Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

In other news from New York

by Jerome a Paris Mon Mar 10th, 2008 at 05:13:39 PM EST

Yep, the financial meltdown underway is such that Spitzer's story barely makes it to Bloomberg's headlines.

Every single one of these stories would be the main headline in all the financial press on any normal day. These days, you have so many unusual news that people shrug and move on. Oh, Fannie Mae dropped 10% again? Shrug... It's only the 5th time or so this happens since the beginning of the year...

Here's a tour of the financial panic underway. But first, go read Krugman's column this morning for the optimist view...



Bear Stearns Shares Fall on Liquidity Speculation

March 10 (Bloomberg) -- Bear Stearns Cos. fell 11 percent in New York trading, the most since the 1987 stock market crash, on speculation the company lacks sufficient access to capital.

(...)

``There's an insolvency rumor and concerns on liquidity, that they just have no cash,'' said Michael Mainwald, head of equity trading at Lek Securities Corp. in New York. ``There's been rumors of this for the past week or two.''

(...)

Credit-default swaps protecting against a default by Bear Stearns for the next two years soared to 900 basis points, according to broker Phoenix Partners Group in New York. That's up from 514 basis points last week, CMA Datavision prices show [and from the low double digits a year ago - JaP]

Markets are pricing in a serious probability that some of the largest investment banks in the world will go bankrupt in the near futur.


Hedge Funds Reel From Margin Calls Even on Treasuries

March 10 (Bloomberg) -- The hedge-fund industry is reeling from its worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States.

Since Feb. 15, at least six hedge funds, totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market -- raised borrowing rates by as much as 10-fold with new claims for extra collateral.

While lenders are most unsettled by credit consisting of real estate and consumer debt, bankers are now attempting to raise the rates they charge on Treasuries, considered the world's safest securities, because of the price fluctuations in the bond market.

Banks are so scared of lending right now, and so wary of market gyrations, that US Treasuries are no longer considered to be safe enough collateral, and require a risk premium. That inflates lending costs considerably for a whole lot of players, in particular highly leveraged investment funds (ie a whole lot of them) - and that's precisely the point: banks want these funds to stop using so much borrowed money.

Which means, ofcourse, that these funds have to sell whatever financial assets they were playing with using that borrowed money, thus causing the prices for such assets to go down.


Carlyle Capital seeks standstill pact

Carlyle Capital Corporation said on Monday it had requested a standstill agreement with its lenders after some of them liquidated almost a quarter of the Amsterdam-listed fund's $21bn of residential mortgage-backed securities.

(...)

The implosion of CCC, caused by the unexpected drop in the value of securities issued by US government agencies Fannie Mae and Freddie Mac, threatens to leave a stain on the reputation of Carlyle, one of the world's biggest private equity groups.

(...)

Analysts at Citigroup warned that unless Carlyle pumped more money into CCC it "could be forced into significant asset sales into a weak market or could face bankruptcy". Carlyle has already extended a $150m loan to help its stricken fund.

Carlyle, like many other funds, is locked in a showdown with banks who are reducing their financing lines to funds with big investments in mortgage and corporate securities. But the banks' attempt to manage their exposure, which makes sense on an individual basis, risks precipitating a systemic crisis.

By cutting back on their lending, the banks are forcing funds to unload securities. At the same time they are increasing the likelihood of a death spiral in the market as funds such as Carlyle's are selling those debts into a falling market, causing the prices to plunge further, which in turn brings on additional margin calls.

And this is claiming high profile victims already. No need to introduce Carlyle, is there? That CCC fund, floated at $19 per share just last July, is now worth around $6 per share. Of course, one could consider that the Carlyle people sold at the right moment, and have left suckers/investors holding the (deflating) bag. But these investors are probably not too happy, and might reconsider working with Carlyle in the future... if there is a Carlyle.


``It's not a question of prime brokers deciding which firms live and which don't,'' said Odi Lahav, head of the European Alternate Investment Group at Moody's Investors Service in London. ``They're trying to manage their own risk. There's a Darwinian aspect to survivorship in this industry.''

(from the Bloomberg article above)

Yeah, everybody in the financial world is rushing for the exits, crowding the way, and elbowing others out. The exits being, in this case, cash, as opposed to holding securities or loans to financial players deemed unsafe - whose numbers grow by the day...


Repurchase agreements and covert nationalization

The Fed has gotten into an entirely new line of business, and on a massive scale. Prior to the introduction of TAF, direct loans from the Fed to banks, including the discount window lending and repos, amounted to less than $40B, the majority of which were repos collateralized by Treasury securities. By the end of this month, the Federal Reserve will have more than $200B of exposure in its new role as Wall Street's genial pawnbroker. Assuming the liability side of the Fed's balance sheet is held roughly constant, more than a fifth of the Fed's balance sheet will be direct loans to banks, almost certainly against collateral not backed by the full faith and credit of the US government (and beyond that we just don't know).

As the article above, which circulated widely over the week-end, and was quoted by Krugman today, suggests, the Fed is desperately trying to solve the mess by de facto taking over financial "toxic waste."


Some observers worry that the Fed is taking over the banks' financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: $200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down -- there are $11 trillion in U.S. mortgages outstanding -- it's a drop in the bucket.

The only way the Fed's action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past.

But slap-in-the-face only works if the market's problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that's hard to believe.

The third time could be the charm. But I doubt it. Soon, we'll probably have to do something real about reducing the risks investors face.

The markets were unhappy in the 80s with all the regulations imposed in the 30s to smooth out the economic cycle, because thye limited their opportunities to make money during the good times. They got their way, and the good times were indeed jolly good for those that could ride the big bull market of the past 20 years.

But, by dismantling the safeties painstakingly put in place after the last big financial crisis, we've simply re-invented the good ol' boom'n'bust of the 19th century. And with a turbo-charged boom built on the biggest bubble ever, we're going to have to deal with the mother of all busts - the biggest one ever, in all likelihood.

New York, New York...

Display:
http://www.dailykos.com/storyonly/2008/3/10/17820/4523/1021/452579

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 10th, 2008 at 05:14:06 PM EST
Normally, the markets would reflect this situation.  But they are so disconnected from reality, that even the sharp drops of the past months (and days!) are but small niggling fears in the background, against the reality that the system is broken.

I have found checking the market page at Bloomberg to be very useful in deconstructing financial media currently.  It is astounding what changes one finds over the course of an hour, as a lead story disappears after a few minutes because it upsets the market, to resurface on the back pages later on.  Then, as JaP sets here, a screenshot could be illuminating.  I wish i had documented some of the stories that hit the front page over the past few weeks as the markets were rebounding, and i was thinking, are these people completely without understanding or...

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Mon Mar 10th, 2008 at 05:37:01 PM EST
[ Parent ]
They really just don't get it.  The bubble they live in on Wall Street is really stunning at this point.  And we're just getting warmed up, as I understand it.  The subprime mess, from what I've read, is really just the tip of the iceberg.

The recession has, I think, pretty clearly begun.  This is going to be very bad.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 05:45:17 PM EST
[ Parent ]
the information is there, obviously, as it's in the headlines, and in the stock prices for the financial sector (a good number of which are down 50-90% since a year ago), and quite a few analytical pieces.

Where it has not percolated yet is in the generalist pundit class - they can't seem to process what's going on.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Mar 10th, 2008 at 06:08:08 PM EST
[ Parent ]
But when have those clowns ever gotten it right on time?  The Krugmans and DeLongs of the world, to say nothing of regularfolk in the blogosphere, have been shouting about this for years.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 06:13:17 PM EST
[ Parent ]
Can we stop calling them pundits?

A good proportion are paid and sponsored propagandists who knowingly and deliberately turn out the Party line.

The rest are arse licker apparatchiks - like the toadies who write for the Economist - who want to feel they're specially privileged and live on the inside.

There is no punditry going on here. The disinformation is almost exactly equivalent to a totalitarian propaganda machine. It's a little bit shinier, a little bit more self-assured and a little bit better dressed than Pravda used to manage, but functionally the output is identical in quality and intended influence.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 10th, 2008 at 08:35:04 PM EST
[ Parent ]
TBG, if I could have said it better myself, I hope I woulda. Bang bloody on!
by PIGL (stevec@boreal.gmail@com) on Mon Mar 10th, 2008 at 10:33:10 PM EST
[ Parent ]
Dead on.
During the Iran-contra debacle I bought a large scanning, trainable satellite dish (this was just before scrambling became common, then universal) with some good ICOM equipment and started finding and watching as many of the raw feeds as I could from all the news agencies and networks. It was truly incredible to watch the first feeds of the day, which then went to the central office in one form, only to hit the distribution feeds in another form- after the first re-write- (sometimes rather mild), and then, as the day wore on, get progressively massaged. To see the "acceptable" spin applied by the prime time news was very revealing.  Like--a different story entirely, often.

Intrusions of the unanointed, unwashed into the real data stream (like mine)was one of the reasons for the huge pressure to encrypt.

So, as you point out, this perverse propaganda process is far from new- in fact, it has long been a basic element in "news" distribution.
But we are far, far better at lying to ourselves than the USSR at it's peak ever was.

We believe our own bullshit. They didn't.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 06:35:44 AM EST
[ Parent ]
Re believing our own bullshit which the Soviets did not: I met some visitors from the Soviet Union in about 1981, around some nuclear disarmament issue. I was 19, they were older, but what I remember is, they made exactly your point in almost exactly your words, in lovely Radio Moscow english.
by PIGL (stevec@boreal.gmail@com) on Tue Mar 25th, 2008 at 12:00:12 AM EST
[ Parent ]
The propaganda in the business press Jérôme fights against is actually part of the bubble. And they are so used to the practice of positive market spin (resulting in positive trends) that they can't work another way.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Mar 10th, 2008 at 06:08:36 PM EST
[ Parent ]
Well done, Maestro.  Much more important than the hooker gig Spitzer's got going on.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 05:46:07 PM EST
[ Parent ]
And Bush does a tap dance to amuse the media . . .
by Steven D on Mon Mar 10th, 2008 at 06:38:30 PM EST
More like the Lame Duck dance...
by The3rdColumn on Mon Mar 10th, 2008 at 06:39:15 PM EST
[ Parent ]
--not even wounded--and still has another 10 months to run roughshod over the world and over the spineless and complicit Congress that won't do its Constitutional and moral duty and impeach him and Cheney.
by keikekaze on Mon Mar 10th, 2008 at 09:16:15 PM EST
[ Parent ]
I reckon that this may turn out to be a major precedent. By not impeaching Bush, congress may have removed impeachment from the arsenal (at least impeachment of a Republican), as frankly, no president ever is likely to have half the impeachable offenses of Bush, who never will have had to face it.

That may come back to haunt us -if all his silly actions haven't ensured that we all die soon of course.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Mar 11th, 2008 at 02:45:11 AM EST
[ Parent ]
That's exactly what worries me.  If this U.S. president isn't impeached, none ever will be.  (Unless, of course, they "cheat" on their spouses, like Clinton and Eliot Spitzer.)  Which is exactly how you spell "dictatorship."
by keikekaze on Tue Mar 11th, 2008 at 06:23:03 PM EST
[ Parent ]
Well, not quite -there are democracies where there is no impeachment in the law.
But in the US, impeachment is truly required for the balance of power, since the president can have so much. And that will hurt.

On a side note, France may become interesting in the near future. There is no impeachment procedure, AND parliement is now elected at the same time and for the same length of time as the president. We don't yet have the same organisation to ensure that the rightist party member always sing in tune as with the Republicans, but we're getting closer. And we are starting to get some electronic voting machines in Sarkozy's fief of Hauts de Seine.

I'm not overly optimistic.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Mar 12th, 2008 at 02:39:06 AM EST
[ Parent ]
I wouldn't be overly optimistic, either.

No, I didn't mean that no one can have a democracy without an impeachment process--only that the U.S. can't have one if impeachment is going to become unused and archaic (which has been the Republicans' plan ever since they deliberately discredited the mere idea of impeachment as "too divisive" and "bad for the country" by their misuse of it against Clinton).  No other institution in the U.S. is empowered to stand up against the President if Congress won't.  (The Supreme Court can only do it piecemeal, if someone sues, if the case reaches the Supreme Court, and if the Court sides against the President--but it can't remove a President.)  And if Congress won't stand up . . .

by keikekaze on Wed Mar 12th, 2008 at 03:05:20 AM EST
[ Parent ]

US recession

Now we have clarity. Last week's awful employment data from the US ended all arguments about whether the US is heading for a recession: it is already in one. Now we need only argue about its severity and its duration.

(...)

On Monday, Wall Street threw in the towel. The morning's worst fallers are a list of the groups that dominated the world of securitised finance over the last two decades: the mortgage agencies Fannie Mae and Freddie Mac, the bond insurers Ambac and MBIA, and the investment banks most deeply involved in mortgage finance. As with the economy, we have clarity: the credit market model is broken and must be fixed.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 10th, 2008 at 07:39:11 PM EST
Jerome a Paris:
the credit market model is broken and must be fixed

Yup. Credit intermediation is finished in the US.

They'd better try something else.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Mar 10th, 2008 at 07:49:20 PM EST
[ Parent ]
Perhaps--but at what level do they know this?

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 06:40:45 AM EST
[ Parent ]
They are probably beginning to suspect it, I think.

Give it six months and it will be getting pretty clear to everyone.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:17:45 AM EST
[ Parent ]

Our three-decade recession

The American quality of life has been going downhill since 1975.
By Robert Costanza
March 10, 2008

The news media and the government are fixated on the fact that the U.S. economy may be headed into a recession -- defined as two or more successive quarters of declining gross domestic product. The situation is actually much worse. By some measures of economic performance, the United States has been in a recession since 1975 -- a recession in quality of life, or well-being.

How can this be? One first needs to understand what GDP measures to see why it is not an appropriate gauge of our national well-being.

(...)

How can we get out of this 33-year downturn in quality of life? Several policies have been suggested that might be thought of as a national quality-of-life stimulus package.

To start, the U.S. needs to make national well-being -- not increased GDP -- its primary policy goal, funding efforts to better measure and report it. (...) Once Americans' well-being becomes the basis for measuring our success, other reforms should follow. We should tax bads (carbon emissions, depletion of natural resources) rather than goods (labor, savings, investment). We should recognize the negative effects of growing income disparities and take steps to address them.

International trade also will have to be reformed so that environmental protection, labor rights and democratic self-determination are not subjugated to the blind pursuit of increased GDP.

But the most important step may be the first one: Recognizing that the U.S. is mired in a 33-year-old quality-of- life recession and that our continued national focus on growing GDP is blinding us to the way out.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 10th, 2008 at 07:41:28 PM EST

The first big book on the credit crunch saw the crisis coming three years ago

IN 2005, while running a financial-software company, Charles Morris became convinced that credit markets were heading for a crash. He found a publisher who was willing to take a gamble and began tracing the roots of the yet-to-unfold crisis. However up to date it may seem, this book is no rush job. Mr Morris deftly joins the dots between the Keynesian liberalism of the 1960s, the crippling stagflation of the 1970s and the free-market experimentation of the 1980s and 1990s, before entering the world of ultra-cheap money and financial innovation gone mad.

(...)

He describes three trends converging to create the bubble. By 2006 the growing trend towards deregulation had pushed three-quarters of all lending outside the purview of regulators. Securitisation created a serious agency problem, leaving loan originators, who were paid up-front, with no incentive to avoid bad credits and every reason to piggyback inappropriate products onto good ones (in one particularly depressing tale, a retired postal worker whose mortgage is almost paid off is switched to an interest-only product that leaves him in danger of losing his home). Banks and rating agencies were gripped by the pretence that all finance can be calculated by risk-modelling eggheads. It did not help that many investors blindly accepted the rating agencies as a kind of "financial Supreme Court".

The story has no single villain, but Alan Greenspan comes close. Under him, the Federal Reserve fuelled the housing boom by sharply cutting the cost of short-term money. Mr Greenspan ignored warnings about subprime excess, while eagerly championing "new paradigms", from hybrid mortgages to credit derivatives.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 10th, 2008 at 07:43:12 PM EST
Jerome a Paris:
He describes three trends converging to create the bubble. By 2006 the growing trend towards deregulation had pushed three-quarters of all lending outside the purview of regulators. Securitisation created a serious agency problem, leaving loan originators, who were paid up-front, with no incentive to avoid bad credits and every reason to piggyback inappropriate products onto good ones (in one particularly depressing tale, a retired postal worker whose mortgage is almost paid off is switched to an interest-only product that leaves him in danger of losing his home).
No wonder the credit market model is broken, they broke it deliberately!!!

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Tue Mar 11th, 2008 at 05:46:30 AM EST
[ Parent ]
Not a bug.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Mar 11th, 2008 at 03:12:53 PM EST
[ Parent ]
Alas, the Spitzer story is much more important than it seems.

Check this out: http://www.huffingtonpost.com/2008/03/10/stock-exchange-cheers-new_n_90796.html?view=print

They have good reasons to cheer. Spitzer was one of the very few guys willing to take on Wall Street.

by Francois in Paris on Mon Mar 10th, 2008 at 07:53:33 PM EST
That's what makes me so angry with him.  He was one of the few to come in a long time who could really beat the shit out of big guns on Wall Street.  We could've used that right about now.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 08:00:21 PM EST
[ Parent ]
To what degree did his own failings lead him into a trap set by the Pellicanos of Wall St.  I understood they had a slew of PIs on his tail.

That's how masters of universe have fun, oder?

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Mon Mar 10th, 2008 at 08:08:12 PM EST
[ Parent ]
No, I think he did it himself like a grown-up.

Still, it sucks.

by Francois in Paris on Mon Mar 10th, 2008 at 09:15:51 PM EST
[ Parent ]
It's bizarre. You don't get to where Spitzer did without being at least a little streetwise, and you would expect pretty much anything, up to and including people with machine guns.

Dropping his guard like this is ludicrous.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 10th, 2008 at 09:49:30 PM EST
[ Parent ]
Incredible.
That is to say, Not Credible.
There's more to this.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 07:08:08 AM EST
[ Parent ]
Quite likely.

Maybe it was because they were tapping Spitzer that they got onto the prostitution ring.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:20:06 AM EST
[ Parent ]
Alright, I know it's not official yet, but where's wchurchill?  We need to sort out our pint bet.  I reckon he gets it.  I called recession in late-'06/early-'07 or at least by Q207, so I'm six months to a year off.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 08:03:03 PM EST
When Lehman is laying off 5 percent of its workforce, you're in a recession at least.

I'm a little surprised the Dow didn't drop by more today, on the tidal wave of bad news.  But then this whole bear market, since last October, seems to have been advancing in slow motion, or more slowly than I would have expected after the collapse of a bubble.  Is that a tribute to some underlying institutional strength, or the mere paralyzing power of shock and disbelief?

by keikekaze on Mon Mar 10th, 2008 at 09:29:46 PM EST
Well, with the credit market fucked,and the property market bad, there aren't that many other options, so long as you avoid the financial sector.....

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Mar 10th, 2008 at 10:04:19 PM EST
[ Parent ]
Mark Thoma gives an interesting look on Krugman's post and what some solutions to the problem could be

http://economistsview.typepad.com/economistsview/

In his post he quotes a solution from Thomas Palley which states

"There is a very simple and fair solution to this problem. That solution is for the Federal Reserve to open its term auction facility to all publicly traded financial intermediaries rather than just deposit taking institutions. That means giving access to insurance companies, mortgage investment trusts, mutual funds, and hedge funds. These firms would be subject to the same borrowing terms as banks, and would have to post collateral of identical quality."

Though in the end he doubts that this alone would be enough to end the fear.

http://www.rgemonitor.com/blog/setser/248489/

Brad Setser argues that while Krugman's claim that what the fed is doing is just a drop in the bucket, he forgets

"The Fed and the ECB typically do intervene in small quantities - a few billion here, a few billion there - and for a short period of time. But the Fed and the ECB aren't the only central banks active in the US and European government bond market. China has something like $60b to place in these markets every month right now.
That doesn't strike me as a drop in the bucket."

http://www.rgemonitor.com/blog/setser/248489/

I think the only chance to get out of this mess is for the fed and the foreign central banks in its myriad of forms to lend money to all forms of financial institutions besides the banks, otherwise the fear, margin calls, writedowns and bankruptcies are going to get out of control. The oil producers and the big Asian economies are all sitting on a ton of cash. What needs to happen is for these financial institutions to be bought or heavily indebted to the SWF's. Not sure that this will even work at this point but its got about the best shot of working. Of course this probably will not happen, at least on a big enough scale to be successful. But its probably in everyone's best interest for it to happen because I'm pretty sure that if the US financial system crashes, every one else is going to get dragged down as well. After all we are all in bed together more now than we were in the thirties.

"Looking for my Lo and Behold" The Band

by the misunderestimated on Tue Mar 11th, 2008 at 12:31:41 AM EST
[ Parent ]
Too late. The smoke is now flames, and the fire department's watching Fox News.

And you'd better hope we are not ALL in this together.
Lend-lease for the US aint so far-fetched.

It was NEVER a workable system of attaining common prosperity, (as billed in theaters worldwide), but a system of plunder---and the last boodle- home equity, credit cards and the International Bank of Funnymoney- have been plucked rather clean.

Now perhaps we can get real.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 08:28:57 AM EST
[ Parent ]
I'm sure the losses will steepen when helicopter Ben reaches terminal velocity and banks start failing - ie, when there is no more bailout money coming and the street loses its ability to live in denial.

you are the media you consume.

by MillMan (millguy at gmail) on Tue Mar 11th, 2008 at 02:16:57 AM EST
[ Parent ]
colour me cynical but isn't this due  sometime next year, when it can safely be blamed on anyone but BushTM

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Mar 11th, 2008 at 03:34:24 AM EST
[ Parent ]
... the shit has well and truly hit the fan, when you go to Krugman for the optimist's view of the US economy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 11th, 2008 at 02:08:57 AM EST
The underlying question here is: what is Quality of Life?

You can't be me, I'm taken
by Sven Triloqvist on Tue Mar 11th, 2008 at 03:12:19 AM EST
What are the minimum conditions for Quality of Life?

Here are a few that occurred to me. I hope you'll add to them....

To be born safely into the world, and as equal to all others
To be able to live in dignity
To have access to free education about the world as long as you want and need
To have a roof over your head and be able to sleep comfortably and refreshingly
To have access to healthy food and water
To have a right to your own opinions and the expressing of them
To have the right to know everything about decisions made on your behalf
To be cared for if you are sick, irrespective of means, throughout your life
To be encouraged and assisted to be a creative contributor to society and self
To be able to laugh each day
To have children
To be treated as an equal, with equal rights, whatever your gender, race, age, location, sexual preference, political or religious beliefs
To belong in a society that supports all these rights
To be protected by that society from external harm
To be allowed to die in dignity, and, if necessary, at a time and place of your own choosing.

Are there any maximum conditions to quality of life?

I can only think of one universal maximum: that your own happiness can never be built on the deprivation of others.

Many of these rights cost money. What we argue about is the best way to provide these universal rights.


You can't be me, I'm taken

by Sven Triloqvist on Tue Mar 11th, 2008 at 07:46:50 AM EST
[ Parent ]
This should be a diary, not a comment to an anglo-disease news update.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Tue Mar 11th, 2008 at 08:27:11 AM EST
[ Parent ]
I can do that - but not till tonight.

You can't be me, I'm taken
by Sven Triloqvist on Tue Mar 11th, 2008 at 08:42:39 AM EST
[ Parent ]
Please do.
I for one would very much like to read and contribute to such a discussion.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 06:46:09 AM EST
[ Parent ]
To have the right to know everything about decisions made on your behalf

about decisions that impact you... The employer does not decide on behalf of his employees, yet an employer juggling employees about is a problem.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Tue Mar 11th, 2008 at 09:14:03 AM EST
[ Parent ]
Can we continue this at the new diary I put up? Quality of Life ,-)

You can't be me, I'm taken
by Sven Triloqvist on Tue Mar 11th, 2008 at 11:19:27 AM EST
[ Parent ]
"To have children"

In a world of resource depletion with 6 billion souls around, is this really something we can say it is a minimum right?

by t-------------- on Wed Mar 12th, 2008 at 08:13:38 AM EST
[ Parent ]
And the alternative is....?

You can't be me, I'm taken
by Sven Triloqvist on Wed Mar 12th, 2008 at 09:24:02 AM EST
[ Parent ]
Check the EURIBOR yield curve. 3M is climbing vertical since a week, already up 20 bp. That's steeper than november and december.


And it is clearly a Eurozone problem, other LIBOR currency zones are not affected (yet ?). So far, no analysis or commentary in the financial press. The curve motion doesn't appear to coincide with a quarter-end or any regulatory photo-time. It's just raising to a plateau at 3M and beyond. Could soon turn into a problem of the Frightening™ kind.

Pierre

by Pierre on Tue Mar 11th, 2008 at 03:34:45 AM EST
the fact that the spread between Italian or Spanish treasuries and their German counterpart has grown massively:


Warning over bond spreads in Europe

March 7 2008

Widening spreads between German government bonds and those of Italy, Greece and other eurozone countries are a "wake-up call" for policymakers, Jean-Claude Trichet, the president of the European Central Bank, warned yesterday.

(...)

The growing gap between yields illustrates the extent to which the global credit turmoil is causing investors to demand higher risk premiums for holding bonds considered more risky and instead buy those of Germany - which has the region's largest and most liquid market.

(...)

Italy's Treasury took some comfort in that the closing spread of 59.7 basis points between 10-year Italian and German bonds, the biggest gap since 1999, was overtaken by Greece yesterday, which widened to more than 60bp. Yields on bonds issued by most other eurozone governments, including Spain, the Netherlands and France, also continued to widen against the Bund yesterday.




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 11th, 2008 at 05:10:57 AM EST
[ Parent ]
Sounds like flight to quality on liquidity risk rather than credit risk.Jerome a Paris:
The growing gap between yields illustrates the extent to which the global credit turmoil is causing investors to demand higher risk premiums for holding bonds considered more risky and instead buy those of Germany - which has the region's largest and most liquid market.


It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Tue Mar 11th, 2008 at 05:41:02 AM EST
[ Parent ]
Should be an investment opportunity for people who don't really need liquidity at the momemt, no?

Unleveraged stuff like bond and money market funds not belonging to banks in the sh*tter (or ordinary people owning bonds). It's not like people will be withdrawing money from those to invest in equites or whatever right now.

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

by Starvid on Tue Mar 11th, 2008 at 03:00:51 PM EST
[ Parent ]
Lots of asset managers are already going into equities, precisely because it is the only kind of assets that has the slimest chance of offering returns close to (real) inflation (the one even TIPS won't beat).

Because least-indebted global fortune 500 companies with pricing power will be able to inflate their revenue as fast as, or faster than, general inflation. Of course, there may still be a temporary downturn in the near term, but when you're just price-averaging your rebalancing from bonds to equity, now is still a good moment to start.

I'd be wary of bonds, of all flavors, mortgage, corporate, sovereign, municipals: basis risk is demonstrably terrible. spreads might swing in any direction any time because of a deleveraging of some obscure player anywhere in the world. And remember: the market can remain irrational longer than you can stay solvent.

Pierre

by Pierre on Tue Mar 11th, 2008 at 06:16:03 PM EST
[ Parent ]
Yup.

The other ones - relatively new - are infrastructure and stuff like ETF's, but even there some of the players have over-done the gearing...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 06:21:21 PM EST
[ Parent ]
Well, just consider the Italian 10 year bond which suddenly has a spread of 60 bp compared to German ones. According to the article, the reason the spread suddenly exploded was due to a flight to quality, or rather to liquidity. As an ordinary saver, you don't really need liquidity, at least if the duration is a bit shorter than 10 years. (I missed the duration in my last comment which kind of reduced the relevance of my comment, but anyway.) If the spread on 1 year bonds exploded too, that might be really interesting, as a private person should have no solvency problems holding on to a bond for a year without having to sell it on the market. At least if the minimum value of an Italian bond is the same as a Swedish, almost €3000.

I might have completely misunderstood what we are talking about here though.

By the way, why wouldn't TIPS give a real return against inflation? They are linked to the CPI, so that's exactly what they are supposed to do.

Or is the "core inflation" ghost around?

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

by Starvid on Tue Mar 11th, 2008 at 08:51:26 PM EST
[ Parent ]
Pierre:
And remember: the market can remain irrational longer than you can stay solvent.
Great line - and scary thought.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Thu Mar 20th, 2008 at 09:43:30 AM EST
[ Parent ]
A promarket analyst at Asia Times Online talks dismissively of the rising euro: Euro-trash.  

[The idea that the euro could possibly replace the US dollar as the world's reserve currency] has been evaluated at some length across the markets and its adjunct professions with a unanimous conclusion on the lack of suitable merit for the candidacy.

It is fair to say that two main sources of objection are the European Central Bank (ECB) and the political system of Europe. On the former, while the ECB has been unique in its focus on inflation at the expense of economic stimuli, its actions belie its words - in effect, it can be proved that the primary source of inflation that may confront Europe in the next few months is the one created by the ECB itself. Things are worse on the political front. Be it the tax pursuits of Germany and Britain, political imbroglio of Spain and Italy or the circular logic loop of French reforms, there is no reason for hope across the Old continent.

His idea seems to be: Europeans are missing an opportunity to command the World economy ship, when so many players got wet. The problem is, there is no big sense to command a sinking ship, especially by jumping in to drive it the same sinking course. What's the use of being the last captain of this madness?!

by das monde on Tue Mar 11th, 2008 at 11:18:54 PM EST
[ Parent ]
increasingly publishes junk - as long as it's controversial.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Mar 12th, 2008 at 05:33:37 AM EST
[ Parent ]
Granted it's junk, but what's your view as to the practicability of the Euro as a global reserve currency?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:24:46 AM EST
[ Parent ]
It's got all the attributes already: a large market with stable accounts, backed by the rule of law and supported by a tough central bank, the largest trading bloc on the planet, and deep financial markets.

The only thing that prevents the euro from being the main reserve and world currency is that there is already one, and it is extremely inconvenient, and difficult in practice, to move away from an existing standard - see how the sterling is still used in some commodity markets. But if the US keeps on trashing its currency, there will be a steady build up of the role of the euro, and at some point a crisis might tip things over brutally.

The fact is that there is an alternative to the dollar, so in the even that people decide to run away from the dollar, there is no question as to where they will go.

(And no, I don't believe the yuan/renminbi can play the role)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Mar 12th, 2008 at 08:54:49 AM EST
[ Parent ]
How disappointingly true.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 08:30:08 AM EST
[ Parent ]
It also reminds me of a past discussion we had about the impact of open market operations on the balance sheet of the fed. And it would have to dump 700B$ in treasuries to make room for the crap on the asset side of the sheet, thus resulting in a steepening of the yield curve... (and higher anticipated inflation it they keep both on the balance sheet and inflate away). Not good for new fixed-rate mortgages, but good for bank's net-interest-margins (aka bail-out), however it will push the next administration to steep budget cuts as borrowing becomes prohibitive.

Pierre
by Pierre on Tue Mar 11th, 2008 at 03:37:48 AM EST
What I find strange about this crisis is the seeming disconnect with what passes for political debate in the US Presidential election.  Have McCain, Obama, Clinton et al given the slightest indication that they understand the magnitude of what is going on?  Does winning the Presidency depend on reflecting the voters apparent denial/ignorance of what is going on?  It seems that the reality of the financial meltdown and the failure of the "reform" ideology is so far out of sync with the comfortable cliches of politics-as-you-were that we are in danger of providing a democratic mandate to Neroism - a collective fiddling while Rome burns.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Mar 11th, 2008 at 10:43:52 AM EST
I was wondering the same thing. Except for Edwards, none of the current canditates seems to be aware of what is going on. Strange as one would think this would be the number one slogan to get elected - it's the economy, stupid!
by Fran on Tue Mar 11th, 2008 at 11:02:04 AM EST
[ Parent ]
I've asked this question for at least 30 years. Here's a couple thoughts, suspicions.

1) It's possible that they don't know--not because the evidence  or information is unavailable to them, but because they are "Double Highs"-- authoritarian personalities who also very much want social dominance.
To question such a fundamental part of their reality structure is alien to the authoritarian mindset, and in fact seemingly unrelated to (or even damaging to) their central task-- to gain control.

2) They know- but the conclusions and policy options that emerge from that knowledge are so heretical, so fundamentally scary that they continue to opt for the band-aid box. These candidates have given their lives to playing a game.  Play long enough, and you come to believe. Now, that game is rapidly emerging as just another fantasy- a narrative- that has an inexorable life of it's own, and a lousy ending.

Will they opt for real change?
Can it be done? FDR swam upstream like a champ. Maybe Obama can too.

But--- What was it that Krugman said?
"Hope is not a plan".

The Geeze says:
"Hope, like life, is better than the alternative."  

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 07:04:49 AM EST
[ Parent ]
It seems to be OK on US politics to say "Washington is broken", but not "Wall Street is broken".  I tend to see Politics and economics as two almost entirely separate games.  The US Presidential election is about winning he political one.  Then you have to say "all bets are off" on the economics game and start an entirely new game.  Do any of the candidates have the alacrity and ability to do this?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Mar 12th, 2008 at 07:22:52 AM EST
[ Parent ]
"I tend to see Politics and economics as two almost entirely separate games."

Boy, Frank-- I disagree.

Economics as a "discipline" is (and should be) a servant of politics--yes--since economists in general make lousy policy- too narrow a point of view, too lost in pandering.
But from the perspective of the voter (who, after all, is the central figure here), economics and it's real-life consequences are fundamental, and merge with--are the life blood of-- politics.
Most Americans have no dough in shares, view Wall Street as fundamentally "broken" anyhow, and would happily attend a CEO roast, if the main dish was one of those guys who make 2,000 times what a line worker makes, and just ran the cfompany intocv the ground---or moved it to Singapore.

It's only the Media who dare not speak ill of Wall Street.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 08:11:40 AM EST
[ Parent ]
God, I hate this keyboard.


Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Mar 12th, 2008 at 08:15:27 AM EST
[ Parent ]
My formulation was unclear. - I see them as being played as if they were entirely different games, with an international economic elite with almost no loyalty to its current host nation, and a political elite with harps excessively on patriotism but which has almost no power over the economic elite.  Of course the two are intimately connected, but you would hardly think so given how the games are being played at the moment.  Yes, there are arguments about NAFTA which are chiefly about foreigners when the real aliens are running the show back home.  International monopoly capitalism has few national ties except when it wants national institutions to pick up the tab when things go horribly wrong.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Mar 12th, 2008 at 09:39:46 AM EST
[ Parent ]
Don't forget we are what I would call a well-informed, concerned minority. We are still at the twilight stage where public perception of this slow-motion crisis can be summed up by the title of this article:

CNN: Recession? What recession?

But, but...

Have you lost your job, your business or your home? Are you raiding retirement accounts to pay the bills? We want to hear from you. Tell us how you're being affected by the weakening economy and you could be profiled in an upcoming story. Send emails to realstories@cnnmoney.com

When more and more people will answer yes, and yes, then it will be plain that we are several months into a recession.

You're clearly a dangerous pinko commie pragmatist.

by Vagulus on Tue Mar 11th, 2008 at 12:20:51 PM EST
[ Parent ]
Foreclosure crisis has ripple effect
The mortgage foreclosure crisis has caused a drop in cities' revenues, a spike in crime, more homelessness and an increase in vacant properties, a survey of elected local officials out today shows.

About two-thirds of 211 officials surveyed by the National League of Cities reported an increase in foreclosures in their cities in the past year, according to the online and e-mail questionnaire. A third of them reported a drop in revenues and an increase in abandoned and vacant properties and urban blight.

"There's a reduction in revenues at the same time that more services are needed," says Cynthia McCollum, president of the National League of Cities and councilwoman in Madison, Ala., a suburb of Huntsville. "Because of foreclosures, people are stealing, crime is on the rise and we don't have more money for cops on the street."

by das monde on Tue Mar 11th, 2008 at 11:07:45 PM EST
Now if taxes were levied on the land owner, rather than the occupier, there wouldn't be the same problem, I suspect.

If the foreclosing banks refused, or were unable to pay, then the Cities could simply take the properties into public ownership and use them for affordable housing.

Unfortunately, land rental values are taxed in very few places.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:29:40 AM EST
[ Parent ]


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