The Agonist - Economics

World economic confidence index falls to 20-year low

Thu, 20 Nov 2008 18:00:07 -0800

Berlin | Nov 21

DPA - A world economic confidence index released by a leading German institute Thursday dropped to its lowest level in 20 years amid worries that the global economy faced recession.

The Munich-based Ifo institute said its world economic climate survey fell in the fourth quarter to 60 points from 73.4 points in the third quarter.

'Altogether the data points to a global recession,' the institute said releasing the report, adding that the expectations for the coming six months have worsened further.

'The cooling off of the Ifo world economic climate (survey) has this time affected not only the major economic regions of North America, Western Europe and Asia but also Central and Eastern Europe, Russia, Latin America and Australia,' Ifo said as the fallout from the financial crisis spreads around the world.

Fannie, Freddie Suspend Evictions During Holiday Season

Thu, 20 Nov 2008 17:06:16 -0800

Zachary A. Goldfarb | Nov 20

WaPo - Fannie Mae and Freddie Mac announced yesterday that they are temporarily suspending foreclosures and evictions during the holiday season in an effort to keep people from losing their homes.

The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.

The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.

The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have already been declared in default and are at immediate risk of being forced from their homes. The companies said up to 16,000 borrowers could benefit.

Foreclosures and evictions will be stopped from Nov. 26 to Jan. 9.

Liberal Critique of Detroit Based on False Assumptions and Moribund 'Narrative.'

Thu, 20 Nov 2008 10:52:35 -0800

I follow the auto industry pretty closely, being both a fan and a critic (my book “Horsepower War” is a collection of essays, some of which are critical about Detroit) of American cars. After reading Tom Friedman’s “How to Fix a Flat” column in the NY Times November 13th, I had to get something off of my chest – something that’s really been bothering me about the ‘liberal’ critique of Detroit.

To wit: “GM-has-feet-of-clay-and-didn’t-make-the-small-cars-everyone-wanted.” And while liberals in the ‘60’s might have argued the quasi-monopolist GM (with 50% market share) made too much money, now neo-liberals – at least Tom Friedman, are exhorting GM’s foolish executives (they have feet of clay after all) to “innovate” so they will be profitable in the neo-liberal global capitalist order.

Repeat After Me

Thu, 20 Nov 2008 08:00:45 -0800

Repeat after me: if it is too big to fail then it is too big to exist. That should be the first and foremost lesson of this financial crisis. The latest "too big to fail" is Citigroup:

Citigroup Inc faced a crisis of confidence on Wednesday as investors questioned the survival prospects of the U.S. banking giant, and its shares tumbled 23 percent to a 13-year low.

The second-largest U.S. bank by assets has been reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and add deposits. Last month, Wells Fargo & Co dealt a blow by derailing Citigroup's bid to buy Wachovia Corp.

Citigroup shares closed down $1.96 at $6.40 on the New York Stock Exchange and have fallen 33 percent this week as some investors concluded that Chief Executive Vikram Pandit's plan to shed 52,000 jobs and cut expenses by one-fifth won't restore the bank to health.

"People are looking at their business model and wondering how on earth they're going to be able to survive," said William Larkin, a fixed-income manager at Cabot Money management in Salem, Massachusetts.

It Citigroup fails, which won't surprise me one bit, it will be the prime case as to why Glass-Steagall should never, ever, ever have been repealed. And remember, it was Citigroup who forced Congress to repeal the law. I'd laugh at the folks at Citigroup if its failure weren't so perilous for the economy. Citigroup would make the AIG bailout look like, well, I can't think of a suitable metaphor other than a four letter word that starts with "F" and I've already used it once today.

IMF approves $2.1bn Iceland loan

Wed, 19 Nov 2008 23:09:01 -0800

Nov 20

BBC - The International Monetary Fund (IMF) has approved a $2.1bn (£1.4bn) loan for Iceland, after the country's banking system collapsed in October.

The two-year loan was designed to help the country cope with what the IMF described as "a banking crisis of extraordinary proportions".

The loan aimed to help the country "to restore confidence and stabilise the economy", the IMF said in a statement.

Iceland is the first Western European nation to get an IMF loan since 1976.

The two-year loan, which is subject to quarterly review, allows the country to withdraw about$827m now, and the rest in eight instalments of some $155m.

Iceland's government had expressed frustration last week at delays in the loan's approval.

Background: Kaupthing becomes third Icelandic bank to fail & Iceland's bank shares suspended

Recent thought on the 401(k) plan

Mon, 17 Nov 2008 07:49:52 -0800

There have been some proposals for and discussions of retirement savings:

http://news.aol.com/political-machine/2008/10/24/obama-dems-seek-to-end-401-k-plans/

Here is Gene Sperling of the Center for American Progress:

http://www.nytimes.com/2005/01/05/opinion/05sperling.html

Sperling is mentioned here in 2006:

http://www.nytimes.com/2006/12/28/business/28scene.html?_r=1&oref=slogin

Below is a summary link of Sperling’s thought:

http://www.americanprogress.org/issues/2004/01/b289151.html

Here is Sperling’s entire report:

http://www.americanprogress.org/kf/social%20security%20-%20sperling%20web%20final.pdf

Citigroup set to cut 75,000 jobs

Mon, 17 Nov 2008 05:54:45 -0800

Nov 17

BBC - US bank Citigroup has announced plans for up to 75,000 job cuts, up from a previously announced total of 23,000.

Citigroup said in a statement that the cuts represented a reduction of about 20% of its staff, leaving the bank with 300,000 jobs worldwide.

The cuts will come from redundancies, the sale of units and natural wastage, the bank sai

Are you an idiot to keep paying your mortgage?

Mon, 17 Nov 2008 04:15:21 -0800

Kathleen Pender | November 16

SF Gate - Should you keep paying your mortgage?

If you have significant equity in your home, absolutely.

If you don't, it's getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.

Facing Crisis, Congress Makes Sense

Sat, 15 Nov 2008 08:23:46 -0800

Joe Nocera | November 14

NYT - ...
Around 9:45 on Wednesday morning, William Frey took a seat in the hearing room of the House Financial Services Committee. Mr. Frey, 50, is a broker-dealer who trades mortgage-backed securities. A few weeks ago, he caught the attention of the committee chairman, Barney Frank, when The New York Times reported that he had sent letters to servicers of mortgages contained in mortgage-backed securities, threatening to sue if they dared to modify mortgages for struggling homeowners.

Mr. Frank was livid. For months, he has been jawboning lenders to do more to prevent foreclosures, and it has been like whistling in the wind. Yet as slow as banks have been to get with the program (which they are finally starting to do), Wall Street has been worse, doing virtually nothing about the $2 trillion worth of mortgages trapped in securitized mortgage pools, those so-called toxic assets. Indeed, Mr. Frey’s letter seemed to suggest that the big boys on Wall Street actually wanted people to lose their homes.

Within hours of reading the Times article, Mr. Frank and several other Democrats put out a news release demanding the scalp of both Mr. Frey and a second hedge fund manager mentioned in the Times article. Mr. Frank also demanded that Mr. Frey appear at a hearing to explain why he was unwilling to allow mortgage modification. MORE

States want their own federal financial bailout

Sat, 15 Nov 2008 05:57:58 -0800

Rob Hotakainen | Washington | Nov 15

McClatchy -

Led by California with a $28 billion hole in its budget, 41 states are in financial trouble, and many of their leaders are looking to Congress to bail them out.

State officials are hoping to join the ranks of the financial industry and auto manufacturers, who've found a sympathetic ear on Capitol Hill. They've found some key supporters: House Speaker Nancy Pelosi and other top Democrats are promoting aid to states as part of a broad stimulus package that could inject more than $300 billion into the ailing economy.

The idea is getting a strong bipartisan push from governors across the country, with California Republican Gov. Arnold Schwarzenegger and New York Democratic Gov. David Paterson among the chief proponents. Both are blaming Washington for their states' mounting troubles.

Testifying at a recent House of Representatives hearing, Paterson said that New York was "at the epicenter of a national emergency" after federal oversight bodies "utterly failed in their duty" to protect Americans' savings and the U.S. financial system. Speaking Wednesday before a Chamber of Commerce group in Fresno, Calif., Schwarzenegger said that "government is really at fault" and that Washington was obligated to "get us out of this mess."

Krugman On Depression Economics

Fri, 14 Nov 2008 20:14:21 -0800

I'm inclined to defer to Krugman's advice here:

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress — and the stimulus plan won’t come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices.

One of these prejudices is the fear of red ink. In normal times, it’s good to worry about the budget deficit — and fiscal responsibility is a virtue we’ll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. F.D.R.’s premature attempt to balance the budget in 1937 almost destroyed the New Deal.

But I have to say it really does fly in the face of my normal penchant for balanced budgets, higher taxes on the wealthy (and I still think any income over a million should be taxed at 60% or higher) and a draw down in Iraq, which will alleviate many of the budgetary constraints Obama will be faced with. You can already here the Rubinites talking about such 'constraints' when it comes to things like national healthcare and a really big, important domestic infrastructure stimulus package.

Why am I inclined to defer? Because Krugman has been right on so many things in the past he's gained my trust. We'll soon see, won't we?

Letter from Iceland

Fri, 14 Nov 2008 17:30:05 -0800

Robert Jackson. | November 14

Financial Times - Think of Ireland. Rotate it 90 degrees clockwise, make it a third bigger and hang it like a pendant from the Arctic Circle. Give it a population of 300,000, 70 per cent of them in the cities of Reykjavik and Akureyri. Endow these people with industry and ambition. Give them their own language – a literary tradition, three national newspapers, two television channels, free universal healthcare and education and close to zero unemployment. Give this country a consistently high ranking in the world standard-of-living charts and you have the Iceland of the recent past. Not a bad place, all in all.

Now allow this country’s banks – virtually unregulated – to borrow more than 10 times their country’s gross domestic product from the international wholesale money markets. Watch as a Graf Zeppelin of debt propels its self-styled “Viking Raiders” across the world’s financial stage, accumulating companies like gamblers hoarding chips. Then sit on the sidelines as the airship flies home and explodes, showering its blazing wreckage over this once proud, yet tiny, nation.

There you see the Iceland of today – the victim of an economic 9/11 and one of the very few places in the world where the words “financial meltdown” can be used without fear of exaggeration.

Australia Headed For Recession

Fri, 14 Nov 2008 04:40:23 -0800

I've met a lot of Australians on this journey so far. Most have been relatively sanguine about the state of the Aussie economy. I haven't had the heart to tell any of them they are living in a fantasy world. And here is some anecdotal evidence as to why:

Wang Denggui, father of three, arrived more than a year ago in the palm-lined streets of this southern town with a single goal: toil in a factory to save for his children’s school tuition.

But the plans of Mr. Wang and thousands of co-workers unraveled at noon on Nov. 1, when the Taiwanese chairman of their ailing shoe factory climbed over a factory wall to flee the country and his debts. That left several American shoe companies with unfilled orders and 2,000 workers without jobs.

“He just ran without telling anyone,” Mr. Wang said.

For decades, the steamy Pearl River Delta area of southern Guangdong Province served as a primary engine for China’s astounding economic growth. But an export slowdown that began earlier this year and that has been magnified by the global financial crisis of recent months is contributing to the shutdown of tens of thousands of small and mid-size factories here and in other coastal regions, forcing laborers to scramble for other jobs or return home to the countryside.

What does a shoe factory in China have to do with the Aussie economy?

Raw materials. Raw materials exports to China have been propping up the Aussie economy. And now with Chinese factories being shuttered, it doesn't take a genius to figure out what will happen to the Aussie economy, another Anglo-Saxon economy that lived high on the credit bubble.

The Bad News On Autos Is Good News In The Long Run

Thu, 13 Nov 2008 21:10:51 -0800

As the title suggests, the bad news on autos is good news in the long run. As I have stated for a long time, the best thing that can happen to the autos is they go bankrupt, are forced to sell off the profitable parts of the companies that can manage them, invest in them properly and nurse the US auto industry back to health. Part of the autos biggest problem is their finance arms (and the SUV lines). The health-care plans the autos offer are also a part of the problem, but if we get some form of national health care, well, there you go. And pensions may be a bit too rich for some workers, but I'd need to know more to see.

Once the autos get rid of both the SUV lines and the finance arms, then their chances look a lot better.

As I have said many times, I know diddly-squat about the autos and that probably makes me a better candidate for CEO of GM, Ford or Chrysler than the idiots running them now. The first thing I would do is get together with labor and the managers on the floor and see what's working, what's efficient and what's not. I'd do my best to take care of labor and make the companies more focused on what Henry Ford did: making sure that labor makes a decent wage to buy the products they are making. I'd make at least half the board of directors labor representatives and I'd cut all the SUV lines. I'd do my best to introduce and revamp plants to simulate the GM and Ford plants in places like Europe where they make fuel efficient cars that people buy. (And there are a lot of Fords on the road in the world, and they aren't SUVs.) Then I'd dump the finance arms as well. But really, what do I know? Honestly, I'm surprised the automakers haven't made these changes sooner. It's not like it wasn't obvious three or even five years ago.

But the bottom line is they don't deserve a bailout and any bankruptcy plans should be, first and foremost, labor friendly, not stock-holder friendly. Screw the stock holders and the bond holders. They aren't the future of the companies. It's the workers that are. Management needs to get this through their thick, stupid heads, fast.

Hands up if you made billions of dollars out of the credit crisis

Thu, 13 Nov 2008 17:49:45 -0800

Stephen Foley | Washington | Nov 14

The Independent -
(Hedge fund 'masters of the universe' face Congressional grilling over their role in the global credit crunch, from left, billionaire financiers George Soros, Jim Simons, John Paulson, Philip Falcone and Ken Griffin)

The five best-paid hedge fund managers – who between them made $12.6bn last year, even as the financial world began to crumble around them – were hauled before the US Congress yesterday and assailed over their huge salaries, their tax perks and their contribution to the credit crisis that has engulfed the globe.

In a piece of public theatre that reflected not just the present crisis, but also a decade or more of vastly increased income inequality, the five men declared themselves innocent of causing the market meltdown and insisted that their riches reflected hard work and investment insight.

As one Congressman, Elijah Cummings, put it, "these are five citizens who have more money than God", and he proceeded to tear into them over rules that have allowed them to pay a fraction of the tax an ordinary teacher, firefighter or plumber might pay.