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Wednesday, November 26, 2008
Lack of Exercise Explains Depression-Heart Link
For years cardiologists and mental health experts have known that depression raises risk for heart attack by 50 percent or more.
But what hasn’t been clear is why depressed people have more heart problems. Does depression cause some biological change that increases risk? Does the inflammatory process that leads to heart disease also trigger depression?
The answer may be far simpler. A new study suggests that people who are depressed are simply less likely to exercise, a finding that explains their dramatically higher risk for heart problems.
But what hasn’t been clear is why depressed people have more heart problems. Does depression cause some biological change that increases risk? Does the inflammatory process that leads to heart disease also trigger depression?
The answer may be far simpler. A new study suggests that people who are depressed are simply less likely to exercise, a finding that explains their dramatically higher risk for heart problems.
Citi's Taxpayer Parachute
Why are Robert Rubin and other directors still employed?
Another Sunday night, another ad hoc bank rescue rooted in no discernible principle. U.S. taxpayers, who invested $25 billion in Citigroup last month, will now pour in another $20 billion in exchange for preferred shares paying an 8% dividend.
Taxpayers will also help insure $306 billion of Citi's mortgage-backed securities. Citi will cover the first $29 billion in losses on these toxic assets, and then taxpayers will cover 90% of the rest, in exchange for another $7 billion in preferred. Dilution for Citigroup investors? Yesterday's 58% pop in the bank's share price suggests the bailout is a good deal for equity holders. For taxpayers, it is another large exposure for uncertain benefits.
More than a year into the financial crisis and decades into the perception that Citi is too big to fail, we once again have three tired guys making it up as they go. We wish Treasury Secretary Henry Paulson, New York Federal Reserve President Tim Geithner and Fed Chairman Ben Bernanke cared as much about their obligations to U.S. taxpayers as they do about the expectations of Asian investors. Few would argue that a bank with Citi's size and scope wasn't too big to fail, but is it too much to ask Washington to develop a policy that isn't crafted in a scramble of private phone calls?
(..)
When taxpayers are being asked to provide the equivalent of $1,000 each in guarantees on Citi's dubious investments, how can these men possibly say they deserve to remain on the board? All the more so given that Citi's board has lately been airing dirty laundry about Mr. Bischoff's role and leaking petty grievances. The directors all but started a run on the bank themselves, even as the bank assured the world it was sturdy enough to withstand any losses.
Oh, and to get the FDIC on board, Citi has agreed to implement the agency's proposal to modify delinquent mortgages to avoid foreclosures. The White House believes the program will cost almost three times FDIC estimates. And even though more than half of modified mortgages go delinquent again, Citi will modify mortgages to create lower payments now, in the hope that escalating payments later will avoid more delinquencies down the road.
While other banks can claim to be victims of the current panic, Citi is at least a three-time loser. The same directors were at the helm in 2005 when the Fed suspended Citi's ability to make acquisitions because of the bank's failure to adhere to regulatory and ethical standards. Citi also needed resuscitation after the sovereign debt disaster of the 1980s, and it required an orchestrated private rescue in the 1990s.
Such a record of persistent failure suggests a larger -- you might even call it "systemic" -- management problem: If taxpayers have to risk so much to save Citigroup, then regulators should at least exert the discipline to break up this behemoth so it is never again too big to succeed, much less to fail.
Another Sunday night, another ad hoc bank rescue rooted in no discernible principle. U.S. taxpayers, who invested $25 billion in Citigroup last month, will now pour in another $20 billion in exchange for preferred shares paying an 8% dividend.
Taxpayers will also help insure $306 billion of Citi's mortgage-backed securities. Citi will cover the first $29 billion in losses on these toxic assets, and then taxpayers will cover 90% of the rest, in exchange for another $7 billion in preferred. Dilution for Citigroup investors? Yesterday's 58% pop in the bank's share price suggests the bailout is a good deal for equity holders. For taxpayers, it is another large exposure for uncertain benefits.
More than a year into the financial crisis and decades into the perception that Citi is too big to fail, we once again have three tired guys making it up as they go. We wish Treasury Secretary Henry Paulson, New York Federal Reserve President Tim Geithner and Fed Chairman Ben Bernanke cared as much about their obligations to U.S. taxpayers as they do about the expectations of Asian investors. Few would argue that a bank with Citi's size and scope wasn't too big to fail, but is it too much to ask Washington to develop a policy that isn't crafted in a scramble of private phone calls?
(..)
When taxpayers are being asked to provide the equivalent of $1,000 each in guarantees on Citi's dubious investments, how can these men possibly say they deserve to remain on the board? All the more so given that Citi's board has lately been airing dirty laundry about Mr. Bischoff's role and leaking petty grievances. The directors all but started a run on the bank themselves, even as the bank assured the world it was sturdy enough to withstand any losses.
Oh, and to get the FDIC on board, Citi has agreed to implement the agency's proposal to modify delinquent mortgages to avoid foreclosures. The White House believes the program will cost almost three times FDIC estimates. And even though more than half of modified mortgages go delinquent again, Citi will modify mortgages to create lower payments now, in the hope that escalating payments later will avoid more delinquencies down the road.
While other banks can claim to be victims of the current panic, Citi is at least a three-time loser. The same directors were at the helm in 2005 when the Fed suspended Citi's ability to make acquisitions because of the bank's failure to adhere to regulatory and ethical standards. Citi also needed resuscitation after the sovereign debt disaster of the 1980s, and it required an orchestrated private rescue in the 1990s.
Such a record of persistent failure suggests a larger -- you might even call it "systemic" -- management problem: If taxpayers have to risk so much to save Citigroup, then regulators should at least exert the discipline to break up this behemoth so it is never again too big to succeed, much less to fail.
The Citigroup Bailout
A nice summation of various economist's views on citigroup's masaive bailouts..
The Citigroup Bailout
The Citigroup Bailout
Monday, November 24, 2008
As Taboos Ease, Saudi Girl Group Dares to Rock
This is great!! There are some very talented musicians in Saudi Arabia. We used to have extended jam sessions and concerts together with many Saudi musicians in the Diplomatic Quarter, housing the embassies, in Riyadh. More power to these young ladies!
JIDDA, Saudi Arabia — They cannot perform in public. They cannot pose for album cover photographs. Even their jam sessions are secret, for fear of offending the religious authorities in this ultraconservative kingdom.
But the members of Saudi Arabia’s first all-girl rock band, the Accolade, are clearly not afraid of taboos.
(..)
Yet rock and roll itself is suspect in Saudi Arabia in part because of its association with decadent lifestyles. Most of the bands here play heavy metal, which has only added to the stigma because of the way some Western heavy metal bands use images linked to satanism or witchcraft. In Saudi Arabia, people are sometimes imprisoned and even executed on charges of practicing witchcraft.
The first rock bands appeared here about 20 years ago, according to Hassan Hatrash, 34, a journalist and bass player who was one of the pioneers, and their numbers gradually grew. Then in 1995, the police raided a performance in the basement of a restaurant in Jidda, hauling about 300 young men off to jail, including Mr. Hatrash. They were released a few days later without being charged. There is no actual law against playing rock music or performing publicly.
“After that, the scene kind of died,” he said.
JIDDA, Saudi Arabia — They cannot perform in public. They cannot pose for album cover photographs. Even their jam sessions are secret, for fear of offending the religious authorities in this ultraconservative kingdom.
But the members of Saudi Arabia’s first all-girl rock band, the Accolade, are clearly not afraid of taboos.
(..)
Yet rock and roll itself is suspect in Saudi Arabia in part because of its association with decadent lifestyles. Most of the bands here play heavy metal, which has only added to the stigma because of the way some Western heavy metal bands use images linked to satanism or witchcraft. In Saudi Arabia, people are sometimes imprisoned and even executed on charges of practicing witchcraft.
The first rock bands appeared here about 20 years ago, according to Hassan Hatrash, 34, a journalist and bass player who was one of the pioneers, and their numbers gradually grew. Then in 1995, the police raided a performance in the basement of a restaurant in Jidda, hauling about 300 young men off to jail, including Mr. Hatrash. They were released a few days later without being charged. There is no actual law against playing rock music or performing publicly.
“After that, the scene kind of died,” he said.
Sunday, November 23, 2008
Bailout Talks Accelerate for Ailing Citigroup
The federal government was nearing an agreement Sunday night to rescue Citigroup Inc. by helping to remove billions of dollars in toxic assets from its balance sheet, people familiar with the talks say.
The agreement, which was still under discussion and could fall apart, would mark a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to absorb bad assets, on a targeted basis, from specific institutions.
The talks Sunday centered on the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.
Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.
That would mean taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
The agreement, which was still under discussion and could fall apart, would mark a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to absorb bad assets, on a targeted basis, from specific institutions.
The talks Sunday centered on the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.
Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.
That would mean taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
Citigroup Saw No Red Flags Even as It Made Bolder Bets
Today, Citigroup, once the nation’s largest and mightiest financial institution, has been brought to its knees by more than $65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of that amount stems from mortgage-related securities created by Mr. Maheras’s team — the same products Mr. Prince was briefed on during that 2007 meeting.
Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
Burdened by the losses and a crisis of confidence, Citigroup’s future is so uncertain that regulators in New York and Washington held a series of emergency meetings late last week to discuss ways to help the bank right itself.
And as the credit crisis appears to be entering another treacherous phase despite a $700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.
(..)
Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.
When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.
Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan.
For a time, Citigroup’s megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading.
But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.
Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
Burdened by the losses and a crisis of confidence, Citigroup’s future is so uncertain that regulators in New York and Washington held a series of emergency meetings late last week to discuss ways to help the bank right itself.
And as the credit crisis appears to be entering another treacherous phase despite a $700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.
(..)
Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.
When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.
Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan.
For a time, Citigroup’s megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading.
But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.
India Calling
Which raises a heart-stirring question: If our parents left India and trudged westward for us, if they manufactured from scratch a new life there for us, if they slogged, saved, sacrificed to make our lives lighter than theirs, then what does it mean when we choose to migrate to the place they forsook?
If we are here, what are they doing there?
(..)
Pessimism crept into the sunniest nation. A vast majority saw America going astray. Books heralded a “Post-American World.” Even in the wake of a historic presidential election, culminating in a dramatic change in direction, it remained unclear whether the United States could be delivered from its woes any time soon.
“In the U.S., there’s a crisis of confidence,” said Nandan Nilekani, co-chairman of Infosys Technologies, the Indian software giant. “In India,” he added, “for the first time after decades or centuries, there is a sense of optimism about the future, a sense that our children’s futures can be better than ours if we try hard enough.”
(..)
Exact data on émigrés working in India or spending more time here are scarce. But this is one indicator: India unveiled an Overseas Citizen of India card in 2006, offering foreign citizens of Indian origin visa-free entry for life and making it easier to work in the country. By this July, more than 280,000 émigrés had signed up, according to The Economic Times, a business daily, including 120,000 from the United States.
If we are here, what are they doing there?
(..)
Pessimism crept into the sunniest nation. A vast majority saw America going astray. Books heralded a “Post-American World.” Even in the wake of a historic presidential election, culminating in a dramatic change in direction, it remained unclear whether the United States could be delivered from its woes any time soon.
“In the U.S., there’s a crisis of confidence,” said Nandan Nilekani, co-chairman of Infosys Technologies, the Indian software giant. “In India,” he added, “for the first time after decades or centuries, there is a sense of optimism about the future, a sense that our children’s futures can be better than ours if we try hard enough.”
(..)
Exact data on émigrés working in India or spending more time here are scarce. But this is one indicator: India unveiled an Overseas Citizen of India card in 2006, offering foreign citizens of Indian origin visa-free entry for life and making it easier to work in the country. By this July, more than 280,000 émigrés had signed up, according to The Economic Times, a business daily, including 120,000 from the United States.
Saturday, November 22, 2008
The Road to Financial Ruin: We Have to Spend Money Now
Axel Merk, November 19, 2008
When just about all economists agree, should we rejoice or be scared? During the Weimar Republic, economists at the Reichsbank argued that printing money to finance a war was “exogenous” to the economy and thus not inflationary. Hyperinflation in the ensuing years proved them wrong. We tend to think we are so much smarter today. Economists know how to run regression models; in the absence of a historic precedent, some economists know how to draw shifting supply and demand curves. But common sense seems to be missing in the toolbox of all but a few.
This past Sunday, President-elect Obama was asked by 60 Minutes where the money would come from for the ambitious projects and stimulus plans:
Question: Where is all the money going to come from to do all of these things; and is there a point where just going to the Treasury Department and printing more of it ceases to be an option?
Obama: Look. I think what's interesting about the time that we are in right now is that you actually have a consensus among conservative, Republican leaning economists and liberal, left leaning economists. And the consensus is this: that we have to do whatever it takes to get this economy moving again that we have to, we're going to have to spend money now to stimulate the economy and that we shouldn't worry about the deficit next year or even the year after. That short-term, the most important thing is that we avoid a deepening recession.
Just about every living soul has advice for our president-elect on where to spend money. Had McCain won the election, things would have been no different; indeed, McCain seemed to enjoy the race to bailouts even more than Obama. Economists are worried about deflation, about imploding asset prices, about demand destruction. They argue that the government must step in where the private sector is falling short. The goal is to prop up demand and preserve jobs. Political considerations on how to spend the money will come into play; it will be interesting to see whether healthcare and education will receive injections as spending in these areas doesn't translate to immediate boosts to employment, spending or investments.
Many economists (Keynesians) believe that government spending ought to be countercyclical to dampen the impact of boom-bust cycles. In practice, everyone wants to be a Keynesian during bad times, boosting government spending, but there is no mechanism in place to force restraint, say through increased taxes, during boom times. This ‘restraint' existed when the gold standard was in place as money was backed by a limited supply of gold. But such restraints were inconvenient and central bankers are now in charge.
There are cushions built into the system already; take unemployment benefits as an example: unemployment benefits reduce the impact of lost wages and stimulate demand during tough times. Note that European countries tend to have more generous unemployment benefits than the U.S.; further in the U.S., most states need to balance their budgets. As a result, when state revenues decline, the downturn in the U.S. economy is particularly exacerbated as government services are cut. There are some that argue that such spending cuts are healthy because the faster we weed out the excesses of the boom, the faster one finds a bottom upon which to have sustainable growth. Further, risk takers might be more cautious if they know that the government won't bail them out, reducing the risks of systemic failures in the first place. Some may even recall that there used to be a breed called fiscal conservatives in Congress, an almost extinct species. Democrats and Republicans alike are all Keynesians these days.
There are two major reasons why we may be setting ourselves up for financial ruin: first, spending is unlikely to lead to a sustainable recovery; second, we cannot afford it.
When just about all economists agree, should we rejoice or be scared? During the Weimar Republic, economists at the Reichsbank argued that printing money to finance a war was “exogenous” to the economy and thus not inflationary. Hyperinflation in the ensuing years proved them wrong. We tend to think we are so much smarter today. Economists know how to run regression models; in the absence of a historic precedent, some economists know how to draw shifting supply and demand curves. But common sense seems to be missing in the toolbox of all but a few.
This past Sunday, President-elect Obama was asked by 60 Minutes where the money would come from for the ambitious projects and stimulus plans:
Question: Where is all the money going to come from to do all of these things; and is there a point where just going to the Treasury Department and printing more of it ceases to be an option?
Obama: Look. I think what's interesting about the time that we are in right now is that you actually have a consensus among conservative, Republican leaning economists and liberal, left leaning economists. And the consensus is this: that we have to do whatever it takes to get this economy moving again that we have to, we're going to have to spend money now to stimulate the economy and that we shouldn't worry about the deficit next year or even the year after. That short-term, the most important thing is that we avoid a deepening recession.
Just about every living soul has advice for our president-elect on where to spend money. Had McCain won the election, things would have been no different; indeed, McCain seemed to enjoy the race to bailouts even more than Obama. Economists are worried about deflation, about imploding asset prices, about demand destruction. They argue that the government must step in where the private sector is falling short. The goal is to prop up demand and preserve jobs. Political considerations on how to spend the money will come into play; it will be interesting to see whether healthcare and education will receive injections as spending in these areas doesn't translate to immediate boosts to employment, spending or investments.
Many economists (Keynesians) believe that government spending ought to be countercyclical to dampen the impact of boom-bust cycles. In practice, everyone wants to be a Keynesian during bad times, boosting government spending, but there is no mechanism in place to force restraint, say through increased taxes, during boom times. This ‘restraint' existed when the gold standard was in place as money was backed by a limited supply of gold. But such restraints were inconvenient and central bankers are now in charge.
There are cushions built into the system already; take unemployment benefits as an example: unemployment benefits reduce the impact of lost wages and stimulate demand during tough times. Note that European countries tend to have more generous unemployment benefits than the U.S.; further in the U.S., most states need to balance their budgets. As a result, when state revenues decline, the downturn in the U.S. economy is particularly exacerbated as government services are cut. There are some that argue that such spending cuts are healthy because the faster we weed out the excesses of the boom, the faster one finds a bottom upon which to have sustainable growth. Further, risk takers might be more cautious if they know that the government won't bail them out, reducing the risks of systemic failures in the first place. Some may even recall that there used to be a breed called fiscal conservatives in Congress, an almost extinct species. Democrats and Republicans alike are all Keynesians these days.
There are two major reasons why we may be setting ourselves up for financial ruin: first, spending is unlikely to lead to a sustainable recovery; second, we cannot afford it.
Friday, November 21, 2008
Whitehead sees slump worse than Depression
NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.
Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.
Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.
From Russia With Loathing
SHORTLY before the presidential election, at a discussion about Russian-American relations I attended in Cambridge, Mass., speakers from both countries voiced the hope that the election of Barack Obama would signal the renewal of a beautiful friendship. These hopes were chilled the day after Mr. Obama won. In an address to the Russian Parliament, President Dmitri Medvedev welcomed President-elect Obama with a threat to deploy Russian missiles on the Polish border if the United States put anti-missile systems in Eastern Europe. While some conciliatory signals followed, it seems clear that the Kremlin intends to keep the “new cold war” going.
Just three days before Mr. Medvedev’s speech, the state-subsidized youth movement Nashi staged a Halloween-themed rally in front of the American Embassy in Moscow. Nearly 20,000 young people held pumpkins marked with the names of “America’s victims,” among them the casualties in South Ossetia. In an amateur film shown at the rally, an actor portraying a drunken George W. Bush bragged that the United States had engineered both world wars and the rise of Hitler to expand its power.
Just three days before Mr. Medvedev’s speech, the state-subsidized youth movement Nashi staged a Halloween-themed rally in front of the American Embassy in Moscow. Nearly 20,000 young people held pumpkins marked with the names of “America’s victims,” among them the casualties in South Ossetia. In an amateur film shown at the rally, an actor portraying a drunken George W. Bush bragged that the United States had engineered both world wars and the rise of Hitler to expand its power.
Thursday, November 20, 2008
The Rise and Fall and Rise of the “G”-Word
It’s the “g”-word. It’s the word that everyone almost says, and then doesn’t, because saying it can make you sound like a little like a loon, or maybe more like a combination of a train spotter and a conspiracy theorist, with an Austrian economics overlay for luck. It’s “gold”, of course.
Of late, however, gold has actually provoked some thoughtful discussion, at least insofar as imagining what might be different in the current crisis if modern currencies, especially the dollar, were tied to gold (or something like it) in a fixed ratio. For a thoughtful example, check the following sent to me today by the folks at QB Partners. Agree or disagree, at least the case will have been made.
Of late, however, gold has actually provoked some thoughtful discussion, at least insofar as imagining what might be different in the current crisis if modern currencies, especially the dollar, were tied to gold (or something like it) in a fixed ratio. For a thoughtful example, check the following sent to me today by the folks at QB Partners. Agree or disagree, at least the case will have been made.
SurvivorCorps
Consider donating to this worthy cause..
Survivor Corps is offering an alternative “treatment” that can be made readily available in all communities, regardless of proximity to traditional military or govern¬ment centers of support. Our approach is nimble enough to address the needs of individual survivors, while still broad enough to build a coalition of survivors and service providers working to effect long-term positive change.
This new program will help the recovery and reintegration of hundreds of thousands of returning U.S. service members at a critical time for them and their country.
Survivor Corps is offering an alternative “treatment” that can be made readily available in all communities, regardless of proximity to traditional military or govern¬ment centers of support. Our approach is nimble enough to address the needs of individual survivors, while still broad enough to build a coalition of survivors and service providers working to effect long-term positive change.
This new program will help the recovery and reintegration of hundreds of thousands of returning U.S. service members at a critical time for them and their country.
Wednesday, November 19, 2008
Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt
Bosh's premonition, a month before two of Cioffi's funds blew up, struck a death knell for structured finance, the system Wall Street banks devised to fuel more than two decades of unprecedented borrowing. The system allowed financial companies to lend beyond their capacity and outside the reach of regulators -- until it crashed this year.
While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion.
Biggest U.S. Export
The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion.
The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.
``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''
Eager Adopters
European banks, in particular, were eager adopters.
Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.
Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise citizens to switch from finance to fishing.
(..)
Securitization's biggest innovation was the use of off-balance-sheet accounting. If a bank couldn't sell a bond or didn't want to, the asset could be sold to a trust within a so-called special-purpose entity, incorporated in a place such as the Cayman Islands or Dublin, and shifted off the books. Lending expanded, and banks still booked profits.
With this new technology, a bank could originate $100 million in loans, sell off some to investors, transfer the rest to a special-purpose entity and not have to hold any capital. The profit could be as much as 1.25 percentage points of the amount loaned, or $1.25 million for every $100 million issued.
``The banks could turn a low return-on-equity business into one that doesn't use any equity, which was the motivation for this,'' said Brad Hintz, a Sanford C. Bernstein & Co. analyst and former chief financial officer at Lehman. ``It becomes almost like a fee business because it requires no capital.''
While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion.
Biggest U.S. Export
The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion.
The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.
``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''
Eager Adopters
European banks, in particular, were eager adopters.
Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.
Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise citizens to switch from finance to fishing.
(..)
Securitization's biggest innovation was the use of off-balance-sheet accounting. If a bank couldn't sell a bond or didn't want to, the asset could be sold to a trust within a so-called special-purpose entity, incorporated in a place such as the Cayman Islands or Dublin, and shifted off the books. Lending expanded, and banks still booked profits.
With this new technology, a bank could originate $100 million in loans, sell off some to investors, transfer the rest to a special-purpose entity and not have to hold any capital. The profit could be as much as 1.25 percentage points of the amount loaned, or $1.25 million for every $100 million issued.
``The banks could turn a low return-on-equity business into one that doesn't use any equity, which was the motivation for this,'' said Brad Hintz, a Sanford C. Bernstein & Co. analyst and former chief financial officer at Lehman. ``It becomes almost like a fee business because it requires no capital.''
Give me a break
Adam Feuerstein
It's hard out here for a pimp, er, I mean automotive CEO
11/19/2008 3:43 PM EST
The CEOs of Ford, GM and Chrysler all flew to D.C. on their own corporate private jets to beg for a government handout.
You can't make this stuff up!
Position: Throw the bums out.
(From realmoney.com)
It's hard out here for a pimp, er, I mean automotive CEO
11/19/2008 3:43 PM EST
The CEOs of Ford, GM and Chrysler all flew to D.C. on their own corporate private jets to beg for a government handout.
You can't make this stuff up!
Position: Throw the bums out.
(From realmoney.com)
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