Daily Digest

Daily Digest - May 10

Monday, May 10, 2010, 10:45 AM
  • New York Lawmakers Weigh Worker Furloughs in Stop-Gap Spending Bill
  • Showdown Possible Over New York State Worker Furlough Plan
  • The Canary is Dead
  • Cumulative Bank Failures reported by FDIC
  • ECB to Intervene in Bond Market to Fight Euro Crisis
  • U.S. Debt Shock May Hit In 2018, Maybe As Soon As 2013: Moody's
  • Mauldin: The Center Cannot Hold
  • Summary Of The Biggest Bail Out Ever: Even Keynes Is Spinning In His Grave
  • The Latest US Taxpayer Bill To Save Europe, And Specifically The French Banks: $57 Billion
  • Europe Prepares Nuclear Response To Save Monetary Union
  • Open Letter to EMU Heads of State
  • BP Mulls Gusher Options


New York Lawmakers Weigh Worker Furloughs in Stop-Gap Spending Bill (pinecarr)

New York legislative leaders said they expect an emergency spending bill to pass today, forcing 100,000 state workers to take an unpaid day off each week.

Showdown Possible Over New York State Worker Furlough Plan (pinecarr)

Austin Shafran, spokesman for the Senate Democratic majority, said there were "substantial legal issues with the Paterson's proposal to reduce hours for workers under a collectively bargained contract.

"Nobody seems to want to do anything except distract everybody from what the problems are," Paterson said in a news conference.

The Canary is Dead (pinecarr)

In the early days of coal mining, canaries acted as a warning that odorless poisonous gas was present. If there was a dangerous gas build-up, the canary would be the first to keel over. You can use the “canary in a coal mine” metaphor to describe the situation in today’s financial world. Greece is the canary. The poisonous gas is debt. Greece has just keeled over, and the rest of the world is running scared.

Cumulative Bank Failures reported by FDIC (chart) (Ben Johnson)

With the 68 closures so far this year, the pace of bank failures this year is double that of 2009.

ECB to Intervene in Bond Market to Fight Euro Crisis (Ben Johnson)

The European Central Bank said it will buy government and private bonds as part of an historic bid to stave off a sovereign-debt crisis that threatens to destroy the euro.

The ECB wants “to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy,” the central bank said in a statement at 3:15 a.m. in Frankfurt. The announcement came less than an hour after European finance ministers unveiled a loan package worth almost $1 trillion to staunch the market turmoil.

U.S. Debt Shock May Hit In 2018, Maybe As Soon As 2013: Moody's (mhoop)

"Nobody knows when you bump up against the limit, but you know when it happens it will really hurt," said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.

The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America's 'AAA' status haven't added much clarity — until recently.

Mauldin: The Center Cannot Hold (JRB)

We once again find ourselves on a Minsky Journey to a rather fraught Minsky Moment. Hyman Minsky famously taught us that stability breeds instability. The more things stay the same, the more complacent we get, until Bang! We always seem to think this time is different, and it never is.

Summary Of The Biggest Bail Out Ever: Even Keynes Is Spinning In His Grave (pinecarr)

The race to the currency devaluation bottom is now in its final lap.

The Latest US Taxpayer Bill To Save Europe, And Specifically The French Banks: $57 Billion (pinecarr)

The latest (and certainly not last) IMF portion of the European bail out is E220 billion, or $287 billion at today's exchange rate. As the US and its taxpayers represent roughly 20% of total IMF funding, today's 3% loss in dollar purchasing power to the middle class will cost the middle class $57 billion.

Europe Prepares Nuclear Response To Save Monetary Union (pinecarr)

Are Europe's leaders grasping the nettle at last? Faced with the imminent disintegration of monetary union, they appear poised to create the beginnings of an EU debt union and authorize the European Central Bank to step in immediately to stabilize the eurozone bond markets.

Open Letter to EMU Heads of State (pinecarr)

The point is, these Central Bankers do have a secret "Nuclear Option" at their disposal (other than printing more euros). And they WILL use it if and when they are backed into a corner. They know it's going to blow up on its own soon anyway, so they have no guilt about it. But in their back pocket they have a secret trigger, just in case. But the question for you, Angela, Nick, Silvi, Jose, Jan and Yves is, Will they use it in time to save your political careers, or will they only use it if it is needed to save their own butts?


BP Mulls Gusher Options (JRB)

With crippled equipment littering the ocean floor, oil company engineers scrambled to devise a fresh method to cap the ruptured well. Their previous best hope for containing the leak quickly, a four-story containment box, became encrusted with deep-sea crystals Saturday and had to be cast aside.

Please send article submissions to: [email protected]


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Re: Daily Digest - May 10
1) "nuclear option" (see also news above in the DD posted by pinecarr)

"The European Central bank will buy government and private debt to keep debt markets working and lower borrowing costs, a crisis measure dubbed the "nuclear option," while the U.S. Federal Reserve joined with other central banks in the effort, reactivating a currency swap program used during the earlier stages of the financial crisis to ship dollars overseas to be pumped into banking systems as short-term credit."


...................1B) Euro-Area Central Banks Are Buying Government Bonds

"“We confirm that we are buying today,” said a spokesman for Germany’s Bundesbank in Frankfurt. The Bank of France and Bank of Italy also said they have started purchasing government bonds. The 16 national central banks of the euro region are acting under the umbrella of the European Central Bank, which announced the program early this morning.

The euro strengthened 2 percent and stocks climbed around the world after European policy makers unveiled a $960 billion loan plan overnight to end a crisis of confidence in the currency that was triggered by Greece’s budget deficit. The ECB, whose resistance to buying government bonds last week exacerbated market turmoil, this morning said it will purchase assets to “ensure depth and liquidity.” "

...................1C) Oil Rises Most in Seven Months as Euro Leaders Agree on Bailout

....................1D) Euro Will Resume Decline to $1.20, Barclays, UBS Say

"CARACAS (Dow Jones)--Venezuelan President Hugo Chavez responded Sunday to what could become an out-of-control inflation problem, promising swift action that includes unleashing the military to nail merchants who unfairly raise prices. "

"Redevelopment agencies throughout California are expected to relinquish "under protest" $1.7 billion to counties' auditors today to meet a deadline for helping fund local education during the state budget crisis.

The California Redevelopment Association last week lost its initial bid to block a Sacramento Superior Court ruling requiring the payments. The first of two payments is due today, another $350 million is due for the next fiscal cycle, which ends June 2011."

"Chinese automakers are finally making their move on the U.S. auto scene. Geely Automotive in March finalized a deal to buy Swedish automaker Volvo from Ford. And BYD, the fastest growing Chinese automaker, has opened an office in Los Angeles and hopes to deliver its first vehicles to California consumers by the end of 2010. "

"The state budget crisis has been quiet for the past few months but will return to center stage this week as Gov. Arnold Schwarzenegger prepares to belt out some bad news.

The governor is scheduled to release an updated budget plan Friday that will probably include even deeper cuts than those he proposed in January, when he called for reductions in health and human services, prisons, education and state worker pay, among other areas."

"WASHINGTON (AP) -- Fannie Mae has again asked taxpayers for more money after reporting a first-quarter loss of more than $13 billion.

The mortgage finance company, which was rescued by the government in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses.

Fannie Mae says it lost $13.1 billion, or $2.29 per share, in the January-March period. That takes into account $1.5 billion in dividends paid to the Treasury Department. It compares with a loss of $23.2 billion, or $4.09 a share, in the year-ago period.

The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request for aid will bring Fannie Mae's total to $83.6 billion. The total bill for the duo will now be nearly $145 billion.

Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie, lifting an earlier cap of $400 billion.

Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages."

................6A) indefinite future

""Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future," the company said."

"You've suggested bankruptcy as an option for L.A.; it's a word most people associate with failure and misery.

Bankruptcy is not a bad word. Bankruptcy means that you can go into court, restructure so you can continue to function. Insolvency is a bad word. Insolvency is when you don't have the money to pay ordinary creditors, so right now L.A. is headed quickly into insolvency. Within the next three years, the payments on pensions are going to go up from $1 billion to $3.5 billion, and we're having trouble paying [even] that $1 billion. I tell the mayor and the council, if we continue the same pension programs, the same healthcare programs, we will absolutely go into bankruptcy because [it's] the only way we will be able to survive."

        Maximum Payout/
  Notional Amount by Period of Expiration (1)
    Value of
    Net Liability   2010   2012   2014   Thereafter   Total
    (in millions)
As of March 2010
Derivatives (2)
  $ 6,598     $ 155,292     $ 173,598     $ 51,637     $ 63,701     $ 444,228  
Securities lending indemnifications (3)
          27,728                         27,728  
Other financial guarantees (4)
    190       352       329       344       961       1,986


........................8A) Goldman Has Zero Trading Loss Days In Last Quarter (Zerohedge)


Latest Observations:

Date 2009-12 2010-01 2010-02 2010-03 2010-04
Value 6130 6313 6133 6547 6716
Last Updated: 2010-05-07 8:46 AM CDT 
  • Other news stories and headlines:

Britons resort to selling body parts to clear debts

California's Kids Fall Deeper into Poverty, Homelessness

Full text of EU crisis mechanism agreement

New Jersey Build Americas Push Year-Old Debt Past $100 Billion

China’s Central Bank Sees Price Threats, Europe Crisis Risks

saxplayer00o1's picture
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Re: Daily Digest - May 10

This confirms what Zerohedge wrote about Goldman:

" May 10 (Bloomberg) -- Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before.

Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time.

Goldman Sachs, which is facing a fraud lawsuit from the SEC related to the sale of a mortgage-linked security in 2007, generated $9.74 billion in trading revenue in the first quarter, exceeding all of its Wall Street competitors. Trading accounted for 76 percent of first-quarter revenue. The lack of trading losses could add to the perception that Goldman Sachs has an unfair advantage in the markets, said one shareholder. "

"May 10 (Bloomberg) -- Moody’s Corp. fell 8.1 percent to its lowest price since October after it disclosed that the U.S. Securities and Exchange Commission is considering cease-and- desist proceedings against it.

Moody’s is among credit-ratings companies that face scrutiny by Congress and state insurance regulators after it assigned top grades to U.S. subprime-mortgage bonds just before that market collapsed in 2007. The company said May 7 in a regulatory filing that it received a “Wells Notice” from the SEC in March related its application to become a nationally recognized statistical ratings company. "

Roach Says Debt Crisis Raises Risk of ‘Double Dip’ Recession

New Jersey Democrats Seek Millionaire Tax Surcharge

printfaster's picture
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Re: Daily Digest - May 10

Everyone seems to want to forget that sovereign debt has a ultimate value of zero.  Swapping for EU currency, or trading Bunds for Greek tragedy bonds is all futile.

This holds true for all debt backed currency.  Currency that is backed by debt is valued at what can expect to collect at the time the debt is collectible.

All sovereign debt can be repudiated instantly.  Tsarist bonds anyone?  We currently have a money system based on faith, and the world is increasingly atheist and faithless, to complete the irony.  I guess that it all amounts to having faith in mammon above all gods.


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Re: Daily Digest - May 10

BERLIN, May 10 (Reuters) - German Chancellor Angela Merkel said on Monday the European Central Bank would not raise money supply to buy state bonds as part of a global emergency package to stabilise the common European currency.

A money supply boost will thus not be part of the plan agreed by EU finance ministers early on Monday to provide standby funds and loan guarantees to prevent Greece's debt crisis spreading to other euro zone states.

"Additional money supply will not be created to buy government bonds, rather money supply will be kept within limits existing today," she said at a news briefing in Berlin.

The rescue package, which along with IMF funding is worth about 750 billion euros ($1 trillion), can be tapped by euro zone governments struggling to obtain credit, and includes central bank liquidity measures and bond purchases to steady markets.


Ok..so they say they won't raise the "money supply" but keep it within the limits that exist today.  Yet later is says they will use "central bank liquidity" measures.  Doesn't "liquidity" imply QE measures or are they referring to swaps?  I suspect they are using political double-talk but know they are going to be printing more fiat money.  Thoughts?

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Re: Daily Digest - May 10

This is from the "nuclear option" article that SaxPlayer included in his 1st comment:

Van Rompuy [EU President] called on European leaders to show "political courage" and push through changes to make Europeans work harder and work for longer. "It needs some sacrifices but it is worthwhile in the longer term," he said. "We have to focus on the longer term to keep the European way of life feasible."

He called for a radical overhaul of the way that European governments handle their economies, saying that they needed to consider pooling their national powers and create a joint economic government.

"We can't have a monetary union at the end without some form of economic and political union and that is our big task for the coming weeks and the coming months," he said. [bold mine]

Hmmm, funny how that seems to be working out .... If I were one to question "who benefits from the current crisis?", I'd sure find that latest piece of news interesting...

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Re: Daily Digest - May 10

dcm's picture
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Re: Daily Digest - May 10

Is that Fanny Mae or Fanny My? Maybe we could join the Euro. They don't follow their debt / bail out rules either. 

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Re: Daily Digest - May 10

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Re: Daily Digest - May 10

pinecarr's picture
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Re: Daily Digest - May 10

idoctor, thanks for the Celente and Faber clips; it's always interesting to hear what they have to say!

BTW, NYS passed the budget extension that included the furlough of state workers tonight, per a coupleof the articles I submitted to the Daily Digest this morning.  That hits close to home, as my husband works for the local NY state college.  We are lucky to have two incomes, and have always been careful to live within our means, so we will be ok.  But we have friends/coworkers who are in tougher financial situations, who are pretty upset and scared about the 1 day a week (20%) salary cuts. Supposedly this is a temporary measure -something like 5 or 8 week- until the budget gap has been addressed.

Here's a related article: http://www.businessweek.com/news/2010-05-10/n-y-lawmakers-pass-job-furloughs-for-100-000-in-emergency-bill.html.  I knew other states, like California, were also having problems.  But I was surprised by this passage in the article:

At least 75 percent of U.S. states have eliminated vacant government jobs and more than half have used layoffs or furloughs to close budget gaps since the recession began in December 2007, according to a compilation by Stateline.org, a nonprofit research group.[bold mine]

Looking on the bright side, it is getting harder for my husband to stay in denial about what's going on in the economy...Frown

saxplayer00o1's picture
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Re: Daily Digest - May 10

"May 10 (Bloomberg) -- The cost to protect bank bonds from losses and money markets show investors are concerned that the almost $1 trillion rescue package announced by European leaders may not be enough to contain the region’s sovereign debt crisis."


"Claims typically increase in a bad economy because many people who worked despite their disabilities get laid off and apply for benefits.

About 3.3 million people are expected to apply for benefits this year. That's 300,000 more than last year and 700,000 more than in 2008."


Hope You Enjoyed the Housing Recovery ... Because It's History, Says Suttmeier (Video)

Greece May Have Rating Lowered to Junk, Moody’s Says (Within the next month)

Euro Erases Gains Spurred by Near $1 Trillion Loan Package

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Re: Daily Digest - May 10

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Re: Daily Digest - May 10
BP Violations Were 'Red Flags,' Says Suit
May 10, 2010
NEW ORLEANS (CN) - The explosion of BP's Deepwater Horizon oil rig was preceded by a string of near-cataclysmic incidents in BP operations that should have been "red flags" announcing the likelihood of a major explosion, a shareholder says. Yet BP's Board of Directors ignored crucial safety issues, cut corners, violated U.S. law and spent millions lobbying Congress to fight regulations for the sake of making a buck, according to the federal derivative complaint.
Katherine Firpo says the company was violating U.S. when the Deepwater Horizon exploded while drilling at 22,000 feet - 2,000 feet deeper than allowed by its federal permit. Firpo says that alone shows that the BP Board of Directors cannot be trusted and has no regard for safety or regulations.
Firpo claims that on April 27, the day the U.S. Coast Guard worked with BP engineers to guide remote-controlled submarines nearly 1 mile deep in a futile effort to close the shut-off valve on the Deepwater Horizon, BP officers bragged to investors that the company's most recent quarterly earnings had beaten analysts' expectations by a large margin.
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2 May 2010 ... Traders piled into stocks last Thursday when the news of a Greek bailout hit the wires. Stocks soared back to near highs as euphoria swept ...
pragcap.com/another-greek-bailout-another-monday-melt-up - United States - Cached

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