Recession Blog

A Central Bank Doing What It Should

2011-12-22T02:54:00.000-08:00

The article closes with:

In the short run, Mr. Draghi has avoided disaster. In the longer run, it is hard to see a course that enables the peripheral countries to regain prosperity and competitiveness while keeping the single currency.

You just knew that they had to do something - they weren't going to let it end (the Euro) in a giant mess (although it probably still should and will - as he points out above). So we basically have a repeat of what the Fed did in America. But the Europeans named the banks at least - it didn't take three years and a FOIA request by Bloomberg to find it out. And there will be more lent no doubt...

“Who gives a crap about some imbecile?”

2011-12-20T06:59:00.000-08:00

Yeah, this kind of attitude and PR are really going to help your case:

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

How about a boycott of the Home Depot? (Marcus is one of the co-founders). I wonder if any of his customers are so-called "imbeciles"?

What kills me is that these people rail and rail about their taxes as if they couldn't possibly pay more, when historically taxes on income at these levels is at an all time low. Just give us all a break already.

All hail AMERICA!!!

2011-12-15T12:13:00.001-08:00

Next time some flag waving neanderthal is berating you with chants of "USA, USA" pull up this link:

(AP) WASHINGTON - Squeezed by rising living costs, a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

"it does nothing to address the underlying problems"

2011-11-30T14:29:00.000-08:00

Hard to justify today as more than an oversold bounce. The markets are looking for anything, and this was an excuse:

Finally, note that while this move can ease financial market conditions, it does nothing to address the underlying problems creating those conditions. So this is no substitute for the difficult decisions that Europe must make to overcome its troubles.

Ten days left for the Euro?

2011-11-28T08:53:00.000-08:00

Lots of optimism out there - not:

The Euro Area Is Coming to an End: Peter Boone and Simon Johnson

The eurozone really has only days to avoid collapse that includes this:

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.

It isn't too complicated

2011-11-27T14:35:00.000-08:00

Mysterious Europe

What I have never understood, and still don’t understand, is how European leaders think this is going to work out. What’s the plan? Or lacking a plan, what’s the story with a happy ending?

As I see it, the underlying eurozone story is pretty clear and simple. After the creation of the euro, investors developed a false sense of security about lending to peripheral economies; this led to large capital flows from the core to the periphery, and corresponding current account imbalances:

These capital inflows also caused a boom in the periphery that raised costs and prices dramatically compared with the core:

Now all of that has to be unwound. So how is that supposed to happen?

It seems obvious that spending cuts in the periphery have to be offset by spending increases in the core, and also that a way has to be found to make the required real depreciation in the periphery feasible. But eurozone policy is for austerity everywhere, and a low inflation target for the area as a whole, which means crippling deflation in the periphery.

So where is the story about how this is supposed to work?

As far as I can tell, European policy makers aren’t even thinking about scenarios. They’re just repeating the old slogans about stable prices and fiscal responsibility, with no narrative at all about how pursuing those virtues can be consistent with European recovery.

Even a few months ago I regarded a complete euro crackup as highly implausible. Now I’m having trouble finding a plausible story about how the thing survives.

In other news, Jean-Claude Trichet is the new chairman of the Group of 30. My congratulations. True, I have said some harsh things about his policies — but as Tessio said, it was only business.

Just as an aside

2011-11-01T08:42:00.000-07:00

This is part of the problem (as far as hot the problem is reported/perceived) - perception:

Despite its desperate circumstances, however, Lewis shared a wonderful story about how Vallejo's fire chief is moving heaven and earth to do more with less. As a result of seeing that resourceful and inspiring work, Lewis "has a hard time getting depressed about our country," though he admits that he "doesn't have a hard time getting depressed about Greece."

Michael Lewis is a smart guy, and a great writer, obviously. But why the difference between the US and Greek views? Left alone, Greece will do fine - or good enough for the Greeks, as it did for the last couple of thousand years. There are 11 million people in Greece - California is more than three times that at 36,961,664. This "crisis" now in Europe is a problem made of the global banking system and the Euro governments. Let them (the individual countries) clean it up, give them their sovereign currencies back, and we'll all be fine - eventually. Greece is not different that different from California (except for being smaller) - Americans just don't speak the language.

Markets Tumble as Greece Sets Referendum on Latest Europe Aid Deal

2011-11-01T02:47:00.000-07:00

Wow. So the global game of financial chicken continues to be played. At first blush this sounds like a crazy idea by Papandreou but I know enough to know that I don't know anything about the internals of Greek politics. The worst part about it is at least two more months of kicking the can down the road (at the least).

ATHENS — In a surprise move that jolted Europe and put his political future in play, Prime Minister George A. Papandreou announced late Monday that his government would hold a referendum on a new aid package for Greece, putting austerity measures — and potentially membership in the euro zone — to a popular vote for the first time.

The announcement sent tremors through Europe’s markets on Tuesday, with bank stocks taking a particular hammering. French and German indexes were down by more than 3 percent while, in Britain, which is not a member of the euro zone but trades heavily with continental Europe — the FTSE 100 index was down by 2.5 percent.

Mr. Papandreou’s surprise promise of a vote on the austerity package introduced a note of uncertainty in what had seemed to be a done deal, threatening a comprehensive agreement reached by European leaders last week to shore up the euro zone. A rejection by the voters would also be likely to be treated as a vote of no confidence in the government and lead to early elections.

The anxiety stirred up by those fears hammered United States financial markets on Monday, showing once again how the domestic politics of even the smallest members of the European Union can create troubles that not only threaten the currency but reverberate around the globe.

Addressing lawmakers on Monday evening, Mr. Papandreou said the decision on whether to adopt the deal, which includes fresh financial assistance, debt relief and deeply unpopular austerity measures, properly belonged to the Greek people.

“Let us allow the people to have the last word, let them decide on the country’s fate,” he said.

It was unclear how the referendum would be worded, but Mr. Papandreou said it would be a vote on whether or not Greeks supported the debt deal and the program of austerity measures in exchange for foreign aid.

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation’s painful economic choices from Mr. Papandreou’s Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political fortunes and avoid the instability of early elections.

The center-right opposition has opposed the bulk of the austerity program, and the prime minister’s popular support has dwindled as Greeks have been hit by a seemingly endless series of tax increases and wage and pension cuts. On Sunday, the center-left newspaper To Vima reported that a majority of Greeks viewed the deal negatively.

At a time when Mr. Papandreou is under intense political and social pressure, including from members of his own Socialist Party, the move was seen as the last card he could play.

It also appeared to give the Greek government a bit more leverage in negotiations with Europe. The terms of the deal, in which banks have been asked to voluntarily take a 50 percent write-down on Greek debt, have not been finalized and must still be accepted by the banks. Putting the package up for a vote, with the distinct possibility of rejection, could induce banks to agree to the deal rather than face greater losses if Greece defaults.

“It’s not motivated by the intention of some sort of brinkmanship with Europe, but it may have this sort of positive or negative effect,” said George Pagoulatos, a professor of European politics and economy at Athens University of Economics and Business. “It raises the stakes. It’s about, ‘Will we remain in the euro with a lower public debt, or will we lose everything that we will achieve?’ ”

Mr. Papandreou also said that he would seek a parliamentary vote of confidence in his administration, just four months after winning a similar vote before pushing an earlier batch of austerity measures into law. The vote of confidence is expected to be held on Friday, and he is expected to squeak by with his narrow three-vote majority in Parliament.

The referendum will probably be held in January, government officials said, essentially buying the government time while the details of the deal are hammered out.

Addressing lawmakers on Monday evening, Finance Minister Evangelos Venizelos framed the debate as one of Greece’s staying in the euro zone, the group of 17 European Union countries that use the euro, or not. “It’s for the people to decide to stay in Europe or go back to the drachma,” he said.

While the austerity measures have proved incendiary for much of the public, setting off widespread strikes sometimes accompanied by episodes of street violence, being part of the euro zone generally meets with high approval.

Takis Michas, a political analyst with Forum for Greece, an Athens research institute, said posing the question this way was “a master stroke on behalf of Papandreou in the sense it is forcing the various parties to take a very responsible position.”

“If he succeeds in framing the issue as being one of remaining in the euro zone, obviously he is going to get a huge yes,” Mr. Michas added. “But it depends on whether he can frame the question in those terms.”

Under the Greek Constitution, the government must propose the language of the referendum, which would need to be approved by Parliament and then by the president.

Some analysts said the referendum was an invitation for instability. “When the debate is very passionate and things are tense, holding a referendum could be risky,” said Alexis Papahelas, the editor of the center-right daily Kathimerini.

If the referendum fails, he said, “we have a very big chance that the country would go into a disorderly default.”

A spokesman for the center-right New Democracy Party, Yiannis Michelakis, said a referendum was dangerous. Mr. Papandreou, he said, “has tossed Greece’s future in Europe in the air like a coin.”

Insightful analysis

2011-10-11T23:41:00.000-07:00

Via the professor:

THE IMPLICATION IS that the very creation of the common currency area sowed the seeds for this crisis, not the behavior of the periphery countries.

Read the full piece here.

A dangerous mind

2011-10-06T01:14:00.000-07:00

Tom Friedman is a fool - there are so many holes in this op-ed that you don't know where to start. Instead, read it, and then remember that almost every assumption he makes or "fact" he simply states is WRONG:

Gov. Chris Christie of New Jersey isn’t going to run. That’s too bad. He had a chance to rescue the Republican Party from its dash to the cliff and make President Obama a better leader, too.

Here’s why: When the G.O.P. presidential candidates were asked during their debate on Aug. 11 whether any of them would accept a budget deal that involved $10 in spending cuts for every $1 in tax increases — and they all said no — the Republican Party officially became a danger to itself and to the country.

The G.O.P. became a danger to the country because it announced, in effect, that it would not be a partner for the kind of Grand Bargain that many economists believe we need — something that provides more near-term investment in the economy that spurs job growth, combined with a credible long-term plan to increase tax revenues and trim entitlements so the country’s debt-to-G.D.P. ratio stays in a safe range. Such a Grand Bargain would simultaneously boost the economy and optimism by its economic logic and the mere fact of the two parties working together.

The G.O.P. became a danger to itself because, as Tyler Cowen, an economics professor at George Mason University, pointed out in this newspaper on Sunday: “Cutting $10 in spending for every $1 in tax increases would result in $9 in net tax reduction. That’s because lower spending today means lower taxes tomorrow, and limiting the future path of government spending does limit future taxes, as Milton Friedman, the late Nobel laureate and conservative icon, so clearly explained. Promising never to raise taxes, without reaching a deal on spending, really means a high and rising commitment to future taxes.”

The G.O.P.’s refusal to contemplate any tax increase, added Cowen, “has brought what seems to be an extreme Democratic response: President Obama’s latest budget plan is moving away from entitlement reform and embracing multiple tax increases on the wealthy. We may be left with no good fiscal options.”

Indeed, Obama’s decision to respond to G.O.P. extremism and the failure to conclude a Grand Bargain, by moving to the left rather than to the center, was a huge mistake. It means, as Cowen noted, that the country has no credible, long-term fiscal option before it now. Rather than shift back to his base with a weak fiscal plan, Obama should have taken his idea of a Grand Bargain to the country.

Many Americans understand that we are on the wrong track and, I believe, will support a big plan if it: 1) addresses our problem at the scale that is required; 2) shares the burden of cutbacks fairly — takes from defense programs and entitlements and asks the wealthy to pay more but everyone to pay something; 3) has a lofty goal to restore American greatness, not just get us through this crisis; 4) lays out an honest time horizon. This will take time.

In an essay last week in The Washington Post, the co-chairmen of the president’s fiscal commission, Alan Simpson and Erskine Bowles, made exactly this point about their plan to cut the debt by $3.9 trillion by 2020 — through raising tax revenues, cutting defense and increasing the age at which people would qualify for Social Security and Medicare. “When we presented our co-chairmen’s proposal to the rest of the fiscal commission in November,” they wrote, “Washington insiders were shocked that we so aggressively exceeded our mandate. They were sure that the proposal would need to be scaled back to get a majority vote. It turned out that the opposite was true. The more comprehensive we made it, the easier our job became. The tougher our proposal, the more people came aboard. Commission members were willing to take on their sacred cows and fight special interests — but only if they saw others doing the same and if what they were voting for solved the country’s problems. ...We would not have garnered that type of support had we not taken on defense, domestic programs, the solvency of Social Security, health care, and spending in the tax code all at once.”

By refusing to embrace Simpson-Bowles as the basis of a Grand Bargain, and instead offering a watered-down version, Obama has left a gap for a sane Republican or independent candidate. Why was Christie popular among G.O.P. moderates and independents? Because he seemed ready to tell hard truths that Obama has started to shrink from. Had Christie — a moderate on gun control, climate change and immigration who has also backed Simpson-Bowles — run and won significant support, he would have forced Obama back to the center.

Then, instead of a race between the Democratic left and the Republican right — in which the whole country would lose because the winner would not have had a mandate for the real change we need — we would have had a race between the Democratic center, independents and the Republican center. Then the whole country would win. Because whoever captured the presidency would have a mandate to actually implement some version of the Grand Bargain needed to get growth going again — and growth is the only sustainable cure for unemployment, the deficit and inequality.

Reading PA

2011-09-28T22:55:00.000-07:00

Yes this is America:

READING, Pa. — The exhausted mothers who come to the Second Street Learning Center here — a day care provider for mostly low-income families — speak of low wages, hard jobs and an economy gone bad.
Ashley Kelleher supports her family on the $900 a month she earns as a waitress at an International House of Pancakes. Louri Williams packs cakes and pies all night for $8 an hour, takes morning classes, and picks up her children in the afternoon. Teresa Santiago takes complaints from building supply customers for $10 an hour, not enough to cover her $1,900 in monthly bills.
These are common stories in Reading, a struggling city of 88,000 that has earned the unwelcome distinction of having the largest share of its residents living in poverty, barely edging out Flint, Mich., according to new Census Bureau data. The count includes only cities with populations of 65,000 or more, and has a margin of error that makes it difficult to declare a winner — or, perhaps more to the point, a loser.
Reading began the last decade at No. 32. But it broke into the top 10 in 2007, joining other places known for their high rates of poverty like Flint, Camden, N.J., and Brownsville, Tex., according to an analysis of the data for The New York Times by Andrew A. Beveridge, a demographer at Queens College.
Now it is No. 1, a ranking that the mothers at the day care center here say does not surprise them, given their first-hand knowledge of poverty-line wages, which for a parent and two children is now $18,530.
The city had been limping for most of the past decade, since the plants that sustained it — including Lucent Technologies and the Dana Corporation, a car parts manufacturer — withered. But the past few years delivered more closings and layoffs, sending the city’s poverty rate up to 41.3 percent.
Jon Scott, president of the Berks Economic Partnership, which helps businesses looking to stay in the area or move here, said that some of the city’s job losses were in fact furloughs, and that many businesses were considering opening in Reading, including an industrial laundry company at the former Dana site.
According to Mr. Beveridge, employment in the city dropped by about 10 percent between 2000 and 2010.
One of Reading’s more entrenched problems is education. Just 8 percent of its residents have a bachelor’s degree, far below the national average of 28 percent.
“Without a bachelor’s degree, forget it,” said Ms. Williams, 28, who is taking classes to earn her G.E.D.. Only about 63 percent of Reading’s residents have a high school diploma, compared with more than 85 percent nationally.
Lower education generally means higher poverty. About a fifth of people ages 25 to 34 with only a high school diploma in the United States were poor last year, compared with just 5 percent of college graduates, said Yiyoon Chung, a researcher at the University of Wisconsin, Madison. For those without a high school diploma, the rate was 40 percent.
Ms. Santiago, 36, has an associate’s degree from a local community college, but said that employers wanted to see more from job candidates. She lost her last full-time job in 2007, and has worked in low wage jobs without benefits through a temporary agency ever since.
“They even want a degree to be a secretary,” said Ms. Santiago, picking up her 8-year-old son at the center.
This city has had a large influx of Hispanics over the past decade. They moved from New York and other large cities, drawn by cheaper rent and the promise of a better life. That raised the flagging population, but also reinforced the city’s already acute problems with education: Just 18 percent of Hispanics in Reading had some college education last year, compared with 30 percent of the city’s whites. Only 44 percent of Hispanics had a high school diploma.
Young men have been particularly hard hit. Because they are having trouble competing for jobs, they are dropping out of the labor force, leaving women to support the children.
Ms. Kelleher, 23, said she had been supporting her three children as well as the father of two of them. She would not be able to survive, she said, without the $636 a month she gets in food stamps.
“For the past five years, it has been me paying the bills,” she said at the day care center, still in her waitress uniform. She wants to get married someday, she said, but only to a partner who is financially stable.
Sixty-two percent of young fathers in the United States earned less than $20,000 in 2002, according to Timothy Smeeding, a professor at the University of Wisconsin, citing the most recent data available from the National Survey of Family Growth.
Even for young people with a bachelor’s degree, the economy is making life difficult. Vickie Moll, who runs the day care center, said the number of applications from teachers who have lost their jobs had grown as the waves of budget cuts washed over the state. “We have people in here with bachelor’s degrees making $8 an hour,” she said.
Social services feel the effects, too. The Greater Berks Food Bank — Reading is the Berks County seat — is on track to distribute six million pounds of food this year, up from three and a half million pounds in 2007, said Doug Long, manager of marketing.
Pat Giles, a senior vice president at the United Way of Berks County, said: “It has really started to snowball. We have a growing population of younger, less educated, less skilled people. On top of that you have the economy going upside down.”
Modesto Fiume, president of Opportunity House, the organization that runs the day care center, as well as a homeless shelter and a transitional living facility, said the number of first-time families in the shelter was up sharply: of 23 new entries in June and July, 18 were homeless for the first time.
“People are here because they honestly and truly can’t find work,” said Delia McLendon, who runs the shelters. “It didn’t used to be that way.“
In the mid-1990s, welfare reform resulted in more women joining the work force. At the time, jobs were plentiful, but now work is scarce and low-income families’ lives have become hectic balancing acts to keep the few benefits they have.
Ms. Santiago loses her subsidized day care if she is out of work for more than 13 days, she said. The loss would take months to reinstate, so she hurries to find any work, whatever it pays, every time her temp job ends. Earning more than $10 an hour means losing health insurance, she said, though her children remain covered through Medicaid.
And jobs just seem to pay less. Ms. Santiago recently took a temporary job at a candy factory where she had worked more than eight years ago, when she was still in her 20s, before she had completed her associate’s degree. At the time she was making $10.50 an hour. In her most recent stint, her hourly wage was $9.25.
“Eight years ago I said, ‘I don’t want to do this, I have to further my education,’ ” she said. “And now here I am, still packing candy, and making less.”

I have just about had it -

2011-08-13T10:16:00.000-07:00

We know America is a rich country, awash in wealth and wealth creation. People are rich and luxury good sales are going gangbusters. But then you have stories like the below, which simply and clearly show that we have an unbalanced, broken, and unfair society. Something real needs to be done - and soon. We can't let our retirees live on cat food.

Faltering Rhode Island City Tests Vows to Pensioners

When the small, beleaguered city of Central Falls, R.I., filed for bankruptcy this month, it sought to cut the pension checks it has been sending its retired police officers, firefighters and other workers by as much as half. All the city promises now is that its retirees, many of whom do not get Social Security, will not have their benefits cut to less than $10,000 a year.

But investors who bought the city’s bonds could do much better: Rhode Island recently passed a law intended to make sure that they would be paid in full, even in bankruptcy.

Retirees are wondering how the city can cut what they believed was a guaranteed benefit. “We put our time in, we put our money in,” said Walter Trembley, 74, a retired Central Falls police officer. “And the city, through their callousness and everything else, just blew it. They were supposed to put money in and they didn’t.”

Cities and local governments make lots of promises: to their citizens, workers, vendors and investors. But when the money starts to run out, as it has in Central Falls, some promises prove more binding than others. Bond lawyers have known for decades that it is possible, at least in theory, to put bondholders ahead of pensioners, but no one wanted to try it and risk a backlash on Election Day. Now the poor, taxed-out city of Central Falls is mounting a test case, which other struggling governments may follow if it succeeds.

If Central Falls, a city of about 19,000, is able to reduce the benefits its retirees now get — something they will fight — it would not only unsettle the millions of public workers and retirees across the country, but also reshape the compact between governments and their workers. Most public workers now pay a portion of their salaries toward their pensions, but they may balk if they see those pensions can be cut when they retire. And governments that, like Central Falls, have not enrolled all their workers in Social Security as a money-saving measure may have to rethink that strategy.

Millions of teachers, police officers, firefighters and other government workers have long believed that their pensions were untouchable, thanks to provisions in state laws and constitutions. But some of those promises are unclear or untested, said Amy B. Monahan, an associate professor at the University of Minnesota law school who has studied the myriad laws protecting public pensions in different states.

Just how those promises would stack up against promises made to others, like bondholders, is unclear. It is also unclear how those state laws would hold up in federal bankruptcy court, which has its own ranking of creditors.

“This will all be up to a court to decide,” Professor Monahan said.

But many cities and states have already signaled that their bondholders take priority.

When Jefferson County, Ala., was poised on the brink of bankruptcy this summer after defaulting on more than $3 billion of bonds to finance a new sewer system, the state moved to help. Alabama’s new governor, Robert Bentley, proposed a plan to replace the defaulted bonds with new ones issued with state backing, which could lower the borrowing cost and avert what would otherwise be the biggest municipal bankruptcy in American history. Bondholders would forgive some of the debt they are owed.

Mr. Bentley’s move contrasted with the lack of action by his predecessor two years ago when the city of Prichard’s pension fund ran out of money and it simply stopped sending retirees their checks. Despite a state law saying that the pensions must be paid, no one in state government moved to enforce the law or propose a rescue plan.

“I’m a little ticked about it,” said Mary Berg, 62, a retired assistant city clerk from Prichard, who said she had sent news accounts of the proposal to help Jefferson County to local officials, asking why the state had never helped her and her fellow retirees. “The state didn’t even look at Prichard.”

Teachers in New Jersey likewise got a cold shoulder when they tried to make the state comply with a law that it contribute a required amount to their pension fund each year. A judge ruled that their plan was not yet unsound, despite the state’s failures to make the payments. The teachers, who argued that by the time the plan qualified as “unsound” it would have collapsed, lost on appeal last year. But the state always sets aside enough money to pay bondholders.

Illinois has some of the strongest bondholder protections anywhere, which explains how a state that began its fiscal year with $3.8 billion in unpaid bills from last year — and whose pension system has less than half of the money it needs — is able to keeping selling bonds.

State law requires Illinois to make “an irrevocable and continuing appropriation” of tax revenues into a special fund every month that can be used only to pay bondholders. Illinois’s pension system claims to have a “continuous appropriation” too, but it does not have meaningful deadlines and has proved much more porous over the years.

The federal bankruptcy code says pensioners and general-obligation bondholders are both unsecured creditors, stuck at the back of the line and treated as equals. But there is maneuvering room in the welter of state and federal laws. After Vallejo, Calif., declared bankruptcy three years ago, it cut payments to bondholders, but let workers bear their loss in lower pay and skimpier retiree health benefits. Pensions were untouched.

In Central Falls, the pension plan for the police and firefighters is projected to run out of money in October. But officials there say short-changing the bondholders will not bring relief. The next time the city needs to borrow money, investors will simply demand more in interest, and they might decide all Rhode Islanders were a bad risk and charge all cities more.

“The last thing we want to do is increase borrowing costs for all our cities and towns, and therefore cause tax rates to go up across the state, because one city has fiscal problems,” said Robert G. Flanders Jr., the state-appointed receiver for Central Falls, explaining the new state law putting bondholders first in line.

After going 20 months without their pension checks, the 141 retirees of Prichard decided a third of a loaf was better than nothing and settled with the city. Their average benefit, which had been $1,000 a month, is now about $350. But they also get Social Security. Ms. Berg, the retired clerk, said she worried about the retirees of Central Falls, many of whom do not.

“I can’t imagine telling them that they have to take this 50 percent cut,” she said. “These are retirees, elderly people. They can’t go out and get new jobs.”

"He’s a rotten prick."

2011-07-05T09:41:00.000-07:00

"He’s mean-spirited," Sweeney said in the Friday interview. "He’s angry. If you don’t do what he says, I liken it to being spoiled, I’m going to get my way, or else."

And: "He’s a rotten prick."

More here.

8%

2011-05-29T23:14:00.000-07:00

CALPERS makes an "investment" that turns into getting back 8% on the dollar. Yet Goldman Sachs, UBS, etc. all got made whole... wow.

Trickle down economics...

2011-03-21T04:32:00.000-07:00

That phrase was utter bullshit. I had an English professor in college who told us the only thing that trickles down is piss. That was a great line, and it was almost 20 years ago. I think what is trickling down now is bad behavior.

Check out this article:

Implosion of Foreclosure Mill Leaves 100,000 Cases in Limbo

Florida, as the ground zero of the foreclosure crisis, is arguably further along in seeing how some of the uglier aspects of this mess will work themselves out. The foreclosure mill abuses were so bad that even a not terribly venturesome AG, Bill McCollum, went after them, and his Republican successor, Pam Bondi, is reported to be keen to keep the heat up on mortgage arena miscreants.

As the cases against the big foreclosure mills have moved forward, clients have exited, and that is generally a death knell for a law practice. Normally, when law firms get in trouble, partners who have books of business not involved in the scandal plus senior associates capable of handling client relationships grab as much of the old business as possible and reconstitute under another name. But the foreclosure mills were very high leverage operations, with very few partners and much of the work handled by paralegals or junior attorneys. So there is no one to pick up the pieces when a firm like that falls apart.

The imminent closure of the biggest player in Florida, the Law Offices of David Stern, is leaving a lot of cases in the lurch. From the Palm Beach Post Money (hat tip Lisa Epstein):

The status of nearly 9,000 Palm Beach County foreclosure cases is in question following attorney David J. Stern’s announcement that he is closing his foreclosure shop at the end of the month and dropping the files.

Statewide, as many as 100,000 cases need to be officially withdrawn from by Stern attorneys, but with a decimated staff, Stern told judges in a March 4 letter that he simply doesn’t have the manpower to file the correct paperwork….Hundreds of employees were subsequently laid off, leaving the transfer of foreclosure files to new firms in disarray…

“Florida Rules of Civil Procedure require that attorneys file a proper Motion to Withdraw from any case which they no longer plan to represent,” said Eunice Sigler, a spokeswoman for the 11th Judicial Circuit Court in Miami-Dade County. “We are currently researching various options, including any remedies available through the Florida Bar.”

Palm Beach County Chief Judge Peter Blanc said this week he’s also trying to figure out how to proceed.

“Stern has provided notice he will no longer be attorney of record, but the court is unable to recognize it,” Blanc said. “I’m told we’re getting more stipulations of substitute counsel but not anywhere near the number we should have.”

Blanc said he’s never seen a move like Stern’s before – sending a letter to judges that says “treat the pending cases as you deem appropriate.”….

Foreclosure defense attorney Tom Ice, of Ice Legal in Royal Palm Beach, has about 100 former Stern foreclosure cases.

He said chief judges shouldn’t get involved in what to do with them.

“It’s entirely improper for Stern to be communicating with the chief judge and asking him to decide what to do with my cases behind my back,” Ice said.

There is a lot more to it, and you have to read the comments. People are really angry about this crap - and they knew that the regular blue and white collar workers, the ones that these state governors (OH, IL, NJ, etc.) are all coming after, are taking the hit while the millionaires and billionaires walk away... It really is a sad commentary on our state of affairs.

Securities and Exchange Commission declined to say whether it was investigating

2011-01-19T06:22:00.000-08:00

Of course it did, because the whole thing is rigged: Opinions split over surge in Apple bets

Ex-Swiss Banker Gives Data to WikiLeaks

2011-01-17T10:52:00.000-08:00

In London on Monday, Mr. Assange said that financial institutions “operate outside the rule of law” because of their economic power.

And he's right. Story.

Roads to Ruin: Towns Rip Up the Pavement

2010-07-18T15:15:00.000-07:00

In the "wow" category:

SPIRITWOOD, N.D. — A hulking yellow machine inched along Old Highway 10 here recently in a summer scene that seemed as normal as the nearby corn swaying in the breeze. But instead of laying a blanket of steaming blacktop, the machine was grinding the asphalt road into bits.

"When [counties] had lots of money, they paved a lot of the roads and tried to make life easier for the people who lived out here," said Stutsman County Highway Superintendant Mike Zimmerman, sifting the dusty black rubble through his fingers. "Now, it's catching up to them."

It's like the country is just crumbling... more here.

It's really just insane

2010-02-15T07:32:00.000-08:00

There just seems to be a global mind fuck going on in the world as whole countries think they can just keep punting their futures away. And yes, the fact that a global player like Goldman Sachs, which would not even exist today without the extreme measures of the Unites States and the fleecing of America's tax payers in now involved in the Greek mess just makes perfect sense in all of this:

Point:

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

Point:

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

So it wasn't just greedy bankers, real estate speculators, and most of America borrowing their future away - it was also whole nations, like Greece, mortgaging their futures - hiding deals off their balance sheets, etc. And for what? For what? When will everyone just come back to reality? This world economic mess won't be close to over until everyone does.

Colorado Springs cuts into services considered basic by many

2010-02-02T00:43:00.000-08:00

Another one of those stories that you can't actually believe as you read it. Are things really this bad in certain regions? I think the story of this crisis going forward is going to be the regionality of it - how some areas are going to be devastated while others do okay, which will in my eyes make federal help even harder to come by.

COLORADO SPRINGS — This tax-averse city is about to learn what it looks and feels like when budget cuts slash services most Americans consider part of the urban fabric.
More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.
The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.
Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that.
Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.
City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends. The city won't pay for any street paving, relying instead on a regional authority that can meet only about 10 percent of the need.
"I guess we're going to find out what the tolerance level is for people," said businessman Chuck Fowler, who is helping lead a private task force brainstorming for city budget fixes. "It's a new day."
Some residents are less sanguine, arguing that cuts to bus services, drug enforcement and treatment and job development are attacks on basic needs for the working class.
"How are people supposed to live? We're not a 'Mayberry R.F.D.' anymore," said Addy Hansen, a criminal justice student who has spoken out about safety cuts. "We're the second-largest city, and growing, in Colorado. We're in trouble. We're in big trouble."
Mayor flinches at revenue
Colorado Springs' woes are more visceral versions of local and state cuts across the nation. Denver has cut salaries and human services workers, trimmed library hours and raised fees; Aurora shuttered four libraries; the state budget has seen round after round of wholesale cuts in education and personnel.
The deep recession bit into Colorado Springs sales-tax collections, while pension and health care costs for city employees continued to soar. Sales-tax updates have become a regular exercise in flinching for Mayor Lionel Rivera.
"Every month I open it up, and I look for a plus in front of the numbers instead of a minus," he said. The 2010 sales-tax forecast is almost $22 million less than 2007.
Voters in November said an emphatic no to a tripling of property tax that would have restored $27.6 million to the city's $212 million general fund budget. Fowler and many other residents say voters don't trust city government to wisely spend a general tax increase and don't believe the current cuts are the only way to balance a budget.
Dead grass, dark streets
But the 2010 spending choices are complete, and local residents and businesses are preparing for a slew of changes:
• The steep parks and recreation cuts mean a radical reshifting of resources from more than 100 neighborhood parks to a few popular regional parks. The city cut watering drastically in 2009 but "got lucky" with weekly summer rains, said parks maintenance manager Kurt Schroeder.
With even more watering cuts, "if we repeat the weather of 2008, we're at risk of losing every bit of turf we have in our neighborhood parks," Schroeder said. Six city greenhouses are shut down. The city spent $19.6 million on parks in 2007; this year it will spend $3.1 million.
"If a playground burns down, I can't replace it," Schroeder said. Park fans' only hope is the possibility of a new ballot tax pledged to recreation spending that might win over skeptical voters.
• Community center and pool closures have parents worried about day-care costs, idle teenagers and shut-in grandparents with nowhere to go.
Hillside Community Center, on the southeastern edge of downtown Colorado Springs in a low- to moderate-income neighborhood, is scrambling to find private partners to stay open. Moms such as Kirsten Williams doubt they can replace Hillside's dedicated staff and preschool rates of $200 for six-week sessions.
"It's affordable, the program is phenomenal, and the staff all grew up here," Williams said. "You can't re-create that kind of magic."
Shutting down youth services is shortsighted, she argues. "You're going to pay now, or you're going to pay later. There's trouble if kids don't have things to do."
• Though officials and citizens put public safety above all in the budget, police and firefighting still lost more than $5.5 million this year. Positions that will go empty range from a domestic violence specialist to a deputy chief to juvenile offender officers. Fire squad 108 loses three firefighters. Putting the helicopters up for sale and eliminating the officers and a mechanic banked $877,000.
• Tourism outlets have attacked budget choices that hit them precisely as they're struggling to draw choosy visitors to the West.
The city cut three economic-development positions, land-use planning, long-range strategic planning and zoning and neighborhood inspectors. It also repossessed a large portion of a dedicated lodgers and car rental tax rather than transfer it to the visitors' bureau.
"It's going to hurt. If they don't at least market Colorado Springs, it doesn't get the people here," said Nancy Stovall, owner of Pine Creek Art Gallery on the tourism strip of Old Colorado City. Other states, such as New Mexico and Wyoming, will continue to market, and tourism losses will further erode city sales-tax revenue, merchants say.
• Turning out the lights, literally, is one of the high-profile trims aggravating some residents. The city-run Colorado Springs Utilities will shut down 8,000 to 10,000 of more than 24,000 streetlights, to save $1.2 million in energy and bulb replacement.
Hansen, the criminal-justice student, grows especially exasperated when recalling a scary incident a few years ago as she waited for a bus. She said a carload of drunken men approached her until the police helicopter that had been trailing them turned a spotlight on the men and chased them off. Now the helicopter is gone, and the streetlight she was waiting under is threatened as well.
"I don't know a person in this city who doesn't think that's just the stupidest thing on the planet," Hansen said. "Colorado Springs leaders put patches on problems and hope that will handle it."
Employee pay criticized
Community business leaders have jumped into the budget debate, some questioning city spending on what they see as "Ferrari"-level benefits for employees and high salaries in middle management. Broadmoor luxury resort chief executive Steve Bartolin wrote an open letter asking why the city spends $89,000 per employee, when his enterprise has a similar number of workers and spends only $24,000 on each.
Businessman Fowler, saying he is now speaking for the task force Bartolin supports, said the city should study the Broadmoor's use of seasonal employees and realistic manager pay.
"I don't know if people are convinced that the water needed to be turned off in the parks, or the trash cans need to come out, or the lights need to go off," Fowler said. "I think we'll have a big turnover in City Council a year from April. Until we get a new group in there, people aren't really going to believe much of anything."
Mayor and council are part-time jobs in Colorado Springs, points out Mayor Rivera, that pay $6,250 a year ($250 extra for the mayor). "We have jobs, we pay taxes, we use services, just like they do," Rivera said, acknowledging there is a "level of distrust" of public officials at many levels.
Rivera said he welcomes help from Bartolin, the private task force and any other source volunteering to rethink government. He is slightly encouraged, for now, that his monthly sales-tax reports are just ahead of budget predictions.
Officials across the city know their phone lines will light up as parks go brown, trash gathers in the weeds, and streets and alleys go dark.
"There's a lot of anger, a lot of frustration about how governments spend their money," Rivera said. "It's not unique to Colorado Springs."

I want to live in AMERICA!

2009-11-16T16:24:00.001-08:00

It's unreal:

Report: More Americans going hungry
By Amy Goldstein
Washington Post Staff Writer
Monday, November 16, 2009 3:14 PM

The number of Americans who lack dependable access to adequate food shot up last year to 49 million, the largest number since the government has been keeping track, according to a federal report released Monday that shows particularly steep increases in food scarcity among families with children.

In 2008, the report found, nearly 17 million children -- more than one in five across the United States -- were living in households in which food at times ran short, up from slightly more than 12 million youngsters the year before. And the number of children who sometimes were outright hungry rose from nearly 700,000 to almost 1.1 million.

Among people of all ages, nearly 15 percent last year did not consistently have adequate food, compared with about 11 percent in 2007, the greatest deterioration in access to food during a single year in the history of the report.

Taken together, the findings provide the latest glimpse into the toll that the weak economy has taken on the well-being of the nation's residents. The findings are from a snapshot of food in America that the U.S. Agriculture Department has issued every year since 1995, based on Census Bureau surveys. It documents both Americans who are scrounging for adequate food -- people living with some amount of "food insecurity" in the lexicon of experts -- and those whose food shortages are so severe that they are hungry.

"These numbers are a wake-up call . . . for us to get very serious about food security and hunger, about nutrition and food safety in this country," Agriculture Secretary Tom Vilsack said during a briefing of reporters.

The report released Monday is the first produced during the tenure of President Obama, who pledged during his campaign for the White House last year to eliminate hunger among children by 2015, a goal that no previous president has set. The administration has not produced a full-fledged plan to meet that objective, but White House and Agriculture officials said in recent interviews that they are developing policies. Among the first is a decision to use $85 million freed up by Congress as part of a recent appropriations bill to experiment with ways to get food to more children during the summer, when subsidized school breakfasts and lunches are unavailable.

Vilsack attributed the marked worsening in Americans' access to food primarily to the rise in unemployment, which now exceeds 10 percent, and in people who are underemployed. "It's no secret. Poverty, unemployment, these are all factors," he said. Vilsack acknowledged that "there could be additional increases" in the 2009 figures, due out a year from now, although he said it is not yet clear how much the problem might be eased by the measures the administration and Congress have taken this year to stimulate the economy.

The report's main author at USDA, Mark Nord, noted that other recent research by the agency has found that most families in which food is scarce contain at least one adult with a full-time job, suggesting that the problem lies at least partly in wages, not just an absence of work.

The government's next significant forum for debating how to improve access to food is likely to come next year, when Congress is scheduled to renew the country's main law covering food and nutrition for children. In the meantime, the White House has been convening frequent meetings with officials from several federal departments -- including Education, Health and Human Services, Housing and Urban Development, in addition to Agriculture -- that deal with youngsters' well-being.

The report suggests that the main federal programs intended to help people struggling to get adequate food are only partly fulfilling their purpose. Just more than half of the people surveyed who reported they had food shortages said that they had, in the previous month, participated in one of the government's largest anti-hunger and nutrition programs: food stamps, subsidized school lunches or WIC, the nutrition program for women with babies or young children.

Last year, people in 4.8 million households used private food pantries, compared with 3.9 million in 2007, while people in about 625,000 households resorted to soup kitchens, nearly 90,000 more than the year before.

Food shortages, the report shows, are particularly pronounced among women raising children alone. Last year, more than one in three single mothers reported that they struggled for food and more than one in seven said someone in their home had been hungry -- far eclipsing the food problem in any other kind of household. The report also found that people who are black or Hispanic were more than twice as likely as whites to report that food in their home was scarce.

Poverty and food shortages are linked but are not the same thing, according to the report. Just half the households in which food is scarce have incomes at or below the official poverty level, the data show, while most of the rest live at less than twice the poverty level.

Around the Washington area, the extent of food shortages varies significantly. In the District, an average of 13.7 percent of households between 2006 and 2008 have had at least some problems getting enough food, although the problem in the District is not as severe as it was from a three-year period a decade earlier, according to the report. In Virginia, the prevalence of food shortages also has fallen in the past year to less than 9 percent. In Maryland, the problem has grown slightly worse, increasing to an average of 9.6 percent the past three years from 8.7 percent a decade before.

Overall, the data show that people who do not consistently have enough food experience the problem repeatedly, but not all the time. On average, households with such scarcity had the problem seven months out of the year, while about one-fourth said the problem occurred almost every month.

In the survey used to measure food shortages, people were considered to have food insecurity if they said that answered "yes" to several of a series of questions. Among the questions were whether, in the past year, their food sometimes ran out before they had money to buy more, whether they could not afford to eat nutritionally balanced meals, and whether adults in the family sometimes cut the size of their meals -- or skipped them -- because they lacked enough money for food. The report defined the degree of their food insecurity by the number of the questions to which they answered yes.

The next time I get the "America is the greatest country in the world" line from somebody I am going to smack them.

Income evaporation

2009-09-18T06:24:00.001-07:00

This is a pretty incredible chart. I wonder if there is anything comparable? I wonder who was president over this course of time and what party controlled congress for the bulk of the time? Hmm... I wonder...

Stores Go Dark Where Buyers Once Roamed

2009-07-21T05:19:00.000-07:00

New article in the NY Times today, "Stores Go Dark Where Buyers Once Roamed". To think when I started this blog (not that I have kept it up like I wanted to) there was still a discussion as to whether there would really be a recession or not. I have heard the word "crisis" used in other countries - but this is the first time I recall seeing it used in the U.S.

"It's a crisis,"

Yeah - you bet. We are in a recession/near depression - yet Goldman Sachs just had a blowout quarter. Funny how that can happen...

Record Credit Card Charge-offs

2009-06-26T07:21:00.000-07:00

From the incomparable blog Calculated Risk via Reuters, this story about credit card charge offs:

The U.S. monthly credit card chargeoff rate surpassed 10 percent and hit a sixth straight record high in May, Moody's Investors Services said on Wednesday ...

The chargeoff rate index -- which measures credit card loans the banks do not expect to be repaid -- rose to 10.62 percent in May from 9.97 percent in April.

"We expect the chargeoff rate index to continue to rise in the coming months but at a slower pace, as it peaks at around 12 percent in the second quarter of 2010," Moody's senior vice president William Black said in a statement.

My question is about the psychological extension of this story - when do you start looking around a room with 10 people in it, and say to yourself "one of these people isn't paying their credit card bill, why should I?". I think if things fall too far apart, there is a tipping point where moral hazard (for the individual - the corporate moral hazard is gone) goes by the wayside. The stock market run from March to the last few days doesn't mean anything, nor does any financial news propaganda - things are terrible. And they are getting worse. The unemployment levels are horrific and growing. Their is no end in sight yet.

General Growth Properties Files for Bankruptcy

2009-04-16T04:28:00.001-07:00

This is pretty big news, and the story is across many levels - consumer spending, commercial real estate, mortgages, etc:

General Growth Properties, one of the largest mall operators in the nation, filed for bankruptcy early Thursday morning in one of the biggest commercial real estate collapses in United States history.

Despite bargaining for months with its creditors, General Growth faced increasing pressure to handle its more than $25 billion in debt, largely in the form of short-term mortgages that will come due by next year. The company has been severely wounded by the recession, which has wreaked havoc upon the retailers who inhabit its more than 200 malls in 44 states. Many stores have shuttered, depriving mall operators like General Growth of revenue.

What fascinates me going forward is what is going to happen to all these eventually abandoned properties. There is so much over capacity in America, so many millions (!) of extra square feet of retail space, that realistically there may never be a need for it. Especially as more and more people shop on-line. The closings/bankruptcies of retailers and whole malls will drive even more people to turn to the web (when consumption picks up). There is such a mess to unwind, it may be the story for the next several generations.

Yeah, we are so screwed

2009-04-06T14:08:00.000-07:00

This video from Bill Moyers Journal is pretty amazing http://www.pbs.org/moyers/journal/04032009/watch.html.

The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout.

Time to Raze America?

2009-03-31T09:31:00.000-07:00

There are some alarming if not perhaps anecdotal trends and memes shaping up on the American landscape - and I think there is one that will have direct effect on the real landscape - and that is worthless housing (to be followed by worthless retail space). America, and the thousand of communities that make up America, needs a real plan for the future in places like Flint, Michigan and other cities where the homes are crumbling, the economy has crumbled, and there is probably not any good solution other than tearing things down. How we as a nation deal with this challenge will be a real test. Perception and reality -of home, work, community, neighborhood - have to change in America. I hope we as a nation can make it through to the other side.

A couple of examples:

Banks Starting to Walk Away on Foreclosures - after being foreclosed on, the bank suspends the sheriff's sale, and now this worthless property is the responsibility of the owner again.

Off-the-cuff suggestion prompts discussion on what to do with abandoned neighborhoods in Flint:

Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.

There are no easy answers to these issues. These people are all going to need help - financial and physical (as in moving, etc.). Unfortunately the "right" is going to cry socialism or Marxism at every chance they get, but if tax dollars are not spent on these issues, then what else is there to do? Abandon your citizens? Fuel despair and poverty until there are starving looters running through the streets? I hope somewhere in the federal, state, and local governments people are working on plans for these issues.

Ping Pong

2009-02-24T07:27:00.000-08:00

Stereolab sums it up:

it's alright 'cos the historical pattern has shown
how the economical cycle tends to revolve
in a round of decades three stages stand out in a loop
a slump and war then peel back to square one and back for more

bigger slump and bigger wars and a smaller recovery
huger slump and greater wars and a shallower recovery

you see the recovery always comes 'round again
there's nothing to worry for things will look after themselves
it's alright recovery always comes 'round again
there's nothing to worry if things can only get better

there's only millions that lose their jobs and homes and sometimes accents
there's only millions that die in their bloody wars, it's alright

it's only their lives and the lives of their next of kin that they are losing
it's only their lives and the lives of their next of kin that they are losing

it's alright 'cos the historical pattern has shown
how the economical cycle tends to revolve
in a round of decades three stages stand out in a loop
a slump and war then peel back to square one and back for more

bigger slump and bigger wars and a smaller recovery
huger slump and greater wars and a shallower recovery

don't worry be happy things will get better naturally
don't worry shut up sit down go with it and be happy

dum, dum, dum, de dum dum, de duh de duh de dum dum dum... ah ah
dum, dum, dum, de dum dum, de duh de duh de dum dum dum... ah ah

D.I.Y.

2009-01-18T01:26:00.000-08:00

This is definitely going to be a growing trend - and I hope it will have long lasting benefits for American society as a whole - even if the short term affect is negative to some of the people providing these services:

A few months ago, as her family’s income fell, Laura French Spada, a real estate agent in Glen Rock, N.J., began dyeing her hair at home and washing the family cars herself. Her husband, Mark, started learning how to do electrical repairs.

Susan Todoroff, a personal trainer in Ann Arbor, Mich., has begun brewing espressos at home and cutting her hair and cleaning her house herself. And Tamar A. Zaidenweber, a health care market researcher in Astoria, Queens, is spending more time walking her dog instead of taking it to day care each week.

All of these consumers could praise themselves for their newfound frugality in the midst of an economic downturn. But every step they take toward self-reliance — each shrub they prune themselves, each cupcake they bake from scratch — hurts the people and small businesses that have long provided these services professionally.

Getting back to doing things for yourself, realizing that every "free" moment isn't about shopping, vacationing, gambling, getting drunk and watching TV, while paying someone else to do the little things in life for you that actually make up real life - I think this is an important step for Americans to take and perhaps a longer term silver lining in this economic disaster.

If you're not scared yet...

2008-11-19T09:52:00.001-08:00

... you must be in a coma. The wheels are coming off this thing - and this is after the bailout has begun!

A Sea of Unwanted Imports:

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

"This is one way to look at the economy,” Art Wong, a spokesman for the port, said of the cars. “And it scares you to death."

Consumer Prices Fall by Record Amount:

"This month it's more than slowing, it's outright contraction," said James O'Sullivan, United States economist at UBS. "And yes, if you extrapolate that, it's deflation."

The heart of the matter

2008-10-29T00:42:00.000-07:00

Largely because of what Mr. Hanson called the “widespread creation of wealth,” the number of domestic hotel rooms in the luxury segment almost doubled, to more than 80,000, in the last 10 years, according to Smith Travel Research. At the same time, luxury hotel companies were also planting their flags in every major city in the world.

Is this true? Was there really a “widespread creation of wealth,” - or was most of the world just involved in the biggest Ponzi scheme (Credit Default Swaps, etc.) ever for the last ten years? Unfortunately I think it was the latter. The excess capacity of luxury hotel rooms, luxury real estate, luxury retail stores, etc. (brought on by the former enormous excess of credit) will probably all have to be worked off in the coming years, and it could be a long and ugly time economically (and literally) as this happens.

Mortgage Equity Withdrawal

2008-10-08T03:01:00.001-07:00

Graph courtesy of the fantastic Calculated Risk. What can you say about this chart? How about one word - RECESSION.

Oh my god you are so naive!

2008-10-02T13:38:00.000-07:00

Get the latest news satire and funny videos at 236.com.

WTF

2008-09-25T02:59:00.000-07:00

... is wrong with these people:

Senator Mitch McConnell of Kentucky, the Republican leader, quickly went to the Senate floor and declared Mr. McCain’s proposal "an outstanding idea."

An outstanding idea? McCain has no clue what is going on. His stunt of suspending his campaign is just that - a cheap stunt to try to get out of the debates, especially the VP debate. But McConnell is just warming up:

“Americans want to know that their home values and college funds and retirement accounts are safe. In other words, that the problems on Wall Street are not going to spread to Main Street. So I appreciate my colleague’s proposal and I hope that it is given serious consideration.”

Hey Senator, the problem is on main street, i.e. record foreclosures - and is headed back to Wall Street in the form of MBS and other toxic paper they invented - to supposedly avoid the very such problems they are in - not the other way around.

Do they just let anybody who is rich become a senator?

The financial markets are working

2008-09-23T12:10:00.000-07:00

Knowing that there is nothing this administration won't try, you really have to start to wonder about this plan's timing. Did Paulson really think he could make Chuck Schumer crap himself and sign over a trillion dollars over a weekend?

The plan as it emerges is terrible - it is simply a bailout of the people/institutions holding these MBSs and other pieces of toxic paper.

I have a pretty plain observation about the whole mess - the financial markets are working - not melting down. Credit is tighter, the TED spread is exploding, treasury yields are low, etc. etc. because the market - the market in, of, and for these things - knows that there is no "there" there. There is no credit to be offered, because there are no assets to back it up. The market is trying to tell people to stop borrowing - this is exactly what it is supposed to be doing.

Let the housing market come to rest where it should, let thousands of housing starts stop, let hundreds or thousand of CRE developments grind to a halt, let unemployment rise - and let these banks/brokerages/hedge funds/etc. fail if they have to. They made the mess - they invented it, participated in it, feed slovenly from the trough of it. And when it still wasn't enough, they forced the game all the way down to the lowest of consumers and convinced damn near everyone in the entire United States that they had to own a home (or two or three) and two cars and a 60 inch TV, etc. etc. and that we could all just pay for everything later.

Well you can't. You can't leverage everything up 30 times - it just doesn't work. This has just been proven - and all this bailout seems to want to do is to return things to the way they were a couple of years ago. Instead of seeing the housing market as a bubble, Paulson is talking about a housing recovery. What recovery? Is he insane?

Some links:

Pigs at the Trough TPM

Getting real — and letting the cat out of the bag Krugman

The Bailout

2008-09-22T00:59:00.000-07:00

The new bailout as it stands this morning is a crock of crap. This is not a liquidity crisis - it is a solvency crisis. Wall Street is about to be bailed out by the taxpayer, plain and simple. More of these institutions should be allowed to fail. Home prices should adjust to where they have to on their own. When I hear Paulson talk about a housing "recovery" it shakes me to the bone. There is no recovery coming. There was a bubble, it burst, get over it. The fact that there are so many lucid comments all over the web, but that none of those quotes are coming from the government should tell you something. Here are a couple:

Cash for Trash from Paul Krugman:

"Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us."

From a commenter on TPM:

"As a Wall Street guy I am sort of glad that this bailout is being organized. However, what seems unfair to me is that there are absolutely no provisions for homeowners. Moreover, this morning on Stephanopulous I saw Hank Paulson talking about homeowners taking out mortgages that were higher than they could afford and about them needing to live up to their obligations.

I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren't able to live up to their obligations."

And whatever your opinion of Shedlock at Global Economic Trend Analysis, he has been all over this mess forever. As has Calculated Risk.

19,000 Workers Accept Buyout at G.M.

2008-05-29T13:12:00.001-07:00

Wow:

DETROIT — General Motors on Thursday said that 19,000 hourly workers — a quarter of a unionized work force that already has been dramatically pared down — have accepted buyouts.

Most of the workers will depart within the next month, as G.M. formulates a plan to deal with plummeting demand for sport utility vehicles and pickup trucks while gasoline prices climb above $4 a gallon. The proportion of G.M. workers who took a buyout is more than triple the acceptance rate at Ford, where 4,200 of 54,000 workers took deals offered as part of a similar program.

Though G.M.’s 74,000 workers are on average older than Ford’s, the size of the exodus at G.M. signals deteriorating confidence among members of the United Automobile Workers union in their employer and the industry.

Many who remain — particularly workers at truck plants who were laid off for much of the spring because of a strike at a parts supplier — face what is sure to be a summer filled with plant idling and an uncertain future after that. G.M. said in April that it would eliminate one shift at each of four truck plants in Michigan, Wisconsin and Ontario.

But gasoline prices have risen 35 cents since then, making big vehicles even more unattractive and suggesting that Detroit automakers will need to cut deeper.

“While too early to tell definitively, indications are that the shift in buying preferences may, as in the late ’70s/early ’80s, persist for several years, even if oil/gas prices retrench,” Brian Johnson, an analyst with Lehman Brothers, wrote in a note to clients.

Ford last week responded to falling sales by saying it was reducing production in North American by 15 percent, ramping up cost-cutting efforts and abandoning its long-held goal of returning to profitability by next year.

Ford is also planning a considerable reduction in salaried positions, according to a person with direct knowledge of the plan. The cuts would be achieved through layoffs, rather than buyouts or early retirement offers, and reportedly could number as many as 2,000, though this person, who is not authorized to speak publicly about the plan, would not confirm that figure.

“They’re finally recognizing that there’s a sea change in the vehicles people are going to buy,” said Greg Gardner, an analyst with the Oliver Wyman Group, which publishes the Harbour Report on automotive manufacturing.

Ford posted a surprising $100 million profit in the first quarter but warned that it would lose money in the rest of the year.

Meanwhile, G.M. lost $3.3 billion in the first quarter. It said second-quarter income would be reduced by $1.8 billion because of strikes at two of its plants and by the 87-day strike at its supplier, American Axle & Manufacturing, all of which recently ended.

But much of that amount would have been lost even without the American Axle walkout, because G.M. still has more than four months’ worth of inventory of the vehicles produced in the factories that had to be shut down.

“Demand has deteriorated so fast that inventory units haven’t declined much and inventory days remain at record high levels,” Mr. Johnson wrote. “We believe that very sharp production cuts will be required throughout the rest of the year.”

G.M. is expected to discuss its plans to cope with declining sales at its annual shareholder meeting Tuesday in Wilmington, Del. The plans are believed to call for further reductions in truck production but not additional plant closings.

The company said it would hire new workers, under a significantly lower pay scale created by the contract G.M. signed with the U.A.W. last fall, to replace many of those who leave through the buyout program. G.M. could decide to slow production by hiring fewer replacements or by hiring them more slowly than originally intended.

“Despite significant challenges in the U.S. market, we continue to reshape our business for long-term success,” Troy Clarke, the president of G.M.’s North American operations, said in a statement. “This attrition program gives us an opportunity to restructure our U.S. work force through the entry-level wage and benefit structure for new hourly employees.”

The number of workers leaving G.M. through the buyouts is at the high end of the range that the U.A.W. president Ronald Gettelfinger estimated in February. But after Ford only managed to persuade half as many workers to leave as it wanted, many thought G.M.’s acceptance rate would be much lower.

Retailing Chains Caught in a Wave of Bankruptcies

2008-04-15T05:27:00.000-07:00

The NY Times has an article out today about companies across the country going out of business. I think it sounds a little too sympathetic to the business side - there is a lot of "retailing is so hard" and "we have to borrow to pay bills and salaries", etc. That just doesn't sound like a good business plan to begin with. If these businesses are so weak and rely so much on debt, then losing them is probably a better long term solution. My sympathies are with the people who work there more than the corporate/equity firm owners. There is just something about America that makes everyone think you have to have 500 stores in all 50 states, and leverage yourself up to the gills to pay for it all, blah, blah, blah. Maybe one thing this recession and global credit crisis will change for the better will be a shift to more small, family owned, sustainable businesses, a revival of some downtowns, and the realization that bigger and cheaper is not always better. It would be a nice silver lining to this mess.

Shoppers scrimp as food prices rise

2008-04-06T23:46:00.000-07:00

That is a Reuters headline.

SECAUCUS, New Jersey (Reuters) - Patricia Norris' family is feeling the one-two punch of higher fuel and food prices.

Her husband works as messenger, driving around to deliver packages. But the job is not as profitable as it once was because rising fuel prices are eating into his earnings.

With money tight and food prices rising, Norris can no longer afford to buy beef and chicken on a regular basis.

"We buy meat only for special occasions. Like for Easter, we had a ham," she said after a shopping trip at her local Wal-Mart in Romeoville, a mixed blue- and white-collar suburb of Chicago.

Norris must purchase only what is on her shopping list, to avoid spending more than she can afford.

"Sometimes I cry," she said, when she passes items on store shelves she can no longer buy.

Overdue Consumer Debts Highest Since 1992

2008-04-04T02:57:00.000-07:00

There are a lot of not very good signs out there - this is one of them:

"Consumers fell behind on car, credit- card and home-equity loans at the highest level in 15 years, another sign the U.S. economy is slowing, according to the American Bankers Association's quarterly survey."

This is another:

"The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29. The increase left claims at their highest point since Sept. 17, 2005, following the blows of the devastating Gulf Coast hurricanes."

I get this fleeting feeling sometime that this is as bad as it gets - that all of this money pumping by the Fed and the tax payer assisted rescue of the Robber Barons of our day has started to kick in and will have some soothing effect - but then I remember that we are still in this terrible, three trillion dollar war, that inflation is raging, real wages are falling, gas is pushing $4.00 a gallon, and that people are pretty gloomy about this whole mess - and the feeling goes away.

A change in the zeitgeist?

2008-03-25T03:40:00.000-07:00

It is only one article "Thinking the unthinkable: what if it's not that bad" - but - could the tide already be shifting?

I don't think so - not yet. The stock market may have stabilized, but does that really mean anything for the overall economy? Housing news supposedly looks better? Who are we kidding - maybe month to month some things are improving - but these are still bad numbers overall and YOY they are TERRIBLE (DOWN 23.8% below February 2007 levels). There is a lot of inventory to work off, and many bad loans out there. It is going to take some time. Maybe the market panic is over - but the real work on the economy has hardly started.

Carlyle Capital says unable reach deal with lenders

2008-03-13T02:15:00.000-07:00

More humor:

"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING."

How long was it gone for - one day?!? What is wrong with these people... can we at least get serious reporting on this mess?

Home loan demand drops as rates near 5-month high

2008-03-13T02:07:00.000-07:00

It is really amazing that everything the Fed does, timing wise, seems to be because how the stock market is acting, and is actually having no effect on the real world. I know it isn't that simple, but it really seems to be. Check out this headline: Home loan demand drops as rates near 5-month high.

The cutting of interest rates was supposed to... lowere interest rates, right? Instead, real mortgage rates are going UP!

Some other recent headlines: Unemployment rate rises in 27 states in January, Consumer bankruptcies leap in February, Subprime crisis and poverty hand-in-hand: study. And yet many economists are still saying that technically there will not be a "real recession". At this point, who cares? The pain seems real enough. The country is convulsing in a leaderless vacuum.

Economy Lost 63,000 Jobs in February

2008-03-07T10:13:00.000-08:00

The NY Times tells us today that "The economy shed 63,000 jobs in February... the fastest falloff in five years and the strongest evidence yet that the nation is headed toward — or may already be in — a recession."

What I can't get is how many news reports repeatedly call this kind of news "unexpected". What the hell were they expecting!

Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns

2008-03-02T23:46:00.000-08:00

This is really bad on several levels, besides the stark economic one. These empty houses are going to attract squatters, drug users, vandalism, etc. These neighborhoods with just a few residents are going to be like cancerous growths on the immediate areas. And you can only imagine that eventually there will be people showing up to rip out windows and interior finishings, etc.

Feb. 29 (Bloomberg) -- When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven't materialized.

Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.

Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.

But seriously folks...

2008-03-01T15:25:00.001-08:00

Welcome to March. I started out hot here - 20 posts in January, 13 in February - but the last one was almost 2 weeks ago. Personally I have just had too much work to deal with, and the economic news has been so bad that just trying to read it all was taking up most of my free time. But I digress.

What I want to mention seriously is this - I don't think most people, including economists and financial professionals, are really grasping what is potentially happening to the US and global economy. The word subprime got out there in the media and was latched on to by the general public. It seemed plausible, a bunch of people who shouldn't have bought houses did, and now they are in trouble. Oh, and the mortgages that they were supposed to be paying were actually securitized and sold off around the world as SAFE investments. Problem contained. Maybe 40 billion in losses. Okay 200 billion. Well, maybe 400 billion. Okay, shit, let's say a trillion - whatever. And really - I mean whatever. Because whatever paper losses the real estate crash produces in America and then ripple around the globe, that is only one part of the problem.

We have insolvent banks. We have soaring inflation. We have a huge national debt and trade imbalance. We have growing unemployment and falling wages. Folks - what we have is a mess. Recession? Hell yes. It is just the beginning.

"massive amounts"

2008-02-19T07:10:00.000-08:00

I mean - "massive amounts" - come on, its getting nearly comical:

NEW YORK (Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site of The Financial Times.

So what is really going on? I think there are probably several banks that are having a real liquidity crunch - they won't lend to each other, so they are taking what the fed is giving. Is it something to worry about? I think yes, but it isn't the end of the world - yet.

Kunstler

2008-02-18T13:54:00.000-08:00

"But that system was considered too awkward and "reserves" were then denoted in just currencies themselves, or certificates that represented the existence of currencies held elsewhere, or pixels on a screen representing the movement of alleged piles of currency from one place to another, or the intention to move a notional pile of currency to a theoretical destination, and then that became an algorithm purporting to represent the future arrival of a notional pile of money at theoretical destination to-be-named-later, and so on...

He can get carried away but I love him - this week's post is on the money.

Understatement of the day

2008-02-18T09:43:00.000-08:00

"People have been living off the equity in their houses and their credit cards. Now, both of those things are ending," Provencher said. "It's going to create an interesting problem."

Ya think? There is more here.

Natomas Area Commercial Real Estate Photolog

2008-02-18T04:18:00.000-08:00

Just an absolute jaw dropping post "Natomas Area Commercial Real Estate Photolog" - you have to visit this site and see the photos for yourself. Interesting that in the comments lots of people have responded with things like "looks like where I live" from various states around the nation. This kind of hyper over development just smacks of greed and corruption. How could all this excess space get built? The sheer number of people not exercising common sense in this process (owners, banks, planners, local government, construction companies) is staggering in itself.

I mean - just how much shit were people in Sacramento supposed to buy? Check out this chart - and it is dated already. Do you think any of those countries would be horrible places to live?

"arcane financial instruments"

2008-02-18T02:58:00.000-08:00

A $45.5 trillion dollar unregulated market... something just isn't right here. I am really starting to believe that this financial mess isn't even understood by Paulson, Bernanke, and the rest of them. They are just holding on for dear life. There is no way that this whole credit default swap story doesn't unwind into a giant mess. The only issue is when:

"No one knows how troubled the credit swaps market is, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity."

Retail sales?

2008-02-14T05:40:00.000-08:00

"Retail sales unexpectedly climbed in January, given a boost by demand for cars and gasoline in a positive sign for the economy."

You know I really don't understand this - demand for cars and gasoline? How about gas costs more, and people are maybe trading in their gas guzzlers for more economical models. I would love to see finer grains in this report. It sounds like a lot of crap to me.

Aha - as I am writing this and check the link it appears that the wording on this article has changed:

"Part of the gain, however, stemmed from higher gasoline prices. Retail-sales data aren't adjusted for inflation.

In addition, economists were puzzled by a 0.6% increase in auto sales, since other industry reports show auto sales declined"

I don't know who could take this as good news...

Mortgage Crisis Spreads Past Subprime Loans

2008-02-12T01:04:00.000-08:00

From conversations with some American friends I am not so sure (anecdotally) that people are quite getting the breadth and scope of what has happened (is still happening) in the mortgage and housing markets. You really just have to look at a chart (thanks to Calculated Risk) to see it - this is an historic collapse. And it continues to spread, as this new article from the NY Times explains:

"The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one."

This is going to be a lot more than a little downturn and maybe a few layoffs. My fear is that it is going to the kind of event that may take a decade or more for the country to properly adjust to - or that it may actually be an end to business as usual as we know it (which of course is probably silly - but - possible).

Many Believe US Already in a Recession

2008-02-10T07:46:00.000-08:00

Interesting article from the AP:

WASHINGTON (AP) -- Empty homes and for-sale signs clutter neighborhoods. You've lost your job or know someone who has. Your paycheck and nest egg are taking a hit.

Could the country be in recession?

Sixty-one percent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.

The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin.

''Absolutely, we're in a recession,'' said Hilda Sanchez, 44, of Waterford, Calif.

More here.

D.R. Horton Swings to 1Q Loss on Charges

2008-02-07T04:37:00.000-08:00

Hefty Write-Down Charges Drive D.R. Horton to Post 1st-Quarter Loss, Revenue Drops Sharply

Hefty Write-Down Charges Drive D.R. Horton to Post 1st-Quarter Loss, Revenue Drops Sharply

FORT WORTH, Texas (AP) -- D.R. Horton Inc., the nation's largest homebuilder, said Thursday it swung to a loss in its fiscal first quarter, due to hefty charges to write off inventory and land values as the housing slump continues to worsen.

Losses for the quarter ended Dec. 31 totaled $128.8 million, or 41 cents per share, compared with profit of $109.7 million, or 35 cents per share, a year ago. The 2008 quarter includes $245.5 million in pretax charges to write down inventory and the value of land deposits...

"Market conditions remained challenging in our December quarter as inventory levels of both new and existing homes remained high while pricing remained very competitive,"

"Challenging" is the new code word for "our business is in the shitter".

Amateurs

2008-02-06T02:01:00.000-08:00

"I have no idea why I wouldn't call Ms. Sanchez a real estate speculator, since as far as I can tell she was speculating in real estate. I'm sure she's an amateur speculator, but that's rather the point, isn't it"

Great quote from Calculated Risk - go read.

Economy Fitful, Americans Start to Pay as They Go

2008-02-06T01:09:00.000-08:00

It is just one article, and I think a lot of the evidence is anecdotal, but still - there seems to be either a sentiment change about "living beyond your means", or at least an awareness in the media that some people are not spending like they used to:

“We don’t use our credit cards anymore,” said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg, Va., and whose family last year ran up credit card debt it could not handle.

Today, Ms. Merhaut, 44, manages her money the way her father did. Despite a household income reaching six figures, she uses cash for every purchase. “What we have is what we have,” Ms. Merhaut said. “We have to rely on the money that we’re bringing in.”

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”

Read the whole article - it is worth it.

"This is a stunning fall"

2008-02-05T07:38:00.000-08:00

From Bloomberg:

Feb. 5 (Bloomberg) -- U.S. service industries unexpectedly shrank in January at the fastest pace since the last recession as the housing slump deepened and consumer spending cooled.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 41.9, the lowest since October 2001, from 54.4 the prior month, the Tempe, Arizona-based ISM said. A reading of 50 is the dividing line between growth and contraction.

"This is a stunning fall,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. "If accurate, it's dire news on the economy.''

The momentum of reality is starting to wash across the landscape. The economy is in rough shape, credit is getting tighter, all sorts of loans are going bad, the labor market is weakening, and its the middle of winter!

I like how this article is framed as if this number was as surprise - I mean what the hell were they expecting?

Back from a long weekend...

2008-02-04T06:36:00.000-08:00

and have some catching up to do obviously. More soon -

"and the labor picture is sure to worsen"

2008-01-31T07:25:00.001-08:00

In my last post I said, "and the labor picture is sure to worsen". Here is a headline from a few hours later: U.S. stock futures point lower for second day, Labor Dept. reports large jump in weekly jobless claims, from 69,000 to 375,000

That is a huge increase - I guess all the retail holiday help got their pink slips!

"Already lower, futures for the Dow Jones Industrial Average more than doubled their losses after the government reported the largest gain in claims for first-time unemployment benefits since September 2005.

S&P Mulls $500B in Mortgage Downgrades

2008-01-31T02:49:00.000-08:00

NEW YORK (AP) — Standard & Poor's Ratings Services is considering slashing its rating on more than $500 billion of investments tied to bad mortgage loans, the ratings agency said Wednesday.
The massive downgrade would threaten a broad swath of the world's finance industry, S&P said, ranging from Wall Street's trading desks to regional banks to local credit unions.

This isn't going to end any time soon. The commercial real estate market has to follow, and the labor picture is sure to worsen also.

"which is also concerning to us."

2008-01-31T01:20:00.000-08:00

From Calculated Risk:

"Another effect we're having has been a challenge with the media and with consumer groups; and with consumers willingness just to walk away from homes. We haven't seen anything like this since Texas during the oil bust and people just willing to declare bankruptcy and walk away. We are seeing a lot of that similar type social phenomenon occur, particularly in California, which is also concerning to us."

Mark Hammond, CEO, Flagstar Bancorp conference call.

This really is the tip of the iceberg. As this kind of behavior becomes socially acceptable, there is going to be an avalanche of foreclosures. These houses will eventually, some way, come back into a housing market that is already flooded with inventory. This is starting to feel more like a 3 to 5 year event than a 1 or 2 year event.

Update: I listened to this call myself and made some corrections to the transcript above. If you want to hear this quote it comes at about the final quarter of the call.

MBIA Posts Biggest Loss, Considers New Capital Plans

2008-01-31T00:55:00.000-08:00

From Bloomberg:

"Jan. 31 (Bloomberg) -- MBIA Inc., the world's largest bond insurer, posted its biggest-ever quarterly loss and said it is considering new ways to raise capital after a slump in the value of subprime-mortgage securities the company guaranteed.

The fourth-quarter net loss was $2.3 billion, or $18.61 a share, raising concern the Armonk, New York-based company will lose its top credit ratings. The loss came a day after FGIC Corp.'s insurance unit became the third company to be stripped of its AAA grade."

Robert Reich's Blog

2008-01-31T00:15:00.000-08:00

We just added the feed from Robert Reich's Blog to the left hand column. I already mentioned in passing that the stimulus bill was garbage - he has a couple of recent posts talking about it, including this one:

"Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.

But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything."

Another big bond insurer in trouble

2008-01-30T14:12:00.000-08:00

From Bloomberg:

"Jan. 30 (Bloomberg) -- Financial Guaranty Insurance Co., the world's fourth-largest bond insurer, lost its AAA credit rating at Fitch Ratings after missing a deadline to raise capital.

Financial Guaranty, a unit of New York-based FGIC Corp., was cut two levels to AA, New York-based Fitch said today in a statement. The company had been AAA since at least 1991. Moody's Investors Service and Standard & Poor's are also reevaluating their ratings."

Instead of the Fed cutting rates, and the Government and Treasury Dept. coming up with some half baked "stimulus" package, they just should have put a trillion aside to save these bond insurers. Other people can buy up the bank shares - but who has got the money to save these bond insurers? The panic is not going to stop, and the credit markets are not going to function until all this worthless paper is exposed.

Wall St off high on CNBC bond insurer report

2008-01-30T13:00:00.000-08:00

So Charles Gasparino ruined the party! Just when the market got another rate cut, and was up 100 points, he had to bring up something that was known yesterday:

"NEW YORK, Jan 30 (Reuters) - U.S. stocks pared gains in late trading on Wednesday after CNBC reporter Charles Gasparino said he believed that ratings agencies may downgrade bond insurers MBIA and AMBAC Financial Group Inc. as early as today."

Face it - these bond insurers are bankrupt. The paper is worthless - the model was bullshit. This is a trillion dollars worth of stuff here we are talking about. The bulls tried today, but this news wasn't the reason the market sold off late, it was just an excuse.

Update: Calculated Risk has more.

U.S. 10-city home price drop a record in Nov: S&P

2008-01-30T12:58:00.000-08:00

Some housing news from yesterday:

"NEW YORK (Reuters) - Home prices in 10 major metropolitan areas fell a record 8.4 percent in the year through November, suggesting the housing slump is worsening, according to a Standard & Poor index released on Tuesday.

The decline in the S&P/Case-Shiller Home Price Index topped the 6.7 percent annual drop for October and was deeper than predicted by economists at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. The consensus was for a 7.1 percent fall, Goldman economists said.

Home prices across big cities have now declined for 11 consecutive months and show little sign of bottoming, said economists, including Robert Shiller, a founder of the index and chief economist at MacroMarkets LLC. The decline in the index accelerated to 2.2 percent in November over October, from 1.4 percent in the previous month, S&P said."

Wrong...

2008-01-30T11:46:00.000-08:00

So the Fed cuts another half point - pretty unreal. Why the market doesn't take this as "holy crap! things are really bad!" is beyond me...

Wall Street extends gains on Fed rate cut
Wednesday January 30, 2:37 pm ET
NEW YORK (Reuters) - Stocks extended gains on Wednesday, sending indexes up more than 1 percent, after the Federal Reserve slashed interest rates by a half-percentage point, boosting hopes that the economy would avert a recession.
The Dow Jones industrial average (DJI:^DJI - News) was up 56.58 points, or 0.45 percent, at 12,536.88. The Standard & Poor's 500 Index (^SPX - News) was up 7.97 points, or 0.59 percent, at 1,370.27. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 11.28 points, or 0.48 percent, at 2,369.34.

I think that if the chips were on the table Citibank, Countrywide, maybe UBS, and others would probably be out of business. A real global financial disaster. So instead the Fed is going to keep spreading the cheap money around, keep propping these entities up, and hope that the country comes through it. Free markets - my ass.

UBS Takes a $14 Billion Hit

2008-01-30T03:11:00.000-08:00

The hits just keep on coming:

"PARIS — UBS, the largest Swiss bank, said Wednesday that it would write off $14 billion in exposure to the troubled United States housing market and post a net loss for 2007.

The write-offs will result in a record fourth-quarter net loss of approximately 12.5 billion Swiss francs, or $11.4 billion, the bank said in a statement. It also said it expected to report full-year net loss of 4.4 billion francs, or $4 billion, for 2007.

The numbers "include around $12 billion in losses on positions related to the U.S. subprime mortgage market and approximately $2 billion on other positions related to the US residential mortgage market," the bank said."

Good morning -

2008-01-30T00:57:00.001-08:00

From the RGE Monitor this morning:

"A recession is usually defined as two consecutive quarters of negative growth. A different meaning is attached to the concept of global recession, in a world where China, Russia and India account for half of global growth and are growing at an annual rate of 11.2%, 7% and 8.5% respectively. A 2.5% rate of global growth qualifies as a global recession. Big investment banks like Citi now expect 2008 global growth at a weak 3.2% while the IMF just adjusted downward its 2008 growth forecast from 4.8% – as in the October WEO – to 4.1%, the slowest in five years. "

You Walk Away

2008-01-30T00:05:00.000-08:00

This just leaves me speechless: YouWalkAway.com.

A couple of people have already made extensive commentary on it - so I won't add much more. One thing I think Steve Croft left out of his 60 Minutes report though was the fact that with these 100% (sometime 100% plus - which he did mention) mortgages is that the home "owner" has no equity in their property. Without that down payment - without real tangible loss, why wouldn't people just walk away?

Early morning/overnight news

2008-01-29T23:49:00.000-08:00

Good morning. Since we are posting from Europe we can give you a round up of things from late yesterday and early this morning:

UBS: $14 Billion in Mortgage Write Downs That is a lot of money - and not the first write downs for UBS.

Bond Insurers Face Downgrade Despite Call for Delay This is not a good story. It probably has to happen - the house of cards must fall - but this will be a disaster.

F.B.I. Opens Subprime Inquiry Was there actual criminal activity in the whole subprime mess? Probably, but I think it will be a tough case for the FBI to prove.

The dollar was down a tenth of a penny in early morning trading.

A round up of business and finance headlines from the NY Times.

Fed cut

2008-01-29T23:43:00.000-08:00

Well like I said on our first post - I am an amateur in economics. I have no formal training in the field, and just about everything I know I have learned from reading over the past ten or twelve years. What I am getting to is that there was no Fed action yesterday as I said there would be - it was just day one of the planned two day meeting. So today (Wed.) will be the announcement on interest rates. I am sticking with my call of a small cut - probably only a quarter point - which the market won't like.

Is U.S. in Recession?

2008-01-29T09:37:00.000-08:00

The Wall Street Journal has an interesting blog post up discussing this question:

"Stanford economist Robert Hall, chairman of the National Bureau of Economic Research committee that dates recessions, is far from announcing whether such an event has started. But he and his colleagues on the NBER’s Business Cycle Dating Committee have taken a key step: The usually dormant panel has started discussing the economic data."

They also have the National Bureau of Economic Research definition of a recession:

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

It is sort of amazing that the US is so accustomed to "constant growth" that a simple recession could be causing so much anxiety not only in the US but across the globe. I say simple recession here because it is not even confirmed we are in one, although most economists of all stripes are now agreeing we are heading towards one. The argument now is going to be how deep and long this coming recession lasts - but - again - I am still shocked at just how much a panic there seems to from the mere word. Recessions happen in capitalist societies/economies - they are normal and probably healthy. I think the real fear here is that people know or feel (even if they are not saying so) that there may be a realignment of the US economy to what I call a more mature economy - that is - an economy of slower growth and demand overall. With the ever rising price of energy costs and the end of cheap credit to American consumers (due to not only the crashing housing market but to tighter credit world wide), maybe the American economy in the next several years will look a lot more like the economies of the EU - and I don't think that would be such a bad thing.

Countrywide: 1 in 3 subprime mortgages delinquent

2008-01-29T06:16:00.001-08:00

More great news from the nations largest mortgage company:

"NEW YORK (Reuters) - Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender, on Tuesday said more than one in three subprime mortgages were delinquent at year-end in the $1.48 billion portfolio of home loans it services.

Countrywide said borrowers were delinquent on 33.64 percent of subprime loans it serviced as of December 31, up from 29.08 percent in September. It also said borrowers were at least 90 days late on payments on 17.25 percent of subprime mortgages."

I don't know - I had CFC shorted at $20 and got spooked out of it after the first rate cut. Now that Bank of America is buying it it has managed to sneak back to the $6 level and change. I think without BOA this business was gone. Some people are trying to give Mozilo credit for giving up some dough here at the end - I think he is a criminal. BOA probably forced this on him - what was he going to do? This is a CEO who has done nothing but sell his own stock. He (reportedly) never bought any shares - he always flipped all his options - especially last year as the whole subprime mess began to crack and Wall Street was still busy peddling securities backed by all these crap mortgages.

Strong rate cut hopes lift U.S. index futures

2008-01-29T05:38:00.001-08:00

What the market is expecting this morning:

"LONDON, Jan 29 (Reuters) - Wall Street is seen opening slightly higher on Tuesday, tracking gains in Europe and Asia as investors around the world bet the Federal Reserve has another interest-rate cut up its sleeve to help avert a recession."

I'm not buying it - we'll see!

Fed meeting today

2008-01-29T02:52:00.000-08:00

Predictions are for fools - here's mine on today's interest rate decision from the Fed: they cut only a quarter point and the market sells off hard.

Anyway - the Fed is not supposed to be in the game of "saving" the market - whatever that means. Many people think that the recent inter-meeting three quarter cut was a mistake anyway, driven by world wide collapsing stock markets - that now in hindsight may have been partly caused by the Société Générale scandal (see this).

My idea of only a quarter point cut is not as solid as it was over the weekend- the terrible housing news from yesterday actually gave the stock market fuel (economy really bad, must cut rates more = (somehow!) good news for stocks). Of course it is only the traders that are going to profit from this - if we are in a recession, corporate earnings are going to continue to suffer and so will stock prices. Those who can move big or small piles around quickly (traders, both of the institutional and day variety) are probably the only ones that are going to profit from today's decision. An economy this weak (real or perceived) is not going to spring to life because cheaper money is floating around.

Calculated Risk

2008-01-28T14:04:00.000-08:00

Calculated Risk (http://calculatedrisk.blogspot.com) is a blog we have been turning to daily now for the last several months (they first started posting in 2005). This site is a great place to find news and informed commentary about the latest economic shenanigans - especially those involving the housing market and all things related. For example a post from today: New Home Sales: Cliff Diving

Hey there...

2008-01-28T08:53:00.000-08:00

So there is a recession coming - or maybe we are already in one. This blog will attempt to track news and commentary on the coming global slowdown, with a bent on how it affects individuals in the real world. We'll point you to the best blogs on the subject, pertinent news articles, and offer our own (amateur!) analysis too - we welcome your comments.

Cheers -