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Markets continue to unravel
James Galbraith on what needs to be done about the financial crisis.
The world financial markets plunged again on Wednesday despite the fact that the US Federal Reserve and other central banks synchronized an interest rate cut. Wall St. speculators sold off in the last half hour dropping the Dow 190 points. TRNN spoke to Dr. James K. Galbraith who said that markets will continue to unravel unless the mortgage crisis is stabilized and people are stable in their homes.
James K. Galbraith teaches economics at the University of Texas where he is a Senior Scholar of the Levy Economics Institute and the Chair of the Board of Economists for Peace and Security. The son of renowned economist, the late, John Kenneth Galbraith, he writes a column called "Econoclast" for Mother Jones, and occasional commentary in many other publications, including The Texas Observer, The American Prospect, and The Nation. He is an occasional commentator for Public Radio International's Marketplace.He directs the University of Texas Inequality Project, an informal research group based at the LBJ School. James Galbraith on what needs to be done about the financial crisis. ... more -
International Monetary Fund activation complete
According to reports, the International Monetary Fund has activated an emergency funding mechanism which was last used during the '97 Asian financial crisis.
It was conceived in 1995 as a means to speed up loan approvals for countries in desperate need and, in the same vein, as been reactivated to "offer assistance to countries in distress from the mounting credit crisis."
At a conference in Washington, IMF Managing Director Dominique Strauss-Kahn said: "I activated emergency procedures so the IMF can respond quickly... to be able to answer problems that may happen in some of the emerging countries." According to reports, the International Monetary Fund has activated an emergency funding mechanism which was last used during the ... more -
White House considers ownership stakes in banks
"The Bush administration is considering taking ownership stakes in a number of U.S. banks as one option it might use to deal with a serious credit crisis, an administration official said Wednesday.
This official, who spoke late Wednesday on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.
This official said that all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has already caused the biggest upheavals on Wall Street in seven decades.
A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced earlier Wednesday by Britain.
Asked about the British approach, Treasury Secretary Henry Paulson did not reject the idea but said he did not want to speculate on which of the new powers would be employed."
More at link...
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So now the government is going to buy the banks that they just lent all that money to? "The Bush administration is considering taking ownership stakes in a number of U.S. banks as one option it might use to deal with... more -
The Bailout
So when someone comes up to you and asks if you know about The Bailout. This is what you should say...
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Crunched by the Credit Crisis
Some nice visualizations of the crisis:
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Economists: Don't despair, Depression not knocking
"Hearing some of the dire predictions for an economy struggling to avert a financial collapse, it's easy to recall 1930s photos of people huddled in soup lines or traveling the country for work, and wonder what a depression would look like in the modern world.
Experts say that won't happen. Yes, banks are failing and the stock market plunged Monday. And yes, there is genuine concern that, regardless of the government's $700 billion bailout proposal, the United States still could land in a severe recession.
But despite the alarms, including dire warnings from President Bush, economists insist there is no risk of a second Great Depression because, for some time now, the U.S. economy has been in the midst of a very different, less-threatening phenomenon: 'the Great Moderation.'
Coined by a Harvard economist earlier this decade, the term refers to a U.S. economy shaped by more flexibility and far less volatile swings in growth. That flexibility, fueled by everything from financial deregulation and global trade to the shift toward a service economy, will keep the nation from sinking into a depression.
'The Great Depression should not be the reference point,' said Erik Hurst, an economics professor at the University of Chicago's Graduate School of Business.
'When (Bush) says "there goes the economy," that doesn't mean one in four of us will be out of work. It means we're going to have a recession. There could be a drag on U.S. productivity for four to five years. We may get 1 ½ or two years with little or no growth,' Hurst said.
Is there any possibility of repeating a period in history when the nation's jobless rate reached 25 percent and economic output fell by one-third, as it did during the Depression?
'Zero, just zero,' said Kenneth Rogoff, a Harvard University economics professor. 'Ten percent, that could happen. If we got to 10 percent, that would be pretty spectacular for the U.S. But it would take a lot of mistakes (by Congress) for a long time . . . if Congress takes the ball and it fumbles'...
A better reference point that economists point to is the recession of the early 1980s, triggered by the Federal Reserve Board's efforts to curb runaway inflation by raising interest rates. By September 1982, the overall jobless rate reached 10.8 percent, the first time it had climbed into double digits since the Depression.
In 1982, at least one member in 8 million families was unemployed, accounting for 13 percent of all families. The housing, automobile, aircraft and steel industries all were hit. High oil prices reduced the demand for oil and gas, putting 150,000 miners out of work in a single year. Residential construction slowed because of high mortgage rates. Meanwhile, jobs in the services sector grew, but at a slower pace than previously..."
Full article at link. "Hearing some of the dire predictions for an economy struggling to avert a financial collapse, it's easy to recall 1930s pho... more -
We were warned...From the past
"Some forecasters have said that the country is heading for a credit crunch, brought on by doubts about its economic prospects and fears of ballooning federal deficits. But others see no reason for concern. To them, the United States has become a special case in the global economy's textbook"--Daniel Altman, Herald Tribune, February 12, 2005 "Some forecasters have said that the country is heading for a credit crunch, brought on by doubts about its economic prospects an... more
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Understanding the Financial Crisis
So when someone comes up to you and asks if understand the Housing Downturn, the Credit Crisis and Potential Government Bailout. This is what you should say... So when someone comes up to you and asks if understand the Housing Downturn, the Credit Crisis and Potential Government Bailout. This ... more
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Capitalist Crisis, Marx's Shadow
Rick Wolff, Professor of Economics at University of Massachusetts at Amherst, examines the role of capitalism in the current financial crisis.
"Capitalism happens. When and where it does, capitalism casts its own special shadow: a self-critique of capitalism's basic flaws that says modern society can do better by establishing very different, post-capitalist economic systems. This critical shadow rises up to terrify capitalism when -- in crisis periods such as now -- capitalism hits the fan. Karl Marx poetically called that shadow the specter that haunts capitalism.
The so-called financial crisis today is a symptom. The underlying disease is capitalism: an economic system that weaves implacable and destructive conflict into its production and distribution of goods and services. Employers and employees need to cooperate to make the economy work, but they are forever adversaries whose conflicts periodically burst into crises. So it is today. Capitalism also locks employers into those endless struggles with and against one another that we call competition. It too periodically erupts into conflicts and crises. And so it is today."
Professor Wolff examines how employer-employee conflict, in the form of job insecurity and lower wages, and enterprise competition, in the form of consumer lending, led to the rise of massive debt and our current financial crisis.
"No questioning, let alone challenging, of capitalism's role is conceivable for US leaders. Quite the contrary, their 'policies' aim chiefly to preserve capitalism -- largely by keeping its responsibility for the current crisis out of public debate and thus away from political action. Yet this crisis, like many others, raises Marx's specter, capitalism's shadow, once again. The specter's two basic messages are clear: (1) today's global financial crisis flows from core components of the capitalist system and (2) to really solve the current crisis requires changing those components to move society beyond capitalism...
If the political winds continue to change far enough and fast enough, solutions responding to the current crisis by moving beyond capitalism might yet be tried."
Full article at link... Rick Wolff, Professor of Economics at University of Massachusetts at Amherst, examines the role of capitalism in the current financial... more -
HSBC cuts 1,100 jobs worldwide
Banking giant HSBC is to axe 1,100 jobs worldwide, blaming the current financial turmoil for the decision.
About half of the cuts, which will affect back room jobs at its global banking and markets operation, will take place in the UK.
HSBC employs about 335,000 people around the world.
Last month, HSBC said half year profits fell 28% to $10.2bn (£5.2bn), as it was forced to write-off $14bn from bad debts in the US and asset write-downs.
Meanwhile, pre-tax profits fell 35% to $2.1bn during the same period.
An HSBC spokesman said the firm had opted to reduce its workforce, "because of market conditions and the economic environment, and our cautious outlook for 2009".
Many of the job-losses will be at the headquarters of HSBC's investment banking division, which are in London's Canary Wharf.
Banks around the world have been coming under increased pressure from the credit crisis currently affecting financial markets.
The problems have forced governments to step in and boost money markets as well as bail out a number of companies.
Earlier this year, the UK government had to buy mortgage lender Northern Rock, while in the US lenders Fannie Mae and Freddie Mac have been rescued as well as insurer AIG and investment bank Lehman Brothers filed for bankruptcy. Banking giant HSBC is to axe 1,100 jobs worldwide, blaming the current financial turmoil for the decision. ... more -
Administration calls for quick action on bailout - Stocks & economy- msnbc.com
Democrats want protections for homeowners, taxpayers in eventual rescue
The Bush administration insisted on Sunday that Congress must move quickly to approve what one lawmaker called the “mother of all bailouts” — a $700 billion proposal to buy a mountain of bad mortgage debt in an effort to unfreeze the nation’s credit markets. Democrats want protections for homeowners, taxpayers in eventual rescue ... more -
Feds Looking to Buy Up Bad Assets
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are crafting a plan, which they plan to soon deliver to lawmakers, after concluding they need broader powers to combat fallout from a housing and credit market meltdown that has sent shock waves through Wall Street and around the globe. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are crafting a plan, which they plan to soon deliver to law... more
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NY Fed Pumps Billions Into Financial System
Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped $50 billion into the nation's financial system to help ease credit stresses. Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped $50 billion into the nation�... more
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Credit crunch: leaked letter to Gordon Brown admits rise in crime & terrorism ...
A leaked letter from the Home Office to Gordon Brown admits the ailing economy is about to fuel a rise in extremism and crime.
The document outlines how people becoming poorer will fuel resentment of immigrants as job competition stiffens.
The letter states: "There is a risk of a downturn increasing the appeal of far-right extremism and racism, which presents a threat as there is evidence that grievances based on experiencing racism are one of the factors that can lead to people becoming terrorists."
The leaked dossier also sets out the potential for an increase in violent offences caused by the credit crunch and soaring food prices.
Although data for last year showed crime falling by 10% overall, they pointed out that during the 1992 slump violent crime rose by 19%.
Particular "upward pressure" would be exerted on levels of property crime, such as burglary and car break-ins.
Police forces may have to protect finances by holding back parts of their budgets.
This could leave them facing "difficult decisions over officer numbers and priorities".
Furthermore, falling revenue from visa applications will also put activities at the Border Agency "under pressure".
Smuggling and illegal working is expected to rise as employers seek to "save costs".
Officials at the department examined previous periods of negative economic growth to come to their conclusions.
The Home Office is due to deliver the stark assessment to Gordon Brown amid fears that Britain is heading for recession.
The Tories said the document demonstrated that ministers had been "complacent".
A Home Office spokesman said: "It is... appropriate that the Home Office considers the effects the economic climate may have on crime and other policy areas.
"We are confident that we have the right systems in place to respond." A leaked letter from the Home Office to Gordon Brown admits the ailing economy is about to fuel a rise in extremism and crime. ... more -
The City The Credit Crunch Forgot
It is the city the credit crunch forgot. The rest of the UK may be feeling the pinch, but life is good in Aberdeen, the oil capital of Europe.
World energy prices are soaring with Brent Crude now trading at the once unimaginable figure of $120 a barrel.
The oil industry is booming and as a result Aberdeen and its residents are enjoying a prosperity not seen since the 1970s.
Trade is as brisk as ever at the city's best-known restaurant the Silver Darling.
Owner and chef Didier Dejeun says the credit crunch is having no effect here at all.
He said: "All the oil executives and their families are based here, they have to spend their money somewhere and they spend it in Aberdeen.
"There is no limit to how much some people will spend. They arrive at the restaurant in their Ferraris and their Bentleys and order champagne."
The five-star Marcliffe Hotel and Spa is situated in the Pitfodels area of the city, which boasts the highest proportion of millionaires anywhere outside London.
Owner Stewart Spence says the hotel has never been so busy and customers are still willing to spend money on life's luxuries.
He said: "Aberdeen is basically all about energy and the price of oil worldwide means more employment and exploration, which all comes back to the city.
"People's spending habits haven't changed at all. Customers are still asking for the best wines and the lobster."
But some believe Aberdeen cannot buck the trend forever and that the big companies like Shell and BP will be unable to keep posting record breaking multi billion pound profits each quarter.
However, former Lord Provost and city councillor John Reynolds disagrees.
"The price of oil will not go down, it will get up to $150 maybe even $200 a barrel in two years time," he says.
"We will continue to benefit from that here."
The downside is that the people of Aberdeen will still have to pay the price at the pumps. For many though, that is a price worth paying. It is the city the credit crunch forgot. The rest of the UK may be feeling the pinch, but life is good in Aberdeen, the oil capital of... more -
Is lunch over? - How the Credit crunch is affecting our eating.
Everything conspires to force us to feed this way. Natural light, TV programming, the timing of theatre, film, opera performances and sporting events, all demand that we work during the day and eat and entertain ourselves at night. If I were dictator, I'd change it all. Would you? Everything conspires to force us to feed this way. Natural light, TV programming, the timing of theatre, film, opera performances and ... more
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Obama Opens the Door to Offshore Drilling
ORLANDO, Fla. -- Sen. Barack Obama suggested he could accept an expansion of offshore oil drilling today if it is in a broader package of energy measures that would free the logjam on energy bills in Congress. ORLANDO, Fla. -- Sen. Barack Obama suggested he could accept an expansion of offshore oil drilling today if it is in a broader package... more
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Toilet block sells for £35,000: so much for the credit crisis?
A derelict public toilet has defied the downturn in the housing market to sell for £34,500.
The single-storey, breeze-block building attracted interest from first-time buyers reportedly seeking a foothold on the property market.
Auctioneers said the purchase would allow the new owners to "let their imagination explore further possibilities".
The conveniences, in Bath, Somerset, were listed with a guide price of £10,000 but, after an intense period of bidding, the hammer eventually came down at £34,500.
The block is close to a row of shops and within a five-minute walk of the city centre.
A spokeswoman for auctioneers Breach Wood Ingram said: "Interest was particularly high in this sale.
"This was a rare opportunity in a stunning location and a truly unique chance to acquire a plot of land in a very sought-after area."
Is this the only kind of property most people could afford to buy these days? Have you seen property prices changing where you are, or been affected by rising or falling house values, whether you own or rent? And if you owned a toilet block, what exactly would you do with it? A derelict public toilet has defied the downturn in the housing market to sell for £34,500. ... more -
Freddie Mac Flounders; CEO Awarded Millions
The disaster of the housing market has been well documented. Not only are home being abandoned, as people find that payments are beyond their means, companies like Fannie Mae and Freddie Mac financial trouble that these mortgage companies are in need of government rescue. The people will shoulder the economic burden.
In striking contrast, the Chief Executive Officer of Freddie Mac will be just fine:
“NEW YORK - Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, according to a Securities and Exchange Commission filing Friday, even though the mortgage company’s stock lost half its value in 2007.”
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What is wrong with this picture? People are losing their homes. Stock value plummets. And the CEO is able to bank tens of millions of dollars.
At the risk of falling in what Senator Gramm might call the “whiners” camp, this just isn’t right. The consequence of being major part of a financial debacle is to be awarded millions and millions of dollars. How can that be justified, in any manner?
Catherine Forsythe The disaster of the housing market has been well documented. Not only are home being abandoned, as people find that payments are beyon... more -
"Armed and Dangerous": Secretary Paulson's radical remedies
This week, with the nation’s financial infrastructure crumbling before our very eyes, the nation’s top two economic policy makers made their way to the Congress for an extraordinary episode of political theater. Fannie Mae and Freddie Mac, the quasi-government entities that form the backbone of America’s gargantuan mortgage market, appeared to be cracking. To the somewhat bewildered members of Congress, Ben Bernanke and Henry Paulson offered radical remedies to save the lenders. Despite the fact that the proposed policies would thoroughly redefine America’s supposedly capitalistic pedigree, the moves were presented as wholly inevitable, and in the end, benevolent and costless.
If you are looking for a new chapter in American history, it has just begun.
The most memorable moment in the episode came when Secretary Paulson explained that the best way to minimize the chances that Fannie Mae and Freddie Mac will need a government bailout would be for Congress to grant the Treasury unlimited authority to lend to the two institutions. His analogy: When the bad guys see a bazooka on your hip, you are less likely to be challenged to a gunfight...
... At present, the best the government can do for housing and the economy is to leave both alone, cease interference in the free market, restore sound money, and allow capitalism to work.
Unfortunately, the laws of capitalism are now demanding that home prices continue to fall precipitously. But, based on the speed in which our government, public and financial institutions are willing to abandoned free market principals at the first whiff of economic pain, the likelihood that this impulse will take hold is increasingly remote. So hunker down as the United States finds itself on the express track to state socialism with Paulson’s Bazooka locked, loaded and pointed right at us. When the government pulls the trigger the blast will blow the dollar, and what’s left of our capitalist economy, to smithereens."
(End of excerpt)
Full commentary "Armed and Dangerous" (July 18th, 2008) at link by Peter Schiff, President & Chief Global Strategist// Euro Pacific Capital This week, with the nation’s financial infrastructure crumbling before our very eyes, the nation’s top two economic policy makers made... more
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Credit Crisis
