Something Is Not Right: February 2009

Sunday, February 22, 2009

Stimulus Bill Graphic

This was originally posted on MoveMiami's blog Transit Miami by Mike Lydon on February 20, 2009 -The Stimulus Bill Illustrated

"For those who like visual representation, like me, this graphic from the Washington Post may help you understand the architecture of the stimulus bill (Click here for the full graphic)."

Monday, February 16, 2009

Late Change in Geithner's Bank Plan

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Late Change in Course Hobbled Rollout of Geithner's Bank Plan - washingtonpost.com: "Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn't have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

The sharp course change was one of the key reasons why Geithner's plan -- his first major policy initiative as Treasury secretary -- landed with such a thud last Tuesday."

Economy Strains Under Weight of Unsold Items

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Economy Strains Under Weight of Unsold Items - washingtonpost.com: "'In China, during the boom, there was huge over-capacity in various lines of activity ranging from shoes and clothing, light manufacturing -- all of that stuff. So that is why from the perspective of U.S. companies, we have found it so important to be on the innovative edge,' said Harvard business professor Joseph L. Bower. 'The only way to create value is to be on the innovative, high-tech, fashion-forward side.'

If the credit crunch in the United States persists, 'companies will find it difficult to invest in technology for a while, and then once the financial markets are back on track and demand recovers, companies will find themselves in difficult position,' Comin said. 'Productivity growth will be declining for a while. They will have a hard time catching up."

Economy Strains Under Weight of Unsold Items - washingtonpost.com

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Economy Strains Under Weight of Unsold Items - washingtonpost.com: "Some analysts see ending the credit crunch as soon as possible as critical to preventing lasting damage. Harvard economist Diego A. Comin, in his research on Japan's decade-long bout of economic stagnation in the 1990s, found that demand stayed low long enough that businesses didn't make necessary investments. Computer adoption rates, for example, slowed, as did productivity growth. Businesses lost ground to competitors in countries such as South Korea, which made it harder for Japan to emerge from its slump.

Investing in new products and processes matters even more in highly competitive global industries plagued by over-capacity."

1.3 M Homes Too Many

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Economy Strains Under Weight of Unsold Items - washingtonpost.com:

"Harvard economist Edward Glaeser estimates that from 2002 to 2007, the country's housing stock increased by 8.65 million units, outpacing the number of new households, which increased only by 6.7 million over the same period. Taking into account a rise in the number of vacation homes, Glaeser estimates an overhang of about 1.3 million vacant units. Absorbing that excess, he said, could take an additional two years."

Friday, February 13, 2009

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "The current financial and economic crisis is difficult to appreciate, not only for the drop in elevation, but because of the swiftness of the declines. It’s been a Wile E. Coyote 12 months – straight down like a dead weight. A year ago, global equity prices were nearly twice today’s levels and recession was only a whisper on the lips of the gloomiest of economists. Today, descriptions drawing parallels to the Great Depression make it obvious that a major shift in economic growth and its historic financial model, as well as policy prescriptions for its revival, are underway. Most of the world’s connected economies and its citizens are in shock, conscious but not fully aware of the seismic shifts that will unfold in future years.

PIMCO’s thesis for several years has held that the levered global economy long ago morphed from a banking-dominated regime to one that hid behind securitized lending and structures resembling a “shadow banking” system. SIVs, hedge funds, CDOs and increasingly levered mortgage and investment banks fueled asset appreciation in all investment markets, which in turn propelled real economic growth and employment to unsustainable levels. But, with U.S. housing prices as its trigger, the delevering process did a Wile E. Coyote and headed over the cliff in"

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "The simplicity of the solution, however, is not easily achieved once deflationary momentum takes hold. Animal spirits, once dampened, are hard to reignite; “fear of fear itself” dominates greed. Under such circumstances, the benevolent hand of government is required and Keynes is reincarnated in an attempt to plug the dike via fiscal spending and imaginative monetary policies that support asset prices. PIMCO has recently been contracted to assist in several publically announced programs which have helped in that effort: the CPFF, which has benefitted commercial paper yields, and the Federal Reserve’s purchase program for agency-backed mortgage loans, which has lowered 30-year mortgage rates to 4.5% and fostered the affordability of new and secondary housing prices. These two programs, in our opinion, have been the major policy successes to date – not because of our involvement – but because they have supported and increased asset prices whose decline has been the major deflationary thrust behind the real economy. Stop asset prices from going down and with a 12-month lag, unemployment will stop going up, and President Obama’s targeted three million new jobs will have a fighting chance of being achieved."

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep: "But stopping the decline of asset prices can be and has been attempted in numerous, seemingly uncoordinated ways. Recapitalization of the banks has been the major thrust, in the hopes that banks would extend credit which would reinvigorate asset pricing. Those who argue strongly for a recapitalization of the banking system, however, may be missing the distinction between the banking system as we once knew it, and the “shadow banking” system that superseded it. Jim Bianco, who heads up the research tank bearing his own name, brought the difference to mind in a recently produced piece entitled, “When Will The Banks Start Lending?” His conclusion was that banks already were – lending – but it was the “shadow system” (my words) that was holding up the parade. According to his analysis, shown in Chart 1, securitization has for several years exceeded bank loans as a percentage of private credit market debt. In contrast to recent headlines, however, banks have been picking up their lending, but it has been the “shadow banks” that have faltered. That makes sense. While banks may have tightened their lending standards, fresh capital from the TARP has made it possible to make new loans. The shadow banks, however – hedge funds, investment banks, and str"

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "Stressing the importance of the shadow banks is not the same thing as suggesting that they should be next in line for government largesse and bailouts. Lord knows, the Obama Administration is not going to bail out hedge funds, CDOs, private equity firms (Cerberus?), or Donald Trump. There are levered risk takers that will be, and should be, allowed to fail. But in permitting failure, policymakers must still be cognizant of the need to support asset prices – hopefully by inducing confidence and trust in private investors, as pointed out by Robert Shiller in a recent Wall Street Journal op-ed, but if need be by the financing or purchase of assets themselves. It’s not so much that the stock market needs to go back to 10,000. That would be nice for millions of 401(k)s that have been cut in half over the past 12 months, but it is not likely. Rather, asset prices securitizing commercial real estate and credit card receivables, as well as plain old-fashioned municipal bonds, must stop going down if the real economy has any chance to revive by 2010."

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "Example: CMBS or commercial real estate mortgage-backed securities are now priced to yield over 12% vs. 5% in recent years. As real estate financing comes due and rolls over in the next few years, it is imperative these yields return to mid-single digits if shopping centers, retail malls, and office buildings are to remain viable. How best to bring those yields down is debatable: another CPFF-like structure with self-insurance and contributed fees as its equity backstop? A generous portion of remaining TARP billions providing a reserve cushion for Federal Reserve funding? A good bank, bad (aggregator) bank structure? All three are being debated by policymakers and we should have clarity within a week’s time. But one thing is certain: an economic recovery is dependent upon commercial real estate prices stabilizing and most retail stores staying open for business in the months and years ahead."

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "Similarly, municipal yields are now trading at nearly twice their Treasury counterparts, implying that municipal bonds are trading at 80 cents on the dollar instead of 113 cents like the average Treasury. To enable states and cities to return to normal functioning, those bonds must return to par. Modern day capitalism depends on the successful refinancing and issuance of securities at a price and yield level not significantly divorced from past experience. That is the same thing as saying that current yields must come close to matching the economy’s embedded cost of debt if default is to be avoided. Not only municipalities, but the efficient operation of hospitals, nursing homes and even universities depend on the leveling and returning of municipal bond prices to higher levels. Similar arguments can be made for corporate bonds as well."

PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "PIMCO’s advice to policymakers is as follows: you can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. The prior Administration’s focus on the banks has been critical but unidimensional. The shadow banking system with its leverage and financial innovation, powered a near 25-year global economic expansion, but it is the delevering of those hidden quasi-banks that is now threatening its petrification. Policymakers should not focus entirely on one-off bailouts of large real estate developers, municipalities, or even credit card issuers like they have with Citi, BofA, and AIG. Rather, they should recognize that supporting critical asset prices such as municipal bonds, CMBS, and even investment grade corporate bonds is a necessary step towards eventual economic revival. Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist. The original focus of the TARP was on asset prices, but the prior Administration quickly lost its way or perhaps its"

Tuesday, February 10, 2009

Bloomberg.com: Worldwide

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Bloomberg.com: Worldwide: "“The economic setback is still in its early stages, and any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next 6-12 months,” Ozeki wrote. “In order to overcome that second wave, governments worldwide would have to spend vast quantities of fiscal funds. The resulting erosion in their finances would increase the risk of dangerous side effects.”"

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide: "The world economy faces a “second wave” of the financial crisis unless governments adopt larger spending plans, wrote Koyo Ozeki, head of Asia-Pacific credit research in Tokyo at Pacific Investment Management Co.

There is “no clear sign of an end to the chaos,” he wrote in a report published today analyzing the experience of Japan’s so-called lost decade in the 1990s."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

KYOTO, JAPAN - MAY 5: Supachai Panitchpakidi (... Image by Getty Images via Daylife

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "Global economy"

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "Decisions taken in the next few months will shape the world for a generation. If we get through this crisis without collapse, we will have the time and the chance to construct a better and more stable global order. If we do not, that opportunity may not recur for decades.

We are living on the cusp of history. The priority is to reverse the downward spiral of despair through overwhelming and concerted action. That will only occur if the US now gives the leadership we need. Mr Obama may even find, as many presidents have found before him, that leading the world is easier and more rewarding than cajoling a recalcitrant Congress. This may not be the challenge he expected. But it is the challenge he confronts. History will judge his presidency on whether he dares to succeed."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "Contrary to views expressed in some circles, notably in the US, depressions are neither good for us, nor unavoidable. What is needed is determined and globally co-ordinated action. The lead must come from the US: it remains the hyperpower; the economic system is one it promoted; and the crisis had much to do with mistakes its policymakers and private institutions made, even if aided and abetted by mistakes elsewhere.

So what are the principles to be followed? I suggest the following:

First, focus all attention on reversing the collapse in demand now, rather than on the global architecture.

Second, employ overwhelming force. The time for “shock and awe” in economic policymaking is now.

Third, make future normalisation of fiscal and monetary policies credible.

Fourth, act in concert. Even the US cannot solve its problems alone.

Fifth, avoid protectionism.

Sixth, strengthen the ability of global institutions to help the weaker."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "Private credit growth is falling across most economies. Trade finance has been particularly affected, with dire results. The flow of private funds to emerging economies is collapsing: according to the Washington-based Institute for International Finance, net private flows are projected to be just $165bn in 2009, down from $466bn in 2008. Central and eastern Europe is particularly vulnerable."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "The general mood in Davos was one of gloom verging on despair. The gloom is justified, as the update of the World Economic Outlook from the International Monetary Fund makes plain. Global economic growth is now projected to fall to a mere ½ per cent this year, its lowest rate since the second world war. Output in high-income countries is expected to fall by 2 per cent, the first annual contraction since 1945. Industrial production and merchandise exports are in free fall, as consumers decide they do not need that new car or other goody right now (see charts)."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him: "the update of the IMF’s Global Financial Stability Report notes: “Worsening credit conditions ... have raised our estimate of the potential deterioration in US-originated credit assets ... from $1.4 trillion in the October 2008 GFSR to $2.2 trillion.” Losses are also spreading to many other asset classes and economies as the slump worsens."

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - It is always the economy, stupid

FT.com / Columnists / Martin Wolf - It is always the economy, stupid: "Buck up,” as my colleague Samuel Brittan says. Life is going to be much harder for longer than almost anybody imagined two years ago. But the UK can, with tough discipline and some luck, manage even these shocks."

Monday, February 9, 2009

PIMCO - Gross Beep Beep

WASHINGTON - OCTOBER 21: Life size bronze sta...

Image by Getty Images via Daylife

PIMCO Beep Beep: "The current financial and economic crisis is difficult to appreciate, not only for the drop in elevation, but because of the swiftness of the declines. It’s been a Wile E. Coyote 12 months – straight down like a dead weight. A year ago, global equity prices were nearly twice today’s levels and recession was only a whisper on the lips of the gloomiest of economists. Today, descriptions drawing parallels to the Great Depression make it obvious that a major shift in economic growth and its historic financial model, as well as policy prescriptions for its revival, are underway. Most of the world’s connected economies and its citizens are in shock, conscious but not fully aware of the seismic shifts that will unfold in future years.

PIMCO’s thesis for several years has held that the levered global economy long ago morphed from a banking-dominated regime to one that hid behind securitized lending and structures resembling a “shadow banking” system. SIVs, hedge funds, CDOs and increasingly levered mortgage and investment banks fueled asset appreciation in all investment markets, which in turn propelled real economic growth and employment to unsustainable levels. But, with U.S. housing prices as its trigger, the delevering process did a Wile E. Coyote and headed over the cliff in"

Sunday, February 8, 2009

Zero Hedge

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Zero Hedge: "So does the upcoming bailout have the makings of actually fixing the structural problems in the economy? Some thoughts on the various approaches, from BAC:

Aggregator Bank

This is an off balance sheet vehicle that pools multiple bank’s bad assets into one “Bad Bank” or “Aggregator Bank” that can both manage and dispose of the bad assets it buys from banks. To alleviate the pricing problem, the bad bank could focus on trading account securities and loans that have been most heavily marked down. By either taking these at the latest mark, or standardizing these marks across banks of the (relatively) more price transparent assets, the pricing issue – setting the correct price to protect taxpayers – could be avoided. The impact of this move would remove further downside uncertainty for the banks, freeing them up from those assets (while at the same time transferring all future upside to the government as well). However, that pool would be limited to those deemed sufficiently marked down to be able to avoid both price uncertainty and the potential that by setting too low of a price, further capital inadequacy issues would be exacerbated. These were the core problems of the first TARP program.

Ring fencing

This approach has two attractions. First, it avoids having to deal with the pricing issue. This is important for loans with no ready price an"

Zero Hedge

Cover of Financial Accounting

Zero Hedge: "The newsflow from D.C. over the next two days will make the lives of capital markets participants very exciting. Among the key expected news items is the rumored (temporary) abandonment of Mark-To-Market accounting principles, which caused quite a market rally on Thursday of last week. So as we prepare to say goodbye to the last relic of what was once an efficient market, it might make sense to reevaluate just what it is in the current accounting rules that is so inconvenient for the administration and Wall Street. Among these, chief is the Statement of Financial Accounting Standards No. 157 (here for the full 158 pages of FAS 157) as well as its lesser known cousin, FAS 115.

FAS 157 was fast-tracked for adoption in Q1 2008, with a simple goal: to streamline the valuation of an increasing plethora of hard-to-evaluate securities to a 'Fair Value' price. FAS 157's mission statement is the following:

This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However,"

How The World Almost Came To An End At 2PM On September 18

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Zero Hedge: How The World Almost Came To An End At 2PM On September 18: "On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it."

Something Is Not Right

Sunday, February 22, 2009

Stimulus Bill Graphic

This was originally posted on MoveMiami's blog Transit Miami by Mike Lydon on February 20, 2009 -The Stimulus Bill Illustrated

Monday, February 16, 2009

Late Change in Geithner's Bank Plan

Economy Strains Under Weight of Unsold Items

Economy Strains Under Weight of Unsold Items - washingtonpost.com

1.3 M Homes Too Many

Friday, February 13, 2009

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

PIMCO - IO Feb 2009 Gross Beep Beep

Tuesday, February 10, 2009

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - Why Davos Man is waiting for Obama to save him

FT.com / Columnists / Martin Wolf - It is always the economy, stupid

Monday, February 9, 2009

PIMCO - Gross Beep Beep

Sunday, February 8, 2009

Zero Hedge

Zero Hedge

How The World Almost Came To An End At 2PM On September 18

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Sunday, February 22, 2009

This was originally posted on MoveMiami's blog Transit Miami by Mike Lydon on February 20, 2009 -The Stimulus Bill Illustrated

Monday, February 16, 2009

Friday, February 13, 2009

Tuesday, February 10, 2009

Monday, February 9, 2009

Sunday, February 8, 2009

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