German discounting pioneer Aldi is using the economic crisis to expand its presence in the US. The move could help mitigate the company's troubles on its home turf.  

It is something that hasn't happened to Aldi before: In the midst of a severe economic crisis Germany's discounting pioneer is faced with declining revenues in its home market.

According to data from research company GfK, Aldi's sales in Germany declined by about five percent in the first five months of this year while the German retail sector as a whole shrank by only 2.2 percent.

It's an entirely different story in the United States. There, Aldi is rapidly expanding its reach and expects to open 75 new stores this year. The discount retailer entered the US market back in 1976, but its no-frills concept only really started to take off in recent years.

Workers at a plant in south-western France who had threatened to blow up equipment made by their company, JLG, say they have now obtained satisfactory layoff terms. This is the third such case of threats in France in less than a week.

REUTERS - A group of French workers facing layoffs obtained extra money after threatening to blow up industrial equipment at their plant, labour union representatives said on Friday.

The staff at JLG, a company that makes platforms mounted on cranes for fixing equipment high off the ground, were the third in France to make similar threats this month after workers from telecoms manufacturer Nortel and car parts maker New Fabris.

Arids Roma is a gritty Catalan construction company in the northeast of Spain that paves highways and churns out dusty gray mountains of gravel from several sprawling factories.

It is also a beneficiary of €1.59 million in farm subsidies from the European Union, which last year doled out more than €50 billion, $71 billion, from the largest agricultural aid program in the world, one that provides financing to a wide variety of recipients beyond the farmers who plow the soil -- German gummy bear manufacturers, luxury cruise ship caterers and wealthy landowners ranging from Queen Elizabeth II of England to Prince Albert II of Monaco.

Arids spreads gravel instead of seeds, but it received a farm subsidy for contributing to rural development -- money well spent, according to the Catalan regional government, which requested the payment and then distributed it to the company.

"Paved roads connecting the villages aid the mobility of tractors," said Georgina Pol Borràs, a spokeswoman for the regional government of Catalonia.

Hank Paulson's testimony yesterday was informative, if only because it illustrated that he himself still understands little about the origins and nature of the global crisis over which he presided. Perhaps his book, out this fall, will redeem his reputation.

A fundamental principle in any emerging market crisis is that not all of the oligarchs can be saved. There is an adding up constraint - the state cannot access enough resources to bail out all the big players.

The people who control the state can decide who is out of business and who stays in, but this is never an overnight decision written on a single piece of paper. Instead, there is a process - and a struggle by competing oligarchs - to influence, persuade, or in some way push the "policymakers" towards the view:

   1. My private firm must be saved, for the good of the country.
   2. It must remain private, otherwise this will prevent an economic recovery.
   3. I should be allowed to acquire other assets, opportunities, or simply market share, as a way to speed recovery for the nation.

Who won this argument in the US and on what basis? And have the winners perhaps done a bit too well - thinking just about their own political futures?(continues)

After noting that the Fed did not see the crisis coming and that the Fed has actively contributed to the severity of the existing crisis Buiter notes:

The Fed has been actively contributing to the next crisis

Here indeed the Fed stands guilty as charged, although it is in good company.  The Fed, through its lender of last resort and market maker of last resort actions and through a wide range of quasi-fiscal support operations it has undertaken on behalf of  Wall Street and other segments of the US financial establishment (Fannie & Freddie, AIG), has made a major contribution to the creation of the biggest moral hazard machine ever seen in human history.

Probably the single most damaging  failure of the US Treasury, the US Congress and the US financial regulators was there inability/unwillingness to create a special resolution regime (SRR) with structured early intervention and prompt corrective action for all systemically important financial institutions (those too big, too complex, to interconnected, too international or too politically connected to fail in the ordinary Chapter 11 or Chapter 7 way).    An SRR is an `insolvency lite' insolvency regime for banks and ohter systemically important financial institutions.  If early interventions fail, a bank that is judged (by a duly appointed administrator of the SRR, e.g. in  the FDIC in the case of insured deposit taking banks) to be at risk of becoming conventionally insolvent is instead rushed into a high-speed regulatory insolvency regime, the SRR.  There its balance sheet is restructured (typically existing equity is wiped out or diluted and unsecured creditors are turned into new equity holders).  The Administrator or Conservator has near-absolute powers to dispose of assets and to restructure liabilities.  Existing management, board and shareholders are disenfranchised for the duration of the institutions sojourn in the SRR.  The purpose of an SRR is that it wipes out a failing systemically important institution in a legal sense (by abrogating the property rights of shareholders, unsecured debt holders, mangement and board of directors) without wiping it out in the Army Corps of Engineers sense.  The bank (or insurance company) as a functioning organisation remains largely intact, and can continue to service existing contracts and commitments (at the discretion of the Adminstrator or Conservator of the SRR) and, most importantly, can engage in new lending, investment and funding activities, possibly with government support, including guarantees, for these new activity flows.

When the crisis started, an SRR existed for federally insured deposit-taking banks (administered by the FDIC), although the authorities did not have the nerve to put the largest insolvent institutions (such as Citi Group and Bank of America in it).  That SRR also did not apply to banking groups. There was an SRR for Fannie and Freddie, which was used effectively.  There was no SRR for investment banks.  There was no SRR for insurance companies like AIG.

The non-existence of an SRR for any systemically important institution amounts to a major policy failure of the executive and legistative branches of government.  The deafening silence of the Fed and the other regulators on the subject is a serious indictment of their competence.  After Bear Stearns went belly-up and was pushed into the terminal embrace of JP Morgan, it should have been clear even to the US authorities that either investment banks needed an SRR or that there ought to be no investment banks.  Yet we had to wait for the failure of Lehman and the forced acquisition of Merrill Lynch by Bank of America before the last two remaining large independent Wall Street investment banks, Goldman Sachs and Morgan Stanley, were ejected from the investment bank category and became bank holding companies.  This was not required  to give them access to the Fed's discount window and other facilities.  If the Fed declares "unusual and exigent circumstances" to prevail, it can lend, against collateral of the Fed's choosing, to individuals, partnerships and corporations (including non-financial corporations) , should it wish to.  It did, however, make it possible for these former investment banks to be put into an SRR.

If institutions are too systemically important to fail conventionally and if no SRR is available, they will have to bailed out at public expense should an emergency arise.  The regulators knew that.  The Treasury knew that.  The Congress knew that.  The banks knew that and their unsecured creditors knew that.   They permitted it to happen nevertheless.

So this is the candidate put forward by the Obama Administration as the "Systemic Risk Regulator."  They would be better off recommending Tommy.  At least he played a mean pin ball.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

... the story is really not meant for an audience interested in a discussion of financial markets, as evidenced by his rhetorical style (almost everyone is simply an "asshole"), and his ridiculous leaps in logic (e.g. Goldman lowering its IPO underwriting standards created the .com bubble... and that explains how Nortel had a peak valuation of over $300 billion, how?). <...>

Taibbi is really just repeating an annoying tendency of mainstream financial journalists and pundits, who claim that the problem with CDOs is that they were exotic and 'not vanilla'. In fact, we might as well rename them 'Complex CDOs', since that's how they are always referred. But that's wrong. The problem wasn't lack of regulation or their complexity -- the problem is that they represented a bet on housing and that bet went horribly awry. What about that is so complex and hard to understand? If valuing CDOs were so impossible, whey did the collapse of that market in late 2007 precede the broader collapse of more normal securities? <...>

securities fraud this isn't. As McArdle reminds Taibbi, there was this whole Eliot Spitzer-led inquisition on Wall Street to ensure that the left hand didn't know what the right hand was doing -- so a company can sell a product and its traders can be short it, and that's okay. Again, it's the opposite of what's called securities fraud.

As an aside, it's also total crap when he says that the securities were dumped to "old people" as though they were being sold at the corner to grandma and grampa. These pension funds may manage money for old people, but they weren't being run by unsophisticates. They're run by just the opposite -- highly paid, sophisticated managers that knew exactly what they were buying.

He goes onto note that, like with the IPO boom, Goldman Sachs has faced lawsuits related to its dealings in this area, as if that's damning (he talks about this elsewhere in the story, too). But the mere fact that someone is sued by angry investors, or the fact that a bank pays a fine to a regulator doesn't mean anything, given the perfunctory lawsuits anytime someone loses gobs of money. ...

This Eric Martin post reminds me that a number of you have asked me what I thought of Matt Taibbi's Rolling Stone piece on Goldman Sachs.  What I think, sadly, is that Matt Taibbi is becoming the Sarah Palin of journalism.  He seems to deliberately eschew understanding his subjects, because only corrupt, pointy-headed financial journalists who have been co-opted by the system do that.  And Matt Taibbi is here to save you from those pointy headed elites. 

Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire.  But financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.  Confronted with this, Taibbi doesn't back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards.  Instead, he grabs whoever's nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn't quite understand.  It's not that everything he says is wrong, but the bits that are true aren't interesting, and the bits that are interesting aren't true.  The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement.  The result is something that's not even wrong.  It's just incoherent. ...