EUOBSERVER / BRUSSELS - The European Commission on Friday will present several changes to the use of regional policy funds, but these will not include an expected extension of the use of money from 2007, with Spain set to lose hundreds of millions of euros. The phrase Spaniards do not want to hear these days is that their country "faces the risk of decommitment," meaning it could lose considerable amounts of its multi-billion EU regional aid by the end of this year. Valencia: Spanish cities and regions could lose important sums of EU aid by the end of the year Under present EU funding rules, which were strengthened in 2007 to prevent fraud and irregularities, member states have to get their national and regional frameworks for EU projects pre-audited and cross-checked by the European Commission, before any actual payments can be made. A small part of funding is given in advance, but most of it comes on a reimbursement basis. Spain now risks losing hundreds of millions because most of its framework programmes have not been approved yet and claims for 2007 can only be submitted for reimbursement by 31 December 2009. The total amount Spain could claim for 2007 is €6.3 billion.
EUOBSERVER / BRUSSELS - The European Commission on Friday will present several changes to the use of regional policy funds, but these will not include an expected extension of the use of money from 2007, with Spain set to lose hundreds of millions of euros.
The phrase Spaniards do not want to hear these days is that their country "faces the risk of decommitment," meaning it could lose considerable amounts of its multi-billion EU regional aid by the end of this year.
Valencia: Spanish cities and regions could lose important sums of EU aid by the end of the year
Under present EU funding rules, which were strengthened in 2007 to prevent fraud and irregularities, member states have to get their national and regional frameworks for EU projects pre-audited and cross-checked by the European Commission, before any actual payments can be made. A small part of funding is given in advance, but most of it comes on a reimbursement basis.
Spain now risks losing hundreds of millions because most of its framework programmes have not been approved yet and claims for 2007 can only be submitted for reimbursement by 31 December 2009. The total amount Spain could claim for 2007 is €6.3 billion.
Unemployment has soared to almost 2.4 million after a record number of people joined the ranks of people out of work, grim new figures showed today. The figure rose by 281,000 in the three months to May, the biggest quarterly increase on record, taking the total to 2.38 million, the highest since 1995. The number of people claiming jobseeker's allowance increased by 23,800 in June to 1.56 million, the worst total since Labour came to power in 1997. The so-called claimant count has now increased for 16 months in a row and is over 700,000 higher than a year ago.
The figure rose by 281,000 in the three months to May, the biggest quarterly increase on record, taking the total to 2.38 million, the highest since 1995.
The number of people claiming jobseeker's allowance increased by 23,800 in June to 1.56 million, the worst total since Labour came to power in 1997.
The so-called claimant count has now increased for 16 months in a row and is over 700,000 higher than a year ago.
As Germany prepares to celebrate the 20th anniversary of the fall of the Berlin Wall, one of the country's leading labor organizations has concluded that people living in the former East Germany are still hounded by poverty much more than their compatriots in the west. Germans living in the areas of the country that once belonged to the former East Germany are twice as likely to face poverty, according to the German Confederation of Trade Unions (DGB), one of the country's leading labor unions.A soup kitchen in Berlin's Pankow district. In Wednesday's edition of the Leipziger Volkszeitung daily, DGB labor market expert Wilhelm Adamy estimated the differences between the former East and West Germanies in terms of the percentage of working-age individuals who are dependent upon benefits they receive under the controversial Hartz IV welfare program. For the former West Germany, Adamy put the figure at 7.4 percent; for the east, at 16.4 percent. Since reforms introduced by the government of then-Chancellor Gerhard Schröder in 2005, anyone who loses their job in Germany is entitled to unemployment benefits paying a certain percentage of their former salary for between 12 and 18 months. If they have not found a new job by then, under the Hartz IV system, they are classified as long-term unemployed and receive €351 ($491) a month in government assistance as well as additional amounts for dependents and the cost of renting "suitable" housing.
As Germany prepares to celebrate the 20th anniversary of the fall of the Berlin Wall, one of the country's leading labor organizations has concluded that people living in the former East Germany are still hounded by poverty much more than their compatriots in the west.
Germans living in the areas of the country that once belonged to the former East Germany are twice as likely to face poverty, according to the German Confederation of Trade Unions (DGB), one of the country's leading labor unions.
A soup kitchen in Berlin's Pankow district. In Wednesday's edition of the Leipziger Volkszeitung daily, DGB labor market expert Wilhelm Adamy estimated the differences between the former East and West Germanies in terms of the percentage of working-age individuals who are dependent upon benefits they receive under the controversial Hartz IV welfare program. For the former West Germany, Adamy put the figure at 7.4 percent; for the east, at 16.4 percent.
Since reforms introduced by the government of then-Chancellor Gerhard Schröder in 2005, anyone who loses their job in Germany is entitled to unemployment benefits paying a certain percentage of their former salary for between 12 and 18 months. If they have not found a new job by then, under the Hartz IV system, they are classified as long-term unemployed and receive €351 ($491) a month in government assistance as well as additional amounts for dependents and the cost of renting "suitable" housing.
Associated Press Writer= SHARM EL-SHEIK, Egypt (AP) — Cuba's president on Wednesday called for an international financial system that better takes into account developing countries interests, as the global recession captured the spotlight at a summit of non-aligned nations. Raul Castro's remarks at the opening session of the two-day Non-Aligned Movement's meeting in this Red Sea resort were echoed by other leaders and build on earlier discussions among officials from the 118-nation grouping of mostly of African, Asian and Latin American nations. "We demand the establishment of a new international financial and economic structure that relies on the participation of all countries," Castro said, ahead of handing over the movement's presidency to Egypt
Associated Press Writer= SHARM EL-SHEIK, Egypt (AP) — Cuba's president on Wednesday called for an international financial system that better takes into account developing countries interests, as the global recession captured the spotlight at a summit of non-aligned nations.
Raul Castro's remarks at the opening session of the two-day Non-Aligned Movement's meeting in this Red Sea resort were echoed by other leaders and build on earlier discussions among officials from the 118-nation grouping of mostly of African, Asian and Latin American nations.
"We demand the establishment of a new international financial and economic structure that relies on the participation of all countries," Castro said, ahead of handing over the movement's presidency to Egypt
In a bizarre legal battle, the Swedish energy giant Vattenfall has brought Germany before an international arbitration body. The case involves environmental restrictions on a coal-fired power plant in Hamburg and reveals a lot about the relationship between politics and industry. In the early stages, the tone was still friendly enough. In a letter dated Nov. 22, 2007, Lars Göran Josefsson, the CEO of the Swedish energy giant Vattenfall, thanked Hamburg Mayor Ole von Beust for the "constructive talks." But the days of such niceties are now over. In April, Vattenfall brought an action against the German government before the International Centre for Settlement of Investment Disputes (ICSID), an institution of the World Bank group based in Washington, DC. The company is charging Germany with violating the Energy Charter Treaty.
In a bizarre legal battle, the Swedish energy giant Vattenfall has brought Germany before an international arbitration body. The case involves environmental restrictions on a coal-fired power plant in Hamburg and reveals a lot about the relationship between politics and industry.
In the early stages, the tone was still friendly enough. In a letter dated Nov. 22, 2007, Lars Göran Josefsson, the CEO of the Swedish energy giant Vattenfall, thanked Hamburg Mayor Ole von Beust for the "constructive talks." But the days of such niceties are now over.
In April, Vattenfall brought an action against the German government before the International Centre for Settlement of Investment Disputes (ICSID), an institution of the World Bank group based in Washington, DC. The company is charging Germany with violating the Energy Charter Treaty.
To the surprise of Vattenfall executives, Hamburg's then-Environment Minister Michael Freytag, a member of the center-right Christian Democratic Union, and Herlind Gundelach, a senior ministry official, suggested that the company build a power plant that was twice as large and that had two generating units putting out approximately 1,600 megawatts of power. As it says in the legal complaint: "Vattenfall accepted Hamburg's suggestion." Gundelach, who has since gone on to become Hamburg's minister of science and research, disputes Vattenfall's claims and says that plans for a mega-power plant were "jointly" developed with Vattenfall executives. As she remembers it, politicians in Hamburg involved in environmental policies were trying to further expand the district heating network as well as to quickly shut down the antiquated coal-fired power plant in the town of Wedel, which lies just 17 kilometers (11 miles) west of the city.
Gundelach, who has since gone on to become Hamburg's minister of science and research, disputes Vattenfall's claims and says that plans for a mega-power plant were "jointly" developed with Vattenfall executives. As she remembers it, politicians in Hamburg involved in environmental policies were trying to further expand the district heating network as well as to quickly shut down the antiquated coal-fired power plant in the town of Wedel, which lies just 17 kilometers (11 miles) west of the city.
What happened then? SPIEGEL writes it in a rather ridiculous formulation:
At the time, the fact that even modern coal-fired power plants emit climate-damaging carbon dioxide was not an issue high on the list of priorities for CDU politicians. But two years later, in 2006, the 700-page Stern Review on the Economics of Climate Change was published and the UN released startling new figures on the environmental effects of global warming. Climate-change skeptics in the CDU and in industry were shocked. All of a sudden, the power plant planned for Moorburg looked like a relic of a bygone age.
Shocked, they were... To summarize the rest:
And then came the regional elections, and the CDU-Greens government, in which the only legal stumbling block the Greens environment minister could pose (the CDU put him in a position in which he had no legal reasons to deny the operating permit) was strict limits to operation, which Vattenfall sues against now. Limits like
Vattenfall vs. Germany: Power Plant Battle Goes to International Arbitration - SPIEGEL ONLINE - News - International
...the company was instructed that it needed to release "less hot water" into the river. Likewise, the company was also told that it would have to use the most up-to-date technology available for separating, capturing and safely storing the carbon dioxide emitted from the coal the power plant would burn. However, carbon capture and storage (CCS) technology is still in the pioneer phase and is seen by energy corporations as an additional cost burden that reduces the efficiency of power plants.
It is also an interesting aside that
Vattenfall CEO Josefsson had a side job as a climate-protection adviser to Chancellor Angela Merkel.
The outcome of this fight should be watched closely. In the most ideal case, the end result will be Vattenfall abandoning the project. In the worst case, the Washington court's ruling could overrule and thus in effect kill EU environmewntal legislation. *Lunatic*, n. One whose delusions are out of fashion.
*Lunatic*, n. One whose delusions are out of fashion.
The Federal Reserve reported: Industrial production decreased 0.4 percent in June after having fallen 1.2 percent in May. For the second quarter as a whole, output fell at an annual rate of 11.6 percent, a more moderate contraction than in the first quarter, when output fell 19.1 percent. Manufacturing output moved down 0.6 percent in June, with declines at both durable and nondurable goods producers. ... The rate of capacity utilization for total industry declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982.emphasis added
Industrial production decreased 0.4 percent in June after having fallen 1.2 percent in May. For the second quarter as a whole, output fell at an annual rate of 11.6 percent, a more moderate contraction than in the first quarter, when output fell 19.1 percent. Manufacturing output moved down 0.6 percent in June, with declines at both durable and nondurable goods producers. ... The rate of capacity utilization for total industry declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982.emphasis added
Almost a year after A.I.G.'s collapse, despite a tidal wave of outrage, there still has been no clear explanation of what toppled the insurance giant. The author decides to ask the people involved--the silent, shell-shocked traders of the A.I.G. Financial Products unit--and finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees.
Cheers! "Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
I got a tip from a friend Andrew about a sale of assets by Wells Fargo (WFC) which raises a number of interesting questions. He sent me the following 14 July article from the Milwaukee Business Journal. Wells Fargo sold $600 million in mostly non-performing subprime loans to Irvine, Calif.-based Arch Bay Capital, National Mortgage News reported, citing sources familiar with the sale. The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering....Finally, as the OC Register suggests, a 35 cents on the dollar bid means huge writedowns that banks do not want to take - especially banks still on government TARP life support like WFC. To me, this explains very well why the PPIP program was a failure: if banks can sell distressed assets quietly over time to private bidders, they might be able to delay taking writedowns. But, the price discovery involved in the PPIP program would be a blood bath for banks already capital-constrained. This is why the program has failed.
Wells Fargo sold $600 million in mostly non-performing subprime loans to Irvine, Calif.-based Arch Bay Capital, National Mortgage News reported, citing sources familiar with the sale. The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering.
Wells Fargo sold $600 million in mostly non-performing subprime loans to Irvine, Calif.-based Arch Bay Capital, National Mortgage News reported, citing sources familiar with the sale.
The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering.
The nation's largest public pension fund has filed suit in California state court in connection with $1 billion in losses that it says were caused by "wildly inaccurate" credit ratings from the three leading ratings agencies.... The lawsuit, filed late last week in California Superior Court in San Francisco, is focused on a form of debt called structured investment vehicles, highly complex packages of securities made up of a variety of assets, including subprime mortgages. Calpers bought $1.3 billion of them in 2006; they collapsed in 2007 and 2008. Calpers maintains that in giving these packages of securities the agencies' highest credit rating, the three top ratings agencies -- Moody's Investors Service, Standard & Poor's and Fitch -- "made negligent misrepresentation" to the pension fund, which provides retirement benefits to 1.6 million public employees in California. The AAA ratings given by the agencies "proved to be wildly inaccurate and unreasonably high," according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities "were seriously flawed in conception and incompetently applied."
Calpers maintains that in giving these packages of securities the agencies' highest credit rating, the three top ratings agencies -- Moody's Investors Service, Standard & Poor's and Fitch -- "made negligent misrepresentation" to the pension fund, which provides retirement benefits to 1.6 million public employees in California.
The AAA ratings given by the agencies "proved to be wildly inaccurate and unreasonably high," according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities "were seriously flawed in conception and incompetently applied."
The Big Picture: Calpers: Rating Agencies to Blame for Huge Losses
The goal of the litigation (as I see it) isn't to make the rating agencies pay a financial penalty; rather, it is to publicly try them just as the regulatory rules are being rewritten. I also predict that CALPERS is going to attempt to not just win, but humiliate these agencies, call them out in the most embarrassing way possible, trash the senior executives, and make things very uncomfortable in general for these firms. They don't want them to merely suffer -- they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.
They don't want them to merely suffer -- they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.
If the second is true there is no reason why Calpers could sue them, and if the first is true they should be sued into obliviion by the entire world for enabling the blasting of a $13 trillion hole in the fabric of the universe. Peak oil is not an energy crisis. It is a liquid fuel crisis.
The ratings agencies claim that their ratings are only advisory.
Flawed Credit Ratings Reap Profits as Regulators Fail (Update1) - Bloomberg.com
S&P included a standard disclaimer with Lehman's ratings: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision."... "They're saying we know you're going to rely on us and if you get screwed, you're on your own because our lawyers have told us to put this paragraph in here," he says. The companies have defended their ratings from lawsuits, arguing that they were just opinions, protected by the free speech guarantees of the First Amendment to the U.S. Constitution.
S&P included a standard disclaimer with Lehman's ratings: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision."
...
"They're saying we know you're going to rely on us and if you get screwed, you're on your own because our lawyers have told us to put this paragraph in here," he says.
The companies have defended their ratings from lawsuits, arguing that they were just opinions, protected by the free speech guarantees of the First Amendment to the U.S. Constitution.
That's just another way of saying "precisely everything we do is utter BS, please just ignore us". Peak oil is not an energy crisis. It is a liquid fuel crisis.
The ugly facts are that there can be no durable recovery in the economy until the excess capacity is removed, since there are no huge productivity boosters on the horizon, the only other way you can grow demand (that is, you must boost not only GDP-per-capita but more importantly per-capita income so that true demand is generated) is to reduce the debt load in the system.
Still, all efforts at a solution appear to be directed to hiding the extend to the problem, in the hope that those who brought us this disaster can be made whole, even if it is at the expense of everyone else. That is trying to squeeze blood out of turnips and is doomed. But I agree that consumers will need more income in order to sustain a recovery---after the debt has been dealt with. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Trade continues to take a hammering during the continuing global economic slowdown. The OECD reports today that on a year-on-year basis, growth in the value of exports and imports of goods and services in the G-7 countries plunged, by 27.1% for exports and by 27.9% for imports in the first quarter. The sharp drop observed in Q4 2008 continued in Q1 2009, albeit less steeply. In both comparisons, goods fell much more sharply at about twice the rates than those of services, the overall trend for both goods and services being largely determined by the high share of goods in total trade.
In both comparisons, goods fell much more sharply at about twice the rates than those of services, the overall trend for both goods and services being largely determined by the high share of goods in total trade.
Nick Rowe use California's IOUs and Canadian Tire money to illustrate possible outcomes when two currencies circulate side by side: The State(s) Theory of Money: California and Canadian Tire, by Nick Rowe: I learn via [this] that there is a distinct chance that California will allow taxes to be paid in the new scrip it issued when it ran out of funds. I have no idea whether this will happen, or whether the Federal government will stop it. Let me just assume that it does happen, and that the Federal government does not stop it. I'm (almost) hoping that it does happen, and that the Fed doesn't stop it, because it would be such a fascinating experiment in monetary theory.
The State(s) Theory of Money: California and Canadian Tire, by Nick Rowe: I learn via [this] that there is a distinct chance that California will allow taxes to be paid in the new scrip it issued when it ran out of funds. I have no idea whether this will happen, or whether the Federal government will stop it. Let me just assume that it does happen, and that the Federal government does not stop it. I'm (almost) hoping that it does happen, and that the Fed doesn't stop it, because it would be such a fascinating experiment in monetary theory.
A market is set to emerge this week in Californian IOUs in a crucial test of appetite for the emergency instruments being issued by the financially troubled US state. California is printing $3bn of IOUs for businesses, individual taxpayers and local counties in lieu of cash. It has sent more than $450m of the IOUs to court-appointed attorneys, county-run health schemes and taxpayers awaiting rebates, among others. IOUs will continue to be issued until Arnold Schwarzenegger, California's governor, and the state legislature agree a deal to close a $26bn budget deficit.SecondMarket, a New York firm that trades illiquid assets, has launched a platform for trading the IOUs.
California is printing $3bn of IOUs for businesses, individual taxpayers and local counties in lieu of cash. It has sent more than $450m of the IOUs to court-appointed attorneys, county-run health schemes and taxpayers awaiting rebates, among others. IOUs will continue to be issued until Arnold Schwarzenegger, California's governor, and the state legislature agree a deal to close a $26bn budget deficit.
SecondMarket, a New York firm that trades illiquid assets, has launched a platform for trading the IOUs.
Beijing's foreign reserve holdings have surged through the $2,000 billion mark, as money pours back into China to take advantage of faster economic growth and rapidly inflating asset prices.The flow of funds threatens to renew pressure for a revaluation of the renminbi at a time when the government and domestic business are focused on financial stability....The quarterly figure far outstrips China's trade surplus and inbound foreign direct investment for the same period, proof that the accumulation of funds inside the country is being driven by other factors.
The flow of funds threatens to renew pressure for a revaluation of the renminbi at a time when the government and domestic business are focused on financial stability....The quarterly figure far outstrips China's trade surplus and inbound foreign direct investment for the same period, proof that the accumulation of funds inside the country is being driven by other factors.
The Obama administration will on Wednesday unveil draft legislation that will require all US hedge funds with more than $30m in assets under management to register with the Securities and Exchange Commission.The move ends decades of hedge fund independence from regulatory oversight in the US and will include more stringent measures than had been expected by many in the alternative investment industry - including "quite tough" capital requirements to stop large funds "gambling with their size".
The move ends decades of hedge fund independence from regulatory oversight in the US and will include more stringent measures than had been expected by many in the alternative investment industry - including "quite tough" capital requirements to stop large funds "gambling with their size".
Federal Deposit Insurance Corp. Chairman Sheila Bair, with support from Federal Reserve officials, is pushing for tougher measures to curb the size and risk-taking of the nation's largest financial firms. The FDIC will propose slapping fees on the biggest bank holding companies to the extent that they carry on activities, such as proprietary trading, outside of traditional lending. The idea goes beyond the Obama administration's regulation-overhaul plan, which would have the Fed adjust capital and liquidity standards for the biggest firms, without any pre-set fees. "What we have suggested is financial disincentives for size and complexity," Bair said in a July 9 interview. Fed Chairman Ben S. Bernanke told lawmakers last month that restricting size is a "legitimate" option. Size limits would overturn decades of regulatory tradition that promoted the view that large, diversified institutions were more immune to risks when specific industries or regions slumped. Bair's proposal is another chapter in the clashes she's had with Treasury Secretary Timothy Geithner and his department over dealing with banks and the financial crisis.
The FDIC will propose slapping fees on the biggest bank holding companies to the extent that they carry on activities, such as proprietary trading, outside of traditional lending. The idea goes beyond the Obama administration's regulation-overhaul plan, which would have the Fed adjust capital and liquidity standards for the biggest firms, without any pre-set fees.
"What we have suggested is financial disincentives for size and complexity," Bair said in a July 9 interview. Fed Chairman Ben S. Bernanke told lawmakers last month that restricting size is a "legitimate" option.
Size limits would overturn decades of regulatory tradition that promoted the view that large, diversified institutions were more immune to risks when specific industries or regions slumped.
Bair's proposal is another chapter in the clashes she's had with Treasury Secretary Timothy Geithner and his department over dealing with banks and the financial crisis.
The Economy Is Even Worse Than You Think The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion. Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:
The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.
Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:
The article is mostly on target, except for still a bit too much reverence to Common Wisdom on one topic, not even noticing the glaring contradictions in the process...:
How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today. (...) As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough. (...) Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. (...) This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.
(...)
As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.
Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees.
This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.
(we're back to paychecks, ie real income, as the basis of the economy, but transfers to the poor are inefficient... sigh.) In the long run, we're all dead. John Maynard Keynes
A Tale of Two Bailouts Goldman's profits, CIT's trouble, and 'too big to fail.' Yesterday saw one TARP recipient, Goldman Sachs, report $3.44 billion in profits even as another, CIT, teeters on the edge of either bankruptcy or another taxpayer bailout. Which way CIT will tip remained unclear as we went to press, but its very plight shows how the government's approach to systemic risk has created groups of financial "haves" and "have nots." What the Goldmans of the world have in addition to profits is the widespread belief that they are too big to fail. Both Goldman and CIT converted into bank holding companies at the height of the financial panic last fall, which made them eligible for TARP injections. Goldman also benefited at a crucial moment from the Federal Reserve takeover of AIG, and it received the additional filip of FDIC-guaranteed debt issuance through the Temporary Liquidity Guarantee Program. CIT was excluded from the latter program on grounds that it didn't pose a systemic risk, even as larger competitors like General Electric were allowed in. (...) But if CIT -- a company one-tenth the size of Lehman Brothers -- can be bailed out long after the panic has passed, the word "systemic" has lost all meaning. (...) Of course, if the feds do let CIT fail, this will only confirm that the only certain survivors in the current market are banks big enough that the government figures it must bail them out. Just ask the many small banks that have been rolled up by the FDIC at a rate of two a week since the beginning of the year, with eight so far in July alone. That can only strengthen the likes of Goldman, which apparently needs no help printing money anyway. (...) Goldman will surely deny that its risk-taking is subsidized by the taxpayer -- but then so did Fannie Mae and Freddie Mac, right up to the bitter end. An implicit government guarantee is only free until it's not, and when the bill comes due it tends to be huge. So for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong. We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.
Yesterday saw one TARP recipient, Goldman Sachs, report $3.44 billion in profits even as another, CIT, teeters on the edge of either bankruptcy or another taxpayer bailout. Which way CIT will tip remained unclear as we went to press, but its very plight shows how the government's approach to systemic risk has created groups of financial "haves" and "have nots."
What the Goldmans of the world have in addition to profits is the widespread belief that they are too big to fail. Both Goldman and CIT converted into bank holding companies at the height of the financial panic last fall, which made them eligible for TARP injections. Goldman also benefited at a crucial moment from the Federal Reserve takeover of AIG, and it received the additional filip of FDIC-guaranteed debt issuance through the Temporary Liquidity Guarantee Program. CIT was excluded from the latter program on grounds that it didn't pose a systemic risk, even as larger competitors like General Electric were allowed in.
But if CIT -- a company one-tenth the size of Lehman Brothers -- can be bailed out long after the panic has passed, the word "systemic" has lost all meaning.
Of course, if the feds do let CIT fail, this will only confirm that the only certain survivors in the current market are banks big enough that the government figures it must bail them out. Just ask the many small banks that have been rolled up by the FDIC at a rate of two a week since the beginning of the year, with eight so far in July alone. That can only strengthen the likes of Goldman, which apparently needs no help printing money anyway.
Goldman will surely deny that its risk-taking is subsidized by the taxpayer -- but then so did Fannie Mae and Freddie Mac, right up to the bitter end. An implicit government guarantee is only free until it's not, and when the bill comes due it tends to be huge. So for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong.
We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.
(in the WSJ...) In the long run, we're all dead. John Maynard Keynes
Interesing use of the words 'economic dictatorship' in there.
back in September, the Federal Reserve allowed Goldman (and a few other surviving institutions) to convert from an investment bank into a bank holding company. The Wall St. Journal claimed at the time that the move meant the firm would "come under the close supervision of national bank regulators, subjecting them to new capital requirements, additional oversight, and far less profitability than they have historically enjoyed."
As I predicted last March, American banks are hoarding rather than divesting the so-called toxic assets. The volume of trading in non-agency mortgage backed securities is considerably lower than many traders might have expected. That makes the stabilization of asset prices along with the stabilization of bank equity prices a self-referential argument: asset prices are doing well because banks (and other financial institutions) are buying them, and that reassures the equity market. Rather than relying on distressed investors to bail them out, banks ARE the main distressed investors. After the suspension of FAS 157 banks have an incentive to hold rather than sell securities trading at low dollar prices. The toxic waste never came out. The zombies are living quite happily on it. The banks will continue to tip back and forth between credit losses and elevated income from their distressed portfolios.
That makes the stabilization of asset prices along with the stabilization of bank equity prices a self-referential argument: asset prices are doing well because banks (and other financial institutions) are buying them, and that reassures the equity market.
Rather than relying on distressed investors to bail them out, banks ARE the main distressed investors. After the suspension of FAS 157 banks have an incentive to hold rather than sell securities trading at low dollar prices.
The toxic waste never came out. The zombies are living quite happily on it. The banks will continue to tip back and forth between credit losses and elevated income from their distressed portfolios.
Reuters has calculated that the average salary for nearly 30,000 employees of Goldman Sachs (GS) this year will be $1 million.
NEW YORK, July 14 (Reuters) - The average Goldman Sachs Group Inc (GS) employee is within striking distance of $1 million in compensation and benefits this year, just nine months after the bank received a $10 billion U.S. government bailout. -Skip- Just a few other pertinent factors to consider: The stock has tripled since late last year. Bullish forecasters are calling for it to surpass its historic high above $250 per share within a year or so. Goldman's access and influence within the US Administration is without equal. Goldman envy is rife amongst finance professionals, no matter how much they protest about its privileged position. Hatred of Government Sachs is rife in the blogosphere. Goldman can make more in a nano-second than most people would earn in several lifetimes. All asset classes are traded by the firm and they can flip from being long to short (or both) and back faster than it took the folks at Bear and Lehman to clean out their desks. It is hard to imagine a scenario in which Goldman wouldn't survive a financial Armageddon but where its principal client, the US Treasury, would. If you believe in buy and hold, and like to buy dips, this seems like the right place to be looking when the baby's being thrown out with the bathwater. Warren Buffett is extraordinarily enthusiastic about the company. It's hard to resist the conclusion that if you can't beat them then you simply have to join them. Not literally of course....But one can of course get a piece of the action by hitching a ride with the stock. So, even if the thought of making a million dollars this year seems like a remote fantasy a program of gradual and judicious accumulation seems like a no-brainer. Who knows, one day the smart folks at Goldman will probably figure out how to do a reverse takeover of the global financial system, and for those who bought the stock while it was still cheap, that could really add sizzle to their retirement plans. (My bold.)
-Skip-
Just a few other pertinent factors to consider:
Who knows, one day the smart folks at Goldman will probably figure out how to do a reverse takeover of the global financial system, and for those who bought the stock while it was still cheap, that could really add sizzle to their retirement plans. (My bold.)
Goldman can make more in a nano-second than most people would earn in several lifetimes.
Do thy even know what a "nanosecond" is?
A median person's earnings over a lifetime: a couple million dollars. Several lifetimes: say 10 million.
That's our nanosecond. So, Goldman Sachs would make more than 10 million billion per second, or more than one million million billion dollars per day (10^21) or close to a million billion billion dollars per year (10^24).
Reality: roughly 10 billion per year. In the long run, we're all dead. John Maynard Keynes
The argument is still misleading, but in a different way, as Goldman Sachs earns this money (legitimately or not) for their work setting up these trading systems, not just for the "nanosecond" of work.
AMY GOODMAN: How might Goldman Sachs profit off global warming? MATT TAIBBI: Well, Goldman Sachs is positioned in a number of different ways. They are a part owner of the Chicago Climate Exchange, which is where the carbon credits will be traded if this legislation goes through. They're also heavily invested in a number of companies that deal in carbon credits. And again, this is another kind of commodities market, like the oil commodities market, which exploded last summer and is exploding again now. And Goldman and banks like Morgan Stanley are poised to make an enormous amount of money if these carbon credits end up getting traded.
MATT TAIBBI: Well, Goldman Sachs is positioned in a number of different ways. They are a part owner of the Chicago Climate Exchange, which is where the carbon credits will be traded if this legislation goes through. They're also heavily invested in a number of companies that deal in carbon credits. And again, this is another kind of commodities market, like the oil commodities market, which exploded last summer and is exploding again now. And Goldman and banks like Morgan Stanley are poised to make an enormous amount of money if these carbon credits end up getting traded.
As long ago as 1997 market commentators said the importance of the North Sea to world oil markets outweighed its contribution to world oil supply. Boosted volume in the benchmark complex has kept that relevance strong but, with the grade that started it all hitting a new output low, it seems Dated Brent/BFOE might soon be due another change. It is currently estimated that over 65% of the world's daily physical oil is priced off Dated Brent/BFOE, giving this production complex of 1.5 million b/d production a huge responsibility.
It is currently estimated that over 65% of the world's daily physical oil is priced off Dated Brent/BFOE, giving this production complex of 1.5 million b/d production a huge responsibility.
