Perspectives on the global economic meltdown- (Nov 28 2010)

[vera_k]

So I don't get why assessments have to fall alongwith property prices. By law, assessments have to be enough to cover certain government expenses, and if everyone experiences the same relative decline in property value, taxes stay exactly where they are. At most there might be some reallocations, with some people paying more, others paying less due to differential changes in property values.

The real challenge is due to declining income and sales tax collections.

[Najunamar]

So I don't get why assessments have to fall alongwith property prices. By law, assessments have to be enough to cover certain government expenses, and if everyone experiences the same relative decline in property value, taxes stay exactly where they are. At most there might be some reallocations, with some people paying more, others paying less due to differential changes in property values.

The real challenge is due to declining income and sales tax collections.

Not quite how the system works here in Khanate - some local variations do exist (like CA has limits): But, overall the millage is approved by electorate (where renters can screw the homeowners and vice versa), the assessment is based on value of property and tax collected is product of the two. So, in the medium term, if millage remains fixed the amount of tax collected goes down with property value.

[Christopher Sidor]

Till now, Greenspan has been the vilified villain. It is surprising the swift fall from grace for such a person. However Ben, the current Fed chairman is dutifully following Greenspan steps, keeping interest rates low for extended period of time. And Ben has gone on record by saying that it is not possible to predict a bubble. So does this imply, that the future is going to be more or less similar to the past, with more booms and bust? Only the booms and bust become more and more bigger.

[Neshant]

And Ben has gone on record by saying that it is not possible to predict a bubble.

If he don't know sh&t, why is he even fiddling around to begin with ?

[Rahul Mehta]

Want To Ruin Your Own Country? Assume Your Banks’ Liabilities
Compare-and-contrast the fates of Ireland and Iceland:


Both had the same problem: Disproportionately large banks for the size of their respective economies. Both banking sectors of both countries had taken on liabilities which rendered them vulnerable as a baby’s belly to a falling knife. In 2008, the knife fell: A lot of the assets on the balance sheets of both banks were proven to be worth fractions on the Euro—if not worthless altogether. But in the fall of 2008, the two countries’ fates diverged:

On the one hand, Iceland’s people refused to have their government be saddled with the debt of their insolvent banks, Landsbanki and Kaupthing and the others. The Icelanders requested an IMF bailout to the tune of $2.1 billion (compared to their GDP of $12 billion). But they refused vociferously — to be saddled with the debts of their banks. What were the consequences? The Krona suffered an 80% devaluation, interest rates went to the moon. Unemployment spiked from 6% to 9.3% in a month . . . . . . but it wasn’t that bad. It wasn’t fun, but it wasn’t the end of the word, either. Even with severe austerity measures that included higher taxes on all sectors of the economy and severe cuts in public services, unemployment reached only 9.6% at its worst point, averaged 8.8% during 2009, and is now only 7.6%. Source is here.

On the other hand, what did Ireland do? When it’s banks were shown to be insolvent in the fall of 2008, Prime Minister Brian Cowen went and guaranteed the Irish banks. In other words, he made the Irish government assume the debts of the banking sector. Ireland hasn’t had a moment’s peace of mind ever since—for two years, the Irish have been stumbling about, trying to make good on their banks’ liabilities, while the country slowly sinks. Finally, a couple of weeks ago after a bond market mini-panic, the Irish were bailed out by the ECB and the IMF—the Irish fought centuries of British rule, only to finally surrender their sovereignty to bureacrats from Brussels.

==== end of article =====

It was people of Iceland who stopped Govt from subsidizing banks, not experts. People in Ireland would have wished the same, but somehow voice of eminent experts prevailed over voice of commons, and so Ireland Govt ended up with truckloads of lemons. The story is same in every corner in world. When ICICI bank was falling some 4 years ago, almost every common I met said that Govt should pay Rs 100,000 to depositors and let ICICI die. It was ONLY experts with 4 digit IQ who "proved" that letting a bank die will be death of India. i.e. "ICICI is India and India is ICICI" as per them. Finally, experts' voice prevailed over commons' voice and Govt money was used to save ICICI. Result? We now have bigger real estate bubble, bigger stock/bond market bubble, bigger education loan bubble and all bubbles sucking up the air and suffocating people who are doing real work with their real hard earned savings.

The mechanism of how 128-bit experts prevail over 2-bit commons is as follows

1. Elitemen bribe some PhDs to write essays on why Govt should take over bank debt
2. Elitemen pay mediamen to project these PhDs as "experts" and "concerned"
3. Elitemen pay social activists for rent to create hue and cry against unemployment
4. Elitemen pay PhDs to opine that bank failure will increase unemployment
5. Elitemen pay mediamen to write that "common people want banks to be saved"
6. Elitemen pay Ministers to make Govt take over banks' debt
7. Ministers claim that Govt took banks' debt as per people's wish

The last step comes for free. No payment is given for that.

====

This is the mess all over world. We should ignore the mess all over world, and focus only on mess in India.

===

Solutions ? . Or let me ask other way. Anyone has any other proposed solution?

[Singha]

>> When ICICI bank was falling some 4 years ago, almost every common I met said that Govt should pay Rs 100,000 to depositors and let ICICI die

any why should Govt wipe out the life savings of millions of depositors in what is the 2nd largest bank in India? to you it might be a academic exercise but if you had $600k in a US bank FD and got only $100k when the Govt let it die you wouldnt be so casual about it.

the people you met no doubt had their savings in another bank perhaps a PSU one (whose salaries are paid for by everyone's taxes including mine). should PSU banks also be allowed to die - these people would not be on the road demanding all their money back then ?

[vera_k]

Wealth gap becomes chasm at Christmas

Article uses hard data to show that ghetto stores like Walmart are suffering while retailers like Saks are doing quite well. The ongoing Santa rally probably has a big part to play in this.

[shyam]

JS Kim Explains Why the South Korea Sampoong Superstore Disaster Provides a Good Analogy for the US Economy

James C: “If the economy is really not recovering, then can you explain what is really going on?”

JS: “Let me explain what is really going on with the economy with the following disaster analogy. In June of 1995, the Sampoong department store, a five-story building with four basement levels, suddenly collapsed in Seoul, South Korea, tragically killing 501 people and injuring 937 others. When the Sampoong department store was constructed, the owners, due to a desire to cut costs, made several fatal decisions. First, they decided to cut away a number of support columns in the original blueprint in order to install escalators. Secondly, in order to cut costs, the owners shrunk the original width of the support columns from the required 80cms to only 60 cms, an inadequate width to support the load of the building. In addition, the original blueprint called for only a four-story building but the owners built an additional fifth story that housed a restaurant with a very heavy heated concrete base that quadrupled the load of the original building design. Two months before the building collapsed, worrisome cracks appeared in the ceiling of the south wing's floor. On the day of the collapse, cracks as wide as 10 centimeters appeared in the top floors of the building five hours before the building collapsed, but the owners hid this information from its patrons and refused to shut down and/or evacuate the building as they did not want to lose its daily revenue. When it became clear that the building was going to collapse, senior executives of the department store fled without warning any of the patrons still inside the building. An alarm to evacuate the building was only soundedwhen the building started to make loud cracking sounds, just 7 minutes before its collapse at 5:57 PM despite signs of an imminent collapse being clearly visible more than five hours prior. City officials Lee Chung-Woo and Hwang Chol-Min, in charge of overseeing the construction of the building, were responsible with concealing the illegal changes to the original blueprint designs and were later charged with and convicted of bribery.”


“Amazingly, the above story serves as nearly a perfect analogy for the US economy. The government and bankers laud a rising stock market as proof that the economy is recovering. They go on record stating that inflation is less than 2% when in reality it is more than four times higher. They state unemployment is less than 10% when it is nearly 23%. Thus, to many people, the economy appears as the Sampoong department store's exterior appeared to the public right before its collapse, structurally sound and with a solid exterior. This is the reason why 40,000 people a day visited the department store despite its fatal structural integrity problems. The government and bankers are just like the Sampoong department store owners, actively concealing all warning signs from the public and selling them an illusion that all is okay when instead, the economy is heading for collapse. Just as the Sampoong department store owners constructed a crappy building destined to collapse due to excessive greed, bankers with the help of government officials, constructed dozens of financial derivative products destined to collapse due to their excessive greed as well.”


“The US regulators that also see the impending cracks in the economy, are just like Lee Chung-Woo and Hwang Chol-Min. They receive inordinate pressure and bribes from the bankers to look the other way and keep the public in the dark about the impending doom that is coming. In the case of the Sampoong disaster, when the contractors refused to continue work on the building when the owners changed structural regulations that endangered the integrity of the building, the owners fired the contractors and hired ones that would cut corners. US regulators that are honest and that try to protect the American public, like Brooksely Born, received the same fate as the original Sampoong contractors and are also fired or forced to resign. When the entire system is corrupt, even the rare good person can't save disasters from happening. Thus, the public is none-the-better-off despite the presence of regulators that are supposed to protect the public's interests and safety, but in reality, protect the greed and profits of companies that exploit the public's interests.”


“And finally, the economy itself is like Sampoong's interior. It is replete with cracks and fractures that warn us of the disaster ahead. But even so, a large percentage of the masses still remains ignorant because the banker/corporate/government three-headed monster keeps the people's vision in a tunnel by pummeling the public with a constant stream of propaganda on MSNBC, newspapers, and financial talk shows. In Seoul, Sampoong's owners distracted the public's attention away from the developing disaster with stores fully of luxury goods. So when the US economy finally experiences shocks in the future more disastrous than those in 2008, as was the case with the Sampoong department store collapse, many will believe that now warning signs had existed despite the evidence that exists to the contrary today. And I'm quite certain the media, just as they did in 2008, will stupidly ask the same questions they did back then, such as “How did this happen?” when in fact, all the answers stare them in the face right now. With the Fed's POMO schemes, regulators that aid and abet fraud, and governments and bankers that conceal truth from the public, the combined effect of these actions is just to delay disaster for another year or two. So that is why I say now that disaster will visit the US sometime between 2011-2013.”

[Tanaji]

This is the mess all over world. We should ignore the mess all over world, and focus only on mess in India.

1. Please do not repost articles. Take time to at least read the CURRENT page. I know it is difficult for you, but shyam had posted it earlier just a few post before you.
2. The title of the thread is "global". If you want only Indian view, maybe you should visit other threads and let us be? There is an Indian economic thread

[Rahul Mehta]

Rahul Mehta: When ICICI bank was falling some 4 years ago, almost every common I met said that Govt should pay Rs 100,000 to depositors and let ICICI die

Singjha: any why should Govt wipe out the life savings of millions of depositors in what is the 2nd largest bank in India? to you it might be a academic exercise but if you had $600k in a US bank FD and got only $100k when the Govt let it die you wouldnt be so casual about it. the people you met no doubt had their savings in another bank perhaps a PSU one (whose salaries are paid for by everyone's taxes including mine). should PSU banks also be allowed to die - these people would not be on the road demanding all their money back then ?

Singha,

I didnt say "Govt should wipe out life savings". All I said is that if ICICI is wiping out someone's deposits, Govt should create burden on others. The ICICI directors etc wealth should be confiscated and used to compensate depositors. And the number Rs 100,000 should be adjusted with inflation (and it will become some Rs 800,000 to Rs 15,00,000). But that should be it. I am just airing views of commons I met including myself - they didnt want Govt to share burden of saving ICICI.

Most of us commons dont have Rs 100,000 deposit, forget PSU bank or any bank. Average rupee volume in India is Rs 50,000 per citizen now, as was Rs 30000 4 years back. So number of people who have Rs 100,000 of deposits are less than 33%, and in reality much much less. If PSU banks want to remove implicit GoI guarantee, I have no issue --- I will tie notes or gold with my back. But I dont want to be bothered by sinking banks anymore. Let a sinking bank sink peacefully. And most commons I met think the same. Now each one on his own , I cant say what majority thinks as my sample may not be general sample. But it is time GoI does what we dumb jackass commons majority want, not what experts = "paid experts" want.

[Bade]

Something is not correct logically above, if most commons are making less and saving minuscule amounts in FD, then their losses proportionately are small compared to rest of commons who are making more and hence saving larger amounts in FDs. So why should the opinion of people (even if a large majority in absolute numbers) who have less of their money at stake, get a larger say in how things are bailed out ?

[Virupaksha]

So why should the opinion of people (even if a large majority in absolute numbers) who have less of their money at stake, get a larger say in how things are bailed out ?

because it is their money which is being used for the bail out

The above rule will screw very small percentage of people, reason being many people to avoid taxation, distribute their accounts in that way.

P.S: Indian taxes are mostly from indirect taxes, so it is the large majority which pays the tax money.

My personal take is the normal depositors should be bailed out, but bond holders and share holders should be screwed to no end in such bail outs.

[Bade]

So a commoner who saves more than the safety ceiling (say, Rs 1 lakh for FD), should invest in something more tangible and reliable like gold/earth than stocks/bonds/currency, since it cannot be taken away from you. No wonder it explains the gold hoarding charts for India and nowadays real estate. That is the safest bet for people who have no time to wade through the happenings in the market and no control over government policy.

[ramana]

Rahul Mehta, Please take discussion of Indian economy to the other thread.
Thanks for the consideration,
ramana

[Virupaksha]

So a commoner who saves more than the safety ceiling (say, Rs 1 lakh for FD), should invest in something more tangible and reliable like gold/earth than stocks/bonds/currency, since it cannot be taken away from you. No wonder it explains the gold hoarding charts for India and nowadays real estate. That is the safest bet for people who have no time to wade through the happenings in the market and no control over government policy.

Cant take the loss of investing in a bad company? Dont invest in that company.

[vera_k]

Roubini buys $5.5 million condo, takes out $2.9 million mortgage

[Najunamar]

Cant take the loss of investing in a bad company? Dont invest in that company.

I agree, but does not apply in this case; having a deposit in a bank (private it may be) is not the same as investing in that company (sometimes line is blurred intentionally by the bank management )

[Airavat]

Beginning of the End of Dollar Hegemony:

Fed's liquidity expansion through the purchase of $600 billion of Treasury securities, dubbed QE2. The downward pressure on the dollar from the surfeit of greenbacks was viewed by finance officials abroad from Asia to Europe as well as Latin America as tantamount to a competitive devaluation to boost the U.S. economy while beggaring its neighbors.

The hope had been for the euro to provide a viable alternative to the dollar, and for a time the single currency seemed to growing into that role. The current crisis lays bare the contradictions that have beset the euro from the start: monetary union without fiscal union, not to mention nationalistic animosities going back decades, even centuries.

Just Wednesday, Micex, Russia's largest securities exchange, began trading in the ruble vs. the Chinese renminbi. Now, Brazilian government bonds denominated in the real are so sought after by international investors for their double-digit yields in an appreciating currency that the government has put a tax on foreigners wanting to buy the securities. The Financial Times reports that some Chinese have taken to calling the renminbi the "redback," in contrast to the American greenback, which gives some idea about the competition between the currencies is playing out.

The 21st century is being called the Asian century. Brazil is part of that, now that China is its main trading partner, overtaking the U.S. So, too, is Australia, which is booming as a commodities supplier to Asia. The dollar's dominance will not be toppled in 2011 but will wane over the coming decade and beyond. And America will have to start picking up the tab for what had been a free lunch.

[Christopher Sidor]

While the decline of greenback would be welcome, we should we careful for what we wish for. The Greeks had a saying, when the gods want to punish someone, they grant them their wish.

[manish]

After the series of articles detailing Ghost Towns in PRC, now comes an article about similar ventures in a PIIGS club member Spain:
Newly Built Ghost Towns Haunt Banks in Spain

By SUZANNE DALEY and RAPHAEL MINDER

YEBES, Spain — It is a measure of Spain’s giddy construction excesses that 250 row houses carpet a hill near this tiny rural village about an hour by car outside of Madrid.

Most of these units have never sold, and though they were finished just three years ago, they are already falling into disrepair, the concrete chipping off the sides of the buildings. Vandals have stolen piping, radiators, doors — anything they could get their hands on.

Those few families who live here keep dogs to ward off strangers.

Yebes is hardly unique. The wreckage of Spain’s once booming construction industry is everywhere. And much of it sits as bad debt on the books of Spain’s banks, which once liberally offered financing to developers and homeowners alike.

Just how big a loss the banks are facing is unknown, at least publicly, and that has investors worried — the cost of financing Spain’s debt rose 18 percent in the last month alone. But the potential costs of failure go far beyond that. Spain’s economy, the fourth largest in Europe, is orders of magnitude bigger than Ireland’s or Greece’s, and a bailout of its banks could be far more costly, an event that could push the government into default and end up dooming the euro itself.

[Hari Seldon]

Awesome guest post over at zero hedge. Merits a full read, IMHO.

The Shape Of The World In 2020

Some notable excerpts....

None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis.

These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade — in 2020 — if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist.

In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions.

In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.

Wow, eh? The generality coupled with rigor, the erudition coupled with real-worldliness....feels almost like brihaspati garu were holding fort on the global crisis of confidence, credibility and sustainability only....

t present, in 2010, we see no major societies prepared to take such radical steps to reverse trends of social distrust in systems, and, indeed, the accumulation of laws and customs actually makes such radical action infeasible or unlikely, except in the event of major external threat, such as war.

This trend to inflexibility and resistance to radical change (which would entail discomfort and the removal of personal wealth) has reinforced a “business as usual” attitude. People rarely see the extent of change occurring around them; it is disguised by a continuity of visual references; and the presence of institutions which have not previously failed them.

In fact, it has been said of the modern era that institutions have evolved specifically to disguise change, because change appears threatening. Thus, when systems finally break down under the weight of debt, social change, and reaction, the event appears sudden and unexpected.

Again, possible but unlikely. I made the mistake of confounding possibility with probability not so long ago. Hence, yawn.

Some societies will merely erode into lower expectations of their own domestic and international capabilities, and well-being: {Think UKstan} many modern societies will allow themselves to decline in “a step of sighs”, occasionally rebuilding to some degree, only to resume their downward steps, unless confronted with an existential challenge which forces them to cut away the inhibiting dross of years, and infuses them with the energy to respond. {Think Japan and perhaps, Russia}

So, then, the coming decade promises a continuation of the declining fortunes in major modern economies, absent the catalyst to reverse the trend. {I expect war in myriad forms to be that steroid boost to feel well one more time}

Yawn. All ijj well only.

And if Western societies falter, will new societies step forward to claim wealth and power? Not necessarily. There is no guarantee of continued growth in the People’s Republic of China (PRC), the Republic of Korea (RoK), the Russian Federation, or India. Each has their frailties, and each is dependent on the global wealth to varying degrees.

Indeed, it would be reckless to over-state the resilience of the PRC, Indian, and even Russian economies, bearing in mind their own institutional constraints and their low per capita wealth. Even more important is the fact that each of these societies, again in varying measure, have failed to build the granite base of self-confidence within their societies in the durability and infallibility of their national hierarchies.

Tenku tenku, for once again misunderestimating my country, saar. Chances are we'll again prove your ilk wrong, without intending to.

The last such major depopulation occurred with the great plague which followed the globalization of Genghis Khan in the 12th and 13th centuries, but at that time abstract value — such as portable wealth, expressed in currency — was not so dependent on real estate, and particularly highly-valued urban real estate.

So the world in 2020 could see a significant decline in the availability of capital (in real terms; the availability of printed, inflated money will not be meaningful); in the mobility of societies and their ability to access goods not produced within easy reach. All this will occur unless radical steps are taken to revive real productivity and the self-reliance of societies.

And such radicalism is possible only through leadership. It is that which we await.

You wait for Godot only. And ye shall wait forever.

[ShivaS]

Wealth gap becomes chasm at Christmas

Article uses hard data to show that ghetto stores like Walmart are suffering while retailers like Saks are doing quite well. The ongoing Santa rally probably has a big part to play in this.

****
swamy G ji analyze this to analyze that, "two wage earners between $250K and 350K need tax cuts" as I said earlier.

The Walmart girak is all who earn < 350 K, those with higher earnings usually employ Tax lawyers to optimize their tax evasion/aviodence, only those who can not efford high rate Tax lawyers end up paying unlce sam.
The case of forrest labs not paying a dime of US tax even though it earned billions by selling "Lexapro" antidepressent is case ins tudy..
Also watch the Firm *ing Tom Cruise better read the book to see how the rich pay not a dime...

[shyam]

Bill Still's Speech at Bromsgrove 2010

Gem in this speech: “Goldman Sachs was leveraged 333 to 1″

[shyamd]

Another year of living dangerously for UK banks

Robert Peston | 08:28 UK time, Friday, 17 December 2010

2011 will be a make-or-break year for our banks.

That is the implicit message of the Bank of England's latest Financial Stability Review.

By the end of the coming year, we should know whether our banks are once again capable of standing on their own feet, without exceptional support from taxpayers - although they will still be in receipt of some measure of such exceptional loans and guarantees from the state.

The biggest inescapable challenge is a very substantial bulge in the borrowings that our banks have to repay.

According to the Bank of England, up to £500bn of wholesale debt is due to mature by the end of 2012. That includes something over £200bn effectively owed to taxpayers through the Treasury's Credit Guarantee Scheme and the Bank of England's Special Liquidity Scheme.

Of that £500bn or so, between £350bn and £400bn falls due for payment this year.

Now that is a substantial amount of money to raise, in wholesale markets that are a long way from the kind of depth and liquidity of the pre-2007 boom era. It is on a par with the peak amounts raised by banks in the balmy years, so it is by no means certain they will be able to raise it all, in this chillier climate.

To put the challenge in context, the Bank of England regards it as almost miraculous that gross issuance of term debt by the UK's banks over the past year was more than £130bn - a fraction of what will be needed in the coming year.

Of course the banks could reduce what they need to borrow by simply failing to make new loans to businesses and households, as existing loans are repaid. But I don't think any of us would see that kind of return to a credit-crunch lending drought as a good idea.

How can the banks help themselves? Well, the stronger they are perceived to be, the easier and cheaper it will be for them to borrow.

That's why the Bank of England says that "banks' board should apply restraint in distribution of profits to equity holders and staff". In other words, cash should be hoarded as capital, to protect against potential future losses, rather than paid out in bonuses and dividends.

With decision time looming for banks' boards on how much to reward both shareholders and staff, it will be fascinating to see whether they are prepared to defy their new regulator.

And it isn't as though there aren't potentially substantial shocks for the banks to absorb in the coming few weeks. The big looming risk for the world's banks - not just ours - is a funding strike for weaker eurozone economies that threatened insolvency for governments, companies, households and banks (see my recent note on the refinancing challenge for Spain, for example).

As the Bank of England points out, the direct exposure of the UK's banks to Greece and Portugal is relatively small. But what they are owed by all sectors in Ireland and Spain, for example, is typically equivalent to three quarters of their loss-absorbing capital. So any perceived worsening in the ability of Ireland and Spain to keep up the payments would do genuine harm to our financial institutions.

But perhaps the greatest immediate threat is of contagion via the banking system, because of the interconnectedness of banks - whose perniciousness was demonstrated beyond doubt in the Great Crash of 2008.

So, for example, major UK banks' claims on French and German banks are around £140bn, or not far from 70% of loss-absorbing capital. Which means that if those eurozone banks most directly exposed to the fortunes of the eurozone begin to suffer, their pain will be felt by our banks - and, by extension, by a British economy dependent on the health of the banking system.

Update 1332: LLoyds is increasing its provision for losses on Irish lending to £4.3bn, which means it has now in effect written off more than half the value of its £26.7bn of Irish loans.

This just shows how bad things are going to get in 2011. At least 1 G8 country will collapse. I think the Rupee is going to strengthen strongly over the next 2 years as more and more money moves into Asia, this is the long term trend. More and more wealth will shift to Asia, specifically India. I think the textile export industry and many others will take a hit.

[Neshant]

Jim Rickards :

http://outerdnn.outer.jhuapl.edu/rethin ... Video.aspx

[Ambar]

When speculating in stock market becomes a nation's favorite passtime, such incidents are to be expected.

Bangladesh investors riot over stock market fall
Small investors stage street protests in Dhaka, Bangladesh, on Sunday after the stock market's steepest fall in a single day Ordinary Bangladeshis have been tempted into the stock market by higher returns than banks

Hundreds of angry investors have staged protests in the Bangladeshi capital, Dhaka, after the stock exchange saw its steepest ever fall in a day.

Reports said they threw bricks at police, marched in the streets shouting slogans, and staged a sit-down protest.

Shares in the stock exchange suffered large falls within hours of opening on Sunday as panicked investors went on a selling spree.

The index ended the day down by 552 points or 6.72%.

It has been on a rollercoaster ride in recent weeks, hitting a record high on 5 December, having climbed 80% since the start of the year.

But on 8 December it nosedived, prompting protests in Dhaka and towns elsewhere.
Slogans

On Sunday, at least 500 investors hurled bricks at law enforcement officers near the Dhaka Stock Exchange and the Securities and Exchange Commission (SEC) offices, said local police chief Tofazzal Hossain according to AFP news agency.

"They chanted slogans against the government and the regulators, and marched through the busy roads in the Motijheel Commercial area, halting traffic. They also staged a sit-in at the SEC building," he said.

Analysts say Sunday's index fall was triggered by a central bank interest-rate hike.

The regulators have also taken measures in recent weeks to restrict money supply into the share market after concerns that stocks were overvalued.

The move forced big institutional investors to withdraw from the market, triggering panic among individual investors.

The rising value of the stocks in recent years has attracted hundreds of thousands of small-scale or retail investors in Bangladesh, says the BBC's Anbarasan Ethirajan in Dhaka.

It became a popular investment for ordinary people, often providing higher returns than bank deposits and savings.

Regulators have now agreed to relax some of the conditions, hoping that will increase the money supply and stabilise the market, he says.

[shynee]

Ghost towns in Florida

[abhischekcc]

>>Gem in this speech: “Goldman Sachs was leveraged 333 to 1″

LTCM was leveraged 332 to 1 when it fell. And Goldman was instrumental in its fall because of front running.

[shyam]

State Budgets: Day of Reckoning

Steve Kroft reports on the precarious financial conditions many states are facing and what they're doing about it.

[Hari Seldon]

State Budgets: Day of Reckoning

Steve Kroft reports on the precarious financial conditions many states are facing and what they're doing about it.

Great find there. Must watch, IMHO. I've sorta been waiting for a blowup in state and local gubmint financing for a while now and then lost interest when the thing seemed all set for a Federal bailout, some QEx that would pull them out this year, one more time, ad infinitum.

The pakistan is starting to inch towards the fan so recklessly even the mainstream dhimmedia, handmaiden of the elite and the powers that be, has started to notice.

Something maybe up for 2011.. Or not. Time will tell. Whether we like it or not.

Awrite, here's from TAE on the same...

The story of the day must be Steve Kroft's 60 Minutes segment that aired yesterday under the title “The Day of Reckoning” (see video below). While it’s sort of a shame Kroft didn't interview, say, California's outgoing and incoming governors Arnold Schwarzenegger or Jerry Brown, there's still plenty of good stuff in the show, in particular his conversations with Meredith Whitney and New Jersey Governor Chris Christie.

A strong indication of how hard it will be to even begin to solve these issues comes from Meredith Whitney. When Kroft asks her: "How accurate is the financial information that's public on the states? And municipalities?" , Whitney says: "The lack of transparency with the state disclosure is the worst I have ever seen." "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

In other words, it’s safe to assume that the financial situation the majority of states is in is worse, if not much worse, than is known today. Still, Meredith Whitney thinks states will honor their debts. Only, they will achieve this by squeezing the last drops of financial blood from those levels of government that are lower than they are: counties and municipalities. I wonder if Whitney's right here, but if she is, that will be one painful squeeze at municipal and county level. And a very temporary "solution" to the problems.

[Hari Seldon]

The NYT !0th annual year in ideas

OK, so every yr NYT published what its editors think are the 10 best ideas from that year, like so many other overflowing top-10s, countdowns and all for the year going by.

For the 10th consecutive December, the magazine has chosen to look back on the past year through a distinctive prism: ideas.

Our digest of short entries refracts the light beam of human inspiration, breaking it up into its constituent colors — innovations and insights from a spectrum of fields, including economics, biology, engineering, medicine, literature, sports, music and, of course, raw-meat clothing. Happy thinking!

Guess what's the #1 big idea for this year? Do-it-yourself-macroeconomics only. LOL. sweet vindication for the vanguard econobloggers who seeded the movement and held on against ridicule and more.

D.I.Y. Macroeconomics

Until recently, the economics profession largely controlled the production, dissemination and interpretation of economic data. Now there’s a new trend afoot: do-it-yourself macroeconomics, in which ordinary citizens pull apart the data and come to their own conclusions.

The democratization of economics owes much to the financial crisis that first hit in 2007. That ongoing catastrophe, which few economists predicted, tarnished the profession’s reputation, prompting some to look elsewhere for answers. They turned to — where else? — the Internet, where vast amounts of economic data that had once been hidden from public view were now online. Sites like FRED, maintained by the Federal Reserve Bank of St. Louis, enabled anyone with a connection to the Web to download data on everything from local home-price indexes to credit-card balances to weekly fluctuations in diesel prices.

At the same time, a growing army of knowledgeable “econo-bloggers” began analyzing the data available online. Strikingly, many of the authors of these blogs — the brains behind the Big Picture, Calculated Risk, Mish’s Global Economic Trend Analysis and others — aren’t academic economists but people with real-world experience in financial markets. Their Web sites offer sophisticated interpretations of economic data and hold passionate debates with their readers over the merits of the data. As a result, economic data that were formerly greeted with grudging acceptance by the public — the latest unemployment figures, for example — are now the catalyst for endless popular exegeses.

[kmkraoind]

China Frets About Spreading EU Debt Woes

[ashokpachori]

Things are good in Iceland.


Iceland, a NATO founding (one of the) member without a standing Army, a whale hunting nation of 300K inhabitants had a roller coaster ride as far as the economy is concerned. While Iceland is a highly developed country, until the 20th century it was among the poorest countries in Western Europe. Iceland gave Bobby Fischer - The lone US world chess champion - citizenship/passport.

In 2007, Iceland was the seventh most productive country in the world per capita (US$54,858), and the fifth most productive by GDP at purchasing power parity ($40,112).

Then in 2008, 3 of its biggest banks collapsed with huge amount of money, their combined debt exceeded approximately six times the Iceland´s GDP totaling about 20 billions.

Icelandic officials, including central bank governor Davíð Oddsson, stated that the state did not intend to take over any of the banks' foreign debts or assets. Instead, new banks were established around the domestic operations of the banks, and the old banks will be run into bankruptcy. The Icelandic economic crisis has been a matter of great concern in international media.

There was time when Iceland krona reached the record 250 to one Euro. Highest interest rates ever, government got changed, folks moved to Norway. Most money is owed to depositers of UK and Holland who are persuing this matter vigorously with Iceland government.

UK and the Netherlands might retaliate by blocking a planned aid package for Iceland from the International Monetary Fund (IMF). Under the deal, up to 4% of Iceland's Gross Domestic Product (GDP) will be paid to the UK, in sterling terms, from 2017-2023 while the Netherlands will receive up to 2% of Iceland's GDP, in euro terms, for the same period. Talks between Icelandic, Dutch and UK ministers in January of 2010 dubbed as "Icesave" did not result in any specific actions being agreed upon.

Iceland´s economic sea saw battle is interesting.

[Hari Seldon]

A gr8 piece by Mike Hudson here:

Financial Interests Dictate Sovereign Policy

Hudson's been a voice of sanity and of the aam aadmi in the titanic clash of institutional and elite interests that both agree on screwing up the common man types. Hudson's timely advice to the Latvian gubmint saved it and its people a ton of trouble, even though they're currently in dire straits, it could have been a lot worse. I recall reading hudson's column on 'neo-colonism' by sweden against Latvia and was quite influenced by the arguments, the data, the clarity and the ethic.

OK, read and see for yourself... excerpts.

"...The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation. Iceland’s Viking raiders, Ireland’s Anglo-Irish bank and other foreign banks are trying to avoid taking losses on financial claims that are largely fictitious, inasmuch as they exceed the ability of indebted economies to pay. The ‘crisis’ can be solved by making the banks write down their debt claims to realistic ‘junk’ valuations. There is no need to wreck economies by subjecting them to financial asset-stripping.

In such cases there’s a basic principle at work: Debts that can’t be paid, won’t be. The question is, just how won’t they be paid? As matters stand, countries are being told to subject themselves to massive foreclosure – not only a forfeiture of homes, but of national policy.

In this respect the sovereign crisis is a crisis of sovereignty itself: Who shall be in charge of the economy, its tax philosophy and public spending: elected officials acting in the public interest, or an intrusive financial oligarchy? ...

The proper aim of a national economy is to promote capital formation and rising living standards for the population as a whole. not a narrowing financial class at the top of the pyramid.

More...

First, shift taxes back onto land and resource rent, and onto financial and capital gains. This will prevent another real estate bubble from being inflated by debt leveraging. By holding down housing prices, it will save labor from having to pay an equivalent amount in income tax. Low real estate taxes (under 1% until just recently) have not saved homeowners money in Latvia. Low property taxes merely have left more rental income to be pledged to banks, to capitalize into large mortgage loans.

Tour-de-force. Essentially, Hudosn says why deflation helps the aam aadmi and hurts the elitemen more. No wonder the elite special interests and their captured institutions and agencies all wanna stave it off even by destroying currency if they can.

Second, de-privatize basic utilities and natural monopolies to save Europe from rentiers turning it into a tollbooth economy. Europe needs a central bank that can do what central banks are supposed to do: create money to finance government deficits. But the European Central Bank and article 123 of the European Constitution as amended by the Lisbon Treaty prevents the central bank from lending to governments. This forces governments to levy taxes to pay interest to banks – for creating electronic credit that a real central bank could just as well create on its own computer keyboards.

Government banking is not necessarily inflationary. It finances what is necessary for economies to grow: investment in infrastructure and capital formation to raise productivity and minimize the cost of doing business.

What turns out to be inflationary is commercial bank lending. It inflates asset prices – unproductively. Banks lend mainly against real estate and other assets already in place, and stocks and bonds already issued. This is unproductive credit, not real wealth creation. The only way to keep this unproductive debt overhead solvent is to inflate asset prices more – by untaxing assets to leave more revenue to pay bankers on exponentially growing debts.

It doesn’t have to be this way. The recent 30 years of financial polarization is reversible. The alternative is to succumb to neoliberal austerity."

Amen. Still, greatest good for the greatest number prevailing own;t be so easy. Certainly won't come without a fight. I for one shall keep close watch on developments, signs, rumors, signals of impending class-conflict on a large scale.

IMO Jesse says it best...

I think that most people know what needs to be done in their conscience, but their hearts have become so hardened over the past twenty years that the message will be ignored until after they undergo a period of suffering on the scale of the worst of the twentieth century. May God have mercy on us all.

More...

With regards to the global financial crisis, imposing austerity is not the answer. That is like starving the slaves to improve their condition by making the plantation more profitable. Looting the 'great house' and the barns to feed the slaves, at least temporarily, is not the answer either. The problem is obviously in the system itself.

But either expedient solution suits the external monied interests promoting the system who seek only to plunder and drain the assets and labor of others who are all their common prey, whether they feel their kinship or not. An unjust and unsustainable system tarnishes all participants and leaves them vulnerable to exploitation and decay.

It is the root causes of the debt and the imbalances in the system that must be addressed to make any reform sustainable. And this obviously includes addressing abuses such as the promotion of a global trade regime that is inherently unjust and imbalanced to the favor of the oligarchs of whatever political wrappings around the world who hold the greater profit to themselves and leave their people relatively impoverished and exploited. And it also includes the waging of unfunded wars to protect and promote privileged commerical interests, and a political funding system that is little more than soft graft and an open invitation to corruption by special interests.

It begins with a debilitating system of taxation by the monied interests on every commercial transaction in the form of fees and commissions, and the abuse of a money system that is little more than a fraud perpetrated by private interests for the benefit of a few at the expense of the many. If you wish a simple measure of this, then look to the median wage.

Greed is not good. Greed is a disease, an abberation of simple honest ambition and necessary provision taken to excess.

OK, Jesse's polemics have good rhetoric and all but the basic point in nonetheless valid.

[Hari Seldon]

Scribd download link here for:When Money Dies - The Nightmare of the Weimar collapse

By Adam Fergsson (Not Niall Ferguson).

Scanned through a bot and seems to have decent info and context and a well researched and not overly alarmist narrative.

[Singha]

you know things are bad when a state relies on IPOs to tide over its revenue shortages...

http://www.bloomberg.com/blogs/paul-ked ... ornia.html

[Rahul Mehta]

Icelandic officials, including central bank governor Davíð Oddsson, stated that the state did not intend to take over any of the banks' foreign debts or assets. Instead, new banks were established around the domestic operations of the banks, and the old banks will be run into bankruptcy. The Icelandic economic crisis has been a matter of great concern in international media.

But "who" decided that banks will be allowed to die? Was it citizens of Iceland who forced this decision on Ministers, Central Bank Governors or did Ministers decided without pressure from citizens? And what did citizens of Iceland want? Did they also want banks to die? Or did they want Govt to take over debt of the banks?

[Ambar]

Icelandic officials, including central bank governor Davíð Oddsson, stated that the state did not intend to take over any of the banks' foreign debts or assets. Instead, new banks were established around the domestic operations of the banks, and the old banks will be run into bankruptcy. The Icelandic economic crisis has been a matter of great concern in international media.

But "who" decided that banks will be allowed to die? Was it citizens of Iceland who forced this decision on Ministers, Central Bank Governors or did Ministers decided without pressure from citizens? And what did citizens of Iceland want? Did they also want banks to die? Or did they want Govt to take over debt of the banks?

I think they had some sort of nationwide voting, and the citizens unanimously voted against the bailouts.

[Ambar]

Hari,Vina and other mullahs : What are the negative consequences of a country defaulting? Most economists from the Austrian school of thinking prescribe defaults than bailouts/tax increases.Isn't default a form of mitigating moral responsibility?

[Rahul Mehta]

1. Hari,Vina and other mullahs : What are the negative consequences of a country defaulting?

2. Most economists from the Austrian school of thinking prescribe defaults than bailouts/tax increases.

3. Isn't default a form of mitigating moral responsibility?

1. I am a common, and not a mullah (aka learned person). The consequences of defaults on external loans are all 100% non-negative, IMO. And IMO, those (non-BRites) who oppose defaults on external loans should be dismissed as agents of external lenders. The best positive consequence of defaulting on external loans is that no one will lend us in future. Good riddance. But defaulting on external loans needs a non-corrupt leadership which we dont have. So first we should focus on getting a non-corrupt leadership so that we can default. Aside : We should not default in internal debt.

2. AWMTA

3. What morals?