Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Two Good Pieces on Global Finance from FPIFTwo nice relatively new pieces from the good folks at Foreign Policy in Focus. Hat-tip to LF for alerting me to these. (I like that FPIF lists the editor in charge of an article as well as the author—great idea.)Overhauling Global Finance Read the rest of the article. Plus this one on the IMF, by Aldo Caliari, who has written for D&S:
Read the rest of the article. Labels: financia crisis, Foreign Policy in Focus, IMF, Joseph Stiglitz, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's ($1.7 Trn Deficit) First BudgetFrom The Financial Times:Obama forecasts $1,750bn deficit By Andrew Ward and Edward Luce in Washington Published: February 26 2009 11:24 | Last updated: February 27 2009 09:56 Financial Times President Barack Obama on Thursday unveiled the most expansive blueprint for federal government involvement in the US economy in more than a generation in a ten-year budget outline that showed this year’s deficit quadrupling to $1,750bn. The document, which lays out ambitious plans to create universal health insurance and adopt an economy-wide carbon permit trading system by 2012, was heavily panned by Republicans. The budget would see George W. Bush’s tax cuts for the wealthiest expire by 2011 and introduce new tax increases on families earning $250,000 or more to pay for healthcare expansion. In a sign of intense partisan battles to come, Mitch McConnell, the Republican leader in the Senate, where the US president needs supermajorities of at least 60 votes to push bills through, said: “Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off." The budget also allowed for about $750bn for "financial stabilisation efforts", on top of the $700bn already granted to Wall Street. The potential aid was shown as a net cost of $250bn because the government would anticipate recouping some of the money. Peter Orszag, White House budget director, said there were "no plans" to seek more aid for banks but the measure indicated it was a strong possibility. The 134-page document outlines a legacy inherited from Mr Bush of what it calls "mismanagement and missed opportunities and of deep, structural problems ignored for too long". Read the rest of the article Labels: bailout, Barack Obama, budget, financia crisis, fiscal policy, fiscal stimulus, taxes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Canadian Banks--Shovel-ReadyAs Obama visits Canada today, we are posting an article by Maurice Dufour on the supposed health of the Canadian financial sector. Maurice has been livening up our pages with satirical articles, including most recently "Hooked on Hydrocarbons?", a piece on the Alberta oil-sands that takes seriously (sort of) the notion that the United States is "addicted to oil." The article is available only in the January/February print edition (here's the table of contents). Order that issue here; subscribe here.Shovel-Ready in Canada Pundits are praising the financial health of the United States's northern neighbor—but should they? Canadians have long been trying to shed what they feel is an undeserved stereotype, namely, that our country is boring. Try as we might, we can't seem to shake the association with dullness. The gap between our self-image and the way others perceive us is still yawning, so to speak. Recent developments might offer an opportunity for an extreme image makeover, though. That's because, amidst the recent global economic carnage, this country's financial system appears to have emerged relatively unscathed. So more and more people these days are actually getting excited when they think about the land of moose, Mounties and maple syrup. Now every country wants to be more like Canada, it seems. Read the rest of the article. Labels: bailout, Barack Obama, Canada, financia crisis, Maurice Dufour Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Plan: They've Got Their Work Cut OutAt least if the latest housing data from HSBC are any indication. Thanks to Across the Curve (here's what the writer of the blog--I forget his name, but he's good--has to say about the stats: "I mentioned in my opening that UBS economists took some solace from the fact that a poor housing starts number would have the beneficial effect of speeding the reduction in inventories. That process will eventually lead to stability in prices.Well what they wished for came to pass as the housing data was a debacle at every level with permits and starts lower. And it looks as though the collapse is across regions and sectors." Here's a summary of the HSBC data: This is the note which HSBC sent out to clients on the Housing Starts Data. There is no recovery or stability brewing in housing market. Housing starts continue to decline steeply, falling 17% in January to a new all-time low (back to 1959) of 466k (consensus 529k) Starts are down 39% over the last three months, down 57% since last June, and down 79% since the cycle high in January 2006 Building permits fell 5% to 521k (consensus 525k), also hitting a new record low. Both starts and permits have fallen for seven straight months, with permits falling 54% over this period In spite of this reduced activity, the month’s supply of new homes for sale rose to an all-time high of 12.9 months as of December. This overhang is likely to keep new construction quite low until home sales recover Evidence of any sales improvement has been scant, although December pending home sales rose for the first time in four months (+6.3%), and the yesterday’s NAHB index showed a slight improvement in buyer traffic (+3pts to 11) Ryan Wang Labels: Across the Curve, Barack Obama, financia crisis, mortgage meltdown 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 (iv)Links:(1) I forgot to post this New York Times piece yesterday: Do We Need a New Internet? (2) Yesterday I linked to a piece on the increasingly dire financial situation in Eastern Europe, which threatens to spill over into Western Europe (with both already seriously hobbled by the global financial crisis). Today, Baseline Scenario reminds us that Ireland requires immediate attention, and calls on G7 finance ministers, meeting in Rome, not to neglect another unexpectedly pivotal player in European finance. Unfortunately, as this article from Vienna's Die Presse (in German, but there's a good photo) recounts, the biggest news coming out of Rome seems to involve the possibly sozzled Japanese finance minister (3) I wish Veblen were alive to write about today's philanthropy barons. "Charity" really is turning into a kind of conspicuous compulsion that seems to have raw power (often ill-used at that) as its source. Lord knows what the effects could be. But I think it's key to understanding the evolution of a ruling class that has been the overwhelming beneficiary of a kind of economic growth that is itself only now evaporating away. (4) Nouriel Roubini writes that Republicans are starting to speak of bank nationalization. (5) Krishna Guha of the Financial Times writes of the strange shift in bond investors' perceptions of deflation risk in the medium term, and what that might mean for policy. (6) Plans for the "car czar" dropped in favor of a panel more subject to presidential control. (7) From Bookslut: "McGraw-Hill Cos., the owner of the Standard & Poor's credit-rating service, won't be publishing a book on the financial crisis that the author says addresses S&P's role in the markets' plunge." Thanks to Marginal Revolution. (8) More turmoil in UK financial sector as Lloyd's (buyer of HBOS) finds itself under the nationalization gun. (9) Yves Smith links to this FT story about big companies increasingly cutting links with partners they consider too risky to continue doing business with, in a kind of "corporate version of the paradox of thrift." Comment Response to Brad DeLong Yesterday I linked to an exchange between CUNY anthropology professor and political economy theorist David Harvey and Berkeley economist and former Treasury official Brad DeLong that I got off Marxmail. The exchange consisted of a blog entry by DeLong on his site that was prompted by the circulation on the internet of a short essay by Harvey on the Obama stimulus package, and Harvey's response to DeLong, published on his website. In my post, I made a short comment to the effect that DeLong seemed to be taking refuge in pedantry in his attack on Harvey. I didn't articulate why I felt this way, so it was in a sense unsurprising that DeLong left the following comment on our blog: Gee. And I remember when writers for Dollars & Sense had read Joan Robinson, and understood why objectively-reactionary Marxisant critiques of Keynesianism were ill-founded. DeLong has a point. I'm not an economist, and, of course, DeLong's knowledge of Marx almost certainly overwhelms my own (I've never read Theories of Surplus Value, for example), never mind his grasp of seminal figures in the non-Marxian tradition like Joan Robinson, Keynes and John Hicks (I'm sorry to say I've mostly read secondary literature on these writers, with the exception of Keynes). And I'm gratified that DeLong has a respect for the history of our magazine. For my part, I respect DeLong's work and visit his site almost every day. He's right: I shouldn't have posted the comment without some sort of substantive justification for my evaluation of the exchange between DeLong and Harvey; I could have simply directed readers to the exchange itself without comment. So, I offer Prof. DeLong a heartfelt and humble apology. That said, I still have reservations about Prof. DeLong's attacks on Harvey, though I do agree that Harvey lost the thread at several points in his response to DeLong. DeLong says that David Harvey's piece on the stimulus is lacking in intellectual rigor, and that this lack of precision serves a kind of obfuscatory purpose. His argument is reminiscent of those employed by logical positivists against metaphysics in the middle of the last century, but the tool with which DeLong proposes to both illuminate this confusion and rectify it is the marginalist economics of the neoclassical tradition. To put it simply, DeLong says that Harvey's condemnation of the stimulus is a convoluted harangue that can really be reduced to a simple proposition that can be analytically refuted by the invocation of what is essentially an identity relation in mainstream economics: that there is no inherent level of debt that cannot be financed, because interest rates will set at a point that eventually matches supply of savings with demand for debt, either at a national or international level. In a follow-up post, DeLong refers to Harvey's position as a kind of revival of the "Treasury View" (a belief that deficit spending had to be kept at a clearly ineffective or even in ways counter-productive level to prevent what was considered inevitably crippling inflation from taking hold, that prevailed in the British Treasury during the depression and played no small role in increasing the latter's severity). And DeLong notes that it may be true that the price of government deficits run up in response to the crisis may become so high that domestic private investment will become depressed (or "crowded out"), and hence that economic growth will fall as a result, though that hasn't happened so far: demand for US public debt has remained high, and yields on government debt surprisingly--even, until very recently, alarmingly--low (while debt levels have blown into the stratosphere). So, according to DeLong, Harvey is not merely befuddled: he's plain wrong in attacking the Obama stimulus package, even on his own confused terms. The certainly naive--in mainstream economic terms, of which I am, admittedly, hardly a virtuoso practitioner, as I know DeLong is--objection I have to DeLong's position (which I think I share with David Harvey) is that the world has changed so much since Hicks and others did their great, though by no means flawless work--and that is beyond dispute, even for a relative novice--that the old identities no longer make much sense. Hicks himself said the following about the IS-LM diagram which DeLong refers to for support: "The IS-LM diagram, which is widely, though not universally, accepted as a convenient synopsis of Keynesian theory, is a thing for which I cannot deny that I have some responsibility ("IS-LM: an Explanation," Journal of Post Keynesian Economics, 3 (2): 139-54, 1980, quoted in Steve Keen, Debunking Economics , 2001, London, Zed Books)" Again, I'm not going to try to punch above my own inconsiderable weight, as I did yesterday, by getting involved in the technical details surrounding debate about IS-LM analysis. All In want to do here is point out some of the things that even I have seen in the literature that suggest that the kinds of identities DeLong sees as decisive are, well, somewhat porous, at least on the surface. The Neoclassical synthesis of Keynes and the marginalist tradition was, after all, forged at a time when all the major economies except the US were relatively closed, and for a good reason: they were devastated by depression and a World War. Accordingly, the US used its unique powers of seigniorage in the early post-war period to run up balance of payments deficits, expand export markets, and allow its allies to rebuild their economies (partly out of fear that they would otherwise fall to communism). As these economies quickly became competitors, though, this system broke down, and was replaced by Neoliberalism, which entailed a partial (official, anyway) rejection of the Keynesian tradition. Now that Neoliberalism is being, happily, toppled, interest in the Keynesian tradition has revived. But that doesn't alter the fact that history has moved on, often-times in ways that leave us breathless in accounting for its crazy effects. The hugely and breathtakingly expanded role of debt in the leading economies has perhaps been the most obvious instance of this, giving rise to other controversies that have upset other certainties of conventional economics (the "dark matter" debate, which hearkens to--of all things--the supremely bizarre world of subatomic physics and quantum mechanics to account for something that had been considered a heresy in economics, the tendency of savings in labor-intensive countries to migrate to capital-intensive ones, being perhaps the best instance of this). Steve Keen mentions another, related controversy, one that should give us further pause in considering the solidity of neoclassical "identities": Testing the first hypothesis takes some sophisticated data analysis, which was done by two leading neoclassical economists in 1990. If the hypothesis were true, changes in M0 should precede changes in M2. The time pattern of the data should look like the graph below: an initial injection of government "fiat" money, followed by a gradual creation of a much larger amount of credit money: How can savings and investment helpfully be considered an identity at all under such conditions? Keen says we need to go on to consider credit as having, in an important sense, completely eclipsed the ability of the authorities to match savings to investment via interest rates targeted at underlying economic activity (so LM--the money markets--becomes detached from IS--the goods markets): If only it were the world in which we live. Instead, we live in a credit economy, in which intrinsically useless pieces of pape--or even simple transfers of electronic records of numbers--are happily accepted in return for real, hard commodities. This in itself is not incompatible with a fractional banking model, but the empirical data tells us that credit money is created independently of fiat money: credit money rules the roost. So our fundamental understanding of a monetary economy should proceed from a model in which credit is intrinsic, and government money is tacked on later--and not the other way round. DeLong would no doubt--and rightly--point out Marx's considerable errors in analysis and ask Harvey--and me, I guess--why we should refer to him as opposed to the neoclassical model, imperfect though it may be. Though Marx had much--much more than anyone at his time--to say about the occasional serious distortions caused by credit (itself an endogenous feature of a capitalist economy), surely he wouldn't have anticipated the sort of thing described by Keen. One thing that Marx does point us in the direction of, though, is, of course, the indispensable class dimension in which political and economic phenomena occur in a capitalist system. And here's where DeLong's refuge in neoclassicsism is, to me, a fault compared to a reference to the Marxian tradition. DeLong, as we have seen, sees the ability of a nation to run up debt in a crisis as dependent on whether or not the interest rates set in national or international markets can support the kind of economic activity required to pay off the debts incurred. To him, national and international prices of credit are determined, ultimately, in markets. But it seems that we may have reached a point in which governments are increasingly having to look toward some pacification of long-abused working classes, no matter what the consequence. We see this in places like China, as well as in the developed world. And though some of this activity is expressed in clearly reactionary terms, it's clear that we're moving toward a new world in which economic policy is made with the clear intention of meeting the needs of these classes. One hopes this will take place on an international level: otherwise, disaster threatens, just as it did in the 'thirties. I think this is the point Harvey wanted to make. This point is confirmed in Harvey's original piece, when he tells us to focus on what's really going on, as opposed to exaggerating the importance of debates about intangibles like the crisis of "trust" in the wake of the crisis. I hope Prof. DeLong responds to this piece. He says he's familiar with our magazine. He may or may not know that we are dedicated to conveying (in an unashamedly leftist-way) economics in a way that is accessible to a popular audience. If, as I imagine, he has objections to what I have said, I hope he will provide a rebuttal of the sort that relies on more than appeals to the (recognized) authority of luminaries like Joan Robinson. I may have acted amiss in being snarky towards him yesterday without support, but his brief response to us was no better. I have taken responsibility for my culpability here, apologized, and admitted my ignorance of things I'm too prone to discussing without support. But he hasn't, as yet, provided us with much better. I realize he's really busy, but if he's really interested that Dollars & Sense has taken a position on something he says, he should follow through in a way that will illuminate us, rather than belittling us. Larry Peterson Labels: auto industry, bailout, bond market, Brad DeLong, David Harvey, financia crisis, Karl Marx, Larry Peterson, Nouriel Roubini, Thorstein Veblen, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). BoA on Ropes Again: $20 Bn Lifeline Not EnoughFrom Bloomberg:Bank of America Slides to 1984 Levels on Concern for Capital By David Mildenberg Feb. 5 (Bloomberg) Bank of America Corp., the nation's largest bank, declined to its lowest level in New York trading since 1984 on concern the lender doesn't have enough capital even with a $138 billion U.S. bailout package. The bank fell 73 cents, or 16 percent, to $3.97 at 10:03 a.m. in New York Stock Exchange composite trading, and earlier declined as much as 20 percent to $3.73, the lowest since October 1984. The stock of the Charlotte, North Carolina-based company has dropped for six straight days and has lost more than two-thirds of its value this year. The descent follows the U.S. government's latest infusion of $20 billion in new capital and a plan to share losses on $118 billion in mortgages, corporate loans and derivatives. The U.S. previously committed $25 billion to the bank and Merrill Lynch & Co., acquired earlier this year. Bank of America lost $1.79 billion in the fourth quarter, its first deficit since 1991, as more borrowers defaulted on loans. "Washington is dithering while the banking stocks are going to zero," said Nancy Bush, an independent bank analyst in Annandale, New Jersey. Trading is being driven by speculation that the government may take over Bank of America and other lenders as part of a plan to bolster the nation's financial system, she said. Scott Silvestri, a spokesman for the bank, wasn't immediately available for comment. "There is this lurking shadow of nationalization which haunts the banks, but particularly Bank of America," said David Dietze, president of Point View Financial Services Inc. in Summit, New Jersey, in an interview late yesterday. "It's pretty spooky." Bank of America's risk rose after it acquired Countrywide Financial Corp., the largest U.S. home lender, and Merrill Lynch, the world's largest brokerage, he said. Merrill lost $15.3 billion in the fourth quarter. Labels: bailout, Bank of America, financia crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Meanwhile, UK Corporations Dodge TaxA series from the Guardian, with an ever-stimulating (though I think he borders on the delusional when he talks about MoveOn.com) column from George Monbiot. Particularly interesting is the use of the designation "intellectual property," that obnoxious term celebrated by all manner of conventional economists, as a cover for slush funds. You can bet similar dodges are employed by US firms, too.Here's a link to the series. And to Monbiot's column. Labels: bailout, corporate taxes, financia crisis, George Monbiot, tax dodges, Tax law, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UK Strikes DevelopmentsReaders may not know that workers in Britain joined their comrades in France, Germany and elsewhere in Europe this weekend on the streets, and this time of the wildcat variety. The first of the two Independent on Sunday stories linked to here document the frantic attempts to stop the strikes from spreading across the country, while the second the second chronicles the despicable Peter Mandelson's (UK Business Secretary) outrageous "Let them eat cake" advice (issued, appropriately enough, from his own little Versailles at Davos) to workers. Then, an Observer story reveals that the government was warned four years ago about the likely impact of the implementation of policies that have resulted in this weekend's unrest:Wildcat wildfire: Frantic bids to stop strikes spreading Whitehall crisis team meets, and Acas tries to resolve dispute as Europe joins recession protests. Ian Griggs, Jane Merrick and David Randall report Sunday, 1 February 2009 Independent.co.uk Web Strenuous efforts were being made this weekend by ministers, officials, unions and conciliators to stamp out the wildcat strikes now threatening to become a nationwide protest. Senior civil servants were ordered to an emergency Cobra meeting on Friday to plan the Government's response to the disputes. Police, army and immigration services have been put on alert, and mediators are talking with unions and employers in an effort to resolve the unofficial strikes that erupted at 13 locations last week. And yesterday there were fears that the disputes over the employment of foreign workers at refineries and power stations could spread to other areas. Tom Hardacre, national officer for engineering and construction at Unite, the union, told The Independent on Sunday: "I think it is extremely likely that industrial action could continue on Monday... There is so much frustration in all sectors of industry, it could escalate to other sectors. That is not what we want, but if there is no solution we could be faced with serious problems in terms of industrial unrest." Unite is now calling for a national protest in Westminster. Read the rest of the article You can go and work in Europe, Mandelson tells strikers Unions furious as ministers take aim at Britain's wildcat protesters By Jane Merrick and Brian Brady Sunday, 1 February 2009 Independent.co.uk Web Lord Mandelson enraged unions and Labour MPs last night by accusing wildcat strikers of "protectionism" and claiming they could turn the recession into a full-blown depression. The Business Secretary inflamed the dispute over foreign workers by suggesting that protesters could go and work elsewhere in Europe if they were unhappy. As the mediator Acas was called in to try to prevent more unofficial strikes planned for tomorrow, the peer issued a statement that failed to damp down growing industrial unrest. His support for free movement of workers in the European Union was also at odds with Gordon Brown's 2007 promise to safeguard "British jobs for British workers", a phrase which has been turned against the Prime Minister by protesters. Read the rest of the article Unions: Labour was warned about jobs for foreigners As industrial unrest at foreign-owned companies refusing to hire British workers spreads, it has emerged the government was told in 2004 that EU laws were being used to prevent local people taking up UK jobs The Observer, Sunday 1 February 2009 Jamie Doward, Toby Helm, and Tom Kington in Rome The government was warned five years ago that European laws governing the employment of foreign workers in the UK would result in the current industrial unrest sweeping the country. The revelation comes amid fears that the row is playing into the hands of the far right and claims that similar strikes could affect other key projects. The disruption has come back to haunt the prime minister, Gordon Brown, who in 2007 --in his first speech to the Labour party as its leader--promised to bring in "British jobs for British workers". The former Labour minister Frank Field last night called on Brown to make an emergency statement to parliament tomorrow. Field wants a new law to compel companies operating in the UK to offer contracts to domestic workers first. "We have got to get ahead of this debate rather than react to it," Field said. "Unless we do, we are supplying oxygen to the BNP." Jon Cruddas, the Labour MP for Dagenham, said there was a real risk that "prestige projects", such as the 2012 Olympics, would be hit by similar protests unless ministers acted. At the last count, only 63% of workers on the Olympics site were British. "If the government is planning big infrastructure projects to keep the economy moving--including the Olympics--this needs to be resolved now, because it is in the construction and engineering sectors where these issues are most acute," Cruddas said. Last night the Unite union demanded urgent talks with Brown. It called for the government to ensure contractors on public infrastructure projects agreed to sign new corporate social responsibility clauses that will ensure free access for local labour. "If the government can bail out the banks, it can deliver a level playing field for engineering and construction workers in the UK," said Derek Simpson, joint general secretary of the union. Read the rest of the article Labels: European Union, financia crisis, labor, labor law, Peter Mandelson, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 70,000 Jobs Lost Worldwide TodayFrom Reuters:Caterpillar, others unveil massive job cuts Mon Jan 26, 2009 1:48pm EST By Brian Moss NEW YORK (Reuters) A tidal wave of layoffs washed across the world on Monday, sending tens of thousands of workers into joblessness as the pain of the global recession worsened. Amid reports of tumbling corporate profits, dire outlooks and a lowered global growth forecast from the International Monetary Fund, companies in Europe and the United States announced they would cut employees in a dramatic effort to reduce costs and keep their businesses afloat. Despite the corporate gloom, markets rallied on some of Monday's other news: No. 1 drugmaker Pfizer Inc said it would buy rival Wyeth for $68 billion, Barclays said it had no need to raise capital and sales of existing U.S. homes unexpectedly rose 6.5 percent. Read the rest of the article Labels: financia crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Krugman on Resistance to NationalizationPretty good summary of the situation many banks find themselves in, and an interesting conclusion regarding resistance to full nationalization by the Nobel prize-winner in today's New York Times:January 19, 2009 Op-Ed Columnist Wall Street Voodoo By PAUL KRUGMAN New York Times Old-fashioned voodoo economics--the belief in tax-cut magic--has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans. But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking. To explain the issue, let me describe the position of a hypothetical bank that I'll call Gothamgroup, or Gotham for short. On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets--say, $400 billion worth--are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion. So Gotham is a zombie bank: it's still operating, but the reality is that it has already gone bust. Its stock isn't totally worthless--it still has a market capitalization of $20 billion--but that value is entirely based on the hope that shareholders will be rescued by a government bailout. Read the rest of the piece Labels: bailout, banking system, credit crisis, financia crisis, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Brown Orders UK Banks To Come CleanFrom The Financial Times. It's perhaps instructive to recall in this vein that it was Britain's shift to recapitalization in October, itself prompted by Ireland's guarantee of bank deposits, that forced Secretary Paulson to re-engineer the TARP.Brown orders Britain's banks to come clean By George Parker, Lionel Barber and Jean Eaglesham Financial Times Published: January 17 2009 00:05 | Last updated: January 17 2009 00:05 Gordon Brown told banks to come clean over the extent of their bad assets on Friday, admitting the scale of the banking crisis could threaten the global economy with a new phenomenon: "financial isolationism". With speculation growing that the government will be forced to stage another bank rescue, the prime minister told the Financial Times he had been urging the banks for almost a year to write down their bad assets. "One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," he said. Speaking amid mounting market concerns that banks face further heavy losses, Mr Brown said: "We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with." Mr Brown's team is looking at options to keep the banks afloat as new writedowns threaten to eat through the 50bn pounds in capital injected in October, of which 37bn pounds was provided by the taxpayer. Officials are working on plans possibly to underwrite the toxic assets or buy them outright and place them in a "bad bank". Read the rest of the article Labels: bailout, banking system, financia crisis, Gordon Brown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Congress Moves on Stimulus and Bailout (NYT)Posted recently to the New York Times website:By DAVID M. HERSZENHORN Published: January 15, 2009 WASHINGTON—In two major advances for President-elect Barack Obama's economic agenda, House Democrats on Thursday unveiled an $825 billion fiscal recovery package, a combination of spending and tax cuts aimed at putting millions of unemployed Americans back to work, and the Senate voted to release the second half of the Treasury's $700 billion financial bailout fund, sparing the new administration a messy legislative fight. The recovery package, put together by Congressional Democrats in partnership with Mr. Obama, includes huge increases in federal spending on education, aid to states for Medicaid costs, temporary increases in unemployment benefits and a vast array of public works projects to create jobs. The Senate is developing its own version of the recovery package, and intense haggling and fierce lobbying are expected over the next few weeks, not just between Democrats and Republicans but also between the new administration and Congress, as lawmakers push to pass the stimulus bill by mid-February. A vote by the Senate to block the banking bailout money could have upended that aggressive timetable, ensnaring the new president in a contentious veto fight during his first days in office. Instead, 6 Republicans joined 46 Democrats in voting late Thursday afternoon to release the $350 billion in bailout money, giving Mr. Obama powerful ammunition to further stabilize the fragile financial sector. Because the release of the rest of the bailout money could have been blocked only by a vote of both chambers of Congress, the Senate's vote assures that the money will be released and means that no action by the House is necessary. Read the rest of the article. Labels: bailout, economic stimulus, financia crisis, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
