October 2009

It's China's world. We just live in it

Fortune Magazine put out an interesting article earlier this week. I wanted to quote a piece of it so you can get the idea.

Oil in Nigeria (and the Congo and Brazil and Kazakhstan and ...). Natural gas in Iran. Iron ore in Australia. China's hunt for natural resources around the globe, which began in earnest earlier this decade, has intensified as never before.
In September alone, China's sovereign wealth fund, the China Investment Corp. (CIC), shelled out nearly $1 billion to buy an 11% stake in JSC KazMunaiGas Exploration Production, a Kazakhstan oil and gas company. Just a week earlier CIC paid $850 million to acquire 14.9% of Noble Group, the Hong Kong commodity-trading powerhouse. Earlier this summer the China Development Bank lent Petrobras, the Brazilian national oil company, $10 billion to help fund exploration in deep waters off Brazil.

Friday Movie Night - Close to Home

 It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

I debated about showing this Frontline video because it is personal stories. But the film came back in my mind over the week. Some of the images of perfectly capable Americans, people who played by all of the rules, now living on the tail end of the American dream, brought to you by Visa and Mastercard, the amazing number of people over 40 who cannot get a job, the fear, the terror, the broken spirits, haunted me over the week. This same story is being played out in every coffee shop or beauty salon in America. The only thing that bothers me is the fear. People need to turn that fear into anger, get active and demand a good job and their American dream back.

 

Bank Failure Friday - Tally now 115

This week's Bank Failure Friday are a freaky horror. 9 banks in major holding company fail.

That's 9, the largest number in one bank failure Friday.

Nine subsidiaries of FBOP Corp., a multistate holding company that included California National Bank of Los Angeles, succumbed Friday to the nationwide banking crisis, bringing to 115 the number of banks closed by regulators so far this year.

The Federal Deposit Insurance Corp. said the nine banks in California, Illinois, Texas and Arizona that made up the privately held FBOP were taken over by U.S. Bancorp (USB, Fortune 500) of Minneapolis. The banks, which had combined assets of $19.4 billion and deposits of $15.4 billion, will open Saturday as U.S. Bank branches.

CIT goes into a pre-packaged bankruptcy.

The WSJ has a story up (HT to Calculated Risk) about the impending bankruptcy at CIT.

The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11 ...

... CIT asked bondholders to vote on a prepackaged bankruptcy plan, which would give most bondholders new debt it values at 70 cents on the dollar, and all the equity in a restructured company.

On the up side, it great that this thing is going into a prepackaged bankruptcy. We've seen this at GM and Chrysler. It allows them to emerge stronger. So in the long term the economy will be better off for this, but.....

As Keynes said, in the long term we are all dead.

The GDP of Stimulus

Now that the Great Recession has been declared dead and gone by everyone who failed to see the possibility of it happening in the first place, it is important to examine the reasons for its demise.

The White House has been busy declaring that its Stimulus policies have created or saved 640,000 jobs. We should note that the White House originally claimed credit for 1 million jobs, and only revised them down after realizing that they are spending $234,000 for each job saved. More revisions are sure to come.
It's also important to note that the job number is based on mathematical calculations and is impossible to prove.

One thing that can't be denied is that the stimulus did have an effect on the economy. It's this impact that needs to be examined further.

Fed Fight

It seems the Federal Reserve is coming out in full force to maintain their current power. What are they fighting against?

Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his House counterpart, have said they may change how Fed presidents are chosen or curb their power. Presidents aren’t appointed by Congress and are partly selected by banks, which lawmakers say share blame for the financial crisis.

Why is Congress trying to change the way regional Fed Presidents are selected? Because they are nominated and come from private boards and commercial banks.

federal reserve org chart

Federal Reserve regional Presidents are only approved by the Fed. governors.

Democrats Censor Reform Advocate

(ht Yves Smith - Naked Capitalism)

There was a poll released the other day that showed most people believe that the policies that are being discussed in Washington only help the "elite". This is certainly not good news for the Obama Administration and Democrats. It's pretty obvious why people feel this way with the $12 trillion bail out of the financial sector that is quickly returning to its old ways while unemployment and foreclosures continue to rise.

But there are other things that are happening that people may not be following that would confirm the sentiments reflected in the poll. The gutting of regulatory reform is one of them. Harper's Magazine has a story that about what transpired at a House Financial Services Committee on October 7:

Green stimulus money at work creating jobs..... in China.

Unbelievable. Stimulus money is being used to buy Chinese made wind turbines.

Construction of the $1.5 billion wind farm would be funded largely by Chinese financiers, with an assist from the United States government in the form of loan guarantees and grants from the federal stimulus package.....

The project would mark the first instance of a Chinese manufacturer exporting wind turbines to the United States market, according to Shenyang vice mayor Yang Yazhou, who spoke during a press conference announcing the joint venture.....

Small milestones that you may have missed

There was a couple news stories recently that you may have missed because they have no immediate effect on the markets. However, they are significant milestones.

#1) The Federal Reserve ends important monetization program.

(Bloomberg) -- The Federal Reserve completed its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.
Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period...

New Agenda for America: Income Inequality Threatens America's Basic Economic and Political Systems

newdeallogo

This post originally appeared on the New Deal 2.0 Blog as part of the Roosevelt Institute's "New Agenda for America."

Today, we have the highest level of income inequality in our nation's recorded history. We must address the structural flaws in our economy that created, and continue to widen, this divide. History teaches that extreme inequality leads to political instability. We cannot assume that we are immune.

In President Obama's words, the middle class is experiencing "the American Dream in reverse." Rising long-term joblessness and the possibility of 13 million foreclosures (more than one in every four American mortgages) create the potential for the former middle class to move from frustration to anger -- an anger sparked by reduced circumstances and the belief that they have been treated unfairly.

With each job loss or foreclosure, another family -- now on a down-ward spiral -- potentially loses its faith in our basic economic system and our basic system of governance. America's ongoing vitality requires that people trust that these systems work, and that our democracy is self-correcting. With rising income inequality, this trust is now at risk.

America has never been a nation of haves and have nots. If the gulf widens, it's hard to imagine that our future will be marked either by a healthy economy or a healthy democracy.

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