So, is the US heading for a recession? [Archive] - TTonline.org

oecarb

01-21-2008, 11:13 AM

The first deals with the transfer of risk. It was thought that we w/b entering an era of cheaper (read: less risky) and more abundant credit. As banks packaged and sold off their loan portfolios capital was freed up to be devoted to more lending activity which would drive eps higher.

This would have worked if the banks involved in the actual lending had kept up a sensibly cautious lending policy.

However, once the banks doing the lending didn't have to worry about collecting the payments (having passed this responsibility on to the new buyers), they didn't care a stuff about who they lent to. So they ended up lending billions of dollars to people who could never repay these loans.

So it was just amatter of time before the whole system collapsed.

Would an India that is dependent on US/Euro business outsourcing and a China that sells a large portion of its manufactured goods to America be able to find alternative markets for its products? The answer my friend in blowing in the wind...

Whether or not US/Euro business outsourcing and a China that sells a large portion of its manufactured goods to America ia able to find alternative markets for its products is neither here nor there. We will soon find out.

Meanwhile, countries like China, The Arab Emirates, Saudi Arabia etc are spending their exceedingly large wads of US dollars buying up America.

From the New York Times:

Overseas Investors Buy Aggressively in U.S.
By PETER S. GOODMAN and LOUISE STORY
Published: January 20, 2008

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company established a new factory in Adrian, Mich., adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.

A Flood of Investment For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies — more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.

http://www.nytimes.com/2008/01/20/busin ... ei=5087%0A (http://www.nytimes.com/2008/01/20/business/20invest.html?em&ex=1201064400&en=c72bbc9ae76d7c9f&ei=5087%0A)

miktay

01-21-2008, 07:02 PM

This would have worked if the banks involved in the actual lending had kept up a sensibly cautious lending policy.

However, once the banks doing the lending didn't have to worry about collecting the payments (having passed this responsibility on to the new buyers), they didn't care a stuff about who they lent to. So they ended up lending billions of dollars to people who could never repay these loans.

So it was just amatter of time before the whole system collapsed.

Capitalism is morphing into a boom bust cycle that seems imprudent, but when you carefully examine the new risk taking mentality in many reputable companies you will realise that, at least in the near future, this viscious cycle is here to stay.

In good economic times the conventional wisdom is that CEOs need to take on higher risks to achieve higher returns. Also known as the risk/return tradeoff it postulates that in relatively efficient markets you cannot achieve superior returns, and thereby inflate your take home pay/bonus tied to share prices, w/o taking on more risk. So rather than managing a business conservatively for the long term it is positioned aggressively for the short term.

So the business systemically moves towards the acceptance of more risk: checks and balances are loosened, performance rewards are increased, pricing is aggressive, newer less understood products are promoted. And if youre going to be aggressive you need to attract bright young sparks to manage all this addtl risk. So your starting compensation plan needs to be better than your competitiors to attract and retain all this fresh talent. And in the process you may loosen some of the hr requirement for bringing that talent onboard quickly.

But this is all well and good in happy times. If youve got your strategy and execution right you'll be making money hand over fist. But when an inevitable downturn occurs, as they always do, youre going to have to aggresively shed costs ; and the largest cost most companies have is labor. So gone are the big risk takers as well as the old timers, deadwood or grade 3-5 underperformers as risk tolerances are tightened towards a more conservative profile.

If the company survives the downturn the cycle repeats itself again.

That many bankers believed the party would never end is true, and as a result there will be fewer porsches and 2nd vacation homes for the lucky few that manage to keep their jobs at Citi, Merryl et al. They did latch on and promote many of the newer and inherently more risky loan products that made home purchases "more affordable" However we cant fault the banks for all of the problems. Like the dot com bubble of 2001 the multi legged stool of checks and balances fell short of expectations. Way short.

Many entities involved in loan origination was paid an upfront commission with few holding any residual interest in the loan instrument.

Here are a few:

* Many mortgage brokers fudged loan applicants income to qualify them as their incentives were based on loans delivered to banks
* Appraisers who were paid by these brokers inflated property values. After all it was a rising market and a higher appraisal meant little upfront cash was required at close, and in some cases borrowers even rcd cash back.
* The onerous fees charged by title companies. In the internet era who is going to believe a cost of $100 for a fax or courier fee. Many ppl though, in pursuit of real estate riches did pay these fees
* Bond insurance companies their triple a credit ratings to many collateralized debt offerings were paid by the issuers/packagers themselves.
* The changing of the guard at the Federal Reserve drew fm the very industry is was (an is) supposed to regulate.
* County taxes receipts soared as assesments based on rising property values went through the roof. And like any good govt the new largess found a home in projects that may not have been undertaken in leaner times.
* Insurance premiums increased to actuarize for the higher replacement "values' of homes

snowbird

01-21-2008, 08:35 PM

Some Financial Pundits north of the boarder seem to think so, and their concern is as they say..... whenever the USA catches a cold, Canada sneezes.

I notice the US government is promising to free up some taxes in the form of tax breaks so that people can 'shop till yuh drop'; my question is this, how can you shop when you have no money to shop with? fifty percent of nothing is still nothing :roll:

oecarb

01-22-2008, 07:15 AM

* Many mortgage brokers fudged loan applicants income to qualify them as their incentives were based on loans delivered to banks
* Appraisers who were paid by these brokers inflated property values. After all it was a rising market and a higher appraisal meant little upfront cash was required at close, and in some cases borrowers even rcd cash back.
* The onerous fees charged by title companies. In the internet era who is going to believe a cost of $100 for a fax or courier fee. Many ppl though, in pursuit of real estate riches did pay these fees
* Bond insurance companies their triple a credit ratings to many collateralized debt offerings were paid by the issuers/packagers themselves.
* The changing of the guard at the Federal Reserve drew fm the very industry is was (an is) supposed to regulate.
* County taxes receipts soared as assesments based on rising property values went through the roof. And like any good govt the new largess found a home in projects that may not have been undertaken in leaner times.
* Insurance premiums increased to actuarize for the higher replacement "values' of homes

Like I said, if the banks that lent the money had to depend on the borrowers to repay, they would have been more careful. But, if they could sell on the loans, why should they worry about whether borrowers are able to repay or not. In the meantime the loan managers could earn big bucks in bonuses. I wonder how many of them now have to repay these.

With regard to your earlier point:

The second is the decoupling of America's economy from the rest of the world. It was believed that any slowdown in the Yankee economy would be offset +/or mitigated by the strength of the Asian economies, namely India and China. Now it appears that traders are having second thoughts. Would an India that is dependent on US/Euro business outsourcing and a China that sells a large portion of its manufactured goods to America be able to find alternative markets for its products? The answer my friend in blowing in the wind...

Countries like China, India and many of the Gulf States have a growing middle class that has learnt the art of conspicuous consumption. They will be buying up the products of their countries - especially India, China, Korea etc and this could provide a cushion against total deflation, IMHO.

The main problem for the US, as I see it, is that China, for instance (with over 1.4 trillion dollars in cash) is in a position to buy up US manufacturing plants and either move them to China or close them down completely - good established Capitalist practices. I see TATA (an Indian conglomerate) is in the frame for buying up Ford.

When and if the US economy recovers, Americans might find that their country no longer produces anything.

The other question is what will happen in the European Union. I see Bernanke said that the US economy could be kept going if money is placed in the hands of people most likely to spend it - ie poor people.

Interestingly, most European countries already have such a mechanism in place. Being socialist, they already supplement the incomes of poor people with child benefit, housing benefit, income support etc.

Add to that, a repatriation of foreign consultants (engineers, IT consultants etc) in the US if the going gets tougher there than in their own countries and I can see many problems ahead for the USA.

Also, as I said before, the European Central Bank and the Bank of England between them have committed over $500 million dollars to helping the credit squeeze and to give short-term help to European and British banks. The EU is now large enough and rich enough to be a self-cotained entity. The general feeling appears to be that we would certainly catch a cold but not have to go to bed.

miktay

01-22-2008, 07:47 AM

The main problem for the US, as I see it, is that China, for instance (with over 1.4 trillion dollars in cash) is in a position to buy up US manufacturing plants and either move them to China or close them down completely - good established Capitalist practices. I see TATA (an Indian conglomerate) is in the frame for buying up Ford.

Ppl seem to forget that for all its sophistication and glamour America is just a collection of disparate communities with different agendas. What they do have in common though is an unhealthy distrust of outsiders. China and India, flush with cash may be on an aquisition binge, but it will take a lots of political lobbying, good advice, negotiating savvy, arm twisting and public relation $ if theyre ever going to buy and prosper with an iconic company like Ford (re:see the Chrysler/Daimler Benz merger).

A minority partnership or a piecemeal acquistions is the best approach for Tata here. Jaguar & Landrover, never ever considered American, may be just the ticket for them to grab, hold on & ride off with into the sunset(see Lenovo).

snowbird

01-22-2008, 10:32 AM

Lord :o it is beginning to look more and more like a 'North American' recession, the TSX (Toronto Stock Exchange) took a big hit yesterday and took allot of us old people money with it. :cry:

oecarb

01-22-2008, 11:52 AM

Lord :o it is beginning to look more and more like a 'North American' recession, the TSX (Toronto Stock Exchange) took a big hit yesterday and took allot of us old people money with it. :cry:

Some people are saying that we have to ride out the day. The London Stock Exchange has risen about 165 points after falling about 350 yesterday. The NYSE opened almost 400 points lower but reduced this to 59 points but is down again.

However, the stock markets are only part of the picture. Generally they reflect what people expect to be happening to large firms in the future. They does affect pension plans etc.

The real recession is when people start losing their jobs and can't buy things. The economy might be going down the pan while the larger companies could still be making profits and the stock markets could still be looking OK..

The picture for the stockmarkets would be clearer in the next four to five hours.

snowbird

01-22-2008, 12:12 PM

While some are putting a positive spin on things, some of us due to age may not have the ability to 'stay in for the long haul' as to us we were hoping that this was the pay off end of the 'long haul' :lol:

Having lived through two recessions in the past forty years, trust me, it's not easy to see Pensioners go back out to work (if there are any jobs to be found), and younger families walk away from their homes. Those were tough times.

Scorpio

01-22-2008, 08:48 PM

oecarb

01-23-2008, 04:55 AM

omg !! Allyuh see that plan to give every American taxpayer $800 just so ? Now tell me if that is not a sure sign of desperation.

I think the Clinton administration also did something similar to stafe off recession in the 1990's, but it was $300 that they gave to each taxpayer.

Funny how big business always saying the govt should keep out. They (big business) know how to do things. But as soon as things start looking bad, they jumping up and down saying the govt should help out.

Suddenly the US govt find out that, if you give money to poor people, they would spend it and keep the companies afloat. Whatever happened to "trickle down" economics?

Meanwhile in Western Europe, the governments have been helping out the poor for decades so they don't have to worry about how to get this money to the poor - everything already in place and working.

serenity

01-23-2008, 05:28 AM

Anybody care to guess how this will affect our land of milk and honey?

oecarb

01-23-2008, 06:27 AM

Anybody care to guess how this will affect our land of milk and honey?

Well, I could try. I ain't no big-time economist and the only things I know bout what happening in T&T is what I read on this forum and in the Trinidad Guardian online.

But, say what, you know any Trini that would keep his mouth shut just because he aint know what he talking about? :lol: :lol:

I could make one or two assunptions. I sure somebody will correct me if I wrong. And I aint trying to wave no flag for Manning, eh.

Now, first, the USA in this mess because, among other things,
Interest rates were low for years and people could borrow cheap.[/*:m:3259omse]
In the last couple of years they started going up.[/*:m:3259omse]
The American dream say that every American should own their own home and car and be living like a king[/*:m:3259omse]
People believe that house prices would always go up so they could borrow more than they could afford to pay back and then remortgage to catch up. They could also remortgage to buy big car and go on holiday and so.[/*:m:3259omse]
The banks paying their workers bonuses based on how much money they could lend. Then they package the loans and sell them to other banks and financial institutions. So these workers don't give a damn who they lend to.[/*:m:3259omse]
A lot of American business set up shop in India and China and start selling goods back to the USA[/*:m:3259omse]

Now, the Bush solution is tax cut to put money in people hand so they could spend and to cut interest rates.

Now, the Trini situation as I see it (Allyou could correct me if I wrong) Is only my opinion, eh :mrgreen: :

In Trini, I believe interest rates have been constant for years.[/*:m:3259omse]
The govt has been spending money building subsidised housing for people who can't afford housing on the open market. This should keep a brake on house prices generally - unless they are at the top end of the market.[/*:m:3259omse]
I don't know how easy it is to remortgage in T&T these days but I remember a loan officer laughing in my face when I wanted to remortgage once. (a accountant pardner tell me to do that) "What!" he say, "You want to pawn your house? Because that is what you asking me to do, you know."[/*:m:3259omse]
The govt already putting money in poor people pocket with CEPEP and other schemes. And, I think, taxes gone down.[/*:m:3259omse]
The main income for the govt is Oil and Gas which is priced in US dollars but go up when the dollar goes down and down when the dollar goes up so a barrel of oil could buy the same amount in European goods and more US goods.[/*:m:3259omse]
The govt have a plan for lowering unemployment. The US govt would never do that - it too much like Communism.[/*:m:3259omse]

So, I don't think it will happen to the same extent as in the US. And the TT govt still have the option of decoupling the TT dollar from the US dollar. The Americans can't do that. This could make the TT dollar much stronger and imports would cos t less - both from the USA and other countries.

.

snowbird

01-23-2008, 04:31 PM

omg !! Allyuh see that plan to give every American taxpayer $800 just so ? Now tell me if that is not a sure sign of desperation.

I think the Clinton administration also did something similar to stafe off recession in the 1990's, but it was $300 that they gave to each taxpayer.

Tell me how long this pittance will be able to keep all those auto manufacturers, appliance, and furniture manufacturers, clothing and food manufacturers going? That better be one hell of ah band-aid :roll: And my feeling is that this economic crisis in the US is worse than anything they would have had 90's (I don't remember it)

lexbarker

01-26-2008, 12:58 PM

We will see how the Keynesian economics will (or will not) work to get the US out of the deep doo-doo. It is the cause of the whole mess. The theory is that when the economy is slowing down, you make money more easily available by lowering the interest rates, thus printing more bills without any backing (or as they say, creating money out of thin air). By this action it debases the value as can be seen with the lowering of US dollar resulting in inflation, not to mention the situation in Zimbabwe where they had 15,000 percent inflation last year. Borrowing money about 2-3 years ago was easy when the prime rate was 1 %. People went crazy and with the lax lending rules that went along, every Tom, Dick and Harry took out loans to buy houses or have a party.
Well, the party is over now with higher interest rate that went over 6%. People who were financial marginal got the hit, lots of them. I fell sorry for the people who took out second mortgages and blew it on cars, boats and other stupid things and are now in the tatsie. This economic shot in the arm is was just temporary. Ben Bernanke, the present Fed chairman said about 3 years ago that he will drop money from a helicopter to prevent a recession. He earned his doctorate on the thesis that by flooding an economy in hard times with easy money, a recession or depression could be avoided. We have see it by the Fed's panic action last week when he intervened and dropped the interest rate by 0.75%. The stock markets were going deep south. I would not be surprised if there is another 0.5% cut later this month. On the news yesterday, Georgie Bush is handing out a few free hundred bucks to people. This is just another temporary shot in the arm but how long it can keep up? Eventually, they have to pay by letting the economyy clean itself and stop interfering otherwise a depression is in the making. The longer it is delayed the greater the pain.
I don't think Europe is doing any better but that is another story

snowbird

01-26-2008, 01:14 PM

Because of this 'global economy' unfortunately what is going on in the US has the potential to pull many investors word wide down.

On the upside, according to the economist, there is going to be money to be made in US real estate in the next six months or so as 'distress sales' 'power of sales' and bankruptcies will peak. Just like a few people were able to capitalize during the last great depression, there is going to be some making money off this recession.

oecarb

01-27-2008, 02:30 PM

On the news yesterday, Georgie Bush is handing out a few free hundred bucks to people. This is just another temporary shot in the arm but how long it can keep up? Eventually, they have to pay by letting the economyy clean itself and stop interfering otherwise a depression is in the making. The longer it is delayed the greater the pain.

I don't think Europe is doing any better but that is another story

Lex, as far as the European Union is concerned, the governments are all various shades of Socialist. This means that money is already being handed out to people of low income.

Child benefit, for istance (which is paid to all parents) is £18.10 ($36 US) a week for the eldest child and £12.10 ($24 US) a week for each additional child. So a family with four children would receive £54.40 ($108 US) per week.

So they already have buying power and it is ongoing - unlike the quick fix in the USA. This has acted as a cushion in the past and it is quite likely that it will do so again.

On the upside, according to the economist, there is going to be money to be made in US real estate in the next six months or so as 'distress sales' 'power of sales' and bankruptcies will peak. Just like a few people were able to capitalize during the last great depression, there is going to be some making money off this recession.

Watch the Chinese and the Indians and Middle Eastern oil producers move in....

serenity

01-27-2008, 03:32 PM

Lex, as far as the European Union is concerned, the governments are all various shades of Socialist. This means that money is already being handed out to people of low income.

So they already have buying power and it is ongoing - unlike the quick fix in the USA. This has acted as a cushion in the past and it is quite likely that it will do so again.

So URP and CEPEP is good for us then

oecarb

01-28-2008, 03:54 PM

So URP and CEPEP is good for us then

From an article on Keynesian economics:

Keynes himself made this point abundantly clear in The General Theory, his most famous book, published in 1936 in the midst of the Great Depression. “Pyramid-building, earthquakes, even wars may serve to increase wealth,” he wrote. “To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.”

http://www.nationalreview.com/nrof_bart ... 220847.asp (http://www.nationalreview.com/nrof_bartlett/bartlett200412220847.asp)

.

oecarb

01-30-2008, 03:09 AM

So URP and CEPEP is good for us then

Serenity, as far as I understand it, the theory is that the circulation of money is the lifeblood of capitalism. For capitalism to thrive, people must spend.

Take, for instance, a village of about 1,000 people most of whom are unemployed. Everybody kecthing they tail. People can't buy food or clothes.

Then the govt decide to beautify the village. Public gardens with nice lawn and benches, neat grass verges, nice road with painted stone on the side etc etc etc. They figure they need people to get the stone from the river and line them up and paint them. They need a couple of carpenter to build the benches and a band stand. They need gardner to plant flowers and people to water them and prune them and so. So they hire 100 people.

Now these 100 people suddenly start getting money. So they now want to buy food and clothes and so. The lady with the parlour now have to start stocking up and even hire somebody to help her out. Somebody open a roti shop. Next one selling doubles. Next one selling bake and shark. One or two people start minding a few fowl to sell. Next thing people start buying furniture and a furniture store open up with a couple of sales staff. Somebody start a sou-sou and the lady who like sewing buy a second-hand sewing machine when she get her hand. She start making dresses. A fella with a old car start running taxi. Another one gone to town and buy some clothes and start selling in the village. Another one open up a rum shop. Then a few of them start fixing their house and the carpenter getting work, the plumber getting work, the brick layer too. Then somebody open a hardware store and employ a couple of young fellas to help out. And so it go on.

Now, if the govt start taxing the business people and making the workers pay income tax and charge sales tax or VAT on goods and services, these taxes can then pay the govt workers and even give other people extra money if they unemployed or if they don't earn enough to support their families - which they will spend and help boost the economy.

.

serenity

01-30-2008, 05:57 AM

Thanks a lot Oecarb.
Good to know it has economic value..even if perhaps there is social crisis stemming from it.

oecarb

01-30-2008, 07:00 AM

Thanks a lot Oecarb.
Good to know it has economic value..even if perhaps there is social crisis stemming from it.

Well, Serenity, it is not so different from Western European Socialism or Social Democracy or Democratic Socialism - the systems that exist in Britain, Ireland, France, Germany, Italy, Spain, Holland and the rest of the European Union. The main thing is to have the money circulating - which is why Bush now thinking of giving out money to people and why people telling him to give it to people who will spend it - like poor people, for ibnstance.

Many people here complain about all them hardback people with five and six kids who getting Unemployment Benefit and Child Benefit and Housing benefit plus free prescriptions and free school dinners and so.

But, with all that and a million Poles, Hungarians, Romanians and Bulgarians coming here over the last year or two, the unemployment rate is still about half that of the USA.

Scorpio

02-22-2008, 12:26 PM

It is estimated that about 8.8 Million Americans owe more on thier homes than the home itself is worth :shock:

snowbird

02-22-2008, 01:09 PM

^^^
Yep, just saw that in this morning's financial section. Seems that the value in Real Estate in the US has another 20% to drop. They are now talking not just a recession, but about a Deep Recession.

Can anyone say...."Power of Sale" :roll: Lord, allot ah families go be in trouble.

oecarb

02-25-2008, 05:31 AM

Interesting article in The Guardian (UK):

Queue for the soup kitchen may start here
Hefty interest rate cuts do not seem to be arresting the slide towards recession

Economic crises go through four distinct stages. First, there is the bubble-induced mania when markets rocket skywards and the word on the street is that the good times will last for ever.

That was where the world was a year ago, when the private equity boom was in full swing and Ben Bernanke was taking a tough line on US interest rates for fear of being the poor man's Alan Greenspan.

After bubble comes denial. This is the period when it is obvious to any independent-minded observer that the party is over but policymakers and the financial markets can't bring themselves to admit it. We hit this phase in spring 2007, when the received wisdom was that the crisis in the US sub-prime mortgage sector was a little localised difficulty that would be comfortably contained. There were no wider implications for the rest of the US economy, let alone the stability of the financial markets or the global economy as a whole.

Denial is followed by panic when it becomes clear that nothing has really changed since Dutch tulips in the 17th century and that the latest period of speculative excess will end in tears, just like all the others. At this point there is a fork in the road. Policymakers act to allay the panic by cutting interest rates and throwing money at the financial system. If the measures work, it is back pretty much to business as usual within a few months. Lenders start lending again; borrowers start borrowing; economic activity recovers.

All the experience of the past 25 years mirrors this sort of pattern. The US recessions of the early 1990s and 2001 lasted for only eight months; there was barely a pause for breath when the Federal Reserve took pre-emptive action to prevent recession in 1987 and 1998.

Sometimes, and only rarely, markets discover that what they had believed to be a miracle cure was, in fact, a placebo. The crisis is so serious that there is little or no response to the easing of policy; in these circumstances panic is followed by capitulation. Seven months into the credit crunch, we have now arrived at the fork in the road.

As ever, the assumption is that the world economy will take the road to rapid recovery. History suggests that this is a reasonable assumption, since few slowdowns end in recession, and recessions that turn into slumps are once in a lifetime occurrences. It is a sign of how serious the current situation is that those who argue that there is a risk of a 1930s-style slump are no longer treated as stark, staring mad. Indeed, the argument in the US is not over whether there is going to be a recession, but how long and deep the recession will be.

Nouriel Roubini, professor of economics at Columbia University in New York, is one of those sceptical about the idea that the US will suffer only a short, shallow downturn. For one thing, America is enduring the biggest housing market bust in its history, and prices are likely to carry on falling sharply. Then there is the credit crunch, which is far more severe than in the early 1990s or early 2000s, both as a result of being the inevitable legacy of not one but two previous bubbles but also the consequence of financial innovation that straddled the line between recklessness and criminality.

Far from easing, the credit crunch may be getting worse. In the UK, the past week has seen lenders withdraw certain products from the market, meaning that the sort of 125% mortgages favoured by the pre-crash Northern Rock are a thing of the past. Given that 125% home loans were the only way first-time buyers could afford to get on the housing ladder, this is not exactly bullish news for house prices.

It is a similar story in America. Paul Ashworth, chief US analyst for Capital Economics, notes: "The credit crunch is entering a dangerous new phase with even previously creditworthy borrowers now affected.

"Despite a 125 basis point reduction in the Fed funds rate over the past month, borrowing costs for financially healthy firms and households have actually risen by as much as 50 basis points."

Monetary policy, in other words, has lost its traction. Keynes talked about exceptional circumstances when cutting interest rates was like pushing on a piece of string. This may well be one of them, since the third big difference between now and the downturns of the early 90s and the early part of this decade is that consumers are far more indebted. Falling house prices, credit that is harder to come by and more expensive, years of living on the never-never - all in all, it's a potentially explosive cocktail.

Roubini says that the Fed is, belatedly, alive to the danger. "To understand the Fed actions one has to realise that there is now a rising probability of a 'catastrophic' financial and economic outcome, ie, a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.

"That is the reason the Fed had thrown all caution to the wind - after a year in which it was behind the curve and under-playing the economic and financial risks - and has taken a very aggressive approach to risk management; this is a much more aggressive approach than the Greenspan one in spite of the initial views that the Bernanke-led Fed would be more cautious than Greenspan's in reacting to economic and financial vulnerabilities."

Bernanke clearly feels that the clock has turned back 78 years to the early months of 1930. He is slashing interest rates because he fears that the Great Depression is just around the corner.

Yet having got just about every judgment wrong over the past five years - and that's being generous - there is a risk that the Fed has got it wrong again.

Consider. Until the early 1970s, the linchpin of the global economy was the Bretton Woods system of fixed exchange rates. Gold was fixed at $35 an ounce and other currencies were pegged against the greenback.

Rising US inflationary pressure in the late 1960s led to the break-up of the Bretton Woods system, and that was followed by a plunging dollar, leading to sharply higher import prices. To make matters worse, oil producers raised the price of crude, with the result that inflation went through the roof.

Flipside
What we are now seeing is the break-up of Bretton Woods mark 2. The linchpin of this looser and less comprehensive system was the fixed exchange rate between the dollar and the Chinese yuan. By keeping its currency low, Beijing flooded the world with cheap goods and kept US inflation muted. That pushed down interest rates, but led to a massive US trade deficit with China and pushed up asset prices.

Politicians in Washington demanded that Beijing allow its currency to rise. And over the past two and a half years this is what the Chinese have done, in small and gradual steps. It's not really surprising that they have done so, since the flipside of lower inflationary pressure in the west has been a build-up of inflationary pressure in China.

As a result, the writing is on the wall for Bretton Woods 2. Bernanke has sent out the signal that he cares far more about boosting growth than he does about fighting inflation, which is why the dollar has fallen and gold has gone up. So a return to soup kitchens and dustbowl economics should not be ruled out.

http://www.guardian.co.uk/business/2008 ... /economics (http://www.guardian.co.uk/business/2008/feb/25/economics)

02-29-2008, 02:47 PM

i just saw on that there Fox news that the DOW is down. :cry:

marcel

03-07-2008, 12:00 PM

I have a few articles related to this

Is the US Dollar on it’s Death Bed ?
http://www.financialdominance.com/is-th ... death-bed/ (http://www.financialdominance.com/is-the-us-dollar-on-its-death-bed/)

How do I invest in the Chinese Yuan ?
http://www.financialdominance.com/how-d ... nese-yuan/ (http://www.financialdominance.com/how-do-i-invest-in-the-chinese-yuan/)

oecarb

03-08-2008, 04:34 AM

From the NY Times:

End to the Good Times (Such as They Were)

If history is a reliable guide, the recession of 2008 is now unavoidable.

The dismal jobs report released Friday showed overall employment to be lower than it was three months ago. Every time such a slump has occurred since the early 1970s, a recession has followed — or already been under way.

For months, policy makers and Wall Street economists have been predicting, and hoping, that the aggressive series of interest rate cuts by the Federal Reserve would keep the economy growing, despite the housing bust. But the possibility seemed to diminish almost by the hour on Friday.

Shortly after 8 a.m., the Fed announced yet another measure meant to unlock the struggling credit markets. At 8:30, the Labor Department released the unexpectedly poor jobs report. Almost immediately, the economists at JPMorgan Chase — who only last week had told clients they thought the economy was still growing — reversed course and said a recession appeared to have started earlier this year.

Even the one apparent piece of good news in the employment report was a mirage. The unemployment rate fell to 4.8 percent, from 4.9 percent in January, but only because more people stopped looking for work and thus were not counted as unemployed by the government (http://www.nytimes.com/2008/03/05/business/05leonhardt.html).

Over the last year, the number of officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.

Recent recessions have inevitably brought inflation-adjusted income declines for most families, which would be particularly painful given what has happened over the last decade. For a variety of reasons that economists only partly understand — including technological change and global trade — many workers have received only modest raises in recent years, despite healthy economic growth.

http://www.nytimes.com/2008/03/08/busin ... on.html?hp (http://www.nytimes.com/2008/03/08/business/08recession.html?hp)

From Reuters:

Foreclosure rate almost doubled in 2007: report

NEW YORK (Reuters) - More than 1 percent of all households faced foreclosure during 2007, almost twice the previous year's rate, a real estate marketing company said on Tuesday.

The total number of foreclosure filings rose 75 percent last year to 2,203,295, with rates highest in Nevada, Florida and Michigan, according to RealtyTrac. Filings rose at the end of the year, with December marking the fifth straight month of more than 200,000 foreclosures reported, it said.

http://uk.reuters.com/article/companyNe ... 3320080129 (http://uk.reuters.com/article/companyNews/idUKN2849823320080129)

batman

03-08-2008, 12:06 PM

So URP and CEPEP is good for us then

Serenity, as far as I understand it, the theory is that the circulation of money is the lifeblood of capitalism. For capitalism to thrive, people must spend.

In theory that is true, but the system is designed in such a way that only a few
people really benefit from all that spending, and the rest of us just have to watch
them walk away with our money.

batman

03-08-2008, 12:14 PM

The economic tools that are used today, are the same ones
that have been used for decades. They cannot work today,
because the global dinamics have changed.

oecarb

03-08-2008, 12:17 PM

So URP and CEPEP is good for us then

Serenity, as far as I understand it, the theory is that the circulation of money is the lifeblood of capitalism. For capitalism to thrive, people must spend.

In theory that is true, but the system is designed in such a way that only a few
people really benefit from all that spending, and the rest of us just have to watch
them walk away with our money.

Batman, as I keep saying, there is a way for most citizens to benefit from Capitalism. The government has to get involved. The govt has to encourage them to make money but must draw the line as far as their freedom is concerned - just like the rest of us are restrained. Tax them (as well as the other citizens) and use this money for the good of all citizens - for their education, housing, healthcare etc.

It works. It is called Western European Socialism and it is the system in use throughout the European Union.

But those who live in the USA just don't want to hear about it.

I am proud to live in the UK which has such a system - even though Thatcher and Blair tried their best to Americanise us.

.

miktay

03-11-2008, 10:22 PM

oecarb

03-12-2008, 03:51 AM

They dont want to hear it because they equate socialism with communism...

Shortsighted as this may be the stigma is too ingrained in US to convince them otherwise

This form of capitalism though is alive and well in many other countries including Hong Kong -pre and post British occupation- and theyve seemed to have done pretty well with it.

The flip side of a bust are the numerous opportunities to acquire assets below their fair market value. If "zero safety net capitalism" is here to stay those who are patient, measured and watchful can profit from the imprudent decisions of others.

From an article by Arundhati Roy, an Indian writer. I have always found her writing very interesting. This article was written before the Iraq war.

Donald Rumsfeld, said that his mission in the war against terror was to persuade the world that Americans must be allowed to continue their way of life. When the maddened king stamps his foot, slaves tremble in their quarters. So, it's hard for me to say this, but the American way of life is simply not sustainable. Because it doesn't acknowledge that there is a world beyond America.

Fortunately, power has a shelf life. When the time comes, maybe this mighty empire will, like others before it, overreach itself and implode from within. It looks as though structural cracks have already appeared.

Soviet-style communism failed, not because it was intrinsically evil but because it was flawed. It allowed too few people to usurp too much power: 21st-century market-capitalism, American-style, will fail for the same reasons.

http://www.guardian.co.uk/theguardian/2 ... anweekly12 (http://www.guardian.co.uk/theguardian/2002/oct/03/guardianweekly.guardianweekly12)

.

miktay

03-12-2008, 10:08 PM

No matter how many ppl call for an end to American hegemony, Uncle Sam, like it or not, is here to stay for the immediate future.

That's not wishful thinking or being blinded by the culture, its just a harsh reality.

One thing that America has though is a tried and tested system of check and balances and relatively greater levels of transparency in government.

The governor of NY resigned on charges of solicitating prostitutes. While it may seem strange to other nations that a powerful man should pay so high a price for a seemingly minor indiscretion, it goes to show how strong this system remains

Have no doubt that the era of the ugly American is waxing. But just as it took the decline of the Roman & British empires many decades, America's fall will take as long or longer.

oecarb

03-13-2008, 07:47 AM

No matter how many ppl call for an end to American hegemony, Uncle Sam, like it or not, is here to stay for the immediate future.

Have no doubt that the era of the ugly American is waxing. But just as it took the decline of the Roman & British empires many decades, America's fall will take as long or longer.

Miktay, it seems that things are a bit different now.
The US dollar has fallen to an all-time low against the euro, the yen, the pound and many other major currencies. [/*:m:3avb1ft1]
The price of oil has risen correspondingly to over $110 per barrel. [/*:m:3avb1ft1]
American banks that had engaged in nefarious lending practices now find themselves losing billions of dollars. [/*:m:3avb1ft1]
Americans who had bought houses and had been remortgaging to fund the American Dream now find that their houses are not worth what they hoped. In fact, some people owe more money on their homes than what the homes are worth. [/*:m:3avb1ft1]
People have started losing their jobs.[/*:m:3avb1ft1]

The US govt has tried a number of things like lowering interest rates, lending the banks hundreds of billions of dollars, asking the banks not to foreclose and to reduce the capital owed, and will soon be giving tax refunds.

Nothing appears to be working to date.

Incidentally, I just heard on the news that gold has gone over $1,000 per ounce.

.

miktay

03-13-2008, 11:06 PM

oecarb:

forgive the cynicism but the minute anybody utters the phrase "this time its different" its probably going to be more of the same...

Amerika's downfall has been predicted many times over the last 40 years and for many different reasons: ME petro dollars in the 70s, Japanese manufacturing strength, Asian tigers, Russian military prowess, the savings & loan debacle, complacency by the (then) big three automakers...these threats have fallen by the wayside...in part due to US influence peddling and reinvention and in part due to good old fashioned military force...

Could the things youve discribed be the perfect storm will be the final nail in the coffin.
Perhaps but lets look at your list:

The US dollar has fallen to an all-time low against the euro, the yen, the pound and many other major currencies.

The $ is in danger of being surplanted as the defacto world currency. Interest rates are held artificially low to stimulate the economy. But on a brighter note exports w/certainly be cheaper and imports w/b more expensive stimulating the demand for domestically produced goods.BTW China also has this problem.

American banks that had engaged in nefarious lending practices now find themselves losing billions of dollars.

Theyve been through this at least twice in the last century: the great depression and the S&L crisis of the 80s.

Americans who had bought houses and had been remortgaging to fund the American Dream now find that their houses are not worth what they hoped. In fact, some people owe more money on their homes than what the homes are worth.

Ppl who bought houses on speculation and above their means will lose them. But many did not. Those who bought sensibly will be fine (provided they dont loose their jobs) They dont care about property values in the short term.

People have started losing their jobs.

That seems to be the indication fm the last data point released. But you have to look at the revised number that comes out later. Statisticians frequently make mistakes. And you can't look at 1 month's data in isolation. The trend is what matters.

That said if it does become a trend it w/b bad news.

They ppl at the Fed have just a few tools in their bag of tricks. Theyre using them, a bit too judiciously imho, but use them they must.

oecarb

03-14-2008, 05:56 AM

The $ is in danger of being surplanted as the defacto world currency. Interest rates are held artificially low to stimulate the economy. But on a brighter note exports w/certainly be cheaper and imports w/b more expensive stimulating the demand for domestically produced goods.BTW China also has this problem.

The dollar has de facto already been supplanted. Hence one of the reasons for the price of oil and gold hitting record prices.

The price of oil is already shadowing the euro. It is like the Oil Sheiks saying "I will buy a Mercedes for 1000 barrels of oil - no matter what". If the dollar falls, then the price of oil must go up so that 1000 barrels still buys that Mercedes. And, on the other hand, you have people saying "Why hang on to dollars which are falling in value? Better buy oil or gold". This pushes up the price of commodities generally.

Then with so many American firms having set up factories abroad (in China, India etc) and making profits in foreign currency, how good are the quality and competitiveness of American produced goods these days? Do you know that, even with the super-strong euro, Geramny is exporting at record levels?

Theyve been through this at least twice in the last century: the great depression and the S&L crisis of the 80s.

The S&L crisis was tame compared to the great depression which caused Roosevelt to think along the lines of Socialism in order to cushion the effects on the poor and to help the country out of depression. He introduced the New Deal which made some significant steps towards a welfare state - as exists in Western European countries today. However, when the country began to recover, many of these measures were axed. Bush is now hastily re-introducing some of these ideas. But, is it too late for this recession?

Ppl who bought houses on speculation and above their means will lose them. But many did not. Those who bought sensibly will be fine (provided they dont loose their jobs) They dont care about property values in the short term.

Foreclosure filings are likely to be ``explosive'' in May and June as more payments jump, after remaining at current levels this month and next, Rick Sharga, executive vice president of RealtyTrac, said in an interview. There may be between 750,000 and 1 million bank repossessions in 2008. Bank seizures rose 110 percent in February from a year ago, he said.

February was the 26th consecutive month of year-on-year monthly foreclosure increases, Sharga said. Total filings fell 4 percent last month from the previous month, said RealtyTrac, which compiles statistics from a database of more than 1 million properties and monitors default notices, auction sale notices and bank repossessions.

http://www.bloomberg.com/apps/news?pid= ... 7WKM2zVEgc (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ad7WKM2zVEgc)

Over the last year, the number of officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.

Employment has risen by 100,000, but even that comes with a caveat: there are also 600,000 more people who are working part time because they could not find full-time work, according to the Labor Department.

http://www.nytimes.com/2008/03/08/busin ... on.html?hp (http://www.nytimes.com/2008/03/08/business/08recession.html?hp)

And last, but not least:

Bear Stearns gets emergency funds

US bank Bear Stearns has got emergency funding, in a move that raises fears that even the top Wall Street names are suffering amidst the credit crunch.

JP Morgan Chase will provide the money to Bear Stearns for 28 days with the Federal Reserve of New York's backing.

JP Morgan is also trying to get long-term financing for Bear Stearns.

Bear Stearns has been at the centre of the US mortgage debt crisis, and there has been speculation that it was struggling to fund its daily business.

Bear Stearns is Wall Street's fifth largest investment bank.

http://news.bbc.co.uk/1/hi/business/7296678.stm

Terran

03-17-2008, 04:25 PM

http://www.thepropheticyears.com/reason ... 20debt.HTM (http://www.thepropheticyears.com/reasons/World%20debt.HTM)

The coming economic crash caused by world debt
By Don Koenig - 2008 update

Almost every nation of the world has such severe debt that just making the interest payments takes a large amount of their financial resources. Much of this world debt is owed to world bankers that then dictate their own economic policy to these countries. These policies do not favor the poor.

The largest economy in the world is the United States. The US government is currently over 9 trillion dollars in debt and that is projected to go to 10 trillion or more in two years. Paying the interest on that huge debt in future years will cost about as much as what is spent on national defense (using modern historical interest rates and the cost of defense under normal peace time conditions).

The United States is now by far the biggest debtor nation in the world. For many years we have been importing hundreds of billions more dollars in goods and services than we are exporting each year. In 2005 through 2007 the trade imbalance averaged well over 700 billion dollars per year! Trillions of US dollars are now in the hands of foreign investors who at any time could dump the dollar causing a devaluation of the currency.

Just a few years ago, the US government was forecasting surpluses of trillions of dollars based on the stupid assumption that there would not be a downturn in the economy for decades. This foolish assumption was of course proven wrong and deficit spending has returned to well over "four hundred billion dollars" a year. The only reason the United States is not feeling the pinch of spending beyond its means has been the record low interest rates. The low interest rates were brought about by Federal Reserve manipulation to stimulate the economy but interest rates now will rise. Soon all who need loans will be making higher payments and the US government will be paying much more to service the national debt.

Debt and unfunded liabilities promised through entitlement programs is now over 50 trillion dollars. This amount of money in non inflationary dollars is impossible to raise! Thus, the US is now technically bankrupt. In order to keep up the facade that the US is solvent for even another decade or two one or more of the following must happen.

1. Taxes must be raised.

2. Government spending will have to be drastically cut.

3. Deficit spending will dramatically increase.

If taxes are raised, it will kill the economy and the debt load will get worse and not better. Spending will not be drastically cut because these types of cuts would never get through the political system. Therefore, massive deficit spending will take place. The monetary system will be inflated so that this debt can be paid by using a dollar worth only a fraction of what it is today. This means a much weaker dollar in the future and much higher prices for all goods and services imported to the United States (in short it means we should expect hyper-Inflation). The recent rise in all commodity prices might just be the start of what is to come.

The best long term scenario is that the economy will expand for decades and we will partly grow our way out of this debt crunch (like we temporarily did under Ronald Reagan). I do not see stability for that length of time as even a remote possibility in this world full of crises. I think it is only a matter of time before a downturn in the economy or an unforeseen world event brings about the collapse of this house of cards.

The catalyst for a crash can come in any number of ways. One likely scenario is that confidence in the US dollar will falter. When this happens interest rates will have to rise dramatically to try to lure foreign investors to re-service our debt. Higher interest rates will then shut down our economy and less tax money will be raised. The debt will still have to be paid at the higher interest rate so the government will print even more money and deficit spending will increase. The dollar will fall in value against other currencies bringing about an inflation spiral in the United States and even more dumping of US dollars for a more stable currency.

Banks and financial institutions holding today's unrealistic low interest loans on property will go under, causing a collapse of pension systems and/or a taxpayer bailout that will worsen the deficits even further. Many with adjustable rate mortgages will not be able to make the payments and they will default on their loans. The foreclosed houses will be dumped on the market bringing a collapse in all home values. All this in effect will cause an inflationary depression in the largest economy in the world.

The fall of the US economy will have a domino effect and bring about a worldwide depression that will further depress the US economy and bring a full fledged depression worse than the great depression of the 1930's. When this happens most companies will go bankrupt and will be nationalized.

When I first wrote about the coming economic crash caused by debt in the year 2000, the stock market was 300 percent overvalued. Since then the market has gone down and has gone back up. However, when inflation and the fall of the dollar over the past seven years are factored in stocks still do not have the real value that they did in the year 2000. If investors today had a proper perspective on interest rates, the falling dollar, record oil prices, record deficit spending, the housing crash, terrorism and the coming conflict with Iran the value of stocks compared to the value of real goods and services would decline by more than 200 percent. They will!

Paper money is only worth what it can be traded for in real goods and services. The United States record deficit spending is putting cash into the economy but like all who spend beyond their means the bill will come due. Soon foreign investors will lose confidence and others that hate the US will deliberately cause more pain and the dollar will fall like a rock. The fall of the dollar has already begun. The US dollar only buys 60 percent of what it did in Europe only a few years ago. Only time will tell if the current fall of the dollar will briefly stop or continue descending into a worse crises. Meanwhile, if there is another downturn anytime soon caused by economics or terrorism, or the collapse of housing we will not be able to buy our way out of it again without hyper-inflation.

Inflationary depression worse than the great depression
Two thirds of the families in the US are now invested in the stock market compared to three percent in the great crash of 1929. When the economic crash comes, retirement accounts, mutual funds and most paper wealth will be wiped out. Most banks and financial institutions will fail, be bailed out, or be taken over by the government (causing further devaluation of the dollar). Most people making a living on the service sector of our economy will be unemployed. Prices on everything made in this country will either deflate or paper money will lose most of its value. The resultant depression will affect everyone and it will be the worst that this nation has ever known.

When the US economy goes down it will take the world economy with it. This economic collapse will cause great civil unrest all over the world, cities will be filled with riots and later with troops. Democracy will be dead and people will look to demigods to solve their problems. When the economy of the West crashes Russia may get ideas to invade the Middle East to seize its riches.

This day will not take some of the elite of the world by surprise. They know that this day is coming (Satan pulls their strings). At the appropriate time, the solution to the crises will be to abolish almost all debt and all savings and to start over with a new world economic system that will set the stage for the end time economic system described in the book of Revelation.

There is little question that the world debt crash is coming. It does not even have to start in the United States (it could begin in Japan or elsewhere). The only question is the timing of this crash. The world debt situation is so bad now, that a deliberate or accidental crash could occur at any time. The world bankers and world leaders have been putting off the inevitable by huge bailouts and extensions of debts but with these bailouts there is loss of sovereignty to world government and world bankers. They will continue in this mode until the house of cards collapses of its own weight, someone pulls a card, or some large scale economic disruption blows this house of cards over.

Students of Bible prophecy know that a new world economic system will be set up under a world government where no one will be able to buy or sell unless they take the "mark of the Beast". The formerly debt ridden world will embrace this worldwide cash-less monetary system after the crash because a new system will wipe out most debt and all nations will start afresh. This new economic system will promise great prosperity to the world.

Signs of the time
There is unparalleled greed and foolishness happening in the financial markets of today. People have lost their ability to reason. Like gamblers at casinos the day traders believe that they cannot lose. They think the stock market will always go up. When they take a loss they just double up on their bets. At the high roller's table there are the derivative speculators that are gambling trillions and whole corporations on the wheel of fortune.

We allow government to spend more than it collects and thus defer the bills to our children with little thought to the consequences it will have for them. The scripture says that the love of money is the root of all kinds of evil. Even many Christians have embraced these evils. The number one message preached today in Christian media and in pulpits is "give us money". God has blessed the United States because of His people but greed will ultimately bring correction.

The massive world debt load argues that borrowers have become enslaved by the lenders and will do their wishes. On a temporal national level this means that debt ridden nations must fall in line with the agenda of the globalist socialist elite or they will find themselves in a depression. In the longer term when Satan is ready for his man to take control of the world, this generation will see a total crash of the old economic system. The solution of the new economic system will bring the 666 mark of the Beast and enslavement.

oecarb

03-18-2008, 03:57 AM

A little story - my take on the deficit:

The Richest Man in the Village

You own a shop in a village. The Richest Man in the Village walks into your shop, orders a mountain of goods, then tells you that he has forgotten his wallet at home. He is willing to sign an IOU for the goods.

You accept this IOU. After all, he is the Richest Man in the Village.

Next you want to buy some clothes and a few things for your home. You go into a big store, order what you want and you offer them the IOU from the Richest Man in the Village. They accept this and you go home with your goods.

See what has happened? The Richest Man in the Village keeps his money, he has the goods that he "bought" from you and you got your own goods.

Technically, this could go on forever. The Richest Man in the Village can write IOUs and get what he wants and everybody else can then use whatever IOUs they have to get what they want. But they cannot write their own IOUs because they are not the Richest Man in the Village.

However, twenty or thirty years down the line,the Richest Man in the Village has advertised his house for sale and by a strange coincidence, you happen to have enough of his IOUs to buy it. So you approach him and offer to buy his house using his IOUs.

Will he be happy? I doubt it. Even if he had written In God we Trust all over the IOUs.

oecarb

03-20-2008, 03:56 AM

Now that Bear Stearns has gone down, is this another casualty?

Mortgage firm needs to raise $1bn

Thornburg Mortgage has said it is trying to raise almost $1bn (£500m) in extra capital to avert a possible bankruptcy filing.

The lender, which specialises in big home loans, also plans to offer its lenders a 27% stake in the company.

The measures will significantly dilute the stakes of existing shareholders and the company's shares fell 47%.

Thornburg said that without the new capital it may be forced to seek bankruptcy protection.

Jumbo loans

In a filing with the Securities and Exchange Commission, the company warned that bankruptcy would be a possibility because it would have to sell off the rest of its mortgage assets at depressed prices.

Thornburg specialises in so-called jumbo loans of more than $417,000, which means that until recently they were not eligible for funding from the government-sponsored mortgage agencies Fannie Mae and Freddie Mac.

Thornburg's problems are another sign of the credit crunch spreading from sub-prime lenders to others.

http://news.bbc.co.uk/1/hi/business/7305708.stm

miktay

03-21-2008, 03:52 PM

The dollar has de facto already been supplanted. Hence one of the reasons for the price of oil and gold hitting record prices.

The price of oil is already shadowing the euro. It is like the Oil Sheiks saying "I will buy a Mercedes for 1000 barrels of oil - no matter what". If the dollar falls, then the price of oil must go up so that 1000 barrels still buys that Mercedes. And, on the other hand, you have people saying "Why hang on to dollars which are falling in value? Better buy oil or gold". This pushes up the price of commodities generally.

If the dollar has "already" been surplanted you w/h seen pegged currencies unpegged, gold & oil being quoted in other currencies. I havent heard of this happening.

While gold & oil have supply & store of value reasons for appreciating u should consider the volatility swings of recent price trends: there's plenty of speculation in commodites nowadays. Much of the yield chasers have moved fm property, shares & bonds to gold, oil & copper. And look what has happened to the former.

The S&L crisis was tame compared to the great depression which caused Roosevelt to think along the lines of Socialism in order to cushion the effects on the poor and to help the country out of depression. He introduced the New Deal which made some significant steps towards a welfare state - as exists in Western European countries today. However, when the country began to recover, many of these measures were axed. Bush is now hastily re-introducing some of these ideas. But, is it too late for this recession?

Bush w/not resort this type of welfare to fix the economy. His current drippings to the poor will only provide a short term fix at best. Of course he will soon be gone. The tough structural decisions to fix this mess will have be made by his successor.

Thornburg's problems are another sign of the credit crunch spreading from sub-prime lenders to others.

The problem is no longer sub-prime securties. They and their purveyors shares are being re-priced. The worry is the other securitized obligations right behind the subprimes: auction rate securities, car loans, credit card debt.

Liquidity has left the building.

miktay

04-02-2008, 04:04 PM

Appears that not all those investment bankers who got caught with their pants down were Yanks.

The venerable Swiss are feeling the pinch as well.

http://www.economist.com/finance/displa ... d=10947193 (http://www.economist.com/finance/displaystory.cfm?story_id=10947193)

Marcel waves goodbye
Apr 1st 2008 | BERNE AND LONDON
From Economist.com

The boss of UBS quits after big writedowns

AP
NOT long ago, when an illustrious bank was in trouble, it could announce, with some fanfare, the support of sovereign-wealth investors from the Gulf states or the Far East. In December, when UBS secured SFr13 billion ($11.5 billion) in such funds from Singapore and the Middle East, some of its long-standing investors grumbled that they, too, should have been given the opportunity to help recapitalise the bank on the same generous terms.

Be careful what you wish for. On Tuesday April 1st UBS announced—and it was no prank—that it was writing down a further $19 billion on its investments in American subprime and other mortgages, as part of an unexpected SFr12 billion projected loss in the first quarter. The Swiss bank also said it would call on its shareholders to supply SFr15 billion in additional funds to shore up its depleted reserves of capital. That means shareholders face dilution, and UBS's sovereign-wealth backers may add to the potential losses (albeit paper ones) they have suffered since December. In penance, Marcel Ospel, architect of the merger that created UBS in 1998, said he would step down as chairman, to be replaced by Peter Kurer, the bank’s general counsel.

Even for long-term investors such as sovereign-wealth funds, experiences such as that suffered at UBS are painful. But they are not unique; by one estimate, sovereign-wealth funds as a group have lost about a third so far from their investments in Western banks and private-equity firms during the current credit crisis. Do not expect them to have cheque books at the ready the next time an ailing Western bank has a whip round.

That is why banks are now tapping ordinary shareholders instead. On Tuesday Lehman Brothers raised $4 billion from selling additional shares to strengthen its capital and convince the financial markets it was not headed in the same sorry direction as Bear Stearns. By some estimates banks are preparing to issue $100 billion in new debt and equity this year.

Mkris7

04-03-2008, 06:48 PM

Presently living in California (One of the hardest hit States by housing market) and I would say it is very possible....

But the housing market is not as bad as the media is making it look as far as prices dropping in major urban areas. Last night I just went by a 2 bedroom, 1 bath (800sq ft) condo. The asking price was 460,000.00 USD!!! 40 years old no garage etc. Madness I tell yuh!!!! Even 10 years ago, you could pick this up for about 100,000.00 USD. EVEN IN THIS HOUSING CRISIS There has been over 450% Profit. REAL GREED!!!

The problem with the problem of the subprime crisis is pure and simple greed. When times were good people were flipping houses for a profit like dey was stocks!!! There was a shark frenzy created and people tried to get in before it was too late to ever afford a home.

Those that got the loans could not afford the payment at the time or when they ballooned. It's real sad because some good people got hurt off of many people's need to be greedy. Now the market is correcting itself but still not that fast. Yes in some areas, homes have dropped significantly but NOT IN THE MAJOR URBAN MARKETS!

Yes, people are buying less, new homes being built are slower and people in construction industries and other industries that depend on home manufacturing or big ticket sales are being layed off left and right. But retailers like WallMart and Oil companies are making record profits! Food, GAS and going up while people are loosing their jobs. It's not a good scene for the average person or family.

But trust me, the rich keep getting richer, for example Defense Contractors are making record level profits from the War!!! And guess who has stock in many of these companies??? High(est) Level Govt officials and special interest group leaders.

Just my two-cents

guyguy

04-03-2008, 06:58 PM

Mkris7,
Where in California do you live?

miktay

04-04-2008, 10:07 AM

But trust me, the rich keep getting richer,

This imho is part of the root cause...

Bud Fox: How much is enough?
Gordon Gekko: It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.

Mkris7

04-07-2008, 11:34 PM

GUY GUY

I live in Silicon Valley

Solachica

04-07-2008, 11:41 PM

I read tht for the month of March this year, 80000 persons were layed off from their jobs in the US.

Is tht usual?

guyguy

04-08-2008, 01:50 AM

GUY GUY

I live in Silicon Valley
Thanks. I come up to San Jose, and to Stanford U in Palo Alto frequently from Thousand Oaks in Socal. Maybe we can get together sometime. There's a great Jamaican Restaurant that serves a mean Curry Goat that's located a few streest South of University Blvd. and west of the 101 on the way to Stanford.

miktay

04-08-2008, 03:30 PM

Deflation going global...
http://www.economist.com/world/britain/ ... d=11001376 (http://www.economist.com/world/britain/displaystory.cfm?story_id=11001376)

Britain's economy

The bust begins
Apr 8th 2008
From Economist.com
Housing-market woes spread to Britain

FOR years the housing market in Britain has defied gravity. For a few months in 2004 and 2005 house prices moderated, before taking off again. But now, finally, tighter credit and overstretched household budgets are pulling prices down.

A collective shudder ran down the spines of British homeowners on Tuesday April 8th when Halifax, a part of HBOS and the country’s biggest mortgage lender, revealed that house prices fell in March by 2.5%. The monthly decline recorded by the Halifax house-price index was the biggest since September 1992, when the housing market was enduring an agonisingly prolonged bust.

In fact, monthly house-price figures are notoriously erratic and should be taken with a big grain of salt. The more important finding from the index was that the annual rate of inflation—comparing the first quarters of 2008 and 2007—has fallen to 1.1%, the lowest since March 1996, when it was 0.3%. That fits with the picture painted by the house-price index of the Nationwide Building Society, another big lender. This has now recorded five consecutive monthly declines, lowering the annual rate to 1.1% in the year to March.

Mortgage lenders are reluctant to talk down the market, so it says something that both the Halifax and Nationwide are predicting “modest” declines in house prices this year. Forward-looking indicators suggest a gloomier picture. The number of mortgages approved for house purchase was almost 40% lower in February than a year before. According to the Royal Institution of Chartered Surveyors, estate agents have been grappling with the worst conditions—measured by the ratio of completed sales to unsold stock—since September 1996.

Last week a study by the International Monetary Fund found that Britain’s housing market was the third most over-valued of 17 developed economies, narrowly behind Ireland and the Netherlands. House prices were almost 30% higher than could be explained by fundamental factors such as disposable income, interest rates and working-age population.

These findings are not shocking given the extraordinary house-price boom of the past decade. Between the first quarter of 1997 and the first quarter of 2007, house prices rose by 214%. This was the third highest among 20 countries covered by The Economist. It contrasts with a rise of 135% in America up to its peak in 2006.

During the long surge in house prices, the usual siren voices insisted that “this time it is different”, despite Britain’s previous record of booms and busts. Even though prices soared to apparently unsustainable levels—judged by conventional benchmarks, such as the ratio of house prices to average earnings—they still appeared affordable when debt-servicing costs were compared with income, thanks to low interest rates. Furthermore, a surge in population growth caused by immigration together with sluggish homebuilding rates supposedly warranted the vaulting valuations. This overlooked the fact that the market also looked greatly overvalued when house prices were compared with rents.

The reality was that the market was lifted artificially high by a tide of cheap credit. In particular, borrowers benefited from cut-price home loans made possible by mortgage securitisation, notably from Northern Rock, the lender that was brought low last year by the financial crisis. Now that tide of cheap credit is receding fast as banks and building societies reprice their mortgages and toughen their lending conditions. Spreads on “tracker mortgages” that are linked to the Bank of England’s base rate have risen and lenders are penalising borrowers who can afford only a small deposit.

Some relief may come on Thursday if, as expected, the central bank cuts the base rate from 5.25% to 5.0%. But that would probably do no more than counter the effects of the lenders’ latest moves to constrict credit. Mervyn King, the Bank of England’s governor, said in March that the bank’s two previous quarter-point reductions, in December and February, had done no more than offset the impact of tighter credit conditions, leaving average interest rates paid on mortgages much the same as before.

A period of falling house prices has been long overdue and may be welcomed by those who have been priced out of the market. But past experience suggests that it is likely to inflict economic damage by slowing consumption and GDP growth. When the market slowed in 2005 household spending rose by only 1.5%, its lowest since 1992. That augurs ill for Britain’s economic prospects—and for Gordon Brown’s increasingly beleaguered government.

oecarb

04-09-2008, 06:03 AM

Miktay, the thing to note in this article is that, even though house prices in the UK have fallen recently, they are still 1.1% higher than a year ago. It is the smallest rise for about ten years but it is still a rise.

Unemployment is still pretty low here (5.2% overall but much lower in London and surrounding areas counted according to ILO methods - unlike in the US which hides at least fifty percent of their unemployment) so people can still pay their mortgages if they did not remortgage to the hilt or take out 120% mortgages.

Also, until about ten years ago, people could get help to pay their mortgages if they are unemployed as the government takes the responsibility for housing citizens and I believe the framework still exists so I do not expect to see large numbers of repossessions just yet - especially as the Bank of England is standing by to help any banks in trouble and the govt is ready to prop up the economy to save jobs.

The Chancellor said:

"We need to do everything we possibly can to help people through what is undoubtedly a difficult period.

"That means making sure we support the housing market but also making sure we support the wider economy, keeping people in work."

http://news.bbc.co.uk/1/hi/business/7338056.stm

And banks here are more willing to negotiate. In the last recession, I lost my job, but was able to negotiate a much lower monthly payment which meant my mortgage actually started going up. But as soon as I got this job, I was allowed to increase my payments slowly to catch up. I have now paid off my mortgage completely.

Another thing to note is that the Economist is a right wing publication and they have been forecasting downturns in the economy ever since Labour won the elections in 1997. :twisted:
.

oecarb

04-10-2008, 05:38 AM

lexbarker

04-13-2008, 01:28 PM

oecarb

04-14-2008, 07:41 AM

A video which explains the situation in the UK:

http://news.bbc.co.uk/player/nol/newsid ... =1&bbcws=1 (http://news.bbc.co.uk/player/nol/newsid_7340000/newsid_7340000/7340027.stm?bw=bb&mp=wm&asb=1&news=1&bbcws=1)
Well, do you think that the UK or the EU would be going into recession?

Lex, it seems as if everything is up in the air. My feeling is that the EU in general will suffer a minor downturn but the UK, Ireland and Spain which have attempted to follow the "American success formula" would suffer more - but not as much as the USA.

Most of the EU has their own brand of Socialism. The govt takes charge of housing, education and general welfare of the citizens and collect taxes from workers and firms to pay for this. In the event of a downturn, firms suffer - so less tax for the govt. They lay off workers - so less income tax and VAT. Then they have to turn round and give the unemployed money to feed, clothe and house their families. So they have to have systems in place to try and make sure that companies can be supported so they do not have to lay off staff. And, even in the UK, Ireland and Spain, companies are more rigidlyregulated than in the USA.

It is interesting that after the Great Depression in the USA, Roosevelt actually started assembling a welfare state in the USA along the lines of European countries. But as soon as the Great Depression began to fade from peoples' memories, they started cutting back on unemployment benefit and pensions and other welfare services.

The New Deal

President Roosevelt’s New Deal had three main goals. The first was to provide help to millions of suffering Americans. The second was to improve the economy. The third was to pass new laws so that there were not so many poor people. People called these the “three R’s of relief, recovery and reform. Several relief measures became law during the Hundred Days. One law set up a program that gave jobs to hundreds of thousands of young men. Their jobs included planting trees, fighting fires and working to control floods. Another law set up an agency that gave money to states to help the needy. There were two major laws that were to aide economic recovery. One set up the National Recovery Administration. Its job was to get businesses, workers and the government together. The National Recovery administration set up rules to control competition between businesses. It also protected workers who wanted to organize unions. However, it was not successful. It favored large businesses over small ones, and many businesses did not follow the codes. The same law that created the National Recovery Administration created a program that spent billions of dollars on large building projects. The projects included highways, public buildings and dams. Businesses that worked on the projects hired more workers. The most famous was the Grand Coulee Dam on the Colorado River.

Another major law tried to help the farmers by reducing the amount of crops they produced. Fewer crops would help raise prices. Then, the income of the farmer would rise. The government therefore paid the farmer not to plant crops.

The most important reform law of the Hundred Days set up the Tennessee Valley Authority. In 1933, the Tennessee Valley was one of the poorest regions in the United States. Flooding was a serious problem. Few of the people in the region had electricity. Under the Tennessee Valley Authority the government built dams on the Tennessee River. It also build dams on smaller rivers that flowed into it. These dams controlled the flooding while providing cheap electricity. It was a great success. It saved millions of acres of land. It also provided good jobs for the people and brought prosperity to their region.

The New Deal improved conditions for some Americans after 1933. Unemployment dropped by two million by 1935. Still, over nine million were without jobs.

Roosevelt was not about to give up. “it is common sense to take a method and try it”. “If it fails, admit it frankly and try another”. But above all, try something, he said. The president introduced a new series of New Deal Laws during 1935. One law put millions of people to work around the country. They built or repaired thousands of roads, hospitals, schools, airports and playgrounds. Over the next eight years the government gave jobs to over 8.5 million people.

The Social Security Act of 1935 was one of the New Deal’s most important reforms. It provided pensions to retired Americans. The law also set up a system of unemployment insurance. This protected Americans who lost their jobs. The government would give them money for a certain period of time. The social security also provided payments to disabled or needy people. These payments are known as welfare. The system was not perfect. It did not give all retired Americans pensions, nor did it give all Americans unemployment insurance. However, it was a giant step toward improvement in the lives of millions of Americans.

Ireland, the UK and Spain do share with the US this concept of house prices going up so that people can borrow in the belief that they can always draw down on the quity in their homes. I understand that in Germany and Holland, for example, a second hand house - like a second hand car - is worth less than a new one and people tend to rent rather than buy.

On this forum, some of us (your good self included) have been predicting this US recession for about three years and I have moved accordingly. So I don't have any worries personally.

miktay

04-14-2008, 12:06 PM

Oecarb:

A couple things:

House price appreciation/depreciation is a leading indicator. That is to say declines in housing will most probably precipitate a slowdown in the US & Britian, driven not only by a slowdown of spending by reduced borrowings against home equity, but also by the associated effects that receding house prices have on correlated business such as :

Residential construction, Telephone companies, Retail, satellite tv providers, Furniture sales, alarm companies, mortgage brokers, moving companies etc

Such slowdowns will also affect govt, quasi govt & municipal entities: water & sewage, property tax receipts, electric companies etc

This trickle down effect will exacerbate any economic declines that were originally confined to housing. And this will no doubt lead to retrenchment.

If social assistance is provided it will increase govt expenditure programs which will call for a tax increase in a Labor govt which, and if you follow the cycle through, will cause a further decrease in private capital expenditure & entrepreneurship: the factors that normally drive an economy out of a business cycle trough. Govt spending can also drive ailing economies to health but this also requires increased taxation &/or borrowings.

The long winded point here is that lax regulation of investment banking & mortgage origination & securitization will negatively impact the world wide economy, whether or not it is based on capitalism or socialismn. Easy credit that once drove housing & global economies was based largely on assumptions of good character & transparency. This appears to have been wishful thinking. And it is this loss of confidence & dearth of liquidity that will hang over us all: Limey, Yank or Trini.

Another thing to note is that the Economist is a right wing publication and they have been forecasting downturns in the economy ever since Labour won the elections in 1997.
As a long time reader don't believe the magazine has an overtly right wing agenda. Certainly some povs are right wing but this is balanced by liberal leanings which makes it an uncommonly diverse collection of opinions. In recent times their editorials have endorsed Bill Clinton in the 92 American election & Tony Blair in 05. http://en.wikipedia.org/wiki/The_Econom ... ial_stance (http://en.wikipedia.org/wiki/The_Economist_editorial_stance)
That theyve been forecasting economic downturns is due to overheated US/UK housing markets rather than a political agenda. This prediction is based upon the recognition that property metrics are historically inflated (i.e. spreads b/t prices and rents ; and property appreciation vs wage increases) and due for a correction ; the larger the overvaluation the steeper the fall.

And banks here are more willing to negotiate. In the last recession, I lost my job, but was able to negotiate a much lower monthly payment which meant my mortgage actually started going up. But as soon as I got this job, I was allowed to increase my payments slowly to catch up. I have now paid off my mortgage completely.

Glad to hear that you were able to renegotiate yr mortgage & keep yr house albeit at the possible cost of negative amortization.

However bear in mind that since the last recession some things have changed. This time around many corner bankers have sold off much of their mortgages as securitized obligations which were bought by profit seeking investors such as pension funds, hedge funds & insurance companies. Many of these global investors may be unwilling to have their profit expectations diminished. And it is not just because mortgagees are personally unknown to them, though this is certainly a factor. They themselves made promises to stakeholders that are difficult to change. For example can you imagine if your pension was reduced by 10-20% because your plan invested in seemingly safe investments that are now illiquid or depreciating?

This is a fine mess were in.

oecarb

04-14-2008, 05:02 PM

Miktay,

However bear in mind that since the last recession some things have changed. This time around many corner bankers have sold off much of their mortgages as securitized obligations which were bought by profit seeking investors such as pension funds, hedge funds & insurance companies. Many of these global investors may be unwilling to have their profit expectations diminished.

Another thing that is different from the time of the last recession in the UK is that unemployment is still very low. In the last recession unemployment was quite high - partly because interest rates were 15%+ as a result of the Conservatives' attempts to keep the pound shadowing the euro (or the EMU as it was then called - before its actual birth). There are no signs as yet of rising unemployment in the UK.

Certainly it is harder now to get a mortgage. Certainly it is harder for businesses to borrow to expand. Certainly it is harder to sell your house. However, if you have a job, you should be able to continue to pay your mortgage - regardless of whether you are in egative equity or not. Interest rates are not at the level they were in the last recession.

At the end of the day, house prices are notional. The real value of a house is what people are actually willing to pay for it. Some people will certainly lose their homes if they have over-extended themselves.

Another difference between the US and the UK lies IMHO in the fact that, house prices in the UK have been too high for many people to buy recently. The average house price is currently about £180,000 (US $350,000) while the average income is just about £25,000 (US$48,000). So people won't be losing their homes at the rate that seems to be happening in the USA.

So I personally do not expect anything like the last recession in the UK.

miktay

04-14-2008, 06:43 PM

At the end of the day, house prices are notional. The real value of a house is what people are actually willing to pay for it. Some people will certainly lose their homes if they have over-extended themselves.

Very true and ppl would be wise to bear this in mind.

Another difference between the US and the UK lies IMHO in the fact that, house prices in the UK have been too high for many people to buy recently. The average house price is currently about £180,000 (US $350,000) while the average income is just about £25,000 (US$48,000). So people won't be losing their homes at the rate that seems to be happening in the USA.

In the US many have come to grips with the idea of loosing their home. They blame bankers, lawyers and the govt for their housing woes. A few are honest enough to admit that thier own greed and ignorance played a large part in their circumstances.

What seems to be different this time around are attitudes. In the last recession you would have found homeowners taking an extra job, cutting back on expenses, even sacrificing credit card and car payments to scrape together the monthly mortgage. After all a home was the American dream.

No longer. What is slowly happening is ppl are waking up to the idea that their home may already be lost. Quite a few have stopped paying the mortgage altogether long before their financially situation warrants it due to the rate resets +/or readjusted insurance & property taxes. Theyre pocketing the monthly mortgage well in advance of the start of foreclosure and using the excess cash as down payment for a future rental, as in many markets renting is cheaper than owning, with less responsibility for maintenance, taxes and insurance. After all, some people reason, debtors prisons no longer exist, so let the devil take it.

Banks seem unaware of this. Theyre still of the mindset that homeowners will honor or try to honor their commitments and are taking a hard line with delinquencies. Some may have forgotten that it can cost them $50-$70K to reposess a home and sucessfully resell it. ANd this is in a normal market. Not the dolorous housing market that most of the US finds itself in.

Mkris7

04-15-2008, 03:30 AM

One of the 3 Presidential Runners just stated today that

THE USA IS IN A RECESSION!

Can you guess which one? Hint, hint, he's a Republican.

So I guess it is official...

snowbird

04-15-2008, 07:02 AM

Appears that not all those investment bankers who got caught with their pants down were Yanks.

Correct, Canadian Bankers, and in particular Canadian Imperial Bank of Commerce (CIBC) took a huge hit.
The following is an old story; the numbers quoted in that piece have since increased*.

Duncan Mavin, Financial Post
Published: Friday, December 07, 2007
http://www.canada.com/topics/news/story ... b5&k=45713 (http://www.canada.com/topics/news/story.html?id=34499130-c3eb-43ea-94eb-dd5d93ef34b5&k=45713)

Losses could worsen*: CIBC

Story tools presented by

Mathieu Belanger / ReutersGerry McCaughey, Chief Executive Officer of the Canadian Imperial Bank of Commerce (CIBC)

Buying shares in Canadian Imperial Bank of Commerce is "essentially a bet on the subprime market," said Genuity Capital Markets bank analyst Mario Mendonca in a note after CIBC released a fourth quarter earnings statement that stunned the banking community by revealing the full extent of its multi-billion dollar exposure to the troubled U.S. housing market.

The bank said its writedowns have already reached $1-billion, and warned of significantly higher losses in the future related to its US$9.8-billion in hedged exposure to the subprime market. Some estimates suggest total writedowns could eventually be more than $3-billion, which would be significantly higher than any other Canadian bank has reported, putting CIBC in the same league as the big U.S. banks that have suffered badly from the subprime meltdown.

Shares of CIBC have dropped about 8% over the past two sessions. The revelations sparked a frenzy of activity among analysts on Bay Street, where fears are focused on the potential that counterparties to CIBC's hedges could fail outright and the potential that further weakening of the U.S. subprime market will cause CIBC's exposure to losses to get even bigger.

CIBC's stock lost ground again on Friday, sliding 3.5% after losing 5% on Thursday.

"The key risk area is to one counterparty [on a US$3.5-billion exposure] rated A," Mr. Mendonca said. "CIBC's credit protection (an asset) purchased from this counterparty is US$1.7-billion, but has likely increased to US$2.0-billion since the end of the quarter. We believe investors should prepare for a charge of US$2.18-billion or US$1.5-billion after tax. By our estimates, a charge of this size would reduce the banks Tier 1 ratio materially, but remain above 9.0%."

Mr. Mendonca's bearish view of the bank's subprime woes was echoed by a number of his peers.

Brad Smith of Blackmont Capital downgraded CIBC to a "sell" rating.

"Disclosure of the extent of the bank's gross US non-prime residential mortgage exposure can only be described as reflecting worst case scenario confirmation, reflecting a failure in certain internal risk controls," Mr. Smith said.

National Bank analyst Rob Sedran also downgraded CIBC's stock, and called the subprime exposure "troubling."

"The bank disclosed that its roughly US$10-billion in hedged exposure to subprime CDOs [collateralized debt obligation] and RMBS [residential mortgage backed securities] is hedged with eight counterparties, one of which (roughly 35% of notional exposure) is under credit watch with negative implications. As such, we believe CIBC's near-term risk profile is elevated."

RBC's Andre Hardy lowering his 12-month target price per share from $105 to $95.

"We are modeling $2.3 billion in pre-tax writedowns in first quarter of 2008 related to unhedged and hedged exposures to U.S. CDOs and RMBS. We feel that this represents a scenario that is at the conservative end of the spectrum, but not impossible to fathom at this time."

CIBC's fourth quarter earnings, revealed on Thursday, had surprised most observers because the underlying results were higher than expected. Profits for the final quarter of 2007 were $884-million, up from $819-million last year.

However, all eyes are on the bank's risky credit exposure "The near-term risk associated with subprime CDOs and RMBS is higher than we had previously assumed," Mr. Sedran said. "Moreover, we believe the uncertainty will remain as the bank works to lessen its exposure. Therefore, we are downgrading CM to Sector Perform."

The disclosure has also raised questions about how the bank could have run into trouble yet again. Chief executive officer Gerry McCaughey was supposed to have cleaned up the bank which had developed a reputation for being accident prone, especially after it took a $2.5-billion hit related to its role in the Enron scandal.

But it appears to be back to the drawing board for Mr. McCaughey, with some analysts even questioning whether his cost-cutting and belt-tightening measures may have contributed to the bank's latest problems.

Mr. Mendonca said CIBC's move into riskier wholesale banking be a function of, "Cutting too close to the bone in areas such as risk management, assessment, and monitoring; lack of growth in other areas, including and especially Retail Markets with the result that the bank was desperately searching for any form of revenue growth; and perhaps most importantly, a lack of experienced leadership at the very senior ranks."

Mr. McCaughey yesterday acknowledged the bank had understimated the extent to which the subprime market would deteriorate and the degree to which it would impact its structured products business. He also said the bank was working to reduce risk.

Mr. Mendonca said he can see "a scenario under which management so significantly downsizes the wholesale business as to make it only a very minor contributor to the bank's revenue and earnings."

Last month CIBC sold its U.S. investment banking business in a move that was widely perceived as a risk reduction measure.

© Financial Post 2007

snowbird

04-15-2008, 07:14 AM

One of the 3 Presidential Runners just stated today that

THE USA IS IN A RECESSION!

Can you guess which one? Hint, hint, he's a Republican.

So I guess it is official...

Not sure if it's official yet as just this past weekend there was a joint meeting of the 'G Seven' Finance Ministers, and Central Bank Govenors going on in Washington.

To quote the Bank of Canada Governor Mark Carney....... "The world largest economy is slowing and there is the prospect that the recovery from that slowdown will be more muted". (National Post Monday April 14, 2008)

Looks like they are trying to work on a plan anyway.

oecarb

04-15-2008, 09:06 AM

In the US many have come to grips with the idea of loosing their home. They blame bankers, lawyers and the govt for their housing woes. A few are honest enough to admit that thier own greed and ignorance played a large part in their circumstances.

Miktay, once the banks cottoned onto the idea of packaging mortgages and selling them off a Securitized Investment Vehicles and these were given AAA credit ratings, it is understandable that Pension funds and investment banks would buy them. They were rated AAA which is equivalent to blue chip government bonds or investment in established reputable companies.

However, once the banks could sell on the mortgages, they didn't have to pay attention to whether the borrowers could repay. It was not their problem. Period. And, if a mortgage briker or officer gets a cut for arranging a mortgage, why shouls he care if the borrower cannot repay?

So - grab a bobolee, tell him he could afford his own home, show him how much cheaper it could be than renting, explain that, even if he got into trouble, he could always remortgage. Tell him that is how the rich people do it (TRUE) and get him to sign up to the American Dream. Then collect your commission and move on to the next bobolee.

What seems to be different this time around are attitudes. In the last recession you would have found homeowners taking an extra job, cutting back on expenses, even sacrificing credit card and car payments to scrape together the monthly mortgage. After all a home was the American dream.

The problem with this "recession" is that people are losing their jobs in the USA and it is difficult (I believe) to get second jobs etc. So they have to give up.

The situation in the UK, as I said, is different. We do not have a rise in unemployment. We do not have people walking away from their mortgages in large numbers. We do not have large number of houses with "For Sale" signs. In fact, in my neighbourhood, there are less "For Sale" signs now than there were six months ago. Apparently many people have taken their houses off the market because they do not want to accept less than they think their house is worth. Hardly a move of desperation. And a house around the corner was put up for sale last week for £200,000 (US $390.000) and, this morning, had a SOLD sign put up.

Oh, by the way, I believe the technical definition of a recession is two quarters of negative growth. So, maybe by July we would know if the USA is in a recession.

miktay

04-15-2008, 10:05 AM

Miktay, once the banks cottoned onto the idea of packaging mortgages and selling them off a Securitized Investment Vehicles and these were given AAA credit ratings, it is understandable that Pension funds and investment banks would buy them. They were rated AAA which is equivalent to blue chip government bonds or investment in established reputable companies.

However, once the banks could sell on the mortgages, they didn't have to pay attention to whether the borrowers could repay. It was not their problem. Period. And, if a mortgage briker or officer gets a cut for arranging a mortgage, why shouls he care if the borrower cannot repay?

It wasnt just the banks Oecarb. The scope of the problem was much larger. EVERYONE was trying to make a buck by passing the buck. It was a feeding frenzy ; an arbitrager's dream.

Financing, title, appraisals, inspection, insurance, alarms, water purification, cable tv, publishers, contractors, developers, real estate agents, rehabbers etc were all trying to capitalize on the housing boom at the ultimate expense of the American homeowner who had implicitly but mistakenly trusted the govt to protect them against fraud and misrepresentation.

So - grab a bobolee, tell him he could afford his own home, show him how much cheaper it could be than renting, explain that, even if he got into trouble, he could always remortgage. Tell him that is how the rich people do it (TRUE) and get him to sign up to the American Dream. Then collect your commission and move on to the next bobolee.

True to a certain extent. Caveat Emptor is my motto but many of them are overly trusting & naive. Added to this the tradition of snake oil salemanship remains alive & well in America.

But in their defense its not entirely the common American's fault. This is the way the corporations have/are structuring things...but that's a whole 'nother thread.

The problem with this "recession" is that people are losing their jobs in the USA and it is difficult (I believe) to get second jobs etc. So they have to give up.

It is not that difficult. But again it is different. Employment markets seem to be shifting to bi-cameral : where half of the jobs require either specialized skills and experience and the other half are low skill, clerical jobs that coudnt be exported to India, China or Mexico. Many US workers who dont have specialized skills are unable to find alternate jobs that pay them a living wage. For example many waitresses officially earn USD $2-6/hour. At this wage level she can barely afford health insurance & child care. If she has any looks at all its easier to be a stripper. lol

Oh, by the way, I believe the technical definition of a recession is two quarters of negative growth. So, maybe by July we would know if the USA is in a recession.

That certainly is the unofficial definition but like unemployment it can be misleading and it is reported well after the fact. (BTW The National Bureau of Economic Research is the official arbiter of the US business cycle.) There are other indicators that taken as a trend paint a better picture : the yield curve, dividend yields on the S&P 500 etc.

And if you prefer something more tangible than those technical markers chat with the common people: convenience store owners, rental truck employees, telephone workers, taxi drivers & retail employees. The internet has made this easier. They know the state of the economy, better and in advance, of any prognostications from central bankers +/or economists.

snowbird

04-15-2008, 10:47 AM

....... The problem with this "recession" is that people are losing their jobs in the USA and it is difficult (I believe) to get second jobs etc. So they have to give up.

The situation in the UK, as I said, is different. We do not have a rise in unemployment. We do not have people walking away from their mortgages in large numbers. We do not have large number of houses with "For Sale" signs. In fact, in my neighbourhood, there are less "For Sale" signs now than there were six months ago. Apparently many people have taken their houses off the market because they do not want to accept less than they think their house is worth. Hardly a move of desperation. And a house around the corner was put up for sale last week for £200,000 (US $390.000) and, this morning, had a SOLD sign put up.

Oh, by the way, I believe the technical definition of a recession is two quarters of negative growth. So, maybe by July we would know if the USA is in a recession......

Having experienced two recessions in the past 41 years that I have lived in Canada let me tell you first hand it is not an easy thing. And contrary to some thinking, what is happening in the US can most definitely pull other countries down at worse, or affect them negatively at best.

In the case of the last two recessions world economics played a big part.
The first one back in the 1970's I recall the manufacturing sector being hit the hardest as factories simply closed their doors and walked away. Living in a manufacturing town at the time the burden of raising revenue fell on us the home owners as the corporate tax shrank with the departure of those businesses. Some residents not only lost their jobs and couldn't pay their mortgages; they also faced higher property taxes.... a double whammy, quite a few of them simply walked away from their homes.

The second recession occourred in the 1990's. That one was brutal as every sector of business was hit. A Provincial Government even fell under the weight of that recession as voters naively held them responsible for the state of the economy.

The following are a couple of small articles related to those two recessions.

Canadian Recession of 1982

The era of post-war affluence came to an end in 1973, when recession hit the Canadian economy. As Gross Domestic Product (GDP) fell markedly by 1974, the economy began a remarkable slow-down. By 1982, the Canadian recession hit lows not experienced since the Great Depression years. High levels of unemployment were accompanied by serious inflation (an economic problem termed "stagflation"). Mounting national debts and the beginning of a turn to fiscal conservatism, reinforced by similar trends in the United States and Britain, raised new questions about Canada's economic policies and prompted the federal government to curb further expansion of government services and to retrench social programs. Constitutional crises accompanied these economic problems. Growing political disaffection within Quebec and the rise of separatism led to bitter debate both inside and outside the province.

Canadian Recession of 1991 -92

During the last recession in the early 1990s, the Canadian economy shrank substantially. From 1990 to 1991, real GDP decreased more than 1 per cent, and the unemployment rate rose above 10 per cent in both 1991 and 1992. Governments, both federal and provincial, posted higher deficits because they collected less tax on income and corporate profits but spent more money on programs such as employment insurance benefits.

Governments try to avoid or overcome recessions by adjusting monetary and fiscal policies—increasing spending, cutting taxes, and lowering interest rates—and each of these actions helps create demand for goods and services. The Bank of Canada reduced interest rates several times in the early 2000s to avoid a potential recession.

oecarb

04-15-2008, 01:12 PM

Snowbird, I have lived through the 1988-92 recession here in the UK. As I said in an earlier post, I lost my job and couldn't keep up my mortgage payments. Hundreds of thousands of Brits lost their homes but my wife was still working and we managed to do a deal with the mortgage company.

Anyway, as I said, the situation here is now very different from that time. For a start, we now belong to an enlarged European Union with 27 member countries plus four associated member countries (the EFTA countries) with a combined population of well over 450 million. We have the wealthy countries like the UK, France, Germany, Norway, Switzerland, Ireland and Luxembourg as well as a few incredibly poor ones like Lithuania and Latvia.

We have the Bank of England and the European Central bank both willing to shovel money in to ease any recession. As soon as the subprime crisis reared its head, the European Central Bank immediately made some US $450 billion in loans available to banks. The Bank of England has also made about US $100 billion available for British banks.

In addition, anyone losing their jobs in these 31 countries are eligible for indefinite unemployment benefits - and sometimes other benefits such as housing benefit, income support etc - which range from just above mere subsistence (in the UK) to very generous benefits (minimum two-thirds salary) in Norway.

So no one will starve and money will keep ciculating.

In addition, the EU/EFTA is now large enough to subsist on its own. And the Euro is now about to take over completely from the US dollar as a world currency (http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10501038), according to some having gone from 87 cents US to US $1.57+. So the EU is now in a position to print money as the Americans have been doing for decades and it can also raise treasury bonds, government bonds etc.

Most economists do not see these countries falling into recession - just facing slowdowns. A report quoting Agence France-Presse of 19 March 2008:

US economy ‘perhaps entering recession’: EU economics chief

PARIS: The US economy is slowing and may be entering a recession, the European Commission’s top economics official said Monday at an OECD conference here. “We are no longer enjoying the buoyant economic climate of the last two years. We are no more in economic ‘good times’,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia said. “The US economy is clearly slowing, perhaps even entering a recession,” he added, according to a copy of his speech received by AFP. Almunia addressed delegates at an Organisation of Economic Cooperation and Development conference with a speech mostly dedicated to the need for structural economic reform in Europe. He stressed that Europe was “far from the risk of recession” despite the danger of contagion from the United States, which is struggling with a housing and credit crisis. Almunia’s comments about the US economy echo forecasts from private sector economists. After a string of weak economic data and surveys in the US, most now believe the world’s biggest economy is contracting. At the end of February, the European Commission cut sharply its 2008 growth estimate for the 15 countries in the eurozone and the 27-member European Union. afp

http://www.dailytimes.com.pk/default.as ... 008_pg5_38 (http://www.dailytimes.com.pk/default.asp?page=2008%5C03%5C19%5Cstory_19-3-2008_pg5_38)

lexbarker

04-16-2008, 01:10 PM

Yesterday I put up a post here but somehow I don’t see it today. I guess that it was filled with smut and was removed.
In essence, I mentioned that this present Fed chairman, Bernanke and the pre-chairman, Greenspan are very much responsible for the current financial mess in the U.S. By using the theory of Keynesian economics to flood the country with free and easy money to stimulate economic growth, they would get out of the downturn after the tech bubble bust in 2000/2001. Well, it worked for a while but nothing is free and in doing so it created a far worse situation than anticipated. They are trying to fight inflation with more inflation. Wait for the next year or two and you will see how bad inflation would be.
In the 80’s when Volcker (spelling?) was chairman in a similar situation, he raised the interest rate very high and it caused a recession that lasted about 2 years but after that things were back to normal, the cleansing had been done. I am sorry to say that I do not see and end to this present situation and I would not be surprised if there is massive or hyperinflation and possibly a depression before this economic pollution clears up. The world would be not immune to this crisis, we may all feel the pain more than expected.

miktay

04-16-2008, 01:20 PM

Central banking & economics are more art than science...

lexbarker

04-16-2008, 01:55 PM

Central banking & economics are more art than science...
Do you think that Greenspan and Bernanke did the right thing by pumping up the economy with extra dollars?

oecarb

04-16-2008, 02:32 PM

Central banking & economics are more art than science...
Do you think that Greenspan and Bernanke did the right thing by pumping up the economy with extra dollars?

Lex, in my view, a little pumping in of money Keynesian style is OK. However, the USA has been doing this for far too long and has been printing money to pay for imports etc and to finance American hegemony. At some point the dollar had to collapse.

Now it is the turn of the Euro. A little injection here and there will work. This is why I do not think the EU will go into recession. Not with the Euro touching $1.60.

Earlier in this thread I quoted the indian writer Arubdhati Roy:

Donald Rumsfeld, said that his mission in the war against terror was to persuade the world that Americans must be allowed to continue their way of life. When the maddened king stamps his foot, slaves tremble in their quarters. So, it's hard for me to say this, but the American way of life is simply not sustainable. Because it doesn't acknowledge that there is a world beyond America.

Fortunately, power has a shelf life. When the time comes, maybe this mighty empire will, like others before it, overreach itself and implode from within. It looks as though structural cracks have already appeared.

Soviet-style communism failed, not because it was intrinsically evil but because it was flawed. It allowed too few people to usurp too much power: 21st-century market-capitalism, American-style, will fail for the same reasons.

http://www.guardian.co.uk/theguardian/2 ... anweekly12 (http://www.guardian.co.uk/theguardian/2002/oct/03/guardianweekly.guardianweekly12)

miktay

04-16-2008, 04:19 PM

Central banking & economics are more art than science...
Do you think that Greenspan and Bernanke did the right thing by pumping up the economy with extra dollars?

Overseeing a capitalist economy in this era globalization a complex job. IMHO central bankers should focus primarily on preventing deflation. Deflation is what made the great depression great. Most other risks, errors or oversights can be mitigated.

That Greenspan may have erred is hindsight. What was then applauded as a good decision in a time of uncertaincy has now come under scrutiny. Central bankers are aiming at a constantly moving target with a 6+ month lag before they know whether their actions are really being effective.

One other point. Monetary and fiscal stimuli, that traditionally worked in the past, are currently being diluted by changes in the financial system: derivative trading, hedge funds, and high gearing are making central bank policies impotent because theyre largely outside the controls of the traditionally banking sector.

Oecarb commented that some European central banks made approx $600b available to allay credit concerns. Now this is certainly a good thing. But bear in mind that our highly leveraged financial system has outstanding derivates with tens of trillions of notional value ; some contracts containing hundreds of counterparties.

This may be some reasons behind the recent over reaction by Bernake. If this system ever unravelled it would be a mess. It may be that we simply cannot afford to let the market sort itself out because the market itself doesnt yet know how to value these instruments.

So any invisible guiding hand, clumsy as it may be, w/b preferable to the risk that this house of cards collapses on itself because of uncertaincy and a loss of confidence.

oecarb

04-16-2008, 04:50 PM

Oecarb commented that some European central banks made approx $600b available to allay credit concerns. Now this is certainly a good thing. But bear in mind that our highly leveraged financial system has outstanding derivates with tens of trillions of notional value ; some contracts containing hundreds of counterparties.

This may be some reasons behind the recent over reaction by Bernake. If this system ever unravelled it would be a mess. It may be that we simply cannot afford to let the market sort itself out because the market itself doesnt yet know how to value these instruments.

So any invisible guiding hand, clumsy as it may be, w/b preferable to the risk that this house of cards collapses on itself because of uncertaincy and a loss of confidence.

The bottom line is that the house of cards built on printing US dollars now has to collapse. As you say, Miktay, leveraging is the main cause of all the mess. Leveraging is borrowing to invest. You borrow a million yen at a low rate and buy dollar denominated SIVs, for example, and you pay back your low interest with the higher interest you get by investing. The dollar collapses so your interest is reduced in terms of the yen and the SIVs turn out to be duds. Now is payback time.

The euro is now worth so much (US $1.596 - up from 87 cents five years ago) mainly because people have lost faith in the dollar and the more the US lowers interest rates, the lower the dollar will go. At the same time, the banks which have leveraged funds do not have cash and, even if they had dollars, other banks are reluctant to accept these as the value seems to continue to fall.

This is why the euro will become more and more powerful. And talk of increasing American exports that come with a falling dollar is silly when companies cannot borrow to expand and European goods are sold on quality - not price. A Rolls Royce or a Bentley or Mercedes or a Porsche or Lamborghini is a status symbol and the more it costs, the more it is valued as a status symbol. Can GM or Ford or Chrysler truly compete?

miktay

04-16-2008, 10:20 PM

The bottom line is that the house of cards built on printing US dollars now has to collapse. As you say, Miktay, leveraging is the main cause of all the mess. Leveraging is borrowing to invest. You borrow a million yen at a low rate and buy dollar denominated SIVs, for example, and you pay back your low interest with the higher interest you get by investing. The dollar collapses so your interest is reduced in terms of the yen and the SIVs turn out to be duds. Now is payback time.

No doubt Dubya and his neocon cronies have manhandled a lot of countries over the past 8 years ; there are many who wish to see America humbled.

But the problem with poetic justice is that everyone will pay. Were not talking about an Argentina or Vietnam crisis: if America falls it will suck the wind out of the world economy. And BTW levered derivatives was a WMD that was not exclusive to American financiers. True there are more stringent capital reserves in some European countries but there may be untold quantities of complex questionable instruments on world wide balance sheets. No one knows for sure. This is the real problem: an uncertaincy that is eroding confidence.

And when ppl are fearful they stick their capital "under a matress" where it cannot be put to its most productive use in wet logged economies.

My read is Bernake & Paulson, the latter a product of Wall Street, are trying to soothe & distract markets in the short term, so the bad new gradually plays out, rather than all at once in the hope that future events turn their way.

This may be their only real card. Like Scarlett O'Hara in Gone With The Wind they probably lull themselves to sleep with the hope that, no matter how bad things are, "tomorrrow is another day"

miktay

04-17-2008, 10:53 AM

This is what am talking about...

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=aI92GL4Dv.OM&refer=home)

Iceland Has Credit Ratings Lowered by S&P on Bank Debt Concern

By Lukanyo Mnyanda

April 17 (Bloomberg) -- Iceland had its credit ratings cut by Standard & Poor's, which cited the vulnerability of the nation's banks to the global credit crunch.

The country's long-term foreign currency debt rating was lowered one step to A, five levels below the highest investment- grade rating, from A+, S&P said in a statement from London today.

oecarb

04-17-2008, 05:34 PM

Were not talking about an Argentina or Vietnam crisis: if America falls it will suck the wind out of the world economy.

Miktay, we will have to wait and see.

Certainly the BRIC countries (Brazil, Russia, India and China) would not be greatly affected. They are Johnny-come-latelies to the World finance system and a slowdown would still leave them ahead of where they were five years ago and they have loads of dollars sloshing around their economies. These dollars - even if they are totally worthless - can still buy up large chunks of America - unless hyper-inflation Zimbabwe style hits the USA. The same can be said of oil producing countries as well as countries that produce other dollar-denominated commodities - copper, gold, diamonds, steel etc.

Most Third World countries are excluded from global wealth anyway. They are not allowed to play the game.

Many economists seem to think that the European Union would be virtually immune - especialy the euro-zone. the UK, Ireland and Spain are likely to be the worst affected - though Spain and Ireland both use euros.

So far we are not feeling it here in the UK as yet. In fact, the latest unemployment figures showed unemployment falling again. And this is even after over a million Poles and Hungarians arrived here looking for work when the joined the EU a couple of years ago.

Iceland is a special case. they have been having problems for quite a while now. I haven't been following it but they are not members of the EU - just EFTA members - otherwise they would have got EU money like Spain and Ireland did.

So I guess that leaves Canada, New Zealand, Australia and the Asia-Pacific countries like Korea, Japan, and Taiwan. They could be greatly affected.

However, recessions do pass eventually and some believ that the main damage would be to the USA whichhas been living beyond its means and printing money to finance their deficits ever since they dropped the gold standard over forty years ago.

miktay

04-18-2008, 12:38 AM

Certainly the BRIC countries (Brazil, Russia, India and China) would not be greatly affected. They are Johnny-come-latelies to the World finance system and a slowdown would still leave them ahead of where they were five years ago and they have loads of dollars sloshing around their economies. These dollars - even if they are totally worthless - can still buy up large chunks of America - unless hyper-inflation Zimbabwe style hits the USA. The same can be said of oil producing countries as well as countries that produce other dollar-denominated commodities - copper, gold, diamonds, steel etc.

Most Third World countries are excluded from global wealth anyway. They are not allowed to play the game.

Many economists seem to think that the European Union would be virtually immune - especialy the euro-zone. the UK, Ireland and Spain are likely to be the worst affected - though Spain and Ireland both use euros.

Well Oecarb, perhaps, but let's take a closer look.

15% of the value of all world exports go to America.

In the EU the portion is higher, almost 1/4

Further, 85% of BRIC group (by GDP), i.e. Brazil, India & China, have at least 17% of their total exports headed to the States.

(For perspective Tdad, Bdos & Jca have 60%, 28% & 30% resp. :shock: )

Now, US$ depreciation notwithstanding, these are each significant percentages of export earnings from a common source. And theyre with a partner who is/or will soon be in a recession/collapse that will reduce US appetite for imports.

Based on this back-of-the-napkin analysis, it seems more than likely that a US slowdown or collapse will have profound implications for most world economies.

(source: 2006 data fm https://www.cia.gov/library/publication ... index.html (https://www.cia.gov/library/publications/the-world-factbook/index.html))

miktay

04-18-2008, 04:23 PM

More non US bankers feel pain....
http://www.economist.com/daily/news/dis ... op_story=1 (http://www.economist.com/daily/news/displaystory.cfm?story_id=11074947&top_story=1)

And the cupboard was bare
Apr 18th 2008
From Economist.com

British banks start to pass round the begging bowl

AFP
EVER since the emperor bought new clothes, there have been few instances of self-delusion quite as stark as that of cavalier British bankers at the start of 2008. Just as rivals in America and other parts of Europe were writing down billions on their investments in dodgy mortgage loans and frantically raising money, the bosses of Britain’s biggest banks were instead blithely increasing their dividends in a blustery display of financial strength. Just how hollow it was became apparent on Friday April 18th when it emerged that Royal Bank of Scotland, the country’s second biggest bank, might have to raise money to satisfy bank regulators.

The amount will not be trivial, not will be its impact on shareholders. Analysts reckon that Royal Bank may have to raise between £10 billion ($19.9 billion) and £13 billion, about a third of its current market value of £37 billion. It is expected to do so through a share sale which will probably be announced at its annual shareholders’ meeting on April 23rd.

At issue is Royal Bank’s “core capital”—a cushion composed mainly of shareholders’ money that regulators insist banks hold against bad times—which stands at about 4.5% of risk-weighted assets. This is the lowest of any big British bank and well below the 6% that most banks consider a reasonable minimum level. For Sir Fred Goodwin, the chief executive of Royal Bank, the prospect of having to go cap in hand to shareholders for a bailout would be a deep humiliation and many believe that Sir Fred’s head may well be the price that shareholders demand in exchange for supporting a share issue that may dilute their existing holdings by as much as 50%.If that is the case it would mark the end of a career that was marked by both brilliance and hubris.

Sir Fred made his name at Royal Bank after its hostile takeover of NatWest, another British bank in 2000. Although he was not the main architect of the deal, he was responsible for making it work. He did so skilfully and ruthlessly, in the process earning the moniker “Fred the shred” when he cut some 18,000 jobs. His reign at Royal Bank was characterised by a curious mix of authoritarianism and prickliness. (He once started to sue a big newspaper for libel after it joked in a column that he had wanted a private road built from his bank’s headquarters to the airport and had been denied membership of a swanky golf course. He denied the suggestions entirely.)

More important is that in recent years Sir Fred has alienated shareholders with a spate of contentious acquisitions abroad that, although vastly expanding the empire he manages, has served mainly to depress his company’s share price. The most recent of these was his bank’s participation last year in the €72 billion ($101 billion) takeover of ABN AMRO, a Dutch bank, by a group that also included Spain’s Santander and Fortis, a Belgian-Dutch bank. This deal, which was paid for mostly in cash, is the main reason that Royal Bank’s balance sheet is so stretched (although writedowns on the value of credit derivatives have not helped).

And, although analysts have speculated for months that the bank would need to raise new capital, he has brusquely brushed aside their concerns. On February 28th when he presented the bank’s annual results, he unequivocally told analysts that he had “no plans for any inorganic capital raisings or anything of the sort.”

Rival bankers, however, are advised to keep their Schadenfreude in check. On Friday Citigroup posted a $5.1 billion loss for the first quarter and said it plans to cut 9,000 more jobs. And in Britain, analysts expect other banks to follow in Royal Bank’s footsteps in beating a path to shareholders’ doors. Analysts at JPMorgan Chase, an investment bank, reckon British banks need to raise about £37 billion. Among the worst affected are HBOS, which they reckon may need to raise as much as £11 billion, and Barclays, which could be short of about £8 billion. Self delusion may be dying hard among Britain’s banks, yet the sooner they face facts, the sooner they can move on.

lexbarker

04-18-2008, 09:34 PM

http://www.dailymail.co.uk/pages/live/a ... ge_id=1770 (http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=559973&in_page_id=1770)

Banks in line for £40bn bail-out - paid for by the taxpayer
By RUPERT STEINER and BECKY BARROW - More by this author »

Last updated at 02:06am on 17th April 2008

Comments (24)

Rescue: The Bank England has been asked to take mortgages off banks' books
A massive bail-out of struggling banks is being considered by the Government.

A deal to lend financial institutions up to £40billion could be in place as early as next week.

Any taxpayer-funded rescue would be hugely controversial and seen as a "reward for failure".

Despite the credit crunch turmoil, banking bosses have been able to rack up millions of pounds in bonuses.

Vince Cable, the LibDem Treasury spokesman, said: "We cannot have a situation where the banks are able to privatise their profits and nationalise their losses.

"The Government must now insist on a orderly programme for identifying the losses in the banking system to ensure the banks themselves cover those losses.

"This looks like rewards for failure and irresponsibility."

Leading City of London bankers have asked the Treasury and the Bank of England to take mortgages off their books.

Attack: Lib Dem Treasury spokesman Vince Cable has branded the rescue plan 'a reward for failure'
They say this will ease the flow of money through financial markets and prevent further casualties in the banking sector.

Sources said the deal could involve handing commercial banks government bonds, which are the safest form of debt.

In return the banks would be able to offload their mortgagebased investments on to the Government. The proposed asset "swap" could last as long as two years.

The Federal Reserve has implemented a similar scheme in the U.S. Mortgage assets have become tainted by the American subprime fiasco, triggering a collapse in confidence in the banking system.

A Government source said: "Clearly there is a need for extra liquidity in the system, therefore the work we are taking forward with the Bank of England is a high priority."

A City source said an asset swap would be a bold move.

He added: "It is not every day of the week that the Government thinks about something of this scale."

If the Government does step in, there will be calls for struggling borrowers to be treated more generously.

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24 people have commented on this story so far. Tell us what you think below.

Here's a sample of the latest comments published. You can click view all to read all comments that readers have sent in.

Will somebody please tell us exactly how much of our taxpayers' money is left after throwing billions at these institutions that are morally bereft and totally irresponsible - like this Labour government.

Just at what point does our money run out for heaven's sake! Or are more stealth tax rises are on the way. It has to be paid for by someone and that someone cannot always be the public.

Who is going to stop this runaway train full of morons driving the country into the ground? We must eject these spineless politicians at every level who are playing with the public purse.

- Peter L, Midlands UK

"A reward for failure", so nothing new here then from nu-Labour. The whole country has turned into a train wreck by these incompetent fools.

- John Miller, Hyde

Cut taxes Gordon Brown or you will not last until this September!

- Richard, London

oecarb

04-19-2008, 08:24 AM

Analysts at JPMorgan Chase, an investment bank, reckon British banks need to raise about £37 billion. Among the worst affected are HBOS, which they reckon may need to raise as much as £11 billion, and Barclays, which could be short of about £8 billion. Self delusion may be dying hard among Britain’s banks, yet the sooner they face facts, the sooner they can move on.

Miktay, please note that the EU is divided into the euro-zone (the countries that use the euro and whose banks are overseen by the European Central Bank) and the other EU countries - like the UK - which use their own currencies. The UK uses the British pound - not the euro - and the Bank of England oversees the British banks.

I still think the euro-zone will come out relatively unscathed with two exceptions - Spain and Ireland. And outide of the euro-zone (but still within the EU) - the UK.

I did say earlier in response to a question by lexbarker:

Well, do you think that the UK or the EU would be going into recession?

Lex, it seems as if everything is up in the air. My feeling is that the EU in general will suffer a minor downturn but the UK, Ireland and Spain which have attempted to follow the "American success formula" would suffer more - but not as much as the USA.

However, the Bank of England is now attempting to follow the example of the European Central Bank. Irish and Spanish banks have the European Central Bank to fall back on.

oecarb

04-19-2008, 08:56 AM

OK, so this is an old article from the Economist- Nov 2007. But it says what I have been trying to say:

Will an American recession drag the rest of the world down with it?

The economies of Europe and Japan rebounded strongly in the third quarter, but look likely to slow down. Although both should be able to keep chugging along, neither is likely to set any great pace. Strengthening currencies will hurt exporters in both places. Europe's own housing hotspots are cooling, and some of its banks have been sideswiped by America's subprime ills.

The best hope that global growth can stay strong lies instead with emerging economies. A decade ago, the thought that so much depended on these crisis-prone places would have been terrifying. Yet thanks largely to economic reforms, their annual growth rate has surged to around 7%. This year they will contribute half of the globe's GDP growth, measured at market exchange rates, over three times as much as America. In the past, emerging economies have often needed bailing out by the rich world. This time they could be the rescuers.

Of course, a recession in America would reduce emerging economies' exports, but they are less vulnerable than they used to be. America's importance as an engine of global growth has been exaggerated. Since 2000 its share of world imports has dropped from 19% to 14%. Its vast current-account deficit has started to shrink, meaning that America is no longer pulling along the rest of the world. Yet growth in emerging economies has quickened, partly thanks to demand at home. In the first half of this year the increase in consumer spending (in actual dollar terms) in China and India added more to global GDP growth than that in America.

Most emerging economies are in healthier shape than ever (see article). They are no longer financially dependent on the rest of the world, but have large foreign-exchange reserves—no less than three-quarters of the global total. Though there are some notable exceptions, most of them have small budget deficits (another change from the past), so they can boost spending to offset weaker exports if need be.

This does not mean emerging economies will grow fast enough to make up for the whole of a fall in America's output. Most of them will slow a bit next year: for instance, China's growth rate may dip to “only” 10%. So global growth will ease—which, after five years at an average of almost 5%, close to its fastest pace ever, it needs to do. But thanks to the vigour of the new titans, it will stay above its 30-year average of 3.5%.

A tale of two prices
The rising importance of the world's new giants will not only boost growth. It will also shift relative prices, notably those of oil and the dollar. And the consequences of this will be less comfortable for developed countries, especially America.

The oil price has risen mainly because of strong demand in emerging economies, which have accounted for as much as four-fifths of the total increase in oil consumption in the past five years. In past American recessions the oil price usually fell. This time it is likely to hold up. That will not only hurt the finances of Western consumers, but may also make the jobs of their central bankers harder, by combining inflationary pressure with economic slowdown.

The enfeebled dollar—lately in sight of $1.50 to the euro—would be weaker still without enormous purchases by central banks in emerging economies. This support is now waning. China and others are putting a smaller share of increases in reserves into the American currency. And Asian and Middle Eastern countries with currencies linked to the dollar are facing rising inflation, but falling American interest rates make it harder to tighten their own monetary policy. They may have to let their currencies rise against the sickly greenback, meaning they will need to buy fewer dollars. More important, as international investors wake up to the relative weakening of America's economic power, they will surely question why they hold the bulk of their wealth in dollars. The dollar's decline already amounts to the biggest default in history, having wiped far more off the value of foreigners' assets than any emerging market has ever done.

The vigour of emerging economies is good news for the world economy: for its growth, it has much less need of a strong America. The bad news for America is that this, in turn, may mean that the world also has less need of the dollar.

http://www.economist.com/opinion/displa ... d=10134118 (http://www.economist.com/opinion/displaystory.cfm?story_id=10134118)

lexbarker

04-19-2008, 01:49 PM

lexbarker

04-19-2008, 08:58 PM

oecarb

04-20-2008, 10:28 AM

However, the Bank of England is now attempting to follow the example of the European Central Bank. Irish and Spanish banks have the European Central Bank to fall back on.

The bank of England is following the US by bailing out the British banks. And don't be surprise if there is more to come.

Lex, the Bank of England is going further than the US would ever dare to go. As I said, untill 1995 the government paid your mortgage if you were out of work.

Some movement on mortgage relief in the UK is expected soon:

'Mortgage holidays' for hard-up homeowners

Homeowners facing the threat of repossession could be offered 'mortgage holidays' from their payments and other deals to keep them under their own roof under proposals to be discussed at a government summit this week.

The Chancellor, Alistair Darling, will use Tuesday's meeting with major banks and building societies to insist they pass on recent interest rate cuts to their customers.

But he is also expected to discuss ways to help people at risk of defaulting, including putting those with previously good credit records on 'flexible' mortgage schemes - which allow a few months' breathing space from payments, to be made up in the future - or even deals allowing distressed homeowners to sell up to the lender but stay on as rent-paying tenants.

This week the Bank of England is expected to unveil the details of a plan to inject £50bn into the mortgage market, by swapping packages of mortgage debt for more secure government-backed bonds. But Darling will make clear he expects the benefit to be passed to customers through cheaper mortgage rates and more help for those in trouble.

'It's about saying firstly that they have got to be in a position to pass on the rate cuts, plus having a discussion about what to do about people who are in danger of defaulting on their mortgage payments,' said a Whitehall source. 'For example, putting people on flexible mortgages, so that they aren't being put into a position where they get into bad debt because they can't make their payments.'

Flexible mortgages allow customers to underpay for a few months and then make bigger compensating payments later if circumstances have improved. (This is similar to what I had when I was unemployed during the last recession.) Many lenders also offer 'mortgage holidays' to customers in specific circumstances, such as couples who have just had a baby, which could be extended.

Ministers say they are prepared to listen to ideas from industry, but the government is already studying so-called 'rentback' schemes now operated by private companies which offer to buy houses from struggling owners, and then rent the same house back to them as tenants.

Housing charities argue some are exploiting desperate families by buying houses at less than two-thirds of their market value and ministers, together with the Financial Services Authority, were already looking at tighter regulation. One option is encouraging more lenders to offer their own shared-ownership schemes to good customers struggling to meet payments, where the bank would effectively buy the house and the former owner would stay on as the bank's tenant, paying rent.

Up to two million customers due to come off cheap fixed-rate deals this year face remortgaging just as lenders are scrapping such offers and house prices are falling.

Lenders are expected to propose increased state support for those who lose their jobs and then default on payments. Currently homeowners are only entitled to state help with the mortgage once they have been out of work for nine months - by which time some may have lost their homes.

Stephen Timms, the welfare minister, is to meet the Council of Mortgage Lenders tomorrow. A source at the Department for Work and Pensions said ministers understood the pressures on homeowners and were ready to listen to lenders but added: 'It is a balance between what it costs the state to do this versus making life easier for individuals. There is obviously not a lot of spare capacity (in the welfare budget).' Repossessions last year averaged 80 a day, expected to rise to 125 a day by the end of the year.

http://www.guardian.co.uk/money/2008/ap ... ouseprices (http://www.guardian.co.uk/money/2008/apr/20/mortgages.houseprices)

miktay

04-21-2008, 02:03 PM

OK, so this is an old article from the Economist- Nov 2007. But it says what I have been trying to say:

Oecarb: That is a interesting article fm the Economist. But bear in mind a couple things.

The world economy has changed over the last decade and pundits have come up with all sorts of explanations to rationalize trends. From "mortgage-securitization-is-good-because-it-helps-banks-lower-risk-& make-more-profit" to "derivatives-are-a net-benefit-to the financial-system-because-they-add-diversification".

What were seeing is some of these theories collapse under the weight of current events.

Even worse some of these prognostications were just smoke and mirror soundbites that made punters hold onto loosing positions because they were told "this time it's different & theory xyz explains why"

Many investors may have been duped by economists, investment & central bankers with good intentions &/or a different agenda.

Though decoupling may have some merit, IMHO, it is a newer idea that has yet to be fully vetted.

Here is a different pov ; more along the lines of what am thinking:

http://www.iht.com/articles/2008/01/27/ ... delink.php (http://www.iht.com/articles/2008/01/27/business/26delink.php)

Decoupling: Theory vs. reality
By Conrad de Aenlle

Sunday, January 27, 2008
No one can say how much has been lost by investors basing decisions on unproven strategies that work in theory, but the amount has grown significantly. As trillions of dollars were wiped off the value of global stocks last week, "decoupling" became the latest big idea to shrink dramatically when tested in the real world.

Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a severe slowdown there, even a fully fledged recession. Faith in the concept has generated strong outperformance for stocks outside the United States - until now.

As opinion began to solidify after the start of the year that a recession, or something close to it, was likely in the United States, stock prices accelerated their declines, with the selling intensifying early last week. Contrary to what the decouplers would have expected, the losses were greater outside the United States, with the worst experienced in emerging markets and developed economies like Germany and Japan.

Exports make up especially large portions of economic activity in those places, but that was not supposed to matter anymore in a decoupled world because domestic activity was thought to be so robust.

Decoupling was all the rage early last year when international financial markets all but ignored the increasing turmoil in the U.S. economy and stock market. Investment advisers point out, however, that the segments of the U.S. economy that were showing wear and tear then were those to which the rest of the world would never be heavily exposed. That is no longer true, they say, and markets are responding accordingly.

"Decoupling is yesterday's story," Stuart Schweitzer, a global strategist at JP Morgan Private Bank, said. "Last year, when the U.S. slowdown was driven almost entirely by housing, it made sense that the rest of the world kept right on going. Housing is a domestic story, plain and simple.
"The nature of the slowdown has changed in two key respects. The credit crunch that began in midsummer is not just a U.S. phenomenon; the rise in risk aversion is global and will have an impact on credit terms and availability everywhere. And we're finally seeing evidence that the U.S. job market is losing steam and consumer spending is slowing."

True believers in decoupling have ignored another theory that appears to be logically inconsistent with it, has been popular for far longer and, most important, has been shown to work in real life. Remember globalization?

"If anything, global interdependence of economies is rising, not falling," said Jeff Applegate, chief investment officer of Citi Global Wealth Management.

"The notion that the U.S. can go into recession with no negative knock-on effect in the rest of the world doesn't hold up."

Andrew Foster, head of equity research for Matthews International Capital, a specialist in Asian markets, contends that it is possible for globalization and decoupling to coexist. In fact, one gave rise to the other, he said. It was only through economic liberalization that the juggernaut economies of Asia were able to grow as fast as they have, allowing for the development of conspicuously consuming middle classes.

"The irony is that these economies are more coupled with the rest of the world than they ever were in the past," he said. "That's why they're so strong, and that has allowed them to become more independent."

The new Asian consumers may not be able to compensate for all of the exports that would be lost during an American recession, Foster said, but some of the companies that served their needs might still do all right for themselves. The true decoupling may be not so much between the United States and the rest of the world as between segments of the global economy that cater to the burgeoning nouveau riche in emerging economies on one hand and most other commercial sectors on the other.

With the United States apparently tipping over into recession, Foster is looking to fill his Asia portfolios with the first type of businesses, as long as they have not been bid up to unreasonable levels already. A couple of pockets of opportunity that he finds are Chinese insurance companies and Indian health care providers.

"I like companies that don't derive their fortunes from products, services and especially commodities dominated by the global business cycle," he said, although he declined to furnish examples.

Valuation is also critical for Michael Avery, chief investment officer of Waddell & Reed and a professed believer in decoupling - up to a point. He noted that the concept began to pop into the heads of professional investors, including his, during the last U.S. recession, in 2001-2, although it had not yet achieved buzzword status.

"A lot of people in our business were thinking about where the world was going to head in a post-9/11 environment," Avery recalled. "The U.S. economy had slowed dramatically in 2001, and you had places in the world like China and India that continued to grow at mid to high single digits. That set in motion the thinking that the U.S. might not be the leading economic force going forward."

But while he accepts the basic idea of economic decoupling, he is not fanatical about it as an investment theme, at least not now. The emerging world will grow faster than the United States, in his view, but Avery doubts that sufficient growth can be achieved to justify the valuations being put on companies in those markets by the new wave of decoupling adherents.

"The big difference in 2002 is that not many people placed bets on that outcome, so there wasn't much risk," he said.

"Now I can go anywhere, and if I talk about China and India and the emerging middle class, they all nod their heads. It's a huge difference from five years ago."

Avery still finds value in some domestically oriented sectors in Asia, as well as in Middle Eastern markets that continue to benefit from one key export, crude oil. He noted that while exports to the United States of less viscous products may be at risk, the growth of middle-class spending is promoting a healthy expansion of trade within the emerging world.

Avery made a big bet on declining share prices late last year when he sold short derivative contracts tied to benchmark stock indexes. But his Ivy Asset Strategy Fund has substantial holdings in such plays on emerging-market domestic demand as the phone company China Mobile; Veolia Environnement, a French producer of water treatment systems, and Las Vegas Sands, an American hotel and casino operator expanding into Macao.

In addition to selling stock index futures, Avery has about 10 percent of his portfolio each in gold, cash and Treasury bonds as hedges against the uncertainties and jolts that would accompany a U.S. recession.

Tim Guinness, chairman and chief investment officer of Guinness Atkinson Asset Management, is another whose objection to decoupling is more a matter of how it works in practice.

"I'm a moderate decoupling believer," he acknowledged. "I'm in the camp that believes that China is rapidly moving from being dependent on exports to the U.S. to enjoying a virtuous circle of rapidly rising incomes for Chinese consumers and very strong momentum behind internally driven growth."

There is momentum in Chinese stock markets, too, he noted, but in a different direction. Perhaps the biggest beneficiary of decoupling is giving back much of its enormous gains of the last few years as investors break faith with the concept.

"I prefer China, but not today," Guinness said. "The next few months will see a continued retreat in China-related stocks. The correction already has been very pronounced."

He prefers less bubbly stock markets in emerging economies where domestic demand is strong, like South Korea and Thailand. Individual stocks that he favors include PTT in Thailand, Singapore Petroleum and Cemig, a Brazilian hydroelectric company.

Applegate, at Citi, finds stocks better value than bonds. He particularly likes global banks and stocks in Europe and emerging markets generally, although he considers China, including Hong Kong, fairly pricey.

Bonds and equities have experienced sharply diverging fortunes recently. Many stock markets are more than 20 percent below their 2007 highs, while yields on government bonds have plummeted, sending their prices aloft.

Movements in both markets suggest that investors are factoring a global recession into their thinking, a development that could set the stage for the next rally in stocks and render the decoupling argument moot.

Another theory, with a proven track record, states that stocks should be bought once the economy is recognized to be in recession. By then, share prices account for all or most of the bad news, the authorities have taken steps to correct imbalances and a recovery is often imminent.

"Play the movie forward," Applegate said. "If the economy is going to soften globally, then can you expect more central bank policy response? The answer is a resounding yes."

In such conditions, he said, "you should have more of a preference for equities over bonds."

oecarb

04-22-2008, 07:15 AM

Miktay, it is interesting that the dissenters Stuart Schweitzer, a global strategist at JP Morgan Private Bank and Jeff Applegate, chief investment officer of Citi Global Wealth Management both worked for organisations that got caught up in the "mortgage-securitization-is-good-because-it-helps-banks-lower-risk-& make-more-profit" to "derivatives-are-a net-benefit-to the financial-system-because-they-add-diversification" dilema.

Consider the following scenario:

You have an electrical/electronics shop in a village. The Richest Man in the Village walks into your shop and buys $20,000 worth of goods. He gives you a signed note promising to pay you $20,000 and leaves with the goods.

He has done this sort of thing before and you found that, when you wanted to buy groceries, you could just hand over onre of his IOUs and the grocery shop would accept it.

This time, however, you go over to his car sales office and decide to buy a Ford Mondeo for $20,000. Surprise surprise, he tells you that you need $22,000 in IOUs to buy the $20,000 car.

This is what the USA has been doing to the rest of the world over the past few years.

What do you do? Still continue accepting his IOUs at face value? Or do you make him pay more for your goods?

The latter is decoupling.

Yes, the rest of the world will be dragged down. The question is how far.

miktay

04-24-2008, 11:22 AM

Lessons fm UBS ; whose mis-steps were/are not uncommon to other investment banks: greed disguised as competition, shallow risk management control, & leverage.

http://www.economist.com/finance/displa ... d=11081547 (http://www.economist.com/finance/displaystory.cfm?story_id=11081547)

HOW did UBS, a Swiss bank whose core business is the staid one of wealth management, manage to lose $38 billion betting on American mortgage-backed assets, battering its core capital and share price in the process? Shareholders, out in force at the bank’s annual meeting on Wednesday April 23rd in Basel, asked just that question.

The mystery is being resolved. On Monday the bank released a summary of an internal investigation into the causes of the write-downs that had been demanded by the Swiss Federal Banking Commission. The 400-page report is now being chewed over by the regulator. Rivals should read it too. The report gives three broad explanations for the bank’s woes. The investment-banking arm’s preoccupation with growth, the reliance of the control team on flawed measures of risk and the culture of the bank.

Start with those growth plans. Many had assumed that Dillon Read Capital Management (DRCM), a hedge fund set up by UBS in 2005 and closed in 2007, was the primary culprit for the write-downs; in fact its contribution was modest. The more pernicious effect of DRCM was to deprive UBS of some of its most experienced people and to distract its senior management at a time when the investment bank was pursuing a strategy of rapid expansion.

The growth was focused on fixed income, an area where UBS particularly lagged competitors. The goal was to drive itself up the league tables by expanding in areas such as structured credit and commodities. The effect, says the report, was to grow too fast and emphasise revenue at the expense of risk. The end result: a desk that numbered just 35-40 people at its peak was responsible for write-downs of some $12 billion in 2007, two-thirds of the total.

If the bank’s risk takers overlooked risk, its risk controllers miscalculated it. Probing questions could and should have revealed the scale of the risks that UBS was taking. Concerns were raised at various times in 2006 and 2007. The bank’s top executives were sufficiently attuned to the deterioration in the American housing market to have raised it in September 2006. But the report says that they were fobbed off by assurances from executives at the investment bank that all was well. The investment bank’s bosses only realised the depth of the hole they were in by late July by which time it was too late to do much about it.

There is no suggestion that anything untoward was going on. Assurances that risks were being properly managed were given in good faith, says Rupert Jolley, who led the investigation. But there was also a clear incentive to set aside any doubts so long as revenues were rising.

The report only deals with write-downs up to the end of last year. Nonetheless it asks some awkward questions of the bank now. If the culture of the bank was at fault, then can an insider such as Peter Kurer, plucked from the position of general counsel to replace Marcel Ospel, the former chairman, fix it? One large shareholder describes the combination of Mr Kurer and Marcel Rohner, the chief executive, as “terrifyingly weak”.

The report also notes that the issue of subprime exposures jostled unsuccessfully with several other items on the agenda of group-level meetings (leveraged finance got plenty of attention, by contrast): that will reinforce the doubts of those who think that the bank has become too complicated to manage. Perhaps most worrying of all for battered shareholders is the implication of the investigation’s findings for UBS’s sizeable remaining exposures to the American housing market, including $16 billion-worth of Alt-A positions that were still on the balance sheet at the end of March. There is scant reason to assume that these positions were researched or hedged more effectively than their subprime sisters.

The rest of the industry can hardly rest easy either. UBS got more things wrong than most but the traps it fell into will be familiar to its peers. Lots of other investment banks measure their status via league tables and seek to bulk up where they are weakest. Compensation and funding structures that fail to distinguish “alpha”, or skill, from simple carry trades are widespread. The flaws in measuring risk, and the emphasis on net rather than notional exposures, are also known hazards. The investigation found no evidence to suggest that regulators criticised the way UBS managed its risks. The banking commission sits in judgement now; it might usefully have done so earlier.

greall

04-24-2008, 04:28 PM

It's no other way to describe it other than plain greed and I'm starting to see it here with grandiose loan targets in a time when the average man has to cut back on his expenses.
It's a low down dirty shame... :!:

miktay

04-28-2008, 02:17 PM

what lies ahead for credit & the difficulty of quantifying derivative & counterparty exposure...

Swap shop
Apr 24th 2008
From The Economist print edition

Why one part of the credit markets just keeps on growing

NOT all credit products are created equal. The credit-default swap (CDS) market is going from strength to strength, with outstanding volumes rising from an already staggering $34.4 trillion at the end of 2006 to $62.2 trillion at the end of last year. In contrast, issuance of collateralised-debt obligations (CDOs) has fallen dramatically. It was a paltry $11.7 billion in the first quarter, down from a record $186.5 billion in the same period the year before.

At first blush, this might seem surprising. After all, during the boom years for CDOs, the two products were closely intertwined. Traditional CDOs bundled bonds into portfolios and then split those portfolios into tranches, depending on investors' appetite for risk. Some investors wanted a higher return but were willing to take the first hit from bond defaults; other investors were more concerned about the safety of their capital and were willing to accept a lower return.

The idea was so popular that there were not nearly enough corporate bonds to go round. So managers created so-called “synthetic” CDOs, in which the portfolios consisted of credit-default swaps. In a CDS, one party agrees to insure the other in the event of a bond default, in return for a fee (the equivalent of an insurance premium). So in a synthetic CDO, those who owned the riskiest tranches got more of the premium but lost out when defaults occurred.

There is, in theory, no limit on the amount of default swaps that can be created. So when managers wanted to sell a synthetic CDO, they simply created some more CDSs. Now that the CDO market is in the deep freeze, thanks to all those subprime-related losses, that source of demand has dried up.

But there have been plenty of other buyers. After all, it is only natural that, with the likelihood of bond defaults increasing, more investors should want to buy insurance against such events.

More importantly, however, the CDS has become the product of choice for those investing in credit as an asset class. Five to ten years ago, the corporate-bond market was a lot less active; there was little trading in the bonds themselves, which were often locked up in the portfolios of pension funds and insurance companies.

The invention of the CDS increased the liquidity of the market and, crucially, allowed investors to take a “short” position on bonds. Traditionally, you would buy a corporate bond at, say, 95 cents on the dollar. The best you could hope for was that interest would continued to be paid and that the bond would be repaid at par; at worst, the issuer could default and you could conceivably be left with nothing.

Now investors who believe that credit conditions will deteriorate for a particular company can buy a CDS on the bond, whether or not they own it. The value of such an insurance contract will rise if default becomes more likely. The creation of index contracts on the market allows you to bet whether all corporate bonds (or, indeed, different segments of the market such as investment grade and junk bonds) will rise or fall in value.

As a result, the CDS is such a useful instrument for hedge funds and the trading desks of investment banks that it seems inconceivable it will go away. Just as the future on the S&P 500 index is a key part of the equity market, the CDS is central to non-government debt.

But could it be the Achilles heel of the financial markets? One clear problem is counterparty risk; insurance is worth nothing if the insurer cannot pay up. The involvement of Bear Stearns in the credit-derivatives market was one reason why there was a public interest in the firm's rescue; a default might have caused chaos as other counterparties struggled to calculate their risk exposure.
Another problem could emerge if a sudden surge in defaults was accompanied by a further widening in spreads. The market might become illiquid if those that had in effect sold insurance tried to exit their positions.
Market insiders are confident the CDS sector can stand up to the strain. Ashish Shah of Lehman Brothers says that the CDS market showed itself robust in the face of the Enron and WorldCom defaults in 2001 and 2002, and of other bankruptcies since then.

However, many market participants were equally reassuring about the health of the CDO market in early 2007—and look how that turned out. Independent observers will not be really reassured until the system survives the test of a big, juicy default. Given the weakness of the American economy and the scale of the credit crunch, it probably will not be long before that test comes along.

oecarb

04-28-2008, 05:26 PM

It might still be coming but, so far, no evidence of a serious slowdown in the UK. Some reports of house price rises slowing but not any number actually falling. Dire predictions of banks going bust but only Northern Rock so far. Number of mortgages falling. People taking their homes off the market rather than sell at a lower price.

German exports still holding up well even with a high euro which now seems to be falling back a bit.

oecarb

04-30-2008, 04:18 PM

Slight drop in house prices in the UK:

UK house prices in 1% annual fall
House prices in the UK have recorded their first annual fall for 12 years, according to the Nationwide.

Prices fell by 1.1% in April, the sixth monthly decline in a row, and were down 1% from the levels seen in April 2007, the building society said.

Nationwide said the price falls reflected a weakening market which had been hit by "poor affordability and tighter financial market conditions".

An average home now costs £178,555, which is £1,759 lower than April 2007.

http://news.bbc.co.uk/1/hi/business/7374730.stm

Falcon

05-01-2008, 06:27 AM

So oecarb, in other news, how come all the gun crime and hostage crime does allllllways be in Herts???!

What allyuh puttin in d water up there?! :shock:

oecarb

05-01-2008, 06:31 AM

So oecarb, in other news, how come all the gun crime and hostage crime does allllllways be in Herts???!

What allyuh puttin in d water up there?! :shock:

Well, Falcs, in the old days, when them East End gangsters make a few pound, they used to move out to Essex. Now Essex ain't good enough for them.

But they still struggling to reach up here in North Herts. We too posh up here for even them. :lol:

Let them stay down in South Herts.

miktay

05-01-2008, 11:51 AM

Oecarb:

For perspective, the Telegraph (UK) argues that property prices declines of up to 10-15% will not lead to a recession.

Hmmm...

http://www.telegraph.co.uk/money/main.j ... iam120.xml (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/20/ccliam120.xml)

House price falls won't send the UK into a recession
By David Miles

A strange thing happens when some people comment on house prices. There is something close to an inversion of the logic that is applied to other economic issues.

There are clearly problems if house prices fall sharply, but there is a tendency to exaggerate the impact

When food prices go up - as they have done recently - this is considered bad news. But when house prices go up, this is often considered good news; or more clearly when house prices fall - as they have in much of the UK recently - this is considered bad news. But in very many ways houses and food are rather similar - food and shelter are necessities that you need to buy for about as long as you live.

There are winners and losers when food prices fall - often the losers are farmers - just as there are winners and losers when house prices fall. Losers include those who are about to sell to trade down to a cheaper property.

In some of the UK press the news that house prices are - or even might be - falling is treated in rather the same way as news that the plague had been spotted in middle England. I have experienced this at first hand, finding that offering the rather unsurprising and unoriginal thought that house prices (which in the UK have roughly trebled over the past 10 years) could fall 10 per cent can get reported as if it was a confident prediction of the end of the world coming some time around December.

Now I don't want to take this too far. There are clearly problems if house prices fall sharply. People with debt can find the value of their mortgage is larger than the value of their house. But even here I believe there is a tendency to exaggerate the significance of that. The fact that the market value of one's house may have fallen does not, in itself, change the cost of servicing the debt.

I think we are in an environment now when house prices are likely to fall further in the UK, but that the cost of mortgages to the great majority of home-owners will not rise much. So while the number of people who might have negative equity might rise substantially, the number of people who have real problems servicing their mortgage debt may not. For some people it will be tough - but they are likely to be a minority, which is little consolation if you are one of them.

For what it is worth, some economic modelling of the forces driving the demand for and supply of property that I have done with colleagues at Morgan Stanley suggests that a plausible central scenario might be one in which the average level of house prices falls about 10 per cent this year, and by about 5 per cent in 2009. Forecasts from economists are two a penny, so no one should get very excited about that. It might be more interesting to note what futures contracts (derivatives) imply.

I attach weight to the message from the prices of derivative contracts that are written on house prices - in part because that is where people are putting their money. Talk is cheap and there are lots of vested interests from those who offer strident views on where house prices are going. Prices of derivatives reflect where people are actually staking money.

Derivatives contracts priced off the Halifax national house price index currently price in something close to a 10 per cent fall in nominal house prices over 2008 (i.e. around 8 per cent from the March level) and around a 5 per cent fall the year after. Beyond three years ahead, derivatives contracts imply increases in prices. So as it happens that is about the same as the central forecast based on the economic model.

A 10 per cent fall in house prices this year - with a smaller fall next year - might sound dramatic. But as a possible scenario it should be seen in the context of the very large increases in prices in recent years. If we did see this scenario materialise, it would mean that average house prices were back to where they were at the start of 2006. And although it might generate a substantial number of people with a mortgage larger than the value of their house, the great majority of them would have a small amount of negative equity. The key factor is that unlike in the early 1990s I do not think it likely that mortgage interest rates will go up substantially for the great majority of people. This is why a re-run of the early 1990s, in terms of the numbers of people who cannot pay their mortgages, is unlikely.

What about the impact on the wider economy of falls in house prices? I believe this is often greatly exaggerated. First off, we must avoid the bad mistake of confusing correlation with causation. It is true that periods in the recent past when the real value of housing was falling - at times in the early 1970s and in the early 1990s - the economy was doing badly. But the fall in real house values back then was more a symptom than a cause.

For example, in the early 1990s interest rates had just risen sharply so that for the great majority of people with mortgages the interest rate they paid went up by around 6 percentage points between mid 1988 and mid 1990. That was a reflection of rapidly rising inflationary pressures.

Potentially the biggest impact of a change in house prices on the wider economy is via the reaction to the lower wealth it generates for home owners. A 10 per cent fall in house prices reduces the market value of the wealth of the household sector in the UK by around £400bn (household sector residential building assets were around £3.9 trillion in 2007). Empirical estimates of the marginal propensity to spend out housing wealth are very diverse, ranging from insignificantly different from zero up to 5 per cent or more. If we took the mid-point of this range (2.5 per cent) and applied it to a £400bn loss in housing wealth, it would generate a fall in consumption of around £10bn - around 0.7 per cent of GDP. That is not trivial, but it is not massive either.

And there are two potentially significant offsets to this central estimate. First, it ignores the effect on non-homeowners, who are generally better off as house prices fall (since they need to pay less in order to buy a property). Second, in focusing on a potential negative impact on spending of lower wealth we need to take into account the other major way in which people respond to smaller wealth: lower wealth implies a greater incentive to earn income - to work more. That positive supply response to lower wealth means that it is much too simplistic to believe that lower house prices have to generate consistently lower GDP. They do not.

Finally, there is the impact of possible changes in the cost of mortgage debt upon spending. Even here the impact is far from clear - in large part because there is likely to be an offset to the lower disposable income of those with mortgages from the higher interest income of those with substantial bank deposits.

In short, in thinking about the knock-on impact of housing and mortgage market conditions there are many uncertainties about: a) the size of the pure wealth effect from shifts in house prices on spending; b) the net effect any increase in interest rates on mortgages (part of which is offset by higher rates on deposits); and c) the size of spending on durable goods that tends to be associated with moving house.

With some colleagues at Morgan Stanley I ran through some scenarios of how a 10 per cent fall in house prices this year, and some quite substantial falls in transactions, might hit the wider economy. We reckoned a reasonable estimate of the hit to GDP in the short run might be of the order of 1 per cent. If you take 1 percentage point off an estimate of trend growth for the UK economy (which is probably around 2.7 per cent) it would mean growth of around 1.7 per cent - which is about what we reckon is likely to happen in the UK. That would not be a recession.

Overall, my advice is this. The next time you hear some doom and gloom story about what some economist says might happen to house prices - and right now it seems the doom and gloom stories that are the only ones being written - then just think the following two things: first, it probably does not mean a recession; second, if it is right then something that I, my children and their children need to buy is about to get a bit cheaper.

David Miles is chief UK economist at Morgan Stanley

oecarb

05-02-2008, 12:34 PM

oecarb

05-04-2008, 11:19 AM

Meanwhile in the USA:

May 4, 2008
Even the Insured Feel the Strain of Health Costs
By REED ABELSON and MILT FREUDENHEIM

The economic slowdown has swelled the ranks of people without health insurance. But now it is also threatening millions of people who have insurance but find that the coverage is too limited or that they cannot afford their own share of medical costs.

Many of the 158 million people covered by employer health insurance are struggling to meet medical expenses that are much higher than they used to be — often because of some combination of higher premiums, less extensive coverage, and bigger out-of-pocket deductibles and co-payments.

With medical costs soaring, the coverage many people have may not adequately protect them from the financial shock of an emergency room visit or a major surgery. For some, even routine doctor visits might now take a back seat to basic expenses like food and gasoline.

“It just keeps eating into people’s income,” said James Corbin, a former union official who works for the local utility in Tucson.

Mr. Corbin said that under their employer’s health plan, he and his co-workers are now obliged to pay up to $4,000 of their families’ annual medical bills, on top of about $1,600 a year in premiums. Five years ago, they paid no premiums and were responsible for only about $2,000 of their families’ medical bills.

“That’s a big jump,” Mr. Corbin said. “You’ve just lost a month’s pay.”

Already, many doctors say, the soft economy is making some insured people hesitant to get care they need, reluctant to spend a $50 co-payment for an office visit. Parents “are waiting longer to bring in their children,” said Dr. Richard Lander, a pediatrician in Livingston, N.J. “They say, ‘The kid isn’t that sick; her temperature is only 102.’ ”

The problem of affording health care is most acute for people with no insurance, a group expected to soon exceed 48 million, but those with insurance say they too are feeling the pain.

Since the recession of 2001, the employee’s average cost of an annual health care premium for family coverage has nearly doubled — to $3,300, up from $1,800 — while incomes have come nowhere close to keeping up. Factor in other out-of-pocket medical costs, and the portion of the average American household’s income that goes toward health care has risen about 12 percent, according to the consulting and accounting firm Deloitte, and is now approaching one-fifth of the average household’s spending.

Shirley Giarde of Walla Walla, Wash., was not prepared when her husband, Raymond, suddenly developed congestive heart failure last year and needed a pacemaker and defibrillator. Because his job did not provide health benefits, she has covered them both through a policy for the self-employed, which she obtained as the proprietor of a bridal and formal-wear store, the Purple Parasol.

But when Raymond had his medical problems, Ms. Giarde discovered that her insurance would cover only $22,000, leaving them with about $100,000 in unpaid hospital bills.

Even though the hospital agreed to reduce that debt to about $50,000, Ms. Giarde is still struggling to pay it — in part because the poor economy has meant slumping sales at the Purple Parasol. Her husband, now disabled and unable to work, will not qualify for Medicare for another year, and she cannot afford the $758 a month it would cost to enroll him in a state-run insurance plan for individuals who cannot find private insurance.

She recently refinanced her car, a 2002 Toyota Highlander, to help pay for her husband’s heart medicines, which cost some $400 a month.

Experts say that too often for the underinsured, coverage can seem like health insurance in name only — adequate only as long as they have no medical problems.

http://www.nytimes.com/2008/05/04/busin ... ref=slogin (http://www.nytimes.com/2008/05/04/business/04insure.html?_r=1&hp&oref=slogin)

miktay

05-13-2008, 12:15 PM

Bank lay-offs

First ink, now blood
May 8th 2008
From The Economist print edition

The West's financial centres run red

THE axe is now swinging with abandon. UBS unveiled yet another set of embarrassing quarterly results on May 6th and also announced 5,500 job losses, many of them at its investment-banking unit. The cull comes soon after similar carnage at Citigroup and Merrill Lynch, which also announced thousands of cuts last month.

That these three are issuing pink slips is no surprise: they have posted the biggest losses, and UBS, for one, has said it wants to scale back its investment-banking business. But others are also cutting. On May 5th Morgan Stanley said it planned to chop 1,500 jobs in the next few months. JPMorgan Chase and Royal Bank of Scotland are set to shed jobs at Bear Stearns and ABN AMRO's wholesale arm respectively.

http://www.economist.com/finance/displa ... d=11333060 (http://www.economist.com/finance/displaystory.cfm?story_id=11333060)

oecarb

05-15-2008, 05:07 AM

Meanwhile, in Germany (an EU country within the Eurozone, unlike Switzerland):

German Economic Growth Quickened in First Quarter (Update3)

By Gabi Thesing

May 15 (Bloomberg) -- Economic growth in Germany, Europe's largest economy, accelerated to the fastest pace in 12 years in the first quarter as companies stepped up spending on machinery and construction.

Gross domestic product rose 1.5 percent from the fourth quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast 0.7 percent expansion, according to the median of 33 estimates in a Bloomberg News survey.

Germany's resilience is giving the European Central Bank room to leave interest rates at a six-year high to fight inflation. By contrast, the U.S. Federal Reserve has cut rates seven times to stave off a possible recession. Evidence suggests German growth was boosted by a milder-than-usual winter and has since slowed. Higher credit costs, faster inflation and a stronger euro are eroding consumer spending and export competitiveness.

``The surprisingly strong performance was almost entirely driven by the absence of a winter and masks a much weaker trend,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``From now on, German growth will stagnate.''

The euro rose half a cent after the report to $1.5535 at 9:35 a.m. in Frankfurt.

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=af_JvCLBfeQ8&refer=home)

oecarb

05-16-2008, 03:42 AM

Like I said earlier in this thread, within the EU, there are three vulnerable countries - The UK, pain and Ireland - all of which have been trying to remodel their economies along US lines.

However, here in the UK we are not yet experiencing much more than a minor slowdown so far. House prices have fallen a bit over the past year (10%) in some areas and some people are cancelling their foreign vacations.

Looks like Spain would be hardest hit. Many people from the rest of the EU ave been moving there because of the weather and there has been a lot of house construction. But things are changing, it seems.

http://news.bbc.co.uk/1/hi/world/7399812.stm

lexbarker

05-31-2008, 04:55 PM

LRD

06-02-2008, 08:46 AM

Th US has been in recession for a while, government statistics are a joke. As someone once said "there are lies, dam lies and statistics".

The inflation figures are skewed using hedonic adjustments as are the employment figures. Add to the mix the unbelievable debt, 9 trillion plus, in excess of 50 trillion when you include unfunded liabilities and the outcome is certain. This debt can NEVER be paid back, it will either be defaulted on or paid back in worthless dollars.

oecarb

06-03-2008, 08:28 AM

Oecarb, how is the price of gas affecting you guys? This week regular gas was $1.39 a litre, that is about 5.30 US a gallon. By now it is probably 9 dollars plus a litre in your area. Saw on the news that big engine in North America is not en vogue but I find it strange that the newspapers are still advertising big engines as if it is an asset to have.

About £1.29 (US $2.50) per litre. Don't bother me. Me and the wife have twelve year old cars that were paid off at least eight years ago. So if we going on a trip is only gas and wear and tear it costing - still cheaper than public transport - especially since my car (Toyota Carina) does over 37 miles to the gallon. We'll be driving to France next month.

lexbarker

06-03-2008, 11:01 AM

lexbarker

06-03-2008, 11:04 AM

miktay

06-06-2008, 09:49 AM

Seems those shady Wall Street-ers were spreading the ****e around and selling 'cat-in-bag' to European investors...

radio transcript...

http://marketplace.publicradio.org/disp ... ime_losses (http://marketplace.publicradio.org/display/web/2008/06/06/europe_shoulders_subprime_losses)

TEXT OF STORY
Renita Jablonski: European executives seem to be having more headaches about the credit crunch than execs in the U.S. New figures from an American think tank show banks overseas have shouldered the bulk of the losses from the subprime debacle. From London, Stephen Beard reports.

--------------------------------------------------------------------------------

Stephen Beard: This will be galling news for the Europeans. The crisis was made in the U.S. with thousands of American subprime mortgage holders defaulting. But according to the Institute of International Finance, European banks have picked up the larger part of the tab. So far, they've lost $200 billion on debt securities -- $34 billion more than their American counterparts.

David Buik is with the BGC group. He says it all goes to show how adroit the Americans have been at shifting their complicated financial products abroad:

David Buik: Well in the United States of course, they are incredibly good at sales. When there is a secondary product to come out, whether it is a derivative or a cash product, there is no peer in the realm like the United States of America for doing it.

As the supposedly prudent Swiss now know to their cost, the largest subprime casualty of all has been Switzerland's largest bank, UBS.

In London, this is Stephen Beard for Marketplace.

LRD

06-06-2008, 09:54 AM

FYI - very good website for articles pertaining to the real state of the economy.

http://www.dollarcollapse.com/

oecarb

06-06-2008, 04:11 PM

David Buik: Well in the United States of course, they are incredibly good at sales. When there is a secondary product to come out, whether it is a derivative or a cash product, there is no peer in the realm like the United States of America for doing it.

Can't stand that David Buik. He gets on Bloomberg TV and spouts off about what a socialist mess Europe is and now he seems to want to spin all the crap the US has been selling the world.

Miktay, how come we were discussing this recession in the USA in this forum years before all them big time economist realise it going to happen? :twisted:

Here in the European Union, we still have the most exposed three - Ireland, Britain and Spain experiencing slowdowns but, so far, no real panic as yet. House prices in the UK have fallen about 3.8% since last year and unemployment not yet rising.

Mortgages are harder to get, though.

miktay

06-09-2008, 10:42 PM

Oecarb:

Dont know what the econ/financial gurus are smoking this but increased prices of food and gas coupled with a decline in networth tied to housing have finally forced consumers to cut back.

One trend, not seen since the 70s, is the gradual return of queuing at cheaper US petrol stations.

And despite deteriorating fundamentals Mr. Bernake has proclaimed the US economy to be out of the woods. http://news.yahoo.com/s/ap/20080610/ap_ ... e/bernanke (http://news.yahoo.com/s/ap/20080610/ap_on_bi_ge/bernanke)

I hope he is not playing politics.

greall

06-10-2008, 04:49 AM

My uncle-in-law in California's paying close to US$5.00 per gallon for gas.He's taken to walking short distances and carpooling to go anywhere now to conserve on gas.He said that his annual Memorial Day cookout cost him 20% more than last year on average when he went to grocery store.He worries about his son's college tuition which has been increasing like it's jumping in a mas band.
He's now fuming because he got a letter from the homeowners' association telling him that he can be fined for having his air-conditioning running for extended periods of time in the famous Southern California summer.He spent his economic stimulus package on clearing some of my aunt's credit card debt... :lol:

My friends in Detroit are getting ready for inevitable job cuts at 'The Big 3' and one's taken another part-time job to try to ease the strain of paying for a house with a 'bad mortgage'.

Life over there looked rosy for me when I wanted to migrate a few years ago but it's starting to look like a developing country.

Greg

oecarb

06-11-2008, 01:16 AM

My uncle-in-law in California's paying close to US$5.00 per gallon for gas.
Greg

Lucky him. In England we pay about $10 US per gallon. In fact, we pay over $7 per gallon in taxes. In certain parts of Scotland and the Scottish isles it is even more expensive.

greall

06-11-2008, 04:40 PM

I'm looking at the inevitable removal of the fuel subsidy here as it increases.

Recapping:no more cheap fuel and cheap food... :roll:

Greg

Roo

06-11-2008, 11:14 PM

No matter how many doom's day stories are posted, we are not in a recession, yet.

We need to drill on our own soil for oil...this helps in two ways, it increases our native supply and reduces prices, AND we stop funding Middle East terrorist states (and sponsors). This would help to stabilize our own economy because we would then control our own production and how it influences our markets.

I'm not sure how or if it could be done, but I would like to see oil futures removed from trading. This influences the price even more than the oil company supply/demand cycle at this point. Futures traders are crippling gas prices.

oecarb

06-12-2008, 04:38 AM

I'm not sure how or if it could be done, but I would like to see oil futures removed from trading. This influences the price even more than the oil company supply/demand cycle at this point. Futures traders are crippling gas prices.

Can't be done, Roo. You can't control how people spend their money in a capitalist society. Future traders are reacting to expected changes in prices not causing them. For example, If they thought oil prices would drop to $50 per barrel in six months time, they would be trading around that price - not at $150 or $200.

They may be right or they may be wrong - but that is what capitalism is all about - trying to make a fast buck and taking chances.

miktay

06-12-2008, 10:20 AM

Roo: while a small portion of oil prices are due to speculation youre ignoring the demand side of the equation.

The reason for the current oil price level is demand and availability of supply.

The US is the biggest user of the stuff and theyve not made any serious efforts to curb their appetites.

No matter how many doom's day stories are posted, we are not in a recession, yet.
As mentioned in another thread its no secret that US CPI is understated.

Over the last 20 years there have been two occasions when the index was adjusted for housing, product substitutions, quality of output. And in both cases the adjustments have reduced the index.

What is less well known are the implications of this abberation.

Govts and corporations benefit from an understated CPI at the expense of individuals: govt pays out less benefits in inflation adjusted dollars (read: social security) and corporations have less pressure fm collective barganing groups whose measure of the future value of real wages is usually the CPI.

Further if CPI is understated GDP is overstated.

Note: the 'definition' of a recession is 2 back to back quarters of GDP declines.

Thusly the conventional measure of a 'recession' is no longer valid. You have to consider other metrics and their drivers to understand the current economic climate.

oecarb

06-13-2008, 05:04 AM

This influences the price even more than the oil company supply/demand cycle at this point. Futures traders are crippling gas prices.

Extract from the NY Times:

A Bull Market Sees the Worst in Speculators

Just this week, Senator Joseph I. Lieberman, the Connecticut independent, said he was working on a proposal to ban large institutional investors from the commodity markets entirely. The same day, the Bush administration endorsed another Senate proposal to create a new federal interagency task force to investigate commodity speculation. At least four public hearings have explored the topic in just the last two months, and Senator Lieberman will hold another session on June 24.

Although it is common in tough financial times to blame the speculators, this escalating hostility toward them is starting to worry people with years of knowledge about how commodity markets work. Because without speculators, they say, these markets do not work at all.

Speculators, people willing to risk their capital in search of high profits, are central to healthy commodity markets, they say, and broad-brush restrictions on them could damage markets that are already under pressure from rising global demand for food and fuel.

Even in Washington, there is widespread agreement that no single factor is responsible for rising food and energy prices. The hungry, high-growth economies of India and China are fundamentally affecting worldwide demand, while uncooperative weather and government policies on trade and ethanol are among the many factors affecting supply.

Commodities, priced in American dollars, tend to rise in price as the dollar weakens, making commodities a popular haven for investors fearful of inflation.

But beneath all these external factors is the simple seesaw of the marketplace: For every person who buys oil at $130 a barrel, there must be another person willing to sell at that price — and, odds are, at least one of them will be a speculator.

http://www.nytimes.com/2008/06/13/busin ... ref=slogin (http://www.nytimes.com/2008/06/13/business/13speculate.html?_r=1&hp&oref=slogin)

LRD

06-13-2008, 09:28 AM

Daily demand for oil is now around 87 million barrels a day, supply is only 85 million barrels. The world is at peak production, there is a lot more oil out there, but for reasons only known by the elite, they have not been drilled yet.

If speculation were the cause for high prices then inventories would be rising not shrinking, like what happened in the housing market. This is a supply/demand issue and asia is craving for oil. In addition the dollar is in a long term downward trend, oil prices are going a lot higher.

Falcon

06-13-2008, 09:58 AM

The world is at peak production,
The world is CERTAINLY NOT at peak production!
You know what capacity OPEC can achieve?

LRD

06-13-2008, 12:33 PM

You know what capacity OPEC can achieve?

NOBODY KNOWS what OPEC can achieve!
Only whay they CLAIM they can achive.

Falcon

06-14-2008, 07:07 AM

Actually it depends on who you speak to, and who has information close to OPEC.
And their production is sub-optimal.

oecarb

06-17-2008, 03:35 PM

From Money Morning:

Tuesday, June 17th, 2008

Saudi Arabia’s Promise to Open the Oil Spigot is Nothing But Spin

......You have to give them credit: The Saudis are giving this quite the benevolent spin; if they pull this off, it would be among the biggest media coups of the century.

And let’s be honest: The United States would probably try a similar tactic if it were in the same situation.

We would want the world to think favorably of us - and even like us - even as we’re sticking it to everyone. And that’s particularly true with an issue as emotional as this one, since the animosity over high oil prices is literally multiplying by the day, and since global sentiment (among the oil consumers) is becoming overwhelmingly anti-Oil Baron at the moment.

Add in the fact that nearly everybody on the planet is suddenly out beating the bushes, seeking substitutes for oil, with billions (if not trillions) now being earmarked for the pursuit of alternative-energy solutions … if we were in their position then we, too, would have a vested interest in preserving the global-energy status quo and hanging onto our own power base - which, of course, is a little-disguised reference to the House of Saud, since the end of oil would likely mean the end of the Saudi kingdom, too.

A Call for Control
But even though the Saudis want a meeting for their own, easily discernable reasons, the oil-consuming world should have a wholly different agenda when its representatives get there.

For one thing, it’s high time that oil consumers start exerting a little pressure of their own, and a meeting like the one Saudi Arabia has set up would be an ideal venue.

You see, we’ve closely studied the entire issue of Saudi Arabia’s questionable oil-reserve-claims in the past - obviously with little cooperation. So this summit now emerges as an opportunity to ask - in an in-person and point-blank manner - just how much oil remains in the ground. We would also ask - just as bluntly - why Saudi Arabia and its OPEC cronies have repeatedly promised to raise global output to stave off higher oil prices. Yet, for some strange reason, they’ve never done so.

Starting in 2005, the world’s oil output mysteriously plateaued at 85 million barrels a day.

It’s probably not that oil producers don’t want to increase production; I don’t think that they can.
http://www.moneymorning.com/2008/06/17/ ... -but-spin/ (http://www.moneymorning.com/2008/06/17/saudi-arabia%e2%80%99s-promise-to-open-the-oil-spigot-is-nothing-but-spin/)

Sirius

06-17-2008, 03:42 PM

If that is true, then what happens when Russia enters the fray with its Siberian reserves?

LRD

06-18-2008, 08:45 AM

Actually it depends on who you speak to, and who has information close to OPEC.
And their production is sub-optimal.

Your reply indicates you have "close information to Opec", as you state their production is sub-optimal.

I don't believe it. Independant investigations have concluded they have hit peak production. At the end of the day the proof of the pudding is in the eating. The Saudis have just made another promise to increase production, lets see if it materialises. I hope I am wrong but I don't think so.

miktay

06-23-2008, 01:12 PM

In related recession news bankers don hardhats in a feeble attempt to manage costs.

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601109&sid=a1YI9rQC09sw&refer=home)

Deutsche Bank Lost in Vegas as Defaults Make Lenders Decorators

By Jonathan Keehner and Bradley Keoun

June 23 (Bloomberg) -- Workers building the $3.5 billion Cosmopolitan Resort & Casino on the Las Vegas strip are getting used to their financiers from Deutsche Bank AG. Lately, the weekly visitors from 60 Wall Street have been critiquing plans that called for a black-and-white decor.

``They are considering changing the color palettes and finishes,'' said Travis Burton, a vice president for lead contractor Perini Corp., who outfits the bankers with safety vests and hard hats before touring the site.

Since January, when New York developer Ian Bruce Eichner defaulted on a $760 million loan, Frankfurt-based Deutsche Bank has been cutting Perini a monthly check for $70 million to continue construction, now in full swing with 2,800 workers on site and a dozen cranes towering overhead.

Deutsche Bank, which declined to comment about the Cosmopolitan, is one of a dozen investment banks that rode a five-year boom in commercial real estate by financing developers and landlords while profiting by packaging loans into securities. Then credit markets seized up in 2007, sticking banks and brokerage firms with commercial mortgages and bonds. The amount for large U.S. banks alone: $169 billion, according to Fitch Ratings Ltd. The resolution may take more than providing advice on drapes as the economy falters and mall vacancies increase.

``Wall Street banks have a lot of exposure to commercial real estate, and it's definitely a concern,'' said Ryan Lentell, an industry analyst at Chicago-based Morningstar Inc. ``They really pushed through lending and principal investing. The exposure has a lot to do with their problems.''

Tropicana Squeezed

Not far down the strip is the Tropicana Resort & Casino, whose parent filed for bankruptcy protection in May. Tropicana Entertainment LLC defaulted in April on a $1.3 billion syndicated credit line arranged by Zurich-based Credit Suisse Group to help finance the purchase of the casino in 2006, according to bankruptcy papers. Credit Suisse spokesman Duncan King declined to comment.

The economic slump that began in the U.S. housing market has spread to commercial real estate, Wachovia Corp. senior economist Mark Vitner wrote in a June 4 note. Retail vacancies in the first quarter were up 8 percent from a year earlier, he said. And he predicts average prices for U.S. commercial real estate may drop by 15 percent to 20 percent as demand for office and industrial space declines.

Commercial-mortgage delinquencies, at 0.56 percent, are below the 2.5 percent mark reached in October 2003, after the dot-com bubble burst and the U.S. economy fell into a recession following the 2001 terrorist attacks, according to Lisa Pendergast, a managing director of real estate finance research at RBS Greenwich Capital in Greenwich, Connecticut. They are even further from the 7.5 percent peak reached in the early 1990s. Deutsche Bank's Holdings

That perspective may offer little comfort to shareholders of banks exposed to the market. The four biggest New York-based securities firms -- Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. -- accounted for $84 billion of the commercial mortgages and bonds tallied by Fitch at the end of last year. They've written down their holdings by at least $7 billion since the start of 2007.

Deutsche Bank had 15.5 billion euros ($24.2 billion) of commercial real estate loans and securities at the end of March, about half in North America, company reports show. The bank has written down the investments by 728 million euros since the beginning of 2007.

Earlier this year, it took control of seven New York office towers after developer Harry Macklowe defaulted on about $7 billion in loans Deutsche Bank helped arrange to enable him to buy the buildings from New York-based leveraged-buyout firm Blackstone Group LP last year. Deutsche Bank is selling the properties.

Market Muscle

Credit Suisse said it reduced its commercial mortgage holdings by about 25 percent in the first quarter to 19.3 billion Swiss francs ($18.7 billion), through sales and writedowns.

Wall Street firms used commercial mortgage-backed securities, known as CMBS, to muscle into a market previously dominated by regional and commercial banks that often held the loans to maturity.

Now the market has collapsed. After climbing to $233 billion last year, up more than sixfold from 1997, the volume of new CMBS issuance in the U.S. may fall to $35 billion this year, according to New York-based Moody's Investors Service. That means Wall Street banks will lose a revenue stream, while also having to write down the value of their holdings.

`Holding the Bag'

``They didn't have a good exit strategy,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``They felt there would be a market for the product they were producing, or they'd always come up with the next newfangled structured-finance instrument. Now they're stuck holding the bag.''

Lehman ranked among the biggest CMBS underwriters last year, managing or co-managing $48.2 billion of new securities, triple the amount in 2004, according to Commercial Mortgage Alert in Hoboken, New Jersey. Lehman now has $40 billion of CMBS, loans and other real estate investments on its balance sheet, more than twice the firm's stock-market capitalization.

Lehman also financed 23 residential developments, most of them in southern California, and a luxury high-rise built by Irvine, California-based developer SunCal Cos. Last October it teamed with Tishman Speyer Properties LP to buy Denver-based Archstone-Smith Trust, the biggest U.S. apartment real estate investment trust, for $13.6 billion.

Lehman's Losses

Lehman posted a second-quarter net loss of $2.8 billion, the first in its 14-year history as a public company, partly because of $900 million of losses on commercial mortgages and real estate investments. The firm marked its SunCal investments -- mostly senior debt -- to around 75 cents on the dollar and recorded a $350 million writedown on its Archstone stake, Lehman Chief Financial Officer Ian Lowitt told investors on a June 16 conference call.

Morgan Stanley reported $100 million of writedowns on commercial mortgage bonds for the second quarter, while Goldman Sachs didn't disclose any. Merrill Chief Executive Officer John Thain said during a June 11 conference call that commercial real estate investments rank among the firm's most troubling assets.

``The banks were drawn in by their ability to take a bunch of projects and mush them together into structured securities,'' said Lawrence White, an economics professor at New York University's Stern School of Business. ``They may not have really understood the risk or known exactly what they were getting into.''

Financing LBOs

With issuance of CMBS estimated to be down 85 percent this year, banks aren't finding buyers for their debt and landlords are having a tougher time finding financiers to replace loans coming due. That's what happened to Macklowe, who has been forced to sell New York's General Motors Building and three other office towers to pay off delinquent loans.

Banks also relied on mortgage securities to finance LBOs, including Hilton Hotels Corp. of Beverly Hills, California, and Las Vegas-based Harrah's Entertainment Inc. More than half of the $34.2 billion in CMBS offerings scheduled for sale in the first quarter were related to five LBOs, according to a January research note from Credit Suisse, Switzerland's second-largest bank. Four of those deals had not gone to market as of June, according to Credit Suisse.

U.S. commercial real estate sales increased to $436 billion in 2007 from $76 billion in 2001, according to property-research firm Real Capital Analytics Inc. in New York.

Wall Street Touch

``The Wall Street banks probably touched more than half of those deals last year through principal investing or lending,'' said Robert White, Real Capital's president. ``It's definitely the highest amount of exposure since we began tracking the data in 2001 and likely unprecedented.''

The boom in CMBS led banks to make riskier loans, like construction finance, said David Spring, an analyst at Fitch Ratings in Chicago.

Large banks had about $250 billion in U.S. construction and land-development loans by the end of 2007, roughly double the amount of 2004, Spring said. During that period, the delinquency rate for construction loans rose to 3 percent from about 0.6 percent, where it had been until the end of 2006, according to a report he wrote May 13.

``The performance of large bank commercial real estate portfolios will depend on factors specific to each bank,'' Spring said, including property types, geography, quality of underwriting, and risk management.

It will also depend on getting projects finished. Deutsche Bank's Cosmopolitan casino is about 40 percent complete, according to Burton, who says the bankers ``understand the importance of keeping the project moving.''

That would mean Deutsche Bank anteing up the $1.1 billion in construction costs that Burton says he needs to complete the casino or finding another buyer before the roulette wheels start spinning.

lexbarker

06-23-2008, 02:15 PM

Some Cracks appearing on the EURO?
Taken from:

http://www.telegraph.co.uk/money/main.j ... uro113.xml (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/13/cneuro113.xml)

Support for euro in doubt as Germans reject Latin bloc notes
By Ambrose Evans-Pritchard
Last Updated: 1:26am BST 13/06/2008

Notes printed in Berlin have more currency for bank customers who fear a 'value crisis'

Ordinary Germans have begun to reject euro bank notes with serial numbers from Italy, Spain, Greece and Portugal, raising concerns that public support for monetary union may be waning in the eurozone's anchor country.

X-factor: German bank customers are favouring notes that start with the distinctive ‘X’ serial numbers, which show they have come from Berlin

Germany's Handelsblatt newspaper says bankers have detected a curious pattern where customers are withdrawing cash directly from branches, screening the notes to determine the origin of issue. They ask for paper from the southern states to be exchanged for German notes.

Each country prints its own notes according to its economic weight, under strict guidelines from the European Central Bank in Frankfurt. The German notes have an "X"' at the start of the serial numbers, showing that they come from the Bundesdruckerei in Berlin.

More on currencies
Italian notes have an "S" from the Instituto Poligrafico in Rome, and Spanish notes have a "V" from the Fabrica Nacional de Moneda in Madrid. The notes are entirely interchangeable and circulate freely through the eurozone and, indeed, beyond.

People clearly suspect that southern notes may lose value in a crisis, or if the eurozone breaks apart. This is what happened in the US in the Jackson era of the 1840s when dollar notes from different regions traded at different values.

advertisement"The scurrilous idea behind this is that if the eurozone should succumb to growing divergences, then it is best to cling to most stable countries," said the Handelsblatt.

"There are no grounds for panic. The Italian state is not Bear Stearns," it said.

Germans appear to be responding to a mix of concerns. Many own property in Spain or Portugal and have become aware of the Iberian housing slump.

A spate of news articles in the German press has begun to highlight the economic rift between the North and South of eurozone.

There is criticism of comments from Italian, Spanish, and French politicians that threaten the independence of the ECB, viewed as sacrosanct in Germany.

But the key concern appears to be price stability. Germany's wholesale inflation rate reached 8.1pc in May, the highest level in 26 years.

The cost of bread, milk and other staples has rocketed, adding to the sense that prices are spiralling out of control. Ordinary people are blaming the new currency - the "Teuro" - a pun on expensive - for their travails in the supermarket, even though the recent spike in farm goods and energy prices has nothing to do with monetary union.

Inflation touches a very sensitive nerve in Germany. Holger Schmeiding, from Bank of America, said the country had suffered two traumatic sets of inflation in living memory, first in Weimar in 1923 and then in 1948.

"People suffered a 90pc haircut on financial assets in the currency reform of 1948. The inflationary effects of two world wars were catastrophic," he said.

A group of leading German professors warned at the outset of EMU that the euro would tend to be weaker than old Deutsche Mark, and that it would fuel inflation over time. German citizens were never given a vote on the abolition of the D-Mark, which had become a symbol of Germany's rebirth after the war.

Many have kept a stash of D-Marks hidden in mattresses to this day. A recent IPOS poll showed that 59pc of Germany now had serious doubts about the euro.

oecarb

06-24-2008, 10:47 AM

Lex the euro rose from about 87 cents US five years or so ago to where it is today at $1.56 US. It is backed by the European Central Bank which has made hundreds of billions of euros acailable to uropean bnks to help avert a crisis. So euros from different countries in the euro-zone will always have the same value - even if a country pulls out of the euro-zone.

It is difficult to see, for instance, Spain or Ireland (the most vulnerable in the euro-zone) printing their own currencies again and recalling all the euros they have printed. These just wouldn't be taken seriously against the euro. Hell, people might even prefer to use the American dollar - like in Nigeria, Zimbabwe etc. 8-)

If one or more of the economies in the eurozone were to collapse, it is also difficult to see how anything can be gained by issuing a new national currency. At the moment citizens of the poorer countries in the EU have the option of moving to the richer ones to seek work while pensioners in the richer countries have the choice of moving to the poorer countries to benefit from lower living costs. So the UK, Germany and France get more workers and Spain, Portugal, Greece, Italy, Slovenia, Poland etc get retirees who can live the high life on their pensions.

lexbarker

06-24-2008, 11:06 AM

Let's see if it will survive the next 3-4 years. There are different rate of inflation, rate of interest and rate of printing. it is difficult to juggle them to satisfy all countries.

oecarb

06-25-2008, 11:56 AM

Let's see if it will survive the next 3-4 years. There are different rate of inflation, rate of interest and rate of printing. it is difficult to juggle them to satisfy all countries.

Well. Lex, the Euro in its present form and its precursors, the European Monetary System and the European Currency Unit has been around for about tenty nine years now. Countries like Spain, Greece and Ireland have benefitted greatly from European Community and, later, European Union funds and such funds will always be available to help member countries in difficulty.

Imterest rates are the same throughout Euro-land and is set by the European Central Bank. Countries that are outside Euroland but within the EU (like the UK, Romania, Bulgaria, Lithuania, Latvia etc) can still set their own interest rates. Printing rates (for Euroland countries) are agreed with the ECB and all Euros are legal tender in all Euroland countries. So, whatever they say, A Spanish euro with be worth exactly one euro in France or Germany or Ireland or Greece or Mlata or Slovenia or even in Martinique and Guadeloupe. Then there are other European countries like Switzerland, Iceland, Norway, Lichtenstein, Monaco etc that are neither in the EU or Euroland, print their own currencies and det their own interest rates.

So, we'll see.

http://www.euwebring.org/euro.htm

miktay

06-26-2008, 05:36 PM

Someone has finally said it out loud. Welcome to skid row.

For balance note that the RBS may have just a smidgen of an ulterior motive having themselves invested heavilty in risky securities and may be using this as a red herring in the face of shareholder ire.

http://www.telegraph.co.uk/money/main.j ... rbs118.xml (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml)

RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.

RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.

US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.

The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

Morgan Stanley warns of catastrophe
More comment and analysis from the Telegraph
"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.

Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.

"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

greall

06-27-2008, 12:00 PM

What goes up...must come down!

I'm looking at the local market here and seeing what necessary steps the local authorities are doing to cushion the hard fall that's coming.

Greg

oecarb

06-27-2008, 02:15 PM

From the UK Guardian:

Credit crunch forcing US middle classes to live in their cars

Homeless people living in cars and motorhomes across the US are being joined by a new breed: the middle class.

As mortgage foreclosures continue to rise, growing numbers of middle-class professionals are losing their homes and downsizing from four bedrooms to four wheels.

With numbers rising, New Beginnings, a homeless agency in Santa Barbara, California, has launched a safe parking scheme, whose aim is to provide a refuge of sorts for those who have nowhere to go other than their vehicle.

Guy Trevor lost his job as an interior designer when the sector contracted thanks to the foreclosure crisis. With his furniture sold and his belongings in storage, he now lives in his car, spending the nights in one of the 12 gated car parks in Santa Barbara run by New Beginnings.

"I see myself as a casualty of a perfect storm," he said. "The people sleeping at the [car parks] are ... just like me. They come from normal, everyday homes. I think a lot of people in this country don't realise that they, too, are a couple of pay cheques away from destitution."

In normally affluent Santa Barbara there were 150 foreclosures last month, with a total of 800 for the year ending in May, according to the county assessor's office, which assesses property for tax purposes.

Each month, an auction of foreclosed properties is held on the steps of the Santa Barbara courthouse.

"The way the economy is going, it's amazing the people who are becoming homeless. It's hit the middle class," Nancy Kapp, of New Beginnings, told CNN.

Another of Kapp's clients, Barbara Harvey, 67, also lost her job and subsequently her home thanks to the foreclosure crisis. As with Trevor, her job as a loans processor was connected to the housing market.

Harvey now lives with her three dogs in her car, parking at night in a women-only car park run by the agency. "I didn't think this would happen to me," she said. "It's just something that I don't think that people think is going to happen to them."

The rise in the number of homeless people sleeping in cars has led to a clampdown in Los Angeles. In common with many US cities, it is illegal to live in vehicles on public streets. This year the city banned almost all overnight parking on residential streets. A first violation receives a $50 (£25) fine, while subsequent offences carry fines of up to $100.

"For more working class and lower middle class people, the car is the first stop of being homeless, and sometimes it turns out to be a long stop," Gary Blasi, a University of California, Los Angeles, law professor and homelessness activist told the Associated Press.

The city has the highest number of homeless people in the US, with an estimated 73,000 living rough. A survey last year of more than 3,000 of them showed that 250 were sleeping in their cars.

http://www.guardian.co.uk/world/2008/ju ... editcrunch (http://www.guardian.co.uk/world/2008/jun/26/usa.creditcrunch)

Solachica

06-27-2008, 04:08 PM

Weyyy living in cars.
Reading some stories these days reminding me of the book Grapes of Wrath, don't know why. :?

greall

06-27-2008, 04:16 PM

It appears that we're repeating history now...

Greg

lexbarker

06-27-2008, 06:23 PM

Are you guys preparing something in case it affects you?

miktay

07-01-2008, 01:41 PM

While sky hasnt fallen yet...some BRICs may soon be...

http://www.economist.com/finance/displa ... d=11637807 (http://www.economist.com/finance/displayStory.cfm?story_id=11637807)

Losing their halo
Jun 26th 2008
From The Economist print edition

Emerging markets start to falter
CONFIDENCE has begun to crack in emerging markets. Earlier this year, many people had still dared to hope that much of the developing world would decouple from the slowing American economy. But it has achieved this feat rather too well. There are signs of overheating; most developing economies are grappling with, and so far failing to defeat, the inflationary effects of high oil and food prices. Last year’s stockmarket darlings, China and India, have fallen sharply.

Governments and central banks have been forced into some difficult decisions, such as reducing fuel subsidies. That policy shift, though welcomed by lovers of free markets (if not the public), has pushed up headline inflation. Standard Chartered calculates that the GDP-weighted inflation rate for 11 big Asian economies was 6.8% in April, up from 3.5% a year ago.

Some central banks are reluctantly opting to tighten monetary policy. India’s was the latest, raising interest rates for the second time in a month on June 24th, even though higher rates will mean slower economic growth. But central banks will be damned either way. Any country that fails to raise rates enough to keep inflation under control will scare away investors. South Africa and Vietnam have failed to keep the lid on prices and have been duly punished with a depreciating currency.

As the economic problems have mounted, more than $2 billion has been taken out of emerging-market funds in each of the past two weeks. The surprise, perhaps, is that emerging markets have not performed even more poorly; the MSCI emerging-markets index’s 12.4% decline so far this year is only a little worse than the return of the global market.

Emerging markets benefit from the heavy weighting of commodity-related stocks in the index (more than a third, according to Merrill Lynch). The overall market is unlikely to plummet when mining and energy stocks are holding up so well.

The corollary, however, is that emerging markets will be vulnerable if commodity prices tumble. “Earlier in this decade, conditions were ideal for emerging markets, because commodity prices were going up and local interest rates were going down,” says Michael Hartnett, a strategist at Merrill Lynch. “Now interest rates are rising and there is the risk that commodity prices could at some point correct.”

Emerging markets may also start to lose the halo they have recently worn with such pride. When the credit crunch began last summer, they were talked up as the new “havens”. After all, enthusiasts pointed out, it was they that now had the current-account surpluses and America that was depending on overseas investors.

Not all emerging markets, though, were such paragons. Even though the developing world had improved its economic performance in aggregate, many countries with iffy records got a “free pass”, thanks to the general improvement in sentiment. Indeed some vulnerable countries, such as Turkey, benefited from the “carry trade” as investors piled into their currencies because of their high interest rates.

Now investors are starting to differentiate between the weak and the strong, singling out those countries (such as the Baltic nations) where the economic imbalances look egregious. The downside of the carry trade is emerging; those high interest rates are on offer because of the risk of inflation or currency depreciation.

At least emerging-market equities look rather less pricey than they did a year ago. They are trading on a small price/earnings (p/e) premium to the world index, but the gap is much smaller than it was in 2007. The Chinese market is now on roughly the same historic p/e ratio (17) as America, and if you believe forecasts of 28% earnings growth this year and 30% next, might even be cheaper.

But then again, emerging markets probably should trade at a discount, as they have for much of the past 20 years. After all, central banks in the developing nations have a far worse record in balancing inflation and growth than, say, the Federal Reserve.

Nor should blind faith in the faster growth prospects of emerging markets give investors comfort. Figures from James Montier, a strategist at Société Générale, show that GDP growth and real returns from emerging markets have been negatively correlated over the past 20 years. In other words, the fastest-growing economies produced the lowest returns for shareholders.

Emerging markets may not face the same risks as they did a decade ago, when hot money fled in response to the Asian crisis. But the risks have changed rather than disappeared.

oecarb

07-07-2008, 05:53 PM

Article on Bloomberg web site:

Home Prices Fall in 23 of 25 U.S. Metropolitan Areas (Update1)

By Bob Ivry

July 7 (Bloomberg) -- Home values fell in 23 of 25 U.S. metropolitan areas in April, according to Radar Logic Inc., as sales of a record number of foreclosed homes pushed prices down.

The Sacramento, California, region saw the biggest drop, with prices falling 31.7 percent from April 2007. Sacramento was followed by the Las Vegas area (29.9 percent), San Diego (28.1 percent), Phoenix (25.5 percent) and Los Angeles (23.4 percent), Radar Logic said.

``Prices are going down so fast they can't go down much longer,'' said Christopher Thornberg, president of Beacon Economics LLC in Los Angeles, who predicts a total decline of 30 percent nationally in the housing recession. ``We've never seen prices fall like this.''

Nevada and California were the states with the most homeowners entering some stage of foreclosure in May, according to RealtyTrac Inc. of Irvine, California, a seller of real estate data. Foreclosures, which reached a record high of 2.47 percent of U.S. homes in March, sell for less than occupied homes and lower the average selling price of all homes by 6 percent, according to Lehman Brothers Holdings Inc. economists Michelle Meyer and Ethan Harris.

Motivated Sales

Motivated sales -- of foreclosed homes or houses in which borrowers have fallen behind on their payments -- accounted for 35 percent of April transactions, said Radar Logic Chief Executive Officer Michael Feder.

``The percentage of transactions that are occurring by motivated sellers is increasing,'' Feder said in an interview on Bloomberg TV. ``It's very difficult to tell if any of these markets are any closer to hitting bottom.''

In May, one in every 118 Nevada households and one in every 183 California households had either received a notice of default, a warning that their home was being auctioned, or had their house repossessed by a lender, RealtyTrac said. The national average was one in every 483 households.

Prices in the New York area fell 3 percent from April 2007, according to Radar Logic.

Prices rose 1.5 percent in the Charlotte, North Carolina, region and 0.1 percent in the Columbus, Ohio, vicinity in April, the only two metropolitan areas where prices went up, Radar Logic said.

The RPX Monthly Housing Market Report, published by New York-based Radar Logic, measures home values using price per square foot; data reflects 28-day aggregated values, the company said. The prices are the basis for property derivatives traded on the Residential Property Index.

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=aUKNXKCNLhGA&refer=home)

miktay

07-11-2008, 06:25 PM

I could use a cold one right now.

http://www.ft.com/cms/s/0/5c3d0c56-4f6c ... ck_check=1 (http://www.ft.com/cms/s/0/5c3d0c56-4f6c-11dd-b050-000077b07658.html?nclick_check=1)

Overview: Equities gripped by bear market
By Dave Shellock in London, Michael Mackenzie and Nicole Bullock in New York

Published: July 11 2008 18:45 | Last updated: July 11 2008 21:17

Global equity markets made a decisive move into bear territory this week amid intensifying concerns about the health of the US financial system and a fresh surge in oil prices.

The MSCI world equity index, the S&P 500 and the FTSE 100 all recorded a drop of 20 per cent from recent highs – joining most of the world’s other main indices in bear markets – as financial stocks came under sustained pressure. At the centre of the storm were mortgage agencies Fannie Mae and Freddie Mac, which between them own or guarantee about half the $12,000bn of outstanding US home loans.

Fears that the two government-sponsored enterprises (GSEs) might need to be bailed out by the government overshadowed news that the Federal Reserve was considering extending an emergency lending facility to Wall Street banks.

The concerns about Freddie and Fannie were sparked by speculation that they might need to raise further capital – which they would be likely to find extremely difficult, analysts said.

“Given that the GSEs have been dumped with so much of the fall-out from the bursting of the credit bubble, it is no surprise that their capital base has been so severely damaged,” said Marc Ostwald, strategist at Monument Securities.

“Nevertheless it is, in effect, a further signal that the process of post-bubble ‘capital destruction’ appears to be accelerating.”

US officials including Ben Bernanke, the chairman of the Federal Reserve, and Treasury secretary Hank Paulson, sought to calm market fears about the agencies, but had only limited success.

oecarb

07-12-2008, 08:15 AM

Another bank bites the dust.......

Regulators seize troubled IndyMac
Feds take over mortgage lender IndyMac. FDIC will seek buyer. May become most expensive bank collapse ever.

NEW YORK (CNNMoney.com) -- In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bank was taken over by federal regulators on Friday.

The operations of the Pasadena, Calif.-based bank - once one of the nation's largest home lenders - were shut down at 3 p.m. by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp.

According to the FDIC, 10,000 IndyMac customers could lose as much as $500 million in uninsured deposits. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.

"It's possible this will be the most costly bank failure in history, but it's too soon to say," FDIC Chairman Sheila Bair said in a conference call late Friday night. The failure could also affect premiums paid by all banks for deposit insurance, she added.

IndyMac, with assets of $32.01 billion and deposits of $19.06 billion, is the fifth bank to fail this year. Between 2005 and 2007, only three banks failed. And in the past 15 years, the FDIC has taken over 127 banks with combined assets of $22 billion, according to FDIC records.

http://money.cnn.com/2008/07/11/news/co ... 2008071122 (http://money.cnn.com/2008/07/11/news/companies/indymac_fdic/index.htm?postversion=2008071122)

oecarb

07-13-2008, 04:05 AM

From the Financial Times:

Will Fannie and Freddie fail?

The so-called Government Sponsored Enterprises, Fannie Mae and Freddie Mac, together with the Federal Home Loan Bank, have played a central role in shoring up the housing-finance market since the sub-prime meltdown began. It is not much of an exaggeration to say that they have become the entire market. But the more money they have pumped into housing, the faster their own financial condition has deteriorated. Now investors are ditching Fannie and Freddie stocks; on Thursday shares in Freddie fell nearly 20 per cent, to their lowest since 1991. Anxiety had been building for a while, then worsened suddenly when Bill Poole, a former head of the St Louis Fed, said that Freddie was technically insolvent in the first quarter under mark-to-market accounting (that is, the value of its assets was less than the value of its liabilities).

It is inconceivable that the government would stand aside and let these institutions go down: to say that they are too big to fail hardly does the case justice. Their liabilities are now larger than those of the entire federal government. If regulatory forbearance–the traditional approach to the GSEs–should fail, and the choice comes to standing by or outright nationalisation, it would be the latter in a heartbeat. The question is not whether there would be a bail-out, but how hard the terms would be on creditors and shareholders. (Bear Stearns was not allowed to fail–but its shareholders were crucified.) We may very well discover the value of that fabled “implicit guarantee”. Owners and lenders alike are having second thoughts about it: shareholders are running for the door and lenders have raised their spreads sharply.

Will a recovering housing market come to the GSEs’ rescue? Not for some while yet. Consider what Janet Yellen, boss of the San Francisco Fed, told the UCSD Economics Roundtable this week (via Econbrowser):

Unfortunately, it appears to me that there are at least [b]three reasons[/b} for thinking that housing prices have further to fall.
First, the ratio of house prices to rents—a kind of price-dividend ratio for housing—still remains quite high by historical standards, despite having fallen from its historical peak reached in early 2006. That suggests that further price declines may be needed to bring housing markets into balance. [/*:m:1a8f8oi3] Second, inventories of unsold homes remain at elevated levels. This “excess supply” of available homes will put downward pressure on housing prices. Indeed, these inventories are likely to directly depress construction activity, since there is little point in building new homes when there is already a large backlog of unsold homes. [/*:m:1a8f8oi3]
Third, the futures market for house prices predicts further declines in a number of metropolitan areas this year. In particular, the Case-Shiller composite index for home prices shows a 15 to 20 percent year-over-year decline in the second half of this year. The bottom line is that construction spending and house prices seem likely to continue to fall well into 2009.[/*:m:1a8f8oi3]

In short, the GSEs’ financial condition is going to get worse before it gets better. If it happens, a rescue of Fannie and Freddie would dwarf not only anything seen up to now, but anything even contemplated. This crisis isn’t over.

http://blogs.ft.com/crookblog/

oecarb

07-16-2008, 04:28 AM

.
So Volkswagen is doing in the USA what the USA is doing in China.......

Interesting. Here comes the Chattanooga VW...... :lol:

VW chooses Tennessee for US plant

German carmaker Volkswagen (VW) has chosen to locate its new US car plant in Tennessee, a move that could pump $1bn (£498m) into the local economy.

VW opted for a site in the city of Chattanooga in preference to possible locations in Alabama and Michigan.

The euro's rise against the dollar has made it costly to make cars in Europe and export them to the US, leading VW to explore manufacturing again there.

The move is good news for a US car industry shedding thousands of jobs.

http://news.bbc.co.uk/1/hi/business/7508625.stm

miktay

07-16-2008, 11:50 PM

oecarb

07-19-2008, 05:30 PM

Will Fannie and Freddie fail?

Oecarb:

Though these quasi gubment orgs are rife with inefficiecies, loose controls and employ officers with ulterior motives, I believe it is understood that Freddie and Fanny will never be allowed to fail.

What I find curious is the agency tasked soley with overseeing the health of these two entities, the Office of Federal Housing Enterprise Oversight, failed to point out the dire circumstances in which they now find themselves.

Who watches the watchdog?

Miktay, as I understand it, they have underwritten about six trillion dollars in mortgage debt.

Treasury Secretary Henry Paulson tried to rally support in Congress yesterday for his three-part plan to help the companies if needed. It would allow the Treasury to increase credit lines to the companies, buy shares in the firms and give the Federal Reserve a ``consultative role'' in overseeing their capital requirements. The proposals are meant to restore confidence in the government-chartered firms, which together own or guarantee almost half of the $12 trillion of U.S. home loans outstanding.

``There remains a lot of uncertainty even despite the fact that the administration has announced these support measures,'' said Nancy Vanden Houten, an analyst at Stone & McCarthy Research Associates in Skillman, New Jersey. ``I think the spreads will come in over time.''

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=aQKmgV2qfzTc&refer=home)

Sounds like a big gamble to me. If it works, confidence will be restored and perhaps the housing market will recover. If it doesn't it seems that a lot of taxpayers' money could go down the plug hole - taking the dollar with it.

The Treasury Department and the Fed also will strengthen regulatory measures.
Now, I’m relieved!

The bailout has begun. The $6 trillion burden will be shouldered by U.S. taxpayers. U.S. debt will double to the equivalent of our gross domestic product (GDP). Borrowing costs will rise for homebuyers, further depressing the housing market and leading to hundreds of billions of additional bank write-offs, hedge-fund losses and failures of financial institutions and enterprises ranging from banks to hedge funds.

The Fed has no concern about inflation relative to the demise of the economy, and will have to keep interest rates low for critical liquidity demands and to stave off a deep recession. The building inflationary pressures in the face of the Fed’s efforts to provide liquidity and keep interest rates low will crush the dollar.

We are facing the prospect of a depression and the end of the American Dream. What can be done? Will the housing legislation on the table be the rescue plan we desperately need?

Absolutely not.

This crisis can’t wait. I’ll address the legislation, why it will fail and what should be done later this week (http://www.moneymorning.com/2008/07/18/fha/).

Don’t be fooled by any bounce in the markets. Every bounce is an opportunity to sell and add to shorts. This is no time to be picking bottoms. The trend is your friend - and that trend is clearly down.

http://www.moneymorning.com/2008/07/15/ ... eddie-mac/ (http://www.moneymorning.com/2008/07/15/fannie-mae-freddie-mac/)

oecarb

07-25-2008, 05:14 PM

Will Fannie and Freddie fail?

Oecarb:

Though these quasi gubment orgs are rife with inefficiecies, loose controls and employ officers with ulterior motives, I believe it is understood that Freddie and Fanny will never be allowed to fail.

What I find curious is the agency tasked soley with overseeing the health of these two entities, the Office of Federal Housing Enterprise Oversight, failed to point out the dire circumstances in which they now find themselves.

Who watches the watchdog?

Extracts from Money Morning (Bloomberg):

With Fannie/Freddie Bailout Plan, Treasury Secretary Paulson is Armed and Dangerous

By Peter D. Schiff
Guest Columnist

With the nation’s financial infrastructure crumbling before our very eyes, the country’s top two economic policymakers made their way to Congress last week for an extraordinary episode of political theater.

Fannie Mae (FNM) and Freddie Mac (FRE), the quasi-government entities that form the backbone of America’s gargantuan mortgage market, appeared to be cracking. To the somewhat bewildered members of Congress, U.S. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson offered radical bailout remedies to save the lenders. Despite the fact that the proposed policies would thoroughly redefine America’s supposedly capitalistic pedigree, the moves were presented as wholly inevitable, and in the end, benevolent and costless.......

.......Paulson’s plan actually assures that Fannie and Freddie’s losses will be even larger, and puts American taxpayers - or, more precisely, wage earners and savers - directly on the hook. The longer these two entities remain in business, the more bad loans they will buy or insure, and the more money taxpayers will lose......

.....In theory, Fannie and Freddie were originally created to help provide affordable housing. In reality, like all government programs, they achieved the opposite. Rather than making houses more affordable, they merely enabled buyers to overpay for them. The result is that American homeowners are now saddled with staggering amounts of debt, as easy credit made it possible for buyers to bid prices to dizzying heights. So, while a record number of Americans now own homes, they have bankrupted themselves in the process........

........So, hunker down as the United States finds itself on the express track to state socialism with Paulson’s bazooka locked, loaded and pointed right at us. When the government pulls the trigger the blast will blow the dollar - and what’s left of our capitalist economy - to smithereens.

Full article here (http://www.moneymorning.com/2008/07/25/freddie-mac/).

miktay

08-04-2008, 09:18 PM

OECARB:

5-6 trillion of liabilities is not just an unimaginably large number. The capital used to support these obligations is approx $85 billion which implies a leverage of 65-1. This is comparable to some of the riskier investment banks and hedge funds that have recently found themselves undercapitalized.

Further the Congressional Budget Office estimated the worth of these institutions at USD 7-11 billion if fair or market value accounting is used rather than the USD 55 billion on their balance sheets using US GAAP.
http://www.cbo.gov/ftpdocs/95xx/doc9574/07-22-GSEs.htm

Near the center of this rigmarole is the ambiguity surrounding the role and function of these special purpose entities which possess characteristics of both government and private firms.

GSEs are private companies that fulfill government tasks: Freddie and Fannie are supposed to support the secondary mortgage market to better enable the American dream of home ownership.

As private companies they have shareholders and a profit maximizing management team, whose compensation is based as such.

But as a quasi govt entities they are exempt from most taxation, are subject to govt oversight and most importantly carry an implicit guarantee from the federal government.

And it is this assurance that gives them a competitive edge: they borrow more cheaply than other financial firms and lend at market rates, profiting from the higher carry.

And therein lies the quandary: should these special purpose entites act as aggressive profit maximizing risk takers or conservative defenders of mortgage liquidity?

The answer is not clear.

However one thing is for certain: they cannot be both.

lexbarker

08-05-2008, 02:55 PM

I have been following Freddie and Fannie for a number of years. For about 5-6 years they have not provided an annual financial statement and I don't know if they have done so lately. There was a report that two large well known accounting firms had tried to do an audit but gave up because of the mess. Last year the big boys rewarded themselves with 6 and 7 figure bonuses. They have been cooking the books properly so no one can figure it out. The US government is rewarding incompetence and dishonesty by pouring taxpayers money to save them. Even this is probably no enough as the situation may be worse than they reported.

oecarb

08-09-2008, 06:05 AM

When in France look out for dog shyt. Paris is like dog shyt alley. Enjoy your trip.

Didn't go to Paris. We went to Rouen in the North (Normandy). No signs of dogshyt.

lexbarker

08-09-2008, 10:57 AM

Beautiful pictures Oecarb but it looks like your digital pictures have been degraded by UV light?

oecarb

08-09-2008, 11:09 AM

Beautiful pictures Oecarb but it looks like your digital pictures have been degraded by UV light?

Eh?

lexbarker

08-09-2008, 02:12 PM

oecarb

08-09-2008, 02:32 PM

Beautiful pictures Oecarb but it looks like your digital pictures have been degraded by UV light?

Eh?
They look kinda washed out, like the pixels have been exposed to too much sun light after the pictures had been taken.

Lex, this is probably because the sunshine was very bright at times with very deep shadows so, in editing, I had to reduce the contrast. otherwise I would have got very dark shadows with no detail or very bright sunlit areas with little or no detail. Which explains why the sky sometimes came out white instead of blue.

lexbarker

08-09-2008, 05:48 PM

Am just kidding Oecarb.

oecarb

08-20-2008, 04:59 PM

From the BBCwebsite:

US bank 'to fail within months'

The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.

Kenneth Rogoff's comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised.

Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods".

"I would even go further to say 'the worst is to come'," he said.

"We're not just going to see mid-sized banks go under in the next few months," said Mr Rogoff, who held the IMF role between 2001 and 2004.

"We're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks."

http://news.bbc.co.uk/1/hi/business/7569903.stm

lexbarker

08-20-2008, 10:37 PM

oecarb

08-21-2008, 02:28 AM

Doh worry. Fed Chairman, Ben Bernanke is keeping his words of 4 years ago. He will drop money from a helicopter to prevent a recession/depression. It looks like there is a new law for the financial institutions, They can keep their profits but, if they lose money big times, the tax payers will drag them out.

Maybe. Or maybe not. From Money Morning:

Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years

[The First of Two Parts.]

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:

U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
[/*:m:30lyrxqv] That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
[/*:m:30lyrxqv] That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
[/*:m:30lyrxqv] And that the average American has no idea just how bad this financial crisis is going to get.[/*:m:30lyrxqv]

“The next shock is going to be bigger and bigger, still,” Rogers said. “The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out.”

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.......

.......Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.

I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.

I’m sure when the [British Empire] declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.” And nobody listened until it was too late.

When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.........

......Rogers: Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.

http://www.moneymorning.com/2008/08/19/jim-rogers/

lexbarker

08-21-2008, 03:17 PM

Like I said sometime ago, everytime the Feds intervene, they put themselves in a deeper hole. It started with the previous chairman, Greenspan by not letting the economy cleanse itself after the tech boom/bust. He created another boom that is now busting (Housing).. and it all comes from Keynesian economics.
It is a sad fact that he US general public does not know how serious their economy is.

miktay

08-22-2008, 11:02 AM

Like it or not the Federal Reserve is obliged to bail out Freddie Mac & Fannie Mae and depositors at failed financial institutions.

Whether they should rescue investment banks is another question. Conventional thinking is that their measures to do are aimed at preventing the exacerbation of the current financial dislocation.

That they do this with taxpayer money is a given, but like bitter medicine taken to stave off a debilitating illness, it can be reasonably argued that this is a prudent strategy intended for the welfare of all taxpayers.

Further the Federal Reserve Act of 1932 gives the Fed the explicit authority to lend to anyone against any collateral as long as it is deemed “necessary”.

lexbarker

09-11-2008, 11:51 PM

oecarb

09-12-2008, 06:16 AM

lexbarker

09-12-2008, 05:01 PM

Well, Fannie and Freddie got their bailout in tune of billions of dollars. I think the Feds set aside 100 billion but I suspect it may be 10 time more. They are coming out with the bad news piece by piece as not to alarm the market. Other banks would be failing and looking for bailouts. GM and Ford is also on the list of handouts.. this is the new USA, capitalizing the profits and socializing the losses, crime really pays, big time, by the tax payers. All those big high powered shamless CEOs with fat salaries and crooked bonuses would not be held responsible would be rewarded lavishly again at the end of the year.

And the most amazing thing is that the forumites who would criticise those lazy scumbags on welfare are strangely silent in the face of much much larger sums of taxpayers money being poured down the plughole.

Whey allyou dey?
This is not the USA I that I know and loved. America became a great nation because of its capitalistic system but slowly over the years it has become more and more socialistic to the point that it is creating its own downfall. In a social system, Peter is robbed to pay Paul so politicians can always count on the vote from Paul. There is a race on all sides to get Paul's vote by giving all the freebies at the expence of honest working people. I still don't support chronic welfare receivers who do not contribute to society and make welfare a way of life. I am sure you know some people like that.
On the other hand I do not agree with what the US is doing but then again this government is so corrupted and instead of putting some of their thiefing buddies in jail they will shovel loads of cash and protect them.

oecarb

09-13-2008, 04:02 AM

This is not the USA I that I know and loved. America became a great nation because of its capitalistic system but slowly over the years it has become more and more socialistic to the point that it is creating its own downfall. In a social system, Peter is robbed to pay Paul so politicians can always count on the vote from Paul. There is a race on all sides to get Paul's vote by giving all the freebies at the expence of honest working people. I still don't support chronic welfare receivers who do not contribute to society and make welfare a way of life. I am sure you know some people like that.
On the other hand I do not agree with what the US is doing but then again this government is so corrupted and instead of putting some of their thiefing buddies in jail they will shovel loads of cash and protect them.

Might not be the USA you knew and loved. However, it is not the first time this has happened.

Capitalism embodies individual greed, Lex. Capitalists will always look after their own welfare and some will be crooks. From time to time the government will have to step in. So why not do it from day one?

Here is an excerpt from the Enyclopaedia Brittanica describing FDR's New Deal after The Great Depression in the Capitalist USA you say you love:

Much of the New Deal legislation was enacted within the first three months of Roosevelt's presidency, which became known as the Hundred Days. The new administration's first objective was to alleviate the suffering of the nation's huge number of unemployed workers. Such agencies as the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC; see photograph) were established to dispense emergency and short-term governmental aid and to provide temporary jobs, employment on construction projects, and youth work in the national forests. Before 1935 the New Deal focused on revitalizing the country's stricken business and agricultural communities. To revive industrial activity, the National Recovery Administration (NRA) was granted authority to help shape industrial codes governing trade practices, wages, hours, child labour, and collective bargaining. The New Deal also tried to regulate the nation's financial hierarchy in order to avoid a repetition of the stock market crash of 1929 and the massive bank failures that followed. The Federal Deposit Insurance Corporation (FDIC) granted government insurance for bank deposits in member banks of the Federal Reserve System, and the Securities and Exchange Commission (SEC) was formed to protect the investing public from fraudulent stock-market practices. The farm program was centred in the Agricultural Adjustment Administration (AAA), which attempted to raise prices by controlling the production of staple crops through cash subsidies to farmers. In addition, the arm of the federal government reached into the area of electric power, establishing in 1933 the Tennessee Valley Authority (TVA), which was to cover a seven-state area and supply cheap electricity, prevent floods, improve navigation, and produce nitrates.

In 1935 the New Deal emphasis shifted to measures designed to assist labour and other urban groups. The Wagner Act of 1935 greatly increased the authority of the federal government in industrial relations and strengthened the organizing power of labour unions, establishing the National Labor Relations Board (NLRB) to execute this program. To aid the “forgotten” homeowner, legislation was passed to refinance shaky mortgages and guarantee bank loans for both modernization and mortgage payments. Perhaps the most far-reaching programs of the entire New Deal were the Social Security measures enacted in 1935 and 1939, providing old-age and widows' benefits, unemployment compensation, and disability insurance. Maximum work hours and minimum wages were also set in certain industries in 1938.

mammadon

09-13-2008, 09:56 AM

America is in doing badly economically since economic growth is based too much on consumption and not saving. look at all of the consumer debt there! There's just too much easy money floating around the economy.

lexbarker

09-13-2008, 01:24 PM

oecarb

09-13-2008, 04:48 PM

I have read a few articles that Hoover and Roosevelt made the 1929 crash worse. That started the depression by raising income taxes up to 92%. No wonder people were not going to work. Would you work if the government is taking that money from you?
Check out this article about taxes during this time.

http://www.cato.org/pubs/tbb/tbb-0303-14.pdf
From the Whitehouse website:

After capably serving as Secretary of Commerce under Presidents Harding and Coolidge, Hoover became the Republican Presidential nominee in 1928. He said then: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land." His election seemed to ensure prosperity. Yet within months the stock market crashed, and the Nation spiraled downward into depression.

After the crash Hoover announced that while he would keep the Federal budget balanced, he would cut taxes and expand public works spending.
It does seem unfair to blame Hoover for the stock market crash.

Capitalism does not have the monopoly on greed. Greed is part of human nature whether you are a capitalist or socialist. The principle of Capitalism does not include profits that are obtained illegally. But, there is a better side of “greed.” It allows people to be motivated and they can improve themselves to the maximum financially or otherwise (less so in the USA these days with government getting into your life and pocket). People can improve themselves by working longer and harder. There is drive to invent and create new things. America was the only nation in the world that provided the door to individual greatness and to be what you want to be and live the American dream. This is why America became so great and earned the respect of the most countries.
True. Greed is part of human nature. However, you say that Capitalism does not include profits that are obtained illegally. I note that there have been very high profile cases of crooked capitalists including the Enron affair, Conrad Black, many cases of isider dealing etc etc etc

It is no coincidence that they have the most Noble prize. They have given the world high technology in machinery and electronics which we really enjoy today.
I have taken issue with this statement on this forum before. I have pointed out that the population of the USA is slightly less than the twelve rich countries of the European Union and, if you add up their total number of Nobel Prizes over the years, they easily surpass those of the USA.

Total number of Nobel prizes:

USA....................304....pop 305,114,000

EU (original 12 countries):
Austria........................19....Pop 8,340,924
Belgium........................11....pop 10,666,866
Denmark.....................13....pop 5,489,022
Finland.........................3....pop 5,319,401
France.......................54....pop 64,473,140
Germany...................100....pop 82,191,000
Ireland.........................8....pop 4,422,100
Italy..........................20....pop 59,619,290
Netherlands................ 18....pop 16,448,000
Spain...........................7....pop 46,063,500
Sweden.......................28....pop 9,215,021
UK............................115....pop 61,186,000
Total.....................396...total pop 373,434,264

Not bad for countries that would be counted as Socialist, eh?

http://en.wikipedia.org/wiki/List_of_co ... population (http://en.wikipedia.org/wiki/List_of_countries_by_population)

http://en.wikipedia.org/wiki/Nobel_laureates_by_country

With the destruction of their constitution they are becoming a shadow of what they were once and too bad the people fail to recognize it as they still boast about their constitution.
The news and entertainment media and politicians are mainly responsible for it. The general population is so fixed on entertainment and sports. They know everything that goes on in Hollywood and the sports world. And, the government is no better. Besides stealing and taking all those bribes from the 35,000 or so lobbyists in Washington they are lying and reporting that the economy is still strong and inflation is only 3-4% while we see things falling apart. The people need to wake up and educate themselves politically, financially and take matters in their hands. But, that is asking too much of them. The constitution does not allow them to use the military indiscriminately and poke their business in other countries’ affairs. They are doing everything that is wrong domestically and internationally. They need a good time for cleansing as the country is virtually bankrupt. I cannot see how all those political promises for this coming election will ever materialize without devaluing the currency. Note: Every time the currency devalues, it is a hidden tax on the people. Forumites living in the USA, brace yourself!

lexbarker

09-13-2008, 08:58 PM

"It does seem unfair to blame Hoover for the stock market crash."
Sorry about that. That was meant to be the effects after the crash.

"However, you say that Capitalism does not include profits that are obtained illegally. I note that there have been very high profile cases of crooked capitalists including the Enron affair, Conrad Black, many cases of isider dealing etc etc etc"Don't get me wrong. I said the "Principle of Capitalism..." If business people do illegal stuff they shoud be in jail.

oecarb

09-14-2008, 04:53 AM

Lex, consider the following scenario:

A mortgage officer in a bank gets a commission on each mortgage "sold". He has a customer with an income just below that required for a mortgage. He asks if the customer sometimes gets paid for overtime working. The customer says yes. He suggests that they add a few hundred dollars' overtime pay to allow the customer to qualify for the mortgage.

Legal? Trying to help the customer? Trying to boost his own commission? Where does it stop? A few hundred dollars, a few thousand?

The officer's bosses might put the brake on it. After all, it's the bank's money.

However, someone has the bright idea of packaging these mortgages and selling them on. They look good. The returns are supposedly much higher than boring old Treasury Bonds. So an insurance company buys them for long-term investment.

The mortgage officer suddenly finds that the bank is no longer interested in how he gets the customers to sign up. They are going to sell the mortgages on anyway. Does it matter if the customers cannot pay? The bank will make money. The mortgage officer will make money. The customers can buy houses. The housebuilders can make money. The companies that sell furnishings and building materials can make money. Real estate agents make money. Keynesian economics at its best. Long live the bottom line!

So the mortgage officer can now sell mortgages, he can inflate customers' incomes. He can sell the American Dream and he can live it.

Legal? Ethical? What about the insurance companies investing other peoples' pensions? What about the foreign banks investing in these derivatives? But America is doing well. Who cares?

And yet this is precisely what was allowed to happen until customers started defaulting om their loans and investors started realising that their investments were almost worthless - precipitating the so-called credit crunch. Daylight robbery?

Isn't better to take the European route?
Accept Capitalism as selfish.[/*:m:3or04kak]
Accept that Capitalism can create wealth.[/*:m:3or04kak]
Make sure that Capitalism is properly regulated.[/*:m:3or04kak]
Make sure that workers are not exploited.[/*:m:3or04kak]
Tax the Capitalists so the state can provide decent infrastructure and so the state can help citizens who are not that good at Capitalism.[/*:m:3or04kak]
The state can also take final responsibility for housing people that cannot afford to buy. In 70's Britain, the state would buy houses from developers to house the homeless.[/*:m:3or04kak]
The state provides health and education. Anyone wanting to go private is welcome to do so. In France, like in T&T, the state schools are the best. The French Health system is also very good. Business does not have an extra bill to pay for their employees' healthcare.[/*:m:3or04kak]
The state provides unemployment and other benefits so that people can still survive even if unemployed.[/*:m:3or04kak]

All this means, of course, that it is the responsibility of the state to ansure that business does well.

So governments have to make sure that the environment is conducive to business success because, if business fails, the govt has to make more welfare payments. The tax from the Capitalists dries up. Government still has to house, educate and provide healthcare for citizens.

So the government has to help business, it has to help citizens - including the sick, the weak, the disadvantaged. And if the government has to use taxpayers' money to help prop up business, so what? Most of the tax is paid by businesses anyway. It is just another welfare case.

And the countries still get Nobel Prizes. :lol: :lol: :lol:

miktay

09-15-2008, 12:45 PM

oecarb

09-15-2008, 01:35 PM

What is going on in the good old US of A may be a form of socialismn but it is not available to everyone.

It is accessible only to the rich, privileged and well connected. Others, of more modest means need not bother to apply.

The American Dream says "Don't envy them. When you make your first couple of millions you, too, will understand. Even if now you are starving and can't afford healthcare, don't have a job and are about to lose your home." :twisted:

guyguy

09-15-2008, 02:06 PM

oecarb

09-15-2008, 03:55 PM

oecarb,
There is no way that the Federal Government would not have bailed out Freddie & Fannie. Too many people's lives and worldwide investment are at stake. I'm certain that the EU will do the same when those big banks begin to collapse due to this meltdown in the USA.

Guy,

Like I said, the big banks in the EU would have been paying loads of taxes and would have been subject to stringent legislation. And yes, they would have been helped out - like any other welfare case - a single mom or a sick old man. Not left to do what they what they wanted (the markets are sacred) and then have to be bailed out by the taxpayer.

It might interest you to know that there are still other American financial institutions that are going to fail over the next couple of months. Can the Fed bail them all out?

As Lex said privatising the profits and socialising the losses. (Lexbarker's post of Sept 12) :twisted:

And the Big Boys in Freddie Mac and Fannie Mae wanted to walk away with their multi-million dollar golden parachutes. I'm dam glad the Fed stopped them. :lol:
http://www.iht.com/articles/2008/09/15/ ... /sever.php (http://www.iht.com/articles/2008/09/15/business/sever.php)

Oh, and the stock market fell by 500 points tonight, by the way. :shock:

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=aLgJvlm6fvkU&refer=home)

guyguy

09-15-2008, 04:46 PM

oecarb

09-15-2008, 05:37 PM

lexbarker

09-15-2008, 06:02 PM

Lex, consider the following scenario:

A mortgage officer in a bank gets a commission on each mortgage "sold". He has a customer with an income just below that required for a mortgage. He asks if the customer sometimes gets paid for overtime working. The customer says yes. He suggests that they add a few hundred dollars' overtime pay to allow the customer to qualify for the mortgage.

Legal? Trying to help the customer? Trying to boost his own commission? Where does it stop? A few hundred dollars, a few thousand?

The officer's bosses might put the brake on it. After all, it's the bank's money.

However, someone has the bright idea of packaging these mortgages and selling them on. They look good. The returns are supposedly much higher than boring old Treasury Bonds. So an insurance company buys them for long-term investment.

The mortgage officer suddenly finds that the bank is no longer interested in how he gets the customers to sign up. They are going to sell the mortgages on anyway. Does it matter if the customers cannot pay? The bank will make money. The mortgage officer will make money. The customers can buy houses. The housebuilders can make money. The companies that sell furnishings and building materials can make money. Real estate agents make money. Keynesian economics at its best. Long live the bottom line!

So the mortgage officer can now sell mortgages, he can inflate customers' incomes. He can sell the American Dream and he can live it.

Legal? Ethical? What about the insurance companies investing other peoples' pensions? What about the foreign banks investing in these derivatives? But America is doing well. Who cares?

And yet this is precisely what was allowed to happen until customers started defaulting om their loans and investors started realising that their investments were almost worthless - precipitating the so-called credit crunch. Daylight robbery?

Isn't better to take the European route?
Accept Capitalism as selfish.[/*:m:3i17irgk]
Accept that Capitalism can create wealth.[/*:m:3i17irgk]
Make sure that Capitalism is properly regulated.[/*:m:3i17irgk]
Make sure that workers are not exploited.[/*:m:3i17irgk]
Tax the Capitalists so the state can provide decent infrastructure and so the state can help citizens who are not that good at Capitalism.[/*:m:3i17irgk]
The state can also take final responsibility for housing people that cannot afford to buy. In 70's Britain, the state would buy houses from developers to house the homeless.[/*:m:3i17irgk]
The state provides health and education. Anyone wanting to go private is welcome to do so. In France, like in T&T, the state schools are the best. The French Health system is also very good. Business does not have an extra bill to pay for their employees' healthcare.[/*:m:3i17irgk]
The state provides unemployment and other benefits so that people can still survive even if unemployed.[/*:m:3i17irgk]

All this means, of course, that it is the responsibility of the state to ansure that business does well.

So governments have to make sure that the environment is conducive to business success because, if business fails, the govt has to make more welfare payments. The tax from the Capitalists dries up. Government still has to house, educate and provide healthcare for citizens.

So the government has to help business, it has to help citizens - including the sick, the weak, the disadvantaged. And if the government has to use taxpayers' money to help prop up business, so what? Most of the tax is paid by businesses anyway. It is just another welfare case.

And the countries still get Nobel Prizes. :lol: :lol: :lol:

Oecarb, I was aware during the housing boom about the suspicious activities that was going on. I believe that I made some comments about it especially the part of Zero down and giving and extra 25% above the price of the property so they can "furnish" it. In addition, they made false income statements in applications (promoted by the salesmen to get their commissions). This was clearly illegal, there should be a query about it and fine/jail the salesmen involved. This crookery have anothing to do with capitalism or socialism.
I am not a fan of government. I think they are the most inefficient, unproductive, job secured group of people feeding off the capitalists. Over the years they have moved from civil servants to tyrannical masters to become very abusive, sometimes beyond the point of law. My blood boils everytime I see their indescriminate use of power against defenceless citizens. I want minimum government in my life.
Regarding taxing companies, take a look at Ireland. Some years ago (25+ years) they dropped that taxes for companies operating there. And the results? They experienced a hugh economic boom that is still going on today. The bottom line: Socialists need the Capitalists to SURVIVE.

miktay

09-15-2008, 07:02 PM

The bottom line: Socialists need the Capitalists to SURVIVE.
And vice versa. Capitalists also need the socialists. In the most 'capitalist' countries this takes the form of socialized services: subsidized health care, regulated utilities, public transportation & infrastructure, public education, public parks and recreational facilities, 'social' services, such as counselling, welfare rehabilitation and so on...

Most modern civilized soceities cannot exist without each system acting as a countervailing force against the other. When one is weakened the other runs rampant and either social or economic decline is soon to follow.

I'd much rather foot the bailout bill when this happens, which is rare, than be subjected to high taxes and a socialist government continually.
The cost of the bill is going to be high no matter which system you choose. You can pay a little every month or whopping bill every so often ; capital markets are becoming more volatile experiencing a greater frequency of boom and bust cycles. Most businesses have altered their hiring practices and over hire during a boom knowing they can retrench in the bust. This of course makes the trough more painful.

This was clearly illegal, there should be a query about it and fine/jail the salesmen involved.
Dont know if this would've helped, as it seems that more than a few of those salesmen in sunny South Florida already had criminal records.

Ex-convicts active in mortgage fraud
During Florida's housing boom, state regulators allowed thousands of mortgage professionals with criminal records into the industry -- costing consumers millions.
BY JACK DOLAN, ROB BARRY and MATTHEW HAGGMAN
jdolan@MiamiHerald.com

When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking.

Florida regulators -- responsible for protecting borrowers from predatory brokers -- could have rejected him on the spot.

Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room.

They asked for a copy of the court file but never demanded the police report, which shows that he had been caught with a small arsenal of assault rifles and ammunition, in addition to the cocaine.

Their background investigation complete, regulators circled ''approved'' at the bottom of the screening checklist, collected a $215 license fee and looked the other way.

Over the next three years, in a crime spree that stretched from Tampa to Miami, Almeida arranged nearly $3 million in fraudulent loans and fleeced 30 people -- many of them elderly and disabled.

Twice, the Florida Office of Financial Regulation -- which polices the mortgage industry -- failed to act on warnings that Almeida was stealing from clients, allowing his scam to thrive until police threw him into jail.

The Almeida case highlights one in a series of breakdowns in the state's enforcement system created to protect borrowers. Since 2000, regulators failed to weed out people with criminal histories, monitor scam operations and discipline crooked brokers, a Miami Herald investigation found.

State regulators allowed thousands of ex-convicts to enter a profession that gave them access to the most sensitive and personal financial information: credit cards, bank accounts and Social Security numbers.

Those criminals went on to commit nearly $85 million in mortgage fraud, the newspaper found. They stole their customers' identities. They stole their money. They even stole their homes.

''I was disgusted, I had to cry, because it was the first time in my life I'd been scammed,'' said Mary Taylor, 62, one of Almeida's victims.

Beyond the licensing, regulators routinely overlooked or ignored complaints, allowing rogue brokers to flourish amid one of the biggest housing booms in state history.

As the median home price reached an all-time record in Florida, and the Miami skyline erupted with gleaming new residential towers, fortune seekers rushed into the mortgage business in unprecedented numbers.

But Florida regulators, who introduced the nation's first licensing requirement for mortgage brokers in 1959, failed to keep pace.

During an eight-month investigation, The Miami Herald analyzed computer records for more than 222,844 Florida mortgage professionals, examined thousands of records from the Office of Financial Regulation, reviewed hundreds of court files and interviewed dozens of regulators, brokers and victims.

The newspaper found:

• From 2000 to 2007, regulators allowed at least 10,529 people with criminal records to work in the mortgage profession. Of those, 4,065 cleared background checks after committing crimes that state law specifically requires regulators to screen, including fraud, bank robbery, racketeering and extortion.

• More than half the people who wrote mortgages in Florida during that period were not subject to any criminal background check. Despite repeated pleas from industry leaders to screen them, Florida regulators have refused.

• Confronted with a growing epidemic of mortgage fraud -- Florida now has the highest rate in the nation -- the number of license revocations declined over the last five years, leaving borrowers at the mercy of predatory brokers.

• During the peak of the housing boom, the Office of Financial Regulation ignored a state law enacted in 2006 that compelled it to perform nationwide criminal background checks on applicants. That failure allowed people convicted in other states -- and in federal court -- to peddle loans in Florida without any scrutiny.

• Regulators allowed at least 20 brokers to keep their licenses even after committing the one crime that seemed sure to get them banned from the industry: mortgage fraud.

http://www.miamiherald.com/multimedia/n ... okers.html (http://www.miamiherald.com/multimedia/news/mortgage/brokers.html)

oecarb

09-16-2008, 02:49 AM

Oecarb, I was aware during the housing boom about the suspicious activities that was going on. I believe that I made some comments about it especially the part of Zero down and giving and extra 25% above the price of the property so they can "furnish" it. In addition, they made false income statements in applications (promoted by the salesmen to get their commissions). This was clearly illegal, there should be a query about it and fine/jail the salesmen involved. This crookery have anothing to do with capitalism or socialism.

Lex, you say this crookery has nothing to do with capitalism or socialism.

I say that, if you concentrate on the bottom line, there will always be a greater tendency to cut corners.

At first. this might mean "sailing close to the wind" as we say in the UK. Gradually, the more aggressive individuals will cross the line separating legality from illegality and without proper supervision and control, they will become rampant.

Once the government turns a bind eye and leaves things to "the market", this sort of thing is very likely to happen. And, by the time the mortgages were parcelled up and sold as derivatives, things got very ropey. The bank that arranged the mortgage did not have to worry about whether the customer can repay that mortgage.

Warren Buffet said that derivatives are "financial weapons of mass destruction" and that they were "time bombs, both for the parties that deal in them and the economic system".

posting.php?mode=edit&f=18&p=69197 (http://www.ttonline.org/forum/posting.php?mode=edit&f=18&p=69197)

In the USA many people want the govt to keep their noses out. This will always result in abuse as we have seen. As you say, the credit crunch was a disaster waiting to happen.

BTW do you think that gov't should take responsibility for defence, law and order etc? If so, where do you want them to stop?

I am not a fan of government. I think they are the most inefficient, unproductive, job secured group of people feeding off the capitalists. Over the years they have moved from civil servants to tyrannical masters to become very abusive, sometimes beyond the point of law. My blood boils everytime I see their indescriminate use of power against defenceless citizens. I want minimum government in my life.

And minimum government is what you have in the USA. This could lead eventually to the fall of American-style capitalism - the most extreme example of capitalism in the world. Like Russian-style Communism, so could go American-style Capitalism.

http://news.bbc.co.uk/1/hi/world/americas/7616388.stm

Regarding taxing companies, take a look at Ireland. Some years ago (25+ years) they dropped that taxes for companies operating there. And the results? They experienced a hugh economic boom that is still going on today.

Ireland, the UK and Spain are the EU economies closest to the American model and are therefore in greatest danger of an American-style crash. Remember three weeks ago Lehman Brothers were looking good. :twisted:

It is interesting that, when Bush was hoping to kick-start the US economy, he suddenly hit on the idea of sending a cheque to each household in the USA hoping they would go out and spend. The good news for the EU is that EU countries have been doing this for years.

The bottom line: Socialists need the Capitalists to SURVIVE.

Amen!

However, as Miktay said, the converse is also true. Western European Socialism recognises this and seeks to promote a symbiotic relationship between socialism and capitalism.

These countries have spent decades with Russian Communism on their doorsteps. They had to make sure there weren't Russian-style revolutions in their own countries and they well know the weak points of both Capitalism and Communism.

Harry Williamn

09-16-2008, 07:47 AM

Define recession according to Bush and McSame or McBush or is it McPain in yuh ? According to those filthy

rich and cash laden and property laden Republicans and you will realize that in your ignorance that the

Economy of the United States of America is Solid and humming along as expected after nearly eight years of

McBush and Bush and Phil Graham and McSame " Richgetmore" economics! Therefore there is no such thing as

the US heading for a recession.....according to Phil Graham it is in your mind you flipping whiners!

If you define it according to Senators Obama and Biden then what ?

If you define it according to your ignorance ...then what ?

If you define it according to sound economic theory and principles then ,what?

Now get your lazy behinds to work and define it as you wish and you will come up with what ?

oecarb

09-16-2008, 09:54 AM

miktay

09-16-2008, 01:07 PM

Recession: When my neighbour looses their job

Depression: When I loose mine

:P

greall

09-16-2008, 03:27 PM

Recession: When my neighbour looses their job

Depression: When I loose mine

:P

I have relatives who work at LEH and ML who are like headless chickens now.

Greg

lexbarker

09-16-2008, 05:05 PM

Oecarb, you know where I stand on Socialism; we have had this discussion before with some unanswered questions. I am not completely against government and some of the social programmes, what I want is limited government that follows the constitution. I have no problem with the state helping someone in temporary need but when this need becomes permanent I do have a problem. Politics attrack some of the slimmest people.

Like anything else there are laws and regulations in Capitalism but if one chooses to go the other way that is another story. In light of what is happening today, I view the US government and some of the failing financial companies as criminal organizations. The regulators are just as guilty as they turned a blind eye. Is anyone going to be charged? Hmmm.

Would the government keep intervening or possibly allow a meltdown? My take is that that they will keep propping up the economy until after the elections. I don't know how they will reengineer it but first they have to unwind the derivatives.

Harry Williamn

09-16-2008, 08:07 PM

Parse and task and pick your nose and brains with this!

(1) The Rich and "wanna be rich" i the United States of America ( like Palin and McSame/McBush and company)

have in the Past ,"Ran the American economy into the Ground!" If you are so up and up on Economics and the

Factual History behind the Economy in America then prove that to be right or ask for me for U.S.Economic

history 101.

(2) What year did they do that and who rescued the American Economy and how ?

(3) When the U.S. Economy got back on its feet and in great and super strength who and why began to tear

it back down again and how did they go about achieving it to where it is like dog fecal matter in a cheap tin

can ?

I have chosen this method to use your own ignorance to teach you the facts which you cannot refute.

You see it is the practice of some of you folks to ,"drop big words and high sounding phrases here and there"

which amount to a slender understanding of the subject matter at best and ," lost in a dark hole " of ignorance

at best.

I am not being sarcastic nor seeking to belittle those of you are guilty of such but to push you in the

direction which your early childhood education in TNT will have you go: Back to the drawing board and do your

Research then come to this Forum correct because this Forum have many talented people who are capable of

being ridiculous,humorous,cutting,cunning,eloquent,very instructive ( I have learned quite a number of things on

this Forum and was pushed in many a real and positive direction by folks on this forum) and downright easy

going and cool in demeanor so let your best be seen and not your (butt head as displayed by the (you know

exactly what dropping his pants which I understand is an old hobby of his from small) butt,butt-head!

miktay

09-16-2008, 10:50 PM

Would the government keep intervening or possibly allow a meltdown? My take is that that they will keep propping up the economy until after the elections. I don't know how they will reengineer it but first they have to unwind the derivatives.

These positions may take a long time to unwind; but its really anyone's guess given the current crisis and the idiosyncrasies and complexities of these instruments.

In the long term central bankers s/b wary of creating new "bubbles" by trying to contain the current economic crisis. Note this is what critics have accused Mr. Greenspan of by keeping rates too low for too long after the dot com collapse.

In the short term the "too-big-to-fail" criteria looks that it will be carefully applied to ailing companies.

Harry Williamn

09-16-2008, 11:13 PM

Yes they shall intervene and bail out AIG because they are Republicans and if they allow AIG to go down all

those people who will lose their jobs will definitely vote for Senator Obama so to help McBush/McSame/McPain

and McPalin McBush had to order the ," bail out strike!"

Think $85,000,000,000 USD for AIG ( to tide them over till the election) and if they fail still then by that time

the elections over and the ," Bubbas and the people with the brightly Colured necks" will be holding the bag!

Then the ," Economics of McBush/McSame?McPain and McPalin which are know as ( Richgetmore Economic) "

will find ways to leaglly divvy up the $85,000,000,000, USD and it shall be ," more of the same" business as

usual!

The only lesson I see for TNT is to take heed and beware of ," banks,mortgage companies and insurance

companies,bearing gifts to Government officals as they seek loans!"

lexbarker

09-17-2008, 09:27 AM

greall

09-17-2008, 07:33 PM

And it continues:

http://news.yahoo.com/s/nm/20080917/bs_ ... achovia_dc (http://news.yahoo.com/s/nm/20080917/bs_nm/banks_morgan_wachovia_dc)

NEW YORK (Reuters) - Morgan Stanley (MS.N), which saw its stock pummeled Wednesday on worries it may not survive the credit crunch as a broker-dealer, is considering merging with Wachovia Corp (WB.N), or another commercial bank, according to reports.

Morgan Stanley Chief Executive John Mack received a call on Wednesday from Wachovia, the fourth-largest U.S. bank, expressing interest in a deal with the Wall Street investment bank, the New York Times reported on its website, citing sources.

Morgan Stanley, the second largest U.S. investment bank, is considering other options, as other banks also have expressed interest, the Wall Street Journal reported.

Both Wachovia and Morgan Stanley declined to comment on whether it was having takeover talks, but said it was doing everything it could to help its stock price.

"The smartest people at this firm are focused on solutions," said a company spokeswoman.

The Wachovia talks are in the early stages and no deal may be completed, according to the reports that cited unidentified sources.

A number of analysts and investors, though, questioned the wisdom of combining two banks that have been burned by the spreading credit crisis that began with plunging mortgage prices and spread to commercial real estate.

"Two wrongs don't make a right," said James Ellman, a fund manager and president of SeaCliff Capital in San Francisco. "Hasn't Mr. Market been saying both companies possibly are going to fail? If you put them together, how does that make a better company?"

WEDNESDAY ROUT

Morgan Stanley reported stronger-than-expected results as well as a robust levels of cash and capital on Tuesday. Yet its stock dropped sharply Wednesday, suffering its worst one-day decline ever and falling to a 10-year low during the session.

Worse still, its credit default swaps traded as if it were in imminent danger of default.

Wachovia, meanwhile, has been hobbled by mortgage losses, triggered largely by its ill-timed takeover of Golden West at the peak of the housing boom in 2006. There has been speculation the North Carolina bank has been seeking a merger partner, hiring Goldman Sachs to study its options.

After the close of trading Wednesday, Morgan's market value had fallen to $24.1 billion, while Wachovia was worth $19.7 billion.

Morgan Stanley shares closed down 24 percent to $21.75, while Wachovia shed 21 percent to $9.12, both on the New York Stock Exchange.

"I don't know exactly how a deal like this would work. I don't think Morgan Stanley can buy Wachovia because of regulatory hurdles. And I don't know that Wachovia has the capital to buy Morgan Stanley," said Danielle Schembri, a bond analyst covering broker-dealers at BNP Paribas in New York.

The reports of the negotiations came a day after Morgan Stanley Chief Financial Officer Colm Kelleher told reporters it does not need or desire a merger with a commercial bank.

He also dismissed the increasingly popular view that broker-dealers, with their market funding and extensive use of leverage, could not remain independent under current conditions.

"The diversification of the businesses in capital markets is what drives the broker-dealer model," Kelleher told Reuters. "Investment banks have the ability to reinvent themselves and innovate many times throughout a cycle."

THINNING OUT

If a deal with Wachovia did go through, Morgan Stanley would be the fourth major investment bank to disappear from the scene during the year-old credit crisis.

Lehman Brothers Holdings Inc (LEH.P) filed for bankruptcy protection on Monday, and its core businesses will be acquired by Britain's Barclays Plc (BARC.L). Bank of America Corp (BAC.N) agreed to buy Merrill Lynch & Co Inc (MER.N), which was struggling with its exposure to mortgage securities for about $50 billion.

In March, JPMorgan Chase & Co (JPM.N) agreed to buy Bear Stearns at the urging of the government, as that securities firm teetered on insolvency.

Morgan Stanley approached Wachovia about a potential deal, earlier this year, but was rebuffed, the Times said.

Albert Yu, a portfolio manager at Clover Capital in Rochester, New York, argued the two companies may feel this is the best option in a tough situation.

"Morgan Stanley certainly saw what happened with Lehman and Merrill, so they at least need to think about all their options," he said. "I am sure that Wachovia is also thinking about what looks cheap out there, though they have their own problems. It's a little bit of opportunism and caution."

(Reporting by Joseph A. Giannone; additional reporting by Elinor Comlay and Dan Wilchins; editing by Jeffrey Benkoe)

Harry Williamn

09-17-2008, 09:47 PM

lexbarker

09-18-2008, 02:44 AM

"The smartest people at this firm are focused on solutions," said a company spokeswoman.

Are these the same people that put the company in the doghouse?

greall

09-18-2008, 08:50 AM

This is today's Newsday editorial:

Market cannot be fooled
Thursday, September 18 2008

In the short term, and perhaps even in the long term, Trinidad and Tobago need not be too concerned about the financial crisis now battering the United States.

What is essentially happening is the market correcting itself after too many people and too many institutions tried to fool it – an endeavour which is as hopeless as trying to build a perpetual motion machine. Although the present US crisis is being touted as the worst since the Great Depression, the implied comparison is misleading. The Depression happened because of government mismanagement – a sharp reduction in the money supply, a huge increase in tariffs in 1930, and a large tax increase in 1932. The present crisis, insofar as the Republican administration is to blame, occurred because the government was not doing its regulatory duty to make the market as transparent as possible.

But it is the private sector’s attempt to bend market principles which really created this crisis. The whole imbroglio, after all, started through people with poor credit ratings being given housing loans – in other words, a financial arrangement based on money which didn’t exist yet. The Lehman Brothers collapse happened because financial analysts forgot a similarly basic rule: that money must be based on a tangible resource in order to have value. As for AIG, bailed out late Tuesday by the Bush administration, their strategy was even more absurd: shift money around within its own organisation so that a multiplier effect is created. But the mantra bears repeating: the market cannot be fooled for long.

The unfortunate caveat here is the “for long”. Because buyers and sellers rarely, if ever, have perfect information, it takes some time for the truth to come out. That is why we have seen so many financial organisations end up in so much trouble in so short a space of time. If the corrections had occurred in small doses, the organisations, and the system as a whole, could have adjusted. Shares would have been sold, others bought, loans cancelled, loans refinanced, and so on. But, thanks to the jerry-rigging of people who thought they were cleverer than the market, crisis is now the order of the day.

So how worried should we be here in TT? Not too much. Our stock market is not tied to the US one, nor with Tokyo and London, which are already being battered. Moreover, there is an important distinction between the financial system and the real economy. In 1929, declines in agriculture, manufacturing, and construction happened before the financial sector collapsed on the ‘‘Black Tuesday’’ of October 29 . What is happening in 2008 is that the devices which are necessary to manage an economy as complex as America’s are being re-tooled.

To be sure, this will eventually lead to a recession in the US economy, perhaps by 2009, and this will affect the TT economy as well. But a contraction in our own economy, which is now overheated thanks to excessive Government spending, may actually not be a bad thing. So far, there is no reason why people here should be losing jobs or houses, as has happened in the US. Much will depend, however, on the Government’s response to the US financial crisis, and the upcoming Budget will, hopefully, contain relevant strategies for a US recession.

Greg

miktay

09-18-2008, 04:34 PM

^Good stuff fm Newsday. And far more sensible that some of those highly educated but otherwise worthless analysts who write for the other local papers.

oecarb

09-19-2008, 04:08 AM

oecarb,
I'd much rather foot the bailout bill when this happens, which is rare, than be subjected to high taxes and a socialist government continually. I like Capitalism! I like working for what I have! I want to be free or unencumbered to amass as much or as little wealth as I want. I don't want the government to dictate to me what I can and cannot do in every facet of my life. I don't want the government, nor anyone else for that matter, to mind me from the cradle to the grave. I'm not interested in inculcating a dependency syndrome in me and my family. No one owes me anything and vice versa.

Regarding the Big Boys; they should all be imprisoned for failure of their Fiduciary Duty but barring that, I'm delighted with the steps the government is taking to deny them their golden parachutes - although I don't think the government is severe enough though.

So, Guy, are you now willing to concede that, perhaps, it is time for government to step in and start making regulations to control some of these firms? Or are you happy to let things slide till the next crisis?

And, as I keep saying, Capitalism is worshipped in the EU (albeit in the same way a small cane farmer on the Manahambre Road might have worshipped his donkey or water buffalo in the old days). Capitalists pay their taxes (or as little as their accountants tell them they can get away with) and help is usually at hand for them because the governments do not want them to fail.

miktay

09-19-2008, 10:53 AM

oecarb

09-19-2008, 11:13 AM

At issue here is not only capitalism vs socialism. It is also about laws, their enforcement and a lack of understanding of the latest financial instruments.

In the case of the United States there was lax oversight of existing laws and a reluctance to insert controls, ostensibly to allow the "free markets" to do their work.

This is a recipe that would spell disaster in any political system.

However, capitalism is always calling for free unregulated markets. The markets will regulate themselves. The markets are paramount. As you say, Miktay, they must be allowed to do their work. Sheeeeeee!!!!!!

Western European socialism is about regulation, participation, protection and partnership between the people and the capitalists. Unlike the naked unfettered capitalism of the Land of the Free where the markets want to be unregulated, they want government to keep out - until they start losing money and facing destruction. Then they start pleading, begging and wailing and my friend GuyGuy thinks this is great. :twisted:

mammadon

09-19-2008, 02:46 PM

Europe is heading the way of the US. France wants its economy to be like America's and this is why Europe has underperformed compared with America for much of this decade.

snowbird

09-19-2008, 03:22 PM

Reality check:

Do you really think that Americans will just roll over and let some dumb foreigners take their country?

Wise up this is the rip off of the Century! ...and America is doing the ,"Ripping"...

Ahem!!! You may want to check into the volume of Arab holdings in the US before you make this statement.

As a matter of fact, I have been wondering how come they have been so quiet of late, I was so sure that by now, one of the Roayl Highnesses would have stepped in with his Royal cheque book in hand. :lol: :lol: :lol:

oecarb

09-19-2008, 09:10 PM

Europe is heading the way of the US. France wants its economy to be like America's and this is why Europe has underperformed compared with America for much of this decade.

The French have a different approach to capitalism:

French workers hold British boss

Workers at a French factory have held their British boss and forced him to file for bankruptcy, after realising he planned to relocate to Slovakia.

Mike Bacon was planning to move the operations of the BRS factory, which makes car parts in eastern France, without the knowledge of its workers.

He was detained on Saturday by a group of employees after they spotted lorries leaving the factory unexpectedly.

They freed him on Monday after taking him to a court to file for bankruptcy.

http://news.bbc.co.uk/1/hi/world/europe/7228164.stm

Actually the closest European Union economies to the US are the UK, Ireland and Spain.

.

discipuli

09-22-2008, 07:58 PM

Reality check:

Do you really think that Americans will just roll over and let some dumb foreigners take their country?

Wise up this is the rip off of the Century! ...and America is doing the ,"Ripping"...

I assume you reside in the USA to make a statement like this? Empires rise and fall , yes the US has the strongest military , but it is borrowing money from other countries to pay for that military.

The US is loosing its status as an economic superpower, its military power will slowly fade . Rome fell due to economic reasons , and the same flavour of hubris and political nonsense that the US has experienced under the Bush administration.

Two conflicts against vastly inferior enemies in Iraq and Afghanistan have made the US military feel strain (and they failed to find bin laden up to today).

while it would never come to pass , a war with China on the Asian continent will be a long and bloody affair that the US probably will not win.

The US will remain the world's greatest single 'power' till around 2040 or 2050 , till China and India roar ahead as the world's leading economies .

The US will have to swallow its pride and form an amalgamated nation with Mexico and Canada to maintain even a shred of its status by the end of this century.

discipuli

09-22-2008, 07:59 PM

I meant to 'edit' my last post ... and miss clicked , mod please delete this one : )

oecarb

09-23-2008, 02:55 AM

I assume you reside in the USA to make a statement like this? Empires rise and fall , yes the US has the strongest military , but it is borrowing money from other countries to pay for that military.

Disc, I will add to this. The US is borrowing money from other countries, not only to sustain its military but also to sustain its standard of living.

Of course, they don't call it borrowing. They call it "foreigners investing in our wondeful capitlist system". But jump high or jump low, if I came to you and handed you a hundred dollars and you agree to pay me 5% per year, you can call it investment on my part, I can call it lending, but, at the end of the day, you have my money and I can ask for it back.

And if you use it to feed your family and I lose faith in your ability to keep paying me interest or to repay me my money when I need it, I will stop handing my cash over to you and I will demand my money back. If you refuse to pay me, other people will do the same. And you might not be able to give your family the kind of food they got accustomed to.

And this is one of the big problems facing the USA today. Not tomorrow, not in 2040, but today.

The US is loosing its status as an economic superpower, its military power will slowly fade . Rome fell due to economic reasons , and the same flavour of hubris and political nonsense that the US has experienced under the Bush administration.

Two conflicts against vastly inferior enemies in Iraq and Afghanistan have made the US military feel strain (and they failed to find bin laden up to today).

The US went into Afghanistan to catch bin Laden. Michael Moore says that Unocal had wanted to build a pipeline across Afghanistan but the Taliban wouldn't let them. The US attacked Afghanistan, got permission to build the pipeline and, according to MM, they lost interest and went off to attack Iraq.

They thought that, as soon as they entered Iraq, there would be "dancing in the streets and people would be putting garlands around the soldiers necks"

Why not? It always happens in the movies, doesn't it?.

Then they thought superior weapons would win the war. They did not even think of asymetrical warfare.

You could have the most fantastic semi-automatic rifle with all the fancy attachments. But I could still hide behind a tree and sneak out behind you and buss your head with a big stone. Or somebody could just strap some explosives round their waist and walk up to you and blow themselves up, taking you with them. Or they could make a home made bomb and blow it up when you drive past it.

miktay

09-24-2008, 04:14 PM

oecarb

09-24-2008, 05:20 PM

Seems as though the more things change the more they stay the same.

The same fear mongering rhetoric that were used to prod the United States to invade Iraq has been dusted off by Bush and Co. to cajole the congress into voting for the $700 billion financial bailout plan.

IOW
If you dont vote for this now things are going to get very bad.
Just trust us. We know what's best.

Problem is whether people will buy that idea from a confirmed snake-oil salesman.

Them senators really grilled Paulson and Bernanke. And many seem to be dead set against bailing out the financial institutions who have always said they knew best and who paid their staff slaries and bonuses in millions.

Putting in taxpayers' money and wanting a carte blanche to choose how much to pay for those toxic investments and which institutions to rescue! And seeking immunity from court prosecution if it is later found that they made bad decisions.

The fact is that no-one knows how much these investment vehicles are worth. They could be worth virtually zero. BUt Paulson and Bernanke are sying that they might be worth a lot in the future so they want to pay somewhere between zero and full maturity value and they want the freedom to decide. And maybe the taxpayer might make a profit.

My question is: why not let the market decide? Open up the sale to foreign banks and sovereign funds and see how much they are willing to pay. Surely that is the true market value.

Or why not divide the 700 billion among all Americans? That would be over $2,000 each. So a family of four would get $8,000. That could help with the mortgage or help buy a few luxury goods and, by the time they are finished spending, I'll bet the economy would be booming.

Or divide it among the poorest half of the population. You would be talking $4,000 each or $16,000 for a family of four. That could make a big difference and could make voters really grateful. :twisted:

Knowing how much to give to the financial institutions would be difficult. IMHO they woudl lie about how much debt they have because they would be afraid that people would start wihdrawing their money which could cause a crash. So the money requested would be insufficient.

Then they might be reluctant to line up to accept the handouts - because they might look as if they really need it and people might start withdrawing money, causing them to crash.

batman

09-24-2008, 06:00 PM

The government should step in and bail out If It Is Necessary. But the requirement
should be...on behalf of the tax payers, that those people who took the money, should
give it back. The millions and millions did not evaporate into thin air...some people have it.
FIND OUT WHERE IT REALLY WENT.

Didi

09-25-2008, 03:28 AM

The people responsible for the crisis, who have been cashed out with high salaries and bonuses for years, will not be penalized for billions "but will be let off the hook. So the goverment is buying bad risks, nationalizing the losses but on the other hand taxpayers won't share in any of the profits that the government hopes the stabilized market will bring about in the long run.
They should create political regulations that will prevent a situation like this from happening again in the future.

miktay

09-25-2008, 03:53 PM

oecarb

09-25-2008, 04:45 PM

Putting in taxpayers' money and wanting a carte blanche to choose how much to pay for those toxic investments and which institutions to rescue! And seeking immunity from court prosecution if it is later found that they made bad decisions.

No doubt some sort of plan is needed to return confidence to financial markets and stop the bleeding.

But there are better ways of committing taxpayer $ ; in the past govt has helped ailing companies with finite loans rather than open ended obligations.

If this bill does pass it will probably be the last finger in the dyke. If unable to soothe investor angst this $0.7 trillion will probably be viewed in hindsight as someone trying to stop a heartattack with a band aid.

And those someones are Hank Paulson and Ben Bernake.

Well, first there were the $600 cheques. This was supposed to kick-start the market - I couldn't understand how. Then there were the cash injections (some estimates were as high as $400 billion). There were the takeovers and collapses. Now this $700 billion.

I was interested to note that the US stock market closed up only 196 points after this all-singing, all-dancing wheeze seemed to be getting the OK. I would have thought that, if the market had faith that it would solve the problem, it would have risen to the level of at least two weeks ago.

Then again, people are still losing their homes and unemployment is still rising.

lexbarker

09-25-2008, 07:14 PM

guyguy

09-26-2008, 02:30 AM

The New US One Dollar Bill;

miktay

09-26-2008, 06:29 PM

Has the theory of decoupling begun to unravel?

http://afp.google.com/article/ALeqM5j9u ... jatAYpER6A (http://afp.google.com/article/ALeqM5j9uch9QDg5jtnuh1jLjatAYpER6A)

Ireland is first eurozone nation in recession
1 day ago

DUBLIN (AFP) — Ireland on Thursday became the first eurozone member to fall into a recession since the US subprime home loan crisis sparked a global economic slowdown, official data showed.
Ireland's economy, rocked by a domestic property market meltdown, entered recession for the first time in 25 years after shrinking in the second quarter of 2008, the Central Statistics Office (CSO) said in a statement.

European neighbours Britain, France, Germany, Italy and Spain sit on the brink of recession amid global economic turmoil. Denmark, which is not in the eurozone, fell into recession -- two successive quarters of negative growth -- earlier this year.

"Ireland is definitively in recession: the first euro area country to be so," said Barclays Capital analyst Julian Callow.

Irish gross domestic product (GDP) shrank 0.5 percent in the second quarter of 2008 compared with the previous three-month period when the economy contracted 0.3 percent, according to the CSO.

The "Celtic Tiger" economy has not experienced a recession since 1983.

"We expect that Italy and quite possibly Germany will also record contractions in their third-quarter GDP, following contractions in the second quarter -- with a substantial risk that France does as well -- so Ireland is unlikely to be alone in entering the euro area 'recession club,' Callow said.

"As Ireland recovers from a major construction melt-down and surging unemployment, it seems likely to continue to experience further negative quarters ... perhaps into 2009," he added

Ireland has in recent years been described by analysts as the "Celtic Tiger" economy because of its prolonged period of double-digit growth in the 1990s, which placed it among the richest nations in Europe.

However, it has been hammered by the international credit crisis, a severe property and construction industry downturn, weak consumer spending, sky-high oil prices and the strong euro.

Howard Archer, at the Global Insight consultancy in London, said it was not a shock that Ireland had lost its roar.

"It was no surprise that Ireland contracted again in the second quarter as a wide range of indicators had been extremely weak -- be it relating to the service sector, manufacturing, consumer confidence and retail sales," he told AFP.

"Clearly, the housing market and construction downturns are having a major depressing impact on Irish economic activity, on top of wider European problems including the strong euro, elevated oil, commodity and food prices, the financial sector turmoil and slowing global growth," he said

"I think the downturn has been more severe in Ireland than in other European countries but I think an increasing number will join Ireland in recession, including the UK, Spain and Italy.

"Technical recession is also very possible in both Germany and France," Archer added.

The CSO said Thursday that Ireland's economy also contracted on a 12-month basis in both the first and second quarters of 2008.

"In the second quarter of 2008, GDP decreased by 0.8 percent at constant prices compared with the same period in 2007," the CSO said in its statement.

"This is the second successive quarter in which GDP showed a decrease compared with the same quarter of the previous year."

The economic growth rate had plummeted to minus 1.3 percent in the first quarter of 2008 on a 12-month basis, the CSO added -- a slight revision from the previous estimate of minus 1.5 percent.

"In the first few months of the year the weakness in residential construction activity was the main culprit, with investment activity down almost 20 percent," noted Dr Ronnie O'Toole, chief economist at the National Irish Bank in Dublin.

"This has now been joined by much weaker consumer spending, which contracted in the second quarter.

"Consumers went on strike around Easter and this drop off in sales is evident in the figures released today."

Irish think-tank, the Economic and Social Research Institute forecast, forecast earlier this year that the economy would plunge into recession in 2008 for the first time in 25 years.

Key US companies with bases in Ireland include hi-tech giants Apple, Dell, Google and Microsoft.

oecarb

09-28-2008, 07:11 AM

The economies of the UK, Ireland and Spain are the ones that are nearest to the US model and are dependent on property prices.

This article is not particularly scary. A recession is technically defined as two consequitive quarters of shrinking growth. Given that Ireland's economy has shrunk by 0.3% and 0.5% in the last two quarters, this is not yet cause for alarm in a country that has experienced 25 years of growth - some years in double digits.

Ireland has in recent years been described by analysts as the "Celtic Tiger" economy because of its prolonged period of double-digit growth in the 1990s, which placed it among the richest nations in Europe.

Italy is also technically in recession with falls of 0.1% in each of the last two quarters.

Italy has officially entered recession, after preliminary figures indicated that its economy shrank in the April to June period.

Italy's economy contracted by 0.1% over the three months, according to the national statistics agency said.

An identical performance in the first three months of the year means Italy has now met the traditional definition of recession - an economy shrinking over two successive quarters - for the first time in 11 years.

http://news.bbc.co.uk/1/hi/business/3134947.stm

We in the UK have not yet experienced recession though the economy is slowing. The latest figure for house price falls is 4.6%. And, though unemployment has risen marginally, it must be remembered that there are about a million Poles who arrived in the UK since they joined the EU in May 2004 and they have started returning home because of the shortage of jobs and the fall of the British pound against the zloty as well as the growth of the Polish economy. This also holds, to a certain extent, for Ireland.

The fall in house prices has accelerated in England and Wales, according to the Land Registry.

Its latest report shows that prices fell by 1.9% in August, taking the annual rate of price deflation to 4.6%.

The figures mean that the average property now costs £174,493; £8,320 less than a year ago, with £3,871 of that drop occurring last month.

http://news.bbc.co.uk/1/hi/business/7637491.stm

Spain is likely to be the EU country that suffers most since their economy was built up on people from the richer EU countries buying second homes there because of the sunshine and beaches. However, Spanish banks seem to be awash with cash and they have been buying up banks in the UK and Spanis businesses have been acquiring quite large businesses in other countries.

Spanish banks, whose home market has been hit by the worst economic downturn the country has seen in decades, are looking to the UK for some audacious acquisitions to expand their financial empires.

Observers believe that many lenders could now be the target of bargain hunters, and that consolidation is set to sweep the sector.

Banco Santander Central Hispano, which already owns Abbey National, the former building society, is among the modern-day Conquistadors, swooping on Alliance & Leicester with a £1.3bn, all-share offer that the ailing high street bank could not turn down.

http://www.theherald.co.uk/business/new ... shores.php (http://www.theherald.co.uk/business/news/display.var.2410620.0.Hungry_Spanish_banks_set_sai l_for_UK_shores.php)

So, basically we are talking about minor slowdowns so far - nothing on the scale of the USA - yet.

lexbarker

09-28-2008, 11:22 AM

This guy said the dollar is becoming toilet paper.

http://www.youtube.com/watch?v=H-F89sIDDVI

oecarb

09-28-2008, 04:23 PM

This guy said the dollar is becoming toilet paper.

http://www.youtube.com/watch?v=H-F89sIDDVI

He sounds a bit crazed to me.

What advatages can Paulson gaiin by letting the dollar fall to zero? Unless he has all his money in yuan or euros so that he can then buy up large tracts of the USA with a few euros. But then, so would every European.

Mind you, I seem to remember some forumite (was it Miktay?) posted a few things some years ago about the Federal Reserve engineering recessions so they and their chronies could acquire assets cheap.

.

discipuli

09-29-2008, 08:32 AM

Hard commodities like Gold/Oil will experience a huge jump if the dollar really becomes worthles. Also Paulson is rumoured to have links to big companies like JP Morgan Chase.

It would be like if the gold standard got re introduced, there won't be enough gold to meet demand and the price will skyrocket as everyone wants it.

Some people believe that the whole bailout plan will lead to more and more power being concentrated in the hands of a few large companies ie. Whoever is lending out that money, and whoever has the money to start buying up all these companies that are going insolvent.

JP Morgan Chase is a company to keep an eye on, they bought up Bear Sterns and WaMu , and seem to be benefiting from the crisis.

oecarb

09-29-2008, 08:43 AM

miktay

09-29-2008, 11:33 AM

The economies of the UK, Ireland and Spain are the ones that are nearest to the US model and are dependent on property prices.

This article is not particularly scary. A recession is technically defined as two consequitive quarters of shrinking growth. Given that Ireland's economy has shrunk by 0.3% and 0.5% in the last two quarters, this is not yet cause for alarm in a country that has experienced 25 years of growth - some years in double digits.

Well this may be just the start of things to come. And while one never seeks to give credence to unsubstantiated fear mongering by a sensationalized media, there are serious concerns that the economic malaise may not be confined to the US alone.

AFTER a frenetic weekend spent trying to rustle up a buyer for Bradford & Bingley, a small British bank down on its luck, Britain’s government was poised, late on Sunday September 28th, to nationalise its second bank in a year. Until the last minute talks were continuing to find buyers for some parts the bank. Potential purchasers included Spain’s Santander and a clutch of big British banks. But efforts to find a buyer for all of it had foundered, leaving little choice but to take it into public ownership to prevent a run on deposits, which had already started at the weekend, gathering pace when branches reopened.

This is the fourth British bank to have crumpled in the face of ongoing turmoil in the credit markets. Northern Rock was nationalised in February and both HBOS, Britain’s biggest mortgage lender, and Alliance & Leicester, a small bank, have since sought refuge in takeovers by bigger banks amid worries that they would not be able to raise new loans to repay existing debts.

This particular failure, however, is a sign of more than just the fear and uncertainty roiling international credit markets. It also marks another worrying point in the credit crisis. For much of the past year attention has been on bad debts arising from American mortgages and how losses on them have been spread around the world’s financial system by a bewildering array of credit derivatives. Bradford & Bingley’s problems, in contrast, are largely homegrown and raise the worrying possibility that the international banking system will face a second wave of losses as housing markets and economies wilt around the world
http://www.economist.com/finance/displa ... s_box_main (http://www.economist.com/finance/displayStory.cfm?story_id=12325963&source=features_box_main)

Fortis gets $16.4 billion in partial privatization
Chairman to step down; company's ABN Amro stake to be sold
By MarketWatch
Last update: 9:52 a.m. EDT Sept. 29, 2008Comments: 10LONDON (MarketWatch) -- The governments of Belgium, the Netherlands and Luxembourg launched an 11.2 billion euro ($16.4 billion) rescue for Fortis, acting after confidence in the banking and insurance group evaporated and potential bidders reportedly walked away from a deal.The three governments agreed to inject capital to buy 49% interests in Fortis-owned banking subsidiaries operating in each of their jurisdictions, they announced in a joint press release.
Terms also call for Fortis (NL:30086: news, chart, profile) (BE:000380118: news, chart, profile) to sell its stake in ABN Amro -- likely at a hefty discount to the 24 billion euros it paid as the credit crisis was starting to accelerate -- and to take a further 5 billion euros of write-downs and impairment charges.
In volatile trading, Fortis shares bounced higher in early action before slumping as much as 20% and then partially recovering to trade down around 10%.
The partial nationalization of Fortis came as the U.K. government took control of mortgage lender Bradford & Bingley (UK:BB: news, chart, profile) and as a consortium of lenders offered a lifeline to Germany's Hypo Real Estate (DE:802770: news, chart, profile) .
The Icelandic government also came to the rescue of Glitnir, buying a 75% stake in the country's third-largest lender for 600 million euros and Fortis' Belgian rival Dexia (BE:000379613: news, chart, profile) saw its shares tumble after a report it would need to raise cash. See European Markets.

http://www.marketwatch.com/news/story/f ... ist=msr_11 (http://www.marketwatch.com/news/story/fortis-gets-164-billion-bailout/story.aspx?guid=%7B37E0540A-6DD9-412A-9EAC-202147FBDF38%7D&dist=msr_11)

sapodila

09-29-2008, 03:44 PM

205 - 228 votes cause bailout to fail. Now they blaming the house speaker for remarks she made prior to the voting process? :roll: Politics I tell you.! Head to the grocery stores, gas stations, or try getting a loan you'll experience 'recession'.

http://www.marketwatch.com/news/story/u ... TNMostRead (http://www.marketwatch.com/news/story/us-stocks-plunge-house-says/story.aspx?guid=%7B7F45BE2A%2D0486%2D494E%2DB87C%2 D76D9F2688338%7D&dist=TNMostRead)

lexbarker

09-30-2008, 09:06 AM

Is this the guy responsible for the bailout failure?

http://www.youtube.com/watch?v=3tpmIAKAxI4

miktay

09-30-2008, 10:56 PM

225 - 228 votes cause bailout to fail. Now they blaming the house speaker for remarks she made prior to the voting process? :roll: Politics I tell you.! Head to the grocery stores, gas stations, or try getting a loan you'll experience 'recession'.

http://www.marketwatch.com/news/story/u ... TNMostRead (http://www.marketwatch.com/news/story/us-stocks-plunge-house-says/story.aspx?guid=%7B7F45BE2A%2D0486%2D494E%2DB87C%2 D76D9F2688338%7D&dist=TNMostRead)

The failure of the house to pass the bailout plan despite urgings fm impotent political leadership reflects something remarkable: that ordinary citizens have finally woken up to the realities of America life.

And theyre outraged at the politicians and corporations whove been milking their political and financial goodwill for the better part of the last decade.

Lets hope that history will not judge this awakening with those chilling words: too late.

oecarb

10-01-2008, 04:56 PM

I cannot understand how this addresses the core problem.

As ar as I understand it, the root cause of this crisis is the fall in house prices. As long as prices were rising, banks were willing to lend, people were willing to borrow against the equity in their homes and to spend wildly. Everyone was happy. So some investment firms packaged these mortgages ans sold them on as Triple A securities and this worked as long as house prices keep rising.

I can't see how the collapse of these could have caused the problem, though. I see the collapse of these so-called triple A securities as being caused by the house price falls. If prices han't fallen, everyone would still have been happy, IMHO.

It was only when prices stopped rising - triggered in part by some teaser rates mortgages reverting to full rates - that everything started collapsing.

If house prices could be made to start rising again, everything would be OK again. Houses would start selling again. Homeowners would borrow again. They would buy cars and fridges and carpets again. Businesses would do well again and they could keep hiring again. The banks could make money again.

However, if house prices do not rise, why would banks lend 90% - 120%? Even if they had loads and loads of cash. Would they be willing to take the risk that house prices might not go up again? How would they convince people that housing is a good investment? How would there be enough equity for the homeowner to borrow against? Where would the ordinary home owner get extra money to buy his cars, fridges, carpets etc? How would businesses make money again? How could they keep hiring?

Question is - will this $900 Billion make house prices rise again? I think not.

So I am afraid all I see is more house price falls, more unemployment, more firms collapsing, more financial institutions failing - regardless of what Paulson & Co say. Just my tuppence worth.

sacky

10-02-2008, 05:18 AM

PAULSON could not save lehman brothers but he wants the american people to give him a blank cheque to save the bastion of capitalism WALL ST. :lol: :lol: :lol:

oecarb

10-03-2008, 04:36 PM

Exracts from Bloomberg.com:

Crisis Hits Main Street as Employers Cut More Jobs
By Shobhana Chandra and Rich Miller

Oct. 3 (Bloomberg) -- U.S. payrolls plunged in September, signaling the economy may be heading for its worst recession in at least a quarter century as the 13-month-old credit crisis on Wall Street finally hits home on Main Street.

Employers cut the most jobs in five years in September as cash-squeezed companies pulled back in an effort to bolster pinched profits. In its last employment report before Americans choose their next president, the Labor Department said the unemployment rate was 6.1 percent, a climb of 1.4 percentage points from a year before.

``If credit markets remain dysfunctional, the current recession could turn out to be as severe as any in the postwar period,'' said former Federal Reserve governor Lyle Gramley, now senior economic adviser at the Stanford Group Co. in Washington.......

........``The really bad news here is that job losses are now widespread,'' said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. ``The problems in housing and manufacturing are now spreading everywhere. We are in a recession, there is no debate about that.''

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=aa5JDGpEM8bc&refer=home)

miktay

10-06-2008, 07:08 PM

I cannot understand how this addresses the core problem.

Oecarb:

The fear and trembling in current financial markets is centered more on credit derivatives than mortgage derivatives.

As you alluded to in another thread the credit derivative market is enormous: 50-60x the size of outstanding mortgage derivatives and, by all accounts, at $60 trillion, roughly $10 trillion larger than the entire global economy.

The biggest slice of this pie is the now infamous credit default swap (CDS) which is a wall street-ismn for insurance.

And it was this "insurance" that was sold to sub-prime investors to allay their fear of investing in risky assets.

Yet for its size the credit derivative market is a house of cards: should one of its key purveyor fail it would mean the implosion of global finance. Because insurance is only as good as the strenght of the company that stands behind it.

This is the rationale behind the nationalization of AIG, Fortis, Drexia et al. Had they been allowed to fail it would trigger the write down of balance sheets accross the globe, and as the dominos begin to fall, a downward spiral of asset deflation.

And deflation is capitalism's kryptonite.

And it is also the reason Mr. Warren Buffet, America's investing oracle, has deemed speculative credit derivatives as "financial instruments of mass destruction" & similarly why, America's bond guru, Mr. Bill Gross, has characterised the unregulated market for these instruments as "the shadow banking system".

To further muddy the water, credit derivatives are far more difficult to value than their mortgage derivative cousins. So there is considerable uncertainty (read : distrust) surrounding their current valuations.

Moreover as these instruments were not strictly labeled as "insurance", adequate payout provisions were not collateralized & capital reserves that w/h otherwise been set aside for traditional claims on regulated insurance products, eventually wound its way into...you guessed it...wall street bonus packages.

Another shortcoming of CDSs is that they appear to have heavily underpriced risk.

Due to some combination of competitive pricing, short sight, complex mathematics, greed, regulatory misunderstanding, or naivety, the premiums charged for these instruments do not factor in the possibility of a near term recession.

And unlike a diversified auto/life/health insurance portfolio, where insureds are largely independent and uncorrelated, in a recession, profit seeking entity risk would begin to correlate ; as individuals & firms find it more difficult to meet their obligations resulting in increased defaults & a correspondingly dramatic increase in CDS claims to guarantors.

To put it another way, a recession in the near future, would be quite like an 8.9 earthquake in San Francisco or a cat 5 hurricane in Miami, in the credit derivative market.

And this is probably a conservative analogy. Others have characterized this scenario as an extinction level event for contemporary financial markets.

snowbird

10-06-2008, 07:26 PM

Professional Financial pundits aside..... it's interesting to go back and read what some of us were thinking and saying in January of this year on the subject..... makes for interesting reading :)

oecarb

10-07-2008, 12:59 AM

Professional Financial pundits aside..... it's interesting to go back and read what some of us were thinking and saying in January of this year on the subject..... makes for interesting reading :)

Yeah. They should let us run the world. :lol: :lol:

miktay

10-07-2008, 08:21 PM

miktay

10-23-2008, 12:15 PM

The start of industry downsizing...

AP
Goldman Sachs said to cut 10 percent of work force
Thursday October 23, 9:30 am ET
By Stephen Bernard, AP Business Writer
Goldman Sachs said to cut 3,260 jobs as credit crisis leads to significant business slowdown

NEW YORK (AP) -- Goldman Sachs Group Inc. is cutting about 10 percent of its work force amid the ongoing downturn in the credit and lending markets, a person briefed on the plan said Thursday.
Goldman Sachs will cut about 3,260 jobs. Goldman's work force, which was at record high levels at the end of the third quarter, will be pared back close to 2006 and 2007 levels. No additional cuts are planned, the person said. This person requested anonymity because the company hadn't publicly disclosed details of the plan.

The job cuts are a direct result of the current economic environment and significantly lower levels of business activity, the person told the Associated Press.

Last month, amid the increasing turmoil that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and Merrill Lynch & Co. sell itself to Bank of America Corp., Goldman Sachs along with Morgan Stanley received approval to become bank holding companies.

September was considered one of the worst months during the credit crisis as banks essentially stopped lending money to each other for fear they would not be repaid. The problems intensified when Lehman filed for bankruptcy and the government loaned insurer American International Group Inc. $85 billion to help it remain in business.

Goldman Sachs and Morgan Stanley made the change to bank holding companies as investors worried the stand-alone investment bank model may no longer be viable. With the new status, Goldman Sachs will likely face increased regulatory scrutiny, which could force it to scale back some of more leveraged and aggressive business units.

oecarb

10-23-2008, 01:09 PM

And I posted this on the politics thread because I thnk Bush might declare a state of emergency:

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, said at a conference in London today. ``There will be massive dumping of assets,'' and ``hundreds of hedge funds are going to go bust,'' he said......

......"Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and "don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.

http://www.rgemonitor.com/roubini-monit ... t_shutdown (http://www.rgemonitor.com/roubini-monitor/254130/bloomberg_october_23_2008_roubini_says_panic_may_f orce_market_shutdown)

miktay

10-23-2008, 05:12 PM

With all their gearing, hedge funds will no doubt feel the pain of unwinding leveraged positions in a deflationary environment.

But its not just hedge funds that are going bust. Finance itself is going to have to shrink. By all accounts finance related activities grew fm 10% of world GDP in the 1980s to 40% last year ; far in excess of most other activites.

As it will take many months for confidence & trust to return dont see how a 2 week market close will do anything to help alleviate the hangover.

Cold turkey detox is the only way forward.

lexbarker

10-25-2008, 02:02 PM

I think it is a hopeless case with the Bush, Mc Cain and Obama meeting. There is so much suspicion with the Feds asking for so much money without any responsibility. Hank Paulson was the former big wheel at Goldman Sachs and guess who is going to get the lion share when this money is approved? I saw a report that 100 billion will take care of all the housing problem so that means that the remaining 600 B will be paying for some of the leverage in derivatives. I am beginning to think that this economic downfall was engineered. It is time the US government takes control and ownership of the US dollar. They are at the mercy of the Feds. It is rumored that there is no more gold at Fort Knox. It was all taken as government debt payment

http://www.globalresearch.ca/index.php? ... &aid=10654 (http://www.globalresearch.ca/index.php?context=va&aid=10654)

They Did It On Purpose: The Housing Bubble & Its Crash were Engineered by the US Government, the Fed & Wall Street

by Richard C. Cook

Global Research, October 23, 2008

During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.

When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.

In 2001 the frequency of White House visits by Alan Greenspan increased.

Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.

Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.

The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.

According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed

Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.

Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.

Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.

Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.

Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.

Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.

George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.

Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq .

ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.

State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.

In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.

The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.

Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.

The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.

The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings.

The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.

Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.

As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.

The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election.

The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.

Most major retail chains began to close stores and lay off employees even as the Christmas season approached.

The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is http://www.richardccook.com. Comments or requests to be added to his mailing list may be sent to EconomicSanity@gmail.com. Also see a series of his speeches on YouTube at http://www.youtube.com/user/GracchusJones.

Richard C. Cook is a frequent contributor to Global Research. Global Research Articles by Richard C. Cook

lexbarker

10-28-2008, 01:29 PM

Oecarb, it looks like you guys over the pond are getting slapped around big too without the help of the U.S. :

http://www.telegraph.co.uk/finance/comm ... tdown.html (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3260052/Europe-on-the-brink-of-currency-crisis-meltdown.html)

Europe on the brink of currency crisis meltdown
The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.

By Ambrose Evans-Pritchard
Last Updated: 10:52AM GMT 26 Oct 2008

Comments 73 | Comment on this article

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.

Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world.

Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire.

Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon.

Romania raised its overnight lending to 900pc to stem capital flight, recalling the near-crazed gestures by Scandinavia’s central banks in the final days of the 1992 ERM crisis – political moves that turned the Nordic banking crisis into a disaster.

Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.

The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

Traders are paying close attention as contagion moves from the periphery of the eurozone into the core. They are tracking the yield spreads between Italian and German 10-year bonds, the stress barometer of monetary union.

The spreads reached a post-EMU high of 93 last week. Nobody knows where the snapping point is, but anything above 100 would be viewed as a red alarm. The market took careful note on Friday that Portugal’s biggest banks, Millenium, BPI, and Banco Espirito Santo are preparing to take up the state’s emergency credit guarantees.

Hans Redeker, currency chief at BNP Paribas, says there is an imminent danger that East Europe’s currency pegs will be smashed unless the EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.

“The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states.

The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined. Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates. Didn’t they tell you?

oecarb

10-28-2008, 02:03 PM

Oecarb, it looks like you guys over the pond are getting slapped around big too without the help of the U.S.

Yes Lex, some people here are feeling the pinch. For myself, I am OK and I cannot see myself being affected - unless we have rampant inflation (Zimbabwe style) here in the UK.

We will see how this all pans out.

My feeling is that the EU, being a collection of welfare states, will experience slowdowns/mild recessions. As being unemployed does not necessarily mean being destitute or homeless or being without healthcare or money for food, money will continue to circulate and with a total population of over 400 million, I believe the EU can exist as a closed unit.

Also the British govt (as well as other EU govts) have been pumping loads of money into the banks.

Time will tell.

guyguy

10-29-2008, 12:36 PM

http://www.alumni.nd.edu/site/c.luIZLdM ... Crisis.htm (http://www.alumni.nd.edu/site/c.luIZLdMOJpE/b.4701197/k.6C61/Insights_on_Current_Financial_Crisis.htm)

lexbarker

11-06-2008, 04:28 PM

Oecarb, this is an article written by Capatilist Alan Greenspan in 1967. Later, he became a senile Socialist and screwed the US economy.

http://www.usagold.com/gildedopinion/greenspan.html
GOLD AND ECONOMIC FREEDOM

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.

When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one -- so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists -- why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely -- it was claimed -- there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.

The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form -- from a growing number of welfare-state advocates -- was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

by Alan Greenspan
1967

oecarb

11-08-2008, 11:10 AM

Lex,

I suppose the fact that the US dollar came to be accepted as a world currency and, therefore, America could print as many dollar bills as it wanted to buy whatever it wanted - this had nothing to do with today's predicament?

Wasn't it like writing cheques that you knew everyone would accept but no-one would actually cash because everyone would accept these cheques in exchange for goods?

Wouldn't you like to be in this position? Wouldn't you have a wonderful life?

Until people woke up and started to use these cheques to buy your house and your cars and the clothes off your back.

lexbarker

11-12-2008, 09:59 AM

trini123

11-12-2008, 10:53 AM

US is in big big big (i.e. huge) problems. If auto industry fails, 3 mill ppl will be out of work. If gov't bails it out then every other sector will start lookin' for handouts. Poor Obama - he inherit a can o' worms. Hope he could do some magic and make it go away.

oecarb

11-12-2008, 12:41 PM

Oecarb, are you good in maths?

http://www.bookerrising.net/2008/11/zim ... rming.html (http://www.bookerrising.net/2008/11/zimbabwes-inflation-alarming.html)

Zimbabwe's Inflation Alarming
The southern African country's inflation last month hit the quintillion percent mark, an indication that the country's economic woes are far from over. Professor Steve Hanke, a senior fellow at the Cato Institute in USA, said Zimbabwe's annual inflation had soared to 2.79 quintillion percent, a world record in many respects. A quintillion is a figure with 18 zeroes and is a rung above a quadrillion. Professor Hanke developed the Hanke hyperinflationary index, a metric derived from market price data, which can be used to calculate inflation in the absence of information from the government's statistical bodies, as in the case of Zimbabwe. "Zimbabwe is the first country in the 21st century to hyper inflate," said Prof. Hanke, who has played a prominent role in designing and implementing monetary reforms that have reduced high attitude inflation in eight countries.

My response: This is what happens under Marxist rule, where there are little to no private property rights, rule of law, freedom, and incentive to be creative and produce services and products.

Posted by Shay at 11/12/2008

Lex, I only got up to A Levels in Maths (Pure Maths, Applied Maths and Physics).

Still don't qualify me in imagining a quintilion. :lol: :lol: :lol:

Anyway, there are not many Marxist countries around these days - Cuba being about the only one and it certainly does not have hyper-inflation. Mugabe definitely is not a Marxist. He is just a greedy power-hungry pig - possibly a Capitalist. (one of yours - not one of ours) :lol: :lol: :lol:

As I keep saying, most Communist countries realised a long time ago that human beings are selfish and are more likely to create wealth if they themselves are allowed to benefit by their efforts. Check out China and Russia and most of the east European countries that are joining the EU.

These countries now just build their economies around Capitalism and tax the wealth created for redistribution purposes. Works well. This is the basis of Western European Socialism.

Check out the New American President-elect - Universal Healthcare, job creation, help with mortgages, inreased welfare benefits, increased taxes on people earning more than $200,000, help for companies in trouble - sounds very European to me. :lol: :lol: :lol: :lol:

.

lexbarker

11-12-2008, 01:49 PM

Those numbers are beyond my imagination. I put them in the same catagory as Light Years. Besides, I don't have enough fingers and toes and never got beyond standard 3 so it is all Greek to me.
Regarding Obama, I cannot see how he can deliver on his promises as the country is broke unless, he hyper-inflate "a la Zimbabwe." During his victory speech he was already putting up a defence and a talkshow said that some of his promises were already removed from his site. Let's hope he is the miracle man and deliver free gas and mortgage as one of his supporters said on TV during election victory night.

Trini4Real

11-28-2008, 04:04 PM

Not only is it headed for a recession, but maybe worst.

Russian analyst predicts decline and breakup of U.S.
19:31 | 24/ 11/ 2008

MOSCOW, November 24 (RIA Novosti) - A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.
Professor Igor Panarin said in an interview with the respected daily Izvestia published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."

The paper said Panarin's dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year's events.
When asked when the U.S. economy would collapse, Panarin said: "It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."

When asked who would replace the U.S. in regulating world markets, he said: "Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia."

Asked why he expected the U.S. to break up into separate parts, he said: "A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles."

He also cited the "vulnerable political setup", "lack of unified national laws", and "divisions among the elite, which have become clear in these crisis conditions."

He predicted that the U.S. will break up into six parts - the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.

He even suggested that "we could claim Alaska - it was only granted on lease, after all."
On the fate of the U.S. dollar, he said: "In 2006 a secret agreement was reached between Canada, Mexico and the U.S. on a common Amero currency as a new monetary unit. This could signal preparations to replace the dollar. The one-hundred dollar bills that have flooded the world could be simply frozen. Under the pretext, let's say, that terrorists are forging them and they need to be checked."

When asked how Russia should react to his vision of the future, Panarin said: "Develop the ruble as a regional currency. Create a fully functioning oil exchange, trading in rubles... We must break the strings tying us to the financial Titanic, which in my view will soon sink."

Panarin, 60, is a professor at the Diplomatic Academy of the Russian Ministry of Foreign Affairs, and has authored several books on information warfare.

Ria Novosti (http://en.rian.ru/world/20081124/118512713.html)

lexbarker

11-29-2008, 11:21 AM

One of a former economic advisor to the US government was talking about a similar/same Russian article, apparently it was written 10 years ago, said that it was quite possible for the division of the US but in 3 parts.

discipuli

11-29-2008, 08:31 PM

I don't believe the USA will seperate simply because Americans have too strong a sense of patriotism and pride in their nation , to the point of stupidity .

Major political and social upheval maybe , but seperation is extremely doubtful.

skl

11-30-2008, 09:04 PM

that russian guy obviously knows nothing about the US. he's basing the break up of the us on ethnicity. but no state has minority "majority"- at best New Mexico is 40% Hispanic and South Carolina is 30% black. imagine he acting as if the native american populations actually numerous enoughto declare independence. !

also is he referecning that North American Union crap?

Beetle

12-02-2008, 07:52 AM

Ah ! One advantage of this is that if the US breaks into 2 countries, then the "World Series" (Baseball) would make a little more sense. :D

oecarb

12-02-2008, 07:54 AM

Looks like things might really be getting serious.

Recession in U.S. May Be Just Beginning as Job Losses Mount
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By Steve Matthews and Timothy R. Homan

Dec. 2 (Bloomberg) -- The U.S. economy, now officially in recession, may be in the midst of the longest slump in the post- World War II era as job losses mount and credit dries up.

The economic slump began in December 2007 when payrolls reached a peak, the business cycle dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts, said yesterday. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

“We’re going on 12 months already, and we’re just getting started,” said Stephen Stanley, chief U.S. economist at RBS Greenwich Capital in Greenwich, Connecticut. “We’re looking at some pretty severe numbers for the fourth quarter, and the first quarter of 2009 will be pretty bad as well. The economy isn’t going to turn around definitively until the credit markets unclog.”

The NBER designation means the U.S. was the first country to have slipped into a contraction. While definitions differ, the economies of both the euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.

“This may be referred to as the Great Recession,” because of its length, said Norbert Ore, chairman of the Institute for Supply Management’s factory survey. “It looked like we were headed for a shallow recession earlier in the year because of higher energy prices. With the meltdown in the financial sector, it has become something more serious.”

Manufacturing Slump

American manufacturing contracted in November at the steepest rate in 26 years, the ISM said yesterday. The Tempe, Arizona-based group’s report came as factory indexes in China, the U.K., euro area, and Russia all fell to record lows.

Federal Reserve Chairman Ben S. Bernanke, a former member of the NBER panel, said yesterday the economy “will probably remain weak for a time” and the Fed may use unconventional methods, such as buying Treasury securities, to spur growth.

“We have gone through in the last year a remarkable set of events, ranging from housing market to credit market to financial market shocks,” James Poterba, president of the NBER and an economics professor at the Massachusetts Institute of Technology, said in an interview. “The collection of shocks is a very rare coincidence. It is not terribly surprising you might get a longer-than-average downturn.”

Job Losses

The loss of 1.2 million jobs so far this year was the biggest factor in determining the starting point of the U.S. recession, the NBER said. By that measure, the contraction probably deepened last month.

Payroll employment probably fell by 325,000 in November, the most since the last recession, according to the median forecast of economists surveyed by Bloomberg News ahead of a Labor Department report due Dec. 5. The jobless rate is projected to increase to 6.8 percent, the highest level since 1993.

U.S. employers cut 240,000 jobs in October, a 10th consecutive decline. The unemployment rate rose to 6.5 percent, the highest level in 14 years, according to Labor Department statistics.

“It is clearly not going to end in a few months,” Jeffrey Frankel, a member of the NBER committee and a professor at Harvard University, said in an interview. “We would be lucky to get done with it in the middle of next year.”

Second Bush Slump

The contraction is the second under President George W. Bush’s watch, making him the first U.S. leader since Richard Nixon to preside over two recessions.

Lawrence Summers, President-elect Barack Obama’s pick for White House economic adviser, said the economy is getting worse and requires more legislative action.

“Recent economic evidence suggests that the pace of this downturn is accelerating,” Summers said in a statement. He said Obama wants to enact a recovery package “soon after taking office.”

Although a recession is conventionally defined as two quarters of successive contraction in gross domestic product, the private committee doesn’t require supporting GDP data to make a recession call. Its members focus on month-to-month changes in the economy.

The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes.

The U.S. economy shrank at a 0.5 percent pace in the third quarter after expanding 2.8 percent in the previous three months. Economists at Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace this quarter.

In addition to Poterba and Frankel, members of the committee include Stanford University professor Robert Hall; Martin Feldstein of Harvard University; Northwestern University economics professor Robert Gordon; David Romer of the University of California at Berkeley; and Conference Board economist Victor Zarnowitz.

Last Updated: December 2, 2008 00:01 EST

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