Tuesday, November 4, 2008

Debt Rattle, November 4 2008: There Ain't No Cure

Lewis Wickes Hine A Future Ahead of Him August 1908
Tipple boy at the Turkey Knob coal mine in Macdonald, West Virginia.
Works long hours, not a day of school.

Ilargi: Yeah, stock exchanges are edging higher, how could they not? There's hope in the air, there'll be a new "leader of the free world" [sic bleeding sic] early tomorrow morning. And people everywhere, from Wall Street to Spent Soiled Syringe Alley, are so desperate for a sign of redemption that it would take some major disaster to get them to face reality today. And who am I to rain on their parades?

Obama will be elected the next president of the US, a country that was once the greatest nation on earth, and has now descended into depths from which it will never recover nor return. And if for some reason Obama loses, we will face, as early as midnight tonight, the worst domestic American violence in 145 years. Not something to look forward to.

Still, I'm looking at numbers this morning. See, I know that whatever hope a new administration may evoke in the hearts and minds of Americans and people across the globe, one thing still stands. There is an untold number of trillions of dollars that needs to be sucked and wiped out of the global economic systems. These are toxic trillions. Toxic, as in: the longer they are permitted to remain within the body 'financic' and the body 'politic', the more damage they will cause.

Millions upon millions of jobs will be lost in the US alone within the next 12 months. Obama’s task will not, because it can not, be to lead his nation back into prosperous times. Certainly not before 2012, but in all likelihood not even within our lifetimes. If he wishes to prove himself to be a true leader, his mission will be to soothe the pain, to stem the bleeding, to minimize the suffering of the herd, and most of all to stop the lying and cheating that has come to define the nation, at the latest ever since Greenspan took over the Fed in 1987.

That is a role which is 1000 times harder than leading a people into prosperity. But there are no alternatives available: no-one can turn this economy around, not before it's run its course, not until all the losses have been absorbed and many souls have perished as a result.

There will be enormous pressure on the new president to follow the path set by the IMF and the World Bank, whose solution has always been to live off the misery of people in far away corners of the planet. We can but hope that Obama has the guts to shut off access to that path. But I’m not sure of that by any means: it has been the American modus operandi for far too many years.

I see a bank merger in England, between Lloyd’s and HBOS, in which $27 billion needs to be raised in order to cut 20.000 jobs. Is that crazy or what? Moreover, the numbers pertaining to the US deficits are starting to boggle even my feeble brain. I saw yesterday how the Bush administration is being complimented on its preparations for the transition to a new government come January. And I'm thinking how I can totally imagine why they would want to transfer responsibility for all that's in the pipeline before January 20, as soon as they can.

As soon as there's a new president, they'll wash their hands. However, not before they've run the deficit into the stratosphere. I doubt that many people still have the stomach, in the face of all the losses so far recorded, to think about what it means for the US government to borrow $2-$3 trillion in one single year, 2009. Until now, there's never been a deficit larger than $1 trillion, not even close actually.

The new president will be left with a legacy of last-minute, legally binding, Bush, DIck and Colon commitments that will not only cause immeasurable grief on the streets of America, it will simultaneously hammer, pound and pulvarize the status and value of US Treasury bonds, making it exponentially increasingly hard to finance what is needed just to keep day-to-day operations running. Treasuries are the last game left, and they too are a game that is over.

The markets will be up for a bit, hard to say for how long, but after that they will plunge in a way not seen since the 1720 South Sea Bubble. And Obama won’t be able to do anything, provided he would want to, except hold the hands of those who are drawing their last breath. He won't be able to heal his people, or cure what is ailing the nation's economy.

There ain't no cure.

There ain't no cure
And I'm not sure
He knows

World Economic Growth to Slow to 1% in 2009
Global economic growth will slow to 1 percent in 2009 from an average 3.5 percent in the past five years as major advanced economies experience "the steepest decline in GDP since World War II," Fitch Ratings said. "Tighter credit conditions, consumer retrenchment and falling corporate investment are expected to combine to deliver an unusually synchronized downturn across the advanced economies," the agency said in a report today.

Aggregate gross domestic product in the U.S., the U.K., Japan and the nations sharing the euro currency will shrink 0.8 percent, compared with 1.1 percent growth this year, the report said. Global stocks have plummeted in the past year as the collapse of the U.S. subprime mortgage market caused credit markets to seize, restricting lending and personal spending. Any benefit derived from declining commodity prices are outweighed by the inability to borrow, which will hurt poorer countries, Fitch said.

"Recession driven by a contraction in the supply of credit is uncharted territory for the world economy and there are few historical parallels on which to gauge its possible depth or length," the report said. "The combination of recession in developed countries, lower commodity prices and reduced international capital flows will result in a sharp slowdown in growth in emerging markets, though most will avoid outright recession."

Central banks around the world have lowered borrowing costs in the past month, which combined with U.S. and U.K. plans to use public funds to buy shares in financial institutions will head off "the worst-case scenario of widespread deflation," Fitch said. "Nevertheless, the process of de-leveraging by households and companies is now under way and this will weigh on spending for some time."

Recession hits Europe as Club Med debt worries grow
The European Commission has slashed its economics forecasts, warning that the eurozone is now the grip of full recession for the first time since the launch of the euro and faces a deep slump for another two years. "The economic horizon has significantly darkened," said Joaquim Almunia, the EU's economics commissioner. "The situation in the markets remains precarious and the crisis is not yet over. It is very hard to estimate how deep the financial crisis will be, how long it will last, and what negative effects it will ultimately have on the real economy," he said.

Mr Almunia said the eurozone began to shrink in the second quarter and has been contracting ever since. Growth next year will be just 0.1pc, and 0.9pc in 2010, with a "significant" risk of an even deeper downturn. Some budget deficits will balloon out of control if governments try resorting to fiscal stimulus to cushion the blow. Brussels said the dramatic rise in the bond costs of Italy, Greece, and other heavily-endebted states suggests markets may be losing confidence in the state finances of these countries. The spreads between German Bunds and 10-year bonds in the Club Med bloc have rocketed to post-EMU highs, reaching 157 basis points for Greece, 126 for Italy, and 90 for Portugal, - as well as 74 for Belgium, which also has large debt. They have reached 109 for Ireland, reflecting concerns over Dublin's ability to guarantee its outsize banks.

"A glance at those figures indicates that governments have to keep in mind the sustainability of public funds. Countries that have problems cannot ignore this lack of sustainability," said Mr Almunia. Rising debt costs pose an immediate threat to Italy's finances. The country needs to roll over €198bn in state debt next year alone. Rising spreads risk setting off a compound effect that widens the budget deficit ever further, debt trajectory to spiral upwards. The Commission said the imbalances that built up between North and South "may turn out to be particularly damaging".

The grim warnings came as the eurozone's manufacturing index plunged to a record low of 41.3 in October, led by a shock collapse in Italy and Spain. Brussels said Spain's unemployment rate would reach 15pc by 2010 as the housing crash gathers pace. The Spanish government said yesterday it would step in directly to pay half the mortgage costs for those who lose their jobs in order to pre-empt a self-feeding spiral of defaults. The package covers mortgages up to €170,000 for the next two years.

It is also planning a rescue for the car industry after vehicle sales fell 40pc last month (and 19pc in Italy). There are mounting fears that Volkwagen may be mulling major cuts to plant in Spain. The auto crunch has spread to Germany, where 40,000 BMW workers are staying home this week after temporary factory closures in Munich and Regensburg to help the clear the inventory of unsold cars. Handelsblatt reports that the financing arms of the German car-makers are "burning money" at an alarming speed and may need a bail-out.

Analysts say it is now certain that the European Central Bank will cut rates by a half point or more on Thursday. A string of ECB governors have said in recent days that inflation has receded as a serious threat. Even Axel Weber, the Bundesbank's uber-hawk, warns that "central banks must be alert so as not to fall behind the curve". A top cast of private economists on the "shadow" ECB committee have called for a 100bp cut to 2.75pc, including Jacques Cailloux from RBS, Julian Callow from Barclays Capital, Stephen King from HSBC, Erik Nielson from Goldman Sachs, and Thomas Mayer from Deutsche Bank. Mr Mayer said the Germany economy could contact by 1.5pc next year.

U.S. to Borrow Record $550 Billion This Quarter to Finance Deficit
The U.S. Treasury more than tripled its planned debt sales for this quarter to help finance a 2009 budget deficit that bond dealers advising the department estimate may swell to almost $1 trillion. Borrowing needs are expected to rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, the Treasury said in a statement in Washington. That follows a $530 billion record in the July-September quarter.

The worsening credit crisis and sluggish economy are straining the country's finances and will leave the winner of tomorrow's U.S. presidential election facing the worst budget shortfall on record next year. The Treasury is scheduled to announce in two days plans to expand debt sales to fund the gap. "The U.S. Treasury faces an unprecedented financing need," said Goldman Sachs analyst Ed McKelvey, echoing a similar comment last week by Anthony Ryan, the Treasury's acting undersecretary for domestic finance.

The Treasury acknowledged the fiscal year 2009 deficit is likely to be far above the $482 billion projected in July, citing a new survey of its primary dealers. The financial firms told the Treasury they expect a $988 billion shortfall for the current fiscal year, which began Aug. 1. The department didn't release its own estimate for the coming deficit, in keeping with its usual practice. The department did announce more than $1 trillion in borrowing that is taking place between July and December.

The quarterly borrowing figures announced today are each more than double the previous record -- $244 billion in new marketable debt in the first three months of this calendar year. "Economic conditions have deteriorated notably over the past few months," Phillip Swagel, Treasury's assistant secretary for economic policy, said in a statement. "It will take time for financial markets to stabilize and for credit market strains to ease." After improving for three straight years, the U.S. budget deficit deteriorated as a slowing economy hurt tax revenue and spending increased, reaching a record $455 billion shortfall in fiscal year 2008, which ended Sept. 30.

The Bush administration, which entered office in 2001 with a $127 billion budget surplus, in July predicted the next president faces a deficit totaling $482 billion in fiscal 2009. In early October, Congress passed a $700 billion bank rescue package that's draining federal coffers and leading some analysts to forecast a deficit of $1 trillion for this year. Dealers expect the Treasury to borrow $1.4 trillion in marketable debt during fiscal year 2008, with estimates spanning a range between $1.1 trillion and $2.1 trillion, according to the Treasury's survey results announced today.

At its quarterly refunding announcement Nov. 5, the Treasury is likely to announce $25 billion in three-year notes, $20 billion in 10-year notes and $8 billion in 30-year bonds for its next refunding cycle, according to the median forecast of six economists surveyed by Bloomberg News. The Treasury sells a variety of bills and shorter-term notes to meet the rest of its financing needs. Ryan said last week that the Treasury plans to increase the sizes of its bill, note and bond auctions, and he repeated that officials are considering additional sales of three-year notes and other longer-term debt.

"Treasury may need to address many different policy objectives" with its financing program, Ryan told the Securities Industry and Financial Markets Association Oct. 28. McKelvey projects the Treasury's total 2009 borrowing needs at about $2 trillion. The Treasury predicted three months ago it would borrow $171 billion in marketable debt in the July-to-September quarter and have a cash balance Sept. 30 of $45 billion. Today, the department said the actual amount it borrowed was $530 billion in the third quarter and the cash balance at the end of the period was $372 billion, including a supplementary financing program on behalf of the Federal Reserve.

At the end of the current quarter, the Treasury is predicting a cash balance of $300 billion. For the January-March period, the Treasury said it expects to borrow $368 billion, leaving a cash balance of $75 billion March 31. Analysts said the Treasury's estimates don't account for an extension of its borrowing on behalf of the Fed. "The actual borrowing could be much higher," said Louis Crandall, chief economist of Wrightson ICAP. "The Treasury only projected its own borrowing. The programs the SFP is backing are authorized through next spring." For all of fiscal year 2008, which ended Sept. 30, the Treasury had a record net marketable borrowing of $760 billion, compared to $134 billion in 2007. For fiscal year 2008, the Fed redeemed $154 billion in U.S. government securities from its System Open Market Account, the Treasury said.

In July, the department estimated total marketable borrowing in fiscal 2008 would total $555 billion. Before the Treasury's announcement, analysts were predicting more red ink in coming quarters. Ward McCarthy of Stone & McCarthy Research Associates in New Jersey said he's expecting financing needs of $715 billion from October through December, followed by $320 billion in the January-March quarter. He predicted a $1.02 trillion 2009 deficit. "All budget and financing projections should be considered to be fluid," he said.

Goldman Sachs projected $400 billion in borrowing needs for the final three months of 2008, followed by $375 billion for the first quarter next year. Those estimates don't, however, include borrowing for the Fed's supplementary financing program, which has already borrowed $220 billion since Oct. 1, Goldman Sachs economists said in a research note. The Securities Industry and Financial Markets Association is projecting a $687.5 billion budget deficit for fiscal year 2009, according to a survey of its members released Oct. 31.

U.S. Treasury Weighs Purchasing Stakes in More Firms
The Treasury Department is considering using more of its $700 billion rescue fund to buy stakes in a broad range of financial companies, not just banks and insurers, after tentative signs of the program's success, according to people familiar with the matter. In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms such as General Electric Co.'s GE Capital unit, CIT Group Inc. and others, these people said.

The possible expansion shows how much Treasury's rescue plan has morphed since it was first proposed in September. Treasury Secretary Henry Paulson originally unveiled a complex plan to buy up financial institutions' hard-to-sell assets such as mortgage-backed securities. That proposal has yet to get up and running, stymied by operational delays and beset by criticism. People familiar with the matter say Treasury may scrap part of that early plan -- purchasing assets through an auction process -- and instead purchase some of these distressed assets directly.

Of the original $700 billion made available to Treasury, officials set aside $250 billion for equity investments. It has already invested $163 billion in a range of banks including some of the nation's largest, such as Goldman Sachs Group Inc. and Bank of America Corp. That number will likely expand at the expense of the asset-purchase plan, but by exactly how much is unknown. "We are looking at many ideas for strengthening the financial system and for restoring lending," said Jennifer Zuccarelli, a Treasury spokeswoman. "We are weighing ideas and have made no decisions."

Treasury's planning could be complicated by Tuesday's election. Mr. Paulson has said he wants to involve the next administration in major decisions between now and January. Both Sen. John McCain, the Republican nominee, and Sen. Barack Obama, the Democratic nominee, voted for the $700 billion rescue plan, but a new administration is certain to have its own ideas about how best to use the remaining $450 billion. Sen. McCain has said he wants to steer much of the money toward buying mortgages. Sen. Obama has endorsed buying troubled assets and taking equity stakes. Both have called for imposing tougher conditions on companies receiving government funds.

Mr. Paulson originally resisted directly investing in firms and didn't explicitly ask Congress for the right to buy equity stakes. Among other things, Mr. Paulson was worried about picking winners and losers and about conditions lawmakers might seek to attach. He argued the most effective way to relieve the credit crisis was to buy troubled assets that were clogging the books of financial institutions and making them reluctant to lend. But the capital-purchase program, which was inserted into the bailout bill by lawmakers, appears to be helping ease the credit crunch, especially the short-term funding markets badly hit by last month's financial turmoil. Mr. Paulson has begun assessing whether the financial system could benefit from additional capital purchases.

According to data from the British Bankers' Association, the three-month U.S. dollar London interbank offered rate, or Libor -- a key indicator of banks' willingness to lend to each other -- fell to 2.85875% Monday, the lowest since Sept. 15, from Friday's 3.02625%. The rate peaked at 4.81875% on Oct. 10. Other lending rates, including some mortgages, are pegged to Libor. An expansion would target institutions that play a role in providing financing. Treasury's original $250 billion plan was aimed at banks, which have been reluctant to lend to businesses, consumers and each other. But other nonbank financial companies have been pinched by the credit crunch, exacerbating the problem. Companies such as CIT, a commercial-finance company that makes loans to businesses and individuals, have been struggling to raise money to fund operations.

The potential expansion raises the notion that the U.S. government could eventually own a larger chunk of the American financial system than first envisioned. The new firms under consideration for inclusion would likely be subject to similar terms and conditions applied to participating banks, such as restrictions on dividends and severance pay. Structuring an expansion could be tricky given that many other entities, from transit agencies to auto manufacturers, are knocking on Treasury's door for inclusion in the $700 billion fund, called the Troubled Asset Relief Program. Among the questions Treasury is wrestling with are how much additional money to invest and which companies would qualify.

Treasury is already mulling expanding the rescue plan to inject cash into certain insurance companies and privately held banks. The Financial Services Roundtable, a Washington, D.C., trade group, has asked Treasury to include auto companies and others. So far, officials have been unwilling to take stakes in car companies. Any expansion would likely prompt calls by U.S. lawmakers to attach more conditions. Members of Congress have begun pushing Treasury to force banks to lend the money they've received, complaining to Mr. Paulson that they're sitting on the cash or using it to fund acquisitions and pay dividends. Treasury's original plan to purchase distressed assets now appears to be taking a back seat.

Treasury was expected to conduct auctions as early as this month but has yet to select asset managers to help the government decide what to purchase and how much to pay. The hiring has been complicated by concern over the fees the government will pay and a lack of manpower at Treasury. That idea has also been roundly criticized by economists of all stripes, who argue that buying troubled assets is a less effective way to combat the credit crisis than directly pumping capital into firms. Mr. Paulson eventually agreed and announced the program to inject $250 billion into banks. Treasury is buying preferred shares in the firms and will get warrants giving the government the right to buy common stock at a set price.

Worst Markets in Three Decades Hang Over Elections
U.S. voters are heading to the polls with stock and bond markets mired in the worst slump in three decades. The Standard & Poor's 500 Index dropped farther and faster than any time since the administration of Gerald Ford, losing 38 percent from an all-time high last year. Corporate bonds slid the most last month in at least 32 years as bank losses topped $680 billion and consumer confidence hit an all-time low.

The winner between Democrat Barack Obama, who leads in national polls, and Republican John McCain will contend with an economy battered by declining corporate profits and the highest unemployment in five years. Concern growth is slowing sent the S&P 500 down 17 percent last month, the most since 1987. "October was a slow-motion crash," said Joseph Keating, chief investment officer at RBC Private Asset Management in Birmingham, Alabama, who oversees $3 billion. "The economic reality is going to set in for whichever gentleman is elected. They'll both be looking at the worst recession since 1980."

Stocks plunged since last year as a nationwide decline in U.S. home prices spurred record foreclosures and saddled banks with bad mortgage loans. Money markets seized up, sending the so-called TED spread, a gauge of credit-market stress, to 4.64 percentage points Oct. 10, the highest level on record. The S&P 500's drop since its peak is the steepest for a comparable period since it declined 43 percent in the 13 months ended in October 1974, according to data compiled by Bloomberg.

Shares fell as the U.S. unemployment rate held at 6.1 percent in September, the highest since September 2003. Futures on the S&P 500 expiring in December gained 1.9 percent at 12:02 p.m. London time today. The benchmark for U.S. equities rose 14 percent since reaching a five-year low Oct. 27. Investment grade corporate bonds lost 7.4 percent in October, their worst month as measured by Merrill Lynch & Co.'s bond indexes since the firm began compiling monthly data on the debt in 1976. The spread between investment grade company bonds and Treasury debt of similar maturity is the widest since 1932, according to Moody's Investors Service.

S&P 500 companies are on pace for their fifth straight quarter of declining profits, with companies from Texas Instruments Inc. to Freeport-McMoRan Copper & Gold Inc. reporting earnings and revenue that failed to meet analysts' estimates. Earnings are down 8.9 percent for the 352 companies that have reported third-quarter results so far. The U.S. economy contracted 0.3 percent in the July-September period, and growth is expected to slow to 1.15 percent in 2009 from 1.6 percent this year, economists' estimates compiled by Bloomberg show.

"It's particularly likely that this new president can't do much, because they're going to get so saddled with the things they inherit," said Kenneth Fisher, who helps oversee over $32 billion as chief executive officer of Fisher Investments Inc. in Woodside, California. "Presidents can only do so many things at once." Credit markets started to loosen up last month as Treasury Secretary Henry Paulson began deploying $700 billion to recapitalize banks and purchase mortgage-related securities. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 15 basis points to 2.71 percent today, the lowest level in almost five months, data from the British Bankers' Association showed.

"You're starting to work off a lot of the risk parameters," said Andrew Brenner, co-head of structured products in New York at MF Global Inc. "Having this election behind us, I think the country will be much more optimistic." After pulling ahead of Obama in some polls following the Republican National Convention in the first week of September, McCain's support slid as the financial crisis deepened, with voters considering Obama better able to manage the economy. Obama has an average lead of 7 percentage points over McCain, according to surveys compiled by Real Clear Politics. Obama has been ahead between 5 and 8 points since the beginning of October, the political Web site said. Should either party have an edge in reviving the stock market, history suggests it is the Democrats.

Since 1928, the S&P 500 climbed 9.3 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of six Democrats from Franklin D. Roosevelt to Bill Clinton. Only once did the benchmark for American equities decline, after Jimmy Carter's victory in 1976. Among the six newly elected Republicans, five -- including Herbert Hoover, Richard Nixon and George W. Bush -- preceded stock-market declines, with a median retreat of 4.3 percent for the group, data compiled by Bloomberg show. The data excludes incumbents that won re-election.

Overall, the S&P 500 generated a median 62 percent advance from the time a Democrat is elected in November or elevated from the vice presidency until the next president is chosen. For Republicans, the gain is 28 percent. History may not be an accurate indicator this time. "In a normal year, you would expect some kind of relief rally after the election is over with, just because we won't be talking about this anymore," said Brian Barish, the Denver- based president of Cambiar Investors LLC, which oversees about $6 billion. "But I would throw in that there's been nothing normal about 2008."

Factory Orders in the U.S. Slide More Than Forecast
U.S. factory orders fell in September as the value of energy-related bookings plunged, while demand for durable goods excluding cars and aircraft tumbled by a record. Total orders declined 2.5 percent after a 4.3 percent drop in August, the Commerce Department said today in Washington. Non- durables fell 5.5 percent, the most in two years. A jump in the volatile category for transportation equipment spurred a gain in bookings for items made to last several years.

"The economy hit an air pocket in late September when the credit markets melted down," Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. "We are likely to see considerable weakness in new orders going forward" because manufacturing purchasing-manager surveys "fell off a cliff" in October. A record share of U.S. banks has tightened terms for business loans, a Federal Reserve report showed yesterday, making it harder for companies to finance capital spending. Economies in Europe and Japan are also now contracting, making it likely that the record American export boom will fade.

U.S. Treasuries were little changed after the report, with benchmark 10-year note yields at 3.90 percent at 10:35 a.m. in New York. The Standard & Poor's 500 Stock Index rose 3 percent to 995.28 on optimism a retreat in money-market rates will help unblock lending. The economy, which contracted in the third quarter by the most since the 2001 recession, has become the central issue for Americans as the presidential election draws to a close today. Factory orders were forecast to fall 0.8 percent, after a previously reported 4 percent drop the prior month, according to the median estimate of 61 economists surveyed by Bloomberg News. Projections ranged from a decline of 3.4 percent to an increase of 1.2 percent.

Bookings for durable goods, those meant to last at least three years, climbed 0.9 percent as aircraft and autos rebounded. The drop in bookings for non-durable goods was the biggest since September 2006. Orders for petroleum and coal products plunged 17 percent. Demand for chemicals decreased 4.2 percent, in part, also reflecting falling commodity costs. Prices for oil, copper and wheat have dropped by more than half since reaching records this year. Crude oil for December delivery traded at about $65 a barrel yesterday on the New York Mercantile Exchange.

Orders for durable goods, which make up just over half of total factory demand, increased 0.9 percent. Excluding demand for transportation equipment, such as aircraft and autos, orders declined 3.7 percent, the most since records began in 1992. Civilian aircraft orders increased 30 percent, and those for autos rose 2.7 percent. Boeing Co., the world's second-biggest commercial-airplane maker, said it got 41 orders for aircraft in September, up from 38 in August. Still, a strike by 27,000 machinists idled the Chicago-based company's factories for eight weeks and cut profit by about $10.3 million a day. Machinists began returning to work on Nov. 2 after accepting a contract with 15 percent raises.

Auto demand likely won't hold up. Ford Motor Co., the second-biggest U.S. automaker, yesterday said its U.S. sales fell 30 percent in October, and General Motors Corp., its bigger rival, reported a 45 percent plunge. Factory inventories decreased 0.7 percent, the biggest decline in five years. Still, the drop in demand caused the inventory-to-sales ratio to rise to 1.29 months from 1.26 months in August. Falling demand is hurting manufacturers such as Cummins Inc., the maker of more than a third of North America's heavy- duty trucks engines, which cut its full-year sales projection.

"The company is experiencing significant declines in some of its consumer markets as the U.S. economy continues to deteriorate," Cummins said in a statement on Oct. 31, adding that it faces "signs of economic weakness in Europe."

France threatens to seize banks, German bail-outs escalate
The French state has threatened to seize control of the country's banks and fire top staff unless they do their part to stabilise the economy by stepping up lending to companies in need. "The banks have got to open up credit to business: they have the means to do it," said prime minister Francois Fillon, accusing lenders of hoarding cash. "We don't think the banks are stepping up to task as necessary. We can withdraw the credit that we have extended to them under the state's contract with the banks, and that will put them in difficulty.

At that moment the question arises whether we should take an equity stake, change their managers, and assume control over their strategy." Speaking on French television, he warned: "Broadly speaking, we'll be able to judge over the next 10 days whether they are playing the game as they should, or not." Under last month's rescue deal, banks agreed to raise lending to firms and households by 3pc to 4pc in exchange for a state injection of €10bn (£8bn) in fresh capital for the six largest banks, a modest sum compared to the bail-outs in Britain, Germany, Belgium and the Netherlands.

In Germany, HSH Nordbank – 59pc owned by the city of Hamburg and state of Schleswig-Holstein – rattled the markets yesterday by revealing that it would need €30bn in guarantees from Berlin's €500bn stabilisation fund. It warned that further sums may be need`ed to meet capital adequacy ratios in the future.

"We are not under time pressure and will be holding in-depth discussions with our stockholders as to the strategy to pursue," said Hans Berger, chief executive officer. The bank has had to write down €2.3bn over the last year, and suffered heavy losses from the collapse of Lehman Brothers. Commerzbank said it would seek a combined guarantee and capital boost of €23bn, while BayernLB will seek €5.4bn. The giant property lender Hypo Real Estate is the biggest casualty so far, needing €50bn.

In Austria, a mini-crisis continued to simmer yesterday as the state stepped in "with a few hundred million" to rescue Kommunalkredit, after the public lender said it was suffering a "liqudity squeeze". Austria's banks have heavy exposure to the debt crisis in Ukraine, Hungary and the Balkans. Europe's banks are almost twice as leveraged as those in the US, according to the IMF.

Many pursued a very aggressive lending strategy during the credit bubble. They account for the lion's share of cross-border loans to Latin America, Asia and the entire $1.6 trillion pool of loans to Eastern Europe. Matt King, credit strategist at Citigroup, says they have waited too long to face up to their losses and will need to raise $400bn in fresh capital in a hostile global climate.

Markets predict record ECB rate cut this week
A sharply slowing euro zone economy has persuaded financial markets that the European Central Bank could slash interest rates by as much as 75 basis points this week to contain the fallout from the global financial crisis. Figures derived from Euro Overnight Index Average (EONIA) rates show interest rate traders almost fully pricing in a three-quarters of a percentage point cut to 3.0 percent on Thursday.

If so, this would be the first time in its history that the ECB has moved rates by such a large amount. But despite the current futures market pricing, it would still be a surprise. All 81 economists polled by Reuters last week, along with a majority of analysts, reckon the ECB will cut its base rate by a more modest 50 basis points to a two-year low of 3.25 percent. "The market is salivating over what the ECB and Bank of England will do on Thursday," Calyon rate strategists said in a note. "We expect 50 basis points of cuts from each central bank, but the market pricing has increased to a 75 basis point move. We are in no doubt the accompanying messages will signal more easing to come."

President Jean-Claude Trichet has convinced markets that another ECB rate cut is a done deal, having already lowered them by 50 basis points last month in a coordinated move with other major central banks. Trichet said last week that there is a possibility, although not a certainly, that rates would be cut at the Governing Council's next meeting. Calyon strategist David Keeble says the ECB has no need to surprise the market on Thursday as the recent sense of panic is fading. After the euro suffered its biggest one month loss ever in October, Euribor interbank lending rates are easing and stock markets are basing out. "They have not signaled at all that they are going to move 75 basis points and if they do it will really unhinge expectations of futures moves," said Keeble.

Eonia futures price further easing, with rates eventually seen falling to a three-year low of 2.5 percent by April. That is in marked contrast to a few months ago when even in the face of the global credit crunch, the ECB raised rates to 4.25 percent in June, stressing its inflation-fighting mandate. But the European Commission said on Monday that the euro zone is already in a technical recession and economic growth will come to a virtual standstill next year. With price pressures also receding -- oil for example has more than halved in price to below $70 a barrel -- the ECB has some much needed wiggle-room.

Five-year/5-year forward inflation breakevens -- a widely used measure of future inflation expectations also followed by the ECB -- have eased to 2.32 percent from 2.65 percent in early September and from a peak of 2.78 percent in late August, according to data from Calyon. Nomura rates strategist Charles Diebel said the ECB wasn't expected to have the stomach for a 75 basis point cut on Thursday, but rates could ultimately test the lows seen between 2003 and 2005.

"Our longer term view remains one where prior cycle lows will be tested, as they have in the U.S.. As such we would expect a move to 2 percent from the ECB into next year and for the BoE would suggest the prior cycle low of 3.5 percent will be exceeded," Diebel said. UK interest rate futures also show the Bank of England easing rates 75 basis points this week, although again a broader Reuters survey of economists points to just a 50 basis point cut to 4 percent.

Rescue Cash Lures Thousands of Banks
Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks, out of concern that failing to do so could make them losers in a banking sector reshaped by the Treasury's $700 billion rescue plan. Depending upon conditions still being crafted by Treasury, thousands more private banks could apply for government capital as well, a Treasury spokeswoman said Sunday.

Only days ago, many healthy banks were saying they didn't need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP. Now institutions across the U.S. worry that if they don't try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.

"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors," said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week. In the past week, Treasury said, hundreds of publicly traded institutions have applied for the program, or signaled their intent to do so by the Nov. 14 deadline. Responding to lobbying by banking trade groups and their members,

Treasury last week extended that deadline for private banks to give them a chance to apply as well. Under the program, Treasury takes an equity stake in an institution in exchange for an investment of as much as 3% of risk-weighted assets, to a maximum of $25 billion. Treasury spokeswoman Jennifer Zuccarelli said architects of the Treasury program anticipated the huge interest, and that the $125 billion remaining for the program after the first nine big banks committed to the funds in October will be enough. But with new types of institutions -- last week, Treasury said insurers would be eligible -- being added almost weekly, some banks and their advisers say they aren't so sure. They are scrambling to commit to the program, worried they will be left out in the cold when the deadline passes.

"It seemed like the consensus in the industry was...go out and get this," said William Marsh, president and chief executive of Farmers National Bank of Emlenton, in Emlenton, Pa. Mr. Marsh said his bank is healthy and viable without government money, but he leans toward taking the money anyway. Helping banks to understand and apply for the Capital Purchase Program has become a cottage industry in Washington, where firms with lobbyists and lawyers under the same roof have been adding banking clients by the dozens.

In a seafood restaurant in Washington's Georgetown neighborhood Friday, Norman Antin, a partner in Patton Boggs's banking and regulatory group, read a note on his BlackBerry. House Financial Services Chairman Barney Frank, it said, is joining other Democratic leaders in demanding government money be used for lending first, not acquisitions. Banks and their lobbyists, like those at Patton Boggs, oppose such restrictions. They are in constant contact with bank regulators and lawmakers on Capitol Hill, and send dispatches on developments in the ever-changing program to clients in real time.

Patton Boggs partner Kevin Houlihan said the firm's banking and regulatory group now spends half its time on TARP, though the firm declines to break out the revenue created by the sector. Last week, after Treasury re-emphasized that only healthy banks would qualify for the program, five bankers contacted him in a day. He encouraged them all to apply. "It's cheap capital, cheap insurance and a bonus for the institutions that are participating," he said.

Lawyers at Skadden, Arps, Slate, Meagher & Flom, whose Washington office is located 50 yards from the Treasury, are marrying banks with private investors to improve their financial picture -- and their chances of being approved for TARP. Some banks are still reluctant to participate in the government program. Last week, Cullen/Frost Bankers Inc. one of Texas' largest banking institutions, issued a news release explaining why it won't apply for government funds.

"Cullen/Frost is well capitalized now and for the foreseeable future, with sufficient capital to grow our business and take advantage of acquisition opportunities," Cullen/Frost Chairman and CEO Dick Evans said in the statement. Such banks are now in the minority, said Hal Reichwald, co-chair of the financial-services group at Manatt, Phelps & Phillips LLP in Los Angeles. About 100 Manatt clients, old and new, are considering TARP capital, and more are in the pipeline.

New York Commercial Property Sales Plunge 61% in Credit Freeze
New York City commercial real estate transactions plunged 61 percent in 2008 through October as the global credit crisis roiled lending and sidelined buyers. About $17 billion of transactions have closed so far and the market is headed for its worst year since 2004, according to data from Real Capital Analytics Inc. of New York. Sellers have made 237 deals of $5 million or more, a four-year low in a market that posted a record $51 billion in sales in 2007.

"The banks are not lending, and most of them are saying we're done for the year," said Scott Latham, executive vice president for New York investment sales at Cushman & Wakefield Inc., the largest closely held commercial brokerage. "In all likelihood, you will see next to no transactions between now and the end of the year." The property recession that began in housing during 2006 is spreading to the commercial market. About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-size firms in the past three months, the highest since the Federal Reserve's Senior Loan Officer Survey began in 1991, the Fed said yesterday. Financial firms have recorded writedowns and losses of more than $680 billion.

The office market will likely get worse in 2009 and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages. The bankruptcy of Lehman Brothers Holdings Inc., the takeover of Merrill Lynch & Co. and the city comptroller's forecast that New York may lose as many as 165,000 jobs are also weighing on the market. "I don't think the first half of 2009 is going to be very rosy," said Simon. "I believe you're talking about a year from now before you see more movement toward normalcy." Buyers and sellers are looking for a bottom, he said.

"People are going to be waiting on the sidelines until a floor is established," said Simon. "People aren't going to sell unless they have to sell. Unless that floor is established you will not see significant sales." With no letup in sight for the property industry, investors have dumped real estate investment trusts focusing on offices. The 14-member Bloomberg Office REIT Index lost 43 percent in the 12 months through October, led by Maguire Properties Inc. and SL Green Realty Corp., which together control almost 50 million square feet of office space in the Los Angeles and New York metropolitan areas.

SL Green, the biggest owner of Manhattan office buildings, has dropped 65 percent in the 12 months through October. Maguire, the largest owner of downtown Los Angeles office towers, has plunged 87 percent and is the worst performer in the index. Global commercial sales fell 57 percent this year through August, Real Capital said in an Oct. 9 report. In the third- quarter, they fell 64 percent from the same period a year ago, according to preliminary data from the company. In the U.S., sales have declined 72 percent this year through October, the biggest drop since the firm's recordkeeping began in 2001, Real Capital said. Starting in 2004, property investors, fueled by cheap and abundant debt, began an unprecedented run to $514 billion of U.S. deals in 2007, said Dan Fasulo, Real Capital's director of market analysis. "I think it will be a while before we get to that figure again," Fasulo said. "We're going to do less than half of that in 2008."

September was "disastrous" for the financial and commercial property markets, Real Capital said. Office sales totaled $13.4 billion in the third quarter in the U.S., the lowest since the first quarter of 2004. Sales for all of 2008 aren't likely to exceed the volume of the first quarter of 2007. "Until we have some kind of watershed transaction that gives people a sense of what the market is, you're not going to see a lot of transactions," Lynne Sagalyn, director of the Paul MilsteinCenter for Real Estate at Columbia University, said in an interview.

Sales involving New York real estate investor Harry Macklowe, perhaps commercial real estate's most prominent casualty of the credit crisis, accounted for more than two- fifths of New York's year-to-date dollar figure through October. Macklowe paid $6 billion last year for seven Midtown skyscrapers, primarily using short term debt. His lender, Deutsche Bank AG, took control of the towers in February and sold five of them for $2.83 billion. Macklowe also sold the General Motors Building and three other buildings for $3.97 billion to Mortimer Zuckerman's Boston Properties Inc.

Second-quarter commercial and multifamily mortgage originations tumbled 63 percent in the second quarter from the same period a year earlier, according to the Mortgage Bankers Association in Washington. Office property loans fell 65 percent, retail property loans fell 63 percent and industrial property loans slid 57 percent, the MBA said. Loans slated for the commercial mortgage- backed securities market declined 98 percent in the second quarter from a year earlier, the group said.

Financing of deals by so-called portfolio lenders, companies like commercial banks and life insurers that originate loans and keep them on their books, was also down. Loans by banks fell 29 percent and 27 percent for insurers, the MBA said. The few deals being made usually require sellers to either provide financing or allow buyers to take over their existing loans, said Howard Michaels, chairman of the New York-based Carlton Group LLC, a real estate investment banking firm, which arranged the recapitalization of the GM Building for Macklowe in 2004, and Chicago's Sears Tower in 2007.

At 1372 Broadway, a 20-story pre-World War I office building in New York's Garment District, buyer Lloyd Goldman received financing for 86 percent of the tower's cost from the seller, Wachovia Corp., the lender being acquired by Wells Fargo & Co. Wachovia and partner SL Green sold the building for $274 million, $61 million less than what they paid a year before, according to city records. The price dropped $20 million from the signing of the contract in July and last month's closing, said people familiar with the transaction. A standoff between sellers and buyers over price appears to be stalling the market, said Michaels.

"Most people are waiting to see how 2009 shakes out. Until then, nobody's putting any buildings on the market unless they have to." he said. "I don't think that anybody would voluntarily sell into this market right now." Two properties remain on the market five months after they went up for sale. They are Worldwide Plaza on Eighth Avenue, a 1.7 million square-foot tower, and 1540 Broadway in Times Square, the former Bertelsmann Building. The seller of both buildings: Harry Macklowe's lender, Deutsche Bank.

GM, Ford, Chrysler Face Closed Market for Auto Bonds
Ford Motor Co., GMAC LLC and Chrysler LLC were shut out of the market for bonds backed by auto loans for the fifth straight month, adding pressure on the automakers to consider mergers and seek taxpayer funding. Sales of auto bonds slumped to $500 million last month, compared with $9 billion in October 2007, according to Merrill Lynch & Co. data. The cost to sell the debt surged to record highs over benchmark rates on concern that car owners won't be able to make loan payments amid job losses, higher food and fuel costs and falling property values.

The credit market seizure is forcing automakers to cut back on loans to dealers and customers, contributing to a slowdown that may cut U.S. auto sales this year to the lowest level since 1993. Facing a slump in demand and prohibitive borrowing costs, General Motors Corp. and Chrysler entered merger talks and the finance arms of the so-called Big Three sought approval to borrow from the Federal Reserve's new commercial paper program. "They have no access to funding at reasonably economic levels," said Eric Johnson, president of 40/86 Advisors Inc. in Carmel, Indiana, which manages $24 billion in fixed income. "It means a faster burn rate. It doesn't change the end game: Either the government bails them out, or they're through."

GM said today its sales of cars and light trucks tumbled 45 percent in October from a year earlier in its worst sales month since World War II. Ford reported a 30 percent decline. U.S. auto sales across the industry probably fell for the 12th straight month, extending the longest slide in 17 years. New vehicles probably sold at an annual rate of 11.5 million in October, down from 16.1 million a year earlier, based on a Bloomberg survey of 21 analysts and economists.

GMAC, owned by GM and private-equity firm Cerberus Capital Management LLC, finances loans for GM customers by issuing debt. Chrysler Financial Corp. issues on behalf of Chrysler, also owned by New York-based Cerberus. Ford Motor Credit Co. issues for Ford. None have sold asset-backed debt in the public markets since May, according to data compiled by Bloomberg. Automakers began relying more heavily on the debt several years ago to lower borrowing costs after Ford and GM corporate bonds were downgraded below investment grade.

The difference, or spread, on three-year AAA auto asset- backed securities over the London interbank offered rate rose 50 basis points to 600 basis points in the week ended Oct. 30, according to JPMorgan Chase & Co., more than seven times the 80 basis points demanded by investors in the week ended Jan. 3. A basis point equals 0.01 percentage point. AmeriCredit Corp., the lender to borrowers with blemished credit, completed the one sale of the month on Oct. 6 in an offering that was place with its bankers. Deutsche Bank AG and Wachovia Corp. purchased the securities, Fort Worth, Texas-based AmeriCredit said in an Oct. 7 statement.

Public sales of auto-loan securities were $15 billion this year, matching all of last year's, in part because of a single issue in May from Ford, its biggest since 2002, Bloomberg data show. Issuance of the debt from the Big Three more than doubled to $21.2 billion in 2006 as investors' appetite for the debt soared, from $9.2 billion two years earlier, according to Moody's Investors Service. Ford's last public sale of bonds backed by auto loans, a $5.3 billion offering on May 16, cost the automaker 47 times the interest it paid on a comparable sale a year earlier. Ford paid 142 basis points over Libor on AAA bonds maturing in three years at the May sale, compared with 3 basis points more than the benchmark on similar bonds sold in June 2007.

For any of three major U.S. automakers to sell debt in the asset-backed market today would be a "huge rock to roll up a hill," said Neil McPherson, a managing director at NewOak Capital LLC, a distressed-asset advisory firm in New York. "The non-stop flurry of bad news on the economy, unemployment rates set to rise, and the problems the Big Three are having all tell me investors are not likely to back up the truck" to buy the bonds, McPherson said. U.S. auto sales in September tumbled the most in any month since 1991. Detroit-based GM and Ford, of Dearborn, Michigan, have reported more than $70 billion of losses in the last four quarters. Auburn Hills, Michigan-based Chrysler isn't required to publicly report earnings.

"There is clearly a lot of contraction in the market and we are taking a variety of actions to manage our resources prudently," said Gina Proia, a spokeswoman for Detroit-based GMAC. At Ford Motor Credit, "we continue to fund our business and make progress toward out 2008 funding plan," spokeswoman Brenda Hines said. The company has completed several private transactions since the May sale, she said. Amber Gowen, a spokeswoman for Chrysler Financial, declined to comment. The automakers are slashing jobs and other expenses to stem their losses. Chrysler said last month it will eliminate 25 percent of its salaried workforce, or about 4,300 jobs, starting next month and GM has said it will chop more than the 5,000 salaried jobs already targeted. Ford is considering selling some of its stake in Japan's Mazda Motor Corp. to raise cash as part of its plan to shed assets outside the U.S., according to people with knowledge of the discussions.

GM's credit ratings have been slashed to Caa3 by Moody's and B- by Standard & Poor's, nine and six levels below investment grade, respectively. Ford is rated Caa1 by Moody's and B- by S&P. Ford and GM were rated investment-grade at both credit-ratings companies until May 2005. Chrysler is rated Caa2 by Moody's and CCC+ by S&P. "The markets are looking relatively dim for those kinds of transactions near term," said Robert Schulz, an analyst at S&P in New York, which predicts GM and Chrysler may run out of cash in 2009. "Broadly speaking, the credit markets are putting downward pressure on sales." Executives at GM asked Treasury for aid to help finance any agreement with Chrysler, according to people who knowledge of the matter who asked not to be identified because the talks are private.

Congress also approved an automaker-loan program on Sept. 27, agreeing to lend money to help convert plants to build more-efficient vehicles. GMAC, Ford Motor Credit and Chrysler Financial last week received approval to access the Fed's commercial paper program, which began buying short-term debt from companies to reduce interest rates and lure investors back to the market. GMAC is also seeking to become a bank holding company, which would make it easier to take part in a Treasury Department rescue plan. "They need to sustain liquidity," said Mark Oline, an analyst at Fitch Ratings in Chicago. "The federal government is probably the first, second and third option there."

Landsbanki Bond Auction Gives Initial Value of 3.375%
Credit-default swap dealers set an initial value of 3.375 cents on the euro for Landsbanki Islands hf's senior bonds, which will be used to settle the derivatives triggered when the Icelandic government took control of the bank. The valuation means sellers of default protection on Landsbanki will have to pay 96.625 cents on the euro, or about 1.3 billion euros ($1.7 billion), if the initial results hold. Sellers have to pay the difference between the amount of debt protected by the derivatives and the bond value.

The auction is the first of three being held this week to settle credit-default swaps after the Icelandic government seized its three biggest banks because they couldn't raise short-term funding last month. It follows auctions in the U.S. after the collapse of Lehman Brothers Holdings Inc., Washington Mutual Inc. and the U.S. government's seizure of mortgage companies Fannie Mae and Freddie Mac.

More than 160 banks and investors signed up to settle credit-default swaps based on the auction price, according to the International Swaps and Derivatives Association in New York. A final price is scheduled to be announced at 2 p.m. in London, according to Creditfixings.com, a Web site run by auction administrators Markit Group Ltd. and Creditex Group Inc.

The outstanding notional value of Landsbanki contracts is $1.8 billion, according to the Depository Trust & Clearing Corp., which runs a central registry for credit-default swaps. Contracts on Kaupthing Bank hf, the biggest Icelandic lender, have a $3.8 billion net notional value and Glitnir Banki hf's have $2 billion.

The Landsbanki price may fall during a second round of the auction after dealers reported a net interest to sell 454 million euros of Landsbanki bonds. During the second round orders for bonds are matched, and an imbalance of demand to sell can push the price down. Auctions will be held for Glitnir tomorrow and for Kaupthing Nov. 6.

Depository Trust to Provide Credit-Default Swaps Data
The Depository Trust & Clearing Corp. will publish details of the top 1,000 credit-default swaps today, bowing to regulatory pressure for more transparency in the $47 trillion market. The data from the DTCC, which operates a central registry, will for the first time offer a clearer picture of the amount wagered on the creditworthiness of the world's companies and governments.

The industry has stepped up efforts to counter critics among U.S. lawmakers and regulators who say the lack of transparency in the market exacerbated the financial turmoil. The collapse of Lehman Brothers Holdings Inc. contributed to a decline in financial markets last month because no one knew how many contracts were outstanding on the securities firm, or who had held them. Estimates ranged as high as $400 billion, though the actual amount turned out to be $72 billion, the DTCC said.

The industry should "get the word out about the small size of these risks compared to the notional amounts on which the contracts are based," said Mark Brickell, chief executive officer of Blackbird Holdings Inc., which provides an electronic trading system for derivatives, and former chairman of the International Swaps and Derivatives Association. After subtracting redundant trades, only $5.2 billion had to actually change hands, DTCC said last month in what was its first release of data from the warehouse.

Even the size of the market is up for debate. ISDA says more than $47 trillion of contracts are outstanding, while the DTCC puts the figure closer to $35 trillion. "The credit derivatives market is in need of PR to stop the flow of misinformation we continually hear," said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. The DTCC data "should help," he said. The DTCC, which matches and confirms 90 percent of electronic trades from the biggest dealers in the market, will list the companies and countries linked to the most credit- default swaps, including both the gross amount and a net figure that excludes offsetting trades between two parties.

Criticism of the market intensified in September after the collapse of Lehman and the U.S. government's bailout of American International Group Inc., which faced bankruptcy after credit- rating downgrades forced it to post more than $10 billion in collateral on credit swap trades that had plunged in value. Auctions this week will settle default swaps on the combined 43 billion euros ($55 billion) of debt of Iceland's three biggest banks, starting today with Landsbanki Islands hf.

U.S. Securities and Exchange Commission Chairman Christopher Cox called for authority to regulate the credit swaps market, saying the lack of disclosure and the web of connections between dealers in the market threatened the stability of the financial system. The Federal Reserve Bank of New York, which has spent the last three years pushing dealers to curb risks in the credit swaps market, last week said it welcomed the DTCC's disclosure.

"We need transparency," said U.S. Representative Bob Etheridge, a Democrat from North Carolina who heads the subcommittee that oversees the Commodity Futures Trading Commission, which is also seeking authority to regulate the market. "Sunlight has a way of purifying a lot of things and sanitizing them, and that's why I think transparency is so critical in this area. You're dealing in substantial dollars." Separately, the European Central Bank met with regulators, lenders and investors yesterday to discuss ways of increasing transparency in the default swaps market. A central counterparty is an "appropriate solution" for reducing risk, the ECB said in a statement.

The weekly data the DTCC will start publishing on its Web site after 5 p.m. New York time today will show how much is traded on both individual companies and on benchmark indexes linked to groups of companies. Starting next week, it also will post trading volumes during the previous week. DTCC is controlled by a board of members, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and other dealers that created and control trading in the credit-default swap market. Trading exploded during the past decade as the market went from being largely a tool for banks to hedge loans to a place where hedge funds, insurance companies and asset managers could speculate on the creditworthiness of companies, governments and other borrowers, including homeowners.

Until now, publicly available data on the market was largely limited to bi-annual surveys by ISDA and the Bank for International Settlements, that showed the gross notional value of trades outstanding for the entire market, a number akin to trading volume. "The risk to the market from these instruments would be far less if investors had the benefit of basic disclosures," Cox wrote in an opinion column today in the Washington Post, in which he repeated his call for authority to regulate the market. "The lack of transparency around credit-default swaps played a role in the collapse of AIG and contributed to the crisis of confidence that has enveloped other financial institutions."

Hundreds of branches to close after creation of 'superbank'
Hundreds of branches and up to 20,000 jobs are to be lost when Lloyds TSB takes over Halifax Bank of Scotland to create Britain's first "superbank". Unions reacted with dismay yesterday as Lloyds predicted it could save £1.5bn a year from cost-cutting "synergies" after the deal. The savings figure is £500m higher than when the takeover was unveiled in September. The cuts, representing nearly 16 per cent of the combined banks' costs, are expected to be achieved by 2011.

"Whilst Lloyds TSB believes that the combination with HBOS will generally provide enhanced opportunities for employees, there will inevitably be some rationalisation as a result of these initiatives," said Sir Victor Blank, the Lloyds TSB chairman. Lloyds said it had so far identified 61 money-saving schemes. Retail bank branches in Britain will take the biggest hit, with £790m in annual savings. It did not say how many jobs would be cut as a result of the merger, but said there was scope for significant savings from combining the two companies' branches, back offices and call centres.

Cuts in the wholesale and international banking divisions will produce £430m of savings, raising the prospect of further redundancies among corporate bankers in the City. Industry analysts were sceptical about Lloyds' estimate that it would save £1.5bn, with most reckoning £2bn was a more likely figure. They pointed out that when Royal Bank of Scotland bought NatWest in 2000, RBS was able to shed 18,000 jobs in a deal which had much less "overlap" than Lloyds and HBOS.

A merger of two large banks would normally see about 10 per cent of their combined workforces cut, but analysts said the new superbank could easily shed 20,000 staff and close hundreds of branches. The Lloyds TSB chief executive, Eric Daniels, tried to soothe the concerns of workers yesterday, saying any cuts would take three years and there would be "nothing dramatic tomorrow". He added: "Both organisations have terrific track records in managing their cost base without earthquakes or hiccup."

However, he refused to rule out compulsory redundancies, saying it was "premature" to discuss details. Unite, the union representing staff at both banks, urged Lloyds to quash unsettling speculation and not keep workers in the dark. Derek Simpson, its joint general secretary, said: "We believe that if this takeover is managed properly ... compulsory redundancies can be avoided. If anyone is forced out it should be the culprits of the credit crunch, not their victims."

£17bn needed to fund Lloyds TSB and HBOS merger and boost balances
Lloyds TSB and HBOS will need to raise £17bn to fund the planned merger and boost their balance sheets, but Lloyds today pledged to repay £4bn of taxpayer cash by the end of 2009. The group's plans would allow it to resume paying dividends to shareholders next year, it said.

Banks using the Government's £37bn part-nationalisation scheme cannot pay dividends on ordinary shares again until they have bought back preference shares held by the State. It has been a controversial point for Lloyds shareholders, given the prospect of no payout for some time. But Lloyds said in a document detailing the bid for HBOS that its "clear intention" was to buy back the preference shares during 2009. The group is raising £5.5bn in a Government underwritten share placing, while HBOS is seeking an £11.5bn capital boost.

Lloyds will sell £1bn in preference shares to the Government, with another £4.5bn being made available to investors. If it fails to achieve investor take-up, the Government will pick up the tab. HBOS is meanwhile appealing to investors for £8.5bn, while it is also selling £3bn in preference shares to the Government. If investors snub the new shares, the Treasury will take them up, leaving it with a potential stake of up to 43.5 per cent in the new business.

Lloyds TSB and HBOS renegotiated the terms of their merger last month in the light of the mammoth capital-raising exercise, with Lloyds paying just 0.605 of its shares for every HBOS one. This values HBOS at around £6.9bn. HBOS investors will own just a fifth of the overall group, with Lloyds TSB shareholders potentially holding little more than a third, or 36.5 per cent. Shareholders of both banks will have their chance to vote on the deal over the next two months. If they approve the merger, the banks are hoping to complete the deal in January next year.

Details of the bid emerged today as both banks outlined further woes amid the credit crunch. HBOS writedowns have swelled by £2.72bn to £5.18bn since the end of the second half, while Lloyds suffered a £270m hit from the credit crunch in the third quarter. HBOS said falling house prices and homeowners increasingly struggling with repayments had sent bad debts soaring from £722m to £1.25bn.

It also disclosed a further £3.8bn in reduction of assets held on its book, although it stressed this was not taken off the bottom line. Lloyds also saw a rise in the level of borrower arrears, up 14 per cent over the past 12 months. The group anticipates further writedowns of £300m in its wholesale and international banking business in the second half of the year. However, Lloyds said it remained on track to deliver good trading performance this year and was seeing signs of improvements in wholesale money markets.

Collins Stewart banking analyst Alex Potter said there were few surprises in Lloyds' update today, with news on its aims to resume dividend payments next year a "material positive". Experts at Numis Securities described the figures from HBOS as "terrible", but gave the deal the thumbs up. "We continue to believe that the merged Lloyds/HBOS will hold a uniquely strong position in UK financial services," said a Numis note." It added that cost savings could eventually total £2bn.

UK job cuts rise amid record construction fall
Construction activity in the UK fell at a record rate last month as demand for new houses and commercial property continued to wane amid the global financial turmoil, according to a key industry survey. The CIPS/Construction Purchasing Managers' Index measured construction activity at 35.1 in October — the eighth consecutive monthly fall this year.

Demand for new housing again showed the greatest decline, while commercial property also performed poorly, with activity levels declining at a series-record pace. In contrast, civil engineering continued to fare the best, although output contracted. The seasonally adjusted new orders index stood at a record low of 36.8, down from 41.2. Construction companies responding to the survey reported fewer enquires from potential clients and more competition for tenders.

Job losses at construction companies increased at a record pace for the survey, with the seasonally adjusted employment index falling to 40.9.
Sub-contractors suffered from falling demand for their services and are being forced to charge less to obtain work. Buying activity also declined at the fastest rate since the survey’s inception in April 1997 as companies cut back on non-essential expenditure

On the bright side, delivery times improved at the quickest rate in the survey history as supply companies had fewer orders to fill. Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing and Supply, said: “There was no let-up in October for struggling constructors as the global economic and financial malaise continued to unnerve the sector. "Concerned purchasing managers reported a new survey low in activity levels under the relentless onslaught of tightening credit conditions, plummeting confidence and high inflation.”

Made in Britain? The crisis in manufacturing
Why is manufacturing doing so badly? With sterling down around 15 per cent from its peaks in the summer of 2007, down to six-year lows against the dollar and all-time lows against the euro, surely our manufacturing exporters should be thriving? The crisis sweeping the banks, the housing slump and the collapse in consumer confidence have understandably dep-ressed the financial, construction and retail sectors. Yet it is manufacturing that is now bearing the brunt of the downturn.

Yesterday's figures from the Chartered Institute of Purchasing and Supply (CIPS) confirmed the grim state of affairs in industry. The institute interviews a broad range of managers at the "sharp end" of making things, and its surveys are a reliable leading indicator of future prospects. They are not good. For the sixth month in a row, the survey shows a contraction in manufacturing output, though the rate of decline eased slightly last month, up a little from a truly dreadful September. Employment intentions and new orders – domestic and export – are still falling.

The Engineering Employers' Federation says it has noticed an increase in the number of its members turning to short-time working and making contingency for redundancies. The Office for National Statistics reported last week that manufacturing output fell by 1 per cent in the third quarter, following a 0.9 per cent decline over April to June. Thus, with two successive quarters when output has fallen, manufacturing is firmly in recession.

Nowhere have problems been more evident than in the motor industry, where the number of brands cutting output or hours reads like a who's who of what is left of the British car industry. Honda in Swindon, GM in Luton, Nissan in Sunderland, Ford in Southampton and Land Rover at Halewood are all cutting back, a disturbing sign given that these have been some of the engines of manufacturing growth in this country. The "British" volume car makers, all of whom are owned and controlled by a variety of Japanese, German, Indian and American-based transnationals, account for about 10 per cent of manufacturing, and a good deal of the gloom now enveloping the sector reflects their plight.

Cars are the ultimate "big ticket", usually discretionary, purchase that can easily be postponed for a few months. Even top-end makers such as Aston Martin and Bentley are feeling some chill from their ultra-rich clientele. That gives us some clue as to why manufacturing is slumping badly. About three-quarters of the vehicles made in the UK are exported, but the downturn in global demand has more than outweighed the competitive advantages offered by the fall in the overseas value of the pound. That should improve, as the very recent falls translate into softer prices in the longer term. Overall, about two-thirds of UK manufacturing output is sold abroad, and encompasses everything from aero engines to Kit-Kats. Manufacturing is an extremely varied sector, and still matters enormously to the British economy.

There are some very large, internationally famous players, such as British Aerospace, Pilkington, JCB and Rolls-Royce, which contribute large positives to the balance of trade; there are also a large number of small to medium-sized enterprises making things from switch gear to garden hoses. Exporting is a fairly high priority for most, and the majority are raising their game in terms of productivity and skills. Average labour productivity is up 50 per cent since 1997, though from a relatively low base. The Department for Business, Enterprise and Regulatory Reform (DBERR) says the number of graduates in the manufacturing workforce is up from 9 per cent in 1994 to 16 per cent now. Around 25 per cent of the UK's manufactured exports are hi-tech, compared with 22 per cent for the US, 15 per cent in France and 11 per cent in Germany.

Foreign direct investment, running lower than its high points in the 1980s and 1990s, is also a significant feature of the UK scene; research and development (R&D) is increasingly significant, as is business-to-business (B2B), supplying other manufacturers in the supply chain rather than customers directly. The new Business Secretary, Lord Mandelson, is thought to be keen to revive the idea of hi-tech "clusters" around the nation.

Though not the force it was when Britain was "the workshop of the world", manufacturing is a vastly more efficient part of the economy than it was, say, three or four decades ago. A long way behind the US, China, Japan and Germany, the UK remains, perhaps surprisingly, the world's sixth largest manufacturing power, just ahead of France and not far behind Italy. Successive recessions in the 1970s, 1980s and 1990s have hit manufacturing hard, and only the very fittest have managed to survive. It will come as little consolation that this downturn should be much milder than the 1979-82 "shakeout", which saw output drop by a total of 16 per cent.

And manufacturing still matters. Just under 3 million Britons rely on the business of making things for their livelihood. Manufacturing accounts for 13 per cent of the UK's GDP, about £150bn, and punches way above its weight in trade, comprising about half of Britain's exports. Even the Conservatives have abandoned their previous stance that manufacturing does not need to be taken seriously. In the immediate future, much depends on the Government. Given that the public sector will be the only area of the economy liable to expand over the next year or two, and the express aim of the Treasury to bring forward major public infrastructure schemes, manufacturers will be looking for major contracts.

Industrialists may wonder how it came to be that hundreds of billions of state aid can be spent in the banks, with all competition considerations waved away, when ministers of both parties have pursued a policy of benign neglect of the sector for so long. The City of London, notably, was the only part of the economy to be granted its own special test by Gordon Brown in his famous five tests set before sterling could qualify to join the euro. The latest White Paper form the DBERR suggests a slightly more activist attitude, for example over nuclear power. Yet here, and even more so in the defence sector, state favouritism has been a traditional source of strength and reliable orders in virtually every Western power.

Longer term, the future of manufacturing looks as challenging as ever. Difficult as it may be to believe that it has still further to decline, it is perfectly possible. The Chinese have already managed to export toothpaste and pet food to the US, areas that might be thought the last bastions of domestic strength. The newly industrialising nations of China, India, Brazil, Turkey, and the next wave, of Vietnam, south America and some African nations, means the UK will have to continue to drive towards the high skill, hi-tech end of the market. The only good news is that Britain has had so much practice at tactical retrenchments and refocusing that manufacturing may still survive this downturn – if not unscathed, then at least viable.

As China's Losses Mount, Confidence Turns to Fear
When Chong Yik Toy Co. went bankrupt, the bosses fled without meeting their payroll and angry workers took to the streets in protest. Less than 72 hours later, the local government came to the rescue. Armed with bags full of cash totaling half a million dollars, accountants began distributing the money so the 900 former employees would have something to get by on. The Chinese officials who made the emergency payments on Oct. 21 called it an "advance," part of a "back-pay insurance fund." But the reality was obvious to everyone: It was a government bailout.

In the initial weeks of the global financial crisis, Chinese officials resolutely declared that they were not significantly affected. But now, as factory closings, dire corporate earnings reports and stock market losses continue to mount, the Communist Party's confidence has changed to another feeling entirely: fear. For the first time in the 30 years since China began its capitalist transformation, there is a perception that the economy is in real trouble. And for the Communist Party, the crisis is not just an economic one, but a political one. The government's response offers a glimpse into its still ambiguous relationship with capitalism -- relatively hands-off in good times, but quick to intervene directly at the first signs of a downturn in order to prevent popular unrest.

In recent weeks, local governments have set up special loans for ailing companies and initiated severance payments for workers who have already lost their jobs. Officials are candid in acknowledging the efforts are needed to head off what they call "mass incidents" -- the Communist Party euphemism for protests. The economic devastation has been worst in the industrial centers of southern China, areas that had thrived in recent decades by producing the electronics, clothing, toys and furniture that fill retail stores in the United States.

With export orders falling because of the global slowdown and rising raw material and labor costs, more than 68,000 small companies nationwide collapsed in the first half of 2008 and about 2.5 million jobs in the Pearl River Delta region may be lost by the end of the year, according to government and industry estimates. As the economy has soured, dissatisfaction has grown: Since mid-October, there have been dozens of labor protests involving thousands of workers at major exporters, including several publicly listed companies.

Meanwhile, government figures released last month show that the gross domestic product grew by 9 percent in the third quarter -- robust by almost any standard, but not in China. Here, the figure represented the slowest growth in five years, and was dangerously close to 8 percent. That's the level at which economists say China needs to grow in order to keep generating enough factory jobs to maintain stability in the labor market, as millions of peasants continue to pour into Chinese cities in search of work.

At the same time, some of China's most revered companies, whose growth once seemed limitless, have reported surprising losses in the past few days. Air China, the nation's biggest international carrier, posted its first loss in seven quarters because of declining passenger numbers and wrong-way bets on fuel prices. Bank of China, the nation's largest foreign-exchange lender, said that as credit-market losses went up, its profit growth went down to its slowest in two years.

China's leaders have made a variety of moves to try to stabilize the economy -- three interest rate cuts in six weeks, new export tax rebates, reduced costs for home buyers, and billions spent on infrastructure. But any hope that a strong Chinese economy -- the single largest contributor to global growth -- would offset the slowdown elsewhere is gone. The government's efforts to prop up individual companies are a radical move for a country that in recent years has tried to move away from its "iron rice bowl" philosophy, in which jobs and wages are guaranteed for life, and transition to a more sink-or-swim-style capitalism.

In the coastal province of Zhejiang, the local government is setting up a special $9.5 million loan fund to help companies such as the deeply indebted Feiyue Group, which exports sewing machines and suitcases. In Jiangsu province, the government extended unemployment benefits to migrant workers laid off from ailing factories; these workers had previously been shut out of public services because they don't have residency cards. The Guangdong provincial government in the south is scrambling to set up a special fund to compensate laid-off workers in order to "protect against some of the financial and social problems caused by such closures."

Eddie Leung, chairman of the Dailywin Group, which makes Movado and Anne Klein watches, said Guangdong officials also seem to be backing down from efforts to transform the area from a manufacturing hub into a high-tech and services center. In recent years, the government had been content to see polluting factories and sweatshops go out of business to make room for companies higher in the value chain. Now the government seems inclined to help them survive.

Chong Yik Toy is but one of a number of bankrupt companies whose employees have received payoffs from the government. In the eastern city of Wujiang, nearly 1,000 workers from bankrupt Chunyu Textile Co. received four months' salary on Oct. 27 after they swarmed the area's four main roads to draw attention to their cause. After more than 1,000 workers for home appliance maker BEP International Holdings gathered outside the factory to protest, district officials gave them $44 each late last month. The employees were also allowed to continue living in the defunct factory's dormitories for free. The same week, the government offered three months' back pay to the 900 workers at Gangsheng, an electronics supplier, after they staged a protest at a shop near their factory.

In the neighboring city of Dongguan, the local government handed out about $3.5 million on Oct. 21 to the employees of Smart Union -- which sold its toys to Mattel, Disney and Hasbro -- after the 7,000 workers staged a strike. Hu Weicai, 38, who worked with the plastic molds used to make electronic toys, said employees became nervous when the owners slipped three months behind on salary payments. The workers occupied the factory and the surrounding streets until government officials promised them they would be paid. "The government was very afraid when they saw what was happening. What the government fears most is workers making trouble. They paid us to stabilize our moods," Hu said.

But employees said a one-time payment will provide only a temporary reprieve from the unrest if the workers are unable to find new jobs. Jia Yingge's husband, a guard, received a little less than his monthly salary of $300. With no employment prospects in sight, she worries about how the couple will support their newborn son. "If you mention this company's name, no one wants to hire you because they know about the blockade and now we have a bad reputation," Jia said.

When Liu Fangping, 38, was paid, the government took his fingerprints with red ink -- presumably to make sure the right person was receiving the payment. But Liu noted that the prints could also be used to pinpoint troublemakers who continue to protest despite the handouts. "I don't think the government is doing its best to protect the rights of workers," Liu said, adding that officials seemed more interested in controlling unrest than helping individual workers. Indeed, signs posted at the gates of closed factories did not direct former workers to places where they could get help, but instead displayed a warning. In large black characters, they reminded workers that they could be detained for stirring up unrest, for disobeying security officials or even for "unlawful gathering."

Australia slashes rates more than expected as slowdown deepens
Homeowners in Australia have been delivered a welcome surprise by the central bank's decision to cut interest rates more than markets expected as it fights a deepening slowdown. The Reserve Bank, which has now cut rates by 2 percentage points since September, made the larger-than-expected cut as part of an increasingly urgent effort to shield the economy from the recession engulfing much of the developed world.

Investors took the move, which lowers rates from 6 per cent to 5.25 per cent, as a signal that the bank is willing to do anything in its power to brighten the economic outlook. Rory Robertson, interest rate strategist at Macquarie, predicted interest rates could fall as low as 4 per cent by the middle of next year. "A growing number of indicators have fallen off a cliff in October," he said. "Indeed, each of the big developed economies now is either in a severe recession or well on the way." The Australian dollar slipped as rates were slashed to 5.25 per cent, the lowest since March 2005.

RBA Governor Glenn Stevens said the grim outlook, coupled with falling prices for Australia's commodity exports meant it was likely that spending and activity at home would be weaker than previously expected. But Mr Stevens hopes the cut, in combination with a 10.4 billion dollar government stimulus package and a falling local currency, would work to strengthen Australia's position. Treasurer Wayne Swan welcomed the announcement, saying it would provide relief for families and businesses struggling to adapt to the rapidly evolving financial conditions.

"What it means is that both the reserve bank and the government are absolutely determined to strengthen our economy in the face of changing international conditions," he told reporters. But the RBA and the government won't be cheered by the Australian public's reaction to the cut. Many homeowners said they planned to save any money they could, rather than spend. Australia's rate cut comes after similar cuts in the United states, China, India and Japan last week and ahead of likely reductions in the UK and Europe on Thursday.

Nowhere man: a farewell to Dubya, all-time loser in presidential history

by Simon Schama

"Forgotten but not gone" was the way in which the supremo of Boston politics, Billy Bulger, liked to dismiss the human irritants he had crushed beneath his trim boot. The same could now be said for the hapless 43rd President of the United States as the daylight draws mercifully in on his reign of misfortune and calamity. How is he bearing up, one wonders, as the candidate from his own party treats him as the carrier of some sort of infectious political disease? How telling was it that the most impassioned moment in John McCain's performance in the final debate was when he declared: "I am not George Bush."

Where, O where are you, Dubya, as the action passes you by like a jet skirting dirty weather? Are you roaming the lonely corridors of the White House in search of a friendly shoulder around which to clap your affable arm? Are you sweating it out on the treadmill, hurt and confused as to why the man everyone wanted to have a beer (or Coke) with, who swept to re-election four years ago, has been downgraded to all-time loser in presidential history, stuck there in the bush leagues along with the likes of James Buchanan and Warren Harding? Or are you whacking brush in Crawford, where the locals now make a point of telling visitors that George W never really was from hereabouts anyroad.

Whatever else his legacy, the man who called himself "the decider" has left some gripping history. The last eight years have been so rich in epic imperial hubris that it would take a reborn Gibbon to do justice to the fall. It should be said right away that amid the landscape of smoking craters there are one or two sprigs of decency that have been planted: record amounts of financial help given to Aids-blighted countries of Africa; immigration reform that would have offered an amnesty to illegals and given them a secure path to citizenship, had not those efforts hit the reef of intransigence in Bush's own party. And no one can argue with the fact that since 9/11 the United States has not been attacked on its home territory by jihadi terrorists; though whether or not that security is more illusory than real is, to put it mildly, open to debate.

Bet against that there is the matter of hundreds of thousands of Iraqi civilian casualties, more than 4,000 American troops dead, many times that gravely injured, not to mention the puncture wounds and mutilations inflicted on internationally agreed standards of humane conduct for prisoners - and on the protection of domestic liberties enshrined in the American constitution. If the Statue of Liberty were alive, she would be weeping tears of blood.

If Bush himself has been largely kept out of sight, his baleful legacy has been visible in the McCain campaign. McCain has made much of his credentials for independence of mind, a claim which once was credible given his support for immigration reform and opposition to Bush's tax cuts. But somewhere along the road to the Republican nomination, all of this became less important than the lessons of the Reagan-Bush-Rove political playbook which, with the exception of the Clinton election of 1992, seemed to have a track record of unbroken success.

McCain knew this from bitter personal experience, having been on the receiving end of Bush lowball politics in the South Carolina primary in 2000. Coming out of a convincing win against George Bush in New Hampshire he was stopped in his tracks by a smear campaign conducted through push-poll phone calls in which people were asked whether they knew that the daughter McCain had adopted from Sri Lanka was in fact the illegitimate child of an affair with a woman of colour. Now you would think McCain could never reconcile himself to a politician capable of those kinds of tactics. But there he was in the campaign of 2004, stumping the country for the incumbent, ingratiating himself with the conservative base he knew he would need, even as his old Vietnam buddy, John Kerry, was being coated in slime by the Swift Boaters.

Whatever misgivings McCain might have had about adopting the hardball tactics of his 2000 adversary have long since disappeared before the blandishments of classic Bush-style operatives like Rick Davis and Stephen Schmidt. "Do you want to be pure, or do you want to win"? they must have asked right after the nomination. Ditching Joe Lieberman as a running mate and unleashing pitbull Palin was his answer. So even while George Bush is kept at arm's length from the campaign, his campaign style lives on as Obama is stigmatised as a terrorist-friendly stealth-socialist, too deeply unAmerican to be let anywhere near the Oval Office. "He just doesn't see America as we do" says Sarah Palin trying to wink her way into Dick Cheney's seat. McCain is betting the house that this way of doing politics has at least one more hurrah left in it, and we will find out on in the early hours of Wednesday morning whether he is right.

The Bush presidency is the spectre haunting the feast in more than tactics. Although every conservative administration since Ronald Reagan has promised to deliver, through supply-side stimulation, economic growth without bloated deficits, they have never been vindicated in their blind faith in what Bush senior once rashly called "voodoo economics". Consistently, they have brought the US Wall Street crashes and recessions along with massive deficits; and yet somehow, the stake that history attempts to drive through the heart of their economic theology never puts the ghoul away.

No weight of evidence to the contrary has ever shaken the totemic belief that tax cuts can grow the economy robustly enough to compensate for drastic shortfalls in revenue. George W Bush clung to this belief even as the Clinton budget surplus was converted into a mountainous deficit, and John McCain continues to parrot the same belief with the shining face of a true believer. Not even Gibbon could supply a story as fatefully bizarre as the ultimate consummation of Reagan-Bush conservatism, its last act: the most massive shift of financial power from the private to the public sector since the New Deal. Rather like the Pope deciding that all along he really wanted a barmitzvah.

If you look at this saga as the history of a dynasty; it's come full circle. For, believe it or not, there once was a time when Bush politics was about centrist moderation. Dubya's revered granddad, Prescott Sheldon Bush, son of an Ohio railroad executive and senator for Connecticut from 1952 to 1963, was punished in the Catholic towns of industrial Connecticut for his connection with Planned Parenthood. Not only that, but he was a trustee of the United Negro College Fund, the kind of institution that made the eventual career of Barack Obama conceivable.

But the Bushes have always been selective about idealism. And even at the height of the Kennedy-Johnson apogee, Prescott and George Herbert Walker Bush were turning the pages of Barry Goldwater's Conscience of a Conservative. They could smell the wind direction changing. The future of Republican money and Republican power lay elsewhere; with Texas oil. Hence the migration to Midland Texas of George Herbert Walker Bush and his makeover into a Texan who knew the ways of the corporate world; and how to bring about the Great Cosiness between government and business that seemed like the perfect feedback loop: money to power, power to money; tax breaks for the corporations; donations to those who might command the heights.

This is the politics George W Bush inherited, and he has been its faithful disciple; to the point of purging it of any remaining traces of pragmatism. It is astounding to hear rightwing talkshow bloviators rant about the predicament of the Bush administration being caused by its failure to carry out the true conservative agenda. For there never has been and never will be a more doctrinally faithful instrument of the creed. Never mind the hanging chads of 2000, the Cheney-Bush administration seized the moment to bring on the Goldwater-Reagan Rapture in which government was once and for all got out of the way of business.

So it hasn't really been all George Bush's fault, the stupendous American fiasco. He came to power armed with an ideology that was about to crash and burn; that was, years before the present tumult, already fatally disconnected from historical reality. It was on his watch that American government needed reinventing. It was responsible government that was needed in Iraq and Afghanistan; government that was desperately needed in New Orleans after Katrina, while all George Bush could manage was a fly-by. It is government that this most anti-governmental of all American administrations is learning that is needed now to save the United States from a second Depression.

In his heart of hearts I actually think the shell-shocked Dubya, somewhere in the bowels of his presidency knows this. But he is nowhere to be found, and so on goes the mad rant that health care reform and progressive taxes are the Trojan horse for socialist revolution. To which those who have another view altogether might want to say, fear not, for yours, as a Republican president once said, is a government of the people, by the people. And really it will not perish from the earth.


Unknown said...

Buckle up!

Anonymous said...

Saw this that Greenspan wrote in 1966:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Gold and Economic Freedom

by Alan Greenspan
[written in 1966]

Anonymous said...

Thank you for the post Ilargi...

RE: "to stop the lying and cheating that has come to define the nation, at the latest ever since Greenspan took over the Fed in 1987"

I am not so generous. I think we took a national turn for the 'worse' when the hope of republicanism was co-opted and perverted by the greed of the proto-industrial plutocracy of the 'Gilded Age'.

But, why quibble over silly details. The reality remains: with tens of trillions in worthless "assets" festering in the body, the only two choices are kill the disease or die. And since there is NO WAY that our financial and political leaders have the will/desire/knowledge whatever to do the former, then the latter MUST occur. It's simply a matter of waiting to see WHEN the erosion reaches critical mass and the house crumbles into the sea. And all of the reinforcing of the structure simply will not stop the tide from ripping away the foundation.

Beans, Bullets and Blankets.

Anonymous said...

RE: Violence

Yup. Obama victory, McCain 'victory'. Matters not I'd say. The victor of the election will only be predictive of the type and demography of the violence.

Take a stroll through youtube sometime and listen to the type of fury and hatred that exist toward Obama. And of course, steal this election FROM Obama and watch the cities explode like ne'er before.

Maybe it'll be another Supreme Court job that won't get decided 'til January 19th @ 11:59pm. Just like our country to delay and obfuscate and try to close eyes to reality.

Dr. Zaius would be proud.

Anonymous said...

I'll shut up after this one last comment:

DOW +300

# Fear index fades as US stocks rally on election day

# Stocks climb as campaign's end brings relief

# Ticker Shock: Mastercard, ADM, Walgreen's Looking Good Long-Term

i love that..."long term". This is the hard part to explain. I mean, not to you guys...but, like, to the rest of 'them'. I just cannot come up with the perfect analogy.

OK, lemme try this one: a guy goes to a casino and has $10,000 to bet. He loses all his money and has no chips left...but he still goes over to a poker table and sits down. So, the dealer asks him if he'd like to buy some chips, and the guy says YES...but the guy doesn't take out any money. So the dealer says, "ummmm...sir...I can only SELL you chips if you give me some money..." And the guy says ok...and still he just sits there.

So the dealer calls over the pit boss and explains the dilemma...and the pit boss asks the guy if he really does want to play poker...and the guy answers yes...and so the pit boss tells the guy he has to buy some chips, and the guy says "I know that"...and yet the guy still just sits there.

The guy is learning disabled, of course. He cannot grasp the relationship between playing the game and his having to buy INTO the game.

This is NOT an anaology of the casino-like economics of the past 25+ years. This is an anology about the cognitive dissonance of the American people...and of the government...and of the ECONOMISTS!!!

What!?!??!? Long Term?!?!?!??! There is no long term if we don't make a total 180 degree turn and start telling the banks and other institutions with the TRILLIONS in dirty kleenex to empty their vaults for the world to see!! Only then can we suffer through an admittedly terrible economic depression...but at least survive.

Anonymous said...

Ilargi writes:

If he wishes to prove himself to be a true leader, his mission will be to soothe the pain, to stem the bleeding, to minimize the suffering of the herd, and most of all to stop the lying and cheating that has come to define the nation..."

It's because of sentences like this that I read, respect, and contribute what I can to TAE. We can't eliminate suffering, but we can alleviate it.

scandia said...

Just listening to CBC , a song about bringing the troops home...and what exactly are the troops going to do when they get home. Doesn't look like a lot of employment available for them?

Anonymous said...

I second Ric's statement.


"True compassion is more than flinging a coin to a beggar. It comes to see that an edifice which produces beggars needs restructuring." ~ MARTIN LUTHER KING, JR.

Ilargi said...

"If he wishes to prove himself to be a true leader, his mission will be to soothe the pain, to stem the bleeding, to minimize the suffering of the herd, and most of all to stop the lying and cheating that has come to define the nation..."

It's because of sentences like this that I read, respect, and contribute what I can to TAE. "

Thank you so much, RIc.

I can only hope that enough people realize how true that is.

It is ,by the way, partly a reference to Garrett Hardin, who states in his stunningly brilliant treatise of the Tragedy of the Commons (DO read it) that the task of the shepherd is not to save the life of every individual in the herd, but to minimize the suffering of the herd.

For ages I thought I was the only one with this uncomfortable itch about what I saw around me, till I saw Jay Hanson's collection of geniuses. Then I was less alone. It's a shame that Jay doesn't get economics very well. He's such a brilliant man.

Here you go, try to figure how much of Obama there is in this:

Tragedy of Freedom in a Commons

The rebuttal to the invisible hand in population control is to be found in a scenario first sketched in a little-known Pamphlet in 1833 by a mathematical amateur named William Forster Lloyd (1794-1852). [6] We may well call it "the tragedy of the commons," using the word "tragedy" as the philosopher Whitehead used it [7]: "The essence of dramatic tragedy is not unhappiness. It resides in the solemnity of the remorseless working of things." He then goes on to say, "This inevitableness of destiny can only be illustrated in terms of human life by incidents which in fact involve unhappiness. For it is only by them that the futility of escape can be made evident in the drama."

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly + 1.

2. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision making herdsman is only a fraction of - 1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another.... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit -- in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Anonymous said...


"If he wishes to prove himself to be a true leader, his mission will be to soothe the pain..."

But soothing the pain is a task quite separate from the task of curing the patient. A cure would require supreme leadership, surely; but the morphine any hospice attendant can give.

More to the point: if the next President were to close the Treasury and send all federal employees home without pay for four years, would that act increase our suffering? If we lived four years without federal tax, and sought pain relief only at the local level... could we not find it? I just have difficulty seeing what particular pain relief the feds could offer above and beyond the remedies available locally. (apart from moneyprint hyperinflation and true imperial warfare, which are federal prerogatives, and addictive pain relievers).

Reluctant Poseidon Hamster

Ilargi said...

And I owe you the song in the title: Leonard Cohen's songs taught me English as a kid, and years later I found myself, full circle, living one block away from him.


Ain't No Cure For Love

I loved you for a long, long time
I know this love is real
It don't matter how it all went wrong
That don't change the way I feel
And I can't believe that time's
Gonna heal this wound I'm speaking of
There ain't no cure, There ain't no cure,
There ain't no cure for love.

I'm aching for you baby
I can't pretend I'm not
I need to see you naked
In your body and your thought
I've got you like a habit
And I'll never get enough
There ain't no cure, There ain't no cure,
There ain't no cure for love

There ain't no cure for love
There ain't no cure for love
All the rocket ships are climbing through the sky
The holy books are open wide
The doctors working day and night
But they'll never ever find that cure for love
There ain't no drink no drug
(ah tell them, angels)
There's nothing pure enough to be a cure for love

I see you in the subway and I see you on the bus
I see you lying down with me, I see you waking up
I see your hand, I see your hair
Your bracelets and your brush
And I call to you, I call to you
But I don't call soft enough
There ain't no cure,
There ain't no cure,
There ain't no cure for love

I walked into this empty church I had no place else to go
When the sweetest voice I ever heard, whispered to my soul
I don't need to be forgiven for loving you so much
It's written in the scriptures It's written there in blood
I even heard the angels declare it from above
There ain't no cure, There ain't no cure,
There ain't no cure for love

There ain't no cure for love
There ain't no cure for love
All the rocket ships are climbing through the sky
The holy books are open wide
The doctors working day and night
But they'll never ever find that cure,
That cure for love

Anonymous said...

Wow Ilargi...what an excellent introduction you wrote.

Anonymous said...


Hardin writes: The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers.

Some people can't deny truth--and they personally suffer for it. Suffering and truth are intimately related. Some people who love truth love it so much they would rather die than continue living the darkness they know themselves to be. While love of truth keeps them from suicide, love of truth also keeps them in darkness.

I'm reminded of something Todd said over at TOD the other day in the discussion on Jay Hanson's work. Todd said of Jay:

"...his actions appear more in line with someone who has experienced, at least, the beginning stages of enlightenment. Truly enlightened people almost never are on the forefront pushing their ideas. People interested in this might search to see if the Zen parable, The Oxherder, is somewhere on the internet...."

I agree with Todd to the extent there is enormous beauty and truth in the Thermo-Gene Collision model--a truth rare for most people to see clearly, though I think most sense it to some degree.

Where I differ with the model is that I personally don't see people as genetic closed systems; but only because I can't say what the physical world actually is.

That said, I don't see death as an inexorable tragic solemnity, but a phase change into something humanly impossible to experience or know in any way; something which transcends creation. This, for me, is another truth--a truth that cannot be spoken because there are no words for it at all.

Cohen has always been a friend to me and I can't say it better than he does here:
YouTube: Leonard Cohen - Love Itself

The light came through the window,
Straight from the sun above,
And so inside my little room
There plunged the rays of Love.

In streams of light I clearly saw
The dust you seldom see,
Out of which the Nameless makes
A Name for one like me.

I'll try to say a little more:
Love went on and on
Until it reached an open door
Then Love Itself
Love Itself was gone.

Ilargi said...

"Wow Ilargi...what an excellent introduction you wrote."

Thanks, Shibbly. Means a lot.

Who ever tells me that?!

scandia said...

As it looks like an Obama win I'm wondering how busy the shredding machines will be from now on.
Kind of depressing that the popular vote is divided evenly. Lots of Republican support still in America. How this could be after the past 8 years !

el gallinazo said...


"No one ever went broke underestimating the intelligence of the American public." -
-- H. L. Mencken

As I predicted earlier, the Republicans could only steal 3-4% of the vote. It just wasn't enough this time.

Anonymous said...


You're a damn good writer.

Anonymous said...

Well,I guess you answered my question

.In spades.

Ok, then slight change in plans.Wife&I go into full prep with every nickle&dime.I have only seen one splurge that I want bad...security systym @ Costco for a grand that has 4 cameras 24-7.I will figure out how to alternatively power this little guy up as its pics are clear as a bell out 100 yds.

Now its
store everything.

stockpile everything.

Big question.How large do I go with the bees.I think maybe local...like 15 miles max for travel,unless its a gig close like the Hood river orchards .May bee a 100...150 max in 6 yards...

I am starting to get my tax stuff done now. Oh so dearly want a nice chunk of change to use for a backstop...

I love my"home" orchard.12 years ago I planted these 30 trees with the simple goal of always having my passive food producers.I eat apples from those trees every day now.
I have added on to the point now of over 150 trees...every where.I think I will continue doing this until I can't find #1 more room #2 more trees to buy.
One more goal.Seedbank.I am going to figure out how to get as much garden seed as I can.Probably only get 5-8 types of veg.seed...but get pounds...to share.The better shape my neighbors are in the better my security is..

You are much kinder to Bush and company than I.Gitmo for the rest of their days.....bread and water.

For all of them.

And the bankers whose greed and excess is the cause of this,this catastrophic destruction of my home,my land my people...

strip every penny from them and every member of their family...

Put them in a cold water flat in Carson city Nevada...no ac...and see how well they survive.Let it be known any who helped them would get the same treatment...let them,and theirs learn about cold,and heat and hunger.Forever.

I have hope.It ain't much,but its mine,and I can shine it up pretty good if I work at it.If I keep it with me,and take care of it,Its the stuff dreams are made of,and who ever got anywhere with out a good dream?

Our existence here is fleeting,and is gone like the dew.The hope and the dreams are what keeps it worth waking up for life every day

Lots of folks are going to have a bad,bad time of it.The one bit of good out of this election is that we have a leader now,I think,who is plenty savvy to the ways of the world... and a good man.[Not a one with a "addictive"personality disorder..a sociopathic sick twisted SOB]

I started out life at 18 with a couple of sets of clothes,a few hundred cash,a guitar,a motorcycle and a wok.All of which I had gotten from money I EARNED.

That was all I needed.[Its probably all I "Need" now,though my wife might argue]

I think our whole society is going to get a hard lesson on the difference between what we "need",and what we "want"

Cant we just put this off for a couple of years?...it would be a so much more, more "convenient"!

Be good,
or be careful


Anonymous said...

Mark your calendars.

January 20, 2009: The End of an Error.

el gallinazo said...


You are starting to make ominous grunting sounds about short term US treasuries. Please be more specific.

The way I figure it, if the treasury defaults on its bonds, then currency turns into greasy toilet paper as well. It's just precious metals and useful things as a store of wealth. But I figure that the government will stop short of this at all costs, at least for quite a while, by reneging on so-called entitlements such as SS, FDIC, and medicare.

Unknown said...

Snuffy - make sure your seeds aren't F1 hybrids. Just found a not-for-profit seed place in the uk that sells them, so must be a few in the US too :) cheers countryslicker

Stoneleigh said...

El pollo,

It's long term treasuries one should be concerned about, not short term. Short term treasuries are a cash equivalent as you don't have to find a buyer in order to get your money back.

The problem with long term bonds is that we're likely to see a dislocation that drives yields into the double digits and prices down to the floor (yields and prices move in opposite directions). If you wanted to get your money back before maturity, you'd have to sell into a depressed market.

Stoneleigh said...

If I were an American I would have had a hard time deciding who to vote for, although my instincts are clearly progressive. Winning this election means drinking from the biggest poisoned chalice in history, and I would rather not have wished that on Barack Obama.

As naively unrealistic as his policies are, I think he's sincere and has been led up the garden path (to use a Brit expression that refers to innocence led astray). Alternatively, he would have had to be an exceptional actor to pull off that speech last night if he didn't mean it, but I choose to believe that he did mean it. More's the pity in a way. I hate to see a progressive idealist figuratively crucified, as is almost certain to happen to the next president once his initial honeymoon period is over.

There was so much hope and optimism (and denial) in the air last night, but the problems we face cannot be solved - they must be lived through as they take their natural course. As Ilargi said - there ain't no cure, there is only feeling people's pain.

The last time a president (Hoover) was elected by a landslide on the eve of a depression (1928), he went down in history as an abject failure, despite being one of the best qualified candidates ever to hold the position. There was simply nothing he could do to prevent a prolonged liquidity crunch that beggared much of the population (and to make matters worse, he wasn't the most sympathetic individual either).

The danger this time is that Obama's inevitable failure to prevent a second depression will likely lead to ugly racial division in the US. It is extremely unfortunate that when someone from a minority does something judged harshly by others (whether unfairly or not), that judgment tends to be passed on his entire minority group (always unfairly). As we are going to see fervent hope give way to disillusionment, contempt and eventually hatred - in a very high stakes game - the consequences are likely to be terrible to witness.

Sadly, it seems that minorities seem to end up with more than their fair share of poisoned chalices. A couple of Canadian examples that come to mind are Ujjal Dosanjh, who briefly took over as Premier of British Columbia at a time when his party was headed for a big defeat, and Kim Campbell, who took over the leadership of the conservative party for a few days prior to their demolition at the polls (from over 200 seats, down to 2), courtesy of a national hatred of previous leader Brian Mulroney. Fortunately for them, they weren't playing a particularly high stakes game and didn't therefore suffer disproportionately.

Perhaps a combination of naivete, ambition and a touch of arrogance leads people to sacrifice themselves at the worst possible moment. We find ourselves in such emotionally charged times, whipsawing back and forth between optimism and pessimism. This president will be riding the tiger from day one, but unfortunately, it's only a matter of time before he loses his grip.

Hard times require extraordinary leadership, which I hope Obama can provide. The problem is that it's a thankless task to lead at such times because the constraints of reality are so strong. Doing the best possible job under the circumstances, and achieving the least worst possible option, will still not look like success by anyone's definition. I think Obama is a brave man and will do his best, but history will judge him harshly regardless.

Stoneleigh said...

It is beginning to look, on the balance of probability, like we may not see the fall to new lows that I would have expected this year prior to a substantial counter-trend rally. In other words, a lasting rally may have begun in October, and could last into the first quarter of next year. This would be an ideal time to take advantage of higher prices to position for the next leg down (ie to cash out).

(This could still be a smaller scale rally, with new lows ahead sooner rather than later, and a larger rally in the new year, but that possibility is now less likely. In either case, prices are presently favourable for cashing out, and trying to chase upside momentum too far is a dangerous game.)

Stoneleigh said...

Sorry I haven't been around much lately, but I just started a new job and am getting used to having much less available time. I'll try to get to outstanding questions as soon as possible, but I might miss a few. If so, I apologize.

The best time to ask me questions these days is the end of the week, as I'll have more time on weekends, but may forget questions from several days before.

Anonymous said...

I'll give Obama this credit.

In his glowing, optimistic victory speech he said that we face "the worst financial crisis in a century." Go look at the transcripts. Not in almost a century, or since the Great Depression. I think that makes him one of the first people in the mainstream to admit that we are set up for worse problems than the Great Depression. I imagine many folks around here know that, but I'm surprised to see it from a mainstream source, and surprised to hear it from Obama in his moment of triumph. I think it is possible that he has not been led down the garden path, but understands, perhaps dimly, just how bad of shape the US and the world is in.

el gallinazo said...


Obama is a man of daunting intelligence. There was no way he could have been truthful and win the election. I think his economic understanding is greater than we imagine. Your reference to his crucifixion may be accurate. From whatever records we have available, Jesus played out his hand for the betterment of humanity knowing full well in advance where it would lead him personally.

Here is a snippet of an email which I sent to a close friend this morning:

Despite myself, I found myself nervous last evening that McCain would win. There is not much any president can do about the economy and the coming catastrophe. Obama could even make it worse, by going into even bigger deficits than McCain would. There was basically one reason I was relieved by an Obama victory. I feel that he is more likely to minimize the violence of American troops against the American people to quell the inevitable civil disturbances. But this could easily lead to him being deposed or assassinated by the shadow government, which really controls the country, fairly early in his term. I give it less than 50% he will make it through the four years in office. Biden is an asshole, ambitious, and not very bright. He could play a tragic, Shakespearean role in this drama. I don't like to sound so negative when so many good people are so happy, but our largest chance of survival is realism.

bluebird said...

Brian M @9:28

I too heard Obama refer to the worst financial crisis, and that the government can't solve every problem, and that the road ahead will be long, and the climb will be steep, and that we will all be asked to help remake our nation.


I do think Obama is aware of economic and financial issues, but not of the magnitude like ilargi and stoneleigh.

Anonymous said...

@ Bluebird RE: "...I do think Obama is aware of economic and financial issues, but not of the magnitude like ilargi and stoneleigh..."

I don't think Barack Obama is cognizant of the magnitude of the financial chaos in which we currently find ourselves, though this is certainly not a measure of his intelligence or learnedness. To be aware of where the world stands, one has to be willing to admit a certain amount of powerlessness. Then, one has to be willing to allow 'a power greater than themselves'---which in this case has nothing to do with god, but instead has to do with truth and reality, though of course Gandhi said that there is no god higher than truth, but anyway---one has to allow reality and truth to restore us to sanity.

In this context, turning our lives over to REALITY AND TRUTH would mean a national economic truth and reconciliation process not unlike similar processes that we have seen in countries like South Africa and Sierra Leone.

I would posit that ALL of the financial institutions must have ALL of their bad paper brought out into the open. The bankrupt must be allowed to fail. The leaders of these institutions must be granted immunity from prosecution as part of the process of seeking truth, though they should also have their wealth circumscribed by a truth and reconciliation "excise" tax. etc.

i do not believe that our body politique has either the knowledge OR the capacity to accept such powerlessness...to admit that our system of Fractional Reserve Banking has become totally unmanageable, and that the only way forward is to seek REALITY and TRUTH in all of our financial policy decisions in the future.

Anonymous said...

I wonder if a Mitt Romney VP selection could have saved McCain's campaign.

Romney, a first class schmuck, was perceived as having the greatest Economic bona fides in the Primaries (from both parties).

When the market tumbled America would have seen Romney saying the exact same things as Obama (ie, support the bailout) as steady leadership.

This makes me now think that the major candidates didn't know about what was coming financially...

Anonymous said...

I hope Stoneleigh is incorrect and we do see new market lows this year under Bush.

It will be a hard pill to swallow if conventional wisdom gives Obama the Hoover treatment.

I've already received an email arguing that the Democratic congressional victories in 2006 caused the Economic turmoil we are seeing.

I'm ready mentally for this Deflation, I'm not ready to handle the mis-information...

BTW, Daniel Schorr on NPR yesterday afternoon spoke warnings of the possiblity of coming Deflation. First I've heard it on such a mainstream source.

bluebird said...

11/4/08 NPR Planet Money had a segment about deflation


Anonymous said...

I sense that Obama is sincere and a person of integrity. I just hope that he will not meet the fate of Mohandas K. Gandhi or Martin Luther King, Jr. Humanity has a tendency to kill leaders who exhibit qualities of sages and prophets.

Stoneleigh is correct in that Obama might be used as a scapegoat for the coming crises. The right-wing bigots already hate him.


Anonymous said...

Hard times require extraordinary leadership, which I hope Obama can provide.
I agree and thanks for your excellent analysis as usual.

The exuberance on the news and around my community are both palpable and refreshing this morning. I turned on my local CBS news this morning and heard the 3 person panel having a serious discussion hopeful that Oprah would get a cabinet post! One has to smile when sharing the joy people are feeling. May I suggest her as Sec. of the Treasury?

el pollo,
As I predicted earlier, the Republicans could only steal 3-4% of the vote. It just wasn't enough this time.
I heard a discussion on NPR yesterday about how important it is to show character when you win.


el gallinazo said...


"I heard a discussion on NPR yesterday about how important it is to show character when you win. "

What does that mean? You are too obscure for this Neanderthal. Does it mean, like, don't speak ill of the dead. OK. Go Hitler. Go Stalin. There. Is that better? Does that appeal to your sensibilities? I am interested in reality. We could go into exactly how the Republicans stole the last two elections, except Ilargi doesn't want this dealt with in detail on his blog any more than he wants the 9/11 question.

Unknown said...

Well said on Obama, Stoneleigh. Well said indeed.

Anonymous said...

From Calc. risk:

"...The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.97% on Friday!)...If the credit crisis eases, I'd expect a significant decline in this [A2P2 rates] spread..."

I have 2 questions:

1. How can CR make the assertion that the FED is indeed buying 'higher quality' CP when we have no way to verify valuation w/out fair and regulated M2M valuation?

2. Discussions of an easing credit crisis seem Absurd to me. To begin with, the 'crisis' isn't about credit, it is about debt. And because virtually everyone in the game is leveraged out of the gourds, and everyone is trying to DE-leverage, and no one knows whose got what toxic crap in their vaults and what counterparty exposure they may have...it would seem to me that "credit crisis" is somewhat of a misnomer, and a dangerous one at that. We have a DEBT crisis, and easy access to fraudulently "created" credit is the reason why. Additionally, even if the 3 month LIBOR drops to 1.00 (currently at 2.61 i think), for what purpose would (a) banks lend money to other banks, and (b) why would smaller banks and other institutions want the loans in the 1st place...other than to hoard a little cash in case the CDS ponzi explodes and they find themselves in a whole heap of trouble? Unemployment is rising, Businessess are contracting and failing, banks and other institutions are totally insolvent...It seems to me that the LIBOR is no longer a fair indicator of what is happening 'on the ground".

The Lizard said...

One of Mish's commenters said "Whoopee, Titanic has a new captain!"

Seems about right.

el gallinazo said...


Thank you for your clarification on the T-Bills. You never fail to amaze me with your intelligence, clarity, and circumspection (and charity - not one of my longer suits in this bridge game of life).

Anonymous said...

I hope it isn't rude of me to point out that Obama is more Harvard-trained lawyer, Chicago-bred politician, and friend of Goldman Sachs than he is a sage or prophet...let alone deserving of any comparisons or allusions (at least this point) to Jesus Christ, Ghandi, and Martin Luther King.


P.S. I didn't vote for McCain...or Obama.

Anonymous said...

Gandhi was a University College of London trained lawyer, and Porbandar-bred politician (son of a regional prime minister), and a friend of the rich and powerful, before becoming a "sage and prophet" or at least "great soul."

King was a Boston University trained Ph.D., and a pretty thoroughly political guy before being a sage or prophet or whatever.

Even Jesus had impressive lawyerly credentials for his time, and gave innovative legal analyses, prior to and during his "political" phase.

We could easily add other examples too, Confucius, Buddha, Locke, Leibniz, Smith.

Legal background, political background and rich friends are pretty common accompaniments for sages and prophets.

In my book Obama ain't in the company of those folks yet, but law, politics, and rich friends don't bar that way. I think the Abraham Lincoln analogies are pretty apt, and there are a lot of similarities between Abe and Obama. In fact, if you look at Hoover's memory Obama looks doomed, but if we are in WORSE shape than the Great Depression, and you look at Abraham Lincoln's memory ... Well, history might wind up being kind to Obama after all ...

Anonymous said...

You must be wary of comments in an English newspaper that ought to be known as The Barclays' Telegraph. They continually attack the euro and specially Spain because this thing with its rival, Banco de Santander. When an € = 0.7 u$a the euro was untenable, now that it is at 1.5, painful for the EU, if it drops a few points it heralds the dissolution of the EU. Rubbish.

David said...

As a Canadian who put in almost 13 years in the USA and left in early 2005 in response to the 2004 election, I am having a good day. Part of me still feels really tied up with American politics; and no matter what is to come, I am relieved to have Obama and his team running the country instead of McCain and that crew. I don't expect the choice of leader to have any great effect on the macro-tides of history that are coming down on us. But four more years of demoralization and destructive infighting and division within the USA is no way to prepare its people to start fighting for themselves and for their friends and neighbours and community. A reversal needs to start somewhere, and today is a good place to get going.

As always, I thank Ilargi and Stoneleigh for building this place and making it comfortable for us, their visitors. I can't say that spending time in the TAE Reading Room always leaves me feeling full of rainbows and sunshine, but at least I know that the tough news is being doled out for my own good, by doctors we trust.

Greenpa said...

El Pollo: "Obama is a man of daunting intelligence. There was no way he could have been truthful and win the election."

Absolutely true. I think - and am beginning to hope- the man may be FAR more than he shows.

Analysis- he's half black. Nowhere on the planet is that an advantage. He is a highly successful Chicago politician- while he manages to look like an innocent idealist. But he has also been willing to make Machiavellian decisions, from time to time- always to his benefit.

I think it's possible he's very very bright indeed- and experienced at handling people, while appearing not to. He just might actually understand the economic situation. And he sure has a mandate for bold actions.

I actually went to Punahou - his school in Hawaii- myself (just one year for me). I find it extremely difficult to believe a hapa-haole kid could come out of that world naive about people in any way; it's a pressure-cooker.

Interesting times. And it's looking like everybody on the planet is going to cut him a lot of slack...

Anonymous said...

I think Obama is probably the smartest politician in the USA in my lifetime (57 yrs.). The world is grateful that I (we) voted for him. Let's hope that he'll act on his convictions. I know his inspiring words will probably alleviate my (our) suffering in the coming years. :)


Anonymous said...

I think you're the type that could look at a rainbow and only comment on the rain. Last night was a hugely momentous night for Americans - a moment has already energized and motivated countless millions of Americans. Being white and coming from a racist family (something I was always ashamed of) I am so proud that each and every member of my family put race aside and voted for Obama yesterday. Clearly, millions of other Americans did the same thing too. This is a turning point in America that nobody can take away from us - and something that we can be proud of. A lot of people suffered and died for this moment to be possible - and I think we need to savor it for just a second before we bring on the gloom and doom.

Sure, every president we've ever had gets attacked and defiled throughout their term. That's nothing new. Yet, a good president with a strong message can set things in motion which don't come to fruition for decades after they're out of office. That's my hope for Obama and for Americans.

Yes, the situation in our country sucks right now - but Obama is not the victim you make him to be. He's a courageous man and obviously intelligent enough to know what he's getting into. He can handle it! Lighten up!