Perspectives on the global economic meltdown

shyam · Post by **shyam** » 06 Sep 2009 04:09

US seem to have wonderful congressmen like this.

"the more we owe, the wealthier we are." - may be another definition for ponzi scheme

Singha · Post by **Singha** » 06 Sep 2009 06:22

the next strategic innovation - no its nothing physical...read on...

http://www.nytimes.com/2009/09/06/busin ... ml?_r=1&hp

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
.............
.............
Not all policyholders would be interested in selling their policies, of course. And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment.

But even if a small fraction of policy holders do sell them, some in the industry predict the market could reach $500 billion. That would help Wall Street offset the loss of revenue from the collapse of the United States residential mortgage securities market, to $169 billion so far this year from a peak of $941 billion in 2005, according to Dealogic, a firm that tracks financial data.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

shyam · Post by **shyam** » 06 Sep 2009 06:58

^^^
It was there for long. There was a report in Businessweek on this long time back. Those bonds are called "Death Bonds"!!

Neshant · Post by **Neshant** » 06 Sep 2009 07:58

The insurance companies don't have the money to pay off life insurance policies of soon to be dead baby boomers. So they need to get it off their books asap before the death curve goes exponential.

Its a repeat of the real estate CDS fiasco except insurance companies are now trying to pull the same scam they fell for. LOL

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2009 08:03

If whatever 'investors' they are targetting fall for another rehash of the securitization scam, I'd say the said investors jolly well deserve it.

However, I doubt selling the same lemon will be as easy the second time. That said, many instgitutional investors (pension funds, cities and towns among others) are both vulnerable and desperate enough (or perhaps their top echelons are drawn from the GS/JPM/Wall St blue blood) to sink their trustees funds and future further and forever.

Time will tell. And it will be telling.

shyam · Post by **shyam** » 06 Sep 2009 09:03

Neshant wrote:The insurance companies don't have the money

Actually, I suspect that some insurance crisis will happen down the line.

Typically, insurance companies use stock markets and other investment opportunities to multiply the premiums they collect from policy holders. Only through this multiplication factor they can cover the claim payouts, which are normally several times the premium paid. With stock markets and other profitable investment opportunities going down, they won't be able to obtain their standard multiplication factor. This should force some insurance companies to default or start raising premiums to unaffordable levels.

Singha · Post by **Singha** » 06 Sep 2009 09:17

so the dance goes on...the US can imo try all tricks...dance 20 times around the Shinto shrine with a flaming torch in hand...but net prediction is living stds and quality of life issues for vast majority will take a nosedive over next generation.

ofcourse the GS/JPM elites will feed on every misfortune and make out like bandits - as usual. the beltway elite is also well protected. but these are small invisible minorities that are rounding errors in a 300 mil pop.

Neshant · Post by **Neshant** » 06 Sep 2009 10:22

The more I look at it, the more it appears an elite few are ripping off the system leaving the vast majority to hold the bag. Unless there is some master plan I have not understood, it appears govt is almost complicit in aiding this elite.

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2009 15:49

Neshant,

Kindly read through the blogpost I linked to a few days back talking about the perfect pillage of Argentina to uncover one possible algorithm of how the complicity and the spoils go. Conspiracy antennae shudder massively only.

Meanwhile, more evidence for the presumption that another prominent critic and D&G Ayatollah of recent vintage has been co-opted only.

RoubiniRoubini: 'U-shaped' recovery possible

Wow, eh? U-shaped instead of V shaped. Why not the A-shaped recovery now, eh?

Singha · Post by **Singha** » 06 Sep 2009 21:40

with reagan, both the bushes and kilton sir overseeing the creation of this mess, now foxnews is sharpening the knife to hit the fall guy. I have a strong feeling no republican overlord wanted this presidency or the next
term. they will let the dems take all the blame, do bvr sniping from the woods and enjoy the show.

Why the Obama Administration Will Implode In Weeks

I was the first pundit to predict that Barack Obama would become president. Here's what I think we can expect from this administration in the next six to eight weeks.

Never has an administration had more political firepower at their disposal yet been set to so totally fail in the next six to eight weeks. It is nearly a foregone conclusion. It is nearly unavoidable. And it defies all logic given the sizable majority the administration has in both houses of Congress.

Since I was the first pundit to predict Obama's presidency (back in December 2006) it behooves me to tell you the course I believe the next few weeks will take. Just think, it was only a few months ago that the left looked unstoppable in bringing about their plan to radicalize, nationalize, and federalize America.

1. Health Care's Long and Painful Death

Barring the existing possibility that the Democrats cram a reform bill down the throats of actively protesting Americans through an ultra-partisan process that would shut out conservatives and Republicans from even being allowed to contribute to the discussion, health care reform is dead.

It actually died a good while back when the president decided to pivot and create a new issue that no one had been discussing--health insurance reform. The American people will want to know why we should spend $4 billion to cover everyone in America "efficiently," when we already do so with inefficiencies like people using the emergency room as their general practitioner for $2.5 billion.

Deep thinkers on the issue also want to know why the president hasn't entertained one item of tort reform-- protecting his friends, the trial lawyers-- yet is willing to claim that doctors are eager to lop off feet, tonsils, and other body parts just to make a buck.

2. Cap-and-Trade Will Be the Largest Tax Increase in American History

With the 2010 election cycle just around the corner, it won't be too long before the campaign ads are drafted. With cap-and-trade still sitting in legislative limbo (and the president's own adviser--Warren Buffet-- now opposing it openly in the media), with anti-tax Democrats, Republicans, and Independents coming to Washington on September 12, and with "Blue Dog" Democrats getting hammered by constituents during the August recess, the chance of an ultra-partisan "ram through" victory on the legislation would not be wise.

Cap-and-trade, if passed, will contribute to unemployment, Wall Street stop and starts, and ultimately reduced treasury revenues. It would serve as the single largest tax increase on the average American in all of American history.

Even President Obama admitted as much, predicting that electric bill prices, in his words, would, "skyrocket." Those that have looked at the specifics tell us that the average utility bill in America will go from $167 to $307 per month, per family.

3. Unemployment Will Remain

By now several Washington organizations, from left and right, and one of note consisting of both--the Congressional Budget Office, predict that unemployment will not shrink from the predicted "Obama high" of eight percent. Instead, nearly without fail, economists are predicting that unemployment will be at or over 10% for up to the next 24 months.-- That is a nearly 250% increase in the unemployment rate under Bush for nearly the duration of his two-term presidency. We did not see the unemployment climb this high during President Bush's entire two-term presidency.

If more people were working, higher taxes and possible new health care entitlements could be considered, but with at least ten percent of the population out of work, it is political suicide for Democrats to even think of it.

4. Obama's Integrity Has Been Tarnished in August

Not a great deal has been made of the whoppers that the president has been spewing while Congress has been away during the summer recess but it turns out that more people than I realized have also noticed the president wildly "exaggerating" in his talks on health care. For instance, the president confused the $500 physicians actually get to amputate a foot as opposed to the $50,000 that he claimed they got. He also showed an utter disregard for the reputation of those doctors he talks about, the "facts" he uses to make his argument, and is highly overly optimistic about the results of his policies. Long story short, at the beginning of the summer Americans mostly trusted him, his passion index was at +10, he heads into the fall at -14.

5. A $3 Trillion Dollar Budget

There was lots of new spending for this and it sure added up. And that brings me to number 6.

6. A Coming Middle Class Tax Hike

The Obama administration will hem and haw about hiking taxes. -- There will be an official, and arrogant, explanation given by Robert Gibbs from the podium in the White House briefing room about why they must to do this to be "good stewards" and to be a "responsible administration" that "pays as it goes."

But the truth is, in order to pay for everything the Obama administration has promised (and budgeted for), a tax hike is looming for small businesses and the working families that President Obama promised would never come.

And as an aside, the president was going to break that promise all along. Because the minute the Bush tax relief measures run out in 2010, middle class taxes would be going up in the Obama administration. That means that, fundamentally, that Obama's "not a single dime" pledge on the campaign trail was just hot air from start to finish.

Of course, the president, the Democrats, the left, and Congressional leadership could surprise me. They could show up in September and endorse the Coburn health care bill in the Senate and steal all the credit for it. They could show up next week and fight with all their might to not allow the tax rates to skyrocket in 2010. They could decide to scrap cap-and-trade and re-think the use of public money for a true job-based economic stimulus.

But I'm not holding my breath, and I'd advise you against it as well.

They've awakened the American worker, the American small-business owner, and the American voter.

All three of which are now wondering aloud, "What on earth have we done?"

svinayak · Post by **svinayak** » 06 Sep 2009 23:27

Obama and Martial Law
In the event they even attempt this, they will surely die as a result. I have no intention of obeying anything further coming out of DC. They are in violation of the Constitution, and therefore null and void. If it's "Federal" it's zip.....non-existent authority. People want to avoid being direct about the 2nd Amendment solution. Yet, it's the only one guaranteed to get the job done. Quickly. You can't keep running from that truth. It will come to that, we all KNOW it. Spend your time psyching up to shoot those who attempt to enforce this government crap. Military, foreign troops, FBI, CIA, local cops, whoever, whatever.

KarthikSan · Post by **KarthikSan** » 07 Sep 2009 02:10

Hari Seldon wrote:However, I doubt selling the same lemon will be as easy the second time.

One would think so! Here is a real incident that happened to the in-laws of one my colleagues. They took $ 100K (entire life's savings) out of their retirement account and invested it in a ponzi scheme after all the IB failures and Madoff's scandal. The logic was " We know it's risky but we'll exit before the whole thing goes down"

Well, it went down in 3 months.

The father in law is back to looking for a job. Although I have to give some amount of rope to them because they are Mor(m)ons

Rahul Mehta · Post by **Rahul Mehta** » 07 Sep 2009 08:49

Hari Seldon wrote:However, I doubt selling the same lemon will be as easy the second time.

The lemon buying approximately goes on as following :

1. And every year, some 2% newbies come in market. And many of them do buy lemons again.

2. Of the 1000 victims of 1st lemon, 500 will not buy lemon again, 500 will still buy 2nd lemon again.

3. Of the 0500 victims of 2nd lemon, 250 will not buy lemon again, 250 will still buy 3rd lemon again.

4 ....

===

Also, a lemon buyer is not fool. He knows that he is buying lemon for a price of orange. He hopes that he can sell the lemon for a price of water melon to some other fool. He hopes that such a fool will come, and that fool will have money. And sometimes, he does get a such a fool, who buys lemon for price of water melon hoping that a fool will come and buy it at the price of pumpkin. As long as there is hope that fool will come to buy lemon, lemon buying goes on. Pls note that I am making allegation on lemon buyers. I believe that ALL lemon buyers are smart, but they are all dishonest people. They knowingly buy lemons and have intention of fooling others.

So lets not worry about those who have to drink their lemon's juice.

Hari Seldon · Post by **Hari Seldon** » 07 Sep 2009 11:23

The last temptation of Risk

Longish but easy and well written screed by an uber academic khanomist on the khanomic crisis.

excerpt:

WHY CORPORATE risk officers did not sound the alarm bells is thus clear enough. But where were the business-school professors while these events were unfolding? Answer: they were writing textbooks about Value at Risk. (Truth in advertising requires me to acknowledge that the leading such book is by a professor at the University of California.) Business schools are rated by business publications and compete for students on the basis of their record of placing graduates. With banks hiring graduates educated in Value at Risk, business schools had an obvious incentive to supply the same.

Enough contrition to fill a textbook. Why I wonder? To reposition academia's tattered street cred or something more unholy?

But what of doctoral programs in economics (like the one in which I teach)? The top PhD-granting departments only rarely send their graduates to positions in banking or business—most go on to other universities. But their faculties do not object to the occasional high-paying consulting gig. They don’t mind serving as the entertainment at beachside and ski-slope retreats hosted by investment banks for their important clients.

Generous speaker’s fees were thus available to those prepared to drink the Kool-Aid. Not everyone indulged. But there was nonetheless a subconscious tendency to embrace the arguments of one’s more “successful” colleagues in a discipline where money, in this case earned through speaking engagements and consultancies, is the common denominator of success.

Ouch. So are you saying diyar professor that the venerated academics aren't so high minded after all?

Dileep · Post by **Dileep** » 07 Sep 2009 12:42

Singha, you scare me!!

I guess I should go buy the best yielding tapioca and plantain seedlings, and start planting them in the available land

Singha · Post by **Singha** » 07 Sep 2009 14:37

you will do ok. kerala has rich and fertile land washed by copious rains - you can grow all the vegetables and cash crops desired.

keep in touch with the land and the villages - its the best defence against judgement day.

Hari Seldon · Post by **Hari Seldon** » 07 Sep 2009 21:20

What a shocker. Who coulda thunk it?

Credit Rating Agencies Took “Bribes” for Higher Ratings

Remind me once again why there have been zero-zilch-nada special prosecutor led *****-hunts against the rating agencies, complicit regulators and bankers like Lehmann's Fuld, BOA's lewis, etc to name a few?

Meanwhile, PRC's phenomenal rise appears ever more assured with each passing day, nay hour. (MaoA, MaoA!)

China's Fat Banking Years Are Fading, And Risks Are Rising

Since the stock-holding reform, China's banking sector has seen some years of fat profits, but now for the first time it is experiencing a real test of the economic cycle. There has already been a substantial decline in profits, and accumulating non-performing loans (NPLs) and credit risk are likely to become apparent with the withdrawal of the government's stimulus policies.

Hari Seldon · Post by **Hari Seldon** » 07 Sep 2009 21:41

Ambrose Evans Pritchard lets rip in this gem of a piece here, folks.

Does the world have the courage to deal with its debts?

Must read, IMHO!

We are indeed staring at the prospect of worldwide deflation. This is Irving Fischer's debt-deflation spiral nitemare coming true. A repeat of the great depression, only this time with more public debt than then. Consider the case of japan

There is a "swelling yen" in Japan today. Earnings were down 4.8pc in July from a year earlier. Bonuses fell 11pc. Wholesale prices fell a record 8.5pc.

Yes, Japan rebounded in the second quarter as shipping finance came back from the dead. The free fall has stopped. That is all. Industrial output was still down 23pc in July year-on-year.

What matters for debt service is that Japan's economy has shrunk by a tenth. Debt has not shrunk. It is rising. The public debt will rocket to 215pc this year.

Indeed great time for the LDP to relinquish power to some whacko newbies who'll get booted out of power for the next few decades after what is coming in their present term.

Some may wonder, why not just keep on printing $$$ notes. How can deflation ever occur if one determinedly prints quintillions of currency notes, eh?

White House aides are already mulling another blast of spending. It won't fly. We have hit the political limits of such extravagance almost everywhere. The fiscal crutches of recovery are going to be knocked away, with outright tightening in a slew of states nearing the danger point of debt-compound spirals. This will occur in a world where excess capacity is already at post-War highs. It reeks of deflation.

Irving Fisher explained why the self-correcting mechanism of economies breaks down in his Debt Deflation Theory of Great Depressions in 1933: "Over indebtedness to start with, and deflation following soon after". Most of the West has exactly that, but worse – debt is much higher.

Bernanke is learning that he cannot in fact administer the anti-deflation medicine he talked about so confidently seven years ago. He can act only if and when the danger is so blindingly obvious that resistance crumbles.

Which leads to an inescapable conclusion:

There are three ways out of our mess. We can pursue 1930s liquidation that purges debt through mass default. Such Calvinist destruction cannot be imposed on a modern democracy.

We can devalue debt by deliberate inflation. This will backfire as bond vigilantes boycott government debt - unless rigged by capital controls or "administrative measures". You see where this leads.

Or we can try to right the ship by paying down our debts, very slowly, by sweat and toil, navigating a treacherous course between the Scylla and Charybdis of the twin-flations, for as long as it takes. This is the only responsible course left we as we face the devastating consequences of our own credit delusions. Are we up it?

Are we upto it? No. IMVVHO, of course. Trust the west to dilute, downplay and ultimately default on their debts under cover of high-minded rhetoric and moralizing. They've done it before, after all.

Chinmayanand · Post by **Chinmayanand** » 08 Sep 2009 14:37

Chinmayanand · Post by **Chinmayanand** » 08 Sep 2009 17:53

Report from Marc Faber

Hari Seldon · Post by **Hari Seldon** » 09 Sep 2009 21:23

China eyes US real estate assets

After sitting out most of 2008, China's sovereign wealth fund is looking to dive in to real estate once again, says The Wall Street Journal. The China Investment Corp. is in talks with private equity groups and wants to snap up distressed assets in the U.S. taking advantage of certain government programs, like the PPIP.

Taking advantage of such programs will whip up an American backlash, so it's treading carefully.

Well, beggars can't be choosers or so twas said. TSP was both the norm and the exception twas said. Of course unkil is far from beggared yet, so PRC will find obstructions on its desired path. Uranus and Neptune will align with the sun and the 14th moon of Jupiter.

Hari Seldon · Post by **Hari Seldon** » 09 Sep 2009 21:30

When you can't hide the freakin' obvious any longer, quietly stop pretending as if you never pretended. See, Eastasia was always at war with Oceania. No?

"Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."
- Goldman Sachs Research Disclosure

So GS essentially had its anal ysts say 1 thing publicly to markets (presumably, academic theory would suggest reputational concerns would kick in here?) and bid the other way and quietly make killings time after time every time. Until recently, apparently.

from zero hedge

Gotta admire (and hire) their PR firm though...

Lloyd Blankfein, chief executive of Goldman Sachs, has attacked some investment banking products as socially useless and said that the controversy over bankers’ pay was both understandable and appropriate.

link

Wow, all motherhood n applepie, eh?

SwamyG · Post by **SwamyG** » 10 Sep 2009 00:01

Singha wrote:with reagan, both the bushes and kilton sir overseeing the creation of this mess, now foxnews is sharpening the knife to hit the fall guy. I have a strong feeling no republican overlord wanted this presidency or the next
term. they will let the dems take all the blame, do bvr sniping from the woods and enjoy the show.

The politics in Unkilland is as good or bad as in the banana republics. There was a huge cry over Obama's address to school kids. If he gets something done it will become his legacy. In domestic matters his head is going in the right direction; but the system is totally set up against him. 46 million Amirkhans don't have health insurance and he wants to do something. If he pees,poops, pukes, sneezes or coughs the Republicans will cry he is a 'socialist' - such is the State of the Union.

ramana · Post by **ramana** » 10 Sep 2009 03:05

SwamyG, Take alook at your kids US history books. The period after 1865 Civil War(Reconstrcution) had similar turbulence where racism was masked as political process.

Hari Seldon · Post by **Hari Seldon** » 10 Sep 2009 21:48

US Fires Opening Salvo In Trade Wars With China

Golly, a trade war? Now, won't that be fun? It won't but now that its inevitable, might as well pretend to ensoi the spectacle.

Top Chinese diplomats in Washington on Tuesday warned against "trade wars," as President Obama faces a looming decision on whether to erect barriers against the import of Chinese tires.

"Trade wars between China and the United States is the last thing that our two countries need right now," said Xie Feng, deputy chief of mission for the Chinese Embassy in Washington.

The Obama administration currently is facing a decision on whether to impose tariffs against Chinese tires, following the recommendation of the U.S. International Trade Commission. The president has until Sept. 17 to decide.

The United Steelworkers of America, the union that represents many of the 8,000 American workers who it says have lost or will lose their jobs because of competition from Chinese tire production, called Tuesday for the White House to go further than the ITC recommendation and impose a tariff of higher than 55 percent.

Lotsa rising angst amongst janta and netas in the khanate that PRC's fixed exchange rate system is unfair trade practice. Real cause is that unkil is bleeding jobs at a terrible time - not even paid media cheerleading can cover the fact with propagandu anymore. Something will have to give.

I have long argued that a return to a protectionist future is inevitable. Let the games begin.

Hari Seldon · Post by **Hari Seldon** » 10 Sep 2009 22:04

Why Economists Rarely Say Bad Things About the Fed

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found…

“The Fed has a lock on the economics world,” says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. “There is no room for other views, which I guess is why economists got it so wrong.”

One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.

IMVHO, Huffington Post is as credible as TSP's Don newspaper. However, personally I have little doubt that the above hypothesis is likely to have more than the proverbial grain of truth in it...

Man, some of the comments are quite intriguing. Sample this:

The collusion between state and academe is the post-Enlightenment version of the old alliance that existed between church and state in the Ancien Régime.

Academe currently fulfills the same function that the church did before, and that is to give the state the imprimatur of moral and intellectual legitimacy.

Wow, eh?

Added later:
Someone in the comments made this eerie comparison with how acadhimmic research was run in the erstwhile Soviet Union....This is a good link to get a feel for freedom of thought and the sanctity of truth that the FSU stood for
http://en.wikipedia.org/wiki/Trofim_Lysenko
The khanate ain't that far behind, at least in the ekhanomics profession, seems like.

shravan · Post by **shravan** » 11 Sep 2009 02:55

Ulster Bank withdraws strip show for students offer

Thursday, 10 September 2009

Ulster bank offered college students in the Republic free tickets to a strip show as part of a promotion to encourage them to open new bank accounts.

However, following an outpouring of anger from parents, the bank was last night forced to withdraw from the exotic dancing event being hosted in a Dublin nightclub.
--

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 07:40

x-posting

Dunno whether the fartlantists do or don't own Sri Obama but the latter has, quite nobly, shown himself to be firmly in the grip of special interests, esp of the int'l banking cartel variety.

His latest speech on healthcare also showed him skillfully unable to resist pressure from the powerful med-pharma-insurance lobby in the US.

Meanwhile, EUrostan is making discontent noises about 'PRC unfair trade practices' - something that can only grow as real unemployment levels reach their new normal of ~20% in the emerged mkts of the world.

The Business Secretary, on a visit to Beijing to boost UK-China trade links, also warned on Tuesday that future “tension and disagreement” between China and the EU was inevitable as the trade deficit between China and Europe continues to grow….

Trade relations between Europe and China are under increasing strain, with a series of opinion polls showing that the European public is growing steadily more intolerant of China’s unfair trade practices.

{How quaint. Its the public in emerged mkts that disapproves of unfair phoren competition as opposed to the gubmint of emerging mkt that does obstructs free trade}

Last week, the European Union Chamber of Commerce in China released a report containing 600 pages of complaints by European businesses which had fallen victim to China’s myriad hidden way of discriminating against foreign businesses..

Lord Mandelson said that while such trade was vital to reinvigorating Britain’s economy, there needed to be “constant dialogue” to keep up “legitimate pressure” on China’s government to open its markets more fully.

Whoa, spot-lock-fire about to happen, you say? Not so soon, however

However, he said he did not agree with growing calls from some quarters of the EU for the need to take a tougher stance with Beijing, saying that constructive – as opposed to “conditional” - engagement was in the bests interests of both parties.

“China would say ‘we are a big, complex, fast-growing economy and you have to be patient, give us time’. I understand this, but equally China must understand when we in Europe feel we are being too hard done by.

“These things will even out over time, but in the meanwhile this is going to spark some tension and disagreement, but all of this must be managed because it is in all our interests to see China growing. We would all pay a colossal economic price if China was to fail economically.”

link

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 08:28

Junk Bond Default Rate Worst Since Great Depression

The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July as the worst recession since the 1930s left more companies unable to pay off debt, Standard & Poor's data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.

Default rates have surged from less than 1 percent in 2007 as an economic downturn squeezed corporate revenues and a global credit crunch dried up funding. A 13.9 percent default rate would be the highest since the Great Depression of the 1930s, when it hit 15.9 percent.

Eighteen companies defaulted in August, bringing the year-to-date total to 147. "Credit metrics in the U.S. show continued deterioration of credit quality and restricted lending conditions," S&P said.

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 08:53

The venerated Harvard Univ had last yr lost a good part of their endowmnts which were designed to harvest some 'illiquidity premium' from the mkts. We scoffed and made fun of Harvard's long standing position that were indeed smarter than the rest of us and hence, rightfully, richer too. Time, it seems has vindicated their stand as this year's results for their endowment show. Pls join me in congratulating HU for this stunning turnaround. It takes a big heart to admit it was wrong. Let us have big hearts, ladies and gentlemen!

Harvard University's endowment lost 27.3 percent of its value in its most recent fiscal year, or nearly $11 billion, as tumultuous markets ate away at one of the school's main sources of funding and forced a number of cutbacks.... For the endowment, the losses were a stunning rebuke of investment strategies that in previous years had produced tremendous gains, and made the fund's managers the envy of the university endowment world... Harvard went into 2009 with a negative 3 percent cash in its portfolio, meaning it was borrowing money to squeeze extra returns out of its investments. (In prior years, the cash position was even lower, at negative 5 percent.) Mendillo has shifted that dramatically, to keep 2 percent of the fund, or more than $500 million, in cash.

link

svinayak · Post by **svinayak** » 11 Sep 2009 09:09

Why Boomers Will Retire More Comfortably Than Their Parents
U.S. News & World Report
By Matthew Bandyk Matthew Bandyk – Thu Sep 10, 2:37 pm ET

On the surface, the future looks bleak for baby boomers. The Center for Economic and Policy Research projects that the median baby boomer household lost 45 percent of its net worth between 2004 and 2009. So why does retirement expert Ken Dychtwald think that boomers' retirement will still have a high quality of life? Dychtwald is a psychologist and the author of 16 books on aging, including his latest, With Purpose: Going From Success to Significance in Work and Life. He argues that retirement for this generation will be so different from traditional retirement that maybe we'll need a new word to describe it.

[See 10 Places to Relive the '60s.]

Perhaps the big reason retirement is changing is that life spans are changing. Increases in obesity and heart disease have not gotten in the way of continual increases in life expectancy over the past 100 years. In 1950, when many of the baby boomers were born, the average 65-year-old was expected to live an additional 13.9 years, according to the Centers for Disease Control. In 2006, a 65-year-old was expected to live 18.5 years longer. Dychtwald says this doesn't mean our health is improving; it's more a shift in attitude. "When our moms and dads reached their 65th or 70th birthday, they felt like they were in the ninth inning, and they were quite happy. Now, boomers look around and see 80-year-old newlyweds and 90-year-old marathon runners," he says.

[Also see Slide Show: Great Places for Entrepreneurs to Retire.]

Many boomers will retire later than their parents did. To some, the delay might seem like a sign of declining living standards. Retiring early has long been a mark of success. "Now we're seeing a lot of questioning of whether 20 years of nonproductive leisure is affordable or even enjoyable. Somewhere between 60 and 65 percent of retirees don't like it at all," he says, arguing that we may see a period of semiretirement for many boomers--starting a business after ending a career, for example. At the same time, Dychtwald recognizes that for many boomers, going back to work will be a necessity. "It's a generation that grew up with such abundance that unfortunately, they have not been saving for a rainy day," he says. Even without the recession, retirement would have to be delayed for many. "The combination of the absence of savings and the strain on the entitlements are going to cause this generation to have a greater struggle than any generation since the 1930s and 40s."

However, greater financial strains don't necessarily mean a lower quality of life for retirees. Dychtwald says retirees have much to look forward to. "The boomers have such enormous demographic heft that as they migrate into maturity, nearly every provider of products and services--whether it's software, vitamins, shoes, cars--is going to realize that [boomers] are where the numbers are, and that's where the money is," he says.

For decades, marketers have been targeting the 18-to-35 demographic with the "get them while they're young" reasoning. But Dychtwald says the country's changing demographics means the logic no longer holds up. "Increasingly today, we have 50-, 60-, and 70-year-olds who are trying new things. People at every age--particularly the boomers--want to try a new car, want to visit a new Web site, want to see new movies. You've got a lifetime of appetites for people who want to try new products."

What kind of products? Dychtwald sees new advancements specifically aimed at older Americans: information technology, for example, that could make it possible for nanotransmitters to monitor your state of health. Social networking is another area ripe for growth. "In terms of ability to continue learning, to share information about how to care for a parent, to connect with old friends--it has enormous potential. Somebody could come up with the idea of an Internet cemetery and make a fortune," Dychtwald says.

A host of new products will be coming down the pike, he adds, but the new consumerism won't be about crass materialism. The future for baby boomers might be more about creating better relations with loved ones than acquiring fancy gadgets. "One of the weaknesses of the previous retirement model has been that we asked very little of retirees, and the majority are bored. I believe the boomers will trigger a revolution in volunteering, in entrepreneurship. This generation will not go off to the sidelines," Dychtwald says.
http://news.yahoo.com/s/usnews/20090910 ... eirparents

Singha · Post by **Singha** » 11 Sep 2009 09:12

the shaping of opinions and society to make people work until 75 has started.

svinayak · Post by **svinayak** » 11 Sep 2009 09:56

http://bespokeinvest.typepad.com/bespok ... oomer.html

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 14:33

Sarkozy calls for carbon tax on imports; Economists warn on consequences

Whuddathunkit, eh?

More to the point, carbon credits tamasha was always about establishing another non-tariff barrier to global trade that even better, the emerged khanomies could manipulate using "world opinion about climate change", whatever that means.

So yup, I'd take all these public stances with a grain of salt, to start with.

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 14:35

Adding to my post about endowment pains at Harvard, similar news from its New haven based neighbor....

Yale endowment slumps 30%

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2009 19:32

Jesse over at Cafe Americain is a treat to read.

Here, he pontificates over the honorable Samurai thing to do in the face of the global slump

Apparently, no less a personage than the former deputy governer of the bank of japan has asked that the gubmint directly buy up bank stock to prop up their equity values. Stop and consider that for a moment.

Mr. Muto goes on to recommend that the Japanese Central Bank and government throw principles aside and buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

Notice how in his talk, Muto says that this arrangement will be temporary, until Japan can export its way out of its financial difficulties.

Jesse rightly notes that this is something on a scale that might even make a wall street banker blush. Gasp.

Japanese officials sometimes have the endearing quality of coming out and openly saying what they are doing, or intend to do, in support of dodgy political and financial arrangements that would make a Wall Street banker blush, if they are still capable of such an act of modesty....

Can't get more mercantilist than the good ol' far east. Japan, PRC and Soko are some of the most hard to penetrate mkts not because their domestic producers are too good to beat but because they are so bad they need overgenerous gubmint protection via all manner of tariff and non-tariff barriers.

Japan is one of the worst examples of crony capitalism in the world. Its ruling LDP party has been a disgraceful example of serving private corporate interests, and acting without honor, honesty, and integrity.

Why doesn't the Bank of Japan just give the money to the banks, and let them buy stocks higher using leverage in the futures index markets like the Anglo-American crony capitalists? This is considered much more respectful of the market driven economy in the West.

Jesse further notes, about Japan's grand "we'll export our way out of this hole, like in the past":

The challenge might be that most of the countries intend to 'export' their way out of their central bank created economic difficulties. China and India have already passed on the notion of becoming mass importers in the foreseeable future.

Perhaps the fate of the world rests on the ability of the nations of Africa and Polynesia to obtain the suitable credit ratings and FICO scores to become mass consumers with debts that can not possibly ever be repaid, à la mode Amerique? Is South America willing to once again mortgage its future for the sake of the financiers? I am sure that any appropriate arrangements can be made by the Central Banks with the target nations' ruling elites.

Read it all fellas. Worthwhile onlee.

kmkraoind · Post by **kmkraoind** » 11 Sep 2009 21:16

Magna’s Opel Plan Challenged by German ‘Sacred Cows’

At least in "Core Europe" Germany is clearly leaning towards Russia and is not aware in converging its interests with that of Russia.

Neshant · Post by **Neshant** » 12 Sep 2009 00:37

interesting that the further from white the skin color of a country is, the worse the IMF prescription.

----

Stiglitz warns of economic double dip

http://ca.news.yahoo.com/s/afp/090907/b ... stiglitz_1

Iceland, which had suffered mightily in the current global downturn, last October needed a 2.1-billion-dollar (1.5 billion-euro) rescue loan from the IMF.

Stiglitz in a speech at the University of Reykjavik maintained that Iceland had in fact received gentler treatment from the IMF than had other countries, sparking resentment, for example, in Thailand, a Fund recipient in the late 1990s.

"The programme in Iceland has been very unusual for the IMF and you should recognize that, that they did not follow the standard prescription that they did in most of the world, which would have been immediate fiscal contraction, no capital controls and very high interest rates.

"You should understand that, that you got more generous treatment has caused a lot of resentment in the rest of the world. I was just in Thailand and people were saying 'double standards, you treat people in Europe better than you treat people in Asia.'

Hari Seldon · Post by **Hari Seldon** » 12 Sep 2009 04:57

SwamyG,

You'd once asked for links/sources for my claim that the IMF prescribed harsher measures for desperate colored countries than for the safeyd ones. That link by Neshant above nails it, IMHO.

Meanwhile, if you are currently invested in the US equities mkt, you may wanna reconsider your investmt there. This just in:
Insiders sell like there's no tomorrow (CNN Money)
Which means there prolly is no tomorrow. They, the insiders, would know. No?

Corporate officers and directors were buying stock when the market hit bottom. What does it say that they're selling now?

NEW YORK (Fortune) -- Can hundreds of stock-selling insiders be wrong?

The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.

But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

"It's not a very complicated story," said Charles Biderman, who runs market research firm Trim Tabs. "Insiders know better than you and me. If prices are too high, they sell."

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the InsiderScore.com web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000.

"That was a great call," Silverman said. "They were buying when prices were low, so it makes sense to look at what they're doing now that prices are higher..."

Singha · Post by **Singha** » 12 Sep 2009 06:39

two more banks have failed at cost of $1.7b to the FDIC. brings total to 91.