Posts by James Bremner
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One of the things I don't get is that the US wants people to borrow yet more money on credit cards to get them out of the financial crisis.
That's what some might say will be the saviour, but fortunately not all. There is currently cash sitting in bank accounts in the US equivalent to about 50% of the (somewhat reduced) value of the entire stock market. What really needs to happen is that cash needs to get moving, not just pissed up against a wall on consumer goods, but buying assets, making investments and creating jobs. Each shock or downturn is different, this one has been all about reduced velocity of money, get the money moving, the gets economy moving again. But then there is the nasty inflation that will be next due to all the frantic monetary creation of the last few months.
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Maybe the end of the world in not nigh after all.
Unemployment claims have fallen for 2 weeks and retail shopping is strong, not indicative of a headlong plunge into a deep recession.
http://www.ftportfolios.com/Commentary/EconomicResearch/2008/12/4/velocity_watch
All they need to do now is stop the bailout and stimulus circus.
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Che,
Whether or not you put much stock on Obama's associates and collegues, its hard to argue that there weren't more than a few shall we say "colourful" ones. Imagine if McCain had had a connection, however tenuous, with Eric Rudolf, the abortion clinic bomber. People would have gone spastic about it and quite correctly. How is Bill Ayers much different? And dispite his protestations, Obama had a significant relationship with Ayers. Ayers picked him to be the head of the Annenberg Challenge. The only reason Ayers isn't still rotting in jail is that the FBI screwed up part of its case against him. And to boot to this day Ayers is not just unapologetic, he thinks he didn't do enough. That is just not good. If it would be appalling for McCain to associate with Rudolf (however tenuous), why is it not appalling for Obama to have associated with Ayers?
Let's hope Obama does do the moderate thing. He has apparently offered Rahm Emanual his Chief of Staff job. Emmanual is a sharp operator, but a hyper partisan, arguably the most partisan Dem in the house. Doesn't seem like a sign of bi partisanship.
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Well this didn't take long.
Asians uneasy over Obama trade stance
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20081105&id=9350503
I don't think Mexico or Canada were too happy about Obama's talk of unilaterally renegotiating NAFTA either.
And in our own little NuZild
Time will tell as to whether Barack Obama’s ascension to the US presidency is a blessing or a curse for NZ business.
Mr Obama made his staunch protectionist credentials a central theme of his election campaign, in stark contrast to Republican candidate John McCain, an ardent free trader.http://www.nbr.co.nz/article/nz-exporters-face-uncertainty-under-obama-37417
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Oh well, there it is. America has elected someone who we really don’t know how he will govern. Will Obama be the guy he was from the day he announced he was running for president a couple of years ago, the moderate who will seek to bring everyone together, blah blah, or will he be the person he was for the entirety of his life prior to that point? A hard left activist who seemed to only associate with the most radical and dodgy of characters and voted down the line liberal (when he didn’t vote “present”). We hope for the former, but we really don’t know. If I was certain Obama, Pelosi Reid et al would govern like Clinton from 94 to 2000, or Clark or Rudd, or Blair or Brown, in NZ, Aussie or the UK, I would be quite relaxed, but we just don’t know.
Fortunately the Dems don’t have 60 seats in the Senate so with the filibuster rule there is a brake on their more radical aspirations, which is probably why the stock market rallied yesterday, but it is down today on uncertainty about an Obama administration. A good pick as Treasury Secretary would be a big boost, I read that Larry Summers is the current favorite which would be good, hopefully stop Obama going too nuts on taxes and cap and trade etc.
http://biz.yahoo.com/ap/081105/wall_street.html
The other potential shocker is Card Check, which could be as devastating to the US economy as Smoot Hawley was in the 1930s, there really would be a giant sucking sound as jobs and capital left the US in the event it became law. While Obama promised the unions he would sign it, thanks to the filibuster, hopefully it won’t get that far. Hard to believe that a bill stripping the right to a secret ballot could even see the light of day in the year 2008, but then again we also have the “Fairness Act” the sole purpose of which is to shut down free speech the Dems don’t like, so it is not out there by itself.
As for New Orleans, it has always been a Dem stronghold, it is majority black. Unfortunately in the Dem primary, those same people just voted again for the super crim Bill Jefferson. Apparently having Jefferson’s family described as a “criminal enterprise” in an FBI indictment isn’t enough to get them to vote for another Dem (a quite exciting prospect too). How very embarrassing for the state and the city. I just hate my rep being such a piece of garbage. Ted Stevens and the other Repub crooks have nothing, I mean nothing on Dollar Bill. The FBI also stated that they wondered how he had time to do any duties as a congressman as his criminal activities were so extensive.
http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-11/122587207352760.xml&coll=1
As for hurricane responses, the last one went well. Amazing the difference a competent Governor makes. Thankfully “deer in the head lights” Blanco is long gone.
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The powerpoint about subprime is good but completely misses (deliberately?) the Govt's role in this mess. The Govt's fingerprints are all over this mess.
I am all for Govt policy to increase home ownership, but apparently the particular method devised in the 1990s had some risks that weren't appreciated. Also don't forget Greenspan's Fed holding interest rates too low for too long provided that excess liquidity that was sloshing around the financial system, some of which found its way to the housing market and pumped it up into a worldwide housing bubble. Without the bubble, we wouldn't have had the bust. If you add these factors, and the explanation below into the powerpoint presentation, you will have a pretty decent grasp of what this is and how it happened.
The self-proclaimed angels in Washington will tell you they’ve been working tirelessly to expand the American dream of homeownership by making mortgages available to people unable to plunk down 20 percent on a house. Franklin Raines, the Clinton-appointed former head of Fannie Mae from 1998 to 2004, made it his top priority to make mortgages easier to get for people with poor credit, few assets and little money for a down payment.
The fine print to this noble intent was an ill-conceived loosening of standards. For instance, the Clinton administration reinterpreted the Jimmy Carter-era Community Reinvestment Act to politicize lending practices. Under the CRA, the government forced banks to prove they weren’t “redlining” — i.e., discriminating against minorities — by approving loans to minorities. Sen. Phil Gramm called it a vast extortion scheme against America’s banks. Still, the banks were perfectly happy to pass the risky loans to Raines’ Fannie Mae, which was happy to buy them up
That’s because Raines was transforming Fannie Mae from a boring but stable financial institution dedicated to making homes more affordable into a risky venture that abused its special status as a “Government Sponsored Enterprise” (GSE) for Raines’ personal profit. Fannie bought the bad loans and bundled them together with good ones. Wall Street was glad to buy up these mortgage securities because Fannie Mae was deemed a government-insured behemoth “too big to fail.” And others followed Fannie’s lead.
The current financial crisis stems in large part from the fact that people who shouldn’t have been buying a home, or who bought more home than they could afford, now can’t pay their bills. Their bad mortgages are mixed up with the good mortgages. And thanks in part to new accounting rules set up after Enron (aggressive mark to market rules), the bad mortgages have contaminated the whole pile, reducing the value of even stable mortgages.
Of course, there are other important factors at work here, having to do with changing technology among other things. And even if the bad mortgages weren’t in the system, we’d still have the hangover from the end of the housing boom. But the financial system could have handled that with the usual corrections. The biggest dose of poison entered the financial bloodstream through Washington. And some people warned us. In 2005, Fannie Mae revealed it overstated earnings by $10.6 billion and that it didn’t really know what was going on. The Bush administration pushed for reforms, but those efforts were rebuffed by Congress, with Democrats Barney Frank and Christopher Dodd taking point, because Fannie and Freddie have spent millions in campaign contributions.
In 2005, McCain sponsored legislation to thwart what he later called “the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.”
Obama, the Senate’s second-greatest recipient of donations from Fannie and Freddie after Dodd, did nothing.
Meanwhile, Raines, the head of a government-supported institution, made $52 million of his $90 million compensation package thanks in part to fraudulent earnings statements.
But, ah yes, the greedy criminals responsible for this mess must be somewhere on Wall Street.
I remember when the accounting irregularities at Fannie were exposed and Raines getting kicked out of Fannie because of it. I didn't appreciate the scale of what he had done and its implications.
And Raines is not just a big Obama guy, but an Obama campaign advisor. I wonder how much of that $90m Raines made fleecing Fannie (and setting up this week's disaster) has found its way into Obama's campaign? Obama is not exactly who you would want to sort this out. He has no experience and no clue, and his closest advisors are upto their eyeballs in causing this mess.
This is all horrible. Not the end of the world or the US, but horrible. While the Govt is putting itself on the hook for huge sums, the actual final cost to the US Govt wont be nearly as much as the headlines because the US Govt is providing short term liquidity and will get the proceeds of an orderly disposition of the assets over time, many of the assets are good assets wrapped up in instruments tainted by some genuinely crappy loans. To give you a feel for scale, the total of subprime loans in some form of delinquincy is about $140b, or about 1% of the $11trillion US housing market. BTW, that $140b wont end up being worth zero either, probably 60 to 70c on the dollar (I am not suggesting that the Govts costs or exposure is limited to this amount, but to give you a feel for how bad the underlaying situation actually is). The Govt will most likely make money on its AIG package.
There are no shortage of regulations in US financial markets. Some regulations were misguided (overly aggressive mark to market rules)and some needed measures were missing (ratings agencies which gave these packages of loans decent ratings & the uptick rule on shorts). The key is to make sure the right policies and rules and regulations are in place going forward.
Say what you like about the Bush Admin but at least he got Hank Paulsen onboard at Treasury as he one of the few guys in the world with the smarts and credibility to navigate this storm.
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Watching the media and liberal wankers, sorry, they'd probably prefer their own description, "liberal elite" have a fit over Palin is one of those things that is both very funny and sad and disturbing at the same time.
So Palin is not experienced enough to be VP, but Obama is experienced enough to be President? I mean what an absolute joke, how can that case possibly be made? Hillary's claims to great experience were a side splitter, but Obama makes her look over qualified by comparison.
They are diving through Palin's life and family for anything, any dirt to throw at her, while never lifting a finger to look at Obama's non-existent achievements and his background which stinks to high heaven. Tony Resko? Who? Chicago political machine? What? Bill Ayers? Huh? Gone nowhere done nothing Joe Biden’s connections to MBNA? Where?A rigorous, but level handed examination of all candidates? That is supposed to be their job. But they forgot that some time ago. The question today is that no doubt the reporting will have an effect, but in a media environment that the media no longer controls how much pushback will the media’s overt bias create? Whatever the case, at least we have a horse race. A few weeks ago this was supposed to be a coronation. Intrade has it basically tied, http://www.intrade.com/
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douglasof240
Your mate is exactly correct. What made it possible was that the lenders who made ridiculous loans made them on the basis that they would never have to collect as they sold the loan a short time after it was made to a financial organization who packaged up a bunch of crappy loans and on sold it to another organization that was looking for a few more basis points of return and who for whatever reason didn't do proper due diligence on what they were buying, or who suspended reality and thought that markets always go up.Add in some problematic concepts such as mark to market rules, which are great on the way up as they generate profits, but they force dramatic (quite likely exaggerated) write downs as a market falls. There is a strong case to be made for easing mark to market rules for long term assets like houses.
Also everyone is quick to forget that there was a Govt regulation that encouraged loans to less credit worthy borrowers, with the objective of increasing homeownership (good objective, but god intentions can cause problems).
Human nature. Greed. Homeowner buys more house than they can afford with a margin of comfort, bankers make dodgy loan to get a fee knowing they will never have to collect if things go pear shaped as they will sell the loan, financial institution hungry for a bigger return buys the loan not looking closely enough, maybe because they intend to flick it on as well. Same story since the beginning of time, it is just the details that change.
The good news is that in terms of sub prime loans in danger of foreclosure, we are only talking about a very small percentage of US homes, but with the kind of leverage applied to these instruments it gets to billions and billions really fast. And as the financial institutions are all competing with each other to produce the best earnings, they all leverage to the hilt to chase the extra earnings etc, making the fallout big enough to take down big companies.
Giving these guys a flood of cheap money and an artificially inflating housing market is like introducing an alcoholic to crack cocaine. Might be fun for a (short) while, but it is going to get ugly at some stage.
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It seems an appropriate moment to plagiarize Winston Churchill, "Free market capitalism is the worst form of economic system, apart from all the other that have been tried, from time to time".
One would think that borrowing short and lending long was a discredited banking strategy, but it works very well when the market (in this case the housing market) is going up, it is just not so good when the market goes down. Human nature being what it is, we keep making the same mistake. In this more internationalized economy, the "splat' when it goes wrong gets bigger and bigger.
So who to blame? The banking and financial system regulators were clearly asleep at the switch, so many of these CDOs were just crap, and should have been rated as such. Why anyone would buy them is beyond me as well.
Alan Greenspan lowered the Fed funds rate to a stupidly low level and kept it there for way too long, pumping up a house price bubble because, as he states in his book, with interest rates low, house prices will rise and people will withdraw equity and spend it stimulating economic growth. Alan, it would have been much better to stick to your primary job of ensuring price stability (like the NZ and European central banks do) and stay out of economic policy. The flood of cheap money that Greenspan created caused the housing bubble that is the root cause of this problem (that is not to take any blame from the financial sector for their behavior)
In spite of the current downturn in housing and finance sectors, the US economy grew at 3.3% the last quarter, exports are at record levels, so it is an accurate statement that the US economy is fundamentally sound, but it doesn't feel or seem that way. This financial meltdown was caused by a flood of cheap money from the Fed and stupidity in the financial sector, not by a crash of the economy as a whole impacting the financial sector and this problem has nothing to do with fiscal or tax policies as some other posters seem to believe.
What to do? Paulsen had to stop bailing out banks. He had to do those that would have risked a complete collapse (Fannie & Freddie). But I don’t know why he didn't backstop Lehman while he did Bear. I guess he said enough is enough. This will all sort itself out; it is not the end of the world, any more than the dot com bomb was the end of the world a few years ago (we are still here aren’t we? And the economy is quite a lot larger than at that time, so it can’t have been that bad could it?).
The key issue going forward is to ensure disclosure and reporting requirements in a way that ensures highly leveraged low quality assets are correctly categorized and disclosed as such so banking capital adequacy requirements and other asset quality checks kick in and prevent banks and organizations piling up on "assets" that are crap, with the inevitable consequence when markets retreat a bit, as they always do. -
Palin's speech was good. What's the point of a convention speech without some good red meat in it?
I certainly can't remember a VP pick that has created such a stir in a long time. Unusual for a VP pick to motivate and excite the base while also appealing to other voter profiles, usually it is one or the other.
The bile vented on Palin by MSM and liberal types has been as expected, and can be an important indicator of the worth of a person. Some of the most important (and successful) political figures of the last century were despised by the media and liberal establishments.
At the end of the day it is only the undercard, Obama and McCain will decide the race.