Jesse's Café Américain Wed 2010-09-29 09:13 EDT

Slouching Towards Bethlehem: Double Dip or Banana Split?

Jesse

NBER: "If the 2010 contraction we are now monitoring in consumer demand for discretionary durable goods scales to the full economy as faithfully as the "Great Recession" did, the second dip will, at minimum, be 33% more painful than the first dip and will extend at least half again as long." This is the case for trouble dead ahead, a worse decline in consumer activity and therefore GDP than the first, and the likelihood of further quantitative easing from the US Federal Reserve to patch over the inability of the political process to reform the financial system and balance the real economy because of their myriad conflicts of interest. These policy errors favoring a small minority will most likely result in a stagflation of the most pernicious and corrosive kind, high unemployment and a rising price of essentials, that may ultimately test the fabric of society...

Banana Splits; Bethlehem; double dip; Jesse's Café Américain; Slouching.

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.

Money Game Wed 2010-09-01 10:53 EDT

Why Ben Bernanke's Next Round Of Quantitative Easing Will Be Another Huge Flop

There is perhaps, no greater misunderstanding in the investment world today than the topic of quantitative easing [QE]. After all, it sounds so fancy, strange and complex. But in reality, it is quite a simple operation...The Fed simply electronically swaps an asset with the private sector. In most cases it swaps deposits with an interest bearing asset...The theory behind QE is that the Fed can reduce interest rates via asset purchases (which supposedly creates demand for debt) while also strengthening the bank balance sheet (which entices them to lend). Unfortunately, we've lived thru this scenario before and history shows us that neither is actually true. Banks are never reserve constrained and a private sector that is deeply indebted will not likely be enticed to borrow regardless of the rate of interest...The most glaring example of failed QE is in Japan in 2001. Richard Koo refers to this event as the ``greatest monetary non-event''...Since Ben Bernanke initiated his great monetarist gaffe in 2008 there has been almost no sign of a sustainable private sector recovery. Mr. Bernanke's new form of trickle down economics has surely fixed the banking sector (or at least bought some time), but the recovery ended there. ..The hyperventilating hyperinflationists and those investors calling for inevitable US default are now clinging to this QE story as their inflation or default thesis crumbles before their very eyes...With the government merely swapping assets they are not actually ``printing'' any new money. In fact, the government is now essentially stealing interest bearing assets from the private sector and replacing them with deposits...now that the banks are flush with excess reserves this policy response would in fact be deflationary - not inflationary...

Ben Bernanke's; Huge Flop; Money game; Quantitative Easing.

RollingStone.com: Matt Taibbi | Taibblog Sat 2010-08-07 21:06 EDT

Are We In a Recession or Not? [Summers versus Romer]

Matt Taibbi

...Obama's economic team...has seen two fairly major resignations...[Council of Economic Advisers chairwoman Christina Romer] and budget director Pete Orszag...neither of them got along with Larry Summers...Most of the DC chatter class seems to have interpreted the dual resignations as a sign of the ascendant power of the Summers-Geithner axis within the Obama White House...Romer was the Obama administration official who was loudest in her advocacy of a much bigger stimulus, with the idea that the administration's economic strategy should have been based around creating jobs and shaving unemployment as quickly as possible...she was really the only person close to Obama's economic inner circle who isn't a former Clintonite or Rubinite and isn't either a former Wall Street banker or, like Geithner, a public-sector tool of Wall Street...Not that Christina Romer was a savior...but she was at least not completely a Wall Street pod job -- she was pretty much the last inner-circle adviser who wasn't, and now she's gone...

com; Matt Taibbi; Recession; rollingstone; Summers versus Romer; Taibblog.

Sat 2010-08-07 20:18 EDT

Wall Street's Big Win | Rolling Stone Politics

Matt Taibbi

...Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" -- a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws...What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy -- and then decided that it didn't have the stones to wipe out our country's one --dependably thriving profit center: theft...Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws -- commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark -- were reversed...Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change...Geithner acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything...Without the Volcker rule and the --Lincoln rule, the final version of finance reform is like treating the opportunistic symptoms of AIDS without taking on the virus itself. In a sense, the failure of Congress to treat the disease is a tacit admission that it has no strategy for our economy going forward that doesn't involve continually inflating and reinflating speculative bubbles...

Rolling Stone political; Wall Street's Big Win.

naked capitalism Fri 2010-08-06 19:34 EDT

Auerback: The Real Reason Banks Aren't Lending

Marshall Auerback

...there is a widespread belief that government fiscal stimulus has run up against its ``limits'' on the grounds of ``fiscal sustainability'' and the need to retain ``the confidence of the markets''. Consequently, goes this line of reasoning, as private credit conditions improve the private sector must pick up the baton of growth where the public sector leaves off. If this proves insufficient, there is room for an expansion of monetary policy via ``quantitative easing``...The premise is that the central bank floods the banking system with excess reserves, which will then theoretically encourage the banks to lend more aggressively in order to chase a higher rate of return. Not only is the theory plain wrong, but the Fed's fixation on credit growth is curiously perverse, given the high prevailing levels of private debt...credit growth follows creditworthiness, which can only be achieved through sustaining job growth and incomes. That means embracing stimulatory fiscal policy, not ``credit-enhancing'' measures per se, such as quantitative easing, which will not work. QE is based on the erroneous belief that the banks need reserves before they can lend and that this process provides those reserves. But as Professor Scott Fullwiler has pointed out on numerous occasions, that is a major misrepresentation of the way the banking system actually operates...We would like to see the Obama Administration at least begin to make the case that fiscal stimulus, whether via tax cuts or direct public investment, is still required to generate more demand and employment...deficit cutting per se, devoid of any economic context, is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. They will come down as a matter of course when the economy begins to recover and as the automatic stabilizers work in reverse...

Auerback; Lends; naked capitalism; real reason Bank.

Wed 2010-08-04 20:58 EDT

Knives Out for Elizabeth Warren >> naked capitalism

Yves Smith

It should come as no surprise that a financial services industry powerful enough to water down meaningful reform in the US and internationally (Basel III rules were weakened to allow, for instance, that mortgage servicing rights be included in regulatory capital calculations) would probably have its way in blocking the nomination of Elizabeth Warren as head of the new consumer finance protection agency. Let's face it: the plan to deep six the consumer watchdog was set when it was changed from being an independent body as originally proposed and instead moved into the Fed, the most bank friendly and arguably the least industry expert of the US bank regulators. It might have had a hope of being effective had it been housed at the FDIC, which does not like cleaning up bank messes and therefore is less prone to swallow industry BS than the other Federal bank overseers, but it is now clearly meant to be a mere election time talking point...

Elizabeth Warren; knives; naked capitalism.

China Financial Markets Tue 2010-08-03 14:48 EDT

The capital tsunami is a bigger threat than the nuclear option

...China's ``nuclear option'', which has generated a great deal of nervousness among investors and policy-making circles in the US, is a myth, and what the US should be much more concerned about is its diametric opposite -- a tsunami of capital flooding into the country...All the major capital exporting countries...are eager to maintain and even increase their capital exports. But the balance of payments must balance, and all that exported capital must be imported somewhere else...As net capital exporters try desperately to maintain or increase their capital exports, and deficit Europe sees net capital imports collapse, the only way the world can achieve balance without a sharp contraction in the capital-exporting countries is if US net capital imports surge. And at first they will surge. Foreigners...will buy more dollar assets, including USG bonds, than before...the US trade deficit will inexorably rise as Germany, Japan and China try to keep up their capital exports and as European capital imports drop...This tsunami will bring with it a corresponding surge in the US trade deficit and, with it, a rise in US unemployment. It will also force the US Treasury to increase the fiscal deficit as more of the jobs created by its spending leak abroad...in the past massive capital recycling has usually been very good for asset markets. Might we see a surge in the US asset markets, at least until next year when Congress starts getting tough on the trade deficit?...

bigger threat; capital tsunami; China Financial Markets; nuclear option.

Mish's Global Economic Trend Analysis Tue 2010-08-03 12:11 EDT

Should China Dump Dollars for Commodities? What about the "Nuclear Option" of Dumping Treasuries? Can Global Trade Collapse?

Michael Shedlock

Every time there is a little blip by China in its purchasing or holding of US treasuries, hyperinflationists come out of the woodwork ranting about the "Nuclear Option" of China dumping treasuries en masse. Such fears are extremely overblown for several reasons...[Michael Pettis argues] the real problem is exactly the opposite of what most are ranting about: ``The problem facing the US and the world is not that China may stop purchasing US Treasury obligations. The problem is exactly the opposite. The major capital exporting countries -- China, Germany, and Japan -- are desperate to maintain or even increase their net capital exports, which are simply the flip side of their trade surpluses.'' ...If consumers decide to stop buying goods from China there is almost nothing China can do about it...Chinese exporters are already under severe price pressures...pray tell what is stopping a collapse in global trade? Nothing as far as I can see. It all depends on consumer attitudes. Certainly Bernanke and Congress will do their best efforts to get banks to lend and consumers to spend, it is by no means a certainty the Fed will succeed...consumer attitudes towards spending and debt will determine the global trade imbalance math...The result may be a collapse in global trade, not an inflationary event to say the least.

China Dumps dollar; Commodities; dumped Treasury; global trade collapsed; Mish's Global Economic Trend Analysis; nuclear option.

naked capitalism Sun 2010-07-25 16:13 EDT

The bailouts continue: The Economic Populist

Garrett Johnson

Most people [wrongly] think that the Wall Street bailouts ended at least a year ago...Increased housing commitments swelled U.S. taxpayers' total support for the financial system by $700 billion in the past year to around $3.7 trillion...the current outstanding balance of overall Federal support for the nation's financial system...has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion -- the equivalent of a fully deployed TARP program -- largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases, the TARP inspector general, Neil Barofsky, wrote in the report...Congress nearly comes to a standstill over $33 Billion for unemployment extensions, but there isn't even a debate over $700 Billion for Wall Street.

bailout continued; economic populist; naked capitalism.

naked capitalism Fri 2010-07-23 17:08 EDT

Deficits Do Matter, But Not the Way You Think

L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of ``unsustainable'' budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government's stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still -- likely -- years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson's well-funded public relations campaign, fronted by President Obama's National Commission on Fiscal Responsibility and Reform -- a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness...[however] the notion of ``fiscal sustainability'' or ``solvency'' is not applicable to a sovereign government -- which cannot be forced into involuntary default on debts denominated in its own currency...If we can get beyond the fears of national insolvency then there are many issues that can be fruitfully discussed. While inflation will not be a problem for many years, price pressures could return some day. Impacts of exchange rate instability are important, at least for some nations. Unemployment is a chronic problem, even at business cycle peaks. Aging does raise serious questions about allocation of resources, especially medical care. Poverty and homelessness exist in the midst of relative abundance. Simply recognizing that our sovereign government cannot go bankrupt does not solve those problems, but it does make them easier to resolve...

Deficit; matter; naked capitalism; Think; way.

China Financial Markets Thu 2010-07-22 10:17 EDT

Do sovereign debt ratios matter?

Michael Pettis

...No aspect of history seems to repeat itself quite as regularly as financial history. The written history of financial crises dates back at least as far back as the reign of Tiberius, when we have very good accounts of Rome's 33 AD real estate crisis...we have only begun the period of sovereign default. The major global adjustments haven't yet taken place and until they do, we won't have seen the full consequences of the global crisis...there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country's creditworthiness...there are at least five important factors in determining the likelihood that a country will be suspend or renegotiate certain types of debt...With inverted debt, the value of liabilities is positively correlated with the value of assets, so that the debt burden and servicing costs decline in good times (when asset prices and earnings rise) and rise in bad times...Inverted debt structures leave a country extremely vulnerable to debt crises...

China Financial Markets; sovereign debt ratios matter.

Wed 2010-07-21 10:30 EDT

More On Deficit Limits - Paul Krugman Blog - NYTimes.com

Jamie Galbraith responded to this post in comments; what he said, and my counter-response...Galbraith: ...The so-called long-term deficit is not a real problem. And the capital markets demonstrate every day that they agree with this judgment, by buying long-term Treasury bonds for historically-low interest rates. My response: there's no question that right now there is no problem: if the Fed issues money, it will in fact just sit there...But we won't always be in this situation -- or at least I hope not!...At that point, money that the government prints won't just sit there, it will feed inflation, and the government will indeed need to persuade the private sector to make resources available for government use...

com; deficit limit; NYTimes; Paul Krugman Blog.

Fri 2010-07-16 18:30 EDT

On Pelosi's Duplicity and Apparent Sandbagging of Elizabeth Warren <<; naked capitalism

Yves Smith

Despite her longevity as a California pol, house speaker Nancy Pelosi is looking like every bit as much of a dyed-in-the-wool financial services industry backer as the Congressmen on the New York-Boston corridor...So why are we pointing a finger at Pelosi in particular? The next chapter is her appointment of one Richard Nieman to the Congressional Oversight Panel...Nieman is the New York Superintendant of Banks. He helped Goldman set up its bank holding company...Nieman fell out with the other Democrats and wrote a joint opinion with John Sununu...to anyone with a passing acquaintance with the facts, the dissenting views are absurd...I can't imagine that Nieman would have fallen in with the Republicans without at least as a courtesy informing Pelosi in advance...So Pelosi is at a minimum sitting this one out (which I deem unlikely) or on board with the program to undermine Warren. And let us not kid ourselves, the knives are coming out...[2009-04-26]

Apparent Sandbagging; Elizabeth Warren; naked capitalism; Pelosi's Duplicity.

billy blog Thu 2010-07-15 16:35 EDT

Employment gaps -- a failure of political leadership

Overnight a kind soul (thanks M) sent me the latest Goldman Sachs US Economist Analysis (Issue 10/27, July 9, 2010) written by their chief economist Jan Hatzius...It presents a very interesting analysis of the current situation in the US economy, using the sectoral balances framework, which is often deployed in Modern Monetary Theory (MMT)...some of the top players in the financial markets have a good understanding of the essentials of MMT...he US is likely to have to endure on-going and massive employment gaps (below potential) for years because the US government is failing to exercise leadership. The paper recognises the need for an expansion of fiscal policy of at least 3 per cent of GDP but concludes that the ill-informed US public (about deficits) are allowing the deficit terrorists to bully the politicians into cutting the deficit. The costs of this folly will be enormous...

Billy Blog; employment gap; failure; political leadership.

Wed 2010-06-09 18:45 EDT

London business figures embroiled in Kaupthing fraud investigation: Serious Fraud Office team thought to be to be scrutinising Deutsche Bank's role in alleged suspect trades| Business | The Guardian

Simon Bowers| The Guardian

A Serious Fraud Office investigation into Kaupthing, the failed Icelandic bank, is understood to be pursuing a number of allegations of market manipulation involving investment vehicles controlled by some of the bank's largest clients, including several high profile UK business leaders. It is alleged that in the weeks and months before Iceland's financial system went into meltdown, certain trades improperly used at least €500m (£413m) of Kaupthing funds in an effort to manipulate credit derivatives. Bank bosses hoped this would restore crumbling confidence in Kaupthing's solvency in the months before the bank collapsed in October 2008...The effect was for investment vehicles -- financed by Kaupthing loans, and at least nominally controlled by some of the bank's largest clients -- to take on risk associated with the bank going bust. Kaupthing loans were being use to write insurance against Kaupthing bonds defaulting...Iceland's Truth Commission obtained details of emails sent by Deutsche Bank staff to Kaupthing which, according to its report, demonstrated that the German bank had been offering advice on how to influence the CDS price on Kaupthing bonds from early 2008...

alleged suspect trades; business; Guardian; Kaupthing fraud investigation; London business figures embroiled; scrutinising Deutsche Bank's role; Serious Fraud Office team thought.

The Money Game Fri 2010-05-21 13:30 EDT

Sorry, We're Not Weimar Or Zimbabwe, And Gold Is Never Going To Be A Currency Again

Gold is hotter than ever...As an asset class gold has outperformed just about everything over the last 10 year period. It's been an impressive run. But is it all justified? Bear with me for a bit while I take a long-term macro look at gold as an asset class...the fiat currency system is here to stay (or at least some form of it). The odds of reverting back to a purely gold based system is next to zero in my opinion. The truth is, the gold standard as a currency system is a barbarous relic. It is a currency system that worked well in the old world economy, but simply does not have the flexibility to meet the demands of the growing global economy. The global economy has become too complex and too intertwined to be constrained by the gold standard. The fiat currency system is a product of economic evolution and the growing demands and strains of international trade. Famous examples of the break-down of the gold standard and its inflexibility to meet trade demands include the UK in 1931 and the U.S. government's destruction of the gold linked currency system under the Bretton Woods agreement...

currency; Go; gold; Money game; Sorry; Weimar; Zimbabwe.

zero hedge Thu 2010-05-13 17:50 EDT

Willem Buiter Issues His Most Dire Prediction Yet: Sees "Unprecedented" Fiscal Crises, US Debt Inflation And Fed Monetization

...we were very surprised when we read Willem Buiter's latest Global Economic View (recall that he works for Citi now). In it the strategist for the firm that defines the core of the establishment could not be more bearish. In fact, at first we thought that David Rosenberg had ghost written this...Buiter presents a game theory type analysis, which concludes that the US and other sovereigns will soon be forced into fiscal austerity. Among his critical observations (we recommend a careful read of the entire 68 pages), are that the US is highly polarized, and that the Fed, which is "the least independent of leading central banks" would be willing to implement "inflationary monetisation of public debt and deficits than other central banks." The next step of course would be hyperinflation. And Buiter sees America as the one country the most likely to follow this route. Most troublingly, Buiter predicts that a massive crisis is the only thing that can break the political gridlock in the US in order to fix the broken US fiscal situation...

debt inflated; dire predictions; Fed Monetizing; fiscal crises; see; unprecedented; Willem Buiter Issues; Zero Hedge.

naked capitalism Thu 2010-04-22 18:57 EDT

More Evidence of Lack of Competitiveness of Many Chinese Exporters

...From Bloomberg: The profits of China's makers of household appliances, automobiles and cell phones may plunge by between 30 percent and 50 percent if the Chinese currency were to strengthen by 3 percent, according to a state media report. Small and medium-size exporters with low price-negotiating powers will face losses and may even go out of business, according to the Xinhua News Agency's Economic Information Daily newspaper, citing the results of a ``stress test.'' ... Richard Kline: ...Not that it matters at all for US manufacturing whether the renminbi notches up or not. Because wealth enterprises in the US don't really give a damn about their host country. Low-value added assembly will simply flow to Vietnam, Bangaladesh, back to Mexico, or the like. An industrial policy presupposes a political policy. And the malefactors of great wealth have complete control of US governmental policy, as we see, and not the least interest in investing in their host country. Great wealth here is parasitical, in a word. Fuddling about with currency rates won't change the political equation at all.

Chinese exports; competitions; evidence; lack; naked capitalism.

Jesse's Café Américain Mon 2010-04-19 18:34 EDT

Goldman Sachs: A Pattern of Organized Criminal Behaviour?

Jesse

Chris Whalen provides some excellent commentary on the Goldman Sachs fraud inquiry by the SEC at the beginning of his weekly newsletter, The Institutional Risk Analyst...``hedge funds often times are merely extensions of the dealers with which they interact. It is often difficult if not impossible to tell where the dealer's interests end and those of the hedge fund begin, especially when the dealer and the fund seem to be working in concert to create securities that are being sold to third parties. This episode is a terrible mess and, to us at least, illustrates why the OTC markets for securities and derivatives need to be regulated out of existence -- or at least into compliance with norms of disclosure and fair dealing that would render such strategies impossible.''

Goldman Sachs; Jesse's Café Américain; Organized Criminal Behaviour; pattern.

Fri 2010-03-19 20:42 EDT

Breaking the chain: The antitrust case against Wal-Mart

Barry C. Lynn (Harper&apos;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.

Sun 2010-02-28 13:39 EST

America's Future: My Baseline Scenario | Ian Welsh

1) employment is not going to recover to pre-great recession levels for at least a generation, maybe more, in terms of % of people employed. The late Clinton economy is the best you or I will see in our working lives. 2) Politics will continue to be dominated by monied interests and that dominance will increase, rather than decrease. They will use their power to fight over the shrinking pie, rather than to increase it, and will make any real systemic restructuring of the economy essentially impossible. 3) a right wing ``populist'' will get in after Obama. Since the only sort of stimulus they can do is war stimulus, they will pick a war with someone. Who, I'm not sure. In economic terms they will have all the wrong solutions to various real problems... Americans will put off cutting the military, I think, till they've gutted virtually everything else. I expect the military will probably win the fight against financial interests when the moment comes, though we'll see...

America s future; Baseline Scenario; Ian Welsh.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

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.

Dr. Housing Bubble Blog Fri 2009-11-20 08:25 EST

Fannie Mae and Wells Fargo Announce Creative Mortgage Solutions: A New Thing Called Renting. Option ARM Scenarios, Lease for Deed, and Delaying the Financial Future.

Last week, foreclosure Hall of Fame member and government stepchild Fannie Mae announced a stunning $18.9 billion loss. Remember last year when we were told that bailing out the enormous Government Sponsored Entities that we would be turning a profit? Well that didn't exactly pan out and both Fannie Mae and Freddie Mac have been a vortex for taxpayer money. With that said, Fannie Mae announced a ``lease for deed'' program that will essentially convert struggling homeowners to that feared word, renters. In the same week after Attorney General Jerry Brown sent his letter to the top option ARM wheelers and dealers in California, Wells Fargo came out with its ingenious solution. Wells Fargo has decided, at least as it stands, to convert their Pick-A-Pay option ARMs into glorious interest only loans for periods of six to ten years.

deed; delays; Dr. Housing Bubble Blog; Fannie Mae; financial future; leased; New Thing Called Renting; Option ARM Scenarios; Wells Fargo Announce Creative Mortgage Solutions.

zero hedge Thu 2009-11-19 10:36 EST

Bob (Janjuah) Is Back... And He Is Pissed

Near term I think the battle will be between Central Bankers, who deep down, and I think privately at least, FEAR bubbles, FEAR failure and FEAR FORCED abandonment if current policies are persisted with too long and/or added to, vs Fiscal Authorities, who by definition want short-term fixes (there is after all an election cycle in the UK & in the US next yr). This is like a rumble in the jungle between the VOLCKER-ites and the GREENSPAN-ites, with GREENSPAN representing the Fiscal Authorities (he was after all surely the most politicised central banker ever). Are the Volcker-ites up to a fight? I think so. I hope so. Kevin feels and I FEAR however that they aren't/they won't. In which case MORE policy and then, very soon thereafter DISASTER, will follow. In this rumble the inevitable outcome is deflation and multi-yr austerity.

Bob; Janjuah; piss; Zero Hedge.

Thu 2009-11-19 10:26 EST

How Goldman secretly bet on the U.S. housing crash | McClatchy

Greg Gordon

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk...

Goldman Secretly Bet; McClatchy; U.S. housing crash.

zero hedge Thu 2009-11-19 10:23 EST

Guest Post: Dear Prudence, Won't You Come Out To Play?

Contrary Investor

...consumers appear to have for now taken a vow of frugality. Whether by necessity or choice, prudence seems the order of the day. Does that mean consumers are not going to come out to play in the land of increased personal consumption any time soon? We think that's the theme, along with continued household balance sheet reconciliation that must come. Is monetary policy now impotent in an environment where consumers choose not to borrow and spend? If so, that leaves increased fiscal policy as the lever ahead for the government, with all the consequences that come along with that...it is critical to at least be open to the thinking that economic and financial market relationships we have grown to know and love over the past three to four decades are in the midst of meaningful change, perhaps secular change.

comes; Guest Post; play; prudence; Zero Hedge.

Jesse's Café Américain Tue 2009-11-03 20:15 EST

The US Dollar Rally of 2008: The Consequence of a Bull Market in Fraud

Jesse

The theory of a short squeeze in Eurodollars which we had first put forward last year "The Dollar Rally and Deflationary Imbalances in the US Dollar Holdings of Overseas Banks" seems to be confirmed by this paper from the NY Federal Reserve bank, and the latest figures on cross border currency transactions from the BIS...the latest data from BIS shows that the dollar rally tracked the acquisition of eurodollars with a significant correlation...But much of the European outrage, as least, was in feeling that they had been 'set up' by the very banks that had sold them the foully rated instruments in the first place. A classic face ripping, as they say at Wall and Broad. And this similar to the reason is why the Chinese government declared that its own institutions could walk away from derivatives arrangements that had been sold to them by the Wall Street wiseguys under false pretenses. US towns and states are not so fortunate it appears...The foreign banks have now unwound a significant amount of the dodgy US dollar financial assets that caused the short squeeze through their fraudulent valuations.

2008; Bull Markets; consequences; Dollar Rally; fraud; Jesse's Café Américain.