GROWING WORRIES IN ATHENS
A Greek Default Would Hit the ECB Hard
Hopes that Greece can be saved are dwindling. Athens had hoped to reach a deal with its creditors on a 50 percent debt haircut, but banks have now made it clear that efforts to reach an agreement could fail. Should the country go bankrupt, the European Central Bank stands to lose the most.
A remarkable document has been placed today on the “London Banker” blogsite, the testimony of Marriner Eccles to the Senate Finance Committee in early 1933. His testimony later was rewarded by President Roosevelt by bringing Eccles to Washington to help write or draft several seminal laws that essentially saved US capitalism from itself. In fact, “London Banker” highlighted this particular passage from Eccles’ testimony:
It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.
Where are people such as Marriner Eccles today?
I strongly recommend reading the post in full. Eccles gave a eloquent diagnosis of how the Depression became so severe and intractable, and a cogent, layperson friendly set of recommendations. I have yet to see any similar length discussion of our current crisis that is as clear and compelling.
How 9/11 Triggered America’s Decline
The events of Sept. 11, 2001 led to a wave of solidarity with the US. But the superpower has lost that goodwill over the course of the wars it subsequently waged. Now America is mainly seen not as the victim of terrorism, but as a perpetrator of violence itself.
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Ten Lost Years
Ten years have passed since Sept. 11, 2001, and today only losers remain. Islam has been taken hostage by blinded ideologues. The West has betrayed its values in its struggle against terror, and we are now burdened with Islamophobes. Without 9/11, the crimes of Anders Behring Breivik and the rise of right-wing populists in Europe would be inconceivable.
Austerity is stupid, stimulus is dangerous, lying is optimal, economic choices are not scalar Steve Waldman
I’ve been on whatever planet I go to when I’m not writing. Don’t ask, your guess is as good as mine.
When I checked out out a few weeks ago, there was a debate raging on “fiscal austerity”. Checking back in, it continues to rage. In the course of about a half an hour, I’ve read about ten posts on the subject. See e.g. Martin Wolf and Yves Smith, Mike Konczal, and just about everything Paul Krugman has written lately. While I’ve been writing, Tyler Cowen has a new post, which is fantastic. Mark Thoma has delightfully named one side of the debate the “austerians”. Surely someone can come up with a cleverly risqué coinage for those in favor of stimulus?
Harking back to the Founders’ principles of constitutional limits to government is a very powerful message. It’s a message of freedom, especially economic freedom. The tea partiers have delivered an extremely accurate diagnostic of what ails America right now: Government is growing too fast, too much, too expensively, and in too many places — and in the process it is crowding out our cherished economic freedom.
It’s as though the tea partiers are saying this great country will never fulfill its long-run potential to prosper, create jobs, and lead the world unless constitutional limits to government are restored.
Now, as the tea partiers rally across the country, the big question is only this: Will the political class get it?
The Constitutionalist Revolt In the U.S. – Larry Kudlow, RealClearMarkets
Bankers’ Worst Nightmare: Richard Vigilante – Jim McTague, Barron’s
CONGRESS, HOLD YOUR HORSES! SURE, EVERYONE except the perps favors better regulation on Wall Street. But we need more efficient and intelligent policing than what the current House and Senate financial-reform bills offer.
The aptly named Richard Vigilante, who recently co-wrote a book called Panic with Minneapolis-based hedge-fund legend Andrew Redleaf, suggests this approach: Force all firms managing other people’s money to publish their investment positions in detail before the market opens; this would include hedge funds. Then, the short sellers could punish ineptness before it spreads by betting heavily against a particular institution’s stupid decisions.
“Bankers would hate it. It’s their worst nightmare,” says Vigilante, whom I met with at Firehook bakery on Washington’s Farragut Square. If the system had been in place in 2006, short sellers would have stamped out the smoldering subprime mania before it had a chance to spread, he asserts.
His suggestion is both brilliant and a model of simplicity — it could protect consumers against all kinds of risky financial products — but it will never become reality.
Bankers would scream about the need to protect their proprietary-trading information. And, as was the case with health-insurance “reform,” Congress is bent on ramming a bill, no matter how flawed, through the legislative sausage works in order to mollify an uncommonly angry electorate before Nov. 2. To entertain new ideas at this juncture, even good ones, would upset the ambitious timetable.
When asked what advice he would give to residents of Ashtabula County Ohio because of cutbacks in official law enforcement budgets, Judge Alfred Mackey said they should:
“arm themselves. Be very careful, be vigilant, get in touch with your neighbors, because we’re going to have to look after each other.”
http://jessescrossroadscafe.blogspot.com/2010/04/ohio-judge-tells-residents-to-arm.html
- At Jesse’s:
Were Lloyd and Jamie and the pigmen of Wall Street and Washington taking notes during Tiger Woods’ apology?
Doubtful.
No one is perfect, of course. Everyone makes mistakes, everyone sins. We are all weak, and insufficient in ourselves. And yet we attempt great things, in fear and trembling. The spirit endures and abides.
But there are moments in history that are epidemic with excess, a pathological pursuit of lust, greed, and deceit with a nihilistic determination that is more like a fashion of the age than an aberration. Chic to be above conventional morality and the law, lacking all proportion. Accepted, and even admired.
Tiger himself is what they call ‘small potatoes,’ the personal foibles of a star athlete. What is more significant is the festival of fraud going on in the financial world, centered around Chicago and New York.
Tiger’s words could be the new American Anthem for a generation of reckless, selfish, and self-destructive behaviour by those most blessed by its freedom, offered the greatest opportunities and privileges, sometimes undeserved, and most often paid for by the sacrifice of others.
Most of them still have no regrets, except of course for the fear of discovery. They will have to somehow grow a conscience for that. Or face the withdrawal of support by their sponsors. In the case of Tiger it was Nike. In the case of the Banks it is the US government. And in the case of the US government it is a gullible and complacent public.
“Many of you in this room know me. Many of you have cheered for me, have worked with me, always supported me. Now, every one of you has good reason to be critical of me. I want to say to each on of you simply and directly I am deeply sorry for my irresponsible and selfish behaviour I engaged in. I know people want to find out how i could be so selfish and foolish.
I knew my actions were wrong but I convinced myself that the normal rules didn’t apply. I never thought about who I was hurting. Instead, I only thought about myself…
I felt that I had worked hard my entire life and deserved to enjoy all the temptations around me. I felt that I was entitled.
Parents used to point to me as a role model for their kids. I owe all those families a special apology. I want to say to them that I am truly sorry.
I recognize I have brought this on myself and I know, above all, I am the one who needs to change.
I was wrong. I was foolish. I don’t get to play by different rules.”
“How Could I Be So Selfish and So Foolish”
In the present system, the more unrestricted the banks are, the more money they can generate “out of thin air,” and the more damage they can inflict upon the wealth-generation process. FULL ARTICLE by Frank Shostak
The real economy is still deflating. Just look at the jobs situation. Far from slowing or stabilizing, 2009 was the worst year yet for job losses – ’07…’08 …and ’09…each year has produced greater losses. Even James Grant, who predicted a “barn burning recovery” now admits that his forecast has gone up in flames. He was “either early or wrong,” he says.
And just look at the real estate market. “Home prices are softening again,” says David Rosenberg. As for commercial real estate, here’s Kenneth Laub, who’s been in the business for 50 years, as reported by Bloomberg:
“He says the current downturn will overshadow all of the others…
“‘It won’t be a typical part of a cycle where we’re down for two or three years and things recover,’ says Laub, 70, whose New York firm, Kenneth D. Laub & Co., says it has handled more than $40 billion of real estate transactions since its inception in 1969. ‘It will be longer than we’ve gone through before.’
“As in past slumps, the weak US economy is curbing demand for commercial space, increasing vacancies and causing rents and property values to fall. The key difference today is the explosion in debt financing and related derivatives that fueled a run-up in commercial real estate prices in the 2000s, Laub says. That’s left property owners struggling to make mortgage payments. The overhang of debt will delay any recovery, he says.
“‘It’s not a supply-demand thing; it’s an overleveraged condition,’ Laub says.
“Laub expects a wave of restructurings by troubled commercial borrowers as hundreds of billions of dollars of loans come due annually during the next few years. Commercial real estate may still be recovering a decade from now, he says. ‘What you’re going to see is a tremendously long workout period unprecedented in commercial real estate in this country,’ Laub says. ‘That’s where we’re going, and it’s just beginning.’”
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| Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington |
If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.
In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”
We have seen the folly in this policy, euphemistically known as ‘the Greenspan Put’ as gigantic asset bubbles ballooned out of control following cuts in 1998-1999 and 2002-2003. Fisher, a well-known inflation hawk, might be speaking for himself. Or he might be signaling there will be no Bernanke Put.
Source
Fisher Sees Limit to Fed’s ‘Life Support’ for Housing
– Bloomberg
By MarketWatch
LONDON (MarketWatch) — Former vice-presidential candidate Sarah Palin’s decision to quit her day job as Alaska’s governor is starting to pay off.
Palin, who abruptly resigned as governor last summer to widespread media guffaws, made her debut on the international speaking circuit Wednesday, addressing fund managers and financial professionals at a Hong Kong conference sponsored by CLSA Asia-Pacific Markets. See related story.
The speech apparently had something to do with the views of main-street Americans. But as the press was barred from covering it, the details aren’t readily available.
It doesn’t matter.
As with so many things about Palin, the message isn’t what she says, it’s who she is.
In this case she is the financially savvy politician, as sharp as anybody who was present in the room.
Palin was reportedly paid a fee in the low six figures for her chat with the fund managers. If true, the money essentially replaces, in a single hour’s work, the annual income she gave up when she quit being governor. The fee also puts her in the top ranks on “the circuit.”
A few more appearances like Wednesday’s and the legal bills from Palin’s time as governor go away.
Then, it’s on to the serious business of raising funds and profile for whatever future she wants.
Whatever lack of gravitas Palin may suffer from is overwhelmed by her money-making potential: Think of the choice of pitches for a potential political donors: “Give $5,000 and get your picture with Mitt Romney or give $5,000 get your picture with Sarah Palin.”
Notwithstanding the horrific press bashings she’s endured — perhaps even because of them — Palin remains as hot a political commodity as the right has.
And if there’s one thing fund managers are supposed to keep track of, it’s what the hot stocks are.
Palin gives fund managers lesson in finance
The evidence is building that global growth has stalled. And it’s about to get much worse.
I think the most notable development this week was Thursday’s big release of global factory activity surveys. It wasn’t pretty. Overall, the JP Morgan Global Manufacturing PMI dropped for the third straight month and fell below the 50 level — the line of demarcation between growth or contraction in monthly factory activity — for the first time since recession was descending upon us back in early 2008. Scary stuff.
Although U.S. activity was buoyant (no doubt a remnant of the sentiment tailwinds enjoyed from the market rally in October), we cannot remain an island of tranquility as Asia and Europe fall into the abyss.
Here are the highlights (any reading under 50 indicates a drop in activity):
*Brazil PMI: 48.7 vs. 46.5 prior
*Ireland PMI: 48.5 vs. 50.1 prior
*Sweden PMI: 47.6 v. 49 estimated
*Norway PMI: 48.6 vs. 50.2 estimated
*Denmark PMI: 47.7 vs. 43.6 prior
*Poland PMI: 49.5 vs. 51.7 prior
*Spain PMI: 42.8 vs. 43.9 prior
*Swiss PMI: 44.8 vs. 46.6 estimated
*Czech PMI: 48.6 vs. 51.7 prior
*Italy PMI: 44 vs. 42.8 estimated
*France PMI: 47.3 vs. 47.6 estimated
*Germany PMI: 47.9
*Greece PMI: 40.9 vs. 40.5 prior
*South Korea PMI: 47.1 vs. 48 prior
*Taiwan PMI: 43.9 vs. 43.7 prior
And, now for the big boys:
*Eurozone PMI: 46.4 — lowest reading since recession ended in July 2009
*U.K. PMI: 47.6 vs. 47 estimated — lowest since June 2009
*China PMI: 49 vs. 49.8 estimated — lowest reading since February 2009
*China HSBC PMI: 47.7 vs. 51 prior — 32-month low
In addition to signs of economic weakness — which was enough for a Chinese vice finance minster to say the global economy faces a “worse situation” than in 2008 — there was evidence that the financial system remains under severe stress despite the freak out over Wednesday’s move by the Federal Reserve to lower dollar funding costs for foreign banks (which, as I discussed at the time, wasn’t really a game changer). The European Central Bank reported that eurozone banks borrowed nearly €9 billion in overnight emergency cash — up from €2.7 billion earlier this week. Not good.
Other signs of strain could be seen in the way German 12-month bill yields dropped below zero on Wednesday as European investors were willing to pay Berlin for the luxury of lending it money. The motivation is that, if you’re holding a big wad of euros, German short-term debt is one of the few “sure bets” left out there. It’s a sign of extreme risk aversion and fear.
Of course, the epicenter for all this is Europe.
Adding to concerns were comments this week from new ECB chief Mario Draghi that while downside risks to the economic outlook have increased, he cannot ride to Europe’s rescue by engaging in unmitigated money printing and bond buying; instead, it must adhere to its founding principles, including an inability to engage in monetary financing of government debts (exactly what the likes of Italy would love right now).
Draghi’s comments were akin to yelling “fire” in a crowded theater before announcing all the fire extinguishers are empty. Whoops.
According to the team at Capital Economics, based in London, the eurozone economy is on track to contract by 1% next year and by 2.5% in 2013, with risks to the downside for both forecasts. Recession will only deepen the budget deficits at the center of the eurozone debt crisis. The only way out is growth. And the only way the likes of Greece, Portugal, and Italy can restore growth is via massive currency depreciation and domestic inflation — something that’s not going to happen as long as they’re in the eurozone.
Sure, there will be distractions like Wednesday’s move by the Fed or additional stimulus measures out of places like China and Brazil. That’s just how the market gods like it. All the better to keep the masses confused and complacent as the fundamentals just get worse and worse.
To put it differently: When you look around the theater, everyone’s still focused on center stage blissfully unaware what’s happening around them. Turn around. The balcony level is in flames.
The Economy Is About To Get A Lot Worse – Anthony Mirhaydari, MSNBC