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Wednesday, January 21, 2009

Great Recession Roundup — January 21, 2009

Items of Interest:

The New Republic:
Schumer's $3-4 Trillion Horror Story -- While questioning Treasury nominee Tim Geithner at his confirmation hearing this morning, Sen. Chuck Schumer said he spent some time calling around Wall Street this weekend, and what he heard was that if the government wants to clean out all the toxic assets from the financial system, it will cost some three to four trillion dollars. Which is to say, an order of magnitude larger than the second $350 billion in TARP money the Senate just approved.

That's pretty daunting stuff when you consider that the banking system probably won't recover until most of this bad debt gets cleaned up. And that the economy won't recover till the banking system does. Alas, the only thing worse than spending $3 trillion to clean up the banks may be not doing it...

Myglesias / Matthew Yglesias: Rich Bankers: We Want Trillions of Dollars

Bill Gross / Pimco:
Andrew Mellon vs. Bailout Nation -- 2008 was the year when the United States led the charge of bailout nations, lending and literally guaranteeing trillions of dollars of private liabilities in an effort to avoid the advent of another Great Depression. Nothing, with the possible exception of George Bush’s IQ was the subject of greater debate. To begin with, the rescue plan itself was controversial even amongst its implementers: Congress voted against it, then a week later voted for it; Treasury Secretary Paulson designated it “TARP” (short for “Troubled Asset Relief Program”), then a month later did a 180°, refusing to buy subprime mortgages and asserting his right to change his mind because the facts themselves had changed. But the broader question reached beyond politics and into the realm of the dismal science itself. Was it necessary and productive to mutate 21st century American-style capitalism into a thinly disguised knock-off of the New Deal? ...
Banking Meltdown

Banking meltdown - capitalization shrinkageBank market capitalizaton changes
FT Alphaville:
Bank picture du jour - redux
Bank Capitalization Chart of the Day
Obama Team Pushes to Complete Financial Rescue Plan -- President Barack Obama’s economic team is pushing to complete a bank-rescue plan that can be twinned with the $825 billion stimulus package being negotiated with Congress to alleviate the rapidly deepening financial crisis.

While full details of the rescue haven’t been settled yet, people familiar with the deliberations said the package is likely to include a $50 billion-plus program to stem foreclosures, fresh injections of capital into the banks and steps to deal with toxic assets clogging lenders’ balance sheets...
David Goldman / Inner Workings: Nationalization is not inevitable
British Pound Sterling Meltdown?

Ambrose Evans-Pritchard / Telegraph [UK]:
SERIOUSLY ALARMED -- The slide in sterling has turned "disorderly".

We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.

For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.

The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.

The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn...
Madoff Ponzi

Madoff Forces 17 Luxembourg Funds to Halt Redemptions -- Investments with Bernard Madoff have forced 17 Luxembourg funds and sub funds to suspend redemptions as the New Yorker’s alleged fraud strikes Europe’s biggest mutual fund market, the country’s financial regulator said today.

The funds include Access International Advisors LLC’s LuxAlpha Sicav-American Selection, the Herald (Lux) US Absolute Return Fund, the Luxembourg Investment Fund-U.S. Equity Plus, and investments in those vehicles such as six sub funds of the BG Umbrella Fund, the Commission de Surveillance du Secteur Financier said in an e-mail.

The number of funds involved and questions over safeguards for investors have bankers concerned it may hurt their ability to attract placements from investors worldwide. Luxembourg, a country with fewer than 500,000 people, is the world’s second- largest mutual fund market after the U.S...

Alex Davidson / Forbes:
Madoff Domino Falls In Caribbean -- British Virgin Islands hedge fund suffers $350M loss.

The pile of rubble left by Bernard Madoff continued to grow Wednesday, as the main shareholder of a hedge fund based in the British Virgin Islands said his firm lost more than $350.0 million.

Jacques Rauber, who according to documents is the majority shareholder of 13-year-old Auriga International Advisers, confirmed reports in Swiss weekly SonntagsZeitung that the company's Auriga International fund was wholly invested in Fairfield Sentry. Fairfield is a U.S.-based fund that had invested all its $7.3 billion in assets with Madoff and was one of his early clients...
Euro currency: a roach motel?

Barry Eichengreen / VoxEU:
Was The Euro a Mistake? -- What started as the Subprime Crisis in 2007 and morphed in the Global Credit Crisis in 2008 has become the Euro Crisis in 2009. Sober people are now contemplating whether a euro area member such as Greece might default on its debt...

Euro Adoption Is Irreversible: Was it a Mistake?

The euro area will hang together, in other words, because the decision to enter is essentially irreversible. Getting out is impossible without precipitating the most serious imaginable financial crisis – something that no government is prepared to risk...
Mexico Meltdown?

John Robb / Global Guerrillas:
QUOTE: Mexican Militias

"Our mission is to terminate the life of a criminal every 24 hours ... The hour has come to stop this disorder in Juárez."

From the press release of the Juarez Citizens Council's (CCJ), a "citizen's militia" formed to counter narco-guerrillas. They are even setting up an e-mail/text line for tips from citizens on who they should target.
Detroit melted down long ago

Al Lewis / Denver Post:
How low can homes go? Try $0 -- By contrast, the median price of a home sold in Detroit last month was $7,500, according to Realcomp, a Farmington Hills, Mich., multiple-listing service, down 50 percent from last year...1,228 homes listed for under $10,000, 209 of which were under $1,000.

Police stopped patrolling these neighborhoods years ago...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia