Weekend Economic News Links November 8, 2009

source
Here are a few links for the weekend...

Broader Measure of Unemployment Stands at 17.5%

...In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982....

Unemployment Chart:

Congress's Blank Check for Housing

Fannie Mae and Freddie Mac are burning a huge hole in the Treasury's pocket. But the Obama administration is getting something very valuable in return: the ability to provide immense support to the housing market with only limited interference from Congress...

Freddie Mac loses $6.3B in 3Q

Freddie Mac's losses narrowed to $6.3 billion in the third quarter, but the government-controlled mortgage finance company didn't need a federal cash infusion. The McLean, Va.-based company has received about $51 billion since it was seized by federal regulators in September 2008, but said it didn't need any more money for the second-straight quarter....

$8,000 homebuyers tax credit extended

The $8,000 credit was scheduled to lapse on Dec. 1 but will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000....

Report: 237 millionaires in Congress

As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress. Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall....All told, at least seven lawmakers have net worths greater than $100 million, according to the Center’s 2008 figures....

Regulators shut banks in 5 states; marks 120 US bank failures this year

Regulators on Friday shut banks in Georgia, Michigan, Minnesota, Missouri, and California, bringing the number of bank failures this year to 120 amid the struggling economy and a cascade of defaults on loans...

Government put $4.3 Trillion of Taxpayer Money Into Bank Guarantees --Washington's blog

I have repeatedly pointed out that the government's rescue of the too big to fails didn't just include $700 billion or so in Tarp, but also massive guarantees. Elizabeth Warren and the Tarp oversight panel now say taxpayer money guaranteed assets worth $4.3 trillion at the height of the financial crisis, in a bid to help banks ride out the panic. In addition, the Oversight panel's report notes that the guarantees are still providing invisible government subsidies even to healthy banks, even though many of the programs have now expired.

ENGLAND:

Bank of England says financiers are fuelling an economic 'doom loop'

The banking sector must be overhauled as profoundly as in the wake of the Great Depression or financiers will "game the state" over and over again, the head of the Bank of England's financial stability arm has warned. On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested.

The warning, which follows Governor Mervyn King's call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far-reaching reforms. It also coincided with news that the combined effect of rescuing Britain's biggest banks is likely to increase the national debt by a staggering £1.5 trillion, instantly making the UK one of the world's most indebted countries....

Personal insolvency rises by 28%

A record number of people were declared insolvent in England and Wales in the third quarter of 2009, according to figures from the Insolvency Service. There were 35,242 personal insolvencies, up 28% from the same period last year and an increase of 6.6% on the previous three months...

This is why I seldom blog anymore. Because just thinking about the irrationality and long-term consequences of this stuff makes me sick...----Roger Ehrenberg

Please choose Economics category:


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November 7th Boulder Farmer's Market Wraps Up the Season

Comment:

It was another nearly-perfect sixty-five degree day in paradise as I headed to the last farmer's market of the season on this CU Buffs vs. Texas A&M football game day. I passed numerous tailgaters drinking all sorts of concoctions before noon waiting for the 11 AM kick-off along the Boulder Creek Trail. The market is just slightly less crowded than earlier in the season and there were potatoes and squash and root vegetables for sale everywhere. Two people were out on walks with their parrots. Plus, this is dog town, as the photos will tell.

Today, I opted for photos, leeks for potato-leek soup, mushrooms for mushroom soup, a pastry and coffee. I hope someone somewhere enjoys these photos.

--Kalpa

Agricultural Economic News Update November 6, 2009

Vegetable garden at Curio House 2009 Solar Decathlon

Comment:

Today I'd like to comment about this past week's elections.

I've probably said one too many times that I'm lucky to live in a beautiful trend-setting community. The saying is, First they laugh at us, then they copy us. So it was when physic's professor Al Bartlett and some other visionaries decided that if our town had any hope of retaining its beautiful natural surroundings, it would need to restrict growth. In 1967, the citizens of Boulder voted to tax themselves to acquire Open space with a goal of establishing a greenbelt around the city and throughout the county. That has since grown to a tune of 120,000 acres. This was genius in foresight to prevent the ever powerful development interests present in communities like this. It has become Boulder's identity.

For the first time in 20 years, the vote on extending taxation to acquire more open space land here did not pass. This was due to shifting demographics, low voter turnout, and a lack of promoting it due to the expectation that it would pass. The new slate of city council members also has a pro-development bent. The official growth policy here is 1% per year, which seems to get surpassed each year and is quite rapid at population 100,000.

Boulder's Climate-Smart program was set up to fund 40 million dollars in alternative energy projects. It has been highly successful, providing many green jobs during this period of economic downturn and there are many roofs in this community displaying solar panels as a result. There was a proposal to increase the program to 80 million dollars this past Tuesday. There wasn't much not to like about this program. Other front range communities initiated similar measures which passed in their communities this week, based on how successful our program has been. This amendment, too, failed here, very unexpectedly and much to the disappointment of many in the community.

As I gathered this week's Ag news, I ran across a number of articles mentioning green space land initiatives in various communities throughout the nation. I hope most of them passed. Some of the articles specifically mentioned how important such land acquisitions are for community food security. If our Boulder County open space plan had not been established 42 years ago much of our preserved agricultural land would certainly be paved or bricked over.

In many elections held this week there was an emerging anti-taxation vote from hurt and angry citizens. Anti-tax policy will not work going forward, given the amount of debt we have taken on and are experiencing at every level - city, regional, state, and national. We will need higher taxes if we are to overcome or survive our debt burden. The day of politicians not paying for policy choices is soon coming to an end. We, not China, will need to start paying for our deficits.

The nation's newly acquired and horrendous debt burden was acquired to fund the losing bets made by the financial industry powerhouses. While the taxpayer was asleep, banking insiders who were in control in Washington D.C. made decisions which will impact every aspect of the quality of our lives going forward. It's not over yet and will require trillions more to cover the toxic assets and mark-to-make-believe accounting sitting on the bank's books. Too many people still don't understand what has happened.

Now, you could say that that debt burden just stole funding from my future open space and from what could have been solar panels on my neighbor's houses. Yes, there are persons dealing with far greater problems on this date when the new broader unemployment rate statistic reached 17.5%.

My voting story is only a mild preview of what is to come. Let my county serve as an example of what happens when you think others will do the voting for you. Apathy, because we've had it too good for too long, is not appropriate now, during this evolving and dangerous time period in which we face ever more critical issues.


--Kalpa



WATER AND WEATHER:

Corn, soy tumble after best harvest week this fall

Corn and soybean prices tumbled on Friday as the best week of harvest so far this fall weighed on the market, oil prices fell 3 percent and the U.S. unemployment rate spiked to its highest level in 26-1/2 years. The harvest of the world's largest corn and soybean crops -- the slowest in 24 years amid incessant rains -- finally hit full steam amid clear skies across the Midwest grain belt....

Legislature passes water-system overhaul

The sweeping overhaul of California's water system that lawmakers passed Wednesday relies on borrowing $11 billion that supporters hailed as a necessary investment in safe, reliable water statewide but that critics warned is overpriced and could siphon money from health and education.....

A blue revolution: The key to future food security

Colombo, Sri Lanka 6th November 2009. "We will need nothing less than a 'Blue Revolution', if we are to achieve food security and avert a serious water crisis in the future said Dr. Colin Chartres, Director General of the Sri Lanka - based International Water Management Institute. Chartres was speaking to the Economic and Finance Committee of the UN General Assembly, at a special event on "Enhancing Water Governance", convened by the UN today. He stressed that only strategic investments in water can address the massive pressure that population growth, changing diets, urbanization and climate change are having on the world's water resources. Investments in water can also reduce poverty by increasing farmer incomes, providing employment for the landless, reducing staple food prices and contributing to overall economic growth....

Ethiopia Needs Food for 6.2 Million People

The crisis stems from a four-year drought that has hit much of the Horn of Africa, leaving as many as 23 million people on the brink of starvation, according to The Times of London. Four million of those at risk are in Kenya, where one person in 10 survives on emergency rations....

U.S. NEWS:

Crops Headed for a Tough Harvest

The U.S. Department of Agriculture reported recently that due to a late planting season and a cooler and wetter fall than normal, only 20% of the corn crop is out of the fields vs. an average of 58% during the years of 2004-2008. “It’s getting scarier....

Propane demand for corn drying faces challenges this fall

North Iowa propane retailers are dealing with a “very difficult and unique situation” this fall, said Chuck Schafer, general manager of the North Iowa Cooperative, which has a propane division, United LP Co. “Usually harvest gets staggered — some guys are in beans and some are in corn,” said Eldon Meyers, operations manager of K & H Cooperative Oil Co., Wesley....

Farmers flock to low-interest USDA loans-Should assistance be targeted to only certain types of farmers?

...Last week, the U.S. Department of Agriculture's National Agricultural Statistics Service released its agricultural price report, which showed that wheat prices were up 8 cents from September, but down $2.09 from October 2008. Corn prices averaged $3.54 per bushel, up 29 cents from last month but 83 cents below October last year. Soybean prices were only down a penny from the previous month, but dropped 21 cents from the prior year. The October all-milk price of $13.80 per cwt. increased 90 cents from last month, but is $4 lower than October 2008. As farm gate prices continue to show a lot of volatility and creditors are growing more concerned, demand is skyrocketing for low-interest operating, farm ownership and emergency loans from USDA's Farm Service Agency (FSA).....

AGRICULTURE SECRETARY VILSACK ANNOUNCES NEARLY $56.2 MILLION IN LOAN ASSISTANCE TO HELP RURAL BUSINESSES

Agriculture Secretary Tom Vilsack today announced $56.2 million in loan guarantees to assist 12 rural businesses though funding made available by the American Recovery and Reinvestment Act. "The Recovery Act funds announced today will help businesses get access to the capital they need to expand their businesses and bring stability to America's small cities and towns," Vilsack said. "President Obama and USDA are committed to building strong rural communities by helping businesses grow so we can renew and revitalize our country."...

When times get tough…Manage stress by having a plan to attack it

It’s the worst financial situation of a lifetime for many Nebraska livestock producers, which can mean high stress and uncertainty, a University of Nebraska-Lincoln farm transition specialist says. Although not all livestock producers are in serious trouble, many are asking, “What should I do?” and “Where can I go to get some help?,” said David Goeller, farm transition specialist in the university’s Institute of Agriculture and Natural Resources.

“The ‘perfect storm’ of high feed prices, increased input costs and low product demand brought about by the world financial crisis created the worst financial situation of a lifetime for many livestock producers,” Goeller said. “It is as bad as it’s been since the 1980s, especially for the dairy and swine producers.” Prices for livestock and dairy products are creating losses that are unsustainable for many producers, he said....

More farmers violate biotech planting rules, study says

Fewer farmers are following planting restrictions for pest-resistant corn even as the popularity of the biotech seeds has soared, according to a consumer advocacy group. In 2008, about one in four farmers failed to follow the planting rules that limit the amount of biotech acreage that can be planted to prevent insects from becoming resistant to the toxin that the corn plants contain, according to the Center for Science in the Public Interest. In 2005, 90 percent of farmers were in compliance....

Program could match Colo.'s next generation of farmers with land, expertise

(Hyoung Chang, The Denver Post)

Seth Roberts' Weathervane Farm on the banks of Cottonwood Creek feeds dozens of families in the Upper Arkansas River Valley. His organic produce, free-range chickens and eggs, and fresh cut flowers are in high demand at the local farmers markets. He is living his life dream..... "We have laws to protect endangered animals. We need that kind of protection for farmland, which will soon be extinct."....

ADM Profit Falls 53% as Prices Drop

Archer Daniels Midland Co.'s earnings slumped 53% for it fiscal first quarter from last year's record as prices and demand fell....At its oilseeds-processing segment, which includes its biodiesel business, operating profit fell 44% as margins and production declined. At its corn-processing operations, which includes ADM's ethanol business, operating profit increased 59% as corn and manufacturing costs fell......

Ark. ag experts put weather losses at $225 million

State agriculture experts say soggy weather that drenched Arkansas during much of the harvest season will cut farm receipts statewide by nearly $225 million. The Arkansas Cooperative Extension Service on Friday released figures from the Division of Agriculture at the University of Arkansas. Researchers say some farmers were devastated by the weather, which included upward of 15 inches of rain during October. Much of Arkansas averages only 4 or 5 inches of rain during the month...

Broilers remain Va.'s top agricultural commodity

Broilers are still Virginia's top agricultural commodity....Broilers were ranked first as their value increased from almost $559 million in 2007 to more than $563 million in 2008. Broilers have been the top agriculture commodity for several years. Cattle and calves were ranked second, followed by milk, turkeys, nursery, corn grain, winter wheat, soybeans, equine, tobacco, eggs, hogs, hay, aquaculture, fresh tomatoes, cotton, apples, summer potatoes, peanuts and grapes.

North Dakota Organic Flour Mill Company Expanding

A flour mill company is spreading out in Harvey. Earth Harvest Mills held a ribbon-cutting ceremony Monday. The federal Agriculture Department's Rural Development director, Jasper Schneider, said three loans through the agency provided $2.2 million to help the company get started. He said two of the original loans have been paid in full....

COMMODITIES:

Grain futures
Corn: Dec 3.76
Soybeans: Nov 9.67
Wheat: Dec 5.12
Oats: Dec 2.55

LIVESTOCK-CME cattle fall 1.5 pct on double-digit unemployment

U.S. live cattle futures fell 1.5 percent on Friday amid fears that beef consumption in the United States will be hurt by the rise in the country's unemployment rate to the highest in 26-1/2 years....

INTERNATIONAL NEWS:

Argentina’s Los Grobo Aims to Double Soybean Holdings by 2013

Los Grobo SA, Argentina’s second- largest soybean producer, plans to double its land holdings over the next three to four years to remain competitive as global demand for food increases, said its chief executive officer. “Our farmlands currently cover 250,000 hectares and we believe the company should operate twice as much land in three or four years’ time,” said owner and CEO Gustavo Grobocopatel, 48, in an interview yesterday in Buenos Aires.....“In Argentina there are only 3 or 4 million hectares left to expand crops and they are mostly marginal areas, while in Brazil there are 20 million hectares of prime quality farmland ready to be developed,”.....

Land under Wheat shrinks by 36% in Rajasthan

JAIPUR: Following exceptionally poor monsoon and dipping water table across the state, Rajasthan government has reduced the land under wheat cultivation drastically by 36%. According to an agriculture department official, the land for wheat cultivation in the ensuing Rabi season would be 13.89-lakh hectares as against 21.97-lakh hectare last year. “Out of 33 districts, 26 have been declared scarcity hit due to scanty rainfall.....

BIOFUELS:

Ants may provide cellulosic solution

At the Great Lakes Bioenergy Research Center in Madison, Wis., researchers are looking to leafcutter ants for new enzymatic processes that will further progress efforts to commercialize cellulosic ethanol. Leafcutter ants, which are found in tropical climates and live in enormous colonies that can number in the millions, have evolved several features over time that make their particular cocktail of enzymes attractive to researchers.....

Termites Could Help Produce Cellulosic Ethanol

The ability of termites to digest wood may hold a key to advancing the production of cellulosic ethanol from woody biomass....

Nebraska Ag Experts Say Farmers May Want to Think Twice Before Selling Corn Residue

Farmers might be paying a price if they sell plant residue from harvested cornfields. The leftover plant material — also called corn stover — is being bought by some energy companies. They turn it into pellets and sell it to coal-fired power plants....But University of Nebraska-Lincoln farm experts say that residue is even more valuable to the farmer by adding nutrients and lending structure to the soil....

FARMLAND VALUES:

Guidelines could help improve farmland deals

A draft of the first-ever international code of conduct for farmland deals should be ready by the end of the year, the head of the United Nations' International Fund for Agricultural Development said. The draft document will lead to more discussion about how to ensure deals benefit host nations, as well as those seeking to buy or lease crop land, to ensure food security, Kanayo Nwanze, president of IFAD, told Reuters. "We have the Kimberley framework for mining, so why don't we put together a framework in the agricultural sector?" Nwanze said......

Is Food Inflation Greater than Indicated by CPI?

CANADA: The food price data series published by the Food and Agriculture Organisation of the United Nations ("FAO") tells an interesting story about the nature of price trends in the agriculture sector. Official CPI statistics apparently show that food price inflation had been subdued for the past decade. At the same time the FAO data series indicates that dairy, cereals and edible oils have all increased in price significantly in real (inflation adjusted) terms over that same period. Annual real price increases have been:

• Dairy - 5.8% per year
• Cereals - 6.7% per year
• Edible Oils - 7.9% per year

Minnesota Land Auctions and Real Estate Auctions Offer 1,790 +/- Acres

Bitter harvest for taxpayers in county

....The article stated that (the $12.3 million open-space purchase of the 125-acre Smith-Garrison farm in Washington Township) may be the most expensive land purchase in Gloucester County. I guess so, when our elected officials have no problem spending $98,400 an acre!.....

OTHER:
(Go to the site to watch a wonderful BBC video:)
A marvellous hummingbird display

The amazing mating display of the marvellous spatuletail hummingbird has been filmed in full for the first time.

Previous links:
If you wish to go back and read previous threads of Ag Econ news here are the links to the past 6 weeks.

October 30th

October 23rd

October 16th

October 9th

October 2nd

September 25th


Please choose Agriculture, Economics categories:


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New Clunkers the same as the Old Clunkers

photo sourceComment:

Apologies in advance, because you don't want to hear any more about the clunker program or you might scream, but the details are just too absurd to omit them here. These same details will help shed some light on Ford's good earnings report last week.

From AP:

• The new data, obtained by the AP under the Freedom of Information Act, include details of 677,081 clunker trade-ins processed by the government through Oct. 16.

• More than 95,000 of the new vehicles purchased under the program — or about one in seven — got less than 20 mpg, according to the data.

• The single most common swap — which occurred more than 8,200 times — involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s.

• The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.

• In scores of deals, the government reported spending a total of $562,500 in rebates for new cars and trucks that got worse or the same mileage as the trade-ins — in apparent violation of the program's requirements.

Environmental program? In the first place, when you destroy running vehicles instead of driving them until they cannot be driven anymore, you are doing more harm to the environment than not having done this program at all. And, secondly, if you do so at the tune of 1 to 3 mpg gain in efficiency you are never ever going to make up for the energy involved in the manufacturing process and the natural materials consumed. Third, the demolishing time requirements are abandoning parts recycling that normally goes on which would otherwise add to the environmental efficiency gains. Altogether, this didn't even come close to being an environmental friendly program as it was touted to be.


--Kalpa


Please choose Economics category:


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On Population Growth and Debt Solving

Because I follow both environmental causes and the debt crisis, which are both bleak subjects in this year 2009, I don't understand why many people consider discussing population statistics taboo.

But when it comes to that question that perplexes every economist these days, Where will the growth come from? I just might have an answer for you......from the people at Numbers USA.

I can't help but think that those in charge know that increasing populations (with jobs) would help solve this debt crisis. Please know that I am not endorsing this, just stating the facts. Now, I know what some readers here would say...

Here is a graph from Numbers USA worth studying.

Please choose Economics category:


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Economic News & Opinion Picks November 5, 2009

Via Chris Britt

Comment:

As our government is now getting into the rental business, renting homes out of the Fannie Mae involuntary taxpayer investment in houses, to those who are [SURPRISE] unable to pay their monthly mortgage payments, this entire fiscal data becomes more muddied. How do we know how many homes have been foreclosed upon or shoulda, woulda, coulda been foreclosed upon? We don't. Every couple of weeks, at least, we seem to have a new announcement which further muddies the accounting picture. I early on referred to the government and banking messes as intertwined bowls of spaghetti. Does it scare anyone else that our government is now renting houses to its people which were acquired in a convoluted way? Does this belong in a democracy?

New jobless claims are reportedly the lowest number since January. Our productivity level is at its highest since 2003. Saks, Nordstroms, and Kohl's report increased sales figures. The Fed is keeping the rate the same. And, about that passage of the expanded upon first-fraud homeowner tax credit, while it's all ghastly, this instant gratification caveat was added to the bill - In the Senate's measure, taxpayers would be able to claim the credit on their 2009 income tax return for purchases made in 2010.

There is another report out from the U.S. treasury invitation to bloggers meeting by Steve Waldman of Interfluidity. This is an excellent read and the best write-up of them all, but since I've run two reports here previously, I'll just supply you with a link. This is my favorite quote from his article, "We were offered a tray of cookies at the meeting, from which I abstained on principle. Those of you who think that's silly have no idea how much I like cookies".

There are seven picks today and I've started an additional links category.

1) This Q&A page from the USA Today, by Matt Krantz, continues the theme of the likelihood of our nation defaulting, at least partially on its debt. It seems like both the inflationists and deflationists these days are coming to the same conclusion, and that is the realistic possibility of default on our debt.

2) Readers here need to beware of municipal bonds, certainly of some localities. This is why, from blogger Philip Greenspun. Again, the article at the source is much longer than my excerpt.

3) Arnold Kling tells his class who is really benefiting from current Fed bank reserves policy, or rather, why it was written the way it was.

4) Alex Tabarrok, of Marginal Revolution Blog, puts up this chart which seems to have hit the blogosphere world hard today and makes a pretty obvious deflationist's statement.

5) Karl Denninger never holds back, so he seems the appropriate writer of choice to explain to us what this new governmental rental plan means by getting to the heart of the matter rather quickly.

6) This is a great longer post on the Economic Populist blog about Goldman Sachs. This is just the introduction.

7) Linda Lowell, from Housing Wire, speaks of Meredith Whitney and Fed exit strategies from housing. Whenever I hear of these plans and upgrades to the plans, I am disgusted because I assume there really is no exit strategy. Not a good one, anyway. I'm not really worried, as they are about the banks suffering in the end due to exit strategies because I know they can keep changing rules as they go along. Our political system just doesn't have the ability to make hard choices. As the new theme around here goes, the exit strategy will no doubt be debt default, with winners and losers picked along the way through our political choices until we reach our demise.

--Kalpa

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ADDITIONAL LINKS:

Small banks didn't cause the mess, but no bailout for them [McClatchy]

Four-Step Bank Fix [Dylan Ratigan on Huffington Post]

Goldman Outlines Fed’s New Dashboard Indicators [David Wessel WSJ]

Bob Prechter calls the top [Mess Greenspan Made]

The Fed and Executive Branch's Creeping Power Grab [Edward Harrison on Seeking Alpha]



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#1
Government debt default: A belated, spooky story
by Matt Krantz

....If the government doesn't pay down the debt and doesn't print money, what's left? Here's where it gets interesting. And Gundlach is very unusual in his thinking. He suspects the government has a strong possibility of at least partially defaulting on its debt.

The default may start in 2013 or beyond as Social Security obligations start to hit, he says. At that point, the government will need to renege on its financial promises to the elderly who paid into the system. And when that happens, the public will demand that the nation's other creditors, including foreign investors, also suffer. That would mean default, something that's been unfathomable for decades.

What happens if the U.S. government defaults? Gundlach says in this scenario, deflation is the big danger. And in a world of deflation, dollars will be scarce and extremely valuable. Again, this is contrary to the worries of those who are terrified of inflation and its rising prices.....

#2
The Coming Collapse of the Municipal Bond Market
by Philip Greenspun

....Barring some sort of miraculous boom in the economy and pension fund investment returns, state and local governments are headed for insolvency and default. This means that valuing a municipal bond becomes a matter for a legal expert rather than an accountant. Even for the legal expert, it is apparently tough to predict what will happen. Let’s start with the Wikipedia article on Chapter 9 bankruptcy: “Previous to the creation of Chapter 9 bankruptcy the only remedy when a municipality was unable to pay its creditors was for the creditors to pursue an action of mandamus, and compel the municipality to raise taxes. During the Great Depression this approach proved impossible so in 1934 the Bankruptcy Act was amended to extend to municipalities.”

Without bankruptcy protection, a city that couldn’t pay bondholders would be forced to raise taxes until it could. This happened to West Palm Beach, Florida in the Depression and property tax rates rose to 42.5 percent of assessed value. Potentially bondholders might demand that the city hand over real estate to satisfy its debts. With bankruptcy protection, it is unclear what happens. Vallejo, California went bankrupt 18 months ago and their obligations have not yet been resolved (story). If courts allow municipalities to walk away from debt they’ll have every incentive to declare bankruptcy and start afresh. There are no shareholders in a municipality to wipe out and therefore the only negative consequence of a bankruptcy filing would possibly be having to pay higher interest rates for future borrowing. If on the other hand, governments are not allowed to walk away from many of their obligations, they will simply run out of cash. Are bondholders senior to pension obligations or not? It may be up to the individual judge. This is “uncharted territory for investors” as my money manager put it (he does not buy U.S. muni bonds).....

#3
Thoughts on the Macro Paradigm
by Arnold Kling

....But then another student asked, "Why didn't the Fed just raise reserve requirements? It would have been better for the deficit."

At this point, I was cornered. I had no choice but to say what I really believe about what the Fed was doing. In spite of all the sophisticated rhetoric about "quantitative easing" and "new tools for monetary policy," the only way that I can understand what the Fed was doing is to say that the goal was to stimulate bank profits, not the economy. If your goal were to stimulate the economy, you would inject enough reserves to do that and not pay interest on reserves. That might require buying some long-term bonds or mortgage securities, but not the hundreds of billions that the Fed actually bought.

Everything the Fed has been doing over the past fifteen months makes sense if you think of their goal as transferring wealth from taxpayers to banks. If you try to explain it as an attempt to implement an expansionary monetary policy, you won't even get past my high school students...

#4
Fifty Years of Economic History in one Figure
by Alex Tabarrok

David Beckworth sums up a lot of recent economic history in one figure.

A few thoughts: I wish Arnold Kling were correct that inflation is around the corner. We could use some inflation to get back on track. Nominal wages are simply not flexible enough to get the job done in short order and there is much to fear from populist backlash.

See also the link above for a remarkably similar figure for the OECD which illustrates the US's role of monetary hegemon.

#5
WHERE ARE THE DAMN HANDCUFFS? (Fraudie)
by Karl Denninger

WTF is this?

Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.

The government-controlled company, through its new "Deed for Lease" program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.

This has exactly nothing to do with helping "homeowners."

It is entirely about Fannie not having to recognize the written-down value of these houses - that is, allowing them to hold the "mark" on the loan at it's original value, rather than recognize the loss.

The rental program is designed to help homeowners who don't qualify for a loan modification under the Obama administration's plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

Fannie won't sell the properties because then they would have to recognize the mark.

This is nothing other than yet another scam to avoid recognition of bad paper Fannie took on their books and has a HUGE embedded loss.

To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income.

Oh, so the rent can't be more than 31% of their pretax income, but the original note's payment was, right? After all, if it wasn't then the homeowner wouldn't have been in foreclosure in the first place!

That's the key paragraph, and tells you that:

• This is simply an attempt to avoid mark-to-market on the properties.
  

• The rent charged will be insufficient to meet the PITI (Principal, Interest, Taxes and Insurance) on the original note, as by definition if it could the "homeowner" wouldn't have defaulted in the first place!

This is yet another scam folks, all courtesy of our government who will do anything to avoid admitting the extent of the liabilities that are now in Fannie and Freddie's portfolio (and by extension, partially in The Federal Reserve as well!)

But the economy is getting better, right?

That's why we keep seeing scheme after scheme, scam after scam, all intended to do one and only thing - avoid a true and accurate accounting of losses that have already occurred.

And the market roars - it spiked a full 1% on this announcement - on yet more government-sanctioned and legalized fraud.

IF the economy was truthfully improving we wouldn't need any of these schemes. Honest profits would be sufficient to both support the housing and stock market. The fact is those honest profits simply do not exist, and neither does the value of these "assets" support the loans outstanding against them.

IF the government gave a damn about these homeowners they would instead reset the loan to the discounted cash amount of that market rent and re-write the loan at that same 31% of the homeowner's income. Of course that would force recognition of the fact that the property isn't worth anywhere near what the loan balance is, and thus force Fraudie and Phoney to EAT the bad paper they're holding.

Scam scam scam scam scam - it's all good for the banks and oligarchs, while the average American is dispossessed of his house!

#6
Goldman's Near Heavenly Perfection
Economic Populist

Goldman released its trading records from the 3rd Quarter today, and it was impressive.

(Bloomberg) -- Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, reaped more than $100 million of trading revenue on 36 days in the third quarter, down from a record 46 in the preceding three months.
The firm’s trading division lost money on only one day during the quarter, down from two days in the second quarter, according to a quarterly filing with the U.S. Securities and Exchange Commission. New York-based Goldman Sachs made at least $50 million on 53 of the 65 trading days in the period, or 82 percent of the time.

The statistical probability of losing money on only 1 out of 65 days goes a little beyond just skill.....

#7
Viewpoint: Like Us, Whitney Sees Risks in Fed’s MBS Exit
By LINDA LOWELL

HousingWire readers have already been reminded on a number of occasions that the Federal Reserve dominates the agency/GSE MBS market (and has since the purchase plan was announced almost a year ago) and that banks and would-be mortgage borrowers are first in line to be whacked when the Fed exits the MBS market.

So I was thrilled yesterday when celebrated bank analyst Meredith Whitney put out an industry note that zeroes in on the Fed’s MBS purchase program; She calls the “Great Exit” the biggest market and bank risk over the next four months. I’d qualify that – I’d say let’s hope it emerges into the public view over the next four months, because it could be – if the Fed exits as planned at the end of first quarter 2010 – the biggest kick in the stomach housing and financial markets have gotten since surviving the near total shut down of credit last fall.

Here’s what I wrote in July 2009: “When mortgage spreads were in virtual free fall last autumn, the Fed stepped in” pulling spreads to historic tights. When the Fed leaves, “U.S. banks – as the single largest private institutional investor sector after the GSEs – have the most to loose. Or should we say, if the Fed leaves, the banks have the most tangible capital to loose (their MBS are largely carried as available for sale, with changes in fair value reflected in shareholder equity).”

.....Here here. If only more cable-ready analysts would follow Whitney into this discussion. The Fed is in a pickle – it can’t continue to support the mortgage market indefinitely (certainly the size of its balance sheet has already rattled nerves in some sectors). And the risks to investors (including, via mutual funds, individuals), home buyers, home owners in need of affordable refinancing, if it does stop supporting the market are significant.

Maybe if more high profile analysts start to wave the flag, the pols and policy makers will get down to business and face up to the looming question: the fate of the $5 trillion Ginnie Mae and GSE MBS market. It’s time for hard thinking about the government’s proper role in housing, given the hard facts of $5 trillion securities outstanding and the only viable source of housing finance still, after two years and counting, is government sponsored securitization. Replacing GSEs with smaller, tamer entities or none at all and counting on private lenders and private securitization (try to build that market with minimum retention standards!) as the “ideological” foes of government-sponsored entities would have it, will orphan a vast amount of widely held securities and choke off the flow of capital market funding to U.S. housing.

Please choose Economics category:


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Today's Opinion Picks November 4, 2009

Via Michael Ramirez

Comment:

Five items follow.

1) This is a very small excerpt of Jeremy Grantham's newletter, via John Mauldin.

2) This is a WSJ opinion article about California borrowing from the taxpayers and what the future implications of this might be.

3) Yesterday, I ran Yves Smith's review of the bloggers invitation to meet with the U.S. treasury representatives. Today, I present Michael Panzner's report. Both are very interesting and not very encouraging.

4) Because I got into the reviews and writing about the book This Time is Different, yesterday, I thought it was appropriate to run this February piece by Ambrose-Pritchard from the UK Telegraph. It seems highly likely that this is Ben's goal right now, does it not?

5) Hilsenrath, for the WSJ, quotes another worsening debt budget woe - treasury receipts.


Note to regular readers: I have been blogging for almost six months now. In assessment of how I am devoting my time, I have decided that the amount of time required to produce the quality news threads that I have been producing is not worth the time for the number of hits they are receiving. Perhaps the topic of economics is too broad to prove this thread successful. On the other hand, I've enjoyed and had some writing successes, so I have decided to discontinue the news threads to allow more time for writing. I am planning to continue the opinion threads and post the focus topic threads, which I've only started recently. Please email me if you have any strong feelings about these changes, as I'd love to hear from you.


--Kalpa



Just Desserts and Markets Being Silly Again
by Jeremy Grantham

....We have a once-in-a-lifetime opportunity to effect genuine change given that the general public is disgusted with the financial system and none too pleased with Congress. I have no idea why the current administration, which came in on a promise of change, for heaven's sake, is so determined to protect the status quo of the financial system at the expense of already weary taxpayers who are promised only somewhat better lifeboats.....

Treasury Officials Meet With Financial Bloggers
by Michael Panzner

Taking its cue, perhaps, from the Obama Administration's reported efforts to reach out to the political blogging community in the hopes of cultivating broad support for its ambitious agenda, the Treasury yesterday organized a meeting between various Department officials and a group of economics and finance bloggers.

Among the bloggers who attended the "discussion," which centered on financial reform, the Treasury's efforts to stabilize the financial system, and the challenges ahead, were the publishers of Naked Capitalism, Interfluidity, Marginal Revolution, Kid Dynamite’s World, Across the Curve, Accrued Interest, The Aleph Blog, and Financial Armageddon (one of my two blogs).

While Naked Capitalism's Yves Smith has done a good job in "Curious Meeting at Treasury Department" of summing up what transpired -- which, admittedly, left most of us feeling like we had more questions after it ended than when it started -- I did learn a few things at the gathering that I found particularly interesting:

• In response to a question about what would happen if, as Carmen Reinhart and Kenneth Rogoff have concluded about past financial crises, the current episode also proves to be a "protracted affair," it wasn't clear that there was a "plan B" in place if things don't recover in 2010 as many mainstream analysts expect. In fact, the suggestion from one official was that the tenure of the current crisis would likely be nearer the shorter end of market expectations.

• There was also a bit of a disconnect between the remarks Treasury Department officials have made in public forums and what was said at the meeting. Last Thursday, for example, Bloomberg reported that Secretary Geithner spoke to the Economic Club of Chicago and said, “You can say now with confidence that the financial system is stable, the economy is stabilized....You can see the first signs of growth here and around the world.”

Yesterday, however, a number of those who attended clearly acknowledged that things could (still) go wrong and said such fears kept them awake at night. While that is not unusual in and of itself, at the very least it adds to doubts I and others have had about the true state of the banks, the financial system, and the economy.

• The meeting appeared to confirm the strong grip that Wall Street has on the levers of legislative power. In response to a throwaway remark by one of the bloggers present that discussions about the overly large size of the financial sector relative to the real economy were "not politically correct," one official suggested the reality was just the opposite, and that a substantial majority of the public agreed with that assessment.

If you take that together with the assertion that the Treasury -- and, by extension, the Administration -- is fully committed to financial reform, as well as the fact that the Democrats dominate Congress, the implication is that other forces -- namely, the moneyed interests and their lobbyists -- are standing in the way of necessary change. Nothing new there, I guess.

California Stealin'

Desperation grabs for revenue are nothing new in politics, but California is once again leading the way in creative financing.

To help close yet another gaping budget deficit, now estimated to be $7 billion this year and reach as high as $20 billion next, Sacramento lawmakers have authorized a 10% increase in the amount of taxes withheld from worker paychecks starting November 1 and through 2010. The extra withholding tax will reduce Californians' take-home pay by about $1.7 billion for the year. But the lawmakers say this isn't a tax increase. OK, how about calling it a compulsory interest-free loan from taxpayers to the state?

According to the Franchise Tax Board, 10,004,000 Californians overpaid their state taxes last year and received an average refund of $903. The withholding penalty is expected to snatch between $20 and $90 a month from middle-class families. For those feeling the pinch of recession and living paycheck to paycheck, that penalty will hurt. Of course, the government is obliged to return this money next spring when workers get their tax refunds, so this is the ultimate budget gimmick. It borrows from taxpayers now and deepens the budget hole next year. And we almost hate to ask: What happens come April if the state doesn't have enough money to pay the tax refunds it owes its citizens?....

Ken Rogoff says Fed needs to set inflation target of 6pc to help ease crisis
By Ambrose Evans-Pritchard (20 Feb 2009)

Professor Kenneth Rogoff, former chief economist of the International Monetary Fund, said the threat of debt deflation called for revolutionary measures as an insurance policy. "Excess inflation right now would help ameliorate the problem. For that reason, it would be far better to have 5pc to 6pc inflation for a couple of years than to have 2pc to 3pc deflation," he told the Central Banking Journal. The Fed has shifted tentatively to an inflation target, but one anchored nearer "stability".

A number of economists have begun to make similar calls for a radical shift to deliberate monetary debasement, although few have gone as far as suggesting 6pc.
Such proposals cause a furious political reaction because they amount to a forced shift in wealth from savers to debtors.

Prof Rogoff – one of the few economists who recognised the gravity of this crisis early on – admits that his policy is fraught with danger because it could lead to an overshoot down the road, "ending up with 200pc inflation". But there may be no choice at a time when the financial system is "melting down". The Bank of Japan failed to act fast enough in the 1990s because it was "paralysed by fear" that aggressive monetary stimulus would get out of hand.

Prof Rogoff said big fiscal packages have a role to play in backing up a zero interest rate policy and ensuring that consumption does not collapse as house prices plummet, but the key is "determined monetary policy". There are no good options at this late stage after years of errors. Standard monetary relationships have broken down. "Policy is in effect flying blind," he said.

More Bad News on the Budget Front
By Jon Hilsenrath

Action Economics, a research firm, has been tracking the Treasury Department’s daily financial statements and it has bad news on the budget front. Even though the economy is perking up, Treasury receipts are in a tailspin. Here’s how Action Economics chief economist, Mike Englund, sums it up:

“U.S. daily Treasury receipts are continuing to defy the diminishing labor market downdraft and recent GDP bounce with another massive [year-over-year] drop in October that we peg at 18%, with a stunning 23% [year-over-year] drop in withheld receipts that marks a new business cycle low. Outlays are poised for a 22% [year-over-year] October drop thanks to hard comparisons to last year’s TARP infusions. Yet, we still expect a huge $115 billion October budget deficit that is consistent with a quadruple-digit budget gap in fiscal year 2010 of $1,370 billion.”

Please choose Economics category:


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Rogoff and Reinhart's Research

Comment:

Yesterday, the PBS New Hour had an eight minute interview of Carmen Reinhart and Kenneth Rogoff, covering the material from the research they did for their book, This Time is Different: Eight Centuries of Financial Folly. I have already included three book reviews on previous posts here of this book, which was released in October, and am re-running those below. I have also summarized what they stated in their interview yesterday.

To watch the eight-minute News Hour video, click here. (8 minute segment begins at 27:26) To read the transcript, click here.

Ken Rogoff is on the faculty at Harvard in the Economics Department. He was a chess-prodigy and played on U.S. champion chess teams. He served as Economic Counsellor and Director, Research Department of the IMF in '01 to '03.

Carmen Reinhart is a professor of economics at Maryland. She has served as deputy at the IMF and is a founding contributor of voxEU.

These two authors found records from which they compiled figures to calculate the averages for all of 800 years of numerous national financial crises. They say that so far we are on track, following the averages which they came up with. They conclude that these crises are inevitable, always happen, in spite of the fact that people in charge always deny that a country is on such a trajectory. Rogoff stated that he'd never worked so hard in his life as he did when compiling data for this book.

These are the average statistics achieved during an economic crisis, as revealed in the News Hour Interview:

• Housing goes down 35% (we're at 32%) they collapse and prices stay low for a long time
• Stock market decreases 56% on average, peak to trough, and goes back to normal in 2-3 years.
• Unemployment lingers 5 years. It rises, taking two years peak to trough - then another two years to get back to pre-crisis income levels
  
• We can handle the debt if we decide to tax ourselves, which is doubtful, however.
  
• A default might happen outside the U.S. or in a state such as California or Ireland
• Spain and France have defaulted on their debts thirteen times.
  

Financial crises turn into debt crises. Government debt doubles in three years on average.

Concerning sovereign defaults:

• These are very traumatic events.
• They have political consequences that you can see for decades.
• They have profound consequences on how the future economy is structured.
  
• This is going to greatly influence a whole generation of lives that experience this.

There are four reviews of this book which you may read, as each reviewer presents different aspects of the book. Three of them are below.

The latest one is written by Paul Farrel of Marketwatch here. Included in his review is this quote:

Wall Street does not want behavioral economics to help Main Street investors. Why? Because if those promises really worked, if investors wised up to the con game, Wall Street couldn't get rich siphoning off a third of Main Street's investment returns. and this....Bottom line: "This Time Is Different" should be in every investor's library, it's the best reminder of behavioral economics truths and the best chronicle of eight centuries of financial history.

And finally, I have a copy reserved at my nearby library so I plan to read it soon, but I'm in line behind nine other holds.

The book is currently on the top 100 best sellers list at Amazon.com.


--Kalpa


Boom, Bust. Repeat.
By EDWARD CHANCELLOR

....Messrs. Reinhart and Rogoff have compiled an impressive database, which covers eight centuries of government debt defaults from around the world. They have also collected statistics on inflation rates from every country where information is available and on banking crises and international capital flows over the past couple of centuries. This lengthy historical study gives what they call a "panoramic view" of the unending cycle of boom and bust, showing how claims that "this time is different" are invariably proven wrong.

....Real-estate bubbles invariably give way to banking crises. Losses in the financial sector are followed by the sharp deterioration in government finances amid bailouts and decreased tax revenue. The decline in economic output that follows the bust is sharp, but the recovery tends to be slow and protracted. The situation is especially dire when the crisis is geographically widespread.

....It also issues a worrying economic forecast. Currently the markets are discounting a rapid and sustained recovery from the global economic meltdown. Around the world, governments are borrowing very large sums at very low rates—assuming that stimulus spending will generate future taxes to pay off the current debt binge. But Messrs. Reinhart and Rogoff's work points in a rather different direction: toward the potential for future national debt crises and rising inflation...

Questions About Financial Crises
by Arnold Kling

Neither a borrower nor a lender be. That's the way I feel after reading This Time is Different, by Carmen M. Reinhart and Kenneth S. Rogoff. This is certainly one of the must-read books of the year. Some thoughts after reading it.

1. Considering the propensity for governments to default and for financial institutions to fail, it is amazing that lending markets persist. I wonder if one of the reasons that people like to hold short-term debt is that it fosters the illusion that they will be able to avoid losing money. I make a short-term loan and think, "If the borrower gets in trouble, I'll be one of the first people to notice, so I won't renew my loan and I'll be ok." Everyone thinks they will be faster than average at pulling money out before the borrower goes under. Obviously not a rational equilibrium. The rational equilibrium would have more equity finance and more long-term debt relative to short-term debt.

2. I would expect defaults to come in clumps. When lenders observe a rise in defaults in some sector, they will cut back on lending to that sector, leading to more defaults. By the same token, when borrowers in one sector observe similar folks defaulting, they will think, "I can default now, because everyone else is defaulting, so it won't hurt my reputation so much."

3. Default, particularly government default, is not just an economic choice. There are all sorts of subtle political economy issues and signalling issues. The politicians have to decide who to hurt when.

Overall, reading the book made me raise my estimate of the probability of widespread defaults by Western governments. My guess is if the U.S. defaults (through high inflation, for example), that will open the floodgates so that European countries will believe that it is ok to default. So if you want to maintain wealth, you need to put your money somewhere where the government will be trying to establish its reputation for reliability while everyone else is defaulting.

An excerpt, from p. 66:


Financial repression can also be used as a tool to expand domestic debt markets. In China and India today, most citizens are extremely limited as to the range of financial assets they are allowed to hold...and very few options for accumulating wealth to pay for retirement, healthcare, and children's education, citizens still put large sums in banks despite artificially suppressed returns. In India, banks end up lending large amounts of their assets directly to the government, which thereby enjoys a far lower interest rate than it probably would in a liberalized capital market. In China, the money goes via directed lending to state-owned enterprises and infrastructure projects, again at far lower interest rates than would otherwise obtain. This kind of financial repression is far from new and was particularly prevalent in both advanced and emerging market economies during the height of international capital controls from World War II through the 1980s.

I don't know if I would use the term "financial repression," but it is interesting the way the U.S. banking sector is rigged to funnel money into government debt. Deposit insurance encourages people to put their money in banks. Capital regulations encourage banks to invest in government and agency debt. Of course, when they re-rigged it to encourage banks to invest in mortgage securities, the results were not exactly pretty....

This time will never be different
by Martin Wolf

This Time Is Different: Eight Centuries of Financial Folly
By Carmen Reinhart and Kenneth Rogoff
Princeton, $35; £19.95

....The biggest lesson, alas, is that we have been here before. The details may change, but the story does not. Cycles of confidence and panic are inevitable in our world of debt, be that debt public or private, domestic or foreign. Credit is extended freely and then withdrawn brutally.

A second lesson is the recurrence of public sector debt crises. One of the salient features of the book is the light it sheds on the role of domestic public debt, on which data have hitherto been poor. This database shows how often high levels of domestic public debt have explained simultaneous outbursts of inflation and default on foreign debt, even though the latter appears to be at low levels. Crises on foreign debt also recur throughout the ages, from the default to Florentine bankers by Edward III of England, in the 14th century to the default of Argentina to its foreign creditors in 2001. In all, sovereign default turns out to be almost, though not quite, universal, with serial default on domestic, foreign or domestic and foreign debt quite common. No less universal, again particularly for emerging countries, are periods of currency debasement or, today, inflation.

A third lesson is that, while advanced countries appear to leave their days of sovereign default behind them (possibly, famous last words), this does not apply to banking crises. These are “an equal-opportunity menace”. As the authors note, “the incidence of banking crises proves to be remarkably similar in the high- and the middle- to low-income countries”. Out of the 66 countries in their sample, only Austria, Belgium, Portugal and the Netherlands managed to escape banking crises between 1945 and 2007. Financial systems are accidents waiting to happen.

Banking crises are also devastatingly expensive, in terms of lost national income and public debt. On average, note the authors, government debt rises by 86 per cent during the three years following a banking crisis. The red ink drowning the fiscal accounts of the crisis-hit US and UK are exactly what past experience would have led us to expect.

A fourth lesson is that bad things go together. In a boom, property prices jump, current account deficits explode, fiscal receipts soar and governments borrow easily; then, in the slump, property prices tumble, the financial system implodes, capital flows out, the currency falls, the fiscal deficit soars and inflation jumps.

The final lesson is that financial liberalisation and financial crises go together like a horse and carriage. It is no surprise, therefore, that the last 30 years have seen waves of financial crises, of which the latest one is merely the biggest. The current crisis is the worst since the Great Depression. Yet, argue the authors, no one should have been surprised by this outcome. The US showed all the classic symptoms of a country heading for crisis: a huge current account deficit; soaring house prices; headlong credit growth; and, let us not forget, excessively complacent regulators.

Please choose Economics category:


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Economic News Update November 3, 2009

Via [Ken Catalino]
....more earnings reports...

ADM Profit Falls 53% as Prices Drop
Royal Caribbean profit falls 44 pct in 3Q
Marathon 3Q Net Down 80% On Lower E&P, Refining Results
Anadarko reports 90% drop in quarterly profit
Chesapeake Energy 3rd-Quarter Net Falls 94% on Prices
Emerson Elec 4Q Profit Down 26% On Sales Woes
Cameron International net income falls 23%
BMW's profit skids 74% as buyers shun luxury cars


....Jobs...

Nokia to cut as many as 5,700 jobs
J&J to cut up to 8,000 jobs as part of cost-saving move
HSBC to Cut 1,700 U.K. Jobs


THE LATEST:

Stocks pulled lower by semis, financials

U.S. stocks stumbled on Tuesday after Morgan Stanley downgraded the semiconductor sector and a shake-up at two big British banks prompted investors to sell financial shares. Losses were limited as Warren Buffett's Berkshire Hathaway agreed to buy Burlington Northern in a deal that values the railroad company at $34 billion....

U.S. Factory Orders Rise for Fifth Time in Six Months

Orders placed with U.S. factories rose in September for the fifth time in six months, reinforcing signs that manufacturing will drive the economic recovery. Bookings increased 0.9 percent, exceeding the median forecast of economists surveyed by Bloomberg News, after dropping 0.8 percent in August, figures from the Commerce Department showed today in Washington. Excluding demand for transportation equipment which tends to be volatile, orders climbed 0.8 percent after a 0.3 percent August gain....

U.S. NEWS:

Half of US kids will get food stamps, study says

Nearly half of all U.S. children and 90 percent of black youngsters will be on food stamps at some point during childhood, and fallout from the current recession could push those numbers even higher, researchers say....

Business Bankruptcy Filings Increased 7% in October

Business bankruptcy filings jumped in October, reversing two consecutive months of declining commercial filings and indicating that bankruptcies could continue to rise as the economy struggles to stabilize. Last month, 7,771 businesses filed for bankruptcy protection, compared to 7,271 that sought shelter from creditors in September, according to new data from Automated Access to Court Electronic Records, or AACER, a private firm that tracks bankruptcy filings. After two months of decline, the 7% rise in commercial filings shows that businesses are still struggling to access financing and are facing weak demand for their products......

More walk away from homes, mortgages

...."As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."

....The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. "It's a very large number, and it's a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed.

....Nationally, median prices have fallen about 25% from their peak in late 2005, although prices recently have risen compared with prior months this year. The median price in the second quarter — $170,000 — was at roughly the level it was in autumn 2003. But price declines have been worse in some markets. A closely watched barometer of home prices, the Standard & Poor's/Case-Shiller 20-City Composite Index, shows they have fallen more than 25% in 12 markets and more than 50% in two — Phoenix and Las Vegas — from peaks hit in 2006 or 2007.....

UAW members reject labor deal with Ford

The United Auto Workers union overwhelmingly rejected additional modifications to a 2007 labor agreement with Ford Motor that would have granted the auto company concessions similar to those ratified earlier this year for rivals Chrysler and General Motors....

States Are Pondering Fraud Suits Against Banks

Newly empowered by the Supreme Court, the attorneys general of several states hit hard by the housing collapse are exploring consumer fraud suits against major mortgage lenders.....During the boom, the banks earned short-term fee income from generating the loans, then quickly resold most of them to investors or to Fannie Mae and Freddie Mac, two government-sponsored housing agencies that eventually required costly taxpayer bailouts....

U.S. Cuts Borrowing Need 43% for October to December

The U.S. Treasury Department cut its estimate for government borrowing in the current quarter by 43 percent largely because of reductions in a program for helping the Federal Reserve manage its balance sheet. Borrowing will total a net $276 billion from October through December, compared with a previous estimate of $486 billion, and it projects borrowing of $478 billion in the three months to March 31, the department said in a statement today in Washington. In the quarter that ended Sept. 30, the Treasury borrowed $393 billion compared with $406 billion projected three months ago....

Pensions for Executives on Rise

Pensions for top executives rose an average of 19% in 2008, with more than 200 executives seeing pensions increase more than 50%, according to a Wall Street Journal analysis....Executive pensions rose even as the share prices at the companies declined an average of 37% in 2008 and many firms froze employee pensions and suspended retirement-plan contributions....

INTERNATIONAL NEWS:

India gold purchase adds to dollar concerns

India almost doubled its gold reserves on Tuesday when its central bank bought 200 tonnes of the metal, worth $6.7bn, from the International Monetary Fund. The move sent gold prices to within striking distance of their record high....

Dubai Property Prices Rise 7%

Dubai property prices rose in the third quarter for the first time since the emirate's property market crashed late last year, but are still almost 50% lower than a year earlier, U.K.-based real estate consultancy Colliers International said Tuesday....

Australia Increases Benchmark Interest Rate to 3.5%

Australia raised its benchmark interest rate by a quarter percentage point for the second straight month, becoming the only nation to increase borrowing
costs twice this year as the global economy recovers....

RBS, Lloyds Get $51 Billion in Second Bank Bailout

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the U.K. taxpayer as the two banks agreed to cap bonuses. The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising. Both banks said they won’t pay cash bonuses to workers earning more than 39,000 pounds this year....

OTHER:

Berkshire Hathaway to Acquire Burlington Northern

In its largest acquisition to date, Berkshire Hathaway said Tuesday it will acquire the 77 percent stake in Burlington Northern Santa Fe that it doesn't already own for $100 a share in cash and stock....

Please choose Economics category:

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College Costs Now 50K per Year

photo source
Georgetown
Comment:

Two of the bubbles left to pop are healthcare and college costs. Today the college costs are prominently in the news because of a new report released by The Chronicle of Higher Education (membership content) listing 58 private institutions that are exceeding 50 thousand dollars in annual costs. The WSJ video explains things very well, below. There are a few positive feedback loops at play.

--Kalpa


$50,000 a year more common for college

In a startling trend, the new standard for private college tuition has hit $50,000 per year, according to data compiled by the Chronicle of Higher Education. Last year, only five colleges reported charging $50,000 for tuition, fees, room and board. Today, 58 private institutions charge that much per year and more, according to the Chronicle.....

Education Inflation: College Costs Skyrocket

The $50K Club: 58 Private Colleges Pass a Pricing Milestone

For the nation's elite private colleges, $50,000 is fast becoming the new normal. Fifty-eight private colleges now charge at least that much for tuition, fees, room, and board, a Chronicle analysis of College Board data shows. Last year only five colleges did....

Private U.S. Colleges Expect More Revenue Pressure, Survey Finds

Nearly one-third of U.S. private colleges are preparing for a drop in tuitions and fee revenue this school year, according to a survey of colleges and universities by Moody's Investors Service. The findings show that many schools could be facing weaker future operating performance from the revenue declines. Credit raters have been downgrading some schools' debt the past year, though not in the numbers seen among municipal and corporate debt....

Higher higher ed

CONSUMER PRICES fell 2.1 percent between July 2008 and July 2009, but college tuition kept going up. Students entering public four-year institutions this fall confront published tuition rates more than 6 percent higher than they were a year ago. Private colleges and universities ticked up 4.4 percent. To be sure, these figures apply to the "sticker price" of college only: grants and loans (many of them subsidized) cover much of the tab. But the contrast between the country's belt-tightening and higher ed's price hikes is striking nonetheless.

The recession itself is a major cause. The downturn forced state governments to slash support for the public systems that more than 70 percent of undergraduates attend; it also shrank the endowments of private institutions. Congress and the Obama administration supplied aid to the states in the stimulus bill, plus $30.8 billion in extra tax credits and Pell grants for students. But this only partially mitigated the impact.

....Financial aid ultimately derives from state and federal budgets, or tax-deductible private contributions -- which means taxpayers. Costs racing ahead of inflation, enabled by cost-shifting to subsidized third parties -- it bears an uncomfortable resemblance to the health insurance mess. Given higher education's importance in equipping young people for productive employment and citizenship, it needs to find a way out of this trap.

Nearly 60 Colleges Charge $50,000 or More

....Among the newest to break the $50,000 barrier, according to The Chronicle’s rendering of College Board pricing data, are Bryn Mawr ($50,034), Bucknell and Colby (each $50,320), Skidmore College ($51,196) and Washington University in St. Louis ($51,329).

Those that, by The Chronicle’s rendering, had already reached the $50,000-a-year threshold were Sarah Lawrence College ($55,788), Landmark College ($53,900), Georgetown ($52,161), New York University ($51,993), and George Washington University ($51,775).

Please choose Economics category:


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Today's Opinion Picks November 3, 2009

Comment:

There are seven picks today.

1) On the Jesse's American Cafe blog, comes this recent warning on sovereign U.S. debt default from Sprott Asset Management.

2) Yves Smith, of Naked Capitalism, reports on a meeting she and other financial bloggers were invited to at the U.S. Treasury. They were allowed to ask questions. Her observations are well worth reading. Dumb actors? Or not? I found this read fascinating.

3) Maria Bartiromo of CNBC interviewed Paul Volcker for five minutes yesterday. I happened to catch the interview and had the exact same conclusion that she expresses in her writing here. This was hardly an example of freedom of speech, and curiously enough followed an earlier meeting with Pres. Obama.

4) Here's a Dylan Ratigan piece on "Why Keep Geithner". Always blunt. Always straightforward. I've said before that I can't believe Geithner is still in office. The run in the stock market has saved many faces.

5) Malcolm McMichael writes a review reminder of what not to like about the bailouts. Nothing new, but good.

6) JOEL JANKOWSKY, a lobbyist, writes of the Obama administrations double standard regarding lobbyist access and their publicity about it, for the WSJ.

7) This is a WSJ book review of Charles Gasparino's The Sellout, just out today. This is sounding good, from comments I've heard.

--Kalpa



Ladies and Gentlemen, the United States of America Is Insolvent
by Jesse

"In case you failed to catch it in our previous articles this year, we thought we’d state it outright for our readers this month: the United States Government is on a trajectory to default on their obligations. In its current financial condition, it will not be able to fund its forecasted budget deficits and unfunded Social Security and Medicare promises on top of its current debt obligations. This isn’t official yet, and we don’t know when the market will react to it, but there is no longer any doubt about the extent of their trajectory. There simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending...

The projected US deficit from 2009 to 2019 is now slated to be almost $9 trillion dollars. How on earth does anyone expect them to raise this capital? As we stated in a previous article, in order to satisfy US capital requirements, all existing investors would have had to increase their US bond purchases by 200% in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28% from September 2008 to July 2009 - far short of what the US government required. The US taxpayer can’t cover the difference either. According to recent estimates, tax revenue from all sources would have to increase by 61% in order to balance the 2010 fiscal budget. Given that State government income tax revenues were down 27.5% in the second quarter, the US government will be lucky just to maintain its current level of tax revenue, let alone increase it.

The bottom line is that there is serious cause for concern here – and don’t be fooled into thinking this crisis will fix itself when (and if) the economy recovers. Just how bad is it?..." Sprott Asset Management

~~~

Just a reminder, in case you had forgotten in all the excitement of a bull market rally in US equities and a reasonably good baseball World Series.

Ladies and Gentlemen, the United States Is Insolvent, 29 May 2009

The States racked up some serious debt in keeping the world safe for democracy in the Second World War. On a percentage basis, it has recently spent a significant amount keeping its financial sector safe from productive effort and honest labour. They will raid the Treasury, take their fill, and then compel the government to confiscate the savings of a generation by defaulting on its obligations, its sovereign debt.

Curious Meeting at Treasury Department
by Yves Smith

The Treasury invited a small group of bloggers for a “discussion” with senior officials on Monday. Initially, the meeting was to be background, which is a sort of journalistic “FYI but you can’t use it” but we were told at the meeting that we could discuss the meeting as long as remarks were not attributed to particular individuals.

None of us knew in advance how many attendees there would be; there were eight of us at a two-hour session, Interfluidity, Marginal Revolution, Kid Dynamite’s World, Across the Curve, Financial Armageddon, Accrued Interest, and Aleph (and of course, others may have been invited who had scheduling conflicts). There was a place card for Megan McArdle as well.

I was surprised that the powers that be would bother with financial bloggers, and I wondered at the decision rule behind the selection (besides wanting a mix, particularly from a political standpoint). This was also not an anonymous briefing of the sort that has come under criticism (but the anonymity request is still peculiar; is this a Team Obama fixation?) Given that the efforts have Administration has been made efforts to bring critics from the left into the fold, I was wary of attending (I’m not keen about the idea of being propagandized) and expected a higher control format (10-15 people, which would have limited the opportunity to interact).

....But the other fact is that these guys are very smooth, very smart, and seemed quite sincere, which made it difficult to discern how much they really did believe and how much of what they said they had to say because they need to defend official policy and maintain confidence. Let’s face it, they get prodded and roughed up by big dogs with some frequency. There was nothing we asked that would be new. They’ve covered this ground with other people of more consequence and therefore have answers ready. We are a pretty unimportant audience (yes, they did bother making time for us, but let us not kid ourselves on how far down the food chain bloggers are) and we cannot argue from a position of advantaged information, so it was inevitable that we would not get beyond standard responses.

The Silencing of Paul Volcker?
By: Maria Bartiromo

Did we witness the silencing of one of the greatest central bankers ever yesterday?

Yesterday’s appearance on my show by former Federal Reserve Chairman Paul Volcker raised serious questions whether he is being silenced by the White House. Chairman Volcker had met earlier in the day with President Obama, and as he arrived for our interview, he asked, “Did I agree to this?” I assured him that he had, and he told me it would have to be short because he had to give speech.

We spoke for only five minutes or so, and he seemed uneasy right off the bat. He mentioned a few times that he had to go give a speech, and I tried my best to ask quick questions about some of the big issues right now – deficits, financial reform, job creation, commercial banks versus investment banks. After a few minutes, he got up and started to walk away as the cameras were still rolling. I’m not sure if it was tight scheduling that had Chairman Volcker hesitant to talk – I knew had to go give a speech – but I did feel as if there was a reluctance to say too much. It was unlike any other time I have interviewed him....

Why Keep Geithner?
by Dylan Ratigan

A year ago it was revealed to the American people that our banking system was a legalized Ponzi scheme in which bank and insurance CEOs paid themselves billions of dollars in personal compensation to lend and insure assets with money they didn’t have to customers who couldn’t pay back the loans.

In those dark days between the fall of Lehman Brothers and before the presidential election, we were often carried through that time by the small glimmer of hope in that at least we would soon have a new leader who would hopefully fix this mess and punish those responsible.

Yet in the past 9 months, not only has the administration not fixed anything, they have made things much worse for anyone who isn’t a Wall Street banker. Therefore, we are past the point where anyone in power still gets the benefit of the doubt and the process of taking back our country for all citizens must begin now.

This is why I think we must ask if U.S. Treasury Secretary Timothy Geithner is still the right person for the job. It has become clear recently that back in his previous role as New York Federal Reserve Governor, he unnecessarily gave billions of dollars of US tax money to banks and insurance companies with few strings attached. And it is now becoming clear that his lack of meaningful action is helping many of these same banks steal more by legalizing their most economically dangerous, socially destructive and self-enriching practices.

Yesterday on NBC’s Meet the Press, Secretary Geithner again endorsed House bank reform legislation that would allow, by my calculations, as much as 80%, or $475 trillion, of the bank’s $600 trillion in crooked insurance schemes to still be held in secret. It was and is the secret risks held in this very market that led to our collapse in the first place and continue to pose massive future risk to the global economy.

He also continued to employ the bankers’ favorite, and most ludicrous, lie : that the taxpayer must somehow continue to pay executives at companies like AIG ungodly sums of money under the threat that if we don’t, somehow the taxpayer will never make their money back. Well let me tell you something, the taxpayer and our nation, will never get back the lost wealth taken under these false circumstances and this colossal breach of fiduciary duty. The idea that we must somehow perpetuate this system with our tax money and the future wealth of our children goes against the very American ideal of failure, adaptation and innovation, not to mention of our democracy.

Also last week, the Treasury Secretary endorsed a piece of legislation that instead of stopping a select few companies from profiting from the implicit taxpayer-guarantee of Too Big Too Fail seeks to officially condone it. If the most prized skill in our society economically is a competition to see who can lend and insure the most money without consequences, you have doomed our nation’s people to lose everything in the world’s largest ever betting parlor; and that is precisely the system this Treasury Secretary — Tim Geithner — is seeking to legalize in America today.

However, the smoking gun for Secretary Geithner comes from a recent Bloomberg FOIA disclosure regarding events from last November. It was then that New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the world’s largest (and still un-investigated) insurance fraud — AIG. This full payoff with taxpayer dollars was carried out by Geithner after AIG’s bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the “sanctity of contracts” in the dealings with these companies like AIG.

None of us were in the rooms when these decisions were made, so I don’t pretend to know if Mr. Geithner was the one lone, sane voice of reason fighting against mysterious forces or the primary proponent. However, I fail to see the reasoning for why we continue to rely on those who were in the room when these horrendous decisions took place to be the same people that we choose to deal with their aftermath. There are just certain situations that are not suited for continuity. The best analogy I can think of is that it would be like asking Al Cowlings to spearhead the Nicole Brown Simpson murder investigation under the premise that he knows the layout and the “players” best.

The fact is that there are people who understand all of the intricacies of finance and policy as well as Secretary Geithner, but whose allegiances to the taxpayer are much clearer. People like Elizabeth Warren, Neil Barofsky, Rob Johnson, and Senator Maria Cantwell just to name a few.

To stop the theft from continuing, it requires that the most basic rules of capitalism be applied to our banks and that our future national wealth be safeguarded by the US Government. The current custodian of America’s wealth, Treasury Secretary Tim Geithner, is not doing a good job of either. The time for corrective action is now.

Ten Things Not to Like About the US Government Policy Actions Known as "The Bailouts"
by Malcolm McMichael

1. The Treasury and the Fed rewarded some aggressive risk takers and failing business models at the expense of those who followed sound business practices. Those who followed conservative practices have been penalized twice; first on the way up and again on the way down. Those companies that did fail appear to have been 'targeted' by insiders.

2. Much of the process was done in secret with minimal transparency, debate, or disclosure by people who have obvious conflicts of interest.

3. The stated objectives of freeing up credit for the real economy and stemming foreclosures have not been achieved.

4. Trillions in taxpayer money were provided with few strings attached and at minimal stipulated rates of return. Furthermore, several of these institutions are using their taxpayer money to lobby against reform and award themselves pre-crisis salaries and record bonuses.

5. Bailout actions were arbitrary, inconsistent, ad hoc, and without an apparent guiding principles of justice.

6. The banking, rating, “insurance”, and regulatory systems have not been reformed and the perpetrators of the collapse and their enablers are remain in charge, now overseeing the “recovery.”

7. Criminal investigations are minimal; few people are facing indictments or even serious regulatory scrutiny for actions that are highly questionable. Official finds are whitewashes.

8. Regulations, regulatory structures, and other safeguards were implemented, revised or swept aside in chaotic and reckless fashion. [discount window participation and collateral, short selling rules, bank holding companies, mark-to-market]

9. The insider advantages, speculative excess, and extreme leveraging of the perpetrators has been allowed to continue; in fact, allowed to expand. There is a taint of insider trading and corruption that permeates the process.

10. Wall Street is bailed out; Main Street is not. Efforts to subsidize the incomes and balance sheets of failing firms have been massive and were implemented with minimal debate, requirements, or oversight; efforts to shore up taxpayer incomes and balance sheets have been comparatively minimal, subject to extensive debate and tinkering, highly selective, and incomplete.

Obama and 'Special Interests'
By JOEL JANKOWSKY

For the past nine months, the Obama team has waged a campaign of political convenience against lobbyists.

Its policies against so-called special interests include: a refusal to accept lobbyists' campaign contributions, a ban on employing lobbyists within the administration, discouraging lobbyists' contact with government workers, new rules that will result in the public disclosure of every lobbyist who visits the White House, and a directive to exclude lobbyists from serving on department and federal agency boards and commissions.

All of this is meant to give the impression of purity. But this is illusory. At the same time that the White House has demonized lobbyists, it has allowed itself to be infiltrated by a different army—one made up of campaign contributors. These individuals can breeze past defenses designed to repel lobbyists.

Campaign contributors, especially those who bundled large contributions from others, have been embraced by this administration. Because they aren't formally registered or regulated in the way lobbyists are, they enjoy the benefits and privileges of serving in the heart of the administration. These contributors serve in critical foreign and domestic policy positions, as well as department and agency boards and commissions. Dozens of Obama for America National Finance Committee members have joined the administration. Most of them raised hundreds of thousands of dollars for the campaign, according to the watchdog group the Center for Responsive Politics.

This inconsistent treatment does a disservice to federal policy making. Talented women and men who registered themselves as lobbyists under the Lobbying Disclosure Act are being excluded from contributing their expertise at a critical time in our nation's history.....

The Road to Ruin
By JAMES FREEMAN

The Sellout

By Charles Gasparino
HarperBusiness, 553 pages, $27.99

Mr. Fuld is just one of the characters populating "The Sellout," Mr. Gasparino's splendid account of the financial meltdown. Lehman's fate, not to mention Mr. Fuld's rhetorical excess, is emblematic of the confusion, miscalculation and distress of the whole episode. At the heart of "The Sellout" is its own irksome inquiry: Why did so many large and prestigious institutions make disastrous bets on American mortgages?.

....In 1995, Henry Cisneros, the secretary of housing and urban development, directed Fannie Mae and Freddie Mac—two "government-sponsored enterprises" in housing finance—to buy and guarantee mortgages of low- and moderate-income borrowers amounting to 42% of their annual business volume. His successor, Andrew Cuomo, moved the number up to 50% and directed Fannie and Freddie to buy the mortgages of borrowers with "very low income." The effect was a flood of government-subsidized lending. At the same time, government-anointed credit raters were assigning triple-A ratings to mortgage-backed securities that in no way deserved them.....

Please choose Economics category:


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Economic News Update November 2, 2009

source
Comment:

So, for today's recommended reads....

John Mauldin, in his Frontline weekly newsletter, which I often include here, is recommending Niall Ferguson's recent book, The Ascent of Money. He thinks the book is one of the best he's read and that everyone in Congress should read it. He says, "It is easy to read, engaging, full of moments where you are led to pull together different ideas into an 'Aha!' Ferguson is a brilliant writer and historian, and we are lucky to have this book at a time when it is sorely needed."

And if you've got the time, one of my favorite articles that I've come across in a while can be found here. The article is by DoctoRx, who writes at EconBlog Review. I've put a small excerpt of this longer article on the opinion thread today.

One important theme people are concerned about lately is that corruption begets corruption. This nation is headed down that dangerous path of, well, if he did this, I can do this. Geithner didn't pay his taxes, why should I? My elected officials squandered my hard earned money into the bank black holes, so why should I work and pay taxes? I'm on the New York state's generous pension payroll, but my taxes are too high here, so I'll just move to another state where I can still collect them but not have to pay my share.

My government is dishonest with me, so why should I be honest with them? My neighbor hasn't made a house payment for months and is still in his house, so I'm not paying mine. I'm entitled to my dream lifestyle but don't have to pay for it. There is so much fraud going on with the bailouts and stimulus that I will see how I can get some of it, too.

Pretty soon every level of society is infected, trust is gone, hope is gone, and future security is gone.

Oh. And one last thing. Don't miss the first article under the "OTHER" section today.

--Kalpa


....more earnings reports...

Ford posts $997M 3Q profit

....Jobs...

County to layoff 200 employees
Time Inc. Plans $100MM in Cuts, Mostly Layoffs
Tennessee Industrial Jobs Down 12.6% Over Twenty-Four Months
Royal Bank of Scotland to Cut 3,700 Jobs at Branches


THE LATEST:

U.S. stock gains fade as financials stumble

Pending Sales of Existing Homes in U.S. Rise 6.1%

The number of contracts to buy previously owned homes in the U.S. rose in September for an eighth straight month as Americans rushed to meet a deadline for a home-buyer tax credit....

Manufacturing in the U.S. Expanded at a Faster Pace

Manufacturing in the U.S. expanded in October at the fastest pace in more than three years, a sign that factories will be the main drivers of the economic recovery in coming months. The Institute for Supply Management’s factory index rose to 55.7, exceeding the most optimistic economist’s forecast, from 52.6 in September, according to the Tempe, Arizona-based group. Readings above 50 signal expansion....

U.S. NEWS:

Fallout Forces Scramble for New Sources of Cash

....A bankruptcy of CIT Group Inc. is unlikely to derail the broad economy, but that's cold comfort to tens of thousands of business customers the century-old lender serves. A bankruptcy filing, expected as soon as this Sunday, has the potential to turn off one of the nation's biggest spigots for loans to small and medium businesses. It would be the largest financial failure since regulators seized Washington Mutual Inc. last year.....

Geithner "Burned Billions," Shafted Taxpayers on CIT Loan, Prof. Bill Black Says

His argument goes as follows:

The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we'd be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, "it's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously," says Black. Black believes the problem stems from regulators' fears that if the banks recognize a loss on the bad assets it will create a domino effect that will wipe out the entire financial system. "If that's true we've got to get rid of capitalism," he warns, "because if we can't recognize losses in a capitalist system we have no future."

9 banks fail in 1 day; $2.5 billion hit to FDIC insurance fund

Federal regulators have shut the doors on part of a small banking empire built by through a string of 28 acquisitions over the past two decades. Nine banks, all owned by the same troubled Illinois holding company, were closed Friday by regulators, and the Federal Deposit Insurance Corp. said U.S. Bank of Minneapolis would assume their deposits....

MYSTERY: Saudi Oil Exports To America Suddenly Dry-Up

Saudi Arabia's oil exports to the U.S. have suddenly fallen to a 22-year low according to August data provided by the Energy Information Administration (EIA). This places the kingdom in fifth place, behind Nigeria, in terms of U.S. oil imports. The Barrel highlights that Saudi oil exports to the U.S. peaked in 2003 at 1.726 million barrels per day then drifted down to 1.4 - 1.5 million barrels through 2008. In August, America's Saudi imports came in at a rate of just 745,000 barrels per day, the lowest since December of 1987....

Washington Beats U.S. Housing Slump on Obama Budget

Demand for new homes is growing faster in the Washington area than in any other major U.S. city as existing inventory shrinks and a record $3.52 trillion federal budget fuels the local economy. Builders took out construction permits on 4,442 single- family homes in the Washington metropolitan area in the third quarter, up 11 percent from a year earlier, according to the Census Bureau. Nationwide, permits fell 17 percent....

Landlords Offer Incentives to Stay Put

Amid the jobless recovery, some landlords are showering flat-screen TVs, cash, rent cuts and other incentives on tenants to encourage them to renew their apartment leases and thus avoid the expense of filling empty units....."Many companies are doing whatever they can to keep units occupied, especially heading into the seasonally slower leasing period," said Paula Poskon, an analyst with Robert W. Baird & Co.....

More College Presidents Get Million-Plus

The presidents of 23 private colleges received compensation topping $1 million in 2007-2008, nearly double the number of the prior year, according to a new survey. The median president's pay was $358,746, up 6.5% from the previous year, for the 419 private colleges reviewed in a study being released Monday by the Chronicle of Higher Education, a publication specializing in colleges and universities. The pay figures include the cost of benefits....

INTERNATIONAL NEWS:

Macquarie’s Robertson Wins Mountain Bet on Australian Houses

...The concession follows a report published earlier today showing Australia’s house prices jumped 6.2 percent in the 12 months through Sept. 30, shattering Keen’s forecast a year ago that the housing market would collapse by 40 percent. Robertson, 43, challenged Keen to hike Mount Kosciuszko if values fell by less than 20 percent. “Keen could scarcely have been more wrong,” Macquarie’s Robertson said today in Sydney. “I wish Dr. Keen well on his long walk.” ....

OTHER:

White House Visitor Log Lists Stars and C.E.O.’s

The Obama administration on Friday released a partial roster of visitors in the first six months of President Obama’s term, a disclosure that shows business executives, labor leaders, lobbyists and a sprinkling of celebrities were cleared into the White House for meetings, events or tours......Among the White House guests was a boldface-names list of chief executives, including Lloyd C. Blankfein of Goldman Sachs, Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase, Rex W. Tillerson of the Exxon Mobil Corporation, David J. O’Reilly of the Chevron Corporation and Jeffrey R. Immelt of the General Electric Company The men, who met with Mr. Obama, his advisers or both, were among nearly 500 entries in logs from Jan. 20 to July 31.

...The most frequent visitor included in the narrow sample was Andy Stern, president of the Service Employees International Union and Mr. Obama’s top ally in the labor movement. Mr. Stern visited the White House 22 times, sometimes for health care or other public events in the East Room, other times for meetings with the president or aides like Rahm Emanuel, Peter R. Orszag or Ronald A. Klain......Other visitors included Gary D. Cohn, the president of Goldman Sachs, who was a major contributor to Mr. Obama’s campaign. Several lobbyists from financial industry trade groups also came to the White House, including Edward L. Yingling of the American Bankers Association, Timothy Ryan of the Securities Industry and Financial Markets Association, and Scott Talbott of the Financial Services Roundtable......

Depression diary: When the banks went dark

Eighty years ago this week, the United States experienced the worst meltdown of the stock market in the nation's history. As the effects of the crash rippled through the broader economy, banks began closing their doors in record numbers. Benjamin Roth, a lawyer in Youngstown, Ohio, recorded the effects as the banks closed in his town. His diary, excerpted on The Big Money, has just been published as a book -- "The Great Depression: A Diary" (Public Affairs)....

Please choose Economics category:


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Today's Opinion Picks November 2, 2009

Comment:

There are four picks today.

1) This is by blogger DoctoRx, of EconBlog and is a guest post on Naked Capitalism. It is a small excerpt of the much lengthier article, which I highly recommend. I like his comparison of a physician's duty to first do no harm as a challenge to Bernanke and our ruling powers to do the same (but have already failed us) when controlling our money. I also liked his somewhat philosophical discussion of GDP and wealth, and his comparison of malpractice in medicine to our government's responsibility of protecting the people's welfare.

2) This, by Bruce Krasting reviews material that verifies that the government is not a respected lender when it comes to people deciding whether or not to default on loans.

3) Nouriel Roubini writes, for the FT, about the dollar carry-trade bubble forming and a future inevitable bust.

4) Simon Johnson, on Seeking Alpha, shames the U.S. policy makers for being behind the global big bank reform curve.


--Kalpa


On, and Beyond, Deficits
By DoctoRx

.....I believe that this country has become “over-financialized”, and that debt is just part of the inappropriate recent primacy of finance over the production of useful, real goods and services. This primacy manifests itself in such ways as:

i. Wasteful merger and acquisition effort, given that the average deal does not meet its stated goals;
ii. The cult of the publicly-owned stock even though the companies are run for the benefit of insiders;
iii. The existence of interest rate swaps reportedly in the hundreds of trillions of dollars of notional value;
iv. The whole credit default swaps mess;
v. The overtrading of vital commodities such as oil, a barrel of which reportedly changes hands over 20 times before anything useful is done to it; and
vi. The entire concept that corporations and government can really promise important retirement benefits, given that the future is unknowable. All new pension obligations should be variable.
vii. Most importantly, strategists should consider that the quantity of new government debt was consciously decided upon to outweigh retiring private debt. Thus the debt-GDP ratio continues to rise, into cloud-cuckoo land. If you liked the last debt cycle, you will love the next one! ......

Richmond Fed on the GSE’s – “They Encourage Defaults"
by Bruce Krasting

....“For homes appraised at $300,000 to $500,000, borrowers in non-recourse states are 59% more likely to default than borrowers in recourse states. For homes appraised at $500,000 to $750,000, borrowers in non-recourse states are almost twice as likely (100%) to default as borrowers in recourse states while for homes appraised at $750,000 to $1 million, borrowers in non- recourse states are 66% more likely to default.”

California is the largest State that is also a non recourse State. It is also a place where a significant amount of properties are worth >$300k. Given that the anticipated default rate is 70+% greater then in another State it tells you what is happening and what will continue to happen for Cali-jumbo mortgages. It is a black hole. Given this, why would anyone be willing to lend in California?

....When the government makes mortgage loans they are encouraging defaults. As lenders they appear to have no teeth. This is a hell of a predicament given that the D.C. lenders are currently 95% of the new mortgage market. The total value of mortgages held by Uncle Sam is $7.5 Trillion....

Mother of all carry trades faces an inevitable bust
By Nouriel Roubini

....So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fueling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

....But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

....This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

Britain Moves on Too Big to Fail
by Simon Johnson

The WSJ reports:

“The U.K.’s top treasury official Sunday said the government is starting a process to rebuild the country’s banking system, likely pressing major divestments from institutions and trying to attract new retail banks to the market.”

The British style is typically understated and policymakers always like to play down radical departures, but this is huge news. Pressure from the EU has apparently had major impact – worries about unfair competition through subsidizing “too big to fail” banks are very real within the European market place. Also, strong voices from within the Bank of England have helped to move the consensus.

The US position on protecting everything about our largest banks is starting to look increasingly isolated and out of step with best practice in other industrialized countries. Time to start planning for the break-up of Citigroup.

Please choose Economics category:


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