Weekend Economists Winter Clearance Weekend Feb. 27-March 1, 2009

[Demeter]

I call hearts.....what?

Oh, welcome to WE!

I was seriously considering spending the weekend playing Euchre, or continuing the shopping spree I enjoyed this morning (pumping up the economy...somebody's got to do it!) at Bed, Bath and Beyond (went in for a shower curtain, came out with a new bedroom and completely forgot about the shower curtain....)
but it's really nasty out, and it's going to be worse tomorrow..

Must we discuss this economy?

Oh, very well, post them if you've got them. Go heavy on the humor, easy on the apocalypse, and remember that even in Euchre, diamonds are a girl's best friend!

[Demeter]

1. How the Economy Was Lost By Paul Craig Roberts

http://www.opednews.com/articles/How-the-Economy-Was-Lost-by-Paul-Craig-Roberts-090223-753.html




The American economy has gone away. It is not coming back until free trade myths are buried six feet under.

America’s 20th century economic success was based on two things. Free trade was not one of them. America’s economic success was based on protectionism, which was ensured by the union victory in the Civil War, and on British indebtedness, which destroyed the British pound as world reserve currency. Following World War II, the US dollar took the role as reserve currency, a privilege that allows the US to pay its international bills in its own currency.

World War II and socialism together ensured that the US economy dominated the world at the mid 20th century. The economies of the rest of the world had been destroyed by war or were stifled by socialism.

The ascendant position of the US economy caused the US government to be relaxed about giving away American industries, such as textiles, as bribes to other countries for cooperating with America’s cold war and foreign policies. For example, Turkey’s US textile quotas were increased in exchange for over-flight rights in the Gulf War, making lost US textile jobs an off-budget war expense.

In contrast, countries such as Japan and Germany used industrial policy to plot their comebacks. By the late 1970s, Japanese auto makers had the once dominant American auto industry on the ropes. The first economic act of the “free market” Reagan administration in 1981 was to put quotas on the import of Japanese cars in order to protect Detroit and the United Auto Workers.

Eamonn Fingleton, Pat Choate, and others have described how negligence in Washington DC aided and abetted the erosion of America’s economic position. What we didn’t give away, we let be taken from us while preaching a “free trade” doctrine at which the rest of the world scoffed.

Fortunately, our adversaries at the time, the Soviet Union and China, had unworkable economic systems that posed no threat to America’s diminishing economic prowess.

The proverbial hit the fan when Soviet, Chinese, and Indian socialism collapsed around 1990, to be followed shortly thereafter by the rise of the high speed Internet. Suddenly, American and other first world corporations discovered that a massive supply of foreign labor was available at practically free wages.

To get Wall Street analysts and shareholder advocacy groups off their backs, and to boost shareholder returns and management bonuses, American corporations began moving their production for American markets offshore. Products that were made in Peoria are now made in China.

As offshoring spread, American cities and states lost tax base, and families and communities lost jobs. The replacement jobs, such as selling the offshored products at Wal-Mart, brought home less pay.

“Free market economists” covered up the damage done to the US economy by preaching a New Economy based on services and innovation. But it wasn’t long before corporations discovered that the high speed Internet let them offshore a wide range of professional service jobs. In America, the hardest hit have been software engineers and information technology (IT) workers.

The American corporations quickly learned that by declaring “shortages” of skilled Americans, they could get from Congress H-1b work visas for lower paid foreigners with whom to replace their American work force. Many US corporations are known for forcing their US employees to train their foreign replacements in exchange for severance pay.

Chasing after shareholder return and “performance bonuses,” US corporations deserted their American workforce. The consequences can be seen everywhere. The loss of tax base has threatened the municipal bonds of cities and states and reduced the wealth of individuals who purchased the bonds. The lost jobs with good pay resulted in the expansion of consumer debt in order to maintain consumption. As the offshored goods and services are brought back to America to sell, the US trade deficit has exploded to unimaginable heights, calling into question the US dollar as reserve currency and America’s ability to finance its trade deficit.

As the American economy eroded away bit by bit, “free market” ideologues produced endless reassurances that America had pulled a fast one on China, sending China dirty and grimy manufacturing jobs. Free of these “old economy” jobs, Americans were lulled with promises of riches. In place of dirty fingernails, American efforts would flow into innovation and entrepreneurship. In the meantime, the “service economy” of software and communications would provide a leg up for the work force.

Education was the answer to all challenges. This appeased the academics, and they produced no studies that would contradict the propaganda and, thus, curtail the flow of federal government and corporate grants.

The “free market” economists, who provided the propaganda and disinformation to hide the act of destroying the US economy, were well paid. And as Business Week noted, “outsourcing’s inner circle has deep roots in GE (General Electric) and McKinsey,” a consulting firm. Indeed, one of McKinsey’s main apologists for offshoring of US jobs, Diana Farrell, is now a member of Obama’s White House National Economic Council.

The pressure of jobs offshoring, together with massive imports, has destroyed the economic prospects for all Americans, except the CEOs who receive “performance” bonuses for moving American jobs offshore or giving them to H-1b work visa holders. Lowly paid offshored employees, together with H-1b visas, have curtailed employment for older and more experienced American workers. Older workers traditionally receive higher pay. However, when the determining factor is minimizing labor costs for the sake of shareholder returns and management bonuses, older workers are unaffordable. Doing a good job, providing a good service, is no longer the corporation’s function. Instead, the goal is to minimize labor costs at all cost.

Thus, “free trade” has also destroyed the employment prospects of older workers. Forced out of their careers, they seek employment as shelf stockers for Wal-Mart.

I have read endless tributes to Wal-Mart from “libertarian economists,” who sing Wal-Mart’s praises for bringing low price goods, 70% of which are made in China, to the American consumer. What these “economists” do not factor into their analysis is the diminution of American family incomes and government tax base from the loss of the goods producing jobs to China. Ladders of upward mobility are being dismantled by offshoring, while California issues IOUs to pay its bills. By shifting production offshore, offshoring reduces US GDP. When the goods and services are brought back to America to be sold, they increase the trade deficit. As the trade deficit is financed by foreigners acquiring ownership of US assets, the change in ownership means that profits, dividends, capital gains, interest, rents, and tolls leave American pockets for foreign ones.

The demise of America’s productive economy left the US economy dependent on finance, in which the US remained dominant because the dollar is the reserve currency. With the departure of factories, finance went in new directions. Mortgages, which were once held in the portfolios of the issuer, were securitized. Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.

In pursuit of ever more profits, financial institutions began betting on the success and failure of various debt instruments and by implication on firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets. (An excellent explanation of swaps can be found here.

The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts can easily exceed the net worth of the issuer.

This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators had abandoned their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.

The US government should never have used billions of taxpayers’ dollars to pay off swap bets as it did when it bailed out the insurance company AIG. This was a stunning waste of a vast sum of money. The federal government should declare all swap agreements fraudulent contracts, except for a single swap held by the owner of the asset. Simply wiping out these fraudulent contracts would remove the bulk of the vast overhang of “troubled” assets that threaten financial markets.

The billions of taxpayers’ dollars spent buying up subprime derivatives were also wasted. The government did not need to spend one dime. All government needed to do was to suspend the mark-to-market rule. This simple act would have removed the solvency threat to financial institutions by allowing them to keep the derivatives at book value until financial institutions could ascertain their true values and write them down over time.

Taxpayers, equity owners, and the credit standing of the US government are being ruined by financial shysters who are manipulating to their own advantage the government’s commitment to mark-to-market and to the “sanctity of contracts.” Multi-trillion dollar “bailouts” and bank nationalization are the result of the government’s inability to respond intelligently.

Two more simple acts would have completed the rescue without costing the taxpayers one dollar: an announcement from the Federal Reserve that it will be lender of last resort to all depository institutions including money market funds, and an announcement reinstating the uptick rule.

The uptick rule was suspended or repealed a couple of years ago in order to permit hedge funds and shyster speculators to rip-off American equity owners. The rule prevented short-selling any stock that did not move up in price during the previous day. In other words, speculators could not make money at others’ expense by ganging up on a stock and short-selling it day after day.

As a former Treasury official, I am amazed that the US government, in the midst of the worst financial crises ever, is content for short-selling to drive down the asset prices that the government is trying to support. No bailout or stimulus plan has any hope until the uptick rule is reinstated.

The bald fact is that the combination of ignorance, negligence, and ideology that permitted the crisis to happen is still present and is blocking any remedy. Either the people in power in Washington and the financial community are total dimwits or they are manipulating an opportunity to redistribute wealth from taxpayers, equity owners and pension funds to the financial sector.

The Bush and Obama plans total 1.6 trillion dollars, every one of which will have to be borrowed, and no one knows from where. This huge sum will compromise the value of the US dollar, its role as reserve currency, the ability of the US government to service its debt, and the price level. These massive costs are pointless and are to no avail as not one step has been taken that would alleviate the crisis.

If we add to my simple menu of remedies a ban, punishable by instant death, for short selling any national currency, the world can be rescued from the current crisis without years of suffering, violent upheavals and, perhaps, wars.

According to its hopeful but economically ignorant proponents, globalism was supposed to balance risks across national economies and to offset downturns in one part of the world with upturns in other parts. A global portfolio was a protection against loss, claimed globalism’s purveyors. In fact, globalism has concentrated the risks, resulting in Wall Street’s greed endangering all the economies of the world. The greed of Wall Street and the negligence of the US government have wrecked the prospects of many nations. Street riots are already occurring in parts of the world. On Sunday February 22, the right-wing TV station, Fox “News,” presented a program that predicted riots and disarray in the United States by 2014.

How long will Americans permit “their” government to rip them off for the sake of the financial interests that caused the problem? Obama’s cabinet and National Economic Council are filled with representatives of the interest groups that caused the problem. The Obama administration is not a government capable of preventing a catastrophe.

If truth be known, the “banking problem” is the least of our worries. Our economy faces two much more serious problems. One is that offshoring and H-1b visas have stopped the growth of family incomes, except, of course, for the super rich. To keep the economy going, consumers have gone deeper into debt, maxing out their credit cards and refinancing their homes and spending the equity. Consumers are now so indebted that they cannot increase their spending by taking on more debt. Thus, whether or not
the banks resume lending is beside the point.

The other serious problem is the status of the US dollar as reserve currency. This status has allowed the US, now a country heavily dependent on imports just like a third world or lesser-developed country, to pay its international bills in its own currency. We are able to import $800 billion annually more than we produce, because the foreign countries from whom we import are willing to accept paper for their goods and services.

If the dollar loses its reserve currency role, foreigners will not accept dollars in exchange for real things. This event would be immensely disruptive to an economy dependent on imports for its energy, its clothes, its shoes, its manufactured products, and its advanced technology products.

If incompetence in Washington, the type of incompetence that produced the current economic crisis, destroys the dollar as reserve currency, the “unipower” will overnight become a third world country, unable to pay for its imports or to sustain its standard of living.

How long can the US government protect the dollar’s value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? Given the incompetence in Washington and on Wall Street, our best hope is that the rest of the world is even less competent and even in deeper trouble. In this event, the US dollar might survive as the least valueless of the world’s fiat currencies.




Author's Bio: Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has held numerous academic appointments. He has been reporting shocking cases of prosecutorial abuse for two decades. A new edition of his book, The Tyranny of Good Intentions, co-authored with Lawrence Stratton, a documented account of how Americans lost the protection of law, was published by Random House in March, 2008.

[Demeter]

2. And Yet, Still Rules Their World

http://digbysblog.blogspot.com/2009/02/and-yet-still-rules-their-world-by-dday.html

This is really a jump the shark moment for Matt Drudge, who is only relevant to the Gang of 500, anyway.

The markets opened this morning with a sustained decline, which Reuters attributed to a new “report showing yet more deterioration in the housing market.” Matt Drudge, however, wanted to blame it on President Obama, so he posted an auto updating graph of the Dow Jones Industrial average. Under that, in large block letters, Drudge asked, WAS IT SOMETHING HE SAID? But as the day passed, the market rebounded, and Drudge was left suggesting that Obama was responsible for the rally. Drudge couldn’t let that stand so, several minutes later, he changed the headline: MARKET REBOUNDS. But then, shortly before the closing at 4:00 PM, the market declined again. What did Drudge do? He hurriedly changed it back, typos and all: WAS IT SOMETHING HE SAID?">WAS IT SOMETHING HE SAID?



We all know that every minute of market activity is dictated entirely by the utterances of whoever is President at that time, so Drudge is surely on solid footing here. So I'm sure this embarrassment is just a temporary setback for him. After all, markets rarely fluctuate over the course of a day.

I'm also fairly certain this will cause approximately no member of the chattering class to reassess their reliance on headlines and news stories hand-picked by someone who today revealed himself to be a complete idiot.


.

[Demeter]

3. Moody's predicts default rate will exceed peaks hit in Great Depression

http://www.telegraph.co.uk/finance/economics/4840805/Moodys-predicts-default-rate-will-exceed-peaks-hit-in-Great-Depression.html


A bigger proportion of non-investment grade companies will go bust in the US and overseas in the coming years than during the Great Depression, according to Moody's, one of the world's foremost experts on credit.


By Edmund Conway, Economic Editor
Last Updated: 7:42PM GMT 26 Feb 2009

In what will be seen by many as die-cast confirmation that the world economy is plummeting towards an economic and corporate implosion of unprecedented proportions, Moody's said it anticipated a tidal wave of defaults was approaching.

It said that in the coming months more than 15pc of speculative-grade bonds and loans - all but the most highly-rated - would default on their debts.

This peak is even higher than the peak reached in 1933, when bank after bank throughout America was collapsing, taking hoards of other companies with them. Back then, the default rate peaked at 15.4pc; moreover these companies were former investment grade issuers regarded as more reliable credit prospects than their contemporary counterparts.

Kenneth Emery, senior vice president at Moody's said: "The three main drivers of the forecasting model are forecasts for the high-yield bond spread and the unemployment rate, along with the current level of issuer ratings. In the fourth quarter, the high yield bond spread reached unprecedented levels; and we've got an unemployment forecast approaching 9pc this year and issuer ratings at record low levels.

"We certainly think that this credit cycle will be worse than the last two in the early 1990s and 2000s. In fact, in 2009 we expect to see the largest number of defaults since the advent of high yield bond market in the early 1980s. And the default rate for non-investment grade bonds may reach levels even higher than those registered during the Great Depression.

"There are risks here because we are in unchartered territory, but the model forecast is that roughly 15pc of our speculative-grade issuers globally will default in 2009. In Europe the forecast default rate is even higher at close to 19pc."

The report traced the health of the bond market all the way back to the 1920s, and finds that the threat of companies defaulting is more stark now than at any point in that stretch of time. It predicted that company defaults will triple this year to about 300, after 101 defaulted last year on more than $280bn of debt.

If the economy deteriorates by even more than expected, the default rate could conceivably mount to around 20pc, Moody's added - meaning around one in five of all non-investment grade issuers default, something which has never happened before. The companies most at risk of default are consumer transport groups, which largely constitute airlines, media companies and car manufacturers.

In Europe, the sectors most at risk of defaulting include those providing durable and non-durable consumer goods and business services.

[Demeter]

4. 'There will be blood'

Harvard economic historian Niall Ferguson predicts prolonged financial hardship, even civil war, before the ‘Great Recession' ends


http://www.theglobeandmail.com/servlet/story/RTGAM.20090223.wferguson0223/BNStory/crashandrecovery/home/?pageRequested=all

Harvard author and financial crisis guru Niall Ferguson has landed with a thud in Ottawa, spreading messages that could make even the most confident policy makers squirm.

The global crisis is far from over, has only just begun, and Canada is no exception, Mr. Ferguson said in an interview before delivering a presentation to public-policy think tank, Canada 2020.

Policy makers and forecasters who see a recovery next year are probably lying to boost public confidence, he said. And the crisis will eventually provoke political conflict, albeit not on the scale of a world war, but violent all the same.

The Buy America penchant pushed by the U.S. Congress in passing the recent stimulus bill was only the tip of the iceberg.

Abu Dhabi buying Nova Chemicals at bargain-basement prices on Monday is a sign of things to come, with financial power quickly being transferred over to the world's creditors – namely sovereign wealth funds – and away from the world's debtors.

And much of today's mess is the fault of central bankers who targeted consumer-price inflation but purposefully turned a blind eye to asset inflation.

The Laurence A. Tisch professor of history at Harvard University, and author of The Ascent of Money, A Financial History of the World, sat down with The Globe and Mail's economics reporter, Heather Scoffield.

Heather Scoffield: Canadian leaders frequently argue that Canada is in better financial shape than elsewhere in the world, and therefore should fare better during this crisis. Do you agree?

Niall Ferguson: Canada is a winner because its banks are less leveraged, bank regulation here has been tighter, because its housing market hasn't been in a bubble quite the same way. It's tempting to conclude from that ... that Canada will be less hard hit in the crisis than the United States. But that is unfortunately wrong. Because this is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the U.S.”

“It suggests virtue is its own reward. You don't get any reward beyond the self-satisfaction of having been virtuous. This is a crisis of globalization. Therefore, the more an economy depends on the global system, the harder it hurts. Canada is not finding the worst. Asian economies are going to be really slammed this year. But it's an unfair world. The U.S. won't be as badly affected as most countries.”

Heather Scoffield: Is the U.S. able to escape with less pain because it has more resources to throw at its problems?

Niall Ferguson: “Partly because they can throw so much at it, and they can do it at a lower cost than anybody else, because the U.S. retains the safe-haven status, which makes the world so unfair. Here is the world's biggest economy, which gave us subprime mortgages, rampant securitization, the collateralized debt obligation, Lehmann Brothers, Merrill Lynch. It is, in a sense, the fons et origo of this crisis. And yet, because it retains safe-haven status, in a global crisis, investors want to increase their exposure to the U.S. Hence, the dollar rally. Hence 10-year Treasuries down below 3 per cent yields. It's almost paradoxical that an American crisis ... reinforces the status of the United States as a safe haven.”

Heather Scoffield: Surely that safe-haven status would be revoked if China loses faith in the U.S. ability to finance its debt?

Niall Ferguson: As you know, Chimerica – the fusion of China and America – is one of my big ideas. It's really the key to how the global financial system works, and has been now for about a decade. At the end of The Ascent of Money, I speculate about whether or not that relationship will survive. If it breaks down, then all bets are off, for the U.S. and indeed for Asia. I think that's really the key point. Both sides stand to lose from a breakdown of Chimerica, which is why both sides are affirming a commitment to it.”

“It's very interesting that the Chinese in the last week were saying such soothing things around the Clinton visit. This was only days after Treasury Secretary Tim Geithner used the dreaded ‘m' word – currency manipulation.

THEY CONTINUE AT LEANGTH EXAMINING THE WHOLE WORLD ECONOMY--WELL WORTH THE READ!

[Demeter]

49. Well, then

"The way to make money is to buy when blood is running in the streets."
John D. Rockefeller

[tclambert]

58. Wouldn't you have to already have money to do that?

What are you supposed to buy with? This reminds me of J. Paul Getty's advice on how to get rich: "First, buy an oil field."

[Demeter]

5. Taleb Attacks Wall Street Bonuses

http://www.nakedcapitalism.com/2009/02/taleb-attacks-wall-street-bonuses.html

INTERESTING DISCUSSION ABOUT WALL ST. COMPENSATION PAST AND PRESENT WITH SUGGESTIONS FOR THE FUTURE....

[Pale Blue Dot]

6. U.S. regulators close banks in Nevada, Illinois

WASHINGTON, Feb 27 (Reuters) - U.S. regulators closed Security Savings Bank in Henderson, Nevada, and Heritage Community Bank in Glenwood, Illinois, the Federal Deposit Insurance Corporation said on Friday.

Heritage, which had four offices, had total assets of $232.9 million and total deposits of $218.6 million as of Dec. 5, 2008. It will be acquired by MB Financial Bank.

Security Savings Bank, which had two offices, had total assets of approximately $238.3 million and total deposits of $175.2 million as of Dec. 31, 2008. It will be taken over by the Bank of Nevada.

In 2008, 25 U.S. banks were seized by officials, up from only 3 in 2007.

http://www.reuters.com/article/governmentFilingsNews/idUSWEN534320090228

[Demeter]

8. Thanks, PBDot!

They closed them early today compared to last week!

[Tansy_Gold]

34. they musta known i was coming

:hi: to all the WEEers from cold but so far not snowy Arlington Hts, IL.


Tansy Gold, sending the 11th rec

[Demeter]

37. Have a Good Visit Tansy!

Glad to hear you made it in one piece.

[Demeter]

7. Nationalize Failing Banks? Think Twice By Thomas Ferguson & Robert Johnson

http://www.thenation.com/doc/20090309/ferguson_johnson?rel=hp_picks

As children we were used to hearing from our parents that "it's an ill wind indeed that blows no one any good." As adults, we often found that hard to believe. Until this week, when Lindsey Graham, Alan Greenspan, John McCain and a bevy of scholars and publicists on the payroll of the Peter G. Peterson Institute started lining up behind a new version of Single-Payer Insurance.

For that, of course, is what nationalizing failed banks really amounts to. In sharp contrast to the bank rescue "plan" recently put forward by Treasury Secretary Timothy Geithner, outright nationalization does impose costs on bank shareholders and managements. That is why former Treasury Secretary Henry Paulson and the new Obama administration both shied away from the step.

But bank nationalization is just another version of Single Payer--call it Single Payer 2.0. Nationalization turns the Treasury--or we may hope, a specially constituted agency that actually knows what it is doing, on the model of the New Deal's Reconstruction Finance Corporation or, more equivocally, George H. W. Bush's Resolution Trust--into a financial HMO. The desperately ill banks, if not average Americans, get nursed back to health at government expense. Taxpayers foot the bill while the poor dears go cold turkey and embark on their daunting weight-loss campaigns to shed their toxic assets. And taxpayers, of course, fund the recapitalization that eventually allows the surviving banks to go out and start lending again.

As with single-payer health insurance, the great advantage of the scheme is its simplicity. It tackles the main problems head on. It gets the toxic assets--all of them--off the books of the banks at once. And it minimizes ultimate costs to taxpayers.

Here nationalization's advantage is decisive: while the banks convalesce, the people of the United States take temporary ownership. That means that when the banks finally become healthy again, some trillions of dollars from now, the public's shareholdings can be sold back to private investors at a profit, just as the Swedes did in the 1990s.

The difference with Hank Paulson's TARP is night and day. This time the financiers actually get rid of their junk assets, because the government sweeps them all into a "bad bank" that it controls. And there are no tortuous arguments about how to value the distressed assets, because they are already owned by taxpayers. As Joseph Stiglitz has emphasized, the mare's nest of management and stockholder interests that conflict with the public's interest are swept aside.

This has to beat just giving the money away, which is what Paulson did and Treasury Secretary Geithner is really proposing, too.

Putting it this way, of course, points up the obvious question: Until literally days ago, many of these born-again advocates of Big Government were singing the praises of the financial deregulation that got us into this mess. The contrast with Franklin D. Roosevelt, who began his New Deal by promising to drive the money changers from the temple, is obvious and daunting: Here come money changers and their confidants advising us to buy the temple. (Greenspan now works for a hedge fund that likes to bottom fish.)

With friends like these, is there a catch somewhere that we're missing?

The answer, of course, is yes. There are, in fact, two big yellow flags to look out for. Much of the wind in the sails of this new push comes from private equity firms like KKR, Blackstone, or their political allies, mostly, though not entirely within the Republican Party. Just like everyone else, private equity firms are now having trouble lining up financing. But taking over firms--like banks--is what they do for a living.

In addition, not only private equity firms, but many hedge funds, are exulting over the Obama administration's heady talk of "public-private partnerships" that would help the government dispose of the bad assets that it would take over from the banks. The bad bank that nationalization would create would throw up toxic assets several times the size of anything the administration currently appears to envisage. Just as with the Resolution Trust, the temptation to looting by politically connected investors is going to be huge. The National Journal recently quoted Robert Dugger, a partner in an investment firm, suggesting that the task of disposing of bad assets "poses every potential problem that Iraq has: corruption, conflicts of interest, theft, and waste of government resources. It's Blackwater, Halliburton, and KBR, but right here at home."

Temporary nationalization of failing banks thus requires strong safeguards. It would be the height of folly for the public to pay to fix the system, only to sell it back into the hands of a tiny financial oligarchy in a position to keep buying both political parties and control regulators. When it comes time to resell the banks back to private ownership, accordingly, it will be vital to clamp unbreakable legal limits on bank concentration, akin to the old limits on news media concentration in localities. There must be major amendments to existing "change of bank control" statutes, so that not only individual banks, but blocs of shareholders holding positions in several banks, cannot end up controlling more than a small percentage of total bank deposits. We cannot risk a modern financial equivalent of the Standard Oil breakup, where the pieces of the old trust ended up basically in the hands of the same shareholders.

Nor can we tolerate the secrecy so far practiced by TARP and the Federal Reserve about who is buying what. The procedures for disposing of the bad assets must be utterly transparent, reported online, and conducted through public auctions that take to heart the myriad failures of privatization auctions around the world and the sometimes dismal history of the Resolution Trust Corporation.

Temporary nationalization of banks is, indeed, the best way for the United States to avoid ending up with a "lost decade" like Japan in the 1990s. It gets the toxic waste out of the system, and not by robbing the public, making possible the resumption of economic growth. But without stringent safeguards on assets sales and vigorous anti-trust regulations, new rounds of financial pathology will become inevitable.

[Joe Chi Minh]

57. A fascinating plan of action and avoidance of potential pit-falls. Some searing insights, too.

[bread_and_roses]

9. Hurrah, I found WE - kept looking in the Econ forum. And that's a great article*

More sense in one place than I've read previously - more complet, and even comprehensible! (Although my better self recoils at the "instant death" - even while my "worser" self cheers - but I take that to be hyperbole, however basely satisfying a picture it makes.)

Also, it confirms in more understandable language my instantaeneous reaction to the first "Bail-Out" - which, along with millions of others, was to scream SCAM! SCAM! ROBBERY! Nothing in the subsequent shoveling of money into a corrupt and bankrupt system has made me feel any differently.

I continue to think that Obama's embrace of transferring taxpayer revenues to the uber-rich is one of the two major mistakes that will haunt him (the other being continuing our bombs on babies Afghan policy). HOW HOW HOW could the Ds have let the repudiated Party of Banksters seize the populist ground on that first bail-out? There I was calling my D Congressman with a voice shaking with rage while the Rs were voting against those billions going to the bankers? (And I know they no more opposed that huge wealth transfer than they ever intended to satisy their fundy base on Choice and lose their "moderate" seats, the lying crooks).

WHY WHY WHY did Obama surround himself with the stale relics of an illegitimate and bankrupt model in economic policy and militarism?

Rant off now. Whew. See what you did?

*on edit: referring to the first long article you posted

[Demeter]

10. Welcome aboard the Good Ship WEE!

Drinks are on the poop deck, and the chairs can be rearranged for iceberg viewing. The band plays "Nearer My God to Thee" upon request only.

And there's a perpetual Euchre game in the Lounge!

[CatholicEdHead]

11. U.S. Economy: GDP Shrinks 6.2%, More Than Estimated (Update1)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4hGytIkgj.U&refer=home

Feb. 27 (Bloomberg) -- The U.S. economic contraction in the fourth quarter was deeper than the government first estimated, with other reports today signaling little prospect of relief until at least the middle of 2009.

Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said today in Washington. Separate figures showed consumer sentiment and business activity dropped this month.

“There has been no evidence that the pace of decline is slowing at all,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in an interview with Bloomberg Television. President Barack Obama’s $787 billion stimulus package will “kick in” in mid-2009 at the earliest, he said.

Consumer spending, which slid the most in almost three decades last quarter, is unlikely to turn around as companies from General Motors Corp. to JPMorgan Chase & Co. cut payrolls. The credit crunch shows no sign of ending, with the government today forced to come to the rescue of Citigroup Inc. for a third time in five months after mounting losses at the lender.

*GULP*

[Demeter]

13. Oh, and Smelling Salts Are Available From the Purser

in the event one feels a trifle faint.

[CatholicEdHead]

12. Arsonists Torch Berlin Porsches, BMWs on Economic Woe (Update1)

http://www.bloomberg.com/apps/news?pid=20601109&sid=auZeM63nrgzo&refer=home

Feb. 27 (Bloomberg) -- When Berlin resident Simone Klostermann returned from vacation and couldn’t find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched.

“They’d squirted something flammable into the car’s engine block in the gap between the windshield and the hood,” said Klostermann. “The engine was completely destroyed.”

The 34-year-old’s experience isn’t unique in the German capital. At least 29 vehicles were destroyed in arson attacks this year, most of them luxury cars, according to police. The number is already about 30 percent of the total for 2008. The latest to go up in flames was a Porsche, on Feb. 14, two days after a Mercedes was set alight in a public car park.

While youths in Athens protest by throwing Molotov cocktails, in Paris by toppling barricades, and in Budapest by hurling eggs at politicians, protesters in Berlin rage at their economic plight by targeting the most expensive cars -- symbols of German wealth and power.

The natives are getting restless in Europe.

[CatholicEdHead]

14. Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens

http://www.bloomberg.com/apps/news?pid=20601213&sid=a8ta_MEhUZ9E&refer=home

Feb. 27 (Bloomberg) -- Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.

The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.

“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”

Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.

The housing market is not turning around anytime soon.

[Demeter]

16. We Had Trouble Finding "comps" at Our Condo Conversion

It was like an Indiana Jones ordeal. Of course, with Michigan's high foreclosure rate, those we found weren't very helpful to those who wanted a mortgage....

[Demeter]

15. President Obama’s Budget: Some Honesty About Taxes — Finally

http://www.nytimes.com/2009/02/27/opinion/27fri1.html?_r=1&th&emc=th

President Obama’s first budget recognizes what most of Washington has been too scared or ideologically blind to admit: to recover from George W. Bush’s reckless economic policies, taxes must go up.

Mr. Obama’s blueprint, released on Thursday, commits to cutting by more than two-thirds, by 2013, the $1.75 trillion budget deficit that Mr. Bush dumped on the nation.

A credible pledge to reduce the deficit is imperative. Without it, foreign lenders — who financed the Bush-era deficits and are now paying for the stimulus and bailouts — could lose faith in the nation’s ability or willingness to repay in anything other than rapidly depreciating dollars. That would send interest rates up and the economy down, the worst-case scenario. Controlling the deficit is also necessary to sustain a recovery — when it comes.

The collapse of the Bush-era economy is ample and awful evidence of the folly of unconstrained debt-fueled growth. The Obama administration has acknowledged the need for deficit spending to stimulate the economy but has vowed that unpaid-for government will not become the norm. Judging from the blueprint, Mr. Obama is not just talking the talk.

A lot of the projected budget improvement is premised on economic recovery beginning in 2010, which may or may not happen. But much of it is premised on raising taxes. The proposed increases signal a serious attempt to tame deficits in a way that restores fairness to a tax code that has for too long been tilted in favor of the wealthiest Americans, resulting in budget shortfalls that disproportionately burden everyone else. At the same time, Mr. Obama has proposed a separate, targeted increase to help pay for health care reform in a way that doesn’t dig a deeper budget hole.

All of the proposed increases apply to couples making more than $250,000 ($200,000 for single taxpayers) — about the top 3 percent of taxpayers. None are big enough to derail an economic recovery. And contrary to Republicans’ knee-jerk protests, they impose no outsize burden on small businesses: Most sole proprietors and other small-business owners do not make anywhere near a quarter-of-a-million dollars a year.

To combat deficits, Mr. Obama proposes to let Mr. Bush’s high-end tax cuts expire in 2011, raising the top rate from 35 percent to as high as 39.6 percent. He would also impose a 20 percent rate on investment income, up from the current super-low 15 percent. And he would reinstate a tax provision enacted by the first President Bush, but undone by his son, that limited tax write-offs by high-income taxpayers for dependents and other expenses, like mortgage interest on vacation homes.

The proposal also calls for taxing private equity partners just like the rest of us. Under current law, multimillionaire buyout mavens pay tax on much of their income at about the lowest rates in the tax code. Under the Obama budget, their earnings would lose favored status and be taxed as the ordinary income of ordinary mortals.

No one who really believes in fiscal responsibility could object to the proposed tax increases. And yet, each one presages a political fight. At issue is not only the tax burden on the wealthiest Americans or election-year debates, but the real-life difficulty of weaning people hooked on unsustainable debt — whether it is unpaid-for tax breaks or over-leveraged buyouts or junk mortgages. It’s a challenge avoided for too long.

NOT BAD FOR A NYTIMES EDITORIAL!

[Demeter]

17. Dave Lindorff: America's Stupid Health Care Debate -- Keeping Some Ideas Off the Table

http://www.buzzflash.com/articles/lindorff/207

When President Barack Obama made his quick dash up to Ottawa last week, it's too bad he didn't suffer a gastrointestinal attack, or slip on some ice and twist an ankle or something. If he had, he might have had a chance to do what he should have done anyhow: visit a Canadian health clinic.

Maybe then he would have had his eyes opened to a better idea: government-run health care.

It is a sad commentary on the pinched and strictly censored level of political discourse in this nation that any serious consideration of Canada's successful approach to health care is simply out of bounds in America. It is nothing short of absurd that even though the nation that is closest to the U.S. geographically, culturally, linguistically and economically has, since 1973, had a system of provincially administered single-payer government-run health systems that have kept the country's health costs at about 2/3 of what they are in the U.S. as a percentage of GDP, at the same time serving all people and (not surprisingly) achieving better health statistics than the U.S., no one in Washington has talked about inviting Canadian health authorities down to explain how their system works and whether it might make sense here.

Canadians have complete freedom to choose their physicians. They pay nothing to go to a hospital. I interviewed one hospital administrator in Canada who had worked earlier managing a U.S. hospital. He said a whole wing of the facility in the U.S. was devoted to billing and accounting staff, while he had only two people for that job in Canada, "mostly to handle the bills of the occasional American tourist!" (Some 20% of every U.S. health care dollar goes for paperwork.) Interestingly, when I interviewed the CEOs of a number of huge Canadian subsidiaries of U.S. corporations, they universally told me that they were ardent supporters of the Canadian system, and in fact, were involved in lobbying to have it expanded to include long-term care and psychiatric benefits.

There has for years been a huge ongoing propaganda campaign by U.S. health care companies and their lobbies to denigrate Canada's system, but the big truth that they cannot deny is that it is loved by Canadians. The best evidence of this: Despite years of conservative governments in Canada, and in the various provinces, no political leader has ever tried to re-privatize health care in Canada. Clearly such an effort would be political suicide, so popular is the system there. As Canadian resident Joe Sotham explains, "In Canada we complain about wait list length, and the reality is that there is rationing, but everyone gets care and nobody is bankrupted, no HMO clerk stands in the way of treatment. We treat health care like a fundamental right. I took my cat to the vet last year and got a 3-page, $1,875 bill. My comment was this must be what it's like in the States for people."

Well yeah, Joe, but you'd be hard-pressed to get out of a hospital ER in the U.S. with a bill that small. My wife had an uninsured grad student who had the flu during spring break when the school's infirmary was closed. He went to the ER of Temple University Hospital, got looked at by a nurse practitioner, and was given some aspirin. His bill: $2,000. That's pretty typical.

When President Obama assembles his panels to work out some kind of health "reform" package for the out-of-control U.S. health care system, he should include Canadian health experts and ministers into the mix. It makes absolutely no sense to embark on a $650 billion to $2 trillion project without considering all the available options -- including options that have a proven track record of keeping costs down, services available to all, and delivers better health outcomes.

The truth is that every other modern country in the world has long ago figured out that you can't have cost-effective, universal health care unless the government is the paymaster, with prices set by the government. The truth too is that no country that has moved to such a single-payer system has later rejected it -- a good indication that the people of these countries are satisfied with the results and with what they're getting for what they're paying.

No one would say that about the U.S. health care system, which is failing over 50 million people completely, is the leading cause of bankruptcy, is making U.S. companies non-competitive, and sucks up over 14 percent of GDP while producing life expectancy and infant mortality figures that make some Third World countries look good.

Next time President Obama travels to Canada, Britain, France, Germany, or some other country with a single-payer system, we should all wish for him to "break a leg," as they say in the performing arts. He might learn something valuable from the experience.

DAVE LINDORFF is a Philadelphia-based journalist and columnist. He is the author of "Marketplace Medicine: The Rise of the For-Profit Hospital Chains" (Bantam Books, 1992) and "The Case for Impeachment" (St. Martin's, 2006). His work is available at www.thiscantbehappening.net.

[Demeter]

18. Obama's budget will slash money for Yucca Mountain nuclear dump in Nevada

http://www.newsweek.com/id/186580

President Barack Obama is taking the first step toward blocking a nuclear waste dump at Nevada's Yucca Mountain by slashing money for the program in his first budget, according to congressional sources.

Obama's budget to be announced Thursday will eliminate virtually all funding for the Yucca project with the exception of money needed for license applications submitted last year to the Nuclear Regulatory Commission....

The site at Yucca Mountain, 90 miles northwest of Las Vegas, has been under consideration for a quarter-century, although Nevada officials have argued that the volcanic ridge line is not the most suitable place to store 70,000 tons of reactor waste from commercial power plants.

Obama during his presidential campaign said Yucca Mountain has not been shown to be the best site based on the science, and he promised to review the project....

Obama is expected to establish a commission to examine alternatives to Yucca Mountain, even as the Nuclear Regulatory Commission continues to consider the license application for the waste repository that was submitted by the Bush administration last year.

Energy Secretary Steven Chu has said he has no plans to withdraw the license application, a move that could draw lawsuits from the nuclear industry.

The NRC has up to four years to review the application. The Bush administration had hoped to have the Yucca dump available for waste shipments in 2020....The government has estimated the Yucca Mountain project's total costs at $96.2 billion. About $13.5 billion already has been spent.

[Demeter]

19. Mark Fiore Presents "Zombie Bank"!

Animation and economics--whodathunkit?

http://www.markfiore.com/zombie_bank_0

[DemReadingDU]

20. Now that's brilliant!

:hi:

[Hugin]

21. and off it goes...

to the Greatest Page!

:hi:

[Robbien]

22. BofA carries loans $44 billion above market value

Posted on February 28, 2009 by Reuters: Business News

NEW YORK (Reuters) - Bank of America Corp is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday.

The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value -- or market price -- for these loans as $841.6 billion.

The bank intends to hold these loans to maturity, not for sale, said spokesman Scott Silvestri, explaining why the loans are marked above market value.

. . .

Along with losses from mortgages and other consumer loans, the bank said it holds $6.45 billion in impaired commercial loans, up from $2.14 billion at the end of 2007, according to the report.

http://www.reuters.com/article/businessNews/idUSTRE51R04L20090228?feedType=RSS&feedName=businessNews

[Demeter]

23. Technical Wonkery--TALF: A bailout if one reads the fine print

http://www.creditwritedowns.com/2009/02/talf-a-bailout-if-one-reads-the-fine-print.html


The Federal Reserve established the TALF (Term Asset-Backed Loan Facility Programme) to help provide liquidity to the asset-backed securities market — you know, the market with all those toxic CDOs, MBSs, and the like. This facility goes into effect this month. So, it would be nice to take a look at what it will achieve and how it operates.

The following page is now up on the New York Fed’s site regarding the TALF. Pay attention to my highlighting. I sum it up at the bottom:

GENERAL

Why is the Federal Reserve establishing the TALF?
The asset-backed securities (ABS) market has been under strain for some months. This strain accelerated in the third quarter of 2008 and the market came to a near-complete halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS rose to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and U.S. Small Business Administration (SBA)-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.

How will the TALF work?
Under the TALF, the Federal Reserve Bank of New York will provide non-recourse funding to any eligible borrower owning eligible collateral. On a fixed day each month, borrowers will be able to request up to two three-year TALF loans. Loan proceeds will be disbursed to the borrower, contingent on receipt by the New York Fed’s custodian bank (custodian) of the eligible collateral, an administrative fee, and margin, if applicable. As the loan is non-recourse, if the borrower does not repay the loan, the New York Fed will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets. The New York Fed will publish a Master Loan and Security Agreement (MLSA) which will provide further details on the terms that will apply to borrowings under the TALF. The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA.

ELIGIBLE BORROWERS

Who may borrow under the TALF?
Any U.S. company that owns eligible collateral may borrow from the TALF provided the company maintains an account relationship with a primary dealer. An entity is a U.S. company if it is (i) a business entity or institution that is organized under the laws of the United States or a political subdivision or territory thereof
(U.S.-organized) and conducts significant operations or activities in the United States (regardless of whether any such an entity has a parent company that is not U.S.-organized), including any
U.S.-organized subsidiary of such an entity; (ii) a U.S. branch or agency of a foreign bank (other than a foreign central bank) that maintains reserves with a Federal Reserve Bank; or (iii) an investment fund that is U.S.-organized and managed by an investment manager that has its principal place of business in the United States. Notwithstanding the foregoing, a U.S. company excludes any entity that is controlled by a foreign government or is managed by an investment manager controlled by a foreign government.

May a U.S. subsidiary of a foreign entity borrow from the TALF?
A U.S.-organized operating subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary conducts significant operations or activities in the United States and (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government. A U.S.-organized investment fund subsidiary of a foreign entity may borrow from the TALF so long as (i) the U.S. subsidiary is managed by an investment manager that has its principal place of business in the United States; (ii) the U.S. subsidiary is not directly or indirectly controlled by a foreign government; and (iii) the investment manager of the U.S. subsidiary is not directly or indirectly controlled by a foreign government.

What is an “investment fund” for purposes of the TALF eligible borrower definition?
An investment fund is any type of pooled investment vehicle, including a hedge fund, a private equity fund, and a mutual fund, or any vehicle that primarily invests in eligible collateral and borrows from the TALF.

What types of investment funds are eligible borrowers?
Investment funds that are organized in the United States and managed by an investment manager that has its principal place of business located in the United States are eligible borrowers for purposes of the TALF. However, any investment fund that is controlled by a foreign government or is managed by an investment manager controlled by a foreign government is not an eligible borrower for purposes of the TALF.

Example
InvestcoBermuda is a “master” investment fund organized in Bermuda that makes joint investments on behalf of InvestcoUS, a U.S.-organized investment fund, and InvestcoCayman, a Cayman Islands-organized investment fund. InvestcoBermuda, InvestcoUS, and InvestcoCayman are all managed by an investment manager with its principal place of business in the United States. Only InvestcoUS is an eligible borrower because it is the only investment fund that is U.S.-organized. If, however, InvestcoBermuda establishes Newco, a subsidiary investment fund, in the United States and hires its U.S.-based investment manager to manage Newco, Newco would be an eligible borrower for purposes of the TALF.

What is the definition of “controlled” for purposes of the eligible borrower definition?
For purposes of the eligible borrower definition, a foreign government controls a company if, among other things, the foreign government owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company.

Can a newly formed investment fund borrow from the TALF?
Yes, so long as it satisfies all the eligible borrower requirements set forth above.

ELIGIBLE COLLATERAL

What types of ABS are eligible collateral under the TALF?
Eligible collateral (eligible ABS) will include U.S. dollar-denominated cash (that is, not synthetic) ABS that have a credit rating in the highest long-term or short-term investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a credit rating below the highest investment-grade rating category from a major NRSRO. Eligible small business ABS also will include U.S. dollar-denominated cash ABS that are, or for which all of the underlying credit exposures are, fully guaranteed as to principal and interest by the full faith and credit of the U.S. government.

All or substantially all of the credit exposures underlying eligible ABS must be exposures to U.S.-domiciled obligors. The underlying credit exposures of eligible ABS must be auto loans, student loans, credit card loans, or small business loans fully guaranteed as to principal and interest by the SBA. The set of permissible underlying credit exposures of eligible ABS may be expanded over time. The underlying credit exposures must not include exposures that are themselves cash or synthetic ABS. The expected life for credit card or auto loan ABS cannot be greater than five years.

Eligible ABS must be cleared through the Depository Trust Company and, except for SBA Pool Certificates or Development Company Participation Certificates, must be issued on or after January 1, 2009. All or substantially all of the credit exposures underlying eligible auto loan ABS (except auto dealer floorplan ABS) must have been originated on or after October 1, 2007. All or substantially all of the credit exposures underlying eligible student loan ABS must have had a first disbursement date on or after May 1, 2007. SBA Pool Certificates and Development Company Participation Certificates must have been issued on or after January 1, 2008, regardless of the dates of the underlying loans or debentures. The SBA-guaranteed credit exposures underlying all other eligible small business ABS must have been originated on or after January 1, 2008. Eligible credit card and auto dealer floorplan ABS must be issued to refinance existing credit card and auto dealer floorplan ABS, respectively, maturing in 2009 and must be issued in amounts no greater than the amount of the maturing ABS.

Key points:

1. The TALF is meant to provide liquidity in the Asset-backed securities market to any company - hedge fund, foreign-owned U.S. subsidiary, mutual fund, private equity fund, whatever — except Sovereign Wealth Funds (SWFs). SWFs get the stick.
2. The TALF covers AAA assets with a maturity under 5 years for credit card and auto loans.
3. The TALF is non-recourse, meaning the government can seize the toxic assets if the borrower doesn’t repay, but the government has no other claim on the assets of the debtor. That means you can get a loan from the government in return for toxic assets, but if you do not pay the loan back, no penalty is exacted except seizure of the assets. This is very much like a mortgage agreement.
4. Seized toxic assets will be put into a Special Purpose Vehicle controlled by the U.S. government. Translation: please dump your toxic assets with us. We will take them off your hands and have no recourse to any other assets you own.

In short, the TALF is a way for any and all comers, domestic and foreign, with toxic U.S. asset-backed securities, to dump those assets on to the U.S. government at taxpayers’ expense. This is happening right now right under your noses and it smacks of crony capitalism. At least the Fed has the transparency to spell it out. But has anyone noticed?

[Demeter]

24. Followup Questions: A few words from a reader on TALF mechanics

http://www.creditwritedowns.com/2009/02/a-few-words-from-a-reader-on-talf-mechanics.html

In my post "TALF: A bailout if one reads the fine print", I did not make any comments about the quality of the assets to be used as collateral or the mechanics of the operation. While much of this information has already been supplied by the Federal Reserve Bank of New York on their website, a comment from reader Brian addresses the most salient points:

1. “Eligible ABS must be issued on or after January 1, 2009.” - Big difference from the ‘toxic waste’ most people seem overly concerned is going to end up in this program and given that very little ABS issuance, of any type, was actually going on pre-TALF 2009 most issuance will be post-February.
2. My reading suggests that CDOs are not eligible collateral given that the direct collateral of a CDO is other debt obligations not a car, house, etc…
3. Haircuts range from 5% to 16%, so every investor/borrower is going to need to bring some capital to play. Higher credit quality and shorter average lives mean lower haircuts. A 3-year loan collateralized by the ‘AAA’ tranche of a subprime securitization with a 5-year average life will cost a borrower 10% of their own money. It is unlikely they are going to earn a spread (ABS interest - TALF interest) sufficient to cover the loss of that 10% in a three year period so repayment had best be the exit strategy of a borrower at origination. Any principal payments received must be proportionately remitted to the New York Fed.

Key in Brian’s statement are the credit quality and the ‘haircuts’ given to protect the Fed’s balance sheet. While I tend to take a skeptical view as to the value of ALL assets in the ABS market, Brian’s statements represent an accurate view of the mechanics of the situation.

One should also note that the Fed has designed this program to be for what it considers higher-quality assets rather than toxic waste. Reasonable people can disagree as to how high the quality of those assets is, whether they really are toxic waste, and whether the Federal Reserve should take them onto its balance sheet. However, the Fed is trying to arrange a facility on terms that it considers prudent. There are much dodgier assets that the Fed is not considering for this program.

I am not going to take a view on that position in this particular post. I will attempt to be more ‘neutral’ here. However, I did want to pass on this information.

MORE LINKS AT LINK

[Demeter]

25. TWO SIDE TO EVERY ISSUE: REAL ESTATE

MARKET WATCH IS RUNNING BOTH THESE ARTICLES SIMULTANEOUSLY by same author....

Five reasons to buy a home this year

http://www.marketwatch.com/news/story/five-reasons-buying-house-now/story.aspx?guid={01DA1B93-91D1-49E4-A1B1-0ACA9CE66FF4}&siteid=yahoomy


This story originally published Feb. 6 has been updated to reflect the passage of the economic stimulus bill.

CHICAGO (MarketWatch) -- People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.

Ask for price reductions, improvements, closing costs -- whatever -- and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book "Your First Home." When the market starts improving, your negotiating power starts to diminish, he added. "People can get a lot of what they need and almost all of what they want today," Papasan said. "Once a few people get off the fence, there's safety in numbers and you lose your leverage."

If you're qualified to buy a home now, the purchase makes sense for your situation and you're prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal:

1. Affordability is better than ever



2. You have a large inventory to choose from


3. Builders are offering big discounts


4. Mortgage rates are historically low


5. You can get a federal tax credit

...........................

Five reasons not to buy a home this year

http://www.marketwatch.com/news/story/five-reasons-buying-home-2009/story.aspx?guid={22185FBD-7F44-4A49-A604-A29D4225E122}&siteid=yahoomy


This story originally published Feb. 6 has been updated to reflect the passage of the economic stimulus bill

CHICAGO (MarketWatch) -- The unemployment rate is creeping up and home prices keep falling: Two great reasons why it might be best to put your home buying plans on hold.

After all, your own job could be the next on the chopping block. Plus, why not wait until home prices have reached their bottom and you can safely buy knowing your new house won't depreciate like a car coasting out of the dealership?

"It may be 2010 or 2011 before the general public believes it's safe to go back into housing," said Steve Fifield, president of Chicago-based Fifield Companies, a firm that builds condominium, apartment, and office buildings. "You don't want to be the first guy to go back in."

Keep in mind, for some Americans buying won't even be an option due to stricter mortgage underwriting standards that require bigger down payments and higher credit scores.

But if you think you might qualify and you're tempted to test the market, consider these five reasons for staying on the sidelines instead:

1. Prices are still dropping


2. This sale will be on for a while



3. You may not stay put


4. Your job could be the next to go



5. Your cash reserves will be eaten up


DEATAILED EXPLANATIONS AND SUPPORTING LINKS AT ORIGINAL ARTICLES

[Pale Blue Dot]

30. A house that my wife and I have been watching dropped almost 20% IN ONE WEEK.

It went from $179,999 to $149,999. :scared:

[Demeter]

26. CHINA: 35% fresh grads employed: survey

Only 35.6% of recent graduates who finished university in mid 2008 have found a job, a survey of 1,000 in major cities by the Social Survey Institute of China has shown. This was way too far from the 70% employment for fresh graduates target set by China's human resource and social security authority. Of the employed, 27% were satisfied with their jobs. Most cited compensation and personal network as reasons they thought their jobs were not good. 71% of all respondents pictured a bleak outlook for the labor market and 56% were very anxious about their careers. Around 6.1 million university students are to graduate this year.

Source: http://money.msn.hexun.com/2009-02-24/114920561

[Demeter]

40. Stolen from Babylonsister:

http://www.nytimes.com/2009/02/28/opinion/28herbert.htm...

Even Worse for Young Workers

By BOB HERBERT
Published: February 27, 2009


The employment situation in the U.S. is, if anything, worse than most people realize. And huge numbers of young people, ages 16 to 30, are being beaten down in ways that could leave scars for a lifetime.

snip//

“What we’ve seen over the past eight years, for young people under 30, is the largest age reversal with regard to jobs that we’ve ever had in our history,” said Andrew Sum, the director of the Center for Labor Market Studies. “The younger you are, the more you got pushed out of this labor market.”

There were not enough jobs to go around before the recession took hold. So the young, the poor and the poorly educated were already suffering. Now that pool of suffering is rapidly expanding.

This has ominous long-term implications for the country. The economy cannot perform well with such a large cohort of young people condemned to marginal economic status.

Young men and women who remain unemployed for substantial periods of time find it very difficult to make up that ground. They lose the experience and training they would have gained by working. Even if they eventually find employment, they tend to lag behind their peers when it comes to wages, promotions and job security.

Moreover, as the economy worsens, even the college educated are feeling the crunch.

According to a report by researchers working with Mr. Sum: “While young college graduates have fared the best in maintaining some type of employment, a growing fraction of them are becoming mal-employed, holding jobs in occupations that do not require much schooling beyond high school, often displacing their less-educated peers.”

Employment problems have festered in the United States for decades. The economy will never be brought to a state of health until those problems are more thoughtfully and more directly engaged. This will become more and more clear with each passing month of this hideous recession.

[Demeter]

27. Bill Gross, the $747 billion bond man, declares the death of equities

http://www.dailyfinance.com/2009/02/26/bill-gross-the-747-billion-bond-man-declares-the-death-of-equ/


Stocks are dead for the rest of your life. That's the gist of my exclusive interview with the head of PIMCO Total Return -- the biggest bond fund you've never heard of. But you should know PIMCO because its chief, Bill Gross, is one of the world's most powerful bond investors.

Last September it looked like he was "helping" the U.S. government by advising it to put Fannie Mae and Freddie Mac into conservatorship. While this wiped out stockholders, Gross's Fannie/Freddie bonds were boosted by the U.S.'s decision. In addition to running a $747 billion asset management firm, Gross's PIMCO advises the U.S. on its $251 billion commercial paper program and its $500 billion fund to buy mortgage-backed securities. Gross shared his economic outlook with me yesterday in an exclusive interview -- and he's not optimistic.....his economic outlook is very grim for those who believe that stocks outperform bonds. In Gross's view, the current economic contraction is killing the animal spirits that drive risk taking and that's contributing to the death of equity capitalism as we've come to know it.

As Gross told me, "things will never be the same. Risk taking has been destroyed and any animal spirits must come from Washington. Global growth rates -- low, low, low -- asset classes will be readjusted for that outlook. That is -- stocks will be more of a subordinated income vehicle as opposed to a 'stocks for the long run' growth vehicle."

This argument is great for bond fund managers such as Gross since it would tend to drive people out of stocks and into bonds. But his point about stocks as a subordinated income vehicle is interesting. If I understand him correctly, he views stocks as the bottom of the liquidation hierarchy -- meaning that if a firm files for bankruptcy, all the other stakeholders -- such as bondholders, lenders, and preferred stock holders -- get their money before the common shareholders see a dime.

This is why so many common shareholders are getting wiped out. And in Gross's view, growth prospects are so dim that there is no point in owning stocks since common stock investors will not benefit when there's no economic growth. Moreover, they'll be last in line for any dividends that might be available.

Meanwhile, Gross has an interesting analysis of how we got into this mess. He attributes it to too much borrowing, weak regulation and greed. He also thinks that the U.S. is going to have to come up with as much as $5 trillion to fill the capital hole in the banking system.

As Gross said, "The cause of the current situation was too much leverage leading to over consumption which was facilitated by lax regulation and good ol' fashioned greed. Human nature will never change but our institutions will. Not sure policymakers understand what needs to be done -- there still is a $4 trillion to $5 trillion capital hole that needs to be filled but politics may inhibit necessary action. Bernanke and Co. get it though and have more freedom and flexibility -- they are independent -- for now."

[Demeter]

28. US to Convert Preferred Shares in Citi to Common at 32% Premium to Market Price

http://www.nakedcapitalism.com/2009/02/us-to-convert-preferred-shares-in-citi.html

Funny how a deal that is giving Citi a premium on its common shares that one typically sees in an M&A transaction (ie, the target is sought after) in the course of a salvage operation is being . Similarly, the bank is being asked to have its board members that are insiders resign those seats. Why isn't Uncle Sam also asking for all board members to resign? While it cannot compel their resignation, under the circumstances it would be appropriate (and anyone who refused would be subject to unfavorable press attention). Board members are recruited by the CEO, hence sympathetic to its interest. And the government could refuse the resignation of any board members it wanted to keep. Frankly, any Citi board member should be ashamed of his abject failure to oversee the company adequately.

From the Wall Street Journal:

The Treasury has agreed to convert some of its current holdings of preferred Citigroup shares into common stock, a move that could better protect shareholders against future losses.

As a condition, the government is demanding that the New York company overhaul its board of directors. Citigroup's board will soon include a majority of new independent directors, the company said Friday. Chief Executive Vikram Pandit is expected to keep his job under the agreement.....

While the government isn't injecting additional taxpayer dollars into Citigroup, the agreement will help the company by boosting a key financial metric known as tangible common equity, which essentially measures what shareholders would have left if the company were liquidated. The government and banks have concluded that beefing up tangible common equity was a key to arresting the downward spiral in financial companies' shares....

Citigroup will still have to endure the so-called "stress test," which examines banks' ability to withstand various chilling economic scenarios, and could be required to raise additional capital.

The company will reconstitute its board to include a majority of new independent directors. It said of the 15 current directors, three will not stand for reelection and two will reach retirement age, and it will announce new directors soon.

Citigroup Chairman Richard Parsons has been scrambling to lure new directors. That has proven an uphill battle, with two candidates Citigroup approached rebuffing the overtures, according to people familiar with the matter.

[DemReadingDU]

29. Columbus Ohio - another Exec sentenced in fraud trial

Ongoing saga...


Exec gets 2 years in fraud case
National Century witness lined up investors
Saturday, February 28, 2009 3:10 AM
By John Futty


A man who admitted his role in a $1.9 billion fraud and testified against other conspirators will spend two years in federal prison.

Jon A. Beacham, 42, apologized in federal court yesterday for misleading those who invested in National Century Financial Enterprises. His attorney suggested that probation would be a reasonable sentence.

U.S. District Judge Algenon L. Marbley told Beacham he "pondered seriously the notion of probation" but determined that the magnitude of the case, the largest known example of private fraud, demanded prison time.

The judge said he was giving Beacham a lesser sentence than what other conspirators received because his role was not as significant and because he cooperated with federal prosecutors. Others convicted in the case have received sentences ranging from five to 15 years.

Beacham was responsible for raising money through bond sales for National Century, a Dublin-based company that went bankrupt in 2002. The company used money from investors to buy the debts of health-care providers in exchange for what turned out to be unsecured loans. When the fraud came to light and the company folded, more than 200 health-care providers collapsed.

By misrepresenting to investors how their money would be used, Beacham was "the hook" for the scheme, said Assistant U.S. Attorney Doug Squires.

Beacham, a Detroit-area resident, did not cooperate during the initial investigation but agreed to help the government after he was indicted, Squires said. He pleaded guilty in July 2007 to conspiracy and securities fraud and testified against other defendants in three trials.

He forfeited $330,000 he earned as a result of his crime. Marbley ruled that no other restitution would be required.

The judge called Beacham one of the most credible witnesses who has testified before him "in this or in any case" but said his actions with the company "enabled this fraud to continue and to gain traction. … Your cooperation and truthfulness notwithstanding, the courts will not countenance these types of actions."
http://www.columbusdispatch.com/live/content/business/stories/2009/02/28/BEACHAM.ART_ART_02-28-09_C8_DMD2J80.html?sid=101


link backwards to previous articles...
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3681304&mesg_id=3681404

[Pale Blue Dot]

31. By the way - thank you.

I've watched Chris Martenson's videos at your suggestion, and the two of us are currently trying to arrange a time to meet for lunch. I'm having my first meeting of my school's Economic Crisis Team on Wednesday, and I forwarded the link to his PBS special out to everyone there.

[DemReadingDU]

32. Hey, the Martenson PBS video is now embedded on his website

Not sure if you already knew this, but here's the link. To me, this is the best intro to the economic crisis. Only 38 minutes. It's a mini-crash course which Martenson presented to a live audience on PBS WGBY. It's an intro about himself, why he quit his high-paying job, what he saw going on around him, and the reasons for devoting his life to creating the Crash Course.
http://www.chrismartenson.com/blog/pbs-streaming-video/13217


Good luck with your Economic Crisis Team presentations. It takes time to set it up and get people interested. But it's so important for people to understand what is leading up to the big crash. Yet so many people, even my family, are still in denial. A few decided to watch the Martenson Crash Course, but they still are not convinced that we are headed for a global crisis of economic/energy/environment proportions. So I admire you for pushing forward. Just don't get discouraged when you are met with glazed eyes and stares of disbelief. I feel though, that just by waking up people and getting them to think, that we're successful.

Perhaps Chris Martenson's website could have additional ideas to help you. Check out his section for Community, a tab on his website
http://www.chrismartenson.com/

Lastly, Martenson has forum how to promote the Crash Course ideas
http://www.chrismartenson.com/forums/chrismartensoncom-discussions/promoting-crash-course



Edit: also check out my posting #35, When people get on-board, and want to know what to do to prepare

[Hugin]

33. I just noticed that too.

Great!

:thumbsup:

[DemReadingDU]

35. When people get on-board, and want to know what to do to prepare

Then send them over to The Automatic Earth blog. Co-editors are ilargi and Stoneleigh. They don't sugar-coat anything, but at the same time, have written some excellent articles how we got into this financial bubble, and how to prepare for when it bursts.

There are primers on the right side of the page that discuss related topics of the economic crisis. The one titled 'How to Build a Lifeboat' discusses 9 steps how to prepare for a deflationary scenario.
http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-30-2008-how-to.html

The format is a picture, followed by an intro, usually by ilargi, sometimes by Stoneleigh or a guest, then there are related articles from around the world, followed by a comments section.
http://theautomaticearth.blogspot.com/


If you have found other videos or articles which you have found that others like to watch or read, let me know.

[DemReadingDU]

36. TAE - February 27 2009: On Going Concerns

Ilargi: I’m confident that on Friday afternoon, but of course, you're all sharp as tack, so I’ll throw some numbers around.

General Motors' independent auditor Deloitte is going to issue a going concern notice on the company. This simply means Deloitte doesn't think GM can survive. The auditor gets to see, if not all, certainly most of the books, so that's quite a bold statement when it comes to what is perhaps the number 1 symbol of American industry, and perhaps of America as a nation. In that regard, I do love the irony of the fact that the auditor has a French name. And of course that Detroit is a French word too. Freedom fries, here's to you!

Some of the specifics that Deloitte based its assessment on:

* General Motors 2008 loss: $30.9 billion.
* GM burned through $5 billion in the fourth quarter.
* Quarterly revenue plunged by more than a third to $30.8 billion.
* GM asked for up to $30 billion of U.S. government aid
* GM pension plans were underfunded by $12.4 billion at the end of 2008.
* Combined losses in 2007-2008: $69.6 billion
* Combined losses in past 4 years: $82 billion Job cuts: 92,000.
* Losses per day(!) in past 4 years: $56 million.
* Auto operations burned $19.2 billion in 2008,
* Auto operations expected to burn $14 billion in 2009 (NB: company’s own estimate)
* Cash reserves end 2008: $14 billion.
* Minimum operating cash needed annually: $11 billion to $14 billion
* GM US sales fell 22.7% in 2008.
* 2008 revenue dropped to $149 billion, down from $180 billion in 2007
* Received from Treasury so far: $13.4 billion
* Asking for additional $16.6 billion


Add to this today's Ford prediction for a lowered estimate of 9 million new vehicles sold in the US in 2009, down from 10-11 million. U.S. retail sales fell about 40 percent in February from a year earlier. The annualized rate of sales was about 15.4 million units in February 2008.

How about Citigroup as a going concern? Citi stock is down over 40% today, to about $1.40 per share. And that's after the Treasury announced it will swap $45 billion "worth" of preferred for common stock “worth" perhaps $3 billion, given a $7.6 billion market cap. Just buying all the common stock would seem a lot cheaper. So who will seal Citi's fate, who will issue the going concern notice?

A big part of the answer may be found in something FDIC director Sheila Bair said yesterday. Bair was quoted as saying ".....may not have the resources to take over a major financial institution." You likely understand by now that that would not surprise me, I’ve expressed my doubts. But the question then becomes: If the FDIC cannot handle the failure of even one single big bank, what exactly is its deposit insurance worth? What will happen if two or three or more big banks fail in a short period of time? Will you still have access to your money? Yes, the FDIC is covered by a government guarantee. But there are trillions of dollars of deposits in just a handful of banks in the US. Which part of the government is going to cough that up? The FDIC, last time I looked, had less than $15 billion in funds left. And then watch this, just 3 banks:





Moreover, even if the government could in theory cover the deposits, the FDIC has nowhere near an adequate number of specialists left on its payroll to process all the filework involved in an institution the size of Citi. It would take them till the 22nd century. Which means Washington will likely keep on dumping your money into the big banks. But the roller coaster doesn't stop there. The government doesn't have the power to decide whether a company is a going concern or not. That is decided by the markets. And these speak loud and clear. The New York Stock Exchange today announced it will suspend its rule of delisting companies whose share price falls below $1. How timely!

Next in line, wherever down the line it may be: Is the US government a going concern, and if so, for how much longer? I'd say watch the bond markets for that one. A record amount in US sovereign bonds is about to be issued, and the market is not exactly getting richer. And there will be a point where the shrinking part strangles the growth of the increasing part. I mean, with what will China buy $2 trillion in US debt? With the $2 trillion in USD denominated reserves it already has? Makes little sense to me.. With new money? We're not buying their trinkets anymore, so what new money? Are we looking at the same movie here? I'd say I think the theater lights are coming on, and they want us out of here.

Click for picture, related articles, and the comments section...
http://theautomaticearth.blogspot.com/2009/02/february-27-2009-on-going-concerns.html


edit to insert graph above

[Demeter]

38. Like I Said, All Day All Weekend Euchre, That's the Ticket!

In the Lounge. Free nibbles. Cash bar.

The world is not going to end. Women will still be cooking meals, changing diapers, cleaning up the mess. Men will get up and do whatever needs to be done. Their women will see to it.

But the Big Banks and the Big Bad Empire will come to overdue and messy ends.

I'm persuaded that it's worth it if Obama keeps all that power just long enough to get enough evidence to convict the war criminals and traitors and BFEE-drug mafiosi in this land....and then says never again.

[DemReadingDU]

39. I love Euchre!

most card games, actually.

All I need is some chocolate!

[DemReadingDU]

63. TAE - February 28 2009: Heads you lose, tails you die

Ilargi: Two short looks at increasing perversity in the economy:

1. The FDIC’s insatiable funding needs lead it to enhance the fees it demands form its member banks, eevn though many of them are already in deep trouble. It's not just a fine way to drive some banks into bankruptcy if you'd want to, there's another aspect that looks out of place. For some big banks, the one-time "funding call" the FDIC announced this week means they have to hand over $1 billion or more. These banks would have been long gone if not for the hundreds of billions thrown into their tar pits by the Treasury. In the end, where does the added FDIC money come from? From the taxpayer. Why not simply fund it through the Treasury?

2. Citigroup wants to exchange $52.5 billion of its existing preferred shares for common stock worth $3.25 each. The same common shares that traded at $1.50 on Friday. The main holders of Citi's privately-placed preferred shares, the U.S. government, the Singapore sovereign wealth fund and Saudi Prince Alwaleed, will have their holdings converted based on the price of their original investment (!!) even if they bought them at 20-30 times their present value.

Holders of Citi's publicly traded preferred shares are less lucky: they'll get an unknown premium on the market price. Most of Citi's different classes of publicly traded preferred shares closed at less than 40% of their original values Friday. That's still a lot better than holders of common stock, which will be diluted by 74%. Friday's closing price puts their value at 39 cents.

To make the smart part of the investor crown happy, Citi had another give-away to offer. Preferred shares could be exchanged for 7.7 shares of common stock. Preferred traded for $7.50, while 7.7 common shares were at about $10.50. Buy preferred, exchange for common, pocket $3. Rinse and repeat. Like a million times on your Friday lunch break. Make $3 million without breaking a sweat. You can do it on your Blackberry.

Where does the money come from, that difference between preferred and common shares? Hey, who owns Citi? You do, the taxpayer. Well, not on paper, of course, you paid 5 times teh value of the institution for one third of its shares. Why am I thinking that if Citi were nationalized, it would get a lot harder to play these perverted games? Alwaleed should bleed like all other shareholders. Them's the rules of the game. Instead, he was handed untold billions of your money on a rainy Friday afternoon.



I wonder where we're going to take this thing, how much further down this road we'll get before the alarm goes off. If you can get your holdings converted at the price you bought them for, you can't lose, right? But if we adopt this model, it means that there must be a party that can do nothing BUT lose. It’s like what i was thinking the other day when people claimed the Dow had lost 50%, meaning all winnings of the past decade had been wiped out. Right away, it was obvious to me that that is not true. The guys at the top get to keep their gains. So there too, there must be a party that can do nothing BUT lose. One more thing: the US GDP shrank by 6.2% in the last quarter. Obama's budget needs a minimum 3.2% economic growth next year to be viable, or even to make any sense at all.

As I said the other day: Heads you lose, tails you die.


Click for picture, related articles, and the comments section...
http://theautomaticearth.blogspot.com/2009/02/february-28-2009-heads-you-lose-tails.html

[Demeter]

41. Iran threatened with economic meltdown By James Melik

http://news.bbc.co.uk/2/hi/business/7907326.stm


The sharp downward spiral of oil prices has prompted economists to predict that Tehran is facing severe financial hardship within the space of a few months.

Iran's presidential contenders have to address the budget deficit brought about by the plummeting oil prices and the world banking crisis.

The country's economy is almost totally dependent on oil, which accounts for 80% of the country's foreign exchange receipts, while oil and gas make up 70% of government revenue.

Cash rolled in when the price of oil was above $140 a barrel and the country amassed huge foreign currency reserves, but with the price falling to around $40, that revenue has dried up accordingly.

For the first time since the Islamic revolution in 1979, Iranians will turn away from geopolitics and focus instead on the state of their economy when they go to the polls in June.

Impact of sanctions

On top of the recession and falling oil prices, Iran also has to grapple with sanctions imposed by the United States and the United Nations.

The US sanctions imposed in 1980, after the hostage-taking by students in Tehran, prohibit American citizens from having dealings with Iran.

They also make it difficult for other oil and gas companies to invest in Iran and then get US business.

The UN sanctions were imposed because of Iran's alleged attempts to develop nuclear weapons by enriching uranium, something it denies.
“ The economy has taken a back seat and is not the number one priority ”
Ali Pahlavan, Tehran engineer

Under those sanctions, the foreign assets of 13 Iranian companies are frozen, some officials are banned from travelling abroad and the sale of products with a possible military use is forbidden.

An advisor to the European Union, Dr Mehrdad Emadi-Moghadam from Staffordshire University in England, says the UN sanctions are more effective because they include regions and countries which were not co-operating with the US sanctions.

"Iran cannot enter into American or EU trade agreements, so it has been forced to acquire its goods though second parties," he says.

"When it needs technology or commodities, Iran has to pay between 12 and 20% more than it would otherwise have cost them."

Lagging behind

Being unable to update its technology has resulted in Iran having an antiquated manufacturing base.

In a country where the government is the biggest employer and the biggest contractor, companies are suffering from the harsh economic downturn.

"A number of our projects, mostly from ministries which have ordered them, have been halted because of a lack of funds," says Ali Pahlavan, who works in an engineering company in Tehran.

"We are a one-product economy to some extent - diversification and modernisation has not taken place to the extent it should have," he concedes.

He admits that many of the country's problems are due to the sanctions, but says the government is also at fault.

"The revolutionary government pursues mostly ideological and political goals," he says, "The economy has taken a back seat and is not the number one priority."

Despite having a heavily state-controlled economy, there is a private sector operating in Iran.

"Iranians have always been innovative, but the private manufacture and construction sectors do not receive the kind of government support or regulation to help support exports," Dr Mehrdad Emadi-Moghadam says.

Social expectations

The social problems of chronic and growing unemployment are also a cause for concern.

Despite its considerable oil wealth, the country still has 26% inflation and a high level of unemployment.

More than 35% of the population aged under 30 are experiencing long-term unemployment.

Dr Emadi-Moghadam sees a dichotomy, whereby one part of the population is very familiar with the latest Western innovations, while the other side is prevented from having access to ideas freely and connecting to the world economy through commercialising their ideas and activities.

As Iran commemorates its 30th anniversary of the revolution, he does not believe that it has achieved its stated objectives.

"When you take the overall view, Iran has actually regressed and is now in the bottom third of countries which receive foreign investment or perform well in international trade," he says.

The country also performs badly in almost every internationally-recognised index of bribery and corruption.

Iran is one of the wealthiest nations as far as natural resources is concerned and its citizens expect the government to provide things such as cheap fuel.

Thirty years after the revolution, fuel is still heavily subsidised.

"The revolution was partly due to economics. Shah Muhammad Reza Shah Pahlavi couldn't provide what the people wanted when the oil price dropped," Dr Mehrdad Emadi-Moghadam says.

Clerical veto

By any orthodox standard, Iran's economy is run in a bizarre fashion.

With its currency pegged to the US dollar, the regime's petrodollars are worth less and less every year and the government is unable to put up taxes, because such a move would be too unpopular.

The president has been attempting to resolve some of the difficult economic decisions the government has to make.

He recently introduced an Economic Reform Plan, with the aim of enabling the government to reduce dependence on oil revenues and tackling the country's economic problems, including rising inflation.

The plan would cut costly energy subsidies and redistribute a larger portion of the sum among citizens.

The president says only his original proposal could achieve the objectives his government seeks in maintaining the economy, but it has not been approved by lawmakers.

The government had asked for $35bn to implement the plan, but parliament only approved $8.5bn.

Although Iran is a democracy, the clerics have veto powers over any legislation.

When Mahmoud Ahmadinejad campaigned for his present position, he fought on a platform of fighting corruption and achieving fairness in distribution of revenue.

Dr Mehrdad Emadi-Moghadam says the president has failed on all accounts in the last four years and his achievements, or lack of them, will play a key role in the forthcoming elections.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7907326.stm

[Demeter]

42. Now THIS Is Scary!

http://english.pravda.ru/world/europe/107146-private_military_company-0

Private military companies (PMCs) have become rather popular nowadays in terms of providing specialized expertise or services of a military nature. These units can compete with special services and regular armies. There are such companies in Russia, although they are not so widely spread in the country in comparison with their prototypes in the West. As experience shows, the PMCs will prevail in the future.

The history of private military companies started on June 24, 1997, when experts of the US Intelligence Department proclaimed the PMCs as a major tool in the implementation of the military security policy of the United States and its allies in other countries.

The professional level of a private military company is its major advantage. Inexperienced military men are not welcome there. A PMC member is usually a man between 35-40 years of age. A human being of this age is resistant to stresses and emergency situations. In addition, a man of this age can also do routine work very well, which can not be said about younger men.

Potential fighters of the private military companies possess the required level of experience and have an adequate insight, which allows such units to achieve better results in their activities in comparison with regular armies.

A private military company can be very efficient in local conflicts, where the use of regular armies can be complicated for legal reasons. For example, Russia can not send its troops to Nigeria if Nigerian gunmen attack employees of Russian companies – it would be a gross violation of international laws.

Russian PMCs – Tiger Top Rent Security and Orel Antiterror - do not lag behind their US or British colleagues. The only difference is that Russian PMC fighters are paid a lot less.

Russian PMCs took part in the military actions in Iraq, Afghanistan, Israel, Lebanon and Palestine.

Russia’s largest companies such as Russian Aluminium (Rusal), Lukoil, Rosneft and Gazprom received a carte blanche to form military structures to protect their interests both inside and outside Russia.

Private military companies supply bodyguards for the Afghan president and pilot armed reconnaissance planes and helicopter gunships to destroy Coca crops in Colombia. They are licensed by the State Department; they are contracting with foreign governments, training soldiers and reorganizing militaries in Nigeria, Bulgaria, Taiwan, and Equatorial Guinea. The PMC industry is now worth over $100 billion a year.

[Demeter]

43. Warning for the West as crisis spills onto streets

http://www.theherald.co.uk/business/news/display.var.2489347.0.Warning_for_the_West_as_crisis_spills_onto_streets.php

Discussion of unrest around the world due to economic developments....

[Demeter]

44. The Great Financial Crisis: Interview of John Bellamy Foster / By Mike Whitney

http://informationclearinghouse.info/article22116.htm



John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. He is the coauthor with Fred Magdoff of The Great Financial Crisis: Causes and Consequences, recently published by Monthly Review Press.

February 27, 2009 "Information Clearing House" -- MW: Do you think that the American people have been misled into believing that the current financial crisis is the result of subprime loans and toxic assets? Aren't these merely the symptoms of a deeper problem; financialization? Can you explain financialization and how the economy became more and more detached from productive activity and more and more dependent on the accumulation of paper wealth?


JBF: I think it is true, as you say, that the American people have been misled by analyses of the crisis into focusing on mere symptoms, or on the straws that broke the camel’s back, such as subprime loans. There is still a great deal of toxic financial waste out there in the financial superstructure of the economy, but the real problems go much deeper. One reason for this failure to account realistically for the crisis is that those at the top of the system have very little clue themselves, given the near bankruptcy of orthodox economics. A second reason is that the dominant ideology is designed to naturalize any economic disaster, pretending it has nothing to do with the fundamental nature of the system but is simply the result of external forces, mistakes of federal regulators, deregulation, corruption of a few individuals, etc. Under these circumstances, what you get from the elites and the media is mostly nonsense, though there are individuals in the financial community, in particular, that are now analyzing the problem at a deeper, more realistic level.

The first thing to recognize is that this is a very serious crisis, of an order of magnitude comparable to the Great Depression. It is not a regular business cycle downturn or credit crunch. This should suggest that there are long-term forces at work. These include, over the last third of a century, stagnation, or the slowing down of the economy, and the financialization, the shift in the center of gravity of the economy from production to finance. Financialization refers not to just one or two financial bubbles (such as the New Economy bubble and the housing bubble) but to the growing reliance on financial speculation, which can be treated as a whole series of bubbles one after the other, each new one bigger than the last. This has been the dominant economic development since the 1970s, and especially since the 1980s. This financialization was occurring on top of a "real economy" or productive economy that was more and more stagnant. Given the rot below, financial speculation thus became the only game in town, serving to lift the economy. More and more economic activity was geared not to production but to the pursuit of paper claims to wealth. The last bubble-bursting episode, associated with the housing or subprime bubble, was so severe that it brought financialization to an end, generating what we call in the title of our new book The Great Financial Crisis.

The idea at the top was that the financial explosion could be managed, and a financial collapse prevented. The central banks as lenders of last resort could pour liquidity into the system at critical points to avoid a financial avalanche. And in fact they succeeded in doing this for decades. Ben Bernanke, the current head of the Federal Reserve, even referred a few years ago to “The Great Moderation,” in which the business cycle had been overcome by monetary policy. Following the successful leveraging of the system out of the 2001 crisis that followed the 2000 bursting of the New Economy bubble he assumed that they now had discovered the elixir of indefinite financial-based growth. Yet, the scale of the financial superstructure of the economy kept on rising in relation to the stagnant production system underlying it and finally it overwhelmed the capacity of the Federal Reserve and other central banks to stave off the inevitable financial collapse.

From a long-term perspective we can say that there is a kind of mean reversion taking place whereby the financial system and the inordinate profits it generated over decades is reverting to the long-term trend of the overall stagnant economy, which means that trillions upon trillions upon trillions of dollars in capital assets are being lost. And with financialization no longer lifting the economy as it has in decades past we are face to face with the underlying forces of long-term stagnation. For this reason the best economists and financial analysts are now saying that when the recovery from this crisis begins, perhaps in 2011, it will be an L-shaped recovery, pointing toward long-term stagnation as in the depression decade. Without financialization there is nothing on the horizon to boost the U.S. and other advanced capitalist economies.


MW: Is the financial crisis the result of deregulation, lax lending standards and too much leveraging or are there more important factors involved? In your new book The Great Financial Crisis, you say that stagnation is unavoidable in mature capitalist economies because "a handful of corporations control most industries" which has ended "price warfare". How has "monopoly capital" paved the way for financialization and the creation of derivatives, structured debt instruments and other complex investments? Could you clarify what you mean by stagnation is and how it led to the present crisis?


JBF: The long-term process of the growth of financial speculation or financialization (the shift in gravity of the economy from production to finance) was a process that had to keep going because once it stopped you would have a financial avalanche. As increased debt is used more and more to leverage financial speculation the quantity of debt increases while its quality decreases. This means that the level of risk keeps rising. As speculation becomes more extreme various mechanisms are introduced to manage risk. Structured debt instruments like collateralized debt obligations and credit default swaps, and a host of other exotic financial instruments, were introduced supposedly to reduce the risk of the individual investor, but ended up expanding risk system-wide. Ideologically the increased risk is rationalized in various ways--for example the presumed high tech basis of the New Economy bubble and the notion that new financial instruments had sliced and diced risk and thereby lessened risk exposure in the subprime bubble. But eventually, the decrease in quality that goes along with the increase in quantity of debt has its effect. In this respect, the giving out of subprime loans was simply part of the normal evolution (though this time on a massive scale) of financial instability basic to speculative finance. This was well explained by economist Hyman Minsky in his various works on the “financial instability hypothesis,” largely ignored by mainstream economists.

Regulation of this system was impossible, since the risk had to keep rising and any attempt to place any limits on the system once financialization got to a certain point risked a financial meltdown. The capitalist state therefore had no choice but gradually to dismantle the entire financial regulatory system and to allow risk to grow. Indeed, in every major financial crisis over the last thirty years the response was financial deregulation. The risk-prone structure that emerged was presented as “optimal” in the governing ideology and the IMF and other institutions worked at imposing the same supposedly advanced, high-risk "financial architecture" on all the countries of the world.

The real underlying problem, as indicated above, was stagnation. Explaining stagnation is a long and complex process. It was analyzed in depth by Paul Baran, Paul Sweezy, and Harry Magdoff. For a fuller understanding, beyond what I am able to give in this short space, I recommend our book The Great Financial Crisis and earlier works by Baran, Sweezy, and Magdoff, especially Baran and Sweezy's Monopoly Capital. There are two factors basically to consider: maturity and monopoly. Maturity stands for the fact that industrialization is an historical process. In the beginning, i.e., the initial industrial revolution phase, there is a building up of industry virtually from scratch as in the United States in the nineteenth century and China today. During this period the demand for new investment seems infinite and if there are limits to expansion they lie in the shortage of capital to invest. Eventually, however, industry is built up in the core areas and after that production is geared more and more to mere replacement, which can be financed out of depreciation funds.

In a mature economy growth is increasingly dependent on finding investment outlets, and capital tends to generate more surplus (or investment-seeking capital) than can be absorbed in existing outlets. New industries arise (such as the computer, digital product industry of today), but normally the scale of such industries relative to the whole economy is too small to constitute a major boost to the entire economic system. Although the capitalist economy is not often discussed in terms of such a historical process of industrialization (which lies outside the governing ideology,) it is taken for granted in discussions of the world economy that the more mature economies of the United States, Europe, and Japan are only going to grow nowadays at, say, a 2.5 percent rate, while emerging economies may grow much faster. The maturity argument was influenced by Keynes and developed by Alvin Hansen in the late 1930s and early 1940s in such works as Full Recovery or Stagnation? and Fiscal Policy and Business Cycles. But the most powerful and clearest theoretical discussion of maturity was provided by Paul Sweezy, building on a Marxian frame of analysis, in his Four Lectures on Marxism.

The second factor is monopoly (or oligopoly). Marx was the first to discuss the tendency in capitalist economies toward the concentration and centralization of capital, an emphasis that has distinguished Marxian economics. In Marxian and radical institutionalist economics this led to the emergence by the last quarter of the nineteenth century (consolidated only in the twentieth century) of a new stage of capitalism that came to be known as the monopoly stage (or monopoly capitalism) displacing the earlier freely competitive stage of capitalism of the nineteenth century. In essence, the economy in the nineteenth century was dominated by small family firms (other than railroad capital). In the twentieth century this turns into an economy of big corporations. Although monopoly capital, remained a stage of capitalism, the laws of motion of the system were modified. The biggest change is the effective banning of price competition. Monopolistic (or oligopolistic) firms, as Paul Sweezy, then a young Harvard economist, famously explained in the 1930s in his theory of the kinked-demand curve of oligopolistic pricing, tend to shift prices in only one direction--up. Price competition among the majors is seen as self-defeating, and replaced by a steady upward movement of prices, usually a form of indirect collusion, following the price leader (usually the biggest firm in an industry).

With the effective banning of price competition in mature industries (there is still price competition in rising industries where a shakedown process is occurring) the main assumption of orthodox conceptions of the capitalist economy is violated. Competition continues over low cost position in an industry (i.e. over productivity), and in other areas aimed at market share, such as advertising and branding of products (referred to as “monopolistic competition”). But actual price competition under monopoly capital is usually treated as “price warfare,” which is no longer acceptable. Throughout the nineteenth century in the United States the general price level fell with the exception of the Civil War years. Throughout the twentieth century the general price level rose with the exception of the Great Depression years.

The result of all of this is that, given rising productivity, monopolistic corporations end up grabbing as surplus a larger portion of the gains of productivity growth (and virtually all the gains when real wages are also stagnant), leading to a tendency of the surplus of monopoly capital to rise. There is then a vast and growing investment-seeking surplus, which, however, encounters relatively diminished investment outlets due to a number of factors: industrial maturity, growing inequality which negatively affects consumption (insofar as this is based on paychecks not debt), and persistent unused industrial capacity which discourages the further expansion of capacity. In Marxian terms, we can say that the rate of surplus value (or the rate of exploitation) within production is too high for all of the surplus value potentially generated through production to be realized in final sales.

As Keynes taught savings/surplus (ex ante) that is not invested simply disappears, so this slows down the economy as a whole. But the problem of surplus capital seeking investment is not thereby alleviated, since monopoly capital tends to adopt measures that continually pump up potential surplus even in a crisis. So the contradiction continues.

Baran and Sweezy summed up their argument by claiming that stagnation was the normal tendency of the monopoly capitalist economy. This was in sharp contradiction to received economic theory which assumed that capitalism by nature tended toward rapid economic growth and full employment. In the mainstream view, rapid growth and full employment were intrinsic to the system, so the emergence of slow growth required a specific explanation. In contrast, Baran, Sweezy, and Magdoff, building on a long line of thinkers before them (Marx, Veblen, Keynes, Hansen, Kalecki, Steindl), argued the opposite, that it was periods of rapid growth under monopoly capitalism, such as the now fabled Golden Age of the 1950s and ‘60s, that needed to be explained as due to special factors. In their view, it was necessary to point to the specific historical stimuli that propelled extraordinary periods of rapid development (in the Golden Age: enormous consumer liquidity after the war, a second great wave of automobilization, military spending associated with two regional wars in Asia and the Cold War, the expansion of the sales effort, etc.). Stagnation itself was the normal tendency of the system and so could be accounted for simply by the waning of such special factors.

If investment and consumption are inadequate to maintain demand, as is the normal case under monopoly capitalism, the government is called into help. In the United States this has often taken the form of increased military spending (which is crucial the imperial goals of the system) and lately through financialization. Both of these means of maintaining demand, however, have reached their limits (the U.S. accounts for as much military spending as the whole rest of the world put together and cannot easily expand this at present), resulting in a deepening economic stagnation.

Baran and Sweezy’s Monopoly Capital had pointed to financial sector expansion as a possible countervailing factor to stagnation, but in the 1960s this was merely potential and had not emerged to any large extent. The evolution of the system from the 1970s on became so dependent on the growth of finance, and the incorporation of the giant corporations into this, that I have termed this later phase “monopoly-finance capital.”

MW: As the economy has become more dependent on financialization for growth, the gap between rich and poor has grown wider and wider. As you point out in your book, "In the United States the top 1 percent of wealth holders in 2001 owned more than twice as much as the bottom 80 percent of the population. If this was simply measured in terms of financial wealth, the top 1 percent owned more than four times the bottom 80 percent." (p 130). How have working class people managed to keep their heads above water with all this wealth being shifted to the rich?


MORE AT LINK

[Zenlitened]

45. Buffett: "Economy in shambles"

NEW YORK (Reuters) - Berkshire Hathaway Inc., Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market.

Profit fell 96 percent, the fifth straight quarterly decline, and Berkshire's net worth tumbled $10.9 billion in the year's final three months. Net worth per share fell 9.6 percent in 2008, only the second decline since Buffett began running Berkshire in 1965. It fell 6.2 percent in 2001.

(snip)

In his eagerly-anticipated annual letter to Berkshire shareholders, Buffett also offered a gloomy economic outlook, saying "the economy will be in shambles throughout 2009 -- and for that matter, probably well beyond."

Still, despite what he called "paralyzing fear" resulting from the credit crisis and falling housing and stock prices, Buffett was optimistic about American resilience.

More:
http://www.nytimes.com/reuters/2009/02/28/business/business-us-berkshire-buffett.html

[Hugin]

52. By the end of December 2008, I lost about 8% in my retirement account...

Erasing any gains I'd made during the preceding 4 years. I'm only glad I've been planning my retirement for many years and this whole 401k sham is only a small part of my overall goals. I've been viewing it as frosting, because I knew deep down when it was dumped in the Markets TPTB would be by soon enough to reap it. You see, they just can't stand the thought of large sums of someone else's money just laying there and not warming their pockets.

This is why Social Security as a separate fund MUST BE PROTECTED!

I know of many people who lost upward of 45-50%... And although I'm not privy to the actual Dollar amounts they lost... I can only imagine.

Things are worse than bad, they're TERRIBLE.

[DemReadingDU]

53. I have read rumors, that since IRA/401(K), are untaxed pool of money

Assuming there is still money in IRA/401(K) plans...

That when it comes time to withdraw, the amount withdrawn could be taxed exhoribantly, much greater than what they are taxed nowadays. The gov wants it's that tax money!

Another rumor I have heard is that the gov could confiscate the IRA/401(K), and convert them to accounts managed by the Social Security Administration. Not sure how this wold work.

I am still debating with myself whether to cash out my rollover IRA (from a 401(K)), and just pay the taxes and be done (no penalty cause I'm older than 59 1/2). At least I'd have the rest of my money, and can hide it in the mattress.

[Hugin]

55. Let's take a look at these rumors... Shall we?

First off... The current status of the whole 401(k) program.

Private Companies (which are the current managers of the funds) are 'clawing them back', cutting them off, and generally viewing them as part of the general fund.

Not a workable solution and IMHO not what the plans were intended for to begin with... Far better to have the funds in some sort of Goreian Lock Box. But, it's too late for "should-a's". It's clear that raiding these plans has been a goal of Management for some time. It could even be argued that they are using the current crisis as an excuse.

Rumor #1: 401(k)s Highly taxed on maturity upon Retirement. I hadn't heard this particular rumor. I can see many reasons for generating the perception among the workers by Management that it would occur as a means to encourage them -NOT- to withdraw from the plans en-mass. (Because Management wants to be sure to maintain appearance that the funds are still there, when in fact they are long gone or to keep the funds in place until it's time to be raided.) I'm going to mark this one down as fear mongering along the lines of the "Obama will raise YOUR taxes" argument used during the election for now.

Rumor #2: 401(k)s will be taken over and managed by the Govt. Well, I hate to say it, but, this would be a fairly good option. It removes the inherent conflict-of-interest in having the Employer manage the fund. It centralizes the fund and reduces the cost of running the plans by having one entity do the work instead of thousands of separate funds around the Country. Of course, Businesses are going to -HATE- this option for several reasons... First and foremost being that compliance will be monitored. It's that Supply-side horror of regulation at work.

Eh, I'm not going to do anything drastic yet. But, I wonder where all of this will go too.

[Demeter]

46. Oh! I Forgot to Mention

I smelled the first skunk of spring this morning, through the swirling, Lake-effect snow. And the snowdrops were still there when the last snow-dump melted. Next week (GROAN) Daylight Savings Time!

You have been warned! You do NOT want to see how I take to DST. I may not post at all, in order to spare your sensibilities....

[Demeter]

47. Here You Go! I Found What you Were Looking for!

[Demeter]

48. GDP Number Far Worse Than Expected by Most Economists (But Not Here)

http://jessescrossroadscafe.blogspot.com/2009/02/gdp-number-far-worse-than-expected-by.html


The Fourth Quarter GDP number came in at a negative 6.2% versus the original negative 3.8 percent announcement earlier this year.

That is not a big adjustment. It is a HUGE adjustment. That first number was so obviously cooked by a high side inventories estimate and a lowball chain deflator that it was a knee-slapping howler to anyone who is following this economy closely.

This decline did not happen overnight. It is merely being reported that way.

There should be little doubt in most people's minds that Bernanke, Greenspan, Paulson, and many in the Bush Administration were deceiving us about the state of the economy, for years, almost routinely as a matter of course.

That is important to understand. This was no act of God, no hurricane or meteor strike. And a lot of folks on Wall Street and in Washington playing dumb now knew what was coming. You can decide their motives for yourself, but fear and greed should be high on the top of your list.

The economy has been rotten for a long time, since at least 2001 if not before, and as it worsened more and more money was taken off the table by the Bush Administration and their corporate cronies through no bid contracts and welfare for the wealthy. Coats of paint were slapped over the growing imbalances, market manipulation, malinvestment, fraud and corruption.

Remember that. Don't let it go. Because as sure as the sun will rise, these jokers will be back in business given half the chance. They are shameless, greedy beyond all reason, and persistent. The fiscal responsibility being preached now by the Republican minority is repulsive hypocrisy.

That is why it is so disappointing to see what looks like business as usual from the Obama Administration. Larry Summers appears to be a tragic choice as chief economic advisor. And Tim Geithner, while a capable fellow, is not a thinker, but a doer, an implementer, and a disciple of the fellows that caused this mess.

What to do? Let them know now we expect reform. Don't fall for the same old rhetoric from the 'conservative' think thanks and paid pundits who misled you for the past eight years. They are not conservatives. They are jackals who play on your emotions. And let's not accept a new batch of paid pundits and clever deceivers either. But don't give up and pull over a blanket of cynicism.

Typically Americans will give a new president like Obama 100 days to get his bearings and deal with a tidal wave of problems that he did not create. We do not expect him to fix them, but we want to see a decent start in the right direction. We gave Bush far too much allowance, primarily because of 911 which his handlers played for all it was worth.

So far, with some noted exceptions in non-financials, we the people have not seen what we voted for last November.

President Obama recently said that Wall Street reform is coming, but it will take time.

Mr. President, you may not have the leisure to show us that you know what needs to be done. You are riding a high tide of bipartisan support in the people who voted for you. Once you lose them it will be very difficult to get them back.

We must demand action from the Congress and the Administration who we recently put in place through the elections to clean this mess up and then change the system that delivered it.

Contact the White House

Contact Your Senator

We do not want fewer, bigger banks exacting a fee on every commericial transaction in this country.

1. Bring back Glass-Steagall.

2. Clean up the derivatives market, starting with J.P. Morgan and their 90 Trillion dollar positions.

3. Enforce the various anti-trust laws, enacting new ones where necessary, and break up the media and banking conglomerates.

4. Enact aggregate position limits in all commodity markets and transparency with immediate disclosure of all position over 5% in any market.

5. Effective restrictions and enforcement of naked short selling, price manipulation, reinstatement of the 'uptick rule,' the prohibition of regulated banks from engaging in any speculative markets either for themselves or as agents, and usury laws and regulation of all interstate financial transactions at the national level.

And for the sake of the country, establish a vision, a model, of what the system should look like in accord with the Constitution. And then strike out for it, as painful as that may be, and stop this management by crisis.


Bloomberg
U.S. Economy Shrank 6.2% Last Quarter, Most Since ’82
By Timothy R. Homan

Feb. 27 (Bloomberg) -- The U.S. economy shrank in the fourth quarter at a faster pace than previously estimated as consumer spending plunged, companies cut inventories and exports sank.

Gross domestic product contracted at a 6.2 percent annual pace from October through December, more than economists anticipated and the most since 1982, according to revised figures from the Commerce Department today in Washington. Consumer spending, which comprises about 70 percent of the economy, declined at the fastest pace in almost three decades.

The recession is forecast to persist at least through the first half of this year as job losses mount and purchases plummet. The Obama administration’s attempts to break the grip of the worst financial crisis in 70 years are unlikely to bring immediate relief as companies from General Motors Corp. to JPMorgan Chase & Co. cut payrolls.

“There has been no evidence that the pace of decline is slowing at all, there are other shoes waiting to drop,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in an interview with Bloomberg Television. “There is a chance that the stimulus package will kick in” in the middle of this year, he said.

[Hugin]

51. "This decline did not happen overnight."

Bears repeating over and over...

It took around 30 years to snowball into what we see today.

Let's not have another "Jobless Recovery" farce. As we did in 2002/2003.

[Demeter]

50. Send AIG to Chapter Eleven

http://alephblog.com/2009/02/24/send-aig-to-chapter-eleven/

There are two reasons to bail out a financial company. The first is that it’s failure would lead to a run on liquidity at similar companies duewith those of to a lack of confidence. The second is that it their promises are so interlaced with those of other companies that failure would cause many other companies to fail.

For the first reason, we have the FDIC and similar institutions for deposit-takers, and the insurance guarantee funds for the insurers. For the second reason, the government should be minimalistic, and only guarantee the entities that threaten systemic risk.

For AIG, what should have happened back in September, and what should happen now, is that the government should have let the holding company fail, and guaranteed the obligations of AIG Financial Products in exchange for a senior loan that would subordinate all existing holding company debt.

Aside from Financial Products, most AIG’s subsidiaries are probably fine, and don’t need any help. Those that might fail don’t pose any systemic risks.

So, when I see AIG coming back to the government for more, I think of several things:

1) When Hartford Steam Boiler was sold for a cheap price, I commented that if that was the price for a good asset like HSB, then AIG common was worthless.

2) Why are we messing around with the holding companies as we do bailouts? Regulated entities I understand. There is no compelling interest for the US government to own AIG holding company stock.

3) Let the bondholders suffer a little. AIG did not trade like a AAA credit, even in its glory days. It traded more like single-A. If you didn’t take the warning that the bond market was giving you as the leverage built up, then that is your fault.

4) Back to point 2 in a more general way. If the government is going to intervene, let them inject money into the regulated subsidiaries, not holding companies, and then limit dividends and transfer payments to the holding company.

5) If large derivative counterparties are so critical to the financial infrastructure, then they need to be regulated as well. Open the derivative books to the regulator, and let the new regulator set leverage/capital policy. What? They can’t do as much business? Too bad.

6) As I commented regarding the automaker bailouts, the important thing is to get your foot in the door and get some money, so that the legislators/regulators feel they must protect their initial investment with more money later. With AIG, that is in full force, as this could be the fourth bailout. When does it dawn on a bureaucrat that you have been bamboozled?

7) The government was hoodwinked on the first few iterations of the bailout. Shame on them, if they don’t realize that they are throwing good money after bad again.

AIG is a case in point of why I don’t like the way we are doing bailouts now.

* We bail out the holding company, which is not in the public interest.
* We accept the creeping costs of bailout rather than use better-understood bankruptcy process.
* It’s obvious that the government does not understand what it is doing/buying.
* We do incrementally bad deals, rather than squeezing the stakeholders, as a clever lender of last resort would.

If the US Government wants to prevent systemic risk, fine! Guarantee the subsidiaries that pose that risk, but let the rest go into bankruptcy.

[antigop]

78. See post #75 below for more on A.I.G. n/t

[AnneD]

54. Morning Weekenders..........

Thanks Demeter-always a joy to peruse these pages in my jamies with a cup o joe. I will add some tid bits as I see them.

Went to see my CPA-God I love that guy. Tall, dark, handsome, smart, and happily married. Gave me the poor single mom discount on my taxes for years and helped me straighten out my tax mess. He'll be doing my taxes until one of us dies or retires. He was once an IRS accountant but came back from the dark side-that is why he is such a sweetie. Honest as the day is long. They start working long hours from March til April. I usually buy lunch one weekend for the gang.

We talked about the economy. His oldest girl is graduating with a degree in financing (banking). We commiserated about that for a while. She may end up working in some capacity with him if she can't find something. We were talking about the economy and poor Obama. My donation to the campaign was not deductible (neither was his) but as I told him, at least we have the satisfaction of a winning bet. He said that even though he managed to get tickets to the inauguration-they opted not to go at the last minute but he did say that in his 16 years of working-that was the only day he closed his business. :loveya:

He worked his magic on my newly independent daughter's forms and will work it on my forms. With luck, I'll be earlier this year for a change. I'll see him one more time to see if their is something I can do to cut my taxes a bit more. I always feel good when I leave his office-no matter what the results. It is always nice to meet good people. I

[Demeter]

56. You're Welcome, AnneD

Lucky is the woman who's found an honest man (for an accountant).

[AnneD]

59. One nice thing about living long enough.....

1) you recongize a good thing when you see it.
2) you don't take it for granted.
3) you tell them you appreciate their skill.

[Dr.Phool]

60. Rick Santelli's planted rant?

Posted in GD by Red Earth.

By Barry Ritholtz - February 28th, 2009, 5:47PM

I was interviewed by several journalists last week about Rick Santelli’s Rant — my exact quote was it had a “Faux” feel to it. (I haven’t seen it in print yet)

What was so odd about this was that Santelli is usually on the ball; we usually agree more often than we disagree. He’s been repsosible for some of the best moments on Squawk Box.

But his rant somehow felt wrong. After we’ve pissed through over $7 trillion dollars in Federal bailouts to banks, brokers, automakers, insurers, etc., this was a pittance, the least offensive of all the vast sums of wasted money spent on “losers” to use Santelli’s phrase. It seemed like a whole lot of noise over “just” $75 billion, or 1% of the rest of the total ne’er-do-well bailout monies.

It turns out that there may be more to the story then originally met the eye, according to (yes, really) Playboy magazine.

Excerpt:

“How did a minor-league TV figure, whose contract with CNBC is due this summer, get so quickly launched into a nationwide rightwing blog sensation? Why were there so many sites and organizations online and live within minutes or hours after his rant, leading to a nationwide protest just a week after his rant?

What hasn’t been reported until now is evidence linking Santelli’s “tea party” rant with some very familiar names in the Republican rightwing machine, from PR operatives who specialize in imitation-grassroots PR campaigns (called “astroturfing”) to bigwig politicians and notorious billionaire funders. As veteran Russia reporters, both of us spent years watching the Kremlin use fake grassroots movements to influence and control the political landscape. To us, the uncanny speed and direction the movement took and the players involved in promoting it had a strangely forced quality to it. If it seemed scripted, that’s because it was.

What we discovered is that Santelli’s “rant” was not at all spontaneous as his alleged fans claim, but rather it was a carefully-planned trigger for the anti-Obama campaign. In PR terms, his February 19th call for a “Chicago Tea Party” was the launch event of a carefully organized and sophisticated PR campaign, one in which Santelli served as a frontman, using the CNBC airwaves for publicity, for the some of the craziest and sleaziest rightwing oligarch clans this country has ever produced. Namely, the Koch family, the multibilllionaire owners of the largest private corporation in America, and funders of scores of rightwing thinktanks and advocacy groups, from the Cato Institute and Reason Magazine to FreedomWorks. The scion of the Koch family, Fred Koch, was a co-founder of the notorious extremist-rightwing John Birch Society.”

What is Playboy’s evidence of this?

“Within hours of Santelli’s rant, a website called ChicagoTeaParty.com sprang to life. Essentially inactive until that day, it now featured a YouTube video of Santelli’s “tea party” rant and billed itself as the official home of the Chicago Tea Party. The domain was registered in August, 2008 by Zack Christenson, a dweeby Twitter Republican and producer for a popular Chicago rightwing radio host Milt Rosenberg—a familiar name to Obama campaign people. Last August, Rosenberg, who looks like Martin Short’s Irving Cohen character, caused an outcry when he interviewed Stanley Kurtz, the conservative writer who first “exposed” a personal link between Obama and former Weather Undergound leader Bill Ayers. As a result of Rosenberg’s radio interview, the Ayers story was given a major push through the Republican media echo chamber, culminating in Sarah Palin’s accusation that Obama was “palling around with terrorists.” That Rosenberg’s producer owns the “chicagoteaparty.com” site is already weird—but what’s even stranger is that he first bought the domain last August, right around the time of Rosenburg’s launch of the “Obama is a terrorist” campaign. It’s as if they held this “Chicago tea party” campaign in reserve, like a sleeper-site. Which is exactly what it was.

This looks like more than a coincidence. This is now a very serious charge.

I have no insight as to whether this is true or not — but it certainly deserves a serious response from both Santelli and CNBC. If its false, then they should say so, and demand an apology from Playboy.

But if any of it is true, well then, Santelli mauy have to fall on his sword, and CNBC may owe the public an apology.

I am VERY curious if there is any truth to this.

.....link to Playboy article and more at.....

http://www.ritholtz.com/blog/2009/02/rick-santellis-fau...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x5157810

[Hugin]

61. I figured as much.

Those pasty Rove Clones have never been known for their spontaneity.

:spits:

[DemReadingDU]

62. Six Minutes with the Renegade Economist - Michael Hudson Special...

2/27/09 Six Minutes with the Renegade Economist - Michael Hudson Special...
Actually, it's appx 9.5 minutes

A few snippets...

They're not saving the economy, they're saving their constituents.
There's not going to be a recovery.

When Obama talks about change, he is not talking about financial change...Obama is talking about worker laws, health reform.

good interview!
http://www.youtube.com/watch?v=3pwAFohWBL4

[Demeter]

64. Any Change in the People's Direction Is a Good Change

It's just that Obama is moving far too slowly and cautiously...the cosmetic changes should have been rolled out in the first 3 weeks, and then the money ones. Unfortunately, the Bush Depression screwed up that scenario...I am still convinced that events will force Obama to do things that the "Con$tituent$" are not going to like, but they will not-so-graciously concede because the consequences of intransigence will be much more painful.

[DemReadingDU]

65. I think so too

Banksters don't want to go to jail, so they are hiding the toxic stuff so we can't determine how bad it is. But by insisting on bailouts, they are dragging down our economy and that of the whole world. Eventually, events are going to cause Obama to do things for the people, banksters be dammned. Really, I see few other choices.

edit: rephrase my logic

[kickysnana]

66. xpost Germany rejects bailout plan for east EU nations

By CONSTANT BRAND – 51 minutes ago

BRUSSELS (AP) — Germany rejected appeals Sunday for a single multibillion euro (dollar) bailout of eastern Europe, even after Hungry begged EU leaders not to let a new "Iron Curtain" divide the continent into rich and poor.

The swift, strong comments by German Chancellor Angela Merkel dampened hopes that leaders at Sunday's European Union summit could forge a unified stance to tackle the worsening economic crisis.

http://www.google.com/hostednews/ap/article/ALeqM5h_fkxnBI3-FZ5aibVXlv01Dc9DPwD96LA78G2

He warned that failure to offer bigger bailouts "could lead to massive contractions" in their economies and lead to "large-scale defaults" that would affect Europe as a whole. It could also trigger political unrest and immigration pressures as jobless rates soar, he said.

EU governments have already spent euro300 billion ($380 billion) in bank recapitalizations and put up euro2.5 trillion ($3.18 trillion) to guarantee loans of many banks in the EU and neighboring states.

[Ghost Dog]

83. See comment here:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3762249#3762656

It was agreed to take "an individual approach of the European Union to help and support any countries or European countries, (and) not especially eastern Europe," and to speed up the Eurozone membership process for those applying to join. Protectionism is to be avoided.

[Demeter]

67. NYTimes Graphic Offerings

Click on everything! Fabulous summaries



Adding Up the Government’s Total Bailout Tab

http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html?ref=business

Nice table!


Tracking the $700 Billion Bailout

http://projects.nytimes.com/creditcrisis/recipients/table?ref=business




Titans of an Age No Longer Golden

http://www.nytimes.com/interactive/2009/02/20/business/0222-pay-graphic.html?ref=business


How the Government Dealt With Past Recessions

http://www.nytimes.com/interactive/2009/01/26/business/economy/20090126-recessions-graphic.html?ref=business

[Demeter]

68. And If you REALLY Want to Be Depressed, Boomers Flood a Job Fair

Boomers in a Post-Boom Economy

http://www.nytimes.com/2009/03/01/fashion/01generationb.html?ref=business

[Demeter]

69. It's Time to Break up the Big Banks By Mike Whitney

http://informationclearinghouse.info/article22093.htm



"We will preserve the banking system that is owned and managed by the private sector" --Treasury Secretary Timothy Geithner

February 25, 2009 "Information Clearing House" -- Timothy Geithner is putting the finishing touches on a plan that will dump $1 trillion of toxic assets onto the US taxpayer. The plan, which goes by the opaque moniker the "Public-Private Investment Fund" (PPIF), is designed to provide lavish incentives to hedge funds and private equity firms to purchase bad assets from failing banks. It is a sweetheart deal that provides government financing and guarantees for illiquid mortgage-backed junk for which there is currently no active market. What's got Geithner worried, is the fear that the public will see through this latest boondoggle and set off a political firestorm. If that happens, the markets will go into a swan-dive and Geithner's career at Treasury will come to an abrubt end.

Details of the plan remain sketchy, but the PPIF will work in concert with the Fed's new lending facility, the Term Asset-Backed Securities Loan Facility, or TALF, which will start operating in March and will provide up to $1 trillion of financing for buyers of new securities backed by credit card, auto and small-business loans. In contrast, Geithner's financial rescue "partnership" will focus on cleaning up banks balance sheets by purging mortgage-backed securities. (MBS)

In Monday's New york Times, Paul Krugman summed up the Geithner plan like this:

"Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.
Why not just go ahead and nationalize?"

Why not, indeed, except for the fact that Geithner's main objective is to "keep the banks in private hands" regardless of the cost to the taxpayer. The Treasury Secretary believes that if he presents his plan a "lending program" rather than another trillion dollar "freebie" from Uncle Sam he'll have a better chance slipping it by Congress and thereby preserving the present management structure at the banks. Keeping the banking giants in one piece is "Job 1" at Treasury, which explains why bank-loyalist Geithner was chosen in the first place.

Geithner's PPIF is a way of showering speculators with subsidies to purchase non-performing loans at bargain-basement prices. The Fed is using a similar strategy with the TALF which, according to the New York Times, could easily generate "annual returns of 20 percent or more" for those who borrow from the facility.

From the New York Times:

"Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans at rates ranging from roughly 1.5 percent to 3 percent.

Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.

In the initial phase, the Treasury will provide $20 billion and the Fed will provide $180 billion. Treasury Secretary Timothy Geithner said last week that the Treasury could increase its commitment to $100 billion to allow the Fed to lend up to $1 trillion." (NY Times)

This is a blatant ripoff, which is why the plan has been painstakingly concealed behind abstruse acronyms and complex explanations of how the transactions actually work. The only way investors can lose money is if they hold on to the securities after they fall below 16 percent of their original value which, won't happen, since investors can bail out at any time and leave the taxpayer holding the bag. Call it the "Geithner Put", another gift from Uncle Sugar to the Wall Street land-sharks.

Geithner's thinks that if he obfuscates the details of his plan as much as possible, he'll be able to get what he wants with no one the wiser. But he's mistaken. His credibility has already been battered by his chronic evasiveness. Now the pundits are blaming him for falling consumer confidence and the plummeting stock market. Whatever plan Geithner proposes, will be put under a microscope and dissected one molecule at a time. He won't get the opportunity to pull the wool over the public's eyes again. He's got one chance to make good, and if he botches it, Obama will be forced to send him packing. The political furor will be too much to handle.

It is no coincidence that the Fed announced its expansion of the TALF on the same day that Geithner presented his outline for a "public-private partnership". The two plans represent the Obama Team's strategy for "squaring the circle", that is, for keeping the big banks in private hands while purging their balance sheets of worthless assets at the public's expense. Here's how it's presented on the Fed's website:

"Under the TALF, the Federal Reserve Bank of New York will provide non-recourse funding to any eligible borrower owning eligible collateral... As the loan is non-recourse, if the borrower does not repay the loan, the New York Fed will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets... The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA"

Non-recourse funding? You mean, like a mortgage, where if the homeowner finds that he is underwater, he can just walk away and leave the bank to cover the losses?
That's right. The Fed and Treasury are planning to provide roughly 90 percent of the funding for toxic assets (for which Geithner will certainly pay "full price", making the banks "whole" again) which they will sell at firesale prices to their dodgy friends at the hedge funds and private equity firms giving them an opportunity to make boatloads of capital if the investments appreciate and, if they don't, just "return to sender". And it's all "risk free".
Is Geithner really so confident in his powers of persuasion that he thinks he can sneak this by the American people? Or will the task of selling the idea to the public be passed on to the banking lobby's number 1 "go to guy", Barak Hussein Obama?

The markets are not going to like the idea of recapitalizing the banks through the backdoor. Wall Street will see right through the smoke n' mirrors and react accordingly. The toxic assets have to be fairly valued; price discovery is basic to any functioning market. If the banks need recapitalizing, they will have to do it the old fashion way. They'll have to restructure their capital, which means shareholders get the ax, bond holders get a haircut, management gets the door, and the American people become majority shareholders. That's how it works in a free market. When businesses are insolvent; they file for bankruptcy and the debts are written down. Period. No exceptions. Geithner wants to rewrite the rules to help his buddies, but it isn't going to fly.
The Baseline Scenario's Simon Johnson put it perfectly when he said:

"Above all, we need to encourage or, most likely, force the large insolvent banks to break up. Their political power needs to be broken, and the only way to do that is to pull apart their economic empires. It doesn’t have to be done immediately, but it needs to be a clearly stated goal and metric for the entire reprivatization process."

[Demeter]

70. Angry citizen(s) spray paint Congressman’s car and home

http://www.dailynewscaster.com/2009/02/22/angry-citizens-spray-paint-congressmans-car-and-home/?ref=patrick.net

On October 22, just after the first round of bankster bailouts was passed by Congress against the will of the American people several representatives in Minnesota found their cars and homes spray painted by angry constituents. You can read about the story HERE.

It has just been reported by ABC Eyewitness News 5 in Missouri that Congressman Russ Carnahan’s home and car where spray painted in a similar manner.

Video: ABC Eyewitness News 5 AT LINK

The above video opens with "It was a crime that outraged Minnesotans." Do you beleve Minnesotans where actually outraged over the vandalism?

[DemReadingDU]

74. Vote results

No (96.0%, 1,978 Votes)
Yes (4.0%, 92 Votes)

While I don't think we should resort to vandalism, we angry Americans should be protesting that our tax money was used to bailout the wealthy banksters.

[Demeter]

71. Home Depot swings to $54 million loss

http://www.marketwatch.com/news/story/home-depot-swings-54-million/story.aspx?guid={4FE5E6C8-913C-44A0-9A3F-369C5D34110A}

[Demeter]

72. How Can U.S. Recover Without Manufacturing Capacity?

http://informationclearinghouse.info/article22101.htm


"You can't put people to work in American factories that don't exist."

By Glen Ford

February 25, 2009 "Black Agenda Report" - - The strength of the federal economic stimulus package is seriously diluted by the fact that many of the manufactured goods that will be purchased for the attempted recovery must be imported from outside the United States. America simply doesn't make lots of things, anymore. That means many billions of dollars that folks assumed would go towards fueling an American economic comeback, will instead provide work and paychecks to employees in other countries, that still have manufacturing bases. That's fine with the U.S. Chamber of Commerce, which is dominated by large multinational corporations - the same guys that began stripping the United States of manufacturing jobs decades ago.

The U.S. Chamber of Commerce was one of the main lobbyists opposed to provisions that would have mandated that stimulus money go to U.S. companies. The Chamber is a U.S. organization in name only, like its finance capital comrades, the guys that gave the world such a bad case of the dreaded "American Disease," much of the planet is praying that cash-rich China will eventually bail everybody out.

The United States' lack of a manufacturing capacity makes it even less likely that anything resembling a lasting recovery can emerge from President Obama's approach to the economic crisis. The infrastructure projects that are supposed to be central to the recovery scheme are only valued at $150 billion - which is not much of a jolt, especially when much of what will have to be bought is only available in other countries, made by foreign workers. Barack Obama has put a huge emphasis on building a green economy. However, according to the New York Times, most of the sources of solar panels and wind turbines are located in Europe and Asia. There can be no green economy without a mass transit makeover of the United States, but the U.S. hasn't made subway and light rail cars in many years. They'd have to be imported.

"Most of the sources of solar panels and wind turbines are located in Europe and Asia."

Every product that must be imported for the infrastructure project means a watering down of the stimulus impact of the dollars spent. You can't put people to work in American factories that don't exist.

A true national recovery effort would mean re-industrialization, on a grand scale and a green model, through massive direct federal creation of state-owned industries independent of the finance capitalists who murdered American manufacturing and then blew up their own businesses on Wall Street. But this is already nearly impossible, since President Obama is committed to saving the banking class through unlimited infusions of public money, and then allowing these reborn zombies to resume their roles as lords of development. The bankster parasites have neither the capacity nor the intention to build anything other than mountains of debt for the rest of us. Therefore, Obama's partnership with them spells doom for national recovery.

Like Billy Preston said, "Nothin' from noth in' leaves nothin'." The U.S. cannot create the conditions for economic health without rebuilding a manufacturing capacity. And the remnants of Wall Street have nothing to contribute to an economic recovery, but an infinite capacity to steal.

For Black Agenda Radio, I'm Glen Ford. On the web, go to www.BlackAgendaReport.com.
BAR executive editor Glen Ford can be contacted at [e-mail]@BlackAgendaReport.comThis e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

[DemReadingDU]

73. A true national recovery effort would mean re-industrialization

Will corporations be willing to re-industrialize? In SW Ohio, and Michigan, we have many manufacturing and distribution buildings sitting empty and waiting to be brought to life again. If we can't manufacture our own goods, I don't see how we are going to be able to recover.

[CatholicEdHead]

77. Initially the answer is no

If you go by the IT market as example. Most companies are outsourcing IT even faster now to "save money". I would expect the same goes for other industries, outsource as much as you can in the short term to keep the company boat afloat. No re-investment is planned right now with all the 'expensive' American workers.

[antigop]

75. Desperately Protecting AIG's House of Cards (OMG! I have been screaming about securities lending!)

http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=2&pagewanted=all

It talks about credit default swaps but also SECURITIES LENDING:

There’s more, believe it or not. A.I.G. sold something called 2a-7 puts, which allowed money market funds to invest in risky bonds even though they are supposed to be holding only the safest commercial paper. How could they do this? A.I.G. agreed to buy back the bonds if they went bad. (Incredibly, the Securities and Exchange Commission went along with this.) A.I.G. had a securities lending program, in which it would lend securities to investors, like short-sellers, in return for cash collateral. What did it do with the money it received? Incredibly, it bought mortgage-backed securities. When the firms wanted their collateral back, it had sunk in value, thanks to A.I.G.’s foolish investment strategy. The practice has cost A.I.G. — oops, I mean American taxpayers — billions.

<edit to add> And I'll bet that's why they have the program to insure MM funds.

[DemReadingDU]

88. Uh oh. Securities lending

I'm willing to bet that's why they have the program to insure MM funds, even MM funds consisting of Treasury bills.

[antigop]

90. Yep, I think so.... see the last line of my preceding post. n/t

[Pale Blue Dot]

76. Median Home Price in Detroit = $7,500

Here is your utterly insane stat for the weekend:

According to the Chicago Tribune, the median price for a home sold in the month of December 2008 in Motor City is Seven Thousand, Five Hundred dollars.

I had to write it out that way because I simply couldn’t wrap my head around the numeral $7,500 for a home.

Granted, its in one of the most economically devastated regions of the country, but still — that data point is amazing.

The Trib:

“It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card.

The median price of a home sold in Detroit in December was $7,500, according to Realcomp, a listing service.

Not $75,000. Remove a zero—it’s seven thousand five hundred dollars, substantially less than the lowest-price car on the new-car market.

http://www.ritholtz.com/blog/

[DemReadingDU]

79. buy a house with a credit card

houses are cheaper than cars

guess that means that prices on cars are due to come down too

[Demeter]

81. It would be like buying a house at the Love Canal, though

[Demeter]

80. Even so, It's not worth it

Detroit has so many problems that unless you are part of the community already, you are asking to be a victim. Or if you bought up several blocks to rehab....and gated them...the city is disintegrating. Taxes, services, graft and fighting over little or nothing. I weep for my natal city.

[Demeter]

82. Well, Boys and Girls, I Can't Post Any More Today

I'm too depressed by the material. You can't turn on the radio without hearing about bank nationalization now. It's too much of a downer, to know that everybody knows that it's a scam, and Obama is letting Geithner do it anyway. And then there's the abortion of universal health care before the egg even got fertilized, if you will pardon the grisly metaphor.

But don't let that stop you. Pick up the torch where I've dropped it. You can light the path, or burn down the Bastille; either way you make a difference!

On the other hand, I did go back to Bed Bath and Beyond to get the shower curtain. Now I just have to clean the bathroom....Spring cleaning, anyone?

That suggests a song--from Disney's "Snow White"


http://www.youtube.com/watch?v=V-_3CLDUywQ&eurl=http://search.yahoo.com/search?p=whistle+while+you+work&ei=UTF-8&fr=moz2&feature=player_embedded

[Karenina]

84. WE LOVE YOU, DEMETER!!!

:loveya:

[Demeter]

87. And The Feeling Is Mutual! Have a Good March, Ignore the Economy

[DemReadingDU]

89. Thank you for the Weekend thread

:loveya:

[Hugin]

85. A little peek at the futures... Oh, say, eight-thirtyish Sunday 3-1-09

INDEX VALUE CHANGE OPEN HIGH LOW TIME
DJIA INDEX 6,986.00 -66.00 7,040.00 7,041.00 6,972.00 20:17
S&P 500 726.30 -7.90 731.30 734.00 724.80 20:17
NASDAQ 100 1,102.75 -14.25 1,113.00 1,113.00 1,102.25 20:16

We may be looking at a below 7,000 day on the Dow tomorrow.

:scared:

:/

[Pale Blue Dot]

86. Asian markets are down 3% right now.

:scared: is right.