US to Lose Financial Superpower Status
It’s just a statement by German Finance Minister Peer Steinbrueck, but he is saying what a lot of people have been feeling for a few weeks or months now, that the US-British “Anglo-Saxon” model of capitalism is broken and corrupt.
Is there any chance that George W. Bush appearing on television could do anything other than deepen people’s sense of panic?
NO.
This has been another episode of simple answers to simple questions
Flat out, and he uses the “L” word, he quotes David Davies, and notes that “Good ideas do not need lots of lies told about them in order to gain public acceptance.”:
So, this morning Hank Paulson told a whopper:
We gave you a simple, three-page legislative outline and I thought it would have been presumptuous for us on that outline to come up with an oversight mechanism. That’s the role of Congress, that’s something we’re going to work on together. So if any of you felt that I didn’t believe that we needed oversight: I believe we need oversight. We need oversight.
What the proposal actually did, of course, was explicitly rule out any oversight, plus grant immunity from future review:
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
He’s right too. Paulson wants no oversight as he bails out his buddies.
More signs of a recession, durable orders just dropped 4.5%, initial jobless rose by 32,000, to a 7 year high, and existing home sales fell by 2.2% in August.
Meanwhile, the dollar has fallen, largely on concerns about the bailout deal.
Meanwhile, banks are borrowing in excess of $110 billion a day, 39.36 billion from commercial banks, and $88.15 billion from investment banks.
Silly me. I figured that McCain’s “suspension” of his campaign was a completely empty gesture which would contribute nothing to any bailout deal.
I was wrong. John Sidney McCain III’s high profile involvement, and the White House meeting that his his campaign engineered, just had a deal blow up, because John McCain allied with conservative Republicans in the house to propose yet another tax cut.
About the only good things to come out of his involvement are a couple of bon mots from Democrats, the first from Christopher Dodd, who said that the entire affair sounded more like, “a rescue plan for John McCain than one for the financial system,” and the other from Barney Frank, “Senator McCain has said he had to interrupt his campaign and couldn’t do a debate because he had to come here to help us. God save us from such help. But in any case, there is no sign whatsoever that Senator McCain’s got any real role here, so he certainly ought to feel free to go back and debate.”
In the mean time, Boehner aHis Evil Minions&trade make it clear that this is just another exercise in dick swinging for purely partisan gains.
Lovely fellows, I’m glad that I have a daughter, so that I can forbid her to marry them.
Considering the fact that Bernie Sanders is actually a card carrying socialist, just called Larry Kudlow a socialist:
Larry, if I ask you that the government should intervene like every other industrialized country does and provide health care for all people, you’d say ‘oh no!’ And if I ask you to support government intervention so that we don’t have the highest rate of childhood poverty in the world, you’d say ‘oh no!’ But when Wall Street screws up because of their greed, you say, ‘oh yes, it’s a great idea!’
PWN3D!
Does Kudlow need someone to cut his meat for him or something?
I wouldn’t want him around a plastic butter knife.
From the Rich Pigs of America:
Heh
Dear [your name goes here]:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion USD. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gramm, lobbyist for UBS, who (God willing) will be my replacement as Ministry of the Treasury in January. As a former U.S. congressional leader and the architect of the PALIN / McCain Financial Doctrine, you may know him as the leader of the American banking deregulation movement in the 1990s. As such, you can be assured that this transaction is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully,
Minister of Treasury Paulson
It appears that he believes that his campaign the country needs him to go down to Washington so that he can inject politics into the matter.
He is also calling for a delay in the first debate, doubtless because with the financial crisis, there will have to be some questions asked on the economy, though Obama is having none of this, noting that multi-tasking and delegation are crucial skills for a president.
My theory is that he knows that no one is concerned about foreign policy right now, so he wants the foreign policy debate delayed until people will pay attention.
It’s also certain that the economy would come up in the debate, even with the ostensible focus on foreign policy, so he’s looking to cut and run.
Of course, it may just all be a ploy to distract people from Sarah Palin’s disasterous interview with Katie Couric……How the hell do you get owned in an interview by the mistress of softball questions anyway?
H/T This Modern World for the pic
While I am not a strict monetarist by any means, I’m an engineer, not an economist, dammit,*, I think that the fact that central banks are continuing to shovel money out of helicopters upon the financial markets will eventually create some very real, and potentially severe inflation.
In any case, if the spreads between two year interest rate swaps and treasuries hitting a record, 166.38 basis points, is any indication, all this money is not doing much anyway, except possibly pushing the dollar lower.
It’s not not doing much with real estate either, with US existing home sales falling 2.2% in August, and mortgage applications falling 10.6% last week.
This may be why S&P just cut WaMu’s credit rating again.
In energy, oil was down a bit on report of decreased demand, and retail gasoline fell for the 7th straight day.
*I LOVE IT when I get to go all Doctor McCoy!!!
Well it appears that the state of New York is moving toward regulating some credit default swaps as insurance.
This is actually important, since it has been known for 300 years that insurance is not just any sort of financial instrument.
Basically, when insurance policies are traded as securities, you get fraud. This was learned in bubbles in the British markets in the 1700s, and so insurance is allowed only for those who have the actual loss.
About a decade ago, New York State said that CDS were not insurance, and so they were not subject to insurance regulation, leading to the current orgy of fraud, speculation, and abuse.
That being said, this is too late, and we know this because SEC Chari Christopher Cox is calling for regulation too, and Cox is a Randroid free-marketeer, and as such, never calls for regulation until it is too late.
Again, the elephant in the room, the Paulson, “Let’s give it to the American Taxpayer without lube,” plan is not included here.
First, let’s start with the continued deflation of the housing bubble, with home prices down 5.3% in July as compared to the previous year.
This one reason that retailers are forecasting an absolutely dismal holiday season.
It also appears that the Paulson plan, or at least whatever is making its way through Congress is not getting a vote of support from the bond market, with money still fleeing to treasuries, and the spreads between them and short term “safe” private debt remaining historically high.
It’s the same with the dollar, which is up a bit vs. yesterday’s bloodbath, but still weak.
Of more concern are indications that we are seeing a run on hedge funds.
In any case, oil prices are down a bit from yesterday’s hysteria, settling at $106.61/bbl, and retail gasoline is down again.
Nouriel Roubini The Shadow Banking System is Unravelling, in which he reposts an article in the FT.
Paul Krugman makes a very good note here about the performance of Ben Bernanke, that Bernanke overstated the power of central banks in these sorts of financial meltdowns, and that dropping money from above does not work as well as he had previously anticipated.
It’s a slightly wonkish post, but for the economics groupies out there, it’s a worthwhile read.
First, let’s note that under his proposed plan, Paulson can buy non-American, non-mortgage assets, which sounds an awful lot like some of this money will go to benefit UBS, where Phil “Mr. Congeniality” Gramm, sits on the board of directors……Funny that, huh?
Furthermore, the $700 billion quoted is low. The real reckoning of the cost of the plan is $1.8 Trillion:
Someone is getting a haircut, and it ain’t Wall Street executives.
Deep Thought
Any member of Congress who looks at the plan to give Hank unchecked power to transfer $700 billion from the Treasury to his friends’ companies and has any reaction other than ‘You’ve got to be f%#@ing kidding me’ does not deserve to hold office.
Krugman opposes the plan, at least in the form presented by Henry Paulson, though he is more receptive to Chris Dodd’s version, which requires equity from the firms rescued for buying their part of the big sh$#pile.
Sebastian Mallaby, who normally favors economics for the benefit of rich folk, hates the Paulson plan too.
Brad DeLong is of a similar mind to Krugman.
In The Nation, William Greider calls the Paulson plan a, “historic swindle.”
Dean Baker, as is his wont, gets into some fairly specific proposals in some depth, which which I agree.
Robert Reich is less specific, but he does add one specific proposal: allowing primary mortgages to be modified by a bankruptcy judge, with which I also agree.
As for me, I will merely note that Henry Paulson holds hundreds of millions of dollars worth of shares on Goldman Sachs, and the idea that he get a blank check to work this is therefore nuts.
Just a thought watching him: He’s a really smart guy, but he is profoundly uncomfortable and awkward on television.
Republicans who are drooling morons get some coaching do the dance on TV, and folks like Krugman don’t.
It’s not fair how much this effects our discourse, but maybe we should set up some sort of liberal org to coach people to do the gasbag bit more convincingly.
Once again, the big story is the bailout, which I will not cover here, it gets its own posts, though I will be dealing with some of the market effects of the proposal, which can be viewed as positive, if you are an optimist, or negative, if you are me.
First, the US dollar took it’s biggest hit vs. the Euro in 7 years, because of concerns that this bailout will end up being so expensive that it will debase the currency, and as a result, crude oil climbed the most ever, more than $25/bbl before settling at the end of the day at $120.92/bbl, up $16.37.
You can view the price in oil as a belief among traders that the economy, and hence demand, will be recovering, or you can believe that traders think that this plan will push the dollar over the edge. I think that the contemporaneous fall of the dollar indicates the latter.
The increase in prices appears to be a part of a more general rebound in commodities, though retail gasoline continued its downward path, but gasoline tends to lag oil by a few weeks, as it is actually a manufactured final product, as opposed to a raw material.
In either case, it appears that The Commodity Futures Trading Commission is not taking a close look at oil trading as a result of the volatility today.
The Chicago Fed sees more signs of a recession, reporting a drop in economic activity.
Finally, it there are indications that investors are just beginning to see US treasuries the same way that they did during the Japanese meltdown…You know…the one that lasted fifteen years.
Honestly, if that happens to the US, it will be much worse, because we lack the safety net of Japan.