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Daily Digest - Feb 8

Sunday, February 8, 2009, 10:13 AM
  • Electronic Run on the Banks (Hat Tip DB) (Video, Suggest Starting at (Typo 3:15) 2:15 Minute Point)
  • Kanjorski: We came so close to complete financial collapse 
  • Worst Decade Yet 1935-2009 (Chart, S&P)
  • IMF Says Advanced Economies Already in Depression
  • State regulators close three banks
  • How Theresa Hatt Caused The Financial Crisis
  • What the Senate's cut: Funds for states and schools
  • Dubai Real Estate Crash
  • Unemployment: Birth Death Adjustment at it Again (3 Charts In Article)

Economy 

Electronic Run on the Banks (Hat Tip DB) (Video, Suggest Starting at (Typo 3:15) 2:15 Minute Point) 

Kanjorski: We came so close to complete financial collapse (Hat Tip Sue Sullivan) 

By CONGRESSMAN PAUL KANJORSKI
January 28, 2009
How did we get into the current financial mess? Congressman Paul Kanjorski, D-11, offered this explanation Tuesday during an appearance on the C-SPAN cable network.

 

He was questioned by a caller about the wisdom of Congress' decision last fall to approve the $700 billion Toxic Asset Relief Program. The Bush Administration's treasury secretary, Henry Paulson, and Federal Reserve Chairman Ben Bernanke sought the cash infusion to stabilize the banks and other financial institutions. About half of the $700 billion appropriation was spent by Paulson to prop up ailing financial institutions before President Bush left office last week. Here are Kanjorski's edited comments:

We did not give the $700 billion for the purpose of lending money. That was never in the program.

It was misconstrued initially and put together with the suggestion by the secretary of treasury, (Henry Paulson) that we would be buying what we call dirty assets, defective mortgages and securities that were held in these banks, that the government would find a way to create a market, buy them in, take them off the balance sheet of banks so that the banks could continue to function normally. "I supported that. but also part of the bill: We gave the jurisdiction and authority to the secretary of treasury to make investments in banks. He had very wide authority. Quite frankly, we're not the experts on the hill to resolve this problem. (It) is a multifaceted problem so we gave great flexibility to the secretary of treasury to act.

Worst Decade Yet 1935-2009 (Chart, S&P)

IMF Says Advanced Economies Already in Depression 

Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said. 

"The worst cannot be ruled out," Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. "There's a lot of downside risk."

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won't succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

"All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector," he said. "And today it's not done."

State regulators close three banks 

FirstBank Financial Services of Georgia and Alliance Bank and County Bank of California become latest victims of banking crisis; nine banks have failed in 2009.

How Theresa Hatt Caused The Financial Crisis 

Last month, Theresa Hatt died at 52, after a brief struggle with cancer. 

Hatt, who lived in Portland, Maine, and worked for the city of Scarborough, had had several credit cards in her name. So, shortly after her death, Hatt's son, Paul Kelleher, began the sad task of calling his mother's creditors, to inform them of her passing.

The calls were uneventful, if depressing, until Kelleher got to Bank of America. Here is how he says his conversation with a representative of the company's estates unit went:
Paul Kelleher: Yes, I'm calling to inform you that my mom died on the 24th of January.
Bank of America Estates representative: I'm sorry. Oh, it looks like she never even missed a payment. That's too bad. Well, how are you planning to take care of her balance?

PK: I'm not going to. She has no estate to speak of, but you should feel free to just go through the standard probate procedure. I'm certainly not legally obligated to pay for her.

BOA: You mean you're not going to help her out?

PK: I wouldn't be helping her out -- she's dead. I'd be helping you out.

BOA: Oh, that's really not the way to look at it. I know that if it were my mother, I'd pay it. That's why we're in the banking crisis we're in: banks having to write off defaulted loans. 

What the Senate's cut: Funds for states and schools 

February 06, 2009
What the Senate's cut: Funds for states and schools

Here're the cuts, according to Sen. Leahy's office. Based on this list, the governors who've been the strongest supporters of the stimulus bill, because it offered them some relief in a terrible budget year, will cry the loudest. Schools, environmental programs and broadband expansion projects also take a hit. 

Dubai Real Estate Crash

Unemployment: Birth Death Adjustment at it Again (3 Charts In Article) 

YET AGAIN... the Birth Death Model once again overstates employment. Per The Big Picture: 

Since 2003, the B/D adjustment has been part and parcel to BLS' Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment imagines (hypothesizes) how many jobs were created by companies too new and/or too small to participate or be found by CES. The model attempts to create what is perceived as a BLS error at the start of any recovery, when many new jobs are created but missed by BLS.

The birth death model did subtract 356,000 jobs in January (though LESS THAN the 378,000 reduction in January 2008; January / July months are typical revision months).


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24 Comments

Davos's picture
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Re: Daily Digest - Feb 8

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Re: Daily Digest - Feb 8

Yep Davos, things are getting pretty "gris(zz)ly". Laughing

The Senate version is horrible. (The House version is just characteristically bad.)

Juxtapose this: cutting out what was by far the most rational and potentially stimulative part (not to mention all the co-benefits), the $8 billion for rendering buildings more energy efficient; with the radically regressive and retrogressive tax breaks of $11 billion for new car buys (no efficiency requirements, just more cars - just what we need) and $18.5 billion for residential structure buyers (much bigger than in the House bill, and with no income limits).

This "leadership" is utterly bankrupt intellectually. It has nothing. Its only thought for now is to try to reinflate the housing bubble, while it seeks new bubbles to inflate.

America has completely and terminally renounced any thought of, let alone serious attempt at, finding a new substantive and sustainable basis for an economy. It's simply the Dance of Death. 

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Re: Daily Digest - Feb 8

Hello RussB:

I think you are right.

The only good I see coming out of this is that it will shed the 70+ trillion in debt by destroying what is left of the buck. It is as if they want to be certain to put the buck into cardiac arrest.

Take care.

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Re: Daily Digest - Feb 8
RussB wrote:

Yep Davos, things are getting pretty "gris(zz)ly". Laughing

The Senate version is horrible. (The House version is just characteristically bad.)

Juxtapose this: cutting out what was by far the most rational and potentially stimulative part (not to mention all the co-benefits), the $8 billion for rendering buildings more energy efficient; with the radically regressive and retrogressive tax breaks of $11 billion for new car buys (no efficiency requirements, just more cars - just what we need) and $18.5 billion for residential structure buyers (much bigger than in the House bill, and with no income limits).

This "leadership" is utterly bankrupt intellectually. It has nothing. Its only thought for now is to try to reinflate the housing bubble, while it seeks new bubbles to inflate.

America has completely and terminally renounced any thought of, let alone serious attempt at, finding a new substantive and sustainable basis for an economy. It's simply the Dance of Death. 

I would say your post pretty much sums up my view. The longterm problem is that America has relied on asset bubbles and consumer debt to undergird its unsustainable standard of living. Now, with the bills coming due, this model is kaput. It cannot be reflated under any circumstances, even with tax credits.

Politicians cannot simply walk away without trying something. There's snake oil and there's optimism, and sometimes you use one in lieu of the other.

,  

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Re: Daily Digest - Feb 8

Sue, great clip of Congressman Kanjorski! Soooo interesting to hear what those folks were told by Paulson.  Whether what they were told was true or not, that's another question! 

Thanks for sharing!

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Re: Daily Digest - Feb 8

RusB

I agree with you, but I think that the core problem is the political insistence that recessions are to be avoided at all costs. We need to get used to the fact that recessions are simply a fact of life.

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Re: Daily Digest - Feb 8

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Re: Daily Digest - Feb 8

That dubai real estate crash video was interesting. I thought that the woman was going to say 3-9 years for a second but then she said months. So by fall everything will be back to normal.

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Re: Daily Digest - Feb 8

The Kanjorski interview is BIG, to me. It could explain a lot.

It explains why the govt was so frantic during Sept-Oct.

After those frantic months, during which Bush was pushing TARP, a few congressmen came forward and stated that Bush had actually threatened them with declaring martial law during that time if they didn't vote for an bank rescue plan. At the time, I thought that was overkill, even for Bush, although he's never been one to let silly old laws prevent him from following his skewed moral compass. Anyway. If he really believed TARP was essential to prevent worldwide complete economic collapse, I could see why he would threaten martial law (and to suspend the November election, by implication). His actions, while rarely  making a whole lot of sense, make a little more sense in light of this new information. If a president truly believes he is saving the world from profound economic devastation, he should definitely use whatever it takes to make the fix happen.

It could also explain why the govt isn't more up-in-arms about the banks just sitting on the TARP funds, rather than resuming lending. Maybe Paulson instructed the banks to build up their capital. Maybe this whole "getting lending going" thing was a smokescreen. Maybe he wanted them to build up reserves in the event of more runs.

Lastly, I'd be really surprised if there hadn't been more runs on the banks since that event that only a few are privy to. I wonder if the govt hasn't gotten pretty good at clamping down on massive withdrawals by now, and maybe had gotten quite a bit of practice for all we know. I remember Chris recommending people plan for a bank holiday around this time period, and it sure looks like he was absolutely right. We came awfully close.

I wonder why they felt a need to keep that run secret, other than to try to prevent additional runs. I wonder how they kept such a major event secret, given that the people attempting to make the withdrawals suddenly found their accounts closed haven't spoken, or that the banks themselves didn't have employees willing to talk to the media. I'm kind of frightened to imagine that the govt might have intervened to get them to keep quiet, and wonder if it was a voluntary quiet. I sure hope so.

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Re: Daily Digest - Feb 8

Congressman Kanjorski said:

"¦I was there when the secretary, and the
chairman of the Federal Reserve (Ben Bernanke) came that day and talked
with members of Congress about what was going on. It was about Sept.
15. "¦ On Thursday at about 11 in the morning, the Federal Reserve
noticed a tremendous drawdown of money market accounts in the United
States. "¦ The treasury opened up its window to help. They pumped $1.5
billion in the system and quickly realized that they could not stem the
tide; we are having an electric run on the banks. They decided to close
the operation, close down the money accounts and announce a guarantee
of $250,000 per account so there wouldn't be further panic out there.

That's
what actually happened. If they had not done that, their estimation was
that by 2 that afternoon, $5.5 trillion would have been drawn out of
the money market system of the United States, would have collapsed the
entire economy of the United States, and within 24 hours the world
economy would have collapsed. We talked at that time about what would
happen if that happened. It would have been the end of our economic
system and our political system as we know it.

And
that's why when they made the point we've got to act and do things
quickly, we did.Secretary Paulson said: Let's buy out the subprime
mortgages. That's when he came to Congress. But he said, "Give us
latitude and large authority to do many things as we decide necessary
and give us $700 billion to do that."

 

Excuse me for suspecting that there was no significant electronic run on money market accounts on Sept. 15. It may be that some particular shaky banks were targeted, but there likely wasn't any banking system threatening run underway. It is pretty clear that no one was pulling money from cash and putting it in stocks since both the Dow and the S&P tanked that day. What were people planning to do, hide cash under their mattresses? And how many mattresses can take electronics transfers? Sorry, this story does't seem to hold water. . . . .  If people were buying gold, that might have caused the bailout boys to panic. The price of gold did rise significantly about Sept. 15 - 16. 

Stan

 

 

 

 

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Re: Daily Digest - Feb 8

Bubbles are fun!

We've had one hell of a party, but unfortunately - I guess there always comes a time where you finally have to sober up and clean the house.

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Re: Daily Digest - Feb 8

TheTechnoLudite: True, but I like the lampshade optional (party) headaches induced by drinking too much cheap Monet better!

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Geithner Delays Bank-Rescue Speech to Keep Focus on Stimulus

Ok, maybe I am just cynical but anyone care to take a stab at why Geithner really delayed his speech? 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ag2bBDsXHd0M

 

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Re: Daily Digest - Feb 8

Hello LisaG:

Maybe he listened to SC gov on CNN? (My lamo attempt at humor). My hunch is that it is becuase they need soooooo many trillions for his plan that someone balked. Take care

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Re: Daily Digest - Feb 8

I'll be posting this, as well, on tomorrow's DG. This is FUNNY!

http://www.youtube.com/watch?v=dEDIyztZGBA&eurl=player_embedded 

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Re: Daily Digest - Feb 8

The run was on the money market accounts.  Kanjorski did not say people were pulling cash out of the banks.  They were pulling out of money market to cash.  Based on fractionla reserve banking, there is not enough cash to meet the demand.

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Re: Daily Digest - Feb 8

Davos, I really like how your mind works and would love your gut feeling. Do you think there is a strong chance of a bank holiday in the next few months?  Or will we find complex new dances to stave off the invevitable? 

Since I'm asking for your "gut" I'll give you mine:  I suspect that the imbalences are getting so out of whack at this point, that simple energy/food issues are going to kick everything into overdrive fairly soon. 

But I have kids, and I hope that I am wrong!  

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Re: Daily Digest - Feb 8

Hello TechnoLuddite:

 

"Do you think there is a strong chance of a bank holiday in the next few months?  Or will we find complex new dances to stave off the inevitable? 

Since I'm asking for your "gut" I'll give you mine:  I suspect that the imbalances are getting so out of whack at this point, that simple energy/food issues are going to kick everything into overdrive fairly soon.

But I have kids, and I hope that I am wrong! 

As if you read my mind.

If there is a new dance (stimulus 2 and a toxic bank) it will be a short gig. The shadow economy of toxic debt is bigger than all the nations of the worlds GDP's added together. It is massive. And like Chris says in his videos and like the article I'm posting in the 9th, debt is propped up by more debt. There is no more debt, just default and Zimbabwae printing.

I think the entire world is insolvent.  

One gigantic Enron with a lot of Kennie Boys telling us to buy more and Andy Fastows fudgeing the books. 

Start at the 1:15 minute point to the 2:00 point and jump to the the 8:30 point 

I can't recall the documentary we watched showing where Kennie Boy flew out to meet Arnie and then days later there was a recall and Davis was out the door and Arnie was in.

Of course, now the Kennie Boys are starting to crack and look more like this:

 California Governor Arnold Schwarzenegger is clearly having a tough time dealing with a budget crisis.

I'm sure in time all the Kennie Boys will look like this.

 

Take care

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navigating the collapse
This history is presented in reverse order
or in the correct order if your brain is wired up like an economist.
 

 
AIG Slips Below Delisting Threshold of $1 Even After 2nd Bailout: What Next?

Overview: The day
after Lehman's default AIG was downgraded thus triggering large margin
calls by its counterparties that were relying on AIG's AAA rating for
their credit and capital enhancement bought from AIG, among which many
European banks. The Fed had to step in immediately by taking a 79%
stake of AIG and extending emergency loans. As credit markets continue
to deteriorate, margin calls on AIG's derivative positions
increase--> Tavakoli: AIG bailout money is a huge taxpayer funds
transfer to AIG's financial counterparties.

  • Feb 5: AIG, once the world’s largest insurer, shares
    fall below $1, crossing the threshold at which shares may be delisted
    by the New York Stock Exchange if they fail to recover. 
    NYSE
    may start delisting proceedings for companies whose 30-day average
    price falls below $1. The process may be halted if the stock slide
    reverses or a company does a reverse split to boost the share price.
  • Dec 17 Bloomberg: AIG has an additional $30bn in CDS writedowns that are not covered by the Fed's
  • Dec 10 WSJ: AIG has an additional $10bn synthetic CDO exposure
    that is not covered by the Fed's two new vehicles that deal with AIG's
    CDO and RMBS credit enhancement obligations--> margin calls are
    coming in.
    Dealbreaker: AIG responds to the WSJ
    article that the position in question is disclosed and included in its
    multi-sector CDS portfolio covered by the Fed facilities. Moreover, the
    $9.8bn are not losses incurred but the maximum potential cash
    settlement portion of the multi-sector portfolio.
  • Nov 9: AIG posts $24.5bn Q3 loss. AIG holds more than $400bn in CDS and  $80 billion of CDOs.
  • Nov 9, FT: AIG's new deal will increase the government’s aid to the stricken insurer from $123bn to $150bn.
    Under the new plan between the insurer, the New York Fed and the US
    Treasury, the government will swap the $85bn two-year loan for a $60bn,
    five-year loan at a lower interest rate. The government will also use
    TARP to buy some $40bn in preferred shares in AIG (10% interest rate),
    and purchase $50bn of the company's distressed assets
  • cont.: In particular, the Fed will take over AIG’s troubled credit default swaps and the mortgage-backed
    assets in the company’s securities lending unit – the two divisions
    that caused the insurer’s near-collapse in September. Under the new
    plan, the Fed will put $30bn in a new vehicle that will purchase some $70bn of AIG’s CDSs from its counterparties.
    AIG will contribute $5bn to the vehicle. The regulators will also
    invest $22.5bn in debt, with AIG putting $1bn in equity, into a second vehicle that will purchase the residential mortgage-backed
    securities held in the insurer’s securities lending unit. If the value
    of those assets rises, the Fed will keep the majority of the gains.
  • EIU:  the government may be overpaying for AIG's toxic assets.
    The CDO facility plans to use US$35bn to buy US$70bn of multi-sector
    CDOs, essentially paying 50% of face value. Earlier this summer Merrill
    Lynch unloaded US$30.6bn of super-senior CDOs for US$6.7bn, a discount
    of 78%. 
  • Fitch: as of June 30, 2008, AIG's exposure of non-prime RMBS to statutory capital was 227%
  • Willem Buiter: Time to pull the plug on AIG? Lehman default shows that the CDS/mortgage-backed settlement is not as problematic as feared and all other asset classes are basically sound--> if they are sold off over time the firesales effect can be mitigated. Other option: Take AIG in full public ownership.
  • cont.:
    AIG's risk management model is coming under fire. AIG has been forced
    to post about $50 billion in collateral to its trading partners,
    largely to offset sharp drops in the value of securities it insured
    with the credit-default swaps. These liabilities continue to balloon
    even after the first Fed bail-out.
  • cont.: Among large counterparties that made margin calls and now benefit from ongoing AIG bail-out:  Goldman Sachs Group, Merrill and Société Générale, UBS, Barclays, Credit Agricole's Calyon investment-banking unit and Royal Bank of ScotlandDeutsche Bank and Canadian banks CIBC and Bank of Montreal.
  • Oct
    30: AIG raised funds from a new Federal Reserve commercial paper
    lending facility to repay part of a $123bn Fed loan. As of Oct 29, it
    owed the govt $83.5bn down from $90bn a week ago, it has repaid $6.5bn
    of the $72bn drawn from the ­original $85bn govt plan
  • Oct 
    23: AIG may need to borrow more than the $122.8 billion already offered
    by the Federal government if capital markets don't improve. CEO
    Liddy--> "To the extent they[markets] continue to go down and we
    have to keep posting collateral, as it's called in the vernacular of
    the industry, it's possible it may not be enough" (Bloomberg) 
  • Sep
    23: Gallagher--> The sale of AIG's assets can raise up to $115b.
    Although potential suitors may have difficulty raising money to finance
    a deal (Bloomberg)
  • Sep 22: S&P via FT: The Lehman
    bankruptcy was not the only cause but it was a contributor to the
    failure of AIG.  It is possible AIG would not have experienced as
    severe a market reaction if Lehman had not filed for bankruptcy
  • The
    federal government will provide AIG with a bridge loan of about $85
    billion. It will also take an 80% stake in the company (CNBC)
  • Further
    expanding the discount window to another class of firms (i.e. insurers
    like AIG) has the potential to open a Pandora’s Box of companies
    looking to the Fed for funding--> monolines, Big 3 automakers standing in line.
  • BBC Robert Peston:"Approximately
    $307bn (consisting of corporate loans and prime residential mortgages)
    of the $441bn in notional exposure of AIGFP's super senior credit
    default swap portfolio as of June 30, 2008 represented derivatives written for financial institutions, principally in Europe,
    for the purpose of providing regulatory capital relief rather than risk
    mitigation. In exchange for a minimum guaranteed fee, the
    counterparties receive credit protection with respect to diversified
    loan portfolios they own, thus improving their regulatory capital
    position."
  • Background: AIG has a financial products division
    that acted like an investment bank and has been at the heart of current
    problems. AIG is a counterparty in a large number of swap and hedging
    transactions. It wrote credit default swaps, which insure against
    corporate default, some protecting against losses on collateralised
    debt obligations, which have suffered large losses because many of them
    were backed by mortgage-backed assets. 
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Land where sun may rise no more

Land where sun may rise no more
John Garnaut
The Age
February 9, 2009

Japan's economy is sinking faster than any this century. Can our exports stay afloat?

THE good news is Australia's second largest export market, China, is succeeding in
stabilising its economy. But we might not notice the difference because, as one veteran
Japan watcher says, "the land of the rising sun may fall off the face of the earth".

The reason China is belatedly making headlines in Australia is because it has accounted for
almost all the recent growth in demand for Australia's key exports. Japan was always a
bigger market but its appetite was boringly constant.

China's industrial sector is stabilising and consumption remains surprisingly resilient — a fact
many commentators have not yet grasped — and Japan is suddenly the variable that is
screaming for attention.

Japan, along with Korea, Taiwan and Singapore, will account for most of the demand
destruction of Australia's key exports this year.

Already, the Reserve Bank of Australia believes Australian export prices will fall 20 per cent
this year.

This means Australia's national income will fall by about 4 per cent (because exports account
for one- fifth of GDP, and import prices will stay relatively constant and Australia will be lucky
if real GDP grows at all).

That's quite a shock to a country accustomed to seeing its national income swell by 7, 8 or 9
per cent a year.

ABN Amro's Kieren Davies reckons export prices are likely to fall by 30 per cent, meaning
Australia's national income will plunge 6 per cent this year.

"Whether it's 4 per cent or 6 per cent, this will be the biggest fall in national income since the
Great Depression," he says, excluding the overnight spike and bust of wool prices during the
Korean War.

Japanese companies lead the world in making cars, motorbikes, and all manner of digital
consumer electronics, high-technology components and equipment. These are things people
don't need to buy when things go bad.
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Re: Daily Digest - Feb 8

A great calm lecture by Mises Institute's Lew Rockwell.

Part 1

Part 2

Part 3

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Re: Geithner Delays Bank-Rescue Speech to Keep Focus on ...

Hello LisaG:

 

You Wrote:

"Ok, maybe I am just cynical but anyone care to take a stab at why Geithner really delayed his speech? "

 

Hey, I found your answer as to why Geithner has delayed his big speach. I took a wild guess at it and only got 50% of it. I am kicking myself for missing the other 50%. Now that I see it - "it" is so obvious I don't know how I missed this.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOIOHVbliZdQ&refer=home


Obama will likely need to ask Congress for more money to recapitalize banks, as much as $1 trillion on top of the roughly $300 billion remaining in the current Troubled Asset Relief Program, according to an estimate by former Federal Reserve economist Ward McCarthy. That will be an even tougher sell for the new president than the stimulus plan, which is headed for a Senate vote this week after passing the House with no Republican support.

Okay, took a stab at the above in my answer to your post.... (insane amounts, got that, and someone objected - Republicans) but here is the obvious that I missed:  

Geithner’s speech has been pushed back one day to Feb. 10 to avoid distracting attention from the economic-stimulus bill, White House economics director Lawrence Summers said today. That is the same day the Senate is scheduled to vote on the bill. 

My translation: They don't want to have voters complaining, it might jamb the lines and the lobbyist won't be able to call in and offer $$$ for them to get the stimulus cleard for takeoff.

Absolute insane asylum!

What the article neglects to mention is how they are going to clean up the banks off balance sheet debt?

 

New steps to be outlined this week by Treasury Secretary Timothy Geithnerwill include fresh capital injections into banks and ways to deal with toxic securities still on their balance sheets, according to people familiar with the matter. 

 

Take care 

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Re: Daily Digest - Feb 8
stanrobertson wrote:

Excuse me for suspecting that there was no significant electronic run on money market accounts on Sept. 15. It may be that some particular shaky banks were targeted, but there likely wasn't any banking system threatening run underway. It is pretty clear that no one was pulling money from cash and putting it in stocks since both the Dow and the S&P tanked that day. What were people planning to do, hide cash under their mattresses? And how many mattresses can take electronics transfers? Sorry, this story does't seem to hold water. . . . .  If people were buying gold, that might have caused the bailout boys to panic. The price of gold did rise significantly about Sept. 15 - 16. 

Stan

It was Primary Fund (RFIXX) , managed by New York-based money market fund inventor The Reserve.

"NEW YORK -- One of the original and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck." http://www.foxbusiness.com/story/markets/industries/finance/money-market-breaks-buck-freees-redemptions/

A run on a bank causes the bank to collapse. A run on a money market causes the entire financial system to collapse.

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caroline_culbert
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Re: Daily Digest - Feb 8 (Laid-Off Foreigners Flee as Dubai)

http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?_r=1&ref=todayspaper

DUBAI, United Arab Emirates — Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.

Times Topics: Dubai

Bryan Denton for The New York Times

An abandoned car in a parking garage in Dubai. One report said 3,000 cars were sitting abandoned at the Dubai Airport.

Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.

“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”

With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.

No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.

Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.

Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.

“At the moment there is a readiness to believe the worst,” said Simon Williams, HSBC bank’s chief economist in Dubai. “And the limits on data make it difficult to counter the rumors.”

Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.

Some analysts say the crisis is likely to have long-lasting effects on the seven-member emirates federation, where Dubai has long played rebellious younger brother to oil-rich and more conservative Abu Dhabi. Dubai officials, swallowing their pride, have made clear that they would be open to a bailout, but so far Abu Dhabi has offered assistance only to its own banks.

“Why is Abu Dhabi allowing its neighbor to have its international reputation trashed, when it could bail out Dubai’s banks and restore confidence?” said Christopher M. Davidson, who predicted the current crisis in “Dubai: The Vulnerability of Success,” a book published last year. “Perhaps the plan is to centralize the U.A.E.” under Abu Dhabi’s control, he mused, in a move that would sharply curtail Dubai’s independence and perhaps change its signature freewheeling style.

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