2009 November » New Jersey CFO

Société Générale tells clients how to prepare for potential ‘global collapse’

A Changing Europe, A State of Distress, Back to the basics, Coming Social Unrest No Responses »

Nov 222009

In a report entitled “Worst-case debt scenario”, 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.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.

“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.

Under the French bank’s “Bear Case” scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing 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.

Inflating debt away might be seen by some governments as a lesser of evils.

If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.

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.

SocGen advises bears to sell the dollar and to “short” cyclical equities such as technology, auto, and travel to avoid being caught in the “inherent deflationary spiral”. Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.

Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would “generate turbo-charged returns” mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan’s 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.

SocGen’s case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.

Mr Fermon said his report had electrified clients on both sides of the Atlantic. “Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried,” he said.

Democrat Southern Style Sweeteners

A Growing List Of One Term Presidents, Health Care Crisis-The Discussion, Obama's Hypocrisy, Politicians, Prostitutes and Pimps All Rhyme No Responses »

Nov 222009

Staffers on Capitol Hill were calling it the Louisiana Purchase.

On the eve of Saturday’s showdown in the Senate over health-care reform, Democratic leaders still hadn’t secured the support of Sen. Mary Landrieu (D-La.), one of the 60 votes needed to keep the legislation alive. The wavering lawmaker was offered a sweetener: at least $100 million in extra federal money for her home state.

And so it came to pass that Landrieu walked onto the Senate floor midafternoon Saturday to announce her aye vote — and to trumpet the financial “fix” she had arranged for Louisiana. “I am not going to be defensive,” she declared. “And it’s not a $100 million fix. It’s a $300 million fix.”

It was an awkward moment (not least because her figure is 20 times the original Louisiana Purchase price). But it was fairly representative of a Senate debate that seems to be scripted in the Southern Gothic style. The plot was gripping — the bill survived Saturday’s procedural test without a single vote to spare — and it brought out the rank partisanship, the self-absorption and all the other pathologies of modern politics. If that wasn’t enough of a Tennessee Williams story line, the debate even had, playing the lead role, a Southerner named Blanche with a flair for the dramatic.

After Landrieu threw in her support (she asserted that the extra Medicaid funds were “not the reason” for her vote), the lone holdout in the 60-member Democratic caucus was Sen. Blanche Lincoln of Arkansas. Like other Democratic moderates who knew a single vote could kill the bill, she took a streetcar named Opportunism, transferred to one called Wavering and made off with concessions of her own. Indeed, the all-Saturday debate, which ended with an 8 p.m. vote, occurred only because Democratic leaders had yielded to her request for more time.

Even when she finally announced her support, at 2:30 in the afternoon, Lincoln made clear that she still planned to hold out for many more concessions in the debate that will consume the next month. “My decision to vote on the motion to proceed is not my last, nor only, chance to have an impact on health-care reform,” she announced.

Landrieu and Lincoln got the attention because they were the last to decide, but the Senate really has 100 Blanche DuBoises, a full house of characters inclined toward the narcissistic. The health-care debate was worse than most. With all 40 Republicans in lockstep opposition, all 60 members of the Democratic caucus had to vote yes — and that gave each one an opportunity to extract concessions from Senate Majority Leader Harry M. Reid.

Sen. Ron Wyden (D-Ore.) won a promise from Reid to support his plan to expand eligibility for health insurance. Sen. Ben Nelson (D-Neb.) got Reid to jettison a provision stripping health insurers of their antitrust exemption. Landrieu got the concessions for her money. And Lincoln won an extended, 72-hour period to study legislation.

And the big shakedown is yet to occur: That will happen when Reid comes back to his caucus in a few weeks to round up 60 votes for the final passage of the health bill.

Republicans also knew that a single defection would kill the bill, so they tried to pressure the holdouts. “That’s what we’ve got to choose today: Do we choose life or do we choose death?” declared Sen. Sam Brownback (R-Kan.). “We just need one vote, one vote on the other side.”

But Landrieu had already made up her mind. She went to the floor during the lunch hour to say that she would vote to proceed with the debate — but that she’d be looking for much bigger concessions before she gives her blessing to a final version of the bill.

“My vote today,” she said in a soft Southern accent that masked the hard politics at play, “should in no way be construed by the supporters of this current framework as an indication of how I might vote as this debate comes to an end.” Among the concessions she’ll seek: more tax credits for small business and a removal of the version of the “public option” now in the bill.

That turned all the attention to the usually quiet Lincoln, who emerged from the cloakroom two hours later to announce her decision. Her attire was school-principal prim — blue suit with knee-length skirt, orange silk scarf tied tightly at the neck — and she was clearly uncomfortable in the spotlight. She spoke with the diction of somebody giving a dramatic reading, and she stumbled more than once as she read, botching the crucial line: “I will vote to support, of, the, the, will vote in support of cloture on the motion to proceed to this bill.”

She argued, a bit too strenuously, that “I’m not thinking about my reelection” in 2010. All the same, she made clear that Democratic leaders would have to give more if they want her to vote yes as the health-care debate continues. Specifically, she demanded removal of the public option. “I am opposed to a new government-administered health-care plan,” she warned, further cautioning that “I will not vote in favor of the proposal . . . as it is written.”

By the time this thing is done, the millions for Louisiana will look like a bargain.

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/21/AR2009112102272_pf.html

Another Stimulus?

Analysis & Commentary, Our phony middle class, Political Implications, Politicians, Positive Cash Flow, Regulatory Failures, Residential Market, Risk Management Strategies, The Arrogance of Power, The Consequences of Greed, Unemployment Catastrophe, Unindicted Co-Conspiritors, USA Is the New Japan, We Are All Cooked, We Have Become Beggars To The World No Responses »

Nov 212009

By Edward Harrison of Credit Writedowns.

A reader at Naked Capitalism asked us to respond to a recent article from the Christian Science Monitor asking Does US need a second stimulus to create jobs?

Marshall Auerback has already done some heavy lifting – and taken all of the heat in the comments. He says emphatically yes.

Now I want to take a crack at this. My short answer is no. But before I go into this, as an aside, I wanted to mention Marshall’s new smiling, happy picture up at the great blog New Deal 2.0 where he now writes. Earlier, when Credit Writedowns was hosted at Blogger, he used a picture best described as a mug shot in his profile, but he has changed that one too (although he smiles there a little less). He thinks we haven’t noticed this sleight of hand. Well I have! Once upon a time, Marshall wrote with a man I called all bearish, all the time this summer. Take a look at that post; you don’t see him smiling now do you? We have Lynn Parramore, New Deal 2.0’s editor to thank for making Marshall Auerback into an optimist.

Yapping away at gold: lessons from the last days of the Rai

Back to the basics No Responses »

Nov 212009

Financial Times
Yapping away at gold: lessons from the last days of the Rai
By Willem Buiter
November 16, 2009

Comment 5 from Jesse
“Perhaps if I phrase it this way it might be more clear.

In one philosophic sense, gold is indeed a fiat valuation, if all valuations are fiat,
nothing being essential but air to breathe, food to eat, shelter and clothing in
roughly that order. All else is discretion.

Gold, however, may be less fiat, less arbitrary a a money, a medium of exchange
and a store of value, rather than the essential itself,
in an other than barter economy. Just as the Aussie dollar or the euro may be less ephemeral than the US dollar,

This is what is happening. The Bank of England made an error in selling its nation’s
gold ‘at the bottom’ and will pay a price for this; live with it.

Oh, and try to move on please, else you may begin to resemble King Canute, sitting
on his throne at ocean’s edge, ordering the incoming tide to stop its inundation.

Thank you. Mr. Buiter Apparently Does Not Like Gold

The Apparatchiks

A Growing List Of One Term Presidents, A Picture Is Worth A Thousand Words, A State of Distress, AIG and all that....., Back to the basics, Bilderbergers 1 USA 0, Jacksonian Democracy, Libertarianism - the Debate, Monetary Policy - Discussion, No Bank Is Indispensable, Obama's Hypocrisy, Our phony middle class, Politicians, Ron Paul Stands Tall, Socialism, TARP fruit loops, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The Economics of Schumpeter, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, THEY ARE ALL THE SAME, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Wage Deflation, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still! No Responses »

Nov 212009

The Big Government Boss isn’t going away

A Growing List Of One Term Presidents, A Shareholder-Not Just a "Stakeholder", A State of Distress, AIG and all that....., Analysis & Commentary, “the Greenspan doctrine”, Coming Social Unrest, Commercial Real Estate Bust, Deflation-Inflation-Stagflation, Is Goldman Sachs Evil?, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, No Bank Is Indispensable, Obama's Hypocrisy, Our phony middle class, Political Chaos, Regulatory Failures, Small Business-Bedrock of America, Smaller Can Be Better, Socialism, TARP fruit loops, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The New American Socialism, Unemployment Catastrophe, Unindicted Co-Conspiritors, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still! No Responses »

Nov 212009

“Hindsight is a wonderful thing,” said Timothy W. Long, the chief bank
examiner for the Office of the Comptroller of the Currency. “At the height of
the economic boom, to take an aggressive supervisory approach and tell people to
stop lending is hard to do.” Post Mortems Reveal Obvious Risks at Banks, NY Times

Behold the Wizard Unmasked

A Picture Is Worth A Thousand Words, A Saturday Break No Responses »

Nov 142009

[goldenben.GIF]

http://jessescrossroadscafe.blogspot.com/

Morality vs. Material Interests

Analysis & Commentary, Bilderbergers 1 USA 0, The Arrogance of Power, The Financial Elite, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The New American Socialism, Time For A New Third Party, Truth In Charity, Unindicted Co-Conspiritors, We Are All Guilty, Who owns Congress-Still! No Responses »

Nov 142009

Myths of Our Times

By Paul Craig Roberts

Humanity has endeavored for millennia to control evil with morality. In the American “superpower,” this effort has collapsed and failed. Continue

Meet the new leaders of banking

Analysis & Commentary, Bank Failures, Banks - Crisis Discussion No Responses »

Nov 142009

JPMorgan Chase, Wells Fargo and other bank behemoths have bulked up over the past year. But they’re not the only ones getting bigger these days.

Dozens of small banks that were otherwise anonymous in the years leading up to the financial crisis have also enjoyed robust growth in recent months.

Some of them have expanded so rapidly, in fact, that they have transformed themselves into what some argue is the next generation of regional banking leaders.

Chicago’s MB Financial (MBFI), for example, drastically widened its deposit base by buying local rivals that failed. In September, the company made its boldest purchase yet when it scooped up 11 branches and $7 billion worth of deposits controlled by Corus Bankshares after Corus was seized by the FDIC.

And with the fragmented Chicago banking landscape continuing to shift, MB Financial’s buying spree may be far from over.

“We think there is quite a bit of opportunity in the area for similar transactions in the future,” said Mitchell Feiger, chief executive officer of MB Financial.

Other fast-growing regional banks, such as Prosperity Bancshares (PRSP), have been buoyed by a resilient economy in their home market and diligent underwriting practices.

The Houston, Texas-based lender has not only reported consistently higher profits so far this year, but it also recently hiked its dividend and was reportedly a key contender for Guaranty Bank, a significantly larger peer that failed in late August. Guaranty was eventually acquired by Spain’s BBVA.

And some banks have simply managed to harness the broader market forces at work, including consumers’ flight from stocks to cash earlier this year and widespread discontent with larger banks in the wake of taxpayer bailouts.

Signature Bank (SBNY), which operates solely within the New York metropolitan area, is one of those banks. Between July and September alone, the company reported almost double-digit growth in both loans and deposits, a feat that is not lost on many industry analysts.

“That is pretty phenomenal,” said Andy Stapp, a senior equity research analyst at brokerage B. Riley & Company, who tracks Signature.

Life at the top

Of course, much of the spoils of the recent shakeup in the banking industry have gone to the biggest players in the business.

Both JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) dramatically expanded their retail banking operations after they bought Washington Mutual and Wachovia respectively.

Today, the nation’s 10 largest banks control approximately $3.4 trillion in deposits, according to recent FDIC data, $700 billion more than they did just a year ago.

Some would even argue that the banking field is much more crowded these days with the entry of Goldman Sachs (GS, Fortune 500), American Express and GMAC, all of whom got into the deposit-taking business last fall when they were unable to access traditional sources of liquidity.

Still, that has hardly deterred many ambitious bankers looking to expand.

Los Angeles-based City National (CYN), which caters largely to businesses as well as affluent customers, recently indicated it was looking to expand its presence in Northern California after it acquired a branch in the Silicon Valley region in late August.

“Going to San Jose was always part of our plan,” said City National CEO Russell Goldsmith. “It was an attractive way to get into the third-largest city in California and complete the circle around the [San Francisco] Bay area.”

Risks versus rewards

Tepid loan demand has complicated growth plans for many ambitious banks, however.

With unemployment now above 10%, Americans are broadly reining in their spending. Consumers and businesses remain hesitant to seek out credit, according to the most recent survey of senior bank loan officers by the Federal Reserve.

And if forthcoming federal legislation requires banks to hold more capital, that could heighten the competition for customers.

“It will be harder for banks to grow deposits, which is one of the reasons why we are so interested to get them now,” said MB Financial’s Feiger.

If banks like MB Financial can navigate all those hurdles and aren’t constrained by issues like commercial real estate loan losses, the opportunities to grow could be huge, notes Aaron Deer, an equity bank analyst for Sandler O’Neill.

With potentially hundreds of additional banks likely to fail in the months and years ahead, competition will continue to ease. And should credit remain tough to come by, banks will likely be able to fetch a premium even on new loans made to those borrowers with sterling credit.

“My guess is the opportunities for organic growth is probably going to accelerate over the coming year,” said Deer. “Right now banks are finding very attractive lending opportunities.”

Meet the New Leaders of Banking – David Ellis, CNNMoney

One of the federal government’s most opaque methods for bailing out the banking system allowed a handful of giant institutions to save up to $25 billion on their borrowing costs, a Congressional panel estimated on Friday.

Seven companies received about 82 percent of those benefits, the panel estimated. General Electric Capital was able to reduce its borrowing costs by about $1.9 billion, while Goldman Sachs saved an estimated $606 million. The other big beneficiaries were Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley and Wells Fargo & Company.

The savings came in the form of federal guarantees on more than $300 billion of bonds issued by banks and other financial institutions, and they were merely one component of a $4.3 trillion safety net of guarantees orchestrated last year by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation.

In one of the first systematic efforts to analyze the maze of guarantees and hidden subsidies, the Congressional panel that oversees the Treasury’s $700 billion rescue program said the guarantees had provided a cheap but risky tactic for fighting the financial crisis last year.

The good news for taxpayers, the panel said, is that the government has actually turned a profit thus far on the guarantees. The government has collected $9 billion in fees for guaranteeing bonds issued by the big financial institutions and a total of $17 billion in fees for all its emergency guarantees. Thus far, it has lost only about $2 million.

At the height of the financial crisis late last year, the government provided guarantees to financial institutions, from money-market funds to expanded deposit-insurance for banks and $300 billion in troubled assets held by Citigroup. By providing guarantees instead of direct loans, the Treasury could avoid spending money upfront.

But Elizabeth Warren, director of the oversight panel, warned that the guarantees also exposed taxpayers to potentially huge costs and had created new risks by encouraging financial institutions to count on future bailouts and take bigger risks.

“The guarantees, when they work, provide big market stability at very low cost,” Ms. Warren said. “But they come with a very high risk to the taxpayer and a powerful distortion of market pricing and moral hazard.”

The panel’s most striking finding was about the size of the effective subsidy that G.E. Capital and Wall Street giants like Goldman reaped in the form of below-market borrowing costs.

The panel estimated that the federal guarantees lowered those firms’ borrowing costs by about 39 percent. Using two different approaches to measure the value of the subsidy, the panel said the savings ranged from $12.8 billion to $25 billion.

The oversight panel said it found “no significant flaws” in how Treasury officials and banking regulators designed the guarantees. But Ms. Warren warned that they were a “dangerous tool,” adding that “next time we may not be so lucky.”

Big Breaks for Companies in Bailout’s Fine Print – New York Times

27 Million Reasons to Leave New York

Back to the basics No Responses »

Nov 142009

For every Sunbelt refugee who has tried to leave high tax bills behind in the cold Northeast, Julian Robertson scored a victory this week. By proving that he was outside New York City for half the days in the year 2000, the former hedge-fund titan avoided $27 million in city taxes, thanks to a ruling by New York’s tax court.

No thanks are due the New York State Department of Taxation and Finance, which had ruled he was a resident and therefore liable for the multimillion-dollar tab. In the upside-down world of tax law, where citizens are guilty until they can prove their whereabouts, it’s a rare taxpayer victory.

New York Yankee captain Derek Jeter is routinely photographed with beautiful women in sunny Florida when he’s not visiting the 28 major league ballparks located outside the city limits. But a couple of years ago the all-star shortstop couldn’t convince the tax police that he’s not an everyday player in the Big Apple. Come to think of it, there would seem to be very few people in the city who would have more evidence than Mr. Jeter of days spent elsewhere. So how did Mr. Robertson hit his home run?

A meticulous assistant kept a computer calendar so precisely that she even counted as a day in New York one evening when Mr. Robertson crossed the George Washington Bridge at 11:45 p.m. and entered the city.

Mrs. Robertson helped out by testifying that she can’t stand to have Mr. Robertson around when she’s packing for a trip and therefore would have banished him from Manhattan on the day before their departure on an overseas trip.

That a man who has everything would be willing to subject himself to such a trial—and to put himself under surveillance by his office staff—tells us something about the tax burdens that have become a sad fact of life in so much of America. Whether for baseball players or bond traders, New York City and surrounding locales should spend more effort encouraging people and businesses to locate here and fewer resources punishing those who do.

Julian Robertson’s $27 Million Tax Victory in New York – Editorial, WSJ

Obamacare Will Balloon Future Budget Deficits

Health Care Crisis-The Discussion No Responses »

Nov 082009

The tax provisions in the healthcare proposals will impose considerable damage without raising much revenue. Higher income tax rates on investors and entrepreneurs in the House legislation will reduce incentives to be productive and also increase incentives for evasion and avoidance. The tax on high-cost insurance plans and medical devices in the Senate plan also will not generate the expected revenue since people and companies will change their behavior.

There also is little reason to expect that politicians in the future will be willing to control Medicare spending, so projected offsets of more than $500 billion are highly unlikely.

Finally, a bigger public sector has negative implications for public finances. Higher levels of government spending will drain resources from the productive sector of the economy, undermining economic vitality. Additionally, the plans result in large implicit marginal tax rates of nearly 70 percent because of the phase-out of insurance subsidies. So even taxpayers with modest incomes will face a staggering penalty on upward mobility that will hinder overall economic performance.

Fiscal responsibility is achieved by limiting the size of government. The President and his congressional allies, however, claim that big increases in government spending are prudent so long as there are equally large increases in the tax burden. But that’s like a doctor trying to fix a broken left leg by breaking the right leg as well.

Obamacare Will Balloon Future Deficits – Dan Mitchell, RealClearMarkets

Also, Obama Won’t Admit He’s Raising Taxes – Jacob Sullum, Washington Times

Stop the ‘jobless recovery’ madness!

Unemployment Catastrophe, Wage Deflation, We Have Become Beggars To The World No Responses »

Nov 082009

It’s time to stop glorifying our economic doldrums with this “jobless recovery” nonsense.

Yes, the economy did grow in the third quarter, for the first time in a year. Fewer Americans are filing new claims for unemployment insurance, and giant financial institutions appear less apt to collapse and send us into another stupor. The stock market has recovered much of its winter decline.

But so far there is no sign of an employment turnaround — and without one, and soon, all the other gains could prove fleeting.

The U.S. has lost jobs in 22 straight months, and Friday’s news that 10.2% of the labor force is out of work — the highest reading since 1983 — shows just how far we have to go.

Without better job prospects, the consumers whose spending makes up the lion’s share of economic activity will remain tightfisted. That will slow the healing of deep wounds in the housing and financial markets.

“To have a real recovery you need to put people to work,” said John Harrington, who runs Harrington Investments, a socially responsible asset management firm in Napa, Calif. “Right now we aren’t doing that.”

A ‘Jobless Recovery’ Is Nothing to Get Excited About – Colin Barr, Fortune

Also, Seeking to Grow Jobs, Not the Deficit – Moira Herbst, BusinessWeek

Green money needed

Green But Good No Responses »

Nov 082009

To speed the energy-efficiency grants for local governments, the Energy Department assigned 70 employees in a basement room the task of reviewing its 2,200 applications. Some cities and counties have been able to move more quickly with specific projects, such as replacing lighting in parking garages or buying new air-conditioning systems.

Green Initiative Hasn’t Stimulated Jobs – Alec MacGillis, Washington Post

Stimulating Failure

AIG and all that....., Analysis & Commentary, Coming Social Unrest, Consumption Ran the Old Economy No Responses »

Nov 082009

The Job Report: Another month, another drop in payrolls. Will it ever occur to our leaders in Washington that what they’re doing isn’t working – and may actually be damaging our economy?

News that the unemployment rate jumped to 10.2% in October, its highest level since 1983, as the economy shed 190,000 nonfarm jobs, underscores the spectacular failure of the so-called fiscal stimulus to stimulate anything other than economic misery.

Since the $787 billion stimulus was passed in February, the economy has lost 2.9 million jobs – for a total of 4.3 million since the end of 2008. The silver lining, some say, is the number of jobs lost each month is shrinking. But they lose sight of this: There’s no guarantee the economy’s 3.5% growth in the third quarter will continue.

Indeed, some worry the economy is on a slow-growth path that will lead to permanently high joblessness, weaker income growth and fewer opportunities. The Blue Chip consensus of more than 50 economists nationwide expects unemployment to remain above 8% at least into 2012.

Why should this be? Well, start with the fact that virtually all job growth comes from companies with fewer than 500 employees, and that startups and very small businesses are responsible for more than half of all new jobs.

Today, these entrepreneurial job creators are running scared. That the White House vows to jack up taxes on those with “high incomes” (that is, entrepreneurs) is one reason why. Next year’s scheduled expiration of the Bush tax cuts that pulled the economy out of the 2001 recession is another.

Higher income taxes, a flood of stiff new regulations and the possibility of at least $2 trillion in new taxes related to cap-and-trade and a health care overhaul over the next decade have created a climate of uncertainty – for small and large businesses alike.

Businesses are hunkered down. They have $1 trillion in cash stashed away, but they won’t invest out of fear it’ll be taxed away or some government czar will tell them how to run their business.

At the same time, banks have a record $800 billion in reserves but can’t seem to find any worthy borrowers.

The White House claims its stimulus “saved or created” 640,000 to 1 million jobs. But no evidence shows that’s true. Stimulus has failed. If anything, borrowing hundreds of billions of dollars to fund such feckless initiatives is destroying private-sector jobs. Time has come for a dramatic change of course.

The Stimulus Plan Has Failed – Editorial, Investor’s Business Daily

Entrepreneurs: The Real “Peace Prize” Winners

Small Business-Bedrock of America, Small Cap Stocks, Smaller Can Be Better, The End of American Capitalism As We Know It? - Discuss, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism No Responses »

Nov 072009

We live in ludicrous times of rewarding good appearance for evil action. President Obama is awarded the Nobel Peace Prize while his war efforts intensify. But those who are true promoters of peace need attention, for they will never likely receive such ostentatious recognition for their noble efforts. Such individuals are those who take risks in a world of uncertainty, and who save or borrow capital to start a business. Such entrepreneurs promote peace by serving the customer better than the next entrepreneur through voluntary transactions in the market, rather than commanding bureaucracy in government.

As part of my entrepreneurship courses, I have students who want to start their own business listen to new entrepreneurs discuss their background, their reasons for starting the business, and of their effort to establish the business. Students usually find these speakers fascinating and inspiring, but also come away with a sense of the enormous amount of effort, capital, risk, and uncertainty that is involved in starting a business. Many of these students decide they no longer want to start their own business. They realize that entrepreneurs, too, have a boss: the customer. Mises put it this way: “Ownership of the means of production is not a privilege, but a social liability.”

[VIEW THIS ARTICLE ONLINE]

The Network

Tech News No Responses »

Nov 072009

Mapping proposalshave received at least moral support from Democrats. “I think there is a lot of potential here–in fact, Andrew Lo has been talking to my staff,” says Congressman Barney Frank, whose Financial Services Committee is slated to hear testimony on systemic risks in the next couple of weeks. “But we’re not going to prescribe that; we’re going to empower that. These are specifics that should be decided by the regulator, and not by Congress.”

But even the regulators themselves are skeptical. “We’re not the National Security Agency [with] total information awareness,” says a senior official from the Federal Reserve Bank of New York who insisted on anonymity. “When you start to get to the type of information that would be required for the network maps, I think there would be a real reticence on the parts of the sovereigns and the institutions to provide that information.”

So far, the financial industry’s reaction has been to discount the feasibility and usefulness of network maps. Its trade group, the Institute of International Finance (IIF), decided to set up its own market monitoring group to “connect the dots” and “build a systemic picture” of the markets, yet it stopped short of recommending a network map.

“The practical and the concrete tools to have people do this are still being developed,” says Hung Q. Tran, the IIF’s senior director of capital markets and emerging market policy. “It’s difficult in many instances to see how relevant information can be collected and made available to people at the right time.”

The mappers’ plans need to be more specific, too, said the Fed official. “There would be lots of different types of network maps,” the official says. “There would be funding maps. There would be hedging maps for different types of market risk. Some of that we’ve been able to get further on, but I don’t think we’d ever be able to get the full view of the market.”

Yet, even if the United States balks, other countries may go ahead with network mapping. In February, Otmar Issing and Jan Krahnen, members of a commission advising the German government, wrote in the Financial Times that a global network map was “a vital element” for preventing future crises. And the main consultative document prepared for the European Union also recommended a map of global risks. But, without cooperation from the United States, any supposedly global map will be woefully incomplete. In the end, the question may be whether Washington is finally willing to stand up to the industry … for its own sake.

Daniel Altman is president of North Yard Economics, a nonprofit consulting firm serving developing countries. He is writing a book on the future of the global economy.

A Computer That Can Predict the Next Financial Crisis—And How Wall Street Is Trying to Block It Daniel Altman

Prostitutes, pimps & pols

Politicians, Prostitutes and Pimps All Rhyme No Responses »

Nov 012009

P.J. O’Rourke’s 1992 book, “Parliament of Whores,” is rightly hailed as a brilliant and hilarious expose of the essence of modern Washington. Filled with lines like “Giving power and money to the government is like giving whiskey and car keys to teenage boys,” the book entertains as it instructs.

But its title is not quite accurate. Real whores, after all, personally supply the services their customers seek. Prostitutes do not steal; their customers pay them voluntarily. And their customers pay only with money belonging to these customers.

In contrast, members of Congress routinely truck and barter with other people’s property.

A better title for O’Rourke’s book would have been “Parliament of Pimps.”

Members of Congress are less like whores than they are like pimps for persons unwillingly conscripted to perform unpleasant services.

Consider, for example, agricultural subsidies. Each year a handful of farmers and agribusinesses receive billions of taxpayer dollars. These are dollars that government forcibly takes from the pockets of taxpayers and then transfers to farmers.

The customers, in this case, are the farmers and agribusinesses. The suppliers of the services performed for these customers are taxpayers, for it’s the taxpayers who possess the ultimate asset — money — that farmers and agribusinesses lust after. And the intermediaries who oblige the suppliers to satisfy the base lusts of the customers are politicians. Just as pimps facilitate their customers’ access to prostitutes’ assets, politicians facilitate their customers’ access to taxpayers’ assets.

We taxpayers have less say in the matter than we like to think. Sure, we can vote. But if even just 50.00001 percent of voters cast their ballots for the candidate proposing higher taxes, the assets of not only our pro-tax citizens, but also those of the remaining 49.00009 percent of us anti-tax citizens are put at the disposal of our pimps’ customers. (And note that many of those who vote for higher taxes are not among those persons actually subject to higher taxation.)

If enough members of Congress decide to further their political fortunes by giving more money to farmers, or to corporations pushing “green” technologies, or to nearly bankrupt banks, or to whomever, the money given doesn’t come from the personal assets of these politicians.

Instead, politicians force taxpayers to pony it up — just as the services rendered for a pimp’s customers are rendered not by that pimp personally, but by the ladies under his charge. The pimp pockets the bulk of each payment; he’s pleased with the transaction. His customer gets serviced well in return; he’s pleased with the transaction. The only loser is the prostitute forced to share her precious assets with strangers whom she doesn’t particularly care for and who care nothing for her.

Also like the ladies under pimps’ power, taxpayers who resist being exploited risk serious consequences to their persons and pocketbooks. Uncle Sam doesn’t treat kindly taxpayers who try to avoid the obligations that he assigns to them. Government is a great deal more powerful, and often nastier, than is the typical taxpayer. Practically speaking, the taxpayer has little choice but to perform as government demands.

So to call politicians “whores” is to unduly insult women who either choose or who are forced into the profession of prostitution. These women aggress against no one; like all other respectable human beings, they do their best to get by as well as they can without violating other people’s rights.

The real villains in the prostitution arena are those pimps who coerce women into satisfying the lusts of strangers. Such pimps pocket most of the gains earned by the toil and risks involuntarily imposed upon the prostitutes they control. No one thinks this arrangement is fair or justified. No one gives pimps the title of “Honorable.” Decent people don’t care what pimps think or suppose that pimps have any special insights into what is good or bad for the women under their command. Decent people don’t pretend that pimps act chiefly for the benefit of their prostitutes. Decent people believe that pimps should be in prison.

Yet Americans continue to imagine that the typical representative or senator is an upstanding citizen, a human being worthy of being feted and listened to as if he or she possesses some unusually high moral or intellectual stature.

It’s closer to the truth to see politicians as pimps who force ordinary men and women to pony up freedoms and assets for the benefit of clients we call “special-interest groups.”

Donald J. Boudreaux’s column points out