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WHAT THE EXPERTS (AND
OTHERS) ARE SAYING...
“This is a financial crisis that became an economic crisis that’s becoming a massive
jobs crisis that will become a human crisis,” Angel Gurria, OECD Secretary General
“Our wallet is empty. Our bank is closed. And our credit is dried up.”
The problem with bubbles,
is that each bubble has to be bigger than the previous one and they only temporarily stimulate the economy. Another stimulus
package would only make matters worse.
“The whole economic
expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work
… to the Wall Street elite,” ... "Total employment in the US today is lower than in 2000.'...Marc Faber
If that prediction is even close to correct, it suggests the faint signs
of economic recovery that have popped up recently -- the rallying stock market and "less bad" unemployment and housing figures
-- may be illusory. After all, the economy probably won't strengthen as long as major banks are cutting back on lending...Tim
We have been told by that usual bringer of bad tidings, George Soros, that the “economic freefall” has stopped.
The normally cautious president of the European Central Bank, Jean-Claude Trichet, has identified a slowing down of the rate
of decrease in gross domestic product and, in some cases, "already picking up". The Organisation for Economic Co-operation
and Development composite leading indicator shows at least a slight uptick. The admittedly highly erratic Easter UK retail
sales figures show an actual increase and surveyors report more property inquiries. Financial commentators talk of “green
shoots” and one of them has even suggested that the recession came to an end in April. So – Bank of England dissenting
– everything is all right and we can get back to normal life.
Except that it isn’t. It is perhaps unfair to cite the continuing horrifying rise in unemployment in so many countries.
For that is admittedly a lagging indicator. A better reason for being suspicious is that so much of the new optimism is associated
with a very recent recovery in equities. These lost up to half their value in the key US and UK markets, but have come less
than a third of the way back since early March. Paul Samuelson once said that the stock market had predicted eight of the
last five recessions. The same might be said of recoveries....Samuel Brittan in FT
January: “We start 2009 in the midst of a crisis unlike
any we have seen in our lifetime – a crisis that has only deepened over the last few
February: Economic crisis 'not as bad as we think'
are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them.
And if all those financial institutions fail at the same time, then you could see an even more destructive recession and potentially
"...the worst thing that we could do in a recession this severe is to try to cut government spending
at the same time as families and businesses around the world are cutting back on their spending. So as serious as our deficit
and debt problems are – and they are very serious – major efforts to deal with them have to focus on the medium
and long-term budget picture.
in tackling the deficit issue, we simply cannot sacrifice the long-term investments that we so
desperately need to generate long-term prosperity.
the problem with our deficit and debt...has been building dramatically over the past eight years,
largely because big tax cuts combined with increased spending on two wars and the increased costs of government health care
programs...if we want to get serious about fiscal discipline – and I do – then we are going to not only have to
trim waste out of our discretionary budget, a process we have already begun – but we will also have to get serious about
from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond
that, way off in the distance, we can see a vision of an America’s future that is far different than our troubled economic
May: "Wall Street will remain a big, important part of
our economy, just as it was in the ’70s and the ’80s. It just won’t be half of our economy. And that means
that more talent, more resources will be going to other sectors of the economy. And I actually think that’s healthy.
We don’t want every single college grad with mathematical aptitude to become aderivativestrader.
We want some of them to go into engineering, and we want some of them to be going into computer design. And so I think what you’ll see is some shift, but I don’t
think that we will lose the enormous advantages that come from transparency, openness, the reliability of our markets. If
anything, a more vigorous regulatory regime, I think, will help restore confidence, and you’re still going to see a
lot of global capital wanting to park itself in the United States."
...our economy has become more addicted than ever
to low interest rates. But because bank assets will now be collecting income at record low rates, when and if the Fed tries
to raise rates it will only be able to do so on the margin. If Bernanke raises rates substantially to fight inflation, banks
will be paying out more on deposits than they collect on their income streams. Couple that with their already distressed balances
sheets and look out!
Additionally, not only do the consumers need low rates to keep their Financial
Obligation Ratio low, but the Federal government also needs low rates to ensure interest rates on the skyrocketing national
debt can be serviced. Our projected $1.8 trillion annual deficit stems from the belief that the government must expand its
balance sheet as the consumer begins to deleverage. In fact, both the consumer and government need to deleverage for total
debt relief to occur, else we're just shuffling debts around and avoiding a healthy deleveraging entirely.
In order to have viable and sustainable growth total debt levels must decrease,
savings must increase and interest rates must rise. But that would require an extended period of negative GDP growth-a completely
untenable position for politicians of all stripes. Ben Bernanke would like you to believe inflation will be quiescent and
he can vanquish it if it ever becomes a problem...IRA
The economy is cratering, so the Fed is printing money. When the Fed prints money, this eventually produces inflation (more
dollars, same amount of goods).
Ben Bernanke assured us yesterday that, this time, the Fed's money-printing won't eventually lead to inflation because
the moment the economy begins to recover, the Fed will stop printing money and start burning it. Specifically, the Fed will
start selling assets instead of buying them and thus shrink the money supply. Unfortunately, Ben is unlikely to keep this
• First, it will be hard to confidently assert that the economy in full recovery. Remember, in 2007,
Ben (and most other people) thought the economy was in great shape as far as the eye could see. He and most other observers
missed that disastrous turning point. So why do we think he'll correctly spot the next one? Especially because, if he blows
it by jacking up rates too early, he'll kill the recovery.
• Second, there will be intense political pressure to MAKE SURE that the economy is in rip-roaring health
before hammering consumers and businesses by raising interest rates. Everyone loves low interest rates. And they'll
only stop screaming about your taking them away when they're fat and happy (which will be long after inflation really gets
• Third, the US government desperately needs low interest rates to fund its soon-to-be-monstrous debt load,
so there will be another source of pressure on Ben to keep rates low. When we finish with all this stimulus, we're
going to owe a boatload of money. We're really going to allow our Fed chief to send interest rates to the moon and jack up
our refinancing costs?
• Fourth, many of the assets that Bernanke has been buying to print money won't be easy to sell. This
time around, the Fed isn't just buying easy-to-sell Treasuries. It's buying trash mortgage assets, et al. To reduce the money
supply, it will need to sell them to someone. But who?
...we're now officially addicted to low interest rates and...Bernanke will be both unwilling and unable to raise them significantly
when the time comes. And the failure to raise, them, of course, will lead to hyper-inflation.
The better answer? Stop denying reality and force the country to take its losses. Restructure existing debts, instead of
encouraging people to borrow more. That, after all, is what got us into this mess in the first place.
The IMF's experience of 122 banking crises around the world had taught it that
economic recovery was impossible until banks were cleaned up, whether this was done quickly or slowly.
The United States
is experiencing “the greatest financial crisis since the Great Depression,” Simon Johnson, former chief economist
for the International Monetary Fund, said. He projected
that economic recovery will be sluggish, perhaps imitating Japan's experience during the 1990s except on a global scale. And
while he did not mention the word “stagflation,” Mr. Johnson did say the sluggish U.S. recovery could be accompanied
by rising unemployment and inflation.
another former IMF economist speaking at the same Washington forum, predicted Tuesday that personal consumption during the
current economic downturn will plunge by the largest amount of any postwar recession, while the unemployment rate will take
its biggest leap in more than 60 years. By those
standards, this would be the steepest recession in the postwar period, Mr. Mussa said....WT, 4/8/09
Joseph E. Stiglitz
THE Obama administration’s
$500 billion or more proposal to deal with America’s ailing banks...is a win-win-lose proposal: the banks win, investors
win — and taxpayers lose...The main problem is not a lack of liquidity. If it were, then a far simpler
program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble
and were highly leveraged. They have lost their capital, and this capital has to be replaced...What the Obama administration is doing is far worse than nationalization: it
is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one
partner robs the other. And such partnerships — with the private sector in control — have perverse incentives,
worse even than the ones that got us into the mess.
La crisis económica es mundial y la desconfianza de los ciudadanos se extiende por todo el
planeta. En algunas áreas geográficas, como en los países árabes, la perspectiva es menos pesimista, pero ya nadie cree que
no va con ellos lo que está sucediendo en la economía global. La consecuencia más inmediata es que la mayoría de los ciudadanos ha decidido reducir sus gastos, por si todavía faltan más debacles en actividades insospechadas. La desconfianza
sobre la forma de manejar la crisis los gobiernos y la poca credibilidad del sistema financiero nos lleva a una falta de credibilidad
tan global como la propia crisis.
Ésta es la principal conclusión del barómetro mundial sobre la crisis financiera realizada
por la prestigiosa compañía Worldwide Independent Network of Market Research (WIN)...Maite Vazquez del Rio, ABC España.
Soros: Insolvente, el sistema financiero en EU
México, 6 de abril.- El empresario e inversionista George Soros
aseguró que la economía estadounidense está en la "desaceleración final" y no se recuperaría este año, mientras que el "sistema
financiero como un todo es básicamente insolvente". En entrevista con agencias
internacionales, Soros aseguró que mientras la nacionalización de los bancos está "fuera de discusión" dijo que las pruebas
de tensión realizadas por el Tesoro estadounidense en las entidades podrían ser precursores de una exitosa recapitalización. Pero advirtió sobre el peligro de flexibilizar las reglas contables del sistema financiero
y dijo que esto crea las condiciones para prolongar la vida de los bancos "zombies" estadounidenses...El Financiero
the past three decades, the typical income for a family right in the middle of the U.S. economic pack has climbed about 23%.
From $56,375 in the early 1970s, the income in constant 2007 dollars rose to $69,406 by the mid-2000s.
But the variability of that family's income has also
increased. In the early 1970s, annual income in any one year swung in a range of plus or minus $9,546. In other words, a bad
year might turn that $56,375 into 17% less, or $46,829. By the mid-2000s, the range of that annual swing had climbed to plus
or minus $17,692. A bad year in those later years could turn that larger income of $69,406 into $51,714. That's potentially
25% less in any one year.
The increase in variability hasn't been limited to
just one part of the income pyramid. For families in the 10th percentile, those who make more than only 10% of all U.S. families,
income variability started the period at plus or minus 30% and climbed to almost 50% by the mid-2000s. In any one year, the
income of a family in this bracket could deviate by 50% up or down from its average.
For families in the 90th percentile,
who earn more than 90% of U.S. families, income variability climbed from a swing of 16% up or down ($16,860 in the 1970s)
to one of 28% up or down ($43,000 in the 2000s). In dollar terms, that's a potentially disastrous difference.
"Stop for a moment and imagine what would happen to your life
right now if your annual income plunged by $43,000. Even if it eventually rebounded -- and not all do -- could you keep up
your car and mortgage payments, continue your kid's music lessons and keep children on the hockey team?"
Peter Gosselin in "High Wire.
In "The Ascent of Money," Nial Ferguson offers a parallel
trend, an endless cycle enmeshing the worlds of finance, warfare and international politics:
"In the 400 years since the first shares were bought and sold
on the Amsterdam Beurs, there has been a long succession of financial bubbles. Time and again, asset prices have soared to
unsustainable heights only to crash downward again. So familiar is this pattern ... it is possible to distill it into five
"Displacement: Some change in economic circumstances creates
new and profitable opportunities.
Euphoria, or overtrading: A feedback process sets in whereby
expectation of rising profits leads to rapid growth in asset prices.
Mania, or bubble: The prospect of easy capital gains attracts
first-time investors and swindlers eager to mulct them of their money.
Distress: The insiders discern that profits cannot possibly justify
the now exorbitant price of the assets and begin to take profits by selling.
Revulsion, or discredit: As asset prices fall, the outsiders
stampede for the exits, causing the bubble to burst."
In "The War of the World: Twentieth-Century Conflict and
the Descent of the West," Ferguson identified three global factors that "made the location and timing of lethal organized
violence more or less predictable in the last century."
"Ethnic disintegration: Violence was worst in areas of mounting
"Economic volatility: The greater the magnitude of economic shocks,
the more likely conflict was.
"Empires in decline: When structures of imperial rule crumbled,
battles for political power were most bloody."
...Americans lived in a "Made-off" and Ponzi bubble economy for a decade or even longer.
Madoff is the mirror of the American economy and of its over-leveraged agents: a house of cards of leverage over leverage
by households, financial firms and corporations that has now collapsed in a heap.
When you put zero down on your home, and you thus have no equity in your home, your
leverage is literally infinite and you are playing a Ponzi game.
And the bank that lent you, with zero down, a NINJA (no income, no jobs and assets)
liar loan that was interest-only for a while, with negative amortization and an initial teaser rate, was also playing a Ponzi
And private equity firms that did over a $1 trillion of leveraged buyouts (LBOs) in
the last few years with a debt-to-earnings ratio of 10 or above were also Ponzi firms playing a Ponzi game.
A government that will issue trillions of dollars of new debt to pay for this severe
recession and socialize private losses may risk becoming a Ponzi government if--in the medium term--it does not return to
fiscal discipline and debt sustainability.
A country that has--for over 25 years--spent more than income and thus run an
endless string of current account deficit--and has thus become the largest net foreign debtor in the world (with net foreign
liabilities that are likely to be over $3 trillion by the end of this year)--is also a Ponzi country that may eventually default
on its foreign debt if it does not, over time, tighten its belt and start running smaller current account deficits and actual
Whenever you persistently consume more than your income year after year (a household
with negative savings, a government with budget deficit, a firm or financial institution with persistent losses, a country
with a current account deficit) you are playing a Ponzi game. In the jargon of formal economics, you are not satisfying your
long-run inter-temporal budget constraint as you borrow to finance the interest rate on your previous debt, and are thus following
an unsustainable debt dynamics that eventually leads to outright insolvency.
According to Hyman Minsky and economic theory, Ponzi agents(households, firms, banks) are those who need to borrow more to repay both principal and interest
on their previous debt; i.e., Minsky's "Ponzi borrowers" cannot service either interest or principal payments on their debts.
They are called "Ponzi borrowers" as they need persistently increasing prices of the assets they invested in to keep on refinancing
their debt obligations.
By this standard, U.S. households whose debt relative to income went from 65%
15 years ago, to 100% in 2000, to 135% today were playing a Ponzi game.
And an economy where the total debt to GDP ratio (of households, financial firms
and corporations) is now 350% is a Made-Off Ponzi economy. And now that home values have fallen 20% (and they will fall another
20% before they bottom out) and equity prices have fallen over 50% (and may fall further), using homes as an ATM to finance
Ponzi consumption is not feasible any more. The party is over for households, banks and non-bank highly leveraged corporations.
The bursting of the housing bubble, the equity bubble, the hedge funds bubble
and the private equity bubble showed that most of the "wealth" that supported the massive leverage and overspending of agents
in the economy was a fake bubble-driven wealth. Now that these bubble have burst, it is clear that the emperor had no clothes,
and that we are the naked emperor. A rising bubble tide was hiding the fact that most Americans and their banks were swimming
naked; and the bursting of the bubble is the low tide that shows who was naked.
Madoff may now spend the rest of his life in prison. U.S. households, financial
and non-financial firms, and government may spend the next generation in debtor's prison having to tighten their belts to
pay for the losses inflicted by a decade or more of reckless leverage, over-consumption and risk-taking.
Americans, let us look at ourselves in the mirror: Madoff is us and Mr. Ponzi
Recall that military history is written by victors. Economic history is written,
to a degree, by central bankers. In both cases you have to take the official version with a large grain of salt. Doctored
accounts often gain wide circulation in the sphere of economics, too. Unfortunately, false beliefs
are very difficult to overturn by facts, and fallacies play a significant role in economic policy discourse...
Citigroup Inc Chairman Richard Parsons said... that the bank
does not need any more capital injections from the government and expressed confidence that Citi would remain in private hands.
you're doing is buying into the notion that if we just print some more money that we don't have and send it to different states,
we'll create jobs…If that's the case, why isn't Zimbabwe a rich place?"
Zimbabwehas been in the throes of an economic meltdown ever since
the southern African nation embarked on a chaotic land reform program. Its official inflation rate topped 11 million percent
in 2008, with its treasury printing banknotes in the trillion-dollar range to keep up with the plummeting value of its currency.
economist Joseph Stiglitz...warned that stimulus plans launched by governments were "too small" and "too slow" and said the
West should help developing nations through the crisis.
2001 Nobel economics laureate underlined that the 787-billion-dollar plan passed by the US Congress last week was insufficient
compared to the millions of people who are expected to become unemployed..."The
responses of governments are too small, too slow," he said...
heading a UN special commission on the global crisis...He
outlined some of the recommendations the commission is likely to present...They
include western aid to help developing nations out of the crisis, better market regulation, a reform of central bank practices
and of international financial institutions, as well as the creation of a new structure such as a United Nations economic
Another Great Depression?
What's the difference between a financial crisis and a Depression? At least initially, the symptoms appear similar. Banks
won't lend to one another, even overnight. Strong and respected businesses cannot borrow short-term money in the commercial
paper market even though their default rates are negligible.
The banking systems in many countries have ceased functioning and required major government intervention. It is like a
patient experiencing multiple organ failure because the basic circulatory system has gone kaput. Despite urgent measures,
the patient appears unresponsive.
Yes, it's that bad ... but is it the beginning of another Great Depression?
The American Great Depression of the 1930s is the most familiar--and most studied--economic collapse, but it is important
to know that it is not the only one. Other countries suffered prolonged downturns in the 1930s, and many, including Japan,
Mexico, Chile, Argentina, Brazil, New Zealand, Switzerland and Finland have experienced prolonged episodes of below-trend
output in the period since the Great Depression...
...there's a common theme that emerges: It is that unwise policy choices made in the throes of a crisis exacerbate and
prolong the real downturn associated with the crisis. In particular, government policies that affect productivity and hours
of work are most often responsible for throttling economic growth.
That this was true in our Great Depression is now clear. While earlier historians focused attention on the failures of
monetary policy, and on the distortions caused by the Hawley-Smoot tariffs, evidence now points more strongly to policies
that tried to keep wages artificially high (under Hoover and then Roosevelt) and to cartelize industry (under Roosevelt).
OK, now here's the "but" part: Policies matter. Roosevelt was viewed as a great activist leader during the Depression.
In fact, he was a great experimenter, willing to try one thing, then another, to turn the country around. The result was an
economic downturn that lasted for many years longer than it might have.
For many decades following the Great Depression, conventional historians viewed the crash as a failure caused by laissez-faire
policies, rampant speculation and the incompetence of people like Hoover and Andrew Mellon. They attributed the subsequent
recovery to the inspired leadership of Roosevelt and to the role of the government in directing economic activity. We are
beginning to hear these rumblings again, along with rhetoric that is hostile to trade, globalization and immigration, not
to mention a mounting distrust of markets.
These are easy populist positions to adopt, but they are dangerous and false--even dangerously false--because policies
matter. They matter deeply, and once adopted, it is extremely hard for the country to change course....Thomas Cooley
"FASB deserves enormous credit for acknowledging that the mark-to-market
accounting rule exacerbated panic-selling in a downward
market. This new
guidance is an important step to adding more stability to the market, and
fixing the structural problems that prolonged this financial crisis."...Newt Gingrich
New records being set:
-- Japan had a current account deficit of 172.8 billion yen ($1.8 billion) in
January, its first time in the red since January 1996 and much bigger than a forecast of 15.3 billion yen. The deficit came
as the global financial crisis dried up demand for Japanese exports.
-- U.S. PresidentBarack Obamaon February 26 forecast a deficit of $1.75 trillion for
2009, which at 12.3 percent of GDP would be the biggest since World War Two. A $569 billion U.S. budget deficit for the first
four months of fiscal 2009 was a record for the period.
-- China's 2009 budget deficit is expected to leap eight-fold to 950 billion
yuan ($139 billion), its biggest on record.
-- Britain's budget deficit for the fiscal year so far hit a record high and
statisticians warned bank bailouts could raise total debt by up to 1.5 trillion pounds ($2.15 trillion), or 100 percent of
GDP. Public sector net borrowing stood at 67.201 billion pounds between April 2008 and January, the highest since records
began in 1993.
* CORPORATE LOSSES:
-- American International Group Inc reported a $61.7 billion fourth-quarter
loss on March 2, the largest quarterly loss in U.S. corporate history.
-- Royal Bank of Scotland posted the biggest loss in UK corporate history on
Feb 26 with a 24.1 billion pound ($34.3 billion) loss for 2008.
-- Investors pulled a record $155 billion out of hedge funds in 2008 marking
just the second time since 1990 that the industry suffered net annual outflows.
* INDUSTRIAL OUTPUT:
-- Japanese industrial production fell 10.0 percent in January the largest monthly
-- Euro zone industrial production in November fell by a record 7.7 percent
year on year, the steepest drop since records started in 1990.
-- German industrial output in December fell by a record 4.6 percent month on
month and by 12.0 percent from a year earlier.
-- Sweden's yearly inflation rate posted its biggest monthly decline since records
began in the 1950s, eclipsing a 1.0 percent decline in January 1998.
-- Prices fell a monthly 1.3 percent in December 2008 versus a forecast 0.5
percent decline and a 0.8 percent drop a month earlier. The official consumer price data series began in 1980 but before that
there was another monthly cost-of-living indicator that started in 1954.
* INTEREST RATES:
-- The European Central Bank cut interest rates to an all-time low of 1.5 percent
on March 5, the lowest level in the ECB's 10-year history.
-- The Bank of England cut interest rates by 50 basis points to a record low
of 0.5 percent on March 5, their lowest level since the bank was created in 1694.
-- Sweden's central bank cut its key interest rate a record low of 1.0 percent
on February 11, lowering the repo rate, now at its lowest level since its introduction in 1994 and marking the lowest official
Swedish interest rate since records began in 1907.
-- The U.S. unemployment rate rose to a 25-year high of 8.1 percent in February
as employers, axed 651,000 jobs. February's jobless rate was the highest since December 1983. The increase was the biggest
for any month since April 1980.
-- Canada cut a record 129,000 workers in January in its worst job losses since
data began in 1976
-- Ireland's unemployment benefit claims in January hit the highest monthly
level since records began in 1967. Its seasonally adjusted Live Register tally hit 326,100 in January up from 293,100 in December,
the highest ever monthly rise.
* MERGERS & ACQUISITIONS:
-- More mergers and acquisition deals were withdrawn in 2008 than ever before,
with overall activity down 35 percent as more than 1,100 deals were canceled.
-- Gloom over the global economy hurt the Tokyo stock market, with the Nikkei
average hitting a 26-year closing low on March 9, of 7,086.03.
-- Tokyo's Nikkei stock average fell around 42 percent in 2008, the biggest
loss in its 58-year history.
-- World stocks, measured by the MSCI index, on February 24 hit their lowest
level since April 2003
-- Japan's broad TOPIX index touched a 25-year intraday low on March 9.
-- China's stock market fell 65 percent in 2008 in the worst fall in its 18-year
history and the worst performance by major stock market for the year.
-- Britain's goods trade gap with the rest of the world widened to 8.330 billion
pounds ($12.46 billion) in November from 7.631 billion in October, the biggest since records began in 1697. Economists had
forecast a deficit of 7.5 billion pounds.
-- Canada posted a trade deficit of C$460 million in December, its first since
March 1976 when it was C$79 million.
número de casas vacías en EE.UU. llegó a los 19 millones en el cuarto trimestre de 2008, un alza de 6% frente al mismo período
del año anterior. Las tasas de ocupación hotelera han caído de 65,5% hace un año a 55,2% a principios de marzo, según la firma
de estudios de mercado Smith Travel Research. Las plantas manufactureras operaron en febrero a un promedio de 67,4% de su
capacidad, el nivel más bajo desde que la Fed empezó a seguir estos datos en 1948.
El Departamento del Trabajo
informó que el número de nuevas solicitudes de seguro de desempleo cayó la semana pasada a 646.000. El promedio de cuatro
semanas, sin embargo, subió a 654.750, el nivel más alto en 26 años. El total de estadounidenses que recibe seguro de desempleo
saltó a casi 5,5 millones, un nuevo récord.
En general, el número
de desempleados en EE.UU., ajustado por temporada, ascendió a 12,5 millones en los últimos 12 meses, elevando la tasa de desempleo
a 8,1%. Otras 8,6 millones de personas están trabajando a tiempo parcial, pero preferirían tener un puesto a tiempo completo.
Cuando se contabilizan estos trabajadores, la tasa de "subempleo" —un índice más amplio de la capacidad ociosa en el
mercado laboral— llega a 14,8%.
Commercial banks should be separated from investment banks in order to avoid another crisis like the
U.S. is experiencing, according to former Federal Reserve ChairmanPaul Volcker. “Maybe we ought to have a kind of two-tier financial system,”
Volcker, who heads PresidentBarack Obama’s Economic Recovery Advisory Board, said today at a conference at New York University’s Stern
School of Business. Commercial banks would provide customers with depository services and access
to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading,
“relatively free of regulation,” Volcker said. Volcker’s remarks indicated his
preference for reinstating some of the divisions between commercial and investment banks that were removed by Congress’s
repeal in 1999 of the Great Depression-era Glass-Steagall Act. Volcker’s proposals, included
in a January report he wrote with the Group of 30, would allow commercial banks to continue to do underwriting and provide
merger advice, activities traditionally associated with investment banking, he said...Bloomberg
31.8 million Americans
received food stamps at the latest count, an increase of 700,000 people in one month with the United
States in recession
Shares of Citigroup once the world's most valuable bank, tumbled below $1...taking its year-to-date drop
to 85 percent.
Motors Corp.'s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations, and
the company said it may have to seek bankruptcy protection if it can't execute a huge restructuring plan...
The automaker revealed the concerns Thursday in an annual report filed with
the U.S. Securities and Exchange Commission.
"The corporation's recurring losses from operations, stockholders'
deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial
doubt about its ability to continue as a going concern," auditors for the accounting firm Deloitte & Touche LLP wrote
in the report...
"The corporation's recurring losses from operations, stockholders' deficit,
and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt
about its ability to continue as a going concern," auditors for the accounting firm Deloitte & Touche LLP wrote in the
GM warned last month that its auditors may raise the doubts, and industry analysts
said auditors' statements may trigger clauses in some of GM's loans, placing them in default. But the company said in its
filing that it has received waivers of the clauses for its $4.5 billion secured revolving credit facility, a $1.5 billion
term loan and a $125 million secured credit facility...AOL News
Los auditores de General Motors Corporation plantearon "dudas sustanciales" de que la empresa
automotriz pueda continuar sus operaciones...
La empresa reveló esas preocupaciones, planteadas por la firma de contabilidad
Deloitte & Touche LLP, en su informe anual...
GM dijo en su informe que los auditores citan las cuantiosas pérdidas, el declive de las acciones
y la incapacidad para pagar deudas como prueba de que la empresa probablemente no podrá seguir funcionando...
Federal Deposit Insurance Corp. Chairman Sheila Bair said the fund it uses to protect
customer deposits at U.S. banks could dry up amid a surge in bank failures, as she responded to an industry outcry against
new fees approved by the agency.
assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry.
U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.
number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,”
Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate
that the fund balance will approach zero or even become negative.”
Mortgage Bankers Association: one in every eight U.S. households with mortgages ended 2008 behind on
their mortgage payments or in foreclosure as job losses intensified a housing crisis created by
lax lending practices.
48 percent of the nation's homeowners who have a subprime, adjustable-rate mortgage are behind
on their payments
The Bank of England has embarked on something it has never done before in all of its 315-year history. It is creating
new money, quite literally, out of thin air.
The central bank announced on Thursday, after it cut interest rates to a record low of 0.5%, from 1.0%, that the British
government had given it permission to expand its balance sheet by 75.0 billion pounds ($105.4 billion) and to use that money
to buy government bonds and toxic assets that banks have been unable to sell. In buying these assets from its banks, Britain
hopes to encourage more lending to consumers and businesses. The government has set an upper limit to the program at 150.0
billion pounds ($210.9 billion).
The central bank is not creating a new division or hiring new staff to carry out the stategy, known as quantitative
easing, though it has set up a subsidiary, or bookkeeping entry, from which it will be able to transfer the newly created
money to the accounts of banks from which it buys assets.
Nor is the
central bank "printing money" per se--the actual note circulation value in the United Kingdom, which hovers around the 40
billion pound ($56.7 billion) mark, will stay the same. Instead it will increase the reserve balances that commercial banks
maintain with the central bank. The principle is similar, though, in that the Bank of England is creating electronic money
in its accounting system...Forbes
“…the continuing collapse in financial markets around the globe reflected an
absence of faith that the trillions of dollars that governments have deployed to try to contain the damage will do the trick
-- and a realization that, from Europe to Japan to the Americas, the flow of goods and services is drying up…In the
United States, stocks are down 22 percent this year and 55 percent from their peak in 2007…”
Washington Post, 3/3/09
economic conditions worsened in January and February and businesses do not expect improvement until late this year or early
2010, a Federal Reserve survey published on Wednesday said.
economic conditions deteriorated further," the Fed said in its Beige Book summary gathered from districts around the country.
"The deterioration was broad based," the Fed added.
report was taken from information gathered by the San Francisco Fed on or before February 23.
housing markets remained "in the doldrums" in most areas, with only scattered, very tentative signs of stabilization reported,
the Fed said.
for commercial, industrial and retail space also fell, with evidence of more rapid deterioration than previously, the report
Fed's report signaled economic conditions have worsened even after the central bank lowered interest rates to near zero and
pumped hundreds of billions of dollars into the slumping economy, which has been battered by events triggered by the collapse
of U.S. housing markets.
Claudio Loser, a former western hemisphere chief at the International
Monetary Fund, calculates that 40 per cent of Latin America’s financial wealth was wiped out in the first 11 months of 2008 through
falls in stock and other asset markets and currency depreciation. That $2,200bn (£1,440bn, €1,610bn) loss alone could
cut domestic spending by 5 per cent next year, he estimates.
General Motorssaid on Tuesday
that its European arm could run out of money by as early as next month, putting up to 300,000 jobs on the continent at risk.
Fritz Henderson, the struggling Detroit carmaker’s
chief operating officer, said that GM would face a liquidity crunch “early in the second quarter” if emergency
funds from European countries did not materialise.FT, 3/3/09
Richard Abbey, Head of Kroll's London Financial Investigations
Practice, added: "The recession is contributing to the increase in fraud. Previously honest employees may be compelled to
exploit corporate weaknesses as a result of their own financial situation or low morale; or a well-intentioned worker or 'corporate
saviour' could juggle numbers to try and mask the company's true financial position from other stakeholders.
"Companies are more likely to pay closer attention to their balance
sheets during tougher times, which means that the chances of fraud being uncovered are far greater. While controls help reduce
risk, the majority of frauds are still uncovered by accident or as a result of whistle-blowing. This has to change."
Journal International, 3/04/09
Simply put, mark-to-market accounting rules, enforced by the SEC and the government's designated accounting
oversight group, require a company to value -- or "mark" -- assets on its books based on the price they would bring if they
were sold today. In theory, mark-to-market provides good information for potential investors and prevents businesses from
assigning any value they choose -- likely a higher one -- to things they own. But mark-to-market can cripple businesses when
no market for an asset exists, like now. Big banks are struggling to survive -- shares of Citigroup,
once the world's largest bank, closed at $1.02 today -- because their balance sheets are poisoned with assets for which no
market exists. Chiefly, the mortgage-backed securities based on lousy mortgages. No one wants to buy them right now, so that
means no market exists. Some day, there will be a market for those securities. But until there is, banks have to account for
them at fire-sale prices, and that's what's making the banks sick...Frank Ahrens, WaPo, 3/5/09 __________________________________
than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the
recession cut home values by $2.4 trillion last year…An additional 2.2 million borrowers will be underwater if home
prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said
in a report today. Households with negative equity or near it account for a quarter of all mortgage holders….Bloomberg,
The nation is caught in a dangerous cycle in which an endless stream of grim news -- waves
of layoff announcements, signs that banks are teetering financially and negative economic data -- has contributed to anxiety
among American consumers and businesses. That, in turn, has caused further economic weakness. The White House appears to be
moving to arrest that cycle…WaPo, 3/4/09
POLL: LUXURIES VS NECESSITIES
Professor Peter Morici of the University of Maryland, formerly the chief economist for the U.S.
trade representative and one of the best forecasters in the business, has an interesting definition of the difference between
recession and depression.
Recessions, he maintains, are self-correcting, "like
stock marketcorrections that eventually rebound without government intervention. Federal
Reserve interest rate cuts and stimulus tax rebates and spending have shortened the lives and eased the impact of post-World
War II recessions, but those policies did not end them. The economy self-corrected."
By contrast, he argues, "A depression is not self-correcting. Roosevelt administration stimulus packages -- huge deficit spending -- eased the pain but failed to
end the Great Depression. Similarly, President-elect Obama's massive stimulus package, alone, won't fix the U.S. economy."
Morici identifies three structural problems of the current crisis that are not
self-correcting and will require robust government intervention. The first is bad management practices at the large money
center banks. The second is the huge foreign trade deficit, and the third is part of the second: the dependence on imported
"The economy will not recover without fundamental changes in banking and
trade policy," Morici believes. "A large stimulus package, though necessary, will only give the economy a temporary lift,
but then unemployment will rise again and continue at unacceptable levels indefinitely without successively larger stimulus
packages and huge federal budget deficits. The economy is in a depression, not a recession."
President-elect Barack Obama will find a great deal of support in reforming
the banks and ensuring that they reward the federal government's loans and guarantees by renegotiating mortgages and making loans to creditworthy businesses.
It will be tougher to fix the trade deficit, particularly when putting more
money into consumers' pockets through tax cuts is likely to result in more imports of cheap Chinese consumer goods. Morici,
a longtime critic of China's manipulation of its currency to keep its exports competitive, wants tough measures against China.
"Fixing trade with China
will require a tax on dollar-yuan transactions if China continues to refuse
to stop subsidizing dollar purchases of yuan to prop up its exports and shift Chinese unemployment to the U.S. manufacturing sector," Morici claims.
Many economists fear this could start the kind of protectionist trade war that
made the 1930s Depression so much worse by strangling world trade. And Morici's argument on the energy deficit is also likely
to be controversial, although it makes eminent sense.
"The ideology of the last decade was self-regulation,
which means no regulation. If we don't want a backlash against trade, we have to have prudential regulation of the financial system."
Nouriel Roubini, New York University Economist
World Economic Conference 2009, Davos.
Japan is suffering
its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years.
Meanwhile, the job market in the United States,
at the picentre of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had
predicted just months ago. Even China,
whose economy still is growing at a 6.8 percent annual pace, is grappling with vast numbers of the unemployed, raising fears
WaPo, Feb 18, 2008
"Our world is far different than the world my grandfather lived in when the
first Stanford company was founded ... As a company founded in the midst of the Great Depression
-- an environment of despair and negativity -- we have a long-proven understanding of how even the most severe downcycles
can bring opportunities that yield significant benefits in the long run."…Allen Stanford
The StanfordFinancial Group, through itspolitical
action committeeand employees, has contributed $2.4 million to
political candidates, parties and committees in the U.S. since 1989, with nearly two-thirds going to Democrats, according
to the Center for Responsive Politics, a group that tracks campaign spending….in the Senate...the biggest
Sen. Bill Nelson, D-Fla. ($45,900);
Sen. John McCain, R-Ariz.
Sen. Chris Dodd,
D-Conn. ($27,500); and
Sen. John Cornyn, R-Texas ($19,700).
Rep. Pete Sessions, R-Texas also received $41,375.
and his wife Susan also donated $931,100 of their own money, with 78 percent going to Democrats, including $4,600 to PresidentBarack Obama's presidential campaign last May 31…
"Germany will not refuse to (financially) support the IMF if necessary," German Chancellor Angela
Remittances sent home by Ecuadorians living
abroad fell 22 percent in the fourth quarter of last year relative to the same period of 2007, the Central Bank said. The total value of money transfers to Ecuador between October and December 2008 came in at $643.9 million, $181.7 million
less than the amount registered in the fourth quarter of the previous year… The decline was due in large part to the
global financial crisis and especially the economic slowdown in the United
States, where an estimated 1.5 million Ecuadorians - half of that nation's total emigrant
population - reside….
UK “Public debt is in danger
of rising to £1,200bn – or 80 per cent of national income – in the next three years, double the level the government
thought possible a year ago, as recession tightens its grip on the country. A sharp drop in tax revenues over the past three
months, coupled with mounting likely losses in the banking sector, will force the government to confront much higher public
borrowing when it presents the Budget in April.”FT
prices rose above $1,000 an ounce Friday, for the first time in nearly a year, as stocks fell to multi-year lows and investors
flocked to the metal to preserve capital.CNN 2/20/08
published on the Madoff scandal. Madoff: Corruption, Deceit, and the Making of the World’s Most Notorious Ponzi
Scheme by Peter Sander (available on line see below):
Fifty billion is
about $163 for each of the 305 million people estimated to be living in the U.S.
in December 2008.
Fifty billion is
more net worth than Warren Buffett accumulated in sixty years of investing.
Fifty billion is
more than all but six U.S. states spend
Fifty billion is
more than the annual budgets of the U.S. Departments of Labor, Interior, Transportation, Treasury, and NASA—combined.
U.S. Federal Reserve chairman Ben Bernanke said on Friday that small
banks were understandably angry about Wall Street bailouts, and called for a better way of allowing huge financial firms to
Mr. Bernanke said he saw no "realistic alternative" to preventing the
disorderly collapse of large companies, and reiterated that the economy cannot fully recover unless some reasonable degree
of financial stability is restored.
"Many of you likely are frustrated, and rightfully so, by the impact that
the financial crisis and economic downturn has had on your banks, as well as on the reputation of bankers more generally,"
Mr. Bernanke said in a speech to a community bankers convention.
"You may well have built your reputations and institutions through responsible
lending and community-focused operations, but nonetheless, you now find yourselves facing higher deposit insurance assessments
and increasing public skepticism about the behavior of bankers -- outcomes you perceive were largely caused by the actions
of larger financial institutions."
Everyone is talking about trying to save the banks,
but the one thing they're missing is that in order to save the banks or the Big Three or any other
company, we must first rescue something else from the brink of collapse: our values.
what Ben Bernanke or Timothy Geithner tell you, we do not have a liquidity problem in this country. There is no shortage of
cash. But there is a major shortage of the currency more important than the almighty dollar and that's honor, honesty and
financiera mundial que supera a lo sucedido en 1930, generada por la ola especulativa del sector inmobiliario en contubernio
con el sector bancario, ha creado un resquebrajamiento del mercado en general, los grandes monopolios y especuladores tanto
del sector inmobiliario como de la bolsa de valores crearon papeles basura sobrevalorados para financiar créditos hipotecarios
con garantías subvaloradas. En resumen estos son los causantes del inicio de una serie de acontecimientos económicos graves
que están afectando al mundo entero...La Gaceta, Ecuador
“Suppose you spent $1 million every single
day starting from the day Jesus was born — and kept spending through today. A million dollars a day for more than 2,000
years. You would still have spent less money than Congress just did.” …TV ad
"En este punto, con la actividad económica
global débil y los precios de los bienes básicos en niveles bajos, prevemos pocos riesgos de una inflación inaceptablemente
alta en el corto plazo", sostuvo Bernanke. "De hecho, esperamos que la inflación sea bastante baja por algún tiempo".
is borrowing so much that it may have trouble paying the money back, said Jaemin
Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and
are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility
of default is more and more as time passes.”
is depending on overseas investorsto help fund its $787 billion economic plan.Chinais the largest overseas holder of Treasuries, with $696.2
billion, followed byJapan, with $578.3 billion….Bloomberg
Las esperanzas de una pronta
recuperación de la economía china comienzan a desvanecerse, desinflando el optimismo que ha ayudado
a que la bolsa del país sea la de mejor desempeño del mundo en lo que va del año.
En las últimas semanas, algunas empresas e inversionistas
habían considerado un alza en los préstamos bancarios y un aumento en los precios del acero —un indicador clave para
la economía altamente industrializada de China— como signos de que el gigantesco paquete de estímulo del gobierno ya
estaba surtiendo efecto.
Los precios del acero, sin embargo, han vuelto a caer y un análisis más detallado de los datos bancarios
sugiere que muchos de los préstamos no impulsarán el crecimiento económico de inmediato. Mientras tanto, el comercio se siguió
contrayendo a medida que se evapora la demanda de exportaciones chinas por parte de EE.UU. y Europa. A su vez, las empresas
y los consumidores chinos compran menos productos extranjeros.
El resultado final es que un auténtico repunte de la economía china podría demorar
meses o incluso más. Esas son malas noticias para una economía global en la que China es la única
potencia que sigue creciendo. …WSJ
General Motors underlined its dire financial condition on Thursday as it reported an unexpectedly heavy cash drain in
the final three months of 2008 and warned that Deloitte, its auditor, might cast doubt on its standing as a going concern.
The Detroit carmaker, dependent on government aid for survival,
reported a fourth-quarter loss of $9.6bn, bringing the 2008 loss to $30.9bn. GM has racked up losses totalling $86.6bn during
the past four years.
PresidentBarack Obama's budget director said on Thursday that without a shift in policies the U.S. deficit would reach $9 trillion over the next decade.
White House budget chief Peter Orszag said the Obama administration's
budget outline reflects costs for the war in Iraq
and other items that were previously not included in the budget.
"All told we are showing $2.7 trillion in costs in this budget that
were excluded from previous budgets and I think that is a mark of the honesty and responsibility contained in this document,"
he said….Reuters 2/27/08
The S&P is off 53% from its
October 2007 peak and has now seen its worst six-month drop in percentage terms -- 42.7% -- since
1932, when it dropped 45.44% in the six months ending in June…. Wsj 2/27/08
>>…theAmerican International Groupis going to report the largest
quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry
status as the most crippled of all the nation’s wounded financial institutions…( a researcher) predicts that A.I.G.
is going to cost taxpayers at least $100 billion more before it finally stabilizes, by which time the company will almost
surely have been broken into pieces, with the government owning large chunks of it. A quarter of
a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going
bust. Yet the government feels it has no choice: because of A.I.G.’s dubious business practices during the housing bubble
it pretty much has the world’s financial system by the throat…If we let A.I.G. fail, said
Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European
banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G.
is really a bailout of its trading partners — which essentially constitutes the entire Western banking system…(another
expert said) “It was extreme hubris, fueled by greed.” Other firms used many of the same shady techniques as A.I.G.,
but none did them on such a broad scale and with such utter recklessness. And yet — and this is the part that should
make your blood boil — the company is being kept alive precisely because it behaved so badly. When you start asking
around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: “regulatory
arbitrage” and “ratings arbitrage.” The word “arbitrage” usually means taking advantage of a
price differential between two securities — a bond and stock of the same company, for instance — that are related
in some way. When the word is used to describe A.I.G.’s actions, however, it means something
entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would
Here’s what is most infuriating: Here we are now, fully aware of how
these scams worked. Yet for all practical purposes, the government has to keep them going. Indeed, that may be the single
most important reason it can’t let A.I.G. fail. If the company defaulted, hundreds of billions
of dollars’ worth of credit-default swaps would “blow up,” and all those European banks whose toxic assets
are supposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would
be destroyed. A.I.G. helped create the illusion of regulatory capital with its swaps, and now the government
has to actually back up those contracts with taxpayer money to keep the banks from collapsing.<< NYT,
(In his testimony on the above Fed Chair) Bernanke
went on to call AIG "a hedge fund that was attached to a large and stable insurance company" that had "no regulatory oversight,"
exploited a "gap in the system" and made "huge and irresponsible" business decisions…Bernanke noted that the massive
amounts of federal borrowing required for the stimulus will push the national debt from 40 percent of GDP to about 60 percent,
the highest percentage since the early 1950s, when the U.S. began paying off its war debt…WaPo, 3/3/09
"I know, personally,
because I have discussed it with them, a number of law enforcement agencies in the United States, plus a number of prosecutors
who have been looking at Mr Stanford for the past 15 years…If he does (talk), he's got a real problem because he knows
an awful lot. And I would suspect there are a number of people, very heavyweight people, throughout the offshore world and
in other jurisdictions who really don't want to be associated with Mr Stanford and are not going to be pleased if he talks.”
Jeffrey Robinson, expert on international fraud
UBSwas sued on Tuesday in a Swiss federal court by wealthy American clients seeking to prevent the
disclosure of their identities as part of a tax-evasion investigation by the United States Justice Department. The lawsuit accuses UBS and Switzerland’s
financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and
of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman
of UBS, and Eugen Haltiner, the chairman of Finma, as defendants. The suit, filed by a lawyer in Zurich,
Andreas Rued, on behalf of nearly a dozen American clients, underscores the growing clash between Swiss banking secrecy laws
and those of the United States. Tax evasion
is not considered a crime in Switzerland.
Disclosing client names under Swiss law is a criminal offense and can expose bank executives and officers to fines, prison
terms and other penalties. UBS is the world’s largest private bank and Switzerland
is the world’s largest offshore tax haven, with trillions of dollars in assets….NYT
Obama forecast the biggest U.S.
deficit since World War Two in a budget on Thursday that urges a costly overhaul of the healthcare
system and would spend billions to arrest the economy's freefall.
An eye-popping $1.75 trillion deficit for the 2009
fiscal year is projected in Obama's first budget. That is equal to 12.3 percent of U.S. gross domestic product -- the largest share since 1945 when the country ran
a shortfall of 21.5 percent of GDP.
El Banco Mundial, el Banco Europeo de
Inversiones (BEI) y el Banco Europeo de
Reconstrucción y Desarrollo (BERD)
acordaron hoy destinar 24.500 millones de
euros para ayudar a estabilizar a los bancos
de los países del centro y el Este de
Europa, que se han visto afectados con
especial virulencia por la crisis financiera, y
facilitar la reactivación del crédito a las
empresas, en particular a las pymes.
El apoyo financiero incluirá inyecciones de
capital y financiación de la deuda, líneas de
crédito y garantías frente al riesgo
político….EUROPA PRESS, 2/28/08
Concept of One Europe
Is Strained by Financial Crisis
With uncertain leadership and few powerful collective institutions, the European
Union is struggling with the strains this economic crisis has inevitably produced among 27 different countries with uneven
levels of development. The traditional concept of “solidarity” is being undermined by protectionist pressures
in some members states and the rigors of maintaining a common currency, the Euro, for a region
that has differing economic needs…NYT, 3/1/09
The following video shows various instances where the Bush Administration
tried to warn the country about the pending crisis involving Fannie and Freddy Mae that unheeded then later sparked the crisis
Whenever you find you
are on the side of the majority, it is time to pause and reflect
--- Mark Twain
We have never observed
a great civilization with a population as old as the United States will have in the twenty-first century; we have never observed
a great civilization that is as secular as we are apparently going to become; and we have had only half a century of experience
with advanced welfare states...Charles Murray
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