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    Daily Digest – Jan 15

    by Chris Martenson

    Friday, January 16, 2009, 12:20 AM

Davos is busy so I am filling in here today…

  • Group Led by Volcker Urges More Oversight of Banks
  • Retail sales dive as holiday spending slumps
  • U.S. 2009 auto sales seen at 27-year low
  • Argentine Peso Worst Latin Currency on Devaluation
  • Economic downturn pounds commercial real estate market
  • Warning that house prices may fall by 80%
  • Group Led by Volcker Urges More Oversight of Banks


Group Led by Volcker Urges More Oversight of Banks

Jan. 15 (Bloomberg) — A group led by Paul Volcker, an adviser to President-elect Barack Obama, called for a regulatory crackdown that would curtail risk-taking by systemically important financial institutions and limit their share of deposits.

Volcker characterized the banking system using “a four- letter word: It’s a mess.”

The panel of former central bankers, finance ministers and academics known as the Group of Thirty advised that regulators impose capital limits on proprietary trading and bar large banks from running hedge funds and private-equity firms that mix their own and their clients’ money. In a report released today, the group also urged governments worldwide to tighten supervision of insurance companies, investment banks and large broker-dealers.

Volcker, former chairman of the Federal Reserve, said at a press conference in New York that he’ll make the recommendations to Obama, adding that the report is “a reasonable indication of the direction in which we might go.” He was named by Obama to lead a panel of advisers on how to pull the U.S. out of the recession.

The financial system has “failed the test of the marketplace,” said Volcker, 81, chairman of the Trustees of the G-30. He endorsed the recommendations as an individual and not as a representative of the incoming Obama administration, the statement said.

Retail sales dive as holiday spending slumps

WASHINGTON (Reuters) – Sales at U.S. retailers dropped a steep 2.7 percent in December, government data showed on Wednesday, as a deteriorating economy forced consumers to cut back on spending during the key holiday period.

The dour data suggested the economy shrank even more sharply than had been thought in the fourth quarter, setting the stage for another big drop at the start of 2009 and raising chances the more than year-old U.S. recession will be the longest since the Great Depression.

"The U.S. consumer is reeling … the weakness in spending will likely continue through 2009 as households tighten their belts further," said Benjamin Reitzes, an economist at BMO Capital Markets in Toronto.

U.S. 2009 auto sales seen at 27-year low

DETROIT (Reuters) – U.S. auto sales in 2009 should fall about 13 percent and reach their lowest level in 27 years, pressuring the U.S. economy and pushing some automakers closer to the verge of collapse, industry analysts said on Tuesday.

Automotive forecasting firm J.D. Power and Associates expects U.S. light vehicle sales for the year to fall to around 11.4 million units, while Deutsche Bank expects sales of 11.5 million units, representatives said at a Society of Automotive Analysts (SAA) roundtable on the sidelines of the North American International Auto Show.

That would be the lowest sales figure in the United States, the world’s largest car market, since the 10.5 million units sold by automakers in 1982.

Argentine Peso Worst Latin Currency on Devaluation

Jan. 13 (Bloomberg) — Argentina is starting to catch up with Brazil in devaluing its currency, helping Buenos Aires yarn maker Marcelo Prim at the risk of igniting inflation and a run on the nation’s banks.

Prim, 45, halted exports, sent workers home early and cut production by almost a third as demand for Hilados Edolan SA’s acrylic yarns evaporated after the Brazilian real weakened 33 percent against the dollar since August. Argentine exports to Brazil, Latin America’s biggest economy, fell 16 percent in November to $1.1 billion, the biggest monthly slide since January 2007, according to government data.

“The currency sank, and they stopped importing,” said Prim, director of Edolan. “We lost our competitive edge.”

Warning that house prices may fall by 80%

IRELAND will see more demolition than construction of houses over the next decade, as the economy struggles to recover from the collapse of the housing market and the emergence of “zombie” banks, UCD economist Morgan Kelly told the conference.

In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.

“Construction, but not demolition, of residential and commercial property will fall to zero for the foreseeable future,” he said.

Economic downturn pounds commercial real estate market

Contractors, investors and developers are bracing for what could be the worst real estate crunch since the early 1990s, when the industry built a small city’s worth of speculative office buildings that later went begging for tenants. Commercial property sales plunged 73% last year, according to Real Capital Analytics. Vacancy rates are rising, and hundreds of large properties are in default. The American Institute of Architects’ billing index, a leading indicator of construction six months ahead, is at a record low. Unemployment in the construction industry is 15.3%, well above the average 7.2% jobless rate.

"This is a rolling problem that’s only going to get worse," says Jeffrey DeBoer, president of the Real Estate Roundtable, estimating that about $400 billion worth of commercial real estate mortgages will come due by the end of 2009. Investors and developers might have trouble refinancing many loans, due to tight credit and falling rents and property values.

"Businesses need to be able to access the credit market when their debt comes due and their business needs require. Right now, they’re not able to," DeBoer says.

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