First!!!

Professor, your recent posts are more and more about other people’s view on you, rather than your view on the economy and financial situation. I’m expecting more analysis from you.

Ben Bernanke, August 22, 2008″Although we have seen some improved functioning in some markets, the financial storm that reached gale force has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment”John Kenneth Galbraith on the Great Depression”Had the economy been fundamentally sound in 1929 the effect of the stock market crash might have been small…. But business in 1929 was not sound; on the contrary it was exceedingly fragile. It was vulnerable to the kind of blow it received from Wall Street. Those who have emphasised this vulnerability are obviously on strong ground. Yet when a greenhouse succumbs to a hailstorm something more than a passive role is normally attributed to the storm. One must accord similar significance to the typhoon which blew out of lower Manhattan in October 1929″Galbraith, J.K (1966), The Great Crash, 1929 Hammondsworth: Penguin Books p. 204.

Will we have depression deflation or worse yet, recession stagflation; as this debt crisis unfolds?My gut feel and its a wild guess at this point is we’ll see both. We’ll see recessionary stagflation in oil and food. We’ll see depressionary deflation in housing, incomes and anything resold used. Will commodity price increases affect the prices of materials to build homes? Yes and no. I see price increase demands on lumber, but a demand decrease on lumber too. This has already affected closing or curtailing lumber mills.In the end, when the holder of assets needed cash during the Great Depression, a can of cash bought an apartment building, because no one had any available cash and bank doors were locked.

Ninth!!!

So what if preferred shareholders of F&F would be hurt, and if they are small banks? Let them fold. It’s probably cheaper to pay off their insured deposits thru the FDIC, and paying off preferred shareholders who had no right to expect any implicit guarantee (actually the bondholders didn’t either, but maybe not everyone would go that far) would cause an unacceptable increase in moral hazard.No preferred or common shareholders should see a dime in a nationalization or bailout of F&F, they should be wiped out. Those are the rules we play by.

This should rally the Dow another 100 higher:1:01 p.m.[EQ] Embarq to cut 500-700 jobs, 300 contract positions: report

“I’m expecting more analysis from you.”You can’t write a post everyday about the global recession / bust. Most of us already saw it coming a year ago !!!

“Executives of Freddie Mac , the nation’s second-largest supplier of mortgage capital, are trying to convince private-equity firms and other investors about the possibility of buying new common or preferred shares in the mortgage company.”The function of a CEO in the usa is to run his company properly and/or sell its rightly?

The Korean Development Bank is not going to buy Lehman Brothers. Koreans don’t suffer fools like Dick Fuld, who thinks he is exceptional because he is on the Board of Directors of the New York Federal Reserve. They are not “innocent money” like Buffett described others to be. Lehman Brothers has a problem of spinning off or selling Neuberger Berman asset, that is only an assett if the management doesn’t take a hike. Lehman has no business model beyond the assets to sell. High risk securitizations are not in fashion. There are too many investment banks and the field will boil down to 2 or 3 american investment banks. The commercial banks with depositors is another story and that is why you see Buffett trying to determine who is going to survive to take the deposits of the american people. That field will be reduced substantially, but the survivors will have a viable and tested business model with less competition. The devil is in the details, because there is no transparency. If you want to boil off some banks eliminate the banks that ran irrational option ARMs and pick-a-pay chose your payment loans. Washington Mutual, Wachovia, Bank United did a boat load of these. I honestly don’t know how many skeletons in the closet pertain to Wells Fargo. National City did second trust deeds behind neg ams, which was stupid underwriting. I better stop, because the irrational underwriting goes on and on. If you are going to hunt for survivors of the culling of the heard in investment banks and commercial banks, you have better do a lot of homework!! I also recommend “Chain of Blame” and “The trillion dollar meltdown” as great backround narratives. Good luck with that!More important than scoring stock at the bottom is finding solutions to the fundamental defficiencies of our system. It is very important that we all understand that this is a Perfect Storm of Corruption and Incompetence in all fields of human endeavor. There are multiple global catastrophic risks that we must focus on. The environmental and global warming crisis is not fake. The lack of concern for Nuclear Proliferation is a real danger. The increase of Militarism pervading and superceding the beauty of commercial peaceful globalization is real. We all love the potential of the Markets to advance technology and human progress, but we must not be economic fundamentalists. There must be a rational regulatory regime to be a governor to the engine of human innovation. We must reform economic science to internalize environmental and human costs in the eqations. Economics is not presently an honest science. I hope you give the Big Picture some thought, because the little picture of individual profit opportunities will not exist without the Big Picture on solid SUSTAINABLE footing.

I’ll differ with you on one point: your comparison of the present mess to the Great Depression. I submit that the current troubles will be as bad as the Great Depression, simply a different kind of “bad.” We may not go as deep (relatively) this time because the domestic and global economies are both so much larger than they were then. But the trouble will be broader (because more of the world is tied into a single system), political turmoil is likely to be greater (both because of increased expectations and because a smaller percentage of the population has access to even a garden plot), and recovery slower and weaker (The industrial and transportation infrastructures don’t have the recovery capacity, and the cheap resources are all gone.).

THE FLOODGATES ARE NOW OPENAug. 22 (Bloomberg) — General Motors Corp., Ford Motor Co., Chrysler LLC and U.S. auto-parts makers are seeking $50 billion in government-backed loans, double their initial request, to develop and build more fuel-efficient vehicles.

@GloomyIf the US CONsumer could now order their US car, backed by a ‘car stimulus check’, then maybe the US planned economy can really kick ass … er off

Bad Begets WorseHow the Mortgage Giants Lead The Market Deeper Into Crisishttp://www.washingtonpost.com/wp-dyn/content/article/2008/08/21/AR2008082103539.html“Fewer people are willing to buy property, which contributes to a decline in housing prices and that leads to more foreclosures and higher losses, which hurts Fannie Mae and Freddie Mac, which pull back by tightening their mortgage terms, thus continuing the cycle,” said Robert E. Litan, an economist at the Brookings Institution.So, in other words: fewer people are willing to buy property as long as the perceived direction of the economy is downhill. If it was possible to speed up the downhill process, we would get to a point where many would feel that houses are actually cheap. This would lead to many being willing to buy, and the current process could reverse itself.At least it seems to work on paper:-P

EXPECT THE MARKET TO RALLYOf course the market will rally at Fan and Fed’s de facto or actual nationalization and someone buying the rotting crumbs of Lehman, which will make the buyer severely ill when swallowed. And the market will rally each time a financial is resued/bailed out until… Until little by little it will dawn on the players in the market casino that the high roller named US has a mountain of debt. “Put it on my tab” will no longer suffice, and the US will be forced to reckon with his bill. Then we will hear a new tune: Hello parabolic treasury rates. Goodbye dollar.

A great post from Mish:Financial Entities On The BrinkLehman (LEH)Washington Mutual (WM)Fannie Mae (FNM)Freddie Mac (FRE)Corus Bank (CORS)BankUnited (BKUNA)Downey Savings (DSL)Wachovia (WB)Regions Financial (RF)MBIA (MBI)Ambac (ABK)On account of deflation, I had to throw in a bonus 11th. Everyone wants more for their money these days, even when things like this are free.I am quite sure there are many more deserving candidates that should be on the list. An excellent case can be made for Ford (F) and GM. They are really not manufacturing companies but rather financial lending disasters.The key here is there is virtually no chance the Fed can save them all, or even most of them. The list is simply Too Big To Bail.http://globaleconomicanalysis.blogspot.com/2008/08/ten-financial-entities-on-brink.html

@mammon: “The Korean Development Bank is not going to buy Lehman Brothers. Koreans don’t suffer fools like Dick Fuld, who thinks he is exceptional because he is on the Board of Directors of the New York Federal Reserve…”Your mention of Richard S. Fuld of Lehman Brothers being on the Board of Directors of the Federal Reserve Bank of New York is a reminder of how centralized, incestuous and tyrannical America’s financial system has become. It is the New York Fed that literally gives the first and last word on who gets what and when in financial America. In other words, when Paulson and Bernanke pick their winners and losers, it’s here’s where the decisions are made…The directors represent Lehman, JP Morgan, GE, Goldman Sachs, et cetera.Board chair is Stephen Friedman, retired chairman of The Goldman Sachs Group who currently serves as chairman of Stone Point Capital, LLC.He joined Goldman, Sachs & Co. in 1966 and became a partner in 1973. He was vice chairman and co-chief operating officer from 1987 to November 1990, and co-chairman or chairman from 1990 to 1994. Friedman is chairman of the President’s Foreign Intelligence Advisory Board and of the Intelligence Oversight Board. From December 2002 to December 2004, he served as assistant to President George W. Bush for Economic Policy and director of the National Economic Council.Friedman is currently a board member of The Goldman Sachs Group.Because of the extensive holdings and connections of New York based investment banks, what influence could a St. Louis or Cincinnati banker possible make on Fed policy? And since the domination of the Fed by Ben Strong of J.P. Morgan Trust and Governor of the New York Fed from 1914 until his death in 1928, no Fed decision is made without the New York stamp.The president of the New York Fed is a permanent voting member of the FOMC and traditionally is selected as its vice chairman. The other presidents serve one-year terms on a rotating basis. All of the presidents participate in FOMC discussions, but only the five who are members of the Committee vote on policy decisions.The Federal Reserve Bank of New York has several unique responsibilities associated with its presence in the financial capital of the United States.At the direction of the Federal Open Market Committee (FOMC), the Federal Reserve’s top monetary policy-making group, the New York Fed executes domestic open market operations on behalf of the System.Open market operations—the buying and selling of U.S. government securities in the secondary market—are the principal means through which the System implements monetary policy. Although the FOMC decides what policy to follow, the System’s portfolio is directed, on a daily basis, by the Manager of the System Open Market Account at the New York Fed. The Manager, along with the rest of the Open Market Department, constantly monitors bank reserves and acts to ensure that the FOMC’s directive is being fulfilled.Unique International FunctionsIn addition to its domestic trading desk responsibilities, the New York Fed, at the direction of the FOMC and U.S. Treasury, conducts all foreign exchange trading for the Treasury and the Federal Reserve System. In this role, the New York Fed intervenes in foreign exchange markets to achieve dollar exchange rate policy objectives and to counter disorderly conditions in foreign exchange markets.The New York Fed also is responsible for maintaining relations with, and providing financial services for, foreign central banks and international organizations. One of these services is the New York Reserve Bank’s unique custodial responsibility for the gold reserves of about five dozens countries, central banks, and international organizations. The New York Fed’s gold vault stores approximately $194 billion of monetary gold (valued at $900 per troy), or one-quarter of the world’s official gold supply—the largest concentration of monetary gold in the world.Foreign official gold reserves have been held at the New York Fed since 1924 for numerous reasons, including the stability of the U.S. political system, the concentration of international trade and finance in New York City, and the convenience of centralizing gold holdings in a place where international payments can be made quickly.Board of Directors of the Federal Reserve Bank of New York (Terms expire December 31 of the year indicated.)Class A – elected by member banks:Richard L. Carrión (bio) 2010Chief Executive Officer and ChairmanBanco Popular de Puerto RicoCharles V. Wait (bio) 2008President, Chief Executive Officer and Chairman of the BoardThe Adirondack Trust CompanyJamie Dimon (bio) 2009Chairman of the Board and Chief Executive OfficerJPMorgan ChaseClass B – elected by member banks to represent the public:Richard S. Fuld, Jr. (bio) 2010Chairman and Chief Executive OfficerLehman Brothers Holdings IncJeffrey R. Immelt (bio) 2008Chairman and Chief Executive OfficerGeneral Electric CompanyIndra K. Nooyi (bio) 2009Chairman and Chief Executive OfficerPepsiCo, Inc.Class C – appointed by Board of Governors to represent the public:Lee C. Bollinger (bio) 2009PresidentColumbia UniversityDenis M. Hughes (bio) Deputy Chair, 2008PresidentNew York State AFL-CIOStephen Friedman (bio) Chair, 2010ChairmanStone Point Capital, LLCJanuary 2008 ~ for bios: http://www.newyorkfed.org/aboutthefed/org_nydirectors.htmlIt’s interesting to note the following recent release by the Fed:“The Board of Governors of the Federal Reserve System announced Sunday [July 13, 2008] that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury’s existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.”

on msn money:Latest Market UpdateAugust 22, 2008 — 16:25 ET [BRIEFING.COM] Stocks finished the week on a strong note, but the lack of volume suggested there was little conviction behind the buying.

Dear Dr. Roubini,It’s amazing how the messenger is always in danger when the news he brings is not what people want to hear. You have been ridiculed, villified, people have questioned your motives and now, are demanding editorial rights to your blog.They’ve criticized your hair, your photo and your webmaster. Yet you somehow keep above it all and keep writing what I believe, you believe is the truth. It seems that the attitude of entitlement is one that recipients of your vital information are too quick to adopt. As for me, I would vigorously confront them and make good use of my middle finger.

“Interesting. The origin of the live satellite feed to accompany the screening of IOUSA originated in Omaha.”@ Guest on 2008-08-22 17:31:21Indeed interesting as I have mulled the suspicion that Buffet is shilling for some time now.You also say:”Warren Buffet doesn’t get where he is without inside information, IMO. It’s a pretense that smarts alone will get you there in this system.”Indeed, this is a given and the price to pay is obedience, when asked – precisely as depicted in the rules of gangsterism a la Mafia.Excellent observations; I agree. High probability here infers very high risk!Ho humPeterJB

“Please tell me exactly how to make the Fed stop bailing out investment banks.”you cant stop helicopter Ben from bailout everyone, because he has backing of entire USA government.

London Banker on 2008-08-22 14:45:12

Just for the brief span of days that I am in the developing world, I am an optimist.

Whatever it is that you have been smoking or drinking in South Africa, water, soft drinks, or other, please share its name with us. I need a good hit on that stuff.

“Whether you are long or short stocks, commodities or currencies, if this is the end (which I do not believe) nothing will matter but a good supply of guns, bullets and balls.”@ Kafka on 2008-08-22 19:26:12It is neither the end, nor a time for guns and bullets; it is a time for balls and and a time for intellect; it’s a time for civilization building where “Joseph Stiglitz described the cause of the problem as a “massive failure of the brains of the economy.” How true.It is a time to be sentient; skeptical, aware and a time of computing probability and risk whilst on your feet; in other words, it’s a time to be human, for a change.The ‘Neanderthal throwbacks’ amongst us (“Leadership”)will always revert to guns and bullets but they are a MINORITY and in a “democracy”, minorities are not supposed to create “policy”.The intellectuals (real) are also in a minority whereas those which make the most noise, the majority, should be treated with compassion and ignored.Soooo, this is not the end end but the lesson to be learnt is: it is time to change. Do you think that this lesson will be learnt by “dear leaders”? Of course, not, soooo, the Laws of Physics, will force the change at our expense.Ask yourself: What is the purpose of Government? And then understand that governments’ today are solely fully committed NOT to the “real” economy but to the “Secondary” (Wall Street) economy’: this is fascism, a default attributed mental condition that grows in exacerbation from human weakness and crasse stupidity, irresponsibility, betrayal, cowardice and all them other such thangs.And then, in this “faith-based” mentality which we all embrace, rather than being sentient and skeptical er human, we all believe that some divine being is agoing kiss it and make it better. Think again Horatio… your elected representative is agoing to rape you silly and then sell your body; get over it!While we remain in a fantasy world of childrens’ fairy tales, and not in accord – we will get that which the Laws of Physics (“God’s Blessings) bring.Ho humPeterJB

@ Guest on 2008-08-22 16:57:15Many thanks for the run down on FRBNY. It is very, very interesting that a 30 year partner of Goldman Sachs is chairman of the board of the New York Fed, on the board of Goldman Sachs and chairman of the President’s Foreign Intelligence Advisory Board and Intelligence Oversight Board. Given the vast abuses of “intelligence” under Bush (forgeries like the Nigerian uranium letter and Saddam-9/11 letter, false informants like Curveball, interception of SWIFT interbank messaging, tortured confessions, contractors from foreign states with special access, etc.) in aid of wars of choice, it is a very interesting career mix.I was telling my group here that banking is war by other means, and that the USA would try to exernalise the burden of its $15 trillion debts to make the rest of the world pay the price. It is worth remembering that the third world debt crisis of the 1980s followed on from the dollar crisis and oil crises of the 1970s. It is also worth remembering the destabilising death squads and assassinations which constituted a major part of US foreign policy during the period.Mr Friedman’s interesting portfolio career is a clear indication that things haven’t changed at all.

http://www.waynemadsenreport.com/articles/20080821_4is sadly not free available.

All I can see is:August 21-24, 2008 — Showdown between neocons (and their operative Soros) and emerging bloc of nationspublication date: Aug 21, 2008View a Printer Friendly version of this page, allowing you to print the page. Send a summary of this page to someone via email.SCO becoming the “anti-NATO”Is this all?

“You used to write insightful and data filled analysis. Now you’re just looking to sign autographs.”Written by Anonymous on 2008-08-22 17:41:33R U sure? The previous thread seems to counter your assessment. Your opinion seems a bit biased/subjective:-)

Kafka, are you Andrew Bernhardt our long lost contrarian indicator?

Guest on 2008-08-23 10:46:11, no sorry but I am a fan of Roubini(though I do not agree with him on some things) and love reading what all you kids have to say. I think the losses from toxic paper may be priced into the market more than you guys think (not all the Wall Street dudes are stupid though certainly no bottom yet)and much money can be made buying substantially discounted CDOs. Remember, the oldest trick in the GAAP book is when the new CEO comes in, write down assets as much as possible and blame previous management; and then over time leak the write downs back into income to improve new management results.

Or, despite the overarching importance of university-sponsored sports rivalry to human welfare and spiritual development, they could schedule whomever is closer to home.Naah, what am I, stupid!?