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Daily Digest - Feb 24

Tuesday, February 24, 2009, 10:50 AM
  • Britain faces summer of rage - Middle-class anger at economic crisis could erupt into violence
  • 13 Amazing Pictures - World Car Inventory
  • Bankruptcy Funding Solicited for Car Makers
  • Amex: paying cardholders to close accounts
  • Philadelphia newspapers' owner files for bankruptcy
  • Uncle Jay
  • TH*NK*NG (NATIONALIZATIONS)
  • The next chapter in Citigroup's saga is unfolding as the Oscar winners are revealed
  • Is anything made in the U.S.A. anymore? You'd be surprised
  • AIG Seeks More US Funds As Firm Faces Record Loss
  • Money Supply and Purchasing Power
  • Housing
  • Elderly Emerge as a New Class of Workers -- and the Jobless
  • Street Talk: Like it or not TCE rules the day
  • Now It's Official: Stress Test Results Pre-Determined
  • Getting A Trojan Horse Inside The Banks
  • "I'll say it slowly"? (Hat Tip JoeManC)
  • Former Fed Governor Feels "Accountable"
  • February 23, 2009 The Abyss Stares Back (Hat Tip Denny)
  • Chris making more blogs (Hat Tip Luke)
  • Baseline Scenario, 2/9/09 (Hat Tip MarkP)
  • Remembering the Dawn of the Age of Abundance (Hat Tip Suzie G) 

Economy 

Britain faces summer of rage - Middle-class anger at economic crisis could erupt into violence 

Police are preparing for a "summer of rage" as victims of the economic downturn take to the streets to demonstrate against financial institutions, the Guardian has learned. 

Britain's most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming "footsoldiers" in a wave of potentially violent mass protests.

Superintendent David Hartshorn, who heads the Metropolitan police's public order branch, told the Guardian that middle-class individuals who would never have considered joining demonstrations may now seek to vent their anger through protests this year.

He said that banks, particularly those that still pay large bonuses despite receiving billions in taxpayer money, had become "viable targets". So too had the headquarters of multinational companies and other financial institutions in the City which are being blamed for the financial crisis.

13 Amazing Pictures - World Car Inventory

Amex: paying cardholders to close accounts 

American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders US$300 each to close accounts so the lender can reduce the risk of defaults as the recession deepens. 

People who got the offer to "simplify" their finances must pay off their entire credit-card balance by April 30, according to New York-based American Express. Enrolling in the program cancels a customer's account and may lead to forfeiture of reward points or rebates, the company said on its Web site. 

Philadelphia newspapers' owner files for bankruptcy 

The financial burden from an advertising downturn, rising costs for newsprint, and the migration of readers to the Internet caused Philadelphia Newspapers to fall out of compliance with its loan agreements last year. The same conditions have devastated the broadcast industry.

Uncle Jay

TH*NK*NG (NATIONALIZATIONS) 

Let's say "hypothetically" that only 3 or 4 of the big 20 are now in deep doodoo and need to be shut down, recapitalized, restructured, or merged/ acquired. THAT implies that somewhere between 20% to 30% of all US deposits are potentially at risk for some "INCONVENIENCIES" (you don't want to know what THAT implies!)! This is a big number. This is a VERY BIG NUMBER! The driving force behind recent panics has been the financial health of the major money center banks. Materiality of the Wall Street few will always trump "all the Main Streets combined!"

This is a fact of governmental policy life - so get with the program and accept it. This is why we (collectively) will need to monitor the "Capital Injection Program" scheduled for roll out this Wednesday. The levels of these new "injections" will be triggered by the results, revelations, and findings of the comprehensive financial/ forensic audits which are also scheduled to begin in earnest at the Big 20 this week or next. These will take months to complete. (I was part of similar work when I was employed by the FDIC/ RTC on failed banks and S&Ls.) I am already speculating that the results here will be far worse than any of the blackest predictions to date - so brace yourself!

The next chapter in Citigroup's saga is unfolding as the Oscar winners are revealed 

My colleague Bob Eisenbeis has used the metaphor from medicine to describe the process to date. Treasury Secretaries and others were like the doctors in the emergency room. The patient was having a heart attack and they were busy giving him a flu shot. That is about to change. Surgery is coming whether we like it or not. 

Is anything made in the U.S.A. anymore? You'd be surprised 

The United States remains by far the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 - nearly double the $811 billion of 1987. For every $1 of value produced in China factories, the United States generates $2.50. 

So what is made in the U.S.A. these days?

AIG Seeks More US Funds As Firm Faces Record Loss 

American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned. 

Money Supply and Purchasing Power 

So, what can we conclude from this whole analysis? The overall conclusion is that gold is a significantly better store of value than paper currencies. While the purchasing power of gold is up four times, the purchasing power of major currencies is down 5-10 times, except for the Swiss Franc and the Japanese Yen, whose depreciation is significantly less. The second column in the table below, Change in Unit Value, shows the exact percentages. 

Housing

Elderly Emerge as a New Class of Workers -- and the Jobless 

The number of unemployed workers 75 and older increased to more than 73,000 in January, up 46% from the prior January. Among workers 65 and older, the jobless rate stands at 5.7%. That's below the national average, but well above what it was in previous recessions, including the recession of 1981, when it reached at 4.3%. 

The growing numbers reflect, in part, an increase in the number of older workers. The percentage of people 65 and older who are in the work force rose to 16.8% at year end, from 11.9% a decade earlier. Among people 75 and older, the increase was even greater -- to 7.3%, from 4.7%. 

Street Talk: Like it or not TCE rules the day 

Even if regulators and many bankers remain focused on regulatory capital ratios, we think anyone with an interest in bank stocks needs to recognize that the market is firmly focused on tangible common equity. 

Now It's Official: Stress Test Results Pre-Determined 

We have been skeptical that the pending Treasury stress tests on banks, designed to ascertain their state of health, were inadequately staffed and therefore could not do the job properly. Our big concerns were that they had too few bodies to test financial data versus underlying documentation adequately (usually done on a sampling basis) and they lacked the expertise (and perhaps the mandate) to vet risk models (which we all know have performed impeccably over the last two years. 

Is it a test if the results are predetermined?

Getting A Trojan Horse Inside The Banks 

The federal government gets extra points for being devious. It plans to begin to take over large banks by giving them money and using the capital they have already invested for a portion of their common shares. It is a step shy of nationalization, but a very short step. 

The action allows the Administration to control banks without taking them under its wing and essentially folding their balance sheets into the Treasury's.

Bankruptcy Funding Solicited for Car Makers 

Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter. 

"I'll say it slowly"? (Hat Tip JoeManC) 

Former Fed Governor Feels "Accountable" 

With the nation suffering from the worst economic downturn since the Great Depression, Susan Schmidt Bies is having second thoughts about some of the votes she cast as a member of the Federal Reserve Board of Governors in the years leading up to the present crisis. 

The 61-year-old economist and Greenville County resident helped set U.S. monetary policy and oversee banks as one of seven Fed governors between 2001 and 2007. She has kept a low profile since leaving Washington two years ago and retiring to her Cliffs at Glassy home in northern Greenville County.

"I never, never would have guessed it was going to be like this, never," she said.

February 23, 2009 The Abyss Stares Back (Hat Tip Denny) 

Nature's way of hinting that something truly creepy may be up is when both Paul Volcker and George Soros both declare on the same day that the economic landscape is looking darker than the Great Depression. 

Chris making more blogs (Hat Tip Luke)

Weather Report: The Economies - Depression In World's Major Economies? (Hat Tip Christopher Peters) 

THE ECONOMIES-‘DEPRESSION': "Evans-Pritchard: In Europe, Depression Now" is a Moneynews article by Julie Crawshaw (moneynews.newsmax.com) on 2/20/09. 

"Ambrose Evans-Pritchard, international business editor for the Daily Telegraph in London, says debating the risk of a full-blown depression is pointless.

"There's no risk," Evans-Pritchard told Moneynews.com in a wide ranging interview, "We're in it. It's begun."

"Evans-Pritchard has covered world politics and economics for 25 years. His reporting in the Telegraph about the global liquidity crisis and now banking crisis was way ahead of the curve."

Baseline Scenario, 2/9/09 (Hat Tip MarkP) 

Perhaps the most fundamental barrier to economic recovery in the US is the weakness of balance sheets in the private sector. Households did not save much since the mid-1990s and reduced their savings further this decade, in part because of the increase in house prices; this was the counterpart of the large increase in the US current account deficit. Desired household saving is now increasing. The main dynamic is a fall in credit demand rather than constraints on credit supply in the US. The US corporate sector is in better shape but, faced with the disruptions of the last three months, is also seeking to pay down debt and conserve cash. Even entities with deep pockets, strong balance sheets and long investment horizons (e.g., universities, private equity) are cutting back on spending and trying to strengthen their balance sheets. This desire to save is causing major reductions in both consumption and private investment, creating the economic contraction we see all around us.

There are three major categories of potential policy responses: fiscal, financial, and monetary. However, each of them faces real constraints.

Remembering the Dawn of the Age of Abundance (Hat Tip Suzie G) 

Monday morning, 11:30:39 Eastern Standard Time, and I had just hit send. I was in a wide-body 767, high above the continent. "This is so exciting," I wrote to a friend. "I am on an airplane going over the Rockies. I am sending you an email. Down there the settlers went in covered wagons. Up here on American Airlines flight something to L.A., I am surfing the Internet. There are ruts baked into the soil down there from the heavy wagons pushing west. I have never been on Wi-Fi on a plane before. I am looking down at the Rockies. 'These are the days of miracles and wonders.' " My friend, an Internet pioneer, a brave and steely-eyed entrepreneur, shot back a reply: "We fly higher than mere birds can fly." When I got home, I taped our exchange to a bookcase near my desk. In hard times we should not forget the magic of life, and the mystery. 

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15 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Feb 24

 

UK:

Police are preparing for a "summer of rage" as victims of the economic downturn take to the streets to demonstrate against financial institutions, the Guardian has learned. 

 

Protestors clash with mounted riot police outside the Israeli embassy in London

stpaulmercantile's picture
stpaulmercantile
Status: Bronze Member (Offline)
Joined: Nov 19 2008
Posts: 87
Re: Daily Digest - Feb 24 - Made in the USA

Davos, thanks for the info on US manufacturing - I'd bet that most of us didn't know how much manufacturing still goes on in the US.  For those who didn't follow the link, a summary:

1. In terms of value, the US is still the largest manufacturer in the world, by far. 
2. For every $1 of value produced in China, the US manufacturers $2.50.
3. We make aircraft, missiles, space equipment, automobiles, tractors, turbines, computer chips, fighter jets, circuit boards, power plants, etc.
4. manufacturing jobs represent 8% of our labor force, down from 28% 50 years ago.
5. 30 years ago, 80% of what we consumed was made in the US.  That number has dropped, but it is still 65% - much higher than I would have guessed.


 

gregroberts's picture
gregroberts
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Posts: 1024
Re: Daily Digest - Feb 24

Stocks jump after Bernanke says recession may end

Stocks jump after Bernanke tells Congress recession may end this year

http://finance.yahoo.com/news/Bernanke-Recession-may-end-in-apf-14453719.html

Oh! we're saved now, no worries, Psychic Bernanke speaks, he's been right so often, predicting the recession years ahead of anyone else (sarcasm). Maybe he should be called "jumper cable" Ben for getting the morons on Wall Street arced up.

"He warned that a recovery will require getting credit and financial markets to operate normally, and that the government must continue working with ailing banks to bring them back to profitability. To the market's relief, though, the Fed chief said formally nationalizing the banks "just isn't necessary.""

How about informally? This just drives me crazier, ARRRGG!

Sorry, needed to vent a bit. 

Greg

Soulmaster's picture
Soulmaster
Status: Bronze Member (Offline)
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Posts: 27
Re: Daily Digest - Feb 24

After watching the video with Pete Stark I was a little ticked off...researching his name on the internet led me to some interesting information: he voted against both bailout bills!  This is his reason (from Wikipedia):

"President Bush tells us that we face unparalleled financial doom if
this $700 billion bailout is not approved today. He and his Treasury
Secretary – a former Wall Street fat cat – tell us that we have reached
the point of 'crisis.' That is a familiar line from this President. It
sounds like the disastrous rush to war in Iraq and the subsequent
stampede to enact the Patriot Act. As I opposed the Iraq War and the
Patriot Act, I stand in opposition to his latest rush to judgment."

 

Sounds to me like he is just anti-Bush, but I still have respect for any politician who voted against that bill.  Though after watching the video posted above, it makes me wonder how I can ever trust anything a politician says...

maveri's picture
maveri
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Posts: 159
Re: Daily Digest - Feb 24

Someone at work sent me this link, titled:

Global downturn: In graphics

http://news.bbc.co.uk/2/hi/business/7893317.stm

SkylightMT's picture
SkylightMT
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Posts: 125
Re: Daily Digest - Feb 24

Bernanke says by 2009???

But just yesterday wasn't he saying 2010, and even then only if the banks stabilize?

Does he need an MHP eval (mental health professional), is he just trying to soothe the markets, or is there any realistic possibility he's right? (of course not). I cannot for the life of me figure out why he would say such a thing.

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Feb 24

I can only wonder what his definition of "end" could possibly be?

 Protestors clash with mounted riot police outside the Israeli embassy in London

Or maybe, like his boyhood home ended in foreclosure:

 [SB123456997641086297]

Or maybe it is the Greenspan of all ends: “A democratic society requires a stable and effectively functioning economy.I trust that we and our successors at the Federal Reserve will be important contributors to that end.”

~ Alan Greenspan, 1996 

gregroberts's picture
gregroberts
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Posts: 1024
Re: Daily Digest - Feb 24

Haha Davo's, he meant the recession will end then on to depression, I'm starting to learn to decipher their doublespeak. :-O

Greg

ernie's picture
ernie
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Posts: 39
Re: Daily Digest - Feb 24

Here is a bit of a gem on economic writers:

http://newmatilda.com/2009/02/24/do-not

 

Do Not Resuscitate

"Note to economics writers: your beloved free market is dead. Now tell
us the real story about the global financial crisis, writes Alex
Mitchell
"

 

 

-Ernie.

 

 

djhester1940's picture
djhester1940
Status: Bronze Member (Offline)
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Posts: 35
Re: Daily Digest - Feb 24

Here is a link that will curl your hair. I think the Limelighters folk trio circa 1960 had the appropriate line after a bad review of one of their shows.

"I went home, leaped into bed, assumed the prenatal position  and turned the electric blanket up to 9."

I think I know how they felt.

http://www.stimuluswatch.org/project/by_state

 

Don

BrainShutdown's picture
BrainShutdown
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Posts: 2
Re: Daily Digest - Feb 24

Strong words

 

Best regards 

CB's picture
CB
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Posts: 365
Re: Daily Digest - Feb 24

 http://www.npr.org/templates/story/story.php?storyId=101097890

Quote:

 Who's hiring these days?  All Things Considered, February 24, 2009 · With some banks closing and many others announcing massive layoffs, this is clearly not a good time to find a job in the financial industry. But business is booming for the Federal Deposit Insurance Corp. The government agency insures bank deposits and takes over whenever a bank fails — an almost weekly occurrence these days..................

.......Looming Bank Failures

The problem isn't limited to huge banks — the ones in the news all the time — although a few enormous banks have failed recently. A lot of small banks are failing too, including banks that loaned aggressively to commercial real estate developers. And now that developers aren't paying back those loans, the banks don't have enough money.

Hundreds of new hires are being brought on so the FDIC can be ready to show up and take over when banks collapse. Some workers will secure the vaults. Some will audit files. Some will investigate fraud or malfeasance.

Murray tells them to be discreet: You don't want to cause panic; you don't want to cause a run on a bank, he says.

A Secret Mission

"So some of you may go to a bank closing this weekend. Don't tell your significant other where you're going. Or what you're doing," Murray says. "Everyone knows someone who knows someone. You need to be sure you don't talk in a conversation that could be overheard. Don't check in at the hotel and say, 'Well, I'm here for this event.' You are on a secret mission."

fujisan's picture
fujisan
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Posts: 296
Re: Daily Digest - Feb 24

Bloomberg.com: Japan Exports Plummet 45.7%, Deficit Widens to Record

Quote:


Feb. 25 (Bloomberg) -- Japan’s exportsplunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.

The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.

Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.

These are huge declines: almost half the exports of last year!

reistr's picture
reistr
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Posts: 50
Re: Daily Digest - Feb 24

Hi Davos,

I apologize if this has already been posted previously, but I thought it was great (specially been about 15 years old...). GM really comes to mind.

Calvin expalins the bailouts

reistr's picture
reistr
Status: Bronze Member (Offline)
Joined: Jul 15 2008
Posts: 50
Re: Daily Digest - Feb 24

 

Quote:

"Oh! we're saved now, no worries, Psychic Bernanke speaks, he's been right so often"

The part that no one seems to have heard is that he said the economy will recover "if, and only if" the government plans work.

Now, we know that it will work just as well as all the other stimulus, bail outs, programs, etc. that already sank trillions into this whole.

But Wall Street always wants another rally, since all that "talent" can only make money when the market is on upswing... I see a LOT of wishful thinking out there.

Bernanke is playing with words (typical politics), so the market can hear what it wants, but without him technically lying.

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