Daily Digest

Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen Tripped Again, Egg Recall Exposes Faulty Food Safety System

Thursday, August 26, 2010, 9:46 AM
  • Despite Reform, Banks Have Room for Risky Deals
  • The True Natonal Debt
  • Hard-Nosed Fed Sends Global Markets Reeling
  • Yes Folks, Hindenburg Omen Tripped Again
  • India’s Gold Demand Soars 94% in H1 2010
  • Old-Age Pensions: Not To Be Taken For Granted
  • Cancer & Desperation of QE2 
  • America: A Walking Dead-Zombie Country 
  • Indian Nuclear Bill Clears Parliament
  • The Economic Insane Asylum
  • The Elusive Canadian Housing Bubble: Canary In A Coal Mine
  • Take A Deep Breath - Why The World Is Running Out Of Helium
  • How Much Is Left? The Limits of Earth's Resources, Made Interactive
  • Egg Recall Exposes Flaws in Nation’s Food Safety System

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Economy

Despite Reform, Banks Have Room for Risky Deals (jdargis)

“You can use client activity as a cover for basically anything you are doing,” said Janet Tavakoli, who runs her own structured finance consulting firm. “It’s very problematic that losses like this are showing up. It’s a prime example of what the financial reform bill doesn’t address.”

The True Natonal Debt (JimQ)

Today our reported National Debt is $13.362 TRILLION. This is the first big lie. There are two entities named Fannie Mae and Freddie Mac that happen to be 80% owned by the US government. Anyone who thinks these two companies can operate without the backing of the US Government are delusional. The US taxpayer is on the hook for these two disastrously run companies. Somehow, government accounting doesn’t require their debt to be considered the responsibility of the US taxpayer. This is a fraud, pure and simple. Their debt is our debt.

Hard-Nosed Fed Sends Global Markets Reeling (joemanc, Ben Johnson)

Wall Street and Western bourses have until now brushed aside worries that recovery in the US, Japan and southern Europe may be stalling – as have commodity markets – betting the lords of finance will come to the rescue with more liquidity if needed.

Yes Folks, Hindenburg Omen Tripped Again (adam)

The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”

India’s Gold Demand Soars 94% in H1 2010 (Deepak)

The volume of gold in investments was very strong and grew by 264% to 92.5 tonnes in H1 2010 as compared to 25.4 tonnes in the corresponding period. In terms of value, investments accounted for Rs. 14800 crores in H1 2010 compared to Rs. 3700 crores in H1 2009 an increase of 300%.

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Old-Age Pensions: Not To Be Taken For Granted (Johan V.)

One of the Netherlands’ sacred cows is under threat. A group of around 150,000 senior citizens will soon be receiving less pension than they thought they would. Most Dutch people still regard their pension payments as written in stone. But the economic crisis has put paid to such certainties.

Cancer & Desperation of QE2 (pinecarr, Doug A.)

The US Federal Reserve is ready to embark on the second round of Quantitative Easing. The monetization of US$-based bonds of many types will be done on a second initiative, on cue. Here is the irony, the stupidity, the insanity, the recklessness, the tragedy. What failed, they will do again, maybe even bigger! At risk is global confidence and trust, hardly a zero cost item.

America: A Walking Dead-Zombie Country (SteveW)

The high-profile financial pundit Max Keiser doesn’t shy away from crystal-clear, unmistakable statements. The following exclusive interview is no exception. Mr. Keiser sees an attack exercised against the majority of people in the U.S., sets out why gold is in no bubble at all, points at a remarkable move by the Harvard University, and has an advice to some US-American billionaires disguised as noble philanthropists: “Just pay your taxes and shut up!”

Indian Nuclear Bill Clears Parliament (Johan V.)

The law, which has been the subject of fierce wrangling between the government and opposition, is part of a 2008 landmark atomic energy pact with the United States that granted India access to foreign nuclear technology.

Prime Minister Manmohan Singh told the lower house of parliament that the new law would end a three-decade "nuclear apartheid" that had prevented India from buying reactors and nuclear fuel from abroad.

The Economic Insane Asylum (Davos The Narcissist)

Use our problems to create our solutions: Create a Manhattan Project and determine how best to use our remaining resources like oil especially and how to transition to energy sustainability and resource sustainability. Get people like Dr. Chris Martenson, Dr. Al Bartlett the poineers of this phenomena and put them on the project. Bartlett was literally on the actual Manhattan Project. Put people to work creating producing solutions here not in China or Indonesia or India. Globalization was a failed plan modeled 180 degrees opposite of what built our country and made it great.

The Elusive Canadian Housing Bubble: Summer 2010 Edition - Canary In A Coal Mine (pinecarr)

Our friend Alec Pestov has just completed the follow up to his original in-depth analysis of the Canadian housing market: "This second edition of the report is the first of the semi-annual sequels for the original paper to provide timely updates on the state of the housing market in Canada. This document introduces a structure of the semi-annual releases, and your comments and suggestions regarding it are always welcome." For all in the market looking to buy or sell real estate in Canada, this is a must read.

Environment

Take A Deep Breath - Why The World Is Running Out Of Helium (Jeff B.)

Scientists have warned that the world's most commonly used inert gas is being depleted at an astonishing rate because of a law passed in the United States in 1996 which has effectively made helium too cheap to recycle.

How Much Is Left? The Limits of Earth's Resources, Made Interactive (SteveS)

This Web-only article is a special rich-media presentation of the feature, "How Much Is Left?," which appears in the September 2010 issue of Scientific American.

Egg Recall Exposes Flaws in Nation’s Food Safety System (jdargis)

Some consumer advocates say the huge egg recall highlights a broader and continuing problem at the heart of the nation’s largest food recalls: a highly complicated and often dysfunctional food safety system.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

12 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

"SYDNEY (Dow Jones)--The U.S. will need to address its ballooning budget deficit to protect its triple-A credit rating, Standard & Poor's Ratings Services' sovereign-ratings committee chief said Thursday, urging U.S. lawmakers to consider "very carefully" recommendations from President Barack Obama's commission on fiscal responsibility.

How Congress responds to the commission's proposals, which are due by December, will be critical in shaping S&P's thinking on the outlook for the credit rating of the world's biggest economy, John Chambers told Dow Jones Newswires.

"It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes," Chambers said.

Asked whether looming mid-term elections and the risk of political uncertainty will hinder any efforts at fiscal consolidation, Chambers said the onus will be on lawmakers to act."

"SAN FRANCISCO (MarketWatch) -- Morgan Stanley analysts warned Wednesday that developed countries may not default on their debts, but government bond investors could be left with losses in other ways.

The financial crisis imposed losses on many constituents, including shareholders, homeowners, taxpayers and government employees. Only holders of senior unsecured debt issued by the largest governments have been sheltered so far, Morgan Stanley /quotes/comstock/13*!ms/quotes/nls/ms (MS 25.10, -0.03, -0.12%) analysts led by Arnaud Mares wrote to investors.

"Outright sovereign default in large advanced economies remains an extremely unlikely outcome," but bond holders could suffer losses from forms of "financial oppression," the analysts warned.

Such oppression could come in the form of repaying government debt with devalued currencies, taxation or regulatory incentives on institutions to buy government debt at "uneconomic" prices, Mares said.

Several developed countries, including the United States, the United Kingdom and Ireland, bailed out big banks and other institutions during the 2008 financial crisis. That may have averted a much harsher global recession, but it left governments burdened with a lot more debt."

..................2A) Morgan Stanley Analyst Says Governments to Default

"Rather than miss principal and interest payments, governments may choose a “soft” default in which they pay back debts with devalued currencies resulting from faster inflation or force creditors to take lower returns, Mares said in an interview."

"While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Italy has one of the highest debt-to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said."

"Aug. 26 (Bloomberg) -- A slowdown in U.S. business investment may soon hit the job market, further hindering a recovery in the world’s largest economy.

Capital spending, one of the few bright spots in the recovery, declined in July, according to Commerce Department figures released yesterday in Washington."

"Aug. 25 (Bloomberg) -- Nouriel Roubini, the New York University economist who predicted the global financial crisis, said U.S. growth will be “well below” 1 percent in the third quarter and put the odds of a renewed recession at 40 percent.

Roubini, chairman of Roubini Global Economics LLC, said his forecast assumes the government will lower its estimate for growth in the second quarter to an annual rate of 1.2 percent “at best.”

“All the growth tailwinds of the first half of the year become headwinds in the second half,” he said in an e-mail message, including the government’s $814-billion stimulus plan, hiring for the census, and incentives such the cash-for-clunkers program and tax credits for first-time home buyers.

In the best scenario, he said he expects an “anemic, sub- par, below-trend U for many years given the need and process of deleveraging” by households, governments and the financial system.

“With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases,” he said. “Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double-dip,” he said, referring to two recessions in a quick succession. "

"Aug. 25 (Bloomberg) -- The Harrisburg Authority, which runs an incinerator whose $282 million in debt has driven Pennsylvania's capital to consider bankruptcy, will miss $2.2 million in bond payments, its executive director said.

Money due Sept. 1 on the authority's Series 1998A and Series 2003 ABC bonds will be covered by a surety from Hamilton, Bermuda-based Assured Guaranty Municipal Corp. if the city of Harrisburg doesn't pay, Michele Torres, the executive director, said in a telephone interview from Harrisburg today.

"We sent notice to the city and trustees we would not be making the Sept. 1 payments," Torres said.

The city of Harrisburg, which is the guarantor of the bonds and which has skipped about $6 million in payments on incinerator debt this year, hasn't said how it will handle the Sept. 1 installments, said Chuck Ardo, a spokesman for Mayor Linda Thompson. Assured said in a statement yesterday that it will cover any claims.

Separately, Dauphin County, which includes Harrisburg, was told it will have to pay $34.7 million by Dec. 1 on notes that the authority issued in 2007 to cover operations at the incinerator. There's just $1.34 in accounts to service the zero- coupon debts that mature Dec. 15, according to the trustee for the issues, TD Wealth Management."

"California insurance regulators cleared the way Wednesday for Anthem Blue Cross to implement scaled-back rate hikes after a previous increase was canceled amid an uproar over its size.

Anthem said it intends to put the new rates — averaging 14% and as high as 20% — into effect Oct. 1 for nearly 800,000 individual California policyholders.

Regulators also allowed one of Anthem's nonprofit competitors, Blue Shield of California, to move ahead with rate increases — averaging 19% and as high as 29% — for 250,000 individual policyholders."

  • Other news and headlines:

Birth Rates Drop Amid Faltering Economy (NPR)

The Fed Is Running Low on Ammo (ALAN S. BLINDER)

Louisiana: $1.8. Billion for Schools Lost to Katrina

Huge losses put federal flood insurance plan in the red ("generous benefits have forced the program to seek an unprecedented $19 billion taxpayer bailout")

Alberta not ruling out PST and Alberta headed for record deficit

Prichard pensioners go year without checks; may wait even longer

Northrop Grumman to cut 642 at Miss. shipyard

Children's Hospitals plans to cut up to 250 jobs

France's Lagarde sees US threat to euro zone recovery

Letter: Ind. health care overhaul costs $3.16B

US economy enters double dip recession

State Employees Likely to Face Benefit Reductions (Oregon)

Sonoma County begins $291 million pension borrowing

Inventories Soar to Critical Levels (to 12.5 months in July from 8.9 months in June)

The Hindenburg Omen IS Scary, but So Are the Fundamentals (Tech Ticker video....notice the mention of hyperinflation risk near the end)

Jobless Claims in U.S. Decrease More Than Forecast to 473,000 ("Americans who’ve used up traditional benefits and are now collecting emergency aid rose by about 268,000 to 5.86 million")

rickets's picture
rickets
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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Re the link to "The True National Debt"

While the idea behind this article is good, it fails to mention the value of the assets backing the 5 or 6 Trillion in FRE/FNM debt.  There are tangible homes backing those assets worth Trillions.  Failure to mention that this debt is almost entirely collateralized is simply fear mongering.

Now, note yet again that I think housing will fall way further, and if it does then fre/fnm will see billions of losses.  But that is a far cry from saying they will cost the government 5T.

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...
rickets wrote:

Re the link to "The True National Debt"

While the idea behind this article is good, it fails to mention the value of the assets backing the 5 or 6 Trillion in FRE/FNM debt.  There are tangible homes backing those assets worth Trillions.  Failure to mention that this debt is almost entirely collateralized is simply fear mongering.

Now, note yet again that I think housing will fall way further, and if it does then fre/fnm will see billions of losses.  But that is a far cry from saying they will cost the government 5T.

I emailed this to Jim.

I've read, and I think it may have even been on his site (www.theBurningPlatform.com) a piece that gave the estimated worth of residential real estate (RE or RRE) and an estimate of what was owed out on that property.

I'd be interested in knowing/hearing the numbers.

Back of the envelope stuff from memory, there are about 100 million homes about which 70 million are single family/primary residences and I think it was about 25% of them were owned without paper. Today (and considering most folks move every 4 years that puts everyone at today) most buyers put down very little. Considering we were at peak 4 years ago that tells me that a lot of folks are upside down. Judging by the bubble popping chart we will overcorrect and go below the dotted line, CM pointed out that bubbles overcorrect. 

Interesting stuff.

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Senate To Sneak Through Internet Kill Switch B

Legislation likely to be attached to Defense Authorization bill in bid to pass cybersecurity before midterms.

The Senate is attempting to sneak through the infamous Internet kill switch cybersecurity bill by attaching it to another piece of legislation that is almost guaranteed to pass – the defense authorization bill – in an underhanded ploy to avoid the difficult task of passing cybersecurity on its own.

http://vinceseconomicblog.wordpress.com/2010/08/26/senate-to-sneak-through-internet-kill-switch-bill/

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rickets
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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Good questions Davos. 

From Fannie and Freddie most recent 10Q filings (you can look here and many other places for them:  http://www.gurufocus.com/StockLink.php?type=sec&symbol=FNM&date=2010-08-05&report=10-Q   )

You can see that the values of the homes backing their mortgages come close to their exposure.  The scope of this research is far too great for a blog post here, but the point is that current risk should be measured in the billions not trillions.

That said, I agree with you in the thought that housing could go way way down from here, and if thats the case - then FRE/FNM could be exposed to that decline minus any payments made along the way (etc etc).

When FRE/FNM were taken over in 08, the assets backing their loans exceeded the amount of the loans.  The issue and reason for insolvency was the huge spike in deliquent payments = cash flow. 

Now, note also that this is all accounting done by a government agency - - but its all we have to go off!

 

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

there's about a dozen posts on this on the econ blogs:

"You guys in the US are so screwed" - I JUMPED on Minneapolis Fed President Narayana Kocherlakota for his remark, in a recent speech, that: Most of the existing unemployment represents mismatch that is not readily amenable to monetary policy. Monetary economists have seized on a different comment in the speech: To sum up, over the long run, a low fed funds rate must lead to consistent—but low—levels of deflation. And they're seriously, almost comically, outraged. That is, it would be funny if it weren't so serious an issue. Scott Sumner is relatively restrained: Kocherlakota is obviously far brighter than I am...But money is a specialized field and I just don’t have much confidence that our decision-makers or the media people who shape the discussion are on top of this issue.   In his comments section, Canadian monetary economist Nick Rowe unloads:That speech by Narayana Kocherlakota is really disturbing. This guy is a top macroeconomist, and he totally f***s it up. I mean totally. It wasn’t just misspeaking, because he is quite clear the second time he makes the mistake.

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Dang, Davos!  I keep trying to post your articles here and you keep beating me to it!!;)

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...
pinecarr wrote:

Dang, Davos!  I keep trying to post your articles here and you keep beating me to it!!;)

Thanks PineCarr: I'm just one of those go it alone, do it myself he narcissists. Take care!

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

A good read for those who have time from Vincent Vickers Governor of Bank of England from 1939...some things never change...

http://userpage.fu-berlin.de/~roehrigw/vickers/

 

"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." The Rothschild brothers of London writing to associates in New York, 1863.

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Jim has a new read out

 

 

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...

Davos,

Thanks for the read...I would comment the statistics are correct...however they may be a bit misleading 

So, let’s get down to the nitty gritty. If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion, then consumers have actually taken on $500 billion of additional debt since the end of 2008. The consumer hasn’t cut back at all. They are still spending and borrowing. It is beyond my comprehension that no one on CNBC or in the other mainstream media can do simple math to figure out that the deleveraging story is just a Big Lie.

Consumers have paid down other debts outside of mortgage debt, and mark to fantasy accounting allows the continual accrual of unpaid mortgage payments until foreclosure, so consumers have simply not paid at least $500 billion of expected payments on mortgages, not taken on new debt.  So it make total sense to me.   I do agree however that the deleveraging is a lie, just not that consumers have taken on that much more debt.

To bet on hyper-inflation is a bet against the central bankers and a bet on deflation is a bet with central bankers...a bet on normal rates of inflation is a fantasy...Deflation is coming...I have heard all the MSM hype about printing money and helicopter Ben.  But printing money to pay of foreign investors will not increase velocity, and velocity not money supply is the key to inflation.  I don't know how far gov will go to fight deflation, but deflation is coming at least for the next 18 months.  Gold may be the best place to be as it's a hedge against fiat currency and the mismanagement of the state. 

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Re: Daily Digest 8/26 - Risky Bank Deals, Hindenburg Omen ...
middleclassamerican wrote:

 

To bet on hyper-inflation is a bet against the central bankers and a bet on deflation is a bet with central bankers...a bet on normal rates of inflation is a fantasy...Deflation is coming...I have heard all the MSM hype about printing money and helicopter Ben.  But printing money to pay of foreign investors will not increase velocity, and velocity not money supply is the key to inflation.  I don't know how far gov will go to fight deflation, but deflation is coming at least for the next 18 months.  Gold may be the best place to be as it's a hedge against fiat currency and the mismanagement of the state. 

Good points, especially on the mark to fantasy accounting. I've heard stories in FL where folks 365++++ days delinquent got one NOD and nothing more. Banks obviously don't want more trash on their sheets.

I did a short piece on the other road to hyperinflation. I don't think we need any velocity. I could be wrong. I could be correct. Time will tell. We take in less than we spend. We can't borrow the difference. Bernanke is an enabler. Ron Paul jumps his case about this all the time. Every-time they use QE to cover the shortfall they are nailing another nail.

I'm reading a lot lately about other currencies making moves to get around Uncle Buck being the reserve currency. "If" we have a currency crisis our dollar will finish the 95% slide to 100% worthless and buying a gallon of gas with a dollar worth zip will produce hyperinflation.

 

 

Banks back switch to renminbi for trade

 

HSBC and StanChart are among a slew of global banks – including

Citigroup and JPMorgan – holding roadshows across Asia, Europe and the

US to promote the renminbi to companies.

 

The move aligns the banks favourably with Beijing’s policy priorities

and positions them to profit from what is expected to be a rapidly

growing line of business in the future.

 

The phenomenon will accelerate Beijing’s drive to transform the

renminbi from a domestic currency into a global medium of exchange

like the dollar and euro.

 

Chinese central bank officials accompanied StanChart bankers on a

roadshow to Korea and Japan in June. The bank held similar events in

London, Frankfurt and Paris.

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