This article is far better than anything I could write, I learned some things.
BTW, of note is the fact that the CDS problem was addressed by regulation in 1746 by the Marine Insurance Act, so it’s not like we haven’t seen this problem before.
Author: Matthew G. Saroff
Economics Update
Jobless claims are back below 400,000, down to 357,000. This is a noisy number, and it appears that the Easter holiday may have effected this somehow.
In high finance, we are starting to see some of the sh%$pile being liquidated at steep discounts, with Goldman Sachs selling ½ billion of Chrysler debt at about 63¢ on the dollar, which comes to about a $185 million dollar haircut, and it has been revealed that Lehman liquidated about $1 billion in funds.
You can view this as an orderly unwinding of these highly uncertain financial instruments, or the first steps towards a rush to the exits. I’m not sure which, though the fact that the LIBOR-OIS and the TED spreads are up again.* might indicate that it is a rush to the exits.
Basically, the spread, or difference in interest rates, between what banks demand when they lend to each other is a measure of how skittish people are about debt. The higher the number, the worse fear.
After dropping briefly following the Bear bailout, the spread is heading back up, implying that there are a lot of people who don’t want to buy someone else’s debt.
In international trade, the Dollar hit a record low vs the Euro, $1.5912:€1.0000, and the Yuan strengthened to below 7 to the dollar for the first time ever.
On the brighter side, the trade deficit rose in February, which might indicate that the economy is strengthening somewhat, though it isn’t in the UK apparently, because the Bank of England cuts key British interest rate 25 basis points, to 5 percent.
The continental Europeans appear to be more worried about inflation though, as the European Central Bank left rates unchanged, which will put some more downward pressure on the dollar.
Seriously though, I really can’t make a whole bunch of sense in today’s data, there is too much noise in opposite directions, which is why a fair man is not too hard on economists, who deal with this all the time.
Luckily, I’m not a fair man, so to all you economists, Go away, or I shall taunt you a second time.
*As Paul Krugman puts it, “One is the spread between Libor and Treasuries, the other the spread between Libor and the futures price of the Fed funds rate; I tend to prefer TED spread, because fears of bank defaults should affect Fed funds as well as Libor; but I know that Fed officials prefer OIS. Anyway, both pointing in the same direction.”
Picture of the Day: Our Real Estate Press
From Fence Sitters Will Be Sorry at Piggington.
The newspaper industry is too dependent on real estate ad revenue to report on the housing market well.
The Pelosi “Victory” on the Colombia Free Trade Deal is Actually Another Cave to Bush and His Evil Minions™
The initial reports, that Pelosi’s move to change to House Rules after Bush officially submitted the Columbia Free Trade Agreement, Pelosi will change the house rules, so they won’t be forced to vote in 90 days.
While everyone else was cheering, David Sirota thought that the celebration was premature. He thought that it might not be a way to kill the CFTA, but rather a way to save it.
Well, he has now seen references that the Democrats are actually using the delay to push it out past the elections, so that they can get more votes ( see here and here).
It looks like they are planning for a lame duck session to approve it:
Rep. Jim Moran (D-VA) was confident that House leaders would schedule a vote on the trade pact in a post-election session, when wavering members would be more willing to support it. “I think there’ll be a vote in the latter part of November, or early December,” he said, adding it would likely be approved in those circumstances.
Let’s be clear on this. Columbia has been using its government to murder labor organizers, and under Uribe, it continues to do so.
This is not a government that we want to cut this deal with.
More on the Wecht Political Show Trial
Well, it appears that things are getting weirder in the aftermath of the Cyril Wecht trial.
First, the judge has placed a gag order on the jury until after the retrial, which was described by Wecht’s lawyer, and I agree, as extremely unusual.
Among other things, I would assume that the Lawyers would not want to talk to the Jurors to get some insights for the retrial.
In any case, some of the jurors talked, and it’s clear that the majority though that they should acquit.
I will note that from what I’ve read Schwab appears to be a complete political hack, and a disgrace to the bench. Harper’s Scott Horton has more details.
Also, this interview with a dismissed (for health reasons) juror speaks volumes.
Senate Polls
First, we have Alaska, where Ted Stevens(R) gets 46%, and Mark Begich(D)gets 45%. It’s still early but this is not good news for Stevens, as undecideds typically break 2:1 for the challenger, giving Begich a very good chance of being the first Democratic Senator from Alaska since Mike Gravel.
In New Mexico, we have Tom Udall in a comfortable lead over his potential opponents, 54% to 40% over Steve Pearce and 56% to 36% over Heather Wilson, who has been seriously hurt by her involvement in the US Attorney firings scandal.
British Court Says Prince Bandar Bribery Probe Closure Illegal
It appears that Prince Bandar, nicknamed “Bandar Bush” for his closeness to the Bush clan, may not have been quite as successful as he though in shutting down the bribery investigation against him.
The basic deal is that Bandar netted billions of dollars (a quick Google shows £1 billion, you do the math) in bogus “consulting fees” in order to “facilitate” the £43bn Al-Yamamah arms deal.
The Serious Fraud Organization was looking into the deal, and was near to getting Swiss bank account information, when Tony Blair shut it down, probably there was a threat that the sales of 72 Eurofighter Typhoons would be canceled if there were further investigations.
The OECD, an international corruption watchdog, condemned the termination of the investigation.
It’s unclear from the story whether this ruling means that the investigation will restart, but Labour is taking no chances, they have a draft law in Parliament that would allow, “an Attorney General to close down such investigations as he or she saw fit on ‘national security’ grounds”.
Ding Dong the Witch is Dead
We are seeing reports that Katie Couric may be leaving CBS before her contract over. The WSJ is suggesting after the elections.
Even by the meager standards of news anchor journamalism, Couric has has been a complete awful.
Economics Update
The average consumer is smarter than Alan Greenspan and the rest of the economic glitterati, because consumer sentiment dropped to a long time low (also here).
In energy, gasoline prices have hit another all time high, and oil prices seemed to have settled comfortably about $110/bbl.
That being said, it’s not just oil imports, inflation in non-energy imports in March surged 1.1%, with a year over year increase of 5.4%.
That 1.1% number is the largest jump ever recorded.
There is a smidgen of bright news, the Fed’s excrement for cash exchange program did not sell out this time, with only $33.95 billion of the $50 billion offered being taken.
In real estate, we have US banks killing the no down payment loan, which is long overdue. Even with a small amount of skin in the game, home borrowers tend to be much better risks.
Housing is tanking overseas too, with UK mortgage rates going up, despite BoE rate cuts, so they are pushing on a string there too.
But’s it’s not just us Anglo-Saxons, because Dutch home sales are tanking too, and let’s not talk about Spain.
Also, GE released earnings, and they sucked, which surprised the experts, but not me.
People are scared and not buying stuff. GE makes stuff. Any questions.
The Smoking Gun on Torture
We now have a report out of ABC news that high ranking Bush administration officials discussed specific torture methods.
According the reports, this was discussed at a “Principals Committee” meeting, and that, “At the time, the Principals Committee included Vice President Cheney, former National Security Advisor Condoleezza Rice, Defense Secretary Donald Rumsfeld and Secretary of State Colin Powell, as well as CIA Director George Tenet and Attorney General John Ashcroft.”
It’s clear however that they knew that they were breaking the law:
Then-Attorney General Ashcroft was troubled by the discussions. He agreed with the general policy decision to allow aggressive tactics and had repeatedly advised that they were legal. But he argued that senior White House advisers should not be involved in the grim details of interrogations, sources said.
According to a top official, Ashcroft asked aloud after one meeting: “Why are we talking about this in the White House? History will not judge this kindly.”
Neither will the folks in The Hague.
Gordon Brown Will Skip Beijing Opening Ceremonies
The PM’s office is claiming that his non attendance is not a boycott, but that there was “He had never planned to attend,” and that, “There is absolutely no change in our position.”
Yeah, right.
Stock
Well, this Friday, we finally had accumulated enough veal bones to make some stock.
I just got it done and into the freezer yesterday.
Took the bones, along with some onions and celery, and got it to a low simmer and kept it there for about 3 days.
Some notes on stock:
- It’s easy to make, just low heat.
- Do not add spices. Stock is a flavoring agent of its own, not a food. Stock with spices is “soup”.
- You can add some onions and celery, and we do. The leafy bits of the celery, which one does not normally eat, is good for this.
- Add the gristle. It has some flavor and the collagin adds a nice mouth feel and some flavor.
- There is a trick to seeing if you have gotten all the “goodness” out of everything. Stock does not have much flavor at all unless you add salt, so take a spoonful, add a shake of salt to some stock in the spoon, and taste.
- Finally, and most importantly, if you are freezing it, do it in small containers. Last time I did this, I had to use a hammer and screw driver to use some.
What you get will give you wonderful flavor and mouth feel for a sauce.
Good Post on Comcast Torrent Blocking
FWIW, it’s clear that they are lying through their asses to the FCC, in that it’s clear that they are blocking torrents continuously, and not just during high bandwidth times, as they have claimed.
Harold Feld’s Tales of the Sausage Factory. Go read it.
The Bobblespeak Translations
OMFG!!!! This is funny.
It’s a translation of the polite circuitous language of political discourse into more plebeian language.
60 Minutes with Doug Feith – April 6, 2008
60 Minutes
April 6, 2008
Guest: Doug Feith
*******************************************
Kroft: why did we invade iraq?Feith: Saddam had a very scary mustache
Kroft: but he wasn’t involved in 9/11
Feith: but he could have been
Kroft: but he wasn’t
Feith: but he could have
Kroft: but he wasn’t
Feith: we had to attack someone
Kroft: so why Saddam?
Feith: he once attacked Iran
Kroft: you’re f$#@ing kidding right
….
The translation of Krugman may cause physical injury from excessive laughter. (link)
My Son is Very Jewish
So my son, Charlie, age 8, and I are watching Keith Olbermann, and we get to his favorite bit, Worst Persons in the World, and this time, it’s Joe Lieberman who wins the gold, for accusing the Ned Lamont campaign of hacking their website in 2006, when it was discovered well before election day that the problem was a poorly configured and overloaded web server, so it was Lieberman who hacked Lieberman’s web site.
My son knows that Lieberman is someone I detest, but there are a lot of those, so he asks, “Is he the one who hates blacks Jews and women?
Realizing just who he was thinking of I reply, no, the one who hates blacks, Jews, and women is Pat Buchanan.
He nods sagely, and says, “OK.”
And then I say, “Joe Lieberman is Jewish”.
And he smacks himself on his head, and says, “That is so embarrassing”.
I’m not sure that Non-Jews get the cultural overtone, but this is a perfectly Jewish moment.
An Update on the Citi Debt Sale
In my economics update, I mentioned that Citi was selling about $12 billion in loans to private equity firms at a loss.
Well, I did nor realize the potential significance, but on the way to pick up a Mama Leah’s pizza* (deep dish), I heard heard listening to the radio, and they were giving high 5s about it on Marketplace.
They think that it might presage an unfreezing of the credit markets, because the banks have finally been able to sell some of that illiquid paper, though in this case it looks like Citi will be getting somewhat less than 90¢ on the dollar.
While Citi took the proverbial haircut on this, that is still better than what it was previously listed at on their balance sheet.
Only on Wall Street is a loss of somewhere in the neighborhood of $1½ billion considered good news.
Personally, I think that mortgage backed paper is still too uncertain, and there are so many balls in the air as a function of the extraordinary levels of leverage that it does not mean much.
But I’m a bear by inclination, and my record on predictions sucks like a thousand Hoovers all going at once.
*Best Kosher ‘Za in Ballmur.
Economics Update
Well, Citi looks headed for a wild ride, with predictions of $17 billion in write-downs for 1Q 2008, and rumors that it is in talks to sell $12 billion of dubious loans at a significant discount.
They were paper sold as part of LBO activity which they could not resell.
Insurers are sure to take a beating on S&P downgrading 4 of them, MGIC Investment Corp., Old Republic International Corp., PMI Group Inc., and Radian Group Inc.
In energy, oil is trading near an all time high on weak inventories, and in currency, the dollar is down, because the market expects further rate cuts.
Signs of the Apocalypse: Military Budgets Edition
The Pentagon’s Selected Acquisition Report (SARs) actually showed some cost drops this year, and the increases appear to be primarily from buying more stuff than previously anticipated, so the unit prices are not going through the roof.
I’m a cynic. I don’t believe it will last, and I would want to see the raw numbers.
An Additional 6 Month Delay on 787
This is now well into A380 territory.
I think that this is more of a failure of management than engineering. While the extensive use of composites is new for a civil aircraft, as is the “all electric” nature of the accessories, the degree to which Boeing has outsourced basic engineering and designs to so-called “partners” seems to be a much bigger part of the delay.
First flight is not in Q4 of this year, and if it’s before December 15, I will be very surprised.
Why We Need Real Financial Regulation
Because people like this wreck national economies for sport.
The Financial Times reports on how a booze soaked get together of international hedge fund managers was organized by Bear Stearns laid the groundwork for a conspiracy to destroy the Icelandic currency and economy.
Of interest is that Iceland made itself vulnerable to this as a part of its aggressive transition from a resource extraction (fishing, once more than 1/6 of the economy) to a banking economy, and right now they have 8.7% inflation, and the central bank has set rates at 15%, so fishing may stage a comeback.
It should be noted that Iceland is actually in a pretty good position. It’s banks are well capitalized, and it has been running budget surpluses for some time, though its current account deficit is large.
One wonders if JP Morgan might be left holding the bag on this.