Daily Digest

Daily Digest - February 1

Monday, February 1, 2010, 11:57 AM
  • Davos 2010: Leaders Admit Drop in Trust
  • Should Germany Bail Out Club Med Or Leave The Euro Altogether?
  • Eight Centuries of Financial Folly
  • Swiss Warn UBS Bank Could Collapse
  • Why Transition?

Economy

Davos 2010: Leaders Admit Drop in Trust (jeaninedargis)

If there was one takeaway from the annual gathering of business and political leaders in Davos this year, it was this: trust in governments, corporations and above all banks has become as elusive as sure footing on the icy streets of this Alpine resort.

Should Germany Bail Out Club Med Or Leave The Euro Altogether? (pinecarr)

Germany faces a terrible dilemma. Either Europe's paymaster agrees to underwrite a Greek bail-out and drops its vehement opposition to a de facto EU economic government, treasury, and debt union, or the euro will start to unravel, and with it Germany's strategic investment in the post-war order.

Eight Centuries of Financial Folly (pinecarr)

This paper offers a detailed quantitative overview of the history of financial crises dating from the mid-fourteenth century default of Edward III of England to the present sub-prime crisis in the US. Our study is based on a comprehensive new statistical dataset compiled by the authors that covers every region of the world and spans several centuries.

Swiss Warn UBS Bank Could Collapse (pinecarr)

Switzerland's justice minister warned in an interview on Sunday that top bank UBS could collapse if sensitive talks with the United States over a high-profile tax fraud investigation fall through.

"The actions of UBS in the United States are very problematic. Not just because they are punishable but also because they threaten all of the bank's activities," Eveline Widmer-Schlumpf told Le Matin Dimanche newspaper.

Energy

Why Transition? (pinecarr)

The Transition movement represents one of the most promising ways of engaging people and communities to take the far-reaching actions that are required to mitigate the effects of peak oil, climate change and the economic crisis.

Please send article submissions to: [email protected]

6 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - February 1

"Losses suffered by the city employees' pension fund have caused the city's payments into the fund to explode. Just five years ago, the city was paying $175 million in retiree pension and health care costs. Next year, as the city faces an unprecedented $522 million deficit, it must pay $525 million - an increase of 200 percent.

By 2013, it will be paying $675 million, more than what it costs to operate San Francisco General Hospital for one year."

"Policymakers are growing wary as Utah finds itself in an ever-shrinking group of states whose unemployment insurance trust funds haven't gone broke yet.

Last week, Colorado and New Hampshire became the latest of 26 states to declare their trust funds wiped out by the recession's surge in jobless claims. Industry watchers predict as many as 40 states will run out of money for unemployment benefits before the economy rebounds.

Insolvent states are being forced to borrow from the federal government, raise taxes or cut benefits to keep unemployment aid flowing. Borrowing states now owe the feds almost $30 billion and face cutting benefits further and increasing premiums on employers when the loans come due. "

"Greece's debt problems are attracting hedge funds which are betting that the country will default. Meanwhile a leading German economist has argued that the European Central Bank should allow inflation to rise in a bid to avoid a costly and unpopular bailout for Greece."

"While much has been made of the aid the U.S. government has put into helping the economy, commercial property owners nationwide are beset with distressed properties. Help is available to commercial property owners, but it is not widely known about and commercial properties continue to get foreclosed unnecessarily.

"Not since the early 1990s have we observed this perfect storm of deteriorating rents and occupancies, deflating sales prices, and tight credit that's leading to a lot of defaults," writes Victor Calanog, director of research at Reis, a New York-based real estate research organization. "With close to $3.5 trillion of loans outstanding and at least 12 to 24 more months of rent declines, I expect to see more commercial properties defaulting on loans.""

"The White House will include an additional $25 billion in Medicaid funding for states in the federal budget to be released Monday, spending that Democrats originally hoped to include in their health overhaul.

The budget proposal underscores how the government is already adapting to the stalling of the health legislation in Congress. Some states were so confident Congress would pass a health bill that they included the extra Medicaid funds in their state budgets. "

"In fiscal 2009, states estimate Medicaid enrollment grew by an average of 5.4%, the highest rate in six years, according to a survey by the Kaiser Family Foundation. That rate is expected to increase to 6.6% in fiscal 2010.

Gov. Gregoire says her state is seeing an influx of enrollees who tend to require more services than the typical enrollee because they have been unemployed and without insurance. "

"Montgomery County's income tax collections were 25 percent lower in January than the county's number crunchers projected, meaning the county could be facing an even bigger budget gap than the $608 million deficit currently projected.

Income taxes owed to the county are collected and distributed by the state on an almost monthly schedule. The county was surprised in November when its projected distribution that month was $85 million, 28 percent lower than expected. "

"PONTIAC, MICH. -- Once this city had its own car, 23,000 busy factory workers and the $55.7 million Silverdome, a storied Teflon-coated stadium where the Detroit Lions played, Elvis Presley sang, WrestleMania's Hulk Hogan stalked and Pope John Paul II prayed.

Today, Pontiac is in such bad shape -- a $7 million deficit, roughly $100 million in debt -- that the state has declared a financial emergency and sent in a turnaround expert to oversee finances. The car is gone -- General Motors is killing off its Pontiac brand. Most of the factories are deserted -- GM has only 3,882 employees here now. And the turnaround expert, Fred Leeb, has sold the Silverdome to a Canadian developer, who paid just $583,000 for the 80,300-seat stadium and 127 acres of land -- less than many Washingtonians pay for a house. "

"The state budget deficit could exceed $11 billion. The pension fund is nearly $80 billion underfunded. Unemployment, at 10.8%, is among the worst in the country. Michigan, ground zero for the auto industry's collapse, is the only state with a higher ratio of residents leaving to those moving in over the past 12 months, according to a United Van Lines survey. "

...................9A) Series: UEMP27OV, Civilians Unemployed for 27 Weeks and Over (Graph From St. Louis Fed....where are those 600,000 jobs?)

"Financial advisers with clients in California are increasingly recommending a cutback in exposure to the Golden State's tax-exempt bonds. "

"“My clients are nervous, and I am very nervous,” said Marilyn Cohen, president and chief executive of Envision Capital Management Inc., a Los Angeles-based firm that oversees $250 million in bonds for individuals.

“Nothing has materialized to give us any confidence that this is going to be handled,” she said, referring to California's budget crisis. "

"WASHINGTON, Feb 1 (Reuters) - President Barack Obama on Monday projected the U.S. budget deficit would peak at a fresh record in 2010 before easing as he pushes for fiscal responsibility while battling double-digit unemployment.

Dubbed an old-style liberal tax-and-spender by his Republican opponents, Obama is under pressure to convince investors and big creditors like China that he has a credible plan to control the country's deficit and debt over time.

"In the long term, we cannot have sustainable and durable economic growth without getting our fiscal house in order," Obama said in a statement with the budget's formal release.

His budget for the fiscal year to Sept. 30, 2011, a blueprint that is subject to change by the U.S. Congress, forecast a deficit of $1.56 trillion in 2010, or 10.6 percent of the economy measured by gross domestic product (GDP)."

...........................11A) Obama Keeps Fannie, Freddie Off U.S. Budget, Counts Dividends

"Feb. 1 (Bloomberg) -- President Barack Obama’s budget blueprint for the next fiscal year excludes the $6.3 trillion in liabilities of government-controlled Fannie Mae and Freddie Mac and delays for a second time a decision on restructuring the mortgage-finance companies that were seized 17 months ago.

The companies may need $54.4 billion in U.S. Treasury Department preferred stock purchases to stay afloat in the current fiscal year, and $23 billion more for the year beginning in October, according to calculations made from the Obama administration’s fiscal 2011 budget proposal to Congress today.

“The administration continues to monitor the situation of the GSEs closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate,” the Obama administration said.

White House budget director Peter Orszag delayed a decision on whether to bring the companies’ $1.6 trillion in corporate debt and $4.7 trillion mortgage obligations onto the federal budget. As the director of the Congressional Budget Office, Orszag criticized the Bush administration for keeping Fannie Mae and Freddie Mac’s 2008 rescue off budget. "

"Hank Paulson feared there would be a run on the dollar during the early phase of the financial crisis when global concerns were focused on the US, the former Treasury secretary has told the Financial Times.

“It was a real concern,” Mr Paulson said in an interview ahead of the release on Monday of his memoir On the Brink. A dollar collapse “would have been catastrophic,” he said. “Everything that could go bad did not go bad. We never had the big dislocation of the dollar.”

When the crisis escalated and went global with the failure of Lehman Brothers in September 2008, the dollar rallied – but Mr Paulson had to grapple with a firestorm of financial failures.

He feared Goldman Sachs and Morgan Stanley would go down along with Washington Mutual and Wachovia."

"Build America Bonds, the fastest- growing part of the $2.8 trillion U.S. municipal debt market, would become permanent under a budget proposal released today by President Barack Obama.

Issuers from Oshkosh, Wisconsin, to the state of California to the New York’s transit agency have sold more than $70 billion of the taxable securities, which were created as part of the economic stimulus package Obama signed into law in February 2009. The program helped revive borrowing for municipal capital projects after the global credit crisis led investors to seek the safest assets and dump tax-exempt bonds, driving their yield premium over Treasuries to a record.

“Issuers love this program” because it improved their access to capital markets, said Christopher Mier, a strategist at Loop Capital Markets in Chicago, in an interview. The administration also “feels very good” about it because it spurred capital spending and job creation, he said. "

"Bond sales under the program have reached $71.5 billion, according to data compiled by Bloomberg. Municipal Market Advisors, a Concord, Massachusetts-based research firm, projects issuance in 2010 may more than double to $150 billion.

The program may cost taxpayers as much as $12.5 billion from fiscal 2009 to 2013, the congressional Joint Committee on Taxation projected last month. That figure is about six times more than a February 2009 estimate by the nonpartisan committee, which put the value of the tax break at the time at $1.9 billion. "

"Cities, states, and municipalities are sinking by the minute. And unless unions agree to concessions (which they won't) massive layoffs are coming everywhere you look. New York City is a prime example.

Please consider NYC May Lay Off 19,000 Workers If State Cuts Aid

New York City will have to lay off more than 10,000 public workers, in addition to 8,500 teachers,....."

"It is painfully clear that the number one obstacle preventing a complete housing recovery is the foreclosure crisis. According to a recent report released by Realty Trac, almost 3 million homeowners experienced a foreclosure filing in 2009, an all-time record. To put the magnitude of the foreclosure problem in context, last year’s foreclosure total was 21 percent greater than all of the foreclosure filings in 2008 and more than double the total foreclosure filings in 2007."

"Looking forward, our nation’s foreclosure problems are likely to get worse, not better. There are a meaningful number of delinquent home loans mounting on lender desks. According to the Mortgage Bankers Association’s quarterly delinquency survey, during the third quarter there were a record number of homeowners that missed their monthly mortgage payments for at least three consecutive months. This 90 days and greater past due category portends unfavorably for future foreclosure filings. And word is that this delinquency category continued to deteriorate in the fourth quarter as well. It is likely that a high percentage of these delinquent homeowners will default on their mortgage loans, prompting lenders to file for foreclosure. So the pipeline of potential foreclosure filings is currently swelling among the major financial institutions across the nation."

Johnny Oxygen's picture
Johnny Oxygen
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Precious Metals Next Rolling Bubble

Precious Metals Next Rolling Bubble

http://news.goldseek.com/CaptainHook/1265044494.php

A point I wanted to make clear with respect to our discussion the other day is hyperinflation must be justified in the minds of the doers, having the political will of the people behind them. This is why we will need another round of financial crisis for public consumption, and we know from comments made earlier in the week the set-up is for a possible black swan event in summer, with stocks topping out no later than spring.

JAG's picture
JAG
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St. Louis Fed: US Deflation No Longer A Risk

St. Louis Fed: US Deflation No Longer A Risk

The US has escaped the danger of a Japanese-style deflationary trap, according to James Bullard, a voting member of the Federal Reserve’s key policy-setting committee. Mr Bullard, president of the Federal Reserve Bank of St Louis, told the Financial Times in an interview that his preoccupation throughout 2009 had been deflation, but the risk had “passed”.

Talk about putting the kiss of death on the economy....sshhhhesh. Famous last words.

Farmer Brown's picture
Farmer Brown
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Posts: 1503
Re: St. Louis Fed: US Deflation No Longer A Risk

As Shakespeare said, "he doth protest too much", or something like that.  Nothing like confirming something is true by hearing official proclamations to the contrary.  Where is that handy depression-era DOW chart with all those famous quotes?

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Re: St. Louis Fed: US Deflation No Longer A Risk
Farmer Brown wrote:

As Shakespeare said, "he doth protest too much", or something like that.  Nothing like confirming something is true by hearing official proclamations to the contrary.  Where is that handy depression-era DOW chart with all those famous quotes?

FB,

That would be here:

http://www.peakprosperity.com/blog/pompous-prognosticators/7975

Ken

strabes's picture
strabes
Status: Diamond Member (Offline)
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Posts: 1032
Re: Daily Digest - February 1

St Louis Fed is still hopelessly Chicago School, Friedman monetarist, i.e. stuck in the 60s when everybody was in checking accounts, and savings accounts were the fast money available to the banks!

The KC Fed understands things have changed and we have some real problems ahead.

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