Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Bleak Picture in Asia, More Gloomy ThoughtsOn Asia, from the Financial Times.. A tidbit:"The figures are further proof that Asia's economy fell off a cliff in the closing months of 2008 and raise the likelihood that the bad news will continue to flow as the region's export-dependent nations are forced to cut jobs and manufacturing capacity because of weak western consumer demand. The collapse in Asian exports over the fourth quarter was "nothing short of breath-taking", said Frederic Neumann, Asia chief economist at HSBC. "Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before." Ambrose Evans-Pritchard has this to say about the global situation in general, and this on a possible reversal in Germany's view of the EU project. Labels: Ambrose Evans-Pritchard, Asia Times, bailout, European Union, financial crisis, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (ii)Links:(1) Japan and Latvia rack up whopping double-digit 4Q annualized GDP declines. That's two trade-loving nations in one day, one of them being a major trading partner of both the US and China, and the second largest economy, after the US, on earth. And Japan's (in an "unimaginable contraction") 1Q '09 could be worse. Comparable numbers from much of the rest of Asia are discussed here. All from today's (it's still Tuesday in Cambridge, MA) Financial Times. (2) Mexico's drug-related violence is horrific, and what the next story describes is the last thing they need given the fierceness of the former, but the next time anyone in the US threatens to decertify their efforts in the "war on drugs," Mexico should imprison all Coca-Cola executives (including former exec and President Vicente Fox). The dollar amounts (never mind the human cost) lost because of the obesity epidemic in Mexico to foregone productivity and increased health care provisioning must reverse to a respectable degree the GDP gains (disappointing and ill-distributed as they have been) from NAFTA so beloved of free-traders. And remember, much of this US production is subsidized. From The Financial Times. (3) The Treasury is issuing a record $67 billion in debt this week. This Lex column from The Financial Times gives a short summary of essential points (though one of its points became somewhat obsolete by the end of the day it was published, as will become apparent below). Today's comment: Stimulus Passes Senate, Bank Bailout Plan (Partially) Unveiled, Markets Tank Stock prices dropped sharply today, and bond prices surged, as investors expressed confusion at best, and in some cases contempt, for Secretary Geithner's bank bailout proposal. The Dow lost 4.6% in its biggest fall since December 1st, and other indices reported similar falls. The proposal, which, according to a JP Morgan summary (hat tip to the fine site Across the Curve), features the creation of a "Public-Private Investment Fund," or P-PIF (just what we need, after TARP, TALF, M-LEC and all the others...). Such a "bad bank" would operate much as the TALF, providing non-recourse loans (on which the lender can only collect the collateral in case of default) to purchasers of (bad) assets held by the banks. But, in this case, it would be private investors who would be the beneficiaries. And, as the JP Morgan report put it: ...this plan's so-called private sector pricing of assets would be directly related to hoe much leverage the P-PIF extends to other investors. The greater the share of non-recourse lending extended to investors, the higher will be the new "market" prices for assets. The dilemma that first surfaced last September--the higher the price the greater the support for the banking system, but also the greater the risk for taxpayers--is not resolved by the P-PIF but is instead transformed into a decision about how much leverage the P-PIF will provide to investors. Wonderful. This means that hedge funds and their ilk are the targets of this move. No doubt the Treasury is looking both at halting the record redemptions that have prevented this part of the financial industry from putting much needed cash on the markets. Once again, it seems the Obama administration and its acolytes consider that any recovery from the crisis will have to involve intimately the people who got us into it. Anyway, back to the report: There was nothing in today's announcement about providing insurance or guarantees to assets on bank balance sheets, a proposal that seemed to be the centerpiece of the reform as late as last Friday. Any announcement related to foreclosure mitigation was deferred for a few weeks. Note that it appears the majority of P-PIF and TALF would be funded by the Fed balance sheet, thus not requiring Treasury issuance and possibly not even requiring Congressional action. That's change we can believe in, all right: we just endured several months of it before the new administration took office.... Of all I've seen written on the subject, Brad Setser has the most intriguing notions on why the administration is looking to the leveraged players in this desperate attempt to get bad assets sold off once and for all: . This is simply unbelievable: assets worth virtually nothing because they consisted of much less than their hyper-excessive leverage multiples are to be peddled to the very same sort of investors who have just been burned by these things, simply because the leverage is now to be put up by uncomplaining (not to mention increasingly skint) taxpayers and foreign investors, and not the banks. And this in an attempt to make a transition to a less-leveraged system! It's no surprise that nobody seems to be buying it. All together, the proposals put forward today could amount to nearly $3 trillion. And everyone except the administration seems to believe that won't be nearly enough. Be prepared for new, and even clunkier acronyms.... Labels: Across the Curve, Asia Times, bailout, Barack Obama, financial crisis, Japan, Larry Peterson, Latvia, Lex, Mexico, the dull compulsion of the economic, Timothy Geithner, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Asian Trade/IP Meldown: Biblical in Scope?These numbers are simply astonishing. Two discussions. First, Brad Setser leads off by quoting from The Economist:"many of Asia's tiger economies seem to have been hit harder than their spendthrift Western counterparts. In the fourth quarter of 2008, GDP probably fell by an average annualised rate of around 15% in Hong Kong, Singapore, South Korea and Taiwan; their exports slumped more than 50% at an annualised rate.... In the fourth quarter of 2008, real GDP fell by an annualised rate of 21% in South Korea and 17% in Singapore, leaving output in both countries 3-4% lower than a year earlier. Singapore's government has admitted the economy may contract by as much as 5% this year, its deepest recession since independence in 1965. In comparison, China's growth of 6.8% in the year to the fourth quarter sounds robust, but seasonally adjusted estimates suggest output stagnated during the last three months. Asia's richer giant, Japan, has yet to report its GDP figures, but exports fell by 35% in the 12 months to December. In the same period, Taiwan's dropped by 42% and industrial production was down by a stunning 32%, worse than the biggest annual fall in America during the Depression." Read the rest of the post And from Yves Smith, who refers to points made by Frank Veneroso: 1)The Japanese industrial production data and METI forecast was bad beyond all imagining. Industrial production might fall by 1/3 in the 12 months ending in January. It could fall in a mere four months between November and February by more than half the U.S. Great Depression decline which took almost four years. 2) Nothing like this has ever happened to a major industrial nation to my knowledge --not even during the 1929--1933 Great Contraction. 3) The trade weighted yen is by far the strongest currency in the world. Japan is losing competitiveness fast. Given the lags in trade matters will get worse. 4) The insane trader community continues to push the yen up as a safe haven. It is all so detached from reality I suppose they could take it higher. Read the rest of the post This is really, really scary stuff. Lord knows what lies ahead.... Labels: Asia Times, Brad Setser, exports, financial crisis, Frank Veneroso, manufacturing, Trade, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Good Review of SubprimeThe excellent Julian Delasantellis, who contributes regularly to Asia Times, reviews Confessions of a Subprime Lender, by Richard Bitner, who worked in the industry and coundn't take it anymore. The review serves as a good refresher on some of the chronology, arcana and issues, and is just fun to read because of Delasantellis' writing style and wit.BOOK REVIEW Subprime--an (im)morality tale Confessions of a Subprime Lender by Richard Bitner Reviewed by Julian Delasantellis In 1949, the hard-boiled American crime writer Raymond Chandler observed that "Such is the brutalization of commercial ethics in this country that no one can feel anything more delicate than the velvet touch of a soft buck." It wasn't that "velvet touch of a soft buck" that the subprime mortgage business felt, and fell victim to, these past few years; it was the creamy caress of about 3 trillion of those soft bucks. It was the heady intoxication of this sensation that caused the industry to abandon all pre-existing standards of banking probity and morality, and this is the story that Richard Bitner tells in his new book, Confessions of a Subprime Lender. By 2006, Bitner, co-founder of subprime broker Kellner Mortgage, had seen so much of his industry's blatant balderdash, howling half truths, and malevolent mendacities that he could stand no more. Walking away from a business that had made him, and everyone in his business, insanely wealthy in an insanely brief amount of time, he pledged to write a book that would tell the truth about this business. Amazingly enough, considering the dross that winds up in the business sections of the bookstores these days (The Way of the Bushido Method to Sell Your Timeshare or, 12 Apostles=12 Successful Salescalls--The New Testament Sales, Commission and Wealth Plan) Bitner could not find a publisher for his work, so he self-published. Buzz spread and word got around, John Wiley and Sons put out an edition in early summer. On Amazon.com, the book is now ranked number 4 in the "mortgages" sub-category of Business and Investing/Real Estate Read the rest of the article Labels: Asia Times, banking regulation, financial crisis, financial crisis bailout, Julian delasantellis, mortgage meltdown, subprime lending Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
