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Daily Digest - Feb 21

Saturday, February 21, 2009, 8:57 AM
  • Volcker "Mother of all Financial Crisis"
  • Crisis of "Credit"
  • Breaking a Barrier to Lending (Proposed Solution to Shadow Banking)
  • Soros, No Bottom, More Severe Than During the Great Depression
  • Economic collapse severity intensifying
  • Gartman Sees Gold as World's 'Second Reserve Currency'
  • Get Ready for Mass Retail Closings
  • Gone in 60 Days: Citi and Bank of America Won't Live to See May
  • Week 8, Bank #14
  • Robert Shiller (Video): "It's not likely to be quickly over"
  • A discussion about the economy
  • Rick Santelli (HatTip JoeManC)
  • Trade Surplus
  • Hypo Real Estate: 600 billion in off-balance sheet assets
  • Economic Trends in U.S. Health Care 

Economy 

Volcker "Mother of all Financial Crisis"

Crisis of "Credit"

Breaking a Barrier to Lending

Soros, No Bottom, More Severe Than During the Great Depression 

NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis. 

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.

Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said. 

Economic collapse severity intensifying 

two posts from econobrowser. 

first industrial production and manufacturing output -- this is the most severe contraction since the second world war through february, and the philly and new york surveys indicate further deterioration in february.

second the early view on q1 GDP -- E-forecasting's estimate is that January real GDP was declining at an 11.8% at annual rates. 

Gartman Sees Gold as World's 'Second Reserve Currency'

Get Ready for Mass Retail Closings 

About 220,000 stores may close this year in America, says our guest, retail consultant Howard Davidowitz of Davidowitz & Associates. As more Americans save and spend less, it's clear there's too much retail space. Just visit Web site deadmalls.com and track retail's growing body count. And luxury retailers? They're on "life support," Davidowitz says. 

Among the brandname stores Davidowitz says are in trouble:

  • Nordstrom
  • Neiman Marcus
  • Tiffany
  • Jeweler Zale Corp.
  • Saks
  • J.C. Penney
  • Sears 

Gone in 60 Days: Citi and Bank of America Won't Live to See May 

Citigroup (C) and Bank of America (BAC) won't live to see May. The government will take them over within the next 60 days. 

Week 8, Bank #14 

Robert Shiller (Video): "It's not likely to be quickly over

A discussion about the economy 

Rick Santelli (HatTip JoeManC) 

Trade Surplus

Hypo Real Estate: 600 billion in off-balance sheet assets 

There is quite a buzz in the German press about Hypo Real Estate. But, what should really get one's attention is its massive off-balance sheet exposures (hat tip Ulrich). The long and short of reports is that Hypo Real Estate has assets valued at 1 and 1/2 times its entire balance sheet in off-balance sheet vehicles. This would bring total exposure to German taxpayers to a cool one trillion euros (1,000,000,000,000). 

While there have been numerous reports of HRE's imminent nationalization due to the recent law enacted in Germany allowing such, these reports raise the stakes considerably. If you recall, HRE almost brought German banking to its knees during the Panic in October after Lehman collapsed (See my post "Germany: banking system collapse possible due to Hypo Real Estate")

At the bottom of this post are a number of media sources in the German and Austrian press on this subject. Here's how German blogger Egghat puts it:  

Economic Trends in U.S. Health Care

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14 Comments

Davos's picture
Davos
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Re: Daily Digest - Feb 21

 I'm still parsing the FSN News Hour, but I found it interesting to hear them put the insolvency in such clear concise words. I'll be posting it tomorrow with some notes, take care

 

 

8.bmp

suesullivan's picture
suesullivan
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Re: Daily Digest - Feb 21

Phew, that's a nasty set of reports. I find especially disquieting Volker and Soros' comments, combined with the industrial output freefall. So, if Soros is comparing us to the Soviet Union, I'm wondering what the stockpile list looks like for a former superpower sliding into collapse. I've seen the list from Yugoslavia, but I don't expect to be living in a war zone and I'm not going to spend my (retirement) money preparing for that scenario. Has anyone seen a list of what it paid to stock up on in Russia post collapse? I'm thinking it's time for me to ramp up the stockpiling to another level, and stop postponing the durable goods purchases I've been considering....

Davos's picture
Davos
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Re: Daily Digest - Feb 21

Hello SueSullivan:

I'd agree, the news was beyond pathetic.

I have been following this for quite sometime. The observations I noted were:

 

  • I used to have to dig deep for nuggets, the best of the best economic blogs, now a lot of mainstream outlets have some nuggets of information
  • The problem is still being misdiagnosed by our "leaders." Insolvency isn't the diagnosis. This is still buried in the best of the best economic blogs and not all of them at that. Of course this leads to false prognosis, which will lead to anything but a better outcome.
Take care

 

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MikeyPooh
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Re: Daily Digest - Feb 21

Hi Sue, you might like read Dmitri Orlov's blog. He went through the USSR collapse and offers some useful insights in my opinion. 

CB's picture
CB
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Re: Daily Digest - Feb 21

Sue, as for what was important after the soviet collapse - social networks, plot gardens for food, entrepreneurship.... for those that didn't engage in criminality or mafia-type arrangements. Stores of goods can only last so long. Alcohol and bluejeans were good trade items. The social safety-net broke down - it had provided subsidized food, healthcare and medicine, education and housing, etc. Formal education became much less valuable - one wits and networks of friends much more so. The police became bribe collectors as they likely weren't paid regularly. Many (most) Russians were used to hardships and making do and had a general cynicism about the state bureaucracy so while the transition from soviet state control was very traumatic, people did adjust. The younger set found it easier to adopt new strategies for getting on with life. Many very serious social problems remain, new ones have developed, and many people remain worse off then they were before 1990.

Of course the US is not the same as Russia - socially or economically. Peoples expectations and behavior are different in more than superficial ways. Some of these attributes are or might be helpful, some are not.

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - Feb 21

Ah, retirement money......  the other American Dream!

suesullivan's picture
suesullivan
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Re: Daily Digest - Feb 21

Mike thanks for the link to Orlov's blog! As soon as I posted, I remembered his lectures and googled one of those, but I didn't find his blog. I'll check that. Even his lecture gave some good ideas of things to focus on acquiring.

And CB, thank you for your comments. I find listening to that still quiet voice inside to be an amazing experience -- I feel  unwittingly brilliant, if that's possible, as I've followed these seemingly inexplicable urges that at the time made us look like downwardly mobile losers -- from convincing my husband to taking a buyout from the LA Times 3 years ago to selling our house and leaving California 16 months ago,  and since then, to digging up our yard front and back to plant edible fruits trees and shrubs and raised beds (not to mention the seven chickens we're breaking zoning ordinances with). This for a person who did almost no food gardening in California over the 23 years I lived there, and who hadn't a concrete clue about the true state of the economy until I stumbled onto the Crash Course last fall. Now I'm volunteering to help plant and tend other people's gardens for a share of the produce and we're both helping a local grow-food-not-lawns group get up and running.

 I don't expect to be able to get by with canned goods, I think these changes we're seeing are long term, though I do think stockpiling might make it a less painful downward adjustment to the new reality, however it ends up playing out. For now, I plan to grow as much food as I can this year, share as much with my neighbors as they want, let the kids sell some from a stand out front if they want to, and see what happens.

And yes, DTM, I used to be such a good little worker, putting 15 percent of my salary into my 401k every year, and funding those IRAs as well. I keep thinking I should find it harder than I do to give up on the idea of my retirement accounts being worth anything, but I can't come up with a compelling argument for leaving the money in there anymore -- I figure the odds are pretty good that at least one of the four horsemen of the IRA apocalypse will trample my account's value to death -- be it rampant inflation, currency devaluation. massive tax increases or complete economic collapse (and I imagine I'm missing a horseman or two, but that's painful enough to contemplate.)

Soooo, I may regret buying a wood stove and top quality gardening tools and a bedroom full of toilet paper, but so far, sadly enough, I'm feeling more prescient than foolish, and I wish it weren't so.

cwixom's picture
cwixom
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Re: Daily Digest - Feb 21

Re: Breaking a Barrier to Lending


Quote:

The Proposed Solution:  To encourage new lending, the Treasury and the Federal Reserve would
provide up to $1 trillion to finance private investment in these
securities.   High returnsBecause investors borrow most of the money from the government at a low rate, the
effective return could be 20 percent or more.  Limited losses Even if the underlying loans default, the investor could lose only up to $8;
the Treasury and Federal Reserve would bear the rest of the losses.

I am particularly fond of the last item, that is, once again stick the taxpayer with the loses. 

If they want to get people to borrow again they must wait until we can actually afford to borrow again.  If they want the banks to lend again they have to do 3 things, 1. wash out the bad debt that is there (let the stock and bond holders of those fine institutions bear the losses), 2.haul everyone that participated in the frauds to the nearest FEMA camp or prison and lock them up so we can have some level of confidence that the person we are dealing with isn't a crook, and 3. hold elections to replace the group of government "leaders" who would then be sitting in one of those FEMA camps or prisons.

 

Nime's picture
Nime
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Re: Daily Digest - Feb 21

Mass protests in Ireland, 100.000 people take to the streets in Dublin in a massive demonstration organized to protest against Government policies.

http://www.reuters.com/article/worldNews/idUSTRE51K1LL20090221

grl's picture
grl
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Re: Daily Digest - Feb 21

I just came across this Century 21 commercial from maybe a couple of years ago.  This 30 second clip captures the mood perfectly and it's pretty creepy. Just sellin' the American Dream folks ... "You guys can do this."

Damnthematrix's picture
Damnthematrix
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Brzezinski Warns Of Riots in US
Brzezinski Warns Of Riots in US

By Press TV

February 21, 2009 "

Press TV" -- - -Zbigniew
Brzezinski, a former national security advisor, has warned that the US
could witness riots if economy continues its downward spiral.

"There's
going to be growing conflict between the classes and if people are
unemployed and really hurting, hell, there could be even riots!" said
Brzezinski, President Jimmy Carter's national security advisor, in a
recent interview with NBC.

"In 1907, when we had a massive
banking crisis, when banks were beginning to collapse, there were going
to be riots in the streets," he added.

At least 3.6 million jobs
have been wiped out throughout the US since the recession began in
December 2007. The jobless rate officially reached a 16-year high of
7.6% (11.6 million people) last month.

Earlier this week, a new
Federal Reserve report said that US unemployment could increase to
8.8%, causing the economy to contract for a full calendar year for the
first time since 1991, when a contraction of 0.2% was registered.

The
Obama White House has put forward an array of measures, including a
$787 billion stimulus package, in the hopes of reviving the flagging
economy.

Brzezinski, meanwhile, made some recommendations to the young administration.

He
proposed the creation of a voluntary national solidarity fund, whose
contributors would be those who became wealthy in recent times.

"Where
is the moneyed class today? Why aren't they doing something: the people
who made billions, millions. I'm sort of thinking of Paulson, of Rubin
[former treasury secretaries]. Why don't they get together, and why
don't they organize a national solidarity fund in which they call on
all of those who made these extraordinary amounts of money to kick some
back?" he argued.

"I was worrying about it because we're going
to have millions and millions of unemployed, people really facing dire
straits. And we're going to be having that for some period of time
before things hopefully improve," said Brzezinski.

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - Feb 21
Oregon Regulators Shut Silver Falls Bank, 14th Seized in 2009
By Ari Levy and Margaret Chadbourn

Feb. 21 (Bloomberg) -- Oregon regulators seized Silver Falls Bank,
the 14th U.S. bank shuttered this year, as the worst financial crisis
in a more than half a century further tightens access to credit and
pushes foreclosures higher.

Silver Falls, with $131.4 million in assets
and $116.3 million in deposits, was shut by the Oregon Department of
Consumer and Business Services and the Federal Deposit Insurance Corp.
was named receiver, the FDIC said yesterday in a statement. Citizens
Bank of Corvallis, Oregon, will assume deposits from Silver Falls. The
Silverton-based bank’s three offices will open Feb. 23 as branches of Citizens Bank.

“There is no need for customers to change their banking relationship
to retain their deposit insurance coverage,” the FDIC said in the
statement.

Regulators have closed eight banks in February, the most for any
month since 1993. The FDIC shuttered 25 banks in 2008, including
Washington Mutual Inc., the biggest U.S. bank to fail last year, and
IndyMac Bank Inc., the second biggest. Pinnacle Bank of Beaverton,
Oregon, was closed last week.

Silver Falls Bank had experienced critically low levels of capital, said David Tatman,
administrator of the Oregon regulator’s Division of Finance &
Corporate Securities, in a statement on the agency’s Web site. The bank
had a heavy dependence on commercial construction loans, many of which
were not performing or being repaid, Tatman said in the statement.

“Despite many efforts, such as a recent stock offering, Silver Falls
Bank management was not able to address these significant problems in a
timely manner,” Tatman said. <snip>

Gadfly's picture
Gadfly
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Re: Daily Digest - Feb 21

The Obama adminisration's attack on Santelli, Hannity and Limbaugh is at best 'classless', at worst it is a sign of things to come in suppressing free speech.  I understand there are people who don't like Limbaugh, but if a person doesn't respect and defend his freedom of speech, then that person is part of the oppressing party.

mainecooncat's picture
mainecooncat
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Posts: 488
Re: Daily Digest - Feb 21
Gadfly wrote:

The Obama adminisration's attack on Santelli, Hannity and Limbaugh is at best 'classless', at worst it is a sign of things to come in suppressing free speech.  I understand there are people who don't like Limbaugh, but if a person doesn't respect and defend his freedom of speech, then that person is part of the oppressing party.

Don't make a mountain out of a mole hill here, Gadfly.

This silly back and forth is about as normal as normal gets.

The US has long been on the trajectory to becoming a police state.

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