Mon 2009-12-21 19:18 EST

America's Head Servant? The PRC's Dilemma in the Global Crisis

Ho-fung Hung

...Despite all the talk of China's capacity to destroy the dollar's reserve-currency status and construct a new global financial order, the prc and its neighbours have few choices in the short term other than to sustain American economic dominance by extending more credit...the historical and social origins of the deepening dependence of China and East Asia on the consumer markets of the global North as the source of their growth, and on us financial vehicles as the store of value for their savings. I then assess the longer-term possibilities for ending this dependence, arguing that, to create a more autonomous economic order in Asia, China would have to transform an export-oriented growth model--which has mostly benefited, and been perpetuated by, vested interests in the coastal export sectors--into one driven by domestic consumption, through a large-scale redistribution of income to the rural-agricultural sector. This will not be possible, however, without breaking the coastal urban elite's grip on power.

America's Head Servant; Global Crisis; PRC's Dilemma.

Tue 2009-12-01 22:52 EST

Harvard ignored warnings about investments - The Boston Globe

It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard's endowment, and Lawrence Summers, then the school's president, would face off in a heated debate. The topic: cash and how the university was managing - or mismanaging - its basic operating funds. Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment's risky mix of stocks, bonds, hedge funds, and private equity. Meyer's successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members. ... But the warnings fell on deaf ears, under Summers's regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses.

Boston Globe; Harvard ignored warnings; investment.

naked capitalism Wed 2009-11-25 10:14 EST

Ivy Zelman: ``Home prices are going back down''

Edward Harrison of Credit Writedowns

This is a post I wrote overnight about rising delinquencies and shadow housing inventory. I am not convinced house prices in the U.S. are headed higher permanently...The Mortgage Bankers Association is reporting that nearly one in ten households with mortgages are at least one payment behind. That is a record, my friends...Look, the fake recovery is now in full swing. But I expect the recovery to hit a brick wall by 2011, if not earlier. While the proximate cause of my concern is the likelihood of increased taxes and/or reduced spending by the Obama Administration, it is jobs that concern me. See Calculated Risk's post showing the correlation between unemployment and mortgage delinquency and you see the connection. The fact is we have a record number of foreclosures and that is a direct result of rising unemployment. Unemployed people don't have any money, so they don't pay mortgages.

Go; home prices; Ivy Zelman; naked capitalism.

Harper's Magazine Thu 2009-11-19 10:20 EST

An Object Lesson in Governmental Failure: Derivatives reform

KEN SILVERSTEIN

If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it...he House Financial Services Committee hosted a panel on reform of the market for derivatives,...the committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions...In response to complaints from Americans for Financial Reform, which represents hundreds of consumer groups and labor unions, the committee issued an invitation--the night before the hearing was held -- to Rob Johnson of the Roosevelt Institute. For the committee, the last minute inclusion of Johnson -- a former managing director at Bankers Trust Company and former economist at the Senate Banking Committee and Senate Budget Committee -- apparently constituted sufficient balance...About five days later Johnson submitted his full testimony to the committee, to be included on its website along with the statements of the other eight panelists...the committee's general counsel would not allow posting of the testimony because Johnson had not submitted it during the hearing. (Of course, since Johnson had been invited at the last minute it was impossible for him to fulfill this pointless requirement.)

Derivatives reform; Governmental Failure; Harper's Magazine; object lessons.

The Full Feed from HuffingtonPost.com Tue 2009-10-27 11:21 EDT

George Goehl: A New Crossover Hit: "Break Up the Big Banks"

George Goehl

We've reached an incredible moment when Alan Greenspan, Michael Moore, FDIC head Sheila Bair and Elizabeth Warren are all singing the same tune. These four, and others, have formed a distinct choir that is calling for breaking up the big banks.

big banks; break; com; full Feeds; George Goehl; HuffingtonPost; New Crossover Hit.

Yahoo! Finance: Tech Ticker Tue 2009-10-27 11:18 EDT

Policymakers in "Denial" About the Banks, Carmen Reinhart Says

In "This Time Is Different," economic professors Kenneth Rogoff (Harvard) and Carmen Reinhart (Maryland) examine eight centuries of financial crises, demonstrating how the credit crunch of 2008 wasn't so unique, after all. That's the good news...Reinhart gives policymakers "low marks" for failing to deal head on with toxic assets. There's "a lot of denial" in the approach to the banks, she says, seeing comparisons to Japan's post-bubble policies of delaying write-downs, which created zombie banks. "I'm not seeing a great deal of learning,"

bank; Carmen Reinhart Says; denial; finance; policymaking; Tech Ticker; Yahoo.

Fri 2009-10-23 08:30 EDT

How Moody's sold its ratings - and sold out investors | McClatchy

Kevin G. Hall

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression. A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings. Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

Investors; McClatchy; Moody's Sold; rate; SOLD.

Calculated Risk Fri 2009-10-23 08:29 EDT

McClatchy: "How Moody's sold its ratings"

CalculatedRisk

Kevin Hall at McClatchy Newspapers writes: How Moody's sold its ratings -- and sold out investors (ht Atrios) A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings. Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk.

Calculated Risk; McClatchy; Moody's Sold; rate.

The Big Picture Wed 2009-10-14 11:36 EDT

Andy Xie: Here We Go Again

Former Morgan Stanley Analyst Andy Xie explains why China is a potential bubble: [Consider] the US Savings and Loans crisis of the late 1980s and early 1990s. The US Federal Reserve kept monetary policy loose to help the banking system. The dollar went into a prolonged bear market. During the descent, Asian economies that pegged their currencies to the dollar could increase money supply and lending without worrying about devaluation, but the money couldn't leave home due to the dollar's poor outlook, so it went into asset markets. When the dollar began to rebound in 1996, Asian economies came under tightening pressure that burst their asset bubbles. The collapsing asset prices triggered capital outflows that reinforced asset deflation. Asset deflation destroyed their banking systems. In short, the US banking crisis created the environment for a credit boom in Asia. When US banks recovered, Asian banks collapsed. Is China heading down the same path? There are many anecdotes to support the comparison. Property prices in Southeast Asia became higher than those in the US, but ``experts'' and government officials had stories to explain it, even though their per capita income was one-tenth that of the US. Their banks also commanded huge market capitalizations, as financial markets extended their growth ad infinitum. The same thing is happening in China today. When something seems too good to be true, it is. World trade -- the engine of global growth -- has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth. China is an export-driven economy. Bank lending can support the economy for a short time, however, stocks are as expensive as during the heydays of the last bubble. Like all previous bubbles, this one, too, will burst.

Andy Xie; Big Picture; Go.

Sun 2009-10-11 18:48 EDT

The Ongoing Plight of the U.S. "Nightcrawler" - Part 2 | zero hedge

We're just as scroomed as we were a year ago--skying stock markets and gold-hating trolls posting "Gold isn't money" notwithstanding. There is absolutey ZERO chance that the Fed raises their Fed Funds Politburo rates, and a ONE HUNDRED PERCENT CERTAINTY that both the Fed and Uncle Sugar MUST continue their monetizations, back stops and being the "lenders, insurers, and market of last resort" for all things credit, but especially the McHousing market where they have multi-trillion fiatsco exposure. So, it is little wonder that the U.S. fiatsco is getting pounded in the currency casino and that people are piling into PMs in droves--even going so far as to DEMAND physical delivery from the corrupt exchanges, even as the jawboning and pie-holing by the Fed Heads and Treasury twerps continues unabated. Because we are still very much in the midst of the "convulsions" of collapse AND the massive monetary and fiscal insanity the Fed and Uncle are undertaking to fight them.

nightcrawlers; Ongoing Plight; Part 2; U.S.; Zero Hedge.

Jesse's Café Américain Thu 2009-10-08 16:28 EDT

Gold: Until the System Is Reformed and Trust Is Restored

Jesse

Gold has obviously broken out of a big inverse Head and Shoulder formation, possibly an ascending triangle if you prefer that for reliability. In combination, as they often are, this is a powerful sign of buying pressure, accumulation and a sharp rise in price...despite the obvious efforts of the monied interests to disparage it publicly while accumulating it privately, is rising because the US dollar is being used badly, is being weakened by the failing schemes of a corrupt combination of the government and financial interests...gold is telling us...the era of the US Dollar as the world's reserve currency is over...

gold; Jesse's Café Américain; reform; restore; Systems; trust.

Credit Writedowns Mon 2009-09-14 14:43 EDT

Murder-Suicide in Chimerica

Edward Harrison

threading the events of 2008 and 2009 together makes a compelling case that the Chinese -- U.S. marriage is coming apart...GSE collapse, Geithner's charges of Chinese currency manipulation, Chairman Wen slamming the U.S. as a profligate nation, stimulus bill buy-American provision, a steady drumbeat of ditch-the-dollar talk coming out of China, Chinese central bank head Zhou's call for a new international reserve currency, Obama's chinese tire tariff was ``proverbial serving of divorce papers''. Expect prices to rise, look for Chinese retaliation on U.S. poultry and auto products...This marriage is over. The question is whether it will end gradually and peacefully in divorce or violently in murder-suicide.

Chimerica; credit writedowns; murder suicide.

Bruce Krasting Thu 2009-09-03 18:21 EDT

US Treasury on Agency MBS -- Don't Buy It!

Bruce Krasting

The office of Inspector General, Department of Treasury released a report on 8/6/09 on the failure of the National Bank of Commerce. NBC went toast on 1/16/2009. The principal source of its collapse was its investments in Fannie Mae Preferred Stock. They owned $98mm of that swill. When they wrote it off they had no tier-one equity left and had to be shuttered... This report is a kick in the head for everyone involved. Fannie and Freddie look bad. Who would want to own the GSE paper with this warning from Treasury? It makes Treasury look silly. They hold the Government Pref. issued by the Agencies. If they guy down the hall is saying don't buy the debt he is certainly saying don't buy the equity. The Fed looks the worst of the lot in light of this. They are in the process of buying $1.25 Trillion of Agency MBS. I wonder what the Treasury IG would have to say about that level of concentration.

Agency MBS; Bruce Krasting; buy; Treasury.

zero hedge Tue 2009-09-01 15:39 EDT

Head Of China Sovereign Wealth Fund Openly Admits Asset Bubble Addressed By Creation Of More Bubbles

In a phenomenal demonstration of frankness and true economic assessment, the head of the China Investment Council, Lou Jiwei, who controls China's $298 billion sovereign wealth fund, admits the ponzi nature of today's markets: Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose. $20 trillion+ global equity market Ponzi scheme.

bubble; China Sovereign Wealth Fund Openly Admits Asset Bubble Addressed; creation; Head; Zero Hedge.

Thu 2009-07-30 00:00 EDT

Will The Dollar Standard Collapse?

By John Carney; Sahm Adrangi opines ``Abandoning the gold standard has gradually resulted in a very overvalued US dollar, and that the dollar is headed for disaster. The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century.

Dollar Standard Collapse.

Thu 2009-07-30 00:00 EDT

Michael Hudson: The Toll Booth Economy

Michael Hudson: The Toll Booth Economy -- by Michael Hudson ``The Latest in Junk Economics'' What is missing is a critique of the big picture how Wall Street has financialized the public domain to inaugurate a neo-feudal tollbooth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest final stage seems to be a zero-sum game of casino capitalism based on derivative swaps and kindred hedge fund gambling innovations...What have been lost are the Progressive Eras two great reforms. First, minimizing the economys free lunch of unearned income (e.g., monopolistic privilege and privatization of the public domain in contrast to ones own labor and enterprise) by taxing absentee property rent and asset-price (capital) gains, by keeping natural monopolies in the public domain, and by anti-trust regulation...A second Progressive Era aim was to steer the financial sector so as to fund capital formation. Industrial credit was best achieved in Germany and Central Europe in the decades prior to World War I. But the Allied victory led to the dominance of Anglo-American banking practice, based on loans against property or income streams already in place. Todays bank credit has become decoupled from capital formation, taking the form mainly of mortgage credit (80 per cent), and loans secured by corporate stock (for mergers, acquisitions and corporate raids) as well as for speculation. The effect is to spur asset-price inflation on credit, in ways that benefit the few at the expense of the economy at large.''

Michael Hudson; Toll Booth Economy.