The CHART OF THE DAY shows the 84 percent decline in the Standard & Poor’s 500 Financials Index from its high in February 2007. It retreated as subprime-mortgage defaults sparked a worldwide credit freeze that saddled banks including Citigroup Inc. and Bank of America Corp. with $1.2 trillion of losses.
The S&P 500 Information Technology Index tumbled 83 percent from its peak in March 2000 to its trough in October 2002 as investors concluded prices that had climbed eightfold in five years weren’t supported by profits at companies such as Amazon.com Inc. and Cisco Systems Inc.
The Internal Revenue Service's decision this week to quit using debt collectors to dun delinquent taxpayers was celebrated by public employee unions as a pendulum shift after watching the Bush administration often opt for private contractors over federal workers to deliver government services.
Last April the Bush Administration changed the rules so that the Federal Home Loan Banks could take a more active part in propping up the housing bubble.
The looming financial difficulties have not prevented the Bush administration from expanding the F.H.A.’s role to help ease the nation’s foreclosure crisis. Since September, more than 150,000 homeowners have refinanced through F.H.A. and officials hope that the number will increase to 400,000 by the end of the year.
When I wrote my diary called Black September a few months ago, I termed it a "first draft of history": an attempt to explain how the shallow, Wall Street and housing-focused recession of early 2008 had suddenly morphed into a systemic economic collapse. I described it as an "autonomous consumer slowdown" that didn't have to happen, but did in large part due to the panicky response by government officials to admittedly serious body-blows to the financial system that occurred seemingly almost daily during last September (and secondly due to the meltdown of 401k assets during the market crash that did not occur until the first 10 days of October).
Now several mainstream economists have independently picked up on the idea, challenging the conventional wisdom that the subsequent economic free-fall is All Because Lehman Brothers was Allowed to Fail. And the conventional wisdom is fighting back.
Public citizen live blogged the USTR (United States Trade Representative) confirmation hearing of Ron Kirk.
Here's a classic quote:
Senator Ron Wyden: the middle class does not like these trade agreements. What do you plan to increase support of middle class?
Ron Kirk's Reply: We're going to utilize technology to tell the real story. Our website is "so" 1987.
America knows these trade agreements are glorified offshore outsourcing contracts and the response is to do better Internet PR?
Another Quote from Mr. Kirk:
Cheaper foreign products help hard pressed American families, and exports help create jobs. The overarching benefits of trade are diffuse, and the pain is concentrated.
This is interesting, while the United States wants to pour money onto the economy (ahem, financial institutions), Europe wants to start global financial regulatory reform first.
The major European nations, divided among themselves over the wisdom of taking on more debt to combat the global downturn, remain more interested in focusing on a new approach to financial regulation, the issue that they say sits at the heart of the crisis.
At its simplest, this is a philosophical divide about the European preference for more control over markets, even to the point of creating international regulators who can reach across national borders, and an American fear of gradually diminishing sovereignty over its own institutions.
This explains why the banking system is in such bad shape.
(Bloomberg) -- The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report.
Asia excluding Japan probably lost about $9.6 trillion, while the Latin American region saw the value of financial assets drop by about $2.1 trillion, said Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. The report didn’t give a breakdown of asset declines in other regions.
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A recent article from reporters Salas and Harrington at Bloomberg pointed to a new dimension in the ever expanding saga of credit default swaps and the enormous damage they have done and continue to do to the economy. The crux of the matter is that bond traders who own swaps have a strong incentive to drive distressed companies into bankruptcy. It’s profitable. In something akin to debt arbitrage, traders buy debt at a fraction of its full value, and buy the swap at a fraction of its payoff value, and if the sum of the two is several points less than the full value of the debt, they profit by either waiting for the difference to narrow or by driving the company into bankruptcy. No wonder Buffett called derivatives weapons of financial mass destruction. But it gets even better. According to the article, a strategist at CreditSights Inc.
Like bonds, which move in ~60 year interest rate cycles (called the Kondratieff cycle), stocks also have very long, secular cycles that become apparent when we step back for the 30,000 foot view. For example, there was a long-term bull market from 1946-1966, followed by a long-term bear market from 1966-1982, followed by a long-term bull market from 1982-2000. Now we are in the midst of another long-term down cycle.
In this diary I will compare past long-term declines to estimate how steep a similar decline in the stock market and the economy is likely in this long-term bear market.
It seems our worker friendly clause which said TARP recipients first had to consider qualified U.S. workers before bringing in more foreign workers on H-1B guest worker Visas is working:
Bank of America has become the first US bank to withdraw job offers made to MBA students graduating from US business schools this summer, citing conditions laid out in its bail-out deal as the reason.
The recently passed $787bn stimulus bill in effect prevents financial institutions that have received money from the government’s troubled asset relief programme from applying for H1-B visas for highly skilled immigrants if they have recently made US workers redundant.
BofA, which has received a total of $45bn in Tarp funds, is in the process of digesting two large acquisitions – Countrywide, the mortgage broker, and Merrill Lynch – which will see thousands of jobs lost.
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