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    Daily Digest – Feb 13

    by Davos

    Friday, February 13, 2009, 2:23 AM

  • Comedy (Video)
  • Economist, Rivlin, Marron, Rogogg and Krugman, Kicking the can down the road? (Video, don’t miss the 7:00 – on point and Part II)
  • Primary Bond Market Flow Chart
  • Fed in Talks to Add Primary Dealers as Sales Surge
  • Home Prices in U.S. Slid 12% in Fourth Quarter, Most on Record
  • Greenspan Says He Was Mystified by Subprime Market
  • New Bailout Plan, Paying The Neighbor’s Mortgage, Rallies Market
  • Stimulus plan compromise
  • Will the stimulus actually stimulate? Economists say no
  • More…
  • Unemployment (Chart, averages now > 600k initial and >800 Continued)
  • Effective Practices in Crisis Resolution and the Case of Sweden
  • Blair: Global economic fallout is nation’s major threat (Hat Tip Christopher Peters)
  • Global economic crisis, economy not terrorism is the biggest threat (Video)
  • States Push to Take Back National Guard
  • RX FOR CITY: 4-DAY WEEK
  • Band-Aids for the Ailing Economy
  • Seven Stages of a Bubble
  • China Tidbits
  • Commodity Snapshot (Chart)

 

Economy 

Comedy (Video)

Economist, Rivlin, Marron, Rogogg and Krugman, Kicking the can down the road? (Video, don’t miss the 7:00 -on point and Part II)

[video:http://www.youtube.com/watch?v=elx5R5gF9is&eurl=player_embedded]

Part II (4:50 point on)

[video:http://www.youtube.com/watch?v=qZzS7b80CJU&eurl=player_embedded]

Primary Bond Market Flow Chart

Fed in Talks to Add Primart Dealers as Sales Surge 

Feb. 12 (Bloomberg) — The Federal Reserve Bank of New York is in talks with at least four firms to expand the network of dealers that underwrite government-bond auctions as the U.S. prepares to sell more than $2 trillion in debt this year. 

MF Global Ltd. and Nomura Securities International Inc. are in discussions to join the 16 so-called primary dealers that trade directly with the central bank and are required to bid at auctions, officials at the companies said. RBC Capital Markets, the investment-banking arm of Canada’s biggest bank, and Jefferies & Co., a brokerage for institutional investors, are in negotiations, according to people familiar with the process.

Treasury Department and Fed officials want to ensure there are enough firms bidding at auctions to keep borrowing costs low after the total number of dealers dropped last year to the lowest amount since the network was formalized in 1960. The Treasury Borrowing Advisory Committee, a market group that works with the central bank, wrote in a memo released Feb. 4 that more dealers would reduce "the possibility of an undersubscribed auction."

"With the contraction in primary dealers in the marketplace over the past year, clearly there’s a need to replace some of them, especially with the increased issuance coming out of the Treasury," said Donald Galante, a senior vice president in New York at MF Global, which he said is in talks with the central bank about a dealership position. 

Home Prices in U.S. Slid 12% in Fourth Quarter, Most on Record 

Feb. 12 (Bloomberg) — Home prices dropped the most on record in the fourth quarter as foreclosures dragged down values and the recession pushed buyers out of the market. 

The median price of a U.S. home declined 12 percent to $180,100 from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, the Chicago-based National Association of Realtors said today. Prices declined in almost nine out of every 10 cities.

The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and the economic recession worsens. The number of Americans collecting unemployment benefits rose to a record 4.81 million in the last week of January as companies such as Caterpillar Inc. and Home Depot Inc. slashed jobs. The U.S. lost 2.6 million jobs last year in the biggest workforce reduction since 1945. 

Greenspan Says He Was Mystified by Subprime Market 

Mr. Greenspan also lays the blame on the ratings agencies and the people that trusted their judgment for the proliferation of the mortgage derivatives that were a major part of the current financial crisis. 

New Bailout Plan, Paying The Neighbor’s Mortgage, Rallies Market 

The market rallied strongly into the close on news that the Administration was planning to offer financial help to deserving homeowners who are falling behind on their mortgages. 

According to Reuters, "The Obama administration is hammering out a program to subsidize mortgage payments for troubled homeowners who have gone through a standardized re-appraisal and affordability test."

That means some taxpayers will be helping cover the mortgage of the person who lives next door to them. In a perverse way that works out. A foreclosure hurts the value of every home in its neighborhood. 

Stimulus plan compromise

Will the stimulus actually stimulate? Economists say no

WASHINGTON – The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won’t stimulate economic activity, according to a range of respected economists.

"I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who’s usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending.

"It’s unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits."

Unemployment (Chart, averages now > 600k initial and >800 Continued)

Effective Practices in Crisis Resolution and the Case of Sweden 

The current financial crisis is a painful reminder that the developed world is not yet immune from these devastating shocks. But while we haven’t learned to prevent them, we have learned some lessons about what is necessary to contain them once they begin and to limit the damage that follows. As policymakers worldwide focus on resolving the current financial crisis, they might look to Sweden as a useful model for effective strategies. 

Blair: Global economic fallout is nation’s major threat (Hat Tip Christopher Peters)

Global economic crisis, economy not terrorism is the biggest threat (Video)

States Push to Take Back National Guard 

Going on its seventh year, the Iraq war has taken its toll on not only the US military, but also on the states’s National Guard units, which were called up when Congress passed the 2002 Authorization to Use Military Force (AUMF) against Iraq. Now a growing state-level movement is working to keep the Guard at home. 

Its logic: The AUMF’s goals have been fulfilled. The authorization’s explicit purposes were to defend the US against the "threat posed by Iraq" and to enforce UN Security Council resolutions regarding Iraq’s alleged ballistic missiles and weapons of mass destruction. Saddam Hussein – along with his supposed threat – is gone, and the UN resolutions are no longer relevant, so there’s no longer a mandate to keep troops in Iraq.

The president can call up the states’ Guard units in a time of war. But when the mandate for war becomes obsolete, say members of the Bring the Guard Home: It’s the Law (BTGH) campaign, sending those troops overseas is illegal. BTGH members and their allies are now sponsoring a chain of bills and resolutions in states across the country, demanding an investigation into the legality of deploying the Guard to Iraq, and a refusal to comply with any illegal federal orders.

"There is not Congressional authorization for the use of the Guard today," Vermont State Rep. Mike Fisher told Truthout. "One Guard member improperly called into federal service to fight a war – that’s a real problem. Choosing to go to war is one of the most serious decisions that we make. The very least we can do is follow the Constitution." 

RX FOR CITY: 4-DAY WEEK 

The recession-ravaged city should consider imposing a four-day workweek on municipal employees, reducing health and vacation benefits for new workers and adopting pension formulas that don’t count overtime, a study released yesterday found. 

Some of the changes would remedy questionable FDNY pension practices revealed this week by The Post. 

Band-Aids for the Ailing Economy

Seven Stages of a Bubble 

Stage seven – Revulsion 

Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap credit or some unanticipated piece of news. But whatever may be, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in; prices start to tumble downwards, credit dries up, and losses start to accumulate.

Here is the paradox of all bubbles – everyone knows how the fatal combination of easy credit, overtrading and euphoria will affect prices. Minsky didn’t need to write down a thing about the madness of speculation. America’s investors have a lifetime of experience. Within the space of five years, America moved from the tech stock bubble into the real estate bubble.Today’s housing prices are grossly overvalued. Everyone knows that prices will collapse. It might be tomorrow, or it might be two years from now. One thing, however is certain, the longer it takes for the bubble to burst, the more painful it will be. 

China Tidbits 

Job Loss:The Chinese government says that 20 million
migrant workers have "recently lost their jobs," according to state
media. This follows an official statement that 2009 would be "possibly
the toughest year" for economic development in China since the turn of
the century. 

Some 15.3 per cent of China’s 130 migrant workers are now jobless, the Ministry of Agriculture said in a statement.

China says five to six million new migrant workers are trying to enter
the job market every year. "Therefore, about 25 million rural migrant
workers will face huge pressure finding jobs this year," Chen Xiwen,
Director of the advisory body Central Rural Work Leading Group, said.

Chen added that, "The increasing number of jobless migrant workers has posed a fresh threat to the social stability."

UK-based The Guardian newspaper says that, "Some economists say the real figure could ultimately reach 40 million." 

Commodity Snapshot (Chart)

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