Archive for January, 2009

Weekly Commentary February 2 thru February 6

Friday, January 30th, 2009

This week started off with a bang. The first 3 days we were up, over 300 points. We pulled away from that dangerous Dow 8000. Several stocks reported better than expected, not good, just better. Google and Amazon did well holding the Nasdaq together. (more…)

Collapsitalism

Tuesday, January 27th, 2009

Full story here. Another article from Darryl Schoon. Another viewpoint on the state of nation, world and money at large. Be sure to check the link to get the full story.

“…Although capitalism is not a Ponzi scheme, credit-based economies, sic capitalism, and Ponzi schemes share the same fatal flaw. Both must constantly expand or they are in danger of collapse. Today, because capitalist economies are no longer expanding, but contracting, their continued contraction will lead to collapse.  (more…)

Banking system is bankrupt, effectively insolvent

Tuesday, January 27th, 2009

Link here to the original source at George Washington’s blog. More voices are joining the chorus on this one. Remember that joke ”I can’t be overdrawn, I still have checks”? Who knew that it’d be our government giving us that line.

“Leading economist Nouriel Roubini said today that the U.S. banking system is “bankrupt” and “effectively insolvent”:

â??Iâ??ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,â? Roubini said at a conference in Dubai today. â??If thatâ??s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion.â? ***

â??The problems of Citi, Bank of America and others suggest the system is bankrupt,â? Roubini said. â??In Europe, itâ??s the same thing.â?

Death agony of Thatcherite era

Monday, January 26th, 2009

Full story here. Another piece from F. William Engdahl. If you think America is el-sucko, England is in a more advanced state of decrepitude. Wasn’t it Marx that said history repeated itself twice? Once as tragedy, the second as farce. Indeed the tragedy of economic stomping under Thatcher (amongst many of her stompings) is now replaced by the Monthy Pythonesque Gordon Brown (who really does look like Python-player Terry Jones) and his financial silly walks to divert attention from the obvious bankruptcy of the nation.

“During the end of the 1970s into the 1980s, British Conservative prime minister Margaret Thatcher and the City of London financial interests who backed her introduced wholesale measures of privatization, state budget cuts, moves against labor and deregulation of the financial markets.

They did so in parallel with similar moves in the US initiated by advisers around Reagan. The claim was that hard medicine was needed to curb inflation and that the bloated state bureaucracy was a central problem.

For almost three decades, Anglo-American university economic faculties have turned to Thatcherite deregulation of financial markets as “the efficient way”, in the process, undoing many of the hard-fought gains secured for personal social security, public health care and pension security of the population. Now the poster-child economy of the Thatcher revolution, Great Britain, is sinking like the proverbial Titanic, a testimony to the incompetence of what is generally called neo-liberalism or free-market ideology…”

Read the whole article at the link provided. This isn’t just a dig on so-called Conservatives, since the current “liberal” Labour party is engaging in the same actions.

J’accuse

Monday, January 26th, 2009

Full story here. Cheers to the skeptical CPA and gaius marius for their insights. This was most refreshing to read on a Monday morning.

“…there was no confusion on wall street and investment banks were not at all duped by rating agencies–indeed, they knowingly exploited the conflicted interests and moral weakness of those agencies to sell trillions of loss-making loans onto unsophisticated investors. they did so in an effort to pass off investment bank losses while collecting fees on the packaging and distribution of those losses. … nail not only their bankrupt leadership but these outfits themselves to a tree and light it on fire.”  (more…)

Wall St’s sick psychology of entitlement

Friday, January 23rd, 2009

Full story here. Cheers to Clusterstock for documenting this succinctly. And the Joker picture really tells it all…

“The news that Merrill Lynch paid out $15 billion in bonuses is sure to ignite new questions about the wisdom of bailing out Wall Street. Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.

But that wonâ??t stop Bank of America, which now owns Merrill, from defending the bonuses. And across Wall Street there are lots of people who actually believe that Merrill did the right thing.

How can so many smart people be so dumb?   (more…)

The folly of intervention

Friday, January 23rd, 2009

Full story here. More from Henry CK Liu, a continuation of my prior post.

“…the Fed’s bank nationalization measures had not helped the economy as banks had chosen not to obey the government’s intention to increase lending. These measures had very little, if any, effect on deflation, which exacerbates the need of banks for recapitalization…de-nationalization will prolong the recession. Since nationalization of the financial sector had been necessary to save the financial system from imploding, it was not a Keynesian move to stimulate economic recovery, all the misleading euphemism notwithstanding. What the Fed did was to keep the critically ill patient alive with extraordinary measures, even if the cost is a drawn-out long-term recovery that requires hospitalization for the rest of the patient’s life. Small government cannot be restored by big government, even temporarily…”

Zero interest rate trap

Friday, January 23rd, 2009

Full story here. Article from economist Henry CK Liu, a very sane, prudent man who, by virtue of this, will never be appointed to be Treasury Secretary.

“…Each in separate ways, the liquidity and the zero interest rate traps together demonstrate the futility of macroeconomic attempts to use both quantitative and credit easing by the central bank to stimulate an economy contracting from excessive debt and leverage.

A liquidity trap can be formed when holders of cash seek safe haven from risk in a distressed market. They rush to park cash in risk-free financial instruments until the market stabilizes, causing short-term interest rates on top-rated fixed-income investments to fall from market forces of supply and demand. A low short-term rate in such a situation is the result and not the cause of a slowing economy. Under such conditions, central bank lowering of federal funds rate targets below that set by market forces can have the effect of pushing investors towards higher risk in search of better returns in a risk-averse market in which good investment opportunities are in short supply.

Since central bank power to set interest rates is unevenly concentrated on the short term, a liquidity trap distorts the term structure of interest rates which defines the expanding spread between short-term and longer-term interest rates. This is because the Federal Reserve’s influence on the much larger outstanding long-term credit market is less direct than the short-term credit market, where the central bank has complete control for rates for loans of short maturities…”

In other words, printing lots and lots of dough for no interest to be collected (even though the Treasury pledges to give the Fed interest for dishing it out) is a really, really bad idea. Unfortunately, the country will have to go through a formal bankruptcy process in order to sort out this problem. All the CDSs (which are no better than gambling) must be declared null and void, which tends to distress the gamblers as well as the casinos a/k/a investment banks, but you can’t please all of the people all of the time. Many, if not all, of the big players in the financial sector are insolvent, period. Their credit losses (whether marked to market or a realistic cash flow basis) are bigger than their net worth. These firms are therefore wards of the state. Let’s just get on with it and put the trash out.

Weekly Commentary January 26 thru 30

Friday, January 23rd, 2009

Good-bye Bush. Hello Obama. But wait. The Market has been down 4 out of 5 days this week. What Gives? In a nutshell…earnings reports. Take a look at some of the companies that reported 4th quarter earnings. Xerox reported 4Q profit went from $382 million in 4Q 2007 to $1 million in 4Q 2008. Now that’s a slip. (more…)

Liar liar

Monday, January 19th, 2009

This one’s all visual…