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Saturday, November 29, 2008

The Crash of '08 Roundup — November 29, 2008

Items of Interest:

Amity Shlaes / Wall Street Journal:
The Krugman Recipe for Depression -- Massive government spending is no solution to unemployment.

Paul Krugman of the New York Times has been on the attack lately in regard to the New Deal. His new book "The Return of Depression Economics," emphasizes the importance of New Deal-style spending. He has said the trouble with the New Deal was that it didn't spend enough.

He's also arguing that some writers and economists have been misrepresenting the 1930s to make the effect of FDR's overall policy look worse than it was. I'm interested in part because Mr. Krugman has mentioned me by name. He recently said that I am the one "whose misleading statistics have been widely disseminated on the right." ...

Discussion: The Big Picture, Paul Krugman, A Chequer-Board of Nights …, QandO, Fausta's Blog, The Other McCain, Grasping Reality …, LewRockwell.com Blog, Cafe Hayek and American Power

NY Times:
What Would Keynes Have Done? -- According to Keynes, the root cause of economic downturns is insufficient aggregate demand...

Greg Mankiw / Economics Roundtable: A Keynesian Moment
Joe Nocera / NY Times:
Out of the Spotlight, An Industry Copes with Crisis -- The credit crisis is rippling up and down the economy in ways that may not create obvious headlines but that affect the way people do their business and live their lives. People, for instance, who sell and drive trucks...
Online / Detnews.com:
Tiger Woods' split with GM a sign of sour economy When Tiger Woods ended his nine-year relationship with General Motors Corp. on Monday -- a mutual decision between a megawatt celebrity who doesn't need the work and a teetering corporation that needs every penny -- it offered yet another snapshot of how badly the American economy has deteriorated...
Phyllis Korkki / NY Times:
A Bright Future for Accounts Past Due -- If you’re determined to find a job in the damaged financial services field, here’s one strategy that could work: apply to be part of the clean-up crew. The debt collection industry, for one, is sure to have openings for many years to come...
----And why do you think your stocks hate you?

Tuesday, November 25, 2008

The Crash of '08 Roundup — Treasury/Fed Annouce Re-Fi Program

Items of Interest:

Fed Commits $800 Billion More to Unfreeze Lending -- The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation...

Federal Reserve Board:
Press Release 11/25 -- The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae...

NY Post Editorial: Citi of FoolsEditorial / NY Post:

THE Citi Never Sleeps - but, apparently, its directors do. Washington was forced over the weekend to come to the res cue of Citigroup - a once- great bank brought near to ruin by a grossly negligent board of directors.

The cost? A mere $351 billion - that is, only $1,000 for every man, woman and child in America.

Blame abounds, but most of it must accrue to the Citigroup directors - the men and women paid well to make corporate policy, and to oversee its proper execution.

What were they thinking?

Were they thinking?

Some of them are already gone. If those who remain had any sense of decency, they'd simply quit...
Eric Dash / New York Times:
Saving Citi May Create More Fear — One bailout was not enough for Citigroup. And it may not be enough for other big banks. — While Citigroup's second multibillion-dollar rescue from Washington hit Wall Street like a shot of adrenaline on Monday, many analysts worried that the
jolt would soon wear off...
Barry Ritholtz / The Big Picture:
Big Bailouts, Bigger Bucks -- If we add in the Citi bailout, the total [bailout] cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history...
Bloomberg: U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit -- The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages....
David Pauly / Bloomberg:
Citigroup Flop Exposes Folly of Empire Building

Eugene Ludwig / Wall Street Journal:
Thumbs Up for the Citigroup Bailout

Deborah Solomon / Wall Street Journal:
New Facility Targets Consumer Lending — Treasury Secretary Henry Paulson, seeking to ease strains in the consumer credit market, plans to announce Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards, according to people familiar with the matter...
Discussion: The Swamp
Treasury, Fed Said to Unveil Plan to Bolster Consumer Financing — Nov. 25 (Bloomberg) — The U.S. Treasury and Federal Reserve will unveil as soon as today a lending program to shore up the consumer-finance market, using money from the government's $700 billion rescue, two people familiar with the effort said...
Discussion: naked capitalism
Washington Post:
Rubin, Paulson, Geithner a Familiar Trio at Heart of Citigroup Bailout — Rubin, Paulson, Geithner's Shared History Paved Way for $300 Billion Federal Guarantee — The bailout of Citigroup, which put the government at risk of hundreds of billions of dollars of losses …
Discussion: David Corn and TPMCafe
Paulson May Ask for Remaining $350 Billion of TARP — Nov. 24 (Bloomberg) — Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering
asking for the money...
Discussion: Free exchange
Home Prices Keep Dropping

Home prices in record decline -- Case-Shiller survey shows 16.6% annual decline in summer months as housing picture continues to deteriorate...
  • S&P/Case-Shiller Home Price Index: 161.56 vs. 163.00 consensus.
  • S&P/C-S Composite-20 cities, year-over-year: -17.40% vs. -16.90% consensus.
  • S&P/C-S US Home Price Index: 150.04 for 3rd Quarter
  • S&P/C-S US Home Price Index, year-over-year: -16.55% vs. -17.05% consensus.
Calculated Risk: Case-Shiller House Prices: Free Falling
Lehman bankruptcy triggers $301M fumble for NFL's Giants -- For all you sports trivia buffs out there, what would cost the National Football League's New York Giants the equivalent of the following, according to the New York Daily News:
  • Pay Eli Manning's $10 million salary for 30 years or
  • Hire 38 wide receivers at Plaxico Burress' $7.87 million salary or
  • Sign 274 running backs at Brandon Jacobs' $1.1 million salary
Give up?. Well, the answer is the amount of $301.8 million, which the Daily News reports is what the football franchise is claiming bankrupt Lehman Brothers Holdings Inc. owes the team from a complex financing deal for its new stadium in the Meadowlands. The 2008 NFL champions allege they lost that amount after the investment bank filed for bankruptcy on Sept. 15...
James Hamilton / Econbrowser:
Time for a change at the Fed

Monday, November 24, 2008

The Crash of '08 Roundup — Citigroup Bailout

Items of Interest:

Fed Pledges Top $7.4 Trillion to Ease Frozen Credit — The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago...

Bernanke says that he was 'mistaken early on in saying that the subprime crisis would be contained.'John Cassidy / New Yorker:
ANATOMY OF A MELTDOWN -- Bernanke says that he was “mistaken early on in saying that the subprime crisis would be contained.” ...
discussion: Open Left and Corrente

Bernanke Tells New Yorker He Underestimated Housing Meltdown -- Federal Reserve Chairman Ben S. Bernanke said he underestimated the impact subprime mortgages would have on the economy, according to an interview to appear in the New Yorker magazine’s Dec. 1 edition.

“I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke said. “The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.” ...
Paul Krugman / NY Times:
Citigroup — Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.
Citigroup Gets $306 Billion Loan Guarantee, $20 Billion of Government Cash -- Citigroup Inc. will have more than $300 billion of troubled mortgages and other assets guaranteed by the U.S. government under a federal plan to stabilize the lender after its stock fell 60 percent last week.

Citigroup also will get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and restore economic growth...
Gabriel Malor:
A New Kind of Bailout (This is the Fifth Variation for Those of You Who Are Counting) -- They are getting clever in their desperation and it's going to take some time to untangle the newest mess devised by Citigroup, Treasury, the FDIC, and the Fed ....

Wall Street Journal:
U.S. Agrees to Rescue Struggling Citigroup -- Plan Injects $20 Billion in Fresh Capital, Guarantees $306 Billion in Toxic Assets...

naked capitalism, Grasping Reality …, News Hounds, clusterstock.alleyinsider.com, Obsidian Wings and New York Times

NY Times:
U.S. Approves Plan to Help Citigroup Weather Losses -- Federal regulators approved a radical plan to stabilize Citigroup in an arrangement in which the government could soak up tens of billions of dollars in losses at the struggling bank, the government announced late Sunday night...
New York Times:
Plan Begins to Emerge to Rescue Citigroup — Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government's broader efforts to bolster the nation's financial industry, according to people briefed on the plan...
NY Post:
Pandit Needs to Move His Assets -- Superstar stock analyst Meredith Whitney believes Citigroup is such a basket case that Stephen Hawking, the renowned physicist, lacks the brainpower to fix the stricken banking giant.

Whitney, in an exclusive interview with The Post, called Citigroup Chief Executive Vikram Pandit and his minions "naive" for their continued belief that the bank can shrug off recent massive share-price declines...
Wall Street Journal:
Citigroup, U.S. in Talks to Create ‘Bad Bank’ — Citigroup Inc. is nearing agreement with U.S. government officials to create a structure that would house some of the financial giant's risky assets, according to people familiar with the situation. — While the discussions remain fluid …
New York Times:
Obama Aides Signal a Boost in Stimulus Spending — President-elect Barack Obama has signaled that he will pursue a far more ambitious plan of spending and tax cuts than anything he
outlined on the campaign trail — a plan “big enough to deal with the huge problem we face,” …
Randall Mikkelsen / Reuters: David Sirota / The Huffington Post:
Confused About Tax Promises
Discussion: Open Left
John Harwood / New York Times:
Change Is Landing in Old Hands
Discussion: The Heretik
Washington Wire:
Obama Aides Suggest Rollback of Bush Tax Cuts Could Be Delayed

Joe Windish / The Moderate Voice:— NYTimes business columnist Joe Nocera was a finalist for the Pulitzer Prize in commentary last year. His latest book, Good Guys and Bad Guys …
Forbes: Paulson is ‘worst’ treasury secretary in modern times — Forbes magazine President and CEO Steve Forbes called Treasury Secretary Henry Paulson “the worst treasury secretary we've had in modern times”, citing, among other things, the government's handling of the housing crisis...
CNN Money:
Existing home sales tumble -- October decline is worse than expected as economic conditions keep buyers out of the market.

Sales of existing homes fell in October and prices continued to decline as potential buyers remain sidelined by the weak economy, according to a real estate group's report issued Monday.

The National Association of Realtors reported that sales by homeowners slid in October to an annual pace of 4.98 million. That was down 3.1% from September's revised reading of 5.14 million...
John Amato / Crooks and Liars:
Neil Cavuto in screamathon with Ben Stein over our failed economy and how to repair it — Neil Cavuto and Ben Stein got into a screaming match over the state of the economy after the bailout Saturday morning on Fox's Cavuto for Business. I've never seen them go at it like that before. It started immediately when Cavuto opened up the segment by saying we've spent 2 trillion dollars so far to fix the problem, which is patently false, and Stein called him out on it...
discussion: Hullabaloo

comment: You'd be screaming too, if you'd lost millions in this market crash like Mr. Stein.

Ben Stein / Yahoo:
How to Ruin Your Morning -- A few nights ago I did one of the most sensible things I could think of to do. I went to bed very early. The result was that I woke up feeling great and ready for a nice day. The weather was gorgeous at my home in Malibu and I could smell a tang of fall in the air coming off the ocean.

Then I decided to ruin it all by filing the past few months of stock transaction receipts. I get them online as well in the form of confirmations from my broker, but I like to review them in paper. Or, I should say I once upon a time liked to review them.

Now, they're a catastrophe.

My losses are staggering even in the most plain vanilla index funds. In the emerging markets and developed markets, investments that had once provided immense gains, the losses are worse...

Instead of just jumping off my balcony, which wouldn't get me more than a broken leg, I am going to try to make some sense of what has happened...
McClatchy DC:
Housing is bad enough, but wait — it'll get worse
-- If you think the housing slump can't get much worse, Martin Feldstein thinks that both home prices and the broader economy can — and very likely will — get a whole lot worse.

The Harvard University professor and former chief economic adviser to Ronald Reagan isn't part of the crowd that continually forecasts doom. For two decades, he's headed the National Bureau of Economic Research, which officially determines when U.S. recessions begin and end.

So when he spoke on Monday night at the annual dinner of the National Economists Club, a gathering of like-minded wonks, Feldstein's grim calculations were noteworthy...
Michael Schneider / Variety:
Needed: Network bailout? — Bad economy slows ad sales — It's D-Day for the broadcast networks. — They've been living on borrowed time for the better part of two decades, thanks to advertisers willing to toss in more cash each year even as ratings slowly trended ever lower.
Wall Street Journal [sub. required]:
Anatomy of the Morgan Stanley Panic -- Trading Records Tell Tale of How Rivals' Bearish Bets Pounded Stock in September . . .

Trading records reviewed by The Wall Street Journal now provide a partial answer. It turns out that some of the biggest names on Wall Street -- Merrill Lynch & Co., Citigroup Inc., Deutsche Bank and UBS AG -- were placing large bets against Morgan Stanley, the records indicate. They did so using complicated financial instruments called credit-default swaps, a form of insurance against losses on loans and bonds...
Will Morgan Stanley Forgive and Forget? -- Don't Count On It! -- Wall Street is definitely a dog eat dog world...
NY Post:
GOLDMAN TRADERS STILL EYEING '08 BONUSES -- While the top management of Wall Street banks are being pressured to forego bonuses in light of the companies' acceptance of billions of dollars in TARP money, traders are being told they will still be getting millions in bonuses - albeit less than they got last year...
"5th Grade" Winner Goes Belly Up -- Kathy Cox may be smarter than a 5th grader, but she's now just as broke as one.

Kathy won $1 million on "Are You Smarter Than a Fifth Grader" in September. But here's the deal. She donated her winnings to charity, banking on her husband's construction biz which apparently had been running just fine. But his construction company tanked with the economy, and now they've declared bankruptcy...