Christopher Whalen Sat 2010-09-25 09:52 EDT

Double dip or global deflation?

Christopher Whalen

...Let's start with the term ``recession,'' which itself reflects the assumption that economic growth is always positive and the trend line is always upward sloping. While many economists in the U.S. remain convinced that this is an accurate descriptor, what Americans and many other people of the world need to consider is whether the assumption that the economy will grow endlessly is reasonable...much of what Americans think was real growth supported by real income and real work was, in fact, the result of deficit spending and reckless monetary expansion by the Fed, first under Alan Greenspan and now Ben Bernake...some of the leading experts in the housing sector believe that the U.S. is less than 25% through the restructuring of defaulted loans on commercial and residential real estate, and that the backlog is growing...Just as the housing sector and the related debt was the driver of the U.S. economy over the past several decades, I believe that the deflation of the housing market could spell an equally drastic period of shrinkage in economic activity in the U.S. and around the world...

Christopher Whalen; double dip; Global deflation.

Thu 2010-09-23 09:33 EDT

Bob Rubin Just Wants to Be Cuddled

Iris Mack

[2010-04-29]...It's October 2007. I've just finished my morning jog on beautiful, sun-drenched Miami Beach and I'm getting a smoothie and a pastry at my usual place, Epicure Market. The subprime mortgage crisis is heading into full-swing mode; Jim Cramer had just done his crazy thing on TV, and you can feel the sky starting to fall all around you -- and that's a literal thing in Miami, where the cranes stopped on a lot of half-finished skyscrapers, the type where a few years back you'd hear about people flipping condos three times before the project even broke ground. (If there's ever a time that I don't regret leaving finance, it's now.) Anyway, I'm in line for the checkout, and a very familiar looking guy gets in line behind me. It's one of those situations where I'm not sure if I eyed him or he eyed me first, but I noticed him shortly when I turned to the left to swipe my debit card. He was standing right behind me in the checkout line - only a few feet away. He looked very familiar and famous, and while that's no rarity in Miami, it is when you realize it's because the guy looks like the former Treasury Secretary -- but maybe no, he's maybe not tall enough? -- and then somehow you finally just blurt out, "Hey, you look just like Bob Rubin!"...

Bob Rubin Just Wants; cuddling.

naked capitalism Fri 2010-09-17 18:52 EDT

Why Do We Keep Indulging the Fiction That Banks Are Private Enterprises?

... Big finance has an unlimited credit line with governments around the globe. ``Most subsidized industry in the world'' is inadequate to describe this relationship. Banks are now in the permanent role of looters, as described in the classic Akerlof/Romer paper. They run highly leveraged operations, extract compensation based on questionable accounting and officially-subsidized risk-taking, and dump their losses on the public at large...The usual narrative, ``privatized gains and socialized losses'' is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported...banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction...

bank; fiction; Keep Indulging; naked capitalism; private enterprise.

Tue 2010-08-24 19:48 EDT

California Court Rules: MERS Can't Foreclose, Citibank Can't Collect - Mandelman Matters

...if a foreclosing party in California, that is not the original lender, claims that payment is due under the note, and that they have the right to foreclose on the basis of a MERS assignment, they're wrong... based on this opinion. The bottom line is that MERS has no authority to transfer the note because it never owned it, and that's a view that even seems to be supported by MERS' own contract, which says that ``MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby''...some lawyers believe that this ruling is relevant to borrowers across the country as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because this opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue...

California court ruled; Citibank; collections; foreclose; Mandelman Matters; MER.

naked capitalism Tue 2010-08-17 12:40 EDT

Guest Post: Why Clearninghouses Are a Maginot Line Against Systemic Risk

Warren Turbeville

As discussed in ECONNED and on this blog, clearinghouses are not a solution to the systemic risk posed by credit default swaps, since there is no way to have a CDS counterparty post adequate margin and have the product be viable (to put it more simply, adequate margin make CDS uneconomic). ..I am one of the few people around who knows something about the clearing business and theory and is not employed by an investment bank or clearinghouse. At the end of my career on Wall Street, I was hired to perform a financial autopsy of the special purpose derivatives clearinghouse set up by California as part of an innovative power market structure. It had failed in the state's power crisis of 2001-02. Observing the tremendous systemic risk generated by using conventional clearing techniques for all but straightforward derivatives, I embarked on a seven year quest. I formed a company that designed a mathematical, IT and legal structure to provide a transparent and orderly system to manage the risks of those derivatives which shouldn't be cleared conventionally. Imagine my surprise when the banks decided against using the system...

Clearninghouses; Guest Post; Maginot Line; naked capitalism; systemic risk.

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.

naked capitalism Thu 2010-08-05 20:07 EDT

Andy Xie on China's Empty Apartments

...Recent articles in media have illustrated how out of line prices are with incomes and rental yields...Chinese officialdom is worried about the social implications of overpriced housing...[Andy Xie reports] that the number of vacant apartments in China, the result of speculative warehousing (purchased as an investment but kept vacant) plus new construction languishing unsold is much greater than commonly realized...Justin Weleski: ``the Chinese housing market is incredibly nuanced. Many/most Western analyses, however, are extremely superficial and do not take into account the very unique circumstances and customs of Chinese society.'' ...a lot of these vacant apartments are owned by overseas Chinese planning their retirement, and not for speculation. If you add up the 50 million plus overseas Chinese, you have a pretty sizable pool of money and influence...China is not a renter friendly society...many people are forced to buy apartments, at riduculously price, just for the hope that their child can go to a good school...

Andy Xie; China's Empty Apartments; naked capitalism.

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.

billy blog Fri 2010-07-02 18:17 EDT

A total lack of leadership

Bill Mitchell

Another G20 talkfest has ended in Toronto and the final communique suggests that the IMF is now back in charge...The line now being pushed is, as always, structural reform of product and labour markets -- which you read as deregulation and erosion of worker entitlements...They buy, without question the notion that ``(s)ound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt.'' But what constitutes ``sound fiscal finances'' is not spelt out. It is all fudged around what the bond markets will tolerate. But what the bond traders think is a reasonable outcome for their narrow vested interests is unlikely to be remotely what is in the best interests of the overall populace...A sovereign government is never revenue constrained because it is the monopoly issuer of the currency and so the bond markets are really superfluous to its fiscal operations. What the bond markets think should never be considered. They are after all the recipients of corporate welfare on a large scale and should stand in line as the handouts are being considered. They are mendicants. It is far more important that government get people back into jobs as quickly as possible and when they have achieved high employment levels then they might want to conclude the fiscal position is ``sound''...The G20 statement is full of erroneous claims that budget surpluses ``boost national savings'' when in fact they reduce national saving by squeezing the spending (and income generating capacity) of the private sector -- unless there are very strong net export offsets...The on-going deflationary impact on demand that persistently high unemployment imposes is usually underestimated by the conservatives...

Billy Blog; leadership; total lack.

Tue 2010-06-01 18:54 EDT

billy blog >> Blog Archive >> In the spirit of debate ... my reply Part 3

Bill Mitchell

The debate seems to be slowing down which means this might be my last response although we will see...I urge all those who are interested in finding out more about the employment guarantee approach to price stabilisation to read our major Report (released in December 2008) called Creating effective local labour markets: a new framework for regional employment policy...productive is not confined to contributing to the profit bottom-line of a capitalist enterprise. There are many things that deliver social returns that will never spin a private profit. Even mainstream economics says optimality should be defined in terms of social costs and benefits. It is just that they never get to that level and slip back always into the private returns mould...It also seems that conservatives in the US are starting to take to modern monetary theory. My colleague Warren Mosler has been giving modern monetary talks to the arch-conservatives in the US at the Tea Party meetings... would advocate that banks be regulated into going to back to being banks and outlawed from being merely commission recipients for securatised package deals etc. I would prevent banks from doing anything other than taking deposits and making loans. All the rest of the behaviour that the banks have been involved in would be outlawed...

Billy Blog; blogs Archive; Debate; reply Part 3; Spirit.

New Economic Perspectives Mon 2010-05-24 10:52 EDT

The Coming European Debt Wars

Michael Hudson

Government debt in Greece is just the first in a series of European debt bombs that are set to explode. The mortgage debts in post-Soviet economies and Iceland are more explosive. Although these countries are not in the Eurozone, most of their debts are denominated in euros. Some 87% of Latvia's debts are in euros or other foreign currencies, and are owed mainly to Swedish banks, while Hungary and Romania owe euro-debts mainly to Austrian banks. So their government borrowing by non-euro members has been to support exchange rates to pay these private sector debts to foreign banks, not to finance a domestic budget deficit as in Greece...No one wants to accept the fact that debts that can't be paid, won't be. Someone must bear the cost as debts go into default or are written down, to be paid in sharply depreciated currencies...The question is, who will bear the loss?...There is growing recognition that the post-Soviet economies were structured from the start to benefit foreign interests, not local economies. For example, Latvian labor is taxed at over 50% (labor, employer, and social tax) -- so high as to make it noncompetitive, while property taxes are less than 1%, providing an incentive toward rampant speculation...Future relations between Old and New Europe will depend on the Eurozone's willingness to re-design the post-Soviet economies on more solvent lines -- with more productive credit and a less rentier-biased tax system that promotes employment rather than asset-price inflation that drives labor to emigrate...

Coming European Debt Wars; New Economic Perspectives.

Sat 2010-05-22 19:45 EDT

billy blog >> Blog Archive >> Zimbabwe for hyperventilators 101

Zimbabwe is the new Weimar Republic. Not! Zimbabwe is the front-line evidence that shows that government deficits will generate hyper-inflation. Not! Zimbabwe is the demonstration of the folly of a fiat monetary system. Not! Zimbabwe is an African country with a dysfunctional government. Yes!...Now at the risk of repeating myself a million times, this is the macroeconomic sequence that defines responsible fiscal policy practice. This is basic macroeconomics and the debt-deficit-hyperinflation hyperventilating neo-liberal terrorists seem unable to grasp it: [Mitchell summarizes modern monetary theory (MMT)]...So a responsible government will attempt to maintain spending levels sufficient to fill any saving....

Billy Blog; blogs Archive; hyperventilators 101; Zimbabwe.

Jesse's Café Américain Wed 2010-04-07 19:00 EDT

"How to Corner the Gold Market" By Janet Tavakoli

Jesse

Janet Tavakoli wrote an interesting essay that was just posted over at the Huffington Post called "How to Corner the Gold Market" which can be read in its entirety from her website here...What struck me as odd is that I just wrote a blog piece along similar lines on the same topic today, raising many of the same issues, but that is from the opposite perspective...there is little evidence that anyone is willing to take on the exchanges, even the big players, and try and force a corner or even a squeeze against what they perceive as mispricing, such as Soros and so many other big players did with the British Pound , and most recently other big hedge funds did with mispriced products from the latest bubble in the debt markets, and financial stocks...The piece I wrote today and reference above is about a situation in the precious metals markets which has the potential to become another serious problem for almost the same basic reasons as the debt markets in our most recent financial crisis: excessive leverage concentrated in a few TBTF institutions, lack of transparency, regulatory laxity, and a mispricing of risk...

corner; gold market; Janet Tavakoli; Jesse's Café Américain.

THE PRAGMATIC CAPITALIST Wed 2010-04-07 18:22 EDT

THE ENRON BANKING SYSTEM

TPC

``Panics do not destroy capital -- they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works'' -- John Mills ...We should draw a distinct line in the sand between banks and diverse risk taking firms. There are always going to be Enron's in the economy, but why should we allow our entire banking sector to mirror Enron? Taking a 30,000 foot risk management view I say something must be done to ensure these banks can never do this again. Turn banks into true banks. Hedging and exotic business models are fine. Just don't commingle them under the same umbrella as a deposit taking ``bank''. With that, a few ideas come to mind: * Our banking system should be aligned with the goals of the nation to help ``grease'' the wheels of the economic growth engine of the United States. Banks should be more like utilities and less like hedge funds. Otherwise, banking becomes counter-productive and potentially destructive. * Banks should not be allowed to exact onerous fees on the public or enact a business model which is inherently dependent on driving their customers deeper and deeper into debt. This undermines the entire goal of productive economic growth. * ``Banks'' should be true lending institutions. Non-traditional banking operations and products such as CDS, ``off balance sheet'' finance, derivatives as collateral and such would be deemed illegal unless performed only by non banking/lending institutions (such as hedge funds) so as to insulate the public and true lending institutions from the risk taking, ``hedging'', and ``financial innovation'' of firms such as Lehman Brothers.

ENRON BANKING SYSTEM; pragmatic capitalists.

naked capitalism Mon 2009-12-28 17:34 EST

Has Obama been a success despite suspicions of crony capitalism?

Edward Harrison

...There is a rather large body of evidence demonstrating that the Bush and Obama Administrations have favored large banks in an unseemly way. The same is true for the Congress and other big business insiders like Big Pharma, the Defense Industry and Health Insurance companies...we have witnessed an orchestrated campaign by the Bush and Obama Administrations to recapitalize too big to fail institutions by hook or by crook, bypassing Congressional approval if necessary. And when it comes to healthcare, both Congress and the White House have bent over backwards to keep the lobbyists onside. As I see it, our government has favored special interests in the past year of Obama's tenure to our detriment. Personally, I don't buy the line that Obama is a liberal. I consider him more a corporatist (i.e someone who coddles big business). But, from a political perspective, it's not really relevant, is it? What difference does it make whether President Obama is a liberal sellout as Matt Taibbi claims or a pragmatic corporatist, if the outcome for the electorate is largely the same? Forget about intent. Focus on actions.

Crony Capitalism; naked capitalism; Obama; Success; suspicion.

Wed 2009-12-16 15:37 EST

How would today's SuperInflation compare with the 1970s? - Debtor's prison -

we are staunch believers that Uncle Benny and Co's wild monetary adventures will result in massive inflation down the line...at the moment, regulators, the media and some portion of the public are more concerned about the prospects of deflation...The purpose of this post is, instead, to hypothesize about what would happen if SuperInflation does indeed come to pass, as we expect it will.

1970s; Debtor s Prison; s SuperInflation compare.