Archive for May, 2009

Philanthropies and the Economic Crisis

Thursday, May 28th, 2009

A brief indulgence into a big, ugly black hole. From Joan Roelofs via Counterpunch.

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“We in the United States have been endowed with enormous philanthropic foundations, which have been fixing up the world for the last 100 years. One might wonder how their activities relate to the current economic crisis. News on this subject is not found in the headlines, or even on page 23. There is more exposure of foundation garments than of the opulent structures overpinning our system. (more…)

Liquidity drowns meaning of ‘inflation’

Tuesday, May 26th, 2009

Full story here. From Henry CK Liu at Asia Times.

“The conventional terms of inflation and deflation are no longer adequate for describing the overall monetary effect of excess liquidity recently released by the US Federal Reserve, the nation’s central bank, to deal with the year-long credit crunch.

This is because the approach adopted by the Treasury and the Fed to deal with a financial crisis of unsustainable debt created by excess liquidity is to inject more liquidity in the form of both new public debt and newly created money into the economy and to channel it to debt-laden institutions to reflate a burst debt-driven asset price bubble.

The Treasury does not have any power to create new money. It has to borrow from the credit market, thus shifting private debt into public debt. The Fed has the authority to create new money. Unfortunately, the Fed’s new money has not been going to consumers in the form of full employment with rising wages to restore fallen demand, but instead is going only to debt-infested distressed institutions to allow them to deleverage from toxic debt. Thus deflation in the equity market (falling share prices) has been cushioned by newly issued money, while aggregate wage income continues to fall to further reduce aggregate demand. (more…)

Weekly Commentary May 26 thru May 29

Tuesday, May 26th, 2009

Tick Tock, Tick Tock…GM is running out of clock. Will they won’t they will they won’t they. Tick Tock Tick Tock. Let’s see what Market Commentary gives us about GM. (more…)

Obama: We are out of money now

Sunday, May 24th, 2009

Transcript of the interview with C-SPAN here. Obama flat out says the US is out of money. An unusual bit of candor for a sitting president–and only 4 months into his term. You can read the rest at the link. I was outraged enough by the below quote–which will probably get ZERO airplay on a long weekend.

“…SCULLY: Yet, it all takes money. You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades…”

Did he just say the cause of US indebtedness was health care? Not a peep about the ungodly amount of money spent dedicated to war or propping up dead banks. Just Grandma’s hip replacement breaking the freakin’ bank. The US being deeply in debt is not news per se. We can only borrow so long before hyperinflation must come into play to inflate away the debt (so long as we don’t do something like “Carter bonds” denominated in foreign currencies). Obama’s health care plan has less to do with affordable health care and more to do with funneling money to the insurance industry (with its high overhead and incentive to deny care). It is in many ways a replay of his economic plan. Homeowners and ordinary Americans are drowning in debt. Who does he help? The banks. Tens of millions of Americans need decent health care? Who does he help? The insurance companies. Just as it was never clear how funneling money to the banks was going to revive the economy, it equally unclear how shoveling money at the insurance industry will control health care costs.
What is the upshot of prefacing health care in this way? Are we now going to be good little Nazis and decide who lives and dies because they are (or aren’t) useful to the State?

Roubini: The Almighty Renminbi?

Friday, May 15th, 2009

Full story here. Economist Nouriel Roubini’s op-ed piece from the NYTimes.
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“…Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time. (more…)

Charlie Munger interview

Thursday, May 14th, 2009

Found here at the Stanford Law Review. Don’t have Charlie to whisper good advice in your ear? Go to ShadowTraders and get trading to prosperity.

“…So on a scale of 1 to 10, how big a mistake was it that
they let Lehman Brothers go?

I don’t think that was a mistake. You can’t save everybody.
That would have created unlimited revulsion in the body politic.
I probably would have let Lehman go, too.

Even though the market seized up very dramatically afterwards
and we had some of the most difficult shortterm
financial consequences of that failure?

We needed a total correction to a system that was evil and
stupid. You can’t have a rule that no matter how awful you are,
you’re always going to be saved. You have to allow some failure.
We don’t need all our bright engineers going into derivative
trading and hedge funds and so on. We need some revulsion. (more…)

Goldman folds in Boston

Wednesday, May 13th, 2009

Full story here. From Bruce Krasting’s blog.

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“There are approximately 1.2 million register lawyers in the United States. 1.1 million of them saw this headline today. The 100,000 lawyers who did not see it were on vacation and will be aware of it soon enough.

The net of this story is that Goldman has agreed to pay the state of Massachusetts $60 million to settle a dispute regarding Goldman’s “predatory lending” practices in and around Boston. $50 million will be made available to reduce the loan principle on 714 individual mortgages. Of note is that the agreement called for reductions in principal of as much as 30% for traditional mortgages and up to 50% on second mortgages. Also of note is that the State of Massachusetts gets to keep $10mm for their efforts. Not bad for Attorney General Martha Coakley. (more…)

Daily Market Commentary 13 May 2009

Wednesday, May 13th, 2009

Today we heard that retail sales, well, hmmm…., there weren’t any.
Today we heard that Intel was fined over 1billion euros for abusive market dominance, well,
hmmm…AMD there wasn’t any
Yesterday we heard that 6 senior executives from GM were selling their shares, so kind
of makes you think that well,hmmm…Gm, there wasn’t any more GM
Crude oil was down nearly 5million barrels well, hmmm….there wasn’t any. Now the price is
nearly $60 with a projection of $70/barrel by year end. (more…)

Inflationary musketeers

Tuesday, May 12th, 2009

Full story here. More from Asia Times.
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“Amid financial chaos and trillions of dollars in bailouts of the Western banking system, major reserve banks have renewed their aggressive monetary expansion in a bid to revive economic recovery.

The European Central Bank has cut its interest rate to 1% and announced massive money creation “out of thin air”. In a similar move, the Bank of England has set its interest rate at 0.5%, the lowest rate since the bank was created in 1694, and announced a massive money printing program.

This unorthodox monetary policy of distorting interest rates and printing money ex nihilo, while in line with the super-reinflationary policy of the Group of 20 (G-20) countries, was also a retaliation to the US Federal Reserve’s reduction of its interest rate to zero and injections of trillions of dollars for US consumers and mortgage borrowers. (more…)

Credulity caught in stress test

Tuesday, May 12th, 2009

Full story here. From economist Henry CK Liu at Asia Times. This is part 3 of a series of articles on the bandaids being applied to the iceberg sized hole in our economy.
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“The stress test for banks in the United States in April, with the results released this month, was designed to ensure that these banks have sufficient capital to withstand worst-case scenarios in an economic contraction.

Ten months earlier, on July 16, 2008, and a full year after the global credit crunch had imploded in July 2007, the federal banking and thrift agencies (the board of governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of the Comptroller of the Currency; and the Office of Thrift Supervision) had issued a final guidance outlining the supervisory review process for the banking institutions that implement the new advanced capital adequacy framework known as Basel II, which establishes an international standard for bank capital requirements.

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision of the Bank of International Settlements (BIS). [ed. - if you really want to get hyper about this, I've seen sources that say that BIS was Hitler's bank during the war and currently exists as a soverign entity. The Swiss government has no legal jurisdiction over the bank and no government agency or authority has oversight over its operations.] Basel II, initially published in June 2004 during the global credit bubble, aims to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face in recurring financial crises. (more…)