naked capitalism Fri 2010-10-08 22:09 EDT

Doubts About Eurobailouts Come to the Fore

A brief recap of a couple of useful sighting on the ``rising anxieties in Europe'' front. Edward Hugh has a very thorough update (bond spread trends, underlying drivers, an astute discussion of politics) leavened by a great deal of wry humor ...Wolfgang Munchau at the Financial Times takes a hard look at a piece of the puzzle most have avoided, namely the CDO structure that the Eurozone members used for their €440 billion bailout fund. He's pushed some numbers around, and as far as he can tell, it will only be able to offer costly funding, and in much smaller amounts than advertised...

doubt; Eurobailouts Come; fore; naked capitalism.

PRAGMATIC CAPITALISM Thu 2010-08-05 19:52 EDT

REGARDING THOSE ``STRONG'' CORPORATE BALANCE SHEETS

TPC

Brett Arends had an excellent piece on MarketWatch yesterday regarding the true state of US corporations...the total debts of these companies has...skyrocketed...corporations are even worse off today (in terms of debt levels) than they were when the crisis began...It's not just the consumer and banking sectors that remain overly indebted and poorly positioned in the long-run. The period of de-leveraging (balance sheet recession) is likely far from over and the continuation of the private sector weakness likely to continue until the problem of debt is accepted and dealt with...Private sector demand for debt is likely to remain very tepid and this will exacerbate the risk of deflation and economic weakness.

corporate balance sheets; PRAGMATIC CAPITALISM; strong.

naked capitalism Thu 2010-08-05 19:44 EDT

Taleb Calls Out Alan Blinder for Questionable Ethics

Nassim Nicholas Taleb has an intriguing piece at Huffington Post, ``The Regulator Franchise, or the Alan Blinder Problem,'' ...we've come to accept what other eras would view as corruption as business as usual...This may all seem to be so ``dog bites man'' in America so as to no longer elicit any outrage. The famed regulatory revolving door, and all the benefits that former officials and their new private sector masters gain from a legally permitted but socially destructive form of trading of insider know how is now considered business as usual in the US...the ``innovation'' that regulators, academics, consultants, and banks were all advocating more than 20 years ago was regulatory arbitrage...

Alan Blinder; naked capitalism; questionable ethical; Taleb calls.

Mon 2010-07-19 16:30 EDT

US gripped with offshore economy

Jobs are becoming scarcer and scarcer particularly in the United States. Is it cyclical or is it structural? Is it something that America has completely turned its back on in a way that could potentially be a factor for decades going forward? Max Keiser discusses this issue with Dr. Paul Craig Roberts...Keiser: Andy Grove, the co-founder of Intel has just written an opinion piece for Bloomberg that has totally vindicated your long held argument against outsourcing American jobs...What is left in the arsenal to fight for jobs? Roberts:Nothing, one of the reasons they like offshoring is to destroy the unions so that's one of the reasons free market economists and corporations are so keen on offshoring, it destroys the unions...the only jobs that have been created in the 21st century in America are domestic service jobs like waiters, bartenders, hospital orderlies, construction workers, real estate, they are continuing to lose manufacture jobs, and not creating jobs for scientists and engineers and this has now been going on for a decade...What the US is going through is a process of disdevelopment of becoming an undeveloped economy; it's the opposite of economic development going on in the US...

grip; Offshored Economy.

New Economic Perspectives Fri 2010-07-16 14:28 EDT

Goldman Vampire Squid Gets Bitch Slapped: JP Morgan Bitch Slaps the Dow; and Geithner Tries to Bitch Slap Elizabeth Warren

L. Randall Wray

Ok here were three pieces of news today. First, Goldman Sachs was fined $550 Million for duping customers...For Goldman it was a tiny slap on the wrist--it still controls the Obama administration, with its moles, Timmy Geithner and Larry Summers still in charge of fiscal policy, thus prepared to funnel whatever money is necessary to prop up their firm--and the fine amounts to just 14 days of Goldman's earnings...The other remaining investment bank, JP Morgan announced that its profits rose by 76%. Funny thing is that in all banking categories, JP Morgan's results were horrendous...the profits supposedly came from ``trading''. In reality they mostly came from reducing ``loan loss reserves''...Our favorite Timmy has weighed in on Elizabeth Warren...Timmy Geithner (let me repeat that: Timmy! Geithner!) the most incompetent and conflicted public official since ``heck-uv-a-job'' Brownie has dared to oppose Ms. Warren to lead the new Consumer Financial Protection Bureau...Actually I agree with Timmy. Elizabeth Warren ought to be gunning for Timmy's job. Fire Geithner. Now. Elizabeth Warren for Treasury Secretary! And in 2012, Warren for President...Time for a new face in the White House. Elizabeth is our man, or woman.

Bitch Slap Elizabeth Warren; bitch slaps; Dow; Geithner trying; Goldman Vampire squid; JP Morgan Bitch Slaps; New Economic Perspectives.

Wed 2010-05-19 13:23 EDT

Conspiracy of Banks Rigging States Came With Crash (Update1)

...a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks... rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money...The workings of the conspiracy -- which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non- profits -- can be pieced together from the Justice Department's indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials. "The whole investment process was rigged across the board," said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service's tax-exempt bond division. "It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded." Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars...

Banks Rigging States Came; conspiracy; Crash; Update1.

Wed 2010-05-19 11:52 EDT

billy blog >> Blog Archive >> When you've got friends like this ... Part 1

...I am forming the view that many so-called progressive economic think tanks and media outlets in the US are in fact nothing of the sort...Today I read two position pieces from self-proclaimed progressive writers which could have easily been written by any neo-liberal commentator. True, the rhetoric was guarded and there was talk about needing to worry about getting growth started again -- but the message was clear -- the US has dangerously high deficits and unsustainable debt levels and an exit plan is urgently required to take the fiscal position of the government bank into balance. Very sad...since when has the progressive agenda consisted of worrying about deficit reduction as a policy aim? Placing a focus on some specific targetted deficit outcome will almost always lead a policy maker astray in a modern monetary economy. It is not a progressive position...

Billy Blog; blogs Archive; friends; Part 1.

PRAGMATIC CAPITALISM Tue 2010-05-18 15:17 EDT

11 REASON WHY DEFLATION REMAINS THE GREATER RISK

TPC

A nice follow-up here on our earlier piece. David Rosenberg has really nailed the macro picture in terms of inflation and deflation...why deflation remains the greater risk... * Credit is contracting. * Wage rates are stagnating. * Money supply growth is vanishing * The U.S. dollar is strong. * Commodities have peaked. * U.S. home prices are rolling over ... again. * Lumber prices tumbling (down nearly 17% from April 2010 highs) * Wal-Mart is cutting prices on 10,000 items. * Home Depot just cut prices on flowers, fertilizers, lawn equipment and outdoor furniture. * Taco Bell is offering two dollar combo meals. * The April U.S. retail sales report hinted at deflation in groceries, electronics, apparel and sporting goods.

11 reasons; deflation remains; greater risk; PRAGMATIC CAPITALISM.

Credit Writedowns Sun 2010-05-16 14:53 EDT

Spinoza, Descartes and suspension of disbelief in the ivory tower of economics

...The core of my argument will come from James Montier, now at the fund manager GMO. As a strategist at Dresdner Kleinwort Benson in 2005, he wrote a timeless piece on the debate between two 17th century philosophers René Descartes of France and Baruch de Spinoza of the Netherlands. Descartes was of the view that people process information for accuracy before filing it away in memory. Spinoza made the opposite claim, that people must suspend disbelief in order to process information. The two competing ideas were put to the test; and it appears that Spinoza was right about the need for naïve belief, something that has grave implications for investing, the subject of Montier's essay..."Distraction, then, is an especially useful technique when a person's arguments are poor because even though people might be aware that some arguments were presented, they might be unaware that the arguments were not very compelling."...

credit writedowns; Descartes; disbelief; economic; ivory-tower; Spinoza; suspension.

zero hedge Sun 2010-05-09 09:45 EDT

The Day The Market Almost Died (Courtesy Of High Frequency Trading)

A year ago, before anyone aside from a hundred or so people had ever heard the words High Frequency Trading, Flash orders, Predatory algorithms, Sigma X, Sonar, Market topology, Liquidity providers, Supplementary Liquidity Providers, and many variations on these, Zero Hedge embarked upon a path to warn and hopefully prevent a full-blown market meltdown. On April 10, 2009, in a piece titled "The Incredibly Shrinking Market Liquidity, Or The Black Swan Of Black Swans" we cautioned "what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility." Today, after over a year of seemingly ceaseless heckling and jeering by numerous self-proclaimed experts and industry lobbyists, we are vindicated...absent the last minute intervention of still unknown powers, the market, for all intents and purposes, broke. Liquidity disappeared. What happened today was no fat finger, it was no panic selling by one major account: it was simply the impact of everyone in the HFT community going from port to starboard on the boat, at precisely the same time...It is time for the SEC to do its job and not only ban flash trading as it said it would almost a year ago, but get rid of all the predatory aspects of high frequency trading, which are pretty much all of them...HFT killed over 12 months of hard fought propaganda by the likes of CNBC which has valiantly tried to restore faith in our broken capital markets. They have now failed in that task too. After today investors will have little if any faith left in the US stocks, assuming they had any to begin with. We need to purge the equity market structure of all liquidity-taking parasitic players. We must start today with High Frequency Trading...

courtesy; day; dies; high frequency trade; Market; Zero Hedge.

zero hedge Fri 2010-04-23 20:02 EDT

How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility

Five months ago, Zero Hedge observed the nuances of the Federal Reserve's Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman's "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT's Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman's abuse of the PDCF, and how the trail of slime of Lehman's increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor - a very much complicit Tim Geithner...

abuse; created; Fed's Complicity; Illegal Precedent; Lehman; Primary Dealers Credit Facility; Zero Hedge.

naked capitalism Tue 2010-04-20 09:18 EDT

Three ways to keep NPLs down, recapitalize banks, and socialize losses all at the same time

Edward Harrison

Michael Pettis is out with another great piece on the likelihood that non-performing loans (NPLs) will rise in China when the present spate of malinvestment comes a-cropper. What caught my eye were his statements about the hidden ways in which government pays for bank recapitalization...

keep NPLs; naked capitalism; Recapitalize Banks; socializing losses; Time; way.

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.

naked capitalism Fri 2010-03-19 16:42 EDT

Indefensible Men

From the December 2009 issue of The Baffler (no online version of this article available). For those not familiar with The Baffler, this is the revival of a magazine of business and culture edited by Thomas Frank that had previously been published from 1988 to 2007. This issue was called ``Margin Call'' and included articles by Matt Taibbi, Naomi Klein, Michael Lind. I believe readers will find this piece to be relevant. Enjoy! Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold. Reinhold Niebuhr, Moral Man and Immoral Society

Indefensible Men; naked capitalism.

naked capitalism Sun 2010-02-28 13:08 EST

Martin Wolf is Very Gloomy, and With Good Reason

Martin Wolf, the Financial Times' highly respected chief economics editor, weighs in with a pretty pessimistic piece tonight. This makes for a companion to Peter Boone and Simon Johnson's Doomsday cycle post from yesterday...With the private sector debt overhang as great as it is, I doubt there is a way out of our mess that does not involve a period of debt restructuring and writeoffs. That process, no matter how adeptly handled, results in dislocation and has a chilling effect on bystanders...Swedish Lex interestingly sees another possible brake that may become operative prior to another bubble/bust cycle. He believes that the EU has much less tolerance for underwriting zombie banks than the US. The EuroBanks have written off less in the way of losses than their US peers, are also exposed to any EU sovereign debt defaults, and yet the biggest are still crucial parts of the international capital markets infrastructure (and therefore still tightly coupled to the very biggest US/UK firms). While any EU sovereign debt defaults could morph into a full blown crisis, the EU responses to the joint sovereign/bank debt overhang could lead to more radical changes in EU banking rules and practices that could blow back to the very biggest US banks in unexpected ways.

gloomy; good reason; Martin Wolf; naked capitalism.

naked capitalism Thu 2010-02-25 19:45 EST

The U.S. opts for the bailout hustle over the Swedish banking crisis response

Edward Harrison of Credit Writedowns

...my post: The Swedish banking crisis response -- a model for the future? from August 2008 which describes a piece by former Riksbanks head Urban Bäckström from way back in 1997! This is the number one entry on the Internet when you search for `Swedish banking crisis.' Now, this was before the Lehman debacle. And I anticipated massive credit writedowns for the global financial system which would precipitate a major financial crisis. Of course, this is what happened. But, pre-Lehman, I was looking for a banking crisis response model which would prove effective. I looked at the Japanese model and found it wanting. The Nordic model is more promising... Now, the information about these financial crisis strategies was readily available in the public domain for years. I mean, my blog post was based on a 1997 article for goodness sake. Clearly, the Obama people didn't want this solution because they are captured by the financial services industry. That's why the U.S. is going the Japanese route of bailouts and accounting dodges.

Bailout Hustle; naked capitalism; Swedish banking crisis response; U.S. Opts.

zero hedge Wed 2010-02-03 20:00 EST

AIG: Collusion Of Epic Proportions Between Goldman's US Treasury Branch And Goldman Sachs Proper

David Fiderer

Must read piece from David Fiderer, first published on Huffington Post How Paulson's People Colluded With Goldman To Destroy AIG And Get A Backdoor Bailout

AIG; collusion; epic proportions; Goldman Sachs Proper; Goldman's; Treasury Branch; Zero Hedge.

naked capitalism Fri 2010-01-08 19:29 EST

Limiting the destruction wrought by irrational exuberance in a one-party state

Edward Harrison

I wanted to highlight a piece [Matt Taibbi] wrote yesterday called Fannie, Freddie, and the New Red and Blue. The crux of his argument is this: The partisan rhetoric is on full display in the dust-up over the unlimited liabilities coming from Fannie and Freddie thrust upon taxpayers on Christmas Eve. This rhetoric is not just beside the point, it is specifically designed to obscure the point, namely that both Democrats and Republicans, private industry and the government are culpable in the shambles our economic system has become...We effectively have a one-party system when it comes to investment in the present economic, power, and wealth structure.

destruction Wrought; irrational exuberance; limit; naked capitalism; party state.

Thu 2010-01-07 20:04 EST

Hard times at the Washington Post

Dean Baker

The Washington Post is a newspaper with a proud legacy. It has done much important reporting over the years, most famously its coverage of the Watergate scandal that resulted in the resignation of Richard Nixon. Unfortunately, it seems to have abandoned its journalistic standards. In its last issue of the decade, it published as a news piece an article by the Peter Peterson Foundation-funded Fiscal Times. This compromised the Post's journalistic integrity to the extent that readers can no longer take it seriously.

hard times; Washington Post.

Ambrose Evans-Pritchard - Finance and business comments Thu 2010-01-07 19:00 EST

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces

The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises -- the final error that triggered the implosion of Lehman, AIG, and the Western banking system. As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression -- more akin to Japan's Lost Decade than the 1840s or 1930s, but nothing like the normal cycles of the post-War era. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun.

2009; Ambrose Evans Pritchard; Business Comment; ending; finance; Global Bear Rally; Japan's hyperinflation rips economy; pieces.

zero hedge Tue 2010-01-05 19:26 EST

Roubini Blasts "The Barbarous Relic," Recommends Spam Over Gold

In a headline piece on roubini.com, Nouriel Roubini writes an extended article slamming both gold bugs, and the so-called gold bubble, which he believes is far too volatile, and which, contrary to ever increasing claims to the opposite, will likely not get to the mythical price of $2000/ounce, and instead will head lower. The argument presented, as is widely the case, boils down to the trifecta of i)gold having no industrial utility, ii) no intrinsic value (no associated cash flow streams) and iii) costing an arm and a leg to store. While Roubini's thesis is attractive on the surface (if somewhat Keynesian and thus often reiterated by mainstream Economists), we present some counter arguments to Roubini's thesis.

barbaric relic; gold; Recommends Spam; Roubini blast; Zero Hedge.