Global Economy

[Nandu]

SwamyG, compare with similar news from UK that was posted here before.

http://www.thisismoney.co.uk/news/artic ... _page_id=2

[ramana]

Was it an undeclared war on US economy on Sept 18, 2008 and the fallout on UK a month later?

[Satya_anveshi]

If only they could bring in Bush and Cheney into these senate hearings etc and ask them, it will be interesting. Where is Paulson? Every guy is congress/senate is saying that they were all taken for a ride but no questions, no image of his anywhere in the media after that.

When are they going to use epitaph "disgraced former scretary" etc etc? Watching C-SPAN is looking a comedy to me.

Anyway..let's see how the DOW dances in the last 5 -10 mins. (added later: OK. not much)

[Raghav K]

I personally feel there will be another CRASH.

[ramana]

Right on cue!

US Stocks Tumble In Biggest Drop Since Dec After Bank Plan

Lack of confidence in Geithner's planning ability. Shouldnt have confirmed the guy who cant/wont pay his taxes!

[svinayak]

Right on cue!

US Stocks Tumble In Biggest Drop Since Dec After Bank Plan

Lack of confidence in Geithner's planning ability. Shouldnt have confirmed the guy who cant/wont pay his taxes!

Well, we are now just 439.50 points away from the Nov. 21st intraday
lows!! Who woulda thunkit? If we do continue the onslaught and decline
another 200 points tomorrow, then I seriously see no reason at all for
us to just bust right through our current overall intraday lows of
7,449.38!

One thing is for sure though, we are definetly drifting lower and
lower with each passing week. If you remember last Monday (Feb. 2nd),
we closed at 7,936, beating the Jan. 20th close. Well, today we just
RIPPED right through that, confirming the downtrend... If I wasn't a
believer then, well I sure as heck am a believer now. This thing is
DEFINETLY headed for the Nov. lows, no question about it... It's not
about a matter of if now, but rather a matter of when? We're seeing
alot more lower lows and lower highs that is for sure.
---
The economy has been based on a Ponzi scheme. Eveything's been based
on growth.
When expansion is no longer possible the links of fractional reserve
banking break.
The domino effect may be unstoppable...what then?
------
We are going to rip through the Nov low like it does not even exist.
Target level to unload shorts would be at least SP500 at 750. To be
honest, I could see the SP500 hitting 700 in this next cycle. Given
that scenario, that would be 6600-6800 for the DOW.

[svinayak]

More than 1,000 banks may fail, analyst estimates
RBC's Cassidy sharply raises gloomy view, urges avoiding banking stocks
By Alistair Barr, MarketWatch
Last update: 2:29 p.m. EST Feb. 9, 2009

SAN FRANCISCO (MarketWatch) -- More than 1,000 banks may fail during the next three to five years as the recession intensifies and loan losses climb, an analyst at RBC Capital Markets estimated on Monday.
In 2008, analyst Gerard Cassidy forecast 200 to 300 bank failures, but now he says the environment has deteriorated since then. See 2008 story on bank failures.
"Residential mortgage delinquencies remain at record levels, home-equity loan defaults are steadily rising and residential construction and land loan non-performing assets are skyrocketing for lenders with excess exposure to the weakest housing markets in the U.S.," Cassidy wrote in a note to clients.
"In conjunction with the slowdown in the economy, credit deterioration has accelerated in the commercial and industrial and commercial real estate loan areas," he said.
Since the mortgage-fueled credit crunch erupted in 2007, 34 banks have failed in the U.S. While Washington Mutual became the biggest bank failure in history last year, Cassidy expects most of the banks that collapse will be relatively small, with less than $2 billion in assets.

[John Snow]

The stocks went down not because of planning

But the simple fact is that Banks themselves dont know how much stink is in their holdings.
If any money is given to them they will try to fix their books to look black, but not circulate the money, even if they had the will to lend who is credit worthy with assured income from jobs with low risk, and all homes which were constureded as an asset with increasing equity to the owners are all deflated in value now. Thats why the stocks stumbled.

The only to get out of this mess is to have massive goverment projects built by private sectors small and big and earn wages to the employees hired for the projects in conjection with tax cuts to existing wage earners so that their disposable incomes are directed towards spending and not fixing their own credits, then banks will jopin the fray by lending......

[Mort Walker]

There seems no way out of this now.

The US federal government is in deep debt, the states are deep debt, municipalities are in deep debt and individuals are in deep debt. The west, in particular the US, has been living on borrowed money for too long. Now that easy money is gone. When you consume most of the world's liquidity by borrowing and you can't borrow any more, then it leads to trouble. The whole US economy seems to be one big pyramid scheme and now the pyramid has collapsed.

[Singha]

steve ballmer put it best. entire society has to change and spend less, save much more, reduce debt slowly....stds of living are going to be 30-50% less depending on
type of work.

the "american dream" just took a major haircut. still much better than rural india, rural china, mehico, guatemala or el salvador, so illegal migrants will continue to wade in much to the resentment of those already struggling.

[svinayak]

Nassim Taleb Says Banks ‘Hijack Us,’ Can’t Be Trusted

[ldev]

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.

The quote above taken from the Swaminomics article posted by chetak and the article below written by Shiv Shankar Menon indicate a belief that surpluses built up by countries such as China are as sinful as deficits generated by the US. That is not entirely accurate and one should not infer the wrong lessons from the present crisis. A classic case is Japan which with savings of USD 15 Trillion has funded its own Government debt which in absolute terms was larger than even the US government debt until the recent US banking crisis. Hopefully these two articles do not constitute a trend in terms of thinking in the Indian establishment of the erroneous lessons to be learnt from the current problems.

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


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. .

[Arya Sumantra]

Investors Boost Bets Gold to Reach $1,000 on Turmoil

Gold speculators have increased their bets this year by 24 percent that prices will reach $1,000 an ounce by April

[abhischekcc]

There seems no way out of this now.

The US federal government is in deep debt, the states are deep debt, municipalities are in deep debt and individuals are in deep debt. The west, in particular the US, has been living on borrowed money for too long. Now that easy money is gone. When you consume most of the world's liquidity by borrowing and you can't borrow any more, then it leads to trouble. The whole US economy seems to be one big pyramid scheme and now the pyramid has collapsed.

Individual debt and all kinds of government debt will ultimately be paid by the American public. IOW, all the bad debt is now guaranteed by the taxpayers.

[Arya Sumantra]

Europe's New Wave of Toxic Debt

Corporate debt in the euro zone stands at more than $11 trillion, equaling some 95 percent of the region's economy, vs. only 50 percent in the US.
How did Europe get into this mess? Conservative bank regulations barred most risky mortgage lending, so banks had plenty of money to offer businesses. Private equity funds, smelling opportunity in undervalued Old World companies, poured in hundreds of billions more. With interest rates low and the euro strengthening, companies were eager to borrow to finance acquisitions.

[Dilbu]

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

People are losing jobs everyday. The massive real estate bubble which accounted for Dubai having world's highest number of construction cranes in operation has burst. It is rumoured that some UAE banks have lost good amount of money in Unkil's subprime mess. Credit has dried up in the market. Companies who had recruited people during last few yars like there is no tomorrow are seeing their orders getting cancelled and jobs are being cut. Liquidity is the new mantra on the street. Political power is also seen slowly tilting towards Abudhabi due to the presence of oil money reserves. Interesting times ahead.

People are definitely leaving. NRIs are sending their families home in preparation for the bad days ahead. Dubai feels like a ghost city these days devoid of its usual flamboyance.

[Satya_anveshi]

Strip-Club Chief Is What Banks Afford With Obama Cap

Feb. 11 (Bloomberg) -- Eric Langan could run a U.S. bank, based on his $494,713 salary last year, according to President Barack Obama. Langan would rather stay in his job, overseeing 18 strip clubs as chief executive officer of Rick’s Cabaret International Inc.
“A bank? No. I’m not interested in working for a bank,” Langan said in a telephone interview from his office in Houston. Besides, he just got a raise to $600,000, putting him $100,000 over Obama’s cap for a top official of a financial institution receiving federal bailout funds.

Langan, CEO of Rick’s Cabaret, said he doubts any of the dancers at his Rick’s Cabaret, Club Onyx, XTC Cabaret or Tootsie’s night clubs would seek new careers in finance.
“I’ve got girls making over a quarter of a million a year in New York,” he said.

[Chinmayanand]

Investors Boost Bets Gold to Reach $1,000 on Turmoil

Gold speculators have increased their bets this year by 24 percent that prices will reach $1,000 an ounce by April

Highly unlikely.By year end- gold may drop back to $650/oz . It'll find stiff resistance in 965-970 zone and may drop back to $800/oz within a month or two.Gold maybe topping out this week.
Never buy into media frenzy.Remember Sensex upbeat at 22000 for 30,000 , crude all gaga for 200 plus when it was 140.When five analysts on bloomberg /cnbc etc agree altogether, time to take the opposite side.
Bet against the experts.

[svinayak]

When five analysts on bloomberg /cnbc etc agree altogether, time to take the opposite side.
Bet against the experts.

You watch CNBC

[Prem]

You watch CNBC

I cant stand the lady who reports commodities. She is always doing the psy op.
Till last summer ,their expert Seidman was very adament about the fundamentals working perfectly in driving the market and now he has changed tune and worry about transparecy.

[Arya Sumantra]

[quote="durgesh
Never buy into media frenzy.Remember Sensex upbeat at 22000 for 30,000 , crude all gaga for 200 plus when it was 140.When five analysts on bloomberg /cnbc etc agree altogether, time to take the opposite side.
Bet against the experts.[/quote]

I thought as much but these are uncertain times. With unkil printing dollars incessantly just thought it would lose value someday. Central banks especially in Europe worldwide might buy gold to prevent their currencies from tanking. But there are conflicting thoughts as well. In times of liquidity crunch when every aam admi holds on to as much cash as he can, it might go down as well

[Raghav K]

Europe seems to be over the cliff ready to plunge.

European bank bail-out could push EU into crisis
A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document.


By Bruno Waterfield in Brussels
Last Updated: 3:50PM GMT 11 Feb 2009

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned.

"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.

National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.

In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.

“Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,” the EC paper warned.


http://www.telegraph.co.uk/finance/fina ... warns.html

[Raghav K]

This will make Satyam, needle in a haystack.

Fraud 'Directly Related' to Financial Crisis Probed
FBI Agents Could be Reassigned from National Security Due to Booming Caseload
By JASON RYAN
Feb. 11, 2009

The FBI has opened investigations into more than 500 cases of alleged corporate fraud, including 38 that involve major firms and are "directly related" to the national economic crisis, FBI Deputy Director John Pistole told Congress today.
IMAGE: FBI - and Housing Crisis
FBI Says 38 Firms Directly Involved in Current Financial Crisis Could Expand to Over 100 firms Currently Over 500 Ongoing Corporate Fraud Investigations; TARP IG Warns of Fraud
(ABC News Photo Illustration)

The surge in white-collar investigations is putting such a strain on the FBI that Pistole said the bureau is considering reassigning agents from national security, which has been the bureau's priority since the 9/11 attacks.

"The FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis," Pistole told the Senate Judiciary Committee today.

The 38 companies, he said, "are significantly large companies, businesses everyone knows about but I cannot comment publicly."

Pistole's comments suggested widespread criminal activity among many of the nation's corporate giants.

http://abcnews.go.com/TheLaw/Economy/st ... 179&page=1

[vina]

Dubai collapses. Time to kick those sumbitches in the nuts now, for hosting the D-Gang all along and especially the open support to terrorism and paki land when the IA plane hijacked by the Packees landed there and was not prevented from taking off and going to Afghanistan.

Time to put up barriers against Emirates, Dubai Ports and other "infrastructure" white elephants and start "investigations" on fat cats who "invested" in the jamborees like "Palms Jumeira" and "World" kind of thing from India.

February 12, 2009
Laid-Off Foreigners Flee as Dubai Spirals Down
By ROBERT F. WORTH

DUBAI, United Arab Emirates — Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.

Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.

“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”

With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.

No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy. (classic Chicom playbook. lifted straight from there)

Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.

Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.

“At the moment there is a readiness to believe the worst,” said Simon Williams, HSBC bank’s chief economist in Dubai. “And the limits on data make it difficult to counter the rumors.”

Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.

Some analysts say the crisis is likely to have long-lasting effects on the seven-member emirates federation, where Dubai has long played rebellious younger brother to oil-rich and more conservative Abu Dhabi. Dubai officials, swallowing their pride, have made clear that they would be open to a bailout, but so far Abu Dhabi has offered assistance only to its own banks.

“Why is Abu Dhabi allowing its neighbor to have its international reputation trashed, when it could bail out Dubai’s banks and restore confidence?” said Christopher M. Davidson, who predicted the current crisis in “Dubai: The Vulnerability of Success,” a book published last year. “Perhaps the plan is to centralize the U.A.E.” under Abu Dhabi’s control, he mused, in a move that would sharply curtail Dubai’s independence and perhaps change its signature freewheeling style.

For many foreigners, Dubai had seemed at first to be a refuge, relatively insulated from the panic that began hitting the rest of the world last autumn. The Persian Gulf is cushioned by vast oil and gas wealth, and some who lost jobs in New York and London began applying here.

But Dubai, unlike Abu Dhabi or nearby Qatar and Saudi Arabia, does not have its own oil, and had built its reputation on real estate, finance and tourism. Now, many expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: the Palm Jumeira, an artificial island that is one of this city’s trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out.

“Is it going to get better? They tell you that, but I don’t know what to believe anymore,” said Sofia, who still hopes to find a job before her time runs out. “People are really panicking quickly.”

Hamza Thiab, a 27-year-old Iraqi who moved here from Baghdad in 2005, lost his job with an engineering firm six weeks ago. He has until the end of February to find a job, or he must leave. “I’ve been looking for a new job for three months, and I’ve only had two interviews,” he said. “Before, you used to open up the papers here and see dozens of jobs. The minimum for a civil engineer with four years’ experience used to be 15,000 dirhams a month. Now, the maximum you’ll get is 8,000,” or about $2,000.

Mr. Thiab was sitting in a Costa Coffee Shop in the Ibn Battuta mall, where most of the customers seemed to be single men sitting alone, dolefully drinking coffee at midday. If he fails to find a job, he will have to go to Jordan, where he has family members — Iraq is still too dangerous, he says — though the situation is no better there. Before that, he will have to borrow money from his father to pay off the more than $12,000 he still owes on a bank loan for his Honda Civic. Iraqi friends bought fancier cars and are now, with no job, struggling to sell them.

“Before, so many of us were living a good life here,” Mr. Thiab said. “Now we cannot pay our loans. We are all just sleeping, smoking, drinking coffee and having headaches because of the situation.”

Ali al-Shouk contributed reporting.

[svinayak]

Dubai collapses. Time to kick those sumbitches in the nuts now, for hosting the D-Gang all along and especially the open support to terrorism and paki land when the IA plane hijacked by the Packees landed there and was not prevented from taking off and going to Afghanistan.

Time to put up barriers against Emirates, Dubai Ports and other "infrastructure" white elephants and start "investigations" on fat cats who "invested" in the jamborees like "Palms Jumeira" and "World" kind of thing from India.

My friend came back from Dubai few days back. He confirmed about the details of this article.
We had a conf call with a friend in Dubai.

THe flats/apts sell for 60k dhirams for a 2 bedroom 1000 sqft. THey are now falling to 40k still no takers and now they are listed for 30k.
An apt on 5th floor which still to be built has been sold 5 times already.
THe plot where the building is to be built is already sold 4 times since the original owner cannot raise money for development. Free money which was floating everywhere is gone.

[Liu]

some interesting rank:
--------------------------------------------------------------------
the 2008 GDP of actual material sections( agriculture+industry or GDP-the service section)
http://www.ccthere.com/thread/2026254
[original data : wold bank]
1：USA，2.9 trillion USD:
2：China，2.4trillin USD:
3：Japan，1.6trillion USD；
4：German，0.9trillion USD；
5：UK，0.648trillion USD；
6：France，0.6trillion USD；　　　　
7：Italy，0.5trillion USD:
8：Canada，0.35trillion USD；
9：Spain，0.33trillion USD；
10：Russia，0.32trillion USD；
11：Brazil，0.3trillion USD；
12: India，0.29trillion USD；
13：S.korea，0.289trillion USD.
------------------------------------------
the 2008 GDP
1 United States 14,330,000 M dollar
2 Japan 4,844,000 M
3 China (PRC) 4,222,000 M
4 Germany 3,818,000 M
5 France 2,978,000 M
6 UK 2,787,000 M
7 Italy 2,399,000 M
8 Russia 1,757,000 M
9 Spain 1,683,000 M
10 Brazil 1,665,000 M
11 Canada 1,564,000 M
12 India 1,237,000 M
13 Mexico 1,143,000 M
14 Australia 1,069,000 M
15 South Korea 953,500 M

[Singha]

Emirates airlines seems to have inside track to power centers in delhi.

[vsudhir]

Emirates airlines seems to have inside track to power centers in delhi.

How so?

Moi fav airline for unkil-home trips.... bestest value for money, IMHO.

[Arya Sumantra]

Bank of England Ready to Print Money

Amid predictions that Britain's economy will shrink 2.5% this year, the Bank said it will launch a policy of "quantitative easing"

[Arya Sumantra]

A new trend emerges for B2C businesses.

Panasonic orders staff to buy £1,000 in products

Its electronic gadgetry is gathering dust on the shelves of high street stores, nobody is buying new fridges and the mountain of unsold plasma televisions is growing by the day.

However, in desperation, Panasonic has hit on the perfect counter-attack against the consumer slump: it has ordered every member of staff to go out and buy £1,000 of Panasonic products.

Large swathes of corporate Japan are expected to follow suit, either by directly commanding or indirectly “pressuring” employees to divert part of their salaries towards the goods that their employers produce.

Toyota has already tacitly applauded a “voluntary” scheme in which 2,200 of its top brass decided to buy new Toyota cars, and the president of Fujitsu recently e-mailed 100,000 staff and gently pointed out how nice it would be if “employee ownership rates” of Fujitsu PCs and mobile phones were a little higher.

The 10,000 Japanese staff affected by Panasonic’s unorthodox strategy do not have long to consider their purchases.

Management insists that staff buy their Panasonic goods — whether they need them or not — by the end of July.

Upper-level managers, all of whom have been “encouraged” for years to fill their homes with Panasonic goods as a symbol of corporate loyalty, are being asked to spend at least 200,000 yen (£1,500).

A Panasonic spokesman said that because the “Buy Panasonic” request was made to management-level employees, the company did not expect refusal rates to be high.

Even if other Japanese companies are less overtly aggressive about forcing staff to buy their products, many are expecting the Japanese corporate tradition of socially enforced loyalty to kick in and force the issue anyway.

So the bigger your employee base, bigger the captive market.

[vsudhir]

So the bigger your employee base, bigger the captive market.

A slight adjustment in Henry Ford's logic, if you ask me.

[Satya_anveshi]

There is a lot of shiiiit beneath this. Can China and emerging world dig this further? Look how US is putting the story to rest but I have a strong suspicision that this is not an isolated incident.

Peanut Corp. of America files for bankruptc

ATLANTA (AP) -- The peanut processing company at the heart of a national salmonella outbreak is going out of business.
The Lynchburg, Va.-based Peanut Corp. of America filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court in Virginia Friday, the latest bad news for the company that has been accused of producing tainted peanut products that may have reached everyone from poor school children to disaster victims.
"It's regrettable, but it's inevitable with the events of last month," said Andrew S. Goldstein, a bankruptcy lawyer in Roanoke, Va., who filed the petition.

The salmonella outbreak was traced to the company's plant in Blakely, Ga., where inspectors found roaches, mold and a leaking roof. A second plant in Plainview, Texas was shuttered this week after preliminary tests came back positive for possible salmonella contamination. So far, the outbreak has been suspected of sickening more than 630 people and may have caused nine deaths. It also has led to more than 2,000 product recalls, one of the largest recalls in U.S. history.

Companies file Chapter 7 to liquidate their assets and distribute the proceeds to creditors. A trustee is automatically appointed to oversee the wind down, as opposed to a Chapter 11 filing that gives a company breathing room while it tries to reduce its debts and continue in business. The company said in the filing that its debt and assets both ranged between $1 million and $10 million.

The board had considered a Chapter 11 bankruptcy but decided on an outright liquidation. It said in a court filing that the recalls had been "extremely devastating" to the company's financial condition.

"We kicked the tires on trying to reorganize, but the fact of the matter is they've absolutely closed down," Goldstein said. "They're prevented from carrying on business. There didn't seem like there would be any prospects."

The company's problems have multiplied since the link to its Georgia plant.

The government is working on a criminal investigation into the case, and more than a dozen civil lawsuits have been filed. This week, Peanut Corp. president Stewart Parnell repeatedly refused to answer questions before the House Energy and Commerce investigations subcommittee, which is seeking ways to prevent another outbreak. But e-mails surfaced indicating he ordered products the company knew were tainted to be shipped anyway.

Reached by telephone, Parnell said his attorneys had advised him not to talk. "If I could do it, I would," he said.

Despite Friday's bankruptcy filing, food safety lawyers are optimistic that victims and their families can still be compensated. The bankruptcy proceeding could postpone litigation against the company, but lawyers plan to push a judge to allow civil lawsuits to go forward anyway. And many have also filed lawsuits against Solon, Ohio-based King Nut Co. and Battle Creek, Mich.-based Kellogg Co., which they say used the tainted ingredients in their products.

"Even if Peanut Corp. doesn't have enough insurance and enough assets to cover the damages, King Nut and Kellogg will have to step up," said Bill Marler, who has filed seven lawsuits against the company and represents more than 40 possible victims.

Fred Pritzker, a food safety lawyer in Minneapolis who filed a wrongful death lawsuit against the company, said it could delay justice for his clients.

"For all the people whose loved ones have been killed or people who have been out of work or suffered serious injury or who have incurred medical bills, right now they're just left with a lump of uncertainty," he said.

The company began as a family business in 1977, and Parnell, his father and two younger brothers turned the struggling peanut roasting operation into a $30 million operation before selling it in 1995.

But in 2000 Stewart Parnell bought his own peanut plant in Texas, and a year later he bought the Blakely, Ga. operation after teaming up with a financial backer, David Royster III of Shelby, N.C. He also operated a plant in Suffolk, Va.

It all came crashing down when federal investigators identified the Georgia plant as the sole source of the salmonella outbreak, and questions began emerging about how the company operated its plants.
The company faced more scrutiny once it was revealed that its Texas plant, which opened in March 2005 and was run by a Peanut Corp. subsidiary, Plainview Peanut Co., was not inspected by state health officials until after problems arose at the company's Georgia plant. Texas health officials asked the company to close the plant Monday after samples sent to a private lab for testing showed possible salmonella contamination.

On Friday, companies began destroying products made with anything that came from the plant after Texas health officials said they discovered rodents, feces and feathers in a crawl space above a production area. An air handling system sucked debris from the crawl space into an area where peanuts are processed, officials said, so Texas officials took the highly unusual step of ordering all products ever made at the plant recalled.

"The reason we went back to March of 2005 is because it could not be determined how long those conditions had existed in that facility and ... it would have been risky to guess," said Doug McBride, a spokesman for the Texas Department of State Health Services.

Associated Press Writers Vinnee Tong in New York, Sue Lindsey in Roanoke, Va., Jeff Carlton in Dallas and AP Business Writer Emily Fredrix in Milwaukee contributed to this report.

[svinayak]

http://www.nytimes.com/interactive/2009 ... aphic.html

http://www.nytimes.com/2009/02/13/busin ... ei=5087%0A

News Analysis
Ailing Banks May Require More Aid to Keep Solvent

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.

None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are federally insured. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.

But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined this week.

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.

[svinayak]

http://www.japanprobe.com/?p=8670

Pictures of foreigners from 17th/18th century Japan

England Russia

[svinayak]

Washington Post
GM considering Chapter 11 filing, new company: report
Reuters - 39 minutes ago
CHICAGO (Reuters) - General Motors Corp, nearing a Tuesday deadline to present a viability plan to the US government, is considering as one option a Chapter 11 bankruptcy filing that would create a new company, the Wall Street Journal said in its ...

[sarulan]

Donald Trump quits casino company's board
http://finance.yahoo.com/news/Donald-Tr ... 64621.html

ATLANTIC CITY, N.J. (AP) -- Donald Trump fired himself Friday from the casino company that bears his name.
Spurned by bond holders who rejected his effort to buy Trump Entertainment Resorts, the real estate mogul and his daughter Ivanka are resigning from its board of directors.
He called the troubled casino company he once controlled "worthless to me now." He is the largest shareholder, owning more than a quarter of its stock, yet stressed that it comprises "substantially less than 1 percent of my net worth."
The company won a fourth extension Wednesday on restructuring $1.25 billion in debt, and some analysts have predicted it will file for bankruptcy protection for a third time if it doesn't work out a deal with its bond holders.
"If I'm not going to run it, I don't want to be involved in it," Trump told The Associated Press Friday night. "I'm one of the largest developers in the world. I have a lot of cash and plenty of places I can go."
Trump said he recently offered to buy the company, which he used to control before relinquishing his grip as part of a bankruptcy restructuring.
For now, his name will remain on the company's three Atlantic City casinos, although Trump said he may seek legal avenues to removing his name from the business.
"I don't like that my name is still going to be on it," he said.
He also said he wants to sell his shares in the company, although it was not clear when that might happen, or whether he would even be able to under securities laws if he possesses information about the company that is not publicly known.
The company would not identify the bond holders or who represents them.
Trump said allies of the bond holders have a 5-to-3 edge on the board of Trump Entertainment Resorts, leading him to believe he was not likely to prevail any time soon in talks on the company's future direction.
The company skipped a $53.1 million biannual payment due bond holders last Dec. 1. That triggered talks on restructuring the debt, which have been extended four times. The next deadline is Tuesday.
Mark Juliano, the company's chief executive, said talks are ongoing, adding he expects them to continue through Tuesday. He declined to respond to Trump's criticism of the way the company has been managed.
"While The Trump Organization grows and flourishes, Trump Entertainment Resorts, of which I am a stockholder, has languished," Trump said. "The Trump Organization's portfolio of residential, commercial, hotel, and golf properties has expanded all over the world, while Trump Entertainment Resorts has yet to diversify outside of Atlantic City.
"I have watched the collapse in enterprise value of the Atlantic City Tropicana, where bondholders' values have been reduced to almost nothing," he continued. "I do not want to take part in a similar fiasco here."
The Tropicana Casino and Resort has been run by a state-appointed trustee for 14 months after its former owners were stripped of their casino license. It is due to be sold soon at a bankruptcy auction, but creditors may try to block such a sale, fearing it wouldn't fetch enough of a price to pay them back much.
Trump Entertainment owns three Atlantic City casinos but is in the process of selling one, Trump Marina Hotel Casino, to a former protege of Donald Trump. Its other properties are the Trump Taj Mahal Casino Resort, and Trump Plaza Hotel and Casino.

[svinayak]

25 People to Blame for the Financial Crisis
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By Barry Ritholtz - February 13th, 2009, 6:36AM

There is a strange and strangely interesting list of people to blame for the Financial crisis from Time magazine. It is quirky and odd and in more than a few places, misguided and ignorant.

Despite its deep flaws, it is still kinda interesting.

I normally don’t link to this sort of click bait — you must click through each individual adding 25 phony pages in an obnoxious attempt to improve traffic readings – but there is this interesting variation: Readers get to vote on each culprit. Surprisingly, they move Clinton, Bush and Greenspan way down the list.

A few strange issues with the list: Why is Bernie Madoff here? He is a common thief (perhaps uncommon thief given the amounts he claimed to have stolen) but he had nothing whatsoever to do with the Financial crisis afflicting the global economy. What journalist would add him to the list of causes of the crisis? (Strike that moron from your reading list).

The American Consumers are on the list, but not the irresponsible home buyers? Isn’t painting with an overly broad brush ? And Wen Jiabao, the premiere of China? How dare you buy our debt! Its all your fault!

And where are Robert Rubin and Larry Summers on the list? MIA. They worked for President Bill Clinton, who I note in Bailout Nation signed both the Repeal of Glass Steagall, and the Commodities Futures Modernization Act on their advice.

I give a lot of blame to Clinton — but even more to Bush. He was Captain of the ship when it hit the iceberg, and while many risk factors were already in place on January 20th, 2001, it was he and his team of incompetent SEC chairmen and other deregulators that made a bad situation much much worse.

Regular readers of this blog know I think former NAR chief economist David Lereah is a lying jackass, a festering hemorrhoid on the fields of both economics and real estate. But he was merely a lying cheerleader. As much as I detest his syphilitic-addled unfunctional brain, I cannot blame him for what happened.

Same for HGTV. Go figure that Home & Garden Television did shows about homes and gardens. Blaming television for bad decision making by lenders, regulators, and borrowers is absurd. But if you are going to blame HGTV, why not blame CNBC also? (I think both are ridiculous to hold culpable, but at least be consistent). Perhaps it would be more appropriate to blame the Conspiracy of Optimism that exists, especially in financial television.

Of all the people to put at the top of the list, the Man with the Tan is not the guy — sure, he’s a putz who advocated no money down mortgages as he extracted 400 million dollars from Countrywide as it went down the tubes — but he was only one of the many jackasses who made totally irresponsible loans. Why is he the symbol for this sector, and not the 300 plus mortgage originators who went belly up? Its an entire industry, not one or two companies at fault.

And placing Jimmy Cayne, Bear Stearn’s CEO at the bottom is similarly absurd. Bear was the single biggest player in the Mortgage Backed Securities industry, and the first major iBank to go ka-boom. Why isn’t he at least in the top 10? Certainly, he deserves more blame than the hapless Stan O’Neal of Merrill and Lehman’s Fuld ? And where is the CEO of Morgan Stanley? (Gee, I guess they had nothing whatsoever to do with this).

And while the former CEO of the ratings agency Standard & Poors is on the list, where is the even bigger Moody’s? (and Fitch, also).

None of the monoline bond insurers are included: MBIA, Ambak, FGIC. When they collapsed, they utterly disrupted municipal finance. They must be included on a list that seeks to assess blame.

Finally, holding Lew Ranieri – the father of mortgage-backed securities — to blame for what happened is like blaming Oliver Winchester, the inventor of the repeating rifle, for WWI. He merely invented a tool, and it was subsequently misused by others. I guess this means that the farmers who grow corn are responsible for obesity also.

~~~

Here is the flawed Time list:

1. Angelo Mozilo – Co-founder and former head of Countrywide
2. Phil Gramm – Chairman of the Senate Banking Committee from 1995 through 2000
3. Alan Greenspan – Former chairman, Federal Reserve
4. Chris Cox – Former chairman, Securities and Exchange Commission
5. American Consumers
6. Hank Paulson – Former Secretary of the Treasury
7. Joe Cassano – Founding member, AIG’s financial-products unit
8. Ian McCarthy – CEO, Beazer Homes
9. Frank Raines - Former chairman and CEO, Fannie Mae
10. Kathleen Corbet – Former CEO, Standard & Poor’s
11. Dick Fuld – Former CEO, Lehman Brothers
12. Marion and Herb Sandler – Former heads, World Savings Bank
13. Bill Clinton – Former U.S. President
14. George W. Bush – Former U.S. President
15. Stan O’Neal – Former CEO, Merrill Lynch
16. Wen Jiabao – Premier, China
17. David Lereah – Former chief economist, National Association of Realtors
18. John Devaney – Hedge fund manager
19. Bernie Madoff – Ponzi scheme orchestrator
20. Lew Ranieri – Father of mortgage-backed securities
21. Burton Jablin – Programmer at Scripps Networks, which owns HGTV
22. Fred Goodwin – Former chairman and CEO, Royal Bank of Scotland
23. Sandy Weill – Former chairman and CEO, Citigroup
24. David Oddsson – Former Prime Minister, Iceland
25. Jimmy Cayne – Former chairman and CEO, Bear Stearns

>

Source:
25 People to Blame for the Financial Crisis
Time, February 10, 2009
http://www.time.com/time/specials/packa ... 50,00.html

[svinayak]

http://www.nytimes.com/2009/02/14/busin ... nding.html

Rituals of the Rich Meet Realities of the Economy


Article Tools Sponsored By
By GERALDINE FABRIKANT
Published: February 13, 2009

In Manhattan’s most exclusive enclaves, even the longtime rituals of the wealthy are being tested.

E.A.T., the Upper East Side version of a coffee shop, for instance, used to do a good business in putting together catered platters for private jets. “We do a lot of airplane stuff out of the store for people that have their own airplanes,” said the owner, Eli Zabar, scion of the Zabar clan.

But, he added the other day: “They are not going anywhere. The deals that they were out there making are not happening.”

And business is down for the gift baskets that people from California used to send to New Yorkers to celebrate the completion of a deal. “The Wall Street deals and the film deals are not being made,” lamented Mr. Zabar, who said he had been doing those baskets for 20 years. “The music industry is in the pits. So there is no gift basket business.”

And the tourists who used to emulate the rituals of the rich have also stopped showing up. John Barrett, who owns the beauty salon at Berdorf Goodman, said the drop in tourists had been “devastating.” E.A.T., too, not far from the Metropolitan Museum of Art, is also feeling the loss of tourists who routinely stood in long lines for Saturday and Sunday brunch and are now gone.

And the high-end events where the wealthy mingle? Macaroni and cheese is on the menu.

“In the past, clients did not speak about budgets but now they are vocalizing those questions early in the call,” said Gina Zimmer, vice president for marketing and communications for Restaurant Associates. Restaurant Associates used to suggest macaroni and cheese in a chafing dish for a bar mitzvah, Ms. Zimmer said, but is now selling it to an older audience.

[svinayak]

Nouriel Roubini on prospects for 2009

Published: February 3 2009 11:46 | Last updated: February 9 2009 15:42
http://www.ft.com/cms/s/0/89829f7a-f1d1 ... fd2ac.html

Nouriel Roubini Q&A

Economists and politicians hope to identify tentative signs of recovery in leading economies during the second half of 2009, as stimulus measures from governments and action on interest rates by central banks begin to kick in.

But recent data suggest it may take a little longer. Meanwhile, the World Economic Forum’s latest report warns of the risks of a fiscal crisis, created by the very government spending intended to rescue economies from the turmoil in the global financial system.

So, is the worst nearly over? Or is there still a way to go? Recently returned from Davos, Nouriel Roubini, chairman of RGE Monitor and professor of Economics at New York University, will answer readers’ questions on the outlook for the global economy and its impact on markets from 1400 GMT on Monday February 9.

Post a question now to ask@ft.com or use the online submissions form below.

...................................................................................................................................

It is pretty much consensus now that 2009 will be a zero growth year for the world economy (something that you forecast well in advance). It seems that the major risk for the following years is having a lost decade of Japanese-style stagnation but on a worldwide basis. How are the governments in US and Europe faring so far in their effort to avoid that?
Marco, Sao Paulo

Nouriel Roubini: To avoid a Japanese style multi-year L-shaped near-depression or stag-deflation (a deadly combination of stagnation, recession and deflation) the appropriate, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies) is necessary.

The eurozone is well behind the US in its efforts as: a) the ECB is behind the curve in cutting policy rates and creating non-traditional facilities to deal with the liquidity and credit crunch; b) the fiscal stimulus is too modest as those who can afford it (Germany) are lukewarm about it and those who need it the most (Spain, Portugal, Greece, Italy) can least afford it as they already have large budget deficits; c) there is lack of cross-border burden sharing of the fiscal costs of bailing out financial institutions.

The U.S. has done more (with its aggressive monetary easing and large fiscal stimulus putting it ahead) but two key elements are key to avoid a near-depression and still missing: a proper clean-up of the banking system that may require a proper triage between solvent and insolvent banks and the nationalization of many banks; and a more aggressive and across-the-board solution to the unsustainable debt burden of millions of insolvent households.

Thus, I would say the L-shaped near-depression scenario is possible.

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How can Davos, a gathering of the greediest, most avaricious and incompetent people of the planet, ever fix any of the problems they have created in the first place, and hugely benefited from?. Do you agree that when the boom was at its height, you were mistreated there when you tried to draw attention on the looming crisis? Are you now afraid of being now co-opted by the system and losing your independence?
Marcel Knecht, Villa Santiago, Mexico

NR: It is important to keep one’s intellectual rigor and honesty free from any financial conflict of interest (I never trade in markets and so I am never “talk my book” when I present my views).

I have kept my balanced and analytically rigorous but bearish view over time and adjusted my outlook only at the margin in light of the evolving circumstances.

But the basic thrust of my analysis and views about the severity of this financial and economic crisis – the worst since the Great Depression - has not changed.

I don’t think anyone could suggest that I have been co-opted by the system and lost my independence. If anything my concerns that a severe U-shaped global recession may turn into a worse, L-shaped near-depression have somewhat increased over time.

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It seems clear that governments will not allow their banking system to fail altogether and that they will intervene to rescue whenever needed. My question is: The governments will save the banks, but who will save the governments? Is it possible that we are about to see countries default? What does that mean for the global economy? Which countries are the ones who pose the greatest risk?
Jonathan Arad

NR: In many countries the banks may be too-big-to-fail but also too- big-to-save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system.

Traditionally only emerging markets suffered – and still suffer - from such a problem. But now such sovereign risk – as measured by the sovereign spread - is also rising in many European economies whose banks may be larger than the ability of the sovereign to rescue them: Iceland, Greece, Spain, Italy, Belgium, Switzerland and, some suggest, even the UK.

The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign: banks, other financial institutions and, soon enough possibly, households and some important non-financial corporate companies.

At some point a sovereign bank may crack, in which case the ability of governments to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.

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What level of oversight is now appropriate from the financial regulatory authorities? Do they need very large new measures or should they have a light touch?
Ashok Soni

NR: It is clear that the Anglo-Saxon model of supervision and regulation of the financial system has failed.

It relied on self-regulation that, in effect, meant no regulation; on market discipline that does not exist when there is euphoria and irrational exuberance; on internal risk management models that fail because – as a former chief executive of Citi put it – when the music is playing you gotta stand up and dance.

Furthermore, the self-regulation approach created rating agencies that had massive conflicts of interest and a supervisory system dependent on principles rather than rules. This light-touch regulation in effect became regulation of the softest-touch.

Thus, all the pillars of Basel II have already failed even before being implemented.

Since the pendulum had swung too much in the direction of self-regulation and the principles-based approach, we now need more binding rules on liquidity, capital, leverage, transparency, compensation and so on...

But the design of the new system should be robust enough to counter three types of problems with rules:

A tendancy toward ‘regulatory arbitrage’ should be bourne in mind, as bankers can find creative ways to bypass rules faster than regulators can improve them.

Then there is ‘jurisdictional arbitrage’ as financial activity may move to more lax jurisdictions.

And finally, ‘regulatory capture’ as regulators and supervisors are often captured - via revolving doors and other mechanisms - by the financial industry.

So the new rules will have to be incentive compatible, i.e. robust enough to overcome to these regulatory failures.

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How long will be before we can tell if the US and UK governments’ plans to rescue the banks prove effective or not? If they don’t when do you think lending will recover to near-normal levels?
Canh Humphries, Beckenham

NR: There are three basic approaches to a clean-up of the banking system: recapitalization together with purchase by a bad bank of toxic assets; recapitalization together with guarantees – after a first loss – of the bad assets; outright government takeover (call it nationalization) of insolvent banks to be cleaned after takeover and then resold to the private sector.

Of the three options the first two have serious flaws: in the bad bank model the government may overpay for the bad assets as the true value of them is uncertain; even in the guarantee model there can be such implicit over-payment (or over-guarantee that is not properly priced).

In the bad bank model the government has the additional problem of having to manage all the bad assets it purchased.

Thus, paradoxically nationalization may be a more market friendly solution: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and – possibly – even the unsecured creditors in case the bank insolvency is too large; it provides a fair upside to the tax-payer; it can resolve the problem of government managing the bad assets by reselling most of the assets and liabilities of the bank to new private shareholders after a clean-up of the bank.

This “nationalization” approach was the one successfully taken by Sweden while the current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze.

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To balance the US economy - given the US structural current account deficit - the fiscal deficit needs to baloon. Can the US default on its debt? Alessandro Magnoli Bocchi, Kuwait

And, a related question also addressed in the next answer: What are the possible damaging, unintended consequences of the US stimulus plan?
Alessandro Magnoli Bocchi, Kuwait

NR: While a large fiscal stimulus is necessary to avoid a greater fall of aggregate demand there are also reasons to be skeptical about the effectiveness of such a stimulus:

Most infrastructure spending is not ‘shovel-ready’ and its implementation may take too much time.

The tax stimulus may – like the 2008 rebate – be mostly saved or used to reduce credit card and mortgage debt, since, given the credit crunch, the ability of households to leverage the tax rebate to buy durable goods or homes is massively impaired.

Furthermore, the multipliers of fiscal policy are ambiguous and, more importantly, a tsunami of new public debt issuance may lead by the end of 2009 to a significant increase in long government bond rates as most countries in the world will now run budget deficits and thus the global supply of public savings will shrink.

With US fiscal deficits likely to be about $2 trillion in 2009 and $1.5 trillion in 2010; who, outside the US, as most of the financing of US fiscal deficits is done by non-residents, is going to buy such debt and at what dollar value of and level of interest rates?

Eventually, large and persistent fiscal deficits may even lead to a downgrade – in a few years – of the AAA rating of the US government.

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Do you think investigations and prosecutions should be conducted by the U.S. Government on the naked short selling of equities in the stock market? Should they be?
Erich Benner, Blythewood, South Carolina

NR: The ban on naked short selling of equities was a mistake.

Short selling did not cause this crisis: it only reflected the concern about the solvency of many firms. And the ban on naked short selling only transferred the speculative pressure from equities to the credit defualt swaps market creating even greater problems in the credit derivative markets.

When equity markets were in a speculative frenzy of an asset bubble no one requested limits to the ability of investors to go long (even if such restrictions in the form of higher margins for leveraged purchases of stocks would have been beneficial).

And when during the same bullish bubble analyst after analyst showed up in the financial media and talked his book up, with no one objecting to this spin cycle. But when investors become bearish and start short selling stocks one hears talk about prosecuting the “evil short sellers”.

This is an outright silly view even if, in the downwards speculative frenzy, market prices can fall below fundamental valuations as cascading effects cause falling prices to lead to margin calls and greater forced selling.

But banning short selling is not the proper way to address this disruptive market dynamic.

Starting with the excesses of the boom period of a bubble is a more appropriate response, and one that would prevent such bubbles from becoming excessive, limiting the damage from the bursting of such massive bubbles.

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Has financial globalization come to an end?
Jacques Ergas, Chile

NR: Financial globalization has not come to an end, but there is certainly a backlash against it.

To paraphrase Churchill - capitalist market economies open to trade and financial flows may be the worst economic regime, apart from the alternative, as non-market economy models have failed.

So while this crisis does not imply the end of market economy capitalism it has shown the failure of a particular model of capitalism: the laissez faire unregulated (or aggressively deregulated) wild-west model of free market capitalism with lack of prudential regulation and supervision of financial markets and with the lack of proper provision of public goods by governments.

It is the failures of ideas such as the “efficient market hypothesis” that deluded itself about the absence of market failures such as asset bubbles; the “rational expectations” paradigm that clashes with the insights of behavioral economics and finance; the “self-regulation of markets and institutions” that clashes with the classical agency problems in corporate governance that are thenselves exacerbated in financial companies by the greater degree of asymmetric information -how can a chief executive or a board monitor the risk-taking of thousands of separate profit-and-loss accounts? Then there are the distortions of compensation paid to bankers and traders.

This crisis also shows the failure of ideas such as the one that securitization reduces systemic risk rather than actually increase it; that risk can properly priced when the opacity and lack of transparency of financial firms and new instruments leads to unpriceable uncertainty rather than priceable risk.

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Will the crisis bring about a permanent, significant shift in the economic power balance of the world?
Giles Chance, China

NR: The Anglo-Saxon economic and financial model is wounded and the role of the US as the leading global economic, financial and even geo-strategic superpower is reduced.

Even without this crisis, the relative and absolute power of the US would have been reduced by the rise of the fast growing economies of Brazil, Russia India and China and by the emergence of the European Union.

But the policy mistakes of the US that perpetuated twin fiscal and current account deficits and triggered the worst financial and economic crisis since the Great Depression has accelerated this shift in the economic and financial power balance of the world.

Economic and financial superpowers or empires tend to be net creditors and net lenders (running current account surpluses) such as the British Empire at its peak. But such empires decline - the British pounds role as the world’s leading reserve currency was lost during World War II when the UK became a large net debtor and net foreign borrower (running current account deficits) and had large domestic fiscal deficits.

The US is now the largest net borrower in the world (running huge current account deficits) and the largest net debtor in the world while its domestic fiscal deficits are surging too.

And unlike the 1980s when the US twin deficits were financed by the its friends and allies (Japan, Germany and the rest of the EU) this time around the largest lenders and creditors of the US are either its strategic rivals (Russia, China, etc.) or a bunch or relatively unstable petro-states.

So this balance of financial terror makes the US vulnerable to the kindness of strangers. This growing weakness of the US suggests a paradigm shift in the economic and financial – and eventually even geostrategic - power balance of the world.

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Do you believe in the projections made by the Chinese officials predicting a return to steady growth when all the planned stimulus measures have been implemented? Do you expect a reversal in the decisions taken the last 5 years to outsource a majority of the developed economies production to China?
Fiorini Mauro, Belgium

NR: China is now experiencing a hard landing and I predict that Chinese growth in 2009 may not be higher than 5 per cent.

For a country that needs a growth rate of about 10 per cent to move millions of poor rural farmers to the modern urban industrial sector, a growth rate of 5 per cent would effectively be a hard landing.

Fourth quarter gross domestic product growth in China – measured on a quarter to quarter annualized basis – was closer to 0 per cent than to the 6.8 per cent year-over-year growth reported by the Chinese government.

Other factors also suggest a hard landing: There was a sharp fall in generation of electricity in the fourth quarter. China’s purchasing manager’s index was well below 50 and closer to 40 for six months in a row; there has been a sharp fall in imports, mostly of intermediate inputs and raw materials. And while some of the latest data show a marginal improvement in the second derivative of growth in January, the first derivative still shows contraction. The manufacturing sector is still 40 per cent of GDP and it is clearly shrinking.

Whether the short-run policy stimulus in China will be effective or not is not clear.

Instead, consumption levels are still depressed and private savings too high because of structural reasons that will take time to change. The out-sourcing of production to China and other emerging markets was not a mistake. But a model of growth based on cheap exports given an undervalued currency is now in crisis as the US downward adjustment of consumption requires an increase of domestic private and public demand in the surplus countries.

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I have read your grave warning about deflation. But, nevertheless, won’t the enormous increases in money supply (out of thin air largely) eventually give rise to serious inflation, possibly hyperinflation?
George Todd, Benalmadena, Spain

NR: In the short run the greatest risks to the global economy are coming from deflationary pressures: slack in goods markets as aggregate demand falls relative to aggregate supply; slack in labor markets as unemployment rises sharply; slack in commodity markets as commodity prices tumble.

Concerns have been expressed that the massive injections of liquidity will be eventually inflationary.

But with large output gaps and surging unemployment rates, inflationary pressures are unlikely until such gaps are shrinking sharply.

Also, the injections of liquidity are satisfying a surging demand for liquidity so that the absence of such a large supply of money would lead to spikes in money market rates; while base money is sharply rising other measures of money and credit are flat or shrinking as the money multiplier falls. This signals that the extra liquidity is being hoarded rather than spent or lent out.

It is true that eventually there may be a temptation to use permanent – inflationary - monetization of large fiscal deficits to reduce the real value of public and private debts; indeed the inflation tax may become politically the path of least resistance if government would find it hard and unpopular to raise actual taxes.

But even a relatively dovish central bank such as the Federal Reserve under Ben Bernanke cannot afford to let the inflation genie out of the bottle – if inflation expectations were to rise from low single digits to high single digits or even double digits – because such a surge in inflation would - eventually – cause the need for a harsh Volcker-style recessionary disinflationary policy to bring the inflation- expectations-genie back behind glass.

Also, unexpected inflation can reduce the real value of nominal debts at fixed interest rates. But many liabilities are at variable rates: mortgages, bank deposits, short term debts of households, banks, governments, corporations. So a surge in inflation cannot reduce the real value of such debts as the interest rate on them would rapidly be re-priced to include any increase in expected inflation. So the inflation tax may not even be effective in reducing the liabilities of the private and public sector unless it becomes extremely and dangerously large.

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You recently mentioned total credit losses of $3.6 trillion compared to current losses of $1.6 trillion. Will the institutional and geographic distribution of the $2 trillion increase match that of the first $1.6 trillion, or will it be new regions and new institutions, that will get sucked in?
Paul Broder

NR: Our RGE Monitor estimates of $3.6 trillion of peak credit losses refer only to loans and securities that were originally generated by US financial institutions. Of these $3.6 trillion $1.8 trillion will be borne by US banks and broker dealers while the rest by other capital market firms and investors. Since the losses coming from securities are estimated to be $2 trillion and about 40 per cent of them (based on IMF and Federal Reserve estimates) are borne by non-US investors we already have $800 billion of losses that will hit foreign investors/financial institutions, mostly in Europe.

But we have not done yet a systematical analysis of the losses that will hit Eurozone and UK banks or banks in other regions of the world. Losses to these institutions include the $800 billion from US securitized products sold abroad as well as the other losses deriving from loan origination and securitization and issuance of other instruments in areas such as Europe and other parts of the world.

A preliminary analysis suggest that, in the aggregate, the US banking system is insolvent as its capital before the crisis was $1.4 trillion and below expected losses of $1.8 trillion; a good part of the UK banking system appears also to be insolvent.

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Is the solution to just keep re-inflating bubble after bubble to recapitalize our consumer driven economy or is it time for a huge systemic paradigm shift away from consumerism? What type of shift would you envision and would it destroy the economy as we currently know it?
Robert Singer, Oregon, USA

NR: For the last 30 years the US has been growing fast only during periods of asset bubbles that eventually burst with significant economic and financial costs.

The 1980s real estate bubble went bust in the late part of that decade leading to a severe banking crisis for the Savings and Loan banks, a credit crunch and a severe recession in 1990-91; next the 1990s tech/internet bubble went bust in 2000 leading to the 2001 recession; massive monetary and credit easing – as well as lax supervision/regulation of mortgages and credit – led to another housing and credit bubble that has now gone bust creating a severe financial crisis and recession.

The current monetary easing may lead to another bubble but we are somehow running out of bubbles to create.

Housing, credit, equities, commodities, hedge funds, private equity bubbles: they have all gone bust now. We need to create an economic system that is less prone to bubbles and more likely to lead to sustainable stable growth.

For the last few years the US has overinvested in the most unproductive form of capital – residential housing stock that increase utility but not labor productivity – and not enough into physical capital that increases the productivity of labor.

Also we overinvested in the financial sector, a corollary of the housing boom: when the S&P500 market capitalization of financial firms was 25 per cent of the market and when over a third of the profits or earnings of S&P500 constituents came from financial companies, that was an excess of finance.

And having a country where there are more financial engineers than computer engineers or mechanical engineers means a misallocation of human capital as well.

So we need to create a growth model relying less on housing/real estate, less on finance and less on having the brightest minds of the country going into financial services rather than into the production and innovation of new and improved goods and services.

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Could any of the weak eurozone countries should be forced out of the single currency because of the effects of the crisis, and if that happened, how is the euro likely to behave?
Vincenzo, Italy

NR: There is now a rising – even if still quite low – risk that some countries will eventually be forced out of the eurozone.

The whole idea of a monetary union was that since member countries would not have independent monetary policy, independent fiscal policy and independent exchange rate policy they would be induced to implement more aggressively structural reforms to ensure convergence of productivity growth and prevent divergence of economic performance.

Germany went through a brutal corporate restructuring that led to rising labor productivity growth with modest nominal wage growth that restored the competitiveness of the country.

In Spain, Portugal, Italy and Greece instead such structural reforms lagged and nominal wage growth outstripped productivity growth leading to increases in relative unit labor cost and real appreciation that reduced competitiveness. And now, on top of this loss of competitiveness some eurozone economies suffer also of a too-big-to-be-saved problem as the potential losses of their banks are larger than the national fiscal resources.

And now, on top of this loss of competitiveness some eurozone economies suffer also of a too-big-to-be-saved problem, as the potential losses of their banks are larger than the national fiscal resources.

So the monetary union is under pressure as sovereign spreads are also rising. Two years ago – while still being in the opposition – the current Italian prime minister, Silvio Berlusconi and Mr Tremonti, his exonomic minister, argued that the euro had been a disaster for Italy.

With friends like these who needs enemies in the monetary union?

While the risk of a break-up of the eurozone is still distant this financial and economic crisis is the first real test of the monetary union.

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Many analysts are now predicting that the bond market is the last and most serious bubble which will burst shortly. Do you agree?
Mike, Qatar

NR: The current fall in government bond yields is justified by economic fundamentals: a severe recession, risks of deflation, risk aversion and move away from risk assets such as equities.

But certainly, over time, large and unsustainable budget deficits in many emerging and advanced economies, may lead to a rise in sovereign risk and a risk in government bond yields. Also the risk – small but rising – that excessive permanent monetization of such deficits will lead to much higher inflation suggests the existence of a minor bubble in government bond yields.

And indeed, in the last two weeks, the back-up in yield on US inflation-linked bonds and traditional 10 to 30 year bonds suggest the concerns of market participants about the sustainability of large fiscal deficits that – over the long run – may lead to solvency concerns.

[Satya_anveshi]

Here was a question that troubled me some 20 days ago

Looks like people are getting p!ssed too. The article does not do any good either. Ultimate reason, the collusion, Bush buddies still control the b@lls of the people/Gov, will reveal itself in a few days.

The price of crude oil falls to yearly low, but gas goes ever higher -- what gives?

NEW YORK (AP) -- Crude oil prices have fallen to new lows for this year. So you'd think gas prices would sink right along with them.
Not so.

On Thursday, for example, crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It's just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That's the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

"We're going definitely over $2, and I bet we'll hit $2.50 before spring," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "This is going to be an unusual year."

On the last day of 2008, gas went for $1.62 on average, according to the auto club AAA, the Oil Price Information Service and Wright Express, a company that tracks transportation data.

The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.

That foreign oil sells in some cases for $10 more per barrel -- and that doesn't even include shipping.

Brent North Sea crude, which feeds some East Coast refineries -- and therefore winds up at many gas pumps around America -- now costs about $7 more per barrel than the West Texas crude. Deutsche Bank analysts say the trend should continue.

Historically, West Texas International crude has cost more. So nobody bothered building the necessary pipelines to carry it beyond the nearby refineries in the Midwest, parts of Texas and a handful of other places.

Now that the premium oil is suddenly very inexpensive, refiners elsewhere can't get their hands on it.

"It's so cheap," said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. "But you can't just build a pipeline to everywhere. We know we can't get it."

Tesoro's refineries in North Dakota and Utah use locally drilled oil and Canadian oil, which also has been running about $10 more per barrel than West Texas crude.

So why not build more pipelines? Because investing billions of dollars over several years makes no sense when the prices could just flip a year from now to where they were before.

"How long is WTI going to be cheaper than Venezuelan oil? Than Canadian?" asked Charles T. Drevna, president of the National Petrochemical and Refiners Association. "You just don't build a pipeline like that."

At the same time, refiners have seen the same headlines as everyone else about job losses and consumer spending. They've slashed production just to avoid taking losses on gasoline no one will buy. Result: Higher gas prices.

"Why should a refiner produce more gasoline when the stuff we produce is not being used?" Drevna said.

Of course, complex explanations of the diverging price paths of West Texas crude and gas are unlikely to placate frustrated drivers. Memories of last summer's $4-plus gas have not receded.

"Drivers are being ripped off even more now than before," said Stuart Pollok, who was filling up recently at a Chevron station in downtown Los Angeles. He pointed out Exxon Mobil Corp. reeled in billions in profits last year when oil prices neared $150.

Others see the conspiracy reaching higher.

"It got really low during the elections and now it's going back up," said Christel Sayegh, a 23-year-old graphic designer in Los Angeles. "They do that every election, though, right?"

AP Energy Writer John Porretto reported this story from Houston. Associated Press Writers Jennifer Malloy and Ryan Nakashima in Los Angeles contributed to this story.