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Daily Digest - March 20

Friday, March 20, 2009, 10:53 AM
  • Bernanke Pushes the Button
  • U.N. panel says world should ditch dollar
  • On the Fed's "Shock and Awe"
  • The Norwegian krone: the new safe haven currency
  • Clock ticking for Geithner
  • DOT: U.S.Vehicle Miles Off 3.1% Jan (Chart Milage Down)
  • Moody's may Downgrade $241 Billion in Prime Jumbo Securities 
  • Barry Ritholtz with Forbes (Video interview, new book, 8:00 banks, 18:12 Unemployment & Bad News, 20:30 Publisher not publishing over rating company criticism, 23:00 Geithner, 25:00 bad corps should go BK not get bailouts, 26:00 emotions are your enemy, 28:00 We'll do the right thing after doing everything wrong)
  • Treasury Department Defends Banking Bondholders (H/T CM)
  • Industrial output drops in February (H/T CM)
  • [Japanese] Public entity to buy ETFs to boost stocks (H/T CM)
  • Obama Administration Tries to Reassure China on Treasury Debt (H/T CM)
  • Bloomberg Video: Fed (Video, on recent Fed moves, lot of bottom calling)
  • Obama Administration Tries to Reassure China on Treasury Debt (H/T CM) 

Economy 

Bernanke Pushes the Button 

Good Evening: After months of threats, the Fed finally pushed the monetization button. Federal Reserve Chairman Bernanke and the rest of the FOMC decided today to embark upon the one strategy central bankers have always considered the dreaded last option - Quantitative Easing. It's one thing for the Fed to push the "Easy" button and lower rates or temporarily inject reserves into the banking system, but to push the "QE" button (creating currency out of thin air with which to purchase assets) is an action reserved for only the direst of circumstances. If such a device truly existed in the Board room of the Eccles building, it would be a red button under glass with a "Press Only in Case of Emergency" warning stenciled underneath. That market participants responded to this monetary jolt by buying stocks, bonds, and precious metals while thumping the dollar is not a surprise. How investors react over the longer term to these actions and the inevitable unintended consequences will be far less easy to predict. 

Prior to the Fed's announcement, most markets were fidgeting around not too far from unchanged. Stocks had digested this morning's economic data (an uptick in both CPI and mortgage applications, plus a drop in the current account deficit) and managed to recover from early losses of 1% or more in the major averages. When the FOMC statement hit the wires (for the complete text, see below), the S&P 500 soared 3% and briefly topped resistance at the 800 level. For those keeping score at home, today's high of 803 represents a gain of 20% over the 8 trading days since the low set on March 6. Feeling suddenly a bit winded, the major averages spent the final hour trying to consolidate the gains. By day's end, the Dow's 1.25% gain lagged behind, while the Russell 2000's 3.5% advance led the pack.

The reaction to the Fed's policy change in the other markets was much more volatile. Treasury notes and bonds saw furious short-covering and yields plunged by amounts not seen in 47 years (see below). Carry traders, mortgage duration hedgers, and liquidators of double short Treasury ETFs all jostled and elbowed each other to grab whatever Treasury coupons they could find. When the electronic dust inside the trading screens had settled, yields were down a staggering 22 bps (2 year) to 47 bps (10 year). In sympathy with Treasury yields, the dollar also precipitously fell. The prospect of hundreds of billions of newly minted dollars coursing through the global financial system caused currency traders to thrash the greenback by almost 3%. Gold, the currency no central bank can print, switched places with the buck in going from the outhouse to the penthouse. The yellow metal was down some 4% while the FOMC was meeting, but it closed with gains of nearly the same magnitude once it became clear the Fed was pushing the monetization button. The rest of the commodity complex was oddly out of step and went the other way. Despite the surge in metals both precious and base, the CRB index actually retreated by 1.2%.

Many months and a couple of thousand Dow points ago, I predicted that the credit crisis would eventually deepen to the point where the Fed would feel forced to step in and directly purchase a variety of assets instead of merely financing the assets held by others. I said a the time that "Helicopter Ben" Bernanke would live up to his nickname and live out the actions outlined during his famous 2002 speech about the options at the Fed's disposal for fighting deflation once fed funds had already reached the zero barrier. Wall Street analysts had come to much the same conclusion prior to this week's Fed gathering, but none (including this writer) foresaw the Bernanke Fed undertaking such broad and sweeping actions so soon. Most of us thought the FOMC would continue its recent pattern of gradual mission creep, incorrectly thinking that the Fed might announce some limited asset purchases (if any).

As Bank of America-Merrill Lynch economist, David Rosenberg, details below, however, today's policy change is nothing short of Quantitative Easing (see below). The Fed is "now bringing out all the ammo in its arsenal", according to Rosenberg. Treasury purchases ($300 billion), a huge expansion of MBS buying ($750 billion), a doubling of GSE debt purchases ($100 billion), and hints the TALF will buy distressed assets from banks will expand the Fed's balance sheet by at least another 50%, says Mr. Rosenberg. He also points out that the Fed's balance sheet will now grow to become 25% of GDP, an eye-popping level that should end all questions of whether or not we are like Japan during the decade just past. And, for those who think the time is ripe for upping their equity allocations, Mr. Rosenberg would like to remind them of what happened to buyers of the Nikkei 225 after Quantitative Easing was tried in Japan. Longs were treated to a 20% rally that lasted six weeks before stocks set new lows just four months later. Ultimately, predicts Rosenberg, QE helps bond buyers more than stock buyers.

Unlike Mr. Rosenberg and his prescription to unload stocks and buy Treasurys, I'm less certain about how all this will play out. With a low savings rate and high external debts, the U.S. of 2009 is very different from the savings rich Japan of the 1990's. The key will be how the U.S. dollar reacts now that Mr. Bernanke has pushed the button. If the world's creditors are willing to look the other way as the Fed buys every asset it can lay its hands upon, I can see how Mr. Bernanke's latest policy moves could succeed in speeding up an eventual recovery for our economy. But since I doubt dollar holders will sit idly by as the paper they hold shrinks in value, I see a quick and happy resolution as being a low probability event. Then again, other central banks (the BOE & SNB) are engaging in the same currency-busting policies, so it's not altogether clear whether the world's fiat currency system can survive a war of attrition. I remain comfortable owning precious metals and shares of the companies that mine them because of this very uncertainty.

We've arrived at this unfortunate juncture in our nation's financial history because of reckless behavior in both New York and Washington D.C. Interest rates were too often kept too low, lending standards were whittled away until they were non existent, and borrowing too much for one's own good (both corporate and personal) reached the point where it carried no negative stigma. Our nation's elected officials consistently spent far more than was collected in tax revenue and our nation's regulators were so poor they wouldn't have been able to cut it as mall cops.

We learned nothing from the foreshadowing events brought about by the reckless behavior on display at Long Term Capital, Enron, and WorldCom. Bill Fleckenstein neatly summed up the last 15 years in one his best-ever Raps back in January of this year. Anticipating today's events, Bill wrote, "...initially, in the late 1990's, we attempted to speculate our way to prosperity via the stock bubble. And then, when that didn't work, we attempted to borrow our way to prosperity during the real estate bubble. Of course, those two ended the way they did, in an epic disaster, and now we're trying to print our way to prosperity..." Well said, Bill. Let us all hope the U.S. experiment with pushing the button on Quantitative Easing is more successful for us than it was for the Japanese. But given all the behavior that brought us to this point, we will need to be both lucky and good from this point forward.

U.N. panel says world should ditch dollar 

By Jeremy Gaunt, European Investment Correspondent 

LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar's share in its own reserves in recent years.

GOOD TIME

Persaud said that the United States was concerned that holding the reserve currency made it impossible to run policy, while the rest of world was also unhappy with the generally declining dollar.

"There is a moment that can be grasped for change," he said.

"Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances."

Persaud said the panel had been looking at using something like an expanded Special Drawing Right, originally created by the International Monetary Fund in 1969 but now used mainly as an accounting unit within similar organizations.

The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent's economic clout, which can be valued against other currencies and indeed against those inside the basket.

Persaud said there were two main reasons why policymakers might consider such a move, one being the current desire for a change from the dollar.

The other reason, he said, was the success of the euro, which incorporated a number of currencies but roughly speaking held on to the stability of the old German deutschemark compared with, say, the Greek drachma.

Persaud has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.

A shared reserve currency might negate this move, he said, but he believed that China would still like to take on the role.

(To read Reuters Global Investing Blog click here; for the MacroScope Blog click on blogs.reuters.com/macroscope; for Hedge Fund Hub click on blogs.reuters.com/hedgehub)

(editing by Patrick Graham)

On the Fed's "Shock and Awe" 

When some deemed the Fed's move today to expand its balance sheet by as much as a trillion dollars plus as "shock and awe", I recalled that when that term was first used, at the beginning of the US invasion of Iraq. The notion was a display of superior force would lead to quick capitulation. 

We know how well that theory worked. And I suspect the unintended Iraq-Fed analogy is apt.

Let me focus on the Treasury part of the equation, but with a recap first. The Fed announced today that it would buy up to $750 billion in Agency MBS this year (in addition to an earlier commitment of $500 billion) and up its purchases of Agency bonds from $100 billion to as much as $200 billion. It also said it would purchase up to $300 billion of longer dated Treasuries over the next six months.

As readers no doubt know, stocks took off, bonds rallied big, as did gold (note the last two are contradictory). And the general tone was that investors were surprised. Caught off guard might be the better turn of phrase. The Fed had indicated very clearly in December that it had moved to a policy of quantitative easing, sort of (as Tim Duy noted, the Fed seems to consider a commitment to continuing to expand the Fed's balance sheet as QE. They have not taken that move, either then or now). Analysts were impatient at the Fed's failure to announce how it intended to use the Fed's balance sheet to improve credit market functioning, and didn't get as much in the way of news in January or February.

But let's consider further what is operative here.

The Fed said it was concerned that inflation was at sub optimally low rates, implying that these measures were being implemented primarily to combat deflation. But the numbers above tell what the real story is. The Fed first and foremost is trying to prop up asset prices, particularly housing, out of a view that their current level is the result of irrational pessimism. The Fed had indicated in earlier statements that it was going to target interest spreads over Treasuries of various types of credit products, and that is still by far the greatest use of firepower. However, the addition of Treasuries is a new, albeit expected, wrinkle. Let's face it, if the long bond continues on its march to 4%, the Fed can do all it wants to contain mortgage spreads, but it become increasingly difficult to keep mortgage rates from rising.

But let's look at that up to $300 billion over six months for Treasury purchases. Sounds formidable, until you consider how much the Treasury calendar is increasing this year.

I'll admit I did not do extensive digging, but I found an interesting memo, "Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association" from early February. It isn't too long, and it is worth reading. The SIFMA polled members on how to change the Treasury auction calendar to accommodate the increased supply coming over the next two years.

Read it closely. The memo does not say so in so many words, but the changes that SIFMA members could come up with (as in they were willing to recommend) do not appear sufficient to take up the additional supply.

And consider this cheery observation:
The net supply of Treasurys in 2009 and 2010 combined seems likely to total more than $3 trillion and could climb as high as $4 trillion. The Congressional Budget Office (CBO) estimates the 2009 Federal budget deficit to be $1.2 trillion. The consensus of private sector analysts is similar to that figure. Yet, neither the CBO estimate nor the private consensus reflect fully the funding needs associated with the Obama Administration's fiscal stimulus plans, the implementation of TARP (or another TARP-like program), or the rumored creation of a bad/aggregator bank to help deal with the underperforming assets weighing down financial institutions. Some of the funding of these government programs will spill over into 2010, a year in which the "core" budget position also will be weak according to mainstream expectations for economic performance.

Actual and potential funding needs for financial sector stabilization programs already announced are considerable. Guarantees made on select assets of systemically critical financial institutions could require Treasury to raise hundreds of billions of dollars in the event that these assets continue to deteriorate. Similarly, guarantees made by the FDIC on select bank-issued debt could catapult government borrowing needs further should the issuing bank(s) default on its FDIC-insured paper. Any additional guarantees on future losses to assets held by financial institutions would further increase net borrowing needs by Treasury. The size of any such borrowing would hinge on the type and size of assets backstopped.

The expansion in quasi-government paper contributes to the risk of market saturation. Banks have issued nearly $150 billion in FDIC-backed paper since the programs introduction. Spreads on this paper have been narrowing over time with the latest deal, paper offered by Citi, pricing just 30 basis points over Libor. Real money investors have purchased the bulk of this paper in an attempt to pick up yield over Treasurys while not taking on additional credit risk. In some respects, this paper has replaced GSE debt as the instrument of choice for real money investors looking for modestly higher yielding, quasi-government debt.

So take $1.5-$2 trillion in incremental Treasury supply per year, which SIMFA is telegraphing it expects will prove low. That's $125-$167 billion a month. SIFMA warns there has already been some crowding out due to FIDC backed bonds.

And now we get to the other half of the equation: thanks to falling trade deficits (which require foreign central banks to park FX reserves somewhere, generally a large chunk in Treasuries), foreign purchases of Treasuries have fallen sharply. Per Brad Setser:
I wanted to highlight one trend that I glossed over on Monday, namely that foreign demand for long-term Treasuries has disappeared over the last few months....The rolling 3m sum bounces around a bit, but foreign demand for long-term Treasuries in November, December and January was as subdued as it has been for a long time. Among other things, that fall in foreign demand for long-term Treasuries after October suggests - at least to me - that the big Treasury rally late last year (and subsequent sell-off this year) doesn't seem to have been driven by external flows. Foreigners weren't big buyers of long-term Treasuries back when ten year Treasury yields fell to around 2%.

FYI, by long-term, Setser means 10 year and over. And his charts show demand for Agencies and corporate bonds is pretty much non-existent too.

His charts show a big spike for T-bills in the crisis months, but Setser notes:
However, that surge in demand for bills now seems to be fading.

The fall off in total TIC flows in January reflected private bill sales. The official sector is still buying - $100 billion in bill purchases over the last 3 months of data only seems small relative to the post Lehman peak. But with global reserve growth slowing (even China doesn't currently seem to be adding to its reserves), central banks won't be as large a source of demand for Treasuries going forward as they have been in the past.....

Why does this matter?

Foreign demand for Treasuries hasn't kept up with Treasury issuance, but it undeniably has been strong. Over the last 12 months, net foreign purchases of Treasuries financed much of the US current account deficit....

The trade and current account deficit has fallen substantially as a result of the fall in oil prices, so the US needs less external financing now than in the past. But it still needs some.

The "quality" of the financial flows into the US consequently bears watching. A modest revival in foreign demand for longer-dated US assets would be a positive sign. To date, the sale of US assets abroad and a scramble for liquid dollar assets has provided the US with more than enough financing to sustain its deficit. Those flows though may not continue.

And if - as seems likely - foreign demand for Treasuries fades long before the US fiscal deficit, the US Treasury will need to sell an awful lot of Treasuries to American investors. For the past several years I have argued that it was almost impossible to overstate the impact of central bank demand on the Treasury market.

So $125-$167 billion of new supply a month (and SIFMA warned it could be more) and a big question mark about foreign demand means $50 billion of Fed Treasury purchases a month may not be enough to keep rates from rising. The fact that 10 and 30 year Treasury yields in Asia are higher than their lows yesterday in New York suggest some skepticism. By contrast, after the December FOMC meeting, when it announced it was doing its not exactly quantitative easing thing, bond yields fell sharply and continued to march forcefully downward over the next four days.

In addition, some of the Fed's pet programs may not be getting the traction they want. The TALF (the $1 trillion facility targeted at fostering new lending to credit cards, auto and student loans, appears to be getting a lukewarm reception. A hedge fund correspondent had dinner with a colleague at a large hedge fund and reported that the said that the returns theoretically available weren't high enough to make it viable, and there was no enthusiasm for the program among his peers.

And even if the Fed does win the yield battle, it may not win the war.From the New York Times:
Jan Hatzius, chief economist at Goldman Sachs, said the Fed had adopted a "kitchen sink" strategy of throwing everything it had to jolt the economy out of its downward spiral.

But while Mr. Hatzius applauded the decision, he cautioned that the central bank could not solve the economy's problems by expanding cheap money.

"Even if the Fed could make interest rates negative, that wouldn't necessarily help," Mr. Hatzius said. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more. You can have a zero interest rate, but if you just offer more money on top of the money that is already available, it doesn't do that much."

The Norwegian krone: the new safe haven currency

The Swiss National Bank's decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.
Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen.

While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.

Simon Derrick at Bank of New York Mellon says: "The dollar has clearly been supported by haven flows during the current crisis.

"But, in the longer-term, the sheer scale of US fiscal spending and the lack of international capital available to support it represents a direct threat to the dollar's strength."

The other main beneficiaries during the current crisis, the Swiss franc and the yen, have both lost their haven status in recent weeks.

The Swiss franc has been driven lower by the SNB, which last week intervened to sell the currency, saying its recent appreciation represented an unwelcome tightening in monetary conditions.

Meanwhile, the yen has been undermined by a series of data showing a steep downturn in Japan's export-driven economy.

This has helped stoke expectations that the Bank of Japan will follow the SNB and intervene to weaken its currency.

So where do currency investors turn now? One answer could be Norway.

David Bloom at HSBC says "The ultimate haven currency in our view is the Norwegian krone. "It's probably the best currency in the world."

Bloomberg Video: Fed

Clock ticking for Geithner 

Time magazine is reporting that Treasury Secretary Tim Geithner may have misled Congress in his testimony about the AIG bonuses yesterday. 

From Time:

Although Treasury Secretary Timothy Geithner told congressional leaders on Tuesday that he learned of AIG's impending $160 million bonus payments to members of its troubled financial-products unit on March 10, sources tell TIME that the New York Federal Reserve informed Treasury staff that the payments were imminent on Feb. 28. That is 10 days before Treasury staffers say they first learned "full details" of the bonus plan, and three days before the Administration launched a new $30 billion infusion of cash for AIG.

"Treasury staff was informed about the new bonuses in a Feb. 28 memo that the March 15 [bonus-payment] date was upcoming," a Federal Reserve source tells TIME. A Treasury Department source, speaking on background, confirmed the e-mail memo and its contents, saying, "Everybody knew that [AIG] had a retention issue."

Of course, there's already an innocent--or nearly innocent--explanation being put forward. You already know what it is: they're pinning the blame on some low level staffer. Blame rolls downhill in Washington, DC, and the buck never stops at the top. In this case, people are saying that Geithner never got the message perhaps because he lacks the proper level of staffing.

This could be a hugely explosive issue. If Geithner did get the message--something that should be easily traceable by looking at Geithner's emails--then we expect calls for his removal. But the Obama administration could well stymie any investigation into this by claiming that executive privilege protects Geithner's emails from being examined by Congress.

DOT: U.S.Vehicle Miles Off 3.1% Jan

Moody's may Downgrade $241 Billion in Prime Jumbo Securities 

From Reuters: Moody's may cut $241 billion jumbo mortgage debt 

... reflecting widening stress in the U.S. housing market, Moody's Investors Service on Thursday said it may downgrade $240.7 billion of securities backed by prime-quality "jumbo" U.S. residential mortgages because defaults will be higher than they expected.
...
It said 70 percent of the 2005 senior securities will likely remain investment-grade, with the rest falling to "junk." Securities issued later may suffer deeper downgrades. Moody's also said subordinated securities from 2006, 2007 and 2008 transactions "will likely be completely written down."
Defaults continue to increase in higher priced areas ...

Barry Ritholtz with Forbes

Treasury Department Defends Banking Bondholders (H/T CM)

We will continue to observe larger dislocations than necessary until our policy makers get the response right, which is to approach the bondholders of distressed and undercapitalized financial institutions, and tell them that the companies will (appropriately) go into government receivership unless a portion of those bondholder claims are moved lower in the capital structure (essentially swapping some of the debt and giving them equity instead, which can then be counted as "Tier 1" capital). Why should the American public (and eventually our children) foot the bill to protect the full interests of corporate bondholders? Has everybody gone completely insane, or is it simply not clear that the sum total of the government's response to-date has been to squander public funds to defend private bondholders?
Remember that roughly 30% of even Citigroup's liabilities represent debt to its own bondholders. Less than two-thirds of its obligations are to depositors and other customers. You could literally wipe out 30% of Citigroup's assets without customers or taxpayers losing a dime if bondholders were appropriately held accountable for the hit through the receivership process. With $600 billion in bondholder liabilities, why should the U.S. public be putting up funds to defend Citi's bondholders? You could swap a fraction of those bondholder liabilities into equity capital, let Citigroup continue to operate, and there's a good chance that the bondholders would be made whole over time anyway (especially if the mortgage obligations were restructured using property appreciation rights, which are essentially debt-equity swaps on the mortgage side).

Why aren't the bondholders doing this voluntarily? Simple. Why should they, when Geithner is promising them your money and mine to defend 100% of their claims? Meanwhile, the excitement of investors last week about Citigroup posting an operating profit in the first two months of the year simply indicates that investors may not fully understand the term "operating profit." Citigroup could burst into flames while Vikram Pandit sells lemonade in the parking lot, and Citi would still post an operating profit. Operating profits exclude what happens on the balance sheet.

Industrial output drops in February (H/T CM)

Industrial output drops for 4th straight month as factory operating rate falls to record low. 

[Japanese] Public entity to buy ETFs to boost stocks (H/T CM)

A state-backed entity will buy exchange-traded funds (ETF), which track stock price indexes, in an effort to arrest the stock market decline and help cash-strapped companies , according to a draft of measures compiled by the government and the ruling parties.
[Chris: So they finally admitted it, eh?]

Obama Administration Tries to Reassure China on Treasury Debt (H/T CM)

March 14 (Bloomberg) -- The U.S. sought to ease Chinese Premier Wen Jiabao's concern about the security of his country's investments in U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.
"There's no safer investment in the world than in the United States," White House Press Secretary Robert Gibbs said yesterday at a briefing in Washington.

[Chris: This is just a funny week-old, retrospective article illustrating how the US shafted China royally. I guess China's lesson here is don't trust a press secretary on financial matters next time.]

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21 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - March 20

Summary: The Bloomberg video really helped me understand how we got here. Soros says the markets are always wrong. I think this is the most understated fact out there today. What really drew me to Chris's site was his art: Explaining hard to understand workings in simple straight forward terms that put things in great clarity.

Between the data that is collected being smudged and the announcers calling for a bottom it is no longer a big surprise as to why the market is always wrong and constantly correcting.

Add into that mix the monkey brain Ritholtz spoke of.

Take care

 

timgeithner-headdown_tbi.jpg

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - March 20

Intrade.com predictions markets are now pricing in a 35% chance that Timothy will be gone by December.

See here: http://www.intrade.com/jsp/intrade/trading/t_index.jsp?selConID=670364

FireJack's picture
FireJack
Status: Silver Member (Offline)
Joined: Feb 8 2009
Posts: 156
Re: Daily Digest - March 20

Has the alt-a option arm fiasco part of the quantitative easing or is it being ignored like it doesn't exist? Seems to me that trying to re-inflate the bubble part way down is a really stupid thing to do and I can't understand if people at the top are stupid or desperate.

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - March 20

breakingviews | Exclusive G20 report

Quote:

Smaller, duller, safer and less lucrative

By Hugo Dixon

Leaders of the Group of Twenty (G20) largest economies will adopt a global plan for stronger regulation for the world financial system, at their meeting to be held in London on April 2, breakingviews.com has learned. 

The G20 heads of states and governments are widely expected to approve in principle the 24 proposals put forward by the working group "on enhancing sound regulation and strengthening transparency", which would establish an international mechanism of coordination to monitor systemic risk and expand prudential regulation and oversight globally. "Large complex financial institutions require particularly robust oversight at a national and international level", the documents states. 

The report, which breakingviews.com has obtained, also calls for stricter oversight of credit agencies, and for changes in regulations that could "mitigate pro-cyclicality in the financial system by promoting the build-up of capital buffers during the economic expansion". In that respect accounting rules and valuation practices should "reflect the evolution of risks through the cycle", the report states, calling for some adaptation to current accounting standards. 

...

RubberRims's picture
RubberRims
Status: Silver Member (Offline)
Joined: Nov 22 2008
Posts: 145
Re: Daily Digest - March 20

I thought some may find this article an interesting read. I for one pity those who sweat at our expense, and receive pittance in return.

Gold-miners starve while bullion price soars to $947

http://www.digitaljournal.com/article/269516 

Things now are so badly run at this once so rich gold mine that Pamodzi no longer pays their fulltime mineworkers on time nor in full since October last year - plunging an entire community into poverty and hunger.

Yet Thistle's board of directors are for the most part, rich international financiers: Thistle Gold Mining 's chairman since 1997 is Cambridge-educated Lord Lang of Monkton of Scotland; see his Forbes-listed income here;

RR

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Daily Digest - March 20

My brother-in-law is Norwegian; I have to ask him about his wonderful country, farmland, currency... Wink

Back In Black's picture
Back In Black
Status: Member (Offline)
Joined: Oct 1 2008
Posts: 14
Re: Daily Digest - March 20

Russia is also planning to propose the creation of a new reserve
currency, to be issued by international financial institutions, at the
April G20 meeting, according to the text of its proposals published on
Monday.

 

 Can you spell N - W - O ?

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Daily Digest - March 20

http://www.guardian.co.uk/business/2009/mar/20/uk-car-production-slumps

UK car production slumps 60%

• 65,647 cars and vans built last month
• Commercial vehicle production down 70%

 Friday 20 March 2009 10.16 GMT
 

Car production in the UK continued to slump in February as factories were closed to cope with falling demand in the recession.

Just 65,647 cars and vans were built last month, 60% less than in
February 2008, the Society for Motor Manufacturers and Traders reported
this morning.

Commercial vehicle production fell by 70%, reflecting the plunge in output and confidence across Britain's manufacturing sector.

"The large fall in February's vehicle production is a direct result
of weak demand and the need to protect the highly skilled workforce and
valuable industrial capability in the UK automotive sector," said Paul
Everitt, SMMT chief executive. He again repeated the SMMT's demand for
meaningful help from the government.

Today's figures show that car production has fallen steadily in
recent months. In December, the number of vehicles produced was down by
almost 49%, which rose to 58% in January.

All the major carmakers have cut supply in the UK. Toyota, which is
cutting UK salaries by 10%, has already held two non-production weeks
at its factories in Burnaston near Derby and Deeside, Flintshire.
Further production cuts are planned. Honda has taken more serious
measures, halting all production at its plant in Swindon until June.

The government is offering loans worth around £2.3bn to help the industry. But yesterday the SMMT cancelled the 2010 British International Motor Show, saying it could not expect struggling carmarkers to take part in the event. It was last cancelled in 1939.

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FYI: The Big Takeover

have you read this?

The Big Takeover

The global economic crisis isn't about money - it's about power. How
Wall Street insiders are using the bailout to stage a revolution

by Matt Taibbi

 http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

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Re: Daily Digest March 20

Mike,

here's a piece I found that runs alongside your article :-

British Motor Show cancelled

The continuing financial turmoil in the motor industry has been blamed for the announcement that the 2010 British Motor Show will be cancelled.

After consultation with the UK representatives of the motor industry, the Society of Motor Manufacturers and Traders (SMMT) today (March 10th, 2009) officially called off the London show, citing the inability of the car companies to commit to a 2010 exhibition in today's financial climate.

"The British International Motor Show is the UK's largest consumer exhibition, hugely popular with the public, and has been attracting increasing numbers of visitors over recent years, making the decision to cancel the 2010 Show an extremely difficult one. However, the global credit crunch has placed the automotive sector under unique pressure and has created a level of uncertainty that deters manufacturers from committing to large-scale, international events," said SMMT chief executive Paul Everitt.

Despite the doom and gloom, it's hoped that the show will return to its highly successful London Docklands venue within the next few years. Speaking on behalf of International Motor Industry Events (imie), the organisers of the British International Motor Show, joint managing director Rob Mackenzie said: "Given the great strides that the Motor Show has taken since its return to London, we fully endorse the decision to postpone BIMS until market conditions will again permit us to deliver a world class event that truly showcases the UK industry."

http://uk.cars.yahoo.com/19032009/36/british-motor-show-cancelled-0.html

Best,

Paul

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Re: Daily Digest - March 20

The truth from Rolling Stone.

 

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Re: Daily Digest - March 20

Fungus Kills About 90 Percent Of Connecticut's Bats

Quote:

White-nose syndrome, the mysterious plague that is decimating the
Northeast's bats, killed off about 90 percent of Connecticut's bats
over the winter and is now galloping across the country so quickly that
it threatens the nation's — and probably the world's — largest bat
populations in the American South.

Quote:

Scientists have not been able to explain why the white fungus covering
the bats, geomyces, appears in the first place, but the impact on the
balance of nature is clear. Bats eat an average of more than 3,000
mosquitoes and moths apiece every night. A large die-off of the species
will directly affect activities and industries that rely on natural
insect control — recreation, dairy farming and horseback riding, among
others.

Quote:

One scenario that worries wildlife scientists is increased use of
pesticides. If farmers see that a crop-eating insect has landed on
their fields, they call in crop-dusting planes or truck-sprayers right
away, which then encourages other farmers to order spraying. Without
enough bats to protect crops, farmers might be tempted this year to use
more pesticides, a chemical chain-reaction that can affect people,
wildlife and nearby streams, Tuttle and other experts said.

http://www.courant.com/news/local/hc-bats-die-off-0318_.artmar18,0,49372...

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Re: Daily Digest - March 20

Some more bank failures announced today including two corporate credit unions:

Quote:

Feds shut banks in Georgia, Colorado, Kansas By MARCY GORDON Associated Press Writer Mar 20th, 2009 | WASHINGTON -- Regulators on Friday shut down banks in Georgia, Colorado and Kansas, marking 20 failures of federally insured banks this year. More are expected to succumb to the prolonged recession. The Federal Deposit Insurance Corp. was appointed receiver of the failed banks. FirstCity Bank of Stockbridge, Ga., had about $297 million in assets and $278 million in deposits as of March 18. Colorado National Bank of Colorado Springs, Colo., had $123.5 million in assets and total deposits of $82.7 million as of Dec. 31. Paola, Kan.-based Teambank N.A. had assets of $669.8 million and total deposits of $492.8 million as of Dec. 31. The FDIC said it will mail checks to depositors of FirstCity Bank for their insured funds on Monday morning. Direct deposits from the federal government, such as Social Security and veterans' benefits payments, will be transferred to SunTrust Bank. At the time of closing, FirstCity Bank had an estimated $778,000 in deposits that exceeded the insurance limits, the FDIC said. Regular deposit accounts are insured up to $250,000. Amarillo, Texas-based Herring Bank will assume all of the deposits of Colorado National, whose four branches will reopen as Herring Bank branches on Saturday. In addition to assuming all of the deposits of the failed bank, Herring Bank agreed to buy about $117.3 million in assets at a discount of $4.2 million. The bank agreed to pay a 1 percent premium on the deposits. The FDIC said it will keep the bank's remaining assets for future sale. Additionally, Herring Bank entered into a loss sharing agreement with the FDIC, wherein the FDIC will assume 80 percent of the losses and Herring Bank 20 percent of the losses on $62 million in assets. Teambank's 17 branches will reopen on Saturday as branches of Great Southern Bank. The Springfield, Mo.-based bank is assuming $474 million of Teambank's deposits for about $4.7 million, while the FDIC is paying out $18.8 million in deposits directly to brokers. Great Southern Bank has also agreed to buy about $656.5 million in assets at a discount of $100 million. The remaining assets will be sold at a later date, the FDIC said. Additionally, the FDIC has agreed to cover 80 percent of the losses on about $450 million in assets, while Great Southern Bank will cover the remaining 20 percent of losses. The FDIC said Teambank was affiliated with Colorado National Bank. The FDIC estimates that the cost to the deposit insurance fund from the closings of the three banks will be about $207 million. The last bank closing, two weeks ago, involved a Georgia bank, Freedom Bank of Georgia in Commerce, Ga. As the economy sours, unemployment rises, home prices tumble and loan defaults soar, bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007. The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013. The agency said Friday that the nation's banks and thrifts lost $32.1 billion in the final quarter of last year, even worse than the $26.2 billion originally reported last month. "Significant" revisions also lowered the industry's net income for all of 2008 to $10.2 billion from $16.1 billion. Rising losses on loans and eroding values of assets bit into the revenue of U.S. banks and thrifts in late 2008, causing them to post the first quarterly deficit in 18 years. The $26.2 billion loss originally reported for the October-December period already was the largest in 25 years of FDIC records. It compared with a $575 million profit in the fourth quarter of 2007. And the originally reported 2008 net income of $16.1 billion was the smallest annual profit since 1990, during the savings and loan crisis. The 18 bank collapses this year follow 25 failures in 2008, which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank. Last year's total was more than in the previous five years combined and up from only three failures in 2007. The FDIC had 252 banks and thrifts on its list of troubled institutions at the end of 2008, up from 171 in the third quarter. The agency recently raised the fees that U.S. banks and thrifts pay, and levied a hefty emergency premium in a bid to collect $27 billion this year to replenish the insurance fund. President Barack Obama has outlined a federal budget proposal that calls for spending up to $750 billion for additional financial industry rescue efforts atop the $700 billion that Congress has already approved. Citigroup Inc. and Bank of America Corp., for example, have had to go back to the government well for more cash amid continuing losses from toxic assets and soured consumer loans. They each have received $45 billion in bailout money, and the government recently agreed to exchange up to $25 billion of Citigroup's portion for as much as a 36 percent equity stake in the struggling banking giant.

and

Quote:

2 corporate credit unions taken over by government By MARCY GORDON Associated Press Writer Mar 20th, 2009 | WASHINGTON -- Federal regulators on Friday seized control of two large institutions that provide wholesale financing for U.S. credit unions, a move they say was needed to stabilize the credit union system. The National Credit Union Administration said it has taken over and put into conservatorship the two corporate credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kan., and Western Corporate Federal Credit Union, in San Dimas, Calif. U.S. Central has about $34 billion in assets while Western Corporate, known as WesCorp, has an estimated $23 billion in assets. A conservatorship enables the government to operate a financial institution. Corporate credit unions provide financing and investment services to the much larger population of retail credit unions. Some of the 28 corporate credit unions in the U.S. have sustained steep losses on paper from the depressed value of the mortgage-linked securities they hold. The NCUA, which oversees some 7,800 federally insured credit unions, said it "will continue to take any and all steps necessary to preserve a well-functioning system of corporate credit unions and to protect the assets of (retail credit unions) and their members during the ... financial market dislocation." The financial services provided by the two corporate credit unions "will continue uninterrupted" and there will be no direct impact on the 90 million members of retail credit unions nationwide, the NCUA said in a news release. It said retail credit unions, which are cooperatives owned by their members, remain financially strong -- with net worth exceeding 10 percent of assets, and sustained growth in assets and membership despite the deep recession. The NCUA staff recently completed a "stress test" of the mortgage- and other asset-backed securities held by all corporate credit unions, including U.S. Central and WesCorp, and found that "an unacceptably high concentration of risk" was contained in those two institutions, the agency said Friday. Securities held by the two have continued to lose value since late January, reducing their available cash and worsening a "loss of confidence" on the part of their member credit unions, the NCUA said. In January, the NCUA injected $1 billion of capital into U.S. Central. At the same time, the agency moved to guarantee tens of billions of dollars in uninsured deposits at corporate credit unions overall, the latest in a series of actions to shore them up in the face of financial stress. The NCUA said it would automatically guarantee uninsured deposits at all corporate credit unions through February and then on a voluntary basis through Dec. 31, 2010. The agency's insurance fund is financed by fees paid by credit unions. As is the case with banks and thrifts, regular deposit accounts in federally insured credit unions are covered up to $250,000. In December, the agency made more than $40 billion available to support several corporate credit unions with a new borrowing from the Treasury Department and provided another $2 billion to help struggling homeowners. The NCUA also has proposed restructuring the corporate credit union system with an eye to enhancing its stability. U.S. Central has said it expected to report a substantial loss for 2008, due to around $1.2 billion in charges for impairments in its holdings of mortgage-backed securities. (This version CORRECTS number of credit unions supervised to around 7,800)

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Re: Daily Digest - March 20

image0011.jpg

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Damnthematrix
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Re: Daily Digest - March 20

http://www.newsweek.com/id/189293

We Can't Get There From Here

Political will and a price on CO2 won't be enough to bring about low-carbon
energy sources.
Sharon Begley
NEWSWEEK
From the magazine issue dated Mar 23, 2009

EXTRACT:
"By all means, swap out your regular light bulbs for compact fluorescents, take the bus, weatherize your home and install solar panels on your roof. Oh, heck, go crazy: tell your senators to give the nuclear industry everything it wants so
it starts building reactors again. But while you're doing all that to reduce the world's energy use and cut emissions of greenhouse gases, keep this in mind: even if we scale up existing technologies to mind-bending levels, such as
finishing one nuclear plant every other day for the next 40 years, we'll still fall short of how much low-carbon energy will be needed to keep atmospheric levels of carbon dioxide below what scientists now recognize as the point of no return.

As the world gets closer to a consensus that we need to slash CO2 emissions, a debate is raging over whether we can achieve the required cuts by scaling up existing technologies or whether we need "transformational" scientific breakthroughs.."

My comment:
Perhaps we could consider using much, much, much, much, much less energy as a 'transformational technology' as well. Or forgive all debts, close all the banks, grow your own food, meet the neighbours....

Mike 

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Re: Daily Digest - March 20

Joemanc: Thanks for the post on the bats. People don't think about it as much, but along with the honeybee massacre that's far more fundamental than even the finance industry collapsing completely.

I think it was Einstein who said if bees disapperaed, civilization would disappear in 3-4 years. The multiplier effect from bat die-offs could be similarly dire.

Damnthematrix: "Perhaps we could consider using much, much, much, much, much less energy as a 'transformational technology' as well. Or forgive all debts, close all the banks, grow your own food, meet the neighbours...."

Add in land redistribution, and you'd have my programme in a nutshell. Laughing 

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Posts: 1636
Re: Daily Digest - March 20

Joemanc,

Thanks for adding that piece into this thread. I've read a great deal on this subject and was intending a thread of its own at some point. Just wanted to add some extra weight here. We spend so much time on this forum discussing the 3 E's, side-tracked, and not paying needed attention to our 'Global Ecology'. An insect such as the mosquito causes more deaths in a year from malaria than many deseases put together. A small insect, and mans downfall. Who would have thought something as humble as the Honey Bee could have such a dire effect also. 

An army cannot run without food. Designers of complex engineering cannot design without food. The achelles heal that is always overlooked in modern society are the growing of crop to sustain it.

Einstein's quote, even if it is not his own, is a sure fire warning about our experiments of the late 20th and early 21st century with food production. High impact pesticides have wreaked havoc with eco-systems; that is obvious. Monsanto's evolutionary genetic work into self-destructing seed variants, and crop that can only grow with specific oil-based fertilizers, is a part of this experiment that will end in tears for anyone wishing to grow organically on the same depleted soils used in automated agriculture. The loss of divurse seed species, reduced into only several in corn and wheat production has left us wide open to fast spreading desease, as in the case of the humble banana, which is fast becoming extinct, and will be within 30 years. The hard working bee produces 60% of our food, while we pat ourselves on the back regarding crop yeild. We're 1.5% down per year, since 2002, in the production of world grain. Weather, ie, drought, flood and heat have played their part in our declines, plus an estimated 70 million people per year added to the global population. But since 2006, a third major defining moment has been added to the mix, with the disapearance of bees...

Colony Collapse Disorder

http://en.wikipedia.org/wiki/Colony_Collapse_Disorder

60 Minutes

Best,

Paul

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Re: Daily Digest - March 20

damnthematrix said

Quote:

Perhaps we could consider using much, much, much, much, much less
energy as a 'transformational technology' as well. Or forgive all
debts, close all the banks, grow your own food, meet the neighbours....

This sounds good until you ask yourself where 6M people living in LA, NYC or any other large city are going to go to grow their own food, or how they are going to get to their plots of land while using much less energy.  This is "I've got mine, screw everyone else," mentality.  And when that hungry family shows up at your little garden plot I suppose you would pull out your AR-15 and kill them all or just tell them to go home and freeze to death in the dark.  You simply can't throw that amount of change into a world or even a US population that fast and not expect a lot of dead people. 

For those with some land which can support crops with little more than just rain water growing more of our own food works but there is only a very small population that have that capability.  Before espousing such simplistic "solutions" I would suggest you try living off only your land for a year and invite a couple of your friends or relatives who live in a house or apartment in the city to do the same.  And while your at it, turn off ALL your utilities and use only energy you can gather from your land, (remember all those people who have been providing you with water, sewer, electricity, gas, medical care, computers, tools, etc. will all be home working like hell to raise their own food.)  Let us know next year how it all turned out.

What we need are thoughtful ways to make the transitions without destroying peoples lives.  With so many people living in or near the edge of severe economic distress it is not an easy task unless you want to do as Al Gore and most politicians do and mandate that everyone but you has to make the sacrifices.  That kind of thinking makes the solution very easy... for you.  I don't claim to have all the solutions or even very many of them but I would hope that this site could do more deep thinking about how we can get through these issues with the vast majority of all people's lives still intact.

I've always maintained that a good leader leads by example not by dictate.  Anyone who doesn't walk-the-walk is no leader of mine and their proposals and pontifications hold no credence in my book.  So if we, as a group want to lead then we should be discussing how we are doing it and how all the others can make progress towards a more sustainable world.  Not all paths will be the same and will depend on a persons abilities and resources.  Real progress will take rational and realistic thinking, not sound-bite, one-size-fits-all, over simplified, half-baked ideas.

 

 

 

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Posts: 44
Re: Daily Digest - March 20

damnthematrix said

Quote:

Perhaps we could consider using much, much, much, much, much less
energy as a 'transformational technology' as well. Or forgive all
debts, close all the banks, grow your own food, meet the neighbours....

This sounds good until you ask yourself where 6M people living in LA, NYC or any other large city are going to go to grow their own food, or how they are going to get to their plots of land while using much less energy.  This is "I've got mine, screw everyone else," mentality.  And when that hungry family shows up at your little garden plot I suppose you would pull out your AR-15 and kill them all or just tell them to go home and freeze to death in the dark.  You simply can't throw that amount of change into a world or even a US population that fast and not expect a lot of dead people. 

For those with some land which can support crops with little more than just rain water growing more of our own food works but there is only a very small population that have that capability.  Before espousing such simplistic "solutions" I would suggest you try living off only your land for a year and invite a couple of your friends or relatives who live in a house or apartment in the city to do the same.  And while your at it, turn off ALL your utilities and use only energy you can gather from your land, (remember all those people who have been providing you with water, sewer, electricity, gas, medical care, computers, tools, etc. will all be home working like hell to raise their own food.)  Let us know next year how it all turned out.

What we need are thoughtful ways to make the transitions without destroying peoples lives.  With so many people living in or near the edge of severe economic distress it is not an easy task unless you want to do as Al Gore and most politicians do and mandate that everyone but you has to make the sacrifices.  That kind of thinking makes the solution very easy... for you.  I don't claim to have all the solutions or even very many of them but I would hope that this site could do more deep thinking about how we can get through these issues with the vast majority of all people's lives still intact.

I've always maintained that a good leader leads by example not by dictate.  Anyone who doesn't walk-the-walk is no leader of mine and their proposals and pontifications hold no credence in my book.  So if we, as a group want to lead then we should be discussing how we are doing it and how all the others can make progress towards a more sustainable world.  Not all paths will be the same and will depend on a persons abilities and resources.  Real progress will take rational and realistic thinking, not sound-bite, one-size-fits-all, over simplified, half-baked ideas.

 

 

 

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Re: Daily Digest - March 20

This thread is about to get interesting. 

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Re: Daily Digest - March 20

CWixom,

I'd suggest reading more of Mike (Damn the Matrix's) posts - I've never seen him advocate the mindset you're talking about. Your post strikes me as very irrational and emotionally charged.

I don't think anyone here has ever expressed a desire to kill starving families.
That said, I don't think anyone here feels obligated to feed those in need if it means sacrificing their preparations they've made for their own families.

Also, it's absolutely unrealistic to think that we have enough time at this point to make a "smooth" transition. Many people will starve, many will die, and it's not fair or happy, but it is life.
Unfortunately, those who don't prepare are subjecting themselves to a Darwinian fate of survival of the fittest.
At this point, there have been more than enough "wake up calls".

So I've got to ask - what's the benefit of maintaining an unsustainably high population?
I suggest you watch this:

Reality and idealism can co-exist - but only within the realms of reasonability.
Prepare for some dark times. The problems we're facing are all derivitive of overpopulation.

Thoughts?

Aaron

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