Sat 2010-09-25 11:02 EDT

Where is the World Economy Headed?

Michael Hudson

...financial maneuvering and debt leverage play the role that military conquest did in times past. Its aim is still to control land, basic infrastructure and the economic surplus -- and also to gain control of national savings, commercial banking and central bank policy...Indebted ``host economies'' are in a similar position to that of defeated countries. Their economic surplus is transferred abroad financially, while locally, debtors lose sovereignty over their own financial, economic and tax policy. Public infrastructure is sold off to foreign buyers, on credit and therefore paying interest and fees that are expensed as tax-deductible and paid to foreigners. The Washington Consensus applauds this pro-rentier policy. Its neoliberal ideology holds that the most efficient path to wealth is to shift economic planning out of the hands of government into those of bankers and money managers in charge of privatizing and financializing the economy. Almost without anyone noticing, this view is replacing the classical law of nations based on the idea of sovereignty over debt and financial policy, tariff and tax policy...Bankers in the North look upon any economic surplus -- real estate rent, corporate cash flow or even the government's taxing power or ability to sell off public enterprises -- as a source of revenue to pay interest on debts...The original liberals -- from Adam Smith and the Physiocrats through John Stuart Mill and even Winston Churchill -- urged that the tax system be based on the economic rent of land so as to keep down the price of housing (and hence labor's cost of living). The Progressive Era followed this principle by aiming to keep natural monopolies such as transportation, communication and even banks (or at least, free credit creation) in the public domain. But the post-1980 world has encouraged private owners to buy them on credit and extract economic rent, thereby shifting the tax burden onto labor, industry and agriculture -- while concentrating wealth, first on credit and then via the enormous recent public bailouts of this failed financial debt pyramiding and deregulation...At issue is the concept of free markets. Are they to be free from monopoly and special privilege, or free for the occupying financial invaders and speculators?...

World Economy Headed.

Jesse's Café Américain Sat 2010-09-25 09:55 EDT

FOMC: Sound the Bell. School's In, Suckas

Jesse

...What the Fed cannot do is breathe vitality into a zombie economy, and provoke a sustained recovery not tied to some sort of credit bubble. That is why stagflation remains the most likely outcome until the nation obtains the will and the determination to reform the financial system and restore a balance to trade and the real economy through a commitment to sound and practical public policy not driven by self-serving economic quackery. The dollar and bonds are made stronger through a vibrant underlying economy with the ability to generate taxable income and real returns to their holders. But in the meanwhile the special interests will be served. A profound deflation and hyperinflation remain as possibilities for the future, but they will most likely be seen on the horizon in advance of their arrival as the result of some exogenous event or catastrophic failure. So far, not a glimpse...

bell; FOMC; Jesse's Café Américain; school's; sounds; SUCKAS.

Minyanville Fri 2010-07-16 14:43 EDT

Intel Shows the 'Financialization' of Corporate America

Peter Atwater

To quote the company's own earnings headline: "Intel Reports Best Quarter Ever."While not taking anything away from the company's ability to deliver I'd strongly encourage readers to look at Intel's (INTC) balance sheet. To these eyes it's filled with financial assets...few have paid attention to what I term the "financialization" of corporate balance sheets, in which productive manufacturing assets have been increasingly replaced by various financial instruments, derivatives, and goodwill...because so much of corporate balance-sheet space is now a function of credit and market risk, financialization has created much tighter correlations to financial institutions than many currently think...And with corporate balance sheets more and more laden with financial instruments, it isn't just going to be product innovation that drives what earnings are ahead for companies like Intel.

Corporate America; Financial; Intel shows; Minyanville.

Wed 2010-06-09 18:56 EDT

Rajiv Sethi: The New Market Makers

...the SEC's preliminary report on the flash crash...led me to believe that most of this activity was caused by algorithmic trading strategies placing directional bets based on rapid responses to incoming market data. Two strategies in particular -- momentum ignition and order anticipation -- were explicitly mentioned as potentially destabilizing forces in the SEC's January Concept Release on Equity Market Structure. The SEC invited comments on the release, and dozens of these have been posted to date. There is one in particular, submitted by R.T. Leuchtkafer about three weeks before the crash, that I think is especially informative and analytically compelling...Leuchtkafer traces the history of recent changes in market microstructure and examines the resulting implications for the timing of liquidity demand and supply...The standard argument against increased regulation of the new market makers is that it would interfere with their ability to supply liquidity. Leuchtkafer argues, instead, that the strategies used by these firms cause them to demand liquidity at precisely those moments when liquidity is shortest supply...

New Market Makers; Rajiv Sethi.

Mon 2010-05-24 10:11 EDT

Hussman Funds - Weekly Market Comment: Don't Mess with Aunt Minnie - May 24, 2010

John P. Hussman

...Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications....Treasury Secretary Eddie Haskell/Timothy Geithner has scheduled a trip to Europe this week to urge European leaders "to pay better attention to potential market reactions to policy moves, and to accelerate the European rescue program." This promises to be a fiasco. What could European leaders possibly find more arrogant than to be lectured on bailout policy - not simply by the U.S., but specifically by a one-trick pony bureaucrat whose chief trick is the ability to smoothly talk the language of prudence while simultaneously pillaging the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?...Providing Greece (and possibly some of its neighbors) a graceful exit from the Euro requires greater courage but lower ultimate cost - particularly to the citizens of Greece itself - than a policy of forcing heavy austerity, dislocations, and internal deflation within Greece. The effect of austerity policies will be to damage the revenue side of the Grecian economy enough to leave the deficits little changed in any event. One would like to go back a decade in time and choose different policies that would have allowed Greece to maintain the Maastricht deficit limitations, but it is far too late to push a full-grown genie back into an itty-bitty bottle...

2010; 24; Aunt Minnie; Hussman Funds; Mess; weekly market comments.

naked capitalism Tue 2010-04-20 09:43 EDT

Satyajit Das: New & Old Greek Lessons

...Like many of the economically weaker EU members, Greece fudged the numbers to meet the qualifications for entry into the Euro. One example of this is the use of derivative transactions with Goldman Sachs to disguise the level of its real borrowing. Membership of the Euro also reduced the ability of Greece to manage its economy. It lost the ability to use its currency, via devaluations, to improve competitiveness and stimulate exports. It also lost the ability to set interest rates (now set by the European Central Bank (''ECB'')). It also cannot print its own currency to fund sovereign borrowing. Greece also has low levels of domestic saving...Greece's problems are probably incapable of solution and terminal. Temporary emergency funding may help meet immediate liquidity needs but do not solve fundamental problems of excessive debt and a weak economy...the optimal course of action for Greece may be to withdraw from the Euro, default on its debt (by re-denominating it in a re-introduced Drachma) and then undertake a program of necessary structural reform...The current debate misses the fact that the ``bailouts'' are mainly about rescuing foreign investors...

naked capitalism; new; Old Greek Lessons; Satyajit Das.

Culture of Life News Tue 2010-03-30 16:01 EDT

Empires Must Regulate Trade And Finances

Elaine Supkis

I keep harping on the trade deficit issue since all of the other messes revolve around this misbalance...The `Me, Myself, and I' ethos is self-centered, childish and foolish. It comes out of living inside a major empire. The individual puffs up him or herself and decides, thanks to being fairly free inside of this empire, that the empire is stupid and doesn't need to be coaxed, nurtured or controlled. Instead, various individuals work day and night to evade taxes that support the imperial superstructure. They bribe politicians to allow looting of the purse via inflated war costs, corruption in buying services, tweaking laws so they channel all collective wealth into a few individual pockets, etc...The people are a collective. If they are individuals, they will be eaten by internationalist wolves or other empires that are not individuals. This is a harsh historical lesson: individuals eventually lose to organized groups...Mostly, throughout history, the freest people have been the CITIZENS of an empire (NOT the victims being oppressed by the empire). Free nations exist only in the shadows of an empire...This is why growing and preserving empires is more important than pretending to be an individual who has no ties to anything. Seriously, when major empires fall, the ability to roam the planet at will vanishes pretty fast...

Culture; Empire; finance; Life News; regulate trade.

Fri 2010-03-19 20:42 EDT

Breaking the chain: The antitrust case against Wal-Mart

Barry C. Lynn (Harper's Magazine, July 2006)

...It is now twenty-five years since the Reagan Administration eviscerated America's century-long tradition of antitrust enforcement. For a generation, big firms have enjoyed almost complete license to use brute economic force to grow only bigger. And so today we find ourselves in a world dominated by immense global oligopolies that every day further limit the flexibility of our economy and our personal freedom within it...what should concern us today even more is a mirror image of monopoly called ``monopsony.'' Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer. Not all oligopolists rely on the exercise of monopsony, but a large and growing contingent of today's largest firms are built to do just that...today we have one of the best illustrations of monopsony pricing power in economic history: Wal-Mart...Wal-Mart has grown so powerful that it can turn even its largest suppliers, and entire oligopolized industries, into extensions of itself...the firm is also one of the world's most intrusive, jealous, fastidious micromanagers, and its aim is nothing less than to remake entirely how its suppliers do business, not least so that it can shift many of its own costs of doing business onto them. In addition to dictating what price its suppliers must accept, Wal-Mart also dictates how they package their products, how they ship those products, and how they gather and process information on the movement of those products...Rather than speed up the random motion and serendipitous collisions that have for so long propelled the American economy, Wal-Mart and other monopsonists are slowly freezing our economy into an ever more rigid crystal that holds each of us ever more tightly in place, and that every day is more liable to collapse from some sudden shock. To defend Wal-Mart for its low prices is to claim that the most perfect form of economic organization more closely resembles the Soviet Union in 1950 than twentieth-century America...

Antitrust case; break; chain; Wal-Mart.

naked capitalism Fri 2010-03-19 15:24 EDT

China's Exporters Hanging by a Thread?

Has the Chinese export sector become hostage to WalMartization, the ability of powerful retailers to squeeze vendor profit margins?...Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%. Most exporters absorbed the appreciation in the value of the yuan that followed its revaluation in 2005 by boosting innovation and cutting costs, but many were forced to close, he said. A further rise in the currency's value would endanger more exporters' survival, which China can't afford, he said... ...2% margins on export-oriented businesses is not representative of any sort of real competitive advantage. A real competitive advantage when it comes to exporting would show double-digits profit margins. This whole sector is hanging by a thread...nearly none of the activity China has engaged in since the downturn is secular or self-sustaining.

China's Exporters Hanging; naked capitalism; Threaded.

Sun 2010-02-28 13:43 EST

"Sultans of Swap" by Gordon T Long, FSU Editorial 02/24/2010

...When asked why there are $605 Trillion derivatives outstanding (1) how do you articulate an answer to this horrendous and almost unimaginable number? The US is the largest economy in the world but tallies only 2.3% in comparison. Global bank reserves amount to only 1.2% of this accumulation. The gargantuan size appears to defy all logic...we discover the Sultans of Swap. The Bond Vigilantes are of a previous era. They are dead -- RIP. Through the magic mix of Credit Default Swaps, Dynamic Hedging and Interest Rate Swaps the Sultans of Swaps effectively control interest rate spreads. Through Regulatory Arbitrage they extort tremendous political sway globally. They live in the world of risk free spreads. Low interest rates simply attract more volume for their concoctions. We have had an explosion in Money Supply globally as the charts (right) indicate. The parabolic rise matches the increase in these derivative products along with their ability to turn Interest Rate Swaps into high powered bank lending...Everything is based on tax payers paying, GDP expanding and interest rates staying low...

FSU Editorial 02/24/2010; Gordon T Long; sultans; Swap.

Sun 2010-02-07 10:10 EST

Web of Debt - THE BATTLE OF THE TITANS: JPMORGAN VS. GOLDMAN SACHS

Ellen Brown

The late Libertarian economist Murray Rothbard wrote that U.S. politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players...In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920s...Goldman's superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets...But Goldman Sachs has been caught in this blatant market manipulation so often that the JPMorgan faction of the banking empire has finally had enough.

battle; debt; Goldman Sachs; JPMorgan; titans; Web.

Jesse's Café Américain Wed 2010-02-03 20:13 EST

Italy Seizes Bank of America Assets In Derivatives Fraud Probe

Jesse

"more than 519 municipalities that face 990 million euros in derivatives losses"...Globalization is used as a rationale for stripping nations of their sovereign rights, and the people from their ability to rule and protect themselves in accord with their own beliefs and preferences...The US is a relative safe haven for multinational corporations that engage in various forms of fraud and market manipulation around the world, like modern day privateers. It appears unable to regulate them because of widespread political corruption and the self interest of its monied elite.

America assets; Derivatives Fraud Probe; Italy Seizes Bank; Jesse's Café Américain.

Jesse's Café Américain Wed 2010-02-03 16:09 EST

On Monetary Inflation and M3

Jesse

...Within a relatively pure fiat currency system the conditions of inflation and deflation, and the broad range in between, are largely the result policy and fiscal decisions, constrained for the most part only by the acceptability of the bond and the dollar and the tolerance of the people...The acceptability of the dollar and the bond by the world is the limiting factor on the ability of the Fed and Treasury to create money, managing its supply, by whatever means direct and indirect, by action or allowance, in a fiat currency.

Jesse's Café Américain; M3; monetary inflation.

The Full Feed from HuffingtonPost.com Thu 2010-01-07 19:46 EST

D+7: Shock and Awe

Dennis Santiago, CEO, Institutional Risk Analytics

..the burning question, of course, is "will moving your money have an effect?" And by effect, I don't mean making a momentary political statement. I mean making a structural difference to the country's financial system. The answer is yes, and here's how..if the public shifts a small fraction of the nation's core deposit base into these institutions it magnifies the stabilizing effect on this portion of the financial system. That's provided the receiving bank is already in good shape, of course, and isn't saddled with other problems. That's why the listing tool we created for the MoveYourMoney campaign only shows the best of breed, to our best ability to identify who they might be. I

7; awed; com; D; full Feeds; HuffingtonPost; shocks.

Jesse's Café Américain Mon 2009-12-28 21:07 EST

Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

Jesse

...according to the government, US households are absolutely piling into US sovereign and corporate debt at record levels, and at record low interest rates. And almost no one but the Fed is buying Agency Debt...this is why I think we might see quite a bloodbath in the bonds in 2010, as mom and pop get skinned by the Street for weighing in so heavily on this one sided trade in US sovereign debt. The US household sector is a slow moving convoy, presenting a traditional and tempting target for the Wall Street wolf packs...Sprott Asset Management says: "Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills...under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury issues in Q2 and almost 30% in Q3...We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it's that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market."

2010; buy; Jesse's Café Américain; keeping; Treasury.

naked capitalism Sun 2009-11-29 12:27 EST

The Kanjorski Amendment Trojan Horse and Prompt Corrective Action

Edward Harrison of Credit Writedowns

...On page 7 of the Kanjorski Amendment, there is an enormous loophole that virtually eliminates the ability of regulators to take prompt corrective action in seizing and shutting down a bankrupt financial institution...

Kanjorski Amendment Trojan Horse; naked capitalism; Prompt Corrective Action.

Wed 2009-11-25 09:59 EST

Hussman Funds - Weekly Market Comment: "Should Come as No Shock to Anyone" - November 16, 2009

John P. Hussman

The big picture is this. There is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets. Yet our capacity to deal with these losses has already been strained by the first round that largely ended in March. The Federal Reserve has taken a massive amount of mortgage-backed securities onto a balance sheet that used to be restricted to Treasury securities. The purchase of these securities is reflected by a surge in cash reserves held by banks. Not only are the banks not lending these funds, they are contracting their loan portfolios rapidly. Ultimately, in order to unwind the Fed's position in these securities, it will have to sell them back to the public and absorb those excess reserves, so to some extent, the banking system can count on losing the deposits created by the Fed's actions, and can't make long-term loans with these funds anyway. Increasingly, the Fed has decided to forgo the idea of repurchase agreements (which require the seller to repurchase the security at a later date), and is instead making outright purchases of the debt of government sponsored enterprises (GSEs such as Fannie Mae and Freddie Mac). Again, the Fed used to purchase only Treasuries outright, but it is purchasing agency securities with the excuse that these securities are implicitly backed by the U.S. government. This strikes me as a huge mistake, because it effectively impairs the Fed's ability to get rid of the securities at the price it paid for them, should Congress change its approach toward the GSEs. It simultaneously complicates Congress' ability to address the problem because Bernanke has tied the integrity of our monetary base to these assets. The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.

2009; comes; Hussman Funds; November 16; shocks; weekly market comments.

Fri 2009-10-23 08:36 EDT

Wake Up Washington! China Is Already Dumping the Dollar Niall Ferguson Says: Tech Ticker, Yahoo! Finance

Harvard Professor Niall Ferguson says Washington D.C. is too complacent about China's ability to wean itself off the dollar...China's "current strategy is to diversify out of dollars and into commodities," Ferguson says. Furthermore, China's recent pact with Brazil to conduct trade in their local currencies is a "sign of the times." [dollar losing reserve currency status]

China; Dollar-Niall-Ferguson-Says; Dump; finance; Tech Ticker; wake; WASHINGTON; Yahoo.

Sun 2009-10-11 18:07 EDT

Cassandra Does Tokyo: Mourning Rally

...it is most curious that I should find myself experiencing very visceral negative reactions to the upward movements in the gold price...the rallying Gold price signifies more monumental failures at multiple levels for society, in politics, for nations, for our individual and collective ability to measure our wants and desires with our means. So despite my skeptical exoskeleton about most things (financial innovation perhaps first and foremost), the aforementioned bothers me intensely, for I am, at heart, both an idealist, and a closet optimist about humanity...So when I see Gold rally, my visceral reaction is the result of my incredulous beliefs confronting contrary evidence, and the mourning for said failures (both real and imagined) that it represents.

Cassandra; Mourning Rally; Tokyo.

Thu 2009-10-08 17:10 EDT

Recovering from Neoliberal Disaster - Why Iceland and Latvia Won't (and Can't) Pay

Michael Hudson

Can Iceland and Latvia pay the foreign debts run up by a fairly narrow layer of their population? The European Union and International Monetary Fund have told them to replace private debts with public obligations, and to pay by raising taxes, slashing public spending and obliging citizens to deplete their savings. Resentment is growing not only toward those who ran up these debts -- Iceland's bankrupt Kaupthing and Landsbanki with its Icesave accounts, and heavily debt-leveraged property owners and privatizers in the Baltics and Central Europe -- but also toward the neoliberal foreign advisors and creditors who pressured these governments to sell off the banks and public infrastructure to insiders. Support in Iceland for joining the EU has fallen to just over a third of the population, while Latvia's Harmony Center party, the first since independence to include a large segment of the Russian-speaking population, has gained a majority in Riga and is becoming the most popular national party. Popular protests in both countries have triggered rising political pressure to limit the debt burden to a reasonable ability to pay...

Iceland; Latvia; Neoliberal Disaster; pay; recover.

Calculated Risk Tue 2009-09-22 09:28 EDT

GAO Report: AIG Stabilized, Repayment "Unclear"

CalculatedRisk

A report on AIG from the General Accounting Office (GAO): While federal assistance has helped stabilize AIG's financial condition, GAO-developed indicators suggest that AIG's ability to restructure its business and repay the government is unclear at this time.

AIG Stabilized; Calculated Risk; GAO report; repayments; unclear.

naked capitalism Sun 2009-09-20 09:48 EDT

Guest Post: ``Assessing the Recent Performance of the Fed''

Richard Alford, former economist at the New York Fed

...the current Fed: 1) actively promoted the asset bubbles which precipitated the most costly business downturn since the Great depression; 2) passively sat by ignoring its regulatory and supervisory responsibilities allowing the growth of imbalances that led to the worst business downturn since the Great depression...the economic and financial imbalances that built up between 2000 and 2007 will generate the opportunity costs in terms of lost output and idle and misallocated resources that will exceed the costs inherent in the economic and financial imbalances reflected in the most expensive anti-inflation fight ever fought by the Fed (1980-1983). The US financial system remains on life support. Furthermore, the Fed has played a part in allocating credit and in engineering redistributions of wealth on a scale that is likely to on the same scale as the redistribution of wealth from the household sector to government during the inflation ridden 1970s. The independence of the Fed has been compromised. Many in the Congress want to audit the Fed and limit its ability to make loans in future emergencies. The Fed is seen by many as an agency of the Treasury.

assessment; Fed; Guest Post; naked capitalism; recent perform.

zero hedge Sat 2009-09-19 16:59 EDT

Guest Post: Damien Hoffman Exclusive Interview With Alan Grayson

Exclusive Interview: Congressman Alan Grayson Talks Fed Transparency and Missing Money, from Damien Hoffman, of Wall St. Cheat Sheet...[The Fed is] performing a truly remarkable, surreptitious transfer of wealth from public to private hands. They are taking their ability to print money and shore up failed banks. They are simply stuffing money into the pockets of private interests...the Federal Reserve continuously puts all of us on the hook for decisions they make to play favorites with private interests to the tune of trillions of dollars.

Alan Grayson; Damien Hoffman Exclusive Interview; Guest Post; Zero Hedge.

The IRA Analyst Thu 2009-09-17 10:22 EDT

Back to Basis for Securitization and Structured Credit: Interview With Ann Rutledge

To get some further insight into the world of securitization and cash flows, we spoke last week to Ann Rutledge of RR Consulting...The difference between a futures contract for T-bonds and a credit default swap is that the former is a real contract for a real deliverable, whereas the CDS trades against what people think is the cash basis, but there is no cash market price to discipline and validate that derivative market. Rutledge: a contract or structure without a cash basis should not be allowed at all. You cannot have a derivative that is honest and fair to all market participants without a true cash basis. ...derivatives markets such as CDS and CDOs that have no cash basis tend to magnify speculative excesses, while derivative markets where there is a visible cash basis market to discipline investor behavior seem less unstable in terms of systemic risk. Rutledge: If the cash market were visible and could be examined by all participants, then it would give away the ability of the dealer banks to tax participants in the market and extract these abnormal returns. So how do we fix the problem... Rutledge: These originators play this game over and over again and they don't get caught, in part because we do not have a common, standardized set of definitions for governing the most basic aspects of the securitization process. The buyers don't do the work and the accounting framework is a counterparty-oriented framework, not one that is focused on the underlying assets. So banks like Countrywide and WaMu originated and sold some truly hideous structures during the bubble, but the buyers only diligence was reliance upon recourse to these banks. It costs maybe 50bp for a buyer to get the data and grind the numbers to really diligence a securitization based on cash flows, even a complex CDO. But the cost to the buyer and the system of not doing the diligence is an order or magnitude bigger. If the Congress, the SEC and the FASB, and the financial regulators only do one thing this year when it comes to reforming the world of structured credit, then it should be to impose by law and regulation common standards for the definitions used in the marketplace.

Ann Rutledge; basis; interview; IRA Analyst; securitizations; structured credit.