Category: TEOTWAWKI

Signs of the Apocalypse

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Alan “Bubbles” Greenspan is saying that regulators should consider breaking up the large banks:

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil — so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

I would note that Greenspan’s mentor, Ayn Rand, saw the breakup of Standard Oil as evil, with the wealth of the “prime movers” being confiscated by the “parasites,” “looters,” and “moochers”, to use her terms (from the Wiki on Atlas Shrugged, I read Virtue of Selfishness, and that ‘s quite enough Rand for me…It was worse than reading Emanuel kant)

Signs of the Apocalypse

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It’s by Lanny Davis, a Washington, DC insider, and the guy who accused people supporting Ned Lamont in 2006 against Joe Lieberman of “Liberal McCarthyism“, and he is calling for the criminal prosecution of Dick Cheney for authorizing torture:

I have agreed with President Obama on the need to look forward, not backward.

But … I have changed my mind about the need to indict former Vice President Dick Cheney for complicity in illegal torture.

…

Even more, they seem to be an in-your-face dare by Mr. Cheney to the U.S. criminal justice system: “I am Dick Cheney, I approved violations of the law in the name of the war on terror, and what are you going to do about it?”

It reminds me of Gary Hart’s reaction in the early days of his 1988 presidential campaign to the rumors of his womanizing. …..

So as to Mr. Cheney: I think it is time to take him up on his implicit dare and indict him for violating the 1994 federal law against torture.

This is as big a Beltway Blowhard™ as they come, and he called for Dick Cheney to be prosecuted, and got it published in the Moonie Times (Link is to The Hill, which republished it.

I don’t think that he is suggesting this out of any real moral imperative, it’s just that he feels that Dick Cheney is, to paraphrase Bull Durham, “Calling the umpire a called the guy a c$#@sucker,” which offends his genteel Beltway sensibilities.

CDOs: How Bad Will It Get

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This is why our banks are insolvent. Even without the increases in leverage that have been created over the past 15 or so years, when you see losses like this:

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

Your bank is toast.

That’s 30¢ on the dollar for the best of the best, and just down from that, it’s 5¢ on the dollar.

This is why the big banks are insolvent.

Hell Freezes Over

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Yes, Alan “Bubbles” Greenspan is now saying that bank nationalization deprivitization is likely the least bad solution to the banking crisis:

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

This from a close friend, and acolyte of, Ayn Rand.

Hint to Geithner and Summers, when Alan fracking Greenspan says it’s time to nationalize, it’s time to nationalize.

Economics Update

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Japan’s economy contracted at an annual rate of 12.7% in the Q4 of 2008. Those are numbers more than a recession, they are near implosion, so I would take the Confederation of British Industry’s prediction that the UK economy will shrink 3.3% in 2009 with a grain of salt.

The UK is far more dependent on banking and investment than Japan is in its economy, the Japanese actually make stuff and sell it to people.

A further indicator of the likelihood of a brutal downturn is that the companies in the S&P 500 just turned their first ever aggregate quarterly loss ever, with something like 400 of the 500 companies declaring a loss.

However, today was not without good news, as junk bond sales hit a 6 month high, which implies that people are no longer fleeing so strongly to safe havens like US treasuries, though there is still enough uncertainty to push the dollar and the Yen higher.

Still, demand concerns are driving oil down, even as retail gasoline prices continue their march back towards $2.00 a gallon.

Canary in a Coal Mine?

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When I started predicting a financial meltdown 5 years ago, I didn’t know a CDO, CDS, or MBS from a hole in the wall.

Truth be told, I’m only barely past that now.

What I was predicting was a real-estate crash followed by a recession, followed by a loss of status as a reserve currency, which would drive the dollar down and interest rates up.

So, I was really only right on one thing, the real estate crash, at least for now, which I figure is pretty good for someone with one economics course under his belt.

That being said, the recommendation by Akio Mikuni, president of the Japanese credit ratings agency Mikuni & Co., that Japan should unwind its holding in US Treasuries could be seen as a first step for the rest of the sequence:

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

Interestingly enough, Mikuni is not suggesting flight from the US market, but rather that, “Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade.”

He’s talking about a Marshall Plan for America.

I’m wondering if this is just one (rather influential) guy spouting off, or the first few steps in a rush to the exits.

Economics Update

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We already knew that Japan was in a recession, but the updated data is worse than the initial data. The preliminary number was 0.1%, the prediction was 0.2%, and it came in at 0.5%.

Barry Ritholtz notes that the 4 Week T-Bill was paying 0%, down from 0.4%, and notes that the only reason to do this is if you expect that the next 4 week T-Bill will have a negative interest rate, i.e. that you pay the government money for the honor of lending them your money.

Turns out that he was a a little bit premature, because the 3 month T-Bills actually traded at negative interest rates, “If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.”

If you want to feel concerned note that this is the Lowest Rate Since 1929…1929….That year sounds familiar.

In the meantime, the Bank of Canada cut its key rate by 75 basis points to a 50-year low, because they are in recession too.

In real estate, the Pending Home Sales index fell, though not by much, and listing prices for homes have continued to fall.

Calculated Risk has a summary of the commercial real estate market, and it ain’t pretty.

In energy, oil is down a bit, likely spooked by the complications on a bailout deal.

The dollar was mixed today, up a bit vs the Pound and Euro, and down a bit vs. the Yen.

Well, This Sucks

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American Research Group has a survey on 2008 Holiday Shopping, and it has the predicting a 50% drop in sales vs 2007.

Year Average Spending Percent Change
2008 $431 – 50%
2007 $859 – 5%
2006 $907 – 4%
2005 $942 – 6%
2004 $1,004 + 3%
2003 $976 – 6%
2002 $1,037 -1%
2001 $1,052 + 9%
2000 $968 + 3%
1999 $939 + 1%
1998 $928 + 34%

Considering the fact that 70% of the US economy is consumer driven, this is mind boggling.

Economics Update

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Jeebus! The Bank of England cut it’s benchmark interest rate 150 basis points (1.5%)…To 3%.

That’s not strong action, that is TEOTWAWKI panic.

The ECB and the Swiss central bank also cut rates, by 50 basis points…The central banks think that we are in end of the world territory.

As further evidence, we have the ECB’s president saying that there may be more rate cuts.

This from an institution that’s only charter is to fight inflation.

Not surprisingly, all these rate cuts had the effect of sending the Dollar and Yen skyrocketing.

Meanwhile, jobless claims dropped a bit, but only through “Jedi Mind Trick” statistics:

The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, ….

The department revised up its estimate for jobless claims in the prior week to 485,000 from a previously reported 479,000.

So comparing initial estimates, it went up by 2,000, but after the “correction”, it was down by 4000.

In any case, the number sucks, and continuing unemployment claims are the highest that they have been since 1983, when unemployment topped 10%.

It won’t help that retail sales fell to their lowest levels in at least 39 years…..It may be longer, but they only started collecting the statistics in 1969!

Interest rates on interbank lending trending down, but considering all the interest rate cuts, that is pretty unavoidable.

I think that it is more significant that credit card companies were unable to sell bonds at all for the first time since 1993, and when you consider that they charge something north of 20% on carried balances, that is ugly.

BTW, y friends the monoliner bond insurers are back again, with Moody’s cutting Ambac to ‘Baa1’.

It should surprise no one that with massive indications of a deep recession, and the dollar up, oil fell again to $60.77/bbl.

0.11¢ on the Dollar?????

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Whiskey Tango Foxtrot????

In any case, this is what an an acquantance of Mr. Mortgage related to him that he, “Bought 27 second mortgages with a face value of $2,153,400 for $2400.”

It’s part of a whole package, but this is remarkably grim, though the friend in question notes that it was a, “very small pool and not typical,” (scroll down in the comments) but still…..

OK, Is This a Sign of the Apocalypse?

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Republican Florida Governor Charlie Crist just extended early voting hours in Florida, from 8 hours a day, and 8 across the weekend, to 12 hours.

I’m not sure why he did it, I’ve heard reports of the McCain campaign saying that this will kill them in Florida.

I think that after hearing the 50th story about folks waiting for hours at early voting stations, Governor Crist either decided that lengthening the hours was the right thing to do, or he realized that there was significant political blowback from this.

Signs of the Apocalypse: ECB Drops Inflation as Priority

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We now have a report that the European Central Bank, the entity that serves in the role held by the Federal Reserve in the Euro Zone, has decided to set aside all inflation concerns for the moment:

The European Central Bank’s main task is to keep inflation down. But over the past month, it has thrown caution to the wind in trying to prevent financial system and integrated economy of Europe from falling apart.

When you consider the fact that the charter of the ECB was only to deal with inflation, because of German experiences with hyperinflation in the 1920s (wheelbarrows of cash for a loaf of bread).

Unlike the Fed, the ECB has no mandate to maintain stable employment….It’s only role is to keep inflation low, and they are freaking out.

Not Enough Money in the World

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It’s a scary phrase, but when credit default swaps have a nominal value in excess of the GDP of the world, it’s true in a sense. The level of fraud, waste, and abuse is at a level that exceeds all the money in the world.

Scare quote courtesy of Chris Floyd:

Try to imagine that: a $55 trillion market now at risk of complete destruction. Even the derivative debt owed by individual institutions stands at nation-wrecking levels. For example, a single bank in Britain, Barclays again, holds more than $2.4 trillion in credit default swaps, the tradable “insurance” mechanism against securities default. This is more than the entire GDP of Great Britain. If all this paper goes bad, there are not enough assets in the entire country to pay it off. And that’s just one bank, in one country.

Well, isn’t that special.