Tue 2010-10-12 16:13 EDT

Iceland Rejects Icesave Depositors Bill in Referendum - BusinessWeek [2010-03-07]

Icelanders rejected by a massive majority a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank...Voters rejected the bill because ``ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,'' said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite...Icelanders used the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island's financial system to create a debt burden more than 10 times the size of the economy...

2010 03 07; BusinessWeek; Iceland Rejects Icesave Depositors Bill; referendum.

Minyanville Wed 2010-09-29 09:08 EDT

Excerpt From "Traders, Guns & Money" (Part 3)

Satyajit Das

Minyanville Professor Satyajit Das' book "Traders Guns & Money" is a wickedly comic exposé of the culture games and pure deceptions played out every day in trading rooms around the world. And played out with other people's money. Das is an international expert on financial derivatives and has more than 30 years of experience in the financial markets. Having worked on both the sell side and buy side for such banks as the Commonwealth Bank of Australia Citicorp Investment Bank Merrill Lynch and the TNT Group he now acts as a consultant advising banks and corporations and presenting

excerpts; gun; Minyanville; money; Part 3; Traders.

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.

Mon 2010-09-20 19:04 EDT

Excerpt From "Traders, Guns & Money" (Part 2)

Satyajit Das

Minyanville Professor Satyajit Das' "Traders, Guns & Money" is a wickedly comic exposé of the culture, games, and pure deceptions played out every day in trading rooms around the world. And played out with other people's money...

excerpts; gun; money; Part 2; Traders.

Christopher Whalen Fri 2010-09-17 19:31 EDT

The key to the future of finance is now emerging

Christopher Whalen

Basel III is entirely irrelevant to the economic situation and even to the banks. Through things like minimum capital levels, the Basel II rules provided the illusion of intelligent design in the regulation of banking and finance. In fact, Basel II made the subprime crisis possible and the subsequent bailout inevitable [by enabling off-balance sheet finance and OTC derivatives]...Part of the reason for my undisguised contempt for the Basel III process comes from caution regarding the benefits of regulating markets...But a large portion of my criticism for Basel III and the entire Basel framework is even more basic, namely the notion that any form of a priori regulation, public or private, can prevent people from doing stupid things...The key premise of Basel III is that the use of minimum capital guidelines and other strictures will somehow enable regulators to prevent a crises before it occurs. The only trouble is that regulators have no objective measures for compliance with Basel II/III, much less predicting market breaks...As in past decades and crises right through to 2008, the regulators will be the last to know about a problem...

Christopher Whalen; Emergency; finance; future; Key.

Mish's Global Economic Trend Analysis Mon 2010-09-13 15:53 EDT

Debating the Flat Earth Society about Hyperinflation

Michael Shedlock

Over the past few weeks, many people have asked me to comment on John Hussman's August 23, 2010 post Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar. Most wanted to know how that article changed my view regarding deflation. It didn't...I was asked about a guest post by Gonzalo Lira on Zero Hedge. I had seen the article and I made an off-the-cuff statement that the post was so silly it was not worth commenting not...Commenting on the above is tantamount to debating the flat earth society. The premise is so silly it's not worth discussing, yet here I am trapped into discussion by a mischaracterization of my statement "Hyperinflation Ends The Game"...The commonality between Zimbabwe and Weimar is they are both political events. In Zimbabwe a political event triggered capital flight, in Weimar a political event started massive printing, triggering hyperinflation...To understand how powerless the Fed is, one needs to understand the difference between credit and money, how much the former dwarfs the latter...Hyperinflation could theoretically come from massive sustained political will to bail out the little guy at the expense of the banks, the wealthy, and the political class. However, unlike Mugabe and Zimbabwe, neither the banks nor the Fed nor the political class wants to bail out the poor at the expense of the wealthy. Indeed, Bernanke's, Paulson's, and Geithner's actions to date have done the exact opposite!...

Debate; Flat Earth Society; Hyperinflation; Mish's Global Economic Trend Analysis.

Sat 2010-09-11 23:31 EDT

Excerpt From "Traders, Guns & Money" (Part 1)

Satyajit Das

Minyanville Professor Satyajit Das' "Traders, Guns & Money" is a wickedly comic exposé of the culture, games, and pure deceptions played out every day in trading rooms around the world. And played out with other people's money. Das is an international expert on financial derivatives and has more than 30 years of experience in the financial markets. Having worked on both the sell side and buy side for such banks as the Commonwealth Bank of Australia, Citicorp Investment Bank, Merrill Lynch, and the TNT Group, he now acts as a consultant advising banks and corporations and presenting seminars on derivatives throughout the world...

excerpts; gun; money; Part 1; Traders.

Tue 2010-08-24 20:21 EDT

Gonzalo Lira: How Hyperinflation Will Happen

Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain...For its part, the Federal Reserve has been busy propping up all assets--including Treasuries--by way of ``quantitative easing''...But this Fed policy--call it ``money-printing'', call it ``liquidity injections'', call it ``asset price stabilization''--has been overwhelmed by the credit contraction...the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation...Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It's not that they want more money--they want less of the currency: So they will pay anything for a good which is not the currency...Treasuries are now the New and Improved Toxic Asset...there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil...asset managers will sell Treasuries...right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields...The Fed's buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries...It will be a flash panic...By the end of that terrible day, commodites of all stripes--precious and industrial metals, oil, foodstuffs--will shoot the moon...if it doesn't happen this fall, it'll happen next fall, without question before the end of 2011...

Gonzalo Lira; happened; Hyperinflation.

PRAGMATIC CAPITALISM Mon 2010-08-23 19:08 EDT

WHEN WILL THE BOND AUCTIONS BEGIN TO FAIL?

TPC

There's great concern over the sustainability of US deficits. Most of the fear mongering, hyperventilating, flat earth economists believe foreigners will at some point stop ``funding'' our spending. The hyperinflationist crowd likes to keep a very close eye on US government bond auctions hoping foreign demand for debt will dry up, auctions will begin to fail and interest rates (and inflationary pressures) will surge as the United States effectively defaults (which is technically impossible) and dies the death that so many of these people wish upon it. Unfortunately, 99% of the inflationistas have a very poor understanding of reserve accounting so their arguments have not only been wrong for a very long time, but they never really carried any weight to begin with (as one reader eloquently put it -- ``at some point being right has to count for something'' -- the inflationistas have been horribly wrong throughout this downturn). So what is really happening when the government auctions off bonds?...

BOND AUCTIONS BEGIN; fail; PRAGMATIC CAPITALISM.

Phil's Favorites - By Ilene Thu 2010-08-19 15:58 EDT

Time for a New, New Deal?

Phil of Phil's Stock World

...The Big Lie being told by the right is that we can solve our problems by cutting spending and (ROFL) lowering taxes...Of course, let's keep in mind that the $1.5Tn the government spends directly employs 2.7M people and millions more indirectly so, for every person you cut, make sure you add back $20,000 a year for unemployment benefits and administration (or are we going to throw them all on the street?)...the real glove-across-your-face insult to your intelligence comes when they try to tell you that giving tax breaks to the rich and to corporations will help...US Corporations only paid a grand total of $138Bn in taxes in 2009 (6.5% of all taxes collected)...US Corporations have done nothing but outsource America's future for decades and it is time for the bottom 99% of the income earners (those earning less than $250,000 a year) to wake up and smell the class warfare that is being waged against them. How can we even begin to entertain the idea of cutting government and cutting government spending when the sum total contribution of Big Business America represents a rounding error in our national budget?...When private business fails to expand, when the budgets cannot be balanced because 25% of the population is unable to make income tax contributions due to loss of jobs and homes -- then a wise man knows when it is time to step in and let the Government fill the void. Not with more bailouts to the rich who, like Reagan's deficit ``are big enough to care for themselves'' but with bold programs that invest in the future of this country and utilize the skills and labor of this country and make America strong and independent...

Ilene; new; new deal; Phil's Favorites; Time.

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 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.

Dr. Housing Bubble Blog Fri 2010-07-30 15:22 EDT

Banks cherry picking individual foreclosures that show up on the MLS in Culver City and Pasadena with proof: Southern California lenders pushing out properties in Culver City with an average price tag of $300,000. Median sale price for city is $600,000. Shadow inventory average price is $443,000 with loans at an average of $552,000. 141,000 homes in Southern California are distressed yet MLS only reflects 83,000 total properties.

...Prices even today are disconnected from market fundamentals. Inventory is still growing and the shadow inventory figures remain elevated...The bulk of properties are sitting hidden in bank balance sheets and are part of the shadow inventory...For Pasadena, for every one listed foreclosure or short sale, you can be assured that there are 5 other properties sitting in the depths of a bank balance sheet. Keep in mind this is for a highly desirable area...the numbers look nearly the same in Culver City. For every one distressed property on the MLS, you have 5 others hidden in some bank balance sheet. Now when I look at this data what I see is a façade in Southern California real estate...Banks are basically trying to avoid facing the music and realizing the reality that these properties are overpriced (people can't even keep up with their payments). Does any of this data look like a healthy market?

000; 000 home; 000 total properties; 141; 300; 443; 552; 600; Average; average price tag; Banks cherry picking individual foreclosures; Citi; Culver city; distressed; Dr. Housing Bubble Blog; Loans; median sales price; MLS; Pasadena; proof; property; reflects 83; Shadow inventory average price; showed; Southern California; Southern California lenders pushing.

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.

Sat 2010-07-24 15:55 EDT

The Path of Unemployment

Dean Baker

...The US, unlike most western European countries, is not set up to sustain long periods of high unemployment. Its system of social welfare is very much centered on work. This is most evident with health care. The vast majority of non-elderly people get their health care through employer provided health insurance. Individual policies tend to be very expensive, especially for people with any history of medical problems. When people lose their jobs, they generally lose their health care coverage as well...While the downturn has led to high and prolonged unemployment in the US, it has not had quite the same effect in Europe...several European countries, most notably Germany and the Netherlands, have adopted a policy of work sharing to limit unemployment...Under work-sharing schemes, instead of just paying workers for being completely unemployed, the government pays workers for being partly unemployed...Germany has been able to use this system to keep its unemployment rate from rising at all in the recession...In the US workers are seeing near double-digit unemployment with the implied loss of income and benefits, as well as the loss of self-esteem and social status that is associated with long-term unemployment. By contrast, workers in Germany and the Netherlands are adjusting to the falloff in demand with shorter workweeks and longer vacations...

path; unemployment.

Social Democracy for the 21st Century: A Post Keynesian Perspective Thu 2010-07-22 16:00 EDT

Fractional Reserve Banking: An Evil?

Lord Keynes

Hostility to fractional reserve banking is ubiquitous. The Austrians hate it and regard it as a type of fraud. There are even a good many people on the left who despise fractional reserve banking as an evil institution. However, a careful look at fractional reserve banking suggests that it is not necessarily a problem with modern fiat money, a well-regulated financial system, deposit insurance and a central bank ready as the lender of last resort. Fractional reserve banking without these safeguards can be extremely destabilizing and has often led to disastrous bank collapses and depressions...

21st century; evil; fractional reserve banking; Post Keynesian Perspective; social democracy.

Wed 2010-07-21 11:01 EDT

AlterNet: Are Our Bosses Becoming Meaner?

Sam Pizzigati

...Sreedhari Desai, Arthur Brief, and Jennifer George...have been exploring the link between executive pay and ``meanness.''...they may have shifted executive pay scholarly research in a sobering new direction, with much less attention on ``performance'' and much more on raw naked power...``exaggerated power asymmetry'' can make people with power mean to people without. Contemporary corporate workplaces, the three researchers continue, regularly display this ``exaggerated power asymmetry.'' And that asymmetry, they argue, is intensifying as pay gaps between CEOs and their workers have widened...

AlterNet; Bosses Becoming Meaner.

New Economic Perspectives Mon 2010-07-19 13:51 EDT

The Myths About Government Debt and Deficit as Told By Carmen Reinhart and Kenneth Rogoff

Yeva Nersisyan

...with nearly 10% of the US labor force unemployed and another 7% underemployed, the public debate is now focused on the false issue of deficits and debt. A case in point is a recent book by Carmen Reinhart and Kenneth Rogoff, ``This Time is Different'' that has become a bestseller...The media as well as academia have fawned all over this book...The crux of the book is that each time people think that ``this time is different'', that crises cannot occur anymore or that they happen to other people in other places. True. This is exactly what Hyman Minsky was arguing more than 40 years ago. Reinhart and Rogoff don't really explain why this perception leads to crises...The book is mostly on crises driven by government debt...[however] Aggregating data over different monetary regimes and different countries cannot yield any meaningful conclusions about sovereign debt and crises. It is only useful if the goal is to merely validate one's preconceived myth about government debt being similar to private debt...As far as I can tell Rogoff and Reinhart haven't identified a single case of government default on domestic-currency denominated debt with a floating exchange rate system...Professional economists are a major impediment on the way to using our economic system for the benefit of us all. And Reinhart and Rogoff are no exception.

Carmen Reinhart; Deficit; government debt; Kenneth Rogoff; myth; New Economic Perspectives; told.