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Daily Digest - Apr 6

Monday, April 6, 2009, 11:03 AM
  • Sunday Funnies..(Catch SouthPark)
  • Krugman on Crisis
  • Bankrupt Brits
  • When Do The Jobless Become The Homeless?
  • Second Chance to Share What Is Really Going On
  • Administration Seeks an Out On Bailout Rules for Firms(H/T Jrf29)
  • The AIG Connection - Far Worse Than You Think
  • Unemployment to 8.5%, Broader Measure Rockets to 15.6% (Chart)
  • Wall Street Back To Its Criminal Ways?
  • Cognitive regulatory capture is more than cognitive (H/T WendyT)

Economy

Sunday Funnies...

Krugman on Crisis

... "This is terrifying," [Paul Krugman] said. "I did not imagine in my worst expectations that this would be this hard. I thought that we could sit down and sketch out the kinds of things, in principle, you could do to offset this type of global slump. But I never thought it would be this hard, in practice, to implement."

Bankrupt Brits

Begbies Traynor, the insolvency and restructuring group, reckons more than 35,000 firms could go under this year - equivalent to more than 95 a day. The figure would be 18% higher than during the previous peak in the 1990s crash. Nick Hood at Begbies said he would not be surprised if the number rose to 40,000 by the end of the year.

When Do The Jobless Become The Homeless?

The federal government cannot give financial assistance to each person who losses a job for a years after they are terminated. It would cost too much. So, the current limit is 59 weeks. What happens then?

According to The New York Post, "Precise figures are hard to determine, but Wayne Vroman, an economist at the Urban Institute, estimates that up to 700,000 people could exhaust their extended benefits by the second half of this year."

Second Chance to Share What Is Really Going On

[They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up....

Geithner is ... covering up. Just like Paulson did before him....

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed....

Until you get the facts, it's harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts....

[Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

[Black] Absolutely....

Administration Seeks an Out On Bailout Rules for Firms(H/T Jrf29)

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.

The AIG Connection - Far Worse Than You Think

Immediately after letting Lehman go bust, the Fed and Treasury realized the magnitude of their error and announced a massive bailout of AIG. The amount was crazy - if I recall correctly, something like $80 billion right off the bat. (That number has since grown much bigger.)

So here's a picture of what AIG did with that money, and how they got into the "false front" business of spreading cash around to other players.

As soon as the bigwigs at AIG realized they were hosed, they called up the Treasury and the Fed (Hank Paulson at the time, and Ben Bernanke still) and probably said something like the following:

Unemployment to 8.5%, Broader Measure Rockets to 15.6% (Chart)

Wall Street Back To Its Criminal Ways?

There was a time on Wall Street when insider trading was rampant, when sellside analysts would pump stocks under the guidance of their superiors only to have their corporate finance colleagues do an equity offer shortly after, when the amount of money a bank's corporate clients paid would determine its rating, and when analysts said in internal emails a company is worthless, only to issue reports claiming the company was the next sliced bread. Then things changed for the better briefly, when Spitzer came on the stage. However, with his thunderous fall from grace in an act of utter hypocrisy, the behavior he fought so hard to curb started gradually coming back.

Yesterday, Wall Street's shadiness came back with a vengeance.

As Zero Hedge disclosed yesterday, mall REIT Kimco decided to dilute its equityholders by issuing over $700 million (including the green shoe) in new shares which would be used to buy back the company's debt, as KIM has $735 million in debt maturities over the next 3 years, and a $707 million currently drawn on its secured credit facility. One look at the company's equity prospectus reveals that the lead underwriter is non other than "scandal-central" investment bank Merrill Lynch.

Cognitive regulatory capture is more than cognitive (H/T WendyT)

Lawrence Summers, director of President Barack Obama's National Economic Council, earned millions working at a hedge fund and speaking to banks such as Citigroup Inc. that later received taxpayer bailout money.

Hedge fund D.E. Shaw & Co. paid Summers more than $5 million in salary and other compensation in the past 16 months, according to a financial disclosure form released by the White House yesterday. Summers served as a managing director at the New York-based firm. Summers, a former Treasury secretary, also earned more than $2.7 million in speaking fees.

...with this via yves smith...

In a further sign of an imperial Presidency in action, the Washington Post describes how the Obama administration is circumventing bailout legislation by channeling fund through various entities, then contending the the end recipients aren't subject to Congressional requirements. Huh?

From the Washington Post:

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials....

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

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11 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
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Posts: 3620
Re: Daily Digest - Apr 6

 

I believe that this will be updated as more folks lose their jobs...My question: What will happen to our budget when not enough comes in to borrow from the "trust" "fund".

 

[trust+fund.png]

Note: Usually I agree with the blog the Decline and Fall of Western Civilization, I posted this article becuase I thought it had some good insite. I want to make clear that I think Summers is a moron and I do not agree that he is the best person for the job. I think his advice s&$ks and he should be banished to tent city. IMNSHO 

hughacland's picture
hughacland
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Re: Daily Digest - Apr 6

This is why the British housing market is NEVER going to regain its highs. Politiciains over here are banging on about "getting the houseing market going again"....

Before you could get a mortgage for 120% of the value of the property.

 now more than two thirds of mortgags lenders want at least 25% down.

So house prices in the UK have a LONG way to fall before they are in any way considered cheap.

Goal Digger's picture
Goal Digger
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Re: Daily Digest - Apr 6

http://www.usatoday.com/money/economy/2009-04-05-scrip_N.htm?loc=interstitialskip

Communities Print Their Own Money to Keep Cash Flowing

A small but growing number of cash-strapped communities are printing their own money.

Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash.

"We wanted to make new options available," says Jackie Smith of South Bend, Ind., who is working to launch a local currency. "It reinforces the message that having more control of the economy in local hands can help you cushion yourself from the blows of the marketplace."

About a dozen communities have local currencies, says Susan Witt, founder of BerkShares in the Berkshires region of western Massachusetts. She expects more to do it.

Under the BerkShares system, a buyer goes to one of 12 banks and pays $95 for $100 worth of BerkShares, which can be spent in 370 local businesses. Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares. In Detroit, three business owners are printing $4,500 worth of Detroit Cheers, which they are handing out to customers to spend in one of 12 shops.

During the Depression, local governments, businesses and individuals issued currency, known as scrip, to keep commerce flowing when bank closings led to a cash shortage.

By law, local money may not resemble federal bills or be promoted as legal tender of the United States, says Claudia Dickens of the Bureau of Engraving and Printing.

"We print the real thing," she says.

The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. "It's not a way to avoid income taxes, or we'd all be paying in Detroit dollars," he says.

Pittsboro, N.C., is reviving the Plenty, a defunct local currency created in 2002. It is being printed in denominations of $1, $5, $20 and $50. A local bank will exchange $9 for $10 worth of Plenty.

"We're a wiped-out small town in America," says Lyle Estill, president of Piedmont Biofuels, which accepts the Plenty. "This will strengthen the local economy. ... The nice thing about the Plenty is that it can't leave here."

One1776's picture
One1776
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Re: Daily Digest - Apr 6

The U.S. economy is in for a "lasting slowdown" and could face a
Japan-style period of relatively low growth coupled with high inflation. ~ George Soros

http://www.cnbc.com/id/30069223

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Daily Digest - Apr 6

Here is a scary graph for you lot in America.....   The blue line shows how Americans are decreasing their debt level, whilst the red line is the debt to GDP ratio....  which is skyrocketing at an alarming rate.

This can only mean one thing:  the GDP is collapsing, and collapsing big time.  The exact same thing occured in 1929! 

The chart, BTW is right at the very bottom of the Steve Keen's latedt blog entry which is all about Australian housing......

Mike 

Damnthematrix's picture
Damnthematrix
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mainecooncat's picture
mainecooncat
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Re: Daily Digest - Apr 6

Thanks for a little levity, Damn, which I'm getting from the subject line alone. Won't even bother clicking the link!

mainecooncat's picture
mainecooncat
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Re: Daily Digest - Apr 6
turbo wrote:

The U.S. economy is in for a "lasting slowdown" and could face a Japan-style period of relatively low growth coupled with high inflation. ~ George Soros

http://www.cnbc.com/id/30069223

Thanks for the tip, turbo.

On another note: I'd like to call for a moratorium on the use of the phrase "Japan-style" with regard to what's happening right now. Especially since it's actually code for "not that bad."

A. M.'s picture
A. M.
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What's a Jim Cramer?

So, who is this clown?

He reminds me of Matthew Lisko without the question mark suit. A little too manic to be trustworthy.

But really - why does this guy have his own show?

Bernanke, Obama and Geitner is on his side?
*whistle* sounds like a winning team for epic failure.

Aaron

SagerXX's picture
SagerXX
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Posts: 2237
Re: Daily Digest - Apr 6

I discovered him about a week before his public disembowelment on The Daily Show.  I referred to him as a "doofus" just on a first impression.  

My initial impression has been confirmed... 

ditchner's picture
ditchner
Status: Member (Offline)
Joined: Mar 15 2009
Posts: 14
Re: What's a Jim Cramer?
Aaron Moyer wrote:

But really - why does this guy have his own show?

 

He knows how to make money buying and selling stocks.  He's a trader.  He's certainly not on the Austrian page and seems clueless about the magnitude of the problems we face, though.  He loves the bailouts, too.  

 

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