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Thursday, March 12, 2009

Great Recession Roundup — March 12, 2009

Items of Interest:

Calculated Risk:
Fed: Household Net Worth Cliff Dives in Q4 -- Hit by the double whammy of declining home prices and a falling stock market, U.S. households saw their net worth fall by $11.2 trillion, or 18%, to $51.5 trillion at the end of 2008, wiping out five years of gains...

U.S. households saw their net worth fall by $11.2 trillion, or 18%, to $51.5 trillion at the end of 2008

S. Mitra Kalita / Wall Street Journal:
Americans See 18% of Wealth Vanish -- Past downturns have been mere blips compared with the losses Americans faced last year, which set them back to below 2004 levels...

Barry Ritholtz / The Big Picture:
U.S. Household Net Worth Falls 18% -- Not very good: The Federal Reserve reported that “Americans’ net worth fell in 2008, erasing four years of gains, as the value of their houses and stock market portfolios decline, according to new data from the Federal Reserve.” ...
Nouriel Roubini / Global EconoMonitor
Bernie Madoff is the Mirror of a Made-Off Ponzi Economy -- A reporter contacted me today with the following question:

“I am a reporter and I am doing a story on Bernard Madoff’s life after pleading guilty. As part of this I was wondering if you could comment on what significance he will have in the history of this period. Will he represent more than a scamster who stole a lot of money from a lot of people? As Bernie Ebbers and Ken Lay came to embody corporate greed and deceit, what will Madoff symbolize? I would really appreciate your insights on this”.

Here is my answer fleshed out in full:

Americans lived in a Made-off and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its overleveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now gone bust.

When you put zero down on your home and you thus have no equity in your home your leverage is literally infinite and you are playing a Ponzi game.

And the bank that lent you with zero down, a NINJA (no income, no jobs and assets) liar loan that was interest only for a while with negative amortization and an initial teaser rate was also playing a Ponzi game.

And private equity firms that did over a $1 trillion of LBOs in the last few years with debt to earnings ratio of 10 or above were also Ponzi firms playing a Ponzi game.

A government that will issue trillions of dollars of new debt to pay for this severe recession and to socialize private losses may risk to become a Ponzi government if - in the medium term - does not return to fiscal discipline and debt sustainability....
FT: You're a Ponzi. Nouriel Roubini's a Ponzi. We're All Ponzies Now

Nouriel Roubini / Forbes: How Low Can the Stock Markets Go? Much Lower
New York Times:
Congresswoman, Tied to Bank, Helped Seek Funds — Top banking regulators were taken aback late last year when a California congresswoman helped set up a meeting in which the chief executive of a bank with financial ties to her family asked them for up to $50 million in special bailout funds, Treasury officials said...
New York Times:
Madoff Is Jailed After Pleading Guilty — Bernard L. Madoff pleaded guilty Thursday to all the charges against him and expressed remorse for a vast Ponzi scheme that bilked investors out of billions of dollars. — Standing before Judge Denny Chin in United States District Court in Manhattan …
The Econ4U Blog:
Are You Ready For a Rainy Day? — The latest unemployment numbers show the nation lost 655,000 jobs last month, bringing the unemployment rate up to 8.1%. In four states, Michigan, California, Rhode Island, and South Carolina, the rate was above 10%...

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