Sunshine doesn’t hurt after all. Bank shares leapt Wednesday despite the Federal Reserve’s detailed disclosure of who got $3.3 trillion of emergency lending during the crisis. That is hardly what investors might have envisaged, given dark warnings from the Fed that such disclosure could endanger financial institutions. The central bank released the data only because of a provision in the Dodd-Frank financial-overhaul bill.
True, it will take time for investors to comb through all the gory details of about 21,000 transactions by multiple emergency Fed lending facilities. And some details may leave firms with egg on their face: Goldman Sachs, which insisted it would have survived the crisis without government assistance, tapped one special Fed facility 84 times to borrow nearly $600 billion in overnight money. Morgan Stanley tapped the facilities more than 200 times.
Even if individual details of the programs aren’t that surprising, the breadth of companies that accessed them is notable. The disclosure shows how far the Fed went in attempting to prop up just about every part of the financial markets, with users ranging from the biggest U.S. and international banks to small firms that peddled complex and often toxic securities, as well as industrial companies such as General Electric, Harley-Davidson and Verizon.
Category: Taxes
In search of a lightning bolt of rational thought.
In the midst of the biggest green car push in automotive history – what with Chevrolet touting its extended-range electric Volt as the greatest thing since sliced bread while crossing green swords with Nissan, which is shouting similar missives from the rooftops about its all-electric Leaf – it has become readily apparent that the vast majority of the American consumer public couldn’t be bothered. As in they couldn’t care less. That is unless someone – i.e., Washington – is throwing money at them to care.
Hybrid sales in this market are going to finish the year down again, which will mark three straight years of decline, and this includes the $4.00+ per gallon spike in the late spring-summer of 2008, when fuel economy hysteria took hold in the U.S. for four solid months. It seems that the Shiny Happy Green Sensibilities Act – or whatever you want to call the ongoing “shove-it-down-the-American-consumer-public’s-throats-and-they-will-learn-to-lilke-it” mentality that pollutes the political brainiacs/stumblebums in Washington and Northern California – is going nowhere.
As a matter of fact our illustrious leaders in Washington used a considerable chunk of money from the 2009 economic stimulus package to buy up hybrids from various auto manufacturers to prop-up hybrid vehicle sales, couching it as a noble attempt at improving the overall fuel-efficiency of the government fleet, when in fact the real reason was to not only – hopefully – jump-start American consumer thinking into accepting these vehicles as being mainstream choices, but to help the vehicle manufacturers who were battered and bullied to build the vehicles in the first place to keep the production lines going.
But alas, this is the pattern we find ourselves in as a nation at the moment. A minority of the citizenry in an absolute lather about climate change – aided and abetted by maliciously clueless politicos with an axe to grind and an agenda that has more to do with their personal ambitions than it does with such quaint ideas as “being good for the country” – dictating to the majority of the American public how it’s going to be.
Congressional Members’ Personal Wealth Expands Despite Sour National Economy
Despite a stubbornly sour national economy congressional members’ personal wealth collectively increased by more than 16 percent between 2008 and 2009, according to a new study by the Center for Responsive Politics of federal financial disclosures released earlier this year.
And while some members’ financial portfolios lost value, no need to bemoan most lawmakers’ financial lot: Nearly half of them — 261 — are millionaires, a slight increase from the previous year, the Center’s study finds. That compares to about 1 percent of Americans who lay claim to the same lofty fiscal status.
And of these congressional millionaires, 55 have an average calculated wealth in 2009 of $10 million or more, with eight in the $100 million-plus range.
US muni bonds see biggest drop since 2008
Municipal bonds had their biggest one-day sell-off yesterday since the height of the financial crisis, prompting some borrowers to delay financing plans.
The yields on triple A 10-year bonds rose 18 bps to 2.93 per cent, the largest one-day rise since October of 2008, according the MMD index, which is owned by Thomson Reuters.
Absolute yields, however, remain well below crisis-era levels.
The $2,800bn “muni” bond market where states and municipalities raise money has been under pressure over the past week amid a rise in the yields of benchmark US Treasury bonds, heavy bond sales and uncertainty about federal support for the market.
The market declines have made investors, who are mostly wealthy individuals benefiting from tax breaks on muni debt, nervous about an uptick in defaults. Munis historically have been a relatively safe place to invest, but budget deficits and underfunded public pensions have created widespread concern that local entities could struggle to pay their debts.
Germany Criticizes Fed Move Finance Minister Says Policy ‘Doesn’t Add Up,’ Sees U.S. Model in ‘Deep Crisis’
German officials, concerned that Washington could be pushing the global economy into a downward spiral, have launched an unusually open critique of U.S. economic policy and vowed to make their frustration known at this week’s Group of 20 summit.
Leading the attack is Finance Minister Wolfgang Schäuble, who said the U.S. Federal Reserve’s decision last week to pump an additional $600 billion into government securities won’t help the U.S. economy or its global partners.
The Fed’s decisions are “undermining the credibility of U.S. financial policy,” Mr. Schäuble said in an interview with Der Spiegel magazine published over the weekend, referring to the Fed’s move, known as “quantitative easing” and designed to spur demand and keep interest rates low. “It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”
At an economics conference in Berlin Friday, Mr. Schäuble said the Fed’s action shows U.S. policy makers are “at a loss about what to do.”
Mr. Schäuble hit back at critics in the Der Spiegel interview. “Germany’s exporting success is based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand. The American growth model, by comparison, is stuck in a deep crisis,” he said. “The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base. There are many reasons for America’s problems–German export surpluses aren’t one of them.”
Wisconsin Evokes Democrats’ Dilemma
Douglas Belkin & Neil King, Jr.
Last week’s election rout did more than put Republicans in charge of the U.S. House of Representatives. It upended the electoral map that propelled President Barack Obama to the White House.
Mr. Obama bagged traditionally liberal Wisconsin and its ten electoral votes two years ago, part of a sweep that also included states that hadn’t tilted Democratic for decades. That went into reverse Tuesday. The party suffered heavy losses in Ohio and Pennsylvania, two big states that had backed Mr. Obama in 2008, as independent voters swung to the right. Other presidential territory–Virginia, Indiana and North Carolina–swung back to the GOP.
The depth of the party’s losses outside Washington, in state-level-contests, can be seen in this working-class city. The president won handily here in 2008 along with surrounding Brown County. Last week, Republicans carried all 18 races on the county’s ballots, right down to the clerk of the court. The GOP took control of the governor’s office, the state assembly and the state senate–the first time the state has reverted so abruptly to one side since 1938.
Brazil ready to retaliate for US move in ‘currency war’
John Paul Rathbone & Jonathan Wheatley
Brazil, the country that fired the gun on the so-called “currency wars”, is girding itself for further battle.
Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.
“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”
At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take “all the necessary measures to not allow our currency to become overvalued” and to “fight for Brazil’s interests”. “They’ll have to face two of us this time!” he said.
The Subprime Debacle: Act 2, Part 2
At the end of last week’s letter on the whole mortgage foreclosure mess, I wrote:
“All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.”
Real problems indeed. Seems the Fed, PIMCO, and others are suing Countrywide over this very topic. We will go into detail later in this week’s letter, covering the massive fraud involved in the sale of mortgage-backed securities. Frankly, this is scandalous. It is almost too much to contemplate, but I will make an effort.
Why America is going to win the global currency battle
The US is going to win this war, one way or the other: it will either inflate the rest of the world or force their nominal exchange rates up against the dollar. Unfortunately, the impact will also be higgledy piggledy, with the less protected economies (such as Brazil or South Africa) forced to adjust and others, protected by exchange controls (such as China), able to manage the adjustment better.
It would be far better for everybody to seek a co-operative outcome. Maybe the leaders of the group of 20 will even be able to use their “mutual assessment process” to achieve just that. Their November summit in Seoul is the opportunity. Of the need there can be no doubt. Of the will, the doubts are many. In the worst of the crisis, leaders hung together. Now, the Fed is about to hang them all separately.
Currency Wars
If the world is on the brink of an out-and-out currency war, a variety of battalions has been out on manoeuvres in the past few weeks. The Bank of Japan, after six years off the battlefield, has launched a fusillade of intervention to hold down the yen in foreign exchange markets. Brazil used the guerrilla tactic of doubling taxes on capital inflows to stop the real surging. India and Thailand warned that they too might bring heavy ordnance into play.
The main combatants, the US and China, continued to exchange rhetorical salvos. Washington (and Brussels) identified undervalued currencies such as the renminbi as a prime cause of global macroeconomic imbalances. Beijing retorted that such aggression risked bringing mutual destruction upon the great economic powers.
On Monday Dominique Strauss-Kahn, managing director of the International Monetary Fund, voiced his concern. “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon,” he said. “Translated into action, such an idea would represent a very serious risk to the global recovery.”