphany - James Pethokoukis, U.S. News
A Scramble for Alpha - Vinny Catalano, Blue Marble Research
M2 Growth Suggests '70s Inflation Won't Return - Mark Perry, Carpe Diem
Corporate Tax Rate Is Complex & Distortionary - Mike Moffatt, About.com
Is the Buck Really Back? - Claus Vistesen, Seeking Alpha
More on the Roots of the Bailout - Arnold Kling, EconLog
Transcripts & Videos
State of the U.S. Economy - Pethokoukis & Tamny, Bloggingheads TV
Henry Cisneros on Fannie & Freddie - Liz Claman, Fox Business
Monday Wrap-Up of Market Drop - Bloomberg
BofA's Rosenberg Sees Prime Mortgage Losses Rising - Financial Times
Five Ways to Wreck a Recovery
- Amity Shlaes, Washington Post
The World's Most Lucrative Building
- Paul Goldberger, Vanity Fair
Illusions About Inflation
- Mark Hulbert, New York Times
Trees Don't Grow to the Skies
- Robert Lenzner, Forbes
- Amity Shlaes, Washington Post
The World's Most Lucrative Building
- Paul Goldberger, Vanity Fair
Illusions About Inflation
- Mark Hulbert, New York Times
Trees Don't Grow to the Skies
- Robert Lenzner, Forbes
Unemployment survival guide
Suburban subsistence farming is the new trend in the US as food prices soar and as more and more people are finding time on their hands to plant potatoes. Yet academics remain blind to the fruits of Alan Greenspan's tenure as Federal Reserve chairman.
CREDIT BUBBLE BULLETIN
Dysfunctional pricing backdrop
Price moves and troubling developments in the Caucasus are being shrugged off by the markets. This divergence between fundamentals and market dynamics will not normalize until the global pool of speculative finance deflates. (Aug 18, '08)
Suburban subsistence farming is the new trend in the US as food prices soar and as more and more people are finding time on their hands to plant potatoes. Yet academics remain blind to the fruits of Alan Greenspan's tenure as Federal Reserve chairman.
CREDIT BUBBLE BULLETIN
Dysfunctional pricing backdrop
Price moves and troubling developments in the Caucasus are being shrugged off by the markets. This divergence between fundamentals and market dynamics will not normalize until the global pool of speculative finance deflates. (Aug 18, '08)
The US economy is in a funk
Domestic woes in the US economy are exacerbated by trade deficits on oil and with Asia on consumer goods. Regulatory and personal changes of habit are needed to get back on track. A tax on yuan-dollar transactions proportional to Chinese currency intervention would also help. - Peter Morici (Aug 18, '08)
Domestic woes in the US economy are exacerbated by trade deficits on oil and with Asia on consumer goods. Regulatory and personal changes of habit are needed to get back on track. A tax on yuan-dollar transactions proportional to Chinese currency intervention would also help. - Peter Morici (Aug 18, '08)
The Indentured States of America As we enter the perfect economic storm, it’s important (though too late) to realize that none of this is an accident. It is all the result of careful long-term planning by our masters on Wall Street and Main Street.
Easy consumer credit, the legalization of usury, the federal deficit, the subprime mess, privatization, the strangling of unions, the collapse of the middle class, deregulation, the lotteries and casinos, the tax code, our nationwide gulag, our broken health care system — these are means to an end.
That end is to reduce all but a few fortunate Americans to debt slavery. It is to make the rest of us into indentured servants, and the process is nearly complete.
Read the whole essay by Thomas Frank from which this comes:
Posted by Jerome Doolittle at 10:30 AM | Permalink & Email Post |
Easy consumer credit, the legalization of usury, the federal deficit, the subprime mess, privatization, the strangling of unions, the collapse of the middle class, deregulation, the lotteries and casinos, the tax code, our nationwide gulag, our broken health care system — these are means to an end.
That end is to reduce all but a few fortunate Americans to debt slavery. It is to make the rest of us into indentured servants, and the process is nearly complete.
Read the whole essay by Thomas Frank from which this comes:
The longing for permanent victory over liberalism is not unique to the west. In country after country, business elites have come up with ingenious ways to limit the public’s political choices. One of the most effective of these has been massive public debt. Naomi Klein has pointed out, in case after case, that the burden of debt has forced democratic countries to accept a laissez-faire system that they find deeply distasteful. Regardless of who borrowed the money, these debts must be repaid — and repaying them, in turn, means that a nation must agree to restructure its economy the way bankers bid: by deregulating, privatizing and cutting spending. Republicans have ridden to power again and again promising balanced budgets — government debt was “mortgaging our future,” Ronald Reagan admonished in his inaugural address — but once in office they proceed, with a combination of tax cuts and spending increases, to inflate the federal deficit to levels far beyond those reached by their supposedly open-handed liberal rivals. The formal justification is one of the all-time great hoaxes. By cutting taxes, it is said, you will unleash such economic growth that federal revenues will actually increase, so all the additional government spending will be paid for.
Even the theory’s proponents don’t really believe it. David Stockman, the libertarian budget director of the first Reagan administration, did the maths in 1980 and realized it would not rescue the government; it would wreck the government. This is the point where most people would walk away. Instead, Stockman decided it had medicinal value. He realized that with their government brought to the brink of fiscal collapse, the liberals would either have to acquiesce in the reconfiguration of the state or else see the country destroyed. Stockman was candid about this: the left would “have to dismantle [the government’s] bloated, wasteful, and unjust spending enterprises — or risk national ruin.”
This is government-by-sabotage: deficits were a way to smash a liberal state. The Reagan deficits did precisely this. When Reagan took over in 1981, he inherited an annual deficit of $59 billion and a national debt of $914 billion; by the time he and his successor George Bush had finished their work, they had quintupled the deficit and pumped the debt up to more than $3 trillion.
Posted by Jerome Doolittle at 10:30 AM | Permalink & Email Post |
Credit crunch may take out large US bank warns former IMF chief
Gary Duncan, Economics Editor and Leo Lewis, Asia Business Correspondent
The deepening toll from the global financial crisis could trigger the failure of a large US bank within months, a respected former chief economist of the International Monetary Fund claimed today, fuelling another battering for banking shares.
Professor Kenneth Rogoff, a leading academic economist, said there was yet worse news to come from the worldwide credit crunch and financial turmoil, particularly in the United States, and that a high-profile casualty among American banks was highly likely.
"The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come," Prof Rogoff said at a conference in Singapore.
In an ominous warning, he added: "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one — one of the big investment banks or big banks," he said. Rising anxieties over "worse to come" in the credit crisis sent shares tumbling in Europe and Asia.
In London, the FTSE 100 index extended opening losses as widespread fears over the financial sector's woes led to another battering for bank stocks. The FTSE fell 105.40 points, or 1.93 per cent at 5,344.80, Germany's Dax shed 1.87 per cent, while the CAC 40 in Paris lost 1.98 per cent.
Professor Rogoff, who was chief economist at the IMF from 2001 to 2004, predicted that the crisis would foster a new wave of consolidation in the US financial sector before it was over, with mergers between large institutions.
He also suggested that Fannie Mae and Freddie Mac, the struggling US secondary mortgage lending giants, were likely to cease to exist in their present form within a few years.
His prediction over the fate of Fannie and Freddie came after investors dumped the two groups' shares on Monday after reports suggested that the US Treasury may have no choice but to effectively nationalise them.
The professor also sounded a warning over rising US inflation, which rose last month to its highest since 1991, and criticised the Federal Reserve for having cut American interest rates too drastically. "Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States," he said.
As investors' edginess over the threat of further financial turbulence sent equity markets into a further spin, bank shares were hit hardest. Among the biggest fallers in London morning trade were HBOS, down almost 6 per cent, Royal Bank of Scotland, whose shares plunged by 4 per cent, while HSBC fell 1.5 per cent. In continental Europe, Spain's Banco Santander was off 2.5 per cent, and BNP Paribas lost 3.6 per cent.
Persistent worries over the rapidly deteriorating economic outlook in the UK also saw sterling succumb to fresh losses. The pound lost almost a cent against the dollar, dropping back to $1.8565, not far above near-two year lows plumbed on Friday.
Earlier, there were fresh jitters in Asia, with the region's leading bourses in sharp retreat after a dire overnight performance by Wall Street left the Dow Jones Industrial Average down by more than 180 points. Both Asian markets and Wall Street were unnerved by suggestions over the prospects for Fannie Mae and Freddie Mac.
While Japanese banks have remained relatively under-exposed to sub-prime mortgage products, many fear that they would be heavily exposed to a nationalisation of Fannie and Freddie. The large Japanese financial houses hold around Y9.6 trillion (£47 billion) in bonds and mortgage-backed paper issued by housing finance groups in the US.
"If the recapitalisation talk is realised, there are no assurances that the securities that have been issued [by U.S. mortgage firms] will be 100 per cent guaranteed," said Yutaka Shiraki, a senior equity strategist at Mitsubishi UFJ Securities.
Financial sector shares were particularly badly hit in Tokyo, where they led the Nikkei 225 Index into a 300-point decline. The selling continued throughout the day, and peaked after a declaration by the Bank of Japan that the world's second largest economy was now looking "sluggish".
Although the central bank's downbeat economic report included vague predictions of a return to growth over time, traders said that the comments had shattered any last hope that Asia's export-led economy might somehow "decouple" from the woes in the US.
The picture was somewhat more stable in Shanghai, which spent a day in relative limbo following Monday's 5.3 per cent nosedive. With Chinese stocks beating a daily retreat, investors are focused on the 2001 index high of 2,245-points. Some believe that level will hold up as a technical floor on the selling, others believe that it may shortly fail and unleash a much deeper collapse in stock values.
http://business.timesonline.co.uk/tol/busi...icle4563171.ece
Gary Duncan, Economics Editor and Leo Lewis, Asia Business Correspondent
The deepening toll from the global financial crisis could trigger the failure of a large US bank within months, a respected former chief economist of the International Monetary Fund claimed today, fuelling another battering for banking shares.
Professor Kenneth Rogoff, a leading academic economist, said there was yet worse news to come from the worldwide credit crunch and financial turmoil, particularly in the United States, and that a high-profile casualty among American banks was highly likely.
"The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come," Prof Rogoff said at a conference in Singapore.
In an ominous warning, he added: "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one — one of the big investment banks or big banks," he said. Rising anxieties over "worse to come" in the credit crisis sent shares tumbling in Europe and Asia.
In London, the FTSE 100 index extended opening losses as widespread fears over the financial sector's woes led to another battering for bank stocks. The FTSE fell 105.40 points, or 1.93 per cent at 5,344.80, Germany's Dax shed 1.87 per cent, while the CAC 40 in Paris lost 1.98 per cent.
Professor Rogoff, who was chief economist at the IMF from 2001 to 2004, predicted that the crisis would foster a new wave of consolidation in the US financial sector before it was over, with mergers between large institutions.
He also suggested that Fannie Mae and Freddie Mac, the struggling US secondary mortgage lending giants, were likely to cease to exist in their present form within a few years.
His prediction over the fate of Fannie and Freddie came after investors dumped the two groups' shares on Monday after reports suggested that the US Treasury may have no choice but to effectively nationalise them.
The professor also sounded a warning over rising US inflation, which rose last month to its highest since 1991, and criticised the Federal Reserve for having cut American interest rates too drastically. "Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States," he said.
As investors' edginess over the threat of further financial turbulence sent equity markets into a further spin, bank shares were hit hardest. Among the biggest fallers in London morning trade were HBOS, down almost 6 per cent, Royal Bank of Scotland, whose shares plunged by 4 per cent, while HSBC fell 1.5 per cent. In continental Europe, Spain's Banco Santander was off 2.5 per cent, and BNP Paribas lost 3.6 per cent.
Persistent worries over the rapidly deteriorating economic outlook in the UK also saw sterling succumb to fresh losses. The pound lost almost a cent against the dollar, dropping back to $1.8565, not far above near-two year lows plumbed on Friday.
Earlier, there were fresh jitters in Asia, with the region's leading bourses in sharp retreat after a dire overnight performance by Wall Street left the Dow Jones Industrial Average down by more than 180 points. Both Asian markets and Wall Street were unnerved by suggestions over the prospects for Fannie Mae and Freddie Mac.
While Japanese banks have remained relatively under-exposed to sub-prime mortgage products, many fear that they would be heavily exposed to a nationalisation of Fannie and Freddie. The large Japanese financial houses hold around Y9.6 trillion (£47 billion) in bonds and mortgage-backed paper issued by housing finance groups in the US.
"If the recapitalisation talk is realised, there are no assurances that the securities that have been issued [by U.S. mortgage firms] will be 100 per cent guaranteed," said Yutaka Shiraki, a senior equity strategist at Mitsubishi UFJ Securities.
Financial sector shares were particularly badly hit in Tokyo, where they led the Nikkei 225 Index into a 300-point decline. The selling continued throughout the day, and peaked after a declaration by the Bank of Japan that the world's second largest economy was now looking "sluggish".
Although the central bank's downbeat economic report included vague predictions of a return to growth over time, traders said that the comments had shattered any last hope that Asia's export-led economy might somehow "decouple" from the woes in the US.
The picture was somewhat more stable in Shanghai, which spent a day in relative limbo following Monday's 5.3 per cent nosedive. With Chinese stocks beating a daily retreat, investors are focused on the 2001 index high of 2,245-points. Some believe that level will hold up as a technical floor on the selling, others believe that it may shortly fail and unleash a much deeper collapse in stock values.
http://business.timesonline.co.uk/tol/busi...icle4563171.ece
The Federal Deposit Insurance Corporation: With Banks Failing or In Peril, It's Especially Important Now to Understand and Reform this Crucial Institution Many Americans have a simple understanding about FDIC deposit insurance: You can only deposit $100,000 at a particular bank and count on its being insured. However, as FindLaw columnist and U.C., Davis, law professor Vikram Amar explains, that understanding -- which is causing many Americans to do business at multiple banks to make sure all the money they have saved is insured --- is inaccurate in important respects. Through trust accounts and joint accounts, Amar notes, Americans can insure much more than $100,000 at a single bank; he thus encourages readers to consult and understand the FDIC's complex rules on the subject before deciding where to deposit their savings. Amar also suggests avenues for reforming the FDIC's practices so they can better serve their intended purpose of giving Americans security and the economy stability.
Single-family housing permits fall to 26-year low
- Market Watch from Dow Jones
- 08/19/2008 08:03 AM
- Bloomberg
- 08/19/2008 08:03 AM
- FT ($)
- Davies
- 08/19/2008 06:02 AM
- Washington Post
- Hilzenrath
- 08/19/2008 05:33 AM
- Reuters
- 08/19/2008 05:20 AM
- NY Times
- 08/19/2008 05:11 AM
USD Rally: Is the Dollar a Safe Haven from Global Slowdown?Aug 18, 2008- Week ending Aug 15 2008: USD staged biggest rally since EUR inception, nearly wiping out all its losses for the year
- USD rallying on safe haven flows set off by signs of global recoupling (particularly Eurozone slowdown and increasing ECB dovishness) and related slowdown in commodity demand
- Irony of USD as a 'safe haven': US is epicenter of market turmoil and global economic slowdown, the country most exposed to credit crunch
- Karlsson: USD just in a technical rally due to stop-loss rules
- Why rally may fade: low or negative inflation-adjusted returns of USD assets
- Goldman Sachs (not online): Dollar has bottomed. Improving trade picture, M&A inflows and deteriorating growth outside US will drive dollar uptrend But the path to fair value is unlikely to be smooth - further weakness in US economy and higher oil prices can put bumps in the road to a stronger dollar
Exclusive Interview:
Jim Rogers Predicts Bigger Financial Shocks Loom
Fueling a Malaise That May Last for Years
By Keith Fitz-Gerald
Rogers talked extensively about the ill-advised bailouts of Bear Stearns, Fannie Mae and Freddie Mac, and the potentially ruinous fallout from the financial “Super Crash” that’s about to engulf the U.S. market. Continue
Jim Rogers Predicts Bigger Financial Shocks Loom
Fueling a Malaise That May Last for Years
By Keith Fitz-Gerald
Rogers talked extensively about the ill-advised bailouts of Bear Stearns, Fannie Mae and Freddie Mac, and the potentially ruinous fallout from the financial “Super Crash” that’s about to engulf the U.S. market. Continue
The Greenback Blues:
Something's Gotta Give
By Mike Whitney
Don't be fooled, most paper money is steadily losing value due to the wild expansion of credit which started at the Federal Reserve. Continue
Something's Gotta Give
By Mike Whitney
Don't be fooled, most paper money is steadily losing value due to the wild expansion of credit which started at the Federal Reserve. Continue
Wholesale inflation surged in July: Prices for past year rising at fastest pace in 27 years
Fannie Mae, Freddie Mac Are Pounded: Share prices of Fannie Mae and Freddie Mac plunged Monday amid growing fears that the two largest providers of funding for U.S. home mortgages won't be able to avoid a government bailout.
Families forced to let homes they cannot sell: The seizure in the housing market is forcing families who cannot sell their properties to let them and move to rented accommodation, a new survey suggests.
Fannie Mae, Freddie Mac Are Pounded: Share prices of Fannie Mae and Freddie Mac plunged Monday amid growing fears that the two largest providers of funding for U.S. home mortgages won't be able to avoid a government bailout.
Families forced to let homes they cannot sell: The seizure in the housing market is forcing families who cannot sell their properties to let them and move to rented accommodation, a new survey suggests.
The worst economic and financial crisis in decades
Nouriel Roubini | Aug 20, 2008
Regular readers of this blog are familiar with my views. But here below is a detailed summary of the reasons for my views – as presented in this blog in the last few months - that this will turn out to be the worst financial crisis since the Great Depression and the worst US recession in decades (hyperlinks to my relevant recent writings are provided for each argument):
Nouriel Roubini | Aug 20, 2008
Regular readers of this blog are familiar with my views. But here below is a detailed summary of the reasons for my views – as presented in this blog in the last few months - that this will turn out to be the worst financial crisis since the Great Depression and the worst US recession in decades (hyperlinks to my relevant recent writings are provided for each argument):
- This is by far the worst financial crisis since the Great Depression, not as severe as the Great Depression but second only to it.
- At the end of the day this financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion. The financial and banking crisis will be severe and last several years leading to a severe and persistent liquidity and credit crunch.
- This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages including hundreds of billions of dollars of home equity loans that are worth little; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.
- Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust.
- Dozens of large regional/national banks (a' la IndyMac) are also effectively insolvent given their extreme exposure to real estate and will also eventually go bust. Most of these regional banks – starting with Wachovia and Washington Mutual – look like walking zombies in the same way IndyMac was.
- Even some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly. In 1990-91 at the height of that recession and banking crisis many major banks – in addition to 1000 plus S&L's that went bust – were effectively insolvent, including, as it was well known at that time, Citibank. At that time the Fed and regulators used instruments similar to those used today – easy money and steepening of the intermediation yield curve, aggressive forbearance, creative – i.e. liar – accounting, etc. – to rescue these major financial institutions from formal bankruptcy. But at that time the housing bust and the ensuing decline in home prices was much smaller than today: during that recession home prices – as measured by the Case-Shiller/S&P index – fell less than 5% from their peak. This time around instead such an index has already fallen 18% from its peak and it will most likely fall by a cumulative 30% before it bottoms sometime in 2010. If a 5% fall in home prices was enough to make Citi effectively insolvent in 1991 what will a 30% fall in home prices – and massive defaults on many other forms of credit (commercial real estate loans, credit cards, auto loans, student loans, home equity loans, leveraged loans, muni bonds, industrial and commercial loans, corporate bonds, CDS) - do to these financial institutions? It challenges the credulity of even spin masters to argue that financial firms are not in worse shape today than they were in 1990-91 when a significant number of major banks were technically insolvent. So, not only hundreds of small banks and a significant fraction of regional banks but also some major money center banks will become effectively insolvent during this crisis.
- In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.
- The FDIC will for sure run out of money as hundreds of banks will go bust and their depositors will have to be made whole given deposit insurance. With funds of only $53 billion, already up to 15% of such funds will be used to rescue the depositors of IndyMac alone. Thus, the FDIC is already requesting to Congress that the deposit insurance premia should be raised to compensate for this shortfall of funding. Too bad that this increase in insurance premia – that should be high enough in advance (not ex-post) to ensure that deposit insurance is incentive-compatible and not leading to gambling for redemption via risky lending in banks – is now too little and too late and is requested when the damage is already done as the biggest credit bubble in U.S. history is now going bust. Also the FDIC has done a mediocre job at identifying which banks are at risk. So far there are only about 90 banks on its watch list; and IndyMac was not put on that list until last month! So if the FDIC did not even identify IndyMac as in trouble until it was too late, how many other IndyMacs are out there that that the FDIC has not identified yet? Certainly a few hundred but such honest analysis of banks at risk is nowhere to be found.
- Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.
- Massive amount of creative accounting and other forms of balance sheet window dressing is occurring to prevent banks from recognizing their true losses. First, most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off.
- Additional earnings manipulation occurs in a variety of ways. First, ad hoc assumptions still used to value and write down level 2 and level 3 assets. Second, banks are leaving aside less reserves for loan losses that are much less than necessary; they do that by using ad hoc assumptions about future losses on mortgages, credit cards, auto loans, student loans, home equity loans and other commercial real estate loans and industrial and commercial loans. Reserves for loan losses have been sharply lagging actual and expected losses, thus padding earnings as decided by the financial institutions' managers. Third, there is disposal of illiquid and toxic assets in ways that misleadingly reduces the amount of actual writedowns. An example is as follows: suppose a bank wants to dump illiquid MBS or leveraged loans that are worth – mark to market – 70 cents on the dollar rather than 100 cents on the dollar. Then, instead of selling these at a price of 70 and showing a 30% writedown these are sold to hedge funds and other investors to a price closer to par – and thus showing in the balance sheet a smaller writedown – by providing a subsidy to the buyer of the security: so a hedge fund will buy such toxic securities at 80 or 90 cents and receive a loan to finance the transaction at an interest well below the borrowing costs for the funds. Thus, writedowns are then shown smaller than the true underlying loss on the asset and the bank finances that fudged transaction with earning less revenues than otherwise on its credit portfolio. This is an accounting scam that auditors and regulators are abetting on a regular basis. An example of such a scam is the recent Merrill Lynch transaction with Lone Start to "sell" its exposure to CDOs.
- The bailout plan of Fannie and Freddie implies a direct bailout of financial institutions and helps them to report better than expected earnings in two ways. First, since these financial institutions hold massive amounts of agency debt the government bailout of the holders of such unsecured debt props the market price of the agency debt (reduces its spread relative to Treasuries) and thus allows financial institutions and investors to report less mark to market losses on the values of such assets. Second, after the bust of subprime, near prime and prime mortgage markets the market for private label MBS is dead with absolutely no origination of new MBS. Thus, today – as senior mortgage market participant put it – Fannie and Freddie are "THE mortgage market" as the only institutions that securitize and guarantee mortgages are Fannie and Freddie. Without the government bailout plan that last channel for mortgage securitization and insurance would be frozen and the ability of banks to originate even prime and conforming mortgages would be serious hampered and its cost sharply increased. Thus, the Fannie and Freddie bailout is actually a bailout of the mortgage market and of every institution that holds agency debt or the MBS issued by the two GSES and of every institution that is in the mortgage origination business. On top of this Fannie and Freddie have also been used as tools of public policy in order to further grease the mortgage market and the banks originating mortgages: their portfolio limits were increased; their capital requirement reduced; and the limit for what a conforming loans – the only ones that Fannie and Freddie can securitize – increased from about $420K to over $720K.
- The Fed has been actively beefing up the earnings and balance sheet of financial institutions in four major ways. First, a 325bps reduction in the Fed Funds rate sharply reduced the cost of borrowing for banks and allowed them to enjoy a nice intermediation margin (the difference between longer terms interest rates at which they lend and the much lower short term interest rates at which they borrow). This steepening of the yield curve is a major subsidy to financial institutions. Second, the Fed has created a range of new liquidity facilities – the TAF, the TSLF, the PDCF – that allow banks and now non-bank primary dealers to swap their illiquid toxic asset backed securities for liquid Treasuries and that provide access for non-banks – and now also Fannie and Freddie - to the Fed's discount window liquidity. Third, the bailout of Bear Stearns creditors – JP Morgan and many other counterparties of Bear – not only avoided a systemic meltdown and a certain run on the other broker dealers but it has led the Fed to take on a significant credit risk by taking off the balance sheet of Bear Stearns over $29 billion of toxic securities. So the Fed has directly and indirectly systemically subsidized and propped up the financial system and the earnings of bank and non-bank financial institutions. Fourth, a variety of forbearance regulatory actions – starting with the waiver of Regulation W for some major banks – have been used to beef up the profits and earnings of financial institutions and reduce their reported writedowns.
- The entire Federal Home Loan Bank system – another GSE system that is another effective arm of the government - has been used to prop hundreds of mortgage lenders. The insolvent Countrywide alone received more than $51 billion of funds from this semi-public system. This is a system that has increased its lending in the last 18 months by hundreds of billions of dollars: Citigroup, Bank of America and most other US mortgage lenders have also been beneficiaries of this public subsidy to the tune of dozens of billions of dollars each.
- The ability of US financial institutions to recapitalize themselves is constrained by financial protectionism: the only large players that have funds to put at work are sovereign wealth funds, especially from countries that are strategic rivals – not allies – of the US or from unstable petro-states. Thus, the backlash against such SWF will seriously limit the ability of banks and other financial institutions to recapitalize themselves.
- This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (August). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices.
- This will be a long, ugly and nasty U-shaped recession lasting at least 12 months and more likely 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects. While an L-shaped decade long economic stagnation is unlikely the recovery of the economy from this recession will be weak as the financial crisis and serious macro imbalances will lead to sub-par (below trend) economic growth for years to come.
- The US recession has already started in Q1 of 2008 based on the five indicators tracked by the NBER. The Q2 rebound is only driven by the temporary tax rebates and GDP growth will slip into negative territory from Q3 2008 until at least Q2 of 2009.
- Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. gThus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of US and global stock markets.
- The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing. Indeed all of the G7 economies are now entering a recession. While the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.
- The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
- But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 30% will further reduce inflationary pressure.
- The Fed will have to cut the Fed Funds rate much more as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial crisis and severe recession cycle.
- The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for its existence.
- Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.
- This financial crisis signals the beginning of the decline of the American Empire; over time the relative economic, financial, military, geostrategic power of the US and reserve role of the US dollar will significantly decline.
- This crisis also represents a Crisis of the Suburbian ("McMansions and Gas-Guzzling SUVs") American Way of Life. The sharp rise in gasoline and energy prices and transportation costs, together with the sharp fall in home prices, will radically change the pattern of living of the typical American household.
- Some of my views are fleshed out in more detail in my recent interview on Barron's and in the profile article about me recently published by the New York Times magazine.
Do Corporations Really Pay No Taxes? - Steven Malanga, RealClearMarkets
Corporate Boards Become Politically Diverse - Del Jones, USA Today
Today's Bear Market Unlike Others - Ken Fisher, Forbes
The Greenback and Commodity Prices - Steve Hanke, Globe Asia
The Real China Threat - Robert Samuelson, Newsweek
Corporate Boards Become Politically Diverse - Del Jones, USA Today
Today's Bear Market Unlike Others - Ken Fisher, Forbes
The Greenback and Commodity Prices - Steve Hanke, Globe Asia
The Real China Threat - Robert Samuelson, Newsweek
URU
The new silver - made with paper
All the bad news in the world about inflation and conflict and a collapsing US financial system might make you wonder why gold and silver prices are not going through the roof. But then there's the paper trail ...
CREDIT BUBBLE BULLETIN
Dysfunctional pricing backdrop
Price moves and troubling developments in the Caucasus are being shrugged off by the markets. This divergence between fundamentals and market dynamics will not normalize until the global pool of speculative finance deflates. (Aug 18, '08)
The new silver - made with paperAll the bad news in the world about inflation and conflict and a collapsing US financial system might make you wonder why gold and silver prices are not going through the roof. But then there's the paper trail ...
CREDIT BUBBLE BULLETIN
Dysfunctional pricing backdrop
Price moves and troubling developments in the Caucasus are being shrugged off by the markets. This divergence between fundamentals and market dynamics will not normalize until the global pool of speculative finance deflates. (Aug 18, '08)
Reality Bites Again
The feeble American response to Russia's assertion of power in the Caucasus of Central Asia was appropriate, since our claims of influence in that part of the world are laughable. The US had taken advantage of temporary confusion in Russia, during the ten-year-long post-Soviet-collapse interval, and set up a client government in Georgia, complete with military advisors, sales of weapons, and even the promise of club membership in the western alliance known as NATO. These blandishments were all in the service of the Baku-to-Ceyhan oil pipeline, which was designed specifically to drain the oil region around the Caspian Basin with an outlet on the Mediterranean, avoiding unfriendly nations all along the way.
At the time this gambit was first set up, in the early 1990s, there was some notion (or wish, really) among the so-called western powers that the Caspian would provide an end-run around OPEC and the Arabs, as well as the Persians, and deliver all the oil that the US and Europe would ever need -- a foolish wish and a dumb gambit, as things have turned out.
For one thing, the latterly explorations of this very old oil region -- first opened to drilling in the 19th century -- proved somewhat disappointing. US officials had been touting it as like unto "another Saudi Arabia" but the oil actually produced from the new drilling areas of Kazakhstan, Turkmenistan, and the other Stans turned out to be preponderantly heavy-and-sour crudes, in smaller quantities than previously dreamed-of, and harder to transport across the extremely challenging terrain to even get to the pipeline head in Baku.
Meanwhile, Russia got its house in order under the non-senile, non-alcoholic Vladimir Putin, and woke up along about 2007 to find itself the leading oil and natural gas producer in the world. Among the various consequences of this was Russia's reemergence as a new kind of world power -- an energy resource power, with the energy destiny of Europe pretty much in its hands. Also, meanwhile, the USA had set up other client states in the ring of former Soviet republics along Russia's southern underbelly, complete with US military bases, while fighting active engagements in Iraq and Afghanistan. Now, if this wasn't the dumbest, vainest move in modern geopolitical history!
It's one thing that US foreign policy wonks imagined that Russia would remain in a coma forever, but the idea that we could encircle Russia strategically with defensible bases in landlocked mountainous countries halfway around the world...? You have to ask what were they smoking over at the Pentagon and the CIA and the NSC?
So, this asinine policy has now come to grief. Not only does Russia stand to gain control over the Baku-to-Ceyhan pipeline, but we now have every indication that they will bring the states on its southern flank back into an active sphere of influence, and there is really not a damn thing that the US can pretend to do about it.
We could have spent the past ten years getting our own house in order -- waking up to the obsolescence of our suburban life-style, scaling back on the Happy Motoring, reconnecting our cities with world-class passenger rail, creating wealth by producing things of value (instead of resorting to financial racketeering), protecting our borders, and taking the necessary measures to defend and update our own industries. Instead, we pissed our time and resources away. Nations do make tragic errors of the collective will. The cluelessness of George Bush is nothing less than a perfect metaphor for the failure of a whole generation. The Boomers will be identified as the generation that wrecked America.
So, as the vacation season winds down, this country greets a new reality. We miscalculated in Western and Central Asia. Russia still "owns" that part of the world. Are we going to extend our current land wars there into the even more distant and landlocked Stan-nations? At some point, as we face financial and military exhaustion, we have to ask ourselves if we can even successfully evacuate our personnel from the far-flung bases in Uzbekistan and Kyrgyzstan.
This must be an equally sobering moment for Europe, and an additional reason for the recent plunge in the relative value of the Euro, for Europe is now at the mercy of Russia in terms of staying warm in the winter, running their kitchen stoves, and keeping the lights on. Russia also exerts substantial financial leverage over the US in all the dollars and securitized US debt paper it holds. In effect, Russia can shake the US banking system at will now by threatening to dump its dollar holdings.
The American banking system may not need a shove from Russia to fall on its face. It's effectively dead now, just lurching around zombie-like from one loan "window" to the next pretending to "borrow" capital -- while handing over shreds of its moldy clothing as "collateral" to the Federal Reserve. The entire US, beyond the banks, is becoming a land of the walking dead. Business is dying, home-ownership has become a death dance, whole regions are turning into wastelands of "for sale" signs, empty parking lots, vacant buildings, and dashed hopes. And all this beats a path directly to a failure of collective national imagination. We really don't know what's going on.
The fantasy that we can sustain our influence nine thousand miles away, when we can't even get our act together in Ohio is just a dark joke. One might state categorically that it would be a salubrious thing for America to knock off all its vaunted "dreaming" and just wake the "expletive deleted" up.
August 18, 2008 in Commentary on Current Events | Permalink
http://jameshowardkunstler.typepad.com/clu...ites-again.html
The feeble American response to Russia's assertion of power in the Caucasus of Central Asia was appropriate, since our claims of influence in that part of the world are laughable. The US had taken advantage of temporary confusion in Russia, during the ten-year-long post-Soviet-collapse interval, and set up a client government in Georgia, complete with military advisors, sales of weapons, and even the promise of club membership in the western alliance known as NATO. These blandishments were all in the service of the Baku-to-Ceyhan oil pipeline, which was designed specifically to drain the oil region around the Caspian Basin with an outlet on the Mediterranean, avoiding unfriendly nations all along the way.
At the time this gambit was first set up, in the early 1990s, there was some notion (or wish, really) among the so-called western powers that the Caspian would provide an end-run around OPEC and the Arabs, as well as the Persians, and deliver all the oil that the US and Europe would ever need -- a foolish wish and a dumb gambit, as things have turned out.
For one thing, the latterly explorations of this very old oil region -- first opened to drilling in the 19th century -- proved somewhat disappointing. US officials had been touting it as like unto "another Saudi Arabia" but the oil actually produced from the new drilling areas of Kazakhstan, Turkmenistan, and the other Stans turned out to be preponderantly heavy-and-sour crudes, in smaller quantities than previously dreamed-of, and harder to transport across the extremely challenging terrain to even get to the pipeline head in Baku.
Meanwhile, Russia got its house in order under the non-senile, non-alcoholic Vladimir Putin, and woke up along about 2007 to find itself the leading oil and natural gas producer in the world. Among the various consequences of this was Russia's reemergence as a new kind of world power -- an energy resource power, with the energy destiny of Europe pretty much in its hands. Also, meanwhile, the USA had set up other client states in the ring of former Soviet republics along Russia's southern underbelly, complete with US military bases, while fighting active engagements in Iraq and Afghanistan. Now, if this wasn't the dumbest, vainest move in modern geopolitical history!
It's one thing that US foreign policy wonks imagined that Russia would remain in a coma forever, but the idea that we could encircle Russia strategically with defensible bases in landlocked mountainous countries halfway around the world...? You have to ask what were they smoking over at the Pentagon and the CIA and the NSC?
So, this asinine policy has now come to grief. Not only does Russia stand to gain control over the Baku-to-Ceyhan pipeline, but we now have every indication that they will bring the states on its southern flank back into an active sphere of influence, and there is really not a damn thing that the US can pretend to do about it.
We could have spent the past ten years getting our own house in order -- waking up to the obsolescence of our suburban life-style, scaling back on the Happy Motoring, reconnecting our cities with world-class passenger rail, creating wealth by producing things of value (instead of resorting to financial racketeering), protecting our borders, and taking the necessary measures to defend and update our own industries. Instead, we pissed our time and resources away. Nations do make tragic errors of the collective will. The cluelessness of George Bush is nothing less than a perfect metaphor for the failure of a whole generation. The Boomers will be identified as the generation that wrecked America.
So, as the vacation season winds down, this country greets a new reality. We miscalculated in Western and Central Asia. Russia still "owns" that part of the world. Are we going to extend our current land wars there into the even more distant and landlocked Stan-nations? At some point, as we face financial and military exhaustion, we have to ask ourselves if we can even successfully evacuate our personnel from the far-flung bases in Uzbekistan and Kyrgyzstan.
This must be an equally sobering moment for Europe, and an additional reason for the recent plunge in the relative value of the Euro, for Europe is now at the mercy of Russia in terms of staying warm in the winter, running their kitchen stoves, and keeping the lights on. Russia also exerts substantial financial leverage over the US in all the dollars and securitized US debt paper it holds. In effect, Russia can shake the US banking system at will now by threatening to dump its dollar holdings.
The American banking system may not need a shove from Russia to fall on its face. It's effectively dead now, just lurching around zombie-like from one loan "window" to the next pretending to "borrow" capital -- while handing over shreds of its moldy clothing as "collateral" to the Federal Reserve. The entire US, beyond the banks, is becoming a land of the walking dead. Business is dying, home-ownership has become a death dance, whole regions are turning into wastelands of "for sale" signs, empty parking lots, vacant buildings, and dashed hopes. And all this beats a path directly to a failure of collective national imagination. We really don't know what's going on.
The fantasy that we can sustain our influence nine thousand miles away, when we can't even get our act together in Ohio is just a dark joke. One might state categorically that it would be a salubrious thing for America to knock off all its vaunted "dreaming" and just wake the "expletive deleted" up.
August 18, 2008 in Commentary on Current Events | Permalink
http://jameshowardkunstler.typepad.com/clu...ites-again.html
The Meltdown Lowdown
Dean Baker
August 21, 2008 | web only
This week in economic news: Newsflash! Giving tax breaks to the rich doesn't create jobs, it looks like recession time, and more tales of dumb executives
Dean Baker
August 21, 2008 | web only
This week in economic news: Newsflash! Giving tax breaks to the rich doesn't create jobs, it looks like recession time, and more tales of dumb executives
Bank collapse ahead: The worst of the global financial crisis is yet to come - by Jan Dahinten - 2008-08-20
Stagflation is Here, and It is a Weapon of Mass Destruction - by Richard C. Cook - 2008-08-20
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