Global Economy

[svinayak]

http://www.reuters.com/news/globalcoverage/davos

[Raghav K]

Slowly, the backlash on foreigners with "Visas" is growing

http://news.yahoo.com/s/ap/20090201/ap_ ... gn_workers

[Yogi_G]

Slowly, the backlash on foreigners with "Visas" is growing

http://news.yahoo.com/s/ap/20090201/ap_ ... gn_workers

Jennifer Scott of Yreka, Calif., a retired technical systems manager at Bank of America in Concord, Calif., said in 2004 she oversaw foreign employees from a contractor firm that also sent overnight work to employees in India.

Errr...this is getting too close for comfort...

[Singha]

Lehman is hiring!
http://online.wsj.com/article/SB123353536455237761.html

[Chinmayanand]

Housing Market: NUDE Awakening
For mature audiences only

Each year, millions of Americans bring the world of "Adult entertainment" into their homes. Now -- a rapidly growing number are bringing their homes into the world of adult entertainment.
Here's the gist: According to a January 16, 2009 Bloomberg story, California property holders hit hard by the real estate slump have found a new way to earn extra income and stave off foreclosure: Residential Filming, or leasing one's house to production companies for the use of shooting commercials, big-budget pictures, and yes, low-budget *****.
Bloomberg observes: From Hollywood mansions to "small houses" in the valley, the (alleged) $5,000/day rent paid by the ***** industry is too good for "recession-pinched" residents to refuse. As one participant reveals: "A few months ago, I probably would've said, 'you want to do what in here? That's reserved for me and the missus.' "
Some might say -- residential xxx-rated filming brings the "shock-and-awe" housing blitz to a whole new level.
We'd say, there's nothing "SHOCKING" about said blitz to begin with.

[R Vaidya]

-- End of west –Asia as New Power

http://www.dnaindia.com/report.asp?newsid=1227165


Rvaidya

[SwamyG]

-- End of west –Asia as New Power

http://www.dnaindia.com/report.asp?newsid=1227165


Rvaidya

Nice Polemic.

Not a lot of data other than the Demographic Tsunami theory
which is patently false.

Sorry Vaidya, Nothing informative or new there.

We are not going to get prosperous working long hours for low wages.

Theo: Why is the Demographic theory false?

Vaidya: I always that it will take at least 2 generations for prosperity to kick in. If we take 1991 as the initial kick-off, it will be by 2020 when ROI would become more visible, and by 2050 or so the prosperity would have made inroads further. That is if there are no major external or internal factors.

Because it does not allow for changes in the future.

No country has become poor due to controlling its population growth
While many have become poor by not controlling it.

Age is not an issue for the next generation of jobs.

Yes. And it ignores productivity increases. With the massive gains in productivity , you tend to use far fewer labor for the same things that earlier used to take lot more labor. Affects a whole range of industries and also why even household stuff. How much time does any modern housewife who has access to a grinder or a mixie spend in making dough for idli/dosa compared to what her grand mom did ?

Theo/vina:
I belive a country has to balance its labor in Agriculture, Manufacturing and Services. And age will be a factor to an extent in some of these jobs. With the increase in productivity gains in one sector, it only means more people are going to be pushed out of that sector. They have to find jobs.

[vsudhir]

Good summary.

For argument's sake, lemme stake a contrarian position.

Why is the Demographic theory false?

Its not definitively clear that it is false.

What the population projections do show, regardless of whether next gen jobs will be age-neutral, is that dependency ratios change - the number of vey elderly folks who'll need to be supported either by their (declining numbers of) children (don't count on that happening in the G7) or by the nanny state (Aha!).

And even though age-profiles may not matter greatly to employment, they do to consumption patterns. Families with young children traditionally spend the most. And since their productive lives are just beginning, they borrow from the savers (the retired set) to finance their consumption but are then able to repay in sue course. The problem with dependency ratios shifting is that there're too many in the old age bracket, historically a rare if not unprecedented occurrence. (IOW, wouldn't count too much on history to guide us to the future here).

Also, IIRC many first world countries have been busy giving all sorts tax breaks, longer maternity leaves and even direct cash transfers etc to encourage their people to breed. Sounds suspiciously like they've gotten too successful at controlling their numbers downwards, perhaps.

We are not going to get prosperous working long hours for low wages.

True.
But that would depend on what 'low' means, no?

Fact that someone is doing a job that you or I might consider low paying and long-hours means that person's 'outside options' in the employment scene weren't more attractive, IMHO.

And yes, even the genteel first world endured low n long type work for decades before they made their way to prosperity. Not sure how we can skip that part (where the extant population finds improving employment opportunities, even if those opps aren't what the upper middle class would consider grand jobs) and arrive at first world status. Note, I don't suggest that we can't shorten the interval or otherwise improvise, just that we can't skip this phase entirely.

BTW, here's from Spengler, writing cheekily in atimes - perfectly suited for this discussion:

Dear Spengler,
I am the leader of the world's most populous country. The export-driven model that has driven our economy is in trouble due to a sharp contraction in other countries. We are investing a great deal in domestic economic stimulus, but I am not sure it will do the trick. What else can we do?
Baffled in Beijing

Dear Baffled,
For one thing, you could rescind the one-child policy. That will produce an immediate economic boom. Your people save about half their income, more than anyone else in the world. They need financial assets because they will have no children to care for them in old age. With unemployment rising, pre-cautionary saving will increase. Now that world trade is shrinking, your people should be saving less and spending more. No amount of government spending can replace voluntary spending by individuals, as your counterpart in Washington
is about to find out. Family formation is the wellspring of demand. It is also the wellspring of human happiness. It is cruel and oppressive to stop your people from bringing children into the world, quite apart from the harmful economic consequences, and restoring freedom to families will do wonders for political stability.

A life-cycle malfunction
Dear Spengler,
Recently, I became the chief executive of the world's only hyperpower, and inherited a terrible economic recession
from my predecessor. My advisors tell me to spend a trillion dollars on public works and other government programs, and another trillion or two bailing out financial institutions. They tell me that I have to do this to stop home prices from crashing. Will this get the economy moving in time to get me re-elected four years from now? And if not, what else should I do?
Worried in Washington

Dear Worried,
You're in more trouble than you think, but there's a silver lining: the crash of home prices is the best thing that could happen to your country. Let me explain.

This is not a business cycle, but a life-cycle malfunction. The baby boomers imagined that home prices would keep doubling every 10 years, and that one day, each of them would sell his house to his neighbor and retire. This silly idea contributed to a bubble in home prices. America's personal savings rate was zero for the past 10 years, because as long as home prices were rising Americans did not think they needed to save. Now that home prices have collapsed, the boomers are short 10 years' worth of savings and are desperate to catch up. If everyone saves rather than spends at the same time, of course, the economy will shut down. As I warned your opposite number in Beijing (see above), no amount of government spending can replace voluntary spending by households.

Your problem is that nervous retirees are making most of the decisions, rather than young families. The trouble is that America is getting grayer. People with young children are spenders rather than savers. Young people take risks, and old people buy insurance. Your country needs more children. Demographic dearth is the root cause of the economic crisis. Too many aging people tried to accumulate too many assets, and created the biggest asset bubble of all time.

Lower home prices make it easier for people to start families. The housing price crash transfers wealth from old people to young people. That's exactly what you want to happen.

Rather than spend a trillion dollars to keep overpaid construction-union members busy in infrastructure projects, offer enormous tax cuts and subsidies to young families. Increase the per-child deduction to $20,000, and let low-income taxpayers deduct it against payroll taxes. Subsidize mortgages for families with children.

And if you really want to send a message to America, propose a constitutional amendment to reverse Roe versus Wade. Making sex a contact sport rather than a part of life that includes marriage and babies was the beginning of the problem. It's not enough to tinker with tax incentives, although that surely will help. Americans need to change their own outlook about life. A pro-life Democratic president with a family friendly economic recovery plan would be unbeatable.

OK. Again, not looking for simplistic answers and quite realize that the truth likely lies somewhere in between. But yes, wouldn't rush to condemn other, complex ideas out there as definitively false or demonstratively unsound (sans any demonstration) etc.

shall x-post.

[Chinmayanand]

TURNING JAPANESE - THE AUDACITY OF REALITY

I can’t believe the news today
Oh, I can’t close my eyes and make it go away
How long...
How long must we sing this song?
How long? how long...
U2 – Sunday, Bloody, Sunday

Every day seems worse than the previous day. Five hundred thousand people are getting laid off every month. Our banking system is on life support. Retailers are going bankrupt in record numbers. The stock market keeps descending. Home prices continue to plummet. Home foreclosures keep mounting. Consumer confidence is at record lows. You would like to close your eyes and make it go away. Not only is the news not going away, it is going to get worse and last longer than most people can comprehend. The Great Depression lasted 11 years, but the more pertinent comparison is Japan from 1990 until today. A two decade long downturn has a high likelihood of occurring in the United States. There are many similarities between the U.S. and Japan, but in many areas the U.S. has a much dire situation. If the next decade resembles the Japanese experience, there will be significant angst and social unrest.

The talking heads on CNBC were almost unanimously predicting a second half recovery for the economy in the 1st week of January. Most of these people manage money and only earn money if dupes invest their hard earned dollars in their funds. Their analytical case for predicting recovery is that it was so bad last year that it has to go higher in 2009. This is what passes for analysis on Wall Street. The market is already down 7% in four weeks. These “experts” fail to see the big picture and have no sense of history. It took 28 years to get to this point and it will take at least a decade to repair the damage. If the politicians running this country try to take the easy way out (very likely), add another decade to the recovery timeframe. Some indisputable facts will put our current predicament in perspective:

The U.S. National Debt was $930 billion in 1980, or 33% of GDP. Today it is $10.7 trillion, or 76% of GDP. The National Debt has grown by 1,150% in 28 years. With the planned fiscal stimulus (taxing future generations), the National Debt will reach 100% of GDP during the Obama administration. When Argentina’s economy collapsed in 1998, their National Debt as a percentage of GDP was 65%. The Great Deniers say we are not Argentina. They say we are safe because the U.S. dollar is the reserve currency of the world. This is like jumping off a 20 story building and as you pass the 10th floor someone yells out the window asking how you are doing. You answer, “Good, so far”.

Source: Creditwritedowns.com

GDP was $2.8 trillion in 1980. Today it is $14 trillion and declining. GDP has grown by 500% since 1980. Our National Debt has grown more than twice as fast as GDP. This is an unsustainable trend. Our economic disaster took 28 years to create and will not be fixed in a year or two.
Total US consumer debt in 1980 was $352 billion. Today, US consumer debt totals $2.6 trillion. Consumers have increased their total debt level by 738% in 28 years. Revolving credit increased from $56 billion in 1980 to $982 billion today, a 1,750% increase in 28 years.

Source: Mike Shedlock

The real median household income was $41,258 in 1980. The real median household income in 2007 was $50,233. Over the course of 28 years households are bringing home 22% more. The trickledown theory turned out to be a drip.
The personal savings rate was 12% in the early 1980’s and reached negative 1% during the Bush administration. It has inched above 2% in the last few months. Based on the previous data, it is not surprising that the savings rate dropped below zero. With virtually no income growth in three decades, consumers have lived hand to mouth and utilized easy debt to maintain their desired lifestyle. This was encouraged by government, banks, big media, corporate America and advertising industry.

Source: Creditwritedowns.com

It is unambiguous, after examining the data, that we have borrowed ourselves to the brink of disaster. Both government and consumers have leveraged themselves to an untenable level. The only logical way to resolve this quandary is to reduce spending, pay down the debt, and increase savings. This is what consumers have begun to do. With consumer spending accounting for 72% of GDP, we are experiencing a serious recession due to the decrease in consumer spending. The excesses are being painfully wrung out of the system. This process is unacceptable to the socialist politicians who are in domination of the United States today. The government and Federal Reserve have already committed $8 trillion of taxpayer funds to bailing out criminally negligent insolvent banks. Now the Obama administration is going to spend in excess of $1 trillion in an effort to stimulate the economy. They insist that it must be bold and swift. How about well thought out, deliberative, and effective?

Every single dime of the $1 trillion will be borrowed. The government will borrow $1 trillion from foreign countries, hand it out to their constituents, while encouraging them to resume borrowing and spending. Barney Frank and Charlie Rangel will force insolvent banks to lend money to companies, consumers, and deadbeats in foreclosure proceedings. The change we can believe in is - we will borrow and spend our way out of the largest debt bubble in history. Consumers and companies are acting rationally and trying to purge themselves of debt. The government will not allow that to happen. A massive additional dose of leverage will revive the patient. The definition of insanity is doing the same thing over and over, expecting a different result. Are the politicians running this country insane, unintelligent, or just so corrupt that special interests outweigh the interests of the American people? The current pork laden stimulus package will lead to a rerun of Japan’s lost decade, with one vast difference. Our lost decade will terminate in a hyperinflationary collapse.

Japanese Experience

For all of the buy and hold, stocks for the long run, and indexing advocates, please take a long hard look at the following chart.


Source: Mike Shedlock

On December 29, 1989 the Japanese Nikkei Index reached 38,957. Today, the Nikkei Index stands at 8,106, an 80% decline over the course of two decades. It was at this same level in 1983, twenty six years ago. This is what you call a secular bear market. There have been three bear market rallies of 60% and one rally of 140%, but the market is still 80% lower than the peak. The “experts” on Wall Street will tell you this could never happen here. They also won’t tell you that we’ve already lost a decade.


Source: Mike Shedlock

The S&P 500 reached 1,553 in 2000 and took seven years to breech that level in late 2007 at 1,576. It currently stands at 850, 46% below its all-time high. It is at levels reached in 1997, twelve years ago. As the U.S. makes all of the same mistakes Japan made in the 1990’s, another lost decade with stock prices going lower is in the cards. History does not repeat, but it does tend to rhyme. The events and actions by government that led to Japan’s lost decades are eerily similar to what is happening in the U.S. today.

Causes of Japanese Bubble

When talking head cheerleading economists appear on CNBC, the only reference that is made about Japan’s bubble bursting is that the Bank of Japan did not react quickly enough in reducing interest rates. As usual, these economists ignore the big picture. Every economic crisis is caused by some action. No one is delving into how Japan reached the point where their economy crossed the threshold into a deflationary two decades. See if you recognize any of these origins of a crisis:

The Bank of Japan cut its discount rate from 9% in 1980 to 4.5% by 1986. At the behest of the U.S. government, to comply with the Louvre Accord of 1987, they reduced the discount rate to 2.5% and kept it there for three years. This lax monetary policy created a bubble in the stock market and the real estate market. The monetary supply grew at a 9% rate for the entire 1980’s. The stock market jumped from 15,000 to 39,000 in the space of three years, a 160% gain. A speculative frenzy took hold of the Japanese public.


With interest rates at historic lows, Japanese banks provided cheap and easy credit to companies and consumers. Consumer debt grew 700% from 1980 to 1990. Japanese corporations took advantage of the soaring stock market to raise $638 billion through stock offerings. Consumers and corporations were incentivized by the low rates to take on more risk to get a positive return. This easy money policy, along with deregulation, tax incentives, and zoning regulations, led to the biggest real estate bubble in history. Mass hysteria that real estate could only go up gripped the nation. Prices reached such heights that intergenerational mortgage loans were required to buy a home. The land around the Royal Palace was said to be worth more than the State of California.

Source: Mike Shedlock

When it became clear that there was an out of control speculative frenzy, the Bank of Japan raised rates to 6% in five steps from 1989 into 1990. This is given as the cause for the collapse of the stock and real estate bubbles. Both the stock market and land values are 80% below their peak 1989 levels. They are currently at levels seen in the early 1980’s. The scary part of the Japanese experience is that their government did not sit by idly. They used all the tools at their disposal and made the conditions much worse. Government actions caused the crisis and then exasperated the situation. Are you getting the picture?


The cumulative losses in the stock market and by landowners total $15 trillion since 1990.

Japanese Government Blunders

When you listen to the Obama marketing team selling their $1 trillion socialist stimulus package, they say we must avoid the disastrous course of Japan. After examining their lost decade, the results weren’t very bad. The economy was not dynamic, but Japan has retained its position as the 2nd largest economy on the planet.



After growing at a 3.9% annual rate during the 1980’s, Japan’s GDP grew at only an annual rate of 1.1% between 1991 and 2003. Considering the missteps by the government and the huge demographic headwinds blowing against them, Japan still grew their economy. Japan’s cumulative per capita growth this decade has been 13.7%, compared with 12.5% for the United States. And the horrible deflation was not so horrendous.




Consumer prices have been relatively flat for fifteen years. CPI has declined in a few years, but has never reached -1% in any particular year. The lack of demand from consumers has been a function of people being burned in the dual bubble collapse and an aging, declining Japanese population. Japanese consumers have rationally paid down debt and increased savings. The actions of the Japanese government were not rational or intelligent. A replay of these blunders is taking place in the United States today.

The Japanese government has prolonged their downturn for an additional decade by not allowing bankrupt banks and corporations to liquidate. Zombie banks and corporations existed for decades without writing off the billions of bad debts. They hoarded all of the money provided by the government. Sound familiar?
The Japanese tried every trick in the Keynesian playbook. Zero interest rates, public works projects tax rebates and tax decreases. The government built thousands of bridges and roads, driving up government debt to enormous levels. Between 1990 and 2000, the Japanese government instituted 10 fiscal stimulus programs totaling $1 trillion. None of these programs worked. Sound familiar?


The Bank of Japan purchased commercial paper. The government bought shares of public companies to prop up the stock market. Japan created a $500 billion bank bailout fund, with over $200 billion going towards the direct purchase of stocks. Politicians chose which companies would be propped up. This further distorted the free market. Sound familiar?
Japan has the highest elderly population of all the developed countries in the world. With the huge loss of real estate and financial wealth, the aging population of Japan needed to increase saving and reduce consumption to insure that they would not starve to death in their old age. An aging population deciding to save for the future made a rational decision. Sound familiar?


Dr. Benjamin Powell clearly explains what happens when the government intervenes in the free markets:

“Japan created a structure of production that did not meet consumers’ particular demands. Producing things that nobody wants and propping up mal-investments cannot possibly help any economy. This policy is equivalent to the old Keynesian depression nostrum of paying people to dig holes and fill them. Neither policy will revive the economy because neither forces businesses to realign their structures of production to match consumer demands.”

It is obvious that the Japanese government created the enormous stock market and real estate bubble through its loose monetary policies in the 1980’s. No matter how much money the Japanese government threw at the problem, they could not convince consumers or companies to borrow and spend. Even with zero interest rates, Japanese companies continued to pay down debt. The billions spent on infrastructure added to the National Debt and did nothing to revive the economy.



If Japan had faced up to the bad debt on its banks balance sheets immediately, they would have experienced a short painful recession of a couple years. By not honestly assessing the true extent of the bad debt and propping up insolvent banks and corporations, Japan sentenced itself to two decades of stagnation. Japan entered this difficult period as a net exporter, with consumers who saved 12% of their income, and a government that had leeway to increase governmental debt. The U.S. has entered a more dangerous period with none of those advantages.

Audacity of Reality

Hope will not get the United States out of our current predicament. It took decades to get to this point and it will take decades to extract ourselves from this debt induced disaster. A few charts will hammer home the reality of the U.S. situation.


Source: Creditwritedowns.com

The chart above shows that we enter this financial crisis with total U.S. debt at record levels as of the end of the 2nd quarter of 2008. Since that time we’ve added billions more in debt. At the end of the 3rd quarter, total U.S. credit market debt was $51.8 trillion. The proposed stimulus package of $1 trillion combined with declining GDP will result in the percentage exceeding 400% of GDP by the end of 2009. Japan entered their “lost decade” with total debt of 260% of GDP. Therefore, they had more leeway to expand government debt. Their biggest advantage over the U.S. was that they did not have to convince foreign nations to buy their debt. With large trade surpluses and high savings rates, the debt was purchased by their own citizens.


Source: John Mauldin

American consumers enter this economic downturn as the most indebted people on earth. The materialistic frenzy of the last two decades has left the American consumer saddled with $2.6 trillion of credit card and auto loan debt. Japanese consumers entered their “lost decade” with personal savings rates of 12% annually. Japanese consumers were able to utilize savings to pay down their debt throughout the 1990’s. The American savings rate, which was 12% in 1980, fell below zero in 2006. It has since inched up to 2% in recent months. There are over 300 million credit cards in use today in the U.S. The average American with a credit card is carrying debt of $16,635, according to Experian. With unemployment skyrocketing, wage growth stagnant, and home equity extraction a thing of the past, American consumers are rationally paying down debt. The result is devastating the economy. When 72% of the economy is dependent upon consumers borrowing and spending, deleveraging by consumers will bring the economy to its knees.

The crux of our current crisis is housing, just as Japan’s crisis was related to real estate. Irrational exuberance, as described by Yale economist Robert Shiller, led to the most outrageous housing boom in U.S. history. It was aided and abetted by greedy investment bankers, sleazy mortgage brokers, dishonest appraisers, Alan Greenspan, clueless ratings agencies, and Congressmen in the back pocket of Fannie Mae and Freddie Mac. Delusional home buyers were convinced that flipping houses was a road to riches. Instead, they’ve skidded off the road and fell into a bottomless ravine.


Source: Robert Shiller

The amazing thing about reversion to the mean is that it always ensues, eventually. The sad thing is that people keep praying that reversion won’t happen this time. Home prices have tracked very closely to CPI for over a century. The housing boom from 2000 to 2006 was so off the charts that people can not come to grips with the dramatic fall that is needed for reversion to the mean to work its mathematical magic. Politicians want house prices to stop falling in the worst way. There is nothing they can do to stop prices from falling to their natural long term equilibrium. Government intervention will only prolong the time frame and delay the recovery. Home prices in Japan fell for 14 years before bottoming in 2004. Home prices have been dropping in the U.S. for 3 years. How does another decade of home price declines grab you? It is entirely possible if the government tries to intervene in the free market process of supply, demand and price.

Bitter Medicine Needed

I know that many Americans are looking for President Obama to solve this crisis in a sound bite way, with no pain and no sacrifice. They want this to end like an episode of CSI with the murder solved within a one hour time slot. Instead we have a Jonestown massacre that will never be fully understood or solved. Was it mass murder or mass suicide? We have experienced a mass hysteria of debt accumulation by consumers, banks, corporations and the government. There is no easy way out. The debt must be paid off and/or written off.

The politically unpopular steps that need to occur are as follows:

From an overall standpoint, when you have entered a recession due to fiscal irresponsibility, you don’t get out of it by becoming even more fiscally irresponsible.
Housing prices need to drop another 15% to 20% to reach fair value. This will result in more foreclosures. When prices fall far enough, the houses will sell and inventories will fall. If you cannot afford the payment on your home, you should become a renter. Not everyone should own a home.
The government and Federal Reserve need to shine a bright light on the bad debt within the financial system. The collateral or lack thereof backing up the government loans needs to be revealed by Treasury and the Federal Reserve. Covering up the worthlessness of these assets is contributing to the frozen system.
The remaining mega-banks that have caused this crisis need to be put out of our misery. The shareholders and bondholders of Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and any other insolvent banks need to be wiped out. The bad banks should go out of business. The prudent banks that did not take financial system destroying risks should be allowed to succeed based on their merits.
Failed companies with failed strategies must go bankrupt. If the American auto industry is propped up by taxpayer money the capitalist process of rationalizing manufacturing capacity to final demand will never happen. Allowing companies to fail brings about restructuring and the remaining healthy companies buy the good assets.
Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges. If the money is spent on worthless make work projects, good investments will be crowded out.
Tax rebate checks are just a redistribution of wealth from future generations to the spend thrift generation of today. A tax decrease today that is borrowed is a tax increase on our children. They will not stimulate spending.
Keeping interest rates at zero in an effort to force savers to borrow and spend is penalizing the frugal to benefit the profligate. Borrowing our way out of a debt crisis will never work.
Consumers should be encouraged to pay down their debt loads and increase their savings rate. The sooner this can be accomplished, the sooner the country can resume growth. Savings will lead to investment.
The median 401k balance was $18,942 at the end of 2007, with 39% of workers having a balance below $10,000. Approximately 8,000 Americans turn 65 every day. By 2012, 10,000 people will turn 65 per day. Twenty percent of the U.S. population will be over 65 by 2030. An aging population with virtually no retirement savings must increase their savings and cut their consumption dramatically.
The CEO’s who brought down the entire financial system need to be brought to justice. Angelo Mozilo, Dick Fuld, Charles Prince, Jimmy Cayne, John Thain, Stanley O’Neal, Ken Thompson, Robert Steele, Martin Sullivan, Hank Greenberg, Richard Syron, Daniel Mudd, Kerry Killinger, Raymond McDaniel, Terry McGraw and probably a few I’ve missed, need to be investigated and prosecuted for lying to shareholders about the true financial condition of their firms.
Fannie Mae, Freddie Mac, and AIG are wards of the state. The U.S. taxpayer is obligated to pay $150 billion to AIG and $200 billion to Fannie Mae and Freddie Mac. AIG is using these funds to undercut other insurance companies in pricing insurance policies. This will result in insurance companies that did nothing wrong being put out of business by the government supported goliath that almost brought down the financial system. Fannie & Freddie are being pushed by Barney Frank and his distinguished colleagues in Congress to provide more 3% down loans to people who won’t pay them back. The Fed then buys the loans and pretends they are good collateral, while not revealing the true value to the public. Sounds like good policy to me. These companies need to be euthanized and any decent assets sold to viable companies.
Moody’s and S&P should be banned from the rating business. They proved that a AAA rating could be bought. Pension plans, governments, companies, and individuals relied on their ratings. They colluded with the investment banks and must be punished. Their monopoly needs to be ended.
The SEC needs to be disbanded. We need to push the start over button. They are in bed with Wall Street. They are unable to enforce their vast array of regulations, ignore proof of ponzi schemes, and are a revolving door to top Wall Street jobs. The organization has failed miserably. An agency that does not work needs to be scrapped.
Easy Button Solutions

The solutions described above are too politically difficult to implement. There are not enough courageous people in Washington DC to do what is right and necessary. They want a way out that is easy and painless, like the Staples commercial. The easy solution is to print a trillion dollars, hope the Chinese, Japanese, and oil exporting countries continue to buy our debt, and try to inflate our way out of this mess. And that is just what will happen. The following steps will be taken by our cowardly, short term, blundering politician leaders:

Despite the fact that this crisis was caused by the Federal Reserve keeping interest rates too low for too long, investment banks leveraging their balance sheets 40 to 1, banks marketing 120% loan to value mortgage loans on overpriced houses, consumers borrowing at obscene levels from their overpriced homes and credit card companies handing out credit cards like candy, the solution will be to keep interest rates at zero, force banks to lend, prop up insolvent banks, stop foreclosures, and give consumers tax rebates so they can resume spending.
The Democrats controlling Congress will use the remaining $300 billion of TARP funds to allow people who are living in houses they can’t afford to not be foreclosed upon. They will encourage bankruptcy judges to reduce mortgage balances. This will result in a reduction in mortgages available to credit worthy people with higher rates to cover the possibility that a judge could adjust the loan amount in the future.
With banks not willing to lend, the government bureaucrats running our financial industry will force Fannie Mae and Freddie Mac to make additional bad mortgage loans to unworthy borrowers and guarantee more bad loans from other unworthy borrowers. The Federal Reserve will then buy these bad loans at full price and hide them on their bloated balance sheet.
Rather than letting the bad banks go bankrupt and allowing good banks to rise up and replace them, the U.S. taxpayer will continue to pump in hundreds of billions into these zombie banks for years before their toxic waste balance sheets are cleaned up. The “Bad Bank” created by the government will overpay for worthless assets and pretend that they will eventually recover the cost. This will be done because the people running the Treasury go to the same Manhattan cocktail parties as the bad bankers and Congressmen have their campaigns financed by these bad bankers.
General Motors, Chrysler and Ford will come back to Congress in March with restructuring plans that are dead on arrival. They will explain that conditions have deteriorated and they need another $20 billion to keep going. The Democratic led Congress, who is beholden to the UAW, will give them our money. Plants and dealerships that need to close will remain in business.
Whenever I hear the term “Shovel-Ready” projects, I’m reminded of a line by Paul Newman in Butch Cassidy and the Sundance Kid. “Don't ever hit your mother with a shovel. It will leave a dull impression on her mind. The U.S. taxpayers are about to be hit in the head with a shovel. The States say they have thousands of projects that are shovel-ready. If an infrastructure project is to the point where it is shovel-ready then it has already been funded. The infrastructure spending by the Federal government will just replace the funding that was already in place. This will produce zero stimulation.
President Obama has vowed that there will be no earmarks. Who needs earmarks when the bill already has this much non-stimulating pork:
$44 million for repairs at the Agriculture Department headquarters in Washington.
$200 million to rehabilitate the National Mall.
$360 million for new child care centers at military bases.
$1.8 billion to repair National Park Service facilities.
$276 million to update technology at the State Department.
$600 million for General Services Administration to replace older vehicles with alternative fuel vehicles.
$2.5 billion to upgrade low-income housing.
$400 million for NASA scientists to conduct climate change research.
$426 million to construct facilities at the Centers for Disease Control and Prevention.
$800 million to clean up Superfund sites.
$6.7 billion to renovate and improve energy efficiency at federal buildings.
$400 million to replace the Social Security Administration's 30-year-old National Computer Center.
The tax rebates of $500 for individuals and $1,000 for couples will sail through unopposed. Just as the previous rebate checks were used to pay off debt, or saved, these rebates will not be spent. Therefore, we will have just transferred money from future generations to the current generation.
The Federal Reserve will keep interest rates at zero, buy up bad assets from financial institutions, buy bad mortgages, buy Treasury bonds to artificially depress rates, and keep printing money until glorious inflation comes back to save the day. Everyone has faith that they will turn the spigot off in time. Their past record of seeing crucial turning points should give us all a sense of calm.
Timothy Geithner has fired the first shot across the bow of China. He accused China of currency manipulation. Hopefully, this is just rhetoric. When you owe someone $500 billion and you need to borrow an additional $2 trillion in the next year it isn’t too smart to piss the lender off. Whiffs of trade restrictions and tariffs are reminiscent of Smoot-Hawley and the Great Depression.

Source: Wikiperdia

Rather than scrapping the SEC, Congress will significantly increase their annual budget, hire more bureaucrats, and increase the regulations on businesses. Sarbanes Oxley has cost U.S. companies in excess of $1 trillion and has done nothing to make accounting more transparent. The lack of transparency is the main reason the financial system remains frozen today.
Congress will hold hearings where they embarrass CEO’s, but will not prosecute anyone. They know that they are just as culpable in the financial disaster and would not want to shine too bright a light on the subject.
The single biggest dilemma facing President Obama is something he has absolutely no control over. The American public has been traumatized over the last year. They have been misled by the government, lied to by Wall Street, and now they are losing their jobs by the millions. Their homes are worth 20% to 50% less and their retirement funds are worth 30% to 50% less. Consumer spending has made up 72% of GDP for the last few years. Based on the trauma they have experienced and having their illusions shattered that home price appreciation could fund their retirement and stocks will go up 10% per year, they have wisely begun to pay down debt for the 1st time in history.
The combination of devastating losses to their net worth, miniscule retirement savings, and rapidly aging population will change the entire dynamic of U.S. society. Baby-boomers have been hit over the head with a shovel and it has knocked some sense into them. Fear is a great motivator. The government cannot influence this dynamic in any way. Americans will pay down debt for the next decade and increase their savings rate to 10% because they have to. They have no choice. They either reduce consumption and increase savings, or go hungry in their old age. This is the same conclusion that Japanese consumers came to in 1990.

Source: Mike Shedlock

We know what should happen and we know what will happen, but the ultimate result will be far different than the Japanese experience. Owing to their large trade surpluses and high rates of saving, the Japanese have experienced a lethargic economy for two decades, but it has grown with relatively low unemployment in the 3% to 5% range for most of the two decades. They have been able to muddle through. The U.S. will refuse to muddle through. We still see ourselves as the leader of the world, and will not acknowledge the reduction in status that would transpire from a decade of reduced spending. America will choose to follow Neil Young’s advice that, It’s better to burn out, than to fade away.

With an annual trade deficit of $700 billion, a National Debt that will surpass $12 trillion next year, a banking system that will need $2 trillion of additional capital, foreigners owning $3 trillion of our debt, zero percent interest rates and a weakening currency, something has to give. The Federal Reserve will do anything to defeat deflation. Deflation is fatal to a debt ridden society. There will be many more stimulus packages after this one fails. Eventually, we will reach a tipping point where too much debt will result in a hyperinflationary crash. It may be in two years or ten years. I don’t know. Ben Bernanke, Timothy Geithner, and Barrack Obama also don’t know. It will catch us all off-guard, just like the current crisis caught them off-guard. Turning Japanese would be a best case scenario for the U.S.

[Chinmayanand]

Great video !!!

It's credit crunch time, no need to go to work

[Raja Bose]

Slowly, the backlash on foreigners with "Visas" is growing

http://news.yahoo.com/s/ap/20090201/ap_ ... gn_workers

From the above article:

What you're really doing is leaking away those jobs and benefits that should accrue to the taxpayers

I hope the senators realize that these H1-B workers pay the same taxes (hence should fall under 'tax payer' category) and also pay for medicare and social security......benefits which they are unlikely to see when they leave US. Its not as if they come here to live on the state dole like so many people I see on the street.

[vsudhir]

Awesome find, Durgesh. Thx for posting.

[Shivani]

Hussain announces cap on executive pay

The president says annual senior-executive pay must top out at $500,000, one of the new restrictions he announced for financial institutions receiving bailout cash.

By Jim Puzzanghera and Christi Parsons
9:14 AM PST, February 4, 2009



Reporting from Washington -- President Barack Obama unveiled new restrictions on pay for executives at financial institutions receiving federal bailout money today, slamming corporate leaders for "narrow self-interest" in enriching their paychecks with taxpayer money.

"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste -- it's a bad strategy -- and I will not tolerate it as president," Obama said during a White House appearance with Treasury Secretary Timothy Geithner. "We're going to be demanding some restraint in exchange for federal aid -- so that when firms seek new federal dollars, we won't find them up to the same old tricks."

Under new rules, companies that receive "exceptional financial recovery assistance" -- large bailouts like those given to Citigroup and American International Group -- would not be allowed to pay senior executives more than $500,000 in total annual compensation.

The exception would be grants of stock or other long-term incentives that contain restrictions that limit when it could be cashed in -- after the government has been repaid or after a set period that takes into account how the company has been repaying the federal money.

The restriction will be unbending for firms that get exceptional assistance from the federal government, although healthier banks applying for money from the Trouble Asset Relief Program would be able to waive the rule if they publicly disclose the information.

In both cases, executive compensation would be subject to a non-binding vote of shareholders, increasing disclosure.

"Nothing is more important to me than earning the confidence of the American people that every policy we embark on is motivated not by privilege or by private gain, but by the public interest in strengthening our economy and creating shared prosperity," Geithner said. "The executive compensation policies we are announcing today are designed to strengthen the public trust that our financial recovery programs will get credit flowing again and get job creation moving once more."

In the wake of news that Wall Street executives paid out almost $20 billion in bonuses last year, even as they were seeking or taking public money intended to spur the economy, the White House and some Democrats on Capitol Hill began to talk of imposing new restrictions.

The rules the president is suggesting would come as a condition of receiving money that remains from the $700 billion TARP fund, which Congress set up last year.

Obama also said that Geithner will announce a new initiative next week designed to unfreeze credit markets, a major component of the economic crisis that has put many banks at risk of failure without government help.

But Obama said executive compensation was crucial to restoring American trust in the financial system.

"We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses," Obama said. "As I said last week, this is the height of irresponsibility. It's shameful. And that's exactly the kind of disregard for the costs and consequences of their actions that brought about this crisis: a culture of narrow self-interest and short-term gain at the expense of everything else."

[SwamyG]

So "Obama announces cap on executive pay" becomes "Hussain announces cap on executive pay"?

[Shivani]

Japan's Panasonic to cut 15,000 jobs, shut plants

By YURI KAGEYAMA – 6 hours ago



TOKYO (AP) — Panasonic Corp. said Wednesday it will slash as many as 15,000 jobs and shut 27 plants worldwide, joining a slew of major Japanese companies announcing deep cuts as the global slowdown batters the world's second-largest economy.

The world's largest maker of plasma display TVs also announced a net loss for the October-December quarter and lowered its forecast for the fiscal year through March to a net loss of 380 billion yen ($4.2 billion), its first annual loss in six years.

Panasonic blamed the dismal results on the global slowdown set off by the U.S. financial crisis, the rapid surge of the yen and sudden price drops. Sales slid in a wide range of products, including flat-panel TVs, DVD recorders, microwaves, lamps and semiconductors, it said.

The Osaka-based manufacturer plans to cut the jobs — half of which will come in Japan — by the end of March 2010. They amount to about 5 percent of its 300,000-strong global work force.

Panasonic also will shutter 14 overseas plants and 13 plants in Japan by the end of March to adjust production and cut costs, company spokesman Akira Kadota said. The company said it has 230 production sites around the world but declined to give a regional breakdown.

"The company's business conditions have worsened particularly since last October, due mainly to the rapid appreciation of the yen, sluggish consumer spending worldwide and ever intensified price competition," it said in a statement.

Koya Tabata, electronics analyst with Credit Suisse in Tokyo, said Panasonic's decision to reshape its operations and speed up job cuts was positive, resulting in 300 billion yen in cost savings for the fiscal year through March 2010.

He also commended the company's relatively quick efforts to adjust inventory and reduce investments to boost profitability in coming months.

"But risks remain," Tabata said. "Panasonic is still expecting a serious sales decline to continue."

Panasonic reported a 63.1 billion yen ($709 million) loss for the fiscal third quarter, down from a 115.2 billion yen profit the same quarter the previous year.

Quarterly sales dropped 20 percent to 1.880 trillion yen from 2.345 trillion, with overseas sales decreasing 29 percent, and Japanese sales down 10 percent.

The last time Panasonic reported an annual loss was for the fiscal year ended March 2002, when a global electronics slump and massive restructuring costs contributed to 431 billion yen in red ink.

Since then, the company has been shedding money-losing businesses and focusing on key products such as plasma display TVs to turn itself around.

The company, formerly named Matsushita Electric Industrial Co. after its founder, also lowered its sales forecast for the fiscal year ending March 31, to 7.75 trillion yen from an earlier 8.5 trillion yen.

Panasonic will delay by a half year starting production at two Japan plants — one for plasma panel TVs to July 2010, and another for liquid crystal display TVs until January 2010, in response to slipping demand for flat-panel TVs, it said.

The latest restructuring measures will cost an additional 190 billion yen on top of the 155 billion yen Panasonic has already announced for the fiscal year through March.

Rival Japanese manufacturer Sony Corp. is forecasting a 150 billion yen net loss for the fiscal year through March. The last and only time Sony reported a loss — the fiscal year ending March 1995 — the red ink came from one-time losses in its movie division, marred by box office flops and lax cost controls.

Hitachi Ltd., NEC Corp. and Toshiba Corp. are also all forecasting big losses for the fiscal year.

Panasonic shares rose 1 percent to 1,092 yen. Earnings were announced after trading ended.

[Vipul]

First-quarter layoffs tracker.

[ramana]

There was this Assoc Prof of Economics from Mid West on radio during lunch time. She was asked about capping the exec pay. She said its cosmetic and doesnt solve the real problems. The real problem is the nature of the bailout. The host asked wasnt this based on Swedish model? She said yes but the difference is the Swedes made the banks write off their bad debt in other words wipe the slate clean. This cleaned out the shareholders aka nationalisation. In the US model the banks are incentivised to keep the bailout money with themselves to appear well off to the shareholders. Unless the bad debt is written off there is little to no hope to get out the mess. The US model makes the bad debt real and will pull the economy even further down.

My take is after a few months the govt will have to re-baseline the economy and write off the bad debt. And modify all the loans at a low rate to staunch the mortgage mess. Need to stuff the old economics theory and swallow some pride.
-----

One more thing. Its not only the bigwigs but mid and entry levels MBAs ($2M to $10M bonuses) who get the fat bonuses and contribute to the siphoning off the funds.

[brihaspati]

Ramanaji,
will also need to restructure the whole cohort of debts pegged at unsustainable rates, and not only those in the cohort which have turned "bad". Some of the debts are still being paid off normally, while others are not. But the bad and the good are both against unsustainable amounts and returns in general. One way would be to deflate the loans by readjusted market values and repayments deflated accordingly. Suggested this in a town-meet-gown session. EU bankers are adamant. They want to preserve their personal assets.

[svinayak]

JobsFirst.org

So, how do you like the economic mess that the Bush gang has created?

Have you lost your job or your house yet?
Or are you nervous or scared that you will get hit soon?
Are your ready to take action to protect your future?

ARE YOU ANGRY AT WHAT HAS BEEN DONE TO OUR COUNTRY?
ARE YOUR FEELING FRUSTRATED AND HELPLESS?
ARE YOU LOOKING FOR A WAY TO TAKE BACK CONTROL OF YOUR DESTINY?
GET ANGRY! YOU SHOULD BE REALLY PISSED OFF! YOU’VE BEEN SCREWED.

JobsFirst.org is a grassroots project of the American People. This website is being built for YOU- to provide a way for you to work together with other patriotic Americans to protect our economy. Call us- email us- register for latest updates- establish contact with other concerned Americans! And thanks for the donations that are making this project possible.

Are we protectionists? You're damned right we are! We believe in protecting our jobs and our companies and our communities and our economy and our future. What's wrong with that? Americans have a tradition of working together for the common good. We care about each other and that's our greatest strength.

There's people out there that think of themselves as 'the people that matter'; that means that they think the rest of us don't matter. JobsFirst.org is dedicated to showing them that everyone matters by empowering ordinary people to influence politicians, corporate executives and the media. You matter and you should take action to control your destiny.

Think about this. The US Chamber of Commerce is opposing the 'Buy American' provision in the stimulus Bill, proving again that our worst enemies are traitors in our midst.

Written by Mike Griffon
Wednesday, 04 February 2009 18:02

It seems that our trading partners around the world are upset about the 'Buy American' clause in the Stimulus Bill. Here's my response to their complaints.

To our trading partners around the world: One more word out of you pissants and we'll cut off access to the US market for ALL of your products and services. How dare you threaten the United States of America? Who do you think you are? You've been feeding off the US market for years, employing YOUR workers with the demand from OUR market because you couldn't sell all of your production in your own country. If we cut off access for your products into our market, your entire economy will crash, so shut the F--- UP! One more word and you're done!

The US Stimulus Bill is designed to help OUR economy not YOURS. Do your own stimulus package and don't expect American taxpayers to fund your recovery. Most of you wouldn't even have a country if it wasn't for the United States. If you want to trade with us, you better act like friends and not whine and complain- we don't need you, you need us.

And by the way, you've been feeding off the US economy for years. You're hereby on notice that the party is over! Develop your own consumer demand, we're not going to let you bleed our economy any more. American needs the jobs that our market creates, we're not going to let you take our jobs and then whine when we're trying to fix our economy. You people need a good slap in the mouth.

Signed

The American People

[Singha]

ya ya the world rotates from west to east due to the grace of america.

no wonder americans who have been living it up + super arrogant have
no sympathizers for their plight.

we can live on rice and fish in a straw hut, can you O fat carnivorous amir-e-khan ?

[ramana]

British economist Parkinson's second law is also relevant when we think of the amount that is spent.

[Abhijeet]

I hope the Obama pay cap statement doesn't lead to another round of "corporate social responsibility" and wealth redistribution lectures to Indian industry from GOI.

Obama is only talking about companies that have received government bailouts, which he is well within his rights to do since it's taxpayer money that's funding them. Companies that have not received bailouts are not being lectured. This subtlety will likely be lost in India and the rhetoric will as always target all companies, even if they are thriving in spite of, rather than because of, the government.

[svinayak]

* FEBRUARY 5, 2009, 1:14 A.M. ET

http://online.wsj.com/article/SB1233801 ... lenews_wsj

Congress Wants a Trade War
The president should veto "Buy American" if he doesn't want to be remembered like Herbert Hoover.


By BURTON G. MALKIEL

As the world-wide recession deepens, protectionist sentiments are rising. The House of Representatives' version of the economic stimulus bill contains a provision that only American-made steel and other products be used for the infrastructure projects. Wrapped in the cloak of "Buy American" patriotism, the Senate version of the bill contains even stronger anti-free-trade provisions.
[Commentary] David Klein

This Buy American momentum is bad economics, and by threatening to destabilize trade and capital flows, it risks turning a global recession into a 1930s-style depression. Asked about Buy American on Tuesday, President Barack Obama told Fox News that "we can't send a protectionist message." He said on ABC News that he doesn't want anything in the stimulus bill that is "going to trigger a trade war." He's right.

Suppose that we did not allow free trade between the 50 American states. Citizens like me in New Jersey would be far worse off if we could not buy pineapples from Hawaii, wine and vegetables from California, wheat from Kansas, and oil from Texas and Louisiana while we sell pharmaceuticals to the rest of the country. The specialization that trade makes possible allows all of us to live better.

The situation is the same with respect to world trade. Both we and the Chinese are better off if we can import inexpensive clothing from China and sell them large-scale computers and data storage equipment.
The Opinion Journal Widget

Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page.

To be sure, such trade does not make everyone better off, and that is why free trade is often a tough sell, especially during times of hardship.

If I am a textile worker whose job is lost because Chinese imports have caused my factory to close, I feel the pain far more acutely than consumers feel the benefits of cheap clothing. The pain tends to be localized while the benefits are spread broadly. No one person's benefit can compare with the loss felt by the textile worker. But the total benefits do exceed the costs. And competitive markets have spurred the innovation revolution that has made the U.S. the economic powerhouse that it is.

The solution for the displaced worker is job retraining and adjustment assistance, and to improve the safety net available to displaced workers during the transition period. We also need to revamp our educational system so that it prepares workers for the jobs that are available today -- and imparts the flexible skills that make our citizens ready for the future jobs that we cannot even imagine.

Buy American provisions invite retaliation by other nations, and the spread of "beggar thy neighbor" policies throughout the world.

This House provision caused a palpable anxiety during the recent World Economic Forum at Davos, and America's closest allies are furious. "Buy American" would effectively ban Canadian steel products and other raw materials from infrastructure projects receiving stimulus funds. Foreign steel would only be allowed if domestic products were either unavailable or drove up the cost of the project by 25% or more. If the provision is not diluted, Mr. Obama will find a very hostile reception during his first international trip to Canada later this month.

Hostility has been no less evident in Europe and China. The European Union has said that it will not stand by idly if the U.S. violates its trade agreements and its obligations to the World Trade Organization. The risks of retaliation and a trade war are very real.

Since the U.S. is the biggest exporter in the world, retaliation could cost America more jobs than the provision would create. It could also destabilize the global capital flows on which the U.S. depends to fund its deficits. Moreover, the provision could delay some shovel-ready infrastructure projects, since sufficient American-made materials may not be immediately available. The U.S. does not manufacture enough steel to meet domestic demand.

In 1930, just as the world economy was sinking as it is today, the U.S. Congress passed the Smoot-Hawley Tariff Act, which essentially shut off imports into the U.S. Our trading partners retaliated, and world trade plummeted. Most economic historians now conclude that the tariff contributed importantly to the severity of the world-wide Great Depression.

Later, as one of his last acts, President Herbert Hoover made the situation even worse by signing a "Buy America Act" requiring all federal government projects to use American materials. (That act is still on the books although it was weakened during the 1980s.) We must avoid repeating the disastrous mistakes of the past.

Buy American provisions and other forms of protectionism will destroy jobs, not create them. They are an irresponsible and self-defeating response to a downturn in world economic activity. Beggar-thy-neighbor policies create more beggars and hostile neighbors. Let's hope that President Obama presses his Democratic colleagues in Congress to listen to him, and to British Prime Minister and Labour Party head Gordon Brown. As Mr. Brown put it at Davos, "Protectionism protects nobody, least of all the poor."

Mr. Malkiel is a professor of economics at Princeton University and the author of "A Random Walk Down Wall Street," 9th ed. (W.W. Norton, 2007).

[Satya_anveshi]

Babumoshai is surprising again with a googly.

No bailouts for climate crisis, says Pranab
Special Correspondent

NEW DELHI: External Affairs Minister Pranab Mukherjee has said that the global financial crisis should not become an excuse for the developed countries to renege on their commitments on environmental protection.

Inaugurating the Ninth Delhi Sustainable Development Summit (DSDS) here on Thursday, Mr. Mukherjee said there were no “bailouts” for a climate crisis and climate change should also not be an excuse to add a greater burden or impose conditionalities on to the development challenges that the developing countries face.

He described climate change as a threat, but one that also presented a unique opportunity to work together just as the world responded to the global financial crisis. “The large amounts of public funds that are being deployed to address the financial crisis is a testimony to the fact that we can, given the requisite political will, generate similar funds to tackle climate change.” A large part of these funds could be mobilised to support a major collaborative effort between developed and developing countries to deal with the climate change.

“This could include a global fund to promote renewable energy, both in terms of application of existing technologies as well as R&D into new and innovative technologies.”

[putnanja]

Bar sought on bailed out firms hiring H-1B visa holders

Washington: An amendment seeking to bar U.S. companies, which receive federal bailout money, from hiring H-1B visa holders has been introduced in the Senate, a move likely to impact Indian IT professionals if it is approved.

The amendment in the U.S. legislature has been co-sponsored by the Republican Senator from Iowa, Chuck Grassley and Senator Bernie Sanders from Vermont. Indian IT professionals, who have been the major beneficiaries of the American H-1B visa programme, could be adversely impacted if the amendment is approved by the Senate.

Introducing the amendment, Mr. Sanders said: “It is essentially saying that there would be a suspension of H-1B programme of any institution, which would be receiving TARP (Troubled Assets Relief Programme) funds for just one year.

“I firmly believe that companies going through layoffs that employ H-1B visas [holding workers] have a moral obligation to protect American workers by putting them first during these difficult times,” he stressed, while seeking bi-partisan support for his amendment.

Mr. Sanders also quoted a recent media report that said that the American banking industry had requested for more than 21,000 visas for foreign guest workers over the last six years. “Hiring American workers for limited available jobs should be a top priority for businesses taking taxpayer money through the TARP program,” Senator Grassley said. — PTI

[ramana]

All this will lead to flight of talent to other countries. The last recession its was the off shore design centers that shored-up the US companies like Intel etc and pulled them out of recession. They were saying that it costs the new Bay Bridge ~$300M extra for the local materials clause.

In the end its all good, if its not, its not the end yet.

[Harshad]

They were saying that it costs the new Bay Bridge ~$300M extra for the local materials clause.

In terms of %age how much does the 300M amount to? My recent experience on a much smaller project was 20% increase because Sam baba wanted Amirkhan Steel.
Its hard for manufacturers to open steel shops just for the stimulus period. I gut level feeling is that manufacturers will print false steel certs.

For Indian exporters its good if they export items that do not fall under the scanner. Good to stick with Chaddi Baniyan type items for the time.

BTW is there a way Amirkhan can outsource Jobless Benefits Claims to India?

[Sanjay M]

[svinayak]

But if you think you might qualify and you're tempted to test the market, consider these five reasons for staying on the sidelines instead:
1. Prices are still dropping
Data shows that prices are still dropping in many markets. If you buy today, your home could be worth less in a year or even two.
"People don't like to buy depreciating assets," said David Berson, chief economist for The PMI Group. According to PMI's most recent U.S. Market Risk Index, reported last month, the risk of lower prices two years from now has increased across the country. Half of the country's 50 largest cities had an elevated or high probability of seeing lower house prices by the end of the third quarter of 2010, compared with the third quarter of 2008.
Other home price measures haven't painted a rosy picture either. According to the Case-Shiller home price index, values in 20 major U.S. cities fell 18.2% in November, compared with November 2007. Prices are down 25% from their peak in 2006, according to the index.
Steep discounts in some of the hardest hit housing markets have some people wondering if prices could be starting to bottom. But some markets saw price drops later on than others -- and it could take longer for those latecomers to improve, Fifield said.
2. This sale will be on for a while
From a pure investment standpoint, you'd probably be better off investing in stocks, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. In a normal market, real estate appreciates about 5% a year, she said. But even if prices stop falling this year, as Moody's Economy.com is predicting, price appreciation could be weak for a while.
In fact, while some recoveries resemble a "V"-shaped pattern, this housing recovery could look like an "L" -- once a bottom hits, prices will flat line, said Jay Papasan, one of the authors of the book "Your First Home." Prices likely won't rocket to housing-boom levels soon, as conditions are exacerbated by rising unemployment and foreclosure inventory.
The lesson: This housing sale could go on for a while, so there is no need to rush.
"Even if in December of 2009 the first stories appear that sellers aren't lowering prices any more... you need that uptick and information showing that not only are sales increasing, but prices have stabilized and are starting to go up," Fifield said.
3. You may not stay put
If prices continue to drop, you might have to be in that home for longer than you thought in order for the investment to make financial sense.
In any market, it's best to buy a home with the intention of staying there five to 10 years, said Flint-Budde. This guideline is even more important today, when you might have to absorb more price drops and weather a couple years of slow price growth.
Video: Home Buyers Remain Cautious
Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul. MarketWatch's Amy Hoak reports. (Feb. 5)
First-time buyers must be listening to that rule of thumb: According to research from the National Association of Realtors, the typical first-time home buyer in 2008 planned to stay in their new for 10 years, up from seven years in 2007.
Brian Rayhack, for example, is renting an apartment in Chicago because he's just not sure how long he'd be living in the city. "If I was going to be here more than five years I definitely would have bought," he said. For the flexibility that comes with renting, it's was worth it for him to wait.
4. Your job could be the next to go
Maybe you're spooked by the headlines of job cuts. Perhaps you have friends who have recently been laid off. If you think your own job might is in danger, stop right there -- and stay put.
But even if you're comfortable with your own job security, investigate how your future neighbors are faring.
Your real-estate agent will tell you to pay attention to local market conditions instead of national trends. But don't stop by only looking at neighborhood home prices; the health of the local job market is also important to consider.
Have there been many layoffs in the area recently? What are the largest employers, and are they in industries that are suffering severely? Is the local economy diversified?
"What is the state of the job market in my area, and my metro area in general? That's going to impact overall demand," said Richard Moody, chief economist with Mission Residential. At the very least, get a sense of what the local inventory situation is like, relative to demand, to anticipate the pressures on prices over the coming months or years, he added.
It's best to get a broad picture of the housing market, rather than simply asking yourself "can I afford it or not," Moody said.
5. Your cash reserves will be eaten up
Given the recession and the fragile economy today, even if you feel confident about your job it's wise to have a cushion to land on in the event you get hit with a financial broadside, a divorce or a major health bill, for instance. If your down payment would deplete your rainy day fund, keep saving for a while before house hunting.
"Even if you feel like you're secure in your job, it's much smarter to have five or six months of expenses to have aside. A reserve is a wise thing in this economy today," Papasan said. End of Story
Amy Hoak is a MarketWatch reporter based in Chicago.
http://www.marketwatch.com/news/story/f ... TNMostRead

[Yugandhar]

Talk by Shiv Shankar Menon
http://www.outlookindia.com/full.asp?fo ... enon&sid=1

At their most general, the goals of India's foreign policy are no different from those of other countries – we seek peace and prosperity, or security and development. Our foreign policy seeks to encourage and create an external environment that furthers these goals.

Today, it seems that we may be on the cusp of a historic and fundamental change in the nature of the world situation. Looking at the world from India, it often seems that we are witness to the collapse of the Westphalian state system and a redistribution in the global balance of power, leading to the rise of major new powers and forces. The twin processes of the world economic crisis and economic inter-dependence have resulted in a situation where no power is insulated from global developments

Uncertainty in the international system has grown exponentially and rapidly. The only certainty is that the global landscape that emerges from the economic and financial crisis will be vastly different from what obtains today.

b]The economic crisis itself is a consequence of unsustainable imbalances in the global economy, of prolonged fiscal and trade deficits in certain countries matched by fiscal surpluses and astronomical foreign exchange surpluses in other countries. As of now it is impossible to say that these imbalances will indeed be corrected, or that the underlying pattern of savings and consumption which led to the crisis will be successfully altered. Ironically, stimulus packages will actually push economies away from the direction of basic adjustment required though they may be a temporary palliative. Exchange rate adjustments, (a higher Yuan or a lower dollar), would devalue assets and reserves that are needed to overcome the crisis A successful readjustment of the fundamentals of the global economy would require an unprecedented level of coordination and understanding between several major powers that has never been achieved before in history, except when the balance of power was totally skewed by the effects of a twenty year crisis followed by a world war.[[/b]

It seems likely that the present economic crisis will result in a much flatter distribution of power, or a more even balance of power, among the major actors on the global stage. Interdependence brought about by globalization imposes limits beyond which tensions among the major powers cannot escalate. As uncertainty in the system rises, each of the major powers is now following hedging strategies abroad while attempting to minimize the effects of the crisis on its own economy.

Equally, no one power can hope to solve issues by itself, no matter how powerful it is. What is in fact happening, (politically in Iraq, Afghanistan and elsewhere, and economically in the meetings of G-20 leaders and the G-8 plus G-5), is that major powers are coming together to form coalitions to deal with issues where they have a convergence of interests, despite differences on other issues or in broader approach. In other words, what we see is the emergence of a global order marked by the preponderance of several major powers where both cooperation and competition among them are intense. The result is a de-hyphenation of relationships with each other, of each major power engaging with and competing with all the others, in a situation that affords the powers increased strategic space but lessened capacity to create outcomes.

For India the most graphic recent instances were the bombing of our Embassy in Kabul on July 7, 2008 and the Mumbai attacks of 26 November 2008. In each case the perpetrators planned, trained and launched their attacks from Pakistan, and the organizers were and remain clients and creations of the ISI. Two months after the Mumbai attacks, and one month after we presented a dossier of evidence linking the attacks to elements in Pakistan, we still await a response from the Pakistani authorities, and prevarication continues.

[svinayak]

Minn. economist: Madoff losses could cost state

By MARTIGA LOHN , Associated Press

Last update: February 6, 2009 - 4:41 PM
Ponzi schemes are surfacing.

The Wall Street hot tub party is draining - and look what shows up.


ST. PAUL, Minn. - The alleged $50 billion Ponzi scheme perpetrated by Bernard Madoff will reach into Minnesota's already ailing budget, a top official said Friday.

State economist Tom Stinson said a budget forecast due in early March will include an estimate — perhaps $20 million to $30 million — of Madoff-related hits to state tax collections.

The state already faces a deficit projected at $4.8 billion and expected to grow. Nearly 400 entries from Minnesota appeared on a list of Madoff's clients released Thursday, including the Mayo Foundation, Minneapolis attorney Sidney Kaplan and Star Tribune columnist Sid Hartman.
No one knows how much Minnesota investors lost in Madoff investments. Stinson said one estimate he heard put the figure at $300 million or more, and at that level the state would lose $20 million to $30 million in tax revenue.

"That's amazing — that one man could have that $20 million impact on one state," said state Sen. Ann Rest, DFL-New Hope, who didn't get any figures when she asked finance officials about the Madoff effect at a hearing Thursday.

[Nayak]

Farm Living (Subsidized by a Job Elsewhere)

By ANDREW MARTIN
Published: February 7, 2009

EVER thought of chucking it all and moving to the country? According to the Agriculture Department, an increasing number of Americans are doing just that, by embracing a “Green Acres” lifestyle. But few of them are making a living at it: more often than not, their work in the fields is subsidized by an off-the-farm job.

The Agriculture Department came out with its Census of Agriculture last week, and the headline was that the number of farms increased by 4 percent from 2002 to 2007, with most of the new farms being small, part-time operations.

A closer look at the numbers shows that American farming is becoming a story of extremes: of really big farms and really small ones. Consider that about 900,000 of the nation’s 2.2 million farms generated $2,500 or less in sales in 2007.

By contrast, 5 percent of total farms, about 125,000 operations, accounted for 75 percent of agricultural production.

The new agriculture secretary, Tom Vilsack, has acknowledged the problem and vowed to do something about it. As a former governor of Iowa, he knows firsthand that farmers with a few hundred acres are being outbid for land by farmers with a few thousand. That consolidation is fueled by farm payments that tend to benefit the largest farms.

The question is: What, if anything, can he do about it?

In an interview on Friday, Mr. Vilsack said the agency would encourage income opportunities — like energy production, carbon sequestration, conservation and ecotourism — that go beyond just crops and livestock. “You have to take a holistic approach and create the understanding that the whole thing is diversification,” he said.

There’s no shortage of farms that could use his help, from the midsize family farm in Iowa to part-time operations trying to eke out a profit, as the census makes clear.

While profits were robust for some farmers in recent years, attributable to steep price increases fueled by ethanol and global demand for food crops, only 1 million of the 2.2 million American farms reported positive income from agriculture. The remainder rely on nonfarm income to cover farm expenses and a rural lifestyle.

The percentage of farmers who had off-the-farm jobs increased to 65 percent in 2007, from 55 percent five years earlier.

“We try to dispel any myths that it will be easy,” said Amy Bacigalupo, program organizer for the Farm Beginnings program in Minnesota, a course for new farmers. She said the costs of land and health care are major obstacles for most would-be farmers.

The agriculture census comes out every five years, providing a snapshot of rural America. The number of farms in America peaked in 1935, at 6.8 million, and declined for several decades after that. In the last two decades, however, it has plateaued between 2 million and 2.5 million.

The average farmer today is a 57-year-old white man who farms 418 acres and generates $135,000 in agricultural sales. But American farmers are becoming more diverse.

From 2002 to 2007, the number of female farmers grew nearly 30 percent, to 306,200. The number of Hispanic farmers increased 10 percent, and the number of black and Asian farmers also grew, but more modestly. The number of Native American farmers more than doubled, a jump that officials attribute in part to better reporting.

About a third of farms were residential/lifestyle farms, meaning that they generated less than $250,000 in sales and that the farmer had another job as a primary occupation. While most farms raise cattle or grow crops, a growing number are focused on niche areas of agriculture, like selling at farmers markets, creating energy and growing organics. There were about 18,200 organic farms in 2007, compared with about 12,000 in 2002.

Among the new members of the rural class is Jennifer Miller, who grew up on the outskirts of Chicago and married Andrew Miller, a mushroom expert who now works at the University of Illinois at Urbana-Champaign. Three years ago, they began raising goats on a 15-acre farm in Sidney, Ill., and are now on the brink of turning a profit. They sell meat directly to consumers.

Ms. Miller, who is 35 and a veterinarian, said she takes great pride in raising the animals but acknowledges that farm life has its challenges, “The worst part right now is doing chores at 6 in the morning when it’s 10 below.”

Flowers are what drew Robin Moore to farming a few years out of Macalester College in Minnesota, where she studied French literature. Frustrated by a desk job, she interned at a farm one summer to consider her future and was assigned to tend the flower beds.

“I loved everything about it,” she said. “I really couldn’t go back to an office after that.”

Ms. Moore, 35, lives in western Minnesota, where she sells flowers to people in the area and for events like weddings, tends a vineyard and does some blacksmithing to make ends meet. “I don’t make a lot of money, but that’s a conscious choice I made,” she said.

Mr. Vilsack said he hoped his agency could link small farmers with creative new market opportunities, like institutional buyers and government nutrition programs. He said he also hoped to expand off-farm jobs in rural America. “There’s real opportunities to create a new rural economy,” he said.

[ramana]

Did the BRICs ever have anything in common?

[svinayak]

http://www.nytimes.com/2009/02/07/your- ... gewanted=2

Wealth Matters
It’s Not Just the Money, It’s the Mind-Set
Nicole Bengiveno/The New York Times

Dr. Eric Dammann, a therapist who is treating the stress of the current economic times.
By PAUL SULLIVAN
Published: February 6, 2009

During the boom years, money in America became many things it was never meant to be. It was status. It was identity. It was a magnet for love and friendship. What it rarely was is what it is: a means of exchange.
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Now that a huge chunk of that wealth has evaporated and sources for its return have dried up, people are reeling. If the salary caps proposed this week by President Obama are adopted for companies receiving government aid, formerly high-earning executives are going to have an even harder time making it back. The net result is a psychological crisis over wealth and self-image.

“This feels absolutely different because it’s so widespread,” said Eric Dammann, a Manhattan psychoanalyst, in comparing this crash to 2001 and 1987. “It feels like everything is imploding at the same time as well as this sense that there is no light at the end of the tunnel.”

Or as David Darst, chief investment strategist of Morgan Stanley’s Global Wealth Management Group, said, “People around the world are like children with a baby rattle and the market is the adult, and we’re gripping that rattle until we have confidence that the adult is going to give it back to us.”

In other words, a lot of wealthy people are scared about what could happen to the money they have left and are willing to go to extremes to protect it.

Consider Thomas Ruskin. A retired New York City detective, he is the president of CMP Protective and Investigative Group, and his business is booming. For personal security, he says, revenue is up three times from what it was six months ago. Clients are demanding more protection — whether or not they actually need it — and paying upward of $100,000 a month for his services.

Divorce investigations have also increased. “In the last 90 days, we’ve seen a tidal wave,” he said.

Mr. Ruskin added that the feeling that good times were over had made spouses less tolerant: “It’s mostly for infidelity that has been going on for years and that spouses were willing to accept in better times.”

Strange behavior is not limited to Wall Street. Brad Klontz, a financial psychologist in Hawaii and partner in Klontz Kahler, a financial therapy and planning firm, said someone he worked with had liquidated his portfolio, put the money into gold and silver and bought a safe to store the bullion. This person, he says, is considering buying an assault rifle to protect his wealth. “If it really got down to that point it would be total anarchy, and there would be nothing you could do,” Mr. Klontz said. “And this is a really smart guy.”

Talk to enough people who work with the wealthy and the picture that emerges of the upper echelon of American society is borderline feudal: the haves are ensconced in their castles and the have-nots are barbarians to be kept at bay. Yet even though civil society is still functioning and the have-nots are not storming the McMansions, the haves are still struggling to come to grips with the new realities.

After writing about the practical steps people need to take to shore up their finances, I realized there was just as great a need to address the psychological mindset of the still-wealthy. This state — full of anxiety and fear more than depression — is just as painful as the financial losses they have incurred.

Calm the Elephant: Mr. Klontz uses a simple metaphor to explain what is happening to people who are overwhelmed by the crash. The emotional part of the brain is an elephant and the rational part is the guy on its back. When things are going fine, the elephant trudges along and the guy feels in control. But when the elephant gets scared, there is little the guy can do but hold on.

“It’s a scary time,” Mr. Klontz said. “The emotional part of the brain makes 80 percent of the decisions, and when it really gets activated, it shuts off rational decision-making. It’s lemmings going over a cliff.”

Animal analogies aside, the first step in calming your financial fears is no different from what any talk therapy requires — a recognition of the problem. In this case, people need to realize the stress and anxiety they are feeling is probably overblown. They may have to downsize, but no one is going to beat them up for doing so.

Identify the Source: The trigger for this collective anxiety is the wholesale collapse of three things in which Americans invest tremendous pride and self-esteem: homes, jobs and investments. But in most cases none is the root of the anxiety.

Mr. Dammann, the psychoanalyst, said he had many clients who after losing 50 percent of their net worth still had tens of millions of dollars left.

To them, lots of money in the bank was not freedom or security. It was who they were. “As their net worth shrinks, their self-worth shrinks,” he said.

The cure is to get them to understand what money means to them. Why do they feel their lives won’t have meaning if they cannot buy expensive clothes, own ever-larger homes and jet around the world on a whim? The answers are no surprise: childhood traumas, fears of inadequacy, a desire to make your success widely known.

“The problem is not the economy,” he said. “It’s all the stuff it’s stirring up.”

Allow Yourself to Grieve: The toughest thing to get over is the belief that you did everything right, but that someone changed the rules on you. This is an entitlement mentality — not everyone gets to own a home, let alone two or three — but the psychological loss is no less real. People need to grieve.

“It’s a grieving less about the individual thing,” Mr. Klontz said. “It’s the loss of a dream. It’s how you thought things should be.” Without the chance to grieve, he said, “that’s when our thinking becomes rigid and bitter.”

There is consolation for those intent on keeping up with the Joneses. “I’ve been telling people that you’re just as rich now, because everyone has lost 30 percent,” he said.

Embrace the Worst Case: Is giving up bottle service in nightclubs and cutting out weekend jaunts to Aruba too much to bear? How about getting to the point where you lose everything — like Bernard L. Madoff’s investors — and have to turn to family members for help? For some the very thought of a life less fabulous is so painful as to be paralyzing.

Ted Klontz, Brad’s father, business partner and a psychologist in his own right, has clients visualize the worst thing they could imagine happening to them. For many, either because of pride or because of bad childhood memories, it is asking their family to take them in. Verbalizing this fear is the key.

“What an incredible opportunity to talk to your wife about, ‘What do we do if...,’ ” he said. “It reduces the anxiety and trauma.”

This might have helped those preparing for the end of days. Mr. Ruskin, the detective, said none of his clients’ security fears had materialized, though he was quick to add: “That doesn’t mean it’s not there and it’s not going to happen.”

Past as Prologue: Above all, people’s psyches are being wracked by what behavioral economists call present-event bias. This is the belief that what is happening now will always be. The same thing happens in bull markets — values always seem to be rising until they don’t — but it is clearly more painful when wealth is being destroyed. Markets, of course, will go up again.

“Folks have been traumatized and damaged psychologically, financially, emotionally,” said Mr. Darst, the Morgan Stanley investment strategist. “I was just in Dubai and Saudi Arabia. I had a distinct impression that there was hopefulness about the size and structure of what’s next.”

[chetak]

http://timesofindia.indiatimes.com/Opin ... 093681.cms

SWAMINOMICS
High forex reserves can worsen recession
8 Feb 2009, 0057 hrs IST, Swaminathan S Anklesaria Aiyar

High foreign exchange reserves have, in the current global recession, saved Asian countries (including India) from the travails they suffered in the Asian financial crisis of 1997-2000. So, they must aim for rising forex reserves in future too, right? Wrong.

In truth, high Asian forex reserves are an important reason for the current recession. High reserves promise safety in a storm. But, beyond a point this safety becomes illusory, because rising forex reserves worsen the global imbalances that have precipitated the recession.

The global recession has many roots. One is the erosion of traditional US household prudence. US households used to save 6% of their disposable income. But in recent years they went on a borrowing and spending spree, and household savings dropped to virtually zero. Corporations and financiers also ran up record debts, partly to buy assets such as houses, stocks and commodities. This created huge bubbles in all three markets.

When the bubbles finally burst, US households, corporations and financiers found themselves in dire straits. Many financial giants were rescued by the government. Meanwhile households, sobered by the turn of events, started saving 4% of disposable income, up from zero. More saving meant less spending, and made the recession deep and sharp.

Most Asians are smugly blaming US imprudence and loose financial regulation for the crisis, while portraying themselves as innocent victims. Yet, they must share the guilt too. US profligacy did not arise in a vacuum. It arose in part because Asian insistence on high forex reserves meant that they poured dollars into the US to buy US securities. This flood of dollars from Asia drove down US interest rates, making it very attractive to borrow. That spurred the borrowing spree, and the accompanying bubbles.

Historically, rich countries had surplus savings, manifested in a trade surplus. Poor countries lacked savings, manifested in trade deficits, with the deficit being plugged by an inflow of dollars from rich to poor countries. For the world as a whole, current account surpluses and deficits of countries must necessarily balance. Historically, the surpluses of rich countries were offset by the deficits of poor ones.

But after the Asian financial crisis, something strange happened. Asian countries, above all China, began generating huge savings surpluses, manifested in huge current account surpluses. Many used undervalued exchange rates to artificially create trade surpluses, which were then invested in US treasuries (that is what foreign exchange reserves are).

However, poor Asians could not run huge surpluses unless others were willing to run huge deficits. Remarkably, the rich US began to do so. This arose partly from the sophistication of its financial system, which found many ways - too many, in fact - of converting the flood of money from Asia into a borrowing and spending spree. This sharp rise in US spending boosted the global economy, and created the record global GDP growth in 2003-08. US demand sucked in huge quantities of manufactures and services from Asia, above all from China. Asian manufacturing sucked in huge quantities of commodities from Africa and Latin America, raising incomes there too.

Alas, this boom was based on huge global imbalances that had to be corrected at some point. No country, not even the rich US, could keep running gargantuan trade deficits forever, to offset the surpluses of Asia. US asset bubbles burst, the boom ended, and US spending and imports plummeted.

Ending the consequent recession means reducing global imbalances to manageable proportions. Americans will have to save more, spend less and export more. Asian countries, especially China, will have to consume more, save less, and export less. This re-balancing will restore global balance, and enable global growth to rise sustainably again.

However, such re-balancing means that Asian countries must stop piling up ever-rising forex reserves (and trade surpluses). Such reserves represent excessive saving, excessive exports and insufficient imports. Excess forex reserves have provided apparent safety to Asian countries in a recessionary crisis, yet are also a cause of that very crisis.

What will happen if Asians insist on trying to keep savings and forex reserves high? Well, if Asians keep savings high and Americans and Europeans do so too, then world demand will collapse and the recession will become a Depression. Asians must recognise that high forex reserves serve as a safety cushion only up to a point, and beyond that exacerbate global imbalances that threaten disaster. Saving too much can be as harmful as saving too little. Unless Asian countries recognize this and go slow on future reserve accumulation, the recession may become worse than anyone dares imagine today.

[Sanjay M]

New York Times
Economic View
It’s No Time for Protectionism

[svinayak]

US plan to curb mortgage rates falters
http://www.ft.com/cms/s/0/cdc6691c-f633 ... fd2ac.html
By Michael Mackenzie and Nicole Bullock in New York

Published: February 8 2009 23:35 | Last updated: February 8 2009 23:35

The US Federal Reserve’s efforts to drive mortgage rates lower by purchasing home loans have faltered and rates have risen over the past month.

The rise in rates is a disappointment to government officials, who had hoped that a steep fall in house prices and low financing costs would lure new buyers into the nation’s depressed housing market.

Since January 13 the rate on standard long-term mortgages charged by lenders to prospective home owners has jumped from 5.04 per cent to reach 5.51 per cent on Friday, according to mortgage market analysts HSH Associates. The jump represents an almost 10 per cent rise in borrowing costs.

The Fed has bought $92bn of mortgage securities since the start of the year under a plan that could see it purchase up to $500bn. The move is part of the US government’s efforts to stabilise the housing market, which include taking control of mortgage groups Fannie Mae and Freddie Mac last year, slashing interest rates to nearly zero and proposing modifications to existing loans that would prevent foreclosures.

The rise in mortgage rates follows an increase in interest rates, known as yields, that are paid on US Treasuries. In the US, 30-year mortgages are closely linked to the price of Treasuries.

Plans by the Treasury to raise $2,000bn in new debt over the 2009 financial year are driving yields on government bonds higher and complicating the Fed’s efforts to push mortgage rates lower.

In spite of a poor employment report last Friday, which typically would send long-term yields on Treasury bonds lower, they rose.

The rise was sparked by fears about the growing budget deficit and the continued appetite of foreign investors for US government debt. This has driven up the cost of debt in the form of mortgage-backed securities, raised by Fannie Mae and Freddie Mac.

“The Federal Reserve will continue to buy mortgage-backed securities to hold rates down, but if Treasuries keep selling off, I don’t think the Fed buying will be enough to keep rates low,” said Mahesh Swaminathan, mortgage analyst at Credit Suisse.

This week, the US Treasury will sell a record $67bn in new debt that includes 10-year and 30-year debt.

“At the end of the day the Fed will probably start buying Treasuries in order to keep mortgage rates low,” said Tom di Galoma, head of Treasury trading at Jefferies & Co.

Copyright The Financial Times Limited 2009

[rsingh]

How are things in Dubai? I am told that people are leaving in hoards with cars abandoned at the airport.

[Nandu]

Euro down on worries about Russian corporate debt defaults.
http://www.ft.com/cms/s/0/e7afc9b4-f75e ... =true.html

[SwamyG]

USA was 3 hrs away from Economic, Political Collapse in September 2008
This is a DailyKos blog talking about what Rep. Paul Kanjorski (D) (PA-11) said. There is CSPAN video of the interview with Paul. There is a partial transcript too.