reality is only those delusions that we have in common...

Saturday, November 7, 2009

week ending Nov 7

50 year Chart: M2 vs Monetary Base (source: Fed)

The Fed and its “extended period” language - FT -Will they / won’t they? All eyes are on the Fed statement to see if there is any change to the “extended period” language the US central bank uses to guide market expectations of the future path of interest rates (last FOMC statement). The current formula is as follows: “the Committee…continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Translated from Fedspeak: the committee does not expect to raise interest rates from the current level of near zero for a period some officials define as at least six months, others as longer than this…

Key Fed interest rate to remain near 0% - The Federal Reserve said Wednesday that it was holding short-term interest rates near zero and probably would make no change for the foreseeable future, despite a turnaround in economic activity. Chairman Ben Bernanke and others at the policy-setting Federal Open Market Committee reiterated that they would maintain the benchmark overnight lending rate between zero and 0.25 percent, adding that the rate was likely to remain "exceptionally low" for "an extended period." The statement said the Fed considered the danger of rising prices to be low because of the continued existence of "substantial resource slack," namely high unemployment and unused factory capacity.

Here is the text of the statement released by the Federal Open Market Committee on Wednesday.

Chris Martenson - Decoding the Fed (Again) - Once again, the Federal Reserve Open Market Committee (waggishly referred to as the Open Mouth Committee during the Greenspan) has delivered a widely anticipated "non event" from its most recent meeting. That is, interest rates were left untouched at a level indistinguishable from zero. As expected. Once again I will try and provide translation services for the overly obtuse and meandering language preferred by the FOMC staff writers.

The Fed Thoughtfully Strokes Its Beard, Flaps Its Gums - The attendees at the FOMC had a lot of ground to cover in the approximately 6 hours or so they spend deliberating each days. These people are managing a drastically reshaped $2.1 trillion balance sheet, juggling an alphabet-soup of “temporary” liquidity programs, managing expectations about operational and strategic readiness to exit these programs, monitoring the strength of the economy (and perhaps, even though it’s not their watch, the dollar) and guiding the market on the future course of traditional monetary policy, i.e., the future direction of the Fed Funds rate. It is also dabbling in executive compensation at the banks it regulates. With so many people in the room and so much to talk about, perhaps the meetings should be longer. Ultimately, perhaps one reason why the FOMC doesn’t need to have a much broader and time-consuming discussion is that even though the issues are momentous, the decisions themselves are easy. The Fed will likely keep the Funds rate where it is for some time, it will not make any dramatic changes to its balance sheet without massively telegraphing them ahead of time and it will continue to support liquidity in the market until the banks are healthy enough to do it themselves.

Fed mulls recovery, financial stability at policy meeting (Reuters) - Federal Reserve officials meeting this week weighed improving economic data against the risk, reinforced by a persistently weak job market, that a burgeoning recovery remains on shaky ground. A 3.5 percent annualized jump in third quarter gross domestic product revived debate between analysts who believe a sustainable turnaround is under way, and those who think growth will falter once a heavy dose of stimulus fades.The uncertainty is evident within the Fed itself, with many policymakers emphasizing the hazards in their outlook, even as they vow to vigorously fight any early signs of inflation

CHART OF THE DAY: Bernanke Rips A Page From Japan's Suicidal Playbook - Let's hope that Bernanke doesn't keep playing by Japan's suicidal 1991 interest rate playbook for too much longer.The chart below shows Japan's 1991 - 2006 interest rates on top of our current U.S. interest rate cycle. While Mr. Bernanke is trying to temporarily fight deflationary forces in the economy after the massive housing bust, don't forget that Japan's low interest rate policy lasted far longer than they had initially expected. And they lost a decade of economic growth by not allowing prices to fall when they should have. If we follow Japan, our rates would stay low until 2022.

Fed's Path To Higher Interest Rates Begins To Take Shape - WSJ - An economic recovery seems to have begun, and Federal Reserve officials are thinking mostly these days about how to unwind the unprecedented stimulus they've pumped into the economy. Eventually that will mean raising interest rates. What will a Fed tightening cycle look like? When will it begin? Fed officials don't have answers to either question yet. But the contours of what a rate-boost cycle could look like will come into focus at the Fed's next policy meeting.

Fed Likely to Have Trouble With Exit Strategy - WSJ - The Federal Reserve’s balance sheet has expanded enormously since the start of the financial crisis — to $2.2 trillion from $875 billion — leaving the Fed sitting on claims worth 15% of gross domestic product. The inflationary risks stemming from this expansion shouldn’t be underestimated.The Fed has financed its balance sheet expansion almost exclusively by increasing the monetary base, or notes and coins in circulation plus banks’ deposits. It may be difficult to undo that move because it requires the Fed selling a substantial amount of mortgage backed securities and other assets. Even if markets were to absorb the assets — which is unlikely — it’d happen only at sizable discounts that could potentially wipe out the Fed’s equity.

November Monetary Trends info - When looking at the money aggregates in terms of yoy percent change, we now see that M1, M2, and the larger MZM are all three pointed down. The change is that in this update we see M1 turned down sharply although still deep in positive territory. Our country is on such a fructose sugar high that attempting to stop the intake now will surely result in a raging migraine. The velocity chart has now produced a positive upslope for the first time since this bear market began. I believe that this is the result of the formula that calculates velocity… as money floods the system, the math requires velocity to decrease and as it begins to recede the opposite occurs. This is going to be very interesting to watch going forward

Nominally misguided (wonkish) - Paul Krugman -David Beckworth has been getting a lot of attention with this figure on nominal spending.  And it’s certainly suggestive. But I disagree with the interpretation that this shows that the current slump is mainly about insufficiently expansionary monetary policy. And more broadly, I think that efforts to make sense of recent events in terms of money velocity — such as, in particular, Bruce Bartlett’s — aren’t helpful (although Bartlett’s actual policy conclusions are fine).  Here’s my problem. Underlying the focus on nominal demand or GDP is some notion that there’s a quantity equation:                   MV = PY       where M is the money supply, V the velocity of money, P the price level, Y real GDP. And of course this always holds true, by definition. But the temptation is to take it as a causal relationship...

Bernanke Housing Plan May Prompt Calls to Extend Aid (Bloomberg) -- Bernanke is gambling that come March, he can stop the purchases of mortgage-backed securities that have propped up the U.S. housing market. Congress may have other ideas. The central bank says it must eventually withdraw its unprecedented economic stimulus to avoid a surge of inflation as a recovery takes hold. Plans to buy $1.25 trillion of housing debt are the centerpiece of its program to pull the nation out of the worst recession since the 1930s.

Like Us, Whitney Sees Risks in Fed’s MBS Exit - HousingWire readers have already been reminded on a number of occasions that the Federal Reserve dominates the agency/GSE MBS market (and has since the purchase plan was announced almost a year ago) and that banks and would-be mortgage borrowers are first in line to be whacked when the Fed exits the MBS market.  I’d say let’s hope it emerges into the public view over the next four months, because it could be – if the Fed exits as planned at the end of first quarter 2010 – the biggest kick in the stomach housing and financial markets have gotten since surviving the near total shut down of credit last fall.

Fed’s Regional Chiefs ‘Fight’ for Monetary Policy Independence (Bloomberg) -- Federal Reserve regional bank presidents are trying to ward off congressional efforts to weaken their clout, saying the moves may jeopardize monetary policy independence.  Kansas City Fed president Thomas Hoenig is circulating a book titled “The Balance of Power: The Political Fight for an Independent Central Bank.” Charles Plosser of Philadelphia said on Sept. 29, “we must preserve” the Fed’s structure. Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his House counterpart, have said they may change how Fed presidents are chosen or curb their power. Presidents aren’t appointed by Congress and are partly selected by banks, which lawmakers say share blame for the financial crisis.

Should central banks be quasi-fiscal actors? - There are two reasons why the Fed, or any other central bank, should not act as a quasi-fiscal branch of the government, other than paying to the Treasury in taxes the profits it makes in the pursuit of its mandated macroeconomic stability objectives (maximum employment, stable prices and moderate long-term interest rates in the case of the Fed) and its appropriate financial stability objectives.  The appropriate financial stability objectives of the central bank are those that involve providing liquidity, at a cost covering the central bank’s opportunity cost of non-monetary financing, to illiquid but solvent financial institutions.

The creeping power grab by the executive branch and Federal Reserve - The power grab at the Federal Reserve is a topic I first broached back in February when the Federal Reserve was creating its alphabet soup of liquidity programs to pull us back from the brink of financial disaster. I was troubled about Fed policy then and I am still troubled today. I am equally disturbed by what is happening in shift in the balance of power to the executive branch. The Obama Administration seems to be following in the footsteps of the Bush Administration and making its own power grab and Congress has only just begun to wake up to this and start to push back.

Why do central banks have assets? - If you look at the balance sheet of a central bank, you will see it has liabilities (mostly currency) and assets (normally mostly government bonds/bills). Why do central banks have assets? Do they need them?  The wrong answer is that central banks need assets to "back" the value of the currency, and that paper currency would be worthless otherwise. The right answer is: since the government gets all the profits from a central bank anyway, there's no point in giving the government the assets; that owning assets lets the bank reverse course and reduce the money supply if it ever needs to; and it stops the accountants freaking out.

How central bank repos create conflicts of interest - FT - While investors will be looking for signs that the ECB may be preparing to wean banks off their liquidity programmes, Moody’s warned on Wednesday that such operations may cause conflict of interests for structured finance originators — the banks that create CDOs and the like. Banks have been creating structured finance bonds to use as collateral for central bank operations. The banks post the notes at places like the ECB in exchange for cash (otherwise known as liquidity). Now, the banks don’t intend to sell these things — they are intended purely for the repo ops. Hence the notes are issued by a related entity (an SPV or the like) and often bought back by the originator (the bank) to be used as collateral. Now once the bank buys back the notes, and if it’s the only holder of the notes, it may want to restructure them for some economically-advantageous reason. It has an added advantage (or, conflict of interest) since, as the originator, it has access to deal terms and documents that may help in doing this.

Moody’s Sees Debt Sales at Crisis Levels for Decade (Bloomberg) -- Governments may take as long as a decade to cut debt issuance back to the levels before global markets seized up following the collapse of Lehman Brothers Holdings Inc. last year, according to Moody’s Investors Service.  “Globally, it will take five to 10 years to return to the pre-Lehman levels of issuance,” Pierre Cailleteau, managing director of sovereign ratings at Moody’s, said in an interview in Brussels today. “We don’t see any defaults happening in developed countries but we are concerned about countries like Portugal and Greece, where there is a lack of economic vitality and some fiscal indolence. So no heart attacks there, but we could see a slow degradation.”

Economist Warns: Coming U.S. Bond Default "The U.S. may have to default on its debt payments after 2019, writes economist Robert Samuelson.If the deficit spending continues on the current path it will consume 82 percent of gross domestic product within a decade. There will be no wiggle room for tax cuts, and spending cuts may be politically unpalatable, he surmises."....“Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both.”

Yet Another Budget Commission? - One of these days, Congress needs to raise the federal debt limit. As of Nov. 3, the debt subject to limit was $11,978 billion--and the limit is $12,104 billion. With the Treasury needing to borrow $26 billion per week to finance this fiscal year's deficit, time is clearly running out. Raising the debt limit is always contentious. Members of the party opposite the president always demagogue the issue--and just as predictably switch gears when a president of their party is in the White House. For example, Sen. Barack Obama, D-Ill., had choice words about an increase in the debt limit in 2006, when he voted against it.

Carry trades - the Economist - To the extent that carry trade (ie speculative) financing is supporting money growth, the Fed could be deceived into thinking monetary policy is looser than it really is. That could set up the markets for a nasty shock, in which the Fed signals an end to accommodation, the dollar surges, and the carry trade reverses. In such circumstances, not only would asset prices fall but the higher dollar would tighten US economic conditions at a very awkward moment

Mother of all carry trades faces an inevitable bust - So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions. Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

Roubini warns risk assets 'party' may end abruptly - Over the past year, the dollar has increasingly been at the center of a so-called carry trade. With interest rates effectively at zero in the U.S., global investors seeking risks and higher returns are increasingly borrowing risk-free dollars to invest in higher-yielding currencies and assets, such as stocks, commodities, and emerging markets. These trades have kept putting pressure on the dollar as investors short the currency to invest elsewhere. The big rally seen over the past year in stocks, commodities and other risky assets, are all the same trade, Roubini said. And it's been exacerbated not just by the Fed keeping rates near zero but also with the Fed buying Treasurys, keeping rates low not just at the short end but also at the long end, thereby reducing volatility. "When it unravels, it's going to get ugly," Roubini said. "Everyone that's shorting dollars will try to get out of those positions at the same time, and we'd have a stampede."

Roubini On The Dollar Carry Reversal, And Why He Is Only Half Way There - Nouriel has a great op-ed in the FT, discussing the imminent reversal of the dollar carry trade, a topic Zero Hedge has been harping on for quite some time: not because we believe that in the long run America will stabilize its economy (on the contrary), but because in a globalized economy (yes, a sad side effect of $1.4 quadrillion in derivatives is the fungibility of declining asset leverage) economies are relative, not absolute concepts. While our biggest pet peeve has to do with the lack of contrarian thought in whatever the groupthink trade de jour is (when everyone is on the same side of the boat, it always inevitably capsizes), Nouriel is similarly unimpressed with what he sees is doomed to end badly for so many institutional and retail traders who are part of the herd mentality. Never one to mince words, Roubini's conclusion is scary…

David Goldman: Roubini's Carry-Trade Theory Is Total Nonsense - Earlier this week, Nouriel Roubini came out with a very gloomy op-ed in the FT essentially warning that there's a gigantic bubble being inflated with cheap US dollars being used in a carry trade.Analyst David Goldman argues that this theory is pure and total rubbish:There is NO evidence that the world is borrowing money to buy equities. American assets have gotten cheaper, American companies earning cash flows in foreign currency or producing international tradables are worth more — and that’s it. Now, I think stocks will fall from present levels for a number of reasons, but that is not a collapsing bubble.

Did We Learn Anything? Carry Trade Edition - My concern now is that it appears we haven't learned anything from the turmoil that happened all of 8-12 months ago. As Nouriel Roubini recently pointed out, the correlation of all risk assets has approached one as all assets have all moved in one direction... up. Why? One reason is the world's investors are turning to the US dollar for their carry trade currency of choice (if you haven't read it yet... READ IT). At a high level it goes like this... the dollar's decline is a one way bet. So why wouldn't a foreign investor: Borrow the dollar at a 0% rate. Plan to pay the dollar back at some point in the future when it is worth 10-20% less in their local currency. Use that money to invest in ANY risk asset (as long as the asset doesn't lose more than gain on the dollar short, the investor wins... so why not ratchet up the risk?) The issue is that at some point the dollar may not even reverse its decline, but will stabilize, increasing the "real" cost of borrowing the dollar... if the correlation of assets purchased is near one on the way up, it is sure as hell going to be that high or higher on the way down. And what happens to all these investors that are attempting to leave the same exit door at the same time? Massive re-purchasing of the dollar and massive selling of any risk asset... joy.

The roots of the coming crash - Now, along comes Nouriel Roubini to burst my bubble. This isn’t a case of the weak dollar making asset prices look good; in fact, it’s the “mother of all carry trades”, setting up “the biggest co-ordinated asset bust ever”. I believe him. Nouriel’s analysis is quite compelling, given the way the carry trade works. In its most harmless form, people borrow at low rates in a funding currency and then invest the proceeds in a higher-yielding target currency. When that trade starts becoming crowded, the flow of money into the target currency causes that currency to rise, which makes the carry trade even more profitable — you not only pocket the spread between the two interest rates, but you also get a capital gain on the fx trade. But this carry trade is even stronger still: not only are the target currencies rising, but the funding currency — the dollar — is falling. Players are making money on three different legs at once, and that means they can start investing not only in foreign currencies and local interest rates, but rather in a whole panoply of other asset classes, including commodities, energy, junk bonds, even equities. These assets might not yield much, but they don’t need to, if the funding currency is falling fast...

US Dollar Very Long Term Chart and Empirical Observations- Here is an update of the US Dollar (DX) Very Long Term chart last shown on 3 April when the Eurodollar short squeeze was still abating. We do not see any reason to change the longer term targets based on what appears to be a confirmation of the continuing decline.The reasons for this decline are obvious, but so many miss this that we have to wonder what people are thinking. Despite the credit writedowns, and even a potential unwinding of the dollar carry trade which may be a bit overblown even as the demand for dollars in commercial lending is slack, most analysts are missing the bigger picture of a huge overhang of eurodollars that are becoming increasingly less useful to foreign holders, especially if the power of the petrodollar further declines.

Examining the US liquidity trap - FT - The Fed has published an interesting working paper on the subject of foreign shocks to a country bound by zero rates. It seems roughly to conclude that a zero-rate liquidity trap has the effect of amplifying the effects of a foreign shock on GDP. Ongoing foreign shocks, meanwhile, can greatly extend the duration of the liquidity trap. Critical to how exaggerated the GDP effect ends up being, write the authors,  is the duration of the liquidity trap - which itself is dependent on the underlying domestic shock assumed

Government guarantees on bank funding: Should we extend them into 2010 despite the improved bank profitability and the schemes’ distortionary effects? - VoxEU - In December 2009, government guarantees on the issuance of bank bonds will close to new issuance in many EU countries. This column argues that the guarantees have been effective and should be extended into 2010, despite improved market conditions and bank profitability. In doing so, governments should correct the schemes for some distortionary effects and develop a careful exit strategy.

ECB to Resist Tightening - The European Central Bank will likely resist, for now, unwinding extraordinary financial-support measures at a meeting of its governing council Thursday amid concern over the strength of the euro and the European recovery.The measures, which involve unlimited lending at very low rates to banks, were undertaken at the height of the financial crisis in order to kick-start lending to the private sector. With the financial system stabilizing, the ECB needs to start weaning banks off the easy credit in order to keep inflationary pressures at bay.

Fears of a New Bubble as Cash Pours In - WSJ - Concerns are mounting that efforts by governments and central banks to stoke a recovery will create a nasty side effect: asset bubbles in real-estate, stock and currency markets, especially in Asia. The World Bank warned Tuesday that the sudden reappearance of billions of dollars in investment capital in East Asia is "raising concerns about asset price bubbles" in equity markets and in real estate across Asia, Also Tuesday, the International Monetary Fund cited "a risk" that surging Hong Kong asset prices are being driven by a flood of capital "divorced from fundamental forces of supply and demand." Behind the trend are measures such as cutting interest rates and pumping money into the financial system, which have left parts of the world awash in cash and at risk of bubbles, or run-ups in asset prices beyond what economic fundamentals suggest are reasonable.

Central banks lead subtle shift away from dollar (Reuters) - Central banks with trillions of dollars in reserves that are already stepping up euro and yen purchases will likely continue doing so in coming years, driven by worries over the stability of the greenback. A record U.S. budget gap and the rise of dynamic developing economies like China suggest the dollar, down over 20 percent since 2002 on a trade-weighted basis, has further to fall. Of course, the dollar comprises some two-thirds of global reserves and will remain dominant in most holdings, as attempts to dump it would destroy the value of central bank portfolios. But with the speed of reserve accumulation increasing after a crisis-induced lull late last year, policy makers can choose to park more new cash in euros and yen without having to sell existing dollar assets.

Death by Renminbi - Over the last several weeks, the dollar's depreciation against the euro and yen has grabbed global attention. In a normal world, the dollar's weakening would be welcome, as it would help the United States come to grips with its unsustainable trade deficit. But, in a world where China links its currency to the dollar at an undervalued parity, the dollar's depreciation risks major global economic damage that will further complicate recovery from the current worldwide recession. A realignment of the dollar is long overdue. Its overvaluation began with the Mexican peso crisis of 1994, and was officially enshrined by the "strong dollar" policy... That policy produced short-term consumption gains for America,... but it has inflicted major long-term damage ... and contributed to the current crisis.

Why the renminbi has to rise to address imbalances - Global leaders have agreed reducing global imbalances is a priority. ...That agreement means the US must raise its national saving to be less dependent on foreign funds. China must lift domestic spending to maintain high employment without producing so many exports. Some progress is happening on both fronts. The US household savings rate has risen, driven by the need for US households to rebuild wealth. China has succeeded in raising its domestic spending through fiscal incentives and an explosive growth of credit. But while these two shifts are necessary to reduce global imbalances, they are not enough, exchange rates must also adjust.

Obama In China: Breaking The Exchange Rate Deadlock - President Obama leaves next week for a high profile trip that includes meetings with other “Asia-Pacific” countries (in the APEC forum) and a visit to China...the issues facing him now in Asia are particularly difficult, primarily because of China’s exchange rate policy.  China essentially pegs its currency (known as the yuan or renminbi) against the US dollar, which means that it rises and – most recently – falls in tandem with the greenback. China is problematic for three reasons: it is a large economy, it runs a big current account surplus, and it consistently has a bilateral surplus with the US that is galling to many on both sides of the aisle on Capitol Hill (and their constituents).The political backlash is not without foundation – jobs have moved and continue to move to China in part because Beijing’s exchange rate policy gives Chinese exporters an unfair trade advantage.  The Chinese currency remains at least 20 percent undervalued according to the Peterson Institute for International Economics

RBI may accumulate more gold to protect against a weak dollar - A weaker dollar could diminish the value of India's foreign exchange reserves and hence this could lead to further accumulation of gold by the RBI. This move will help India's central bank to hedge its downside risk on the foreign exchange reserves front," Angel Commodities Broking analyst Amar Singh said. India's move has been interpreted as very positive for gold prices as it has stoked speculation that other developing countries may ramp up their purchases of gold as they diversify away from the dollar.

Capital controls - What do you do if you are an emerging market facing massive capital inflows that risk inflating the next round of bubbles? Brazil’s decision to impose a 2 per cent tax on short-term flows has been widely criticised and with good reason. Companies and investors will structure transactions that bypass the tax. The 2 per cent surcharge is anyway small relative, for instance, to the volatility in Brazil’s Real and may not provide much of a deterrence to a perceived one-way bet. The problem is that while I think the inflow tax will not work, I struggle to see what the alternatives are. One way to prevent a domestic asset price bubble is to allow the currency to rise sharply, making domestic assets more expensive to foreigners and creating two-way currency risk in future. But this is very hard to do when other big emerging market exporters such as China are keeping their exchange rates pegged to the dollar.

Is the Dollar Dying a Slow Death? - So has the dollar finally used up the last of its nine lives? There are worrying signs that the world is losing its appetite for dollars. The International Monetary Fund announced on Nov. 2 it was selling 200 metric tons of gold to India's central bank for $6.7 billion. News of the purchase sent gold prices to an all-time high. The move was widely seen as part of an effort by central banks around the world to diversify their extensive U.S. dollar holdings

Dollar Will be "Utterly Destroyed": Strategist (CNBC video) "The dollar will get "utterly destroyed" and become "virtually worthless", said Damon Vickers, chief investment officer of Nine Points Capital Partners. If the global currency crisis unfolds, then inevitably you get an alignment of a global world government. A new global currency and a new world order, so we may be moving towards that," he said."

Dollar rise *alert* FT - Talk of the end of dollar hegemony may be premature. The latest contrarian ’smart-money’ bet, partly fuelled by commentary from the likes of Nouriel Roubini and Martin Wolf  on what might happen when the “mother all of carry trades” dislocates, is apparently gambling on the prospect that the dollar will shortly surge. Business Insider also flags up the following Reuters article claiming China might actually be on the brink of a major dollar shortage.

The Dollar Needs 19 Friends - The weak nature of the US dollar and the surrounding calls for intervention will not work unless such action is coordinated via a collective effort of the newly created G-20. The G-20 was created to recognize the new world order of economic powers and replaces the former G-7. A coordinated intervention is the only reasonable solution to reversing the secular downtrend of the dollar.

G20 Drive to Rebalance World Economy (Reuters) - Six weeks after world leaders vowed to rebalance the global economy, finance officials are set this weekend to struggle with the complex, politically sensitive process of building a mechanism to achieve that goal.  Longstanding disagreements over policy -- particularly China's refusal to be rushed into appreciating its currency -- mean that for now, countries are unlikely to decide on specific steps to narrow yawning trade and savings gaps between them. Instead, finance ministers and central bankers of the Group of 20 nations, meeting in St. Andrews, Scotland on November 6-7, will try to flesh out a commitment to subject national policies to international scrutiny and peer pressure in years ahead.

Bank of England says financiers are fuelling an economic ‘doom loop’ - Telegraph - On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested. The warning, which follows Governor Mervyn King's call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far-reaching reforms.

Britain To Break Up Biggest Banks - The WSJ reports (on-line): “The U.K.’s top treasury official Sunday said the government is starting a process to rebuild the country’s banking system, likely pressing major divestments from institutions and trying to attract new retail banks to the market.”  The British style is typically understated and policymakers always like to play down radical departures, but this is huge news. Pressure from the EU has apparently had major impact – worries about unfair competition through subsidizing “too big to fail” banks are very real within the European market place.  Also, strong voices from within the Bank of England have helped to move the consensus.

UK: Darling confirms government to break up too big to fail banks - In a clear break with US economic policy, the UK government have decided that too big to fail is too big to exist. As a result, three large financial institutions now owned at least in part by government are to be dismantled. Moreover, talk of Tesco’s or Virgin getting the assets is yet another momentous shift in the British banking landscape. One should not understate the importance of this decision. This is a game-changing move by the UK government. One year ago, it was the U.K.’s decision to recapitalise its banks which changed the economic policy landscape. U.S. policy makers were forced to switch TARP policy from buying up dodgy assets at inflated prices to injecting capital (see my post “Recapitalising Britain”) Yet again, the British are leading the way in reform.

British government downsizes bailed-out U.K. banks - Some want U.S. to follow suit to increase financial competition - The British government announced Tuesday that it will break up parts of major financial institutions bailed out by taxpayers, highlighting a growing divide across the Atlantic over how to deal with the massive banks that were partially nationalized during the height of the financial crisis. The British government -- spurred on by European regulators -- is forcing the Royal Bank of Scotland, Lloyds Banking Group and Northern Rock to sell off parts of their operations. The Europeans are calling for more and smaller banks to increase competition and eliminate the threat posed by banks so large that they must be rescued by taxpayers, no matter how they conducted their business, in order to avoid damaging the global financial system.

UK to inject £37bn into Lloyds and RBS - The UK government doubled its bet on bailing out Britain’s two part-nationalised banks – Royal Bank of Scotland and Lloyds Banking Group – adding up to £37bn of new money to the same sum it first injected a year ago.The latest chapter in the bail-out saga makes RBS by far the world’s biggest government rescue, taking as much as £53.5bn of state money, compared with the $45bn (£27.4bn) absorbed by Citigroup in the US.

RBS and Lloyds break-up: the main points – Telegraph - The Government has details of the planned break-up the part-nationalised banks, Lloyds Banking Group and Royal Bank of Scotland. Here are the main points. -Executives at Lloyds and RBS to defer bonus payments due for 2009 until 2012. RBS, -Lloyds will not pay discretionary cash bonuses in 2009 to any staff earning above £39,000.

BBC -  RBS bank reports losses of £2.2bn - Royal Bank of Scotland Group, which is majority-owned by taxpayers, has reported a pre-tax loss of £2.2bn for the July to September period. RBS has written off another £3.3bn in bad debts and other bad investments, which is down from the £4.7bn it wrote off in the previous three months. The bank said although conditions had improved in the past three months they "remain fragile".

RBS to cut 3,700 branch jobs - The Guardian - Royal Bank of Scotland's woes deepened tonight after unions condemned 3,700 branch job cuts as "absolute madness" on the eve of an announcement of a dramatic restructuring of the bank imposed by Brussels.RBS is expected tomorrow to admit that it is being forced by the EU to commit itself to cutting back the size of its balance sheet and selling off some of its highest-profile businesses in return for more than £40bn of state aid.The bank acknowledged for the first time today that the EU was demanding more draconian measures than it had first envisaged

Lloyds escape plan won’t come cheap -Reuters - What’s the price of freedom? Ask Lloyds Banking Group, which is hoping to persuade bondholders to buy into a new kind of risky subordinated capital in a bid to avoid having to use the UK government’s asset protection scheme. This Houdini-esque escape trick will be expensive — if it can be pulled off at all.Lloyds wants to raise 25 billion pounds of new core tier 1 capital to avoid using the APS and having to hand over a bigger stake to the government. As much as 7.5 billion pounds of that could come by converting some of its subordinated debt and preference shares into so-called contingent capital, securities that can be swapped into equity if its balance ratios deteriorate

Lloyds Sales Won’t Bring Good Prices, Pitman Says (Bloomberg) -- Lloyds Banking Group Plc is unlikely to get a good price for assets it’s been pressed to sell by the European Union, according to Brian Pitman, former chief executive officer and chairman of Lloyds TSB Group Plc. Any acquirer will “probably pay less than net asset value,” Pitman said in an interview at Bloomberg’s London office today. “I would be surprised if they get a good price.” Using the example of Lloyds’ planned sale of 600 branches, Pitman said any new entrant to the British market might lack the size to offer a full range of services to customers. It would also have to establish expensive new infrastructure, like computer systems.

Lloyds rights issue looks distinctly unattractive - The Guardian - If you're one of Lloyds/Halifax's three million shareholders, you probably received a weighty rights issue document this week. It boils down to this: "You got some Halifax shares when it floated. Now we at Lloyds want you to cough up a couple of hundred quid (we won't tell you the exact sum till later) to keep us afloat and avoid the hideously expensive government protection scheme."The capital raising is massive – a total of £21bn, compared with Lloyds's total market value of £24bn.   So, should you pay up?

U.S., EU urged to find common ground on too big to fail (Reuters) - The United States and Europe are moving at different speeds down possibly divergent paths toward dealing with troubled multinational financial giants, despite promises of transatlantic coordination.The prospect has some prominent experts in the field of financial regulation worried, with a key U.S. congressional committee scheduled to vote as soon as next week on a new Obama administration plan for dealing with "too big to fail" firms."Negotiations to create a unified cross-country resolution process should begin immediately," said a report released this week by the Squam Lake Working Group of 15 academics.The group urged rapid adoption of at least one measure that could be shared and equally effective in any country

Animal House Rules: Treasury Proposes to Use DOUBLE SECRET PROBATION - You can never compete with self-parody, and Treasury and the Fed have mastered the art. The proposed legislation to respond to systemically dangerous institutions (SDIs) reveals that the Fed and Treasury are sowing the seeds for the next crisis. But the bill is also wonderfully wacky. The core of the bill is based on the fantasy that the government can (and should) play by Animal House rules and create a secret list of banks that are on “DOUBLE SECRET PROBATION.”

Can We Fix Too Big to Fail Without Shrinkage? - David Wessel has a column in today’s Wall Street Journal laying out three approaches to solving our Too Big Too Fail (TBTF) problem. The first two amount to different ways of “busting them up,” The third, which the administration and the Fed have endorsed, amounts to forcing banks to hold more capital, scrutinizing their balance sheets more vigorously, and obtaining some sort of “resolution authority.” That last reform would allow the government to liquidate a megabank in an orderly way, rather than either bail them out entirely or simply let them implode.  I happen to support every one of the administration’s proposals on this score. But, despite their merits, I’m not convinced they address the consequences of bigness. For that, we probably do have to talk about shrinkage...

What is systemic risk, anyway? - Atlanta Fed Blog- "Systemic financial risk is the risk that an event will trigger a loss of economic value or confidence in, and attendant increases in uncertainly [sic] about, a substantial portion of the financial system that is serious enough to quite probably have significant adverse effects on the real economy." While this is a reasonable definition in terms of the concerns in mind, the precise definitions and measurement of terms such as "confidence," "uncertainty," and "quite probably" are likely to be elusive for some time, if not forever

U.S. backed $4.3 trillion in assets, report says - At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets, according to a report released Friday by the Congressional Oversight Panel. "The Panel found that Treasury took an aggressive stance in protecting taxpayer interests, and the Panel did not identify any major flaws with their implementation of the guarantee programs. Even so, these programs carried significant risk. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions," the report said

Stiglitz: U.S. Paying for Not Nationalizing Banks - “We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse. What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”  Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.“If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters  “They would be lending and the economy would be stronger.” Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year…

Fed’s Secret Wall St Bailout Going Strong - By lending the banks money at zero interest rates, the FT’s Martin Wolf says, the Fed is helping the banks recapitalize themselves. The banks aren’t lending because they’re still trying to recover from all the lousy loans they made three years ago (and because there aren’t all that many folks to lend to). So there’s nothing else to do with the money other than hoard it, buy safe Treasuries, and pay huge bonuses. It’s annoying to watch banks that would have collapsed a year ago now minting money at taxpayer expense. But that’s the way monetary stimulus always works.

Break for Companies in Bailout’s Fine Print – NYTimes - One of the federal government’s most opaque methods for bailing out the banking system allowed a handful of giant institutions to save up to $25 billion on their borrowing costs, a Congressional panel estimated on Friday.Seven companies received about 82 percent of those benefits, the panel estimated. General Electric Capital was able to reduce its borrowing costs by about $1.9 billion, while Goldman Sachs saved an estimated $606 million. The other big beneficiaries were Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley and Wells Fargo & Company.

Wall Street’s Sham Profits - WSJ - My colleague says that third-quarter economic growth is illusory–an economic confection created by heavily subsidized auto and home sales. By that reasoning, what does this sham Main Street recovery say about Wall Street’s apparent rebirth? It isn’t hard to find a sham there, too. While it is hard to unpack the nature of every profitable dollar at Goldman Sachs Group and J.P. Morgan Chase, for instance, one can make a compelling case that–like cars-for-clunkers–our Wall Street institutions are in one way or the other, also on the government dole. The most obvious subsidy was the Troubled Asset Relief Program. While some financial institutions have made headlines for paying back TARP funds, the vast majority still owe the government billions

Cushions are thicker but don’t get comfy - In a spot of good news for the economy, banks continued to rebuild their capital cushions in the third quarter. But are they doing so fast enough? One risk going forward may be the size of their securities portfolios, which could expose them to significant interest rate risk when the Federal Reserve finally taps on the brakes. Measured by tangible common equity, the biggest banks are levered 20 to 1, a solid improvement from last quarter’s 24 to 1 and a giant leap from 30 to 1 in the third quarter a year ago. (These figures exclude off-balance sheet assets, which will increase leverage when they are consolidated beginning next year). Tangible common equity is the crucial measure of bank capital because it is the primary cushion banks have to absorb losses. When it gets too low, creditors panic and bank runs ensue.

It's Not Just Banks, All Companies Are Hoarding Cash Like Crazy - Cash holdings, as a percent of assets, is rising for the 500 largest non-financial companies in the U.S., according to the Wall Street Journal.In the second quarter, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets.What's even more interesting is that this hasn't been merely a recent trend caused by the economic crisis. U.S. companies have been increasing their cash positions as a percent of assets since 1991

Holiday Parties: Turn out the Lights - From Crain's New York: Not much life left in the party  The severity of the recession may have caught some companies by surprise in 2008, but this year reality has sunk in ... The lavish celebrations of years past are not making a comeback this year in the city—or anywhere else in the country. Just 62% of companies nationwide are planning holiday parties this year, down from 90% in 2007.  Restaurants and hotels that count on this lucrative business say their private party business is off by about 20% this year, compared with a dismal season in 2008.

The Deferred Tax Asset disaster - Does anyone remember Deferred Tax Assets? Banks like Citi used to be (and in fact, still are) stuffed with them. In fact the assets have become a point of contention over the past year and a half, as regulators, analysts and investors debate the quality of banks’ capital. Tax assets can be included in banks’ Tier 1 regulatory capital, under certain circumstances, and hence we eventually saw a shift in emphasis towards the ‘purer’ tangible common equity, which strips out stuff like DTAs. In any case, DTA’s allow companies to reduce the amount of tax that they’ll need to pay in a later tax period. In fact, according to Fitch, DTAs grew in dollar terms by nearly 300 per cent over the 12-months to June 30 2009 and now account for 10.7 per cent of equity for US banks, on average. And while the rating agency doesn’t think the rise in DTAs will impact the banks’ ratings, they do see an imminent impairment risk

Interactive map of bank failures - WSJ - with complete list and assets at time of failure

Wall Street’s Sham Profits – WSJ - My colleague says that third-quarter economic growth is illusory–an economic confection created by heavily subsidized auto and home sales. By that reasoning, what does this sham Main Street recovery say about Wall Street’s apparent rebirth? It isn’t hard to find a sham there, too. While it is hard to unpack the nature of every profitable dollar at Goldman Sachs Group and J.P. Morgan Chase, for instance, one can make a compelling case that–like cars-for-clunkers–our Wall Street institutions are in one way or the other, also on the government dole. The most obvious subsidy was the Troubled Asset Relief Program. While some financial institutions have made headlines for paying back TARP funds, the vast majority still owe the government billions

How mistaken ideas helped to bring the economy down - How did the world economy fall into such a deep hole? It is recovering, but painfully, and after a deep recession, despite unprecedented monetary and fiscal easing. Moreover, how likely is it that a balanced world economy will emerge from this force-feeding? The very fact that such drastic action has been necessary is terrifying. The fact that there is little room for a policy encore is yet more terrifying. Most terrifying of all is that this is not the first time in recent decades the world economy has had to be guided through a post-bubble collapse.

Lending must support the real economy - Economists have been mulling over the shape financial reforms should take. Robert Shiller wrote on these pages in defence of “financial democracy”, arguing that a wide range of financial products allows everyone to access liquidity and insure against risk. A week earlier in The New York Times, Paul Krugman pinpointed the way bankers are paid as the focal point of reforms. The problem with these discussions is that they introduce red herrings. Dear top economists, the problem is debt. Any solution that sidesteps this is a non-starter.As I wrote in the FT last month, the crisis and recession were not all that difficult to predict once you started to look at the flow of funds – at credit and debt – and at the financial sector as separate from the real economy. Following the same logic, it should now be fairly uncontroversial what our long-term aim in financial reform is. It is to redirect lending away from bloating the financial sector and towards supporting the real economy, rather than loading it down with debt.

Money from helicopters is Ben Bernanke's modern encapsulation of Milton Friedman's bold revelation - Milton Friedman blamed the Depression on mistaken monetary policy – not too-loose money before the Crash, when stock prices bubbled, but afterwards, when they sank. For Friedman, the crash and downturn were a stock-market correction and "a normal recession" which policy mistakes by the US Federal Reserve turned into a decade-long global disaster. What went wrong was that the US money supply was allowed to contract by a third after the shock of the market rout. The Fed, in Friedman's view, ought to have prevented that from happening by stimulating money growth to prevent the self-reinforcing spiral into depression. Ben Bernanke, the current Federal Reserve chairman, has relied on the Friedman blueprint as he has tackled the deflationary fall in US house prices, the plummeting of international stock markets and the intense strains in the US banking system that have threatened a second depression.

Why Bernanke And Geithner's Gambit Fails - Since I wasn't invited to Treasury's confab of bloggers yesterday I thought I'd loose this on the blogosphere - a post I've been sandbagging for about a week now.There has been much discussion over whether the generally-Keynesian approach, along with Bernanke's "Depression Thesis", have in fact staved off Armageddon in the financial world, or simply played "extend and pretend" on the fuse, clearing and solving nothing. It is my position that we have in fact not only solved nothing we have made the situation materially worse than it would have been if we had left things alone.

Curious Meeting at Treasury Department - Yves Smith - The Treasury invited a small group of bloggers for a “discussion” with senior officials on Monday. Initially, the meeting was to be background, which is a sort of journalistic “FYI but you can’t use it” but we were told at the meeting that we could discuss the meeting as long as remarks were not attributed to particular individuals. I was surprised that the powers that be would bother with financial bloggers, and I wondered at the decision rule behind the selection (besides wanting a mix, particularly from a political standpoint). It wasn’t obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate. Unfortunately, some of us are not housebroken). But my feeling, and it seemed to be shared, was that we bloggers and the government officials kept talking past each other

Sympathy for the Treasury - On Monday, I was among a group of eight bloggers who attended a discussion with "senior Treasury officials" in Washington. Several nice accounts of that meeting have already been posted (see roundup below). Here's mine: I'd like to discuss corruption. Not, I hasten to add, the corruption of senior Treasury officials, but my own. As a slime mold with a cable modem, it was very flattering to be invited to a meeting at the US Treasury. Treasury's goal in meeting with us was to inform the pubic discussion of their past and continuing policies. (Note that I use the word "inform" in the sense outlined in a previous post. It is not about true or false, but about shaping behavior.)

Inflation Expectations and the Risk of Deflation – SF Fed - Predicting the course of inflation is one of the most important challenges facing monetary policymakers. Useful aids to such prediction are the measures of expected future inflation obtained from prices in government bond markets. An examination of recent inflation-indexed and non-indexed U.S. Treasury bond yields suggests that financial market participants believe that the probability of prolonged deflation has become fairly small.

Asset inflation, price inflation, and the great moderation - Follow the money. Whether an economy generates asset price inflation or consumer price inflation depends on the details of to whom cash flows. In particular, cash flows to the relatively wealthy lead to asset price inflation, while cash-flows to the relatively poor lead to consumer price inflation. Why? Poorer people have a higher marginal propensity to consume. Except when the world seems very risky, no one holds cash for very long. Poorer people disproportionately use their cash to purchase goods, while richer people disproportionately "save" by purchasing financial assets. If the supply of both goods and financial assets is not perfectly elastic, then increases in demand will be associated with increases in price. If relative demand for goods and financial assets is a function of the distribution of cash, what price changes occur will be a function of who gets what.

What’s so bad about inflation? - In his speech to the Tory conference, David Cameron discussed what he felt was the way out of the economic crisis. His three options were as follows: “Option one: we can just default on the debt. Not pay it. Other countries have done that in the past. But I don't think anyone in this country wants to go down that road. “Option two: we could encourage inflation, which would wipe out the value of the debt, making it easier to pay off. But that's not just an economic disaster, it's a social disaster, too. It doesn't just wipe out debts, it wipes out people's hard-earned savings. “So we have the third option - for me, the only option. We must pay down this deficit. The longer we leave it, the worse it will be for all of us."

Inflation 'Supply Shock' Inferno (Overview)The gasoline for rampant inflation already permeates the US economy – and all it will take is one bad day for a series of interrelated supply shocks to set off an inflationary inferno. As we will cover in this article, the accelerant in this case is the $700 billion annual U.S. trade deficit. We’ll explore how the real world economics of being the world’s largest debtor in a globalized economy trump insular deflationist monetary theory. What would happen if the United States had to actually live on what we all produce? What would happen if other nations would only provide us with the goods and services that we could pay for with our own goods and services? What if other nations stopped manipulating the value of the dollar, stopped propping it up, and let it find its free market value? This idea of living within our means – whether we want to or not – is radical stuff, but it could be happening fairly soon given the current global economic situation.

Reality check (fiscal policy) - The IMF has just published their November 2009 edition of "The State of Public Finances Cross-Country Fiscal Policy Monitor". It is a great analysis of the current state of public finances and the risks ahead. The bad news is that there is no guarantee that governments will behave better going forward. Yes, we know the effort that is needed to stabilize debt-to-GDP ratios but history is full of examples where once the crisis is over we forget about fiscal policy discipline. And here is where we need an exit strategy. It is not about about announcing a short-term schedule to remove the current fiscal stimulus is about giving reassurances that in the next decade or decades we will look at sustainability of government finances in a different way.

Democrats Push for Plan to Cut Deficit - NYTimes - Faced with anxiety in financial markets about the huge federal deficit and the potential for it to become an electoral liability for Democrats, the White House and Congressional leaders are weighing options for narrowing the gap, including a bipartisan commission that could force tax increases and spending cuts. Concerns about the deficit are building even as the White House and Congress continue to add to it with tax cuts and spending to stimulate a still-fragile economy. Yet those one-time costs do not trouble most economists and market analysts. The main driver of long-term deficits is the chasm between the benefit programs Medicare and Medicaid, which are growing faster than the economy, and federal tax collections, which are at one of their lowest levels in many decades relative to the size of the economy.

If a deficit falls in the forest ...Krugman - Matt Yglesias makes a good point: If congress makes the deficit even bigger in a way that helps spur recovery, then come election day people will notice the recovery and be happy. If, by contrast, the labor market is still a disaster then people will be pissed off... But the political argument against focusing on the deficit is even stronger than he realizes — because there are very good odds that even if Obama exhibited iron fiscal discipline, voters wouldn’t notice. Here’s what voters thought they knew about the deficit Bill Clinton inherited that had been drastically reduced: after one of the biggest moves toward budget balance in history, a majority of Republicans, and a plurality of all voters, believed that deficits had increased.

Federal Debt: What Happens If Governments Can't Repay? - The idea that the government of a major advanced country would default on its debt—that is, tell lenders that it won't repay them all they're owed—was, until recently, a preposterous proposition. Argentina or Russia might stiff their creditors, but surely not the likes of the United States, Japan, or Great Britain... it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?

Catching Argentinian Disease - (pdf) As I have been writing, the United States in particular, and the developed world in general, are faced with a series of very unpleasant, if not downright bad choices. The time for good choices was ten years ago. Now we face the prospect of painful decisions, no matter what we do. It is not a matter of pain or no pain, of somehow avoiding the consequences of our bad decisions, it is simply deciding how much pain we will take and when, or allowing the pain to build up to a climactic event. Today we look at what I think would be the worst choice of all.

What Backs the Buck? - The proportions of Federal Reserve assets behind each US dollar (graphic)

It is Japan we should be worrying about, not America - Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world's second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return. The rocketing cost of insuring against the bankruptcy of the Japanese state is telling us that the model has smashed into the buffers. Credit default swaps (CDS) on five-year Japanese debt have risen from 35 to 63 basis points since early September. Japan has suddenly decoupled from Germany (21), France (22), the US (22), and even Britain (47).

Fed gives Wall Street a deadline on pay plan - Summoned to the ornate Lower Manhattan headquarters of the New York Federal Reserve building on Monday, Wall Street's top bankers were given a Feb. 1 deadline to submit proposals for how they plan to improve their pay practices, people with knowledge of the meeting said. The meeting, convened by New York Fed President William C. Dudley, was brief -- no more than 30 minutes -- and to the point with Fed regulators making it clear that they are serious about enforcing the executive compensation guidelines they proposed late last month.

Banker Bonus Rain - NYTimes - Executive pay at seven large United States companies that enjoyed government bailouts has recently been officially regulated and capped by Kenneth Feinberg. But economists are just beginning to explain how top employees came to receive such extravagant rewards in the first place. Wall Street firms have always been famous for their generous bonuses to managers and traders — their so-called rainmakers. The graph shows that employee bonuses have actually exceeded the estimated pretax profits of United States securities dealers in many years. What is especially striking is the high level of these bonuses in 2007 and 2008, years in which profits were negative.

Banks Thwarting Feinberg Pay Model by Changing Bonus Formulas - (Bloomberg) -- Global leaders and regulators trying to rein in banker pay are proposing everything from clamping down on guaranteed bonuses to recouping compensation from prior years if losses mount. Largely unaddressed is the topic that stirs the most public ire: How much money is too much? Corporate governance and compensation experts say new rules will mostly help eliminate plans like those that tied bonuses to the number of subprime mortgage bonds created, for example, or rewarded trades that later turned sour.

Some Wall Street Year-End Bonuses Could Hit Pre-Downturn Highs - NYTimes - Inside major financial companies, the annual rite of tallying bonuses is about to begin, with a sense of relief and even elation that would have been unthinkable only a year ago. After all those federal bailouts, many banks are turning handsome profits. Top producers are looking forward to blowout paydays once again. In financial circles, the question on everyone’s mind is this: Just how big will this payday be? The answer, it seems, is extremely big — perhaps the biggest industrywide since 2007, at the height of the bubble, according to a study released on Wednesday by the pay consultant Johnson Associates.

Pensions for Executives on Rise - WSJ - Pensions for top executives rose an average of 19% in 2008, with more than 200 executives seeing pensions increase more than 50%, according to a Wall Street Journal analysis.The executive-pension growth stemmed partly from generous pension formulas, which are based on executive pay, according to the filings. Also adding to the pension jumps are arcane techniques that have received little scrutiny, including increases triggered when an executive reaches a certain age or when companies change interest rates used to calculate the pensions.Executive pensions rose even as the share prices at the companies declined an average of 37%

Wall Street bonuses seen up 40 percent in '09: report (Reuters) - Wall Street cash bonuses are set to increase by about 40 percent this year, the Wall Street Journal said citing a report by compensation consulting firm Johnson Associates.In a report to be released later on Thursday, Johnson Associates projects that the biggest increases in year-end cash bonuses and equity awards will go to employees in rebounding businesses such as fixed income and equities, the paper said

Are Bankers Worth Their Big Paychecks? - TIME - With Goldman Sachs employees on track for their best bonus year ever, the investment bank's executives have been making the case that their bounty is good for all of us. "We contribute to growth," CEO Lloyd Blankfein said. "Once the economy starts to turn, we get very involved." In a discussion about morality and markets at St. Paul's Cathedral in London, Goldman Sachs International vice chairman Brian Griffiths described giant paychecks for bankers as an economic necessity. "We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all," he said. But is there anything to his statement? Will big profits and bonuses at Wall Street firms really bring greater prosperity and opportunity for all?

New theory on fairness in economics targets CEO pay - Chief executives in 35 of the top Fortune 500 companies were overpaid by about 129 times their "ideal salaries" in 2008, according to a new type of theoretical analysis proposed by a Purdue University researcher to determine fair CEO compensation. The ratio of CEO pay to the lowest employee salary has gone up from about 40-to-1 in the 1970s to as high as 344-to-1 in recent years in the United States. However, the ratio has remained around 20-to-1 in Europe and 11-to-1 in Japan, according to available data. Using the new analysis method, he estimated that the 2008 salaries of the top 35 CEOs in the United States were about 129 times their ideal fair salaries. CEOs in the Standard & Poor's 500 averaged about 50 times their fair pay, raising questions about the efficiency of the free market to properly determine fair CEO pay.

Robert Shiller: Address Income Gap, Tie It To Tax Rate (Video) - The US might be in the midst of a second housing and financial bubble, according to economist and Yale Professor Robert Shiller. Shiller and Financial Times commentator Martin Wolf were interviewed by Fareed Zakaria, who asked Shiller and Martin to weigh in on the topic of executive pay at bailed out banks. Both agreed that they were "annoyed" and "irritated" with the issue. Shiller warned that if the income gap is not addressed, it could do major harm to the US and create a country that even rich people don't want to live in. The professor proposed a tax tied to the income gap.

Wall Street: the Real Roadblock to Economic Recovery - Big banks and Wall Street begged for trillions in taxpayer bailouts and backstops when they were on the verge of collapse. Now that they’re back on their feet, they are back to paying out billions in bonuses and clinging to the same failed policies that created the crisis in the first place. Have the banks done anything to help families facing foreclosure? Have they increased lending to small businesses to create jobs? Have they helped states and cities close their giant budget shortfalls? Not a chance.

How to Rein In Wall Street Pay? Rein In Wall St. - NYTimes - Why are financial industry paychecks so big? The answer is simple, and it is the one Willie Sutton is supposed to have offered when asked why he robbed banks: “Because that’s where the money is.”Those who want to do something about bringing that pay down ought to focus on why there has been so much money in the financial sector in recent years. It should be no surprise that people in that business wanted to be paid a lot; the surprise should be that there was so much money to go around.For whatever reason, the money was there in recent years as never before.

Goldman Pays Just 0.92% To Borrow Long Term - Goldman's Wednesday's SEC filing shed some light on how the company can make massive profits right now, according to the Wall Street Journal.The company's interest cost for borrowing money long term right now comes to, on average, just 0.92%.This is very much due to smart hedging whereby the firm converted fixed interest rate obligations into floating ones by using derivatives.Thus as the Fed cut interest rates, the floating rates on some of Goldman's debt adjusted downward.It obviously doesn't hurt either that the company has the U.S. government guaranteeing some of its debt. It is also implicitly backed as a "too big to fail" entity. These factors surely help bring down the interest rates Goldman creditors will demand from the firm.

More Government Sachs? Don't buy it.The evil empire strikes again -- Just asking: Is there any other corporate gang we despise or mistrust more on Wall Street than the bankers over at Goldman Sachs Group Inc.? We suspect they cheat -- that they're too cozy with the government. We worry they rig the system, manipulate our leaders, have too much influence. They seem to own the stock exchange through wheeling and dealing and Capitol Hill through connections and campaign contributions. We're mad as hell, but we don't know what to do about it.

Senate Alters Taxes for Big Companies - WSJ - The Senate on Wednesday passed legislation that would give tax breaks to big companies hit by the recession and expand a credit for homebuyers, while raising other corporate levies, particularly for multinationals.The proposed tax increases are aimed at offsetting the cost to the government of the breaks, making the exact impact on individual businesses and industries difficult to judge. But business leaders worry that the measure could be a sign of more taxes to come, as lawmakers seek ways to pay for new measures without adding to the gaping federal deficit.

Character Study - I have argued elsewhere at length that the bulk of commentators and regulators confronting the Panic of 2008 and its aftermath put far too much emphasis on the supposed causal effect misaligned compensation incentives had on these events. While these no doubt added to the problem in some instances, for the most part the focus on banker pay is poorly judged. Some of this error can be laid at the foot of natural envy, but some of it can be attributed to a fundamental misreading and simplification of the investment banker's character.

Barney Frank: No More Secret Agreements Between Regulators and Banks - Every action taken by federal regulators against large, systemically-important financial firms -- those commonly referred to as "too big to fail" -- will be made public, House Financial Services Chairman Barney Frank told the Huffington Post.This is a sharp break from current practice. Currently, federal banking regulators can secretly get banks to modify their behavior and practices. For example, regulators can tell a bank to stop a particular activity, beef up lending standards, or increase the amount of capital they keep to protect against potential losses --all hidden from public scrutiny.

Clash Looms on Banks - WSJ - A key Senate lawmaker is readying legislation that would dramatically redraw how the financial system is regulated, setting the chamber on a collision course with both the House of Representatives and the Obama administration, which have championed markedly different approaches.The bill, which is being readied by Senate Banking Committee Chairman Christopher Dodd (D., Conn.), would strip almost all bank-supervision powers from the Federal Reserve and Federal Deposit Insurance Corp., according to people familiar with the matter. In their place, the bill would create a new agency in charge of supervising all banks and bank-holding companies, even the country's largest and most complex institutions.

Federal Reserve Loses Expanded Powers Proposed By Obama Administration- The pushback against an omnipotent Federal Reserve keeps growing. A top Congressional leader said Thursday that the Fed will not have the power to override other federal regulators when it comes to policing firms whose size or activities pose a threat to the entire financial system. This is a sharp break from the proposal first put forward by the Obama administration. In the Obama proposal, which was released in the House last week in the form of a draft bill, the Federal Reserve would have the authority to ignore the recommendations by a firm's primary regulator (be it a bank or securities regulator) and simply impose its own standards on the firm. The Fed would also have the power to examine the firm, and force the firm to comply with those standards if necessary.

An Object Lesson in Governmental Failure: Derivatives reform - If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, when the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country’s economic meltdown. Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but the committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions.

Editorial - The Court and Your Savings – NYTimes - The Supreme Court hears arguments Monday in a case about mutual funds and high management fees. Mutual funds are the main vehicle Americans use to save for retirement, and excessive mutual fund fees are another way an underregulated financial industry has been enriching itself at the expense of the general public. Congress wisely put limits on the ability of funds to overcharge investors. The Supreme Court needs to give the law the power that Congress intended.

Another View: Please Listen to Sheila Bair - NYTimes - As head of an agency that is funded by the very banks it insures and regulates, one might think that she would be vulnerable to co-opting by her constituent banks. Instead, as unpopular as some of her positions are within the banking establishment, Ms. Bair has been a stern mother to her unruly brood, as she proved again this week by taking issue with elements of the Financial Stability Improvement Act negotiated between the Treasury Department and the House Financial Services Committee. Her wisdom on this matter is pretty hard to take issue with: Chasing banks after a crisis, in order to avoid extraordinary calls on the F.D.I.C.’s depository trust fund, places the government in the untenable position of having to tap the banks when their resources are most depleted.

Sheila Bair: All Bark, No Bite - Sheila is apparently upset at the banks "pushing back" against reform:  Sheila Bair, chairman of the FDIC, said that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth. "That makes me angry," Bair said. It does?  You're not showing it. How hard is this Sheila?  You have the authority, along with the OTS and OCC, to walk into any bank in the United States with your examiners, look at every asset they hold, compare it against your standards of a "reasonable" mark and take action if you find that the bank could not be liquidated "at or above par."

Frank says overdraft protection should be 'opt-in' - Bank overdraft fees as high as $39 on debit card transactions aren't "favors" for consumers if they haven't asked for them, House Financial Services Committee Chairman Barney Frank said. "We wouldn't be in a situation where we're considering legislation if you would have had an opt-in regime from the beginning," said Frank (D-Mass.), addressing the banking industry at a hearing in Washington on Friday. "Don't do people favors without asking them."

Note to Congress: You Are Not the People You Serve - From a Washington Post article on proposed legislation to regulate overdraft fees: Rep. Spencer Bachus (R-Ala.) said he avoided overdraft fees with a credit line and asked if many of the problems could be eased with consumer education.Good on you, Spencer. You have a credit line — which many of your constituents can’t get — and you have it linked to your checking account — which many of your constituents wouldn’t even know how to ask for. Nessa Feddis of the ever-helpful American Bankers Association added that “most consumers can easily avoid the fees by keeping track of their balances.” (That’s a quote from the Post article describing her testimony, not from her testimony itself.) Hear that everyone?  Keep track of your balances, and just in case, get a credit line and link it to your checking account. Problem solved.

Credit Cards: Are Consumers Being Overcharged? - Newsweek. - Consumers have increasingly been charged higher interest rates and pricey fees, and hit with one-sided account modifications. Will new legislation really put an end to all that? While the law may accomplish all this, the eight-month lag time between its passage and its enactment has given credit-card companies more time to look for loopholes, say consumer advocates

AP: Obama's New Consumer Agency Is Far From A Sure Deal - Take a hard look now. A new agency that consumers were promised would make bankers, credit card companies and mortgage lenders treat them fairly will never look as strong again. Legislation to establish President Barack Obama's proposed Consumer Financial Protection Agency cleared a key hurdle this week. But it's already been watered down from what Obama proposed and will likely become even weaker when it comes up against higher hurdles on the House floor and in the Senate. It may even die along the way.

Politicians Butt In at Bailed-Out GM - WSJ - Federal support for companies such as GM, Chrysler Group LLC and Bank of America Corp. has come with baggage: Companies in hock to Washington now have the equivalent of 535 new board members -- 100 U.S. senators and 435 House members.Since the financial crisis broke, Congress has been acting like the board of USA Inc., invoking the infusion of taxpayer money to get banks to modify loans to constituents and to give more help to those in danger of foreclosure. Members have berated CEOs for their business practices and pushed for caps on executive pay. They have also pushed GM and Chrysler to reverse core decisions designed to cut costs, such as closing facilities and shuttering dealerships.

Barking Up the Wrong Tree - After reading the news, participating in key industry conferences and doing some thinking, I've come to the following conclusion: the regulators - and Congress - are barking up the wrong tree. They would have you believe that the equity markets are rigged, retail investors are screwed and that the market structure is flawed. They would further argue that the equity markets are in need of dramatic new regulation, flash orders and high frequency trading are the root of all evil and that "dark pools" are something promulgated by Darth Vader. I have only two words to say to Congress, the SEC and the White House: Bull. Shit. Why, oh why, haven't the broken OTC derivatives markets and rating agency crimes been aggressively pursued by lawmakers and regulators?

Einhorn: First, Let’s Kill All the Credit Default Swaps - Yves Smith - Credit default swaps have no redeeming social value. They are a fee machine for Wall Street and their supposed value is considerably overstated (the world pre credit default swaps functioned perfectly well) and their costs, which are considerable, are not given the attention they warrant. And I don’t mean the failure of AIG, either. Even though Einhorn gave a stinging, wide-ranging indictment, he missed one of the issues I find troubling, which is that credit default swaps result in information loss, which in turn lowers the quality of credit decisions. In other words, the product is inherently destructive. In the world of old-fashioned fixed income investing, creditors would evaluate a borrower to make sure it had good odds of meeting its obligations. Just as with securitiztion, credit default swaps lower the incentive to do borrower due diligence

Baseline Scenario, October 30, 2009 – followup to testimony to a Joint Economic Committee of Congress hearing by Simon Johnson (update: that link may be fragile; here’s the JEC general page).  The session discussed the latest GDP numbers, the impact of the fiscal stimulus earlier this year, and whether we need further fiscal expansion of any kind..

U.S. Readies Jobless Aid and Help on Homes - NYTimes In separate actions to address Americans’ continuing economic hardship, the government moved Thursday to assist long-unemployed workers and struggling businesses, as well as home buyers and homeowners facing foreclosure.  Fannie Mae, the federally controlled mortgage company, announced a Deed for Lease program in which those in danger of eviction may be able to stay as tenants in their houses for at least a year. At the same time, Congress gave final approval to a stimulus measure that will extend unemployment benefits for the longtime jobless, aid that will bring total assistance for many to nearly two years. Other provisions of the bill will expand two popular tax breaks — one for home buyers, the other for businesses operating at a loss.

Is Catastrophic The New Normal? - If it takes government stimulus money to boost the nation's GDP, then we may have truly entered a new epoch. One in which declining personal income, falling consumer spending, and double-digit unemployment make up the new normal. So long as the government remains both the lender and spender of last resort.

In the Battle for Stimulus Jobs, Shoe Store Owner Tells War Story - WSJ - Moore’s slice of the stimulus came in an $889.60 order from the Army Corps of Engineers for nine pairs of work boots for a stimulus project. Moore says he’s been supplying the Corps with boots for at least two decades. This year, because he provided safety shoes for work funded by the stimulus package, he said he got a call from the Corps telling him he had to fill out a report for detailing how he’d used the $889.60, and how many jobs it had helped him to create or save. He later got another call, asking him if he’d finished the report.“The paperwork was unreal,” said Moore, who added that he tried to figure out how to file the forms online, then gave up and asked his daughter to help.

Obama's So Speedy, It Looks Like He's Hardly Moved. - Scheiber does a good job taking Brooks to the woodshed, but I want to focus on one particular argument: “Right now, independent voters are astonishingly volatile. Democrats did poorly in elections on Tuesday partly because of disappointed liberals who think that President Obama is moving too slowly, but mostly because of anxious suburban independents who think he is moving too fast.”  Brooks makes no attempt to justify the idea that Obama is moving too fast, in part because it's hard to find evidence that supports such a statement. Since the passage of the American Recovery and Reinvestment Act last winter, the president hasn't convinced Congress to pass a major piece of legislation.

Krugman: Obama Faces His Anzio - But while health care won’t be Mr. Obama’s Waterloo, economic policy is starting to look like his Anzio...Voters across America are in a bad mood, largely because of the still-grim economic situation. And when voters are feeling bad, they turn on whomever currently holds office. Even Michael Bloomberg, the mayor of New York City, saw his supposedly easy reelection turn into a tight race. And challengers did well even if they had no coherent alternative to offer. Mr. Christie never explained how he can reduce property taxes given New Jersey’s dire fiscal straits — but voters were nonetheless willing to take a flier.

Barack Hoover Obama: The best and the brightest blow it again—Obama’s failure would be unthinkable. And yet the best indications now are that he will fail, because he will be unable—indeed he will refuse—to seize the radical moment at hand. Every instinct the president has honed, every voice he hears in Washington, every inclination of our political culture urges incrementalism, urges deliberation, if any significant change is to be brought about. The trouble is that we are at one of those rare moments in history when the radical becomes pragmatic, when deliberation and compromise foster disaster. The question is not what can be done but what must be done.

Money for Something - What if for one year — just one year — we allocated as much money for infrastructure as we did for defense? Well, this year, that would mean devoting $680 billion to investments in infrastructure. That’s more than $200 billion more than Oberstar’s entire proposed transportation reauthorization bill, which was itself a large increase over the previous transportation law. There’s probably no way we could spend all that money at once, but it would nicely capitalize an infrastructure bank, and the promise of a steady flow of funds would get states thinking about real, long-term investments. With that kind of money you could entirely build out a national network of true high-speed rail. One year’s worth of defense spending gets you that. Which makes one wonder: where are all the economists, wringing their hands over cost-benefit analyses of these defense expenditures? Does anyone doubt that the net benefit of $100 billion spent on high-speed rail is easily higher than that for the last $100 billion spent on defense? Have a look at this if you’re unsure.

Third quarter growth not nearly enough - Economist - The Bureau of Economic Analysis released data revealing that the American economy expanded at a 3.5% annual rate in the third quarter, and markets soared on the news. Finally, growth has returned. What really concerns me is that even if the American economy were able to sustain a 3.5% growth rate over a period of several years, the labour market picture would continue to be very, very ugly. Paul Krugman posts a chart, and he notes that 3.5% growth has historically meant only a slow decline in unemployment. To get to the point where the unemployment rate is falling by a percentage point per year, the economy needs to expand at a near 6% pace over the course of twelve months.

NY Times Leonhardt: The Optimistic View - Calculated Risk - from his article: Through a Glass Less Darkly - In the fall of 1982, with a long recession ending but the unemployment rate heading toward 10 percent, The New York Times ran an article titled “The Recovery That Won’t Start.” It quoted prominent economists who worried that “the recovery may amount to nothing more than a few quarters of paltry growth — and possibly not even that. Over the next two years, the American economy grew at a blistering annual rate of more than 6 percent. My comment: So why is it different this time? First, this recession was preceded by the bursting of the credit bubble (especially housing) leading to a financial crisis. And there is research showing recoveries following financial crisis are typically more sluggish than following other recessions. Second, most recessions have followed interest rate increases from the Fed to fight inflation, and after the recession starts, the Fed lowers interest rates. There is research suggesting the Fed would have to push the Fed funds rate negative to achieve the same monetary stimulus Third, usually the engines of recovery are investment in housing (not existing home sales) and consumer spending. Both are still under severe pressure

Zombie Households - How comparable are the two situations, the early 1990s and the late 2000s? What happened in 1991 to help put in a bottom? First, mortgage rates came down from over 10% in 1990 to 7% by 1993. Second, household debt as a percentage of GDP was 60% in 1990. The ratio of household liabilities to disposable personal income was 85%. The respective levels of these metrics are now 95% and 130%, each at or very near all-time records of indebtedness. The tailwinds for the housing market were substantial in the early part of the previous decade: interest rates were coming down and borrowers had room to expand their debt loads. The official response during this crisis has been an attempt to artificially engineer the same tailwinds that existed naturally before. The Federal Reserve has purchased around $977 billion of agency MBS in an attempt to bring mortgage rates lower (despite already historically low rates). Tax credits have been created and expanded to incent already heavily-indebted households to take on more debt. So far, it’s worked! “The primary difference between Japan and the United States at this point of their respective monetary malaises is that whereas Japan created a nation of zombie corporations, the United States is creating a nation of zombie households.”

October Personal Bankruptcies Highest Since 2005 Law Changes - The number of individuals filing bankruptcy rose 25 percent to about 131,200 from a year earlier, according to data compiled from court records by Oklahoma City-based Jupiter ESources LLC. The 1.2 million bankruptcies filed through October have already surpassed last year’s total of 1.1 million.

Debt Stress in Middle Class America, Revisited - Yves Smith - One week ago, I put up a post on the plight of a family that was at the end of its rope financially due to a lack of savings prior to the firing of the main income provider at the start of 2009. They had started using credit cards to pay for necessities, had paid on time until the previous month, and Bank of America stopped approving charges on the card. What has transpired since...

Consumer debt drops for record 8th straight month - Outstanding consumer debt fell at a 7.2% annual rate in September, the eighth consecutive decline, the Federal Reserve reported Friday. Consumer credit fell by $14.8 billion to $2.46 trillion in September, down 4.7% compared with a year ago. Outstanding credit can fall if consumers pay off balances, or if lenders write off bad loans. The decline in September was led by another huge drop in revolving debt, such as credit cards, which fell $9.9 billion to $889 billion, or a 13.3% annual rate. Nonrevolving debt -- such as auto loans, student loans and other personal loans -- fell $4.9 billion to $1.57 trillion, or a 3.7% annual rate.

Wall Street still overestimating the American consumer - Despite every effort from Washington, the American consumer continues to repair his/her balance sheet. The federal government has repeatedly gone back to what it knows and teased us with goodies (like cash4klunkers) in an effort to get us to spend money we don't have on things we don't need, but those days appear to be over. The optimists, who are already predicting that happy days are here again, fail to mention how the economy will rebound without the American consumer. Consumer spending is 70% of the economy. So how will the economy grow when the consumer is paying down debt rather than buying junk at the mall?

Consumer Credit continues downward trend - Consumer Credit outstanding fell $14.8b in Sept seasonally adjusted, almost $5b more than expected and marks the 11th month in the past 12 of declines. At $2.456T outstanding, it is 4.9% below the record high in July ‘08. After a flat reading in Aug, (didn’t fall b/c of the CARS program), non revolving debt outstanding fell by $4.9B. Revolving (mostly credit cards) balances outstanding fell by $9.9B. To fully put into perspective today’s data, look at the current level of consumer credit (doesn’t include mortgages, the biggest chunk of consumer credit) relative to GDP. As of Q3, it totaled 17.2% of GDP vs 17.8% at the end of ‘08 , 16.9% at year end ‘00, 15.1% at year end ‘95, 13.8% at year end ‘90 and 11.7% at year end ‘82 just as that economic expansion began.

Spending, Income, and Savings Report Dismal Numbers -- Seeking Alpha - The numbers posted Friday are a touch concerning as we are seeing the biggest drop in spending over the past 9-months. This ties into the drop in consumer sentiment numbers we saw earlier this week. Retailers may not take well to this trend. Wages and salaries that had been on the mend are again dipping and have seen the a massive drop on a year over year basis. That is caused by the combination of less hours worked and the lesser shown side-effect of part time employees. Of course demand and manufacturing are down and companies are continuing to lay off employees, further adding to the destruction of income.

Retail Sales... "Low-End" Bias Dissipating - Same store retail sales were up 1.9% from the same period of 2008. Interestingly enough, the bifurcation between low-end (outperforming) and high-end (underperforming) is dissipating. Below we can see strength not only in "low-end" retailers like TJX (parent company of TJ Maxx and Marshalls), but in high-end retailers (i.e. Nordstrom) for the first time in a LONG time.

If the economy's stagnant, why are stocks up? The answer is disturbing The stock markets are doing very well, yet the performance of the underlying economy doesn't seem to justify optimism. The buoyant S&P 500 has risen 53 percent since the March bottom. And while the economy expanded at a 3.5 percent rate in the third quarter, unemployment is high, incomes are stagnant, and consumers are shaky. The rising U.S. stock market and a weak, slow-growing U.S. consumer sector aren't really in contradiction. Given the large-scale trends transforming the global economy—and the role of large U.S. companies in it—it may be possible to have a sustainable rally in American stocks without a sustainable rally by American consumers.

Pension Strains Put Pressure on Ratings "The fiscal strain of deteriorating pension funding levels on local and state governments could contribute to downgrades in the next several years, especially among those governments that entered the recession with poor funding ratios or have little flexibility in their funding requirements, a new report from Moody’s Investors Service warns."

State and Local Pension Gap May Be $1 Trillion, Kramer Says - U.S. state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt, according to Orin Kramer, chairman of New Jersey’s Investment Council. Kramer, who is general partner of the hedge fund Boston Provident Partners LP and a Democratic fundraiser, also said he expects New Jersey Governor Jon Corzine, who lost re-election Nov. 3 to Republican Christopher Christie, to take a “significant role” with a financial company after he leaves office early next year. Corzine was formerly co-chairman of Goldman, Sachs & Co. Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York.

Retirement plan participation slips in 2008, EBRI says - The world economic crisis helped reduce U.S. employee participation in retirement plans in 2008 to 40.4% of all workers, down 1.1 percentage points from the previous year, according to an EBRI study.  Also, the percentage of workers in retirement plans could slip further in 2009 and 2010  The participation of full-time, full-year wage and salary workers ages 21 to 64 also dropped 0.5 percentage points to 54.8% in 2008.

Social Security inundated by new disability claims - As the worst recession since the Great Depression appears to be ending, the Social Security Administration grapples with an unprecedented flood of disability applications due to aging baby-boomers and heavy job losses. Pending claims are expected to jump 70 percent this year, said Dan Allsup, spokesman for Illinois-based Allsup Inc., which represents people applying for disability payments. "The number of people held up at the initial level is just exploding," Allsup said, blaming that giant jump on the ailing economy and what he terms the "silver tsunami" of America's graying population

Americans on food stamps tops 36 million, new record (Reuters) - The number of Americans receiving food stamp assistance soared above 36 million for the first time in August, the eighth month in a row that enrollment set a record, the U.S. Agriculture Department said on Wednesday.USDA said 36.492 million people were receiving food stamps, also known as the Supplemental Nutrition Assistance Program. In July, enrollment stood at 35.851 million. At the current rate, an estimated one in eight Americans receive benefits.

Half of US children -- and most black children -- will use food stamps, Cornell study reports, EurekAlert: Nearly half of American children – including 90 percent of black children and 90 percent of children who spend their childhoods in single-parent households – will eat meals paid for by food stamps at some point during childhood, reports a Cornell researcher. Nearly one-quarter of U.S. children will live in homes that receive food stamps for five or more years. Food stamps are important indicators of poverty and risk of food insecurity, "two of the most detrimental economic conditions affecting a child's health," says Thomas A. Hirschl, Cornell professor of development sociology...

Unemployment Measure U-6 Highest Since Great Depression - From the NY Times: Broader Measure of Unemployment Stands at 17.5% Excerpts: Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970....If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression. other Calculated Risk Employment posts today:        Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.                      Employment-Population Ratio, Record Part Time Workers, Weak Holiday Hiring … ….Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index

Some Quick Thoughts about Jobs - The labor continues to shrink. This might be a major demographic realignment of the work force in the US.  Just 58.5% of adults are working, the lowest since 1983 (down from~63% 2 years ago).The most positive news were the gains in temp work. That is a leading indicator. The bad news? We remain at record lows in weekly hours worked at 33. Consider what that does to future hiring — its devastating to job growth. Why bring on a new body (with all its associated costs) when we can simply add hours to our underutilized work force?

Long-Term Unemployment - (60 year graph) percentage of population unemployed 27 weeks or more

Who's Hurting the Most?  - The job market is bad for almost everyone. But it is especially bad for those who are young, less educated, male or black. (charts - breakdown by category) Below we have collected a breakdown of unemployment numbers by various demographic categories. You’ll notice that many of the groups in the worst position today had relatively high unemployment rates even before the recession had begun. But in many cases, those who were relatively worse off before the recession have still been disproportionately hurt by the downturn

Unemployment Extension Adds Up to 99 Weeks of Benefits - The latest extension of unemployment benefits couldn’t come at a better time, it seems; President Obama signed legislation into law Friday providing an additional 14 to 20 weeks of benefits for those who have already exhausted theirs or will do so by year-end. The extension comes on the same day the Labor Department announced the U.S. unemployment rate hit 10.2% in October, crossing into double-digits for the first time in 26 years as the nation’s jobless swelled to 15.7 million. The bill, passed earlier this week by both the Senate and the House of Representatives, extends federal jobless benefits by 14 weeks for Americans in all 50 states who face exhaustion before year-end, and by 20 weeks for those living in states where the unemployment rate is 8.5% or higher. (See a chart of state-by-state unemployment.)

Obama Administration Accelerating Review of Ways to Boost Jobs -(Bloomberg) -- President Barack Obama’s administration is accelerating plans to boost job growth, including more spending on infrastructure and business tax cuts, after the unemployment rate jumped to 10.2 percent last month. Obama and his advisers will within a matter of weeks review ideas for adding to the $787 billion stimulus passed earlier this year, an administration official said. Previously the president’s aides said they wanted to wait for the full impact of the earlier stimulus before taking additional action.

Why not a WPA? - Krugman- You can make a pretty good case that just employing a lot of people directly would be a lot more cost-effective; the WPA and CCC cost surprisingly little given the number of people put to work. Think of it as the stimulus equivalent of getting the middlemen out of the student loan program. So why aren’t we doing this? Politics, of course: government is the problem, not the solution, even when it is the solution, and cheaper than running things through the private sector. Still, it might be worth discussing whether we shouldn’t try to include an, um, public option in stimulus, too.

Landing a job like getting into Harvard - Since the beginning of the recession in December 2007, job openings declined from 4.4 million to 2.4 million and the number of officially unemployed persons grew from 7.5 million to 15.7 million, according to the U.S. Bureau of Labor Statistics. If the 15.7 million officially unemployed workers were to apply for those 2.4 million jobs, the chance of any one of them finding a job are about 15 percent, or roughly the same odds as being accepted to the University of Pennsylvania. It gets worse.

College Enrollment Hits All-Time High, Fueled by Community College Surge - Pew Research -  The share of 18- to 24-year-olds attending college in the United States hit an all-time high in October 2008, driven by a recession-era surge in enrollments at community colleges, according to a Pew Research Center analysis of newly released data from the U.S. Census Bureau.Just under 11.5 million students, or 39.6% of all young adults ages 18 to 24, were enrolled in either a two- or four-year college in October 2008 (the most recent data available). Both figures -- the absolute number as well as the share -- are at their highest level ever. Enrollments have been rising over many decades at both two- and four-year colleges, but the most recent annual spike has taken place entirely at two-year colleges. Community college enrollments have long been considered somewhat countercyclical; that is, they tend to rise as the economy worsens.

Table: Dozens More Colleges Pass the $50,000 Mark This Year - Student Affairs - These 58 private colleges and universities published rates for tuition, fees, room, and board totaling $50,000 or more in 2009-10. Last year only five institutions did so.                                                                                                                  

9.5% productivity growth. How unusual? - As reported by the Bureau of Labor and Statistics yesterday, US labor productivity grew at a 9.5% in the third quarter of 2009. Fast productivity growth is normally a sign of economic strength, but in this case because it is the result of a combination of GDP growth and destruction in employment, this has raised further concerns about the possibility of a jobless recovery (see Brad DeLong, among others). How unusual is to see productivity growing that fast during a recovery phase?  For example, the 1981Q3 recession showed a very similar pattern of productivity growth and the 1981 recession was also a long recession

The Dark Side of the Productivity Surge - BusinessWeek - The third-quarter productivity numbers show that business is squeezing more work out of employees in hard times -  Rising productivity is usually one of the best things you can hope for in an economy. It means people are producing more for each hour they work. That's the path to higher living standards.But the huge burst in productivity that the U.S. economy experienced in the third quarter is not entirely good. In fact, it's a sign that the U.S. economy is still in a sickly condition—a conclusion driven home by the latest job-loss figures release on Nov. 6. Economists who cheered the productivity number are ignoring the dark side of its sudden growth.

A global problem with no solution - Mohamed El-Erian, the CEO of Pimco, sent me a note this morning which sums up the dire straits of the economy, as revealed in today’s employment report, in one sentence: The problem is that very few people in DC are thinking of this as a structural challenge. Until they do, there is little basis for the sketch of a potential solution. Here’s the issue: unemployment is at 10.2%, and broader underemployment is at 17.5%. For the foreseeable future, both of them are going to be extremely high — it doesn’t really make much difference, at the margin, whether they’re going up or down. When you’re unemployed, you don’t spend. So long as unemployment remains high consumer demand will be depressed.

comment from saxplayer00o1: What our green shoots look like........ from St. Louis Fed (Graphs...Updated)All Employees: Durable Goods Manufacturing                                                                                               All Employees: Nondurable Goods Manufacturing                                                                                   Civilians Unemployed - 15 Weeks & Over                                                                                                   Civilians Unemployed for 15-26 Weeks                                                                                                      Civilians Unemployed for 27 Weeks and Over                                                                                           Employees on Nonfarm Payrolls: Manufacturing                                                                              Unemployed                                                                                                                                                Average (Mean) Duration of Unemployment                                                                                                                                     Civilian Employment-Population Ratio

U.S. Factories Are ‘Grossly Underutilized’- WSJ - U.S. manufacturing is finally on the mend — though as many factory bosses are quick to point out, when you’re in a hole this deep, everything looks up. That’s certainly true of capacity utilization. The numbers show U.S. factories remain “grossly underutilized,” Capacity utilization, which includes manufacturing, mining and utilities, has been hit hard in this recession, reaching 70.5% in September after being in the 80s for years. In the manufacturing sector, factory utilization for September ticked up to 68% — rising from a post World War II record low of 65% in June. Capacity utilization for manufacturing dropped like a rock in this recession, falling from 79% in December 2007

Manufacturing and the Bubble - Atrios passes on an interesting contention: Last night at a roundtable for our nations’s elite, that is to say, “bloggers,” Richard Trumka, AFL-CIO President, implied, though did not say outright, that one consequence of the real estate bubble was that manufacturing and other types of businesses were finding it difficult to obtain credit at favorable terms. As I said, this seemed to be the gist of what he was saying though I’m not 100% sure that was his point. So I’m curious! How much was credit being funneled away from all other sectors in the economy? - I’m not sure that’s right. But what I think is pretty clear is that foreign purchase of over-valued real estate-related financial products was intimately tied to the high price of the dollar and the large size of the American trade deficit. All this meant less manufacturing.

Men in part-time work paid less than women - The Office for National Statistics said yesterday that men in part-time work are paid less than women, suggesting that at least one of the traditional imbalances between men and women is reversing. The latest statistics, which relate to last year, suggest that men in part time work are paid 3.5 per cent less than women, on average. However among employees as a whole, men there is a pay difference of 22.5 per cent in favour of men and the pay difference for full-timers was 12.8 per cent.

33 percent of LA employers in poll will lay off workers in 2010 - "Despite Los Angeles County's already record high unemployment, the job outlook is likely to get worse as the number of businesses planning layoffs has more than doubled since last year, according to a new poll to be released today. A survey by the Los Angeles County Business Federation says 33 percent of respondents said they would lay off workers in 2010, up from 14 percent who were asked last year."

  • California to withhold a bigger chunk of paychecks - The amount goes up 10% as Sacramento borrows from taxpayers.Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

  • Schwarzenegger’s secret message to the state Assembly: ‘Fuck you.’ - The California Assembly and Senate recently unanimously approved Assembly Bill 1176 to help the port of San Francisco with financing issues. But Gov. Arnold Schwarzenegger (R) has decided to veto the legislation, sending a letter to the state Assembly chastising them for focusing on “unnecessary bills.” The San Francisco Bay Guardian also notes a second, more direct, message hidden in Schwarzenegger’s missivecontained in the first letter of each line...

    Spending and Taxes in California - Are California's budget woes due to skyrocketing spending? Michael Hiltzik says this is a myth: There's a lot of truth to this, but I think it goes too far. For starters, Hiltzik uses a special measure of inflation, not the usual CPI-U, and he doesn't include spending from bond measures. The chart on the right, using budget data from the Department of Finance, shows per-capita spending including bond measures, adjusted for inflation using the standard CPI figures from the BLS. There are two things that jump out at you. First, even using a standard measure of inflation, Hiltzik is right: per capita spending in the decade between 1999 and 2009 has barely budged. It's up about 6%.

    Pay-by-the-mile auto insurance advances in California - Sacramento News - Car insurance by the tankful?Not quite, but California moved a step closer last month to pay-as-you-drive policies that could allow motorists to buy insurance like they do gasoline – a little at a time.Insurance Commissioner Steve Poizner released regulations permitting and authorizing mileage verification for pay-as-you-drive, without dictating what form such plans must take. The goal is to use per-mile pricing to entice Californians not to drive so much, thus easing air pollution, relieving traffic congestion and lowering the number of traffic collisions.A first-of-its-kind plan is MileMeter, available only in Texas, which last year began offering six-month policies with chunks of insured miles ranging from 1,000 to 6,000 miles. When the "tank" runs dry, motorists buy more.

    Mich. looks at worst-case 20 percent budget cuts - Michigan's governor warned Tuesday of a possible 20 percent cut in state spending next year, a draconian step after billions in cuts since 2003 have already dented police and fire services, pushed schools toward insolvency and reduced oversight of prison inmates.The request from Gov. Jennifer Granholm is a further blow to health care providers, state police, universities and others dependent on public money in a state where revenues, adjusted for inflation, are at about the same level as in 1965. Double-digit cuts likely mean double-digit university tuition increases, for example.

    N.Y. state 3-year deficit may top governor's forecast (Reuters) - New York state's three-year deficit might top the governor's forecast by $3.6 billion, hitting $27.5 billion, as income and sales taxes continue to lag, the state comptroller said in a report on Thursday.The comptroller, Thomas DiNapoli, said although there were signs of an economic turnaround, tax collections are still falling. The personal income tax accounts for 60 percent of the state's tax base and the sales tax accounts for 25 percent

    State Budgets: How Bad Will It Get? - The Center on Budget and Policy Priorities (CBPP) in Washington, DC monitors and calculates the gap between the fifty states' tax revenues and expenditures. The following recent CBPP chart compares the total state budget shortfalls in both the last recession and the current one. Today's record shortfalls measure how many billions states will need to raise in additional taxes or cut their expenditures (or combinations of both) in this and coming years.

    Small-Business Bankruptcy Filings Up 44% Year-over-year, Equifax Data Shows- Commercial bankruptcies among the nation's more than 25 million small businesses increased by 44% from the third quarter of 2008 to the third quarter of 2009, according to Equifax Inc, which analyzes its comprehensive small business database for the on-going study."Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas
    continued to lead the nation in small-business bankruptcy filings as they did at the end of the second quarter

    Junk Default Rate Is Highest Since Great Depression (Bloomberg) -- The global speculative-grade default rate rose to 12.4 percent in October, the highest proportion of defaults since the Great Depression, according to Moody’s Investors Service. The annual rate at which companies worldwide fail to meet their commitments may peak at 12.5 percent next month, Moody’s said in a report today. The New York-based firm revised its September figure to 12.3 percent, also higher than the 12.2 percent rate reached in 1991. The total number of defaults declined to eight in October, the lowest monthly count this year and down from 19 in September, Moody’s said.

    US businesses at risk as lender CIT Group files for bankruptcy - Thousands of small and medium-sized businesses in the US face financial difficulties and could go out of business after lender CIT Group filed for bankruptcy protection last night. Although the company will keep operating, it is unlikely to be able to make the same number of loans as before. CIT provides working capital to small firms such as shops, their suppliers and restaurants, many of whom are already struggling in the recession.The collapse is also bad news for US taxpayers, who stand to lose the $2.3bn provided last year to prop up the troubled lender.

    Geithner "Burned Billions," Shafted Taxpayers on CIT Loan, Prof. Bill Black Says - Another one of the nation's largest lenders has filed for bankruptcy.  The prepackaged plan allows CIT to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses. The plan keeps CIT's operations alive and makes it possible for the company to exit bankruptcy by year's end. But here's the bad news:  While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer.                                                                                     

  • Geithner: Economy Can Withstand Commercial Real-Estate Woes – WSJ - The commercial property sector has emerged as the latest concern for lenders and policy-makers amid a tide of write-downs and sliding asset values that some lenders don’t expect to peak until mid-2010.“I think the economy can handle it,” Geithner told an audience in Chicago when asked if commercial property could reverse a domestic recovery, though he acknowledged that it was a difficult problem for policy makers to address directly.In wide-ranging remarks to the Economic Club of Chicago, Geithner also laid down a gauntlet for bank executives to regain public trust following the financial crisis.“I don’t think it’s that hard to do,” he said, though he offered no specifics in the wake of nationwide protests this week against bank executives.

    A Tsunami of Red Ink - Bloomberg revealed in "Geithner Says Commercial Real Estate Woes Won’t Spark Crisis," that the U.S. Treasury Secretary did not appear to be overly concerned about the threat posed by brewing problems in the commercial property sector. Is he serious? All you have to do is spend about 15 minutes reading through just a few of the reports that were published recently and it quickly becomes apparent that a tsunami of red ink is forming in the sector, ready to come crashing down on the whole of the banking sector -- as well as the economy -- in the immediate period ahead.

    "$500 Billion Of Commercial Real Estate To Mature Soon" Jon Greenlee, Associate Director, Division of Banking Supervision and Regulation at the Federal Reserve: (testimony) His prepared remarks make one thing utterly clear: the Fed is keeping a very close eye on commercial real estate (CRE). And it's worried. CRE is a big market to watch. Greenlee notes that at the end of the second quarter, commercial real estate debt was approximately $3.5 trillion. And here comes the bad news: Also at the end of the second quarter, about 9 percent of CRE loans in bank portfolios were considered delinquent, almost double the level of a year earlier. Loan performance problems were the most striking for construction and development loans, especially for those that financed residential development. More than 16 percent of all construction and development loans were considered delinquent at the end of the second quarter.

    Commercial Real Estate Crisis Still Looms - Commercial real estate faces a crisis in the coming months that—though not as serious as the residential market collapse—will cause significant problems, investor Wilbur Ross told CNBC.Assumptions made in the earlier part of the decade about growth for the commercial market have proven untrue, leaving billions of contagion and problems across the economy, the famed vulture-fund executive said in an interview. “The same reckless lending that characterized the subprime mortgage business in residential was also characterizing what went on in commercial real estate in the mid 2000s,” Ross said. When banks were making the commercial loans they did so under the assumption that rent rates and occupancy would increase while capitalization rates would go down, he said. None of those things have happened, he added.“Everything’s going in the wrong direction and I think we’re going to see quite a lot of tragedies in that sector,”

    "U.S. Shops and Apartments Head for Record Vacancies" (Bloomberg) Stores, apartment buildings and warehouses in the U.S. will set new vacancy records before a recovery takes hold in the job and commercial property markets, according to a forecast by CB Richard Ellis Group Inc. Vacancies at industrial properties will climb to almost 16 percent in 2011 and apartment vacancies will top out at 8.1 percent this quarter, CBRE chief economist Ray Torto said in a presentation at the Urban Land Institute convention in San Francisco. The proportion of empty space at shopping centers and malls will increase to about 13 percent in 2010, he said. U.S. commercial real estate prices have plunged almost 41 percent since October 2007, the Moody’s/REAL Commercial Property Price Indices show.

    October Economic Summary in Graphs - a collection of real estate and economic graphs for data released in October ...a couple dozen excellent graphs from calculated risk - you click on each graph for larger image in new window. For more info, click on link below graph to original post

    Soros, Ross: Commercial Real-Estate Crash Is Coming And It's Going To Be Terrific - The commercial real-estate crash is the worst-kept secret in the economy, but it's happening. It's just taking a long time to play out. (Except in the hotel industry, which essentially has "one-day leases").Wilbur Ross and George Soros were freaking out about it on Friday:John Gittelsohn and Thomas R. Keene, Bloomberg: Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.

    FDIC Policy Statement on Prudent Commercial Real Estate Loan Workouts - a 33 pp pdf of FDIC guidelines on CRE loans...seems to allow banks a lot of leeway in determining how to deal with non-performing loans

    "Gloomy Times for Commercial Real Estate" (San Francisco Chronicle) Shopping centers, office buildings, industrial spaces, hotels and apartments can expect a period of "enveloping gloom" from the recession and credit crunch, according to a report released on Thursday. Values will plunge, vacancies will rise and rents will decrease across all types of commercial property before the market hits bottom in 2010, according to the "Emerging Trends in Real Estate" forecast from the Urban Land Institute and PricewaterhouseCoopers LLP. Based on interviews with 900 industry leaders, including investors, developers and financiers, the report was released at an Urban Land Institute conference for developers, planners and other real estate professionals taking place this week at San Francisco's Moscone Center.

    The Commercial Loan Nightmare Facing U.S. Banks (Business Week) Banks are in for another ugly year in 2010. But this time the problem will be the big batch of deteriorating commercial real estate loans on their books. That’s because the big banks were operating with the same loose standards—and aggressive behavoir—as the investment banks in order to compete in the real estate market during the boom years. (Read our cover story about why this real estate bust is different.) Commercial real estate loans that banks underwrote and held on their books skyrocketed to approximately $190 billion in 2007, up from $11 billion in a single year, a decade earlier. In all, banks hold some $1.8 trillion of commercial real estate debt on their books. Trouble is, nobody knows just what the values of the loans on bank books’ are since they are not required to mark them to market prices"

    U.S. Commercial Property Loans Fall 54%, Bankers Say (Bloomberg) -- U.S. mortgage lending for commercial property fell 54 percent in the third quarter from a year earlier, led by a decline in loans for malls and shopping centers, the Mortgage Bankers Association said. The dollar value of loans dropped 56 percent for office properties and 40 percent for apartment buildings, the Washington-based Mortgage Bankers said in a statement today. Loans for malls and shopping centers fell 62 percent and hotel loans declined 46 percent.  The credit crisis has driven $138 billion worth of U.S. commercial properties into default, foreclosure or debt restructuring, according to New York-based Real Capital Analytics Inc.

    CMBS Delinquencies Swell to 5.5% in October, says BarCap - Delinquencies in commercial mortgage-backed securities (CMBS) accelerated in October, according to a report from Barclays Capital. The 30-plus day delinquency rate jumped 41bps to 5.5% in October as current loans deteriorated and transferred to special servicers. For the past three months, delinquencies have grown an average of 34bps, and BarCap analysts expect the pace to increase through 2009 and into 2010

    "Why This Real Estate Bust Is Different" (BusinessWeek)  To appreciate why this bust is like no other, first consider the typical commercial real estate downturns that used to crop up every 5 or 10 years...overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge.  It turns out the same excesses that drove the housing market's crazy rise and fall were present in commercial real estate, too—but they have largely gone unnoticed until now. Bankers, in their haste to make more and bigger loans, blindly accepted borrowers' wildest growth assumptions and readily overlooked other shortcomings on loan applications. They did so in part because they could easily sell their dubious loans to investors in the form of commercial mortgage-backed securities

    Here's The REAL Reason Commercial Real Estate Is Different This Time - Mark Marasciullo of PE shop New Canaan Partners takes issue with the earlier description of the differences between commercial real estate now and in the early 90s. There's a lot more to it, he notes, than mere oversupply and a complex capital structure. Here's his chart comparing then and now. And we agree: it does sound a lots scarier.

    "Fitch Conference: Commercial Real Estate Decline & Negative Credit Effects; Muni Market Downturn" (BusinessWire) The performance metrics of commercial real estate (CRE), an area with a significant risk exposure for financial institutions and the structured finance market, continues to deteriorate at an unprecedented pace. While CRE loans, excluding the more problematic construction and development portfolios, represent more than 125% of total equity for the 20 largest banks rated by Fitch, the risk is even higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200% of total equity for these institutions.

    CRE and the CRA - Paul Krugman - One of the enduring myths of the financial crisis has been the claim that it was the result of (a) Fannie and Freddie (b) the Community Reinvestment Act, which forced poor, helpless bankers to make loans to you-know-who. It’s a myth that won’t go away — I get asked about it almost every time I give a public lecture — even though it has been extensively debunked. (See, e.g., here.) But reading this scary piece about commercial real estate, I realized that CRE offers yet another debunking.

    Commercial real estate pros say no recovery until 2011 - LoopNet, an online marketplace for commercial real estate properties, said a recent survey showed most of its members don’t expect a recovery in the market until 2011.The fourth quarter 2009 LoopNet Pulse Poll said the number of respondents that think commercial real estate transactions will rebound in 2011 jumped to 46 percent, compared to 13 percent in its third quarter survey.

    "Commercial Property ‘Long Way’ From Rebound, GE’s Pressman Says" (Bloomberg) The U.S. commercial property market is far from recovery and needs job growth, sustained low interest rates and further government support, said GE Capital Real Estate Chief Executive Officer Ronald Pressman. “We’re a long way from where we’d like to be,” Pressman said at the Urban Land Institute’s annual meeting in San Francisco yesterday. “The stakes are very big here.” Defaults and late payments on property loans sold as commercial mortgage-backed securities jumped more than fivefold to 4.52 percent of the total in the third quarter from a year earlier, New York-based real estate researcher Reis Inc. said. About $26.6 billion of CMBS loans were 60 days or more past due.

    FHA delays the release of disputed audit of its finances - The Federal Housing Administration abruptly delayed the release of a long-awaited independent audit of the financial soundness of the agency, citing potential problems with the accuracy of some of the study's economic models. The audit, compiled by Integrated Financial Engineering of Rockville, was scheduled to be released Wednesday, and the agency's top officials planned to brief reporters on its results. But on Tuesday evening, the agency postponed the event, saying the report had yet to be finalized. In a separate statement Wednesday, FHA Commissioner David H. Stevens said the delay was related to economic scenario tests that the agency requested "above and beyond" what was originally to be included in the audit so that the FHA could "better understand a broader range of risk scenarios."

    Taxpayers soon to foot the bill for the FHA's debt - Because the FHA is a federal agency, its guarantees are backed by federal assets. So in essence, these loans, too dangerous to be given out by banks without the agency’s backing, are now being insured by taxpayers. To illustrate the disaster that is potentially pending, 34% of the loans guaranteed by the FHA in 2007, have already gone into default only two years later, and because it has surpassed its budget and is losing money, the FHA has already begun to ask the Federal Government for more money. So what does this mean? It means that the largest operation is subprime lending is now being run by the U.S. government and its adverse effects are being paid for by you.

  • Fannie’s Draws From Emergency Treasury Fund Reach $60 Billion (Bloomberg) -- Fannie Mae, the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses.  Fannie Mae will seek $15 billion in Treasury Department financing after posting an $18.9 billion third-quarter net loss, according to a Securities and Exchange Commission filing late yesterday. The Washington-based company, which posted $101.6 billion in losses over the previous eight quarters, has already tapped $44.9 billion from the $200 billion emergency lifeline

    Goldman Looks to Buy Fannie Tax Credits – WSJ - Goldman Sachs Group Inc. is in talks to buy millions of dollars of tax credits from government-controlled mortgage giant Fannie Mae, but the potential deal is running into opposition from the U.S. Treasury, which could block the deal. A sale would bring some needed financial respite to Fannie Mae. But the administration is leery about approving a deal that would help Goldman reduce its tax bill, given the animus held by many lawmakers toward big Wall Street firms in general and Goldman in particular.The Obama administration is looking at the deal with a critical eye

    Goldman/Buffett/Fannie Tax Deal Inked a Month Ago - If you were curious about the recent news regarding Goldman Sachs and Warren Buffett’s interest in acquiring the tax losses of Fannie Mae the details are in Fannies 10-Q.  This deal was agreed to and inked a month ago. It is still pending approval. So the information that was first reported by Bloomberg was a deliberate plant. A possible objective would have been to get a decision on the transaction before today's release. Note that the Q provides an update of the deal’s status as of November 5. Someone was waiting to edit this section right up to the last minute. A tad unusual.

    Fannie Mae’s results – oh, and what if Bank of America reported the same way…Fannie Mae just put out awful looking results based primarily on massive (and increasing) credit loss provisions. Indeed their provisions this quarter were the largest thus far in the cycle. Its worth looking a little closer because – like it or not – all Americans are owners of Fannie – both the downside (their current book) and the upside (if any) through taxpayer ownership of the common stock.

    Report on Goldman's Bets on the Housing Crash - From Greg Gordon at McClatchy Newspapers: How Goldman secretly bet on the U.S. housing crash: In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. The last section of the article "I've got a secret" discusses the selling of Goldman's MBS and the disclosure rules.

    New Role For Goldman: Taking Away People's Homes - Joining other Wall Street firms that bought millions of subprime mortgages, Goldman companies have gone to courts from California to Florida seeking approval to foreclose on the homes of middle- and lower-income Americans who couldn't keep up with their loans' soaring monthly payments. Some borrowers were speculators or homebuyers who exaggerated their incomes on loan applications, thinking they'd always have an escape hatch because housing prices would keep rising. Others, however, were victims of fast-talking mortgage brokers who didn't explain that the loans' interest rates could rise to as high as 15 percent. Many borrowers who defaulted on their mortgages may never qualify for a home loan again.

    Editorial - A Bad Way to Spend Money – NYTimes Congress threw good money after bad this week when it voted to extend and expand a wasteful home buyer’s tax credit set to expire at the end of the month. Skip to next paragraphThe new program, which will continue through the spring, is being portrayed as a rescue plan for the ailing housing market. But this costly giveaway to the real estate and mortgage industry will spend far more in taxpayers’ dollars than it can ever deliver in economic benefit. As happened with the cash-for-clunkers program in the automobile industry, the program will make housing look momentarily better but is unlikely to contribute to long-term recovery.

    OMB Director’s Blog: An Overview of Federal Support for Housing - The federal government commits substantial budgetary resources to support housing and mortgage markets through a combination of spending programs and tax provisions. During the crisis of the past two years, the commitment expanded—to about $300 billion in 2009—from the placement into conservatorship in September 2008 of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and the creation of new housing programs. Today CBO released a brief describing, in broad terms, the array of federal activities that support housing and the recent expansion of particular programs. In fiscal year 2009, the federal government devoted almost four times the amount of budgetary resources to supporting homeownership as it devoted to improving rental affordability

    Calculated Risk: SF Fed: John Krainer: Recent Developments in Mortgage Finance - From San Francisco Fed Senior Economist John Krainer: Recent Developments in Mortgage Finance: As the U.S. housing market has moved from boom in the middle of the decade to bust over the past two years, the sources of mortgage funding have changed dramatically. The government-sponsored enterprises—Fannie Mae, Freddie Mac, and Ginnie Mae—now own or guarantee an overwhelming share of originations. At the same time, non-agency mortgage securitization and loans retained in lender portfolios have largely dried up.Click on graph

    Fannie to Rent to Owners in Foreclosure – WSJ - Fannie Mae will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year, as part of the government's latest effort to help troubled borrowers, while keeping more foreclosed properties from hitting the housing market. The "Deed for Lease" Program lets borrowers who don't qualify for loan modifications transfer their property to Fannie Mae in exchange for a lease. Borrowers-turned-tenants will pay market rents, which in most cases are lower than the cost of mortgage payments, and might be offered extensions when their leases expire

    More on Falling Rents - The WSJ has an article on landlords cutting effective rents: Landlords Offer Incentives to Stay Put ... Rents are falling because vacancies are at record levels. Reis recently reported that the apartment vacancy rate in cities hit a 23 year high of 7.8 percent in the third quarter, and Reis expects the vacancy rate to reach a record 8 percent soon. (see graph) Last week the Census Bureau reported the overall rental vacancy rate hit a record 11.1 percent in Q3 2009.

    Richmond Fed on the GSE’s – “They Encourage Defaults” - The Richmond Fed produced a report that provides some useful information on the issue of non-recourse mortgage loans and their default rates. The report includes a State-by-State breakdown of the rules for defaulting. Conclusion: For homes appraised at $300,000 to $500,000, borrowers in non-recourse states are 59% more likely to default than borrowers in recourse states. For homes appraised at $500,000 to $750,000, borrowers in non-recourse states are almost twice as likely (100%) to default as borrowers in recourse states while for homes appraised at $750,000 to $1 million, borrowers in non- recourse states are 66% more likely to default.”

    Property Values Set to Fall 43% From Current Depressed Level  - Price Trends / WAR OF THE WORLDS: If you use a 20-year time horizon, and assume prices will return to the trend line, then our residential property bubble will bottom after values fall over 40% from current levels (see (c) aka “(Y) – (Z)” aka “Loss Today to Bottom”). I make no predictions. I do watch numbers. The chart shows a catastrophe of falling real estate values loaded up on top of our current catastrophe in real estate values.No one would question these numbers absent The War of the Worlds. The War of the Worlds is the United States Government versus aggregate borrower income. Uncle Sam is funding every new mortgage – high, low and in between (see chart below: the blue and red are government-backed loans)

    More walk away from homes, mortgages - The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. "It's a very large number, and it's a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed

    The Housing Bubble Will Be Re-Inflated In 3...2...1...Here it comes, more artificial support for the housing market.You can't blame people for speculating on houses when they know the government will come in and try to save them.So here we are again, warping market expectations and sowing the seeds for the next housing bubble with an extension and expansion of the homebuyer tax credits.The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.

  • TaxVox: the Tax Policy Center - Tax Credits for All Contrary to all the advice TaxVox offered, the Senate last night voted to extend the Homebuyer’s Tax Credit for seven months and expand it to include many people who already own homes. The House will likely follow suit today. I have clearly misread the mood of Congress and the country Now that I understand the thinking of Congress and the country, may I suggest a few new tax credits that will help the economy recover from its recent doldrums? Any member of Congress may freely adopt one or more, preferably without attribution…

    New vs Existing Home Sale Gap - The Big Picture - Calculated Risk posted this interesting chart showing the difference between the degree of pressure on Existing vs New Homes. It raises an interesting quandry: On the one hand, new home sales contribute directly to GDP data. Ont he other hand, existing homes sales are much larger percentage of the market.Where I may diverge somewhat from CR is in whether New Home Sales have bottomed. The volume will be a function of price. Ongoing job losses, increased foreclosures, and the offset by (pricey and only partially effective) tax credits will determine if prices are artificially propped up.

    Ties Run Deep Between Subprime Lenders, Financial Literacy Groups - As credit expanded in past years, corporations threw money at financial literacy programs even as they continued marketing higher-rate credit cards and loans. Consumer credit and debt counseling agencies expanded into a $7 billion industry that now includes everything from legitimate organizations that help a consumer fix his finances to flim-flam outfits that charge high frees and leave a borrower in worse shape than before. Subprime lenders created “consumer advocacy” organizations and offered financial literacy advice. The situation has become so troubled that some credit experts no longer believe many financial literacy efforts are even effective. Between complicated credit card agreements that trip up even law students to payday lenders providing financial education, they say, most of the attempts to educate consumers on their finances are either hopelessly tainted or simply don’t make a difference.

    Government and Lender Policies of Fear and Shame Help Keep Homeowners Debt Slaves - Mish -
    Abstract: Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility

    States Weigh Fraud Suits Against Banks - NYTimes - Frustrated by the banks’ inability or unwillingness to stop an avalanche of foreclosures, the states are considering lawsuits over the creation and marketing of millions of bad loans as well as the dismal pace of mortgage modifications. Such cases would have been impossible until recently, because federal regulators had exclusive oversight of national banks. But a 5-to-4 Supreme Court decision in June allowed the states to exercise their own supervision, giving them significant leverage.

    The Coming Collapse of the Municipal Bond Market - Sheehan notes that “spending is rising and revenue is collapsing” for all levels of government. Pension fund losses will require governments to double their contributions to pension plans (see my blog posting on public employee pensions). Municipalities dealt with the separation between taxes and expenses by borrowing. In the mid-1990s, states and cities were retiring as much debt as they were incurring. During the 2000s, though, they borrowed about $150 billion per year in aggregate, peaking at $215 billion in 2007 by which time $2.7 trillion in debt was outstanding, more than two years’ worth of tax receipts.Barring some sort of miraculous boom in the economy and pension fund investment returns, state and local governments are headed for insolvency and default. This means that valuing a municipal bond becomes a matter for a legal expert rather than an accountant.

    Has there really been a housing boom? - The answer is no. There has been a boom all right, but it has been a land price boom. This is not semantics - the fact there was no housing boom has a stark implication: society does not need to move resources away from construction in the long-run as has been suggested or assumed time and again (see for example this related discussion). We - meaning most of the western world - have not been building too much. Development is generally severely constrained by the planning system, so the returns to developing land to the landlord are way above normal. Unless the price of housing falls below construction costs (impossible in Europe, extremely unlikely in most of the metropolitan US), landowners that offer their land for development will keep enjoying a pure windfall gain, albeit one that is smaller the lower house prices go…

    Rational Irrationality : The New Yorker Some Vaguely Heretical Thoughts on Health-Care Reform - With the publication of H.R. 3962, the House Democrats’ mammoth, 1,990-page proposal to restructure the health-care system (the outlines of which can be found in this detailed summary), decision time is fast approaching in the big reform debate. Paul Krugman, in his usual forthright style, says, “History is about to be made—and everyone has to decide which side they’re on.” Democrats and progressives can line up behind the reform legislation that House Speaker Nancy Pelosi put forward last week, or they can help to kill reform for another generation by aligning with hard-line conservatives.  As political analysis, there’s something to be said for Krugman’s Manichean view of the world. But Krugman is also an economist—a very good one—and the economics of what is proposed bear inspection. The President is on the verge of fulfilling his campaign pledge to extend health-care coverage to many of the uninsured. He is doing this, however, not by transforming the existing system of private insurance, which gave rise to many of the current problems, but by extending it. The White House has reached a deal with the big health insurers

    Game is up for health insurers - Health insurance companies are aggressively raising premiums at the same time they are fighting to stop the creation of public non-profit funds that would give them serious competition. This foolish effort to pad profits before any healthcare overhaul gets passed ought to backfire. The so-called public option was already gathering support despite claims by conservatives that it would lead to a government takeover of health care.With costs rising like this, it is remarkable how many supporters the insurers have in Congress. Even the best of the companies are a pain to deal with. The for-profit insurance companies are a unique feature of the U.S. health care system. No other developed country has them, and their existence is a key reason Americans spend a much higher share of their national income on health care — while leaving many people uninsured.

    Abortion, immigration are factors in health-care reform vote - House Democratic leaders were struggling Thursday to contain uprisings on the hot-button issues of abortion and immigration that have left them little margin for error as they attempt to push through a massive health-care reform bill this weekend. Although confident of victory, House Speaker Nancy Pelosi (Calif.) and other Democratic leaders were working to limit defections to the roughly 25 Democrats viewed as "hard no" votes. There will be 258 Democrats in the House by the time the vote takes place, but to secure the 218 votes needed for passage -- and with prospects dim for Republican converts -- Pelosi can afford to lose no more than 40 members of her caucus. 

    What's going on in the House? - The House of Representatives is expected to vote on health-care reform Saturday. But the days before a big vote are rarely calm ones, and this week has been no exception. Democrats don't expect a single Republican to cross over to vote for health-care reform. That is to say, the Waxman-Markey cap and trade bill, which got eight Republican votes for what amounted to a tax on dirty energy paired with a bazillion (approximately) regulations on energy producers, was more bipartisan than an incrementalist health-care reform bill.Amazing, huh?

    How Health Plan Turns Supply-Side Ideas Upside Down – NYTimes - The key economic concept here is the marginal tax rate, which measures the percentage of a family’s incremental income to which the government lays claim. During Mr. Reagan’s time in office, the top marginal tax rate on earned income fell to 28 percent from 50 percent. But Obama has said he wants to raise marginal tax rates on high-income taxpayers. Yet under his policies, the largest increases in marginal tax rates may well apply not to the rich but to millions of middle-class families. These increases would not show up explicitly in the tax code but, rather, implicitly as part of health care reform. One might hope that such a large climb in marginal rates is a bug in the Senate Finance bill, one that could be fixed before the legislation became law. But there is no simple fix. Higher marginal tax rates are an integral part of the Obama health plan.

    Disincentives from Health Reform – a followup to Harvard professor Greg Mankiw’s column in the NY Times about the marginal tax rates implicit in the health reform bill making its ways through Congress.

  • Ezra Klein - Will the public plan have higher premiums than private insurance?  I've been saying that a public option with negotiated rates probably won't post much of a price advantage against private insurers. But according to the Congressional Budget Office (pdf), that's an overoptimistic take. The public option's premiums, they say, will actually be more expensive than private insurance...To translate it into English, the public plan will pay prices equivalent to those of private insurers and may save a bit of money on administrative efficiencies. But because the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

    GOP healthcare bill would leave 95 percent of uninsured without coverage The House Republicans' healthcare bill has left Congressional budget auditors scratching their heads. An analysis by the Congressional Budget Office has found that the Republicans' proposed healthcare overhaul would cover just 3 million Americans by 2019, and leave 52 million Americans uninsured -- effectively covering just 5 percent of those who would otherwise be uninsured. That means 95 percent of those who are uninsured will still be without coverage in 2019.

    An insurance industry CEO explains why American health care costs so much - This material was put together by the International Federation of Health Plans, which is pretty much what it sounds like: an association of insurance plans in different countries. But it showed something I've never seen before, at least not at this level of detail: prices.  The packet's 36 pages are mostly graphs showing the average prices paid in different countries for different procedures, diagnostics and drugs. There is a thudding consistency to the pages: a series of crude bars, with the block representing the prices paid by American health-insurance plans looming over the others like a New York skyscraper that got lost in downtown Des Moines.

    What does your GP really think of his patients? - Features, Health & Families - There is, says Phil Hammond, something missing from medicine. It is pleasure. Pleasure gets just two mentions in the Oxford Textbook of Medicine, and none whatever on the website of the National Institute of Clinical Excellence (NICE). Doctors rarely tell patients to pleasure themselves, for fear of getting struck off, but something a little less directive might actually improve all our lives."Our media are negative, our politics is adversarial and medicine is obsessed with frightening us into compliance and accentuating the negative rather than helping people to be happy. GPs should be pleasure coaches. There should be more social prescribing. Happiness and enjoyment involve connection with friends and family and communities,"

  • You’re Not Worthy, But Goldman Is - WSJ - It is official: Goldman Sachs is more important than you are. At least that is the way that the public may perceive a WSJ story today that Goldman was one of several Wall Street firms that received large dosages of swine flu vaccines, while some New York City hospitals and clinics are running out of the vaccine. Goldman and Citigroup said they would only distribute the vaccines to high risk groups such as pregnant women and people with pre-existing medical conditions, as the Centers for Disease Control and Prevention requires. Morgan Stanley is returning the 1,000 doses to the city health department because it said some hospitals are still without the vaccine.

  • Free Markets and H1N1 - In a free market, companies should be allowed to decide whether or not to offer paid sick leave to employees. Unfortunately, not offering paid sick leave creates a classic externality: People go to work even when they’re sick, infecting their co-workers (or customers); employers internalize some of that cost (co-workers), but not all of it (co-workers going home and infecting their kids, who then go to school — because their parents can’t stay home to take care of them — and infect their classmates, etc.). I’ve written before that we are far behind the rest of the developed world in requiring paid sick leave.Now is when it will hurt us. The New York Times has an article today titled “Fears That Lack of Paid Sick Days May Worsen Flu Pandemic.” (Economix has related data on who gets paid sick leave) I’m not sure why they decided to throw in the word “may.” We know that at the margin some people with H1N1 are going to work when they shouldn’t. We know that H1N1 is highly contagious (5.7 million Americans affected so far). We may not know how many more people are getting H1N1 because of our non-policy on paid sick leave, but it can’t be zero.There’s another dimension to this, too. Economix says this: “In both the private and the public sector, low-wage workers are far less likely to receive paid sick leave than high-income workers, touching off fears that front-line workers at fast-food restaurants or child care centers might be spreading their illnesses.”

    Holding down food costs is making us fat – MarketWatch - As the unemployment rate inches toward 10% and consumers find themselves increasingly strapped, they are turning to cheap but effective means to fill their families' tummies. And those who do have jobs are working longer hours, forgoing exercise and searching for foods that are not only economical but convenient.  As a result, more consumers are turning to processed foods, either already prepared, frozen or canned and typically filled with fat-generating calories, refined grains and sugars. That's making more Americans chubbier and prone to obesity-related illnesses such as diabetes in what has been dubbed "recession fat."

    TV Bombards Children With Commercials For High-fat And High-sugar Foods - Childhood obesity in the United States is reaching epidemic proportions. With more than one fourth of advertising on daytime and prime time television devoted to foods and beverages and continuing questions about the role television plays in obesity, a study in the November/December issue of the Journal of Nutrition Education and Behavior examines how food advertising aimed at children might be a large contributor to the problem.

    75 Percent of Young Americans Are Unfit for Military Duty -- Are America's youth too fat, dumb or dishonest to defend the nation against its enemies?The latest Army statistics show a stunning 75 percent of military-age youth are ineligible to join the military because they are overweight, can't pass entrance exams, have dropped out of high school or had run-ins with the law.So many young people between the prime recruiting ages of 17 and 24 cannot meet minimum standards that a group of retired military leaders is calling for more investment in early childhood education to combat the insidious effects of junk food and inadequate education.

    Obama's latest use of "secrecy" to shield presidential lawbreaking- The Obama administration has, yet again, asserted the broadest and most radical version of the "state secrets" privilege -- which previously caused so much controversy and turmoil among loyal Democrats (when used by Bush/Cheney) -- to attempt to block courts from ruling on the legality of the government's domestic surveillance activities.  Obama did so again this past Friday -- just six weeks after the DOJ announced voluntary new internal guidelines which, it insisted, would prevent abuses of the state secrets privilege.  Instead -- as predicted -- the DOJ continues to embrace the very same "state secrets" theories of the Bush administration -- which Democrats generally and Barack Obama specifically once vehemently condemned -- and is doing so in order literally to shield the President from judicial review or accountability when he is accused of breaking the law.

    Federal judge rules that police can search your e-mail without your knowledge - If the po-po suspect that your e-mail reveals evidence of criminal activity, they can get a search warrant and start word-searching your archives without your ever being told. So says Oregon judge Michael Mosman. In a decision this month, Mosman ruled that the Fourth Amendment — protection from unreasonable search and seizures — does not guard us from this kind of search. Given that I often exchange e-mails with sources who would prefer to stay anonymous, this ruling alarms me. Though hopefully my writing would never expose me to a criminal investigation. Legal blogs are buzzing about the ruling. (See the Volokh Conspiracy and the Wall Street Journal Law Blog.)

    Twitter is turning you into a dopamine addict (so is your iPhone, Blackberry, Google & Facebook) -
    three articles this week that suggest that our always on, 24/7, Twitter, Facebook, iPhone, Blackberry social media society is doing some seriously bad things to our brains: Psychology Today, "Why millions of brains love (and hate) twitter", "Seeking: How the brain hard-wires us to love Google, Twitter, and texting. And why that's dangerous." and Finally, here's the article that will blow you away: "Abuse of technology can reduce UK workers intelligence." It's from a research study conducted by Hewlett Packard in the UK in 2005 and it suggests that the machines are really starting to interfere with our productivity

    Misunderstanding Randomness - In next week’s New York Review of Books, Korean development economist Ha-Joon Chang responds to a review of his new book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Chang defends his argument that the majority of rich nations today benefited from infant industry protection, and stands by his analysis that developing countries under an interventionist regime grew faster than those with neoliberal policies, looking at the period from 1980 to 2000. Pointing  to Switzerland, which didn’t give women the vote until 1971, he disputes his reviewer’s argument that representative democracy was a key to the economic development of Western countries.

    The Biggest Trade Deal Of The 21st Century - The first round of Canada-EU negotiations reached a successful conclusion, with both sides optimistic that a deal can be signed as early as the summer of 2010. When that happens, a push will begin for the ultimate goal behind the Prague agreement: a NAFTA-EU trade zone to counterbalance the growing economic power of Fortress Asia, and the ascendancy of the so-call BRIC (Brazil, Russia, India, China) group of countries. The U.S. will lose its leadership position in trade unless it comes up with a new strategy

    The trade collapse: The role of product quality - Vox EU - The volume of world trade has plummeted with the global crisis. This column says that high-quality imports are more responsive to income changes than low-quality imports. This explains why world trade value fell faster during the crisis than world trade volume, which fell faster than GDP.

    World-Wide Factory Activity by Country - Real Time Economics – WSJ - Global manufacturing activity was generally stronger in October, led by a strong gain in the U.S. as only a few countries still are seeing contraction in their factory sectors.A global index produced by J.P. Morgan rose to 54.4 last month, compared to 53.0 in September, as the U.S., China and the U.K. led growth. Despite expansion in the euro zone, not all of Europe is growing. The situation is improving in Italy and Spain, but the nations still have a contracting factory sector. Russia took a step backward. After notching growth in September, manufacturing contracted last month.

    The plant-level employment effect of offshoring: Evidence from Germany - VoxEU - Do offshoring firms reduce their domestic employment? This column examines plant-level evidence from Germany, using difference-in-differences matching techniques. It says that the positive productivity effect of offshoring dominates possible downsizing effects, raising domestic employment at the establishment.

    How Can We Miss It When It Never Went Away? - When the World Trade Organization negotiations broke down in July 2008, the global financial crisis was so quickly upon us – October panic, bailout, US election, stimulus package – that it’s easy to forget that the Doha Round didn’t end after seven years, it simply took a break. It’s still out there, zombie-like, waiting to be recalled to life, to resume generating attention-numbing headlines.It’s a good time, therefore to consider Misadventures of the Most-Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trade System, by Paul Blustein.

    Stephen Roach: "There are no shortcuts to prosperity" (interview transcript) Forbes - Stephen Roach, chief economist, Morgan Stanley, has been warning the world for years about the impending financial crisis. In his new book, Next Asia, he outlines the opportunities and the challenges for Asian countries

    Think Again: Brain Drain - Foreign Policy - Many of the same countries courted by the United States through aid and trade deals complain bitterly of the "brain drain" of their doctors, scientists, and engineers to the United States and other rich countries. If correct, these complaints would mean that current immigration policy amounts to counterproductive foreign policy. Thankfully, however, the flow of skilled emigrants from poor to rich parties can actually benefit both parties. This common idea that skilled emigration amounts to "stealing" requires a cartoonish set of assumptions about developing countries. First, it requires us to assume that developing countries possess a finite stock of skilled workers, a stock depleted by one for every departure. In fact, people respond to the incentives created by migration: Enormous numbers of skilled workers from developing countries have been induced to acquire their skills by the opportunity of high earnings abroad. This is why the Philippines, which sends more nurses abroad than any other developing country, still has more nurses per capita at home than Britain does

    Beware The Reverse Brain Drain To India And China - TechCrunch - We learned that these workers returned in their prime: the average age of the Indian returnees was 30 and the Chinese was 33. They were really well educated: 51% of the Chinese held masters degrees and 41% had PhDs. Among Indians, 66% held a masters and 12% had PhDs. These degrees were mostly in management, technology, and science. Clearly these returnees are in the U.S. population’s educational top tier—precisely the kind of people who can make the greatest contribution to an economy’s innovation and growth. And it isn’t just new immigrants who are returning home, we learned. Some 27% of the Indians and 34% of the Chinese had permanent resident status or were U.S. citizens. That’s right—it’s not just about green cards. What propelled them to return home? Some 84% of the Chinese and 69% of the Indians cited professional opportunities. And while they make less money in absolute terms at home, most said their salaries brought a “better quality of life” than what they had in the U.S.

    Asset bubble warnings, international monetary institution edition - Another day, another global asset bubble warning.This time it comes courtesy of the World Bank’s chief economist for the East Asia & Pacific region, Vikram Nehru, who cautioned on Wednesday that risks to a sustainable recovery in the region still remain strong, saying:“Some governments in the region will have the fiscal space to sustain fiscal stimulus until recovery is on a firmer footing,” he said. “The time to begin removing monetary accommodation may come earlier however, especially given concerns about asset price bubbles.”And if that wasn’t enough, the IMF came out on Tuesday saying global interest rates will need to rise by up to 2 percentage points to rein in increasing debt levels in major advanced economies, while calling for the announcement of exit strategies.

    FT Alphaville » Blog Archive » China is ‘the most obvious area of concern’, Fitch says
    (Reuters) - China’s red-hot property market is a concern for its sovereign credit rating because of the threat of worsening asset quality in the banking system, Fitch Ratings said on Tuesday.“China is the most obvious area of concern,” James McCormack, managing director of Asia Pacific sovereign ratings at Fitch, said in a Reuters chat room forum.Chinese property and stock prices have surged this year, helped by very loose monetary policy and aggressive bank lending.“The China property issue raises some concerns with respect to asset quality in the banks. The banking system is a sovereign rating weakness. Clearly banks in any country with a property bubble would be affected, but banks in China are, as noted, already a weakness.”

    Global protocol could limit Sub-Saharan land grab - Aggressive moves by China, South Korea and Gulf states to buy vast tracts of agricultural land in sub-Saharan Africa could soon be limited by a new global international protocol.A scramble for African farmland has in recent years seen the equivalent of Italy's entire arable land hoovered up by businesses from emerging economies.The Food and Agriculture Organisation, the UN Conference on Trade and Development (UNCTAD) and the World Bank are now discussing a new code of conduct for land buyers in Africa. Amid increasing concerns over food security, it could include ensuring consent is given prior to selling land from local people as well as ensuring smallholders do not lose out

    The lost generation - Krugman - NYTimes - Matthew Yglesias catches Eugene Fama making a strange assertion: Beginning in the early 1980s, the developed world and some big players in the developing world experienced a period of extraordinary growth. It’s reasonable to argue that in facilitating the flow of world savings to productive uses around the world, financial markets and financial institutions played a big role in this growth. The assertion about developed countries is, of course, entirely wrong.  And as Matt points out, the giant success story in the developing world was China, where the driver was the end of Communism — not modern finance. Actually, it’s even more absurd to give finance the credit than Matt realizes: China has not been experiencing net inflows of capital, partly because it has maintained capital controls, effectively insulating itself from the whole finance thing.

    Q+A: What are the stakes in the U.S.-China yuan tussle? (Reuters) - China's reluctance to let markets play a freer hand in setting the value of the yuan, also called the renminbi, is a festering irritant that both the United States and China want to keep from getting out of hand.China says it manages the yuan's exchange rate against a basket of currencies, but if there is a basket, the dollar is far and away the heaviest component.Since removing the yuan from a formal decade-old dollar peg in July 2005, Beijing has insisted that it is perfecting the exchange rate's "formation mechanism," but the renewed rigidity over the past year has fueled growing anger abroad

    Dollar shortage in China's foreign exchange market - Resurging expectations of yuan appreciation have made dollars more scarce in China's foreign exchange market, tripling six-month dollar fundingcosts and creating new complications for Beijing's stable yuan policy. Over the past two months, Chinese banks have become eager to sell extra dollars to the central bank, fearing the US currency could fall in value, while their corporate clients are increasingly keen to borrow dollars to buy yuan, to speculate on yuan appreciation or for arbitrage.

    What rebalancing of Chinese and American consumption? - Why am I so negative about the good consumption numbers coming out of the US?  Because the rise in personal consumption was accompanied by a 3.4% decline in household disposable income.  If US household income declines, and this is likely to continue as unemployment rises even further, it is hard to imagine that US households are really going to splurge on new consumption.  Consumption and household income must move in the same direction over any reasonable time period to be sustainable.  Both China and the US are dealing with their imbalances either by slowing down the rebalancing or by exacerbating the very things that caused the imbalances in the first place.  Slowing down the adjustment makes good political and social sense, of course, but it shouldn’t blind us to the fact that US households cannot continue leveraging up to absorb the excess production that Chinese companies are leveraging up to produce.  We will rebalance, one way or the other.

    China Can't Cool Down Its Steel Bubble -  Still going... we're still waiting to see the massive value destruction that overcapacity could realize…
    BEIJING – Despite China's campaign to slim down its steel industry, the country's crude steel production in September was the second-highest ever in terms of volume, underscoring the formidable challenge Beijing faces in curbing capacity. The National Bureau of Statistics said Thursday that steel output rose 29% in September from September 2008 to 50.71 million metric tons. "The signs point clearly to overcapacity, and we expect output will be maintained at high levels" in the coming months, said Ma Haitian, senior steel analyst with state-owned metals consultancy Antaike Development Co.

    Managing The Dragon - Geely and China’s Two Markets - In autos, the headline number is that China will produce 12 million vehicles in 2009, itself an impressive accomplishment. However, that is just the tip of the iceberg. Every year, China produces at least 50 million vehicles for transportation. Twelve million are the BMWs, Buicks, and Audis that China’s wealthier citizens can afford, while the remaining 38 million are used in vehicles that the country’s less advantaged citizens must buy to meet their transportation needs–motorcycles, agricultural vehicles and the so-called “inkfish” that combine a chassis with a one cylinder diesel engine and receive their name because they spew so much black smoke.

    Remember When America Was The World's Police? Now It's The Chinese - Here's a story symbolic of the changing dynamics of global power. The Chinese have assumed the role of the world's cops. Shanghai Daily: A NEW Chinese naval task force began sailing to the Gulf of Aden and waters off the coast of Somalia yesterday to protect merchant vessels against pirates attacks.
    The new two-ship deployment comes as a Chinese coal vessel is still being held for ransom.
    The latest group of warships is the fourth task force of its kind that China has sent to the region since the end of last year. Read the whole thing >

    China faces export inquiry - The US, European Union and Mexico have asked for a World Trade Organisation dispute panel to investigate Chinese restrictions on exports of specialised raw materials used in industry, the latest indication that the global slowdown is leading to greater international action against China’s trade policies.The request to the WTO claims that China’s restraints on exports of bauxite, magnesium and other raw materials, which are used to make steel, aluminium and some chemicals, is driving up the price of those end products. Australia has also become entangled in a trade dispute with China, its biggest trading partner, after it imposed an interim dumping duty of 16 per cent on Chinese exports of aluminium extrusion products.

  • Counterproductive Chinese hoarding- The recent financial crisis and global meltdown that followed has led to a sharp downward correction in prices of commodity-based raw materials. China, a large commodity consuming country, is making use of this price correction to build up its stockpiles of commodity reserves However, this buildup of stocks by China of copper, aluminium, iron ore, crude oil and other commodities during the past one year or so appears to have continued beyond a reasonable level and does not justify consumption-based stocking even during normal times, let alone in the current scenario of the worst-ever economic crisis since the 1930s.  There are possibly more reasons than just ensuring raw material security behind this inventory buildup. China is, probably, diversifying investments from US treasuries to more stable commodity assets. While central banks of many countries, including China are increasing investment in gold, China appears to be using its foreign currency reserves for acquiring a basket of high consumption commodities also, both as a hedge against inflation and also as a hedge against possible raw material scarcity in future.

    China OGP halts coverage of crude, products stockpiles (Reuters) - China OGP, an oil industry newsletter issued by Xinhua news agency, will no longer publish data on China's stockpiles of crude oil, gasoline and diesel, it said on Tuesday.The move removes the only public source of information on Chinese crude and fuel stockpiles, key information for oil traders trying to assess the real level of demand in China, the world's second-biggest oil consumer."China OGP will halt the release of China's crude oil, gasoline and diesel stockpiles held by CNPC and Sinopec Group because these figures are no longer available," a brief note at the start of the biweekly newsletter said.It did not explain further or say if it had been ordered to withhold the information or whether the publication of the data might resume in future.

    Why Saudi Arabia Wants To Kill The NYMEX - Last week Saudia Arabia confirmed that it would no longer sell its oil at the price of the West Texas Intermediate (WTI) contract, whose price is set at the NYMEX. Some saw it as a key step towards establishing a less US-centric international oil market. Of course, the question of what oil is priced in (dollars, euros, etc.) remains a source of considerable consteratnation.So what's the Saudi rejection of WTI all about.The Telegraph explains that what it really comes down to is the idea that that it's too susceptible to speculation, and that it isn't really a good match for its output. For one thing, WTI is sweet and Saudi oil is sour

    Do Saudis have the clout to destroy NYMEX? – Telegraph - For Saudi Arabia, it is a philosophical issue that the black gold pouring out of its deserts should be treated as a tangible, physical commodity – not the paper plaything of traders on Wall Street hedging against the weak dollar. This thinking is at the heart of the Middle Eastern country's decision last week to abandon its long alliance with West Texas Intermediate crude – the famous oil used by most global producers to price their exports to the US. It is both a technical issue and a symbolic shift that strikes a blow to the domin-ance of the New York Mercan-tile Exchange, the world's biggest centre of oil trading where the most popular products relate to WTI crude.  Saudi Arabia exports around 1.5m barrels per day of oil to the US, making it the second largest supplier after Canada, but its physical crude output is not actually traded on the exchange. This is done separately through contracts between countries and oil companies – but Saudi Arabia still bases its prices on the dominant benchmark, WTI.  For several years now, Saudi Arabia has argued that it has not been well-served by the New York Mercantile Exchange's faith in this oil.

    Putin tells EU not to be 'greedy' - - Russian Prime Minister Vladimir Putin today called on the EU to lend Ukraine "at a least a billion" to help avoid a new gas pricing spat with Russia and supply disruptions to Europe. "If there are problems, we are asking our European colleagues to get involved and lend Ukraine the necessary money. Give them a least a billion. Why being greedy? They (the European Union) have the money, so why don't they disburse it a bit?" Putin said

    For Your Perusal: The Glory of Free Market Oil Supply -- Seeking Alpha - 40% of global oil supply is provided by OPEC, and 60% of global oil supply is provided by Non-OPEC oil producers. Russia is a Non-OPEC oil producer but if we take Russia out of that category, we are left with 44% of global supply.This sub-category, Non-OPEC ex Russia, is what I refer to as Free Market Oil. This is ExxonMobil (XOM), BP, Shell (RDS.A), Suncor (SU), and countries like Brazil, The United States, Norway, the UK, Mexico and Australia. Most of this oil is extracted with the best technology. So, let’s see how free market oil supply responded to the rise in price from 30.00 dollar oil to 150.00 dollar oil from late 2003 through the present (click to enlarge)

    World Need for Oil Expected to Ease - WSJ - The International Energy Agency next week will make a "substantial" downward revision to its long-term forecast for global oil demand, a person familiar with the matter said, marking the second year running the group has slashed its view of the world's thirst for oil.The forecast of slower growth in oil demand puts the IEA increasingly in a camp of contrarians bucking the popular view that crude demand will grow briskly in a postrecession world. That view holds that long-term demand will grow at a fast clip because of rising emerging-market wealth and consumption in places like China and India.The IEA, which advises rich nations, such as the U.S., on energy matters, is set to use its closely watched annual World Energy Outlook report to forecast that improved energy-efficiency measures in developed nations, as well as climate-change legislation, will help to slow the rate of global oil consumption.

    Goldman’s Currie Says Oil Drives Dollar Down, Not Vice Versa - (Bloomberg) -- Crude oil, which has risen 80 percent this year, is causing the U.S. dollar to weaken, driving metals and other commodities higher, according to Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc. While oil has risen, the U.S. currency has weakened, leading to speculation that the dollar’s depreciation is driving investors to buy oil as an inflation hedge, thereby pushing up the price of crude. “I would argue the other way,” Currie said in an interview yesterday in London. “I would argue that higher oil prices drive the dollar down and then the weaker dollar drives the metals and soft commodities up.”

    Shale gas numbers may not add up - From one end of the known world to the other, which is to say from Boston to Washington and some points in between, there is a consensus among the well informed that one part of a national energy plan is in place. Thanks to the discovery and mapping of huge reserves of gas in shale formations, we have an alternative to dirty old coal, and, possibly, imported oil for transport fuel. A 40 per cent increase in the country’s gas reserves! You can thank advanced American technology for that, but along with the technology you can also thank the advanced American ability to extract money from investors. The key element of this national characteristic is the willingness to listen carefully to determine what people with money want to hear, and then tell them that.  Shale gas, the latest magic solution being financed with other people’s money, now appears to be costing more, and has much less certain prospects, than Wall Street, Washington, or their consultants around Boston, were counting on.

    The End Of Electricity - Energy Bulletin - There seems to be a consensus that the depletion of fossil fuels will follow a fairly impressive slope. What may need to be looked at more closely, however, is not the "when" but the "what." Looking at the temporary shortages of the 1970s may give us the impression that the most serious consequence will be lineups at the pump. Fossil-fuel decline, however, will also mean the end of electricity, a far more serious matter.

    Campfire - America 2.0 ABSTRACT The “bad news” is that “peak oil” marks the beginning of the end of capitalism and market politics because many decades of declining “net energy” [1] will result in many decades of declining economic activity. And since capitalism can’t run backwards, a new method of distributing goods and services must be found. The “good news” is that our “market system” is fantastically inefficient! Americans could be wasting something like two billion tonnes of oil equivalent per year!! In order to avoid anarchy, rebellion, civil war and global nuclear conflict, Americans must force a fundamental change in our political process. We can keep the same political structures and people, but must totally eliminate special interests from our political environment. A careful review of the progressive assault on laissez faire constitutionalism and neoclassical economics, from the 1880s through the 1930s, explains how this can be done legally and without violence. These early progressives showed how we can save our country

    Food will never be so cheap again – Telegraph - Biofuel refineries in the US have set fresh records for grain use every month since May. Almost a third of the US corn harvest will be diverted into ethanol for motors this year, or 12pc of the global crop. The world's grain stocks have dropped from four to 2.6 months cover since 2000, despite two bumper harvests in North America. China's inventories are at a 30-year low. Asian rice stocks are near danger level.

    Zambia: Brace for Low Crop Yield, Warns Farmers Union - ZAMBIA should brace for a low crop yield next year unless the shortage of fuel being experienced in various parts of the country is reversed soon, Zambia National Farmers Union (ZNFU) president Jarvis Zimba has said.And the National Initiative for Citizen's Awareness (NICA) has urged political leaders to desist from blaming President Rupiah Banda over the fuel crisis because there were some people who want to undermine his leadership and the Government.Mr Zimba said yesterday that farmers had already started preparing their land for the forthcoming farming season but were worried that their yield would be less than what they were prepared to harvest.

    Maybe Farming Isn't Supposed To Make Money - Energy Bulletin - Talk about heresy. What if food production should not be part of either a capitalistic or a socialistic economy. The first commandment of agriculture states that you must put back into the soil the fertility you take out of it. That being so, the only real profit from food production is how good the food tastes and how well it sustains health and well-being. Any actual money profit beyond that might simply be a sign that the farming is flawed. Failed civilization on top of failed civilization suggests that idea, but every new civilization that flourishes for awhile believes it can beat the system.Farming has to be subsidized in modern economies because nature can’t compete with money interest. An ear of corn, even the record-shattering 15-inch ear I found in my field yesterday, has never heard of six percent interest. An ear of corn grows at its own sweet pace, come recession or inflation, which is the modern version of hell or high water. Every attempt to make it grow at a pace that matches the way we can manipulate paper money growth, results in some downside.

    Climate Change Caused Radical North Sea Shift - Fueled by previously unappreciated links between climate and ecology, the North Sea has undergone a radical ecological shift in the last half-century, say scientists.The very shape of the food web has changed, from plankton on up to the cod and flatfish that once dominated the icy waters, supporting rich commercial fisheries. They’ve been largely replaced by jellyfish and crabs.The full scope of the change has gone relatively unnoticed, and could foreshadow changes in waters around the world.

    Greenland is warming up - Greenland is getting warmer. Jacqueline McGlade, director of the European Environment Agency, says: “The amount of ice that is being lost is far more than we thought. Greenland is warming faster than the computer models predicted, and that is a worry.” The Arctic has warmed at three times the rate of the rest of the world in the past 100 years, and temperatures continue to rise. Ola Johannessen, chief of Norway’s Nansen Environmental and Remote Sensing Centre, has worked on ice for more than 30 years. He has never seen anything like the current situation. “There is no doubt that what we are seeing is the result of global warming. The glaciers are moving faster. Ice is being lost from the Greenland ice sheet, and that will raise sea levels.”

    Climate delegates call on US for robust policy - The United States came under increased pressure Monday to come up with a plan for fighting climate change and to offer an internationally acceptable policy for curbing pollution hastening global warming.As U.N. climate talks reconvened, countries stepped up calls on Washington for specific commitments on reducing carbon emissions and contributing to a global climate fund to help poor countries deal with the damage already being caused by climate change.

  • Nuclear Socialism - Brad Plumer has an interesting piece about the American right’s strangely passionate love affair with nuclear power and the impact it’s having on the climate debate in congress. What I find especially odd about it is that it’s so at odds with American conservatives’ ardor for the free market. You see this mismatch in a small sense in that their nuclear agenda in congress consists basically of asking for subsidies. But in a larger sense the issue is that the big example one can find of a country living the nuclear dream is . . . France. And it’s not just an irony or a funny coincidence, nuclear power in France is deeply tied to the genuinely socialistic (i.e., not just high taxes and a generous welfare state) aspects of the French economy

  • The ‘Party Of No’ Becomes The ‘Party Of Slow’ » Senate Republicans are demanding lengthy economic analyses of progressive clean energy policy, despite having spent careers voting for and against major energy legislation without such delay. This week the Republican members of the Environment and Public Works Committee boycotted its debate on the Clean Energy Jobs and American Power Act (S. 1733), claiming that the Environmental Protection Agency’s analysis of the economic impacts was not sufficiently thorough. Before they launched their boycott, committee ranking member Sen. Jim Inhofe (R-OK) and Sen. George Voinovich (R-OH) demanded a “full analysis” that satisfied their particular requirements

  • In Reversal, Boxer Sharply Curbs Clean Air Act Regulation Of Greenhouse Gases » In a major shift, Sen. Barbara Boxer (D-CA) has changed the Clean Energy Jobs Act to significantly restrict the use of existing Clean Air Act provisions to regulate greenhouse gases. Unlike the climate bill passed by the House in June, the initial version of the Clean Energy Jobs and American Power Act, released by lead sponsor Sen. John Kerry (D-MA) and Boxer last month, did not strip the Environmental Protection Agency’s existing authority. The new language excludes global warming pollution from several sections of the Clean Air Act

  •  Capitol Briefing - Senate Democrats ready to pass climate bill Thursday despite GOP boycott, sources say - Senate Democrats are likely to pass their climate bill out of the Senate Environment and Public Works Committee without amendments Thursday, several sources familiar with the plan said Wednesday night.Facing an ongoing Republican boycott of the committee's markup of the bill, the panel's chairman, Sen. Barbara Boxer (D-Calif.), is considering reporting out the measure with a simple majority, the sources said. That move would not require the presence of two minority members, which is traditionally required for a markup.

  • Climate-Agreement Deadline May Slip to End of 2010 (Update1) -
    (Bloomberg) -- The deadline for 192 countries to complete a new global-warming accord may slip by as much as one year, as negotiators hold back on pledges to slash emissions or pay financial aid to poor nations. Yvo de Boer, the United Nations supervisor for climate talks, said yesterday in an interview that too little progress has been made to conclude a treaty at a summit in Copenhagen next month, and it may take another year.

  • Economists Concur on Threat of Warming – NYTimes - A New York University School of Law survey found near unanimity among 144 top economists that global warming threatens the United States economy and that a cap-and-trade system of carbon regulation will spur energy efficiency and innovation.“Outside academia the level of consensus among economists is unfortunately not common knowledge,” Richard Revesz, dean of the law school, said during a press conference on Wednesday. “The results are conclusive – there is broad agreement that reducing emissions is likely to have significant economic benefits.”

  • Greenhouse Gas Emissions Are Down in the Recession. So, Then, Is “Green GDP” Up? - GDP is the single indicator that gets the most attention. Lately much of that attention has been very critical. In late September, the most recent in a long line of critics weighed in. This group was weighty indeed: the Commission on the Measurement of Economic Performance and Social Progress was created by President Sarkozy, chaired by Joseph Stiglitz, chair-advised by Amartya Sen, and coordinated by Jean-Paul Fitoussi, with Nobel-Prize winners abound. The Commission apparently believes that we have been focusing too much on market-measures output “By their reckoning, much of the contemporary economic disaster owes to the misbegotten assumption that policy makers simply had to focus on nurturing growth, trusting that this would maximize prosperity for all. “What you measure affects what you do,” Mr. Stiglitz said…”If you don’t measure the right thing you don’t do the right thing.”

  • Charlie's Diary: How habitable is the Earth? We H. Sapiens Sapiens appear to be an infestation on this planet. After the slow-burning evolution of hominins in Africa, our ancestral populations erupted out into Eurasia in a geological eye-blink, spread into the Americas by way of the Bering land bridge  and finally reaching even the remotest islands of oceania around twelve thousand years ago. Today we're ubiquitous. Even our pre-industrial ancestral cultures, from those resembling the inuit to the antecedents of the tuareg, occupied a slew of geographical environments that put cockroaches to shame. So you'd think that, to a first approximation, the Earth is inhabitable by human beings. And this tends to colour our approach the prospects of finding extrasolar planets that might be hospitable to human life (if we could ever get there from here). Actually, I think this is not quite the case. In fact, to a first approximation, from the perspective of prospective interstellar colonists, the Earth is uninhabitable. That we could imagine otherwise bespeaks a profound cognitive bias on our part (and a degree of relativism: because when all's said and done, the Earth is a lot less hostile than, say, the surface of Venus or the cloud base of Jupiter). Why is the Earth uninhabitable?

    To Breed or Not to Breed? - Poverty + War + Disease = Booming Population. Bloody, poor, sick nations often reproduce the fastest. We think everyone’s dying in the genocidal Democratic Republic of the Congo, but it’s #9 in PG rate because “war babies” are churned out at a 6.7 fertility rate. Other top PG rate nations with recent conflicts are Eritrea (7th), Uganda (8th), Palestine (10th), Somalia (16th), and every nation in the Top Five listed above. However, war/poverty/disease isn’t really the catalyst that pumps PG rates. The actual cause is rurality/repression/religion. Peasant women trapped under the male thumb of fundamentalist religions are often denied education, equal rights, job opportunities, and birth control. Large families are also seen as a benefit in the boondocks because children provide free farm labor.


    TomCat said...

    Wooo Hooo!! You did it! This is the longest post I have ever seen. As much as I'd love top read thw whole thing, I have appointments on Tuesday and Wednesday. ;-)

    rjs said...

    you have to know how i organize these things to get to what you want...if you want to check the main st news out, grease your mouse wheel & scroll down about a hundred paragraphs, past the stuff on the banks, banksters, and what the congress critters are up to, and you'll get into the section that covers the real economy...