Tuesday, November 24, 2009
Instead of Fixing the U.S. Economy or Creating Jobs for AMERICANS, Obama Will Spend The Money in Afghanistan and Iraq
America is in the most severe unemployment crisis since - and perhaps including - the Great Depression.
And yet Obama, like Bush, has done virtually nothing to create more jobs. Instead, they both gave trillions to the biggest banks (who are not loaning it out to the little guy) and for waging wars in Afghanistan and Iraq.
Obama is apparently escalating - not ending - the wars. And its not cheap.
According to the White House, the cost of deploying new soldiers to Afghanistan could be $1 million per soldier. Nobel prize winning economist Joseph Stiglitz says that the Iraq war will cost $3-5 trillion dollars.
As I have previously pointed out, protracted war increases unemployment, shrinks the economy, and causes recession. See this, this and this.
But deficits don't matter, right? Wrong.
But We Had No Choice ... We Had to Fight Those Wars
But - you may say - we had no choice, we had to fight those wars because of 9/11.
Well, top British officials say that the U.S. discussed Iraq regime change long before 9/11. In fact, they say that regime change was advocated one month after Bush took office:
The Brits previously revealed that intelligence and purported facts of Iraq's weapons programs were "fixed around" the pre-set policy of invading Iraq.The chairman of the British Joint Intelligence Committee in 2001 told investigators Monday that elements of the Bush Administration were pushing for regime change in Iraq in early 2001, months before the 9/11 attacks and two years before President George W. Bush formally announced the Iraq war.
Sir Peter Ricketts, now-Secretary at the Foreign Office, said that US and British officials believed at the time that measures against Iraq were failing: "sanctions, an incentive to lift sanctions if Saddam allowed the United Weapons inspectors to return, and the 'no fly' zones over the north and south of the country."
Ricketts also said that US officials had raised the prospect of regime change in Iraq, asserting that the British weren't supportive of the idea at the time.
***The head of the British Foreign Office's Middle East department, Sir William Patey, told the inquiry that his office was aware of regime change talk from some parts of the Bush Administration shortly after they took office in 2001.
"In February 2001 we were aware of these drum beats from Washington and internally we discussed it," Patey said. "Our policy was to stay away from that."
It's not just the Brits.
Former CIA director George Tenet said that the White House wanted to invade Iraq long before 9/11, and inserted "crap" in its justifications for invading Iraq.
Former Treasury Secretary Paul O'Neill also says that Bush planned the Iraq war before 9/11.
Everyone knew the WMD claims were fake. For example, the number 2 Democrat in the Senate, who was on the Senate intelligence committee, admitted that the Senate intelligence committee knew before the war started that Bush's public statements about Iraqi WMDs were false. And if the committee knew, then the White House knew as well.
And Tony Blair - the British Prime Minister - knew that Saddam possessed no WMDs. If America's closest ally Britain knew, then the White House knew as well.
The CIA warned the White House that claims about Iraq's nuclear ambitions (using forged documents) were false, and yet the White House made those claims anyway.
Cheney was largely responsible for generating fake intelligence about Iraq in order to justify the war. For example:
- Falsified documents which were meant to show that Iraq's Saddam Hussein regime had been trying to procure yellowcake uranium from Niger can be traced back to Vice President Dick Cheney
And you may have heard that the Energy Task Force chaired by Cheney prior to 9/11 collected maps of Iraqi oil fields and potential suitors for that oil. But you probably don't know that a secret document written by the National Security Council on February 3, 2001 directed the N.S.C. staff to cooperate fully with the Energy Task Force as it considered the “melding” of two seemingly unrelated areas of policy: “the review of operational policies towards rogue states,” such as Iraq, and “actions regarding the capture of new and existing oil and gas fields”.
In other words, it is difficult to brush off Cheney's Energy Task Force's examination of Iraqi oil maps as a harmless comparison of American energy policy with known oil reserves because the N.S.C. explicitly linked the Task Force, oil, and regime change. Indeed, a former senior director for Russian, Ukrainian, and Eurasian affairs at the N.S.C. said:
If this little group was discussing geostrategic plans for oil, it puts the issue of war in the context of the captains of the oil industry sitting down with Cheney and laying grand, global plans.(and see this).
Cheney's role in getting the U.S. into unnecessary military confrontations is not new. According to former high-level intelligence officer Melvin Goodman, during the Ford administration, Cheney orchestrated phony intelligence for the Congress in order to get an endorsement for covert arms shipments to anti-government forces in Angola.
And in the 1970's, Cheney was instrumental in generating fake intelligence exaggerating the Soviet threat in order to undermine coexistence between the U.S. and Soviet Union, which conveniently justified huge amounts of cold war spending. See also this. This scheme foreshadowed Mr. Cheney's role in generating fake intelligence in Iraq by 30 years.
And Cheney was the guy who directed all counter-terrorism activities in 2001 and who directed the U.S. response on 9/11, accidentally allowing hijacked planes to fly all over the place, and perhaps - as implied by Secretary of Transportation Norm Minetta - to slam into the Pentagon (confirmed here). Heck of a job, Dick ...
The government also apparently planned the Afghanistan war before 9/11 (see this and this).
But you don't even have to even think about all of the complex facts discussed above. It's really simple: when asked to specify exactly why we are still fighting in Iraq and Afghanistan, Obama cannot really explain why we are still there.
(It's also simple because the top bipartisan experts say that the Iraq war has increased the threat of terrorism. See this, this, this, this, this and this).
The Wars Are Unnecessary and Are Killing the Economy
Bottom line: The wars are unnecessary, and they are draining resources which could be used to reduce unemployment and help the economy.
Note: This is not a Republican versus Democratic issue. For example, Bill Clinton signed the Iraq Liberation Act in 1998, calling for regime change in Iraq. And Obama is escalating wars started by the previous administration.
Monday, November 23, 2009
How To Search Within a Web Page on the iPhone
Since I just bought an iPhone, I am learning - and will be posting - some tricks and shortcuts for making it more useful.
The iPhone G3 is a great smart phone and mobile computing device. However, it has some real blind spots. For example, you cannot do a basic search within a web page for words or phrases.
Here is the hack/workaround:
1) Open up your Safari web browser
2) Bookmark a page (by tapping the
button)
3) Go into bookmarks (by tapping the
button)
4) Click "Edit"
5) Select your new bookmark
6) Change the name to "Search" or "Find"
7) Delete the address
8) Copy and paste the following into the address box:
javascript:void%28s%3Dprompt%28%27Find%20text%3A%27%2C%27%27%29%29%3Bs%3D%27%28%27+s+%27%29%27%3Bx%3Dnew%20RegExp%28s%2C%27gi%27%29%3Brn%3DMath.floor%28Math.random%28%29*100%29%3Brid%3D%27z%27%20+%20rn%3Bb%20%3D%20document.body.innerHTML%3Bb%3Db.replace%28x%2C%27%3Cspan%20name%3D%27%20+%20rid%20+%20%27%20id%3D%27%20+%20rid%20+%20%27%20style%3D%5C%27color%3A%23000%3Bbackground-color%3Ayellow%3B%20font-weight%3Abold%3B%5C%27%3E%241%3C/span%3E%27%29%3Bvoid%28document.body.innerHTML%3Db%29%3Balert%28%27Found%20%27%20+%20document.getElementsByName%28rid%29.length%20+%20%27%20matches.%27%29%3Bwindow.scrollTo%280%2Cdocument.getElementsByName%28rid%29%5B0%5D.offsetTop%29%3B9) Save (by tapping Done)
Now surf as normal, and when you want to find something within a web page, choose bookmarks and select "Search" or "Find".
The following javascript dialog will pop up:
It works well.
Deficits (and Massive Debt Overhangs) DO Matter
The New York Times has a good essay on debt:
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means....There is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
For more on issues regarding age demographics, benefits and the tension between young and old, see this and this.
The Times continues:
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later”...
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages...
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels...
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education...
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
As Karl Denninger has repeatedly pointed out, we are on an unsustainable track guaranteed to lead to a debt crisis. Denninger posts the following chart to make his point:
And as Tyler Durden noted on November 1st:
As the assets on the US balance sheet become increasingly long-dated, courtesy of QE, and locking in record low rates, US liabilities in turn have shortened their duration to a record level. Almost $3 trillion in US debt will have to be rolled by the end of 2010. If realistic inflation expectations are any indication, all hopes of getting comparable interest terms on these securities once refinancing time rolls around, will be promptly dashed (we are not saying inflation is inevitable, even with QE 2.0 around the corner). Yet for all who claim inflation is a good thing, the one security that will be hit the most and the fastest will be precisely the T-bill universe, once all the curve steepeners already in place unwind very, very quickly. The result would be a major spike in interest expense payments by the government. The chart below presents the historical annual interest expense on all USTs by year. 2009 will be the first year in which the interest expense alone will be over half a trillion dollars (Zero Hedge estimates).
The concern is that even as the US debt, which as of Friday was at $11,868,457,477,911.94, and looks like it will hit the $12.104 trillion limit within a few weeks, continues to skyrocket, the interest expense paid on holdings will continue creeping ever higher. Keep in mind, at September 30, the average interest rate on Bills was a historically low 0.347%, and Notes yielded a QE-facilitated 3.043%. With the Fed out, can China and US retail investors support this record low interest at a time when UST supply keeps coming and coming?
And as the Times points out, America is competing with other countries to sell debt:
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.Paul Krugman disagrees, believing that debt is a "phantom menace". But this is not because Krugman is a liberal. Government economists in the Reagan, Bush and Obama administrations have all believed pretty much the same thing: deficits don't matter.
But many experts disagree:
- The St. Louis Federal Reserve Bank posted a paper entitled "Is The United States Bankrupt?". The paper provides the following answer: "The United States is going broke"
- People seem to think the government has money," "said former U.S. Comptroller General David Walker. "The government doesn't have any money"
- The United States Department of the Treasury and the Office of Management and Budget published a report stating that the U.S. cannot grow our way out of the government's liabilities, that the liabilities are quickly growing, and that failing to take drastic and immediate action would lead to very bad consequences (the report was written in 2006)
- Nouriel Roubini writes:
Ultimately, deleveraging requires the writing down of debt as reflationary policies are not a free lunch and won't solve the debt overhang problem (Dr. Roubini). Important case study: Japan back into deflationary territory despite huge public debt and QE (Chinn).
- The International Monetary Fund - which oversees third-world economies - is so concerned about the solvency of the U.S. economy that, during the Bush administration, it started conducting a complete audit of the whole US financial system. The IMF previously only audited banana republics (then again ...)
- Société Générale published a report titled "Worst-case debt scenario", in which the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems. "As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast. The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Aging populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said. The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.
- The American Enterprise Institute for Public Policy Research (AEI) published a paper indicating that “by all relevant debt indicators, the US fiscal scenario will soon approximate the economic scenario for countries on the verge of a sovereign debt default.”
Obama told Fox news that the United States' climbing national debt could drag the country into a double-dip recession
And see this.
IMF Warns of Revolution if Another Round of Bailouts Is Handed Out
Many officials and experts have warned of violence stemming from the economic crash.
The head of the International Monetary Fund, Dominique Strauss-Kahn, is now warning that there might be a revolution if some countries if governments hand out another round of bailouts to the financial sector:The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.
"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.
Google Mobile App: A Must-Have for Reporters and Citizen Journalists
Google's free Mobile App for the Apple iPhone G3 is a must-have for reporters and citizen journalists.
To see why, watch this short video by one of the engineers on the Mobile App development team:
And here is the scoop on how it works.
Now, let's say you're at a talk given by a congressman. In response to a question, he says "the rumors are false. I have always paid my taxes".
With your Google Mobile App, you quietly speak the congressman's name and the phrase "paid taxes" into your iPhone, and you pull up numerous articles showing that he failed to pay taxes, and you catch him in his misstatement.
Or he misrepresents claims that he has consistently voted for tougher Wall Street regulations. You quietly speak a couple search words into the iPhone (such as the Congressman's name and the phrases "Wall Street" and regulations), and instantly pull up articles showing that he voted for key deregulation bills.
You can also pull up facts instantly. For example, if the chairman of the Federal Reserve misstates the amount of the deficit, you can pull up the correct figure and then say, "actually, the Congressional Budget Office says it is ..."
In other words, you can instantly fact-check any statement and do on-the-fly research anywhere you can get wireless access. This is a must-have for any reporter or citizen journalist.
There are probably similar applications which work on similar hand-held devices.
If you can't afford to buy a hand-held smart device such as the iPhone G3, see if you can borrow one for important events.
Saturday, November 21, 2009
Wells Fargo Says It Doesn't Have to Reserve Against Its Off-Balance Sheet Residential Exposure Because the FHA (Meaning the Taxpayers) Will Pay For It
Chris Whalen has a must-read essay at Zero Hedge:
In the case of WFC [Wells Fargo], the bank has taken the position that NONE of its conforming residential exposures should be brought on balance sheet despite the FASB rule change. As we discussed in The Institutional Risk Analyst this week, "Why? Because the loans inside these securitization vehicles are insured by FHA, so goes the thinking of WFC and its auditor, thus the bank has no liability to these entities or the securities they have issued to investors. Pretty neat trick, eh?"A "conforming loan" is one that meets lending guidelines, including loan amounts as set by the government sponsored enterprises, such as Fannie as or Freddie.
Thus WFC is basically saying that none of the bank's $1.1 trillion in conforming OBS [off balance sheet] exposures need to be represented or reserved against.
As part of the 2008 stimulus bill, Congress temporarily increased the conforming amounts available through the FHA.
Bottom line: Wells Fargo is saying that since the FHA - that is, the government, that is, the taxpayers - will bail out Wells for loans that go bad, the giant bank doesn't have to reserve against these possible losses.
Yes, Wells is as bad as the other too big to fails. See this, this, this and this.
Friday, November 20, 2009
Is America Finally Starting to Stand Up To Wall Street?
Are the American people finally starting to stand up to Wall Street?
Shareholder Revolt
Some of Goldman Sach's biggest shareholders are demanding that executive compensation be reduced. As the Wall Street Journal notes:
Their complaints in private conversations with the company and at analyst meetings show how anger over its big-money culture is spilling into the ranks of investors who typically shy away from debates over Wall Street pay.
Protests
There were the protests outside of the Bankers Association meeting in Chicago. See this, this, this, this, this and this.
If you don't think that more - bigger - protests are coming, you haven't been paying attention.Debtor's Revolt
Debtors are revolting against exorbitant interest rates and fees and other aggressive tactics by the too big to fail banks. See this, this, and this.
Congresswoman Kaptur advises her constituents facing foreclosure to demand that the original mortgage papers be produced. She says that - if the bank can't produce the mortgage papers - then the homeowner can stay in the house.
Portfolio manager and investment advisor Marshall Auerback argues that a debtor's revolt would be a good thing.
And even popular personal finance advisor Suze Orman is highlighting the debtors revolt phenomenon on her national tv show.
Congress Is Starting to Get the MessageThe American people are shouting so loud at their congress members and Senators, that even some of the most pro-Wall Street congressman are starting to get it.
For example, the Congressional Black Caucus has been hearing so much about how congress is failing to address the crisis of unemployment from their constituents, that the CBC delayed Barney Frank's proposed financial reform.
The House Financial Services Committee received so many phone calls from constituents that it approved the Ron Paul/Alan Grayson bill to audit the Fed and defeated the trojan horse alternate bill written by Mel Watt. Indeed, I have heard from congressional sources that the only calls to support the Watt alternate bill were from the Fed itself. And see this.
The Committee also approved Congressman Grayson's bill to rein in foreign currency swaps.
Both Geithner and Summers are coming under increasing pressure to resign due to their being in bed with Wall Street.
Even Bernanke's re-appointment is no longer certain.
And Obama's approval ratings have now dipped below 50%, largely due to his mishandling of the economic crisis.
As Congressman Peter DeFazio notes:
Are the American people are finally starting to awaken?There were a lot of Democrats who were "upset and nervous with" the handling of the economy by the administration.
"It is pretty embarrassing for a Democratic administration and a Democratic Congress to be identified with total attention to Wall Street and nothing for Main Street and jobs," he said. "There are a lot of Democrats who... want to see something more effective done to create employment."
DeFazio insisted that President Obama and, by extension, the Democratic Party were hampered by Geithner's policies for economic recovery. He pointed to the inability of the administration to spur small business lending and the lack of effective TARP oversight as particularly egregious examples of mismanagement. More than anything else, the Oregon Democrat deemed it untenable for the president to continue employing his current economic team given the taint of Wall Street that clings to many of those advisers.
"I have had a number of people say to me, 'I feel the same way you do but I'm not going to say it.' People are worried it will rub off on the president who still enjoys popularity," he said. "I tell them I still support the president. I just think he is being poorly served by his economic team."
"The truth of the matter," DeFazio added, "is that we have not changed the way the money is being used. It is not being used for the purpose it was supposed to be used for. We are not creating jobs and we have not aggressively taken on the culture of Wall Street"...
One of his chief concerns was that the president appeared enamored with the lords of finance. "The administration has, thus far, not threaded the needle here," he said. "They have taken care of Wall Street but not the rest of the country."
We've been down this road before
Shown worse devils to the door
Throw off our chains of slavery
Now is the time to set ourselves free
And reclaim our liberty ...
They bought the politicians and the news
They've got all the weapons (which they like to use)
But they are few and we're billions strong
We are the giant ... been sleeping for too long
Time to wake up and sing our victory song
- The Voice
The elites hate to acknowledge it, but when large numbers of ordinary people are moved to action, it changes the narrow political world where the elites call the shots. Inside accounts reveal the extent to which Johnson and Nixon’s conduct of the Vietnam War was constrained by the huge anti-war movement. It was the civil rights movement, not compelling arguments, that convinced members of Congress to end legal racial discrimination.
- PhD Economist Dean Baker
Anger is a great force. If you control it, it can be transmuted into a power which can move the whole world.
- Sivananda
The power of an aroused public is unbeatable.
- Dr. Helen Caldicott
The most powerful weapon on earth is the human soul on fire.
-Ferdinand Foch
In times of danger large groups rise to the highest pitch of enthusiasm, courage and sacrifice . . . Mankind will be refashioned and history rewritten when this law is understood and obeyed.
-Helen Keller
You let one ant stand up to us - then they all might stand up. Those puny little ants outnumber us a 100 to one. And if they ever figure that out, there goes our way of life.
- Hopper (a grasshopper who is the leader of the gang of thugs who are stealing from the other bugs, speaking to fellow grasshoppers in the Disney/Pixar movie A Bug's Life)
Example of the Commercial Real Estate Crash: Silverdome Sells for $583K
In an example of the collapsing real estate market, the Detroit Silverdome - which was almost sold last year for $20 million dollars - was just sold for $583K.
Taxpayers paid $55.7 million to build the Silverdome in the 1975, the Pistons played there between 1978 and 1988, and the Lions played there from 1975–2001.
The Daily Finance points out that $583k sounds more like the price for a New York Studio than a giant sports arena.
Thursday, November 19, 2009
House Financial Services Committee APPROVES Bill to Audit the Fed (Rejecting Watt's Fake Alternate) and Votes to Rein In Foreign Currency Swaps
Congressman Watt tried to de-rail the bill to audit the Federal Reserve (H.R. 1207) with a fake alternate bill. See this, this, this and this.
Fortunately, the House Financial Services Committee approved H.R. 1207 by 43-26, and rejected Watt's bill.
In addition, Congressmen Grayson and Paul's bill requiring written concurrence by the Treasury Secretary prior to the Federal Reserve engaging in a foreign currency swap passed the House Financial Services Committee by a voice vote today.
If you haven't already seen it, watch Congressman Grayson grill Bernanke about foreign swaps:
If you don't know what foreign currency swaps are, or why the Fed has been running amok with them, watch Congressman Grayson discuss the amendmnet:
Congressman DeFazio: "We May Have To Sacrifice Just Two More Jobs (Summers and Geithner) To Get Millions Back For Americans"
Congressman DeFazio said yesterday:
We think it is time, maybe, that we turn our focus to Main Street ...
Unfortunately, the President has an adviser from Wall Street, Larry Summers, and a Treasury Secretary from Wall Street, Timmy Geithner, who don't like that idea. They want to keep the TARP money either to continue to bail out Wall Street...or to pay down the deficit. That's absurd...
"[Obama] is being failed by his economic team ... We may have to sacrifice just two more jobs to get millions back for Americans.
Wednesday, November 18, 2009
January 9th Is "National Citizens Day"… A Day to Show That WE Get to Decide Which Politicians Are Fired or Elected and Which Companies Fail or Succeed
In response to an article I wrote, Carol says:
We need is someone to set the agenda, to Name a Day for the country's disenfranchised to show up in Washington. And I believe we're all disenfranchised at the moment.
Alright, unless somebody has a better idea ...
I'm declaring January 9th National Citizens Day.
National Citizens Day will be a day to:
(1) Honor and celebrate the power of the American Citizen
(2) The fact that the American Citizens own the country, the government, and all its employees, who serve at their will
and
(3) The fact that the American consumer - who drives 70% of the American economy - dictates which companies succeed and which fail with his or her purchasing decisions
Here are traditional and appropriate ways to celebrate National Citizens Day:
- Show up in Washington D.C. and show that you've got the power
- Move your money from one of the companies that are treating the American Citizen like we work for them and who are holding the economy hostage to a company which has not been bailed out by us, and is not taking our deposits and using them to speculate in casino style gambling
May you have a happy and empowering National Citizens Day. It's the American thing to do.
6 Congress Members Demand Complete Audit of Fed in Light of AIG Counterparty Fiasco
Emailed to me by a contact in Congress.
November 18, 2009 The Honorable Barney Dear Chairman Frank and Chairman Dodd: In light of Tuesday’s report released by the Special Inspector General for the Troubled Assets Relief Program, Neil Barofsky – Factors Affecting Efforts to Limit Payments to AIG Counterparties – we write to request your assistance in addressing major issues displayed prominently in the report. On March 25, 2009, I requested, joined by 26 fellow members of Congress, that Mr. Barofsky investigate the events surrounding AIG’s payments to Goldman Sachs, Merrill Lynch, Societe Generale and other firms to settle certain open derivative transactions. As a result of the findings in the report, there should be a comprehensive Congressional review of the Federal Reserve System and an exploration of possible changes in its governance model. More immediately, a complete and public audit of the system should be made part of the regulatory reform bills currently moving through your committees. The following issues illustrate a set of circumstances that grant tremendous power to a body that is subject to minimal accountability, thus giving rise to my request. First, Mr. Barofsky cites the unwillingness on the part of officials at the Federal Reserve Bank of New York (FRBNY) to negotiate “haircuts” with AIG counterparties. FRBNY has argued that it was acting as an AIG creditor, not as a regulator. I believe it is intellectually disingenuous to separate these roles in this case, [1] and frankly, how effective a regulator can the Federal Reserve be if it is unwilling to strive for good public policy through its regulatory powers? Second, there is an inherent conflict in the manner in which regional reserve branch presidents are selected – in that representatives of the member banks select the regional president. It seems counterproductive, yet the banking system has provided case after case of regulated entities selecting their own regulator. Third, the Federal Reserve has continually resisted efforts to engage in discussion on structural and governance reform at the System. Most recently, Bloomberg reported yesterday that the Federal Reserve has rejected a White House request that [the Federal Reserve] conduct a public review of its structure and operations. Despite a request from the administration that provided ample opportunity for the Federal Reserve to have input into its own reforms, the central bank has simply refused. It is because of this attitude that I argue that real financial regulatory reform cannot occur without an examination into the structure of this entity. Fourth, and most importantly, the Federal Reserve has shown a repeated unwillingness to accept efforts to improve transparency for the System. As we are reminded in the report, it was only through your persistence, Chairman Dodd, that we were finally able to grasp the nature and extent of the counterparty payments. Despite repeated objections by the Federal Reserve System that the release of this information would have a detrimental effect on the health of AIG, their counterparties, and the markets, we now have the requested information, and the markets continue to function. As Mr. Barofsky stated – “the sky did not fall”. As I and so many others have stated since the bailout first began – transparency must be the hallmark of any use of government funds. Concluding, we respectfully request that for the reasons enunciated herein, that a Congressional examination of the governance structure at the Federal Reserve be undertaken, and also that the regulatory reform bills moving through your committees include a complete and public audit of the Federal Reserve System. The actions requested would shine much needed-light on this creature of Congress. Please contact me or Martin Levine on my staff at 202.225.4741 or at martin.levine@mail.house.gov with questions. Sincerely, Elijah E. Cummings Lloyd Doggett Alan Grayson Maurice Hinchey John F. Tierney Tim Walz Peter Welch [1] Mr. Barofsky points out that Treasury and the Federal Reserve were willing to use their power as regulators in order to get banks to accept the initial $125 billion of TARP funding.
Chairman, House Financial Services Committee
2129 Rayburn House Office Building
Washington, DC 20515
The Honorable Christopher Dodd
Chairman, Senate Committee on Banking, Housing, & Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510
Obama: More Debt Could Push U.S. Into Double-Dip Recession | Biden: "Socialism For The Rich And Capitalism For The Poor" | Holder: Prosecute Fraud
President Obama, Vice President Biden and Attorney General Holder all made some very hard-hitting statements yesterday.
Obama told Fox news that the United States' climbing national debt could drag the country into a double-dip recession:
"I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."
Obama is finally acknowledging that the enormous debt overhang is a drag on the U.S. economy.
However, just as the administration's talk of a "strong dollar policy" isn't credible, I am not sure that Obama's talk about debt is credible, given that America is still involved in multiple giveaways in favor of too big to fails, two costly wars, and other multi-trillion dollar spending binges.
Biden told Jon Stewart that bailing out the giant banks is:
Socialism for the rich and capitalism for the poor.
I agree, as do Joseph Stiglitz, Nouriel Roubini and Nassim Taleb.
But Biden is still drinking the kool aid:
He defended his administration's decisions to rescue Wall Street institutions from the brink of failure. "Because if we did not bail them out, we would have been in a position where there was a literal depression, not a recession."
That's a myth, Joe.
And Holder announced:
The launch of an interagency Financial Fraud Enforcement Task Force to combat financial crime.
Holder claims that the Task Force will go after both past and future fraud.
Sounds good to me.
But given Holder's failure to keep his word in other important areas - like discontinuing Bush administration policies of spying on Americans - I'm taking a wait and see approach.
Unions and Consumer Groups Support Bill to Audit the Fed: Call Congress To Support The Effort
A number of unions and consumer groups have signed a letter endorsing Ron Paul and Alan Grayson's call to audit the Federal Reserve.
Here's their letter:
House Financial Services Committee
2129 Rayburn House Office Building
Washington, D.C. 20515November 18, 2009
Dear Chairman Frank, Ranking Member Bachus, and Members of the Committee,
As members of Americans for Financial Reform, a coalition of nearly 200 consumer, employee, investor, community and civil rights groups, we write you today to convey our strong support for the amendment to H.R. 3996, the Financial Stability Improvement Act of 2009, offered by Representatives Ron Paul and Alan Grayson.
This amendment subjects the Federal Reserve to an audit by the General Accountability Office within one year of enactment. This audit would shed light on questions the Fed has so far refused to answer, including the names of financial institutions that have received special loans and the conditions under which those loans were made. To shield policy discussions from political influence, the amendment exempts transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee. It also provides for delayed release of audit information dealing with individual market actions.
In responding to the financial crisis, the Federal Reserve has committed more than
$1 trillion to aid troubled financial institutions through loans and asset purchases –
without any of the restrictions on such things as executive compensation that came with funding from the Treasury under the Troubled Asset Relief Program (TARP). Also, unlike the Treasury, which has posted all TARP transactions on its website, the
Fed has kept most of the transactions secret.In creating the Federal Reserve nearly 100 years ago, the Congress envisioned a central bank free from political pressure. But the structure that may have once ensured independence now appears to put the Fed much closer to the financial industry than the American people, who deserve to know who the beneficiaries are.
We strongly support transparency at the Federal Reserve and the Paul-Grayson Amendment.
Sincerely,
Americans for Financial Reform
A New Way Forward
AFL-CIO
Accountable America
Campaign for America’s Future
Change to Win Investment Group
Consumer Action
Empire Justice Center
International Brotherhood of Teamsters
National Association of Consumer Advocates
National Association of Investment Professionals
Neighborhood Economic Development Advocacy Project (NEDAP)
New Jersey Citizen Action
Public Citizen
US Action
US PIRG
Congressman Watt is trying NOW to kill Ron Paul/Alan Grayson's bill to audit the fed with his own fake trojan horse bill. Call Congress and demand yes to the Paul/Grayson bill and no to the Watt bill.
Call the Congressional switchboard: 1-866-220-0044
Tuesday, November 17, 2009
The Fed Talking About Reducing Leverage Is Like A Crack Cocaine Dealer Handing Out "Just Say No" Stickers
The New York Federal published a report in July entitled "The Shadow Banking System: Implications for Financial Regulation".
One of the main conclusions of the report is that leverage undermines financial stability:
Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. In the new, post-crisis financial system, the role of securitization will likely be held in check by more stringent financial regulation and by the recognition that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.
And as a former economist at the New York Fed, Richard Alford, writes today:
On Friday, William Dudley, President of FRBNY, gave an excellent presentation on the financial crisis. The speech was a logically-structured, tightly-reasoned, and succinct retrospective of the crisis. It took one step back from the details and proved a very useful financial sector-wide perspective. The speech should be read by everyone with an interest in the crisis. It highlights the often overlooked role of leverage and maturity mismatches even as its stated purpose was examining the role of liquidity.
While most analysts attributed the crisis to either specific instruments, or elements of the de-regulation, or policy action, Dudley correctly identified the causes of the crisis as the excessive use of leverage and maturity mismatches embedded in financial activities carried out off the balance sheets of the traditional banking system. The body of the speech opens with: “..this crisis was caused by the rapid growth of the so-called shadow banking system over the past few decades and its remarkable collapse over the past two years.”
In fact, every independent economist has said that too much leverage was one of the main causes of the current economic crisis.
Federal Reserve Bank of San Francisco President Janet Yellen said today it’s “far from clear” whether the Fed should use interest rates to stem a surge in financial leverage, and urged further research into the issue.“Higher rates than called for based on purely macroeconomic conditions may help forestall a potentially damaging buildup of leverage and an asset-price boom,” Yellen said in the text of a speech today in Hong Kong.And on September 24th, Congressman Keith Ellison wrote a letter to Bernanke and Geithner stating:
As you know, excessive leverage was a key component of the financial crisis. Investment banks leveraged their balance sheets to stratospheric levels by using short-term wholesale financing (like repurchase agreements and commercial paper). Meanwhile, some entities regulated as bank holding companies (BHCs) used off-balance-sheet entities to warehouse risky assets, thereby evading their regulatory capital requirements. These entities’ reliance on short-term debt to fund the purchase of oftentimes illiquid and risky assets made them susceptible to a classic bank panic. The key difference was that this panic wasn’t a run on deposits by scared individuals, but a run on collateral by sophisticated counterparties.On November 13th, Bernanke responded to Ellison (I received a copy of the letter from a Congressional source):
The Treasury highlights this very problem in its policy statement before the recent summit of G-20 finance ministers in London. To address this problem, the Treasury advocates stronger capital and liquidity standards for banking firms, including “a simple, non-risk-based leverage constraint.” The U.S. is one of only a few countries that already has leverage requirements for banks. Leverage requirements supplement risk-based capital requirements that federal banking regulators have in place pursuant to the Basel II Accord, an international capital agreement. While important features of our system of financial regulation, leverage requirements only apply to banks and bank holding companies and therefore have not covered a wide array of financial institutions, including many that are systemically important. Moreover, leverage requirements have generally not captured the considerable risks associated with off-balance-sheet activities.
Of course, the Administration looks to address the shortcomings in the existing regulatory system through a proposal to regulate large, systemically-significant financial institutions as Tier 1 Financial Holding Companies (FHCs). Building upon its existing authority as the consolidated supervisor of all BHCs (which includes FHCs), the Federal Reserve would be responsible for overseeing and regulating the Tier 1 FHCs under the plan. In the legislative draft of the proposal, the Federal Reserve would have the authority to prescribe capital requirements and other prudential standards for these institutions that are stronger than those for all other BHCs. To that point, the text specifically says, “The prudential standards shall be more stringent than the standards applicable to bank holding companies to reflect the potential risk posed to financial stability by United States Tier 1 financial holding companies and shall include, but not be limited to—(A) risk-based capital requirements; (B) leverage limits; (C) liquidity requirements; and (D) overall risk management requirements.”
The application of leverage limits – as advanced by the Treasury’s G-20 policy statement and by the Administration’s financial regulatory reform plan – is a simple and elegant way to limit risk at specific financial institutions (and within the overall financial system). The financial crisis has underscored the importance of leverage requirements and manifested the problems associated with relying upon risk-based capital requirements alone ...
Nevertheless, there are some open questions regarding exactly how a leverage requirement should be applied. Some scholars and policy experts have advocated putting in place a leverage requirement for banks and other financial institutions that is set in statute. As Congress moves forward on comprehensive financial regulatory reform, it may consider such a requirement. I would therefore be interested to hear your views regarding the wisdom of such an approach.
As you know, setting capital standards requires decisions regarding what institutions would be covered, how capital would be defined, and what levels the requirements would be set. In light of that, what specific difficulties would you anticipate Congress facing with respect to specifying such a requirement? In addition, would a statutory requirement be too inflexible and place too many constraints on regulators with respect to refining regulatory capital requirements and negotiating with bank regulators from other countries?
The Board's authority and flexibility in establishing capital requirements, including leverage requirements, have been key to the Board's ability to require additional capital where needed based on a banking organization's risk profile. One of the lessons learned in the recent financial crisis is the need for financial supervisors to have the ability to react quickly to changing circumstances, as in the capital assessments conducted in the Supervisory Capital Assessment Program. The Board and other federal banking agencies initiated this program to conduct a comprehensive, forward-looking assessment of the capital positions ofthe nation's 19 largest bank holding companies (BHCs). The Board's authority to mandate specific levels of capital was critical to this exercise because each BHC had a unique set of risks and circumstances that demanded careful supervisory scrutiny and evaluation in order to identify the amount of capital appropriate for its safe and sound operation. The Board required corrective actions on a case-by-case basis and continues to assess the capital positions ofthese institutions as well as all others under its supervision.The Supervisory Capital Assessment Program Bernanke refers to were the infamous "stress tests". There's just one little problem: the stress tests were a complete complete sham.
We note that in other contexts, statutorily prescribed minimum leverage ratios have not necessarily served prudential regulators of financial institutions well. Previously, the minimum capital requirements for the housing government-sponsored enterprises Fannie Mae and Freddie Mac (collectively, "GSEs") were fixed in statute; the risk-based capital requirement for the GSEs was based on a stress test that was also set forth in statute; and the GSE's regulator, the Director ofthe Office of Financial Housing Enterprise Oversight (the predecessor agency to the Federal Housing Finance Authority) did not have the authority to establish additional capital requirements for the GSEs. This limitation was different from the authority that the federal banking agencies have to set the leverage and risk-based capital requirements for banking organizations. In 2008, Congress enacted the Housing and Economic Recovery Act of 2008, which created FHFA and empowered it to establish additional minimum leverage and risk-based capital requirements for the GSEs.
With regard to the Board and other U.S. banking agencies' efforts to join with international supervisors to strengthen capital requirements for internationally active banking organizations, the Basel Committee is working on proposals for an international supplement to minimum risk-based capital ratios. While this work is in process, it is likely that these efforts will take the form of a minimum leverage ratio. It will be important for the international regulatory community to carefully calibrate the aggregate effect ofthis initiative, along with other efforts underway that are intended to strengthen capital requirements, to ensure that they protect against future financial crises while not raising capital requirements to such a degree that the availability of credit to support economic growth is unduly constrained. The current authority and flexibility the Board has to establish and modify leverage ratios as a banking organization regulator is very important to the successful participation of the Board in the process of establishing and calibrating an international leverage ratio.
In reality, the Fed has been one the biggest enablers for increased leverage. As anyone who has looked at Bernanke and Geithner's actions will tell you, many of the government's programs are aimed at trying to re-start securitization and the "shadow banking system", and to prop up asset prices for highly-leveraged financial products.
Indeed, Bernanke said in February:
In an effort to restart securitization markets to support the extension of credit to consumers and small businesses, we joined with the Treasury to announce the Term Asset-Backed Securities Loan Facility (TALF).And he said it again in September:
The Term Asset-Backed Securities Loan Facility, or TALF ... has helped restart the securitization markets for various types of consumer and small business credit. Securitization markets are an important source of credit, and their virtual shutdown during the crisis has reduced credit availability for many borrowers.The Fed talking about reducing leverage is like a crack cocaine dealer handing out "just say no" stickers.
Indeed, the central bankers' central banker - BIS - has itself slammed the Fed:
In a pointed attack on the US Federal Reserve, [BIS and its chief economist William White] said central banks would not find it easy to "clean up" once property bubbles have burst...
Nor does it exonerate the watchdogs. "How could such a huge shadow banking system emerge without provoking clear statements of official concern?"
"The fundamental cause of today's emerging problems was excessive and imprudent credit growth over a long period. Policy interest rates in the advanced industrial countries have been unusually low," [White] said.
The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning...
"Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off.
"To deny this through the use of gimmicks and palliatives will only make things worse in the end," he said.
As Spiegel wrote in July of this year:
[BIS] observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market ...The head of the World Bank also says:In January 2005, the BIS's Committee on the Global Financial System sounded the alarm once again, noting that the risks associated with structured financial products were not being "fully appreciated by market participants." Extreme market events, the experts argued, could "have unanticipated systemic consequences".
Central banks [including the Fed] failed to address risks building in the new economy. They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the 'real economy' of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong.(Large amounts of leverage increase bubbles, and so the two concepts are highly interconnected.)
Remember also that Greenspan acted as one of the main supporters of derivatives (including credit default swaps) between the late 1990's and the present (and see this). Greenspan was also one of the main cheerleaders for subprime loans (and see this). Both increased leverage, especially since the shadow banking system - CDOs, CDSs, etc. - were largely stacked on top of the subprime mortgages.
In fact, as I've repeatedly pointed out, Bernanke (like Summers and Geithner), is too wedded to an overly-leveraged, highly-securitized, derivatives-based, bubble-blown financial system. His main strategy, arguably, is to re-lever up the financial system.
The financial system is undergoing a period of deleveraging that cannot be stopped. For example:
- Barrons is running an editorial entitled "The Crash Must Come: Intervention can't stop the business cycle".
- The Economist writes, "Once started, the process [of deleveraging] is hard to stop."
- The Financial Times quotes the Bank of Tokyo-Mitsubishi in saying, "There seems little what the authorities can do to reverse the process of deleveraging that is taking place with financial institutions all contracting their balance sheets at the same time".
As former head BIS economist William White wrote recently, we have to resist the temptation to re-start high levels of leverage and to blow another bubble every time the economy gets in trouble:Ultimately, “all the king’s horses and king’s men” cannot prevent the de-leveraging of the financial system under way.
***
Like a giant forest fire the de-leveraging process cannot be extinguished. Thoughtful actions can create firebreaks that limit preventable damage to the economy and the international financial system until the fire burns itself out.
The Fed may be talking like Smokey the Bear, but it continues to hand out matches trying to increase leverage.Forest fires are judged to be nasty, especially when one’s own house or life is threatened, or when grave harm is being done to tourist attractions. The popular conviction that fires are an unqualified evil reached its zenith after a third of Yellowstone Park in the US was destroyed by fire in 1988. Nevertheless, conventional wisdom among forest managers remains that it is best to let natural forest fires burn themselves out, unless particularly dangerous conditions apply. Burning appears to be part of a natural process of forest rejuvenation. Moreover, intermittent fires burn away the undergrowth that might accumulate and make any eventual fire uncontrollable.
Perhaps modern macroeconomists could learn from the forest managers. For decades, successive economic downturns and even threats of downturns (“pre-emptive easing”) have been met with massive monetary and often fiscal stimuli...
Just as good forest management implies cutting away underbrush and selective tree-felling, we need to resist the credit-driven expansions that fuel asset bubbles and unsustainable spending patterns. Recent reports from a number of jurisdictions with well-developed financial markets seem to agree that regulatory instruments play an important role in leaning against such phenomena. What is less clear is that central bankers recognise that they might have an even more important role to play. In light of the recent surge in asset prices worldwide, this issue needs urgent attention. Yet another boom-bust cycle could have negative implications, social and political, stretching beyond the sphere of economics.
Japan: Not Out of the Woods
My first reaction at seeing the headlines that the Japanese economy grew more than expected in July-Sept was excitement.
After all, the main news coming out of Japan has been gloom and doom recently (and see this).
But as Bloomberg points out:
The acceleration of Japan’s economy to the fastest growth pace in more than two years masked a slide in prices of goods and services that threatens to temper the nation’s recovery...
Sustained price declines threaten to curtail a corporate- profit rebound that’s already been insufficient to spur a rally in Japan’s shares this quarter. The report prompted Deputy Prime Minister Naoto Kan to say the government may outline an emergency-spending package as soon as today, adding that “I’m concerned we’re entering into a deflationary situation.”
“This isn’t sustainable growth and the government knows it -- that’s precisely why they’re talking about the GDP deflator,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “On the face of it, 4.8 percent growth is a positive for the Democrats, but they’re not reading it as a reason to abandon their economic policies”...
A report today showed that demand for services unexpectedly fell for the first time in four months in September, a sign that the effects of government stimulus measures may be fading...
“It might be a decade before the job market returns to the level of health we had a year or two ago,” [Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo, who used to work at the central bank] said. “The number of jobs may recover but not wages. It’s very fragile.”
And Nouriel Roubini does a great job of putting the Japanese GDP figures in perspective:
- Export growth was steady at 6.4% q/q, same pace as the previous quarter.
- Public investment no longer the fastest growing component of GDP. It decreased 1.2% q/q.
- Private residential investment continued to plunge (-7.7% q/q, -27.5% y/y in Q3)
- Private demand turned positive, up 1.0% q/q, 4.2% y/y, driven by consumption and commercial investment.
- Gross fixed capital formation again decreased 0.3% q/q, 1.3% y/y.
- GDP deflator slowed further to 0.2% q/q. Domestic demand deflator was -2.6% q/q.
- An inventory-driven rebound in exports to emerging markets may drive a cyclical recovery in Japan. However, a strong, sustained recovery is unlikely without a revival in domestic demand, which is currently on life support from fiscal stimulus packages. Excess capacity will continue to weigh on employment, dampening consumption. As RGE expected, fiscal stimulus lifted consumer spending in Q3 but the stimulus effect will fade going forward as public spending comes under strain from a heavy debt load.
- Louise Curley of Haver Analytics: "It should be noted that the data are preliminary and some of the components, notably the change in inventories, is only updated during the 2nd preliminary release. Given the volatility and the large positive and negative contributions of inventory changes to total growth, as shown in the second chart, it is highly likely that the missing element in Japan's third quarter growth was due to inventory accumulation."
- Takehiro Sato of Morgan Stanley: "Economic strength overseas could allow Japan to avoid a sharp retreat in October-December and January-March 2010...A modest second dip in the economy will be inevitable in the first half of FY2011 as the growth rate reacts to the drop in public investment...the second dip [will] be much shallower than...January-March this year."
- Caroline Newhouse-Cohen of BNP: GDP growth may rebound slightly in Q2 & Q3 before a further fall in Q4. GDP should thus fall more than 7% in 2009, its sharpest fall on record. The drawdown in inventories is set to trigger an upswing in production and exports over the coming months before economic activity contracts again toward the end of 2009 due to weak domestic demand despite the fiscal stimulus.
- Mitsumaru Kumagai of Daiwa: "Real GDP will decline 3.2% in FY2009 but increase 1.2% in FY2010. However, the possibility that Japan's economy will experience a lull from end-2009 will increase, partly due to public works spending running out of steam. In any event, Japan's economy is unlikely to see a full-fledged recovery before FY2010 when the US economy is expected to trace a firm uptrend."
Overview: Japan's real GDP growth accelerated to 1.2% q/q (seasonally adjusted) in Q3 2009, up from 0.7% in Q2, and stopped contracting on an annual basis. 4.8% y/y growth in Q3 2009 ended a five quarter streak of negative annual figures, thanks mostly to inventory restocking and a modest contribution from fiscal stimulus-driven household consumption. However, as Japan remains in deflation, nominal GDP growth figures present a more realistic picture of the economy: nominal GDP contracted 0.1% q/q, 0.3% y/y in Q3 (seasonally adjusted)...
Beyond Q3 2009
In other words, deflation us so severe in Japan that nominal GDP is actually negative. And just as with the American economy, signs of recovery are due to massive stimulus, and when heavy government intervention ceases, the Japanese economy will probably contract again, especially given the huge drag from massive debt.
Monday, November 16, 2009
Special Inspector: AIG Counterparty VOLUNTEERED to Take a Haircut, But Geithner Refused
I received an advance copy of the Special Inspector General for Tarp's Report called "Factors Affecting Efforts to Limit Payments to AIG Counterparties", which will be released tomorrow (posted below).
The report reveals that at least one counterparty indicated that it was willing to take a reduced payout on its credit default swaps. In other words, then-head of the Federal Reserve Bank of New York - Tim Geithner - wouldn't have had to even play hardball to get a concession from the counterparty.
But Geithner ended up dictating that all of AIG's counterparties get full payment - with no haircuts for anyone (except the American taxpayer).
The report includes these gems:
- As a policy matter, FRBNY was unwilling to use its leverage as the regulator for several of the counterparties to compel concessions, in part because in the negotiations it was acting as a creditor of AIG and not as the counterparties' primary regulator
- Also as a policy matter, FRBNY was uncomfortable with violating the principal of sanctity of contract.
Well sure, that makes sense. A creditor doesn't want to negotiate hard and demand concessions from its debtor, now does it?
Apparently, while Geithner was concerned with the sanctity of the CDS contracts (which - I would argue - were all based on fraudulent representations concerning how safe an investment they were), he didn't care very much about the sanctity of the agreement of a government to do what is best for its people.
But actually, the New York Fed isn't a government agency. The Fed itself maintains that:
While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
So really Geithner - as head of the private bank-owned and managed New York Fed - was simply serving his constituency: the giant New York money center banks. Geithner's constituency never was the American public.
The giant banks were the creditors of the giant banks. Like two sock puppets putting on a big show of good cop / bad cop show, the New York Fed pretended that it was negotiating hard, but ended up making sure that the boys got their full cut.
Update: The New York Times says that the bank which agreed to a haircut was UBS.
Bernanke Blames Banks For Slow Recovery and High Unemployment . . . Then Gives Them a Pat on the Back and a Wink
As I have repeatedly written, unemployment will worsen because the too big to fails aren't lending. See this.
Bernanke just said the same thing:
Federal Reserve Chairman Ben Bernanke on Monday blamed banks for slowing the recovery and keeping unemployment high.
Despite hundreds of billions in dollars in taxpayer bailouts, the nation's banks have dramatically reduced their lending this year.
"Banks' reluctance to lend will limit the ability of some businesses to expand and hire," Bernanke said. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."
Bernanke predicted that the unemployment rate will get worse before it gets better. "The best thing we can say about the labor market right now is that it may be getting worse more slowly"...
"Access to credit remains strained for borrowers who are particularly dependent on banks," Bernanke said. "Bank lending has contracted sharply this year...[and] banks continue to tighten the terms on which they extend credit for most kinds of loans."
But as I wrote in February:
The government could have forced the banks to use their bailout money for loans.
For example, unlike taxpayers in European countries - who get voting shares in return for their bailouts - the U.S. taxpayers have no say in the management of the companies they are giving their hard-earned money to.
And European bailouts included provisions protecting against excessive dividends and executive bonuses, and requiring loans to homeowners and small businesses:
Now, the Fed is begging banks to put the money into new loans or bolster loss reserves, instead of paying dividends for shareholders."Five days before Paulson struck his deal with the banks, British Prime Minister Gordon Brown negotiated a similar bailout — only he extracted meaningful guarantees for taxpayers: voting rights at the banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses.
In sharp contrast, this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What's more, golden parachutes and bonuses already promised by the banks will still be paid out to executives — all before taxpayers are paid back."
But the left hand doesn't know what the right hand is doing. For example, the Treasury Department encouraged banks to use the bailout money to buy their competitors, and has pushed through an amendment to the tax laws which rewards mergers in the banking industry.
Moreover, as the above-linked article from Huffington Post shows, Bernanke is protecting the too big to fails:
Bernanke also touched on "too big to fail." ... Bernanke said in response to a question, that "making banks smaller isn't going to do it."
So while Bernanke is criticizing the banks on the one hand, he is patting them on the back with the other hand and giving them a big wink.
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