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Moody's warns US about financial responsibility!!?

by citizen k Sat Jan 12th, 2008 at 08:28:03 AM EST

Right at the moment that the financial sector is digesting massive bailouts for their latest Ponzi scheme, Moody's announced that the US AAA bond rating is imperiled by spending on social services. I'm not sure how much further irony can be pushed.

The Moody's report
Moody's warns:

"The combination of the medical programmes and social security is the most important threat to the triple-A rating over the long term,"

If this were normal times, one might be struck by the bad economic analysis or the peculiar way in which, for example, tossing a trillion or so into the toilet for the Iraq war is not an issue for Moody's - perhaps because Moody's has now made a habit of assuming "off the books" expenditures and liabilities don't count. But in the middle of a financial crisis that was aided and abetted by Moody's willingness to assign high credit ratings to obvious flim-flam, ordinary measurements of hypocritical double talk can't even start to convey the astounding levels reached now.

Here is a lecture on fiscal rectitude, a stern reminder that the US cannot go on providing medicine for poor and old people or pensions for its citizens, from a rating agency that has spent the last 10 years reassuring investors that papers backed by transparent sleight of hand and repeating pyramids of debt based on a foundation assumption that real-estate prices never drop and insured by insurance agencies that had nowhere near the assets needed to actually pay in case of loss, could be considered to be absolutely rock solid. And now, as its financial partners and customers crowd 'round the public treasury, weeping for bailouts, Moody's wags its finger at the irresponsible gluttons who want, you know, health care!

Kissinger winning the Nobel Peace Prize was clearly just a prelude to our modern levels of irony.


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Have the Presidential Primary candidates reacted to this in any way?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 08:49:41 AM EST
if you look at the contributions they get, you will find that the big three are all heavily financed by wall street.
by citizen k (sansracine yahoo.fr) on Sat Jan 12th, 2008 at 09:05:04 AM EST
[ Parent ]
Clinton announced 11 Jan an economic stimulus package which somewhat coincided with Paulson's press conference on a Bush stimulus package. Note that Paulson conceded that rather than harp on permanent 2001 and 2003 marginal tax cuts, Bush will seek Democtrats' agreement on temporary measures. There are plenty to choose from among bills in the House related to consumer debt and energy costs relief.

I assume, that plan will likely be introduced in his state-of-the-union address.

The Reuters story about Clinton quickly rolled out of Friday headlines. The broadsheet at hillaryclinton.com dresses program spending in 2008 thus:

  • Establish a $30 Billion Emergency Housing Crisis Fund to assist states and cities mitigate the effects of mounting foreclosures; including a 90-day moratorium on subprime foreclosures and an automatic rate freeze on subprime mortgages of at least five years

  • Provide $25 billion in emergency energy assistance for families facing skyrocketing heating bills

  • Accelerating $5 billion in energy efficiency and alternative energy investments to jumpstart green collar job growth:
    Invest $10 billion in extending and broadening unemployment insurance for those who are struggling to find work

Clinton has not introduced a related bill. Perhaps Monday :? Otherwise Obama is likely to leapfrog.

Diversity is the key to economic and political evolution.

by Cat on Sun Jan 13th, 2008 at 12:37:10 PM EST
[ Parent ]
The specialization or divisions of labor which has resulted from neocon fiscal management
By Adam Tanner 1 hour, 42 minutes ago

LAS VEGAS (Reuters) - Amid growing worries about a worsening of the U.S. economy, Democratic presidential candidate Barack Obama proposed a $75 billion economic stimulus plan on Sunday that includes worker tax credits, a one-time pension supplement and help to homeowners facing foreclosure.
ADVERTISEMENT

The plan would include an immediate $250 tax credit for workers, which could double if the economy worsens, a one-time $250 supplement to Social Security payments, a $10 billion fund to help homeowners facing foreclosure and a $10 billion fund to assist states facing budget shortfalls amid lower tax revenues. [emphasis added]

Ms Clinton's proposal is valued at $70B. Obama's proposal commits $5B more to intermediate fiscal legislation.

"We need that middle-class tax cut now more than ever -- not five months from now or five weeks from now, but now," Obama said in a statement. "I'm announcing a plan to jump-start the economy by putting money in the pockets of those who need it most and will spend it quickly." [emphasis added]

Ms Clinton's broadsheet exploits the same slogan.

"There are some similarities," Goolsbee said of the two plans. The biggest difference with Obama's plan is that "the absolutely most imperative thing is to get the money into the people's hands immediately so they can spent it."

"The stimulus does increase the deficit in the immediate term," the economic adviser said, adding that preventing a recession could have "profound" budget implications.

But Goolsbee is a shill. Does that observation mean Obama's proposal is in any way an inadequate macroeconomic remedy ... or worse intellectually unoriginal?

Diversity is the key to economic and political evolution.

by Cat on Sun Jan 13th, 2008 at 05:09:33 PM EST
[ Parent ]
13 Jan press release at barackobama.com.  The broadsheet glosses calculation of the following tax abatements per HH:
  • Provide an immediate $250 tax cut for workers and their families.

  • Provide an immediate, temporary $250 bonus to seniors in their Social Security checks.

  • Provide an additional $250 tax cut to workers and an additional $250 to seniors if the economy continues to worsen

That is a maximum $500 per HH.

The Obama 3pp pdf white paper elaborates:

Experts agree that an effective stimulus package must provide immediate, temporary, direct economic relief targeted to the people who need it and are most likely to use the funds and increase the level of economic activity in their communities without permanently increasing the budget deficit. The goal should be to lessen the pain that would occure from an economy-wide slowdown, not to use Americans' economic harship as a rationale for enacting an ideologically driven policy agenda.

The plan summarized is this:

  • Tax cut of up to $500 for 150M workers: a refundable tax credit on the first $8,100 of earnings
  • Immediate supplement to Social Security [benefits] for low- and middle-income seniors; payments (distribution) not drawn from fed FICA revenue, i.e. drawn from fed cash flows; "$10B. Additional Reserve [?]: $10B"
  • $10B Fund to help families avoid foreclosure: fed regulated work-out mortgage schedule administerd by FHA dependes, primarily Freddie Mac and Freddie Mae officers. [N.B. $10 represents a $4B increase in funding for his $6B "Urban Poverty Plan" (comment, source --MT]
  • $10B additional fed matching funds for state & local government services: health care, housing, income assistance
  • Unemployment insurance: additional $10B


Diversity is the key to economic and political evolution.
by Cat on Sun Jan 13th, 2008 at 06:05:08 PM EST
[ Parent ]
Oh.

The 25 Dec stimulus plan by John Edwards has come to my attention.

ohn Edwards believes that we cannot wait to turn this economy around. Today he called on Congress to pass at least a $25 billion jobs plan in early 2008 and be ready to pass $75 billion more if there are more signs of an economic recession. By accelerating investments that need to be made anyway, America can generate jobs to offset rising unemployment. The Edwards plan will invest in clean energy infrastructure, help states avoid cutting programs that fight poverty, reform unemployment insurance, and tackle the housing crisis. Together, these steps will make important investments in fighting global warming and poverty, provide a much-needed boost to a weak economy, and lay the groundwork for a larger jobs package if it proves necessary.

$100B package summarized thus:

  • Accelerate Our Investment in Clean Energy:Weatherize 200,000 homes [fund LIHEAP household and institutional retrofits]; fill green-collar jobs
  • Unemployment insurance: additional fed funds to cover 500,000 more workers a year, including temp employees
  • Additional fed funds to minimize State Property Tax Increases and Cuts in Critical Programs like Medicaid
  • Create a Home Rescue Fund: fed funds for finance counseling, bridge loans; fed regulated mortgage work-out schedules
  • Miscelanae: fed funding of new energy infrastructure, accelerating investments in schools, roads, and bridges, and temporary tax cuts targeted to the low-income and middle-class HH "who are most likely to spend money in their pockets."

::

Well, that somewhat accounts for the structure of follow-on strategies. TOO BAD none of them know how to kill TWO BIRDS WITH ONE STONE, eh? I'm alluding to EE policy and fiscal stimulus; every HH tax break tied to fed efficiency minima --whaazzat?-- creates demand for "green-collar" training and permanent workforce.

Diversity is the key to economic and political evolution.

by Cat on Sun Jan 13th, 2008 at 08:30:21 PM EST
[ Parent ]
And inflation rears its ugly head in Europe. Where is the source of this threat? Easy money creation through sophisticated lending vehicles? Asset price inflation, in particular real-estate? Rising fuel and food prices? No, no, no! The threat is 'excessive wage deals'! The only driver of inflation: increasing the share of the pie of workers. From yesterdays Salon:
Melanchthon:
FT.com / Europe - Eurozone warned of excessive wage deals
Eurozone politicians and trade unions were served notice on Thursday that interest rates could be raised "pre-emptively" if wage settlements threatened to send inflation spiralling out of control.

The tough language from the European Central Bank was matched in the UK as the Bank of England also dashed hopes of looser monetary policy, keeping its main rate at 5.5 per cent after coming under pressure this week from the UK government to cut rates.

Jean-Claude Trichet, ECB president, toughened significantly his rhetoric after the bank's governing council left its main interest rate unchanged at 4 per cent. He made clear that the ECB wanted to send a strong message before crucial wage negotiations, and that interest rate cuts were not even on its agenda. German public sector wage negotiations got under way on Thursday.

However, Mr Trichet failed to convince observers that the ECB would ever make real such threats while eurozone growth was slowing and the US Federal Reserve was cutting interest rates.

by someone (s0me1smail(a)gmail(d)com) on Sat Jan 12th, 2008 at 08:55:50 AM EST
be happy with a bread crust, peasant!
by citizen k (sansracine yahoo.fr) on Sat Jan 12th, 2008 at 09:14:44 AM EST
[ Parent ]
Have you watched THE SERPENT'S EGG which we will be discussing in the first ET film blog on Feb 8th? It explains a lot about the ECB's fear of inflation driven particularly by Germany. Not to say that focusing on public sector wages is the way to solve that problem; but maybe in Germany it is. CAVEAT: I am not an economist.

Hey, Grandma Moses started late!
by LEP on Sat Jan 12th, 2008 at 09:58:42 AM EST
[ Parent ]
Gnn...

Not only are the financial press wailing about workers gettin increasing salaries (maybe even a bigger increase than inflation! * gasp, groan *), but the labour unions are doing their best to create a wage-price spiral, demanding higher wages because of more expensive food and energy.

Salary increases should be linked to productivity growth, nothing else.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jan 12th, 2008 at 12:28:03 PM EST
[ Parent ]
Not if the currency is being debased by out-of control money creation by the financiers.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 12:30:02 PM EST
[ Parent ]
Money creation? Aren't central banks the only ones supposed to be able to do that (and fractional banking, but we've had that for a long time and it has worked pretty well, right? Right?)?

Uh-oh...

Don't tell me the investment bank people have managed to walk around regulation in some way here too?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jan 12th, 2008 at 12:55:54 PM EST
[ Parent ]
If you can buy $10 of assets with $1, money is being created.
by rootless2 on Sat Jan 12th, 2008 at 01:00:58 PM EST
[ Parent ]
Are you talking about buying $10 of nominal stuff for $1? How would that work? Fractional reserve banking or what?

But if you are buying $10 of value for $1 because the asset is mispriced, you're not creating money, you're getting a bargain.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jan 12th, 2008 at 01:07:46 PM EST
[ Parent ]
Buying on 10% margin.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:10:29 PM EST
[ Parent ]
Yes, the whole current financial crisis is the size it is because people made "highly leveraged" transactions. This essentially increases money supply.
by rootless2 on Sat Jan 12th, 2008 at 01:28:00 PM EST
[ Parent ]
Starvid's point is that you can only do that up to a limit determined by the central bank's reserve requirement. The point is that debt securitization allows banks to create infinite amounts of credit.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:08:17 PM EST
[ Parent ]
Funny. We have abolished reserve requirements for banks in Sweden.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jan 12th, 2008 at 01:12:24 PM EST
[ Parent ]
Why did you have to copy the British on "industry self-regulation"?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:35:37 PM EST
[ Parent ]
Are you snarking, or did you miss the comment threads where we hashed it all out?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:06:19 PM EST
[ Parent ]
Either I missed it or I have suffered an alcohol induced memory hole. That is, I'm not snarking.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jan 12th, 2008 at 01:08:47 PM EST
[ Parent ]
Start here:

Jerome a Paris:


To me, CDOs and SIVs are banks. They may not look like a bank but they sure smell like one.

Indeed.

There is an couple other threads I should be able to dig up which are more specific.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:34:50 PM EST
[ Parent ]
Continue here, where Pierre disagrees with my interpretation:

Metatone:

Epic series of graphs about sub-prime lending in the US

http://news.bbc.co.uk/1/hi/business/7073131.stm



We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:50:59 PM EST
[ Parent ]
And then there's this one:

Migeru:

If a bank loans money to a hedge fund other than through standard margining mechanisms, how can the loan not show up on the bank's balance sheet? That's the big issue and that's the failure of regulation.

And if, instead, banks are creating and selling mortgage-backed securities to skirt reserve requirements that also is a failure of regulation (apparently, specifically of accounting practice in not properly recognising default risk).

But it may also indicate that the simple "loan to reserve ratio" mechanism to control credit risk and credit creation has been rendered obsolete by financial markets. What are the regulators going to do? Outlaw credit derivatives? Regulate the mortgage-backed securities market so that only Banks can take part in it?



We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Jan 12th, 2008 at 01:52:43 PM EST
[ Parent ]
The issue is government assurances is it not? In the US, the FDIC insures deposits in exchange for the bank meeting certain requirements. The problem here is that banks cannot take part in insanely leveraged and dubiously off the books transactions while actually meeting those requirements. So they should be allowed to choose insurance or freedom from conservative balance requirements. But not both.
by rootless2 on Sat Jan 12th, 2008 at 02:05:13 PM EST
[ Parent ]
So if the U.S. is going into the tank because of future costs of medical programmes and social security, countries like Canada, France, and Germany must already have junk bond status, I guess.

In our supposedly "free market" economic system, how is a state supposed to handle such blatant cases of economic warfare?

by NBBooks on Sat Jan 12th, 2008 at 10:19:54 AM EST
Why, vote Republican, of course!

Hey, Grandma Moses started late!
by LEP on Sat Jan 12th, 2008 at 10:24:22 AM EST
[ Parent ]
Be rich.

Everyone else is a whining cry-baby loser. They deserve to starve and die.

As long my net worth is increasing, why should I care?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Jan 12th, 2008 at 10:30:37 AM EST
[ Parent ]
WOODSTOCK, Ont. (CP) - Ontario workers are well-trained.

"Welcome to Woodstock - that´s something I´ve been waiting a long time to say," Ray Tanguay, president of Toyota Motor Manufacturing Canada, told hundreds gathered at a high school gymnasium.

He [Fedchun, president of the Automotive Parts Manufacturers' Association] said Nissan and Honda have encountered difficulties getting new plants up to full production in recent years in Mississippi and Alabama due to an untrained - and often illiterate - workforce. In Alabama, trainers had to use "pictorials" to teach some illiterate workers how to use high-tech plant equipment.

In addition to lower training costs, Canadian workers are also $4 to $5 cheaper to employ partly thanks to the taxpayer-funded health-care system in Canada, said federal Industry Minister David Emmerson.

http://craig.afox.org/index.php/Weblog:2005-July.4.2

Maybe if things keep gong the way they are now, eventually the clothing industry will be able to return to the US- finding it cheaper to employ Americans than the Chinese and people from other third world countries.


aspiring to genteel poverty

by edwin (eeeeeeee222222rrrrreeeeeaaaaadddddd@@@@yyyyaaaaaaa) on Sat Jan 12th, 2008 at 05:19:40 PM EST


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