JAMES PICKETT WESBERRY Jr >>>> PERSONAL WEBSITE

CRISIS QUOTES AND FACTS

Governor Arnold Schwarzenegger before a rare joint session of the California legislature

UNTIL 2013? The stress tests may be over, but banks "are far from a recovery, and the banking crisis has merely entered a new phase," credit rating firm Standard & Poor's says. And the problems that have pushed financial institutions to the brink and roiled global markets may last until 2013. 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 Catts 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 CUTBACKS: Americans are paring down the list of familiar household appliances they say they can't live without, according to a new national survey by the Pew Research Center's Social & Demographic Trends project. Click for full report in PDF. HIGHEST EVER MASS LAYOFFS: Since the official start of the recession in December 2007 through april 24, there have been 31,414 mass layoffs, causing 3.2 million people to lose their jobs. According to New York University Professor Nouriel Roubini, the Anglo-Saxon model of supervision and regulation of the financial system has failed the same may be true for numerous corporations.[3] Professor Roubini remarks, "Indeed, it seems that for approximately nine years, the U.S. Securities Commissions Enforcement Division chose to ignore red flags that Bernard Madoff was orchestrating a large scale financial fraud".[4] Congress seeming inability to pass laws and for the executive branch to issue effective regulations in large part can be attributed to effective lobbying by corporations. (Click for more) ________________________________ President Barack Obama 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 weeks." February: Economic crisis 'not as bad as we think' March: "There 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 depression." April: "...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 entitlement reform.  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 past." 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 a derivatives trader. 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 promise. Why?... • 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 going). • 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. Michael Mussa, 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 _________________________________ In 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 stages." "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 ethnic tension. "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." ___________________________________ Extract from "THE UNITED STATES OF PONZI" by Nouriel Roubini who predicted the current financial crisis two years ago.  Dr. Roubini is a professor at the Stern Business School at New York University, chairman of Roubini Global Economics, and a weekly columnist for Forbes.com. __ ...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 game. 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 trade surpluses. 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 is us! __________________________________   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...                                             Steve H. Hanke ______________________________________________________   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. _______________________________________   SC Governor Mark Sanford: "What 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?" Zimbabwe has 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. ______________________________________ US 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. The 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... Stiglitz...is 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 council. __________________________ 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 __________________ WHAT AMERICANS SAY THEY NEED AT THIS TIME Soon there may be nobody left to lend to America...Chinese premier Wen Jiabao said he was a little bit worried that America might cheapen its currency and pay back the $1.2 trillion it owes in depreciated dollars. Now that the Fed has moved, he must be a lot worried. The Feds decision to pump trillions into the money markets comes on top of President Barack Obamas proposal to drive the federal deficit to 12% of GDP by borrowing trillions to fund a few stimulus projects, universal healthcare, a green energy system and a host of other programmes...(Click to read all) ¿Esta crisis implica que el capitalismo está acabado? ...esto es lo más cerca que el sistema ha estado de un fracaso desde la década de los 30. El sistema tiene problemas, e incluso sus mayores devotos, como el antiguo presidente de la Reserva Federal, Alan Greenspan, han expresado alarma sobre cómo se derrumbó el sistema. La dificultad es que otros sistemas, notablemente el socialismo y el comunismo no han demostrado beneficios superiores. China y Rusia han adoptado una estrategia de capitalismo modificado, llamado capitalismo autoritario o autocrático. Eso hizo poco para ayudar a Rusia durante el reciente desplome ya que el mercado bursátil del país cayó y el corretaje fue detenido por varios días. China parece haber soportado el temporal, pero su falta de transparencia hace que sea difícil juzgar qué tan bien está haciéndolo. (Clic para leer "TODO LO QUE NECESITA SABER SOBRE LA CRISIS" del Wall Street Journal)

"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

	U.S. 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. "National 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. The report was taken from information gathered by the San Francisco Fed on or before February 23. Battered housing markets remained "in the doldrums" in most areas, with only scattered, very tentative signs of stabilization reported, the Fed said. Demand for commercial, industrial and retail space also fell, with evidence of more rapid deterioration than previously, the report added. The 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.