itsworsethanyouthinkitis

International ("external") events are sooooo reassuring....

2009-05-11T17:41:00.003-04:00

Fun to think how wonderfully stabilized things are now that the S&P 500 has surpassed 900!

U.S. Replaces Commander in Afghanistan in War Overhaul
By ELISABETH BUMILLER 3:49 PM ET
The replacement of Gen. David McKiernan less than a year after he took over marks a major change in military leadership in a worsening war
A struggle to survive in Pakistan
Running out of ideas
Dirty Wars: A Primer
Unresolved Kashmir dispute is breeding terrorism in region
Pakistan on the brink
A Nuclear Power Is About to Fall to Islamists

Think the markets have priced this in??

But, in the meantime, for some real fun, here's this:

Girls Don't Like George Soros Like They Do Roubini

Morons at CNBC, giggling

2009-05-11T17:32:00.002-04:00

As per usual, of course.

But this time they're mocking Roubini in every which way, which is so beyond shameless as to be shameful. But CNBC cannot admit to shame. Not in the genes. Not on Wall St, nor on CNBC, Wall St's megaphone (thank you GE)

To wit: there's a brand-new supposedly funny but actually pathetic little bit they run mocking Roubini's bearish - and absolutely correct - calls over the past 3 years

If you can't beat them, mock them, in jockish lockeroom fashion. Melissa Lee bending over for the soap.....

Indeed

2009-05-09T15:44:00.002-04:00

Shift From Spending to Saving May Be Slump’s Lasting Impact

Quick thoughts on recent events

2009-05-05T19:04:00.002-04:00

The bondholder revolt at Chrysler is as phony as phony can be, and the 'threats' supposedly issued by the Obama team never happened. What's happening here is vulture capitalists getting pissed off that their large bets on America's failure are not gonna pay out
The upcoming GM bankruptcy will be very ugly and very prolonged, and will be a huge drag on the 'recovery'.
The global stock market rally is fools gold, short term profits nothwithstanding. All it means (if it's real) is that US debt will be ever less attractive to investors, at precisely the moment when the US must raise like $3Trillion in the bond market.
Consumers will not/cannot spend like they have in the past 30 years. Thus, presumptions of robust inventory levels etc are way premature, if not totally inaccurate

Obama and American engagement

2009-05-05T18:41:00.003-04:00

An intelligent, educated, pragmatic and engaged American President who gets it? Very hard to imagine, but it is indeed real, and is indeed the most hopeful thing about the past 100 days...

Behold:

That last thing - "The Mellow Doctrine" by Roger Cohen - really nails it. Excerpt:

Call it the mellow doctrine. Neither idealistic nor classic realpolitik, it involves finding strength through unconventional means: acknowledgment of the limits of American power; frankness about U.S. failings; careful listening; fear reduction; adroit deployment of the wide appeal of brand Barack Hussein Obama; and jujitsu engagement.

Already the mellow doctrine has brought some remarkable shifts, even if more time is needed to see its results.

The Castro brothers in Cuba are squabbling over the meaning of Obama’s overtures. Venezuela’s Hugo Chávez has gone gooey-eyed over the Yanqui president. Turkey relented on a major NATO dispute, persuaded of the importance of Obama’s conciliatory message to Muslims.

From Damascus to Tehran, new debate rages over possible rapprochement with Washington. In Israel, I understand Prime Minister Benjamin Netanyahu is about to drag his Likud party kicking and screaming to acceptance of the idea of a two-state solution because he knows the cost of an early confrontation with Obama.

Not bad for 105 days.

Indeed

1990's Japan? Mark Thoma muses

2009-05-05T17:14:00.004-04:00

If the Geithner toxic-asset-removal plan doesn't work as intended -- and there's no guarantee that private-sector participants will step forward in sufficient numbers -- or if the stress tests were not strict enough, missed essential risks, etc., and some of the banks are in much worse shape than we thought, will policymakers be willing to change course? Or will they continue to avoid the more costly but arguably more effective solution of nationalization, cite the stress tests as evidence that banks are relatively healthy and continue to string banks along through a series of capital injections in the hopes that the PPIP will eventually work?

It's been convenient for all involved to say that the legal authority for putting these banks through bankruptcy (nationalization) does not exist, so we have little choice but to stick with the PPIP and hope it eventually works, but Congress could change the law quickly to grant the necessary authority if it really wanted to. But it prefers to avoid the more costly, yet more certain, step and invest in hope instead.

Policymakers have a lot of time and effort and their own reputations wrapped up in the PPIP program, and they do not want to pursue costly solutions given the state of the federal budget. So they will not abandon the current course easily, something that today's testimony made clear.

For that reason, I hope I am wrong about the stress tests and they really do tell us about the health of banks instead of mainly providing political cover, and that the PPIP works better than we could have hoped. Because if it doesn't, we won't save a thing by following in Japan's footsteps and sticking with programs that only prolong the inevitable.

-- Mark Thoma is an economist at the University of Oregon and blogs daily at Economist's View.

Brad DeLong is properly skeptical

2009-05-05T17:05:00.002-04:00

About the bank stress tests, 'results' of which have been endlessly leaked and/or trial balooned for a good week now:

Ummm... This Should Not Be Happening
Francesco Guerrera and Sarah O’Connor in the FT:

Bank objections delay stress tests: US regulators will delay the release of stress test results for the country’s 19 biggest banks until next Thursday, after some lenders, including Citigroup and Bank of America, objected to government demands that they needed to raise billions in fresh capital. Citi, one of the biggest victims of the crisis that has already been bailed out three times by the government, is believed to have been told by regulators that it needs more than $5bn in fresh capital, while BofA might need to convert $45bn in government preferred shares into common equity...

The banks should not be negotiating with the government over this.
There comes a point when the right thing to do will be to set up a Maggie Sue--a manufacturing, transportation, services, and other business loan-guarantee authority owned by the government, a financial GSE alongside Fannie, Freddie, and Ginnie--to guarantee "conforming" loans to operating companies, and let the major banks wither.

Remember: the purpose of a financial system is to make new loans so that operating firms can obtain financing on reasonable terms. We don't care what happens to the value of old loans or to current-bank stakeholders as long as companies going forward can get new loans.

Back from vacation - Pakistan, maps, colonialism

2009-05-05T16:37:00.004-04:00

Hi

Was away from electronics for a bit. Just got back. Much to post about. But let's start with this perfect little gem:

Pakistan’s British-Drawn Borders

Ends with W H Auden's famous poem 'Partition":

Unbiased at least he was when he arrived on his mission,
Having never set eyes on the land he was called to partition
Between two peoples fanatically at odds,
With their different diets and incompatible gods.

“Time,” they had briefed him in London, “is short. It’s too late
For mutual reconciliation or rational debate:
The only solution now lies in separation.
The Viceroy thinks, as you will see from his letter,
That the less you are seen in his company the better,
So we’ve arranged to provide you with other accommodation.

We can give you four judges, two Moslem and two Hindu,
To consult with, but the final decision must rest with you.”
Shut up in a lonely mansion, with police night and day
Patrolling the gardens to keep the assassins away,
He got down to work, to the task of settling the fate
Of millions. The maps at his disposal were out of date

And the Census Returns almost certainly incorrect,
But there was no time to check them, no time to inspect
Contested areas. The weather was frightfully hot,
And a bout of dysentery kept him constantly on the trot,
But in seven weeks it was done, the frontiers decided,
A continent for better or worse divided.

The next day he sailed for England, where he could quickly forget
The case, as a good lawyer must.
Return he would not,
Afraid, as he told his Club, that he might get shot.

Quick thought watching Obama's press conference...

2009-04-29T20:52:00.005-04:00

He makes lawyers, and a legal education, amazingly attractive and very much welcome: articulate, informed, detailed, thoughtful, even literate.

Compared to the endless empty BS that an "MBA" (hahahaha) like Bush supposedly is/was, this is amazingly refreshing.

Obama actually knows stuff, and that knowledge is useful! Holy Moly!

Specifically, he illustrates how an actual field of knowledge (law) trumps a fake one (marketing)

Not to mention unlocking real estate values.....

2009-04-28T17:16:00.001-04:00

More Atheists Shout It From the Rooftops

Bless them

Specter going Democrat

2009-04-28T14:06:00.004-04:00

No surprise, of course. The man is intelligent, after all.

Thus, here's what's left of 'Republican' opposition to Obama:

Supply-siders like Kudlow
Demagogues like Limbaugh
Nut jobs like Beck
Phonies like Giuliani
Frauds like Romney
Gun lovers like Brownback
Creationists like Huckabee
Racists like Hunter
Paranoids like Paul
Paranoid ignorami like Hannity
Paranoid demagogue racist gun lover nut job ignorami supply-side secessionist phony creationist frauds like Perry (leading contender in 2012)

Makes Larry Kudlow atractive.....

Let's call them Kudlows!

2009-04-28T13:53:00.005-04:00

A Tiny Hominid With No Place on the Family Tree

The extinct people nicknamed hobbits remain mystifying anomalies in human evolution, out of place in time and geography, their ancestry unknown.

......They walked upright on short legs, but might have had a peculiar gait obviating long-distance running. The single skull that has been found is no bigger than a grapefruit, suggesting a brain less than one-third the size of a human’s

Most excellent Obama map, etc....

2009-04-28T11:56:00.002-04:00

Check this out: http://my.barackobama.com/page/content/foundationforchange

Very hard to imagine that I actually live in a country with a competent Chief Executive. Takes some getting used to.....

Hysterical post from Cassandra Does Tokyo

2009-04-28T11:35:00.002-04:00

Tempting Offer?!?

Begins thusly:

I am not scatalogically-preoccupied. But on Page 53 of this week's Economist magazine - the European edition at least - is an advertisement for Bocconi SDA's Master's in Fine Food and Beverage with a picture of what appears, at first-sight to be a large Parisian sidewalk pile of excrement with the caption "Come and see how tasty a Masters in Management could be." Ummmm, thanks, but no.

And the wrap is great:

Lest you think me unfair to said Masters (for the would-be's of this Bocconi course are arguably harmless), I will happily point out that I do not single them out, for the pavements are veritably littered with piles of crap, from the legislative capitals where lawmakers have whored themselves like street-harlots, while even those that didn't were too timid, ignorant, or fearful of electoral backlash to interrogate the foundations and wisdom of unlimited credit sans regulation or prudential tether, to suburbia and the American heartlands desperation to believe in tooth-faeiries, Santa Claus, Goldilocks, and pixie-dust as panaceas for unsustainable consumption over production, and at the collective level, unsustainable fiscal expenditure relative revenue.

The G-175

2009-04-28T11:19:00.003-04:00

G-175 Nations Convene To Discuss How Things Can't Possibly Be Any Worse

The dignitaries, who traveled from all across the world, arrived early Thursday morning to tackle a week's worth of possible resolutions. Items on the schedule included a motion to sit in hopeless resignation as the terrifying spread of hepatitis claimed the lives of millions, as well as a multilateral treaty, signed by all present, to shake their heads in defeat and disgust at rising poverty rates.
Three hours of official cursing at G-20 nations and their inherent wealth and greed followed.
"Our people are starving," said Tanzanian minister of agriculture Steven M. Wasira, contributing to a heated debate over whether all nations involved were completely screwed or absolutely fucked. "We cannot grow anything in the north because of the drought, and flooding in the south has stopped us from harvesting what little food we do have. I come here today to ask that you please help the poor citizens of my—"
Wasira's plea ended abruptly when the Days Inn ballroom the summit was using had to be cleared for a 5 p.m wedding reception.

Effing bulls***!!!

2009-04-28T10:53:00.001-04:00

Supreme Court OKs regulation of language on TV

Ferguson: "The Axis of Upheaval"

2009-04-28T10:34:00.002-04:00

In case you missed it, here's Niall Ferguson recently in Foreign Policy: The Axis of Upheaval

He's writing about the new, uncertain world of failed/failing nation states and the scary possibilities these states represent. He summarizes things thusly;

Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.

Ferguson's 'axis of upheaval' is, of course, a play on Bush's 'axis of evil'. And what's scarier about this axis is that 1. it's larger and 2. it's growing. As Ferguson puts it:

The bad news for Bush’s successor, Barack Obama, is that he now faces a much larger and potentially more troubling axis—an axis of upheaval. This axis has at least nine members, and quite possibly more. What unites them is not so much their wicked intentions as their instability, which the global financial crisis only makes worse every day. Unfortunately, that same crisis is making it far from easy for the United States to respond to this new “grave and growing danger.”

Those nine members?

Russia
Mexico
Iran
Pakistan
Somalia
Sudan
Afghanistan
Iraq
Israel/Gaza/Lebanon

Other candidates for this growing axis include: Indonesia, Thailand, Turkey, Egypt, Congo, Zimbabwe.....

Fun

Steve Waldman: Banks - we need a 'root and branch' fix....

2009-04-28T09:25:00.003-04:00

Value for value, Steve Waldman

Excerpts:

If you think that our financial system just needs some tweaks, some consolidation of regulators' organizational charts and sterner supervision, then you should prefer that we had just cut a check, passed Sarbanes/Oxley Book II, and moved on. But that is not what I, or most proponents of nationalization/temporary receivership for insolvent banks, believe.

I ... would be willing to hold my nose and tolerate a Swedish-style guarantee of bank creditors. I'd acquiesce to that even without formal nationalization. Nationalization is ... a means to an end, and the desired end is a world in which too big to fail is too big to exist for any financial institution that originates or holds credit risk in any form. Secretary Geithner could send a bill to Congress today that would put all banks with a balance sheet of over $50B into run-off mode... I'd fax my Congressman and support a $2T on-budget buyout of bank creditors as part of that bill, as long as it had teeth. ("Teeth" would imply making sure that off-balance-sheet and derivative exposures were included in the size cap, etc.)
It's not that us pitchfork-totin' populists are unwilling to pay the bill. It's that we want to know that in exchange for writing a very, very large check, the people that we are paying will actually deliver the goods. Given the behavior of bankers before the crisis and of shifty policymakers during, we have every reason to watch warily and to insist upon every precaution while we hand over

Shades of Simon Johnson here.....

Shades of last year, yet again.....

2009-04-28T09:11:00.002-04:00

Andrew Ross Sorkin, in today's Times: Stress Tests? No Big Deal After All

....here’s the rub: If some banks can’t pass this test — which William Black, a former senior bank regulator during the S.& L. crisis, has called “a complete sham” and others have suggested is a whitewash — perhaps we have a larger problem.

Maybe this test is going to show more failures than we thought.

Any banks that actually might “fail” the test, and I put those words in quote marks for a reason, will be given six months to raise new capital on their own or accept capital from the government.

But what private investor is going to invest in any of the failing banks, knowing full well that the government may end up coming in later on and diluting the investor’s stake?

This may end feeling a little bit like a replay of the government’s intervention in Fannie Mae and Freddie Mac. You’ll recall that Henry M. Paulson Jr., the former Treasury secretary, received temporary powers from Congress to take over Fannie and Freddie. At the time, he said he didn’t plan to use those powers, just the threat of them.

Really - this is getting eerie.....

Why oh why can't Team Obama simply get it over with? Yes, it'll be costly both politically and financially, but we keep fiddling while Rome burns, and zombie banks get increasingly desperate to appear alive (remember all those Q1 earnings fantasies?...)

On second thought, this is increasingly also looking like Japan in the 1990's.

Swine flu nut jobs

2009-04-28T08:06:00.003-04:00

I had the misfortune to stumble upon this last night:

George Noory hosted a special edition of C2C with examination and analysis of the recent swine flu outbreak. Dr. Gary Ridenour suggested that this virus could further mutate and become even more dangerous. Appearing in the latter half of the show, Alex Jones and Stephen Quayle both agreed the new swine virus was not natural. It's a "genetically altered bioweapon," possibly being "beta-tested in the field" to target specific races, Quayle contended.

To call transpired last night any sort of 'examination and analysis' is laughable. Obviously. Turns out that Messrs Jones (no relation to Jim, save for psychosis) and Quayle (no relation to Dan, save for IQ) are well-known occupants of the lunatic far-right fringe, with radio shows and websites and T-shirts and guns and end-of-days raving hallucinations....Problem is that nut jobs like them are all over the place, and shows like Noory's are spreading the worst sort of epidemic - that of American ignorance and paranoia.

Expect much more of this going forward, alas.....

Fun

Surprise! Citi and BoA need more capital!

2009-04-28T07:41:00.003-04:00

Shocked, shocked: Fed Pushes Citi, BofA to Increase Capital

The most non-news news item in many years, but chalk it up in the good news category, if only because it seems to indicate some glimmer of reality leaking into proceedings. Some excerpts:

The findings suggest that government officials are using the stress tests to send a tough message to struggling banks. Bank of America and Citigroup have been the highest-profile problem children in recent months, but it is unlikely that they are the only banks the Federal Reserve has determined might need more capital.

Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital. Wells Fargo declined to comment. Representatives of Regions and Fifth Third didn't respond to requests for comment made late in the day.

Not surprisingly, the geniuses who led us into this disaster are still in denial:

Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions. The two banks are planning to respond with detailed rebuttals, these people said, with Bank of America's appeal expected by Tuesday.

And, under the bad news column, file this gem of illogic:

....banks directed to raise more capital shouldn't be viewed as insolvent.

Two more little bits from the article I found amusing:

Bank of America's capital hole as measured by the regulators is in the billions, said people close to the company, placing added pressure on management as the company prepares for a Wednesday shareholder meeting in Charlotte.
It isn't clear how big a capital deficit Citigroup faces

That last one is just perfect. Kinda like figuring out how many holes it takes to fill the Albert Hall...

A glimmer of hope?

2009-04-28T07:23:00.003-04:00

I think this week's leader in The Economist pretty much nails things: A glimmer of hope?

Selected excerpts, emphases mine:

Beginning with the subhead, after that sort-of-optimistic headline:

The worst thing for the world economy would be to assume the worst is over

..... two other slumps are likely to poison the economy for much longer. The most important is the banking crisis and the purge of debt in the bubble economies, especially America and Britain. Demand has plummeted as tighter credit and sinking asset prices have exposed consumers’ excessive borrowing and scared them into saving more. History suggests that such balance-sheet recessions are long and that the recoveries which eventually follow them are feeble.
The second slump is in the emerging world, where many economies have been hit by the sudden fall in private cross-border capital flows. Emerging economies, which imported capital worth 5% of their GDP in 2007, now face a world where cautious investors keep their money at home. According to the IMF, banks, firms and governments in the emerging world have some $1.8 trillion-worth of borrowing to roll over this year, much of that in central and eastern Europe. Even if emerging markets escape a full-blown debt crisis, investors’ confidence is unlikely to recover for years.

Here in America:

Consumer spending and firms’ investment will be dragged lower by the need to pay back debt and restore savings. This will be a long slog. Private-sector leverage, which rose by 70% of GDP between 2000 and 2008, has barely begun to unwind. At 4%, the household savings rate has jumped sharply from its low of near zero, but it is still far below its post-war average of 7%. Higher unemployment and rising bankruptcies could easily cause a vicious new downward lurch.

After reviewing the ugly situation in Japan, Germany, the UK etc, the summary begins:

....Add all this up and the case for optimism fades quickly. The worst is over only in the narrowest sense that the pace of global decline has peaked. Thanks to massive—and unsustainable—fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.

......Welcome to an era of diminished expectations and continuing dangers; a world where policymakers must steer between the imminent threat of deflation while countering investors’ (reasonable) fears that swelling public debts and massive monetary easing could eventually lead to high inflation; an uncharted world where government borrowing reaches a scale not seen since the second world war, when capital controls ensured that savings stayed at home.

I much agree - especially the bit about a world of diminished expectations, led by a shrinking US consumer sector, and an era of great uncertainty

Not fair to the smaller banks?

2009-04-27T10:22:00.002-04:00

It's increasingly looking like the stress tests will harm Regions Financial and maybe another one or two regional banks (Fifth Third gets mentioned a lot) while letting Citi and BoA (most notably) off the hook:

See this: Stress Tests May Force Banks to Convert TARP Stock

April 27 (Bloomberg) -- U.S. banks that received results of their federal stress tests last week were given three options if they need additional capital to withstand the recession. The reality is they may only have one.
Getting federal aid or selling shares -- two of the choices offered to the 19 lenders being tested -- aren’t practical politically or financially, according to analysts, including Jeff Davis, the research director at Howe Barnes Hoefer & Arnett Inc. in Chicago. Lawmakers have opposed adding more to the $700 billion that the government already committed and investors have balked at buying shares of financial firms after a two-year drop.
That leaves the third option presented by Treasury Secretary Timothy Geithner: changing the preferred stock held by the U.S. Troubled Asset Relief Program into common shares. Doing so would prop up capital under accounting rules and dilute the value of shareholdings for current investors.
SunTrust Banks Inc., KeyCorp and Regions Financial Corp., pegged by Morgan Stanley last week as the “most likely” to need capital, dropped more than 70 percent in New York Stock Exchange composite trading during the past year. Shares of the three companies were indicated lower in Germany today.
“The best most can hope for is to stay as they are and not be forced to draw down still more TARP capital or convert what they’ve got into common stock,” said Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.

If indeed the regional guys take it on the chin while the big boys don't, it will make this article particularly troubling: Geithner, as Member and Overseer, Forged Ties to Finance Club

No change in the patient

2009-04-27T10:06:00.002-04:00

Good question from Macroman

2009-04-27T09:57:00.002-04:00

This is perhaps a naive question, but it's one that your author has not seen clearly elucidated elsewhere. What, exactly, is the purpose of the stress tests? It seems fairly obvious that they are not intended as a sober measure of how the banking system would fare under conditions of extreme economic stress. If they were, then the scenarios would offer a bit more choice than "Optimistic and Optimistic (Roubini version.)"
So what, then? Political cover to enable payback of the TARP and/or further injection of funds? To make everyone feel wonderful that the banking system is actually in pretty good shape? (Macro Man would normally scoff at this, but after the market action of the last few weeks, he's not so sure.) In a post-FASB, "say whatever you want" world, what possible purpose does this charade have? Macro Man is curious to hear your thoughts.

My thought is that the stress test are political cover - make it look like the Feds are doing something while they desperately try to buy time for the recovery spending to kick in. Problem is that the recovery $$$ is too little and too back-ended, the banking crisis too severe, and the stress tests not stressful (nor transparent) enough.

Anyone wonder how CNBC got leaked word that only one of the 19 banks will 'fail'? (Stress Test Shows One Weak Link Bank )

Good will losses: "Things continue to get worse"

2009-04-27T09:44:00.001-04:00

So says Feng Gu in this article: Losses in Good-Will Values Compound Bank Troubles

Some pretty amazing bits that leap out:

Banks wrote down more than $25 billion in good will in 2008, up sharply from $790 million a year earlier, according to data compiled by Frank Schiraldi of Sandler O’Neill & Partners. By the end of the year, banks still had $291 billion worth of good will on their books. An incomplete tally of write-downs from the first quarter showed that banks had taken a $3.5 billion hit to good-will values

....The value of good will represents intangible qualities like the value of a company’s brand name, its customer base and reputation. Every year, companies that list good will as a leftover asset from mergers have to test its value to see whether it has held up

In light of the ongoing and long-lasting consumer re-trenchment, does anyone really think most 'brand names, customer bases, and reputations" will retain their pre-recession values - or anything close to them? Save for a small few - Apple, WalMart, come to mind - it's gonna be hard to find a consumer brand that doesn't get hammered....(or whose good will has 'help up')

"The United States' Exorbitant Privilege"

2009-04-26T22:28:00.003-04:00

Behold, from Mr Setser:

How much “capital flow reversal” insurance should the world offer?

Excerpt:

......it is still striking that the emerging world did more to help the US avoid adjustment from say early 2006 to mid 2008 than the US, EU and Japan seem likely to do (through the IMF and World Bank as well as bilaterally) to help the emerging world avoid adjustment now, even with the recent expansion of the IMF.***

Call it part of the United States exorbitant privilege. So long as key emerging economies peg to the dollar and allow their reserves to rise when private demand for their financial assets rises, the US gets more protection from a sudden reversal in capital flows than other countries with large deficits.

But also call it part of a broad system that has resulted in a persistent uphill flow of capital — and thus part of a broad system that led the US to run larger external deficits over the past few years than really were healthy.

That broad system is unsustainable, and in my view essentially ended in August 2007.

Thus far, not too terribly much has taken place to replace it. (There's a continuing hope that all might be well post-Great Recession) Not. But replace the existing system we must. For my money, it begins here in the US with an actual solution to the banking crisis (break up Citi and BoA, break the grip of Oligarchs etc...), moves next to an awareness that US 'consumers' are no longer such (Obama very much understands this), and then on to getting serious with China/Voldemort (and other large exporters) about over-capacity and currency manipulation....

Future banker: Superb thief, good on TV, clean cut, well-spoken....

2009-04-26T21:59:00.006-04:00

Jacoby Ellsbury

PSAVERT - Over 5% in April?

2009-04-26T20:36:00.003-04:00

I'm gonna bet so. 5.1%, to be exact :)

A consumer-led 'recovery' a ways away, alas....

Stress tests

2009-04-26T19:33:00.004-04:00

This from a warning issued by The National Institutes of Health a few years ago:

"The number of Web sites offering health-related resources grows every day. Many sites provide valuable information, while others may have information that is unreliable or misleading."

Indeed.

See this from Bloomberg: Some analysts were more than a tad dismissive:

Some gems:

The report was “completely worthless,” said David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia

My problem with this is sort of like Garrison Keillor and Lake Woebegon, where all children are above average,” said Nancy Bush, an independent bank analyst at NAB Research LLC

"A lot of triple talk,” said Jim Glickenhaus, who helps manage more than $1 billion, including shares of Bank of America Corp., at Glickenhaus & Co.

“The assumptions the regulators have used here seem to imply that they’re anticipating a bottoming out of the economic downturn,” said Jeff Davis, director of research at Howe Barnes Hoefer & Arnett in Chicago.

“The question I have, by using fourth-quarter numbers, is this skewed positively?” said Lawrence Kaplan, an attorney with Paul Hastings

“The anticipation over the white paper appears to be much ado about nothing,” said Josh Rosner, an analyst at independent research firm Graham Fisher & Co. in New York.

Your tax dollars at work

2009-04-26T19:03:00.003-04:00

After Off Year, Wall Street Pay Is Bouncing Back

Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year.

Berkshares

2009-04-26T18:54:00.003-04:00

http://www.berkshares.org/

User-generated currency, a sign of things to come....

What are BerkShares?
BerkShares are a local currency for the Berkshire region. Dubbed a "great economic experiment" by the New York Times, BerkShares are a tool for community empowerment, enabling merchants and consumers to plant the seeds for an alternative economic future for their communities.

Human swine influenza

2009-04-25T18:12:00.006-04:00

WOW! He's really getting around!

Pandemic warning: Swine flu symptoms similar to human influenza

Human Cases of Swine Influenza Investigated‎

Dick Cheney: The Visible Man

Unemployed, Unapologetic and Unrestrained: It's Cheney Unbound

Bank stress tests - guesstimates

2009-04-24T11:14:00.003-04:00

Interesting article in today's Times by Eric Dash, in which the 19 banks in question are ranked in some order of health: Edgy Banks Start to Get Word Today on Stress Tests

Citing estimates by Frederick Cannon of Keefe, Bruyett & Woods, it seems "banks might need as much as an additional trillion dollars in capital"

Dash's list of banks is as follows:

Poised to withstand potential worsening of the recession:

Blackrock
Goldman Sachs
Morgan Stanley

Custodial banks with the worst behind them (taken their losses):

State Street
Bank of New York Mellon

Ditto, 'well-run commercial banks':

JPMorganChase
US Bancorp

'At the other end of the spectrum', need additional capital:

Citibank (duh)
Bank of America (duh)

Regional banks 'bracing for huge losses' (esp commercial loans):

Fifth Third
Sun Trust Banks
Regions Financial

'Uncertain category' depending upon what regulators decide:

American Express
Capital One
BB&T Bank
PNC Financial
Wells Fargo

Oligarchs hiding under desks - pictorial evidence

2009-04-23T18:24:00.004-04:00

From the hideous new Yankee Mall (oops, Stadium), where those 5000+ empty seats you see go for as much as $2400 PER GAME!!

The "Quail Hollow" Wells Fargo Wachovia championship approaches

2009-04-23T17:04:00.007-04:00

Used to be (last year) the "Wachovia Championship". But Wells Fargo balked post-takeover.

So, instead, it's the Quail Hollow blah blah blah... See this earlier post: The Quail Hollow Championship (in which I argued for Wachovia continuing it's named sponsorship, alas)

Seems even bankers can feign shame by re-naming things they own (and I'd be hiding under rocks too) and are frightened enough to remove any trace of their sponsorship of the thing, but it's unsettling when the media happily plays along: Mickelson To Play In Charlotte's Quail Hollow; Woods Yet To Decide

Check out the "Quail Hollow" website as well: http://www.quailhollowchampionship.com/
Any trace of Wachovia/Wells has been erased as vigorously as Cheney has erased his memory of torturing prisoners.

Thing is, Wachovia/Wells is still paying the tab for this puppy (oops, and taxpayers too!), but they'll go to great lengths for PR purposes to pretend otherwise....

Martin Wolf - no recovery yet

2009-04-23T13:27:00.002-04:00

And Mr Wolf has been more right than most....

Why the ‘green shoots’ of recovery could yet wither

Excerpts, emphases mine:

Is the worst behind us? In a word, No. The rate of economic decline is decelerating. But it is too soon even to be sure of a turnround, let alone of a return to rapid growth. Yet more remote is elimination of excess capacity. Most remote of all is an end to deleveraging. Complacency is perilous. These are still early days.

.....this global recession is different from any other since the second world war. Its salient characteristic is uncertainty.

Consider obvious perils: given huge excess capacity, a risk of deflation remains, with potentially dire results for overindebted borrowers; given the rising unemployment and huge losses in wealth, indebted households in low-saving countries may raise their savings rates to exceptional levels; given the collapse in demand and profits, cutbacks in investment may be exceptionally prolonged and severe; given massive and persistent fiscal deficits and soaring debt, risk aversion may lead to higher interest rates on government borrowing; and given the flight from riskier borrowers, a number of emerging economies may find themselves in a vicious downward spiral of weakening capital inflow, falling output and reductions in the quality of assets.

....The danger is that a turnround, however shallow, will convince the world things are soon going to be the way they were before. They will not be. It will merely show that collapse does not last for ever once substantial stimulus is applied. The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained, private-sector-led growth probably remains a long way in the future.

IMF: Worst since 1945

2009-04-23T12:23:00.002-04:00

Global Economy Called Worst Since 1945
By BRIAN KNOWLTON
The International Monetary Fund said in a report that recovery would take longer than expected, and predicted a 2.8 percent contraction this year for the United States.

Some of the juicier tidbits:

The I.M.F. projected a 1.3 percent decline in global economic activity for 2009, down sharply even from the modest 0.5 percent growth it had projected in January. In the United States, still the “epicenter” of the crisis, according to the fund, economic contraction would be even greater, at 2.8 percent this year, with zero growth for 2010. <>

“The recovery may actually be slower than usual, leading to a slow decrease in unemployment,” said Olivier Blanchard, director of the I.M.F.’s research department, at a news conference at the fund’s headquarters in Washington. “Our forecasts imply that unemployment will crest only at the end of 2010.”

“If there had been no fiscal stimulus across the world, world growth in 2009 would be 1.5 to 2 percent less,” he said. “We would be in the middle of something very close to a depression.” < href="http://www.nytimes.com/2009/04/23/world/europe/23britain.html?ref=world">British Plan to Raise Taxes and Debt Sets Off Political Sparring< >

Here's a notable excerpt from the UK article:

....some have warned that if the recession is longer and deeper than the Brown government is predicting, the level of debt could lead to Britain’s facing a run on the pound and the possibility of having to turn to the monetary fund for emergency loans, a contingency last resorted to by a Labor government in the 1970s.

The anti-democracy truck!

2009-04-23T12:17:00.004-04:00

Alongside bargain retailers, cheap restaurants, debt collectors and bankruptcy lawyers, a midsize factory in Siberia is promoting a product that it hopes is just the thing for hard times. Employees here call it the “anti-democracy truck,” a modified fire truck fitted with a water cannon and designed to quell riots.

'Twould seem as though the Russians have a real market for these puppies:

Economically related social unrest has already arisen throughout the lands of the former Soviet Union. Used-car dealers have taken to the streets in Vladivostok to protest tariffs. In Ukraine, where tens of thousands of steel workers are newly unemployed, protesters gathered on the central square in Kiev. Most recently, in Moldova, an angry crowd stormed the Parliament building and hurled furniture out the windows. Among the protesters were unemployed young people with little prospect of finding jobs in Moldova

Coming soon to a neighborhood near you!

Too big to behave

2009-04-23T08:06:00.003-04:00

Simon Johnson, in arguing this morning for greater, more decisive action by the Feds on the banking crisis (Irreversible Damage: Why Little Action on Banking Can Do Great Harm) makes this excellent point:

If you think the big banks are strong today, as they increasingly defy the government, how easy do you think it will be to take actions against their interests down the road?

Indeed. From credit card abuses to defying the Feds on the Chrysler bailout, big banks are acting in their own interests as always, despite nearly destroying the global economy in the past year.....Incredible.

Here's a bit more from Johnson on the need for more decisive action:

......inaction on banks has at least four adverse consequences:

Banks will misallocate capital because of the perverse incentives that come from being undercapitalized; there is less incentive to make careful decisions when you think you may be out of business next year.
The recession will be deeper because of greater uncertainty regarding the stability of our financial system. Uncertainty is highly debilitating for all long-term decision-making; it undermines investment and makes banks even less willing to lend. The I.M.F.’s World Economic Outlook (start with Chapter 1), which came out on Wednesday, puts on a brave official face, but is really not encouraging — global growth at a record minus 1.3 percent this year and only plus 1.9 percent next year (aside: reasonable growth, as measured by the I.M.F., is 4 to 5 percent per annum).
The Fiscal First strategy implies a large buildup of public debt to bail out industry and banks, and to provide a fiscal stimulus. While we “wait and see” on banking, our national debt grows, thus raising the taxes that all of us (and our children) have to pay down the road. A broader redistribution of post-tax income away from ordinary taxpayers continues.
In geopolitical terms, China is taking advantage of United States weakness to strengthen its claim on natural resources and build political ties by providing finance to weaker nations. To maintain its political position, the United States needs to be decisive in economic terms and get back to growth sooner.

Geopolitics getting ugly(er)

2009-04-22T19:38:00.003-04:00

Two things in particular:

Taliban Seize Control of Area Near Pakistani Capital
By JANE PERLEZ 1 minute ago
Taliban militants have established control in the strategically important area of Buner, only 70 miles from Islamabad, law enforcement officials said.
Iran warns Israel not to attack nuclear sites‎ - Apr 21, 2009
Israel has threatened military action, but last week President Shimon Peres dismissed the idea that the country was planning an attack on Iran's nuclear ...

Think the markets have accurately priced this stuff? Methinks not. Markets are very much insular, and very much imperfect. It will come as a SHOCK! to the markets when the geopolitical disaster created by Cheney/Bush blows up (literally and figuratively)

Free market capitalism + scorn at the rule of law + Oligarchy - adult supervision = the problem Obama inherits, and the mess Wall St hasn't a clue about...

Julian Epstein eats Don Luskin for lunch

2009-04-22T19:09:00.003-04:00

On Kudlow's hideous show, just now. Stay tuned for the video. Great stuff.

The difference between someone who knows what he's talking about and one who, ummmm, doesn't.

Epstein to Luskin: "you have no idea what you're talking about" Must see TV

Employment situation sure to weaken...

2009-04-22T18:36:00.003-04:00

This just the latest indicator:

GM Closing Plants For 9 Weeks This Summer Says AP (GM)
The Business Insider - ‎53 minutes ago‎
With the company about to default on its debt, closing the factories makes sense. The other reason for closing the factories is that nobody is purchasing ...

Other economic fundamentals - housing, banking, MEW, consumer credit, retail sales, trade, etc etc continue to worsen....

IMF - cliff diving charts

2009-04-22T16:45:00.003-04:00

Pretty spectacular stuff (click for a larger image)

American mediocrity - torture and history

2009-04-22T00:42:00.004-04:00

A stunning assessment of the ahistoric nature of the torture permitted by the US the past 7 years is here:
In Adopting Harsh Tactics, No Inquiry Into Their Past Use

This entire article is stomach-turning, but the worst aspect has to be the picture of utter mediocrities - poorly educated, incurious, ambitious, ideological - at the heart of this nation's political power structure. Of course, the same holds true for those on Wall St - just add greedy to the mix there. (Am tempted to add 'corrupt' to the list of adjectives, but that would imply some semblence of intelligence/knowledge....)

Sickening excerpts include:

....no one involved — not the top two C.I.A. officials who were pushing the program, not the senior aides to President George W. Bush, not the leaders of the Senate and House Intelligence Committees — investigated the gruesome origins of the techniques they were approving with little debate.

According to several former top officials involved in the discussions seven years ago, they did not know that the military training program, called SERE, for Survival, Evasion, Resistance and Escape, had been created decades earlier to give American pilots and soldiers a sample of the torture methods used by Communists in the Korean War, methods that had wrung false confessions from Americans

The top officials (he) briefed did not learn that waterboarding had been prosecuted by the United States in war-crimes trials after World War II and was a well-documented favorite of despotic governments since the Spanish Inquisition; one waterboard used under Pol Pot was even on display at the genocide museum in Cambodia.

....The process was “a perfect storm of ignorance and enthusiasm,” a former C.I.A. official said

Read the whole thing folks. But have a barf bag nearby....

Healthy banks vs healthy assets

2009-04-22T00:03:00.002-04:00

Krugman has a gem on his blog tonight: Vast majorities

Well worth reading the whole thing, emphases mine:

So the market was greatly reassured when Tim Geithner declared that the “vast majority” of banks are well capitalized. Count me as baffled. I mean, maybe he was actually giving us a hint about the stress tests — but I took it as a remark that was uninformative at best, ominous at worst.

After all, there are a lot of banks in America. There are 1,722 institutions on the Fed’s list of “large commercial banks”. And I have no doubt that most of these banks — indeed, the vast majority — are in fine shape. That’s because they’re regional institutions that never got into the risky games played by the big guys.

But the big guys are where the money is. The top 10 institutions on that list have 58 percent of the assets. (If we looked at bank holding companies rather than only commercial banks, assets would be even more concentrated.) So it’s perfectly possible that the “vast majority” of US banks are well-capitalized, but that banks with, say, a third of the system’s assets are insolvent.

What Geithner said, then, was true but useless. If anything, his wording was cause for concern: Treasury knows the difference between raw numbers of banks and asset holdings, even if the press seemed to miss the distinction, and if he’d meant to say that the vast majority of assets are held by sound banks, he would have.

Itsworsethanyouthinkitis

2009-04-21T14:31:00.003-04:00

The IMF is on board: Financial Stability Report

$4.1Trillion in debt losses.

You think any banks (or the Market) have actually properly accounted for these losses? Methinks not. Certainly not based upon the phony 'earnings' statements we've all just been subjected to.

More inevitable badness around the corner. The similarities to exactly one year ago are getting ever more striking.....

No doubt CNBC hosts will profess to being surprised come the fall when things again melt down.

Insani-tea!

2009-04-21T13:01:00.002-04:00

Per last post. How did I miss this last week?

Facism, Socialism, Fox 'News'

2009-04-21T11:59:00.004-04:00

For the Fox News types out there I figured I'd perform a public service by providing definitions of these two words. Behold:

fascism
–noun
1.
(sometimes initial capital letter) a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc., and emphasizing an aggressive nationalism and often racism.

socialism
noun
1.
a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.

While we're at it, here a a few more definitions:

demagogue
–verb (used with object)
3.
to treat or manipulate (a political issue) in the manner of a demagogue; obscure or distort with emotionalism, prejudice, etc.

hysterical
–adjective
1.
of, pertaining to, or characterized by hysteria.
2.
uncontrollably emotional.
3.
irrational from fear, emotion, or an emotional shock.
4.
causing hysteria.
5.
suffering from or subject to hysteria.
6.
causing unrestrained laughter; very funny: Oh, that joke is hysterical!

High degree of uncertainty in the global economy

2009-04-21T09:04:00.002-04:00

So sayeth Caterpillar (1Q09 Cat Inc. Results) as they lower guidance for the rest of the year.

Reuters has a nice summary: CAT reports first loss since '92, slashes forecast

Caterpillar matters because there are few companies with a better on-the-ground sense of the real economy all over the globe. Here's one telling bit from the Reuters assessment:

Sales of the company's distinctive yellow construction and mining machinery tumbled 29 percent overall, led by a 46 percent decline in sales in Europe, Africa and the Middle East....

Schlosstein: "We're in the 2nd or 3rd inning of bank losses..."

2009-04-21T08:21:00.004-04:00

As in Ralph Schlosstein, co-founder of Blackrock, on CNBC. says bank losses in a deep recession have only just begun. Banks have eaten some sub-prime stuff, but there's much more to come from all sorts of other borrowers - CRE, credit cards, student loans, corporate loans, other housing etc etc.

Says systemic risk is still on the table. Geee, I wonder why all these banks keep fudging their earnings reports? It's becoming impossible to find any honest outside analyst who thinks the system is healthy. And more and more you're hearing from folks that there's worse still ahead of us.....

More on bank profits - "out of thin air"

2009-04-21T07:50:00.003-04:00

Andrew Ross Sorkin chimes in:

Bank Profits Appear Out of Thin Air
By ANDREW ROSS SORKIN
Banks are trying to wow their audiences with better-than-expected numbers, but investors aren’t buying it for a second.

Some special gems, emphases mine:

Steven Roth, professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired last quarter to prices that were higher than Merrill kept them.

“Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won’t be pretty,” he said.

Why can’t anybody read the room here? After all the financial wizardry that got the country — actually, the world — into trouble, why don’t these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market.

If the stress test is done honestly, it is impossible to believe that some banks won’t fail. If no bank fails, then what’s the value of the stress test? To tell us everything is fine, when people know it’s not?

“I can’t think of a single, positive thing to say about the stress test concept — the process by which it will be carried out, or outcome it will produce, no matter what the outcome is,” Thomas K. Brown, an analyst at Bankstocks.com, wrote. “Nothing good can come of this and, under certain, non-far-fetched scenarios, it might end up making the banking system’s problems worse.”

It's almost impossible to believe, but this banking situation is becoming more and more of a farce with each passing day....

Banks in two years: "Thinner, blonder, younger..."

2009-04-21T07:39:00.005-04:00

Love it!

Meredith Whitney on Bloomberg answering the stress test question: 'What will banks look like in two years?' Comes at about the 5 minute mark, but the whole interview is well -worth watching:

http://www.bloomberg.com/avp/avp.htm?N=av&T=Whitney%20Expects%20Banks%20to%20Return%20to%20%60Negative%20Earnings%C3%A2%C2%80%C2%99&clipSRC=mms://media2.bloomberg.com/cache/v04.7emHef8A.asf

Central bank 'panic' - Eastern Europe to come?

2009-04-20T20:52:00.002-04:00

The always important Brad Setser has posted this: The central bank panic of 2008

Much great stuff, as always. Read the whole thing. But I'm most struck by these bits:

With the benefit of hindsight, a strong case can be made that the IMF’s financial response to the Asian crisis was too timid, with the IMF asking for too much adjustment and providing too little financing. Loans from the IMF and World Bank were clearly far too small to offset the swing in private capital flows

And by all indications Eastern Europe is now experiencing a comparable stop in private inflows, and in all likelihood, those large private inflows will turn into large private outflows. But there also now seems to be a greater willingness to use the IMF to provide more financial support than in the past …

"Too timid" might be the epitaph on this mess, alas

Down the Chinese path to ruin

2009-04-20T20:14:00.002-04:00

No, not currency manipulation nor militarism nor the subjugation of Tibet

Rather, this:

China Influence Grows With Car Sales
By KEITH BRADSHER 1 minute ago
China, where car sales have recently passed those of the United States, is increasingly poised to take on the role of global trendsetter.

The Times chooses to accentuate greenish cars in this fluff piece, but please. Ecological catastrophe anyone? And aided and abetted by Western countries (Germany, US, UK, Italy) supposedly hip to global warming and environmental disasters....

What the world needs now is Chinese aspiring to Porsches. An earlier, more honest assessment had this take: Porsche Chooses China for Entry Into Sedans

Same reporter (Keith Bradsher). Different editors?

Hockey - DC vs NYC?

2009-04-20T19:10:00.006-04:00

In light of all the debate about whether Washington or New York is now the center of the nation's gravity, I'm struck by the differences between the crowds at the NHL playoff series between the Rangers (New York) and the Capitals (DC)

In DC, the whole crowd dresses entirely in red (the Caps' team color) as if a single organism, or a Chinese Olympic extravaganza.
In NYC the crowd is in all different kinds of outfits (many still in suits from Manhattan jobs, many others in blue-collar gear, many in Ranger stuff, others in whatever they threw on - or carefully crafted - etc). They dress as individuals.

The visual difference could not possibly be more distinct: A collectivist/group impression from a DC crowd; an individual/eclectic impression from the NYC crowd.

Of course, this means nothing for things economic, but does speak to, in a very small way, what makes NYC the superior city - Still the one place in this country where individials are most free to be such.

Remember - I'm only for pre-privatisation of Citi etc, not outright nationalization! :)

Spanish deflation?

2009-04-20T17:43:00.003-04:00

Worrisome, esp as individual EU member states and the ECB are not in internal agreement as to proper macroeconomic fiscal and monetary responses to all the problems Europe faces. If this spreads to other weakened economies - Ireland, UK, Italy, look out:

As Prices Fall, the Specter of Deflation Rises Over Spain

Excerpts, emphases mine:

“Alarm bells are going off,” said Lorenzo Amor, president of the Association of Autonomous Workers, which represents small businesses and self-employed people. “Economies can recover from deceleration, but it’s harder to recover from a deflationary situation. This could be a catastrophe for the Spanish economy.”

Deflation is not just a Spanish concern. Luxembourg, Portugal and Ireland have reported price drops, too. While the declines have been slight — and prices rose modestly after factoring out food and energy prices, which can fluctuate widely — other figures released this month suggest the risk of deflation is growing.

In Germany, wholesale prices dropped 8 percent in March from a year ago, the steepest fall since 1987. In Japan, wholesale prices fell 2.2 percent on an annual basis. In the United States, the Consumer Price Index fell 0.1 percent in March, year over year, the first decline of its kind since 1955, though prices rose 0.2 percent excluding food and energy.

“It doesn’t mean it will spread here to the U.S., but we need to look closely at Spain and other places to understand the dynamic,” says Simon Johnson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “It’s like the front line of a new virus outbreak.”

"Nagging worries" about the banks

2009-04-20T16:19:00.005-04:00

That's the word Jack Healy uses to describe the 4.3% sell off in the S&P today (S. & P. Down More Than 4% as Financial Fears Return)

Those concerns were fueled by a few things:

The realization that BoA's 'earnings' were mostly due to accounting changes and one-time events, neither of which is sustainable
The Goldman accounting gimmickry from last week which was so obvious to all really sunk in over the weekend. Trust in Goldman is shaken, even on Wall St, and folks wonder why the gimmick was buried on page 7 of their earnings report
The Obama plan floated in the Times today to convert existing loans to banks to common stock is really just shuffling deck chairs, and does absolutely nothing about underlying insolvencies
Ken Lewis being frank for the first time in a while in announcing that credit conditions will get significantly worse
The realization that the consumer is really in bad shape, which has been obvious, but which has been overlooked. Housing is not bottoming, retail is hideous, employment will continue to weaken, home equity is gone, savings have been stripped, etc etc....

Thing is, these 'nagging' worries will continue to nag until some form of the inevitable and overdue nationalization takes place, alas.

The only things holding this back are 1. fear of political repercussions (Socialist!) and 2. hope that the economy is improving, and banks will heal as consumers do. But consumers aren't healing, and once the next round of badness blows in in July, august, September, the failure to have taken dramatic action will appear to have been the bigger political (and economic) miscalculation...

"Concern ECB Discord Deepening"

2009-04-20T10:32:00.002-04:00

Per Bloomberg: Euro Falls to 1-Month Low on Concern Europe's Economy to Worsen

Euro Falls to One-Month Low on Concern ECB Discord Deepening

April 20 (Bloomberg) -- The euro fell below $1.30 for the first time in a month and weakened versus the yen on speculation disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession.

This story will gain momentum in the coming months...

Goldmansachs666.com

2009-04-20T08:10:00.003-04:00

Barry Ritholtz says it best this morning:

Today, I added a new blog to the blog roll for the first time in months.

I urge you to do the same.

Why? Because they were sued by GS for criticizing the firm:

“Goldman Sachs Group Inc. has been called many things over the years. Plenty of people have raged against its power and wealth. If you spend decades as the most successful investment bank, it goes with the territory. Calling it the devil may be going a bit far, though, even for the flinty-hearted employees of the New York-based bank.
Last month, a blog called Goldmansachs666.com was set up. Goldman Sachs has taken legal action against the site, alleging it infringes a trademark in the phrase “Goldman Sachs.” The owner of the site, investment adviser Mike Morgan of Jensen Beach, Florida, has promised to contest the litigation and pursue similar campaigns against other banks.
“They might think it is just a Mickey Mouse Web site, but we’re coming after them,” Morgan said in a telephone interview. “It would be really stupid for the banks to try and stop us. But banks do stupid things all the time.”

Let’s review your tax dollars at work: Godlman Sachs CEO Hank Paulson lobbied the SEC to allow the 5 largest iBanks to be exempt from net capital rules, and then leverage up 40 to 1. Which they did, especially with Mortgage-backed paper and derivatives. Then he becomes Treasury Secretary, and transfers from the taxpayers to these same iBanks — some directly, and some thru AIG — trillions of dollars.

Now, the taxpayer subsidized disaster creator is thin skinned about criticism. Note that the trademark claim is bullshit — its well settled law, via WalmartSucks.com. This 2000 case was originally found in favor of Wal-Mart by World Intellectual Property Organization but later reversed. Walmartsucks.com is no longer operating, but a new site, Walmartsucks.org appears to be run by author Kenneth J. Harvey. As another example of the legality of the “–sucks.com” sites, see also, disney-sucks.com.
>

No one seems to ever learn: If you want to close a critical site down, you ignore — you don’t sue them.

Thus, we add Goldmansachs666.com to the blog roll. If you have a blog, I STRONGLY suggest you do the same.

Ireland, Krugman, Depression

2009-04-19T16:31:00.003-04:00

Shabby Celtic tigers

I don’t know how I missed this before, but the blog The Irish Economy has just joined my must-read list. It’s not all about Ireland, and anyway Ireland basically is just like us, only more so. Among other things, the blog has hosted a high-quality debate about the pros and cons of nationalization.
Let me also say that Ireland’s recent policy moves — raising taxes and cutting spending in the face of a severe recession, so as to reassure nervous lenders — are an extremely disturbing omen. Iceland was one thing; but now another advanced economy, with a 7-digit population, has hit the limits of anti-recession policy.

Following up, find me a large US state that's not either raising taxes (and/or fees, haha)or cutting spending or both. Depression sets in after ignorant and ambitious politicos get desperate...

Recovery?

2009-04-19T14:57:00.003-04:00

It's not often (never?) that you see such a cliff dive. And American 'consumers' (epithet) are not the salvation. Those 50 years are over.

Citi is bankrupt, in every sense

2009-04-19T13:50:00.003-04:00

As if that's any news. But see this from Zero Hedge via Egan Jones (emphases mine): http://zerohedge.blogspot.com/2009/04/citi-market-barometer.html

Accounting and government magic - the recasting of FASB157 enables financial institutions to defer the recognition of losses with the result that C's March trading profits swung from a $6.8B loss to a $3.8B gain. Another item worth reviewing is the decline in interest expense from $16.5B last year to $7.7B this year. Nonetheless, much more equity capital is needed. Beyond the conversion of preferred to common, watch the form of any additional capital. The Fed and Treas. have guaranteed $306B of C's assets, have injected $45B in preferred and converted to common leaving few additional options. The problem is that C has $2T of assets ($3+T including off balance sheet assets) whose values are depressed by 10% to 20%. C needs to be watched.

For you math minors, 10-20% of $3T = $300-600Billion. Just Citi, mind you, and on top of all the rest of the money wasted on these dopes (criminals?) As for equity capital, where does a $4.00 stock raise it? You guessed it! The Feds!!

Really amazing that they still exist qua C. This firm has been a blight for most of its existence, not to mention the lifeline they were thrown in 1991. Here's hoping that Pandit's absence from the conference call (Whereth Pandit?) is indeed a sign of things to come - most especially hoping for a forced restructuring (eg bankruptcy).

Break these guys up, and do it ASAP

Bossnapping and couilles

2009-04-19T13:25:00.002-04:00

The French have more of both:

French workers lock up their bosses

Comparing recessions - retail sales

2009-04-19T08:11:00.003-04:00

Nice chart from a recent Rockefeller Institute report

Note that in the 2001 recession, retail sales were supported by MEW (mortgage equity withdrawal). No such equity left. Not to mention credit of other sorts...

CNBC's editorial meeting - sneak peek

2009-04-19T07:54:00.001-04:00

Screw government spending!

2009-04-17T13:14:00.003-04:00

Old Water Pipes Becoming Hard to Ignore
By MICHAEL COOPER 35 minutes ago
Water pipes are bursting with alarming frequency as the nation’s plumbing infrastructure ages. In Chelan, Wash., above, some water pipes are made of wood.

Let's have private citizens dig up the pipes and replace them. Or dig their own back yard wells. Or shoot the neighbor for his water. C'mon, where's that entrepreneurial American spirit?

Liesman casually states 'the economy is turning around'

2009-04-17T13:03:00.004-04:00

He's one of the good guys on CNBC, but c'mon. It's not remotely going to until 'consumers' consume again. And that's not remotely happening.

Why oh why is the consumer (ad nauseum 70% of the economy) gonna suddenly 'rebound' and miraculously spend and load up on debt and party on?? Not.

But mundane (and tragic) stuff on Main St is completely missed by the cheerleaders on CNBC. See unemployment rate, housing collapse, equity collapse, wage stagnation, college costs, insurance costs, etc...

We need a sensible business network. And not FOX, god knows.

Wasn't North Carolina a healthy state not long ago?

2009-04-17T12:46:00.002-04:00

And aren't banks 'recovering'?

Record Unemployment Rates in California and North Carolina

Hmmmm

Much good news, tho biz will hate it

2009-04-17T12:29:00.002-04:00

E.P.A. to Clear the Way for Regulation of Warming Gases
By JOHN M. BRODER 8 minutes ago
The agency on Friday is expected to formally declare carbon dioxide and other heat-trapping gases to be pollutants that threaten public health and welfare.

Better late than never. Refreshing that Obama's going after each and every one of the woes which ail us. SS and Medicare next up to bat?

We need 8 years of this, then another 8. Rome wasn't built in a day, nor the horrors of Reaganism/Friedmanism easily expunged

A new normal is emerging, and folks on the Street need pay attention. Milton Friedman, like Franco, is still dead

That CNBC anniversary - "It's a family!"

2009-04-17T09:38:00.005-04:00

They're celebrating their 20th in an obnoxious and cloying fashion (Dow up 260% since CNBC started!)

But Sue Herrera inadvertently summed things up best, per headline above. She was speaking about how tight everyone on the CNBC team is with all the traders etc on the floor. It's a family!

We all know how families like to keep dirty little secrets quiet. In this case it's merely the near-complete co-option and corruption at the heart of our nation's financial system by oligarchs and profiteers. And CNBC has had a front seat (if not lapdog) view. Wheee! Let's celebrate!

Whereth Pandit?

2009-04-17T09:22:00.005-04:00

I'm struck that Citi did its conference call this morning absent the presence of Mr Pandit. One could argue that this was the most important call in Citi's long and much-checkered history, and the CEO couldn't make it. Hmmmmm

What else might be occupying him? PTA at the Dalton School? A co-op board meeting? Dealing with the lawn care guys now that spring has sprung? A flat tire? That pesky #6 train? Emergency last-minute baby-sitting? Hangover?

Or possibly a meeting avec lawyers and the Feds as to how/when to behead him?

Enquiring minds want to know.....

Asian exports - dead cat bounce?

2009-04-17T08:18:00.003-04:00

The very picture of ongoing weakness

GE and Citi earnings reports - spring 2008 redux...

2009-04-17T07:07:00.006-04:00

They, again, remind me of Spring 2008, post-Bear. Like the eye of a hurricane. There's much more bad stuff ahead, and few - esp Citi - seem willing to face reality.

In Citi's case, note that they put aside $2.7Billion in reserves for loan losses, whereas yesterday JPMChase put aside 4$billion. Anyone really think that Citi's portfolio is healthier than Chase's? Please speak up.

Some of the bad stuff clearly in our (and the banks') future:

The CRE disaster has only just begun. The largest real estate bankruptcy in the nation's history passed yesterday with nary a peep (General Growth Properties: Largest Real Estate Bankruptcy Thus Far ), but there's no reason to think that malls, office buildings, condo complexes, sports arena, entertainment complexes etc are gonna suddenly be in great demand
The consumer is getting sicker, not healthier. Much badness ahead on credit cards, student loans, car loans, and the ongoing decline in residential real estate shows no signs of bottoming, despite rumors to the contrary (Housing Construction Fell Again in March) Since the moratorium 'expired' foreclosures have surged.
Speaking of the consumer, unemployment is clearly headed towards 10+%, easy. Probably 11+%. Worse than the stress tests presume, and the Administration forecasts. Much more downward pressure on spending in the future, with subsequent problems for CRE, corporate loans, small business loans, etc etc....
Other Macro problems remain, esp in Europe and Japan. How bad can these get? Well, I'd be planning for the worst, as the worst has consistently been surprising people ever since august 2007. I rather took the Central and Eastern Euros at their word two months ago that their situation was dire. Not much has happened since then (save for more $ for the IMF from the G-20 - but the UK might suck that up) to cause one to think things there are materially better. If Central and Eastern Europe go down, dominoes fall, starting with Austria (65% leveraged to Eastern Euro banks), then Germany, France etc get very strained. not to mention the slow-motion disaster that the UK has become. Spain, Italy, Ireland, Iceland, Ukraine, Latvia, etc are already in the tank. As for Japan, well, see this: Japan Says Economy in ‘Severe' State, View Unchanged US Banks - esp Citi, remain extremely exposed to all these problems
Despite all the brave talk from Chase and Goldman about giving TARP money back, Citi (and BoA) do not have that luxury. And all banks will see the huge but temporary revenue gift from all the Agency purchases the feds dropped in their laps disappear next quarter. By late Q3, aerly Q4, these guys will be running on fumes, again.

Complacency at green shoots is very dangerous.

I'm fine with this, save for the loss of Austin

2009-04-16T14:57:00.003-04:00

Governor Says Texans May Want to Secede From Union

Seriously, have Republicans gone mad? Methinks so, and it's rather fun and diverting to behold.

For a local reaction, see this: Ignorant Texas secession talk

Hotheaded Texas Gov. Rick Perry was the latest to grab some publicity, riling up the crowds on Wednesday. He said we have "great union," but added:
"If Washington continues to thumb their nose at the American people, you know, who knows what might come out of that. But Texas is a very unique place, and we're a pretty independent lot to boot."
Actually, no, they're not.
Texas has been part of the United States for 164 years. It's used federal funding (from taxpayers around the nation) to build everything from highways to prisons.

The most twisted headline of the year

2009-04-15T22:21:00.002-04:00

Madoff's Mets Tickets Often Brought Joy to Kids With Cancer

Holy crap already!!

So perfectly horrid at so many levels as to be almost poetic. The US of A circa Bush 43....

Genes Show Limited Value in Predicting Diseases. Economists shocked!

2009-04-15T21:53:00.004-04:00

Humanity still cannot be mapped, thank god. Economists and geneticists are freaking out...

Genes Show Limited Value in Predicting Diseases

The era of personal genomic medicine may have to wait. The genetic analysis of common disease is turning out to be a lot more complex than expected.
Since the human genome was decoded in 2003, researchers have been developing a powerful method for comparing the genomes of patients and healthy people, with the hope of pinpointing the DNA changes responsible for common diseases.
This method, called a genomewide association study, has proved technically successful despite many skeptics’ initial doubts. But it has been disappointing in that the kind of genetic variation it detects has turned out to explain surprisingly little of the genetic links to most diseases.

Roman diversions not working

2009-04-15T20:16:00.004-04:00

Mets' opening day attendance:

40,090

Vs 42,000 capacity. 1010 souls missing. On opening day no less!

And in a bright spanking new $800Million stadium to boot! Those missing seats were going for $400+ per game, minimum.

Good news. The plebes are on to the plutocrats....

News: Rome circa AD50

2009-04-15T19:48:00.003-04:00

Does Bo Know He’s Top Dog?
By DOUGLAS QUENQUA
The Obamas’ new pet is a celebrity. Trainers and psychologists ask: does he understand?

"Trainers and psychologists" "Pet Celebrity"....

Look out below....

Industrial production decline:worst since WWII

2009-04-15T17:41:00.002-04:00

Recovery anyone?

Singapore collapse

2009-04-15T17:36:00.003-04:00

Not much noticed here in the USA, but much indicative of the collapse in global trade. A 20% annualized collapse in GDP is beyond Depression level

Those tea parties

2009-04-15T17:08:00.004-04:00

Why can't those dupes (oops, citizens) convening in these phony (oops, grass roots) photo ops (oops, protests) understand that the taxes and fees they're pissed off about are State and local, not Federal? And that the State and local problem can only be resolved through decisive Federal action?

Might it be because they're purposefully misled by the likes of Glen Beck, ratings star? Or is it because there's an ongoing and insideous American tradition of ignorance and know-nothingness which is as perennial as daffodils?

Methinks the latter, but Beck and Hannity et al sure do help feed the beast

China doesn't manipulate its currency?

2009-04-15T16:47:00.002-04:00

So sayeth the Geithner Treasury, disappointingly: US declines, again, to brand China manipulator

Reuters had been expecting otherwise: US seen citing China on currency-business leader

Would that Reuters had been correct.

Macroman nailed it in January, in #8 of his predictions for '09:

8) China will NOT stop taking the piss in currency markets. In Macro Man’s ideal world, China pulls the bid in USD/RMB, slashes its FX reserves by 75% and uses the money to fund the beginnings of a domestic social safety net, and thus buggers off from trading EUR/USD. His ideal world also entails the Pittsburgh Pirates winning the World Series and West Ham the European Cup….so a cursory glance at the sports pages will confirm that we are pretty damned far away from that ideal.
While there has been a bit of sturm und drang emanating from Beijing recently about the inutility of accruing more reserves and/or buying more Treasury bonds, there is also the small matter of the economic downturn and the desire to maximize net exports. Macro Man suspects that the latter consideration will prevail in domestic policy circles, which makes sense given his views on the dollar and US bonds. As the chart below demonstrates, the rise in FX reserves in China has been inexorable (if you don’t already, tune in to Brad Setser for ongoing analysis of this issue.) So for better or for worse, we’ll all have to continue living with Voldemort, the cockroach of global finance.

Now, since MM penned these words the Chinese have altered their reserve allocations as Brad Setser indeed continues to point out. But the currency manipulation continues. We merely prefer to call the yuan 'undervalued'. HAH

American decline, realpolitique, or delusion? Bits of all three, I think. I'd prefer just being blunt, as the Chinese have been towards the US lately.

Feldstein gloomy

2009-04-15T15:48:00.001-04:00

With much good reason: Feldstein: Stock Rally No Sign Of Recovery

"I see no firm basis for predicting when the economy will begin a sustained increase," Feldstein told the Gulf Daily News.

"I believe it won't be in 2009. Sometime in 2010 is possible, but is still no more than a hope."

Feldstein fears that the $787 billion fiscal stimulus package agreed by the Obama administration is too small to remedy the current faults of the U.S. economy.

Feldstein says that the current global crisis is the worst he’s ever seen, and cautions policymakers to be wary of treating any slight improvement in economic performance over the next year, calling it a "false dawn."

Amen brother! Enough of these green shoots and mustard seeds already....

Obama

2009-04-14T17:42:00.002-04:00

Quick note:

While I'm critical of President Obama's still-too-little urgency to intervene in the banking crisis, esp in the cases of Citi and BoA, it is an endless relief - and an ongoing pleasure - to finally have an intelligent, articulate, thoughtful, engaged, informed, and charismatic leader to help guide us through this mess.

Crisis in the UK

2009-04-14T17:18:00.005-04:00

Harder-Edged Warnings About Britain’s Economy
By LANDON THOMAS Jr. 28 minutes ago
Britain’s deteriorating public finances may require the government to seek International Monetary Fund aid.

The UK is the world's 5th largest economy folks!

Excerpt:

Speculation that Britain may once again seek monetary fund assistance — and become the first major western European country to do so during this crisis — rests upon a crucial, uncertain assumption: that the combination of its steep debt and wounded banking sector will put too much pressure on the already wobbly pound.

The numbers are worrisome. Britain currently runs a budget deficit of 11 percent of its gross domestic product, compared with 13 percent forecast for the United States this year. Analysts say that without severe spending cuts and tax increases, government debt will jump to 80 percent of the overall economy in the coming years, from today’s level of about 40 percent, a ratio that approaches that of troubled economies like Greece and Italy.

So far, investors have been willing to fund Britain’s debt at relative low interest rates, unlike countries like Hungary and Latvia, whose reserves have been drained, leading them to turn to the I.M.F. for support. Last month a failed British government bond auction in London sparked some fear, but subsequent debt sales have been successful.

That could change, according to Simon Johnson, the former chief economist of the I.M.F., if those now holding British assets lose confidence in the government’s ability to pay its debts and start abandoning the pound in droves as they did in 1976.

A very ugly picture. Note especially that highlighted bit about spending cuts and tax increases. In a Recession/Depression!?!? This is very hairy.... WTYTII

Summers and the 'inventory cycle'

2009-04-14T15:19:00.005-04:00

He was just on CNBC making a pretty big deal about the inventory cycle being one of the keys to economic recovery in the coming months. The theory being that inventories are declining and consumption bottoming, so eventually businesses will need to crank up production to meet consumer demand. This is all pretty standard thinking

But I wonder if he's really willing to admit (or, more disturbingly, foresee) the very real possibility that US consumption will never again return to pre-recession norms.

Looking at the usual suspects like inventory cycles to predict future economic events assumes that nothing will have really changed once the worst of this is (seemingly) behind us. Couldn't be further from the truth, imho

As has been mentioned here before:

Consumers will have dramatically reduced access to credit. They will not be able to borrow.
Consumers have lost $12Trillion in net worth, and counting. They desire to save, and we'll get back to an 8-10% national savings rate, probably pretty fast.
Newer, younger consumers will not behave like Boomers. They seek sustainable consumption
Older consumers are freaked about retirement. They will invest and spend extremely cautiously
Health care and education aren't getting any cheaper anytime soon....
Everyone will suffer from double-digit unemployment well into 2011, and the fear thereof looms large. They will look for security, not consumption.

This is not your garden variety recession folks, and garden variety analyses of 'recovery' are not operational.

Summers' boss got it at the G-20: Obama: The American "voracious consumer market" has ended But it seems I was wrong about Larry being the catalyst.

Four Bears, plus Simon

2009-04-14T14:49:00.003-04:00

No, not Doug Short's excellent chart comparing four bear markets (http://dshort.com/charts/bears/four-bears-large.gif), but rather an article summarizing the views of four well-known bearish market commentators - Roubini, Whitney, Gordon, Sprott.

It's here: Here is the Guru Focus report "Degrees of Bearishness"

Some highlights/lowlights:

Gordon: There will be a collapse in real estate prices - as much as two-thirds in the U.S. World trade will collapse. Government revenues will dry up and they will be unable to provide needed services. Pension plans will fail. The Dow will bottom out at around 1,000.
Sprott: The $780 trillion in derivatives that are floating around the world will destroy what remains of the global financial system, he says. Commercial real estate will become a disaster zone. "This is not a recession, it is not a depression, it is an outright collapse," he told the audience.
Whitney: Her current focus is on what she expects to be the next great shock: massive defaults on credit card debt. "Ninety per cent of Americans revolve their credit card lines," she said. "They use it as a piggy bank." As debt gets wrung out of the system, more people will be unable to handle the payments, credit card companies and financial institutions will face huge write-off, and the availability of credit will dry up. "Before it's over, every person in this room will have their credit card limits reduced and that will have a profound psychological effect," she predicted.
Roubini: His message contained the usual large dollops of bad news: the worst is still to come for the world's banks, lousy corporate earnings in the coming quarters will drive stocks lower, many hedge funds will go broke, unemployment will top 10%, etc. But, unlike the others, he also offered a few glimmers of hope, describing himself as "more a realistic than a pessimist". We will avoid a depression, he said. Yes, the recession will be deep and severe and those who saw the March rally in stocks as the start of a new bull market are "premature optimists"

Here's a bit more from Roubini:

(I) see the US recession lasting until at least Q4 of this year (still -1.5% growth by Q4) and the positive growth next year being so low (0.5%) and the unemployment rate rising to 10% by the summer of this year and peaking well above 11% next year that it will feel like a recession even in 2010 even if we are technically out of it some time next year. The latest awful numbers on retail sales, job losses and initial claims are dashing the delusions of the optimists that there is light at the end of the tunnel already by Q3 of 2009. We don't see any meaningful evidence that the economy will bottom out before 2010.

And here's a recent dollop from Simon Johnson:

The Bank Run Next Time (Frankenstein’s Monster)

...remember this: The administration has little financial bailout money left and Congress is signaling that further funds to this end will not be forthcoming — in six months, the Treasury has squandered a reputation for safeguarding taxpayer value that was built up over 200 years. Great financial collapses can lead to great depressions.

That 'resiliant consumer'. Not!

2009-04-14T09:32:00.002-04:00

US Retail Sales Show New Weakness
Wall Street Journal - ‎56 minutes ago‎
By JEFF BATER, WASHINGTON -- US retail sales unexpectedly plunged during March in a broad-based decrease that threw a shadow over recent signs of improvement ...

When oh when will news of this sort no longer be 'unexpected'?

Worse than expected, disappointing, etc, etc...

But instead of extending hopes of consumer confidence, Tuesday's retail sales data seemed a setback. Housing-sector sales dropped sharply in March, with furniture retailers down 1.7% and building material and garden supplies dealers sliding 0.6%.

Another sector that has weighted down the economy is cars. Year over year, auto and parts retail sales have fallen 23.5% since March 2008. March 2009 sales fell 2.3% compared to the prior month. Excluding autos, all other sales dropped 0.9% -- bigger than the 0.1% dip expected by economists

Those Goldman earnings - not!

2009-04-14T09:27:00.002-04:00

Macroman dissects that cheery Goldman Q1 earnings report thusly:

Goldman recorded super earnings in the first part of the current fiscal year, announcing Q1 earnings of $3.39 per share, well above the consensus expectation of $1.64. Except that they didn't. Buried in the small print, it appears that as the Easter Bunny was delivering candy and eggs to children all over the world, he also desposited a small turd in the GS income statement. In December, which magically falls outside the aegis of any reporting period (falling through the cracks, as it were, in the transition from investment bank to bank holding company) , the firm lost $2.15 per share. Add that to the Q1 earnings figure, and you get a result that is comfortably lower than consensus.

As for their equity offering?

More telling was the GS announcement of their intention to sell shares to the public. While Macro Man occasionally takes Goldman to task, he will happily concede that, individually and collectively, they are some of the smartest guys on the street. And when a smart guy offers to sell you something in an industry that has more than doubled in value over the past month....well, judge for yourself what the appropriate response is.

Unrest

2009-04-14T06:16:00.002-04:00

A few headlines du jour:

Allied Militants Threaten Pakistan’s Populous Heart
By SABRINA TAVERNISE, RICHARD A. OPPEL Jr. and ERIC SCHMITT
The Taliban is teaming up with local militant groups in Punjab, reinvigorating an alliance that poses a serious risk to the stability of Pakistan.
N. Korea Vows to Restart Plant and Boycott Talks
By MATTHEW SALTMARSH 4:20 AM ET
North Korea vowed to restore the nuclear facilities that it had been disabling and boycott international talks on its nuclear weapons program to protest against the U.N.
Glamour Dims as Hecklers Hit the Auto Show
By DAVID SEGAL
After receiving government bailout money to stave off bankruptcy, General Motors and Chrysler are finding somewhat hostile crowds at their exhibits.

The first one is flat out scary. The third is, I think, a small harbinger of US social unrest to come this summer. The second is Groundhog Day, but nonetheless worrisome....

Krugman via WSJ: Chauncey Gardiner

2009-04-11T14:07:00.004-04:00

Being there

Perfect!

Depression Scenario: "still on the table"

2009-04-11T11:34:00.003-04:00

Per Simon Johnson here: Does The US Still Face An Emerging Market-Type Crisis?

I fully agree with him that the feds, and DC in general, are yet again (as in Spring 2008 and Fall 2007) unprepared for another leg down in this crisis. We're being lulled into some sort of nervous complacency, and the media in general is more than happy to play along...

Some excerpts from Mr Johnson:

...I don’t think Treasury understands the potential speed with which the crisis can again become more severe - moving back into another phase of chaotic jumps in financial distress around the world.
The most compelling evidence for lack of readiness comes from those who are now most articulate in Treasury’s defense. “Congress will not provide any more money” and “you must recognize the political constraints” are sensible points. But think about what they also imply. Treasury is not making the case, full-time and flat-out, for more funding - on a contingency basis - from Congress. At least from my conversations on Capitol Hill, I see no signs that this is Treasury’s top priority. In fact, I would go further and be blunter: no one is ready.

Arguing forcefully for another round of TARP funding ASAP from Congress, Johnson writes:

.....Don’t let bankers’ past misdeeds (or current power) and market panics ruin the economy and so many people’s lives. Go get the money from Congress - Capitol Hill is full of responsible and responsive people, but the Administration has to make the case, at the highest levels and in the most persuasive manner that saving the financial system from collapse is our top priority.

Don’t make the mistake of Hank Paulson who, until September 17th, always assumed he had more time to prepare (or just prevaricate). When the crisis is upon you, there is no time

Showdown looming; clueless bankers part mille

2009-04-11T09:58:00.004-04:00

There's an excellent article in today's Times about the stresses building between balied-out banks and their government benefactors. Seems the banks are getting very itchy only a few months into the latest round of government propping-up, and are looking to change the rules ASAP as stress test results loom.

The general sense one is left with is that some banks are frantically gaming the system. They know how truly insolvent they are, and are desperately clinging to survival. In this regard, nothing has changed since August 2007...And read til the end, for an especially delicious bit reminiscent of Louis XVI.

Here's the article (by Stephen Labaton and Edmund L Andrews): Showdown Seen Between Banks and Regulators

Excellent reporting all around. Some particular juicy tidbits, emphases mine:

Regarding bailout loans: banks are balking at the hefty premium they agreed to pay when they took the money.
Regarding toxic assets: ...the Obama administration wants weaker banks to move more quickly to relieve their balance sheets of the toxic assets, the home loans and mortgage bonds that nobody wants to buy right now. But the banks are resisting because they would have to book big losses.
Regarding stress tests: there is increasing anxiety in the industry that the administration could use the stress tests of the 19 biggest banks, due to be completed in the next three weeks, to insist on management changes....
Regarding Obama's plans: Senior officials, recognizing that the next few weeks could prove pivotal for both the industry and the bailout effort, are moving ahead with major plans
Regarding weak banks (read: Citi/BoA): The immediate concern for the administration is how to get the weaker banks to relieve their books of deteriorating mortgages and mortgage-backed securities. Industry analysts estimate that United States banks alone have more than $1 trillion of such mortgages on their books but have recognized only a small share of the likely losses. Economists at Goldman Sachs estimated recently that banks were valuing their mortgages at about 91 cents on the dollar, far more than investors are willing to pay for them. < Note - this is exactly the same point consisently noted by Whitney and Mayo...>
Regarding how dire the situation is: Even though the Treasury Department plans to subsidize the purchases of toxic assets by giving buyers low-cost loans to cover most of their upfront cost, a growing number of analysts warn that many if not most banks will remain reluctant to sell.
“The gap is still very wide,” said Frank Pallotta, a former mortgage trader at Morgan Stanley, now a consultant to institutional investors. “If every bank was forced to sell at the market-clearing price, you’d have only five banks left in the market.”
Regarding shades of Spring, 2008: If the test indicates that the losses would leave a bank with too little capital, the bank will have six months to either raise extra money from private investors or get money from the government.
Regarding Simon Johnson's Oligarchy concerns, look at this particular gem: Both large and small banks have pressed the Obama administration to make it less costly for them to exit the bailout program by waiving the right to exercise stock warrants the banks had to grant the government in exchange for the loans. At a meeting last month, the chiefs of three of the largest banks separately asked Mr. Obama to direct the Treasury not to exercise the warrants.
Regarding cluelessness - well, I guess bankers can be incredibly clueless. Here's another absolute gem, from a hitherto obscure West Virginian banker named Douglas Leech: Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury Department’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said. < OMIGOD!!! A banker bitching about predatory lending and high interest rates!! You cannot make this up. >
But wait, there's more! Another pearl from Douglas Marie Antionette Leech: “What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”

Folks buying into Wells' announcement of Thursday am are missing the forest for the trees. Many systemically important banks (and insurance firms) are insolvent, and no amount of fiddling with accounting rules and lobbying on Capitol Hill will change that reality. More chicken coming home to roost, starting in about 10 days, and continuing into the Fall as TARP 2, Son of TARP, Son of PPIP, etc etc are rolled out.

To beat a dead horse: not until a number of these institutions are temporarily nationalized (pre-privatised),their toxic assets quaranteened from healthy ones, and the institutions broken into smaller, more rational pieces, will this crisis begin to get resolved. (One example of such 'rationalization': Combine Citi's cards and deposit/retail bank units with Amex. You'd have a powerhouse lender with a healthy deposit base which is used to support that lending, not to prop up losses in derivatives. Hundreds of smaller such much-needed rationalizations are out there. Bankers must stop clinging to never-workable supermarket models.)

Another Bossnapping! Woo Hoo!

2009-04-09T20:09:00.003-04:00

New 'bossnapping' incident at car parts maker

This counts as good news, and fun and funny at that. Let's hope this trend spreads

Chinese autos, US pensions

2009-04-09T19:12:00.003-04:00

Bad news both:

China: Record Auto Sales, Now #1 Auto Market Global warming and massive pollution anyone?
The Pension Problem Isn't Going Away Indeed. Nor is the dollar's long-term weakness

Fun

When savings return to 1980's levels, where's spending coming from, pray tell?

2009-04-09T18:46:00.006-04:00

And savings will inevitably grow to 10%. Folks are broke, tired of the rigged game on Wall St, sick of spending 5x too much on stuff at Neimans, and are fully well-aware that cash matters...

The picture of health

2009-04-09T18:18:00.004-04:00

Mental health even worse!

Retail sales - the new norm

2009-04-09T16:57:00.003-04:00

See this from the Times:

U.S. Retail Chains Report Another Sales Drop in March
By STEPHANIE ROSENBLOOM 1:09 PM ET
March’s sales were worse than February’s, but the rate of decline seen during the holidays has slowed.

Wall St interprets this as signs of a bottoming (decelerating decline). But the fact they miss is that these very-much-lower levels of consumption are the new American norm. No 'surge' upward from here. Just what things will be.

Why?

Folks are broke: bleeding equity and savings-less
Boomers are getting old, and will not, need not, consume as before
GenX has been burned three times already (dot.com, housing, equities) and is in a rather large mood to save
Millenials (GenY) know how to save big time and how to spend less. Internet tools very much matter here...

The MSM is still about two years behind figuring out that American over-consumption is very much over. Wall St may never get there.

Stocks "surge"

2009-04-09T16:41:00.003-04:00

Synonyms of 'surge':

Gush
Heave

Gushing over stocks surging makes me want to heave