New Deal 2.0 Fri 2010-09-03 18:57 EDT

The Real Lesson from the Great Depression: Fiscal Policy Works!

Marshall Auerback

...At the outset of the Great Depression, economic output collapsed, and unemployment rose to 25 per cent. Influenced by his ``liquidationist'' Treasury Secretary, Andrew Mellon, then President Hoover made comparatively minimal attempts to deploy government fiscal policy to stimulate aggregate demand...This all changed under FDR...The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown...once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening (and higher Federal Reserve margin requirements)...

0; Fiscal policy worked; Great Depression; new dealing 2; Real Lesson.

naked capitalism Sun 2010-08-22 09:32 EDT

Auerback: News Flash-- China Reduces US Treasury Holdings, World Does Not Come To an End

Marshall Auerback

In a post titled ``China Cuts US Treasury Holdings By Record Amount,'' Mike Norman makes the excellent observation that while China is moving its money out of Treasuries, interest rates are hitting record lows. In other words, the sky still isn't falling. So, Mike wonders, ``Where is the Debt/Doomsday crowd?'' He rightly concludes: ``They're nowhere to be found because they can't explain this. This is a `gut punch' to them. Their whole theory is out the window. They just don't understand or don't want to understand, that interest rates are set by the Fed...PERIOD!!!''...Also of note today: Tokyo's Nikkei QUICK News reports that the #309 10-year Japanese benchmark government bond, the current benchmark, traded to a yield of 0.920% Tuesday morning, down 2.5 basis points from yesterday's close. This is the lowest yield since August 13, 2003. This, from a country with a public debt-to-GDP ratio of 210%!...These are facts. Inconvenient for those who like to perpetuate the lie that the US or Japan faces imminent national insolvency as a means of justifying their almost daily attacks on proactive fiscal policy...

Auerback; China reducing; comes; ending; naked capitalism; News Flash; Treasury holds; world.

naked capitalism Wed 2010-07-07 14:29 EDT

Face to Face With Polished Wall Street Psychopathy (SEC Says that ICP Stole from My Old Company Edition)

Tom Adams, an attorney and former monoline executive

When the financial crisis hit, I was in the direct line of fire. My company blew up very early in the crisis, giving me the dubious opportunity to see how bad things were going to get long before most of the rest of the world, including other banks, insurers, investors, administration officials or Federal Reserve members, were able to perceive the trajectory of the crisis...much of what I thought I knew was based on things that weren't really true...While many of the failings of the structured credit market were due to unsound reliance on historical data, some were not mistakes in judgment but were the result of bad actors, misinformation and wrongdoing...

Faces; ICP Stole; naked capitalism; Old Company Edition; Polished Wall Street Psychopathy; SEC says.

zero hedge Sun 2010-05-09 09:42 EDT

Themis' Take: May 6, 2010 -- The Day That Will Change Market Structure

...The story is not a key-punch error. The story is a failed market structure. The market failed today. The market melted down and ``liquidity providers'' quickly pulled all bids. According to today's Wall Street Journal, high frequency firm, Tradebot, closed down its computer systems completely, as did New Jersey's own Tradeworx,...To make matters worse, while some high frequency firms shut down yesterday and pulled their bids, as we warned they would do for over a year and a half, other high frequency firms turned from being liquidity providers to liquidity demanders, as they turned around and indiscriminately hit bids...The market action of May 6th has demonstrated that our equity market has major systemic risks built into it...The price discovery process ceased to exist. High frequency firms have always insisted that their mini-scalping activities stabilized markets and provided liquidity, and on May 6th they just shut down. They pulled the plug, as we always said they would, and they even admit it in the papers this morning...This is not an isolated incident, and it will happen again.

2010; 6; Change Market Structure; day; take; Themis; Zero Hedge.

zero hedge Sun 2010-05-09 09:25 EDT

Dissecting The Crash

Here are two accounts dissecting in detail the events from yesterday. One is from Dan Hinckley at Wild Analytics, the second from Dan O'Brien. ...The idea that it was a 'fat finger' error is ludicrous; unless the fat finger hit every market in the world virtually simultaneously. Liquidity simply left the world financial markets for about four minutes this afternoon. The bids just vanished...In one second more or less someone (and yes, under these circumstances, human beings take control of the machines) made the decision to pull the bids on every equity in the S&P, every financial futures contract, every FX contract in every market in the world. This kind of thing just doesn't happen in a pure auction environment; there just isn't a tight enough communication link between the parties to allow the decisions to propagate within the same second -- even with HFT algorithms. No. Some human made the decision to pull the bids; all of them, all at once. If that is not a condemnation of the concentration of financial power and the systematic risk it engenders I don't know what is...How does all of this happen? Well, you can thank the Federal Reserve... 1) The Fed prints fake money out of thin air... 2) Large banks and hedge funds borrow money from the Fed at near-ZERO interest rates... 3) These institutions buy Treasuries with a guaranteed 4% return, thus guaranteeing the banks massive and risk-free profits on the backs of the middle class (remember, you're not allowed to earn an interest rate on your savings accounts!)... 4) These institutions then swap Treasuries with the Fed for cash... 5) These same institutions (banks) then take the cash and gun the stock market higher with its FREE MONEY from the government...I meant free money from you. By the way, were you asked to vote on this? Frankly, it's better than free money - they're being PAID to do this... 6) Banks pay the very clown-posse that cause the 2008 crash (and today's) the largest bonuses...EVER...with your tax dollars.

Crash; dissecting; Zero Hedge.

zero hedge Wed 2010-04-07 18:27 EDT

Euro Tumbles As Both Gold And Dollar Surge, Gold Hits New Euro-Denominated Record

Remember the conventional wisdom that gold and dollar are inversely correlated? Well, throw it out of the window. Over the past week the dollar has surged even as gold has just broken out beyond the $1,150 resistance. So much for calls for gold hitting triple digits as investors realize that not only is the concept of paper gold a complete fraud, but that fiat currencies are starting the currency devaluation game in earnest...

dollar surging; Euro tumbles; gold; Gold Hits New Euro-Denominated Record; Zero Hedge.

zero hedge Tue 2010-03-09 17:59 EST

Is The Federal Reserve Insolvent?

...For a refined analysis of what would happen in that moment of clarity when the world realizes the world's biggest bank is broke, we turn to a presentation by Chris Sims, given before Princeton University, titled "Fiscal/Monetary Coordination When The Anchor Cable Has Snapped."...discusses precisely the issues were are faced with today: namely a monetary policy that has run amok, seignorage, exploding excess reserves, the impact of these on "power money", and, in general, a Fed balance sheet that is increasingly reminiscent of a drunk, rapid and schizophrenic bull in a China store...the only way to deal with a mark-to-market of the Fed currently is to embrace monetization. It is no longer a question of semantics, of who promised what: it is the only mechanical way by which the Fed can dig itself out of a capital deficiency. With GSE delinquencies exploding, and with the Fed (and Congress) singlehandedly facilitating imprudent lender policy by allowing ever more borrowers to become deliquent without consequences, the MBS delinquency rate will likely hit 10% over the next 6-12 months. At that moment, someone will ask the Fed: "what is the true basis of your capital account?" And when the Fed is forced to justify a valid response, is when monetizaton will begin...

Federal Reserve Insolvent; Zero Hedge.

THE PRAGMATIC CAPITALIST Tue 2010-03-09 17:12 EST

INSIDER SELLING HITS NEW 2010 HIGH

TPC

The recent uptick in stocks has not been met with much enthusiasm by corporate insiders. In fact, pessimism rules the day in the land of insider buying and selling trends...The selling was the highest level experienced this year. Interestingly, as the rally has continued insiders have actually increased their selling...

INSIDER SELLING HITS NEW 2010 HIGH; pragmatic capitalists.

Fri 2010-02-26 16:26 EST

Risk taking, regulatory capture and bailouts: The doomsday cycle | vox - Research-based policy analysis and commentary from leading economists

Peter Boone and Simon Johnson

Over the last three decades, the US financial system has tripled in size, as measured by total credit relative to GDP (see Figure 1). Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. These crises appear to be getting worse and worse -- and their impact is increasingly global. Not only are interest rates near zero around the world, but many countries are on fiscal trajectories that require major changes to avoid eventual financial collapse. What will happen when the next shock hits? We believe we may be nearing the stage where the answer will be -- just as it was in the Great Depression -- a calamitous global collapse. The root problem is that we have let a `doomsday cycle' infiltrate our economic system...

Bailout; commentary; doomsday cycle; leading economists; regulatory capture; research-based policy analysis; risk take; Vox.

THE PRAGMATIC CAPITALIST Wed 2010-02-10 11:22 EST

AN INSIDER'S VIEW OF THE REAL ESTATE TRAIN WRECK

TPC

The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit...what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top...he remains deeply concerned about the outlook for real estate...the United States home mortgage market has been nationalized without anybody noticing...If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe...eventually the bond market is going to gag on the government-sponsored paper...commercial properties are not performing and that values have gone down, although I've got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios...The current volume of defaults is already alarming. And the volume of commercial real estate defaults is growing every month...When you hit that breaking point, unless there's some alternative in place, it's going to be a very hideous picture for the bond market and the banking system...second quarter 2010 is a guess...the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they'll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that's horribly destructive...it's exactly a Japanese-style solution...The entire U.S. residential mortgage market has in effect been nationalized, but there wasn't any act of Congress, no screaming and shouting, no headlines in the Wall Street Journal or the New York Times...That's a template for what they could do with the commercial loan market.

insider's view; pragmatic capitalists; Real Estate Train Wreck.

zero hedge Mon 2009-12-28 22:26 EST

Moody's CMBS Delinquency Tracker Hits Decade High

Yes, yes, everyone knows commercial real estate is a neutron bomb waiting to go off, and while many are yapping, nobody is doing jack. The Fed will deal with that implosion, the expectation goes, just as tidily as it dealt with the last bubble implosion...Delinquency increased 37 basis points in October, as measured by the Moody's Delinquency Tracker (DQT). The delinquency rate now stands at 4.01%, more than six times the rate seen at the same time last year. The rate has increased over 375 basis points from the low reached in July 2007, with further increases anticipated.

Moody's CMBS Delinquency Tracker Hits Decade High; Zero Hedge.

The Economic Populist - Speak Your Mind 2 Cents at a Time Sun 2009-12-13 09:08 EST

RUBIN'S RUBES: Matt Taibbi's slapdown of the Obama Administration

In the December issue of Rolling Stone the journalist Matt Taibbi hits yet another grand slam exposing the murky world of Wall Street and Washington politics ("Obama's Big Sellout"). Taibbi provides a detailed and thoughtful analysis on the myriad connections between numerous Obama appointees and Robert Rubin, the Obama presidential campaign's economic advisor, and former Clinton Treasury Secretary who led the charge for the passage of the Gramm-Leach-Bliley Act of 1999, to create the megamerger that was to become Citigroup.

economic populist; Matt Taibbi's slapdown; Mind 2 Cents; Obama administration; RUBIN'S RUBES; speaking; Time.

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.

zero hedge Wed 2009-11-25 10:10 EST

Shadow Banking Topology

A new paper by the IMF provides much needed insights into the nature of Asset Backed Commercial Paper (ABCP) conduits, which amounted to $1.2 trillion in June 2007, a subset of the broader Commercial Paper shadow asset class (which as Bill Dudley discussed a week ago, hit a peak of $2.3 trillion), and the product's role in funding imbalances (and maturity mismatch) at global banks courtesy of the shadow banking system. However, the most useful observation of the paper's addenda include insights into the global shadow banking system's holdings, as well as its changing composition over time, the collapse of the ABS securitization market whose reincarnation via TALF is critical for preventing the CRE market's implosion in 2012, and lastly a comprehensive overview of the entire shadow banking system...

Shadow Banking Topology; Zero Hedge.

zero hedge Thu 2009-11-19 10:42 EST

Fannie Mae Seriously Delinquent Rate Hockeysticks to 4.45% From 1.57% In Prior Year

The FNM "seriously delinquent" rate has gone parabolic, increasing by roughly 5% sequentially and just under 300% YoY. As mere text will simply not do this metric justice, please enjoy this chart of the dataset from Blytic. It tells you all you need to know about the Fed's containment of the housing problem. The August seriously delinquent single-family number comprised of a 2.87% non-credit enhanced delinquencies and a very bothersome 11.52%, consisting of credit enhanced loans. The deterioration of FNM's book however did not stop it from increasing the size of its book. In September Fannie's total book of business hit $3.242 trillion, up from $3.229 trillion in August and $3.079 trillion in the prior year.

1; 4; 45; 57; Fannie Mae Seriously Delinquent Rate Hockeysticks; prior years; Zero Hedge.

Thu 2009-11-19 10:12 EST

Business & Technology | Part one | Reckless strategies doomed WaMu | Seattle Times Newspaper

Drew DeSilver

In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk -- the very standards and practices that had helped it grow in the first place. WaMu's riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business. WaMu's subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 -- the peak of the boom -- were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.

business; part; Reckless Strategies Doomed WaMu; Seattle Times Newspaper; Technology.

zero hedge Tue 2009-10-27 11:50 EDT

Freddie Mac Annualized Defaults Hit Record High At 7.3%, Even As Lending Increases Once Again

With the US government now having taken over the functions of such pristine subprime lenders as New Century, with the provision that it not only is not checking borrowers' credit scores, income potential, or other "facts" that the mortgage lenders at least pretended to care about, but also giving away massive incentives to promote housing bubble V2, it was only a matter of time before the taxpayer's balance sheet would start looking like an Angelo Mozilo wet dream. Today, Freddie Mac released its September Monthly Volume Summary and, as expected, it is beginning to look just like the subprime debacle is among us, only this time all of America is on the hook thanks to a brilliant Fed and the even more brilliant geniuses in D.C.

3; 7; Freddie Mac Annualized Defaults Hit Record High; lending increasingly; Zero Hedge.

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.

zero hedge Fri 2009-10-23 19:30 EDT

A Stern Opponent Of Funding The FDIC's Depleted Deposit Insurance Fund, And Monetization Is... Alan Greenspan?

What a difference twenty years makes. The man whose actions basically lead to the eradication of the American middle class in its aspirational pursuit of buying massive SUVs, Prada bags, and 3rd investment properties, compliments of cheap credit, in order to appear ever so much like the upper class yet ultimately drowning itself in debt, Alan Greenspan, is probably the most critical reason why America's debt service will be nearly 90% of GDP within several decades. The adoption of his actions by the current deranged operator of the reserve currency printing press, is merely a continuation of a multiple decade long process of keeping inflation contained at the expense of devaluing the US currency, as the global liquidity pyramid recently hit one quadrillion, and continues to grow exponentially, yet...

Alan Greenspan; FDIC's Depleted Deposit Insurance Fund; funds; monetize; Stern Opponent; Zero Hedge.

zero hedge Mon 2009-10-12 10:05 EDT

How Currency Devaluation Can Be A Bad Thing

Even as the dollar keeps hitting new daily lows, which continues being seen as a positive for the stock market, if not so positive for what little remains of world trade, not much has been said about the efforts by Latvia to do all it can to devalue its currency in the wake of a failed bond auction. The consequences are already metastasizing, as seen by the increasing volatility of related currencies, particularly the Swedish Krona which has been hit hard against the Euro on concerns of the country's exposure in Baltic states.

bad things; Currency Devaluation; Zero Hedge.

zero hedge Mon 2009-09-21 15:41 EDT

Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases. This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs...

50; Federal Reserve Accountable; Q2 Treasury Purchases; Zero Hedge.

Jesse's Café Américain Sun 2009-08-30 11:59 EDT

US Equity Markets Look Dangerously Wobbly As Insiders Sell In Record Numbers

Jesse

"Investors Intelligence's latest survey of advisory services showed an impressive 51% bullish and a meager 19% bearish...the spread hasn't been that wide since November 2007." Alan Abelson, Barrons, Aug. 29, 2009Next week we move into September, the riskiest month of the year for financial markets, with the federals escalating preparations for a flu pandemic, while Congress considers legislation... ``selling by corporate insiders in August has surged to $6.1 billion, the highest amount since May 2008. The ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004.''

Equity Markets Look Dangerously Wobbly; Insider sell; Jesse's Café Américain; record number.

Thu 2009-07-30 00:00 EDT

Mish's Global Economic Trend Analysis: Initial Unemployment Claims Jump; Continuing Claims Hit 6.5 Million, 15th Consecutive New Record

15th Consecutive New Record; 5; Continuing Claims Hit 6; Initial Unemployment Claims Jump; Mish's Global Economic Trend Analysis.

Tue 2009-04-21 00:00 EDT

Mish's Global Economic Trend Analysis: Geithner's Plan Can Succeed

...in avoiding a hit to bondholders at seemingly any taxpayer cost

Geithner's plan; Mish's Global Economic Trend Analysis; succeed.