Financial Policy Despair

By PAUL KRUGMAN
Published: March 22, 2009

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

Read on...

Peacenik was getting bummed out by some of the hockey results on the weekend. Habs lose to the lowly leafs. Canucks lose to the lowly Coyotes. And Peacenik isn't winning the March Madness pool. Then Peacenik read the reviews for Obama's "new" rescue of the banks and their toxic assets. Then Peacenik sees on the front page of this morning's Globe that Ottawa and Canadian banks are taking action on mortgages. But Ottawa just told Peacenik that there were no problems in Canada. That Canada was special.

The black hole of financial armagedden is staring Peacenik and the world in the face this cool Monday morning. Krugman thinks the world may be down to its last chance. Read Taibbi in the Rolling Stone, or this from Naked Capitalism. Wall St. and the banks don't deserve to be rescued. They deserve to be in jail. But Wall St. will probably rally a bit on Obama's rescue plan. Then reality will bite hard. The banks can't be rescued. The economy can't be saved. The black hole wins.

I Don't Know Exactly When...

...But I do know why, and I do know how.

It's pretty straightforward.

People bought stuff with hundreds of trillions of dollars of debt (credit, not capital). This debt-spending inflated the prices of assets (Stuff. Mortgage Backed Securities and CDO's and all kinds of stuff.) to levels that did not in fact reflect real worth. Why? Because debt that cannot be serviced with real productive capital is worthless!!! You can write me an IOU for a million dollars for my 2000 Toyota Echo, but if you don't have a penny to your name---in fact, if you yourself are in debt up to your eyeballs---your IOU ain't worth poop. And neither is my Echo.

Read on...

Peacenik likes posts that explain what is happening in simple language. Dan W. lays it out in this post. All the bailouts are to protect the wealthy, special interests. All the bailouts are to redistribute money from you, the taxpayer, to the already wealthy. But it won't work. They'll take the taxpayer money. But it will all come crashing down. Think back three years ago, and the public didn't give a hoot about $100 million dollar salaries for executives. Because everyone was rolling in phony money. But it was phoney money, phoney wealth. Executives now need bodyguards to go to the corner store. Peacenik gets discouraged when Peacenik reads and sees how corrupt the whole system is. Peacenik is going to have a real beer. Paid for with real money. And Peacenik is checking Ebay for pitchforks.

Update: Three banks failed on Friday and two credit unions. Did yours?

Why It's Cutting

03.15.09 -- 11:02PM By Josh Marshall

Like you, I've been watching this AIG bonus story unfold over the weekend. And though I did not see it at first, I think it may prove to be a turning point, both for AIG and the government.

I don't believe the bonuses themselves are the heart of the matter, nor the fact that they're going to the very executives who caused AIG's implosion or even the galling reality that, since all money is fungible, they're being paid with taxpayer dollars. What's really driving this forward -- and what makes it such a dangerous moment for the White House -- is the jarring image of the administration's impotence.

Secretary Geithner found out about the bonuses. He told AIG CEO Edward Liddy it wouldn't fly. And Liddy, in a curiously imperial letter, tells Geithner that much as he is pained by the situation -- to blow it out his ass. Which he apparently proceeded to do.

Read on...

So A.I.G. is legally obligated to pay billions in bonuses to the nitwits who bankrupted the company, the country and the world. And the politicians nod. Can't change a contract. What about GM's contracts with the autoworkers? What about GM's legally contracted pension obligations? The politicians didn't have any problem insisting that those legally obligated payments be abrogated. Peacenik wonders when the revolution will begin. How much are the people expected to take? A.I.G. obviously thinks there is no limit.

A.I.G. Reports $61.7 Billion Loss as U.S. Gives More Aid

By ANDREW ROSS SORKIN and MARY WILLIAMS WALSH
Published: March 2, 2009

The federal government agreed Monday morning to provide an additional $30 billion in taxpayer money to the American International Group and loosen the terms of its huge loan to the insurer, even as the insurance giant reported a$61.7 billion loss, the biggest quarterly loss in history.

The loss of $22.95 a share compared with a fourth-quarter loss in the period a year ago of $5.3 billion or $2.08 a share. For the year, A.I.G. lost $99.3 billion or $37.84 a share, compared with a profit of $6.2 billion or $2.39 a share for 2007.

Read on...

When Peacenik got up this morning and turned on the news, the news was all about the markets in Hong Kong and Tokyo being down. And the Dow futures were down too. Then at 6 a.m. comes the news that A.I.G. lost $61.7 billion in three months. And the U.S. gov't is going to give A.I.G. another $30 Billion. Do you think Peacenik likes all these numbers early in the morning. Peacenik can barely remember when to use question marks this early in the morning. But, Peacenik thinks something is happening. Oh yeah, the Bank of Canada is talking about "quantitative easing." Peacenik thinks that means "printing money" to inflate your way out of debt.

Nothing is working. The global stimulus plans are having no effect. Giving taxpayer money to insolvent companies is having no effect. Confidence is shot. Trust is shot. Yes dear readers, the black hole is hungry this morning. Insatiably hungry. Other than that it looks like a nice day.

Insanity Prevails

The New York Times is reporting Geithner Said to Have Prevailed on the Bailout.

The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

On Monday evening, new details emerged after lawmakers were briefed on the plan.

Read on...

Everyone knows Peacenik has already been mezmerized by foolishly looking in the black hole of debt. Trillions and trillions of dollars of debt. Debt that can never be repaid. There isn't enough money in the world to pay this debt. Peacenik thinks a better bank bailout plan would be to guarantee the deposits in these banks. Thus helping regular people. Guarantee the pension investments in these banks. Thus helping regular people. And let the risk takers, who gambled in the belief that the government (regular people) would bail them out, get wiped out. Then put the management of these companies in jail and confiscate their property and bank accounts, on shore and off shore. Shut the banks down. Promote tellers and janitors to positions of management and start over. They could not do a worse job. And regulate the financial industry so that it is not a casino but rather a place to deposit your paycheck and to borrow to buy something at a reasonable rate of interest. That's what Peacenik would do.

The Destructive Center

By PAUL KRUGMANPublished: February 8, 2009

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Read on...

Peacenik read a lot about the stimulus plan on the weekend. Peacenik read a list of the stuff that the republicans insisted on stripping out. It was all mildly progressive, good stuff, like food stamps and health care and assistance to students. No one wants financial armageddon. Not even Peacenik. But when you read about the process and you read about the special interests and how they still wield influence it is very difficult to cheer for the success or survival of these cretins. The political process in the U.S. is so broken that it is now counter-productive. The compromise stimulus will fail. The original stimulus might have failed. Do not look in the black hole of debt. Peacenik looked.

On the Edge

By PAUL KRUGMAN
Published: February 5, 2009

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Read on...

Krugman seems to agree with Peacenik's post yesterday that playing nice with the Republicans is a complete waste of time. Krugman seems to think that the stimulus plan has a chance to succeed, to some extent. But notice how dire Krugman thinks the situation is. Of course Peacenik thinks the situation is even more dire. Peacenik thinks it is too late. Peacenik is going to buy a pot and a pan and a pitchfork. Read Naomi Klein's article on how some simple non-violent protest brought down Iceland's government. Peacenik is ready to protest. Are you?

U.S. Moves to Bail Out Credit Union Network

By MARK MAREMONT

In the latest effort to prop up a sector of the finance industry, federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation's credit unions -- a maneuver that shows how the economic crisis continues to ripple across the U.S.

Regulators also injected $1 billion of new capital into the largest of these wholesale credit unions, U.S. Central Federal Credit Union of Lenexa, Kan., after the firm on Wednesday posted an unexpected $1.1 billion loss for 2008. U.S. Central serves essentially as a main clearinghouse for the others in the network.

Read on...

Peacenik's memory is slightly longer than a couple or hours, or days. Peacenik remembers when credit unions were safe. Peacenik remembers when credit unions were immune to the financial meltdown. Peacenik remembers when the financial pundits were saying credit unions were ok. It wasn't that long ago. Peacenik now wonders if there is any segment of the economy that can survive without a bailout. And when politicians and pundits say some part of the economy is ok.....Peacenik thinks they are lying. Does this make Peacenik a bad person?

State of Cringe

January 26, 2009
State of Cringe

Just as Mr. Obama has danced into the oval office, we've arrived at a moment when a lot of people have a hard time imagining the future. This includes especially the mainstream media, which has reached a state of zombification parallel to that of the banks. But even in the mighty blogosphere, with its thousands of voices unconstrained by craven advertisers or pandering managing editors, the view forward dims as a dark and ominous fog rolls over the landscape of possibilities.

For at least a year several story-lines have been slugging it out inconclusively for supremacy of the Web-waves. The main event has been the Deflationists versus the Inflationists. The first group basically says that so much "money" is being welshed out of existence that it dwarfs the new "money" being shoveled into existence in the form of bail-outs, tarps, and office re-decoration stipends. The Deflationists see the tattered remnants of the consumer credit economy auguring ever deeper into a hole until it is buried so far down that all the back-hoes ever sold will not be able to dig it out. The competing Inflationists say that the massive truckloads of shoveled-in "money" will soon.

Read on...

The Harper government is bringing forth a budget that promises to pretty well make all the mistakes that every other government has and is making all over the world. Kunstler lays out the situation in clear terms. Peacenik has been wondering about the health of the Canadian banking sector. Peacenik has been wondering about the health of the Canadian economy. Harper will be talking about hope and the future. Kunstler doesn't see a way out or a way forward. Peacenik is cringing.

A Global Breakdown Of The Recession In 2009

Nouriel Roubini, 01.15.09, 12:01 AM EST

Forecasting pain, from the U.S. to Australia.

With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009.

This will be the worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression took a toll first on the U.S. and then--via a variety of channels--on the rest of the global economy.

Here is a global breakdown of my forecast.

Read on...

Peacenik was wrong. The stock markets didn't have a good week, but they also didn't collapse. In fact Friday morning the Dow and TSX are up slightly. But given the financial news this week it is tough to be optimist that the markets are going to rally much in the near future. In fact Roubini is calling the present modest rally a suckers rally. So as we head into the weekend Peacenik gives you Dr. Doom himself and his forecast. It is not good. If you want a good primer on why the bailouts will not work check out Dan's post at theautomaticearth. Have a good weekend.

Time to Fire Ken Lewis of Bank of America

Step right up to the bar here in Bailout Nation, 2009 version. Open 24 hours, we never close. No bailout too big, no investment/money pit too dumb. Yes folks, we can handle your bad assets, recapitalize your bank, no muss, no fuss. Yes, here in America, we cannot be bothered with things like plans and strategies and maximizing returns for taxpayers.That’s right, we avoid the planning, and pass the savings onto to you, the home viewer!

Really, how the hell did we ever win WWII?

So the horrific deal Citibank cut with Treasury was a blueprint, an example for the next foolish investment — and here it is: Bank America, a supposed good bank, that couldn’t wait to get their hands on Merrill Lynch, now a bad bank.

Read on...

Is there any doubt that the black hole of bank debt can't be filled by taxpayer bailouts. Peacenik thinks its time to liqudate failed banks and nationalize whats left. And start charging a few people for any crimes that have been committed. The Dow and TSX continue their downward march towards new lows as Peacenik predicted on Monday. Who would hold stocks in this environment? Would you? Would Peacenik? A new bottom will form. But it will be closer to zero than the indexes are right now. Time to double check if your bank deposits are insured.

Too Big Not To Fail

We need to stop using the bailouts to rebuild gigantic financial institutions.

By Eliot SpitzerPosted Wednesday, Dec. 3, 2008, at 5:59 PM ET

Last month, as the financial crisis and the government rescue plan dominated headlines, almost everyone overlooked a news item that could have enormous long-term impact: GE Capital announced the acquisition of five mid-size airplanes—with an option to buy 20 more—produced by CACC, a new, Chinese-government-sponsored airline manufacturer.

Why is that so significant? Two reasons: First, just as small steps signaled the Asian entry into our now essentially bankrupt auto sector 50 years ago, so the GE acquisition signals Asia's entry into one of our few remaining dominant manufacturing sectors. Boeing is still the world's leading commercial aviation company. CACC's emergence—and its particular advantage selling to Asian markets—means that Boeing now faces the rigors of an entirely new competitive playing field and that our commercial airplane sector is likely to suffer enormously over the coming decades.

Read on...

Peacenik welcomes Eliot Spitzer back from purgatory. Don't forget this story. Spitzer was a major thorn in Wall Street and looks like he will continue to be. Peacenik thinks Spitzer would approve of Canada's Conservative government just shutting down and doing nothing to solve the economic crisis. There is a wide body of opinion that believes all government efforts so far have not helped the situation. Ergo, no government, no problem. No leadership no problem. No policy no problem. Has Canada fluked its way into solving the global economic collapse? Stevie Harper thinks so.

Time for a Bank Holiday

Comment

By William Greider

Henry Paulson's $700 billion plan to save the world is dead or dying, but the bailout was not killed by his arrogance or his grossly misleading claims about what the public's money would buy. The plan collapsed because it didn't work. The Treasury secretary has launched a PR offensive to revive his falling influence. Too late. The Democrats should be equally embarrassed. In September their leaders in Congress rushed to embrace the Paulson solution, no hard questions asked. They now claim they were duped.

Paulson's squad at Treasury pumped $250 billion into the largest banks, buying their stock at inflated prices on the assumption it would persuade investors to step forward with their capital too. Instead, savvy financial players realized Paulson was spitting into a high wind, trying to save a system with stout talk.

Read on...

In the absence of any reasonable plan Peacenik thinks Greider may have a good idea. Global capitalism has failed. North America is about to become third world like. Its time for some radical, progressive leadership. The crisis can't wait for Jan. 20. Peacenik thinks Peacenik will go to a hockey game, drink some beer and forget about Wall Street. Have a good weekend.

Naomi Klein: Bailout = Bush's Final Pillage

By Naomi Klein, The Nation. Posted October 31, 2008.

The bailout has been designed to keep stealing from the Treasury for years to come.

In the final days of the election, many Republicans seem to have given up the fight for power. But that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700 billion bailout out the door. At a recent Senate Banking Committee hearing, Republican Senator Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bailout.

When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.

Read on...

Its Friday and Peacenik is feeling mellow. Paulson is ripping everyone off; giving $70 billion of public funds for bonus money to the same incompetent, corrupt bankers who caused this crisis. Bankrupting the U.S. treasury so that social security and medicare can be cut back or eliminated. And Harper no doubt is eyeing the same playbook in Canada. Whatever. Time for a couple of beers.

Debt Rattle, October 29 2008: The Lone and Level Sands

Ilargi: Remember the bans on short selling? In the US, 19 major financial institutions were protected from the practice. Now we see that many of them, though they never tire of knee-jerk denying, lose an aggregated $30 billion on shorts they bought on Volkswagen. But does it amtter anymore? They’ll just hold out their hands and get more of your money from the Fed and Treasury. Nice play by Porsche, though. Nice denial too.

As I said before, 'moral hazard' concerns have long since been thrown away with the bathwater of the meek and innocent. All it took was a few ass clowns shouting 'crisis' and Mayday. Jim Kunstler this week asked why we hardly ever see terms like 'fraud' and 'swindle' in the media. Well, because we have a crisis, of course. First things first. The Fed will lower interest rates to levels so low that banks get paid (even more) just to take money from the public trough.

Read on...

The Dow is up this morning. The TSE is up this morning. Enquiring minds want to know if Peacenik thinks the financial crisis in contained. Peacenik thinks the crisis in uncontainable and that most of the existing efforts are designed to rip off the pubic and prevent a total collapse until after the U.S. election. Peacenik remains bearish and frightened.

Debt Rattle, October 23 2008: A Massive Ugly War

Ilargi: US home prices have a record drop, and foreclosure filings have a record surge, to 10.000 every day. James Lockhart says the Freddie and Fannie debt is explicitly guaranteed by the US government, while the September 7 legal document that outlines the takeover of Fannie and Freddie explicitly denies any such guarantee.

Meanwhile, the FDIC claims that the US government will start guaranteeing bad mortgages. That may seem nice and all, but is it really such a great idea for the US taxpayer to start buying up grossly overvalued real estate, that will keep on losing value regardless?

Read on...

This is quite a litany of fiscal nightmares that Ilargi lists. Including Roubini forecasting the closure of the markets and wide spread panic. Which seems to have just happened. Peacenik is only hours away from going off-grid and out of touch. It should be a couple of interesting hours. BTW, in the face of this news, 80 % of the commentors on The Big Picture say they will be buying stocks today. Peacenik guesses that is good news.

Radical Policy Steps Necessary to Avoid a Systemic Meltdown: Interview with the Council on Foreign Relations

Nouriel Roubini Oct 7, 2008

Here is below the text of an interview with the Council on Foreign Relations; the interview took place on Sunday October 5th but the message and policy recommendations that I proposed to prevent a systemic financial and corporate sector meltdown are still very relevant as the Fed and other central banks are still fiddling while Rome is burning. As discussed in this Global EconoMonitor forum Friday and yesterday Monday radical policy action is urgently necessary to avoid a systemic meltdown and a severe economic depression. The global economy is now already in a recession (as GDP is now contracting in all advanced economies and sharply slowing down in emerging market economies). We need now to take steps avoid a global depression.

Read on...

Peacenik sees some good news here. Roubini is acknowledging that there are steps that can be taken to solve the problem. This is progress. So far governments seem to be flailing about. But Peacenik has a question. Is it plausible that the banking system in every western country seems to be in a state of crisis, but the Canadian banks seem not to be? What is Peacenik missing here?

A Futile Bailout as Darkness Falls on America

by Paul Craig Roberts
www.counterpunch.org

America has become a pretty discouraging place. Americans, for the most part, will never know what happened to them, because they no longer have a free and responsible press. They have Big Brother’s press. For example, on September 28, 2008, a New York Times editorial blamed the current financial crisis on “antiregulation disciples of the Reagan Revolution.”

What utter nonsense. Every example of deregulation that the New York Times editorial provides is located in the Clinton Administration and the George W. Bush administration. I was a member of the Reagan administration. We most certainly did not deregulate the financial system.

The repeal of the Glass-Steagall Act, which separated commercial from investment banking, was the achievement of the Democratic Clinton Administration. It happened in 1999, over a decade after Reagan left office.

It was in 2000 that derivatives and credit default swaps were excluded from regulation.

Keep Reading...

punditman says...
I was no fan of Reagan -- that's for sure. But I am also no fan of historical inaccuracy. Paul Craig Roberts sets the record straight on how the US got into this mess, how the bailout is a sham and he poses this question:

"At what point do America’s foreign bankers decide that the additions to US debt exceed what can be repaid? Does the world have a blank check for America’s mistakes? This is the same world that is faced with American demands that countries support with money and lives America’s quest for world hegemony. Europeans are dying in Afghanistan for American hegemony. Do Europeans want their banks, which hold US dollars as their reserves, to fail so that Paulson can bail out his company and his friends?

Finally, from further on in the above article: "The current crisis required more than bad loans. It required securitization and its leverage. It required Fed chairman Alan Greenspan’s inappropriate low interest rates, which created a real estate boom. Rapidly rising real estate prices quickly created home equity to justify 100 percent mortgages. Wall Street analysts pushed financial companies to improve their bottom lines, which they did by extreme leveraging."

Germany takes hot seat as Europe falls into the abyss

We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.

By Ambrose Evans-Pritchard Last Updated: 11:05AM BST 06 Oct 2008

Investors will learn today whether the Paulson bail-out - fattened to $850bn (£480bn) by Congress - can begin to halt the death spiral in the credit system. So far, the response looks terrible.

Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.

Read on...

A bit of hysteria from Ambrose Evan-Pritchard in the London Telegraph. Will today be black monday? Peacenik is feeling optimistic and thinks it's time for some good economic news. When Peacnenik finds some it will get posted.

The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as

Nouriel Roubini Sep 29, 2008

It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown...

Read on...

It is Tuesday morning and the markets are bouncing back a bit, without the bailout. Roubini wrote the above before the bailout failed. Roubini's view is scary. Peacenik thinks some kind of bailout will occur this week, but Peacenik is not entirely optimistic that the bailout is the solution. It's funny how this financail crisis is dominating the news, even wiping speculation about a Sundin signing out of the media. Bailout fails. Leafs win. All is well.