So, this mouthdrooling moron thinks that we have seen the bottom of a falling stock market when the Dow hit 11,740.15 on March 10.
The Fed has just dumped the gross national product of Guatemala in the stock markets, and you think that the bottom has been reached.
More phony numbers, and the DJI is always a phony number, from people who have a vested interest in dumping their crap off on you.
So, Hillary Clinton is suggesting that Bush create, “an emergency working group on foreclosures”, staffed by such notables as Robert Rubin, Paul Volker, and ….wait for it….wait for it….wait for it….wait for it….Alan Greenspan.
Alan Greenspan the man who suggested in 2004 that the housing sector was, “in good shape”, we would all be better off if, “lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage”?????
I am completely at a loss for invective.
The New York Times notes that there is a tug of war going on between the Bush Administration and Democrats over the type and extent of new regulations.
While I think that some centralization of the “regulatory alphabet soup” is a good idea, one of the things you are hearing, particularly from the Bushies, is that there is a, “tangled web of federal and state regulators”.
I think that this is Bush speak for cutting the states out of it, so actions like those of Elliot Spitzer* will be impossible.
On the other end of Pennsylania Avenue, you have Barney Frank, who I like, but truth be told, I think does not go far enough.
We have large organizations operating under the idea that they are too big to fail, and remember that Bear Stearns is a smallish player in this market, so this assesment is correct.
If the taxpayers are at risk, and they are, then the taxpayers must be allowed to regulate to minimize that risk.
Krugman makes this very point:
America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.
Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.
Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
As does Noriel Roubini who believes that the actions taken to this point are band aids, and not solutions, furthermore, he notes that, “Only a few of such securities firms are systemically important and deserve the liquidity support of the Fed in case of a run on their liabilities”, which is a large portion of this crisis.
Many of these institutions have, through years of lax antitrust enforcement become “too big to fail”.
So, my first suggestion is that the continuing concentration of market among fewer and fewer firms in the financial arena needs to be reversed.
These firms need to be broken up into small pieces.
On CNN Money, of all places, Paul R. La Monica suggestion that investment banks need to be treated like children. It’s eye catching, but wrong, particularly when he suggests that the repeal of Glass-Steagall was still a good thing..
The behavior of the banks, or more accurately the individual people working in those banks, was quite mature, if amoral.
From top to bottom, the employees of these firms behaved in a manner consistent with those employees own personal best interests, as opposed to those of the firm or the market.
The name for such a system, where individual players arbitrage for their own personal best outcome is called Capitalism, by the way.
What we need to do is to ensure that taxpayers are not left on the hook down the road for decisions made for personal benefit now.
Among other things, this means that we need real regulations of wages and benefits in the financial services industries, with real consequences including asset forfeiture and jail.
People will continue to do stupid things for good results this quarter so long as their bonuses and promotions are a result of their performance in this quarter.
I would note that I have not yet come up with any specifics on how to limit excessive compensation for short term results beyond taxing all excessive taxes. I’ll put my thinking cap on.
The push for quarterly results is what leads to excessive leverage, which is what has led to many of the problems.
In 1929, you needed about 20¢ to buy $1.00 stock on margin. Following the Roosevelt regulations it was 75¢ to buy that same stock on margin, though this was lowered to 50¢ in the late 1970s.
Bear Stearns was leveraged on the order of 50 to one, or about 2¢.
Leverage is essential to a modern financial system working, but excessive leverage causes a collapse.
We need to put government auditors in the major financial firms today, with the power to review all records and investments, and to demand changes.
Also, there should be a change in taxes. If the rich have to be bailed out, and this appears to be the case, then they should make the down payments on that bail out.
I would also suggest that a surcharge be added to income tax to which no credits or deductions apply, starting at the salary of the President (currently $400K) with a 1% surcharge, and increasing by 1% for each multiple above that (so $400k-$800K would be 1%, $800K-$1.2M would be 2%, etc), to a maximum marginal rate of 75% at around $180 million a year, which would apply to all forms of compensation (H/T to Dean Baker, see below, for noting the total compensation thing).
It would serve to put a brake on executive compensation, and generated some much needed revenue for the treasury.
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC, suggest instead that we legislate a cap on total compensation in the financial industry of $1 million.
It appeals to my vengeful side, but I think that my suggestion is better. It applies to overpaid athletes, drugged out pop stars, and worthless hotel heiresses too†, and provides resources to create a better and more just society.
*No, I mean his legal actions against Wall Street, when the FTC, SEC, etc., led by Bush and His Evil Minions™ were letting the foxes run the henhouse.
†Let’s be clear, I am keeping my promise not to mention They Who Must Not Be Named. I don’t see no names, do you?
Arkansas Attorney General Dustin McDaniel is saying that two recent State Supreme Court decisions mean that payday lenders can be prosecuted under the Arkansas Deceptive Trade Practices Act.
No offense to any reader of mine from Arkansas, and a quick look at the statistics reveals that number over the past 8 months to be 27, but this is the one of the last places that I would expect this.
I do understand that Arkansas is less corrupt than Louisiana, more populist than Texas, and less backward than Mississippi, but I find this to be a very surprising development.
While Arkansas does have a a bit of a tradition of populism, I think that this more important than simply short term politics.
There is an increasingly strong view, society wide, that deregulation of financial markets, from the very small (Payday Lenders), to the very large (Wall Street) have failed.
People realize that in the real world, there are situational and informational asymmetries that require that the government take action to prevent predators from preying on the weak.
Took them long enough.
Oil is holding steady, and the dollar has strenghtened, but Gasonine has hit a new record.
My predictions, which are usually wrong, Oil is pretty much permanently above $100/bbl, the dollar has a way to go down still, probably settling sell south of $1.75:€1.00, and Gasoline prices will break $4.00/gal in a year, and that there will be overshoots on all of them.
But my predictive record sucks wet farts from dead pigeons.
It looks like the Federal Home Loan Banks will be performing the way that God and Herbert Hoover* intended, in that will be making things much worse by bailing out investors in bad mortgage bonds to the tune of $150 billion.
Hoover was a stalwart supporter of doing the wrong thing, back to his days in China, where he supporter what came very close to murder in Chinese mines.
Oh….JP Morgan blinked, and upped their offer on Bear Stearns to $10/share. This is a bailout of two groups of people:
They both deserve to lose, and, of course, those people who bought at $5/share just made out like raped apes.
*Hoover created the FHLB system.
It’s Purim, so let’s lead off with currency.
First, the dollar is a bit stronger vs the yen, but I think that the trend, and the underlying fundamentals, are in the other direction. No secrets here, just the combined federal and balance of payments deficit, along with the rise of the Euro as a reserve currency (brief primer here on what a reserve currency is), will push the dollar down.
There is an article in CNN Money about why there will be no bailout of the greenback by other nations central banks, but it misses an important point, that this bailout has been ongoing for over a decade.
The dollar is now falling in spite of the best efforts of the central bankers.
And in the “economists are always late to the game” news, the Economic Cycle Research Institute (ECRI) says that we are definitely in a recession.
Not to worry though, as majority of Americans think economy will turn around in 2009. I expect that the predictive powers of the American public will not be as good as mine.
We are looking at a deep and long recession, as credit contracts, and the stagnant wages of the past 30 years catches up with us. This will be worse than 1982, when unemployment broke 10% (Ronnie added the military to the count to keep the number below 10%), and real (i.e. subtracting inflation) interest rates in excess of 6%.
I think that it will be worse.
In the short term, the Visa IPO that I erroneously derided seems to have given a lot of banks some breathing room. It’s generated a significant amount of cash, which should help with upcoming liquidity issues….for a while, at least.
Still, banks will be leery of making loans even to exemplary credit risks, for some time to come.
In the world of companies in trouble, S&P is considering downgrades to Goldman and Lehman, and it has downgraded National City’s outlook rating.
However, this is all pretty mild compared to where Thornburg Mortgage which, in order to prevent margin calls (people demanding their loans be paid back now) for the next year, gave its creditors the following:
Good.
I’m not sure if the bailout is good or bad policy yet, but it should be painful for those who made the decision, to make sure that they think 2 and 3 times before doing it again.
Daniel Davies of Crooked Timber notes that Greg Mankiw is doing some serious hating on “Joe Sixpack” in his latest NYT OP/ED:
Ahh go on then, try and tell me that Mankiw’s just engaging in a little bit of humour (possibly even a self-deprecating sigh at the pomposity of the average economist). No sale. This is how the average professional economist thinks of you lot, for all that you pay his wages; you’re a bunch of mugs who are incapable of understanding anything and just react like children to whatever’s dangled in front of your nose. It’s another of the many scandals of the profession, it is taught in the universities, and you can see it in more or less every popular book entitled something like “Fu$#younomics: How Nobody In The World Knows Jack Sh&@ Except Economists”.
(Bowlderization mine)
I would note, however that this is not limited to Economics.
You find this in many primarily academic fields, high energy physics, theoretical math, literary analysis, etc.
Take String Theorists…..Please.
With economists, however, the field is literally in front of our noses, and effects us in our daily lives, so the arrogance of economists is galling for that reason
But does not mean that I’m not disappointed that USA Today declared Lawrence Yun, the chief economist at the National Association of Realtors as one of the top economic forecasters in the US.
Ummm….Covering your ears and saying, “there is no housing crash” does not make one a “top economic forecaster”. He is a paid shill of the realtors, and as such he only reflects reality to the degree that he doesn’t reveal himself as a complete and total pratt.
His record is worse than mine, though it might be better than his predecessor at paid shill for the NAR, David Lereah.
USA Today‘s Barbara Hagenbaugh and Barbara Hansen, and possibly their entire business journalism department, are my wankers of the day.
This is not just an indictment of Republican economic policy, it is also a also a critique of New Democrat Wall Street Loving economics:
...
The key lesson Americans need to learn from today’s troubles is how to distinguish faux prosperity from the genuine article. Over the past hundred years, we’ve experienced both. In the three decades after World War II we had the real thing. Led by our manufacturing sector, productivity increased at a rapid clip and median family incomes rose at a virtually identical rate. The value of the American work product grew significantly and that value was shared with American workers.
But we’ve had other periods of apparent prosperity that were based not on broad increases in personal income but on the inflation of assets. So it was with stocks in the late 1920s, a time when most Americans lacked substantial purchasing power. So it was with the dot-com bubble of the late ’90s. And so it was with the rising value of American homes in recent years.
In the broadest sense, the American economy over the past three decades has been powered by ever more ingenious extensions of credit to a people whose incomes were going nowhere, unless they were in the wealthiest 10 percent of the population. There were some limits, as a result of New Deal regulations, on how old-line banks could extend credit, but investment banks and other institutions not legally obliged to keep a certain amount of cash in reserve operated under no such constraints. The risk was that one day, burdened by debt and static incomes, American homeowners would have trouble making their payments and the house of cards would come tumbling down. But what were the odds of that?
Pretty good, it turns out. And out of this debacle emerge two paramount lessons for our highest-ranking policymakers: Regulate the American financial sector, which is now turning to the government for a bailout. And commit the government to doing all in its power to generate broad-based prosperity, through laws enabling workers to bargain collectively, through a massive public commitment to projects “greening” the economy, through provision of universal health coverage and affordable college educations.
…
Go read the whole thing.
Just don’t go to Robert Rubin’s house. You will feel an urge to spit on him.
Jobless claims
378,000, up 22K from the previous week, and the leading economic indicators fell for the 5th straight month by 0.3%.
Oil dropped nearly $4.00/bbl, and the dollar is up versus the Euro.
These are both driven by what is seen as reduced demand for oil, and a rate cut from the Fed which was around 25 basis points (0.25%) less than expected.
Still, it does not appear that the banks are optimistic Citi is looking to cut 2,000 jobs in their securities division (investment banking and trading). This is in addition to the 4k announced in January.
Just to remind you, it’s not just sub-prime, as Alt-A delinquencies and foreclosures are spiking too, and are trashing the related mortgage backed securities.
Finally, the Federal Reserve continues its extended bout of anilingus with the brokerage houses, making $75 billion in treasury securities available to investment banks.
Yep. It appears that with, “As liquidity is drained from credit and money markets and pours into oil and gold, another asset class that could offer long-term returns to the discerning investor is water”, or at least so say the contemptible capitalist/terrorists who want to extract people’s wealth to line their own pockets.
This isn’t cell phones, it’s not electricity. This is water.
No water, you die. No clean water, your kids die. Get it.
We need to stop this before it gets rolling, and they start hiring lobbyists.
I sent this to the good folks at Marketplace:
In David Frum’s essay yesterday about Federal reserve policy, he stated that he remembered, “the little white stickers my family’s favorite steak house used to overwrite last month’s price”.
I would make two points here.
First, Mr. Frum is born and bred in Canada, specifically Toronto, Ontario, and it appears that the nearest American soil, Niagara Falls, New York, was about 80 miles away.
Given the number of steak houses available in Toronto, it is likely that the menu of which he spoke was for a Canadian restaurant, and using a Canadian restaurant to describe US inflation is not the basis for an honest discussion of any policy.
Second, this was in the days when plain paper copiers were a rare beast, so reprinting a menu was a significant issue, even if it was done only once a year.
It appears that Visa’s IPO was a resounding success. I predicted that it would fall short.
I swear, if I get any more predictions wrong, I’ll be getting a phone call to help manage Iraq reconstruction for Bush and His Evil Minions™.
So I’m doing a a google on ERISA and healthcare, and there was a sponsored ad, a link to this:
Quote:
Date Started: March 17, 2008
Hagens Berman Sobol Shapiro LLP is investigating possible ERISA violations by the Bear Stearns Companies Inc. relating to the Employees Stock Ownership Plan (“ESOP”).
The investigation comes after JPMorgan Chase & Co. announced it is purchasing Bear Sterns for $2 per share, 90 percent less than the 85-year-old firm’s market value last week. The investigation is looking into whether fiduciaries of the Company’s ESOP knew or should have known that Bear Stearns concealed its exposure to risky collateralized debt obligations, sub-prime mortgages and other poor-quality securities. If fiduciaries did not exhibit due diligence in protecting the ESOP participant’s investments in Company stock and were aware of the extremely high-risk investments the company made, plan fiduciaries could be found in violation of ERISA laws.
Concerning possible ERISA violations, Hagens Berman Sobol Shapiro is looking at whether or not Bear Stearns continued to offer and hold company stock in the ESOP when it was no longer prudent to do so, and if the company failed to take action to sell Bear Stearns stock or otherwise protect the plan’s assets in light of the company’s risky business strategies and deteriorating financial condition.
In a company press release on March 16, 2008, the company announced that JPMorgan would acquire Bear Stearns and stocks could be transferred from Bear Stearns to JPMorgan based on the closing numbers from March 15, 2008. Bear Stearns stock tumbled from $30.00 per share on March 14 to $4.81 at closing on Monday, March 17, 2008.
If you have information concerning this investigation you can sign up to join the investigation, or contact Hagens Berman at 206/623-7292 or via e-mail at info@xxxxxxxxxxxxx.
Well, that was quick.
First, news of the stupid, Office of Federal Housing Enterprise Oversight has reduced the reserve capital requirements for the GSEs, so Fannie Mae and Freddie Mac will be able to loan another 200 billion out.
The problem is blow back from too much leverage, so you are allowing more leverage?
There are people walking away from their homes now because they realize that it will be 10+ years before they have any equity at all in their homes, and you want more exposure to the 2nd and 3rd largest borrowers in the world?
BTW one of the interesting points about yesterday’s rate cuts was that the dollar strengthened, which really runs counter to the normal motion. The analysts say that this was because it indicated that the Fed was really going to keep the economy out of recession.
Well, that lasted about 24 hours (here and here)
Of course no bit of economic news is complete without the performance art/low humor known as a press release from one of the monoliner insurers, in this case
Ambac claiming that it had “no material exposure” to the Bear Stearns debacle.
Yeah, sure. I may not be an economist, but I know weasel words when I hear them.
BTW, one of the CEOs of the big 3 auto makers are expecting sales to be poor this year. Such insight. That must be why they get paid 7 figures a year plus bonus.
Mortgage application volume fell 2.9% last week. No one is lending, and no one is buying.
Finally, we have Goldman Sachs and Lehman Brothers conducting a fire sale on some of their dicier oinvestments fire sale on debt associated with leveraged buy-outs and private equity deals.
This is considered a good thing, which locally, it is. If you pump radioactive waste out of your basement, into the town reservoir, you are doing better personally.
So now, the New York Times finally notices that the rest of the industrial world is beating our brains out in boradband.
It’s very simple. If you don’t regulate in a market with high barriers to entry, it is more profitable for the incumbent to work on keeping, and raising, those barriers to entry. It’s more profitable than attempting to build a better cheaper product.
The US have given thousands in subsidies to the incumbent telcos, and done nothing by way of regulation, and as a result we have 2nd rate service (hi Comcast users):
Ms. Reding emphasized her determination to encourage greater competition in the market and to give regulators the power to force “functional separation” — obliging the owners of telecommunications networks to free the networks from their operating divisions.
Word up on Ms. Reding.
Bush Leadership in Meltdown Troubles Investors
Yeah, heck of a job, Paulie.
Any time that the Fed cuts rates, it’s the lead economic story, and today the Federal Reserve huts its discount rate by 75 basis points to 2.25%.
There is not a whole bunch left for the Fed to do. At the rate that they have been cutting this year, they will be at zero some time in July.
We are in a pickle, and Paul Krugman is right when he says that at best we are almost in a liquidity trap, if we aren’t already there. The Fed cutting rates has very little effect on interest rates for the rest of the economy right now.
As a result of the rate cuts, and the inflationary pressures involved, Oil appears to be heading back up.
Additionally, low interest rates tend to push the dollar down. The dollar spent most of today above $1.58:€1.00, though it’s now strengthened to a bit less than $1.57, about 1% below the all time low of $1.5904:€1.0000 reached on Monday.
Our economy in 1000 words.
Of course the real economy, the one that most of not on Wall Street live in, had a few statistics too, with Industrial output dropping 0.5% in February and inflation on the move, with the core producer price index increasing by 0.5% in February.
And it’s not just our economy, it’s both pillars of “Anglo-Saxon Hypercapitalism”, with banks the Bank of England’s emergency 3 day loans totalling £5 billion obeing oversubscribed by almost 500%.
It also looks like Lehman may be the next brokerage to have to deal with a run on its accounts. It’s shares were down 39% in early trading Monday, though it had largely recovered today.
One source of revenue for the various financial houses, private equity buyouts and other forms of leveraged merger and acquistion activity, appear to be drying up. No one wants to lend right now.
It probably does not help that we have it looks like a new star is born in the ppathetic theater that is the monoliner insurance debacle, FGIC, which posted a $1.89 billion loss. If people cannot trust the insurers to pay off if you default, then maybe they don’t want to fund your ill conceived takeover scheme.
This applies to foreigners, who not only are not interested in investing in American businesses, but are avoiding what used to be the safe haven of US Treasuries.
Finally, housing starts hit a 17 year low, though the article optimistically states that it is “above forecast”.
A pox on economic reporters. A little truth a little earlier, and perhaps housing starts would not be the lowest since Poppy Bush was in the White House.