Archive for the Goodbye to All That category
November 23rd, 2008
Here’s a good if convoluted chat about the current macro picture as the various economic powers twist in the breeze and try to protect themselves.
China in late October increased by several orders of magnitude its verbal attacks on the dollar. But in the wake of the G20 meeting it seems to have softened its own currency (by buying dollars) in an attempt to prop up its domestic industrial enterprises (which are suffering for lack of consumers in, to begin, the U.S.).
The dollar has been going up for a month or so, generally speaking. A good deal of this is flight from minor currencies (like Argentina’s, alas) based on fear that the local banks will collapse.
This component of the dollar’s recent surge won’t last. Best guess is that soon enough the dollar will continue its plummet, and that long-term the chinese currency will rise.
The current dollar boost, then, might be imagined as the point in the sinking of the Titantic where the bow suddenly goes under the waves and the stern ascends to bring the ship nearly vertical — until it shaps amidships — upon which the stern falls like a brick into the sea.
And, as the dollar turns and sinks, the cost of oil (denominated in dollars) will go back up.
A debased dollar is good for people who make things with dollars and sell them in other currencies. And for debtors, in general (assuming they can make their payments). Otherwise it’s rather bad.
November 13th, 2008
There has never been a place on TNC to post comments about “The Libraries of Sarajevo and the Book that Saved Our Lives” by Kemal Bakarsic.
Now, thoughts may be posted here below.
November 7th, 2008
The President Elect met with his econoteam and then answered press questions for the first time today.
Meanwhile the people running GM and Ford told the world that time is running out.
Brusque types are saying “Let them go.” Down the drain.
But the employment consequences nationwide would be catastrophic, and it’s clear that Hammerin’ Hank Paulson, after fucking the globe royally with Lehman, is on the case. A Treasury spokesman indicated that some of the TARP $700 billion might get thrown over the automakers to keep them dry awhile.
The full resolution may be nationalization (perhaps through the equity-kicker provisions of the TARP) — leaving something like Airbus in Europe:Â a unified quasi-nationalized auto company.
Such an enterprise could be effectively directed by the incoming Donkey regime to the ends often indicated across the campaign years: a native auto industry fully dedicated to green cars.
Similar initiatives were crushed by the Reaganites immediately upon assumption of power in 1981, as they shut down Jimmy Carter’s Energy Department in support of the Oil Mafia status quo ante.
It illumines American democracy to look back across that expanse of time — lost time — and to think that it may take the triple whammy of high oil prices, a ruined financial system and bankrupted Ford and GM to finally pry loose the Oil Mafia’s grip on Washington.
(It’s often left unsaid that the core of the OM’s political power these many decades has been the Pentagon — which cannot run its tanks and aircraft on natural gas or the sun or the wind or nuclear power.)
The first Earth Day was in 1968. Everything in the way of knowledge needed to act on our energy problems was known in the wake of the oil crunches of the 70s. Instead we got Reagan. This time … We shall see.
November 3rd, 2008
Only thing that I did wrong
Was staying in the wilderness too long
Keep your eyes on the prize
Hold on
The great questions in the air — about how much lasting constitutional and foreign-affairs damage Bush-Cheney have done, about the ways and means of turning things around, and the capacity of the american people to be citizens rather than consumers — leave me for the moment speechless.
I do think the turn in the works is a major turn.
A premise there, however, is that the forces behind the Fascist Shift of the new century are not deeply rooted and are exhausted for now — leaving the new administration a horrible mess, yes, but also a durable mandate and some elbow room.
But — if the premise is false, then four years from now we may see Romney on the verge of victory, and the young Obama already a has-been.
This was one reason why, this past winter, I thought Hillary the better candidate for the Donkeys to nominate — to allow her to absorb the worst of the blast, while holding Obama in reserve.
But … The hour of doom is at hand. Let the sun shine …
The mandate will not be large. LBJ in 1964, riding a wave of sympathy re Kennedy’s murder the year before, gathered 486 EC votes and carried 44 states.
Nothing near that is in the cards for Obama. Rather, somewhere between 289 and 364 votes, with 22 to 27 states, plus D.C.
Clinton got 370 votes and 31 states in ‘92. And 379 and 30 in ‘96. Plus D.C. in each.
Reagan has the all-time high, against hapless Mondale in ‘84, with 525 votes and 49 states. Then FDR in 1936, against Landon, with 523 and 46 (of 48 total) states. And then Richard Nixon in ‘72, contra hapless McGovern. 520 votes and 49 states.
Then again … Even the greatest EC landslides were, roughly speaking, five people voting chocolate and five vanilla. Fifty-three Pistachio, forty-seven Rocky Road.
Wasted Years
No matter what happens on Tuesday and across the next four years, there is no escaping or re-writing the fact that the failures to apply Due Process in the 2000 election, and to depose Bush-Cheney in 2004, were costly beyond measure and plain evidence that, on the national level, we are not a functioning democracy.
Only thing that we did right
Was the day we began to fight
Keep your eyes on the prize
Hold on
It’s an open question — whether WE can fight at all.
But … Team Obama has. They’ve run an amazing campaign — principled and potent.
Can the example revive an increasingly impoverished and brain-dead citizenry?
Too Long in Exile
Seems all my NY friends are holing up Tuesday night. Me, I think it’s the first thing in the public sphere worth celebrating since …Â Can’t recall.
Let’s have a General Strike on Wednesday. And then, to the business of rebuilding.
Til We Get the Healing Done
Where’s my blue suede shoes?
Aha — a final pre-election postscript:Â Great overview from a waning & weeping Laissez Faire fellow in the London Daily Telegraph.
October 24th, 2008
Alan Greenspan’s broad confession before Congress yesterday brings to mind the parade in 1932 through those once hallowed halls of big brains from Wall Street and the Fed, all confessing their ideas were bankrupt and that they’d nothing left to suggest.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
“Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.
“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”
As if in reaction, Asian and European stock markets went off the cliff overnight — Tokyo’s Nikkei 225 Index down 9.6%, Hong Kong’s Hang Seng down 8.0%, the Financial Times 100 down 5.0% — and the US markets are now following.
Sheer panic and forced selling (by margin callers) aside, the more slightly more concrete cause seems to be data and earnings reports indicating that the credit crisis that began 15 months ago has surely pushed the industrialized world into recession.
By the time FDR took office in March 1933, every bank in the United States was closed.
In general, however, the banking system then was much stronger than it is now. The crisis of the early 30s was largely a liquidity crisis created by bad austerity policy enacted post 1929 crash, which artificial austerity crushed the general economy. The crisis of today is an insolvency crisis created by a mountain of bad debt, crushing the finance sector first.
Opportunities and strategies for recovery, then, are likely to be different than they seemed to the bewildered owner-operators 76 years ago. Last week a bunch of Friedmanesque Chicago-School economists warned that today’s Fed and Treasury were fighting the last Great Depression (as if the crisis were merely a lack of liquidity in the credit system).
  Into all this strides Barack Obama (it seems).
His entry brings to mind the early years of Bush-Cheney, when Secretary of State Colin Powell was repeatedly sent on foreign missions, including to East 42nd street in New York, to explain (as if it were possible) and take flack for the collateral damage of their radical policies.
Will the Obama movement and all its hopes for a new age get crushed by the economic misery that will characterize his four years? Or will the misery be so widespread that it serves to found and root that new age?
October 13th, 2008
Democrats sixteen years ago were desperate to boot the GOP from the White House.
October 9th, 2008
The Fed press release about AIG’s latest injection reads deceptively for anyone who doesn’t understand swaps and repurchase agreements.
Here then is an elaborate homespun explication.
And the text:
The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal Reserve Act.
Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.
As expected, drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities.
October 8th, 2008
1. The central banks of the US, Canada, the European Union, Great Britain, Switzerland and Sweden, all cut the interbank rates they control by half a percentage this morning.
The US stock markets gyrated wildly, with the Dow 30 winding up down 191 points.
Bernanke last month told Congress that a year ago he had warned Paulson that something dramatic (like the Paulson Plan) might eventually have to be done.
The time to act was indeed a year ago. Nothing but a lot of time and pain will cure what now ails the global system.
2. The US has had something like five central banks (empowered to issue the currency and lend it to the government) thru its history.  Jefferson and his school were against the idea, the Federalists led by Alexander Hamilton were for.
Some people are convinced the federal government cannot recover its fiscal health unless it takes back the power to issue currency, as was last done under President Andrew Jackson. It was 77 years until, in 1913, a private central bank was again established on the eve of the world wars.
Here’s a feature length doc about the history of central banks in Europe and the US, made by people hoping to dethrone the Fed.
October 6th, 2008
Ed Note:Â See comments below for day by day, blow by blow summaries of what turned out to be the worst week in the history of the Dow 30.
Monday Morning.
After Europe’s traumatic weekend (see comments here), European stock markets fell roughly 7% Monday.
And with an hour ’til closing time, the Murdoch (formerly Dow) 30 is down another 700 points (6.8%), to roughly 9,600, breaking the psych barrier at 10,000 for the first time since 2004.
Along the way a new all-time point drop was notched — 806 — breaking the record set way back uh, let’s see … Last week.
.
The central banks and treasuries have shot most of their bullets. No one has yet taken heart.  Credit markets are broken worldwide. Nothing else now matters.
It is truly The Great (debt) Unwind that some people have been predicting for fifteen years — ever since the advent of Excel and email jolted high-tech Structured Finance to life in the money centers.
Traders this afternoon are sniffing “capitulation,” and supposing tomorrow we may have a bounce. Perhaps even coordinated rate cuts by every central bank from Tokyo to Washington.
But people with slightly longer-term views are saying Dow 8,000 might prove to be a floor.
It’s been a wild ride, since …
August 23, 2007:
MY OWN TWO CENTS, based on awareness of how vast the universe of structured finance securities is, and of how confidence in the methodologies used to rate and evaluate them has been shaken, and on watching the mortgage business get dismantled daily, is that the worst is far from over.
Recession, asset deflation (houses mostly), prolonged credit contraction. The Dustbowl returneth … But what do I know.
The sign at the Cyclone says “HOLD ONTO YOUR WIGS AND CAR KEYS.”
August 3, 2007:
The mortgage-bond failures demonstrate that the rating agency methodologies used to evaluate and rate high-tech “structured finance” bonds are seriously flawed.
This wethinks is why the private bond markets across all sectors (well beyond mortgage bonds) have seized up. The rating methodology failure means no one in the world really knows what their high-tech bonds are worth.
A radical thought, then: Perhaps the authorities might institute 90 days of price controls on the teeming mystery bonds to quell the panic …
Broad & Wall Street, 1929
October 5th, 2008
An article in the Times re the structure of the new Treasury bond trading operation — perhaps to become the biggest on the planet — is alarming in the extreme. First doubts about the Paulson Plan, however misdirected through the murk, turn out to have been well rooted in muck.
O my prophetic soul …
1. Treasury intends to “outsource” all the asset management. To things like Blackrock — which is already involved in scandal over its participation in the Bear Stearns take-under.
Foxes, then, are to guard the hen house.
“I can’t even fathom how I would manage that,” Mr. Siegel said. “How would I manage one side, where I’m seeking to maximize profit, and the other side, where I’m looking out for the social good?”
This is in stark contrast to the Savings & Loan rescue, where a single trust controlled and operated by the federal government handled all assets, and turned a profit.
Why are they going the other way now?
Most financial experts agree it would be impossible to build an internal operation of this size in a few weeks.
Don’t got time to do it right …
Bulldinky.
The Street is awash with laid off lawyers and bankers who used to draft and sell these very wounded instruments. Let them manage a static trust — with one-time sales of securities permitted, but no active trading.
This would be safer (bond trading is a tricky business) and not require an army of specialists to man.
2. Further, the prices at which wounded mortgage bonds and the like will be bought are to be determined by … the broken credit markets.
The main mechanism for buying these assets will be reverse auctions, using the same principles that govern auctions of electricity or the wireless spectrum. In this case, the government will issue an offer to buy a class of assets — for example, subprime mortgage-backed securities — with the final price being determined by how many banks are willing to sell.
(I.e., the more willing to sell, the lower the price.)
It seems that Bernanke’s “hold-to-maturity price” — based on performance not market forces, and which he spoke about at length on the Hill in past weeks — is toast. So then, too, is the plan Congress bought.
If the markets were competent to achieve “price discovery” with these complex and wounded instruments, they would have. It was their failure to do so that provoked the notion of a public rescue to begin with. These facts remain:
– The market for mortgage bonds (MBS and CMO tranches) has been seized up with loss and fear for fourteen months; and
– CDOs were never designed to support efficient en masse trading, and never have. Least of all now. The notion of “market value” here has always been a phantom.
And yet it’s into the frozen machinery of these markets — in a matter of weeks — that Treasury means to pour its hundreds of billions in mad money.
3. What then is going on? Don’t need a weatherman …
Stories of finance lobbyists descending on D.C. are everywhere. And the Times piece points out that not only Paulson but his top planners on the rescue are all from Goldman Sachs.
Of all the challenges that the Treasury faces, the trickiest might be determining a price for the largely unwanted wreckage it will be buying.
Many of the junk loans and mortgage-backed securities have no market price at all because they have no potential buyers. The firms hired by the government will have enormous power to push the “market” price up or down as they choose.
If the government bargains to buy at the lowest possible price, it will protect taxpayers. But forcing the banks to book big losses could be self-defeating if they cannot resume lending until they raise fresh capital. If the government agrees to buy the assets at the value at which banks are keeping them on their balance sheets, taxpayers will almost certainly be overpaying.
The “right” price will depend on whether the government is favoring buyers or sellers. Many banks are hoping that the government will pay close to par — the value listed in their books.
But hedge fund managers and other potential buyers are demanding that the government push for the much lower price …
O heat, dry up my brains!Â
Tears seven times salt, burn out the sense
and virtue of mine eyes!
The public trust has been betrayed.
Why were these free-marketeer ideas never publicized before Congress passed the bill?
Is it too late to stop Paulson, Sachs from railroading into the private sector what was sold as a public utility?
Call and email your Senators and Reps and scream bloody murder.
(Go to, eg, www.[senator’s last name].senate.gov and then to the Contact page, where you’ll find an email form.)
