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Featured Commentary
by Kurt Kasun | Sep 3
Kicking the Debt Habit Cold Turkey
Slower credit growth will result in unexpected repercussions
Read more
Guest Commentary
by Bud Conrad | Sep 4
The World as We See It
Still a long way from business as usual.
Read more
SEC `Missed Opportunity' to Save Auction-Rate Buyers (Update1)
By Michael McDonald and David Scheer
Enlarge Image/Details
Sept. 8 (Bloomberg) -- The U.S. Securities and Exchange Commission missed a chance to protect investors from the collapse of the $330 billion auction-rate market by failing to police how banks sold the bonds to customers.
Federal regulators didn't stop brokers from selling the long-term securities to individuals as alternatives to cash late last year when credit markets seized up, though they knew dealers routinely propped up the bonds. The SEC ended a probe of bid- rigging in May 2006 by permitting 15 banks to take part in auctions as long as they disclosed it on the Internet.
It was only after firms abandoned the market in February, leaving investors stranded with bonds they didn't want and borrowers with interest rates as high as 20 percent, that state and U.S. regulators tackled Wall Street's sales practices. In the past month, eight banks settled with officials, agreeing to pay more than $520 million in fines and promising to buy back more than $40 billion of the debt.
``It's obvious they missed an opportunity,'' said Massachusetts Secretary of State William Galvin, who filed complaints against UBS AG, the biggest Swiss bank, and Merrill Lynch & Co., the third-largest brokerage firm, in June and July. ``They could have raised a red flag.''
The collapse left investors who thought they were holding something similar to money-market funds with long-term securities they could only sell at losses of as much as 40 percent, according to data compiled by New York-based Restricted Stock Partners, which trades auction-rate bonds.
Hearings Planned
A total of 281 companies also have written down the value of $32.3 billion they hold by $2.1 billion, Pluris Valuation Advisors LLC, a New York-based firm that helps companies value hard-to-trade securities, said last month.
The SEC, already under scrutiny by Congress for its handling of the credit crisis that led to the collapse of New York-based Bear Stearns Cos. in March, may face questions about its role in the auction-rate market. U.S. House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, will hold a hearing on Sept. 18 to examine regulators and firms.
Christopher Cox, the 55-year-old SEC chairman appointed by President George W. Bush in 2005, declined to be interviewed. On Aug. 19, he told reporters the agency has more than a dozen pending investigations into the auction-rate market and that ``nobody is getting a pass'' for misconduct.
Increased Risk
``The securities laws don't permit us to bring enforcement actions for violations that haven't yet occurred,'' Linda Thomsen, the SEC's enforcement chief, said.
Banks used their capital to keep auctions from failing for years, she said. The risk of investors getting stuck with the securities ``dramatically increased beginning in the latter part of 2007,'' Thomsen said, at which point ``the firms were legally obligated to disclose the increased liquidity risks.''
Mary Schapiro, the chief executive officer of the Financial Industry Regulatory Authority, which monitors the sales practices at almost 5,000 brokerages, declined to be interviewed. The Washington-based group notified about 40 brokerages last month that it would start on-site inspections as part of an inquiry into the market, a person familiar with the matter said.
Fines, Buybacks
Citigroup Inc. and Goldman Sachs Group Inc., both based in New York, Zurich-based UBS and five more firms agreed to redeem bonds and preferred shares from individuals, nonprofit organizations and small businesses in their settlements.
New York State Attorney General Andrew Cuomo and other regulators are targeting underwriters such as Bank of America Corp., and resellers including the brokerage arm of Boston-based Fidelity Investments.
Bank of America, the second-largest U.S. bank, said Sept. 4 it's ready to settle on terms similar to previously announced agreements. Cuomo subpoenaed eight executives at the Charlotte, North Carolina-based bank, according to a person familiar with the matter.
For more than 20 years, the securities allowed municipalities, student-loan organizations and closed-end mutual funds to sell long-term bonds with interest rates that reset every week or month at auctions run by brokers.
The market began deteriorating last year as losses tied to the subprime-mortgage crisis raised concern among investors that MBIA Inc. and Ambac Financial Group Inc., the largest insurers of the securities, might lose their AAA ratings.
`Mobilize the Troops'
Banks, facing writedowns and credit losses of their own, increased marketing of the bonds to individuals and continued to label the debt as cash equivalents while they faltered, state regulators allege.
``The fact that auction-rate securities were misrepresented on an industrywide basis for several years and that nothing was done to address the question until the market froze raises a question as to whether investor protection by the regulator is really effective,'' said Laurence Schultz, founding shareholder of Driggers, Schultz & Herbst in Troy, Michigan, and president of the Public Investors Arbitration Bar Association.
UBS ratcheted up the effort to ``move inventory'' even as it considered pulling out last year, Galvin alleged in a June 26 complaint.
While executives identified auction-rate hazards in August, they began to ``mobilize the troops'' to sell them, according to e-mails from David Shulman, the former head of UBS's municipal securities group, cited in Galvin's report. The bank held more than a dozen conference calls with salesmen and provided new marketing materials to promote the bonds, the report said.
Executives Sell
Galvin's complaint also showed that UBS executives, including Shulman, sold their personal holdings while the company promoted the products to investors. Shulman, who hasn't been accused of wrongdoing, was put on administrative leave in July and left the bank last month. Robert Anello, an attorney for Shulman, declined to comment.
Merrill salesmen urged analysts to publish upbeat notes recommending clients buy auction-rate securities until days before the market collapsed, Galvin said in a separate complaint.
New York-based American Express Co. sold the first of the securities in 1984, in a $350 million issue of money-market preferred shares with dividends reset every 49 days. At the time, the minimum purchase was $500,000, so buyers were mostly corporate treasurers, said Ronald Gallatin, the former Lehman Brothers Holdings Inc. managing director who invented the market, in an interview earlier this year.
Lehman Settlement
The SEC has been accusing banks of manipulation since 1995, when Lehman settled allegations that it improperly bid at some American Express auctions. The New York-based firm paid an $850,000 fine without admitting or denying wrongdoing after the SEC said it rigged bids 13 times and prevented two auctions from failing.
In 2004, the SEC asked 25 firms to review their practices and provide reports ``detailing any potentially deceptive, dishonest or unfair practices,'' according to a memo from the Bond Market Association, the Securities Industry Association and the American Bar Association.
The probe ended two years later, with the SEC fining Citigroup, Goldman and the 13 other firms a total of $13 million. The banks settled claims they violated securities laws between January 2003 and June 2004 by letting customers change orders in the supposedly blind auctions. They also stepped in to bid for their own accounts to influence results, the SEC said.
Demand Slipped
Banks created the illusion that the bonds were almost as liquid as cash, said Ken Lench, an SEC enforcement attorney at the time. Demand for the securities had begun to slip the year prior when the four largest accounting firms told corporate treasurers they had to reclassify the debt as investments rather than cash equivalents.
``If the SEC was doing their job, they would have been more aware that the accountants were saying you can't treat these as cash equivalents,'' said Jacob Zamansky, a securities lawyer at Zamansky Associates in New York, who represents institutional investors in auction-rate cases.
Dealers weren't required to stop bidding at their auctions. Instead, they had to disclose their practices and ensure they stuck to them. None of the firms admitted or denied wrongdoing.
Don't Dance
Martha Haines, head of municipal finance at the SEC, suggested in a September 2006 speech that more steps were needed to bolster investor understanding and confidence. The industry, for instance, should have considered changing the products' names to better reflect their firms' involvement in setting rates, she said.
``Do not dance around this issue: Describe what really happens flat out,'' Haines said in the speech.
The SEC was engaged in efforts to increase the market's transparency as it faltered last year. It worked with the Municipal Securities Rulemaking Board on a plan to improve disclosure by reporting interest rates and prices.
``There were lots of discussions,'' said Lynnette Hotchkiss, executive director of the MSRB, a self-regulatory organization based in Alexandria, Virginia that was created by Congress to oversee the municipal market.
The SEC didn't improve sales practices fast enough to protect investors, said James Cox, a professor at Duke University who specializes in securities law. ``In some areas the SEC remains in the clutches of the brokerage industry.''
To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.
Last Updated: September 8, 2008 09:22 EDT
http://www.bloomberg.com/apps/news?p...ZcigY&refer=us
By Michael McDonald and David Scheer
Enlarge Image/Details
Sept. 8 (Bloomberg) -- The U.S. Securities and Exchange Commission missed a chance to protect investors from the collapse of the $330 billion auction-rate market by failing to police how banks sold the bonds to customers.
Federal regulators didn't stop brokers from selling the long-term securities to individuals as alternatives to cash late last year when credit markets seized up, though they knew dealers routinely propped up the bonds. The SEC ended a probe of bid- rigging in May 2006 by permitting 15 banks to take part in auctions as long as they disclosed it on the Internet.
It was only after firms abandoned the market in February, leaving investors stranded with bonds they didn't want and borrowers with interest rates as high as 20 percent, that state and U.S. regulators tackled Wall Street's sales practices. In the past month, eight banks settled with officials, agreeing to pay more than $520 million in fines and promising to buy back more than $40 billion of the debt.
``It's obvious they missed an opportunity,'' said Massachusetts Secretary of State William Galvin, who filed complaints against UBS AG, the biggest Swiss bank, and Merrill Lynch & Co., the third-largest brokerage firm, in June and July. ``They could have raised a red flag.''
The collapse left investors who thought they were holding something similar to money-market funds with long-term securities they could only sell at losses of as much as 40 percent, according to data compiled by New York-based Restricted Stock Partners, which trades auction-rate bonds.
Hearings Planned
A total of 281 companies also have written down the value of $32.3 billion they hold by $2.1 billion, Pluris Valuation Advisors LLC, a New York-based firm that helps companies value hard-to-trade securities, said last month.
The SEC, already under scrutiny by Congress for its handling of the credit crisis that led to the collapse of New York-based Bear Stearns Cos. in March, may face questions about its role in the auction-rate market. U.S. House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, will hold a hearing on Sept. 18 to examine regulators and firms.
Christopher Cox, the 55-year-old SEC chairman appointed by President George W. Bush in 2005, declined to be interviewed. On Aug. 19, he told reporters the agency has more than a dozen pending investigations into the auction-rate market and that ``nobody is getting a pass'' for misconduct.
Increased Risk
``The securities laws don't permit us to bring enforcement actions for violations that haven't yet occurred,'' Linda Thomsen, the SEC's enforcement chief, said.
Banks used their capital to keep auctions from failing for years, she said. The risk of investors getting stuck with the securities ``dramatically increased beginning in the latter part of 2007,'' Thomsen said, at which point ``the firms were legally obligated to disclose the increased liquidity risks.''
Mary Schapiro, the chief executive officer of the Financial Industry Regulatory Authority, which monitors the sales practices at almost 5,000 brokerages, declined to be interviewed. The Washington-based group notified about 40 brokerages last month that it would start on-site inspections as part of an inquiry into the market, a person familiar with the matter said.
Fines, Buybacks
Citigroup Inc. and Goldman Sachs Group Inc., both based in New York, Zurich-based UBS and five more firms agreed to redeem bonds and preferred shares from individuals, nonprofit organizations and small businesses in their settlements.
New York State Attorney General Andrew Cuomo and other regulators are targeting underwriters such as Bank of America Corp., and resellers including the brokerage arm of Boston-based Fidelity Investments.
Bank of America, the second-largest U.S. bank, said Sept. 4 it's ready to settle on terms similar to previously announced agreements. Cuomo subpoenaed eight executives at the Charlotte, North Carolina-based bank, according to a person familiar with the matter.
For more than 20 years, the securities allowed municipalities, student-loan organizations and closed-end mutual funds to sell long-term bonds with interest rates that reset every week or month at auctions run by brokers.
The market began deteriorating last year as losses tied to the subprime-mortgage crisis raised concern among investors that MBIA Inc. and Ambac Financial Group Inc., the largest insurers of the securities, might lose their AAA ratings.
`Mobilize the Troops'
Banks, facing writedowns and credit losses of their own, increased marketing of the bonds to individuals and continued to label the debt as cash equivalents while they faltered, state regulators allege.
``The fact that auction-rate securities were misrepresented on an industrywide basis for several years and that nothing was done to address the question until the market froze raises a question as to whether investor protection by the regulator is really effective,'' said Laurence Schultz, founding shareholder of Driggers, Schultz & Herbst in Troy, Michigan, and president of the Public Investors Arbitration Bar Association.
UBS ratcheted up the effort to ``move inventory'' even as it considered pulling out last year, Galvin alleged in a June 26 complaint.
While executives identified auction-rate hazards in August, they began to ``mobilize the troops'' to sell them, according to e-mails from David Shulman, the former head of UBS's municipal securities group, cited in Galvin's report. The bank held more than a dozen conference calls with salesmen and provided new marketing materials to promote the bonds, the report said.
Executives Sell
Galvin's complaint also showed that UBS executives, including Shulman, sold their personal holdings while the company promoted the products to investors. Shulman, who hasn't been accused of wrongdoing, was put on administrative leave in July and left the bank last month. Robert Anello, an attorney for Shulman, declined to comment.
Merrill salesmen urged analysts to publish upbeat notes recommending clients buy auction-rate securities until days before the market collapsed, Galvin said in a separate complaint.
New York-based American Express Co. sold the first of the securities in 1984, in a $350 million issue of money-market preferred shares with dividends reset every 49 days. At the time, the minimum purchase was $500,000, so buyers were mostly corporate treasurers, said Ronald Gallatin, the former Lehman Brothers Holdings Inc. managing director who invented the market, in an interview earlier this year.
Lehman Settlement
The SEC has been accusing banks of manipulation since 1995, when Lehman settled allegations that it improperly bid at some American Express auctions. The New York-based firm paid an $850,000 fine without admitting or denying wrongdoing after the SEC said it rigged bids 13 times and prevented two auctions from failing.
In 2004, the SEC asked 25 firms to review their practices and provide reports ``detailing any potentially deceptive, dishonest or unfair practices,'' according to a memo from the Bond Market Association, the Securities Industry Association and the American Bar Association.
The probe ended two years later, with the SEC fining Citigroup, Goldman and the 13 other firms a total of $13 million. The banks settled claims they violated securities laws between January 2003 and June 2004 by letting customers change orders in the supposedly blind auctions. They also stepped in to bid for their own accounts to influence results, the SEC said.
Demand Slipped
Banks created the illusion that the bonds were almost as liquid as cash, said Ken Lench, an SEC enforcement attorney at the time. Demand for the securities had begun to slip the year prior when the four largest accounting firms told corporate treasurers they had to reclassify the debt as investments rather than cash equivalents.
``If the SEC was doing their job, they would have been more aware that the accountants were saying you can't treat these as cash equivalents,'' said Jacob Zamansky, a securities lawyer at Zamansky Associates in New York, who represents institutional investors in auction-rate cases.
Dealers weren't required to stop bidding at their auctions. Instead, they had to disclose their practices and ensure they stuck to them. None of the firms admitted or denied wrongdoing.
Don't Dance
Martha Haines, head of municipal finance at the SEC, suggested in a September 2006 speech that more steps were needed to bolster investor understanding and confidence. The industry, for instance, should have considered changing the products' names to better reflect their firms' involvement in setting rates, she said.
``Do not dance around this issue: Describe what really happens flat out,'' Haines said in the speech.
The SEC was engaged in efforts to increase the market's transparency as it faltered last year. It worked with the Municipal Securities Rulemaking Board on a plan to improve disclosure by reporting interest rates and prices.
``There were lots of discussions,'' said Lynnette Hotchkiss, executive director of the MSRB, a self-regulatory organization based in Alexandria, Virginia that was created by Congress to oversee the municipal market.
The SEC didn't improve sales practices fast enough to protect investors, said James Cox, a professor at Duke University who specializes in securities law. ``In some areas the SEC remains in the clutches of the brokerage industry.''
To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.
Last Updated: September 8, 2008 09:22 EDT
http://www.bloomberg.com/apps/news?p...ZcigY&refer=us
“Modern Debt Peonage”?
Economic Democracy Is Turning Into a Financial Oligarchy
Mike Whitney: An Interview With Michael Hudson
The best that this weekend’s bailout can do is to postpone the losses on bad mortgage debts. But this is a far cry from actually restoring the ability of debtors to pay. Continue
Economic Democracy Is Turning Into a Financial Oligarchy
Mike Whitney: An Interview With Michael Hudson
The best that this weekend’s bailout can do is to postpone the losses on bad mortgage debts. But this is a far cry from actually restoring the ability of debtors to pay. Continue
Why The Fannie-Freddie Bailout Will Fail
By Martin D. Weiss, Ph.D.
With yesterday's announcement of the most massive federal bailout of all time, it's now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt. Continue
By Martin D. Weiss, Ph.D.
With yesterday's announcement of the most massive federal bailout of all time, it's now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt. Continue
US Waves Goodbye to Prosperity and Democracy
By David Hirst
If you were wondering what all the flag-waving at the Republican convention has been about, it is now clear. Americans are waving goodbye to the prosperity the nation has enjoyed since the Great Depression and a final goodbye to democracy. But while preparation for the most important decision made in the nation's post-depression financial history towered above the conventions, I don't think the fate of Freddie and Fannie and the remaining government-sponsored enterprises (GSEs) was mentioned during either convention. Continue
By David Hirst
If you were wondering what all the flag-waving at the Republican convention has been about, it is now clear. Americans are waving goodbye to the prosperity the nation has enjoyed since the Great Depression and a final goodbye to democracy. But while preparation for the most important decision made in the nation's post-depression financial history towered above the conventions, I don't think the fate of Freddie and Fannie and the remaining government-sponsored enterprises (GSEs) was mentioned during either convention. Continue
The Worsening Debt Crisis
by Mike Whitney / September 9th, 2008 (0)
Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JP Morgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas …
(Full article …)
http://www.dissidentvoice.org/2008/09/the-...ng-debt-crisis/
by Mike Whitney / September 9th, 2008 (0)
Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JP Morgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas …
(Full article …)
http://www.dissidentvoice.org/2008/09/the-...ng-debt-crisis/
Lehman shares slump 30%
Indications from regulator in Seoul are that a big South Korean cash infusion is no longer on the table for embattled Lehman Brothers.
• Attn.: Lehman — tick, tock! (First Take) | Subprime Today
• U.K. investment vehicle targets distressed financials
http://www.marketwatch.com/news/story/lehm...6-5EE9B2C1946E}
Indications from regulator in Seoul are that a big South Korean cash infusion is no longer on the table for embattled Lehman Brothers.• Attn.: Lehman — tick, tock! (First Take) | Subprime Today
• U.K. investment vehicle targets distressed financials
http://www.marketwatch.com/news/story/lehm...6-5EE9B2C1946E}
Percent of firms planning to hire drops to single digits: Manpower
By Andrea Coombes, MarketWatch Last update: 12:05 a.m. EDT Sept. 9, 2008
SAN FRANCISCO (MarketWatch) -- Unless you work in the oil, gas or related mining industries, the job market is unlikely to look brighter in the fourth quarter, and even retailers are glum about hiring for the upcoming holiday season, according to the latest Manpower Employment Outlook Survey.
The Milwaukee firm's quarterly survey of hiring plans found that a net 9% of firms expect to hire in the fourth quarter, down from 12% in the previous quarter, and 18% for the fourth quarter a year ago. This fourth quarter outlook is the tenth consecutive quarter of declining employer sentiment in the survey -- the longest such retreat in more than 20 years. Manpower's seasonally adjusted net-employment numbers, based on a survey of 14,000 U.S. companies, measure the percentage of firms planning to hire minus those intending layoffs. Manpower doesn't measure the number of jobs. The survey's margin of error is +/- 0.8%. Among retailers, even the upcoming holiday season doesn't seem to offer much hope: Just 8% of employers in wholesale and retail trade expect to hire in the upcoming fourth quarter, the lowest figure for that sector in 17 years, said Jonas Prising, president of Manpower North America. That category includes department stores, gas stations, restaurants, discount retailers, computer stores and wholesalers, among others. The industry's "hiring intentions are the lowest we've seen in the last 17 years. That tells you something about what they feel about end-of-year shopping sprees," Prising said. The sector "hasn't been this pessimistic for a long time." Retailers aren't alone in their pessimism. Overall, this is the tenth consecutive quarter of declines in employers' hiring plans, the longest such retreat since 1986, Prising said. "The decline has been gradual and is looking very, very different from what we saw in 2000, 2001," Prising said. "That was much shorter and sharper." See related story on recent jobs data.
If it ensues that employers' outlook for the first quarter of 2009 is equally grim, that would mean a new record for the Manpower survey. "The Employment Outlook Survey in the last 25 years [has not seen] more than 10 consecutive quarters of seasonally-adjusted decline," Prising said. The survey has been conducted for about 40 years but the seasonally adjusted measurement is about 25 years old, Prising said. Bright spot One sector is doing well, however: Mining, which the Manpower survey describes as any company involved in extracting resources, including metal and coal mining companies, petroleum and natural gas extraction, stone, sand and gravel quarries, as well as related positions in those industries, such as engineering. Twenty-six percent of companies in the mining industry expect to hire in the fourth quarter, up from 24% in the third quarter and 21% a year ago. But other industries are seeing significant drops in hiring expectations, particularly when compared to the fourth quarter a year ago: Net employment outlook, seasonally adjusted, by industryFourth Quarter 2008Third Quarter 2008Fourth Quarter 2007Construction2%2%15%Education10%10%16%Finance, Insurance & Real Estate5%7%15%Manufacturing - Durables9%12%18%Manufacturing - Nondurables6%10%17%Mining26%24%21%Public Administration8%10%21%Services14%19%22%Transportation & Public Utilities10%14%13%Wholesale & Retail Trade8%10%17%
Source: Manpower By the map There is slight improvement in hiring plans in the West, with 11% of employers planning to hire in the upcoming quarter, compared with 8% in the previous quarter. Still, that's down from 24% a year ago. In the Northeast, 11% of employers plan to hire, compared with 13% in the previous quarter and 14% a year ago. In the South, 9% of employers plan to hire, down from 14% in the third quarter and 18% a year ago. In the Midwest, 8% of employers plan to hire, down from 12% in the third quarter and 17% a year ago. Manpower defines the Midwest region as Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin. The West is Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming. The Northeast is Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont. The South is Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia.
Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.
http://www.marketwatch.com/news/story/slid...F-0DB56D16853E}
By Andrea Coombes, MarketWatch Last update: 12:05 a.m. EDT Sept. 9, 2008
SAN FRANCISCO (MarketWatch) -- Unless you work in the oil, gas or related mining industries, the job market is unlikely to look brighter in the fourth quarter, and even retailers are glum about hiring for the upcoming holiday season, according to the latest Manpower Employment Outlook Survey.
The Milwaukee firm's quarterly survey of hiring plans found that a net 9% of firms expect to hire in the fourth quarter, down from 12% in the previous quarter, and 18% for the fourth quarter a year ago. This fourth quarter outlook is the tenth consecutive quarter of declining employer sentiment in the survey -- the longest such retreat in more than 20 years. Manpower's seasonally adjusted net-employment numbers, based on a survey of 14,000 U.S. companies, measure the percentage of firms planning to hire minus those intending layoffs. Manpower doesn't measure the number of jobs. The survey's margin of error is +/- 0.8%. Among retailers, even the upcoming holiday season doesn't seem to offer much hope: Just 8% of employers in wholesale and retail trade expect to hire in the upcoming fourth quarter, the lowest figure for that sector in 17 years, said Jonas Prising, president of Manpower North America. That category includes department stores, gas stations, restaurants, discount retailers, computer stores and wholesalers, among others. The industry's "hiring intentions are the lowest we've seen in the last 17 years. That tells you something about what they feel about end-of-year shopping sprees," Prising said. The sector "hasn't been this pessimistic for a long time." Retailers aren't alone in their pessimism. Overall, this is the tenth consecutive quarter of declines in employers' hiring plans, the longest such retreat since 1986, Prising said. "The decline has been gradual and is looking very, very different from what we saw in 2000, 2001," Prising said. "That was much shorter and sharper." See related story on recent jobs data.
If it ensues that employers' outlook for the first quarter of 2009 is equally grim, that would mean a new record for the Manpower survey. "The Employment Outlook Survey in the last 25 years [has not seen] more than 10 consecutive quarters of seasonally-adjusted decline," Prising said. The survey has been conducted for about 40 years but the seasonally adjusted measurement is about 25 years old, Prising said. Bright spot One sector is doing well, however: Mining, which the Manpower survey describes as any company involved in extracting resources, including metal and coal mining companies, petroleum and natural gas extraction, stone, sand and gravel quarries, as well as related positions in those industries, such as engineering. Twenty-six percent of companies in the mining industry expect to hire in the fourth quarter, up from 24% in the third quarter and 21% a year ago. But other industries are seeing significant drops in hiring expectations, particularly when compared to the fourth quarter a year ago: Net employment outlook, seasonally adjusted, by industryFourth Quarter 2008Third Quarter 2008Fourth Quarter 2007Construction2%2%15%Education10%10%16%Finance, Insurance & Real Estate5%7%15%Manufacturing - Durables9%12%18%Manufacturing - Nondurables6%10%17%Mining26%24%21%Public Administration8%10%21%Services14%19%22%Transportation & Public Utilities10%14%13%Wholesale & Retail Trade8%10%17%
Source: Manpower By the map There is slight improvement in hiring plans in the West, with 11% of employers planning to hire in the upcoming quarter, compared with 8% in the previous quarter. Still, that's down from 24% a year ago. In the Northeast, 11% of employers plan to hire, compared with 13% in the previous quarter and 14% a year ago. In the South, 9% of employers plan to hire, down from 14% in the third quarter and 18% a year ago. In the Midwest, 8% of employers plan to hire, down from 12% in the third quarter and 17% a year ago. Manpower defines the Midwest region as Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin. The West is Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming. The Northeast is Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont. The South is Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia.
Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.http://www.marketwatch.com/news/story/slid...F-0DB56D16853E}
U.S. Treasury Credit-Default Swaps Increase to Record, CMA Says
- Bloomberg
- 09/09/2008 12:40 PM
- Bloomberg
- 09/09/2008 04:16 AM
- NY Times
- 09/09/2008 04:03 AM
Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)
Nouriel Roubini | Sep 9, 2008 The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO ("leveraged buy-out") in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.
This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.
The ideologue "regulators" who literally held a chain saw at a public event to smash "unnecessary regulations" are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of "liquidity" to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).
This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt holders who made a fortune yesterday as those claims were also made whole).
Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don't run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage.
Nouriel Roubini | Sep 9, 2008 The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO ("leveraged buy-out") in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.
This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.
The ideologue "regulators" who literally held a chain saw at a public event to smash "unnecessary regulations" are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of "liquidity" to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).
This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt holders who made a fortune yesterday as those claims were also made whole).
Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don't run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage.
Dangerous Economic Territory
Also: When London Ruled the World
Soon: Preparing for Economic Disaster
Globalization is fast becoming a bad word for politicians in America. This attitude, combined with current economic uncertainties, is causing a political shift from consensus in favor of free trade, to consensus against it. David M. Smick argues that this shift in perspective is one of the biggest threats to financial markets.
Also: When London Ruled the World
Soon: Preparing for Economic Disaster
Silence of Lambs
William Greider: The bailout of two mortgage giants sticks the American taxpayer with the bill--with not of peep of protest from Obama and McCain.
William Greider: The bailout of two mortgage giants sticks the American taxpayer with the bill--with not of peep of protest from Obama and McCain.
Asian Stocks Decline as Growth Concerns Eclipse Fannie Rally
Freddie, Fannie Scam Hidden in Broad Daylight
Pending home sales retreat
Wall St's rescue rallies are short-lived
Be on red alert for US market chaos
Long-Term Capital: It’s a Short-Term Memory
The Power of De
Few Stand to Gain on This Bailout, and Many Lose
Brokers downgraded
A $75 trillion fright fest
Freddie, Fannie Scam Hidden in Broad Daylight
Pending home sales retreat
Wall St's rescue rallies are short-lived
Be on red alert for US market chaos
Long-Term Capital: It’s a Short-Term Memory
The Power of De
Few Stand to Gain on This Bailout, and Many Lose
Brokers downgraded
A $75 trillion fright fest
U.S. Economy Is Running On Empty
by Tony Sagami
Tuesday, September 09, 2008 7:30 AM
The first car I ever owned was a 1963 Ford Falcon. It was round, ugly and slow ... and it took me two summers of hard work on my father's vegetable farm to save the $100 to buy it. I then ... [More...]
by Tony Sagami
Tuesday, September 09, 2008 7:30 AM
The first car I ever owned was a 1963 Ford Falcon. It was round, ugly and slow ... and it took me two summers of hard work on my father's vegetable farm to save the $100 to buy it. I then ... [More...]
From Storm to Pandemic
by Martin D. Weiss, Ph.D.
Sunday, September 07, 2008 7:30 AM
We are busy preparing for Hurricane Ike. Everyone in Florida knows what to do. And hopefully, it will pass us by. But the financial pandemic that's spreading to the entire economy is ... [More...]
by Martin D. Weiss, Ph.D.
Sunday, September 07, 2008 7:30 AM
We are busy preparing for Hurricane Ike. Everyone in Florida knows what to do. And hopefully, it will pass us by. But the financial pandemic that's spreading to the entire economy is ... [More...]
Greetings from RGE Monitor!
Today we focus on the bazooka bailout by the U.S. government of Fannie Mae and Freddie Mac and its likely short and long term effects on the economy.
On Sunday, September 7, 2008, the U.S. Treasury finally recognized the inevitable – that Fannie & Freddie (GSEs) are insolvent. Secretary Paulson’s adopted action plan entails 4 dimensions: 1) Expand the GSEs combined investment portfolio from currently $1.55trillion to a max of $1.7trillion by 2009 and then start shrinking it by 10% per year; 2) the Preferred Stock Purchase Agreement includes an immediate $1bn stake in each company, with option to expand the preferred equity stake to max $100bn in each company. The Treasury’s new preferred equity is senior to existing preferred and common stockholders but junior to existing senior and subordinate debt holders. The creditors’ interest and principal payments are guaranteed by 3) a new secured lending facility for GSEs, including the Federal Home Loan Banks, intended to serve as an ultimate liquidity backstop. 4) Treasury is also initiating a temporary program to purchase a yet unspecified amount of GSE MBS starting later this month.
Secretary Paulson underlines the temporary nature of this 4 point program that expires December 2009. Until then, Congress is advised to engineer a long-term solution for the GSEs that removes the current ambiguity resulting from private ownership with public financial backing. See: “Overview of Long-Term Solutions for Government-Sponsored Enterprises (GSEs)”
Did Secretary Paulson live up to his role as prudent steward of the public purse and secure the best deal for taxpayers while containing the systemic risk emanating from the GSEs? Pundits’ reactions are mixed but the markets distinguished quickly between the real winners and losers. Predictably, agency debt holders experience large capital gains as spreads recede towards the long-term 100bp average – by itself a yearly subsidy to the tune of $50bn courtesy of the U.S. taxpayer). But the biggest winners turn out to be subordinated debt holders - once again in virtue of large numbers CDS contracts outstanding that are now being unwound at near par. Existing preferred and common shareholders take a beating and won’t receive any dividends but they are not wiped out as would be expected in insolvency. Still, a few regional banks are likely to suffer from large GSE preferred stock holdings.
Judging from the record spike in the price to protect U.S. public debt against insolvency, taxpayers are likely to feel the pinch down the line, even in the absence of large upfront outlays. Given the largely prime quality of assets and assuming an ultimate loss rate of 5% on the GSEs total debt of $5.3trillion that is either owned ($1.6trillion) or guaranteed ($3.5trillion), Nouriel Roubini quantified the expected losses from a bail-out to amount to $250bn - $300bn back in June – as a reminder, the total taxpayer bill for S&L was $140bn then and $300bn in today’s dollars. Importantly, GSEs hold $320bn of private-label securities on their balance sheets, or 20% of their combined assets. Of these, approximately $217bn are backed by subprime and Alt-A mortgages. It is a legitimate question to ask whether Treasury could end up holding this ‘toxic waste’ in its efforts to put the GSEs on a sound footing by 2010?
How will the seizure of the GSEs affect the housing and wider credit markets going forward? Some analysts are confident that whatever alleviates the stress in the housing market at the heart of the current turmoil, will by consequence have a positive impact on the wider credit markets. Other observers are less sanguine – after all, the GSEs have nothing to do with banks’ large amounts of off-balance sheet assets that continue to drive write-downs and interbank spreads. Neither can the GSEs prevent U.S. home prices from falling further upon a large and growing oversupply in the wake of record foreclosures and further employment disruptions to come down the line. See: “Can the GSE Rescue Solve the Interbank Liquidity Hoarding at the Core of the Credit Crisis?”
The GSE bailout stoked risk appetite initially but, like past attempts to solve the credit and housing crisis, the confidence boost faded on the recognition that the bailout was no magic bullet to a weak U.S. and global economy. U.S. stock indices rallied more than 2%, led by Financials, on Monday but turned back down on Tuesday after commodity prices fell and Lehman failed to woo its Korean suitors. Treasury yields rose on the reversal to the flight-to-safety bid but long-dated Treasuries retraced their losses by the end of Monday on mortgage convexity hedging, which continued into Tuesday. The U.S. dollar appreciated to a 2008 high of $1.41 per euro on equities buying then turned around Tuesday as Lehman's precipitous share drop re-ignited concerns about the U.S. financial sector.
The medium-term outlook for equities is still bleak. According to some analysts, the GSE bailout may have shortened the time it would take for the U.S. housing market to stabilize but it remains on the scale of years. The fall in mortgage rates should contribute to an improvement on the demand side, although the impact of falling mortgage rates is usually affects home sales with a lag of about a quarter. Stocks with foreign exposure may weaken as the rest of the world slows down. U.S. consumers and firms will still have to grapple with tighter credit and asset deflation. Barring further upsets related to the economy, financial sector or housing market, the GSE bailout is a positive for equities. Optimistic analysts believe the recession's end is as near as year-end and so is the stock market bottom that usually precedes the end of recessions. In more pessimistic scenarios, stocks will continue to languish with a stagnant U.S. and global economy in 2009. The crumbling 'safe haven' in commodities may dim the energy and materials sectors, pulling out the last leg from the U.S. equity market. See “U.S. Stocks: Bear Market to Bottom When Recession Is Recognized?“
The dollar has benefited from flight-to-safety by domestic investors and by a reassessment of the global outlook. The GSE bailout might have whittled away further impetus for the Fed to cut rates, providing support for the dollar. The now explicit backing of agency debt could also restore foreign demand for agencies that has been anemic in the last few months with foreign investors trimming their overall holdings. See “USD Rally: Is the Dollar a Safe Haven from Global Slowdown?” and “Foreign Governments Shying Away from U.S. Agency Debt?”
However, the increase in government debt resulting from the bailout could mar the U.S.'s credit rating. The expected rise in the Treasury supply could depress bond prices should demand fail to rise along with supply. As a result, the GSE bailout would have a lifting effect on Treasury yields but mortgage-related buying and safe haven flows could offset the effect. Reduced expectations for the Fed to cut and the deflationary impact of falling commodity prices could tip the balance towards lower yields. Initially the GSE bailout-related issuance will affect T-bills and intermediates more than longer maturities. At this point, it is unclear how much longer-dated supply will increase. See “Will GSE Bailout Push U.S. 10-Year Treasury Yields Above 4%?” and “U.S. Sovereign Rating: Downgrade Approaching?”
Also in the Monitor:
Today we focus on the bazooka bailout by the U.S. government of Fannie Mae and Freddie Mac and its likely short and long term effects on the economy.
On Sunday, September 7, 2008, the U.S. Treasury finally recognized the inevitable – that Fannie & Freddie (GSEs) are insolvent. Secretary Paulson’s adopted action plan entails 4 dimensions: 1) Expand the GSEs combined investment portfolio from currently $1.55trillion to a max of $1.7trillion by 2009 and then start shrinking it by 10% per year; 2) the Preferred Stock Purchase Agreement includes an immediate $1bn stake in each company, with option to expand the preferred equity stake to max $100bn in each company. The Treasury’s new preferred equity is senior to existing preferred and common stockholders but junior to existing senior and subordinate debt holders. The creditors’ interest and principal payments are guaranteed by 3) a new secured lending facility for GSEs, including the Federal Home Loan Banks, intended to serve as an ultimate liquidity backstop. 4) Treasury is also initiating a temporary program to purchase a yet unspecified amount of GSE MBS starting later this month.
Secretary Paulson underlines the temporary nature of this 4 point program that expires December 2009. Until then, Congress is advised to engineer a long-term solution for the GSEs that removes the current ambiguity resulting from private ownership with public financial backing. See: “Overview of Long-Term Solutions for Government-Sponsored Enterprises (GSEs)”
Did Secretary Paulson live up to his role as prudent steward of the public purse and secure the best deal for taxpayers while containing the systemic risk emanating from the GSEs? Pundits’ reactions are mixed but the markets distinguished quickly between the real winners and losers. Predictably, agency debt holders experience large capital gains as spreads recede towards the long-term 100bp average – by itself a yearly subsidy to the tune of $50bn courtesy of the U.S. taxpayer). But the biggest winners turn out to be subordinated debt holders - once again in virtue of large numbers CDS contracts outstanding that are now being unwound at near par. Existing preferred and common shareholders take a beating and won’t receive any dividends but they are not wiped out as would be expected in insolvency. Still, a few regional banks are likely to suffer from large GSE preferred stock holdings.
Judging from the record spike in the price to protect U.S. public debt against insolvency, taxpayers are likely to feel the pinch down the line, even in the absence of large upfront outlays. Given the largely prime quality of assets and assuming an ultimate loss rate of 5% on the GSEs total debt of $5.3trillion that is either owned ($1.6trillion) or guaranteed ($3.5trillion), Nouriel Roubini quantified the expected losses from a bail-out to amount to $250bn - $300bn back in June – as a reminder, the total taxpayer bill for S&L was $140bn then and $300bn in today’s dollars. Importantly, GSEs hold $320bn of private-label securities on their balance sheets, or 20% of their combined assets. Of these, approximately $217bn are backed by subprime and Alt-A mortgages. It is a legitimate question to ask whether Treasury could end up holding this ‘toxic waste’ in its efforts to put the GSEs on a sound footing by 2010?
How will the seizure of the GSEs affect the housing and wider credit markets going forward? Some analysts are confident that whatever alleviates the stress in the housing market at the heart of the current turmoil, will by consequence have a positive impact on the wider credit markets. Other observers are less sanguine – after all, the GSEs have nothing to do with banks’ large amounts of off-balance sheet assets that continue to drive write-downs and interbank spreads. Neither can the GSEs prevent U.S. home prices from falling further upon a large and growing oversupply in the wake of record foreclosures and further employment disruptions to come down the line. See: “Can the GSE Rescue Solve the Interbank Liquidity Hoarding at the Core of the Credit Crisis?”
The GSE bailout stoked risk appetite initially but, like past attempts to solve the credit and housing crisis, the confidence boost faded on the recognition that the bailout was no magic bullet to a weak U.S. and global economy. U.S. stock indices rallied more than 2%, led by Financials, on Monday but turned back down on Tuesday after commodity prices fell and Lehman failed to woo its Korean suitors. Treasury yields rose on the reversal to the flight-to-safety bid but long-dated Treasuries retraced their losses by the end of Monday on mortgage convexity hedging, which continued into Tuesday. The U.S. dollar appreciated to a 2008 high of $1.41 per euro on equities buying then turned around Tuesday as Lehman's precipitous share drop re-ignited concerns about the U.S. financial sector.
The medium-term outlook for equities is still bleak. According to some analysts, the GSE bailout may have shortened the time it would take for the U.S. housing market to stabilize but it remains on the scale of years. The fall in mortgage rates should contribute to an improvement on the demand side, although the impact of falling mortgage rates is usually affects home sales with a lag of about a quarter. Stocks with foreign exposure may weaken as the rest of the world slows down. U.S. consumers and firms will still have to grapple with tighter credit and asset deflation. Barring further upsets related to the economy, financial sector or housing market, the GSE bailout is a positive for equities. Optimistic analysts believe the recession's end is as near as year-end and so is the stock market bottom that usually precedes the end of recessions. In more pessimistic scenarios, stocks will continue to languish with a stagnant U.S. and global economy in 2009. The crumbling 'safe haven' in commodities may dim the energy and materials sectors, pulling out the last leg from the U.S. equity market. See “U.S. Stocks: Bear Market to Bottom When Recession Is Recognized?“
The dollar has benefited from flight-to-safety by domestic investors and by a reassessment of the global outlook. The GSE bailout might have whittled away further impetus for the Fed to cut rates, providing support for the dollar. The now explicit backing of agency debt could also restore foreign demand for agencies that has been anemic in the last few months with foreign investors trimming their overall holdings. See “USD Rally: Is the Dollar a Safe Haven from Global Slowdown?” and “Foreign Governments Shying Away from U.S. Agency Debt?”
However, the increase in government debt resulting from the bailout could mar the U.S.'s credit rating. The expected rise in the Treasury supply could depress bond prices should demand fail to rise along with supply. As a result, the GSE bailout would have a lifting effect on Treasury yields but mortgage-related buying and safe haven flows could offset the effect. Reduced expectations for the Fed to cut and the deflationary impact of falling commodity prices could tip the balance towards lower yields. Initially the GSE bailout-related issuance will affect T-bills and intermediates more than longer maturities. At this point, it is unclear how much longer-dated supply will increase. See “Will GSE Bailout Push U.S. 10-Year Treasury Yields Above 4%?” and “U.S. Sovereign Rating: Downgrade Approaching?”
Also in the Monitor:
Paulson placates China, Russia for now
US Treasury Secretary Henry Paulson had little choice but to bail out Fannie Mae and Freddie Mac, with China and Russia holding large amounts of their debt. Doing nothing would have left no further reason for other countries to invest in US government-guaranteed obligations. That day of reckoning has now merely been delayed. - Julian Delasantellis
China investors also want help
China's stock markets, unlike others in Asia, failed to respond positively to the weekend bailout that guaranteed the country's holdings of debt in the two leading US mortgage finance companies. Stricken share investors called for the government to give them a helping hand - Washington-style. - Olivia Chung
The ABCs of GSEs and SOEs
The failure and nationalization of Fannie Mae and Freddie Mac is an object lesson to finger-pointers in the US who decry the role in the Chinese economy of state-owned enterprises. Officials in Beijing can also learn from the collapse of the US mortgage guarantors. - Richard Komaiko
THE BEAR'S LAIR
Resurrection of the charlatan
That most economically counterproductive of activities, the Keynesian boost in government spending, is making a horrid comeback - witness the departure of Japanese Prime Minister Yasuo Fukuda. Politicians in Britain and the US are also finding it increasingly convenient to spend public money. - Martin Hutchinson
US Treasury Secretary Henry Paulson had little choice but to bail out Fannie Mae and Freddie Mac, with China and Russia holding large amounts of their debt. Doing nothing would have left no further reason for other countries to invest in US government-guaranteed obligations. That day of reckoning has now merely been delayed. - Julian Delasantellis
China investors also want help
China's stock markets, unlike others in Asia, failed to respond positively to the weekend bailout that guaranteed the country's holdings of debt in the two leading US mortgage finance companies. Stricken share investors called for the government to give them a helping hand - Washington-style. - Olivia Chung
The ABCs of GSEs and SOEs
The failure and nationalization of Fannie Mae and Freddie Mac is an object lesson to finger-pointers in the US who decry the role in the Chinese economy of state-owned enterprises. Officials in Beijing can also learn from the collapse of the US mortgage guarantors. - Richard Komaiko
THE BEAR'S LAIR
Resurrection of the charlatan
That most economically counterproductive of activities, the Keynesian boost in government spending, is making a horrid comeback - witness the departure of Japanese Prime Minister Yasuo Fukuda. Politicians in Britain and the US are also finding it increasingly convenient to spend public money. - Martin Hutchinson
THE MOGAMBO GURU 
Not quite
like that
If the bull market in gold were over, it would mean inflation was under control, the dollar's problems had been solved, a new source of energy had been discovered and everyone was smiling. Which means of course that gold's future is as bright as ever.
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Doug Noland looks at the previous week's events each Monday.
Not quite like that
If the bull market in gold were over, it would mean inflation was under control, the dollar's problems had been solved, a new source of energy had been discovered and everyone was smiling. Which means of course that gold's future is as bright as ever.
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Doug Noland looks at the previous week's events each Monday.
The Bailout Plain Truth and the Silent Economic Depression
The Market Oracle - London,UK
The pundits and economists continue to make simpleton arguments, such as the current conditions are no way like the depression. ...
See all stories on this topic
The Market Oracle - London,UK
The pundits and economists continue to make simpleton arguments, such as the current conditions are no way like the depression. ...
See all stories on this topic
Nationalization of Fannie, Freddie triggers defaults for derivatives
Submitted by cpowell on 05:03PM ET Monday, September 8, 2008. Section: Daily Dispatches By Aline van DuynFinancial Times, London
Monday, September 8, 2008
http://www.ft.com/cms/s/0/ed1e14c6-7dd0-11...658.html?ncli...
One of the largest defaults in the history of the $62,000 billion credit derivatives market has been triggered by the US government's seizure of Fannie Mae and Freddie Mac, raising questions about how dealers will unwind billions of dollars worth of contracts.
Although the $1,600 billion of debt issued by the troubled mortgage groups is regarded as safe after the US government's move to take control of the companies, their move into "conservatorship" counts as the equivalent of a bankruptcy in the credit derivatives market.
This triggers a default on credit default swaps -- instruments that provide a form of insurance on fixed-income assets. Dealers in the market are now working to settle these contracts.
The exact amount of CDS on Fannie Mae and Freddie Mac are not known, reflecting the private nature of the market, but they are part of widely traded indices and the amounts are likely to be significant. Analysts at Lehman Brothers said: "There is likely to be a considerable amount of notional protection outstanding."
The industry body, International Swaps and Derivatives Association, said on Monday it would launch a protocol to facilitate settlement of credit derivative trades involving Fannie Mae and Freddie Mac and would publish further details in due course.
The uncertainty surrounding the Fannie Mae and Freddie Mac CDS contacts highlights the need for improved settlement and trading procedures. Already, regulators have put pressure on CDS dealers, including all the large financial institutions, to reduce settlement and trading risks.
The near-collapse of Bear Stearns in March highlighted the extent to which many large financial institutions were linked together through the CDS market, and the Federal Reserve and other regulators want to reduce such systemic financial risks.
The growth of the CDS market over the past decade has outpaced development of settlement systems and trading infrastructure. One worry is the lack of standard procedures in contracts for dealers to agree ways to settle defaulted credit derivatives.
The actual payments on credit default swaps on Fannie Mae and Freddie Mac are expected to be limited because the value of the mortgage agencies' debt remains high after the US government stepped in to back it.
That means that meeting any claims on CDS may not be that costly, although the details are still being worked out and the impact is unknown.
Analysts at Creditsights said regulators could "use the bailout as another lever" to enhance the CDS market's efficiency.
Fannie and Freddie's New Derivatives Cliffhanger
The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money?
http://www.businessweek.com/bwdaily/dnflas...ws+%2B+analysis
A 'Failed Business Model'
Opinion: Steve Forbes: What Next For Fannie & Freddie? A 'Failed Business Model' Washington: Outsiders' Insight May Be Right Thing For GSEs Fannie And Freddie's 15-Month Fix Dodd On The Bailout The Road From Here Wall Street: BofA's Bailout Benefit Some Banks Get Burned The Bailout Boon For Euro Banks Video: Beyond The Bailout Fannie, Freddie And The Taxpayer Banks After GSE Bailout
Henry Paulson's plan is a major disappointment.
Although it was certainly necessary to bail out ailing mortgage giants Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), the plan put forward by the treasury secretary this weekend prioritizes steering them back to financial health and defers into the future what is to become of the companies.
What's worse, after blaming the collapse of the companies on a "flawed business model," the plan will preserve that model indefinitely, allowing the shareholders of what are now insolvent entities to recover some value.
Long after Paulson is gone from the Treasury, Washington will be wrestling with the problem of what to do about Fannie and Freddie. And if the two companies are eventually nationalized, privatized or liquidated, the government--meaning taxpayers--will have to compensate the existing shareholders in some way.
The plan is relatively simple, but its implications for the future are troubling. First, Fannie and Freddie will be put under government control in an arrangement called a conservatorship. The purpose of a conservatorship is, essentially, to keep things as they are.
A conservator does not have the power to make any significant changes to the business model of a company; rather, its focus is to guide the company back to stability. Why anyone would sustain what Paulson himself called a flawed business model is hard to understand.
It gets worse. Under the plan, the Treasury is committed to providing equity capital to Fannie and Freddie. Another puzzle: Why is it necessary to inject taxpayer funds into these companies as equity? Ordinary companies need capital so that they can meet their obligations, but both these companies will have access to a financial facility at the Treasury that will allow them to borrow all the funds they require.
They don't need capital. The injection of capital is, in fact, a gift to the existing shareholders, who--as the owners of insolvent companies--own nothing and deserve no benefits from the taxpayers. By injecting these taxpayer funds and enabling the companies to survive, the Treasury plan opens the possibility that the existing shareholders will eventually profit from their investments, when, by all rights, they should be wiped out.
The nature of this gift is further emphasized by the fact that the Treasury is taking warrants for its agreement to finance these companies. These warrants will only be worth something--and thereby allow the Treasury to compensate the taxpayers--if the companies are nursed back to financial health under the conservatorship. So the government has created an incentive for itself to keep the companies alive and restore their well-being.
Once that occurs, the current shareholders will again be able to reap the benefits of holding interests in government-sponsored enterprises (GSEs)--only in this case, the two companies will not be implicitly backed by the government; they will be explicitly backed. In that case, the shareholders and the managements will once more profit from the government backing, while the taxpayers will still be the ones taking the losses.
There was an alternative, one that was simpler and much more sensible from a policy perspective. Since Fannie and Freddie operated under this "flawed business model"--by which Paulson probably meant government backing for shareholder-owned companies, the essence of a GSE--the plan should have set things in motion for the elimination of this model.
Instead of a conservatorship, the plan should have provided for a receivership. That system would get rid of the common stockholders while still monitoring the companies for an indefinite period in order to keep the mortgage market functioning smoothly.
Thus, while Paulson's plan was intended to provide some "breathing room" for consideration of the companies' future, what it will do in effect is restore them to health as government-sponsored enterprises, and, more critically, allow them and their newly empowered shareholders to bargain about the companies' collective future from a position of strength.
No wonder U.S. Sen. Charles Schumer of New York--probably the GSEs' most ardent supporter in Congress--issued the following statement after Paulson addressed the press on Sunday: "This plan will be met with broad acceptance in Congress, because it doesn't prejudge the ultimate fate of Fannie Mae and Freddie Mac.'' Translation: Prepare for a fight--because we intend to keep the GSEs alive.
Republican presidential candidate John McCain has been campaigning against the culture of corruption in the federal government. Democratic presidential candidate Barack Obama has based his campaign on the idea of change in Washington. Fannie Mae and Freddie Mac are telling illustrations of corporate welfare--the profitable private exploitation of a cozy relationship with the government. And the Paulson plan will foster just what a cynic might expect: more of the same.
Peter J. Wallison is the Arthur F. Burns fellow in financial policy studies at the American Enterprise Institute . General counsel of the Treasury during the Reagan administration, he is the author of Ronald Reagan: The Power of Conviction and the Success of His Presidency and Serving Two Masters, Yet Out of Control: Fannie Mae and Freddie Mac.
The Trouble With Fannie, Freddie
Freddie, Fannie Bailout
http://www.forbes.com/opinions/2008/09/08/...tml?partner=rcm
Opinion: Steve Forbes: What Next For Fannie & Freddie? A 'Failed Business Model' Washington: Outsiders' Insight May Be Right Thing For GSEs Fannie And Freddie's 15-Month Fix Dodd On The Bailout The Road From Here Wall Street: BofA's Bailout Benefit Some Banks Get Burned The Bailout Boon For Euro Banks Video: Beyond The Bailout Fannie, Freddie And The Taxpayer Banks After GSE Bailout Henry Paulson's plan is a major disappointment. Although it was certainly necessary to bail out ailing mortgage giants Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), the plan put forward by the treasury secretary this weekend prioritizes steering them back to financial health and defers into the future what is to become of the companies.
What's worse, after blaming the collapse of the companies on a "flawed business model," the plan will preserve that model indefinitely, allowing the shareholders of what are now insolvent entities to recover some value.
Long after Paulson is gone from the Treasury, Washington will be wrestling with the problem of what to do about Fannie and Freddie. And if the two companies are eventually nationalized, privatized or liquidated, the government--meaning taxpayers--will have to compensate the existing shareholders in some way.
The plan is relatively simple, but its implications for the future are troubling. First, Fannie and Freddie will be put under government control in an arrangement called a conservatorship. The purpose of a conservatorship is, essentially, to keep things as they are.
A conservator does not have the power to make any significant changes to the business model of a company; rather, its focus is to guide the company back to stability. Why anyone would sustain what Paulson himself called a flawed business model is hard to understand.
It gets worse. Under the plan, the Treasury is committed to providing equity capital to Fannie and Freddie. Another puzzle: Why is it necessary to inject taxpayer funds into these companies as equity? Ordinary companies need capital so that they can meet their obligations, but both these companies will have access to a financial facility at the Treasury that will allow them to borrow all the funds they require.
They don't need capital. The injection of capital is, in fact, a gift to the existing shareholders, who--as the owners of insolvent companies--own nothing and deserve no benefits from the taxpayers. By injecting these taxpayer funds and enabling the companies to survive, the Treasury plan opens the possibility that the existing shareholders will eventually profit from their investments, when, by all rights, they should be wiped out.
The nature of this gift is further emphasized by the fact that the Treasury is taking warrants for its agreement to finance these companies. These warrants will only be worth something--and thereby allow the Treasury to compensate the taxpayers--if the companies are nursed back to financial health under the conservatorship. So the government has created an incentive for itself to keep the companies alive and restore their well-being.
Once that occurs, the current shareholders will again be able to reap the benefits of holding interests in government-sponsored enterprises (GSEs)--only in this case, the two companies will not be implicitly backed by the government; they will be explicitly backed. In that case, the shareholders and the managements will once more profit from the government backing, while the taxpayers will still be the ones taking the losses.
There was an alternative, one that was simpler and much more sensible from a policy perspective. Since Fannie and Freddie operated under this "flawed business model"--by which Paulson probably meant government backing for shareholder-owned companies, the essence of a GSE--the plan should have set things in motion for the elimination of this model.
Instead of a conservatorship, the plan should have provided for a receivership. That system would get rid of the common stockholders while still monitoring the companies for an indefinite period in order to keep the mortgage market functioning smoothly.
Thus, while Paulson's plan was intended to provide some "breathing room" for consideration of the companies' future, what it will do in effect is restore them to health as government-sponsored enterprises, and, more critically, allow them and their newly empowered shareholders to bargain about the companies' collective future from a position of strength.
No wonder U.S. Sen. Charles Schumer of New York--probably the GSEs' most ardent supporter in Congress--issued the following statement after Paulson addressed the press on Sunday: "This plan will be met with broad acceptance in Congress, because it doesn't prejudge the ultimate fate of Fannie Mae and Freddie Mac.'' Translation: Prepare for a fight--because we intend to keep the GSEs alive.
Republican presidential candidate John McCain has been campaigning against the culture of corruption in the federal government. Democratic presidential candidate Barack Obama has based his campaign on the idea of change in Washington. Fannie Mae and Freddie Mac are telling illustrations of corporate welfare--the profitable private exploitation of a cozy relationship with the government. And the Paulson plan will foster just what a cynic might expect: more of the same.
Peter J. Wallison is the Arthur F. Burns fellow in financial policy studies at the American Enterprise Institute . General counsel of the Treasury during the Reagan administration, he is the author of Ronald Reagan: The Power of Conviction and the Success of His Presidency and Serving Two Masters, Yet Out of Control: Fannie Mae and Freddie Mac.
The Trouble With Fannie, Freddie
Freddie, Fannie Bailout
http://www.forbes.com/opinions/2008/09/08/...tml?partner=rcm
Warning: Worldwide wipeout ahead
Think US stocks are on a life raft? Look around the globe, where seas are much rougher. This is serious, folks. Brace for a brutal riptide of more economic upheaval.
http://articles.moneycentral.msn.com/Inves...eout-ahead.aspx
THE MOGAMBO GURU
Robbing the poor of Jeffersonian wisdom
The poor are being robbed at an ever-rising rate as the government continues to increase excess money and credit. But commodity prices have also not finished rising - and that includes gold.
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Doug Noland looks at the previous week's events each Monday.
THE WEEK AHEAD
MARKET RAP
Darkest week in a year
Asian markets suffered a week of near non-stop declines and with objective macroeconomic and financial reasons for worsening sentiment, there are few if any points of light. Don't curse the darkness - just stay inside. (Sep 5, '08)
R M Cutler runs his eye over the ups and downs in the week's markets.
Robbing the poor of Jeffersonian wisdomThe poor are being robbed at an ever-rising rate as the government continues to increase excess money and credit. But commodity prices have also not finished rising - and that includes gold.
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Doug Noland looks at the previous week's events each Monday.
THE WEEK AHEADMARKET RAP
Darkest week in a year
Asian markets suffered a week of near non-stop declines and with objective macroeconomic and financial reasons for worsening sentiment, there are few if any points of light. Don't curse the darkness - just stay inside. (Sep 5, '08)
R M Cutler runs his eye over the ups and downs in the week's markets.
Welcome Comrades, to the USSRA Nouriel Roubini, the famous economist who long ago predicted the financial meltdown about to occur in the US and who has been right on the money on practically every prediction he has made in the last six or eight years has something to say today about the Fannie Mae and Freddie Mac bailouts.
Perhaps sensibility will sink into some of the so called brightest and best minds, whose hollow shells for brains are in fact filled with nothing but wild ideology, who subscribe to a belief system just as obscene, if not more so than the brutal ideologies of Germany in 1933 and Russia in 1917, and they will finally come around to sanity and realize that socialism indeed works in some segments of a civilized economy, provided it is tempered with incentives for everyone to have the opportunity to exercise initiative and entrepreneurship in a capitalist economy that has a soul.
But I doubt that we have many leaders in our midst who have that kind of insight and ability. Only honest and upright men and women who govern a country can be counted on to look out for the interests for all of the citizens of that country, particularly the least of these among us. And that kind of leadership has sadly been lacking in this country since at least 1980, if not long before then.
What I fear most is that most of our citizens have been indoctrinated with the same kind of ideology since the era of Ronald Reagan, and many of them long before that era. It may be impossible to turn this nation around to honest and sensible government policies, and this country may indeed be a lost cause on the world stage. Without further ado, what follows is part of Mr. Roubini’s rant of the day — although Mr. Roubini seldom rants — since I just took my turn at having mine. And I didn’t even get into the debt we're adding every day by continuing to borrow billions monthly from the Chinese, Saudis, Russians and other world governments. Maybe Moe Blues, who has much more experience in this topic than I do can fill us in on that and more on what we, our children, and their children’s children may have in store in the coming decades.
Posted by Buck Batard at 2:26 PM
Perhaps sensibility will sink into some of the so called brightest and best minds, whose hollow shells for brains are in fact filled with nothing but wild ideology, who subscribe to a belief system just as obscene, if not more so than the brutal ideologies of Germany in 1933 and Russia in 1917, and they will finally come around to sanity and realize that socialism indeed works in some segments of a civilized economy, provided it is tempered with incentives for everyone to have the opportunity to exercise initiative and entrepreneurship in a capitalist economy that has a soul.
But I doubt that we have many leaders in our midst who have that kind of insight and ability. Only honest and upright men and women who govern a country can be counted on to look out for the interests for all of the citizens of that country, particularly the least of these among us. And that kind of leadership has sadly been lacking in this country since at least 1980, if not long before then.
What I fear most is that most of our citizens have been indoctrinated with the same kind of ideology since the era of Ronald Reagan, and many of them long before that era. It may be impossible to turn this nation around to honest and sensible government policies, and this country may indeed be a lost cause on the world stage. Without further ado, what follows is part of Mr. Roubini’s rant of the day — although Mr. Roubini seldom rants — since I just took my turn at having mine. And I didn’t even get into the debt we're adding every day by continuing to borrow billions monthly from the Chinese, Saudis, Russians and other world governments. Maybe Moe Blues, who has much more experience in this topic than I do can fill us in on that and more on what we, our children, and their children’s children may have in store in the coming decades.
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion. This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed — untempered by fear of loss or of punishment — leads to credit bubbles and asset bubbles and manias and eventual bust and panics.
Posted by Buck Batard at 2:26 PM
Foreign Bondholders Drove the Fannie/Freddie Bailout
By William Patalon III
For anyone who still doubted the growing global influence of such emerging powerhouses as China, consider this: The U.S. government’s decision to take control of foundering mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds. Continue
By William Patalon III
For anyone who still doubted the growing global influence of such emerging powerhouses as China, consider this: The U.S. government’s decision to take control of foundering mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds. Continue
Should Biden Share Blame for Foreclosure Crisis?
By JUSTIN ROOD
Experts say hundreds of thousands of Americans may have lost their homes due to a bill championed by Sen. Joseph Biden, D-Del., Barack Obama's vice-presidential running mate. Continue
By JUSTIN ROOD
Experts say hundreds of thousands of Americans may have lost their homes due to a bill championed by Sen. Joseph Biden, D-Del., Barack Obama's vice-presidential running mate. Continue
U.S. Fiscal Deficit Continues to Balloon Amid Economic Slowdown
- August fiscal deficit rose to $111.91 bn as slowing economy is reducing revenues (-5.7% y/y) from corporate and individual income taxes even as spending continues to rise (on tax rebates, defense); Fiscal deficit has hit $483.33 bn ytd, up 76% y/y (2007: $163 bn, 1.2% of GDP)
- Forecast for fiscal deficit - OMB: $389 bn (2.7% of GDP) in 2008; $482 bn (3.3% of GDP) in 2009; CBO: $407 bn (2.9% of GDP) in 2008 and $438 bn in 2009; Merrill Lynch: $500 bn in 2008; $525 bn in 2009; Goldman Sachs: $425 bn in 2008 and $565 bn in 2009; Public debt is expected to increase from 37.9% of GDP ($5.4 tr) in 2007 to 38% of GDP in 2008 and 40.2% in 2009
- CBO: Operations of Fannie & Freddie should be directly incorporated into federal budget (which would raise the govt's gross liabilities by $5.2 tr) w/ their revenue should be treated as federal revenue and their expenditure as federal outlays so that credit transactions (like mortgage guarantees) are reflected in the federal budget
As Crisis Expands, Options For Battling It Narrow
- WSJ ($)
- 09/11/2008 09:16 PM
- WSJ ($)
- 09/11/2008 09:12 PM
- Reuters
- 09/11/2008 09:10 PM
- AP
- 09/11/2008 08:26 PM
- Bloomberg
- 09/11/2008 10:17 AM
- Bloomberg
- 09/11/2008 08:02 AM
- NY Times
- 09/11/2008 07:11 AM
- WSJ ($)
- 09/11/2008 06:09 AM
- NY Times
- 09/11/2008 06:04 AM
- Bloomberg
- 09/11/2008 05:58 AM
As Crisis Expands, Options For Battling It Narrow
- WSJ ($)
- 09/11/2008 09:16 PM
- NY Times
- 09/11/2008 06:04 AM
- Bloomberg
- 09/11/2008 05:57 AM
- NY Times
- 09/11/2008 08:25 PM
- USA Today
- 09/11/2008 06:10 AM
- LA Times
- 09/11/2008 05:55 AM
- FT
- 09/11/2008 09:24 PM
- Bloomberg
- 09/11/2008 06:00 AM
U.S. Trade Deficit of $62.2 Billion Exceeds Forecast
- Bloomberg
- 09/11/2008 10:17 AM
- Bloomberg
- 09/11/2008 08:02 AM
- WSJ ($)
- 09/11/2008 06:09 AM
- Bloomberg
- 09/11/2008 05:58 AM
- Chicago Tribune
- 09/11/2008 06:06 AM
- NY Times
- 09/11/2008 06:05 AM
Retail Sales in U.S. Unexpectedly Dropped in August
- Bloomberg
- 09/12/2008 08:00 AM
- Bloomberg
- 09/12/2008 06:09 AM
- Bloomberg
- 09/12/2008 05:51 AM
- WSJ ($)
- 09/12/2008 05:38 AM
- NY Times
- Norris
- 09/12/2008 05:34 AM
- WSJ ($)
- 09/12/2008 05:32 AM
- NY Times
- 09/12/2008 05:29 AM
- WSJ ($)
- 09/11/2008 09:16 PM
- WSJ ($)
- 09/11/2008 09:12 PM
- Reuters
- 09/11/2008 09:10 PM
U.S. Government Helping to Arrange Sale of Lehman Brothers
Fed May Expand Funding Aid to Banks in a `Mother of Year-Ends'
Consumer debt defaults looming large
Real Estate Woes Spread to China
Lenders shorten financing lifelines for major retailers
EU Cuts Growth Forecasts, Sees Recession in Germany
Fed's next move could be to lower rates
Fed May Expand Funding Aid to Banks in a `Mother of Year-Ends'
Consumer debt defaults looming large
Real Estate Woes Spread to China
Lenders shorten financing lifelines for major retailers
EU Cuts Growth Forecasts, Sees Recession in Germany
Fed's next move could be to lower rates
Lehman on the Brink
- Debating the Lehman Collapse [Felix Salmon, Dear John Thain]
- Let Lehman Fail [James Conrad]
- Lehman: Dead Firm Walking? [Roger Ehrenberg]
- Good News for Lehman? Not Likely [Michael Panzner]
US Bailout of Mortgage Giants Sets Stage for Wider Financial Crisis
By Barry Grey
On Tuesday, the Congressional Budget Office (CBO) declared that as a result of the government bailout, the finances of Fannie Mae and Freddie Mac had to be “directly incorporated into the federal budget,” and its liabilities added to the US national debt. This means, in effect, a near doubling of the US sovereign debt to a figure equivalent to the country’s gross domestic product (GDP). Continue
By Barry Grey
On Tuesday, the Congressional Budget Office (CBO) declared that as a result of the government bailout, the finances of Fannie Mae and Freddie Mac had to be “directly incorporated into the federal budget,” and its liabilities added to the US national debt. This means, in effect, a near doubling of the US sovereign debt to a figure equivalent to the country’s gross domestic product (GDP). Continue
CHAN AKYA
Pareto's bazooka
The roots of Lehman Brothers' precipitous decline this week can be traced to the US government's policy actions in the rescues of Bear Stearns, Fannie and Freddie; all of which sufficiently enhanced the motivation of major market players to essentially invalidate core principles. The resulting food fight is lethal for the chances of a meaningful economic recovery.
MARKET RAP
A respite, but no reprieve
The ongoing declines in Asian markets showed a small lull, and some reversal, with Seoul making phenomenal gains and New Zealand also performing well. But the region is by no means out of the woods, with Chinese exchanges plunging to their lowest levels in months.
R M Cutler runs his eye over the ups and downs in the week's markets.
THE MOGAMBO GURU
Deployed to
the dole line
The latest report of employment showed that the US unemployment rate is now over 6%. Worse, only in government, education and healthcare is employment rising! Doomed? Doomed!!
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Pareto's bazooka
The roots of Lehman Brothers' precipitous decline this week can be traced to the US government's policy actions in the rescues of Bear Stearns, Fannie and Freddie; all of which sufficiently enhanced the motivation of major market players to essentially invalidate core principles. The resulting food fight is lethal for the chances of a meaningful economic recovery.
MARKET RAP
A respite, but no reprieve
The ongoing declines in Asian markets showed a small lull, and some reversal, with Seoul making phenomenal gains and New Zealand also performing well. But the region is by no means out of the woods, with Chinese exchanges plunging to their lowest levels in months.
R M Cutler runs his eye over the ups and downs in the week's markets.
THE MOGAMBO GURU
Deployed tothe dole line
The latest report of employment showed that the US unemployment rate is now over 6%. Worse, only in government, education and healthcare is employment rising! Doomed? Doomed!!
CREDIT BUBBLE BULLETIN
Just the facts
As the Dow retreated during a week overshadowed by doubts on the future of Fannie Mae and Freddie Mac, banks stood out as gainers, closing up 4% at the prospect of a lifeline being thrown to the beleaguered mortgage guarantors. Treasury Secretary Henry Paulson duly obliged at the weekend. (Sep 8, '08)
Retail Sales in U.S. Unexpectedly Fall as Consumers Cut Back on Purchases Sales at U.S. retailers unexpectedly dropped in August and prices at the wholesale level fell for the first time this year as Americans cut spending in the face of job losses and record foreclosures.
Greenspan Says McCain Tax Cuts Unaffordable Without Similar Budget Paring Former Federal Reserve Chairman Alan Greenspan said the country can't afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without corresponding spending reductions.
Greenspan Says McCain Tax Cuts Unaffordable Without Similar Budget Paring Former Federal Reserve Chairman Alan Greenspan said the country can't afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without corresponding spending reductions.
U.S. Producer Prices Fall 0.9%, More Than Forecast, as Energy Costs Drop Prices paid to U.S. producers fell in August for the first time this year, as lower energy costs eased inflation pressures.
Paulson Is Said to Be Adamant That No Government Money Be Used for Lehman Treasury Secretary Henry Paulson is adamantly opposed to using government funds to aid Lehman Brothers Holdings Inc., and Federal Reserve officials are inclined to agree.
Paulson Is Said to Be Adamant That No Government Money Be Used for Lehman Treasury Secretary Henry Paulson is adamantly opposed to using government funds to aid Lehman Brothers Holdings Inc., and Federal Reserve officials are inclined to agree.
Fed Direct Loans Lose Stigma as Commercial Banks Push Borrowing to Record Commercial banks that a year ago rebuffed a Federal Reserve program to provide cheaper cash may be increasingly dependent on it.
Bernanke May Be Wrong: Next Fed Move Might Be to Lower Rate, Not Raise It Federal Reserve Chairman Ben S. Bernanke and his fellow policy makers agreed at their August meeting that their next move on interest rates would probably be up. They may turn out to be wrong.
Bernanke May Be Wrong: Next Fed Move Might Be to Lower Rate, Not Raise It Federal Reserve Chairman Ben S. Bernanke and his fellow policy makers agreed at their August meeting that their next move on interest rates would probably be up. They may turn out to be wrong.
Lehman Gets Bids From Bain, Clayton Dubilier for Asset Management Division Lehman Brothers Holdings Inc. received bids for its asset-management unit from private- equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., said people familiar with the situation.
AIG May Announce Turnaround Plan Before Sept. 25 Deadline as Shares Slump American International Group Inc., the largest U.S. insurer, may move up plans to raise capital or sell assets after the shares plunged 46 percent this week, said a person familiar with the company.
Bank of America Leads Talks for Lehman as Paulson Opposes Providing Funds Bank of America Corp. led a list of potential bidders for Lehman Brothers Holdings Inc., a person with knowledge of the talks said today, even as the U.S. Treasury opposed funding a deal and the structure of any transaction remained in flux.
Fidelity Nears Auction-Rate Settlement With Cuomo to Buy Back $300 Million Fidelity Investments settled a probe of its sales of auction-rate securities, agreeing to buy back $300 million of the instruments seven months after the market for them collapsed, state officials said.
Merck's Gardasil Cervical Cancer Vaccine Approved by FDA for Extended Use Merck & Co. won U.S. approval to market its cervical cancer vaccine Gardasil to help prevent cancer of the vagina and vulva, giving the shot an advantage over potential rivals.
Lehman Employees Work On, `Keeping Their Heads' as Resumes Hit the Street As the stock plunged and television news crews circled, Lehman Brothers Holdings Inc. employees said it was business as usual in the office.
Sector Snap: Investment banks drag on Lehman fate
Forbes - 21 hours ago
Goldman and Morgan: The anti-Lehman CNNMoney.com
Why Is The Street Ganging Up On Goldman? CNBC
Forbes - 21 hours ago
Goldman and Morgan: The anti-Lehman CNNMoney.com
Why Is The Street Ganging Up On Goldman? CNBC
NY Fed calls meeting to forestall Lehman collapse
MarketWatch -
Video: Paulson Said to Be Against Govt Funds for LehmanVideo: Paulson Said to Be Against Govt Funds for Lehman AssociatedPress
US Gives Banks Urgent Warning to Solve Crisis New York Times
Emergency Fed meeting targets Lehman's future
Baltimore Sun, United States - 7 hours ago
WASHINGTON - The Federal Reserve Bank of New York held an emergency meeting last night with top Washington policymakers and major financial institutions to ...
LEHHistoric Lehman might be history by next week
Chicago Tribune, United States - 7 hours ago
Lehman Brothers Holdings Inc.'s shares sank further Friday as executives raced to put a sale of the beleaguered investment bank in place, and the government ...
LEHFinancial Markets Remain on Edge as System Shows More Strain From ...
Voice of America - 13 hours ago
By Barry Wood Wall Street closed up on the week but investors remained focused on the continuing plight of Lehman Brothers, the fourth largest US investment ...
Lehman races to sell as Treasury balks at bailout
The Age, Australia - 14 hours ago
Bank of America is leading a list of potential bidders for Lehman Brothers, a person with knowledge of the talks said on Friday, even as the US Treasury ...LEH - BAC
Lehman in freefall on faltering deal hopes
Scotsman, United Kingdom -
By Martin Flanagan MOUNTING worries that Lehman Brothers may fail to find a buyer following its poorly-received restructuring plan this week sent shares in ...
LEHPaulson against Lehman bailout
Toronto Star, Canada -
NEW YORK/WASHINGTON–Concern that Lehman Brothers Holdings Inc. may fail to find a buyer because the government is reluctant to provide financial backing ...
LEHLehman and Its Staff Await Next Step
New York Times, United States -
By BEN WHITE and ERIC DASH It was no ordinary Friday at Lehman Brothers. "You Shook Me All Night Long" by AC/DC blared from speakers inside the bank's ...
MarketWatch -
Video: Paulson Said to Be Against Govt Funds for LehmanVideo: Paulson Said to Be Against Govt Funds for Lehman AssociatedPressUS Gives Banks Urgent Warning to Solve Crisis New York Times
Emergency Fed meeting targets Lehman's future
Baltimore Sun, United States - 7 hours ago
WASHINGTON - The Federal Reserve Bank of New York held an emergency meeting last night with top Washington policymakers and major financial institutions to ...
LEHHistoric Lehman might be history by next week
Chicago Tribune, United States - 7 hours ago
Lehman Brothers Holdings Inc.'s shares sank further Friday as executives raced to put a sale of the beleaguered investment bank in place, and the government ...
LEHFinancial Markets Remain on Edge as System Shows More Strain From ...Voice of America - 13 hours ago
By Barry Wood Wall Street closed up on the week but investors remained focused on the continuing plight of Lehman Brothers, the fourth largest US investment ...
Lehman races to sell as Treasury balks at bailout
The Age, Australia - 14 hours ago
Bank of America is leading a list of potential bidders for Lehman Brothers, a person with knowledge of the talks said on Friday, even as the US Treasury ...
LEH - BACLehman in freefall on faltering deal hopes
Scotsman, United Kingdom -
By Martin Flanagan MOUNTING worries that Lehman Brothers may fail to find a buyer following its poorly-received restructuring plan this week sent shares in ...
LEHPaulson against Lehman bailout
Toronto Star, Canada -
NEW YORK/WASHINGTON–Concern that Lehman Brothers Holdings Inc. may fail to find a buyer because the government is reluctant to provide financial backing ...
LEHLehman and Its Staff Await Next Step
New York Times, United States -
By BEN WHITE and ERIC DASH It was no ordinary Friday at Lehman Brothers. "You Shook Me All Night Long" by AC/DC blared from speakers inside the bank's ...
Lehman Prepares Bankruptcy Filing as Bank of America, Barclays Quit Talks Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.
World May Face `Japan-Like' Stagnation Amid Credit Crisis, GIC's Tan Says The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Greenspan Says Crisis May Be `Once in Century' Event, More Firms Will Fail Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime-mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.
Thai Economy Being Devastated by Political Crisis, Finance Minister Says Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.
Europe Shuns U.S.-Style `Active Role' in Boosting Economy, Bank Bailouts European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
World May Face `Japan-Like' Stagnation Amid Credit Crisis, GIC's Tan Says The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Greenspan Says Crisis May Be `Once in Century' Event, More Firms Will Fail Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime-mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.
Thai Economy Being Devastated by Political Crisis, Finance Minister Says Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.
Europe Shuns U.S.-Style `Active Role' in Boosting Economy, Bank Bailouts European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
In Frantic Day, Wall Street Banks Teeter
Offer for Merrill Accepted; Lehman Nears Liquidation
By ANDREW ROSS SORKIN 13 minutes ago In one of the most dramatic days in Wall Street history, Merrill Lynch agreed to sell itself to Bank of America for about $50 billion, while Lehman Brothers headed toward bankruptcy.
News Analysis
Jittery Road Ahead
By FLOYD NORRIS and VIKAS BAJAJ 14 minutes ago Wall Street and the federal government faced off over the weekend, raising worries of a worldwide sell-off when markets open on Monday.
Offer for Merrill Accepted; Lehman Nears Liquidation
By ANDREW ROSS SORKIN 13 minutes ago In one of the most dramatic days in Wall Street history, Merrill Lynch agreed to sell itself to Bank of America for about $50 billion, while Lehman Brothers headed toward bankruptcy.
News Analysis
Jittery Road Ahead
By FLOYD NORRIS and VIKAS BAJAJ 14 minutes ago Wall Street and the federal government faced off over the weekend, raising worries of a worldwide sell-off when markets open on Monday.
Crisis on Wall Street as Lehman Brothers Totters, Merrill Lynch Is Sold, AIG Seeks to Raise Cash
Lehman faces the possibility of liquidation and Merrill Lynch sold itself to Bank of America on a day in which the U.S. financial system was shaken to its core.
The government's decision to reject a bailout for Lehman touched off a nerve-wracking test of the U.S. financial system's ability to hold itself together amid the worst series of shocks it has faced in decades.
Fed Plans Expanded Lending Facilities
The Federal Reserve is expected to expand its lending facilities, taking a wider array of securities, including equities, as collateral for its loans. (Fed statement)
AIG Scrambles to Raise Cash | Banks Roll Out $70 Billion Loan Programdocument.write(uescEnt('• '))•
Financial-Sector Distress Likely to Hold Back Stocks
Goldman, Morgan Grasp at Bitter Prize|
U.S. Must Own Up to Its Bank Crisis
Heard on the Street: Wake-Up Call | Even the Strongest Will Have to Adjust | More
Sydney Retreats on Financial Tumult |
MarketBeat: Mother of All Mondays |
Real Time: What a Difference a Crisis Makes |
Deal Journal: How Wall Street Can Save Itsel
Mean Street: Wall Street Gets Set to Make a Killing | Complete Coverage
Lehman faces the possibility of liquidation and Merrill Lynch sold itself to Bank of America on a day in which the U.S. financial system was shaken to its core. The government's decision to reject a bailout for Lehman touched off a nerve-wracking test of the U.S. financial system's ability to hold itself together amid the worst series of shocks it has faced in decades.
Fed Plans Expanded Lending Facilities
The Federal Reserve is expected to expand its lending facilities, taking a wider array of securities, including equities, as collateral for its loans. (Fed statement)
AIG Scrambles to Raise Cash | Banks Roll Out $70 Billion Loan Programdocument.write(uescEnt('• '))•
Financial-Sector Distress Likely to Hold Back Stocks
Goldman, Morgan Grasp at Bitter Prize|
U.S. Must Own Up to Its Bank Crisis
Heard on the Street: Wake-Up Call | Even the Strongest Will Have to Adjust | More
Sydney Retreats on Financial Tumult |
MarketBeat: Mother of All Mondays |
Real Time: What a Difference a Crisis Makes |
Deal Journal: How Wall Street Can Save Itsel
Mean Street: Wall Street Gets Set to Make a Killing | Complete Coverage
BofA Reaches Deal for Merrill - Karnitschnig/Mollenkamp/Fitzpatrick, WSJ
Lehman Expected To File Bankruptcy - Ross-Sorkin/White/Anderson, NYT
Hubris--Is Thy Name Richard Fuld? - Frank Partnoy, Financial Times
Barclays Withdraws Bid; Still No Buyer for LEH - Landy/Irwin, WaPo
AIG Scrambles To Raise Cash - Karnitschnig, Pleven & Lattman, WSJ
Wall Street Banks Fight for Life - Guerrera, Guha & Farrell, FT
Banks Fear Next Move by Shorts - Louise Story, New York Times
When Can We Start Breathing Again? - Felix Salmon, Market Movers
Wall Street Gets Set To Make a Killing - Evan Newmark, WSJ's Deal Journal
Why We Absolutely Need a Rate Cut - Tom Brennan, CNBC
Too Few Regulations? No, Just Ineffective Ones - Tyler Cowen, NY Times
US Opts To Avoid LEH Rescue - Mollenkamp, Craig & Ng, Wall St. Journal
Lehman Expected To File Bankruptcy - Ross-Sorkin/White/Anderson, NYT
Hubris--Is Thy Name Richard Fuld? - Frank Partnoy, Financial Times
Barclays Withdraws Bid; Still No Buyer for LEH - Landy/Irwin, WaPo
AIG Scrambles To Raise Cash - Karnitschnig, Pleven & Lattman, WSJ
Wall Street Banks Fight for Life - Guerrera, Guha & Farrell, FT
Banks Fear Next Move by Shorts - Louise Story, New York Times
When Can We Start Breathing Again? - Felix Salmon, Market Movers
Wall Street Gets Set To Make a Killing - Evan Newmark, WSJ's Deal Journal
Why We Absolutely Need a Rate Cut - Tom Brennan, CNBC
Too Few Regulations? No, Just Ineffective Ones - Tyler Cowen, NY Times
US Opts To Avoid LEH Rescue - Mollenkamp, Craig & Ng, Wall St. Journal
The Mother of all Mondays - Tim Annett, MarketBeat
What a Lehman Bankruptcy Filing Might Look Like - DealBook
How Wall Street Can Save Itself - Heidi Moore, Deal Journal
Live Blogging Lehman CNBC Show - Barry Ritholtz, Big Picture
El-Erian Sums It Up Nicely With Word 'Unthinkable' - Curious Capitalist
What a Lehman Bankruptcy Filing Might Look Like - DealBook
How Wall Street Can Save Itself - Heidi Moore, Deal Journal
Live Blogging Lehman CNBC Show - Barry Ritholtz, Big Picture
El-Erian Sums It Up Nicely With Word 'Unthinkable' - Curious Capitalist