Weekend Economists: November 7-9, 2008

[Demeter]

Ladies and Gentlemen!

As the wait staff clear the tables and serve us dessert, we welcome you to the post-election WE dinner. We hope you enjoyed the lame duck cordon bleu, the smothered mushrooms and filletted and pickled kook-cumbers, and the mixed race, Melting Pot salad. To top it all off, we have a special treat: Baked Alaskan!

This is the supplement to the Daily Stock Market Watch, in which we reflect, refresh, and overindulge. Garcon, another glass of champagne, si vous plait!

Bon appetit! And do pardon my French. I should look up the spelling and the ascii codes for the special accents, but I did have red wine with dinner, and I can't be bothered.


Demeter

U.S. FUTURES &
MARKETS INDICATORS>
NASDAQ FUTURES-----------------------------S&P FUTURES

[Demeter]

1. THE GHOST OF ARGENTINA What Happens when Countries Go Bankrupt?

http://www.spiegel.de/international/business/0,1518,588419,00.html



By SPIEGEL Staff

First it was mortgage lenders. Then large banks began to wobble. Now, entire countries, including Ukraine and Pakistan, are facing financial ruin. The International Monetary Fund is there to help, but its pockets are only so deep....

Donetsk is in eastern Ukraine, 8,100 kilometers (5,030 miles) from New York's Wall Street and 2,700 kilometers (1,677 miles) from Canary Wharf, London's financial center. But such distances are now relative. The world financial crisis has reached a new level. No longer limited to banks and companies, it is now spreading like wildfire and engulfing entire economies. It has reached Asia and Latin America, Eastern Europe, Iceland the Seychelles, the Balkan nation of Serbia and Africa's southernmost country, South Africa.

It is a development that has investors and speculators alike holding their breath. Some are pulling their money out of troubled countries, while others are betting on a continued decline -- and in doing so are only accelerating the downturn. Central banks are desperately trying to halt the downward trend, but in many cases the plunge seems unstoppable.

At first, it seemed as if the crash could be limited to Iceland. But now countries like Ukraine, Pakistan and Argentina are proving to be almost as vulnerable as the small island nation in the North Atlantic. It seems as though another country is added to the growing list of nations on the verge of collapse almost daily.

A national bankruptcy isn't just some theoretical construct. Argentina experienced it in 2001 and Russia three years earlier. Germany has gone bankrupt twice in its more recent history, once in 1923 and the second time after 1945. A country has reached this final stage if, as a result of war or blatant mismanagement, it has gambled away all trust, can no longer service its debt or convince anyone to lend it any money, no matter how high an interest rate it promises to pay.

This is what is currently happening to Iceland. The central bank in the capital Reykjavik increased its prime rate by six points to 18 percent last week. Venezuela, where inflation is also high, is now offering 20 percent to stimulate interest in its government bonds. At the moment, however, investors are shying away from all risk.

In the end, the rating agencies will have no choice but to downgrade the problem countries to their lowest level of creditworthiness. When that happens, lenders will have no choice but to write off much of their money. For citizens, national bankruptcy would probably lead to massive inflation.

The threshold countries, described until recently as "emerging" economies, are in for an especially rough ride. "The dream that they would be spared seems to have come to an end," says Rolf Langhammer, vice-president of the Kiel Institute for the World Economy.

Countries like Russia and Brazil owe their recent success in large part to the boom in commodities the world has experienced in recent years. But now prices for oil, copper, wheat and corn have plunged and a giant spiral of debt has begun to turn. The companies and banks that borrowed vast amounts of money abroad for their investments can no longer service their debt, and investors are pulling out their capital. As foreign currency becomes scarce and imports unaffordable, the currencies of these countries are losing value, which only increases the mountain of debt.

According to Stephen Jen, a currency specialist with the US bank Morgan Stanley, the flow of capital to threshold countries could drop by more than half -- from the current level of €575 billion ($730 billion) to €230-270 billion ($292-343 billion) -- if world economic growth drops to only 1 percent in 2009. The demise of these countries, says Jen, represents the new "epicenter of the global crisis."

The looming crisis has the countries in most dire need lining up for emergency loans from the International Monetary Fund (IMF). But all they are doing is buying time -- a few weeks, or perhaps even months -- and hoping that the general situation will soon improve.

The Ghost of Buenos Aires

The signs of looming national bankruptcy are plentiful, and bankers in the Uruguayan capital of Montevideo know them well. In late 2001, they were the first to see the coming crash in Argentina. Men traveled across the Rio de la Plata, from Buenos Aires to Montevideo, carrying suitcases filled with US dollars. They stood in long lines at the city's banks, depositing the contents of their suitcases into accounts and safe deposit boxes there. Uruguay is South America's Switzerland, a safe haven for money in times of crisis. No one asks about where the millions come from...Once the Argentine businessmen had transferred their dollars abroad, the second phase of the collapse began. The Argentine government froze all bank accounts, capping the maximum amount an accountholder could withdraw at only $250 (€198) a week. Small investors, those who had left their money in the banks, were the hardest hit. Tens of thousands of desperate citizens stormed the banks, and many spent nights sleeping in front of the automated teller machines.

The last phase of the downturn began in the Buenos Aires suburbs. After consumption had dropped by 60 percent, young men began looting supermarkets. In December 2001, 40,000 people gathered on Plaza de Mayo in front of the Casa Rosada, the presidential palace. There, they banged pots and pans together day and night, until an unnerved President Fernando de la Rúa fled by helicopter.

The image of the fleeing president has burned itself into the collective memory of Argentineans. It marks the worst financial crisis of the last 100 years. De la Rúa's successor allowed the peso to float free on the world currency-exchange markets after it had been pegged to the US dollar at a ratio of 1:1. Tens of thousands of small business owners, who had incurred debt when the peso was still pegged to the dollar, filed for bankruptcy. Unemployment quickly ballooned to 25 percent.

Five presidents passed through the Casa Rosada in the space of two weeks, until Nestor Kirchner, a provincial governor until then, assumed the presidency in 2003. Kirchner informed the country's international creditors that Argentina would not be able to repay its $145 billion (€115 billion) in foreign debt.

Is history repeating itself today?

Economic experts have been warning for months that Argentina is again heading toward national bankruptcy. Men are traveling to Uruguay once again with suitcases filled with cash. In the space of only three weeks, more than $700 million (€553 million) was withdrawn from Argentine bank accounts. Government bonds have lost more than half of their value. ATMs are no longer giving out more than 300 pesos, and inflation is running rampant.


Bailing Out a Sinking Ship with a Bowl


And the sound of pots and pans being banged together is back. President Cristina Fernandez, who succeeded her husband Nestor Kirchner in 2007, increasingly resembles the hapless de la Rúa. Last week, she presented her version of the "Corralito" -- the term used to describe the freezing of bank accounts in 2001 -- when she ordered the nationalization of private pension funds, allegedly to prevent the funds from going bankrupt.

But economic experts believed that Fernandez's true objective in nationalizing the private deposits, which are worth $30 billion (€24 billion), is to avert a government bankruptcy. Columnist Mario Grondona criticized the president, likening her to "a captain trying to save a sinking ship by bailing it out with a bowl from the kitchen."

Her husband was more decisive. He defied the IMF, which has sought to impose drastic rules on the country. He alienated international creditors by offering to buy back government bonds for only 25 percent of their face value. Since then, Argentina has received almost no new loans in the global financial marketplace.

Nevertheless, the country recovered from the crash with astonishing speed. In recent years, the Argentine economy has grown at impressive rates of 7 to 9 percent. At the first signs of the impending end of the boom, Venezuelan President Hugo Chavez came to the country's rescue by buying up Argentine bonds. But now the authoritarian Venezuelan leader can no longer serve as Argentina's savior. With oil prices sharply in decline, Venezuela itself is seen as yet another candidate for economic disaster.

This has prompted President Fernandez to discreetly seek rapprochement with the hated IMF and the Club de Paris, a group of lending nations made up of some of the world's richest countries, in an attempt to reconnect Argentina to the international lending cycle.

SUMMARIES FOR HUNGARY, UKRAINE, PAKISTAN AND THE STATE OF THE IMF FOLLOW--SEE LINK

[Demeter]

2. Credit Crunch May Produce Another Food Crisis in 2009

http://www.nakedcapitalism.com/2008/11/credit-crunch-may-produce-another-food.html


Restricted credit and access to foreign exchange may lead farmers to cut production, worsening agricultural price pressures. From the Financial Times:

The world might face a repeat of this year’s food crisis as the credit crunch encroaches on the agricultural market, leading farmers to cut their planting because of falling prices and lack of finance to buy fertilisers, the United Nations warned on Thursday.

“Riots and instability could again capture the headlines,” the Food and Agriculture Organisation said.

The warning was made despite a fall in the price of most agricultural commodities as farmers harvest bumper crops...

“Under the current gloomy prospects for agricultural prices, high input costs and more difficult access to credit, farmers may cut their plantings, which might again result in a tightening of world food supplies,” the FAO said in the report....

Concepción Calpe, a senior economist at the FAO in Rome, said a price surge might take place in the 2009-10 harvesting season, “unleashing even more severe food crises than those experienced recently”.

Lower production and higher prices next year could add to developing countries’ problems in obtaining sufficient credit and foreign exchange to buy agricultural commodities. “Export finance is becoming more difficult to obtain, with banks tightening up the conditions for issuance of letters of credit,” the FAO said.

Thailand and Iran agreed last month to barter rice for oil, the clearest example yet of how the financial crisis, high fuel price and scarcity of food are reshaping global trade.

In spite of the continuing fall in food prices, the world’s food imports’ bill is set to surge above $1,000bn (€785bn, £633bn) for the first time ever, up 23 per cent from last year and 64 per cent higher than in 2006, the FAO said.

Developing countries will spend $343bn this year on food imports, up a record 35 per cent from last year’s $254bn. Some poor countries, the organisation said, were curtailing food imports in an effort to lower their bills.

[Demeter]

3. Oil 'to shoot back through $100'

http://www.guardian.co.uk/business/2008/nov/06/cheap-oil-iea

Zoe Wood guardian.co.uk, Thursday November 6 2008 08.41 GMT

The oil price will shoot back through $100 a barrel as soon as economic conditions return to normal, and will break through $200 threshold by 2030, say officials at the International Energy Agency. The world energy watchdog is certain the "era of cheap oil" is over, according to research due to out next week. Indeed last year it had predicted the oil price would reach $108 in 2030 so has more than doubled its long-term price target...Oil prices have endured a rollercoaster ride this year during some of the most volatile trading on record. Crude climbed relentlessly from $96 a barrel in January to a record $147 by mid-July, spelling misery for drivers...But the intensification of the financial crisis this autumn has depressed the oil price to $60-$70 a barrel -today Brent crude was off 1% at $65. But the IEA cautions the low oil price will be short-lived. It expects oil to trade at an average of more than $100 a barrel between now and 2015 as supply shortages become a reality.

According to the report the IEA believes the oil majors will struggle to maintain the status quo as older fields dry up. They need a "new" Saudi Arabia - which pumps 7m barrels a day - to offset predicted shortfalls, it said. The organisation believes output from the world's oil fields is declining at 9%. "Current global trends in energy supply and consumption are patently unsustainable," the report states. This problem is magnified as the oil giants are pulling out of projects in places like Kazakhstan and Canada as the low price means costly excavations are no longer viable. The IEA estimates that firms like Shell and BP need to invest $350bn a year to replace older wells as well as meet demand from fast growing economies like China.


NOTE: THIS IS THE INDUSTRY BEATING THE DRUM

[Demeter]

4. China Likely to Stop Diesel Imports for Second Month

http://www.nakedcapitalism.com/2008/11/china-likely-to-stop-diesel-imports-for.html


We managed to miss this story on China's diesel imports sent to us by reader Michael.

When oil prices rose so rapidly early in the year, many pointed to robust growth in demand from China, and expected that level of growth to continue. Skeptics like your contrarian blogger pointed out other factors could be at work: pre-Olympics stockpiling (of which there were widespread reports) and additional hoarding due to the expectation that fuel subsidies would be cut after the Olympics (to the surprise of many, they were reduced in the preceding month).

Whatever the causes, it looks like China is sitting on a whole lotta diesel. From Bloomberg:

China, the world's second-largest energy user, may halt diesel imports for a second month in November because of rising stockpiles, traders said.

China International United Petroleum & Chemical Corp. and China National United Oil Corp., the nation's biggest oil traders, won't buy any diesel cargoes this month, said two officials...

Fuel inventories have risen as oil-product consumption fell after the world's fourth-largest economy grew at the slowest pace since 2003 in the third quarter. China increased imports of diesel, used to fuel trucks and power generators, to a record 970,000 metric tons in July to ensure supplies during the August Olympics Games.

``Domestic consumption has waned even as we approach the peak winter demand season,'' Yao Daming, the director of the oil department at Guangdong Oil & Gas Association, said by telephone in Guangdong province, the nation's manufacturing hub. ``Stockpiles at privately owned teapot refineries are currently very high.''

[phrigndumass]

23. Amazing how speculators want the high prices back so quickly

At least give us time to fill up our tanks, lol!

:hi:

[Demeter]

26. Happy Saturday, P-Man

When might we see some of your insightful analysis of the recent election? Are you waiting for all the races to be finished? That could take two weeks!

[Demeter]

36. Petrochemical prices fall to multi-year lows By Javier Blas in London

http://www.ft.com/cms/s/0/3f64bf1a-a90e-11dd-a19a-000077b07658.html



The price of petrochemicals used in making goods from toys to mobile phones and from T-shirts to pipes has tumbled to multi-year lows, in further evidence of the slump in global manufacturing activity.

The drop in petrochemicals prices goes well beyond the fall in oil prices, suggesting that demand for plastics and synthetic textiles is extremely weak as the Asia-Pacific export-oriented nations, including China, suffer from reduced overseas orders. The cost of naphtha – the cornerstone of the petrochemical industry – fell last week to a five-year low of $284 a tonne in the far-east Asia market, down 76 per cent from July’s record high of $1,200 a tonne, according to Platts, the pricing agency.

At current levels, naphtha, a by-product of crude oil, is trading well below the cost of crude, a highly unusual phenomenon. While naphtha prices have tumbled more than 70 per cent in three months, oil prices had fallen 45 per cent – a gap that traders described as “unprecedented”.

“It is a bloodbath,” said Shahrin Ismaiyatim, head of petrochemicals at Platts. “There is a steep decline in demand in the US and Europe and that is also affecting China . . . But this is not yet the bottom of the market.”

Analysts said some of the price movements were unheard of in at least 20 years. They pointed out that the price of benzene, a ­petrochemical derived from naphtha used for plastics and dyes, fell last week below the cost of ­naphtha for the first time since the 1980s, as demand vanished.

In response, the petrochemical industry, from Sumitomo in Japan to Lyondell in the US, has reduced processing rates as producers forecast that demand will remain weak for the rest of the year and probably in the first half of next year.

The cuts during petrochemical plants’ troughs are likely to trigger a further drop in oil consumption on top of current weakness in gasoline, diesel and jet fuel demand, resulting in a further drop in energy prices, analysts said.

The cost of other petrochemicals has also slumped. For example, the price of polyvinyl chloride – a plastic popularly known as PVC – in China dropped last week to a five-year low of $635 a tonne, down from a record $1,320 a tonne in July.

The drop comes on the back of lower export demand for plastic products and reduced consumption from Chinese construction. The price of ethylene – used to manufacture containers such as shampoo and ketchup bottles – fell to $718 a tonne, down from a record of almost $2,000 a tonne in July

[Hugin]

5. Quite the menu...

What a week in America! (and the World from what I've been hearing)

I think I'm going to like living in President Obama's U.S.A.

He's got this... and about time, it was getting a mite wobbly.

[Dr.Phool]

7. What! No escargot?

Damn French muslim presidents!

And then Demeter is teaching us how to turn tequila into diamonds?

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x399564

Blasphemy!

[Hugin]

8. Diamonds you say?

Well... That is interesting.

All I've ever managed to do is turn Beer into... Uh, well...

:toast:

[Dr.Phool]

10. I stopped experimenting with tequila.

All I could ever turn it into was a hangover and a night in jail.

[Demeter]

25. Well, the Chef Couldn't Tenderize Rove Enough To Make Escargot Out of Him

Once a slug, always a slug. Maybe with some tequila....

[Demeter]

6. The mother of all balance sheets

http://ftalphaville.ft.com/blog/2008/11/07/17964/the-mother-of-all-balance-sheets/

The Fed’s latest ‘factors affecting reserve balances’ is out and will have Fed-balance sheet watchers rather excited - an expansion to no less than a magical $2 trillion figure ($2,075,822m to be precise).



This ballooning of course is best expressed graphically:And what’s led to that massive spike in particular this week? Predominantly, it’s the net portfolio holdings from the Fed’s ‘commercial paper funding facility’…which in the last week alone has expanded by $98bn to $243bn.

We’ll be charting that separately over the coming weeks…

[Dr.Phool]

9. GM to lay off 1,000 in Lordstown; Ford trimming production

http://blog.cleveland.com/business/2008/11/ap_fileunion_leaders_say_about.html


GM to lay off 1,000 in Lordstown; Ford trimming production
Posted by Robert Schoenberger/Plain Dealer Reporter November 07, 2008 19:38PM


About 1,000 workers at General Motors Corp.'s plant in Lordstown will be laid off in January without the generous union benefits autoworkers typically get, labor leaders say.

"Hopefully, it doesn't last long," Jim Graham, president of United Auto Workers Local 1112 in Lordstown, said late Friday.

GM is putting 3,600 workers at 10 plants on indefinitely long layoffs next year, company spokesman Tony Sapienza said. He said he did not know how many would lose jobs in Lordstown.

The layoffs are part of an effort by Detroit's largest automaker to cut costs and stay alive. At the rate they're going, America's two biggest car makers will be broke by the end of May.

(snip)

The Cleveland area takes another major hit.

[MattSh]

11. APOCALYPSE NOW

Not very cherry reading for your weekend...

The Daily Reckoning PRESENTS: It’s fairly clear that the sky is falling...even though some still refuse to acknowledge it. Bill Bonner explains that we can ignore what is happening in the world – or we can look back at previous times the heavens caved in and see what we can do to prepare. Read on...

APOCALYPSE NOW
by Bill Bonner

“Utter piffle,” is how Terence Blacker of The Independent describes it. He is the voice of Fair Reason. To him, the idea that the sky is falling now is an “insult to past generations who have faced more grievous threats with courage and calm.” But that’s the trouble with Fair Reason; she never looks up. Like the wife who thinks her husband ‘would never do something that,’ she’s appalled when she finally sees what he’s been up to.

Nassim Taleb has made a career out of warning people. His “Taleb distribution” describes the occasional apocalypse: usually, things happen in a respectable, bell curve kind of way...the way Fair Reason thinks they should...and then, all Hell breaks loose.

The last time the sky fell was 96 years ago. Few saw it coming; no one panicked. But panic wouldn’t exist if it weren’t a useful instinct from time to time. The celestial bricks came unglued in August 1914. By 1918, 40 million people had died. But that was just the beginning. WWI bankrupted or destroyed almost every major government of Europe. The plumy families that had dominated the continent for centuries – the Hohenzollerns, the Romanoffs, the Hapsburgs – were all clobbered. The Ottoman Turks fared no better. Then, scarcely 20 years later, France’s Third Republic was another victim...and so was Germany’s Third Reich.

But that was only the half of it. Between the two wars, came hyperinflation and destitution in Germany, America’s Great Depression and something far more deadly – the world’s worst plague, the Great Flu Epidemic of 1918-1920. The illness is known to us by its WWI alias, the “Spanish Flu.” Propagandists didn’t want the world to know how many French, American and English soldiers were dying of the disease. So they referred to it as though it only wiped out Iberians.

First spotted in young soldiers at Fort Riley, Kansas, the virus was soon found almost all over the world. Japan was the only major population center spared. Curiously, the disease killed off young adults more often than old people or children – somehow turning a strong immune system against its owner in what scientists call a “cytokine storm.” How many people gave up the ghost? Estimates range from 20 million on the low side to 80 million top end – that is, at least twice as many people who had died in the war.

Before the 1914-1945 catastrophe was the 1789-1812 calamity – roughly the period from the French Revolution to the Battle of Waterloo. It not only included the collapse of five different forms of government in France – Monarchy, First Republic, Directory, Consulate, and First Empire – but also inflation, 3 currency collapses, major political debacles throughout Europe, the Napoleonic Wars, as well as the last major famine in France in 1795.

War, bankruptcy, chaos, plague and famine – when trouble comes, it comes with a mob at its back. As usual, the Greeks provided an early example. Athens must have been the Goldman Sachs of the classical world. But when these masters of the ancient universe tried a hostile takeover of Sparta, it failed miserably...leaving them as exposed Bear Stearns. Sparta counterattacked and laid siege. Then, the bugs joined the attack in 430 BC. Thousands were killed by plague – including Pericles himself. Weakened by disease, hunger and war, Athens surrendered, was enslaved, and the Golden Age was over.

Later, it was the Romans’ turn. Bankruptcy, wars, stupidity – all took their toll. Then, in the 6th century, came another major onslaught: disease. Of the 80 monasteries around Constantinople in 540AD, none survived. Ghost ships, in which everyone on board had died of plague, drifted in the Mediterranean. European civilization seemed to fall apart.

Again, in the 14th century, came 100 years of war in France...along with starvation and plague. A couple of cold, wet summers caused famine in Western Europe. Young children were abandoned. Old people starved themselves to free up food for their families. Meanwhile, the Mongols attacked in the East, hoping to conquer all of Europe. And when they retreated, they left a going-away present – the plague. The Black Death of 1347-1351 killed off more people than the war or the Great Famine of 1315. Towns and fields were abandoned as a third of the population died. “So many died that all believed it was the end of the world,” said Agnolo di Tura of Siena, who buried his five children with his own hands.

New Scientist magazine comments: “Many people dismiss any talk of collapse as akin to the street corner prophet warning that the end is nigh.” But, more and more scientists are taking the end of civilization threat seriously, the magazine continues. Complexity – such as derivative financial instruments and “just in time” inventory systems – is making “our society...ever more vulnerable.”

In his 1988 book, The Collapse of Complex Societies , Joseph Tainter argued that all societies – like all organisms – are doomed. Each challenge requires a solution. Each solution takes resources. Eventually, the solutions – and readers may substitute the word “bailout” for solution – brings more challenges and takes more resources. Eventually, the system collapses under the weight of if all.

When the stars fall, even the angels get out of town.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

http://www.dailyreckoning.com/

[DemReadingDU]

17. Eventually, the system collapses under the weight of if all.

From last paragraph
"Each solution takes resources. Eventually, the solutions – and readers may substitute the word “bailout” for solution – brings more challenges and takes more resources. Eventually, the system collapses under the weight of if all."
direct link...
http://www.dailyreckoning.com/rss/DR110708sec2.html



Scary times we live in.

[Pale Blue Dot]

12. RESTAURANT INDUSTRY OUTLOOK: Restaurant Performance Index Falls to Record Low

(Washington, D.C.) The outlook for the restaurant industry worsened in September, as the National Restaurant Association’s comprehensive index of restaurant activity fell to a new record low. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 96.7 in September, down 1.7 percent from August and its 11th consecutive month below 100.

“The September decline in the Restaurant Performance Index was the result of broad-based declines across the index components, with both the Current Situation and Expectations indices falling to record lows,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Nearly two out of three restaurant operators reported negative same-store sales and traffic levels in September, while 50 percent expect their sales in six months to be lower than the same period in the previous year.”

“The rapid deterioration in economic conditions is reflected in operator sentiment, with a record 42 percent of restaurant operators saying the economy is currently the number-one challenge facing their business,” Riehle added. “Operators aren’t optimistic about the economy looking forward either, with 50 percent expecting economic conditions to worsen in six months.”

The RPI is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The RPI consists of two components – the Current Situation Index and the Expectations Index. (Follow this link to view this month's report: www.restaurant.org/pdfs/research/index/200809.pdf).

The Restaurant Performance Index is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values under 100 represent a period of contraction for key industry indicators.

http://www.rimag.com/article/CA6610451.html

[Pale Blue Dot]

13. Regulators shut banks in Texas, California

WASHINGTON (AP) — Regulators shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.

The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.

The co-founder and chairman of parent Franklin Bank Corp., Lewis Ranieri, is credited with inventing mortgage-backed securities two decades ago, but apparently was unable to save his own company from getting ensnared in the home-loan bust.

The bank's failure is a bitter irony because it is the mortgage securitization business of which Ranieri is known as a pioneer — the repackaging of home loans as bonds that are sold to investors — that was at the heart of the mortgage and credit crises. Last spring, the audit committee of the company's board found in an investigation certain weaknesses in accounting, disclosure and other issues relating to residential real estate loans.

Franklin Bank Corp. just Sunday said it had received proposals for transactions to strengthen Franklin Bank's capital position and was keeping regulators informed of the talks' progress.

http://ap.google.com/article/ALeqM5gKCQTU4OBly0RqaHE8bEjNYOeBPAD94AJ5JO0

[Demeter]

27. A Twofer Weekend! And The Inventor Destroyed By His Invention

I am overcome with irony.

[Hugin]

46. A modern Frankenstein...

I had always thought that story was fiction.

So, I propose (a week late) that "The Rocky Horror Picture Show" be the WE Movie of the weekend.

See it if you dare. :)

[Pale Blue Dot]

14. Advisers doubt Obama's ability to cure economy

The majority of financial advisers have little faith in President-elect Barack Obama’s ability to put the nation back on a sound economic footing.

An exclusive InvestmentNews survey of 968 advisers this week found that 61% lacked confidence in the new commander-in-chief’s ability to resolve the country’s economic woes.

Besides restoring economic stability, 39% of advisers who responded said the development of a workable energy policy was the most important issue facing the country, the survey found. Terrorism, the war in Iraq and health care were picked as the No. 1 issue by 23%, 21% and 17% of respondents, respectively.

The online survey was taken Thursday and Friday.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081107/FREE/811079996/-1/RSS02&rssfeed=RSS02

[Demeter]

28. Oh Yeah?

Who wants to bet that he shows them all? Because he ISN'T a financial flunky, he's more open to real solutions, as opposed to Paulson's rearranging the deck chairs as the Ship of State sinks slowly in the West.

The solution to this economic debacle will not come from the people who created it, of a surety. Nor from those who let them get away with it.

[Joe Chi Minh]

56. Last sentence of yours beautifully succinct and apposite, Demeter.

Lets' not forget those who let them get away with it, the enablers, either.

There are a fair number of posts on here counselling bipartisanship on Obama's part, in line with his own expressed wishes. However, if this incipient depression bites in the way it now threatens to, I wonder if the Republicans will even dare to show up on Capitol Hill. I think they will be that detested by the American public.

So much civility and reasonableness underly the posts of right-wingers on here, but that is because they fail to understand, still less acknowledge, their own pivotal role in the crimes that have given rise to this "gathering storm", and the havoc it would wreak. At the moment, I suspect the political discourse is all unreal. Only the economic discourse acknowledges the potentially impending catastrophe.

[Pale Blue Dot]

15. Bloomberg Sues Fed to Force Disclosure of Collateral (Fed Stonewalls)

Nov. 7 (Bloomberg) -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.

``The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,'' said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail.

Fed's Position

Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.

The Fed staff planned to recommend that Bloomberg's request be denied under an exemption protecting ``confidential commercial information,'' according to Alison Thro, the Fed's FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn't subject to the freedom of information law.

http://www.bloomberg.com/apps/news?pid=20601127&sid=ajph7rjBl1ow&refer=law

[Demeter]

29. Very Interesting! Thanks for the Great Items!

This is a potluck, and your contributions are very welcome!

[Grinchie]

59. There is nothing Governmental about the Federal Reserve

Bloomberg knows this, and is just stirring the kettle a bit. Hopefully, more people will become aware of the Federal Reserves private ownership.

[DemReadingDU]

16. NPR: continuation of school exotic investments, and also cities & states

11/7/08 There are 3 segments. They can be listened together as a 21-minute audio from NPR Planet Money blog
http://www.npr.org/blogs/money/2008/11/hear_a_tale_of_intertwined_mis.html

Or the text for each segment can be read and heard separately from NPR 'All Things Considered' program

11/7/08 Wisconsin Schools Shocked By Bad Investment David Kestenbaum
Back in 2006, a group of five school districts in Wisconsin invested some $200 million on Wall Street. The school board members say they believed the money was going into safe corporate bonds.
That's where a financial expert explained that the districts didn't own any corporate bonds. Instead, as the owners of a CDO, they had gotten into the insurance business. The school boards had been insuring part of a pool of dozens of bonds. If the bonds in the pool were doing OK, then so was the investment. But if just eight companies in that pool defaulted, Whitefish Bay would lose all of its money.
full article, and audio
http://www.npr.org/templates/story/story.php?storyId=96723051
appx 8 minutes

11/7/08 Irish Bank's Rapid Global Growth Bought Trouble Adam Davidson
If five Wisconsin school boards jeopardized their pension funds by acting more like a hedge fund, the Irish bank they dealt with got in trouble by turning itself from a small institution making local loans into a major global enterprise intertwined with the finances of cities from Duluth to Dubai. Depfa has its headquarters in Dublin, an ancient city with a gleaming financial district.
Then, in 1992, along came Gerhard Bruckermann as the bank's new CEO.
In the end, Depfa was saved — sort of — in a blanket bailout by the German government. Bruckermann had persuaded Hypo Real Estate, one of Germany's largest lenders, to buy the bank in 2007. But Depfa is a very different bank from what it was before. And the whole saga has had unintended consequences for cities and towns all across America.
full article, and audio
http://www.npr.org/templates/story/story.php?storyId=96741366
appx 4.5 minutes

11/7/08 Municipalities Squeezed In Bond Market Alex Blumberg
looking at bonds — at the IOUs the state will issue to raise a couple hundred million dollars to fund the project. States and cities issue bonds all the time, to build water systems, roads, police stations, schools. All the infrastructure you see around you is funded with bonds.
full article, and audio
http://www.npr.org/templates/story/story.php?storyId=96743141
appx 8 minutes

If interested, check the NPR November PlanetMoney blog for additional audio for finance issues
http://www.npr.org/blogs/money/2008/11/

and hear audio from the October link for more finance issues
http://www.npr.org/blogs/money/2008/10/




link to previous NPR segments about school district exotic investments
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3582458&mesg_id=3582575


link to NPR - Howard Davidowitz: Retail Analyst segments
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3580248&mesg_id=3580645

[antigop]

18. WSJ: Emanuel Pick Underscores Balancing Act Ahead in Reshaping Financial Industry

http://online.wsj.com/article/SB122610420534009957.html

President-elect Barack Obama's new chief of staff, Rep. Rahm Emanuel of Illinois, will be working on overhauling the same financial industry that brought him millions of dollars as an investment banker.

Mr. Obama's choice of Mr. Emanuel to lead his White House staff through the economic crisis symbolizes the awkward balancing act that Democrats will face as they reshape the financial industry that they have also cultivated for political support.

Mr. Emanuel earned $16.2 million in a two-year stint working in Chicago for investment-banking firm Wasserstein Perella & Co. He also served on the board of Freddie Mac, the mortgage giant that was nationalized this year in the financial crisis.

Since he came to Congress, Mr. Emanuel has been a top recipient of campaign donations from Wall Street firms. His new boss, likewise, was a favorite of financial executives during his campaign for the presidency.

[antigop]

19. WSJ: Fund Manager has Obama's ear

http://online.wsj.com/article/SB122610559597910247.html

Tuesday's election transformed John Rogers from an obscure money manager who eats at McDonald's every day into a confidant of the world's most-powerful man, come January.

Mr. Rogers is chairman of Chicago-based Ariel Investments, the largest African-American-owned investment firm in the country. Ariel, with $7 billion under management, is a "value stock"-oriented shop that has taken its licks in the bear market.

Mr. Rogers was one of several friends who showed up to play basketball with Barack Obama on Election Day. One of Mr. Rogers's earliest introductions to the Obama family was through Michelle Obama's brother Craig Robinson. The two played varsity basketball at Princeton.

Mr. Rogers says he sees himself as a "liaison" linking Mr. Obama to the investing community, small-business owners and corporate executives. "I'm just a part of the Obama team."

[Pale Blue Dot]

20. Closures & Layoffs (Nov. 2-8): Another Week, Another Round of Fortune 500 Layoffs

A Weekly Report on Future Corporate Downsizings
In this week's issue:

* CEO turnovers skyrocket.

* Plus, a whole new round of major U.S. corporation closures and layoffs were announced this week including such firms as American Express, ArvinMeritor, Ball Corp., Centerline Holding Co., Columbia Sportswear Co., Cooper Tire & Rubber, Dell, Drew Industries, IWCO Direct, Maxim Integrated Products, Motorola, NBC Universal, Tenneco, Time Inc., Washington Post, Worthington Industries and others.

http://www.costar.com/News/Article.aspx?id=C273A36A2883AB11B38C5A081B9895A6

Note: This is a great weekly roundup of layoff activity in the US.

[DemReadingDU]

22. thanks

I think I have seen that site before, it reports weekly the companies with layoffs.

[Pale Blue Dot]

21. Sizable Job Losses Expected In State (CT playing catch-up)

Connecticut is expected to play catch-up and shed tens of thousands of jobs over the next six to nine months as it mimics a pattern of job losses that has swept the nation over the past three months, economists say.

The U.S. Labor Department reported Friday that the nation lost 240,000 jobs in October, bringing the total number of jobs lost this year to 1.2 million. That pushed the nation's unemployment rate to 6.5 percent from 6.1 percent in September, worse than economists expected and surpassing the high after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

So far this year, Connecticut's job losses have been relatively moderate and not nearly as severe as the nation's. And although the state's job totals have remained essentially flat so far this year, the state's overall economy has outperformed the nation's. A healthy mix of industries, including aerospace, defense, health care and insurance, has resisted recessionary pressures.

Although the U.S. has lost nearly 1 percent of the total number of jobs this year, Connecticut has lost 4,000 jobs this year, only a quarter of 1 percent.

http://www.courant.com/news/local/hc-jobs1108.art0nov08,0,5009490.story

[Demeter]

30. Probably All of Them From Pfizer

Pfizer completed its evacuation of Ann Arbor this week. 3000 jobs gone, minimum. Why did they buy Parke Davis--to strip it of talent and new products, and shut it down to reduce competition?

And in the end, it didn't do much for them. So let us all drop a tear for the modern corporate predator--NOT.

[antigop]

24. AIG may get loan boost prior to crucial earnings call

http://financialweek.com/apps/pbcs.dll/article?AID=/20081107/REG/811079975/1036

Rumors swirling that U.S. may revise terms of $85 billion bridge loan; no asset sales yet

American International Group’s third-quarter conference call, slated for early Monday morning, may finally shed some light on what the insurer has done with the billions it has borrowed from several taxpayer-financed lines of credit.

Analysts, investors and regulators, who widely expect the insurer to post its fourth consecutive quarterly loss, will be looking for clues as to how AIG could have burned through so much money so quickly. They’ll also be seeking proof that the company has not suffered massive defections from disenchanted employees and policyholders.

“The earnings call, in this case, is a lot more important than the numbers,” said Morningstar senior equity analyst Bill Bergman.

Another important group that may also tune in to Monday’s call: potential buyers of AIG’s subsidiaries.

Chief executive officer Edward Liddy told Business Insurance this week that some suitors were waiting for the company to post its third-quarter results.

[Pale Blue Dot]

55. AIG in talks with Fed over new bail-out

AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation.

AIG’s executives were on Friday night locked in negotiations with the authorities over a plan that could involve a debt-for-equity swap and the government’s purchase of troubled mortgage-backed securities from the insurer.

People close to the talks said the discussions were on-going and might still collapse, but added that AIG was pressing for a decision before it reports third-quarter results on Monday.

AIG’s board is due to meet on Sunday to approve the results and discuss any new government plan, they added.

The moves come amid growing fears AIG might soon use up the $85bn cash infusion it received from the Fed in September, as well as an additional $37.5bn loan aimed at stemming a cash drain from the insurer’s securities lending unit.

http://www.ft.com/cms/s/0/1b1b2622-ad2c-11dd-971e-000077b07658.html

[Demeter]

31. BUSINESS NOVEMBER 6, 2008 His Job at Bear Gone, Mr. Fox Chose Suicide

http://online.wsj.com/article/SB122593803133403929.html

The meltdown of Bear Stearns Cos. in March marked the collapse of the modern securities industry, and the careers of some on Wall Street.

The financial crisis also claimed the life of a veteran Bear Stearns manager.

Barry Fox, a research supervisor who worked for nine years at the brokerage firm, took a drug overdose and then jumped from his 29th-floor apartment the evening in May after he learned he wouldn't be hired by J.P. Morgan Chase & Co., which was about to buy his firm. A coroner recently confirmed in an autopsy report that the death was a suicide.

[Demeter]

32. The Obama Agenda by Paul Krugman

http://www.nytimes.com/2008/11/07/opinion/07krugman.html?_r=1&ref=opinion&oref=slogin

...Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.

What about the argument that the economic crisis will make a progressive agenda unaffordable?

Well, there’s no question that fighting the crisis will cost a lot of money. Rescuing the financial system will probably require large outlays beyond the funds already disbursed. And on top of that, we badly need a program of increased government spending to support output and employment. Could next year’s federal budget deficit reach $1 trillion? Yes.

But standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy. Meanwhile, one or two years of red ink, while it would add modestly to future federal interest expenses, shouldn’t stand in the way of a health care plan that, even if quickly enacted into law, probably wouldn’t take effect until 2011.

Beyond that, the response to the economic crisis is, in itself, a chance to advance the progressive agenda.

Now, the Obama administration shouldn’t emulate the Bush administration’s habit of turning anything and everything into an argument for its preferred policies. (Recession? The economy needs help — let’s cut taxes on rich people! Recovery? Tax cuts for rich people work — let’s do some more!)

But it would be fair for the new administration to point out how conservative ideology, the belief that greed is always good, helped create this crisis. What F.D.R. said in his second inaugural address — “We have always known that heedless self-interest was bad morals; we know now that it is bad economics” — has never rung truer.

And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.

So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.

[Joe Chi Minh]

57. “'We have always known that heedless self-interest was bad morals;

we know now that it is bad economics' — has never rung truer.”

And who should get a Nobel Prize for his brilliance in economic theory? Why, none other than Milton Friedman! I remember reading that a well-known novelist who lived in the same block of flats as Friedman button-holed him by the lift, and suggested what he thought should be done in relation to the economy. Thinking himself incrediby smart, Friedman rejined, "Tell you what.... when you need advice from me on writing, let me know; and when I need your input on economics, I'll be sure to give you a buzz." Not verbatim, but that was the drift.

And I remember posting on here a few years ago now, what a shame he hadn't listened to the novelists' advice, as the policies he suggested could not have failed to be immesurably more beneficial to world than Friedman's. I thought at the time that there was an element of wit about it. Little did I realise how awful the full truth of the matter would prove to be.

[Demeter]

33. A Note form the Cubical Wall

<a href="http://dilbert.com/strips/comic/2008-11-08/" title="Dilbert.com"><img src="" border="0" alt="Dilbert.com" /></a>

[Demeter]

34. MasterCard to issue diamond-studded cards By Jeremy Grant

http://www.ft.com/cms/s/276c318a-a78e-11dd-865e-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F276c318a-a78e-11dd-865e-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1


Markets are plunging, banks are collapsing and talk of recession is all about, but the global gloom is not stopping the launch of a MasterCard credit card inlaid with a diamond and laced with gold.

Known as the “Diamond”, the card has a 0.02-carat gem ­embedded in its centre and a picture of a peacock for female cardholders and a winged horse for men.

[Demeter]

35. Wells Fargo to sell $10bn in stock By Saskia Scholtes in New York

http://www.ft.com/cms/s/0/49e5ee8c-ab8e-11dd-b9e1-000077b07658.html



Wells Fargo said on Wednesday it planned to sell at least $10bn of stock to fund its acquisition of Wachovia, the troubled east coast lender, to create the fourth-largest US bank by assets.

Wells said the offering, which it plans to price after stock markets close on Thursday, could grow above $10bn. Wells previously said it would raise up to $20bn of capital, primarily common equity, to fund the $15bn all-stock acquisition. The San Francisco-based bank said its purchase of Wachovia “stands on its own” without the US Treasury’s Troubled Asset Relief Program to recapitalise the banks and buy problem loans. Wells sold $25bn of preferred shares to the US government in October, as one of nine large banks required to take $125bn of government capital.

Analysts said the bank may choose to raise further capital with a sale of preferred stock. Wells declined to comment further on its plans.

Wells’ acquisition of Wachovia will create a lender with $1,400bn of assets and the largest coast-to-coast branch network in the US.

“This has been the number one deal on our radar screen for a very long time,” said John Stumpf, chief executive of Wells Fargo, on a conference call with investors.

Wachovia was pushed to find a buyer in late September after losses swelled on its portfolio of high-risk option adjustable-rate mortgages, and companies withdrew billions of dollars of deposits from the bank.

Wells Fargo said on Wednesday it expected losses on Wachovia’s $118.7bn option ARM portfolio to reach $36bn. The bank expects overall losses on Wachovia’s $482.4bn of loans to reach $71.4bn.

JPMorgan is managing the stock offering, with Goldman Sachs, Morgan Stanley, UBS and Wachovia acting as joint bookrunners.

[Demeter]

37. Goldman fund loses $990m after 10 months By Kate Burgess in London

http://www.ft.com/cms/s/0/d05d7116-a9e9-11dd-958b-000077b07658.html



One of Goldman Sachs‘s flagship hedge funds, run by two of the Wall Street bank’s most talented traders, has lost close to $1bn since its launch in January in further evidence of the crisis facing the industry.

Goldman Sachs Investment Partners, which was hailed in January as one of the biggest hedge fund launches, raising more than $6bn, has told investors that it had lost $989m by September. It said the fund was down about 13 per cent in the third quarter. Year-to-date performance fell about 15.5 per cent in the year to September. The managers said: “We are disappointed with our performance.” But they added: “GSIP is not alone in producing disappointing returns this quarter and this year.

“We anticipate that these results will lead to net outflows from the hedge fund industry.” Hedge funds have had a horrible year with asset prices in free fall, redemptions at record levels and banks imposing tougher conditions on lending, prompting some managers into fire-sales.

GS Investment Partners, which imposed a two-year lock-in at launch and has a strong bias towards equities, is managed by Raanan Agus and Kenneth Eberts, former heads of proprietary trading desks at Goldman.

The fund was launched after a poor year for the bank’s quantitative, or computer-driven, hedge funds which were hit hard in August 2007 forcing the bank to inject $3bn to rescue its Global Equity Opportunities fund.

More than half of GS Investment Partners’ losses in the third quarter was from its investments in commodities, basic materials, metals, mining, energy and agriculture. But like many multi-strategy funds diversified across equity, credit markets and convertible bonds, GS Investment Partners was hit hard by losses on convertible bonds – debt instruments that can convert into equity. It said returns from the convertible asset class had been “abysmal”.

The Hedge Fund Research convertible bond index showed returns had dipped 20 per cent in the year to September. The falls accelerated sharply in October.

Assets in Citadel’s largest fund, Kensington multi-strategy fund which has about $13bn under management, fell 37 per cent in the year to October 27.

Deephaven Capital Management in the US has told investors that it was suspending withdrawals from its $1.6bn Global Multi-Strategy fund and working on “a plan for the continuation of the fund” after suffering in virtually every market in which it was invested.


NOW THEY KNOW HOW THE REST OF US FEEL

[Demeter]

38. Concern over shipping derivatives losses By Robert Wright in London

IS NOTHING UNTOUCHED BY THE DREADED DERIVATIVE PERVERSION?

http://www.ft.com/cms/s/0/1529666a-a9db-11dd-958b-000077b07658.html



Fears are growing in the shipping industry over the potentially big losses that could emerge this week on derivatives triggered by the October collapse in rates to charter dry bulk ships.

Since short-term dry bulk charter rates fell 71.9 per cent in October, traders and shipowners have worried that traders might be caught out by the speed and severity of the fall. Traders in forward freight agreements – derivatives based on short-term charter rates – could owe significant sums if they were betting on a rise in charter rates for ships carrying coal, iron ore and other commodities.

The sector’s Baltic Dry Index of charter rates started the month at 3,025 points and closed on Friday at 851. The 80 per cent of trades made through clearing houses were being settled on Monday, while traders who bought cash-settled products through private transactions, known as over-the-counter trades, have until Friday to settle.

The many shipowners participating in FFA markets could also face losses if their market positions went beyond simply covering the market exposure of their actual ships.

London-based, New York-listed Britannia Bulk, which has been hit by its exposure to speculative FFA trading, put its British operating subsidiary into administration on Friday. It is the first quoted shipping company to suffer such a blow during the current downturn.

Duncan Dunn, senior director in the futures division of London’s Simpson, Spence & Young shipbrokers, said the market’s rapid fall would have left anyone betting on upward movements needing to make substantial payments.

He said“If they’re under strain, then that’s only going to increase their problems”.

Market participants’ concerns have been heightened by the possibility of knock-on effects from failures of investors affected by FFA market losses.

If investors facing FFA market losses hand back ships they had chartered early to owners, the ships’ owners will earn considerably less than they expected. They could face problems servicing debt related to the ships.

Michael Bodouroglou, chief executive of Paragon Shipping, a Nasdaq-listed dry bulk shipowner, said that, even if a company had not participated in FFA trading itself, counterparties such as ship charterers might have done so. He said: “Company failures may cause a domino effect,” .

The market uncertainty stems partly from the complex chains of transactions in the market and the lack of clarity about different companies’ FFA trading.

It is widely expected that hedge funds could be particularly badly hit.

However, Philippe van den Abeele, managing director of Castalia Fund Management, a hedge fund specialising in FFA trading, said he expected hedge funds to experience bigger problems over speculative charters of actual ships.

[Demeter]

39. NO SOOTHING SALVE FOR ECONOMIC ILLS by The Mogambo Guru

http://www.dailyreckoning.com/Issues/2008/DR110308.html

Information Clearing House started off a recent issue with quote from Kenneth Gerbino, who is referred to as “former chairman of the American Economic Council”, who notes, “Historically, the United States has been a hard money country. Only has the United States operated on a fiat money system. During this period, paper money has depreciated over 87%.”

In contrast, when the dollar was gold and gold was the dollar, “During the preceding 140 year period, the hard currency of the United States had actually maintained its value. Wholesale prices in 1913 were the same as in 1787.”

I thought that this would have ended the discussion, and thus our work was done and we could call it a day, go out for pizza and beer and maybe hit a few strip clubs, but suddenly at Bloomberg.com I read, “Gold Standard Is Wrong Salve for Global Ills”.

I agree with this only because there IS no soothing salve for the globe’s economic ills with which to effect a cure, which means that there is no economic “solution” to over-indebtedness and governmental stupidity that does not involve incredible pain, herein defined as incredible inflation in the necessities of life and the incredible deflation of everything that is not.

I am pretty smug about this because I already know that every other government in the Whole Freaking History Of The World (WFHOTW) wanted to spend more money than it could take in through taxes and plunder, and the ones that tried to use a fake, fatuous, foolhardy fiat currency made only of paper and promises ended up destroying themselves and ruining their people by creating so much money and credit, which is why the Founding Fathers, who knew this first-hand, wrote into the Constitution that the dollar shall only be of silver and gold, which is the only thing that can prevent the government from destroying the USA by the over-creation of money and credit!

And now the Fed and the Treasury are doing that very thing right now, creating money at rates that are completely unprecedented in American history and, probably, the history of the world!

Tragically, all of this money supply inflation will, as it must, result in consumer price inflation, which is the bane of all economies, although you would not know it from the deplorable Fredric Mishkin, whom the Bloomberg article refers to as “an economics professor at Columbia University’s Graduate School of Business and a former Federal Reserve governor.”

He says that with the price of gold futures fluctuating from $253 to $1,034 an ounce during the past nine years, this automatically means that pegging currencies to bullion “would probably not produce the price stability that the advocates of the gold standard seek.” Hahahaha!

The dollar goes to (in the original Spanish) El Grande Squatto Mundo because Mishkin and his brain-dead econometric cronies at the Fed and most of the nation’s universities keep encouraging interest rates to be constantly lower than the rate of inflation, which increases borrowing, which further inflates the money supply, which makes the prices of the assets go up a lot, and the prices of everything else to drift upward, too, in response to all of this new money and credit; so when gold goes up in response to the Fed’s irresponsible creation of money and credit creating inflation in prices by reducing the buying power of the dollar, Mishkin says that this means that gold is not stable! Hahaha! Too much! Hahahaha!

In fact, “hahaha” does not even BEGIN to cover it, and I will emend that last paragraph to end with “Hahahahahahahaha!” to indicate something really rude and disrespectful.

The Bloomberg article goes on that the gold standard is not necessary, although “no doubt, the abundant liquidity created by asset- securitization, derivatives and Asian countries amassing huge reserves while pegging their currencies to the dollar fed both bubbles and greed. Yet these excesses could – and should – have been harnessed by alert central banks acting in concert.” Hahahaha! Like that’s going to happen! “Trust us!” Hahaha!

This reminds me of Oscar Wilde saying, “I can resist everything except temptation”, and who also famously said, “The only way to get rid of a temptation is to yield to it.”

Until next time,

The Mogambo Guru
for The Daily Reckoning

[Demeter]

40. Berkshire Hathaway profit tumbles 77 percent

http://news.yahoo.com/s/nm/20081107/bs_nm/us_berkshire_2/print;_ylt=At_IeDt8IZUSZUyw6PLpHCeb.HQA

NEW YORK (Reuters) – Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) said on Friday third-quarter profit fell 77 percent, the fourth straight quarterly decline, hurt by weaker results from insurance underwriting and a big loss on derivatives contracts.

Net income for the Omaha, Nebraska-based insurance and investment company declined to $1.06 billion, or $682 per Class A share, from $4.55 billion, or $2,942, a year earlier.

Operating profit fell 18 percent to $2.07 billion, or $1,335 per share, from $2.56 billion, or $1,655. It fell short of analysts' average expectation for $1,429 per share, according to Reuters Estimates. Revenue fell 7 percent to $27.93 billion. Berkshire's net worth nevertheless rose to $120.2 billion from $118 billion at the end of June.

"You can look at the results as a glass half-full or half- empty," said Frank Betz, a principal at Carret/Zane Capital Management LLP in Warren, New Jersey, which owns Berkshire stock. "Earnings were down, but book value went up. Berkshire hasn't been battered by extraordinary insurance claims and there's nothing alarming in the results that's tied to Berkshire's exposure to the economy."

Berkshire is a roughly $175 billion conglomerate that owns several dozen businesses in such areas as insurance, energy, housing, kitchen supplies, clothing and food.

It also tries to invest in out-of-favor companies with strong earnings and management. Insurance typically generates half of results. Buffett is the second-richest American according to Forbes magazine and an economic adviser to President-elect Barack Obama.

MORE AT LINK

[Demeter]

41. JPMorgan to cut prop trading desk

http://www.ft.com/cms/s/67dfbef0-aaa2-11dd-897c-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F67dfbef0-aaa2-11dd-897c-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1


By Francesco Guerrera and Justin Baer in New York and Jeremy Grant in London

Published: November 4 2008 19:07 | Last updated: November 4 2008 23:06

JPMorgan Chase is to scrap its standalone proprietary trading desk, highlighting how the dearth of investment opportunities is prompting banks to retreat from in-house hedge funds that had thrived before the turmoil.

People close to the situation said the decision to fold the 80-strong global proprietary trading unit into JPMorgan’s other trading operations could result in job losses. The bank is believed to be looking at other areas where operations overlap and could announce further reorganisations and job cuts in months to come.

[Demeter]

42. Lloyds pledges to resume dividends in 2009

http://www.ft.com/cms/s/7b557dfa-a979-11dd-958b-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F7b557dfa-a979-11dd-958b-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1


By Maggie Urry

Published: November 3 2008 07:47 | Last updated: November 3 2008 16:22

Lloyds TSB on Monday said it aimed to resume dividend payments during 2009, as it launched its formal offer for rival HBOS. In order to do so, it will have to repay the preference shares being issued to the UK government.

Both banks also issued trading statements covering the third quarter, which each said had been difficult. Lloyds warned of a “substantial” fall in reported pre-tax profits, while HBOS said it would take sharply higher impairment charges as the threatening recession began to take its toll on its corporate loan book.

[Demeter]

43. UBS puts investors on alert over losses

http://www.ft.com/cms/s/56132378-aa4e-11dd-897c-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F56132378-aa4e-11dd-897c-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1

By Haig Simonian in Zurich

Published: November 4 2008 09:33 | Last updated: November 4 2008 09:33

UBS prepared investors for a heavy fourth-quarter loss as it warned of weak markets and one-off accounting factors linked to the value of its own debt.

The world’s biggest wealth manager – and one of the biggest casualties of the credit crisis – did not issue a specific profits warning on Tuesday. But John Cryan, chief financial officer, said exceptional factors, alongside difficult markets, could prompt a hefty loss, in spite of the group having cut costs, reduced risks and shifted toxic credits off the balance sheet.

[Demeter]

44. Say Goodnight, Folks! See you in the morning!

I'm down to 23 emails left to sort out! Maybe there will be one good news item, who knows?

[Hugin]

47. Goodnight, folks!

Sorry I haven't been around much today...

I've been trying to come up with a middle name for my precious little doggie.

I'm stuck on whether to use "Jo" or "Jean". Any suggestions?

[Demeter]

48. What Are the Other Names?

Can't pick a middle without the ends

[Dr.Phool]

50. How about "Hussein" in honor of the election?

It's not a terrier is it?

[UpInArms]

45. This one's for Ozy: Refco's Grant begins a ten-year prison sentence

http://www.royalgazette.com/siftology.royalgazette/Article/article.jsp?articleId=7d8afb330030026§ionId=65

NEW YORK (Bloomberg) — Former Refco Group Ltd. president Tone Grant, a decorated US Marine Corps veteran, entered a US prison to begin serving a ten-year sentence for defrauding investors of $2.4 billion in an eight-year accounting scheme.



Grant, 64, was convicted in April by a jury in Manhattan federal court of scheming to deceive banks, auditors and investors, including buyout firm Thomas H. Lee Partners LP.

"He arrived today at the federal prison camp in Duluth, Minnesota," Traci Billingsley, a spokeswoman for the US Bureau of Prisons, said in an interview.

Once the biggest independent US futures trader, New York- based Refco collapsed in 2005 two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in US history after disclosing that a firm owned by Refco chief executive officer Phillip Bennett owed the company hundreds of millions of dollars.

Refco's Bermuda-based unit, Refco Capital Markets, was at the centre of the collapse.

Grant, a former Yale University quarterback and Marine officer in Vietnam, was found guilty of conspiracy, securities fraud, wire fraud, bank fraud and money laundering. His lawyers said at the trial that he was chiefly a salesman who didn't focus on the details of Refco's accounting and was duped by Bennett.

<snip>

The scheme ran from 1997, when Grant was president, to October 2005, a year after Refco sold a majority stake to Boston-based Thomas H. Lee Partners for $1.8 billion. Grant was fired as Refco president in 1999. He owned as much as 50 percent of the company before the buyout.

...more...

[Demeter]

49. New Deal economics by Paul Krugman

http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics/

Everybody’s talking new New Deal these days — and, predictably, the FDR-haters are out in force, with all the usual claims about FDR having actually made the Great Depression worse. (To the right, way back when, FDR was “That Man.” Now Obama is “that one.” Interesting.)

Eric Rauchway is all over this. Basically, the anti-FDR argument on the data is based on (a) considering people employed by the WPA “unemployed” (even though they were getting paid, and building public works that are in use to this day) plus (b) always focusing on 1938 — the year in which the economy suffered a serious setback from the progress of the previous four years.
Let me offer two pictures, beyond what Eric provides, to clarify things.

First, here’s real GDP (in logs) from 1929 to 1941, plus the trend. (That’s to bypass the employment nonsense). You can see that the economy made up a lot of the output gap before the 1938 setback, but by no means all.



Incomplete recovery

Now, you might say that the incomplete recovery shows that “pump-priming”, Keynesian fiscal policy doesn’t work. Except that the New Deal didn’t pursue Keynesian policies. Properly measured, that is, by using the cyclically adjusted deficit, fiscal policy was only modestly expansionary, at least compared with the depth of the slump. Here’s the Cary Brown estimates, from Brad DeLong:



Limited fiscal force

Net stimulus of around 3 percent of GDP — not much, when you’ve got a 42 percent output gap. FDR might have been more of a Keynesian if Keynesian economics had existed — The General Theory wasn’t published until 1936. Note in particular that in 1937-38 FDR was persuaded to do the “responsible” thing and cut back — and that’s what led to the bad year in 1938, which to the WSJ crowd defines the New Deal.

Implications for Obama: be inspired by FDR, but don’t imitate him slavishly. In particular, your economic policy should be bolder, not more cautious.

[Hugin]

54. Yeah, let's see something new.

Empirically based, of course.

Focus on employment and the demand side of the equations. The Supply-side has had way too much focus for
the past 30 years.

Yes, there were some setbacks in 1938, but, it's as it is said... The Economy isn't always moving up.

[Dr.Phool]

51. GM opens first Russian factory

Found this on a thread by PAVetforMurtha.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x399984


http://www.post-gazette.com/pg/08312/926202-185.stm
GM opens first Russian factory
Friday, November 07, 2008
By The Associated Press

ST. PETERSBURG, Russia -- General Motors Corp. has opened its first Russian assembly plant.

The $300 million, 70,000-car-a-year factory that was dedicated today just outside of St. Petersburg is a bright spot for the staggering automotive giant.

This plant is GM's first in Russia, where demand for cheap, well-built cars has exploded amid a decade-long economic boom.

GM already produces 100,000 cars a year through Russian joint ventures.

The St. Petersburg region has become a mecca for foreign car manufacturers. Ford and Toyota have opened plants there and Nissan, Hyundai and Suzuki also will be launching production soon.

GM is having one of the worst years in its history and is expected to release a gloomy third quarter earnings report today.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
_________________________________________________________

They've recently opened more plants in Mexico, Asia, and now Russia, and they want American taxpayers to bail their sorry asses out now?

Fuck 'em. Let them suck up to Pootie-Poot. Maybe he'll bail their sorry asses out.

[Dr.Phool]

52. Morning kick.

Before I get on the road. I'm headed up to South Carolina again this morning. My father is going in for outpatient back surgery tomorrow morning, but I figure he'll need someone to keep an eye on him for a few days. Hopefully, I'll be back by next week-end.

I'll check in on the SMW thread later, as long as I can poach the neighbors wireless router signal.

Watch out for bears, Rahm, and DLC Friedmanites that are lurking in the bushes.

:hi:

[Hugin]

53. Have a good trip.

Best wishes for your Dad's speedy recovery.

:hi:

[DemReadingDU]

58. Debt Rattle, November 9 2008: Trust Trumps Credit

11/9/08 from ilargi at the http://theautomaticearth.blogspot.com/


Ilargi: The number 1 concern in today's economy, both in the US and everywhere else, is not the availability of credit, as anyone would like to have you believe. The biggest concern is trust, and there’s even a lot less of it available than there is of credit.

No matter how much of your money now sits in bankers’ vaults, and how much more will be send in its way there, it will not expand credit in any substantial sense. The reason is of course is the paper that also sits in the same vaults, spreding its toxic contagion to everything around it.

And there's another aspect of trust that is about to rear its head: the trust of the people in their governments. There is so far no signal that the incoming new US government has placed rebuilding trust in the top spot of its agenda. They are focused, as are all governments around the world, on rebuilding credit. That will prove to be a grave mistake.

Without trust, no significant part of taxpayer money will ever be used even just to lend it back to the same taxpayer, with interest. And that in turn means that the financial situation of the taxpayer will continue to deteriorate, and pick up speed doing so, until the public’s trust in its own leaders will start vanishing.

People may have some initial faith in bail-outs, after all, they trust their leaders to know what they do, but there is a point beyond which they will stop believing. They are smart enough to see that the $3 trillion worldwide in hand-outs for financial corporations have doen nothing to restore trust nor credit. On the contrary, things get worse fast, and the only answer they see coming from their governments is more of the same, with added interest rate cuts that destroy their savings.

In Spain, unemployment rates are expected to soon rise to 15%-20%, and not to stop there. Numbers like that are a blunt threat to a society. No country can afford to pay adequate benefits for 1 in 4 of their citizens, and no country is stable that sees such a large part of its people fall into destitute poverty.

The news from China in getting bleaker by the day. If we assume that any growth level under 8% will destabilize the Chinese economy, because of massive migration from the land to the cities, combined with people’s expectations of a better life, and we see warnings of a growth level as low as 5% in 2009-2010, we can predict 100 or 200 million people rising up. Add the enormous increases in pollution across the country, and you have a recipe for a powder keg. Beijing may throw half a trillion dollars at its banking system today, a huge amount for an economy of that size, but just like in the West, it’ll disappear into the black holes of losses already incurred.

In short, no government thus far has shown the courage to do what must be done. Big money and big politics are too closely linked, and all politicians use public funds to try and save their banker friends and donors. And not only that: they allow the same friends to keep operating without revealing what losses they have suffered. For many banks, mortgage lenders and carmakers, just to name a few large industries, such forced revelations would mean game over. By repating to themselves, each other, and the public, that the world would come to an end if ever the losses were publicly recognized, they are spreading the most expensive lie in history: that bankrupt corporations are in fact going concerns.

This can't last. The center cannot hold. Not in Spain, not in China, not in Britain, nor in Portugal, Australia, Ireland, Hungary or Greece. And neither can it in the US. And people like Larry Summers or Robert Rubin or seated much too close to the center to be in any position to expose the financial world’s dirty laundry. Nouriel Roubini is fast losing his claim to fame by calling guys like them the right people at the right place and time. That is ludicrous.

In all aspects of our societies we demand and expect independent assessments of what has gone wrong in issues of national interest. In this case, we all let Tony Soprano's books by audited by his own accountants. People won't continue to buy into that. They don't trust it, and rightfully so.

If trust in not rebuilt, whether between governments and the people they represent, or between bankers, no amount of taxpayer money can do a single thing to restore credit, and a hard rain is going to fall on all of us.


click to read related articles and comments
http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-9-2008-trust.html

[Name removed]

60. Deleted message

Message removed by moderator. Click here to review the message board rules.

[DemReadingDU]

61. Christopher Laird for Secretary of Treasury

or Meredith Whitney, or Bill Fleckenstein, or Mike Shedlock.
Somebody new, we need change! We don't need anyone who helped deregulate and created this credit bubble!

[ozone_man]

62. What, no Rubinomics?

:)

How about Paul Volcker? He's not a bubble maker. Quite the opposite. A bubble popper.