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.

Tue 2010-10-12 16:01 EDT

billy blog >> Blog Archive >> Iceland ... another neo-liberal casuality

...For a real world example of the benefits of adopting a floating, sovereign, currency we can look to Argentina....At the time of the 2001 crisis, the government realised it had to adopt a domestically-oriented growth strategy. One of the first policy initiatives taken by newly elected President Kirchner was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force. This not only helped to quell social unrest by providing income to Argentina's poorest families, but it also put the economy on the road to recovery. Conservative estimates of the multiplier effect of the increased spending by Jefes workers are that it added a boost of more than 2.5 per cent of GDP. In addition, the program provided needed services and new public infrastructure that encouraged additional private sector spending. Without the flexibility provided by a sovereign, floating, currency, the government would not have been able to promise such a job guarantee. Argentina demonstrated something that the World's financial masters didn't want anyone to know about. That a country with huge foreign debt obligations can default successfully and enjoy renewed fortune based on domestic employment growth strategies and more inclusive welfare policies without an IMF austerity program being needed. And then as growth resumes, renewed FDI floods in...sovereign governments are not necessarily at the hostage of global financial markets. They can steer a strong recovery path based on domestically-orientated policies -- such as the introduction of a Job Guarantee -- which directly benefit the population by insulating the most disadvantaged workers from the devastation that recession brings...

Billy Blog; blogs Archive; Iceland; neo-liberal casuality.

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.

Fri 2010-10-08 21:53 EDT

MERS 101

MERS - Mortgage Electronic Registration Inc. - holds approximately 60 million American mortgages and is a Delaware corporation whose sole shareholder is Mers Corp. MersCorp and its specified members have agreed to include the MERS corporate name on any mortgage that was executed in conjunction with any mortgage loan made by any member of MersCorp...Thus in place of the original lender being named as the mortgagee on the mortgage that is supposed to secure their loan, MERS is named as the ``nominee'' for the lender who actually loaned the money to the borrower. In other words MERS is really nothing more than a name that is used on the mortgage instrument in place of the actual lender. MERS' primary function, therefore, is to act as a document custodian. MERS was created solely to simplify the process of transferring mortgages by avoiding the need to re-record liens -- and pay county recorder filing fees -- each time a loan is assigned. Instead, servicer's record loans only once and MERS' electronic system monitors transfers and facilitates the trading of notes...MersCorp was created in the early 1990's by the former C.E.O.'s of Fannie Mae, Freddie Mac, Indy Mac, Countrywide, Stewart Title Insurance and the American Land Title Association... MERS, as has clearly been proven in many civil cases, does not hold any promissory notes of any kind. A party must have possession of a promissory note in order to have standing to enforce and/or otherwise collect a debt that is owed to another party. Given this clear-cut legal definition, MERS does not have legal standing to enforce or collect on the over 60 million mortgages it controls and no member of MERS has any standing in an American civil court. MERS has been taken to civil courts across the country and charged with a lack of standing in reposession issues. When the mortgage debacle initially, and inevitably, began, MERS always routinely brought actions against defaulting mortgage holders purporting to represent the owners of the defaulted mortgages but once the courts discovered that MERS was only a front organization that did not hold any deed nor was aware of who or what agencies might hold a deed, they have routinely been denied in their attempts to force foreclosure. In the past, persons alleging they were officials of MERS in foreclosure motions, purported to be the holders of the mortgage, when, in fact, they not only were not the holder of the mortgage but, under a court order, could not produce the identity of the actual holder. These so-called MERS officers have usually been just employees of entities who are servicing the loan for the actual lender. MERS, it is now widely acknowledged by the courts, has no legal right to foreclose or otherwise collect debt which are evidenced by promissory notes held by someone else...

MERS 101.

Fri 2010-10-08 21:45 EDT

NO. THERE'S NO LIFE AT MERS

Damian ``DinSFLA'' Figueroa

...MERS was founded by the mortgage industry. MERS tracks ``changes'' in the ownership of the beneficial and servicing interests of mortgage loans as they are bought and sold among MERS members or others. Simultaneously, MERS acts as the ``mortgagee'' of record in a ``nominee'' capacity (a form of agency) for the beneficial owners of these loans...More than 60 percent of all newly-originated mortgages are registered in MERS. Its mission is to register every mortgage loan in the United States on the MERS System. Since 1997, more than 65 million home mortgages have been assigned a Mortgage Identification Number (MIN) and have been registered on the MERS System...Since MERS is a privately owned data system and not public, all mortgages and assignments must be recorded in order to perfect a lien. Since they failed to record assignments when these loans often traded ownership several times before any assignment was created, the legal issue is apparent. MERS may have destroyed the public land records by breaking the chain of title to millions of homes...

Life; MER; s.

Fri 2010-10-08 21:11 EDT

4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet >> naked capitalism

Yves Smith

...document fabrication is widespread in foreclosures. The reason is that the note, which is the borrower IOU, is the critical instrument to establishing the right to foreclose in 45 states (in those states, the mortgage, which is the lien on the property, is a mere ``accessory'' to the note). The pooling and servicing agreement, which governs the creation of mortgage backed securities, called for the note to be endorsed (wet ink signatures) through the full chain of title...Evidence is mounting that for cost reasons, starting in the 2004-2005 time frame, originators like Countrywide simply quit conveying the note. We are told this practice was widespread, probably endemic. The notes are apparently are still in originator warehouses. That means the trust does not have them (the legalese is it is not the real party of interest), therefore it is not in a position to foreclose on behalf of the RMBS investors. So various ruses have been used to finesse this rather large problem...We finally have concrete proof of how widespread document fabrication was...This revelation touches every major servicer and RMBS trustee in the US...The story that banks have been trying to sell has been that document problems like improper affidavits are mere technicalities. We've said from the get go that they were the tip of the iceberg of widespread document forgeries and fraud...

4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet; naked capitalism.

naked capitalism Thu 2010-09-30 08:22 EDT

Why Backstopping Repo is a Bad Idea

The normally sound Gillian Tett of the Financial Times endorses an idea that is both dangerous and unnecessary, namely, government backstopping of the system of short-term collateralized lending called repo, for ``sale with agreement to repurchase.''...But the real problem is that the only securities that were once considered to be suitable were those of the very highest quality, namely Treasuries. The real problem is in widening the market beyond that. If you have absolutely impeccable collateral, you don't care if your counterparty goes belly up if you aren't at risk of losses on the assets you hold...the real problem is the use of low quality collateral...why would we possibly WANT a system that might down the road encourage the pledging of less than stellar instruments as repo?...we need to go back and look hard at why the need for repo has risen since 2001, and how much is related to legitimate activity. The fact that it grew much more rapidly than the economy overall suggests not...official efforts should proceed...to shrink the repo market (as we've recommended for a market that has contributed to the growth of repo, credit default swaps)...our efforts NOT to restrain banks leads to a tremendous tax on all of us...a banking industry that creates global crises is negative value added from a societal standpoint. It is purely extractive...

Backstopping Repo; Bad Ideas; naked capitalism.

billy blog Wed 2010-09-29 10:15 EDT

Budget deficits do not cause higher interest rates

Bill Mitchell

...An often-cited paper outlining the ways in which budget deficits allegedly push up interest rates is -- Government Debt -- by Elmendorf and Mankiw (1998 -- subsequently published in a book in 1999). This paper was somewhat influential in perpetuating the mainstream myths about government debt and interest rates...Their depiction of...Ricardian equivalence...alleges that: ``the choice between debt and tax finance of government expenditure is irrelevant...[because]...a budget deficit today...[requires]...higher taxes in the future...'' ...I have dealt with this view extensively...Ignoring the fact that the description of a government raising taxes to pay back a deficit is nonsensical when applied to a fiat currency issuing government, the Ricardian Equivalence models rest [on] several key and extreme assumptions about behaviour and knowledge. Should any of these assumptions fail to hold (at any point in time), then the predictions of the models are meaningless. The other point is that the models have failed badly to predict or explain key policy changes in the past. That is no surprise given the assumptions they make about human behaviour. There are no Ricardian economies. It was always an intellectual ploy without any credibility to bolster the anti-government case that was being fought then (late 1970s, early 1980s) just as hard as it is being fought now...So where do the mainstream economists go wrong? At the heart of this conception is the [pre-Keynesian] theory of loanable funds...where perfectly flexible prices delivered self-adjusting, market-clearing aggregate markets at all times...Mankiw claims that this ``market works much like other markets in the economy''...[assuming] that savings are finite and the government spending is financially constrained which means it has to seek ``funding'' in order to progress their fiscal plans. The result competition for the ``finite'' saving pool drives interest rates up and damages private spending. This is what is taught under the heading ``financial crowding out''...Virtually none of the assumptions that underpin the key mainstream models relating to the conduct of government and the monetary system hold in the real world...When confronted with increasing empirical failures, the mainstream economists introduce these ad hoc amendments to the specifications to make them more realistic...The Australian Treasury Paper [used advanced econometric analysis to find that] domestic budget deficits do not drive up interest rates. The long-run effect...is virtually zero. The short-run effect is zero!...toss out your Mankiw textbooks...

Billy Blog; budgets deficit; caused higher Interest rate.

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.

Mish's Global Economic Trend Analysis Fri 2010-09-24 15:05 EDT

Elizabeth Warren Tossed a Bone and Appointed Geithner's Lapdog

Michael Shedlock

Under guise of being handed an important role, Elizabeth Warren was shoved aside and tossed a bone by President Obama. One might not know it from the New York Times headline Warren to Unofficially Lead Consumer Agency...Unfortunately, no matter how much Obama tries to spin it, this has nothing to do with a "potentially contentious confirmation" but rather everything to do with Geithner winning the battle to marginalize her...

Appointed Geithner's Lapdog; bones; Elizabeth Warren Tossed; Mish's Global Economic Trend Analysis.

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.

The Economic Populist Mon 2010-09-20 19:16 EDT

"There Is No Economic Justification for Deficit Reduction" Galbraith to Deficit Commission

James K. Galbraith

...Your proceedings are clouded by illegitimacy. In this respect, there are four major issues. First, most of your meetings are secret, apart from two open sessions before this one, which were plainly for show. There is no justification for secret meetings on deficit reduction... Second, there is a question of leadership. A bipartisan commission should approach its task in a judicious, open-minded and dispassionate way...Senator Simpson has plainly shown that he lacks the temperament to do a fair and impartial job on this commission...Third, most members of the Commission are political leaders, not economists. With all respect for Alice Rivlin, with just one economist on board you are denied access to the professional arguments surrounding this highly controversial issue...Conflicts of interest constitute the fourth major problem. The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions...You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO's unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It's a lose-lose proposition, with no gainers except a few predatory funds, insurance companies, and such who would profit, for some time, from a chaotic private marketplace...

deficit Commission; deficit reduction; economic justification; economic populist; Galbraith.

Rajiv Sethi Mon 2010-09-20 10:04 EDT

An Extreme Version of a Routine Event

Rajiv

The flash crash of May 6 has generally been viewed as a pathological event, unprecedented in history and unlikely to be repeated in the foreseeable future...far from being a pathological event, the flash crash was simply a very extreme version of a relatively routine occurrence...the flash crash can provide us with insights into the more general dynamics of prices in speculative asset markets...The crash revealed with incredible clarity how (as James Tobin observed a long time ago) markets can satisfy information arbitrage efficiency while failing to satisfy fundamental valuation efficiency...Aside from scale and speed, one major difference between the flash crash and its more routine predecessors was the unprecedented cancellation of trades...this was a mistake: losses from trading provide the only mechanism that currently keeps the proliferation of destabilizing strategies in check...

extreme version; Rajiv Sethi; routine event.

PRAGMATIC CAPITALISM Mon 2010-09-20 09:57 EDT

WHITHER CHINA?

Simon Hunt

In all likelihood, China has entered the most critical and taxing period since the country was reopened to the outside world in the 1970s. Domestically, there are a slew of issues, any one of which could create instability...Few can know the full story of what goes on within the State Council, but there appears to be a battle royal being fought over the real estate sector. There are those within the leadership who are concerned that average home prices have gotten too high for most first-time buyers (see our previous visit report). They want to see average prices fall by 10-20% across the country. Against this group are not just real estate developers but local governments and many others within Beijing...In effect, what is being seen is a battle between central and local governments. In our view, this is a fight that central government cannot afford to lose...against a background of cheap money and plenty of credit, house prices across the country have become unaffordable to most first-time buyers...if these price developments continued unchecked the leadership would risk encountering social instability...we doubt there will be any easing of policy until average house prices fall into the 10-20% range. China is transiting into a very difficult period as focus shifts towards sustainable domestic growth and away from short-term measures to defend the 8% GDP mantra. This transition is occurring when the existing leadership is preparing to give way to the new set in 2012, when social stability could be threatened if there are policy mistakes...

China; PRAGMATIC CAPITALISM.

billy blog Mon 2010-09-20 09:39 EDT

The consolidated government -- treasury and central bank

...The notion of a consolidated government sector is a basic Modern Monetary Theory starting point and allows us to demonstrate the essential relationship between the government and non-government sectors whereby net financial assets enter and exit the economy without complicating the analysis unduly. This simplicity leads to many insights all of which remain valid as operational options when we add more detail to the model...the mainstream macroeconomics obsession with central bank independence is nothing more than an ideological attack on the capacity of government to produce full employment which also undermines our democratic rights...The vertical transactions which add to or drain the monetary base that I have outlined here are transactions between the government and the non-government sector... These transactions are thus unique -- they change net financial assets in the economy. All the transactions between private sector entities have no effect on the net financial assets in the economy at any point in time...

Billy Blog; central bank; consolidated government; Treasury.

Fri 2010-09-17 19:54 EDT

Obama's Thatcherite Gift to the Banks

Michael Hudson

I can smell the newest giveaway looming a mile off. The Wall Street bailout, health-insurance giveaway and support of real estate prices rather than mortgage-debt write-downs were bad enough, not to mention the Oil War's Afghan extension. But now comes a topper: the $50 billion transportation infrastructure plan that Obama proposed in Milwaukee -- cynically enough, on Labor Day. It looks like the Thatcherite Public-Private Partnership, Britain's notorious giveaway to the City of London underwriters. The financial giveaway had the effect of increasing prices for basic infrastructure services by building in heavy financial fees -- guaranteed for the banks, who lent the money that banks and property owners used to pay in taxes in more progressive times...This threatens to be the kind of tollbooth program that the World Bank and IMF have been foisting on hapless Third World populations for the past half-century. The ``infrastructure bank,'' reports The New York Times, ``would be run by the government but would pool tax dollars with private investment.'' It would be a test balloon for financing ``a broader range of projects, including water and clean-energy projects,'' for which Democrats already are drawing up a blueprint...

bank; Obama's Thatcherite Gift.

Fri 2010-09-17 19:26 EDT

Memo to Obama: time to break the refinance strike by the big banks

Christopher Whalen

...The Obama Administration and the Fed have taken the position that the crisis affecting the U.S. economy and the financial sector is slowly ending. In fact, the largest banks remain profoundly troubled by bad assets on their books as well as claims against these same banks for assets sold to investors. By allowing banks to ``muddle along'' and heal these wounds using low interest rates provided by the Fed, the Obama Administration is embracing a policy of deflation that has horrible consequences for U.S. workers and households...the Obama Administration has been providing political cover for the Fed to conduct a massive, reverse Robin Hood scheme, moving trillions of dollars in resources from savers and consumers to the big banks and their share and bond holders...the Obama Administration should use the power provided in the Dodd-Frank legislation to force an accelerated cleanup of bad assets and to mandate refinancing and principal reductions for performing loans with viable borrowers...President Obama also needs to focus on the growing competitive problem in the U.S. mortgage sector...now dominated by a cozy oligopoly of Too Big To Fail banks (TBTF)...Why is there no antitrust investigation of the top banks by the Department of Justice?...

big banks; break; memo; Obama; refinance strike; Time.

naked capitalism Fri 2010-09-17 09:55 EDT

Having Hollowed Out IT in the US, Indian Outsourcers Complain Re Difficulty of Finding US Staff

Lordie, if this isn't disingenuous, I don't know what is. From the Financial Times: US universities are producing too few engineers to meet industry demand, Indian outsourcing companies say, leaving such businesses little choice but to hire foreign skilled workers to fill jobs in America...[copious valuable commentary: US software industry; technology careers]

find; hollow; Indian Outsourcers Complain Re Difficulty; naked capitalism; staff.

Dr. Housing Bubble Blog Thu 2010-09-16 16:36 EDT

Collapse in Southern California home sales a sign that prices will fall in 2011? The 2005 and 2006 collapse in sales led to prices tanking in 2007. Home prices still inflated after years of bank and government intervention.

drhousingbubble

Southern California home sales have collapsed for July and August. These are typically strong sales months. The summer is usually a solid time for sales but the introduction of government intervention, banks stalling, and toxic mortgages lingering on bank balance sheets have thrown a wrench into the typical home sales patterns. This August was the weakest month on record since August 2007, right when the California housing market was first entering the major price correction phase of the bursting bubble...

2005; 2006 collapse; 2007; 2011; bank; Collapse; Dr. Housing Bubble Blog; Fall; Government intervention; home prices; Inflation; Price; prices tank; sales led; signed; Southern California home sales; years.

The Baseline Scenario Wed 2010-09-08 10:36 EDT

Irish Worries For The Global Economy

Peter Boone and Simon Johnson

...Ireland's difficulties arose because of a massive property boom financed by cheap credit from Irish banks. Ireland's three main banks built up loans and investments by 2008 that were three times the size of the national economy; these big banks (relative to the economy) pushed the frontier in terms of reckless lending. The banks got the upside, and then came the global crash...Today roughly one-third of the loans on the balance sheets of major banks are nonperforming...The government responded to this with what are currently regarded as ``standard'' policies in Europe and America. It guaranteed all the liabilities of banks and began injecting government funds to keep these financial institutions afloat. It bought the most worthless assets from banks, paying them government bonds in return. Ministers have promised to recapitalize banks that need more capital. Despite or perhaps because of this therapy, financial markets are beginning to see Ireland as Europe's next Greece...Until very recently, Ireland was seen as Europe's poster child of prudent reforms...The ultimate result of Ireland's bank bailout exercise is obvious: one way or another, the government will have converted the liabilities of private banks into debts of the sovereign (that is, Irish taxpayers), yet the nation probably cannot afford these debts...The idea that Ireland, Greece or Portugal can cut spending and grow out of overvalued exchange rates with still large budget deficits, while servicing all their debts and building more debt, is proving -- not surprisingly -- wrong...

Baseline Scenario; global economy; Irish worries.

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.

Fabius Maximus Wed 2010-08-25 09:31 EDT

The face of America's decline

Fabius Maximus

...Mark Hurd, until recently CEO of HP. See the face of America's economic decline...from ``The Real Reason for Ousting H.P.'s Chief``, Joe Nocera, New York Times: [according to] Charles House, a former longtime H.P. engineer: The way H.P. made its numbers...was not just cutting any old costs, but by ``chopping R.&D.,'' which had always been sacred at H.P. The research and development budget used to be 9% of revenue, Mr. House told me; now it was closer to 2%. ``In the personal computer group, it is 0.7%''...Here we see America's formula for decline... 1. Fantastic pay for leaders 2. Stagnant pay for employees 3. Cutting jobs (efficiencies, forcing harder work, moving off-shore) 4. Slash investments in the future (capex, training, R&D)...

America s decline; Fabius Maximus; Faces.

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.

Minyanville Sat 2010-08-21 10:33 EDT

How Pimco Is Holding American Homeowners Hostage

David Stockman

...According to Bill Gross ...the American economy can be saved only through ``full nationalization'' of the mortgage finance system and a massive ``jubilee'' of debt forgiveness for millions of underwater homeowners...As overlord of the fixed-income finance market [Pacific Investment Management Co. (Pimco)] generates billions annually in effort-free profits from its trove of essentially riskless US Treasury securities and federally guaranteed housing paper. Now Pimco wants to swell Uncle Sam's supply of this no-brainer paper even further -- adding upward of $2 trillion per year of what would be ``government-issue'' mortgages...This final transformation of American taxpayers into indentured servants of HIDC (the Housing Investment & Debt Complex) has been underway for a long time, and is now unstoppable because all principled political opposition to Pimco-style crony capitalism has been extinguished...At the heart of the matter is the statist Big Lie trumpeting the alleged public welfare benefits of the home-ownership society and subsidized real estate finance...the congregates of the HIDC lobby -- homebuilders, mortgage bankers, real estate brokers, Wall Street securitizers, property appraisers and lawyers, landscapers and land speculators, home improvement retailers and the rest -- have gotten their fill at the Federal trough. But the most senseless gift -- the extra-fat risk-free spread on Freddie and Fannie paper -- went to the great enablers of the mortgage debt boom, that is, the mega-funds like Pimco...there isn't a shred of evidence that all of this largese serves any legitimate public purpose whatsoever, and plenty of evidence that the HIDC boom has been deeply destructive...there are upward of 15-20 million American households that can't afford their current mortgages or will be strongly disinclined to service them once housing prices take their next -- and unpreventable -- leg down. But Pimco's gold-coast socialism is exactly the wrong answer. Rather than having their mortgages modified or forgiven, these households should be foreclosed upon, and the sooner the better...

Holding American Homeowners Hostage; Minyanville; PIMCO.

billy blog Thu 2010-08-19 16:25 EDT

There is no credit risk for a sovereign government

Bill Mitchell

...UC Berkeley economist Brad DeLong...likes to think of himself alongside Krugman as part of the ``Keynesian'' army against all the neo-liberals. Both are in fact New Keynesians. In that sense, they are not very dissimilar to Mankiw and his gang. Interestingly, they appear to be continually trying to one-up Mankiw as part of some internecine struggle within the American economics academy. But from a Modern Monetary Theory (MMT) perspective, it is hard to tell their various narratives apart...a sovereign government is never revenue constrained because it is the monopoly issuer of the currency. That is a basic starting point in exploring the differences between spending and taxation decisions of a sovereign government and the spending and income-earning decisions/possibilities of the private sector entities (households and firms). The two domains -- government and non-government -- are very different in this respect and any attempt to conflate them as if both are subject to budget constraints is wrong and starts the slippery slide down into the total mispresentation of how the macroeconomics system operates...When a government runs a surplus it is not ``saving'' anything. The surpluses go nowhere! They are just flows that are accounted for and the aggregate demand which is drained by the surpluses is lost in that period forever...DeLong is actually teaching some bastardised course in Political Science here and only allowing the conservative side of the debate to be aired...HSBC economist Steven Major ...[writes in the Financial Times (FT)]...so contrary to what is being peddled each day in the financial press that a medal for bravery should be awarded...

Billy Blog; credit Risk; sovereign Government.

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.

Mon 2010-08-16 12:51 EDT

Nathan Lewis: Where's The Gold?

Nathan Lewis

...there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.

gold; Nathan Lewis; s.

Sat 2010-08-07 19:40 EDT

The biggest lie about U.S. companies

Brett Arends' ROI - MarketWatch

You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy...It's a crock...their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression...gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record...net leverage is nearly 50% of corporate net worth, a modern record...

biggest lie; U.S. companies.

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.

Tue 2010-08-03 17:01 EDT

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer

Dean Baker, published May 2006

...economist Dean Baker debunks the myth that conservatives favor the market over government intervention. In fact, conservatives rely on a range of ``nanny state'' policies that ensure the rich get richer while leaving most Americans worse off. It's time for the rules to change. Sound economic policy should harness the market in ways that produce desirable social outcomes -- decent wages, good jobs and affordable health care...

Conservative Nanny State; government; richer; stay rich; wealthy used.

Tue 2010-08-03 15:02 EDT

Economics of Contempt: Anatomy of Lehman's Failure, and the Importance of Liquidity Requirements

Remember the Lehman Examiner's Report? The 4000+ page report by the court-appointed examiner was lauded for a couple of weeks after it was released, and then largely forgotten. The media and blogosphere quickly moved on to the next outrage-du-jour...Well, I did not forget about it, and thanks to the uptick in flights -- and thus reading time -- in the last few months, I can now credibly claim to have read....well, not every single word in the Examiner's Report (some appendices are just pages of CUSIPs), but all of the substantive sections...Anton Valukas and the lawyers at Jenner & Block who wrote the Examiner's Report did a masterful job. I was, and continue to be, in awe of the quality and comprehensiveness of the report...think I have a pretty good handle on what went wrong at Lehman, and why it failed...they were misrepresenting their liquidity pool. In a huge way...the brazenness of their misrepresentation was shocking...Including the clearing-bank collateral in its liquidity pool was not only inappropriate, but also aggressively deceptive...Lehman was also including in its liquidity pool non-central bank eligible CLOs and CDOs. And they had the audacity to mark these CLOs and CDOs at 100 (par) for purposes of the liquidity pool, even though JPMorgan's third-party pricing vendor marked them at 50--60...

Anatomy; contempt; economic; important; Lehman's failure; liquidity requirements.