Financial fuckery thread

[Elder Iptuous]

http://img219.imageshack.us/img219/3031/18085069.png

Iason's work.

C'mon! I wasn't even alive for two of those!

Quantum.  Your actions now affect even past events.

awesome.
hey, Iason.... invest in Microsoft.
In 1975.
i demand %10 finder's fee.

[Cain]

http://finance.yahoo.com/news/Recession-outlasts-even-apf-14852191.html/print

WASHINGTON (AP) -- In the coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits, just when it's never been harder to find a job.

Congress extended unemployment aid twice last year, allowing people to draw a total of up to 59 weeks of benefits. Now, as the recession drags on, a rolling wave of people who were laid off early last year will lose them.

Precise figures are hard to determine, but Wayne Vroman, an economist at the Urban Institute, estimates that up to 700,000 people could exhaust their extended benefits by the second half of this year.

Some will find new jobs, but prospects will be grim: Layoffs are projected to go on, and many economists expect the jobless rate, already at 8.5 percent, to hit 10 percent by year's end.

"It's going to be a monstrous problem," Vroman said.

U.S. employers shed 663,000 jobs in March, and the jobless rate now stands at its highest in a quarter-century. Since the recession began in December 2007, a net total of 5.1 million jobs have disappeared.

Those who know that their unemployment aid is about to run out are counting the days, taking on odd jobs, moving in with relatives and fretting about the future.

This will possibly be the start of social disruption.

[Jenne]

Yeah, just a bit.  The pisser is a couple of things--like tax season (people are going to owe taxes on top of losing their jobs this year), the fact that housing and food have NOT gone down while the job market has tanked (so bottom line is even more unobtainable), and the stimulus package is being horded by state governments instead of going into jobs and infrastructure (state governments need to have HARSH federal penalties for this if the stimulus dollars are going to make a lick of difference--because at this point, the $'s being used to just pay down debt, just like, oh gee, BUSH'S stimulus from last year!).

[Cain]

Good thing Obama is standing between the pitchforks and the banks, eh?  Or, as I said elsewhere:

I just wish Obama was a little more...Machiavellian.  I know I couldn't stand having to kowtow to those idiots all day long, and the first thing I'd do in office would be to find a way to make them hurt.  Rule one of effective leadership - knife everyone who helped you to the top and who isn't dependent on you in the back.  Repeatedly, if necessary.  They'll only treat you as their tool otherwise.

Popular opinion should have hung these guys, politically.  In the UK, the only people trusted less than the bankers are politicians themselves, it would be a massive boost to go a little populist on them.  But, no.  Our leaders, so utterly ruthless in dealing with brown people, foreigners and the poor ie people without the wherewithal to fight back, are completely spineless when it comes to the banking industry and international finance.

Its almost enough to drive a man to Marxist class warfare analysis.

[Jenne]

I think he might be finding that his (so-called) "change" that he thought h(w)e could believe in is harder than he'd imagined to implement.

[Adios]

http://finance.yahoo.com/news/Recession-outlasts-even-apf-14852191.html/print

WASHINGTON (AP) -- In the coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits, just when it's never been harder to find a job.

Congress extended unemployment aid twice last year, allowing people to draw a total of up to 59 weeks of benefits. Now, as the recession drags on, a rolling wave of people who were laid off early last year will lose them.

Precise figures are hard to determine, but Wayne Vroman, an economist at the Urban Institute, estimates that up to 700,000 people could exhaust their extended benefits by the second half of this year.

Some will find new jobs, but prospects will be grim: Layoffs are projected to go on, and many economists expect the jobless rate, already at 8.5 percent, to hit 10 percent by year's end.

"It's going to be a monstrous problem," Vroman said.

U.S. employers shed 663,000 jobs in March, and the jobless rate now stands at its highest in a quarter-century. Since the recession began in December 2007, a net total of 5.1 million jobs have disappeared.

Those who know that their unemployment aid is about to run out are counting the days, taking on odd jobs, moving in with relatives and fretting about the future.

This will possibly be the start of social disruption.

I thought that's why they built the detention camps here in the US for.

[Cain]

http://news.bbc.co.uk/1/hi/scotland/7987659.stm

The Royal Bank of Scotland is to shed a further 9,000 jobs, half of them in the UK.

BBC Scotland understands the losses are to be in its back office operations.

These include document processing, information technology, procurement and bank property - a division known as Group Manufacturing.

The company would not say where the job losses would have most impact within the UK. Unions described the news as "truly devastating".

The cuts come on top of the 2,700 job losses already announced by RBS in Britain this year.

Group Manufacturing is the biggest single part of the troubled financial giant, employing a total of 45,000 people worldwide at a cost of £1.2bn last year. Of those staff, 27,000 work in Britain, so within the division, the job cuts represent one job in five.

http://ow.ly/2gHb

Protesters denouncing a Communist election victory in Moldova seized the president's offices on Tuesday and broke into parliament, where they hurled furniture and computers into the street. About 10,000 demonstrators in Europe's poorest country massed for the second straight day after the Communist Party scored a big victory in a weekend parliamentary election.

[Cain]

http://www.businessinsider.com/insolvent-banks-and-imaginary-fire-sales-2009-4

* Many banks are now insolvent. "...many major US banks are now legitimately insolvent. This insolvency can no longer be viewed as an artifact of bank assets being marked to artificially depressed prices coming out of an illiquid market. It means that bank assets are being fairly priced at valuations that sum to less than bank liabilities."

* Supporting markets in toxic assets has no purpose other than transfering money from taxpayers to banks. "...any taxpayer dollars allocated to supporting these markets will simply transfer wealth to the current owners of these securities."

* We're making it worse. "...policies that attempt to prevent a widespread mark-down in the value of credit-sensitive assets are likely to only delay – and perhaps even worsen – the day of reckoning."

In short, the government cannot save the banks by improving liquidity or changing mark to market rules because the problem isn't illiquidity or accounting. The problem is that highly leveraged financial firms own assets that are worth far less than they thought they would be, and the firms are insolvent as a result. This is why the latest bailout plans secretly give huge subsidies to banks–because the only way to keep the insolvent zombies afloat is to transfer billions of dollars to banks, bank stockholders, and bank creditors. The alternative–allowing the insolvent banks to fail, seizing the assets, wiping our shareholders, giving bond holders a serious haircut–is still not on the official agenda.

[Cain]

http://blogs.ft.com/maverecon/2009/04/the-green-shoots-are-weeds-growing-through-the-rubble-in-the-ruins-of-the-global-economy/

Governments everywhere are doing the best they can to delay or prevent the lifting of the veil of uncertainty and disinformation that most banks have cast over their battered balance sheets. The banking establishment and the financial establishment representing the beneficial owners of the institutions exposed to the banks as unsecured creditors - pension funds, insurance companies, other banks, foreign investors including sovereign wealth funds - have captured the key governments, their central banks, their regulators, supervisors and accounting standard setters to a degree never seen before.

I used to believe this state capture took the form of cognitive capture, rather than financial capture. I still believe this to be the case for many, perhaps even most of the policy makers and officials involved, but it is becoming increasingly hard to deny the possibility that the extraordinary reluctance of our governments to force the unsecured creditors (and any remaining non-government shareholders) of the zombie banks to absorb the losses made by these banks, may be due to rather more primal forms of state capture....

Nothing more can be expected as regards a global fiscal stimulus. Indeed, the G20 delivered nothing in this regard. It would have been preferable to maintain the overall size of the planned (or rather, expected) global fiscal stimulus but to redistribute the aggregate (about $5 trillion over 2 years, as measured by the aggregated changes in the national fiscal deficits) in accordance with national fiscal spare capacity (I believe the World Bank calls this 'fiscal space'). This would mean a smaller fiscal stimulus for countries with weak fiscal fundamentals, including the US, Japan and the UK, and a larger fiscal stimulus for countries with strong fiscal fundamentals, including China, Germany, Brazil and, to a lesser degree, France.

Furthermore, a likely consequence of the fiscal stimuli we have already seen or are about to experience is a negative impact on the medium- and long-term growth potential of the global economy. The reason is that, if fiscal solvency is to be maintained, there will have to be some combination of an increase in the tax burden and a reduction in non-interest public spending in most countries when this contraction is over. The inevitable effect of the crisis and the contraction is a higher public debt burden and therefore a larger future required primary government surplus (as a share of GDP). Almost any increase in the tax burden will hurt potential output - just the level of the path of potential output if you are a classical growth groupie, both the level and the growth rate of the path of potential output if you are an adept of the endogenous growth school....

In a number of systemically important countries, notably the US and the UK, there is a material risk of a 'sudden stop' - an emerging-market style interruption of capital inflows to both the public and private sectors - prompted by financial market concerns about the sustainability of the fiscal-financial-monetary programmes proposed and implemented by the fiscal and monetary authorities in these countries. For both countries there is a material risk that the mind-boggling general government deficits (14% of GDP or over for the US and 12 % of GDP or over for the UK for the coming year) will either have to be monetised permanently, implying high inflation as soon as the real economy recovers, the output gap closes and the extraordinary fear-induced liquidity preference of the past year subsides, or lead to sovereign default.

Pointing to a non-negligible risk of sovereign default in the US and the UK does not, I fear, qualify me as a madman. The last time things got serious, during the Great Depression of the 1930s, both the US and the UK defaulted de facto, and possibly even de jure, on their sovereign debt.

In the case of the US, the sovereign default took the form of the abrogation of the gold clause when the US went off the gold standard (except for foreign exchange) in 1933. In 1933, Congress passed a joint resolution canceling all gold clauses in public and private contracts (including existing contracts). The Gold Reserve Act of 1934 abrogated the gold clause in government and private contracts and changed the value of the dollar in gold from $20.67 to $35 per ounce. These actions were upheld (by a 5 to 4 majority) by the Supreme Court in 1935.

In the case of the UK, the de facto sovereign default took the form of the conversion in 1932 of Britain's 5% War Loan Bonds (callable 1929-1947) into new 3½ % bonds (callable from 1952) on terms that were unambiguously unfavourable to the bond holders. Out of a total of £2,086,000,000 outstanding, £1,500,000,000, or something over 70%, was converted voluntarily by the end of 1932, thanks both to the government's ability to appeal to patriotism and joint burden sharing in the face of economic adversity and to ferocious arm-twisting and 'moral suasion'.

I believe both defaults were eminently justified. There is no case for letting the interests of the holders of sovereign debt override the interests of the rest of the community, regardless of the financial, economic, social and political costs involved. But to say that these were justifiable sovereign defaults does not mean that they were not sovereign defaults. Similar circumstances could arise again.

While I consider an inflationary solution to the public debt overhang problem (and indeed to the private debt overhang problem) to be more likely in the US and even in the UK than a sovereign default (or 'restructuring', 'conversion' or 'consolidation', as it would undoubtedly be referred to by the defaulting government), neither can be dismissed as out of the question, or even as extremely unlikely.

Central banks, with the notable exception of the procrastinating ECB, are doing as much as they can through quantitative easing and credit easing to deal with the immediate crisis. Unfortunately, some of them, notably the Fed, are providing these short-term financial stimuli in the worst possible way from the point of view of medium- and longer-term economic performance, by surrendering central bank independence to the fiscal authorities.

When the Fed lends on a non-recourse basis to the private sector with only a $100 bn Treasury guarantee for a possible $1 trillion dollar Fed exposure (as with the TALF), when the Fed purchases private securities outright with just a similar 10-cents-on-the-dollar Treasury guarantee or when the Fed is party to an arrangement that transfers tens of billions of dollars to AIG counterparties - money that is likely to be extracted ultimately from the beneficiaries of other public spending programmes or from the tax payer, either through explicit taxes or through the inflation tax - the Fed is acting like an off-balance sheet and off-budget special purpose vehicle of the US Treasury.

When the Chairman of the Fed stands shoulder-to-shoulder or sits side-by-side with the US Treasury Secretary to urge the passing of various budgetary proposals - involving matters both beyond the Fed's mandate and remit and beyond its competence - the Fed is politicised irretrievably. It becomes a partisan political player. This is likely to impair its ability to pursue its monetary policy mandate in the medium and long term.

The global stimulus associated with the increase in IMF resources agreed at the G20 meeting earlier this month will be negligible unless and until these resources actually materialise. The statements, declarations and communiqués of the G20, including the most recent ones highlight the gaps between dreams and deeds.... apart from the $240 bn (or perhaps only $200 bn) already flagged well before the G20 meeting, the only hard commitment to additional resources (or to resources that have any chance of being available for lending and spending during the current contraction) is the $6 bn worth of alms for the poor from the sale of IMF gold. That's what I call a bold approach!....

There are signs that the rate of contraction of real global economic activity may be slowing down. Straws in the wind in China, the UK and the US hint that things may be getting worse at a slower rate. An inflection point for real activity (the second derivative turns positive) is not the same as a turning point (the first derivative turns positive), however. And even if decline were to end, there is no guarantee that whatever growth we get will be enough to keep up with the growth of potential. We could have a growing economy with rising unemployment and growing excess capacity for quite a while.

The reason to fear a U-shaped recovery with a long, flat segment is that the financial system was effectively destroyed even before the Great Contraction started. By the time the negative feedback loops from declining activity to the balance sheet strenght of what's left of the financial sector will have made themselves felt in full, financial intermediation is likely to be severely impaired.

All contractions and recoveries are primarily investment-driven. High-frequency inventory decumulation causes activity to collapse rapidly. Since inventories cannot become negative, there is a strong self-correcting mechanism in an inventory disinvestment cycle. We may be getting to the stage in the UK and the US (possibly also in Japan) that inventories stop falling an begin to build up again.

An end to inventory decumulation is a necessary but not a sufficient condition for sustained economic recovery. That requires fixed investment to pick up. This includes household fixed investment - residential construction, spending on home improvement and purchases of new automobiles and other consumer durables. It also includes public sector capital formation. Given the likely duration of the contraction and the subsequent period of excess capacity, even public sector infrastructure spending subject to long implementation lags is likely to come in handy. A healthy, sustained recovery also requires business fixed investment to pick up.

At the moment, I can see not a single country where business fixed investment is likely to rise anytime soon. When the inventory investment accelerator goes into reverse and starts contributing to demand growth, and when the fiscal stimuli kick in, businesses wanting to invest will need access to external financing, since retained profits are, after a couple of years of declining output, likely to be few and far between. But with the banking system on its uppers and many key financial markets still disfunctional and out of commission, external financing will be scarce and costly. This is why sorting out the banks, or rather sorting out the substantive economic activities of new bank lending and funding, that is, sorting out banking , must be a top priority and an top claimant on scarce public resources.

Until the authorities are ready to draw a clear line between the existing banks in western Europe and the USA, - many or even most of which are surplus to requirements and have become parasitic entities feeding off the tax payer - and the substantive economic activity of bank lending to non-financial enterprises and households, there will not be a robust, sustained recovery.

[Requia ☣]

Yeah, just a bit.  The pisser is a couple of things--like tax season (people are going to owe taxes on top of losing their jobs this year), the fact that housing and food have NOT gone down while the job market has tanked (so bottom line is even more unobtainable), and the stimulus package is being horded by state governments instead of going into jobs and infrastructure (state governments need to have HARSH federal penalties for this if the stimulus dollars are going to make a lick of difference--because at this point, the $'s being used to just pay down debt, just like, oh gee, BUSH'S stimulus from last year!).

Food has actually dropped a lot (according to NPRs economic report).

The grocery stores and food packages have responded to the price drops by raising the consumer prices, though admittedly, not as fast as they were raising them back when wholesale food prices were going up.

[Jenne]

Yeah, just a bit.  The pisser is a couple of things--like tax season (people are going to owe taxes on top of losing their jobs this year), the fact that housing and food have NOT gone down while the job market has tanked (so bottom line is even more unobtainable), and the stimulus package is being horded by state governments instead of going into jobs and infrastructure (state governments need to have HARSH federal penalties for this if the stimulus dollars are going to make a lick of difference--because at this point, the $'s being used to just pay down debt, just like, oh gee, BUSH'S stimulus from last year!).

Food has actually dropped a lot (according to NPRs economic report).

The grocery stores and food packages have responded to the price drops by raising the consumer prices, though admittedly, not as fast as they were raising them back when wholesale food prices were going up.

Oh yeah?  I didn't notice it dropping too much out here in San Diego--the only thing that has is meat, I believe.  Bread is through the roof (wtf? $3.50 for a loaf of bread?) and milk is also $$$.  Which means cheese and other dairy are also $$$.  But maybe that's spayshul to my area?

[Requia ☣]

Nope, thats normal, I wasn't clear apparently.

The farmers are getting payed less for food (including the the big factory farms), and grocery stores/food processors are charging the consumers more.

[Jenne]

http://blogs.ft.com/maverecon/2009/04/the-green-shoots-are-weeds-growing-through-the-rubble-in-the-ruins-of-the-global-economy/

Chilling read.  Wow.

[Jenne]

Nope, thats normal, I wasn't clear apparently.

The farmers are getting payed less for food (including the the big factory farms), and grocery stores/food processors are charging the consumers more.

I know out here, with the water shortage/drought for the last 3 years, farmers are being asked to implement "dry farming."  Revenues from farming will be dropping precipitously, and I'm betting we'll be importing more and more from down south as the Summer waxes.

[Cain]

Our man in the media, Taleb, has a piece up in FT as well

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1

You'll need registration to read in full, so if you cannot be bothered:

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an "incentive" bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show "profits" while claiming to be "conservative". Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them "hedging" products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to "restore confidence". Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible "expert" advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the "Nobel" in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.