Ratigan is Angry

Wow.

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Best Government Money can buy

Ritholz kirjoittaa:

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In line with this morning’s early post (Four out of Five Americans See Financial Reforms as Ineffectual), I discovered, quite by accident, a horrifying little article in the July 12 Time magazine (seen at my hair cutter’s and local barber shops everywhere).

The online version is pretty skimpy, which is probably why I didn’t see it until now. But the details are quite horrific.

The article’s subhed tells you all you need to know: “Why Lobbying Is Washington’s Best Bargain; Lobbyists say for just a few million, they can make clients billions:”

“Lobbyists [are] the best bargain in Washington. Capitol Tax Partners, for example, is one of 1,900 firms that house more than 11,000 lobbyists registered to operate in Washington. Last year, according to the Center for Responsive Politics (CRP), firms like Capitol Tax were paid a total of $3.49 billion for unraveling the mysteries of the tax code for a variety of businesses. According to Capitol Tax co-founder Lindsay Hooper, his firm provided “input and technical advice on various tax matters” to such clients as Morgan Stanley, 3M, Goldman Sachs, Chanel, Ford and the Private Equity Council, which is a trade group trying to head off a plan to increase taxes on what’s called carried interest, a form of income enjoyed by the heavy hitters who run venture-capital and other types of private-equity funds.”

The print edition specifically cites Derivative trading banks and Auto Dealers as examples of ROI. Derivatives trading banks spent $28 million, and got to avoid allocating $5 billion to $7 billion to back their trades. The gain in annual profits is about $3 billion — with the risk remaining on the taxpayers. A pretty nifty return on lobbying investment (minus the lobbyists soul burning in Hell for eternity — but that’s a small price to pay.

Auto Dealers made out even better: They dropped less than $10 million dollars ($6.3 million on lobbying, and an additional $3.4 million in campaign contributions). For their troubles, the dealers get to keep $20 billion each year in undisclosed added interest and fee kickbacks to over-priced loans.

The consumer? Well, apparently, Congress is sending each voter a matching velcro glove and sock set . . .

>

Source:
Government for Sale: How Lobbyists Shaped the Financial Reform Bill
By Steven Brill
Time, Jul. 01, 2010
http://www.time.com/time/politics/article/0,8599,2000880,00.html

Suomi(kin) seurannassa

Tämä on ainakin WtC.netiltä mennyt kotimaisessa uutisoinnissa ohi. Varmaan sen takia, että tuolla seurantalistalla ovat nyt about kaikki EU:n maat.

o Excessive deficits – Cyprus, Denmark and Finland join the watchlist (EU)

Cyprus, Denmark and Finland have joined the ranks of member countries with government deficits deemed high enough to pose a threat to the wider European economy. The commission is now recommending they be placed on its list of countries warranting further scrutiny of public finances.

With the addition of the three, the watchlist would include all but one of the EU’s 27 countries. Only Luxembourg is not running a deficit well over 3% of gross domestic product – the EU limit. Luxembourg finished 2009 with a shortfall of around 2%.

Party like it's 1998

o Nokian osake putosi alimmilleen yli 11 vuoteen (TS)

Nokian osakekurssi putosi tänään alimmilleen lähes kahteentoista vuoteen. Kurssi päätyi tänään 6,61 euroon eli 2,8 prosenttia eilistä päätöskurssiaan alemmaksi.

Lokakuussa 1998 osake kävi 6,54 eurossa, mutta on sen jälkeen pysytellyt tämänpäiväistä päätöskurssiaan korkeammalla.

Tänään pörsseissä oli laaja laskupäivä. Helsingin pörssissä osakkeet päätyivät vankasti miinukselle muiden Euroopan pörssien tapaan. Myös New Yorkin pörssissä osakkeet ovat selvässä laskussa.

o MARKETS IN FREEFALL: NASDAQ OFF 4% (TBI)

Ja tässä hyvä artikkeli sovereign debt aiheesta.

o Repent at Leisure (Economist)

The answer to all problems seemed to be more debt. Depressed? Use your credit card for a shopping spree “because you’re worth it”. Want to get rich quick? Work for a private-equity or hedge-fund firm, using borrowed money to enhance returns. Looking for faster growth for your company? Borrow money and make an acquisition. And if the economy is in recession, let the government go into deficit to bolster spending.

Why it [debt] matters

If a husband borrows money from his wife, the family is no worse off. By extension, just as every debt is a liability for the borrower, it is an asset for the creditor. Since Earth is not borrowing money from Mars, does the debt explosion really matter, or is it just an accounting device?

During the credit boom of the early 1990s and 2000s the conventional view was that it did not matter. Not only were asset prices rising even faster than debt but the use of derivatives was spreading risk across the system and, in particular, away from the banks, which had capital ratios well above the regulatory minimum.

The problem with debt, though, is the need to repay it. Not for nothing does the word credit have its roots in the Latin word credere, to believe. If creditors lose faith in their borrowers, they will demand the repayment of existing debt or refuse to renew old loans. If the debt is secured against assets, then the borrower may be forced to sell. A lot of forced sales will cause asset prices to fall and make creditors even less willing to extend loans. If the asset price falls below the value of the loan, then both creditors and borrowers will lose money.

This is particularly troublesome if the economy slips into deflation, as happened globally in the 1930s and in Japan in the 1990s. Debt levels are fixed in nominal terms whereas asset prices can go up or down. So falling prices create a spiral in which assets are sold off to repay debts, triggering further price falls and further sales. Irving Fisher, an economist who worked in the first half of the 20th century, called this the debt deflation trap.

Another reason why debt matters is to do with the role of banks in the economy. By their nature, banks borrow short (from depositors or the wholesale markets) and lend long. The business depends on confidence; no bank can survive if its depositors (or its wholesale lenders) all want their money back at once. If banks struggle to meet their own debts, they have no choice but to reduce their lending. If this happens on a large scale, as it did in the 1930s, the ripple effect for the economy as a whole can be devastating.

Both of these effects were seen in the debt crisis of 2007-08. Falling property prices caused defaults and a liquidity crisis in the banking system so severe that the authorities feared the cash machines would stop working. Hence the unprecedented largesse of the bank bail-out.

Hyman Minsky, an American economist who has become more fashionable since his death in 1996, argued that these debt crises were both inherent in the capitalist system and cyclical. Prosperous times encourage individuals and companies to take on more risk, meaning more debt. Initially such speculation is successful and encourages others to follow suit; eventually credit is extended to those who will be able to repay the debt only if asset prices keep rising (a succinct description of the subprime-lending boom). In the end the pyramid collapses.

Dow 10k - party is over

Ja taas on Dow10k bileet ohi. Aika voimakasta sahaamista maailmalla.

Look out below

Volatiliteetti jatkuu ja futuurit tankkaa rajusti (S&P -17.8, Dow alle 10k). Taitaa olla jännitystä ilmassa.

Circuit Breakers?

Nähtäisiinköhän jo tänään. S&P futuurit -15pts juuri nyt.

*grabs popcorn*

Edit - scoreboard for today:

Dow: -376 (-3.6%)
NASDAQ: -93 (-4.1%)
S&P 500: -43 (-3.9%)

Ai niin, ja "Out of sight" ei sittenkään ollut out of mind.

Notes

o Espanjan työttömyys ylittää 20% rajan

o S&P downgreidaa Espanjan.

o Puheet EU/IMF lainapaketin koon merkittävästä kasvattamisesta näyttävät rauhoittavan tilannetta. Kreikka 2yrs nyt about 16% paikkeilla.

...nevermind - pörssin melt-up maailmalla jatkuu taas normaalisti.

Second Wave?

Euroopan ensimmäinen domino alkaa huojua aikas pahasti. Kreikan valtionlainaus on vähän heikoissa kantimissa, ja Kreikka saa 2v lainaa hulppean edullisella 21% korolla (04:30 EST). Huolestuneet viranomaiset reagoivat panikoitumalla ja kieltämällä lyhyeksimyynnin.

Muutkin PIIGS maat ovat aika helisemässä:

Other yield surges on the 2y at 5am EST:
Spain - 13.27% up
Ireland - 19.97%
Italy - 4.34%
Portugal - 16.12%

Volatility on the V2X is up another 18.3% already.

Calling it a day for now

WtC.net menee ainakin joksikin aikaa breikille.

Meanwhile, kaikkien taloudesta (ja talouskriisistä) kiinnostuneiden kannattaa seurata mainstream median lisäksi allaolevia saitteja:

Calculated Risk
Zero Hedge
Euro Etana
Samassa Veneessä
Mike Shedlock
The Automatic Earth
Naked Capitalism

Kiitos kaikille lukijoille. It's been a fun ride.

Update: Jos haluat ilmoituksen sitten kun WtC jatkaa taas toimintaansa, niin lähetä mailia osoitteeseen watchingthecrisis@gmail.com, otsikolla "Subscribe".

Cheers,

WtC.net

Colbert on Greece

Vähän kevyempää kommentointia Kreikan tilanteesta perjantai illan ratoksi.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Greece's Economic Downfall - Scheherazade Rehman
www.colbertnation.com
Colbert Report Full Episodes Political Humor Skate Expectations

Not good (but hardly surprising), Suomen BKT romahti

o Bruttokansantuotteessa pahin romahdus 90 vuoteen (HS)

Suomen talous supistui viime vuonna 7,8 prosenttia, käy ilmi Tilastokeskuksen ennakkotiedoista.

Bruttokansantuote laski viimeksi yhtä paljon viimeksi vuonna 1918 kansalaissodan jälkeen. 1990-luvun lamassakin voimakkain supistuminen jäi 6 prosenttiin vuonna 1991.

Kysyntää vähensi eniten viennin kutistuminen jopa neljänneksellä. Investoinnit laskivat yli 13 prosenttia. Talouden tuotanto väheni voimakkaimmin tammi–maaliskuussa 2009.

Suomen bruttokansantuote oli viime vuonna 171 miljardia euroa.

Kotitalouksien reaalitulot kasvoivat noin prosentin. Palkkatulot kuitenkin vähenivät prosentilla, sillä vaikka ansiotaso kohosi, työttömyys kasvoi.

Suomen julkishallinto oli viime vuonna selvän alijäämäinen. Alijäämä oli Tilastokeskuksen tietojen mukaan 2,2 prosenttia. Euroissa se tekee 8,6 miljardia euroa, eniten vuoden 1995 jälkeen.

Julkisen velan suhde bruttokansantuotteeseen nousi edellisvuoden 34,2 prosentista 44 prosenttiin.

Irlanti rimpuilee

o The Economics of ‘Something Must be Done’ (Irish Economy)

There is a strand in what passes for policy discussion which goes like this:

(i) There is an acknowledged problem in some sector or policy area;

(ii) the Government could do something to ameliorate this problem;

(iii) QED the Government should do something, not always specified.

The result of this line of attack is policies like the Car Scrappage Scheme, of which more anon.

Examples in this morning’s media concern the excess supply of hotels, and the threat of global warming. The Government is being urged to take measures

- to reduce the hotel stock, and

- to support the hydro storage/windpower project called Spirit of Ireland.

Hotel Stock: Hotels are a pure private good. Due to policy-induced capacity expansion, there are now too many. Some are bust, and face receivership/liquidation/NAMA. Room prices are falling. This is the natural market response. Where is the market failure?

It is true that some long-established hotels have seen their business undermined by State-subsidised competition, but this is a routine business risk in an interventionist political culture. Many of these long-established hotels enjoyed State grants for conference/leisure centres when the going was good. The industry is lobbying for some State-run scheme to take out capacity. Doing nothing will cost less and the industry will adjust. Intervening, yet again, will distort adjustment.

Spirit of Ireland: The externality of carbon emissions is addressed by putting a price on carbon, at which point the State can safely adopt a position of technology neutrality. Power generation, once externalities are dealt with, is a pure private good too. Whether these schemes make sense is a matter for the capital market, not for the Government.

Car Scrappage: Car sales have collapsed and some car dealers have gone out of business. The same has happened with €1,000 handbags, and some handbag retailers are struggling. Ireland manufactures neither cars nor handbags. The Car Scrappage Scheme will spend taxpayer money to sustain, temporarily, the retail distribution network for an imported consumer durable. Why not a Handbag Scrappage Scheme? This scheme is plain daft for Ireland. It is not even clear that it makes any sense for car-producing countries - the German scheme appears to have sucked in imports of smaller cars, which Germany does not produce.

These ‘Something Must be Done’ schemes provide harmless entertainment for economists, fodder for the 24-hour news cycle and a playpen for lobbyists. But they contribute nothing to sustainable employment, cost the Exchequer money and hinder the necessary post-Bubble adjustment.

In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.

Big (not so) Fat Greek Bailout?

o Greece Bailout Plan and Further Austerity Measures moving forward (CR)

From Stephen Castle and Landon Thomas Jr. at the NY Times: Europe Union Moves Toward a Bailout of Greece

[T]he European Union is moving toward the first bailout in the history of its common currency, which is expected to involve loan guarantees from the German and French governments to encourage their banks to buy Greek debt.

Even as the negotiations continue, the bloc is insisting that Athens impose further, painful austerity measures ...

During a brief visit, due to start Monday, Olli Rehn, the European commissioner for economic and monetary affairs, will press for more spending cuts and tax increases in Greece as a precursor to an emerging package of financial support.

These guarantees and further fiscal cuts are expected to be announced well in advance of the March 16th deadline Jean-Claude Juncker, Luxembourg's prime minister and chairman of the 16 euro-zone finance ministers, discussed two weeks ago.

And from Reuters:

Greece may soon announce new steps to cut its budget deficit, a [economy Minister Louka Katseli] said on Sunday, amid signs that Athens might be nearing a deal with European Union governments to ease the Greek debt crisis.
...
"If more measures are to be taken, they will be announced soon" [Katseli said]

It sounds like this debt guarantee package and further cuts might be announced later this week.

o An Underfunded Program For Greece (Baseline Scenario)

The EU, led by France and Germany, appears to have some sort of financing package in the works for Greece (probably still without a major role for the IMF). But the main goal seems to be to buy time – hoping for better global outcomes – rather than dealing with the issues at any more fundamental level.

Greece needs 30-35bn euros to cover its funding needs for the rest of this year. But under their current fiscal plan, we are looking at something like 60bn euros in refinancing per year over the next several years – taking their debt level to 150 percent of GDP; hardly a sustainable medium-term fiscal framework.

A fully credible package would need around 200bn euros, to cover three years. But the moral hazard involved in such a deal would be immense – there is no way the German government can sell that to voters (or find that much money through an off-government balance sheet operation).

Alternatively, of course, the Greeks could make much more dramatic cuts to their primary deficit – the government budget balance if you take out interest payments – in order to stabilize their debt-GDP ratio.

But with no significant resurgence of growth in the eurozone coming for a long time, that would really mean moving from last year’s 7.7% GDP primary deficit to around a 6% GDP primary surplus (assuming they face a real interest rate of 5%, i.e., below what they are paying today).

The government won’t (or can’t?) do that. In 2009 Greek wages and pensions rose by 10.5% – an amazing spending spree. In the 2010 budget they are forecast to rise by 0.3%. Where is the austerity? No wonder the prime minister is popular – they aren’t really cutting much.

The bailout package is really just an opportunity for European banks to get out of Greek debt. The Greeks can’t really collapse until they lose access to funding, so the hope is that this prevents the problems from spreading – and the prospects of such a “rescue” will keep bond yields down for Portugal, Spain, and others.

Our baseline view is that Greece enters into quite a bad recession this year, their banks and corporates continue to have trouble raising financing – thus causing broader liquidity issues, and it all comes to a head again as we near the time the government needs to take ever harsher measures next year, when there is again no bilateral funding in place.

This is the new Greek cycle.

Make it rain

Luottokorttisysteemit Jenkeissä on niin terveitä.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Make it Rain - Bank of America
www.thedailyshow.com
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