At gold parties, consumers exchange old jewelry for cash, but sellers beware
Friday, October 31, 2008
Wednesday, October 29, 2008
The Next World War? It Could Be Financial
The global financial outlook grows more dire by the day: The United States has been forced to shore up Wall Street, and European governments are bailing out numerous commercial banks. Even more alarmingly, the government of Iceland is presiding over a massive default by all the country's major banks. This troubling development points not only to an even more painful recession than anticipated, but also to the urgent need for international coordination to avoid something worse: all-out financial warfare.
The ramifications of Iceland's misery are probably more serious than people realize. The country's bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.
There is now a risk that continued corporate and bank defaults within nations ... will lead to a chaotic series of national and local defaults. If governments don't respond with sensible, coordinated policies, there's a risk of financial war.
But there's a broader concern. With European governments turning down his appeals for assistance, Iceland's prime minister, Geir Haarde, warned last week that it was now "every country for itself." This smacks of the financial autarchy that characterized defaulters in the financial crisis in Asia in the late 1990s. Similarly, when Argentina defaulted on its debt in 2001–02, politicians there faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia after the crises of 1998, local enterprises and banks took the opportunity of the confusion to grab property, then found ways to ensure that courts sided with them.
(..)
Here are six steps toward avoiding a situation of "each nation for itself":
The ramifications of Iceland's misery are probably more serious than people realize. The country's bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.
There is now a risk that continued corporate and bank defaults within nations ... will lead to a chaotic series of national and local defaults. If governments don't respond with sensible, coordinated policies, there's a risk of financial war.
But there's a broader concern. With European governments turning down his appeals for assistance, Iceland's prime minister, Geir Haarde, warned last week that it was now "every country for itself." This smacks of the financial autarchy that characterized defaulters in the financial crisis in Asia in the late 1990s. Similarly, when Argentina defaulted on its debt in 2001–02, politicians there faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia after the crises of 1998, local enterprises and banks took the opportunity of the confusion to grab property, then found ways to ensure that courts sided with them.
(..)
Here are six steps toward avoiding a situation of "each nation for itself":
FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt
While JPMorgan has been relatively unscathed by the subprime crisis that hit Bear Stearns Cos., Merrill Lynch & Co., Lehman and other Wall Street firms, a little-known part of the largest bank in the U.S. made a tidy profit peddling a different kind of corrosive debt to hundreds of counties and school districts earlier this decade.
As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.
Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don't have to pay for increased interest payments and penalties.
No Bailouts
As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.
Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don't have to pay for increased interest payments and penalties.
No Bailouts
Short Sellers Aren't Jackals, They're Bears, Fleckenstein Says
An article from Bloomberg on the incredibly prescient Bill Fleckenstein...
Oct. 29 (Bloomberg) -- A six-foot stuffed grizzly bear guards the entrance to the offices of Fleckenstein Capital Inc., located on a quiet, leafy street in the Capitol Hill neighborhood of Seattle. The bear sends a clear message: The man inside, Bill Fleckenstein, founder and president of the firm, is a short seller and proud of it.
Fleckenstein, 55, has emerged as one of the most-outspoken defenders of what has been depicted by everyone from the chief executive officer of Morgan Stanley to the Archbishop of Canterbury as a renegade class of investors. Since world markets began their most serious plunge in decades in July, 17 countries have banned or restricted short selling, including the U.S., Canada, the U.K., Germany, France, Switzerland, Australia, Japan and Taiwan. Commentators around the world have labeled short sellers as hyenas, jackals, vermin and vultures.
Fleckenstein says that investors who bet that stocks will decline, as short sellers do, are simply bears. And he says they are not to blame for the market meltdown. ``Short sellers didn't lower the fed funds rate or tell people to take out mortgages when they shouldn't have,'' he says. ``Now we are the bad guys, the ones wearing black hats.''
Oct. 29 (Bloomberg) -- A six-foot stuffed grizzly bear guards the entrance to the offices of Fleckenstein Capital Inc., located on a quiet, leafy street in the Capitol Hill neighborhood of Seattle. The bear sends a clear message: The man inside, Bill Fleckenstein, founder and president of the firm, is a short seller and proud of it.
Fleckenstein, 55, has emerged as one of the most-outspoken defenders of what has been depicted by everyone from the chief executive officer of Morgan Stanley to the Archbishop of Canterbury as a renegade class of investors. Since world markets began their most serious plunge in decades in July, 17 countries have banned or restricted short selling, including the U.S., Canada, the U.K., Germany, France, Switzerland, Australia, Japan and Taiwan. Commentators around the world have labeled short sellers as hyenas, jackals, vermin and vultures.
Fleckenstein says that investors who bet that stocks will decline, as short sellers do, are simply bears. And he says they are not to blame for the market meltdown. ``Short sellers didn't lower the fed funds rate or tell people to take out mortgages when they shouldn't have,'' he says. ``Now we are the bad guys, the ones wearing black hats.''
A New Stimulus Plan: Keep the Campaign Going
Let’s face it, in our slumping economy, there is only one growth industry left: Political campaigns. Well, maybe two, if you count bankruptcy lawyers, but we’ll worry about them another time.
Think of it, while consumption on everything from autos to sofas has slowed to a trickle, campaign spending is booming. Candidates this year have raised—and are likely to spend—in excess of $5 billion. Barack Obama alone may spend something approaching $1 billion.
Even better, it is all domestic consumption. With a normal fiscal stimulus, a lot of money leaks overseas as consumers buy stuff like Korean HDTVs or Malaysian shirts. The banks seem to be mostly hoarding the $250 billion Treasury just gave them. But politicians never leave a nickel on the table, and they spend almost every cent at home. Consultants. Phone banks. Hotel rooms. Beer. Media buys for all those ads with the ominous music. Even the bumper stickers and yard signs are made in the USA.
Think of it, while consumption on everything from autos to sofas has slowed to a trickle, campaign spending is booming. Candidates this year have raised—and are likely to spend—in excess of $5 billion. Barack Obama alone may spend something approaching $1 billion.
Even better, it is all domestic consumption. With a normal fiscal stimulus, a lot of money leaks overseas as consumers buy stuff like Korean HDTVs or Malaysian shirts. The banks seem to be mostly hoarding the $250 billion Treasury just gave them. But politicians never leave a nickel on the table, and they spend almost every cent at home. Consultants. Phone banks. Hotel rooms. Beer. Media buys for all those ads with the ominous music. Even the bumper stickers and yard signs are made in the USA.
Why the Dollar Surge Won't Last
That same broken dollar is now king. It won’t last. Think of it as a temporary scarcity of life jackets.
(..)
Sadly, at least for dollar bulls, it is not that the dollar is newly back to being the de facto world currency, the position it held for most of the last sixty years. Matter of fact, the U.S. dollar's so-called reserve status is more endangered than ever. The U.S. is still spending more than it brings in every year; it borrows money abroad to finance an unsustainable trade deficit; and it has lost its way with respect to building an economy around selling things for more than they cost. You know, the capitalism thing, as opposed to the financial engineering thing.
Because far from being a de facto standard, the dollar is really beginning to piss people off.
(..)
Sadly, at least for dollar bulls, it is not that the dollar is newly back to being the de facto world currency, the position it held for most of the last sixty years. Matter of fact, the U.S. dollar's so-called reserve status is more endangered than ever. The U.S. is still spending more than it brings in every year; it borrows money abroad to finance an unsustainable trade deficit; and it has lost its way with respect to building an economy around selling things for more than they cost. You know, the capitalism thing, as opposed to the financial engineering thing.
Because far from being a de facto standard, the dollar is really beginning to piss people off.
Are Stocks the Bargain You Think?
Some of the country’s most famous investors, including Warren Buffett and John Bogle, have started to make the case that it’s time to dive back into the stock market.
They are usually careful to add that they don’t know what stocks will do in the short term. Yet their basic message is clear enough: stocks are now cheap, irrational fears have been driving the market down lately, and people who buy today will be glad that they did.
After a day like Tuesday, when the market rose 11 percent, it’s easy to see the merits of the argument.
But there is another argument that deserves more attention than it has gotten so far. It’s the bearish argument that is based neither on fears that the country may be sliding into another depression nor on gut-level worries about the unknown. It is based on numbers and history, and it has at least as much claim on reason as the bullish argument does.
It goes something like this: Stocks are truly cheap only relative to their values over the last 20 years, a period that will go down as one of the great bubbles in history. If you take a longer view, you see that the ratio of stock prices to corporate earnings is only slightly below its long-term average. And in past economic crises — during the 1930s and 1970s — stocks fell well below their long-run average before they turned around.
They are usually careful to add that they don’t know what stocks will do in the short term. Yet their basic message is clear enough: stocks are now cheap, irrational fears have been driving the market down lately, and people who buy today will be glad that they did.
After a day like Tuesday, when the market rose 11 percent, it’s easy to see the merits of the argument.
But there is another argument that deserves more attention than it has gotten so far. It’s the bearish argument that is based neither on fears that the country may be sliding into another depression nor on gut-level worries about the unknown. It is based on numbers and history, and it has at least as much claim on reason as the bullish argument does.
It goes something like this: Stocks are truly cheap only relative to their values over the last 20 years, a period that will go down as one of the great bubbles in history. If you take a longer view, you see that the ratio of stock prices to corporate earnings is only slightly below its long-term average. And in past economic crises — during the 1930s and 1970s — stocks fell well below their long-run average before they turned around.
Tuesday, October 28, 2008
GOP Sticks With Karl (Marx)
To get a Democrat to admit to practicing socialism is a lot like frisking a wet seal.
To get Republicans to confess to their role in socializing America is an equally slippery affair.
The latter have been grandstanding about the plan of the wily pitch-man Obama to plunder taxpayers (the minority) so as to pay tax consumers (the majority). For the edification of GOP grandstanders, America has a tax system that energetically distributes income.
The progressive income tax is a good example of Karl Marx's maxim, "From each according to his ability, to each according to his need." It is socialism by any other name.
Obama is an adherent of this socialism; as is McCain. And so is George Bush, who, as a campaign ploy, had promised to reform America's steep tax system, but decided to stick with Karl.
Indeed, America, the cradle of capitalism, clings to Karl. Russia, the cradle of communism, has abandoned him in favor of a flat—and very low—tax on income.
(..)
"Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide."
This is both socialism and serfdom—the blight of which GOPers could have lessened during their interminable tenure, but didn't. If anything, America has slouched toward socialism under Republicans. Perhaps not as far as direct taxation goes, but certainly in as much as borrowing and printing money is concerned. For this is how wastrel "W" has funded his orgiastic spending.
Borrowing and counterfeiting cash is taxation by stealth and subterfuge. These, arguably, are more destructive than direct taxation because more clandestine. Americans don't seem to comprehend that there is no free lunch—that unlimited spending comes at a price. Be it creditors that must be paid or a money supply that is inflated—the net effect is every bit as bad as increasing taxes on income, if not worse.
Taxation hits the pocketbook directly; government's borrowing and counterfeiting does so indirectly—it devalues Joe the Plumber's labor, assets, purchasing power, and savings. Unaware of how he's being ground down, Generic Joe keeps on consuming until he crashes.
To get Republicans to confess to their role in socializing America is an equally slippery affair.
The latter have been grandstanding about the plan of the wily pitch-man Obama to plunder taxpayers (the minority) so as to pay tax consumers (the majority). For the edification of GOP grandstanders, America has a tax system that energetically distributes income.
The progressive income tax is a good example of Karl Marx's maxim, "From each according to his ability, to each according to his need." It is socialism by any other name.
Obama is an adherent of this socialism; as is McCain. And so is George Bush, who, as a campaign ploy, had promised to reform America's steep tax system, but decided to stick with Karl.
Indeed, America, the cradle of capitalism, clings to Karl. Russia, the cradle of communism, has abandoned him in favor of a flat—and very low—tax on income.
(..)
"Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide."
This is both socialism and serfdom—the blight of which GOPers could have lessened during their interminable tenure, but didn't. If anything, America has slouched toward socialism under Republicans. Perhaps not as far as direct taxation goes, but certainly in as much as borrowing and printing money is concerned. For this is how wastrel "W" has funded his orgiastic spending.
Borrowing and counterfeiting cash is taxation by stealth and subterfuge. These, arguably, are more destructive than direct taxation because more clandestine. Americans don't seem to comprehend that there is no free lunch—that unlimited spending comes at a price. Be it creditors that must be paid or a money supply that is inflated—the net effect is every bit as bad as increasing taxes on income, if not worse.
Taxation hits the pocketbook directly; government's borrowing and counterfeiting does so indirectly—it devalues Joe the Plumber's labor, assets, purchasing power, and savings. Unaware of how he's being ground down, Generic Joe keeps on consuming until he crashes.
Is Volatility Embedded in the System for a Generation?
A rather grim scenario is laid out here...
On the macroeconomic front, I continue to be very, very disturbed by several factors. The fact that anyone cares about third-quarter earnings is beyond me. They are, to my mind, approaching irrelevance. The real story, yet only the beginning of the story, will be what fourth-quarter earnings look like. And while I'm not a betting man, I am pretty confident that they will suck. Hard. It's not that earnings for durable goods manufacturers will fall by 5%, 10%. They could drop by 50% or more. We are in the early stages of a consumer slow-down that does not seem to be factored into current stock prices. My fear is that people will find this as a shock, and that the market will get absolutely massacred when the realization sets in that corporate earnings aren't merely down, but are falling off a cliff.
And this, my friends, will precipitate staff cuts that will make the recent downsizings look like child's play. Falling corporate earnings. Falling stock prices. Firms with limited access to capital and high fixed costs will cut the only thing they can: people. More out of work people means a drop in consumer spending, which means falling corporate earnings, and so on.
At the end of the blogpost,"aarondelcohen" makes an interesting comment:
Are you kidding me? That is the single bleakest outlook I've seen. It's probably worth discussing. I don't feel completely equipped on macroeconomics, but I talked to a quant vulture fund person today who told me she had modeled the $15bn a month we are spending in Iraq coming back into the US in investments 24 months from now and you can really see where that kind of investment helps restore activity and even positive GDP growth. To use her words, "You'd be amazed what happens when you take that money away from there and put it here."
On the macroeconomic front, I continue to be very, very disturbed by several factors. The fact that anyone cares about third-quarter earnings is beyond me. They are, to my mind, approaching irrelevance. The real story, yet only the beginning of the story, will be what fourth-quarter earnings look like. And while I'm not a betting man, I am pretty confident that they will suck. Hard. It's not that earnings for durable goods manufacturers will fall by 5%, 10%. They could drop by 50% or more. We are in the early stages of a consumer slow-down that does not seem to be factored into current stock prices. My fear is that people will find this as a shock, and that the market will get absolutely massacred when the realization sets in that corporate earnings aren't merely down, but are falling off a cliff.
And this, my friends, will precipitate staff cuts that will make the recent downsizings look like child's play. Falling corporate earnings. Falling stock prices. Firms with limited access to capital and high fixed costs will cut the only thing they can: people. More out of work people means a drop in consumer spending, which means falling corporate earnings, and so on.
At the end of the blogpost,"aarondelcohen" makes an interesting comment:
Are you kidding me? That is the single bleakest outlook I've seen. It's probably worth discussing. I don't feel completely equipped on macroeconomics, but I talked to a quant vulture fund person today who told me she had modeled the $15bn a month we are spending in Iraq coming back into the US in investments 24 months from now and you can really see where that kind of investment helps restore activity and even positive GDP growth. To use her words, "You'd be amazed what happens when you take that money away from there and put it here."
The Brain Why Darwin Would Have Loved Botox
In June 2008 in the Journal of the American Academy of Dermatology, a team of cosmetic surgeons suggested this experiment is making all of us happier. People with Botox may be less vulnerable to the angry emotions of other people because they themselves can’t make angry or unhappy faces as easily. And because people with Botox can’t spread bad feelings to others via their expressions, people without Botox may be happier too. The surgeons grant that this is just speculation for now. Nevertheless, they declare that “we are left with the tantalizing possibility that cosmetic procedures may have beneficial effects that are more than skin deep.”
Maybe. But for all the Botox youthfulness plastic surgeons may want to think about, neuroscience raises a darker possibility. Making faces helps us understand how other people are feeling. By altering our faces we’re tampering with the ancient lines of communication between face and brain that may change our minds in ways we don’t yet understand.
Maybe. But for all the Botox youthfulness plastic surgeons may want to think about, neuroscience raises a darker possibility. Making faces helps us understand how other people are feeling. By altering our faces we’re tampering with the ancient lines of communication between face and brain that may change our minds in ways we don’t yet understand.
Monday, October 27, 2008
The Age of Prosperity Is Over
From the famed economist Arthur D. Laffer...woth reading the entire article
Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb's book "Fooled by Randomness."
When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.
(..)
But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street.
(..)
The stock market is forward looking, reflecting the current value of future expected after-tax profits. An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output. Just look at the era beginning with President Reagan's tax cuts, Paul Volcker's sound money, and all the other pro-growth, supply-side policies.
Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the "retirement test" for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined). The stock market loved Mr. Clinton as it had loved Reagan, and for good reasons.
The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons.
These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't.
Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb's book "Fooled by Randomness."
When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.
(..)
But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street.
(..)
The stock market is forward looking, reflecting the current value of future expected after-tax profits. An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output. Just look at the era beginning with President Reagan's tax cuts, Paul Volcker's sound money, and all the other pro-growth, supply-side policies.
Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the "retirement test" for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined). The stock market loved Mr. Clinton as it had loved Reagan, and for good reasons.
The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons.
These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't.
Myths and Misconceptions about U.S. Healthcare
Several myths about health insurance interfere with the diagnosis of problems in the current system and impede the development of productive reforms. Although many are built on a kernel of truth, complicated issues are often simplified to the point of being false or misleading. Several stem from the conflation of health, health care, and health insurance, while others attempt to use economic arguments to justify normative preferences. We apply a combination of economic principles and lessons from empirical research to examine the policy problems that underlie the myths and focus attention on addressing these fundamental challenges. [Health Affairs 27, no. 6 (2008): w533-w543 (published online 21 October 2008; 10.1377/hlthaff.27.6.w533)]
The Hard Sell: Why the Surge in Home Sales is Bad News
When I wrote about housing for Slate six months ago, I pointed out some of the houses on the market at asking prices 30 percent or 40 percent off what they'd sold at just a year or so earlier. The response was disbelief. Did I select my examples at random, one reader asked me snidely in an e-mail, or did I cherry pick to get the most dramatic numbers? Well, I didn't cherry pick, and now you won't find anyone doubting that drops of this scale are par for the course.
Unfortunately, we have a lot further to go. The Case/Shiller price index, a measure of home prices going back to 1987, shows California home prices still at about twice where they were at the peak of the last big housing cycle back in 1990. So just to get back to the top of the last peak, prices would have to drop another 50 percent. Interest rates at that time were substantially higher, in the range of 10 percent a year. If you take that into account and look not at sales prices but at the cost of paying mortgages, we're still in for another drop of 30 percent. That's if prices don't fall below the last peak and interest rates stay at 6.5 percent or less. In other words, it's a best-case scenario.
These numbers are so dire that they might sound like scare mongering, except that if you look through the recent sales listings at any number of online sites, you won't have to search very hard to find price drops right along the lines of these numbers. This house in Riverside, Calif., for instance: bought for $586,000 in 2006, foreclosed on in November 2007, and now sold again this summer for $147,000-just 25 percent of what it sold for two years ago. And here's another heart-stopping fact: Even that vastly diminished sales price was financed, according to real estate records, with a 100 percent mortgage. Good luck getting one of those now.
What this means for homeowners is that if you happened to buy at the peak of the boom, your house is unlikely, in inflation-adjusted terms, to get back to the price you paid for it for another decade at best, if ever.
Unfortunately, we have a lot further to go. The Case/Shiller price index, a measure of home prices going back to 1987, shows California home prices still at about twice where they were at the peak of the last big housing cycle back in 1990. So just to get back to the top of the last peak, prices would have to drop another 50 percent. Interest rates at that time were substantially higher, in the range of 10 percent a year. If you take that into account and look not at sales prices but at the cost of paying mortgages, we're still in for another drop of 30 percent. That's if prices don't fall below the last peak and interest rates stay at 6.5 percent or less. In other words, it's a best-case scenario.
These numbers are so dire that they might sound like scare mongering, except that if you look through the recent sales listings at any number of online sites, you won't have to search very hard to find price drops right along the lines of these numbers. This house in Riverside, Calif., for instance: bought for $586,000 in 2006, foreclosed on in November 2007, and now sold again this summer for $147,000-just 25 percent of what it sold for two years ago. And here's another heart-stopping fact: Even that vastly diminished sales price was financed, according to real estate records, with a 100 percent mortgage. Good luck getting one of those now.
What this means for homeowners is that if you happened to buy at the peak of the boom, your house is unlikely, in inflation-adjusted terms, to get back to the price you paid for it for another decade at best, if ever.
Taiwan Dumps Fannie, Freddie, and Uncle Sam?
Not only China, but even our ally Taiwan, is rethinking their faith in U.S. securities...
After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, "Who lost China?"
Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality -- even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.
Beyond that, Washington might well worry that other nations also no longer view its agencies -- and now, by extension, the very credit of the United States of America -- beyond question.
Taiwan's financial regulators reportedly have ordered that nation's insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.
Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.
As a result, Fannie and Freddie debt has the "effective guarantee" of the U.S. government, a spokeswoman for the Federal Housing Finance agency, the regulator for the GSEs, said Thursday. (That was a "clarification" of FHFA director James Lockhart's earlier declaration to the Senate Finance Committee that Fannie and Freddie debt had the "explicit" guarantee of the U.S. Treasury, Dow Jones Newswires reports.)
Moreover, Ginnie Mae securities have always been backed with the same full faith and credit guarantee as the U.S. Treasury.
After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, "Who lost China?"
Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality -- even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.
Beyond that, Washington might well worry that other nations also no longer view its agencies -- and now, by extension, the very credit of the United States of America -- beyond question.
Taiwan's financial regulators reportedly have ordered that nation's insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.
Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.
As a result, Fannie and Freddie debt has the "effective guarantee" of the U.S. government, a spokeswoman for the Federal Housing Finance agency, the regulator for the GSEs, said Thursday. (That was a "clarification" of FHFA director James Lockhart's earlier declaration to the Senate Finance Committee that Fannie and Freddie debt had the "explicit" guarantee of the U.S. Treasury, Dow Jones Newswires reports.)
Moreover, Ginnie Mae securities have always been backed with the same full faith and credit guarantee as the U.S. Treasury.
US has Plundered World Wealth with Dollar: China Paper
While the nationalist rhetoric here needs to be taken with a grain of salt, esp. as many believe that China has for many years artificially devalued its currency relative to the dollar to make its exports more attractive to us, the fact is that the dollar is in great danger imo, and we have ceded too much control to other countries in the trillions of dollar of debt that have been bought up by China, among others...This is also a huge problem I have with the bailout that will be financed by the issuance of further debt. As more and more of our treasuries are bought up by other countries, we cede more and more of our sovereignty. On the other hand, if our debt is not bought by the same countries, we are in even more dire straits imho...
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencie
(..)
The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.
Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.
"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencie
(..)
The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.
Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.
"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.
Natural Settings Help Brain Fatigue
After a recent post about using natural settings to help children with attention deficit disorder, several readers wrote in wondering whether many of us may be suffering from a “nature deficit.”
As it turns out, everyone appears to benefit from the restorative powers of nature. I recently spoke about “attention restoration theory” with Andrea Faber Taylor, a child environment and behavior researcher at the Landscape and Human Health Laboratory at the University of Illinois at Urbana-Champaign. As she explained, the human brain has two forms of attention: “directed” attention, which is what we use most of the time to concentrate on work, studies and tests, and “involuntary” attention, which is what occurs when we automatically respond to things like running water, crying babies or wild animals.
The problem is that directed attention is a finite resource — everyone has experienced the fatigue of taking a test or a big project at work. Attention restoration theory suggests that walks in nature and views of green space capture our involuntary attention, giving our directed attention a needed rest.
How Washington's Bailout Will Boost Wall Street Bonuses
Uncle Sam has a new name on Wall Street — Sugar Daddy. Bonuses for investment bankers and traders are projected to fall by 40% this year. But analysts, compensation consultants and recruiters say the drop would be much more severe, perhaps as much as 70%, had it not been for the government's efforts to prop up the financial firms. "Year-end pay on Wall Street will be higher than it would have been had it not been for the government and mergers," says Alan Johnson, a leading compensation consultant. "You would expect it to be down much more."
Johnson predicts the average managing director at an investment bank, a title typically earned around eight years on the job, will receive a bonus of $625,000. That's down from nearly $1.1 million last year, but it is still 15 times the income of the average American household. Top bankers could receive as much as $1 million. Even a bond trader just out of business school could see his or her bank account enriched by as much as $170,000 this Christmas. "The firms have had an extremely difficult year," says Joan Zimmerman, a Wall Street career coach. "But they can't afford to lose talent either."
Johnson predicts the average managing director at an investment bank, a title typically earned around eight years on the job, will receive a bonus of $625,000. That's down from nearly $1.1 million last year, but it is still 15 times the income of the average American household. Top bankers could receive as much as $1 million. Even a bond trader just out of business school could see his or her bank account enriched by as much as $170,000 this Christmas. "The firms have had an extremely difficult year," says Joan Zimmerman, a Wall Street career coach. "But they can't afford to lose talent either."
Sunday, October 26, 2008
Obama, McCain Face Most Pressure Since FDR to Speed Transition
Oct. 27 (Bloomberg) -- On the night of Nov. 4, either Barack Obama or John McCain will be celebrating his election as president. It may be a short party.
Whoever wins will come under intense, immediate pressure -- unmatched since Franklin D. Roosevelt's election in 1932 -- to begin participating in policy making over which he'll have no formal control for 2 1/2 months. Within days, the winner's economic advisers may be heading to the U.S. Treasury to help tackle the nation's worst financial crisis in more than seven decades.
``The situation is so serious that he has to be involved,'' says James Thurber, director of the center for congressional and presidential studies at American University in Washington. ``But he has to be very careful because he's not the president and won't be the president until he's sworn in.'' President George W. Bush's Treasury officials are encouraging the candidates to waste no time getting a grasp of the $700 billion financial-rescue effort, even saying their aides can work out of the department, according to people who have spoken with the department.
Whoever wins will come under intense, immediate pressure -- unmatched since Franklin D. Roosevelt's election in 1932 -- to begin participating in policy making over which he'll have no formal control for 2 1/2 months. Within days, the winner's economic advisers may be heading to the U.S. Treasury to help tackle the nation's worst financial crisis in more than seven decades.
``The situation is so serious that he has to be involved,'' says James Thurber, director of the center for congressional and presidential studies at American University in Washington. ``But he has to be very careful because he's not the president and won't be the president until he's sworn in.'' President George W. Bush's Treasury officials are encouraging the candidates to waste no time getting a grasp of the $700 billion financial-rescue effort, even saying their aides can work out of the department, according to people who have spoken with the department.
Europe on the brink of currency crisis meltdownn crisis meltdown
The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.
Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.
“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon. Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.
Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.
“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon. Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.
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