Something Is Not Right

Social Security: We Can Solve This

2010-03-27T17:56:00.001-07:00

1) raise the retirement age for today's teens and toddlers up to 69. Longevity is increasing at such a rate that it will still be a great deal for them. 2) raise the income ceiling, the amount of income to which social security taxes are applied. I don't favor removing the ceiling altogether because it violates my sense of fairness. This fundraising is not for the national defense but to cushion the later years. There should be a limit as to how much someone is asked to subsidize other people's retirements. 3) Trim the increase that Social Security recipients receive each year. Currently they get the COLA adjustment, but they got an extra dollop last year because the inflation rate was too low. An index that trails inflation by a fraction would minimize the impact but could save substantial sums over time. Of course, if the Medicare costs for Part B and D go way up as they are supposed to that would be an unfair double whammy on the elderly. This would need to be part of the calculus on any COLA fix.

The ideas above all make sense, but they make even better sense when combined for the simple reason that it becomes shared sacrifice: the younger generations see a delayed retirement age, the middle generations see a slightly higher tax on wages and the older generation sees some limits on the rate of increase in payments. If everyone takes a piece of this responsibility it becomes less of a burden on everyone.

Social Security: We Can Solve This

AIG might pay back $170 billion of its $182 billion bailout.

2010-03-15T21:59:00.000-07:00

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Here is a great article from Slate written by Daniel Gross, a writer from Newsweek. Definitely worth a read.

A quick except:

"When you look at the financial markets as a whole, the post-crisis bailout efforts have worked out better than expected. Many of the financial market guarantees were lifted without having been used, and the Treasury is turning a profit on the central component of the TARP. But AIG has so far loomed as a gigantic rebuttal to the optimists, a symbol of everything that went wrong.

But it turns out that the efforts to prop up AIG are also working out much better than expected. AIG still owes the Fed and the Treasury a combined $127 billion. But—surprise!—AIG is paying a lot of its debts back. And there's a not too far-fetched scenario in which we come close to breaking on our reluctant investment in the company."

Want to know how? Read the full article here: Here's a surprise: AIG might pay back $170 billion of its $182 billion bailout.

Jeremy Siegel on 2010: Good for Stocks, Bad for Bonds -- and Why Interest Rates Will Go Up - Knowledge@Wharton

2010-01-10T17:12:00.000-08:00

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Understanding the rules for 2010. Interview by Knowledge@Wharton of Wharton Professor Jeremy Siegel.

Jeremy Siegel on 2010: Good for Stocks, Bad for Bonds -- and Why Interest Rates Will Go Up - Knowledge@Wharton

Knowledge@Wharton: What is inflation going to do?

Siegel: Inflation is going to be under control this year and probably into 2011. However, we will have an upward tilt to inflation, which means the longer-run trends point to a 2%-to-4% range of inflation rather than zero to two, which unofficially is what most central banks and the Fed have targeted.

The scaremongers, who worry that the ton of money the Fed created to fight off the crisis is going to fuel the next [period of] inflation, are wrong.

Knowledge@Wharton: But the 2%-to-4% range is standard over the long run, right?

Siegel: It's not. I remember when I was studying economics, we talked about what a victory it would be if we could get down to between 2% and 4%. We've been spoiled with very low rates. Most central banks use zero to two. They come closer to two.

We'll move closer to between 2% and 4%, particularly in the United States, given the large deficits that we have and the liquidity that was created. But just as Bernanke acted very responsibly in providing the liquidity necessary to prevent [a repeat of] the Great Depression, he is also an excellent enough economist to know that money is what fuels inflation. The Fed is really solely responsible for inflation. He will not let it go above five, and probably not even four. He will raise interest rates to whatever level is necessary if inflation starts running into the mid-single digits or higher.

Knowledge@Wharton: When we talk about inflation, we also often talk about commodities. There has been a pretty good run in some commodities, especially gold. What do you see happening there?

Siegel: The commodities cycle has followed the world economy. It had hit its low very close to the same time the stock market did. Now that the world markets have recovered, we see oil has recovered. I would love to see it in the 70-to-80 range.

Commodities are fully priced. Gold ... is priced for an inflationary scenario that is much worse than will be realized. Gold is a risky investment now.... That is not going to be a good investment throughout 2010 and the longer term.

The Indian Economy in the Next Decade: Déjà Vu with a Difference - Knowledge@Wharton

2010-01-10T17:09:00.000-08:00

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What should India expect next year and what should we expect of Indi?. Some different viewpoints set forth in an interesting Knowledge @ Wharton article.

The Indian Economy in the Next Decade: Déjà Vu with a Difference - Knowledge@Wharton

"In 2010, governments will face the very difficult task of trying to restore fiscal discipline while also ensuring that withdrawals of stimulus measures do not kill off nascent economic recoveries," says the Economist Intelligence Unit (EIU). It estimates India's GDP growth at 6.5%, the ninth-fastest growing country. China, at 8.7%, is ahead, but others leading the pack are small economies like Qatar (24.5%).

To Fill Vacancies, Mall Owners Test Experimental Waters - NYTimes.com

2009-05-23T19:34:00.000-07:00

To Fill Vacancies, Mall Owners Test Experimental Waters - NYTimes.com: "Greg Maloney, president and chief executive of the retail group at Jones Lang LaSalle, a real estate brokerage firm, said that to fill empty anchor spaces, landlords were getting creative and were considering bringing in grocery stores, medical facilities, dance studios and even community or technical colleges.

“I think you’re going to see a lot more of that,” Mr. Maloney said.

Several schools — like New River Community College in Virginia and Hagerstown Community College’s Center for Continuing Education in Maryland — have been holding classes in malls for years. But industry professionals say the trend is likely to accelerate.

With Americans buying less, many chains are asking mall owners for rent reductions, and are sometimes receiving them. That adds to the malls’ financial woes.

One of the nation’s largest mall owners, General Growth Properties, is laden with more than $25 billion of debt, has missed payment deadlines on its bonds, and is trying to avoid filing for bankruptcy protection.

Landlords are willing to lower rents for their best retailers — but only those that can prove financial distress. The landlords may not be able to play hardball for long, though. More major chains are expected to file for bankruptcy"

Electricity Grid in U.S. Penetrated by Spies

2009-04-07T20:13:00.000-07:00

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WSJ.com: "WASHINGTON -- Cyberspies have penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system, according to current and former national-security officials.

The spies came from China, Russia and other countries, these officials said, and were believed to be on a mission to navigate the U.S. electrical system and its controls. The intruders haven't sought to damage the power grid or other key infrastructure, but officials warned they could try during a crisis or war.

'The Chinese have attempted to map our infrastructure, such as the electrical grid,' said a senior intelligence official. 'So have the Russians.'

The espionage appeared pervasive across the U.S. and doesn't target a particular company or region, said a former Department of Homeland Security official. 'There are intrusions, and they are growing,' the former official said, referring to electrical systems. 'There were a lot last year.'
Discuss

Many of the intrusions were detected not by the companies in charge of the infrastructure but by U.S. intelligence agencies, officials said. Intelligence officials worry about cyber attackers taking control of electrical facilities, a nuclear power plant or financial networks via the Internet."

NYT Editorial Observer

2009-04-04T22:03:00.000-07:00

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With the Downturn, It’s Time to Rethink the Legal Profession By ADAM COHEN April 1, 2009

The economic downturn is hitting the legal world hard. American Lawyer is calling it “the fire this time” and warning that big firms may be hurtling toward “a paradigm-shifting, blood-in-the-suites” future. The Law Shucks blog has a “layoff tracker,” and it is grim reading. Top firms are rapidly thinning their ranks, and several — including Heller Ehrman, a venerable 500-plus-lawyer firm founded in 1890 — have closed."

Wen Jiabao

2009-04-02T18:49:00.000-07:00

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25 People to Blame for the Financial Crisis - TIME:

If cheap credit was the crack cocaine of this financial crisis — and it was — then China was one of its primary dealers. China is now the largest creditor to the U.S. government, holding an estimated $1.7 trillion in dollar-denominated debt. That massive build-up in dollar holdings is specifically linked to China's efforts to control the value of its currency. China didn't want the renminbi to rise too rapidly against the dollar, in part because a cheap currency kept its export sector humming — which it did until U.S. demand cratered last fall."

Systemic risk of life insurance company failure

2009-03-15T21:39:00.000-07:00

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From AIG's website, a whitepaper on the Systemic Risk in the insurance industry. Certainly, AIG is wrapping themselves in the cover of their industry by speaking of the industry's Systemic Risk. But whether it is the entire industry at risk or just AIG and some others, the acknowledgment of systemic risk in such a direct way is striking:

"A significant rise in surrender rates – inspired by consumers’ needs for cash or because of rumored or real failure of insurance companies – could be disastrous. Because of widespread loss of liquidity, the industry would struggle to raise adequate cash to meet surrender requests. A “run on the bank” in the life and retirement business would have sweeping impacts across the economy in the U.S. In countries around the world with higher savings rates than the U.S., the failure of insurance companies like AIG would be a catastrophe."

Read the full March 6 Draft whitepaper titled: AIG: Is the Risk Systemic?

Who benefited by US support of AIG

2009-03-15T21:10:00.000-07:00

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Barclays $7.0
Deutsche Bank 6.4
BNP Paribas $4.9
Goldman Sachs $4.8
Bank of America $4.5
HSBC $3.3
Citigroup $2.3
Dresdner Kleinwort $2.2
Merrill Lynch $1.9
UBS $1.7
ING $1.5
Morgan Stanley $1.0
Societe Generale $0.9
AIG International Inc. $0.6
Credit Suisse $0.4
Paloma Securities $0.2
Citadel $0.2
Total $43.7

AIG's Municipal Counterparties

2009-03-15T20:49:00.000-07:00

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Municipalities listed on Attachment C received a total of $12.1 billion from AIGFP between September 16, 2008 and December 31, 2008 in satisfaction of Guaranteed Investment Agreement (GIA) obligations. GIAs are structured investments with a guaranteed rate of return. Municipalities typically use GIAs to invest the proceeds from bond issuances until the funds are needed.

AIG reveals who we are bailing out

2009-03-15T20:41:00.000-07:00

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Confused? We all are. Read this to learn what Financial Derivatives are.

Severe valuation losses on the super senior multi-sector credit default swap portfolio of AIG Financial Products Corp. (AIGFP) triggered collateral provisions in the swap contracts, creating a liquidity crisis for AIG in September 2008. The Federal Reserve Bank of New York (FRBNY) provided an emergency $85 billion loan to AIG to meet short-term cash needs. The aid received by AIG helped avoid severe financial disruptions by providing liquidity to important financial institutions and municipalities.

Using funds from the emergency loan, financial counterparties listed on Attachment A (all attachments are posted online at http://www.aig.com/Related-Resources_385_136430.html ) received a total of $22.4 billion in collateral relating to CDS transactions from AIGFP between September 16, 2008 and December 31, 2008. This amount represents funds provided to such counterparties after the date on which AIG began receiving government assistance. The counterparties received additional collateral from AIG prior to September 16, 2008.

FT.com / China - China lost billions in diversity drive

2009-03-15T20:40:00.000-07:00

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FT.com / China - China lost billions in diversity drive: "China has lost tens of billions of dollars of its foreign exchange reserves through a poorly timed diversification into global equities just before world markets collapsed last year.

The State Administration of Foreign Exchange, the opaque manager of nearly $2,000bn (€1,547bn, £1,429bn) of reserves, started making huge bets on global stocks early in 2007 and continued this strategy at least until the collapse of the US mortgage finance providers Freddie Mac and Fannie Mae in July 2008, according to analysts and people familiar with Safe’s operations.

By that point Safe had moved well over 15 per cent of the country’s $1,800bn reserves into riskier assets, including equities and corporate bonds, according to people familiar with its strategy.

Safe never discloses its holdings except to the top Chinese leadership so it is impossible to know exactly how much it has lost from diversifying before markets crashed.

But judging from the subsequent fall in global stock prices and a conservative estimate that Safe held about $160bn worth of overseas equities, Chinese"

AIG CEO Letter to Geithner

2009-03-15T19:02:00.000-07:00

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Letter from AIG's government appointed Chairman and CEO Edward Liddy to US Secretary of the Treasury Geithner:

In the first quarter of 2008, prior management took significant retention steps at AIG Financial Products. These arrangements were designed at a time when AIG Financial Products was expected to have a significant, ongoing role at AIG, and guaranteed a minimum level of pay for both 2008 and 2009. (Due to losses at AIG Financial Products, a senior manager will receive about 43% of his 2007 expected level for 2008.) Some of these payments are coming due on March 15, and, quite frankly, AIG’s hands are tied. Outside counsel has advised thatthese are legal, binding obligations of AIG, and there are serious legal, as well as business, consequences for not paying. Given the trillion-dollar portfolio at AIG Financial Products, retaining key traders and risk managers is critical to our goal of repayment. This is all discussed in more detail in the attached “white paper.”

Help! What is a Derivative?

2009-03-11T18:26:00.000-07:00

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Derivatives are financial contracts (financial instruments) whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset (e.g., commodities, stocks, residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items (e.g., weather conditions). Credit derivatives are based on loans, bonds or other forms of credit.

Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect. This activity is known as speculation.

Because the value of a derivative is contingent on the value of the underlying, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet.

Three major classes of derivatives:

1. Futures: Contract to buy or sell an asset on or before a future date at a price specified today. It is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold. (Similarly, but with an important difference, a forward contract is a non-standardized contract written by the parties themselves.)

2. Options are contracts that give the owner the right, but not the obligation, to buy or sell an asset. (A call option is an option to buy, a put option is an option to or sell). The price at which the sale takes place is known as the strike price and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. If the owner of the contract exercises this right, the counterparty has the obligation to carry out the transaction.

3. Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets.

Wikipedia is criticised for being unreliable and suceptible to manipulation. But say what you will about Wikipedia, if you want to get a feel for what Financial Derivatives are then take a look at this: Wikipedia - Financial Derivatives

1997 article by Cato Institute seemingly arguing for less regulation of Financial Derivatives: 10 Myths about Derivatives

Stimulus Bill Graphic

2009-02-22T06:11:00.000-08:00

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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)."

Late Change in Geithner's Bank Plan

2009-02-16T20:13:00.000-08:00

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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

2009-02-16T20:00:00.001-08:00

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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

2009-02-16T20:00:00.000-08:00

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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

2009-02-16T19:57:00.000-08:00

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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."

PIMCO - IO Feb 2009 Gross Beep Beep

2009-02-13T22:03:00.000-08:00

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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

2009-02-13T22:02:00.000-08:00

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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

2009-02-13T22:01:00.000-08:00

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

2009-02-13T21:59:00.000-08:00

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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

2009-02-13T21:57:00.000-08:00

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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

2009-02-13T21:56:00.000-08:00

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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

2009-02-13T21:54:00.000-08:00

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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"

Bloomberg.com: Worldwide

2009-02-10T18:51:00.000-08:00

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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

2009-02-10T18:50:00.000-08:00

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

2009-02-10T18:34:00.001-08:00

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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

2009-02-10T18:34:00.000-08:00

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

2009-02-10T18:32:00.000-08:00

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

2009-02-10T18:28:00.001-08:00

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

2009-02-10T18:28:00.000-08:00

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

2009-02-10T18:27:00.000-08:00

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

2009-02-10T18:26:00.000-08:00

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

2009-02-10T18:24:00.000-08:00

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."

PIMCO - Gross Beep Beep

2009-02-09T14:40:00.000-08:00

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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"

Zero Hedge

2009-02-08T20:49:00.000-08:00

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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

2009-02-08T20:47:00.000-08:00

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

2009-02-08T20:45:00.000-08:00

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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."

The Slide Continues

2009-01-30T22:34:00.000-08:00

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Bloomberg.com: Worldwide: "The U.S. economy is likely to keep deteriorating in early 2009 after shrinking last quarter by the most since 1982, as consumers and businesses retrench.

The 3.8 percent annual pace of contraction in the fourth quarter was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said yesterday in Washington.

Job cuts announced this month by companies from Starbucks Corp. and Pep Boys - Manny, Moe & Jack to Eastman Kodak Co. mean there’ll be little respite in the first half of this year, economists said. The Obama administration used the figures to reinforce its call for Congress to pass a stimulus package in excess of $800 billion to arrest the economy’s decline.

“The recession is going to last through most of 2009, and we’ll be lucky to have growth back at zero by the end of the year,” Kenneth Rogoff, a Harvard University economics professor, said in a Bloomberg Television interview from Davos, Switzerland, yesterday. Economic growth “will be pretty tepid for a long time.”"

B of A to defer some bonuses over three years

2009-01-30T22:22:00.000-08:00

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Bloomberg.com: Worldwide: "Bank of America Corp. is deferring payment of 2008 bonuses of $50,000 or more at its capital markets and investment banking units over three years, according to people familiar with the matter.

Employees who had expected a bonus this month based on their 2008 work will instead get most of it in three annual installments, starting in February 2010, said the people, who declined to be identified because the plan isn’t public."

How to not let this happen again

2009-01-30T19:54:00.001-08:00

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Allowing Lehman Brothers to collapse had such severe systemic effects that the global financial system went into cardiac arrest and is still dealing with the aftermath.

How do we set up a sytem to eliminate the risk of (another) global financial meltdown? In their FT.com article 'A proposal to prevent wholesale financial failure', NYU Stern students Lasse Pedersen and Nouriel Roubini have devised a way to avoid the "worst financial crisis since the Great Depression."

Bail-outs of major financial institutions are based on a fear that their collapse would cause havoc, with collateral damage to the real economy. Examples include the Bear Stearns, Fannie, Freddie, AIG, and Citigroup.

The current system is "vulnerable to financial contagion when big banks (or many small ones) go bust. This is the systemic risk. The root of this problem is that "banks have little incentive to take into account the costs they impose on the wider economy" if their failure prompts a liquidity crisis.

"This is akin to when a company pollutes as part of its production without incurring the full costs of this pollution. To prevent this, pollution is regulated and taxed."

How do we reduce both the moral hazard and the cost of bail-outs in the event of a liquidity crisis? Impose a new systemic capital requirement and systemic insurance program. Once systemic risk can be measured, it can be managed.

Banks already use standard risk-management techniques internally to weigh how much each trading desk or division contributes to the overall risk of a bank. But the authors suggest that these same ideas should be used to evaluate the banks themselves. They set out their ideas in an NYU Stern project on restoring financial stability.

"First, the regulator would assess each bank’s systemic risk. The higher it is, the more capital the bank should hold. This would seek to ensure that the banking system as a whole had sufficient capital relative to the system-wide risk. This is just like the headquarters of a bank charging each trading desk or division for use of economic capital measured by its contribution to overall firm risk.

Second, each institution would be required to buy insurance against its systemic risk – that is, against its own losses in a scenario in which the whole financial sector is doing poorly. In the event of a pay-off on the insurance, the payment should not go to the company, but to the regulator in charge of stabilising the financial sector."

What happens then? A market-based estimate of the risk the develops (the amount of theinsurance premiums). Second, each bank would have an incentive to limit systemic risk (via lower insurance premiums). Finally, it would reduce the fiscal costs and the moral hazard of government bail-outs (because the company does not get the insurance pay-off).

Since the private sector may not be able to put aside enough capital for all the systemic risk insurance, government could provide part of it. Government already provides such partnership on insurance with the private sector in terrorism insurance.

"Unfortunately bank regulation, such as the Basel accord, ignores systemic risk since it analyses the risk of failure of each bank in isolation. It seeks to limit the probability of failure by each bank, treating isolated failures and systemic ones in the same way (and also ignoring how much a bank loses if it fails). However the move by many large banks to lever their balance sheets with similar mortgage-backed securities is more dangerous than if they had made loans to diverse borrowers."

More broadly, a systemic crisis that feeds on itself is more dangerous than the isolated failure of smaller banks. A small bank will probably be taken over with a smooth transition of operations – it does not bring down the economy.

"We believe our proposal offers several advantages by explicitly addressing systemic risk based on tools already in use by private companies to manage internal risks. Our proposal is a better way to deal with the trade-off between letting a large institution go bust (Lehman, for example) and causing a global cardiac arrest of the financial system or being forced to spend trillions of dollars of taxpayers’ money to bail out such systemically critical institutions."

The writers are professors at NYU Stern School of Business and the proposed regulation of systemic risk is part of the NYU Stern project Restoring Financial Stability: How to Repair a Failed System (John Wiley & Sons, 2009)

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Japan Heads for Worst Postwar Slump

2009-01-29T19:29:00.000-08:00

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Bloomberg.com: Worldwide: "Jan. 30 (Bloomberg) -- Japan headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December, unemployment surged and households cut spending.

The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.

Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toshiba Corp., which is firing 4,500 workers, yesterday forecast a record annual loss and said it will delay building a chip factory. Honda Motor Co. this week widened production cuts.

“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”

The Nikkei 225 Stock Average sank 3.4 percent at the morning close in Tokyo, led by Toshiba and Nintendo Co., which cut its profit forecast by a third yesterday. The Nikkei has fallen 10.1 percent this year, extending last year’s record 42 percent drop."

Fed Warns of Global Deflation

2009-01-29T02:21:00.000-08:00

Image via Wikipedia southfloridabusinesswatch.blogspot.com]

“The Fed statement yesterday said its prediction of a “gradual recovery” in the U.S. economy later this year has “significant” risks of failing to materialize. At their meeting, central bank officials gave updated forecasts for gross domestic product, inflation and unemployment that will be released with meeting minutes on Feb. 18.

It sounds like the worry is not so much recession as it is depression,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We can only hope that the famous long and variable lags of monetary policy will eventually kick in.”

FT.com European companies

2009-01-20T20:36:00.000-08:00

FT.com / Companies / European companies - Fiat to take 35% stake in Chrysler: "Fiat is to take a 35 per cent stake in Chrysler as part of a deal between the Italian and US automakers as they seek to weather the severe downturn in the automotive industry.

The two groups confirmed on Tuesday that they had signed a “non-binding term sheet to establish a global strategic alliance” that would see Turin-based Fiat acquire the stake in Chrysler in exchange for production and distribution assets."

FT.com / Companies - Newspapers turn into rich mens’ toys

2009-01-20T20:26:00.000-08:00

FT.com / Companies - Newspapers turn into rich mens’ toys: "When Gannett, the owner of USA Today, told its employees last week that they would each have to take a week’s unpaid leave, it was “the crowning blow in making us look like the auto industry”, one former editor told Alan Mutter, the newspaper veteran and blogger.

Unlike Detroit, however, the newspaper industry is looking to wealthy individuals rather than government to bail it out."

FT.com / Companies - Google fails to export ad success to print

2009-01-20T20:25:00.000-08:00

FT.com / Companies - Google fails to export ad success to print: "Google’s efforts to export its advertising success to the newspaper industry have ended in failure with the closure of its Google Print Ads service.

The Silicon Valley company said on Tuesday it had hoped to create a new revenue stream for the embattled newspaper industry and produce more relevant advertising for consumers, but admitted: “The product has not created the impact that we – or our partners – wanted.”"

Bloomberg.com: U.S.

2009-01-20T20:21:00.000-08:00

Bloomberg.com: U.S.: "“The tragic history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis,” Geithner said.

“If our policy response is tentative and incrementalist, if we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem, then we risk greater damage to living standards, to the economy's productive potential, and to the fabric of our financial system,” he said."

FT.com / World - Poll shows EU voters resistant on Afghan war

2009-01-19T19:32:00.000-08:00

FT.com / World - Poll shows EU voters resistant on Afghan war: "Any attempt by Barack Obama to get European Union members of Nato to send more troops to Afghanistan will be strongly rebuffed by EU voters, according to a new opinion poll for the Financial Times.

As Mr Obama prepares to be sworn in as US president on Tuesday, a Harris poll for the FT shows that clear majorities of people in the UK, France, Italy and Germany believe that their governments must not send more forces to Afghanistan, irrespective of demands that the new American head of state might make."

Prepare to bury the fatally wounded big banks

2009-01-19T19:14:00.000-08:00

FT.com / Comment / Opinion - Prepare to bury the fatally wounded big banks: "Friday’s bad news from Citigroup and Bank of America confirmed what many experts have long suspected: the subprime losses of 2007 were a bullet that fatally wounded the banks. Many lost so much money on toxic subprime mortgage-related derivatives that they have been essentially insolvent for more than a year. It has taken so long for these banks to fall only because of government support and some investors’ bottomless capacity for denial.

Consider Friday’s eye-popping figures. Bank of America recorded a $15.3bn (£10.4bn, €11.5bn) loss at Merrill Lynch, which it owns. Citigroup announced a total 2008 loss of $18.7bn, nearly half of which came from the fourth quarter. Even in the context of this crisis, these losses are epic."

FT.com / Europe - Spain loses triple A rating

2009-01-19T19:13:00.000-08:00

FT.com / Europe - Spain loses triple A rating: "Spain lost its triple A credit rating from Standard & Poor’s on Monday when the ratings agency downgraded the country’s long-term sovereign debt because of its deteriorating public finances.

S&P lowered its rating by one notch to double A plus, arguing that the global economic crisis had highlighted “structural weaknesses” in the Spanish economy that were inconsistent with triple A, the highest rating."

Brown accuses RBS of ‘irresponsible risks’

2009-01-19T19:12:00.000-08:00

FT.com / UK - Brown accuses RBS of ‘irresponsible risks’: "Gordon Brown on Monday unveiled a second bank rescue package including powers for the Bank of England to lend up to £50bn directly to businesses, as he accused the Royal Bank of Scotland of taking ”irresponsible risks” as the bank’s shares collapsed.

His comments came as RBS on Monday warned it could report an annual loss of up to £28bn, following the mis-timed acquisition of ABN Amro, the Dutch lender it acquired as part of a €71bn (£63bn) hostile break-up bid in 2007."

Why are the banks in crisis again?

2009-01-19T19:11:00.000-08:00

FT.com / Columnists / Tony Jackson - Why are the banks in crisis again?: "The ugly downward lurch of US and European banks in the past 10 days is unsettling, if not wholly unexpected. What is behind it? And where do we go from here?

One likely answer to the first question is that with year-end window dressing out of the way, the banks are starting to confront reality. Citigroup has switched abruptly from defending its conglomerate structure to breaking it up. Barclays has stopped talking about hiring investment bankers and is firing 2,100 instead.

And so forth. In essence, the banks are staring down the twin barrels of a shotgun. The old problems of rancid assets remain, and the new ones of recession are kicking in.

As a result, the system looks like it will stay glued up for a while. The recent fall in interbank rates might suggest otherwise but as Richard Portes of the London Business School points out, they are not the whole story.

In Europe, he puts the amount parked by the banks with the European Central Bank at well over €300bn. They are losing money on those deposits. But that is evidently preferable to risking the cash by putting it to work."

Why are the banks in crisis again?

2009-01-19T19:09:00.000-08:00

FT.com / Columnists / Tony Jackson - Why are the banks in crisis again?: "Karen Olney, European strategist with Merrill Lynch, sees the threat differently. Investors, she says, already assume government is the only answer. Their worry is that, as lending risk increasingly becomes sovereign risk, the burden will act as a brake on the whole economy.

The scale of that threat is indicated by a chilling little exercise from Merrill’s bank analysts. This involved measuring European bank assets as a proportion of Europe’s gross domestic product over the years.

The analysts then made the arbitrary but not unreasonable assumption that the ratio should revert to the pre-credit bubble levels of 2002-03. That would apparently mean European banks shrinking their assets – in effect, their loans – by €5,500bn. The reduction so far has been €800bn, leaving €4,700bn to go.

If nothing else, this seems further proof that banking will emerge at the other end of all this changed beyond recognition. I have floated before now the notion that the industry might have been caught up in a 25-year supercycle. That now looks less fanciful by the day."

Key report on financial reform

2009-01-15T22:23:00.000-08:00

Image via WikipediaImage via WikipediaImage via Wikipedia From The Economist - An important new report on regulating the financial industry released Thursday (Jan 15) should play a crucial role in shaping the financial reform agenda.

The Group of Thirty’s “Financial Reform: A Framework for Financial Stability” is important both because of the concreteness of its 18 recommendations and because of who was involved. The authors were led by Paul Volcker, Tim Geithner, Larry Summers, and Jean-Claude Trichet, (president of the European Central Bank).

Banks:

banks deemed systemically important would face restrictions—in the form of “strict” capital requirements—on high-risk proprietary activities, that is bets made using their own money
strongly encourage investment banking arms of banks to focus on client businesses, such as merger advice, rather than trading
separating these needed because they seem “unmanageable in financial conglomerates"
also require raising the level at which banks are well-capitalised

Non-bank financial institutions:

pools of private capital that live on borrowed money should have to register with a regulator and produce regular reports, disclosing things such as leverage and performance.
biggest of them would even be subject to capital and liquidity standards.
bank-like regulation for money-market funds
legislation in America to set up a mechanism for dealing with non-bank failures

Other key issues:

Central banks should be more involved in supervising banks—but to safeguard integrity the role of chief firefighter should be played by others once trouble ignites. Central bankers “need to be more concerned about financial stability, but less involved in crises,”
formal system of regulation for over-the-counter derivatives, such as the type of credit swaps that sank American International Group
urges regulators to force banks to hold on to a significant portion of credit risk when they package loans into securities and sell them on, in order to curb reckless underwriting of mortgages and other debt.
calls for a rethink of certain accounting principles that may exacerbate downturns through pro-cyclicality, including the practice of marking assets to the current market value;

The other important message is that a global crisis requires a global fix. Mr Volcker was typically modest, insisting it was more an agenda for discussion than a hard-and-fast blueprint. But, given his closeness to Mr Obama, it is hardly far-fetched to imagine much of it becoming official policy. All that talk of the biggest overhaul of financial regulation since the 1930s just took a step towards reality.
"

The Darkest Hour

2009-01-06T15:32:00.000-08:00

Image by artemuestra via FlickrFrom economy.com, Marc Zandi gives his upbeat look ahead to the national economy in 2008. Among the highlights:

The coming year will be the worst in decades for the U.S. economy as millions of jobs are lost across nearly all industries, occupations and regions.

Although the crisis began with excesses in the financial system, it was exacerbated by policy missteps that led to financial panic.

Despite their past errors, only concerted action by policymakers can end the panic and prevent the forecast from turning darker.

Even if the recession ends this year, recovery will be slow, with GDP not reaching its pre-recession peak until late 2010.

The current episode, while painful, could lead to needed reform of the financial and regulatory system.

This will likely be the worst year for the U.S. economy since the end of the 1930s. The recession that began 13 months ago will plague much of 2009, particularly during the first half of the year.

Real GDP is expected to fall 3% peak to trough, and close to 5 million jobs will be lost. The unemployment rate will surge to 9%. The drop in manufacturing will be especially severe, but the hallmark of this downturn will be its breadth across industries, occupations and regions. More than 300 of the nation's 381 metropolitan areas will be in recession; unlike in past recessions, which were regionally concentrated, there is no obvious place to move for better prospects in this downturn.

Worldwide Bankruptcy Wave About to Hit

2008-12-19T10:24:00.000-08:00

Image via WikipediaA recently released report by Paris-based Euler Hermes, the world's largest credit insurer, concludes that Europe and the U.S. will experience a significant increase in business failures in 2009.

Lawyer Accused of Stealing Millions

2008-12-14T09:04:00.000-08:00

Image via WikipediaNYTimes.com: "Federal authorities have been tracking what they describe as a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers. Mr. Dreier has been charged with multiple frauds in the United States and a related crime in Canada, and is being held without bail in Manhattan.

In court last week, prosecutors said their count so far put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions.

In recent days, Dreier L.L.P., the Park Avenue law firm that Mr. Dreier founded, has been plunged into chaos. At least $35 million in escrow that was to have been held by the firm seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work."

CFOs are pessimistic

2008-12-11T05:31:00.000-08:00

Image via Wikipedia

According to a new study by Duke University and CFO Magazine.

Executives say they expect the recession to last for another year. They also say that earnings, capital spending and employment all will drop in 2009.

Duke says that this quarter’s study, which asked 1,275 CFOs around the world about their expectations for the economy, finds CFOs at their most pessimistic in the survey’s more than 12-year history. Some 81 percent of U.S. CFOs are more pessimistic about the economy now than they were a quarter ago, and almost 60 percent say the U.S. economy won’t recover until the fourth quarter of 2009 or later – with 39 percent saying recovery won’t start until 2010.

CFOs say employment should fall by 5 percent in the U.S. and Europe in 2009. Capital spending will fall by 10 percent in all regions.

Banks on Life Support

2008-12-11T05:12:00.000-08:00

Image via Wikipedia

The coming tidal wave of consumers falling behind on their credit cards and other debt will keep banks in sorry shape for the next year or more, Oppenheimer analyst Meredith Whitney told CNBC Wednesday.

“The big banks are going to be on life support for at least 18 months, if not 36 months,” she said. “The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years.”

Her remarks underscore recent comments by the nation’s top bankers. Bank of America CEO Ken Lewis says he anticipates the credit card industry will experience record losses. Lewis’ predecessor Hugh McColl recently told the San Francisco Business Times that it will take time for the economy to work its way through unwinding the credit bubble. And when he says time, he’s talking years, not months.

“Individuals are over-leveraged,” he said, adding that he’s speaking as an industry observer and not on behalf of BofA (NYSE: BAC).

Fed-style QE is Printing Money

2008-12-08T12:22:00.000-08:00

Image via WikipediaBarclays Capital lays out a primer for what the Fed is really doing for monetary policy. The Fed can't drop interest rates below 0%, but there are other weapons in the Fed arsenal. Barclays Capital in their most recent Weekly Market Monitor talks in depth about the current Fed policy called Quantitative Easing. (See Help! What is Quantitative Easing?)

"Without making a formal announcement, the Fed has already moved to a policy that is effectively QE. While its policy objective is still the fed funds rate, the Fed's balance sheet has more than doubled over the past three months to over $2 Trillion as it has expanded its emergency lending programs, foreign currency swap lines, and open market purchases. When the Fed began creating new lending facilities last year, it financed them by selling Treasuries, thereby keeping its balance sheet from expanding.

A few months ago, the Fed ran low on Treasuries it could sell and began to expand its
balance sheet; however, it sought to soak up or sterilize this expansion through the use of a special Treasury bill program. The Treasury sold bills and deposited the proceeds in its account with the Fed, and the Fed used the proceeds to extend loans to banks based on illiquid collateral. While the Fed's balance sheet was being grossed up, the Treasury was soaking up cash through bill issuance and systemwide liquidity was unchanged.

The Treasury program is being wound down and the expansion of Fed programs is being
financed through increases in excess bank reserves. In this case, the Fed is extending the same collateralized loans, generating excess reserves, and grossing up its balance sheet without sterilizing the transaction through the Treasury facility. Thus, the Fed is currently "printing money" and the over-provision of reserves to the banking system is far beyond what would be required to meet the FOMC's target funds rate."

Help! What is Quantitative Easing?

2008-12-08T12:08:00.000-08:00

Image via WikipediaA great Weekly Economic Monitor from Barclays Capital this week. (If you don't get it, start building a relathipship with the Barclays team. Their research is the best.)

Quantitative easing (QE) is the name given to a three-part monetary policy program implemented by the Bank of Japan (BOJ) from March 2001 to March 2006. At the outset of the program, the BOJ believed that economic conditions warranted monetary easing as drastic as is unlikely to be taken under ordinary circumstances, and therefore made the following changes to its policy strategy:

1. A switch in the operational objective of monetary policy the policy instrument from an overnight interest rate to current account balances(bank reserves plus deposits of non-bank financial intermediaries at the central bank).

2. A reduction in the overnight interest rate to zero.

3. A commitment to maintain the new procedures until y/y CPI inflation registers stably at zero percent or higher.

Virtually all developed-world central banks conduct monetary policy in the same way: by adjusting the supply of bank reserves balances in accounts commercial banks maintain at the central bank in order to target a specific short-term interest rate. The amount of reserves supplied is a passive variable in this process. Banks demand a certain quantity of reserves to meet reserve requirements plus an additional, much smaller, amount of precautionary reserves. The central bank simply meets the amount of reserves demanded at the targeted interest rate. As a result, the total amount of reserves in the banking system is, in a normal environment, very close to the level of required reserves (i.e there are very little excess reserves).

Fed Has Already Adopted Quantitative Easing

2008-12-08T10:34:00.000-08:00

Image via WikipediaPer the latest Market Watch from Barclays Capital:

"In recent weeks, there has been a rather odd debate over whether the Fed will adopt Japanese-style quantitative easing: that is, flood the banking system with reserves to induce more lending. In our minds, the Fed has already gone well beyond anything the Japanese ever did. It has already dramatically expanded bank reserves, and unlike the Japanese, it has used these funds to intervene aggressively in many parts of the capital markets. This is quantitative easing on steroids.

If our baseline forecast is correct, it could mean a broad-based shift in the capital markets as a variety of risk aversion trades unwind. Once the markets believe policy-makers are succeeding in containing the capital markets and economic crisis, we would expect a rally in risky assets such as credit spreads and equities; a bear steepener in the treasury market, as the Fed holds down the short end and budget deficit concerns push up the long end; a weakening of the dollar as safe-haven inflows ease; and a rally in commodity markets as investors price in an eventual recovery in global demand."

2008-12-08T09:51:00.000-08:00

Is Deflation a Risk in 2009?

2008-12-08T07:40:00.000-08:00

According to the Barclays Capital Weekly Economic Monitor, there "is little immediate risk of deflation."
The report goes on to say that although headline inflation will fall into negative territory (yr to yr) heading into fall 2009, this is primarily due to falling in energy prices. Once energy prices "find a bottom, inflation will naturally rise back to the level of core inflation. This is a case of a big fall in one relative price, not a broad-based deflation."

The report goes on to say that the real risk of deflation comes in 2010. If the unemployment rate does not come down quickly from the presumed 8% peak, core inflation will drop steadily and could pierce the lower end of the 1-2% Bernanke bands in 2010. This risk argues for continued very accommodative monetary policy for a long time to come. Presumably, the Fed will want to exit from its aggressive market interventions as quickly as the capital markets safely allow. These programs distort the capital markets, put tax dollars at risk, and should be phased out as soon as it is safe.

Morgan Stanley Ups Stake in Struggling General Growth

2008-12-05T21:39:00.000-08:00

Image by Getty ImagesMorgan Stanley has become the second investor to take a large stake in General Growth Properties Inc., the struggling mall operator headquartered in Chicago. Morgan Stanley bought more than 13.6 million shares, upping its stake in the company from 3 percent to 5.1 percent.

General Growth’s stock price closed yesterday at 94 cents. At mid-morning today, it had risen to $1.35. Last month, Pershing Square Capital Management, a New York City-based hedge fund managed by William Ackman, bought just over 20 million shares or a 7.5 percent stake in GGP.

The Morgan Stanley move followed an agreement, reported Monday by CPN, between General Growth and a six-lender consortium to extend the maturity date for $900 million in mortgage loans on two of three General Growth malls in Las Vegas. In an attempt to raise cash, the mall operator has put both of those properties, the Fashion Show and Palazzo malls, up for sale, along with a third Las Vegas center, Grand Canal Shoppes. General Growth owes approximately $27 billion, a debt load created to finance acquisitions, including its $12.6 billion acquisition of the Rouse Co. in 2004.

See article: Morgan Stanley Ups Stake in Struggling General Growth

Let Home Prices Fall

2008-12-04T21:45:00.000-08:00

Image via The sooner prices are allowed to naturally fall to normal, post-bubble levels, and the sooner that houses become affordable, the sooner the economy can heal itself and start growing instead of contracting.

By way of analogy, imagine a reprise of the Dutch tulip mania of 1637. Say the price of tulip bulbs has grown handsomely in the last few years, and impressive fortunes were made by early speculators.

Bidding wars erupt, with the winners hoping to resell them the bulbs at a handsome profit months or years later. Cable TV hosts proclaim that a golden age of prosperity has dawned. Prized bulbs change hands for $1 million each, and skeptics are reviled as doomsayers.

Eventually this boom leads to a bust, as new buyers become scarce, and the price of tulip bulbs suffers a dizzying fall down to $10 each. Speculators complain to Congress. Politicians pledge to use tax dollars to purchase bulbs for $1,000 or $10,000, invoking phrases like 'stability' and 'liquidity crisis,' or offering taxpayer-backed loan guarantees to speculators.

This would sound silly for tulips, but it's close to what's happening for houses. All this will do is slow -- and not arrest -- the process of prices falling. Not eve"

Let Home Prices Fall, Declan McCullagh Says Further Government Intervention Will Do More Harm Than Good - CBS News

Is China Heart of Slowdown?

2008-12-02T22:26:00.000-08:00

Image by House prices in Shanghai, Shenzhen and Guangzhou are plunging, and the global economy may grind almost to a halt next year because of it."

Full article on CBS News at: China Is `Heart of Global Slowdown' as Property Slump Stalls Driver of GDP

White & Case to Undergo Major Reorganization

2008-12-02T22:22:00.000-08:00

Image via WikipediaChange is coming to White & Case, and the name of that change is middle management. Under a new structure put in place this week, firm power will shift away from 35 individual offices and be dispersed among 14 regional groups. There also will be a renewed focus on 16 different global practices. The moves come in the wake of a four-month review of White & Case's strategy and structure by McKinsey.

'The day of the brick and mortar approach to building a global law firm is over,' says chairman Hugh Verrier, who spoke about the reorganization for the first time on Tuesday in an exclusive interview with The Am Law Daily.

For a quarter century, since it took its first steps on a path to becoming a global law firm, White & Case's far-flung offices have operated as individual fiefdoms, with little directive from above on how to grow business, choose clients, or cut costs. But with 2,500 lawyers spread around the world and growing competition from other, more-focused global powers, White & Case's leaders felt a review of the business was in order, Verrier says.

See article at Am Law Daily: White & Case to Undergo Major Reorganization

Bloomberg.com: Exclusive

2008-12-02T21:57:00.000-08:00

Image via WikipediaBarclays Dickers on Loan Waivers as European Banks Fight More Writedowns: Royal Bank of Scotland Group Plc and Barclays Capital are staving off writedowns by propping up European companies with plummeting loan values."

Interactive Investor

2008-11-28T22:36:00.000-08:00

ar companies rally after FT report on GM:

Shares of car companies rallied on Friday after the Financial Times reported that General Motors asked real estate agent Jones Lang LaSalle for help in raising up to $257 million from the sale and leaseback from some of its European offices and property assets.

Shares of GM, a Dow component, were up 10 percent to $5.30 while Ford Motor shares surged 25 percent to $2.68. The Dow Jones U.S. Automobile Index surged 12 percent to 48.45."

Citigroup deal could be template

2008-11-25T02:12:00.000-08:00

Image via WikipediaCitigroup deal could be template for other banks: By Pallavi Gogoi, USA TODAY

NEW YORK — The latest bailout of Citigroup (C) helped soothe financial markets Monday and could serve as a model for other U.S. banks looking for help with their large portfolios of toxic assets.

The U.S. government late Sunday offered $20 billion for Citi preferred stock, on top of the $25 billion it has already given the bank. But this time, the government also said it will assume 90% of losses from Citi's $306 billion portfolio of loans related to bad mortgages if the losses exceed $29 billion, in return for another $7 billion in Citi preferred stock.

The news boosted Citi shares 58% to $5.95, helped lift other battered financial stocks and triggered a broad market rally Monday in which the Dow Jones industrials surged 397 points to 8443.

NEW YORK — The latest bailout of Citigroup (C) helped soothe financial markets Monday and could serve as a model for other U.S. banks looking for help with their large portfolios of toxic assets.

The U.S. government late Sunday offered $20 billion for Citi preferred stock, on top of the $25 billion it has already given the bank. But this time, the government also said it will assume 90% of losses from Citi's $306 billion portfolio of loans related to bad mortgages if the losses exceed $29 billion, in return for another $7 billion in Citi preferred stock.

The news boosted Citi shares 58% to $5.95, helped lift other battered financial stocks and triggered a broad market rally Monday in which the Dow Jones industrials surged 397 points to 8443.

Analysts say the backstop was essential to calm investors worried that the values of U.S. bank portfolios have been getting worse each passing month. "Persistent downward pressure on valuations of residential mortgage assets are being compounded by falling valuations of commercial real estate and other assets," says Brian Bethune at IHS Global Insight.

Any bank with similar toxic assets in their portfolio now has a chance to ask the government for similar cover. "Bank of America (BAC) can use this template to reduce the risk on Merrill's (MER) portfolio before they close the deal," says Cassandra Toroian, chief investment officer at Bell Rock Capital. BofA declined comment.

For the government, this is a way to stretch the fast-dwindling cash available from the $700 billion bailout fund. "It enables the government to leverage taxpayers' money better," says Keith Davis, financial analyst at Farr Miller & Washington. "This way, you can avoid buying up bad assets, and hopefully not have to bear losses unless the situation worsens."

For the banks, analysts say, this could calm investors by putting a floor on losses from the bad assets. Also, it's like an insurance policy, which the banks might never need to access, Bethune says.

This marked another reversal for the government, which two weeks ago said it would not take any action related to toxic assets, as it had planned, and instead would invest directly in the banks. That news sent financial stocks tumbling. Citi was especially hard hit, falling 60% to $3.77 last week, prompting the bank to ask for more federal help. Now, "If the investors start to go after Goldman (Sachs) (GS) or Morgan Stanley, (MS) you can see them, too, ask for similar government guarantees," Davis says. Goldman and Morgan declined comment.

Blackstone loses $500 million

2008-11-24T23:58:00.000-08:00

... but claims to be in good shape.

Like just about all other private equity firms, Blackstone Group LP (NYSE: BX) reported a horrible Q3, with losses of $502.5 million, or $0.44 per share. However, the firm was fairly optimistic on the overall value of its sprawling portfolio of companies. That is, the writedown was only about 7%. As a result, some investors were naturally skeptical – and the stock price of Blackstone continued to slide."

See article at: BloggingBuyouts

Citi's 'slow, grudging nationalization

2008-11-24T16:53:00.000-08:00

Image via WikipediaCan Citigroup survive? - Nov. 24, 2008: "Citi's 'slow, grudging nationalization'

Monday's massive rescue package hasn't solved Citigroup's problems, says bank analyst Christopher Whalen.

(from Fortune Magazine) -- In just a few days Citigroup went from trouble to trauma as its stock price plunged amid sweeping layoffs and deep losses on some of its more esoteric assets. When news reports swirled that the megabank was considering a sale of part or all of the company, it was clear that Citi was singing from the same hymnbook as firms like Lehman Brothers, Wachovia and AIG had before they fell. The public's only question: What would the end game look like?

Now we have our answer - a government agreement to shoulder hundreds of billions of dollars in possible losses and inject billions of dollars into the bank. FORTUNE checked in with bank analyst Christopher Whalen, co-founder of Institutional Risk Analytics and a prescient critic of Citigroup (C, Fortune 500) since 2003, when he said its riskier, higher-return strategy made it more vulnerable than its banking peers.

Here are some excerpts. This one is well worth a read of the full article.

Fortune:

Does this plan solve Citi's problems?

Whalen: This does nothing more than temper the problem, but, no, it hasn't solved anything.

Fortune:

How does this rescue plan differ from the other bailouts we've seen in the past few months?

Whalen: The accurate term for what the government has done is "open bank assistance." It's similar to what the FDIC had to do when it was clear that Wachovia could no longer go on, except there is not a ready buyer in this case. The other big financial institutions have had parties willing to pick up the assets, but you won't see that with Citi. This bailout is more like a resolution. That means that the government essentially has to take control of Citicorp and become more and more involved with its operations until the bank ultimately is nationalized.

Home Sales Fall, Record Drop in Prices

2008-11-24T16:40:00.000-08:00

Image via WikipediaBloomberg.com: U.S.: By Timothy R. Homan

Nov. 24 (Bloomberg) -- Home resales in the U.S. dropped in October and prices fell by the most on record, signaling a deepening housing recession going into 2009.

Purchases of existing homes slid to an annual rate of 4.98 million, lower than forecast, a National Association of Realtors report showed in Washington. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

Today’s figures indicate a renewed downturn in an industry that showed signs of stabilizing this year, hurt by the credit squeeze and record mortgage foreclosures. That may raise pressure on President-elect Barack Obama to aid homeowners and potential buyers as he assembles a record stimulus package.

“Home sales will continue to fall over the next few months because of tightening credit conditions,” said Sal Guatieri, senior economist at BMO Capital Markets, which had the closest estimate for the sales level among 67 forecasts in a Bloomberg News survey. “Underlying demand appears very weak” because “many sales are coming from cheap prices on foreclosed properties,” he added."

Goldman to Sell Bonds in First FDIC-Backed Offering

2008-11-24T16:39:00.000-08:00

Image via WikipediaBloomberg.com: U.S.

By John Detrixhe and Gabrielle Coppola

Nov. 24 (Bloomberg) -- Goldman Sachs Group Inc., the biggest U.S. securities firm to convert to a bank, plans to sell notes in the first offering of debt backed by the Federal Deposit Insurance Corp., according to a person with knowledge of the transaction.

Goldman is leading banks in what analysts said may be a wave of as much as $600 billion of government-guaranteed issuance. Goldman’s benchmark sale may price as soon as tomorrow, said the person, who declined to be identified because terms aren’t set. Benchmark size typically means at least $500 million.

The government guarantee opens a new channel for bank funding after the credit seizure sapped demand for financial debt and sent yields to record highs of 7.24 percentage points above Treasuries. Banks, which haven’t sold dollar-denominated bonds since September, may raise $400 billion to $600 billion under the program within six months, Barclays Capital estimated in October."

Bailout Funding Sources

2008-11-24T16:32:00.001-08:00

Great chart that breaks down what the US government has committed in terms of dollars and what agencies it is using to do it.

http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrUuvkygWs

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

2008-11-24T16:32:00.000-08:00

Image by imageining via FlickrBloomberg.com: Exclusive: Nov. 24 -- "The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis."

The important thing to note at this time is that the $700B TARP bailout is just the tip of the iceberg. Keep an eye on this story updates. The writers, Bloomberg's Mark Pittman and Bob Ivry, seem to have a good feel for these complex issues.

Recession’s Grip Forces U.S. to Flood World With More Dollars

2008-11-24T16:25:00.000-08:00

Bloomberg.com: Exclusive: "Nov. 24 (Bloomberg) -- The world needs more dollars. The United States is preparing to provide them.

In an all-out assault on capitalism’s worst crisis since the Great Depression, the U.S. is taking on the role of both lender and borrower of last resort for the global economy.

The Federal Reserve, which has already pumped out hundreds of billions of dollars, might formally adopt a policy of flooding the world financial system with even more money. The Treasury, on course to borrow some $1.5 trillion this fiscal year, may tap global capital markets for even more to finance a fiscal stimulus package of as much as $700 billion and provide additional bailout money for banks.

“You want to do everything you can when you’re facing the threat of a deflationary breakdown of the economy,” says Michael Feroli, a former Fed official who is now an economist at JPMorgan Chase & Co. in New York."

Thomas Friedman: What we can do

2008-11-23T10:02:00.000-08:00

Image by Getty Images via DaylifeWhat we can do now, ....said the Congressional scholar Norman Ornstein, co-author of “The Broken Branch,” is “ask President Bush to appoint Tim Geithner, Barack Obama’s proposed Treasury secretary, immediately.” Make him a Bush appointment and let him take over next week. This is not a knock on Hank Paulson. It’s simply that we can’t afford two months of transition where the markets don’t know who is in charge or where we’re going. At the same time, Congress should remain in permanent session to pass any needed legislation.

Is Laissez-faire dead?

2008-11-07T10:46:00.000-08:00

Image by jetzenpolis via FlickrSome strong words. Read full article here: Are sovereign investment funds the new economic model?

"The Western financial system, as we know it, is dead. Not tarnished or cracked. Dead. With its demise go the Anglo laissez-faire financial mechanisms of the Reagan-Thatcher-Kohl era that have held sway for nearly three decades. The American subset, affectionately referred to as “the cowboy experiment,” run by self-centered eccentrics, is at the root of this collapse. After all, New York, not London, had been the creator of new financial products, strategies and entities. We were the innovators. Leverage was the tool. And greed was the measure of success."

Hedge Fund Redemption

2008-10-18T21:46:00.000-07:00

"The big picture is the economy is just starting to deteriorate,'' said Mark Kiesel, executive vice president at Pimco, who runs $180 billion in corporate bonds. ``We still think there are a lot of redemptions and hedge fund liquidations coming.''

Hedge funds may be forced to dispose of half their $135 billion in high-yield loans to fund redemptions, Stephen Antczak, a UBS credit analyst in Stamford, Connecticut, wrote in an Oct. 10 report to clients. That may send loan prices as low as 60 cents, he said.

``The de-leveraging that we're witnessing will probably continue,'' said Paul Scanlon, team leader for U.S. high yield and bank loans at Boston-based Putnam Investments LLC, which manages $55 billion in fixed income. ``My sense is that's not turning around in the very near term.''

See full article at: Bloomberg.com: Exclusive:

Bloomberg.com: Exclusive

2008-10-18T21:45:00.000-07:00

Bloomberg.com: Exclusive: "Investors withdrew a record $43 billion from hedge funds in September, according to TrimTabs Investment Research, which has been tracking the data since 2000. The industry had declines of 9.4 percent this year through the end of September, according to Chicago-based Hedge Fund Research Inc., the worst year in two decades.

For buyers to lose money on some top-rated bonds backed by mortgages on offices, hotels, apartment buildings and other commercial properties, the circumstances would have to surpass the worst conditions on record, according to Darrell Wheeler, global head of securitized strategy at Citigroup Inc."

Bloomberg.com: Exclusive

2008-10-18T21:43:00.000-07:00

Bloomberg.com: Exclusive: "Commercial-mortgage securities rated AAA that require an unprecedented three-quarters of the underlying loans to default for any loss of principal are trading at about 70 cents, according to New York-based Citigroup.

``We're not at these prices because of the fundamentals: We threw those out the window a year ago,'' he said. ``This is strictly people want to sell something to raise cash, and it's easy to sell these CMBS because it's a liquid market.''

Yields on AAA commercial mortgage bonds were at a record 620.7 basis points over benchmark swap rates on Oct. 15, up from 47.8 basis points a year ago, according to Bank of America Corp. A basis point is 0.01 percentage point."

Bloomberg.com: Economy

2008-10-14T19:57:00.000-07:00

Bloomberg.com: Economy: "Oct. 15 (Bloomberg) -- The Bank of Japan said it will offer lenders as many dollars as they want, joining European counterparts in attempting to lower borrowing costs in money markets and freeing up credit worldwide.

The central bank will provide dollars at fixed interest rates for an ``unlimited amount against pooled collateral,'' it said in a statement late yesterday. It also announced measures to improve companies' access to cash, expanded the range of Japanese government bonds it accepts from lenders, and suspended a program of selling shares it bought from banks between 2002 and 2004.

The Bank of Japan's supply of dollars comes from a swap agreement with the U.S. Federal Reserve. Last month the two central banks agreed to swap as much as $120 billion for yen. The increase to unlimited dollar supply came a day after the Fed removed caps on swap lines with the European Central Bank, Bank of England and Swiss National Bank."

Bloomberg.com: Economy

2008-10-14T19:42:00.000-07:00

Bloomberg.com: Economy: "Oct. 14 (Bloomberg) -- Treasury Secretary Henry Paulson urged banks getting $250 billion of taxpayer funds to channel the money to customers quickly to halt a credit freeze that's threatening to bankrupt companies and hammer the job market.

``Leaving businesses and consumers without access to financing is totally unacceptable,'' Paulson said in Washington. He rolled out the emergency program after a crisis of confidence in the financial system last week spurred the biggest stock sell- off since 1933. Paulson told companies getting the government funds to ``deploy'' the money in loans.

The Treasury chief was forced to change tack from an initial plan to buy distressed assets from banks after the financial panic caused banks to hoard cash and send money market rates to record levels. In its biggest effort yet to halt the 14-month credit rout, officials will also offer guarantees on new bank debts and start purchasing commercial paper in two weeks."

Bloomberg.com: Economy

2008-10-14T19:37:00.000-07:00

Bloomberg.com: Economy: "Fragile Banks" The Treasury also said it is working on another element of its plan that will specifically address banks that may be on the brink of failure. Those banks will face different guidelines than healthier firms who take part in the asset-buying and capital injection programs."

Bloomberg.com: Economy

2008-10-14T19:34:00.000-07:00

Bloomberg.com: Economy: "The Treasury's stock buying program will begin with nine banks, which it didn't name. People briefed on the matter said $125 billion will be disbursed in days: Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co. and a combined Bank of America Corp./Merrill Lynch & Co. each will get $25 billion, while Morgan Stanley and Goldman Sachs Group Inc. will get $10 billion each. Bank of New York Mellon Corp. said it will receive about $3 billion and State Street Corp. said it's getting $2 billion."

Bloomberg.com: Economy

2008-10-14T19:30:00.000-07:00

Bloomberg.com: Economy: "About 100 or fewer of the 7,000 U.S. banks with less than $10 billion in assets may consider taking advantage of the program, said Camden Fine, president of the Independent Community Bankers of America, a Washington trade group representing about 5,000 banks.

``The headline in the local paper that everybody's going to read is, `Local Bank Seeks Government Assistance,''' Fine said in an interview. ``That doesn't look real good to the folks in the local towns.''"

Bloomberg.com: Economy

2008-10-14T19:26:00.000-07:00

Bloomberg.com: Economy: "The Fed said in a separate statement that its previously announced program to buy commercial paper will start on Oct. 27. Officials haven't indicated a limit for the total size of the fund."

Commodies Likely to Continue Fall

2008-10-13T09:13:00.001-07:00

Oct. 13 (Bloomberg) -- The record 39 percent decline in commodities since July 3 is nowhere near finished, if history is any guide.

The Reuters/Jefferies CRB Index of 19 commodities from coffee to silver would have to drop another 37 percent to reach the trough of the 2001 recession and 35 percent for the 1998 slide, when crude bottomed at $10.35 a barrel. The measure is 28 percent above its lowest during the economic contraction that ended in November 1982. Copper, after its biggest weekly loss in two decades last week, is still triple 2001 levels.

While tumbling prices of oil, nickel and soybeans already crippled stock markets from Moscow to Sao Paulo and sliced Alcoa Inc.'s profits by 52 percent, investors say rising stockpiles of copper and slowing energy demand mean prices will continue to fall. The U.S. slowdown will last more than a year and be deeper than any in three decades, according to Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles.

``This downturn is going to make 2001 look like a walk in the park,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd., who sold all his commodity investments in July. ``This is the bursting of a 25- year asset-credit bubble. People have really stopped spending money, everywhere.''

Tech sales down $170B next year?

2008-10-13T09:10:00.000-07:00

Oct. 13 (Bloomberg) -- Intel Corp., Microsoft Corp. and the technology companies that so far have escaped the credit crisis relatively unscathed will lose out on as much as $170 billion in sales next year as the crunch catches up with them.

Corporate spending on computers, software and communications equipment may be little changed or fall as much as 5 percent next year as the lending freeze spooks clients, said Jane Snorek, an analyst at First American Funds in Minneapolis who has followed the industry for 13 years. It would be the first decline in the $3.41 trillion market since 2001 after the dot-com bubble burst.

``Business kind of stopped dead in the last two weeks,'' said Snorek, whose firm owns Microsoft and Intel stock among more than $100 billion in assets. ``People are pushing off orders and saying, `I have no idea if we're going to have a global meltdown, so I'm not going to buy anything right now.'''

Worst crisis in 50 years?

2008-10-13T09:07:00.000-07:00

"This is the worst crisis I've seen in my 50-year career,'' William Rhodes, senior vice chairman of Citigroup Inc. in New York, told fellow bankers in Washington yesterday. "We still have to deal with the effects on the real economy here and elsewhere.''

2008-10-13T09:01:00.000-07:00

Oct. 13 (Bloomberg) -- The world may be heading for its worst recession in a quarter of a century -- if it's lucky.

A steep slump looks likely as the credit squeeze crunches economies from the U.S. to Singapore and panic engulfs global financial markets.

``It's certainly going to be the worst since the 1980s,'' says Bradford DeLong, an economics professor at the University of California at Berkeley who worked at the U.S. Treasury
Department from 1993 to 1995. ``The hope is that it won't become the worst unemployment business cycle since the Great Depression.''

Bill Gates - "Fairly Significant Recession" Ahead

2008-10-13T08:54:00.000-07:00

Microsoft Corp. founder Bill Gates III said that the U.S. economy is headed for a ``fairly significant recession,'' and that the unemployment rate may peak at more than 9 percent.

Still Holding Back - Barrons.com

2008-10-12T20:56:00.000-07:00

Still Holding Back - Barrons.com: Interview with Jeremy Grantham, Chairman, GMO

"What about some other trades [that might provide opportunity in this falling market]?

I'm speaking for the asset-allocation unit at the firm. We have been substantially long the safe-haven currencies. We have been very long the yen and somewhat long the Swiss franc and short sterling, which is one of our favorite bets. We have been short the euro for three months, and slightly long the U.S. dollar. One of the paradoxes is, if the world is worse than people expect, the U.S. dollar will outperform."

Still Holding Back - Barrons.com

2008-10-12T20:55:00.000-07:00

Still Holding Back - Barrons.com: "Where do you see all of this going?

I want to emphasize how little I understand all of the intricate workings of the global financial system. I hope that someone else gets it, because I don't. And I have no idea, really, how this will work out. I certainly wish it hadn't happened. It is just so intricate that all I can conclude, by instinct and by reading the history books, is that it will be longer, harder and more complicated than we expect."

Good Gracious! - Barrons.com

2008-10-12T20:23:00.000-07:00

Good Gracious! - Barrons.com: "ALAN TRIPP HAS WITNESSED FAR MORE FINANCIAL SHOCKS than the average American, beginning with the 1929 Wall Street crash, when he was a child. The Bryn Mawr, Pa.-based entrepreneur also knows all about risk: His former company, Product Resources International, specialized in finding ways to commercialize bleeding-edge technologies."

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PIMCO - IO Feb 2009 Gross Beep Beep

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Bloomberg.com: Worldwide

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

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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

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Zero Hedge

Zero Hedge

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

The Slide Continues

B of A to defer some bonuses over three years

How to not let this happen again

Japan Heads for Worst Postwar Slump

Fed Warns of Global Deflation

FT.com European companies

FT.com / Companies - Newspapers turn into rich mens’ toys

FT.com / Companies - Google fails to export ad success to print

Bloomberg.com: U.S.

FT.com / World - Poll shows EU voters resistant on Afghan war

Prepare to bury the fatally wounded big banks

FT.com / Europe - Spain loses triple A rating

Brown accuses RBS of ‘irresponsible risks’

Why are the banks in crisis again?

Why are the banks in crisis again?

Key report on financial reform

The Darkest Hour

Worldwide Bankruptcy Wave About to Hit

Lawyer Accused of Stealing Millions

CFOs are pessimistic

Banks on Life Support

Fed-style QE is Printing Money

Help! What is Quantitative Easing?

Fed Has Already Adopted Quantitative Easing

Is Deflation a Risk in 2009?

Morgan Stanley Ups Stake in Struggling General Growth

Let Home Prices Fall

Is China Heart of Slowdown?

White & Case to Undergo Major Reorganization

Bloomberg.com: Exclusive

Interactive Investor

Citigroup deal could be template

Blackstone loses $500 million

Citi's 'slow, grudging nationalization

Home Sales Fall, Record Drop in Prices

Goldman to Sell Bonds in First FDIC-Backed Offering