US Treasury rescue for Fannie Mae and Freddie Mac

US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America's biggest mortgage firms.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America's $12 trillion home-loan market and are vital to the functioning of the housing market.

Some never-seen-before frontpagers should be present, and some will be travelling from the US.

Further arrangements will be announced later; this is just to let people investigate transport options and, ideally, to express their intentions so that we know how many to expect.

City of Houston Gives Wind Power a Turn

HOUSTON -- The heart of the U.S. oil patch on Tuesday began using wind-powered electricity for about a fourth of its municipal power needs at a lower price than it is paying for power produced from coal and natural gas, city officials said.

The move shows how renewable energy's prospects are improving at a time of soaring fossil-fuel prices. Long derided as an expensive niche, wind power now is moving closer to the mainstream.

Yes, wind is cheap enough to be competitive head on with coal and gas - even as they aren't taxed for the pollution they cause or the carbon emissions they generate.

It is also fitting that on that same date, the International Energy Agency published one of its gloomiest ever analyses of the oil markets, asserting that oil prices are justified by fundamentals

It said: "Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices," bluntly adding: "Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions."

Never mind that speculators have been caught shortselling oil (ie betting on a fall in prices) more than a few times in recent months. Never mind that spot oil prices, which require actual physical deliveries of oil at the end of each month, have behaved the same way as paper futures. Never mind that oil storage seems to not be increasing.

Nope, it is just too convenient, too irresistible and, let's say it, too comfortable an excuse that speculators are to blame. It's not our fault, we have our scapegoat. Our price increases are temporary, we'll soon be back to "normal" lows, as soon as (take your pick) speculators have been punished/oil companies are taxed for their profiteering/"fundamentals" are left toset prices.

This is just denial

There are A LOT of reasons why oil prices are going up. Let me show you just a few.

A Countdown to $200 oil diary

McCain's Energy Plan: Correct Diagnosis, Killer Prescription

John McCain seems to have identified our energy problems accurately. But are his solutions equally laudable?

June 26, 2008 - by Jérôme Guillet

 With gas topping $4 per gallon and oil prices seemingly reaching new highs every week, more pain at the pump is certain in the foreseeable future, and energy policy is rightfully claiming its place as a major topic of the 2008 election. Indeed, John McCain gave a major campaign speech earlier this week in Houston specifically on energy (the full transcript can be found here) and addresses the issue again this week in Santa Barbara. It is worth looking in more detail at how he describes the current situation, and what he is proposing.

Go read the rest over at Pajamas Media (at the link above). I will copy it below on this thread in 48 hours.

Saudi Arabia confirmed it would pump 9.7m barrels a day next month, an increase of 200,000 and the highest level in nearly 30 years, as it repeated its standard offer of extra barrels if customers demanded them.

The kingdom also reiterated its promise to expand production capacity, noting that it expects to achieve 12.5m b/d next year and could add an additional 2.5m barrels - if needed - after that with a massive investment programme.

And of course, we can believe them! They've delivered on all similar promises in the past, right?

What's going on? What IS Europe?

Is Gazprom's strategy political?

We do not build a pipeline in the hope that we will at some later date be able to find enough customers for the fuel it will supply; nor does it make sense to extract gas out of the ground without an assured market for it in the long term.

So I find puzzling statements that an increase in Gazprom's gas deliveries constitutes a threat to the EU's security, and that it is therefore necessary to limit them. The suggestion that Gazprom would invest billions of dollars in expensive gas export pipelines so that we could then disrupt them for political reasons looks absurd, especially in view of the substantial contribution these gas exports make to Russia's budget and the country's economy. And it is often forgotten that Russia is currently more dependent on the EU than vice versa. The EU depends for 25% of its gas consumption on Russia, yet Gazprom depends on the EU for over 70% of its export earnings. The bottom line is that Gazprom needs Europe as much as Europe needs our gas.

(...)

Under the Commission's proposals, entirely separate - and separately-owned - undertakings would have to be established to transport gas from the supplier to the customer (whether a large industrial user or a retail distribution network), in a highly regulated environment. At the same time, the Commission is calling for a substantial increase in investment in cross-border transmission systems, so as to ensure security of supply. It is hard to see how these two demands can be reconciled: How would companies whose sole function would be to operate pipelines have the commercial interest or the financial muscle to mobilise the capital needed for major infrastructure projects if they are prohibited from having any interest in extracting and selling natural gas? Unlike the suppliers and distributors, they would have no access to the revenue generated from gas sales - the essential underpinning for financing new gas infrastructures.

(...)

The Commission's current approach seems to favour secondary traders and speculators over the market players who actually have access to gas resources.

Basically his arguments boil down to 3 points: there is no speculation (prices are justified by fundamentals, markets work fine), renewable energy is not serious (too small, mostly), and there is no peak oil (plenty of reserves around). and of course, his solution is simple: oil majors are ready to invest and let market forces solve the supply problem, but political obstacles prevent them, and governments must therefore help by removing these.

What is true is that speculation is not to blame, and that there are political obstacles to investment today. The rest is not quite so true. And that mix, which I expect is deliberate, has one main subtext: "don't worry" (and don't try to move off oil).

Gordon Brown landed North Sea oil in choppy water

The Treasury is enjoying a windfall as oil soars but taxation policy may have knock-on effects

The rest of us may have been too busy partying like it was 1999, but on the eve of the millennium Britain was quietly, unwittingly, selling off the family silver on the cheap.

Gordon Brown's choice of that year to start selling off Britain's gold reserves with the precious metal's price close to an unprecedented low is well documented. What is less well known is that 1999 marked the peak for North Sea oil production and - by an unfortunate twist of fate - the very nadir of the oil price.

Berlin should take note of French reforms

Looking beyond this economic cycle, I am not sure Germany is heading in the right direction. Take energy policy. Despite the high oil price and global warming, Germany remains committed to phasing out most of its nuclear power during the next decade. The 2009 federal election is probably the last chance to reverse the policy.

Nor is there any appetite to liberalise an incumbent-friendly corporate governance system. The banking sector remains woefully unconsolidated. The government has even tried to intimidate the European Commission into not challenging the latest version of the Volkswagen law, which protects the company against hostile takeovers. Germany also remains deeply hostile to full liberalisation of the EU service sector.

'reform' = nuclear energy, locust-friendly corporations, banks that don't know their customers.

The country is in the middle of a secular shift to the left. I do not mean this in purely psephological way. The Christian Democrats of Chancellor Angela Merkel and their Bavarian sister party will probably remain the strongest group in parliament at the next election. The shift is taking place within parties - and across the centre-left spectrum.

(...)

In the short run, the most likely alternatives are a repeat of the grand coalition - bringing another four years of gridlock - or a coalition of the left, which would mean four years of anti-reform. I see no constellation that would produce sensible economic policies in the long run.

The left = anti-reform = not sensible.

So Germany, from a position of relative strength, is moving in the wrong direction. France, by contrast, is moving from a much weaker position but it is heading the correct way.

Both are doing badly, as usual.

The left is the root of all evil. Hey, it's easy to be a columnist - when you have nothing to say, bash the left.

This week-end, the FT has it all, with a new name for the Anglo Disease (the nasty decade), concern trolling for the euro (The euro's success could also be its downfall - to be fair, this is an Op-Ed, not an editorial), and German envy (Germany through the looking glass). That last article deserves a detailed commentary follow me below the fold.

A proud member of the Europe.Is.Doomed series.

the bridge as seen from Germany, from the North

Oil price breaks through $126 a barrel

Crude oil prices surged on Friday, breaching $126 a barrel for the first time and putting pressure on Opec, the oil producers' cartel, to increase output in an effort to lower global energy costs and prevent further inflationary pressures.

The new record came a day after Abdalla El-Badri, Opec's secretary general, suggested the cartel would not increase its output in spite of a 100 per cent jump in oil prices in the last 12 months and warnings it could hit $200 a barrel.

Since hitting $100 in early January, the oil is up 26% in 4 months. Coincidentally, another 2 increases of 26% in 4 months will bring us to mid-January 2009 and almost exactly to $200 oil.

A LOT of heavy-hitters have spoken in almost identical terms on the topic:

Paulson sees end of credit crunch

US Treasury Secretary Henry Paulson has said that the worst of the credit crunch may have passed.

Financial crisis mostly over, Dimon says

WASHINGTON (MarketWatch) -- The financial crisis that began last summer and rocked markets is mostly over, the chief executive of JPMorganChase & Co.  said Thursday. "I look at it as like 75-85% done," said CEO Jamie Dimon.

Worst of US credit crisis over but economy to remain weak

SINGAPORE : John Thain, the newly-installed chief executive of US investment bank Merrill Lynch, has lent his voice to the view that the worst of the US credit crunch is over.

Several prominent people, including well-known investor Warren Buffet, have said over the last few days that the credit crisis in the US has eased.

Greenspan says worst of credit crisis over

(Reuters)--Former Federal Reserve Chairman Alan Greenspan said on Thursday that the worst of the credit crisis is over, according to sources who attended a speech he delivered in New York.

Well, here's the news:

Oil moves above $120 mark

Oil prices hit a record of more than $120 a barrel on Monday, driven by fresh supply disruptions in Nigeria and a growing sense of optimism that the US economy might escape recession.

(...)

Traders are unsure what level oil prices could reach once US oil demand starts to recover. Last month, Chakib Khelil, president of Opec, the oil cartel, warned that prices could reach $200 a barrel and said there would be little the cartel could do about it.

The entire WTI futures curve is trading well above the $100-a-barrel level with the longest dated contract for December 2016 up $1.57 to $110.55 a barrel on Monday, signalling the market's consensus that $100 oil is here to stay.

World's rich shrug off credit crunch

The ranks of the world's rich swelled to 8m during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year.

There was a 4.5 per cent increase last year in so-called "high net worth individuals", those with investable assets of more than $1m excluding primary residence, according to the 2008 wealth report compiled by Citi Private Bank and Knight Frank, published on Monday.

(...)

The report says that the rate of growth of high net worth individuals has outpaced growth in both gross domestic product, and GDP per head, which it believes indicates that the rich are getting richer relative to their respective countries.

"This is not a perfect measure of relative wealth growth across income levels," it says, "but there is an indication here that the plutonomy model retained its strength through 2007 and is in rude health."

The above is self-explanatory: the rich are getting richer, at the expense of everybody else.

Which makes it funny to read this:

The Demise of the Euro (Forbes)

Tensions between inflation-obsessed Germany and growth-hungry Latin countries will spell its end.

It is only a matter of time, probably less than three years, until the euro experiment meets its end. The financial crisis in the U.S. is hastening the process, as investors flee the dollar, pushing the euro to a price of $1.59. But it will not stay high for long. Countries like Spain and Italy will withdraw and return to their old currencies. Once that happens, get ready for the return of the deutsche mark and the French franc.

What will undo the euro: the mounting tension between the inflation-obsessed German bloc (including Austria, Luxembourg and the Netherlands) and the Latin bloc of France, Italy and Spain.

Income inequality in the US is at its highest since that most doom-laden of years: 1929. Throughout the main English-speaking economies, earnings disparities have reached extremes not seen since the age of The Great Gatsby.

(...)

In the 1930s, it ended with bank failures and the Great Depression. Now, after decades of "financialisation" in the US and other Anglophone economies, whereby financial services have increased their share of gross domestic product, banks are being bailed out - using public money - in an effort to ensure the same does not happen again.

(...)

The question is what will happen to wealth creation, stock market valuations and economic growth if, as seems increasingly likely, the public's tolerance of income inequality and what is loosely called the Anglo-American model of free-market capitalism wears thin.

The name - Anglo Disease - fits like a glove to these repeated descriptions of the Anglo- American financial capitalism model.

But, more interestingly, the article provides explicitly, for the first time as far as I can ascertain, the explication that I've been using as to why this model was tolerated for so long: