Monday, December 22, 2008

Debt Rattle, December 22 2008: But now you never show it to me, do you?

Rembrandt van Rijn Bathsheba taking her bath 1654

Ilargi: We’re moving towards a new year, one in which many people will find out what the reality of their lives is, if only because denial is no longer an option. We do NOT have a subprime crisis, as you've been told, we don't even have a financial crisis either. We have a full blown political and societal crisis. Just you watch. Take away enough from people, and they'll start screaming blue murder. And then commit it.

The newspaper business is lamenting its fate, and other media, TV, will soon follow, Well, they brought it upon themselves. Newspapers don’t provide news per sé, they target the Greatest and Lowest Common Denominator. Just like politicians, they give you what they think you want to hear, supported by marketing tools from here to the moon. Damn reality, fairy tales sell better. But that is no longer all that true. There's the internet.

It's insane that I have to work 80 hours a week, with only donations and a few Google ads to pay me for that, on a website focused on explaining to people what really goes on, while thousands of well-paid reporters just feed you the easy fast food. They're not all wrong all the time, but it takes me all those hours, 7 days a week, just to pick out the kernels of truth the big news organizations serve (dont forget to donate to our Christmas Fund).

Why is not that truth on the front page of your paper? Because you don’t want it to be true. Why do your politicinas not tell you that truth? Because you wouldn't vote for them if they did. Well, that and they don't have much of a clue. And anyway, they're in it for a power game, not for you. My friend A. (some folks have surprisingly short names) reflects on that below.

But first, the reason I put Rembrandt up above is that I saw Leonard Cohen’s Hallelujah taking the first two spots in the UK charts. One UK Idol version, and one by the late Jeff Buckley. However, since Cohen is a Montréaler, and I am too, and so is the best artist to appear in North America in the past ten years, I will give you Rufus Wainwright’s version of the song, with his sister Martha. It gives me the chills.

Right, that somehow takes me back to Rembrandt, visionary painter, I would vote him number one of all times, though Picasso and Vincent are close behind, de Kooning anyone?. British art critic John Berger years ago made a film on Rembrandt in which he called Bathsheba’s belly (above) the most erotic body part ever painted in history. Oh, 'scuse me, the link to the song is the line you saw her bathing on the roof, King David schtumping the wife of one of his officers. Men, I aks you!, they're all the same!

A.: I’ve always been one to blame the evil empire of ADVERTISING for much of American society’s ills. We have been turned into brainwashed robots, for nearly a half century. But at this phase of my life I’m also a news addict.  I’m of that age group that still likes to have a newspaper delivered to my door, but even more eagerly, I like finding the latest news via the internet. The internet allows for a seemingly infinite exchange of information.   Now, here’s the contradiction. I hate advertising but I love news. I like to pick up my Sunday paper off my sidewalk but I despise the equal volume of ads that come with it. And so on and so on.

It’s not that the news is that great. The big bad MSM, we call it.  We say we don’t watch TV or the evening news because it’s for the “masses”.  We often say we don’t like our local newspaper.  We each have our news sources we trust and those that we don’t trust. A subset of Americans, the “cultural creatives”, has been defined as 50 million people who shun the MSM, advertising, and are independent thinkers who mostly keep to themselves while working on framing and solving the problems of our time--alone.  Speak with the masses, think with the few.

Each day on The Automatic Earth we have the Debt Rattle—a collection of the past 24 hour’s most relevant news stories for sorting out this economic mess.  We find ourselves thankful for the good reporting that still goes on from sources like AP, Reuters, NYT’s, WSJ, Bloomberg, FT, UK Telegraph, and other major newspapers. We are at their mercy.  It’s all we have. On the other hand, there has never been more news at our fingertips, so available, and so immediate, accessed using the most powerful and up to date search engines. The way in which these providers of our news are receiving their revenue is rapidly changing.  NPR recently did a story titled “Where will you get your news in 2012?” Good question! The hardcopy newspaper (a dinosaur to any 15-25 year-old) is 40% of the cost, but provides 90% of the revenue.  If 20% of revenue is from subscriptions, advertising must be close to 80%.  But…50% of that paper’s audience is now online.  And most of that 50% would refuse to pay a dime for it. By demographics, hardcopy is dying, online is growing. In early 2008, the USA Today and the WSJ had tiny increases in revenue, and all other papers declined by an average of 3.5%.

Blogs such as this are growing in importance for many people. They are a place where we feel comfortable obtaining news on a daily basis, and listening to a viewpoint which we respect, or can feel comfortable disagreeing with, but learn from just the same. MSM reporters are using blogs to incorporate into their own thinking and reporting. Because the global deflationary unwinding of our debt bubble is riddled with much math, opaqueness, and “complexity”, we especially need to rely upon high quality interpreters of this big picture, in the way of news editorials, features, and internet blogs. Since the newspaper budgets for journalists are ever receding, the free source of the expert internet blogger is perhaps helping out.

The following is a list of recent headlines related to the current economic crisis as it is affecting our media:  
• Bottom Falls out of the Ad Market, literally;
• Ad Spending falls 1.7% in first nine months of ’08;
• New York Times Freezes Wages;
• National Titles fall victim to America’s advertising slump;
• News Corp’s first-quarter profits down 30%;
• NPR Announces Cuts to Staff, Programs;
• N.Y. Times Editor:  Good Journalism Is Not Cheap;
• Does News media need a Government bailout?;
• The Future of the Press;
• Read All about it!  US Newspapers fall prey to the Internet and Recession;
• Tribune Bankruptcy not Death of Newspapers, MU professors say;
• Detroit Newspapers may sharply cut Home Delivery;
• New York Times Warns of ‘challenging’ 2009--Newspaper company in discussions with lenders    regarding maturing debt.

The economics of our news reporting seems like it’s being hit from several sides right now. Losing a nation's independent news, journalists, and good reporters is akin to losing a nation's control of the powers that be and turning them loose to do anything they want. (Case in point:  Gov. Blagojevich’s attempt to have the Chicago Tribune journalists fired who wrote poorly of him, contributing to his 12% approval rating.) We need watchdogs to reach a majority of our population and tell us what is going on. Good watchdogs, that is, who can intelligently interpret difficult and complex happenings.  Especially now. This subject scares me just as much as bank runs, nuclear wars, or 30% unemployment. You say the internet will save us before that ever happens, think again.

Developers Ask U.S. for Bailout as Massive Debt Looms
With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance. They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off. Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.

A recent letter sent to Treasury Secretary Henry Paulson, and signed by a dozen real-estate trade groups, painted a bleak scenario: "Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans," said the letter. "For many borrowers, [credit] simply is not available," the letter noted. To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt. This money is intended to go directly to help investors finance purchases of securities backed by these assets. If commercial real estate is included, banks might have an incentive to make more loans to developers since they'd be able to repackage and sell them more easily to investors with the assurance of government backing. As part of their lobbying efforts, some industry representatives have asked lawmakers to explore the idea of setting up a separate program aimed at boosting lending to commercial real estate only.

"We've been urging Washington to put this as one of the top priorities in dealing with the economy," says Steven Spinola, president of the Real Estate Board of New York, underscoring the need for the government to help spur commercial property lending either directly or indirectly. The real-estate executives are warning that the approaching surge in commercial mortgages coming due poses another major threat to the global financial system, which already is on life support. With rent prices falling and vacancies rising due to the weakening economy, delinquencies on commercial mortgages already have begun to rise sharply. Up until now, delinquencies on commercial real-estate loans have stayed below historical levels thanks in part to the limited amount of speculative construction in recent years. But now they're rising at a time when a huge volume of loans are coming due and some of the few institutions that were still making loans are retreating from the market. "The credit crisis has got so bad that refinancing of even good loans may be drying up," says Richard Parkus, head of commercial-mortgage-backed securities research at Deutsche Bank.

Commercial real-estate owners, of course, are just the latest to get in line in Washington, D.C., for the billions of bailout dollars that the government has begun to hand out. Other businesses that have received or are campaigning for some form of aid include banks, credit-card issuers, car companies and even farm equipment maker Deere & Co. Real-estate owners are pressing the government to take preemptive action before thousands of properties begin to fail. Among those who have been active in the lobbying effort: William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust. In recent weeks, industry representatives have met with officials in the Treasury Department, Senate Majority Leader Harry Reid, senior lieutenants of Federal Deposit Insurance Corp. Chairwoman Sheila Bair, members of President-elect Barack Obama's transition team, and Sen. Charles Schumer (D., N.Y.). One potential challenge for the industry: Though some Treasury and Fed officials are worried about the impact of its troubles on credit markets, other sectors -- such as the residential mortgage and auto industries -- are more pressing concerns.

Treasury and Fed officials have said they would consider including commercial real-estate in the new $200 billion loan initiative. But such a step won't happen soon. The program is not likely to be operational until February. Even then, expanding it to include the immense commercial real estate market would likely require additional financial support from the Treasury. For now, the Treasury has agreed to backstop the Federal Reserve on as much as $20 billion of losses on the program. That means Treasury will take the first $20 billion of any losses using funds approved by Congress for the $700 billion Troubled Asset Relief Program. There's widespread agreement that a record volume of commercial real-estate loans made during the boom years are starting to come due. According to Foresight Analytics, the $530 billion of commercial mortgages that will be maturing between now and 2011 includes loans held by banks, thrifts and insurance companies as well as loans packaged and sold as commercial-mortgage-backed securities -- or CMBS. At the heart of the financing scarcity is the virtual shutdown of the market for CMBS, where Wall Street firms sliced and diced commercial mortgages into bonds. During the recent real-estate boom that took off in 2005 and lasted through early 2007, that market fueled the lending to real estate because banks could sell easily the loans they made. But the credit crisis that started in the summer of 2007 has put the securitization market on hold, which, in turn, has caused lenders of all stripes to become increasingly reluctant to make new loans.

While commercial real-estate developers restrained themselves during the boom years when it came to speculative development, property investors bid up the prices of office buildings, malls and other projects to record levels assuming rents and occupancies would keep rising. With cash flows now falling, a growing number of developers are having a tough time repaying their debt. In cases where owners need to sell buildings to satisfy loans, the current environment makes that difficult. A revitalized lending climate is necessary, they say, to keep them afloat. What's not clear is how soon the crunch will come. The Real Estate Roundtable, a major industry trade group, predicts that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year. Jeff DeBoer, president and chief executive officer of the Roundtable, says the group came up with its estimate by looking at the $3.4 trillion of commercial real-estate loans outstanding. It's not unusual for roughly 10% of the industry's debt to roll over every year, he says, referring to refinancings.

This year, some $141 billion worth of commercial real-estate debt owed by property owners and developers to lenders came due, according to Foresight Analytics. Most of that was refinanced or extended by existing lenders. The lion's share of those loans was made between five and 10 years ago. Despite the recent decline in property values, the underlying buildings were still worth well more than their mortgages and were generating sufficient cash to pay debt service. But the delinquency rate on payments to mortgage lenders is rising, particularly for properties that were financed at the top of the market. Delinquencies on commercial mortgages jumped to 0.96% in November, up from 0.62% in September. Some analysts predict the delinquency rate will leap to 2% by the end of next year. During the real-estate collapse of the early 1990s, the worst-performing commercial mortgages -- those that were made in 1986 -- sustained losses of about 10%.

Saving Capitalism No Sure Thing as Statism Undermines Economy
What’s good for General Motors may not ultimately be best for the global economy. The Bush administration’s $13.4 billion rescue of GM and Chrysler is a fitting finish to a year in which governments around the world expanded their role in the economy and markets after three decades of retreat. The intervention comes at what may prove to be a steep price. Future investment may be allocated less efficiently as risk-averse politicians make business decisions. Whenever banks decide to lend again, they are likely to find new capital requirements that will curb how freely they can do it. Interest rates may be pushed up by government borrowing to finance trillions of dollars of bailouts. "We’re seeing a more statist world economy," says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. "That’s not good for growth in the longer run."

It’s not good for stocks either, says Paola Sapienza, associate professor of finance at Northwestern University’s Kellogg School of Management. Slower economic growth means lower profits. Shares might also be hurt by investor uncertainty about the scope and timing of government intervention in the corporate sector. "If the rules of the game are changing, people are reluctant to invest in the stock market," Sapienza says. The bond market will also be affected as it is forced to absorb ever bigger increases in government debt. While yields on Treasury securities touched record lows last week, they eventually "will go up significantly and dramatically" under pressure from added supply, says E. Craig Coats, co-head of fixed income at Keefe, Bruyette & Woods Inc. in New York. The increase in the government’s role in the economy has been breathtaking. The U.S. looks set to rack up a budget deficit of at least $1 trillion this fiscal year, while the Federal Reserve has already increased its balance sheet by $1.4 trillion since last December. By way of comparison, U.S. gross domestic product last year was $13.8 trillion.

Winding back the intervention may not be easy, says Sapienza, who has studied the effect of government ownership on bank lending. When Italy nationalized banks in 1933, "the architects who designed the system envisaged it as temporary," she says. "It was in place until the end of the 1990s." More recently, the Japanese government injected capital into banks to get them to lend to big corporations, keeping alive "the zombie companies that economists talk about," she says. Already, investors trying to decide where to put their money are "gambling very much on what they think the government will do, not what they think about the company," Sapienza says. "That’s why there’s so much volatility." GM shares plunged as much as 37 percent Dec. 12 after the U.S. Senate failed to pass an emergency loan plan. The shares recovered after George W. Bush said his administration would consider funding a rescue with money already set aside for bank bailouts, then shot up 23 percent on Dec. 19 when he announced the emergency loans.

The auto-industry lifeline is just the latest in an extraordinary year of market interventions that have redefined capitalism. The U.S. government previously seized control of mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc. and took stakes in the nation’s largest banks. Government activism has become a "necessary evil" to help pull the global economy out of recession, says Marco Annunziata, chief economist at UniCredit MIB in London. Even Bush, who ran for the U.S. presidency espousing smaller government, agrees. He told a CNN interviewer last week he has "abandoned free-market principles to save the free-market system." Policy makers elsewhere extended their reach, too. The U.K. nationalized mortgage lenders Northern Rock Plc and Bradford & Bingley Plc. French President Nicolas Sarkozy created a 6 billion-euro ($8.7 billion) fund to invest in "strategic" firms. And the European Commission last week relaxed rules on state aid to businesses. It isn’t inevitable that bigger government will hamstring free enterprise, says William Niskanen, chairman emeritus of the Cato Institute, a Washington research group that generally favors free markets over government solutions. Niskanen predicts that government intervention will prove to be "selective and temporary," not "a long-term trend."

Still, greater government involvement will make businesses less likely to deploy capital in ways that spur growth and profits, says Eric Chaney, chief economist at AXA SA in Paris and a former official at the French finance ministry. Carmakers may be slower to innovate or cut costs, and financiers may shy away from lending to entrepreneurs. "It’s the job of companies, not governments, to take risk and accept the consequences," Chaney says. "There is no incentive for governments to take risk, so they won’t." The history of public aid to automakers highlights the threat, says Stuart Pearson, an analyst at Credit Suisse Group in London. While the U.S. rescue of Chrysler in 1979 gave then-Chief Executive Officer Lee Iacocca time to streamline the company and restore profitability, it also sustained an outsized U.S. auto industry, leading to its current woes, Pearson says. The 1975 bailout of British Leyland Motor Corp. ended up costing U.K. taxpayers 11 billion pounds ($16.8 billion) and failed to keep successor MG Rover Group Ltd. from sinking into bankruptcy two decades later.

"Government help has only been an obstruction to getting the car industry into a more economic shape," Pearson says. Back in 1953, when the industry was booming, GM Chief Executive Officer Charles Wilson famously observed: "For years I thought what was good for our country was good for General Motors and vice versa." If the automakers’ importance has declined, so -- until recently -- had the government’s. Just a dozen years ago, U.S. President Bill Clinton declared that "the era of big government is over." Sarkozy won election last year promising a "rupture" from France’s history of heavy regulation; these days, the French president has changed his tune. "Laissez-faire, it is finished," he declared last month. Until recently, "investors could, broadly speaking, ignore the role of the government when thinking about markets" says Alex Patelis, chief international economist at Merrill Lynch & Co. in London. "This period is over." Regulation is back in style as policy makers seek to avoid a repeat of the financial crisis. Leaders from the Group of 20 nations are crafting a plan to require banks to maintain higher capital levels and disclose more about their holdings. That likely means a lower "speed limit for growth," as banks have less cash available to lend and invest, says Mohamed el-Erian, co-chief executive at Pacific Investment Management Co., the Newport Beach, California-based manager of the world’s biggest bond fund. "There will be less lubrication in the form of credit creation," he says.

Bailouts and economic-stimulus plans are also running up government borrowing. Economists at JPMorgan Chase & Co. estimate the budget deficits of developed economies will more than double next year to 6.3 percent of gross domestic product. Bigger deficits, while necessary now, could spell trouble down the road if they lead to higher borrowing costs or prompt consumers to save more now on the assumption that bigger shortfalls will mean higher taxes later. "We’ll end a financial crisis with a fiscal crisis," says Vito Tanzi, former director of fiscal affairs at the IMF. "We’ll get out with very large public debt and very large public spending. That, for sure, will slow down the rate of growth for the next 10 years or so." While bigger government is the unavoidable result of dealing with the turmoil, "it makes all of us economists uncomfortable seeing the government doing all these extraordinary things," says Barry Eichengreen, an economics professor at the University of California at Berkeley. On the other hand, he says, "I would feel even more uncomfortable if they weren’t doing them."

Bank of England 'did not understand problem'
The Bank of England underestimated the severity of the current financial crisis, according to its deputy governor, who has admitted that interest rates are only a "blunt instrument" with which to control the economy. Sir John Gieve told the BBC's Panorama programme, to be screened tonight, that new tools were needed to complement interest rates. He also admitted that the Bank knew "crazy borrowing" was taking place and the price of houses and other assets was rising unsustainably, but did not fully understand the problem.

"We didn't think it was going to be anything like as severe as it's turned out to be," said Gieve, who is in charge of financial stability at the Bank. "Why didn't we see that it was so serious? I think that's because we, perhaps, we hadn't kept pace with the extent of globalisation. So the upswing here didn't involve the big increases in earnings and consumption and activity which we saw in previous booms. We saw the credit, we saw the house prices, but we did see a fairly stable pattern of earnings, prices and output." Tim Besley, another member of the Bank's monetary policy committee, was quoted in the Daily Mail as saying there was "no quick or easy fix" to deal with the fall-out from the credit crunch and that measures other than monetary policy were needed.

Sterling fell to a fresh record low against a trade-weighted basket of major currencies after the comments, hit by worries that British interest rates need to come down much further as recession bites. The euro climbed 1.5% to 94.72p, taking it close to its recent record high of 95.56p, which has led to the expectation that the two currencies will soon reach parity. Explaining why the Bank did not raise interest rates to curb the lending and house price boom, Gieve said: "If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services, holding down the level of employment at a time when consumer price inflation and earnings were stable and reasonably low. And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."

The Bank could not rely only on interest rates to control the economy, Gieve argued. "One of the main lessons from this is that we need to develop some new instruments which sit somewhere between interest rates, which affect the whole economy and activity, and individual supervision and regulation of individual banks," he said. "Maybe we need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand... I think we need to complement interest rates, which are a blunt instrument – you set one interest rate for the whole economy – with something which is more financial-sector specific."

Philip Shaw, chief economist at Investec, said the comments suggested that the "authorities recognise that more needs to be done to restrain borrowing booms because they are potentially destabilising." He noted that there had been numerous comments by Bank officials previously stating that interest rates could not be used to rein in borrowing because they were mainly designed to keep inflation on target. Among the measures being considered by the government – to be adopted once the economy recovers – is a requirement for banks to hold more capital during good times. Other measures could include legislation or guidelines on lending to households, Shaw said.

Gieve defended the Bank's performance in the crisis, which he called "a major storm we haven't seen the like of for 100 years". "It would be very surprising if we weren't learning lessons from it and we are," he added. Gieve also cast doubt on whether the Treasury would get all of the money back that it had poured into the banking sector, pointing to a "level of defaults" in the books of nationalised lenders Northern Rock and Bradford & Bingley, which were now held by the taxpayer. Speaking on the same programme, John Varley, the chief executive of Barclays, predicted that consumers and businesses would struggle to get access to credit for the next one to two years.

Warning of 2009 wave of British retail bankruptcies
Hundreds of high street retailers will collapse next year despite a last-minute Christmas spending rush, a retail insolvency expert predicted last night. The wave of bankruptcies caused by the recession will leave "big holes on the high street", and the failures are expected to include some of the most well-known names. Nick Hood, a partner at insolvency specialists Begbies Traynor, warned: "There will be hundreds of smaller retailers going bust and up to 15 national and regional chains, including one or two that will really make your eyes water.

"Woolworths was no great surprise, but there are going to be some real 'Oh my God' moments, which will leave big holes in the high street." Some of the biggest retailers are understood to have seen their sales crash by up to 30% and several have described the current trading conditions as the worst in memory. The warning from Begbies Traynor - which says it is aware of 200 retailers with critical financial problems - came as shoppers flooded into shopping centres to snap up last-minute Christmas bargains. As stores slashed prices by up to 70%, there was evidence that shoppers were, finally, being tempted to splash out. Jace Tyrell, of the New West End Company (NWEC), which represents retailers in London's Oxford St, Regent St and Bond St, described Saturday as "an exceptional day". According to NWEC 600,000 shoppers were out in London's West End on Saturday - up 18% on the same day last year.

Tyrell said: "It's interesting because the week was actually down by 1.6%, so I think people got paid on Friday and went out Saturday." Research group Experian, however, disputed the big increase in shopper numbers, saying the number out on Saturday was down 8.4% across the country, compared to a year ago. Sales at John Lewis were down 1.8% last week, compared with 2007, but a spokesman, Nat Wakely, said Saturday's takings were up 6% on a year ago as the crowds finally came out. The John Lewis figures, however, are flattered by its fast-growing online business. Internet retailers are generally performing far better than high street outlets and John has broken sales records for the past three weeks. The website is now raking in more than double the weekly takings of the group's flagship Oxford Street store.

Retailers are now hoping the coming two days will turn what looks like a disastrous Christmas into just a dismal one. The last time Christmas Day fell on a Thursday, five years ago, the Monday and Tuesday before were bumper sales days. "With Christmas Eve as well, it is like a five-day weekend," said Wakely. If the gloomy prediction for the number of business failures proves correct it will mean thousands of job losses. One in 10 UK workers are employed in the retail sector. Almost all high street retailers are suffering in the downturn. MFI, Rosebys and The Pier are among other retailers to have collapsed. Chains requiring financial intensive care include Zavvi and The Officers Club. Larger stores including Argos have all recorded big sales declines.

Pre-packs ready for failing UK retailers
Accountancy firms are believed to have at least 15 large so-called pre-pack administrations lined up for January as the economy continues to falter. The new year is set to kick-off with a raft of high profile companies changing hands. Top accountancy firms are already believed to be working on over a dozen controversial pre-pack deals, a number of which are in the retail sector. Pre-packaged administrations enable a company to prepare for administration and to swiftly be bought by new owners. These new owners can be the directors of the former company, with reduced liabilities which often leaves creditors out of pocket.

Deloitte and PricewaterhouseCoopers are thought the be among a handful of accountancy firms working on a number of administrations already, some of which are thought to be pre-packs. Over the weekend Begbies Traynor, the insolvency expert, predicted that up to 15 chains will collapse by mid-January. Retailers have had a terrible December. Sales have fallen sharply and the chains are due to pay their quarterly rent bills at the end of this week. Many are expected to fail. Pre-packs have been criticised for giving the impression of a company failing one day and then operating the next. New rules come into effect on January 1 to make the process more transparent. In future the administrator of a pre-pack will have to reveal to creditors information such as how they were appointed and any connection between the purchaser and the directors, shareholders or secured creditors of the company.

UK house prices won't recover for a decade
UK house prices will not recover their 2007 peak for at least a decade, Legal & General Investment Management (LGIM) has warned. In what ranks as the gloomiest forecast for the UK property market to date, LGIM economist Tim Drayson has predicted that house prices will "fall another 10pc-15pc next year followed by four to five years of stagnation as incomes catch up with house prices". "It will be at least 10 years before we see prices return to their 2007 peak levels," he said. LGIM, part of the insurance giant Legal & General, has been remarkably accurate with other economic predictions in the past year. The crash in prices he is forecasting will take the total fall from the August 2007 peak to 30pc. Although his prediction is among the bleaker of economists' outlooks, the market – through property derivatives – is pricing a 50pc fall from peak to trough. Mr Drayson said the long-delayed recovery would be a result of changes in banks' lending practices. He expects a return to the more conservative practices of the early 1990s, when banks would lend less of a property's value and on lower multiples of a borrower's income.

Three times income used to be considered racy but banks like Northern Rock were in recent years often lending six times income, justifying the loans by arguing that low interest rates made mortgage costs more affordable. Mr Drayson: "Banks will not price off affordability in future. It has been a mistake of the last several years to price off interest rates, which can move monthly. They are more likely to return to more cautious income multiples." With rates now at 2pc, and LGIM expecting them to fall to 1pc next year, a relatively small increase could see a homeowner's monthly interest payment double. Banks have tightened up lending standards so only the most creditworthy, with deposits of close to half a property's value, qualify for the cheapest rates.

Mr Drayson's forecast is even gloomier than perennial property market bears Capital Economics, which expects prices to fall 35pc but for the market not to start growing again until 2011. Barclays chief executive John Varley expects prices to fall another 15pc next year while Lloyds TSB chairman Sir Victor Blank is predicting a 10pc decline. Lenders also continue to withdraw from the mortgage market, research from Credit Suisse shows. The number of mortgage deals available last week was 2,336 – 86pc less than what was available in June 2007. In addition, banks are increasing their relative pricing. Although interest rates are falling, "banks' risk aversion has continued to increase with a widening spread between 75pc loan-to-value mortgages and 95pc LTV", Credit Suisse said. Mr Drayson said that measures taken by the Government and banks, such as the Homeowner Mortgage Support Scheme and delaying repossession orders until borrowers have missed six monthly payments, will only help people remain in their homes during the downturn and not help prop up house prices. He believes the market will only recover as incomes rise.

Japan exports plunge record amount on weak demand
Japanese exports plunged a record 26.7 percent in November, the Ministry of Finance said Monday, highlighting the drop in global consumer demand for automobiles, electronics parts and other Japanese products. Economists warned that exports -- a mainstay of the world's second-largest economy -- would tumble further with no recovery in sight for the global economy. Even exports to the rest of Asia are falling sharply. "Demand is rapidly cooling not only in the United States and Europe but also in Russia and the Middle East, and we are expecting a further plunge in exports as the global economy is deteriorating," said Hideki Matsumura, a senior economist at the Japan Research Institute in Tokyo. Battered by plunging global demand and a strengthening yen, major exporters like Toyota Motor Corp. and Sony Corp. have scaled back production, jobs and earnings projections.

Toyota on Monday said it would barely break even this fiscal year through March, slashing its profit forecast to 50 billion yen ($555 million) -- a fraction of the 1.7 trillion yen it earned the previous year. "The change that has hit the world economy is of a critical scale that comes once in a hundred years," President Katsuaki Watanabe said at the company's Nagoya office. The drop in vehicle sales over the last month was "far faster, wider and deeper than expected." Indeed, exports suffered their biggest year-on-year drop since the current system of statistics went into effect in 1980. Exports totaled 5.3 trillion yen ($60 billion), while imports fell 14.4 percent from a year earlier to 5.55 trillion yen ($62 billion), the ministry said. That resulted in a trade deficit of 223.4 billion yen ($2.5 billion) -- the fourth time this year Japan said its imports exceeded exports after January, August and October. August's deficit was the first in 26 years, excluding the month of January, when trade deficits are more common because of the slowdown for the New Year holidays.

For years, Japan was blasted by its trading partners over its trade surpluses. But now, the global economic slump is turning Japan into a net importer, at least in recent months. "The plunge in exports in November clearly reflected a severe global downturn," said ministry official Yu Oki. "Demand for Japanese goods, especially cars and electronics products, is falling sharply everywhere." The latest figures, however, do not necessarily signal a fundamental structural shift of Japan's export-driven economy. With a quickly shrinking population, many Japanese companies have nowhere to look but abroad for future growth and have planned accordingly. Exports to the United States, the world's largest economy, plummeted by a record 33.8 percent in November, marking the 15th consecutive year-on-year fall. Among U.S.-bound shipments, vehicle exports plummeted by 44 percent in the month, while exports of auto parts fell 40 percent and those of audio equipment was down by 48.2 percent.

Japan's exports to the European Union tumbled by 30.8 percent, with vehicle shipments to the region falling by 37.2 percent, the ministry said. Asia-bound exports fell 26.7 percent as semiconductor shipments dropped by 30.2 percent. Japan's exports to China alone plunged by 24.5 percent. Exports are also shrinking as the yen appreciates against most major currencies. That means overseas sales in dollars and euros translates into fewer yen. The ministry said the yen traded to 97.97 to the dollar on average in November, up 16 percent from the same month last year. The yen continued to climb against the dollar in December, hitting a 13-year high as investors dumped the greenback on U.S. economic worries. The Japanese currency was quoted at 90.02 to the dollar in Tokyo Monday afternoon.

China cuts rates and Japan exports tumble as global economic crisis deepens
China cut rates for the fifth time in four months and Japanese exports fell at their fastest rate ever as the global economic crisis deepened. China's central bank announced a cut of 0.27 percentage points in its benchmark one-year deposit and lending rates. In Japan, data showed a record drop in exports and the government said for the first time in nearly seven years that the economy was getting worse. The world's second largest economy reported a trade deficit of 223.4bn yen (£1.7bn) in November as exports fell at their fastest-ever rate, the finance ministry said. Japan has enjoyed a large trade surplus since the 1980s due to brisk demand for its cars and other goods but the recent financial turmoil and the strong yen have hit exports hard. The economy "stepped up the pace of its decline last month but is falling head over heels this month", said Hiroshi Watanabe, economist at the Daiwa Institute of Research. "Japan has been hit by an unprecedented, sudden change in climate."

Japan's finance ministry unveiled plans for a 6.6pc jump in spending to 88.55bn yen (£664bn) - the largest initial budget proposal on record. The ministry estimates the additional spending will increase the ratio of government debt to GDP from 30.5pc in the current financial year to 37.6pc next, while outstanding government debt will climb from 563 trillion yen to 581 trillion yen. The move is the latest in a string of measures by the government of Prime Minister Taro Aso to try to reinvigorate the economy and protect Japanese corporations and workers, but the country continues to be sucked down with the global economic crisis. "It's the sort of figure that we have not seen in quite a while and it is a symbolic departure from the tight budgets that were practised by Prime Minister [Junichiro] Koizumi," said Noriko Hama, a professor of economics at Kyoto's Doshisha University. "It's a very populist budget and I think that Mr Aso is making a very calculated effort to be seen to be doing the right thing and as sympathetic to the people who are losing their jobs," she said.

Until consumption recovers, exports rebound and tax revenues pick up again, she said, there is little likelihood of the government being able to reverse the economic slide or balance its own books. What is arguably more alarming, she said, is that the government will be using trillions from its emergency reserves and issuing more bonds to cover the additional spending. If it fails, then the government has left itself little further room for manoeuvre. "This could be the start of a global version of the 'lost decade' that Japan endured in the 1990s," said Professor Hama. "It took us 10 years to recover after our bubble burst and it looks to me as if that 10-year timeline is a benchmark for these crises." The government has already cut Japan's gross domestic product forecast for the next fiscal year to zero percent real growth and statistics issued in Tokyo on Monday showed that exports plunged a record 27 percent in November.

Crunch ‘to hasten rise of China to No 1 spot’
The credit crunch will ensure that China becomes the world’s largest economy within a decade, up to 11 years earlier than previously expected, it is forecast today. As the developed world grinds close to a halt, China will become the biggest economy, excluding currency fluctuations, by 2019, according to the Ernst & Young ITEM Club. Previous forecasts had predicted that China would not reach this point till 2025-2030. Brazil, Russia, India and China, the "Bric" nations, will account for 40 per cent of global economic growth between next year and 2020, according to ITEM. Of this, China will account for a quarter. Although economic activity in Britain, Europe and the United States is forecast to slow, or shrink in some cases, China’s growth is not tipped to go below 6 per cent a year, implying quicker catching up with the US.

China battles unemployment to deter unrest
Tackling unemployment among university graduates will be China’s priority next year as the economy falters, Wen Jiabao, the prime minister, said at the weekend. The attention given by state media to Mr Wen’s visit to a Beijing university was the latest sign of the government’s increasing fear of widespread unrest as growth declines much faster than expected. “We have made finding jobs for university students our top priority and will come out with some measures to make sure all graduates have somewhere constructive to direct their energy,” Mr Wen told students at the Beijing University of Aeronautics and Astronautics. He said the government was also extremely concerned about migrant workers who had been laid off in the cities. By the end of November, 10m migrant workers had lost their jobs nationwide and 4.85m of those had returned home, according to government figures.

A survey last week by a government think-tank estimated the number of recent graduates who have been unable to find work at 1.5m. Tertiary institutions are expected to churn out another 6.5m graduates next year. In recent weeks, a growing chorus of official voices has raised the spectre of unrest. “If growth falls below 8 per cent then that will create enormous problems in terms of unemployment,” according to Zhang Xiaojing, director of the Macroeconomy Office of the Institute of Economics at the Chinese Academy of Social Sciences. “There will be lots of laid-off migrant workers returning to the villages, not to mention the many college graduates and this will affect social stability.” Mr Zhang linked the continuing riots in Greece directly to the global economic crisis and said that Beijing was wary of a similar situation erupting in China. Sporadic protests by laid-off workers in export-oriented industries have increased in recent months and large-scale riots have become a common occurrence in China in recent years, especially in poorer rural areas.

The State Council, China’s highest governing body, issued a decree to local governments over the weekend ordering them to create jobs for migrant workers who had returned to their home towns. The creation of a huge population of educated unemployed is worrying for the ruling Communist party, which is keenly aware of the historic role disgruntled students have played in inciting rebellion. Next year marks the 20th anniversary of the June 4, 1989, crackdown in which party elders ordered troops to fire on student-led demonstrators in Tiananmen Square, Beijing. Mao Zedong, who led the Communists to victory in 1949, was himself an educated son of a rich peasant who had his scholarly ambitions thwarted.

China Cuts Key Rates for Fifth Time in Three Months
China cut interest rates for the fifth time in three months after trade growth collapsed because of recessions in the U.S., Europe and Japan.
The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent from tomorrow, the People’s Bank of China said on its Web site. The central bank also reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage point. Today’s measures are likely to be supplemented by a second stimulus plan aimed at spurring consumer spending following a 4 trillion yuan ($584 billion) package in November that was focused on infrastructure. China’s exports fell for the first time in seven years last month, imports plunged and manufacturing shrank by a record, threatening to push the world’s fourth-largest economy into its deepest slowdown in two decades.

"Monetary policy is now playing a supportive role to the main show in town: fiscal stimulus," said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai The reserve requirement will drop to 15.5 percent for big banks and to 13.5 percent for smaller ones effective Dec. 25. The reduction will release a further 300 billion yuan of possible lending, according to Green. "The surprise is how small the move is," said Mark Williams, an economist with Capital Economics in London. "There’s been a sudden very rapid deterioration in all China’s economic data over the last 8 to 12 weeks." China’s economic growth may slow to 5 percent next year, less than half the 11.9 percent expansion in 2007, according to Royal Bank of Scotland Plc. The World Bank forecasts the economy will expand by 7.5 percent in 2009. The government is targeting an 8 percent expansion.
China cut interest rates by 1.08 percentage points last month, the biggest reduction in 11 years.

The Federal Reserve lowered the main U.S. interest rate to as low as zero for the first time on Dec. 16, as policy makers seek to revive credit and end the longest slump in a quarter- century. The Bank of Japan cut its benchmark rate to 0.1 percent from 0.3 percent three days later. China’s CSI 300 Index fell for the first time in six days, closing 1.7 percent lower before the rate announcement. The yuan was little changed, closing 0.07 percent lower at 6.8510 per dollar in Shanghai. China’s slowdown threatens to trigger unrest as factories close and unemployment climbs in the world’s most populous nation. Uniden Corp., a Japanese maker of wireless communication gear including cordless phones, said Dec. 11 it will eliminate 6,200 jobs in China. Zhang Ping, China’s top economic planner, warned last month of the risk of "massive unemployment."

China’s cabinet, the State Council, pledged yesterday to give more power to local governments to support their property markets and end a nationwide real-estate slump. The government said Dec. 13 it will boost money supply by 17 percent next year to encourage lending and buoy domestic consumption. "The cuts are less aggressive than expected," said Kevin Lai, an economist with the Daiwa Institute of Research in Hong Kong. "The central bank may want to save bullets until next quarter and wait to see how the policies announced so far work." Lai and economists at HSBC Holdings Plc and Capital Economics Ltd. had anticipated at least a 54-basis-point reduction. The government has switched from battling inflation in the first half of the year to guarding against the risk that falling prices will contribute to the economy spiraling down. Inflation was the slowest in 22 months in November. Exports fell 2.2 percent last month after growing 19.2 percent in October. Imports plunged 17.9 percent.

China’s exporters are facing greater payment risks and rising shipment costs as some importers grow short of cash and trade finance costs surge, Vice Trade Minister Fu Ziying said over the weekend. Compensation payouts by China’s export credit insurance company almost tripled in the first 10 months of this year, Fu said. China needs to prepare for a "worst case scenario" as the global economic slump deepens, central bank Governor Zhou Xiaochuan said Dec. 4. The central bank may cut its benchmark rate by a further 27 basis points and reduce the bank reserve ratio by as much as 100 basis points in January to avert the risk of deflation and add liquidity before the Chinese New Year holiday, Daiwa’s Lai said. The government aims for an 8 percent expansion to generate jobs and avoid social instability, China Banking Regulatory Commission Chairman Liu Mingkang said in Beijing on Dec. 13.

China goes on the road to lure "sea turtles" home
They were the "gold-collar" workers: highly educated Chinese people working on Wall Street. Now, they are known as "sea turtles" as they head home to escape the financial storm. Nearly 1,000 would-be turtles in business suits packed the ballroom of a New York hotel last Saturday, where they pitched themselves at a job fair for opportunities in Shanghai, China's financial hub. Among them was Dong Shaw, who has worked on Wall Street for the last eight years after doing a PhD at Columbia University, and now uses an anglicized form of his last name. "The crisis in the U.S. is very severe. We're having a serious shock that will reshape the landscape of Wall Street," said Shaw, who is looking for jobs that match his expertise in model-driven stock selection. Shaw, who said he was in his 40s, currently does stock-picking at a hedge fund and has also worked at Scudder Investments, Goldman Sachs and Bank of America.

Like many at Saturday's fair, Shaw is attracted to China's relatively unscathed financial sector and still healthy growth prospects. "As a new market, China is full of opportunities," the native of Shanghai told Reuters. The worst financial crisis in decades has left the U.S. economy mired in a recession since December 2007, claiming more than 2 million jobs so far. New York's securities industry has lost 16,000 jobs and could lose a total of 38,000 by next October, while another 10,000 could be axed in related fields such as banking, according to New York's state comptroller. Some cities and firms in China are quick to exploit the opportunity to lure back native talent. Saturday's fair was led by the Shanghai municipal government and organized by about two dozen banks, insurers and securities firms from the city, including the Shanghai Stock Exchange, one of the two stock exchanges in mainland China.

New York was the last stop in the delegation's efforts to poach back up to as many as 170 seasoned specialists in such fields as risk management and private wealth management. Its two earlier recruiting sessions in London and Chicago attracted a total of 1,200 people. Earlier this month, Nanjing in Jiangsu province in eastern China held similar events in several major cities in the U.S., which attracted hundreds of people. Eager to become a major player in the world economy, China is working hard to expand its talent pool and overseas Chinese, who offer both international experience and language and cultural skills, have often become an ideal option for local firms. Of the 1.2 million Chinese people who have gone abroad to study in the past 30 years, only one fourth of them have returned, according to the Chinese government.

It's been a tough year for many of the "gold-collar" Chinese on Wall Street. Some have lost their jobs and most have seen their personal wealth shrink. "This is an unusual time. For some, this is their first experience of being unemployed and they're under enormous pressure," said Tony Tang, president of The Chinese Finance Association (TCFA), a nonprofit group based in New York. "Now these Chinese companies are giving out positions and many are contemplating it." To be sure, the Chinese economy is also hitting a bump this year as export demand evaporates in response to the global economic slowdown. Sagging asset values are another cause of concern, with the local stock market down about 70 percent this year, one of the worst performers in the world. Beijing unveiled over the weekend another round of stimulus measures including increasing money supply by 17 percent to boost lending and consumption. It comes on the heels of a 4 trillion yuan ($586 billion) package announced last month amid fears growth could fall below the 8 percent considered necessary to create enough jobs.

Indeed, so many sea turtles (hai gui in Mandarin) have returned home that the people of Beijing, Shanghai and elsewhere have invented a new name for those returnees who cannot find a job: "seaweed" (hai dai). But, while unemployment is rising in China, there are still opportunities at the top of the labor market, especially for those with foreign education and experience. Zack Liu, who returned to China earlier this year after more than a decade on Wall Street, said he was impressed by the efforts made by Chinese fund firms to institutionalize and professionalize the industry. Liu started his career in finance in 1996 at Bear Stearns after earning an MBA from Cornell and a PhD degree in physics from Florida State University. Over the past year, he has watched two of the three firms he worked for either collapse or merge with others as a result of the credit crunch. "It's sad to watch all these big banks fail. Life is like a roller-coaster. I made the right decision at the right time to come back to China," Liu told Reuters by phone from his new home in Shenzhen.

Patriotism is sometimes a factor, but economic interest is certainly a much more important consideration. Still, many "sea turtles" acknowledged that they're willing to accept lower pay if the job provides attractive career prospects. Career International, a leading recruitment firm in Beijing, said there has been a jump in interest from Chinese employees on Wall Street. Their potential employers in China, according to the company, mostly offer a base pay in the range of $100,000 to $500,000. "Before the crisis, we were receiving about five resumes per week on average. Now, it's two or three times of that," Jun Xu, director of the firm's financial services group, said by telephone from Beijing. "We're also trying to help their family through the transition. Unlike us (who only have one child), many 'sea turtles' have two or three kids and some also need a bilingual daycare center." Some in the United States, such as Ke Zhang, who works for a hedge fund after being laid off from Lehman Brothers earlier this year, are taking a wait-and-see attitude. "The economy here is terrible," said the 27-year-old who holds a masters degree from Columbia University. "Gaining experience in the U.S. is still very important. Besides, the employment situation in China is far from rosy either."

Oligarchs Seek $78 Billion Loans as Credit-Market Squeeze Empowers Putin
Russian oligarchs are lining up for $78 billion of Kremlin loans to survive the credit squeeze, handing Prime Minister Vladimir Putin the opportunity to increase government control of the nation’s biggest companies. Just 12 years after they gained ownership of the former Soviet Union’s industries by bailing out the government, the tables have been turned. More than 100 business leaders are vying for loans from Putin and the administration of President Dmitry Medvedev because Russian companies have about $110 billion of foreign obligations due next year, according to the central bank, double the total owed in Brazil, India and China. Business leaders who tripled international debt in the past three years are putting up part of their stock as collateral for government support because they’ve been hobbled by tumbling commodity prices and the biggest drop in the ruble since Russia’s default in 1998. Putin already is aiding billionaires Roman Abramovich and Oleg Deripaska and considering requests from Dmitry Pumpyansky of pipemaker OAO TMK, OAO Severstal’s Alexei Mordashov and AFK Sistema’s Vladimir Yevtushenkov.

"Some of them will definitely lose their property, either to the state or to investors," billionaire Alexander Lebedev, 49, said in a Dec. 8 interview, 11 days before Deutsche Bank AG demanded early repayment of a loan guaranteed by 3 percent of Moscow-based ZAO National Reserve Corp.’s 29 percent stake in OAO Aeroflot, the national airline. "They’ve been over- borrowing and sales of their companies have been falling." The oligarchs, Russian business leaders who used their political influence to help gain assets after the collapse of communism, essentially dictated the policies that allowed them to gain control of the nation’s biggest companies in the 1990s by providing financing to the government that was never repaid. Anatoly Chubais, who oversaw the government’s sale of assets through the so-called loan-for-shares program, said in an interview in 2000 that the plan was necessary to create "big private capital" and help then-President Boris Yeltsin win reelection in 1996 to prevent a return to communism. Chubais, 53, is now chief executive officer of Moscow-based Russian Nanotechnology Corp.

Vnesheconombank, the Russian state lender known as VEB, is responsible for handling the bailouts. In return for one-year loans, VEB is requiring a representative at the company and the right to veto any debt or major asset sale, according to the bank’s Web site. Putin, 56, is head of its supervisory board. Borrowers offer shares, assets or export revenue as collateral. "It’s extremely unlikely they’ll all be able to repay in a year," said Zina Psiola, a money manager at Clariden Leu AG in Zurich with $220 million in Russian equities. "Some oligarchs will no longer be oligarchs." At least 10 of the 25 wealthiest owners have faced margin calls from lenders since August as Russia’s worst financial crisis since 1998 wiped $230 billion from the value of their equity, according to data compiled by Deutsche Bank and Bloomberg. Profits for four of Russia’s largest steel producers as well as Moscow-based TMK, the biggest maker of pipes for the oil and gas industry, will fall by about 50 percent to $10.5 billion next year as prices of the metal plunge, according to Clemens Grafe, an economist at UBS AG in London. That may leave the companies unable to pay for anything beyond their $10.3 billion of debt in 2009. "If they have to pay this then they have no money for capital expenditure, no nothing," Grafe said.

Prospects for refinancing debt are dwindling. Russia’s war with Georgia, a 75 percent drop in oil and the worsening credit crisis led investors to pull $211 billion from the country’s stocks, bonds and currency since August, according to BNP Paribas SA. The withdrawals weakened the ruble by 17 percent against the dollar, forcing the government to drain $163 billion, or 27 percent, from foreign-currency reserves. The ruble fell to the lowest level in almost three years against the dollar today. Russian companies have about twice as much foreign debt due in 2009 than the $56 billion total owed by companies and the governments of China, India, and Brazil combined, according to data compiled by Commerzbank AG and RBC Capital Markets. Greater state involvement may reassure investors, said Jerome Booth, head of research at Ashmore Group Plc in London, which manages $32 billion of emerging-market assets including Russian corporate debt. "There’s less chance of mass defaults in Russia than in Western Europe," Booth said. "There’s a degree of state control in the economy already, so this will be more of the same."

The prime minister, saying he has no intention of nationalizing the economy, pledged on Dec. 4 to offer loans and buy stakes in companies that solicit help, releasing collateral and selling back the holdings later. Putin, who served eight years as president before becoming prime minister, provided $12 billion of loans since October to companies such as those backed by Abramovich, 42, and Deripaska, 40, and pledged $38 billion more. That covers only half the amount sought. Among the applicants is Pumpyansky, 44, of TMK, which owes $1.7 billion in 2009, more than forecast earnings. Yields on TMK’s dollar bonds due September 2009 topped 80 percent last month. TMK plans to delay some investments and is seeking to refinance with longer-term debt, according to an e- mailed statement. Deripaska is selling Moscow-based Soyuz Bank and may part with control of insurer OAO Ingosstrakh in Moscow, Vedomosti reported last week. Named Russia’s richest man by Forbes in April, Deripaska ceded stakes in auto-parts maker Magna International Inc. in Canada and German builder Hochtief AG to banks in October after the stocks lost more than half of their market value.

VEB’s $4.5 billion loan allowed Deripaska’s United Co. Rusal to keep a 25 percent stake in OAO GMK Norilsk Nickel, Russia’s biggest metals producer. A further $1.8 billion went to Evraz, the steelmaker part-owned by Abramovich. Deripaska said he’s seeking to sell stakes in "practically all" his companies including Rusal, the world’s biggest maker of aluminum, to pay off loans, according to comments in the Wall Street Journal confirmed by spokesman Sergei Babichenko today. Deripaska said he hopes to have new investors in the companies by end of March. Yevtushenkov’s Sistema in Moscow may seek as much as $2 billion from Moscow-based VEB to pay debts next year. Moscow-based Evraz and Cherepovets-based Severstal didn’t respond to requests for comments. "Not all of them are going to be helped out," said Kieran Curtis, who helps manage $787 million in emerging market debt at Aviva Investors Ltd. in London. "I’m not convinced we know who is going to get state funds and that will be a major factor in terms of rollovers and redemptions."

Vladimir Potanin, the biggest owner of OAO GMK Norilsk Nickel shares, may lose them to the government within a year, Vedomosti reported today, citing an unidentified Kremlin official. The shares are pledged against a $3 billion loan from state-controlled lender OAO VTB Group. Potanin has received margin calls on the debt after the stock lost value this year, the Moscow-based newspaper said. Without a revival in commodity prices or state help, some Russian companies risk failing, according to Pacific Investment Management Co., which runs the world’s largest bond fund. "It really depends on whether they can weather the storm with metals prices," said Tim Haaf, Pimco emerging-market fund manager in Munich, who helps oversee $50 billion of emerging- market debt including Russian bonds. "We’re very conservative on Russia."

Unemployment fears worry Germans
German consumer confidence remains weak amid production cutbacks and fears of unemployment, a survey indicates. The GfK research institute said its forward-looking consumer climate index for January stood at 2.1 points - the same as December's revised figure. Falling inflation had helped consumer sentiment resist the worsening economic situation until now, said the report. But shoppers are turning gloomier as the downturn in Europe's biggest economy continues. "Reduced production, cuts in working hours and announcements of potential redundancies are increasingly leading to consumers feeling themselves to be personally affected by the crisis," GfK said in a statement.

Until recently, Germany had been able to depend on its traditionally strong export sector to offset any downturn in domestic demand. However, exporters have been hard hit by falling demand worldwide, which has left businesses now more dependent upon Germany's own consumers for sales. Germany's economy ministry has recently become more pessimistic in its forecasts. Last week a senior official said the German economy could contract by up to 3% in 2009. There were signs in these latest figures from GfK that consumers were becoming more pessimistic.

The part of the index which measures Germans' income expectations dropped markedly after four consecutive increases - to minus 15.4. While another section, which measures consumers' propensity to buy, did rise slightly to minus 6.3 - although this is well below its long-time average of zero. Some economists had feared that consumers would react to the recession in Germany by cutting back sharply on their Christmas shopping. "All in all, retailers are satisfied with Christmas sales after the fourth advent weekend," said Alexander Koch, at UniCredit in Munich. GfK's monthly survey is based on interviews with some 2,000 consumers.

Crude price fall forces oil industry into rethink
A sudden collapse in the price of crude oil is forcing energy companies to slash budgets and reduce exploration and oilfield development programmes. The cutbacks in spending are expected to hit the American oil industry hard, according to a survey by Barclays Capital, which is forecasting that upstream budgets in the US oil and gas industry will be reduced by a quarter in 2009. Overall, global spending on exploration and the production of hydrocarbons is expected to shrink by $54 billion (£36 billion) to $400 billion, Barclays Capital said in its survey of 357 oil and gas companies worldwide. “Budgets are being cut in response to the significant decline in commodity prices, constrained cashflow and the tight credit markets,” the investment bank said.

The speed of the collapse in the oil price, which has lost three quarters of its value since it peaked at $147 per barrel in July, has caught oil companies by surprise; Chevron has postponed a decision on its 2009 capital spending budget to January. The price collapse is hurting national oil producers, too. Even companies such as Saudi Aramco are cutting budgets. The world's biggest oil company has cancelled redevelopment of the Dammam oilfield, an ageing resource where Aramco had hoped to raise output with new investment. Meanwhile, the company has asked contractors to look again at the $10 billion budget to develop Manifa, an offshore oilfield that could add almost one million barrels per day to the Kingdom's output.

For the West's oil multinationals, the sudden shrinkage in cashflows from sales of crude oil represents a potential threat to their ability to maintain their massive dividend payouts. Colin Smith, a Dresdner Kleinwort analyst, reckons that the balance sheets of the oil majors can sustain oil prices at $50 per barrel without damage to the dividend. However, the damage caused by investment drought in 1998 when crude hit $10 per barrel has changed industry mindsets. Mr Smith thinks that managements would probably be quicker to sacrifice the dividend today.

Bank of China furious at Deutsche debt move
Investors in bank debt are threatening to boycott lenders that follow Deutsche Bank in breaking an unwritten rule and failing to exercise a call option on subordinated debt. In a co-ordinated action, angry bond investors are writing to bank treasurers and investor relations heads telling them that any failure to exercise a call option will be considered a breach of trust that could cause all the issuer's debt to be shunned. Deutsche stunned the debt market last week by choosing not to redeem €1bn (£932m) of subordinated lower tier 2 bonds because to do so was cheaper than refinancing. But though the move saved Germany's biggest bank up to €150m, it caused fury among buyers of the debt who worked on the assumption that bonds would always be redeemed at their first call date.

The letter, seen by The Independent, said a bank's decision not to call debt would be taken to mean "the institution is in such difficulty that it is an impossibility to call the instrument or the institution feels that it is in such a strong position that it can afford to alienate itself from the support of a wide portion of the fixed-income institutional investor community". Bank of China, a major buyer of bank debt, has gone further in its communication with issuers. The giant Chinese lender's Hong Kong operation has told banks that "any non-call by a given institution will result in that institution's debt (not just lower tier 2 but senior and tier 1 as well) being ineligible for future investment consideration". Bank of China added that Deutsche Bank had also been removed from consideration as a counterparty for any credit derivative transaction in future.

The bank is writing to all of Britain's banks, along with lenders elsewhere in Europe. The bond buyers are stressing to issuers that they cannot afford to become debt-market pariahs when their capital buffers against losses are under threat from a global downturn and they may need to raise more capital. Without being able to issue debt, which counts as lower-grade tier 1 and tier 2 capital, institutions would be forced to seek costly new equity, angering their shareholders. "Non-call may indeed save you some money today but it will seriously impact your capital structure options in the future," Bank of China warned. "Being only left with severely dilutive equity to raise capital is not in anyone's interest."

Deutsche Bank will be hoping that other banks follow its lead, giving it safety in numbers. The wave of threats from investors is intended to stop others opting to join Deutsche, and is the most hard-line response yet to the breaking of the debt-market code. Refusing to call the debt means that the hybrid notes effectively become longer term and more risky than the investor originally assumed. Deutsche's decision caused the entire subordinated debt class to be repriced last week.

Toyota Forecasts Its First Operating Loss in 71 Years
Toyota Motor Corp., the world’s second-largest automaker, forecast its first operating loss in 71 years on plummeting demand, prompting Moody’s Investors Service to consider downgrading the company’s top-rated credit. The carmaker will post a 150 billion yen ($1.7 billion) loss in the year through March, it said in a statement today, scrapping a previous forecast of a 600 billion yen profit. "The environment we’re in is extremely tough," President Katsuaki Watanabe told reporters today in Nagoya. "We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom."

Moody’s is reviewing the carmaker’s "Aaa" rating on $19 billion of debt, possibly boosting the company’s borrowing costs amid tightening credit markets and the worst U.S. auto sales in 26 years. Watanabe has cut contract jobs, production and executive pay including board-members’ bonuses this fiscal year in a bid to offset slumping demand and a strong yen. "Toyota’s cost-cutting can’t match plummeting sales," said Koichi Ogawa, chief portfolio manager at Tokyo-based Daiwa SB Investments Ltd., which manages $28 billion. "Everyone is getting hurt with this situation." The automaker lowered its net income forecast 91 percent to 50 billion yen. The last time Toyota posted an operating loss was in the year ended March 1938, said spokesman Hideaki Homma.

The company revised its forecast for a second time even after adding in an expected gain of 130 billion yen from cost- cutting measures, Watanabe said. All capacity expansion projects have been postponed, he said. The carmaker’s sales in the U.S., traditionally its most profitable market, plunged 34 percent in November. Toyota’s European sales dropped 34 percent last month, according to the European Automobile Manufacturers Association in Brussels. The company today cut its vehicle sales forecast 8.5 percent to 7.54 million for the year ending March 31. It lowered its North America sales estimate by 10 percent to 2.17 million vehicles. In Europe, sales may total 1.04 million vehicles and at home it may sell 2.01 million. Automakers worldwide are cutting production as sales plummet. Toyota, which opened its seventh North American auto- assembly plant earlier this month, said it plans to further reduce production at factories in the U.S. and Canada. The automaker this year halted production of Tundra pickups at its San Antonio plant for more than three months. Production resumed in Texas in November with a single shift.

Honda Motor Co., Toyota’s closest domestic rival, slashed its earnings forecasts this month after the yen’s 25 percent gain against the dollar this year. Suzuki Motor Corp., Japan’s second largest minicar maker, today said it will cut domestic production by an additional 30,000 units to 1.16 million vehicles for the year ending March 31. Daihatsu Motor Co., Toyota’s minicar unit, said it will cut Japan production by 16,000 vehicles in the period. Japan’s exports plunged 26.7 percent last month from a year ago, the most on record, as global demand for cars and electronics collapsed. Shipments to the U.S. slid an unprecedented 34 percent, the Finance Ministry said. "Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.," said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. "Japan did nothing to prepare itself" for the collapse in demand from abroad.

Across the industry, U.S. auto sales are down 16 percent this year, led by declines of 28 percent for Chrysler LLC, 22 percent for General Motors Corp. and 19 percent for Ford Motor Co. The three U.S. automakers will shutter about 59 factories over the next month as they struggle to avoid bankruptcy. Compounding the drop in demand is the stronger yen, which erodes overseas profits for Japanese automakers. Every 1 yen gain against the dollar and euro trims Toyota’s annual operating profit by 40 billion yen and 6 billion yen, according to the company. The carmaker is basing its second-half earnings outlook on 93 yen to the dollar and 123 yen to the euro. The company expects a stronger yen will cut its operating profit by 200 billion yen for this fiscal year from its November forecast.

Toyota’s 150 billion yen 1.33 percent bonds maturing in 2012 today traded at 40 basis points above Japan’s government debt, or a 1.015 percent yield, Japan Securities Dealers Association prices show. The notes traded at 25 basis points more than government bonds at the end of October. A basis point is 0.01 percentage point. The cost of default protection on Toyota debt rose 3 basis points to 217 basis points, according to CMA Datavision prices for credit-default swaps. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite.

Southern Auto Workers Watch and Worry
Autoworkers at Honda's Lincoln, Ala., plant support a Detroit rescue more than their politicians do. They have reason to fear cuts, too. The tiny town of Lincoln, Ala., is 706 miles from Detroit. But as the U.S. recession deepens, the distance between this Southern enclave of the American auto industry and the Big Three's headquarters to the North seems to be shrinking. At the edge of the 4,500-resident town looms a massive Honda plant, marked only by two tall towers bearing the Japanese automaker's name and by the sounds of industry that drift into Lincoln on otherwise sleepy afternoons. The plant, which opened in 2001, makes Honda Odyssey minivans and Honda Pilot SUVs. Like other "transplant" factories set up by Japanese, Korean, and European companies in the South, the Lincoln Honda plant has no union, reflecting a wariness in the region about a typically Northern institution. Many in the South feel that General Motors (GM), Ford Motor (F), and Chrysler—and their unionized workers—have no one but themselves to blame for their difficulties. That opinion came through loud and clear during the debate that left Congress killing a legislative bailout of the Detroit car companies. Sen. Richard Shelby (R-Ala.) blasted the Detroit companies as "dinosaurs" and the bailout legislation as "a bridge loan to nowhere."

Yet it was also clear in a visit to Lincoln on Friday, Dec. 19—the day that President George W. Bush announced he was extending a $17.4 billion lifeline to GM and Chrysler—that some workers and residents here think the woes of the auto industry are not entirely due to mismanagement or the high costs of pensions and health care for Detroit's retirees. The souring U.S. economy is hurting the Japanese companies to which Detroit automakers are so frequently and unfavorably compared. Honda has been cutting production to match its plummeting U.S. sales, and its leaders in Japan are sending ominous signals that things are expected to get worse in 2009. On Dec. 17, Honda CEO Takeo Fukui said the company probably will earn 62% less this fiscal year than what it had projected just six weeks earlier. That sense of alarm was reflected in the latest November results, which showed Honda's U.S. sales were down 32%, roughly in line with declines at other companies. The transplant factories have responded by chopping work hours and production. In October, Mercedes-Benz offered buyouts at its Vance, Ala., plant, which makes SUVs and crossovers. Earlier this year, Nissan offered buyouts to white collar workers at its Tennessee headquarters, as well as to line workers. On Dec. 15, Toyota announced it would delay the opening of a factory in Blue Springs, Miss., where it was to start U.S. production of the Prius hybrid gas-electric car. Toyota workers at the company's brand-new San Antonio pickup truck plant were idle from August to November.

Honda says it will sharply cut the number of vehicles it produces in the U.S. and Canada in the coming year. While no layoffs have yet been announced in Lincoln, Honda has pulled back on production several times: In January it plans to reduce the number of vehicles built there, from 1,300 a day to 1,150. The plant was closed for two days in August and in the fall a second Friday shift of workers was eliminated. For many workers in Lincoln, the drama of the last-minute rescue of Detroit seemed distant. "Really, [they] don't feel that the bailout has anything to do with them," says Debra Cochrum, 63, a former Honda employee who is now treasurer of the UAW's Alabama branch, which keeps an organizing operation just down I-20 from the plant. "They think that the Northern people created this mess and that's their problem." Still, some workers and residents interviewed in Lincoln say they're pleased with Friday's $17.4 billion bailout. "It doesn't do anyone no good if those boys go under," says Donald Snow, 39, who has worked on the assembly line at the Lincoln plant for seven years. "What a lot of these guys at the plant don't realize is that it's all connected. If Detroit goes down, the suppliers get hurt. If the suppliers get hurt, we get hurt."

According to CSM Worldwide, 58% of GM's suppliers—and 65% of Ford's—also provision the Asian transplant factories. A GM, Ford, or Chrysler bankruptcy could send hundreds of supplier companies into bankruptcy or liquidation, jeopardizing production at Honda, Toyota, Nissan, Hyundai, Mercedes, and BMW plants for months. The fate of the Detroit companies could ripple through the South in other ways. One of the goals of the restructuring envisioned in the bailout is to close the gap in wages—and other costs—between GM, Ford, and Chrysler and the transplant factories. Southern autoworkers make less than their northern counterparts: UAW workers make an average of $29 an hour, vs. about $25 for a Toyota worker in the U.S., according to the Center for Automotive Research in Ann Arbor, Mich. However, if you factor in the expense of health-care and other benefits for active workers, plus pension and health-care costs for retirees, a UAW worker costs about $76 an hour, vs. $58 for a Toyota worker. Why? The automakers have been in business for a century in the U.S. Many autoworkers go to the assembly line after high school and then put in 30 years. At age 48, they're seventeen years from qualifying for Social Security or Medicare, and they count on the hard-won pension and health-care benefits the UAW has negotiated over the decades.

Yet experts agree that the pay of Southern auto workers is benchmarked to the wages of UAW workers in the North. If the UAW were to make concessions and Northern wages dropped drastically, Southern workers' salaries might be held down as well. "Southern workers should take no glee in Detroit's problems because their pay is absolutely dependent on what the UAW gets paid," says George Hoffer, an economics professor at Virginia Commonwealth University who has studied the auto industry for 40 years. The issue that most heavily weighs on the minds of the Lincoln plant's workers is preserving their jobs. In the wake of recent production cutbacks, rumors have spread that some part-time workers—who make up a sizable share of the plant's 4,000 employees—could be laid off if the economy continues to worsen. After a hard day of physical labor, several of the plant's workers are unwinding at a local bar. As they sip beer and shoot pool, opinion seems split between those who feel that the best way to maintain job stability is to unionize and others who fear unionization would price Honda out of Lincoln, forcing the plant to shut its doors permanently. Elvis Cox, 41, worked in the steel industry and was a member of the United Steel Workers Union before he took a job seven years ago at Honda's Lincoln plant. Cox says he lost his job when his steel factory closed because it couldn't meet the union's financial demands. He is content with his post—which, after all, pays more than most in the area—and doesn't want to make any waves that could endanger the income that supports his family.

Cox has pointed advice for those seeking to unionize: "If you don't like the job, then quit," he says. "What's the purpose for a union? What's the purpose?" Snow doesn't want a union to bring his pay up to the level of the UAW workers; he simply wants to know that his job will be there and that his pension will be strong. "All I want is long-term security," he says shaking his head. "I can't do this job for too long. It's just so hard&physically." When companies like Honda, Hyundai, and Mercedes-Benz opened plants in Alabama over the past 15 years, they did so in a state whose blue-collar employees had been decimated by the exodus of textile work to Mexico, China, and other parts of Asia in the 1980s. It was not uncommon to hear stories that those who signed on at Honda's Lincoln plant had previously worked simultaneous jobs with no benefits. Many workers fear that rocking the boat will chase the automakers to Mexico, or to some other state.

Thus, historians agree that unionizing southern plants would require a dramatic cultural shift. "In the North you work for the UAW first and the company second," says Hoffer at Virginia Commonwealth University. "It's just never been that way in the South. You work for the company first." That attitude certainly is reflected in previous failed attempts to organize the transplant factories. Two decades of work by the UAW to force a vote at a Toyota factory in Georgetown, Ky., have yielded no results; votes at a Nissan plant in Smyrna, Tenn., were rejected out of hand by workers in 1989 and 2001. "There is considerable tension between the union and Southern autoworkers," says John Heitmann, a history professor at the University of Dayton in Dayton, Ohio, who has studied the auto industry for a decade. "It's in part due to the strong strain of individualism that's a part of the South. There's no real compassion for union brothers down there."

Where'd the bailout money go? Shhhh, it's a secret
It's something any bank would demand to know before handing out a loan: Where's the money going? But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it. "We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to." The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest? None of the banks provided specific answers. "We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn't know where the money was going. "We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout. The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion -- about the size of the Netherlands' economy -- to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money. There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money -- not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply. "It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there's no way for taxpayers to find that out. Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent. "Those are legitimate questions that should have been asked on Day One," said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?" Nearly every bank AP questioned -- including Citibank and Bank of America, two of the largest recipients of bailout money -- responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis. A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money. "We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion. Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless. Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story." Most banks wouldn't say why they were keeping the details secret. "We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government. Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent. Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending. "What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money. "It would take a lot of nerve not to give answers," she said. But Warren said she's surprised she even has to ask. "If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said. Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went. "A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal," he said.

$1.6 billion went to bailed-out bank officials
Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.   The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.   Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.   The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.  Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place.  "Most of us sign on to do jobs and we do them best we can," said Frank, a Massachusetts Democrat. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!" 

The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings:
  • The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.
  • Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million. This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. They will work for their base salaries of $600,000, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday declined to comment beyond that written report. The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.
  • Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Virginia-based company received $3.56 billion in bailout money on Nov. 14.
  • John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options. Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.

The AP review comes amid sharp questions about the banks' commitment to the goals of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program's goals, instructing the Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.  The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes.  Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.

At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.  Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.  JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.

Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, a California Democrat, questioned that rationale, saying executives visit many locations more vulnerable than the security-conscious U.S. commercial air terminals.  Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions — something particularly hard to take when banks then ask for rescue money.  He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds. "The tougher we are on the executives that come to Washington, the fewer will come for a bailout," he said.

Money market funds reel as yields near zero
Money market funds, an increasingly popular place to park cash, will need to raise fees or close to new money to remain profitable as yields hover at near-zero, according to industry managers. The funds, which manage $3,800bn and have seen big cash inflows, are reeling from frozen credit markets, subprime exposure and a crisis of confidence triggered by one fund “breaking the buck”, or returning investors less than they paid in. The US Federal Reserve last week cut its target interest rate to between zero and 0.25 per cent, from one per cent. Jim McDonald, who runs taxable money market funds for T Rowe Price, said: “You can’t make money in this situation. If short-term interest rates stay where they are, it’s virtually impossible to run a government [bond] fund and make any money. You can close the fund, that’s one option.”

Vanguard last week closed two of its money market funds to institutional investors, while Credit Suisse said it would quit managing money market funds in the US and liquidate $8bn in assets across its three funds. David Glocke, a portfolio manager at Vanguard, said: “It just doesn’t make any sense to take in money in this environment, it would dilute yields for existing investors.” Investors poured $550bn into government money market funds – which invest mostly in US Treasuries – in the six months to the end of November, in an unprecedented flight to safety. The cost of running money market funds is greater than the fees charged. Usually, the difference is not great, and the funds are able to pick up profit on excess yield.

However, the gap between costs and fees has widened, and yields have plummeted. The average yield on a Treasury retail fund was 0.34 per cent at the end of November, compared with 2.9 per cent last December, according to iMoneyNet, an industry tracker. About one in 10 money funds yields nothing. Mr McDonald said: “Our Treasury fund yield was net 50 basis points after investor fees, and our expense is 47 basis points. If assets remain unchanged and we continue to roll over securities, our fund will run out of yield in February. “The board has to make a decision about whether they waive fees. I am not advocating this, but you can also tell shareholders that they will have to pay a fee, an extra fee above what the portfolio earns.” Fidelity, the biggest money market operator, has already reimbursed small amounts of fees on five funds. Mr Glocke said: “Interest-rate sensitive investors will start to look for alternatives . . . the Fed is trying to force investors out of a low-risk environment.”

Insurer of last resort gains numbers in downturn
That day in July was one that Tammy Morse won't soon forget. Five months earlier, her husband lost his job as a recruiter for the financial services industry. Now it was the summer and the family savings were gone. She saw no way to get health insurance coverage for her family other than to apply for Medicaid.  And that was why she made the drive from her Stratford, Conn., home to the nearest office of the state's Department of Social Services.  "It was humbling," said the mother of two. "It's funny how your attitude changes, because honestly, I was probably a little judgmental previously. ... For lack of a better way to put it, that was for other people. It wasn't for me."  Around the country, similar stories are playing out for thousands of families.  Since the recession began a year ago, many states have seen increases in the Medicaid rolls just as tax revenues are falling below projections. Governors have lobbied President-elect Barack Obama and Congress to help them weather the downturn by increasing the federal government's share of Medicaid spending for at least two years.

The governors said the extra $40 billion would ease the service cuts or tax increases that legislatures need to balance state budgets. The unemployment rate has jumped from about 4.7 percent last December, when the recession began, to 6.7 percent today. Economists estimated in a Kaiser Family Foundation report that each 1 percent gain in the unemployment rate adds 1 million people to the Medicaid and State Children's Health Insurance Program.  In Connecticut, a state faring better than many, enrollment in the Medicaid program, called HUSKY (Healthcare for Uninsured Kids and Youth), has climbed from about 312,000 last December to about 329,500 in November — a 6 percent increase. Many who lost their jobs were eligible to continue group health insurance. But that is not an option in most cases because they no longer have an employer picking up a large share of their premiums.

Cassandra Edmonds, a single parent who joined HUSKY in October, is a newcomer to the program like Morse. Her job as a parent-activities coordinator with the Bridgeport school district was eliminated to save money. She has found a job selling life insurance, but her earnings are low enough that she is eligible for HUSKY coverage. The insurance is particularly important for her 4-year-old son, who has glaucoma and tubes in his ears to prevent repeated infections. He has to check in with a specialist about every three months for each condition. Edmonds said she never imagined she would be relying on government safety nets to make that happen.  "I never really thought I would be without a job," Edmonds said. "I have an MBA. I'm not trying to sound cocky or anything."  Donny Djurkovic doesn't have a master's in business administration, but he did have decades of work experience when he lost his job with a small food company. Djurkovic, like Morse and Edmonds, is from the Bridgeport area.

He said he was able to continue health insurance for himself, but insuring his son would have increased his premium to more than $1,200 a month. So his son, 6, went without insurance for a few months, leading to much worry.  "I put his bicycle in the shed. I didn't want anything to happen, to be honest with you," Djurkovic said.  He learned about HUSKY from a pharmacy clerk and took her advice to apply. Despite the relief, he admits to some feelings of guilt about accepting the government's assistance.  "In all these years, I never had put my hand out and I was so proud of myself and everything. But there is unfortunately times when you do need it," he said. "And I still feel bad. Would you believe this? When I see my unemployment insurance, I say this is not me. I'm not used to it."  Medicaid insures nearly one in six low-income people in the U.S. The program typically covers the very poor and about half of enrollees are children. Spending came to $333 billion in the budget year ending Sept. 30, 2007. Washington picks up about 57 percent of that; the states cover the remainder.

Michael Cannon, director of health policy studies at the Cato Institute, a liberterian think tank, sympathizes with new families now relying on Medicaid. Still, he disagrees that the federal government should reward states that did not plan adequately for the bad times. Better planning would mean setting aside more money for rainy day funds and not expanding the scope of Medicaid during the good economic times, he said. "The states make these promises they know they can't keep and then they run to Congress to bail them out," Cannon said. "And Congress typically ends up bailing them out." Cannon said the net result is the government gradually is becoming more responsible for paying for health insurance coverage.  The bill will fall to future generations. "And who better to push those costs onto than to people who can't even vote yet?" Cannon said. Advocacy groups report that 43 states face budget shortfalls this year or next. The Center on Budget and Policy Priorities estimates states face a $79 billion gap they must bridge this year.

Nineteen states have enacted or proposed cuts in their Medicaid or State Children's Health Insurance Program budgets for the current budget year or for 2010, according to Familes USA, which conducted a state-by-state survey:
• Arizona now requires adults to reapply for Medicaid every six months rather than annually, which is expected to reduce the rolls by 4,500.
• California does the same for children, and Republican Gov. Arnold Schwarzenegger proposed reduce eligibility limits for parents from 100 percent of the poverty level to 72 percent. That would drop it from $17,600 to $12,600 for a family of three. The state also is considering putting new applicants for children's insurance on a waiting list.
• Nevada eliminated vision care for adults and limited coverage for personal care services that reimburse providers for helping people meet basic needs such as feeding and bathing.
• South Carolina enacted a limit on prescriptions and refills to a maximum 31-day supply.
• Rhode Island limited coverage for prescription drugs to generics.

The most common Medicaid cut that states made was to lower payments to doctors and other providers; some 14 states have done so this year. Medicaid patients already often have trouble finding a doctor who will take them, so the payment cuts could make that problem worse. Diane Rowland, executive vice president at the Kaiser Family Foundation, said that boosting the Medicaid matching rate will prevent higher rates of uninsured and maintain patient access to hospitals, nursing homes and home health care. "In the absence of this kind of stimulus, you might see more layoffs in the health care sector," she said. "These dollars can start to flow to states the day after Congress enacts it because it's just changing the formula for how Medicaid bills are shared."  Rowland said some states did expand during the good times, causing a portion of the budget crunch they now face, but for the most part, the problem is the economy.  "It's not so much an issue of expansion. It's an issue of how we deal with a downturn in the economy," she said. "On the income side, we have unemployment insurance. On the health care side, all we have is Medicaid and the State Children's Health Insurance Program."

Women sought as "terriers" for bank boards
The Government wants to appoint senior women to the boards of Britain's state-backed banks to shake up their "old boys club" culture. Several women who have reached the highest echelons of City law and accountancy firms are on the Government's list for potential candidates to join the boards of Royal Bank of Scotland and the combined business of Lloyds TSB and HBOS. The Government wants to group to act as "terriers" who would hold the banks' managements to account. "They are not expected to be the banks' chums and are not expected to go shooting on the grouse moors like non-executives have traditionally done," a source close to the Government said.

"The Government is fed up with the magic circle in the City of the same old names as non-executives," the source added. As a condition of receiving a total of £37bn in emergency funding from the taxpayer in October, RBS, Lloyds and HBOS agreed to take between them five new non-executive directors who will be screened by the Government. While the banks are meant to be in charge of the process of finding the non-executives, it is becoming increasingly clear that the Government wants a major say in who is chosen. Baroness Vadera, the ex-UBS investment banker who was a key figure in thrashing out the banking recapitalisation scheme, and City minister Lord Myners, will play a large part in the selection process, sources said. The Government is keen to recruit figures with experience in regulation and banking.

The new appointees will not be all women, but senior political figures are understood to be frustrated that few women's names have been put forward so far. The new recruits are expected to be given an indemnity against possible litigation should shareholders in any of the bombed-out banks choose to sue. Meanwhile, the Government is in the advanced stages of finding figures to sit on the board of UK Financial Investments (UKFI), the body which will manage the huge stakes the taxpayer now owns in several banks. Philip Remnant, chairman of the Shareholder Executive - who oversees other Government-owned companies such as Royal Mail - is thought to be one name in the frame. Peter Gibbs, chairman of trading platform Turquoise, is another contender.

Newspaper industry loses underpinning
Twenty years ago, no doubt with the hubris of youth, I wrote an analysis of the U.S. steel industry's troubles. The next day, I got a call from one of some 600,000 steelworkers who were about to lose their jobs in that wrenching restructuring. The jobs were largely replaced with those that paid less, offering fewer benefits and no security. "You people in the press would write differently if it was happening to you," he said. "Someday you'll get yours."
If he's still around, this reader and countless others sharing the same sentiments can take comfort. We've gotten ours. The newspaper industry is in free fall. Tribune Co., owner of some of the most distinguished papers in the country, is in bankruptcy court. Denver's Pulitzer Prize-winning Rocky Mountain News, one of my old haunts, may close.

The great Miami Herald has been put up for sale in the hope that its waterfront headquarters has some value for developers. The New York Times had mortgaged its new tower. Gannett, the nation's largest newspaper chain, is expected to eliminate some 2,000 jobs this year, at small and large papers. The two daily newspapers in Detroit are cutting back publishing to three days a week. Here, The Seattle Times has shed 474 full- and part-time positions since November 2007. The Times and Seattle Post-Intelligencer have combined sections to save on costly newsprint. The Times has reduced staff while the P-I has a hard hiring freeze in place. McClatchy newspapers in the region, including The News Tribune in Tacoma, have announced small staff reductions. No one seems immune. Sound Publishing shut its Bainbridge Island printing plant and announced plans to publish three of its small, local papers once a week, instead of twice weekly. Total numbers of job losses nationally are difficult to parse. The Web site Paper Cuts, which tracks each announcement, puts the figure at more than 15,000 this year. This comes after years of downsizing, before the industry's slide became an avalanche. In 2005, for example, 2,000 jobs were cut.

The historic economic troubles I call the Great Disruption are not confined to newspapers. A full-blown media recession has led to cutbacks everywhere from NBC Universal (a partner with Microsoft in MSNBC) and NPR to Viacom and the QVC shopping channel. Tribune's troubles reach to its 23 television stations, including Seattle's KCPQ-TV and KMYQ-TV. New media sites such as CNET have also sliced payrolls. Washington CEO magazine recently closed.
The immediate causes are a dramatic decline in advertising revenue, partly driven by the downturn (for example, the big-advertising Big Three automakers have cut back drastically), and the frozen credit markets. Print and online newspaper-advertising revenue dropped more than 18 percent in the third quarter, the worst showing in 40 years of record keeping. But television-ad revenue has fallen, too, although not as much. Still, for newspapers, the problems are fundamental, sweeping, tectonic. They are what economists call secular long-term shifts that may defy the business cycle.

Like the 1970s steel industry, much of the newspaper world is a victim of self-inflicted wounds. Monopolies and cartels tend to commit suicide, partly because they become complacent, partly because they grow an inward-looking groupthink. Like Big Steel, newspapers in the 1990s failed to aggressively address the rise of low-cost competitors and much of the industry failed to invest for the future. Newspapers built their own special time bombs, too. For decades, they had been able to sell space at very high rates to advertisers who had few options. This gave newspapers extremely high profit margins and high stock prices.
I knew of major dailies that had margins as high as 40 percent, compared with, say, 2 percent for a grocery store. As family newspapers were sold to major chains, these consolidated companies went public and made those profit promises to Wall Street. They also made them to banks, taking on big debt loans to buy more newspapers. It was fun while it lasted. It was, of course, unsustainable.

With the rise of new-media competition such as Craigslist, offering free classified ads, the game was up. Many reliable old advertisers, such as department stores, had their own troubles, while discount chains often avoided the most expensive advertising, or shunned newspapers entirely. In other words, the business model is broken. And stock prices have plummeted in most publicly traded newspaper companies. McClatchy, for example, is nearly a penny stock after trading above $60 a share a few years ago. Content remains appealing, at least based on the readership at newspaper Web sites, and the reality is that the blogosphere would have little to talk about without the serious journalism that often originates at newspapers. Yet no one knows how to pay for it.
Early on in the Internet age, most newspapers began giving away the news and backing away from this proved impossible. Online ad revenue had until recently been growing, but it was nowhere near enough to replace the money lost from declining print ads. For many newspaper companies, this had led to a vicious cycle of cutbacks, which drive away readers, while make the papers and Web sites less attractive to readers.

I asked Lauren Rich Fine how bad it could get. For years at Merrill Lynch, Fine was the leading analyst following the newspaper industry. Now she is director of research at ContentNext and a practitioner in residence at Kent State University's College of Communication & Information in Ohio. "Sadly, I think conditions will get worse before they improve, as the economic cycle is still spiraling downward," she said. "Some newspapers could close, but I hope they try Web-only first, at least a day or two a week to train consumers. That would help stem some of the cash-flow drain. I am very concerned about the companies with a lot of debt." Indeed, Fitch Ratings predicted this month that several newspapers and newspaper groups are likely to default on their debt next year, and some cities could see their only newspapers close. Seattle remains one of the nation's last two-newspaper towns. For many news consumers, the future promises disruption. Traditional news sources are being augmented by competition from Web sites, YouTube and social-networking sites. If you're willing to search for it, news on many topics has never been more abundant.

However, at least in the near term, newspaper readers will see less of their cherished, and, at its best, well-reported, -written and -edited news platform. Many communities will also suffer from the loss of experienced, professional journalists reporting credibly on critical local issues. Some of this slack may be picked up by local bloggers, but not much. Fine sees some hope in collaborative efforts among news organizations, as well as a move away from the print paper, perhaps publishing one or two days a week, while focusing more on the Web. "Each newspaper needs to define its core and then leverage resources elsewhere not unlike the online 'link' economy." For coverage, she urges more of a focus on local, especially investigative reporting, and plenty of online linking. And she sees better futures for private newspaper companies or not-for-profit papers. A big question: Can newspapers raise their online page views to justify the ad rates that would replace what's been lost in print? At this point, my steelworker friend would be shaking his head. All this navel-gazing when 1.9 million jobs have been lost this year across the economy?

When Bank of America, to make its merger with Merrill Lynch work, announced one of the biggest layoffs in history: 35,000. When the U.S. auto industry teeters on the brink of collapse. To paraphrase an old saw, you can't out-whine somebody who buys ink by the barrel. But as self-serving as it sounds, I would argue that the crisis of the press matters more to society than the numbers of jobs lost. At our best, we informed that steelworker about his company and industry, even when his bosses were withholding information from employees. We are often less, but at our best we report the news without fear or favor. Whether on paper or online, we delight and entertain and start conversations. Most important, we are watchdogs for a democratic society as the framers realized when they wrote the Constitution. For now, however, newspapers are in for their coldest winter, with probably more to come.

Top business story: Wall Street's makeover
With the speed of a supermarket thriller, Wall Street was upended and remade in 2008.  First, investment bank Bear Stearns teetered near collapse, then was sold to JPMorgan Chase & Co. in a shotgun deal that valued each of Bear's shares at $10 -- roughly the same price as a New York movie ticket. The shares had traded at $154 the year before.Then Lehman Brothers filed for bankruptcy in September. The failure of the firm, which had roots going back to the Civil War, shook investors around the globe. They've yet to recover. After Lehman's filing, New York traders started their work days at 3 a.m., when European markets opened. Financial chiefs were summoned to compulsory weekend meetings at the New York Fed, where they ordered takeout and dickered over the fate of the nation's largest banks. Rumors spread. No investment bank could be trusted as sound, no stock could be assumed safe. In a year heavy with financial news, Wall Street's woes were voted the top business story by U.S. newspaper and broadcast editors surveyed by The Associated Press. The continued real estate troubles were a close second, followed by the $700 billion bailout and the global recession.

The decline in U.S. home prices and the increase in foreclosures devalued the mortgage securities that had been essential to Wall Street's money machine. Before housing crashed, the banks sold the securities and reaped fees. After housing crashed, banks held the securities and watched their values plummet.  Debt markets, also essential to Wall Street, froze. Lehman's bankruptcy brought daily rumors that another bank was tottering -- many of which proved true.  Washington Mutual Inc., with $307 billion in assets, collapsed in September, the largest bank failure in U.S. history. Merrill Lynch sought shelter after its stock plunged, agreeing to be taken over by Bank of America Corp. Wachovia Corp. agreed to be bought by Wells Fargo & Co. Investment banks Goldman Sachs Group Inc. and Morgan Stanley transformed themselves into commercial banks overnight.  The U.S. government loaned $150 billion to insurer American International Group Inc. It also took over mortgage giants Fannie Mae and Freddie Mac. In late November, the government propped up Citigroup Inc., agreeing to shoulder hundreds of billions in possible losses and plowing $20 billion into the company.

By almost any measure, the housing market got worse in 2008, its third year of decline. Home prices continued to fall. Foreclosures hit new highs. Housing starts hit an all-time low in November, as home builders who couldn't compete with foreclosure sales virtually stopped building.  "We have seen no improvement over the past month in terms of sales conditions for new homes," David Crowe, chief economist of The National Association of Home Builders, said in December. "In fact, certain factors have gotten progressively worse, not the least of which is the job market."

Treasury Secretary Henry Paulson first asked Congress to pass a two-page proposal authorizing the financial industry bailout. That plan went down in flames. His next try, which passed after much bipartisan arm-twisting, was more detailed. But the terms kept changing. Paulson first said the Treasury would buy troubled assets from financial institutions, then, he said it wouldn't. Instead, the Treasury used most of the first round of bailout money to invest directly in banks and lenders.  Within two months, Treasury had allocated the first $350 billion to banks, insurers and automakers. In late December, Paulson asked Congress for the second half.  As credit markets remained weak, some lawmakers said they'd been misled, while others argued some of the money should be used to avoid foreclosures.  "We've been lied to," said Rep. Davis Scott, D-Ga. said in December. "We've been bamboozled."

It seemed no nation was immune to the economic woes, as even Mongolia saw runs on its banks. Argentina nationalized pension funds. Icelanders saw their three main banks and their currency collapse. Japan and much of Europe fell into recession. China's exports plunged in November by the largest amount in seven years. As oil traded below $40 a barrel, exporters Russia, Venezuela and Iran suffered.

Oil's meteoric rise to $147 a barrel in July changed America's habits. Mass transit ridership saw its largest quarterly increase in 25 years. Highway driving fell by almost 5 percent. Traffic deaths fell. Truckers went bankrupt.  Then, the global financial crisis sent oil prices plummeting; they fell by more than half from the beginning of October to the end of November, raising questions about whether Americans' habits would reverse as quickly as they'd been established.

As nervousness spread in September and credit markets froze, stocks plunged everywhere from Hong Kong to Mexico. Russian authorities closed Moscow's stock market for days at a time to contain the panic. The broadest measure of U.S. stocks, the Wilshire 5000, is down more than $7 trillion for the year. Diversification stopped working -- no market was spared, no asset class went untouched.

By November, U.S. automakers' sales had dropped about 16 percent for the year. General Motors Corp. and Chrysler LLC pleaded for loans from Washington, while Ford Motor Co. said it didn't need a government line of credit, but it would nonetheless take one. The Senate quashed a bailout passed by the House, but the Bush administration, saying it would be irresponsible to let the industry die, offered it $17.4 billion in rescue loans.

As prices for corn, fuel and grains soared through the summer, American shoppers grappled with substantial food inflation for the first time in 17 years. The U.S. Department of Agriculture forecast food prices would rise 5 to 6 percent for the year, compared with an average 2.5 percent annual rise for the prior 15 years. The rate of increase slowed in October and November, but food prices didn't fall the way gas prices did.

How Bernard Madoff earned steady returns of 7 percent to 9 percent a year in good markets and bad was a Wall Street mystery for almost 20 years. In December, Madoff said the returns were fiction and his investment company was a scam, according to federal investigators. As much as $50 billion may have evaporated in the scheme, which could be the largest Ponzi scam in history.

After Lehman filed for bankruptcy, the money market Reserve Primary Fund, which had invested heavily in Lehman debt, "broke the buck," with its assets falling to 97 cents for every dollar invested. It was the first time this happened in the money market industry in 14 years. Investors across the country -- who had seen money market funds as being safe as cash -- fled for the exits. Reserve alone saw $40 billion in redemption orders on Monday and Tuesday the week Lehman filed. As the year ended, Reserve was still liquidating its funds.

Financial review of the year 2008
From the Northern Rock nationalisation to the collapse of Lehman brothers via Iceland, bail-outs and the pre-Budget - the biggest finance stories of 2008.

At 4pm on February 17, Northern Rock became the first British bank to be nationalised since the 1970s. Locked out of precious funding from financial markets and losing customers at a rapid rate, Chancellor Alistair Darling told a hurriedly assembled press conference that the Newcastle-based bank would be taken into “a temporary period of public ownership’’. The move left shareholders seething and, though the Treasury was unaware at the time, Northern Rock would prove the first of most of Britain’s once-booming banks to traipse through the door of 11 Downing Street with a begging bowl during the course of 2008.

Unknown to most outside the City, the troubles at US investment bank Bear Stearns marked March out as the month in which the catastrophe engulfing global financial markets became clear. Having got fat and very profitable selling US mortgage loans, Bear began to creak as America’s house prices turned south. With other banks and shareholders losing confidence in Bear’s ability to meet its debt obligations, its demise was stunningly swift. JPMorgan scooped up its rival for just $10 a share after winning a promise from the Federal Reserve to meet Bear’s outstanding liabilities. Jimmy Cayne, a Wall Street legend who helped fashion Bear into a firm both loathed and respected by competitors, saw his fortune wiped out.

While it was still possible for many Britons to shrug off the implosion of Bear Stearns - after all, it was not a name known beyond Wall Street - the fall in UK house prices would prove harder to ignore. Prices had actually peaked the previous October, but it was the absence of the spring home-selling season that killed off the remaining house-price optimists. The collapse in the number of houses being sold also triggered serious financial problems at Taylor Wimpey and Barratt Developments - Britain’s biggest housebuilders. The eye-watering declines in their share prices would be repeated across a number of sectors as the year unfolded. For the record, prices are down 16pc in the past 12 months, making it the steepest drop since 1983.

Not everything spent the first half of the year going down. On July 11, crude oil soared to a record $147 a barrel, a doubling in price in less than six months. Ongoing tensions in the Middle East, a structural shortage of supply and speculators were all blamed. The seemingly unstoppable march of black gold prompted a blizzard of forecasts for where it may go, with US bank Goldman Sachs pencilling in $200. But for 2008 at least, $147 would prove the peak. The rapidly slowing global economy pulled the rug with breathtaking speed from under the price and by December it was hovering around $50. By now commentators, City professionals and the general public were beginning to digest, if not always understand why, financial markets were in an unprecedented state of fever.

And oil was largely behind the other big talking point of the first half of the year: inflation. Gas and electricity bills jumped sharply, delivering a blow to British consumers already hit by falling house prices. The Government held energy 'summits’ and called the chiefs of the big providers into Downing Street. Bills, though, would remain stubbornly high. With the cost of clothing, footwear, games and toys also rising, inflation hit 5.2pc in September - the highest since 1992 and far beyond the Bank of England’s target. The Bank of England resisted pressure to cut interest rates for fear that inflation would get out of control. The final three months of the year would prove in emphatic fashion the Bank had picked the wrong enemy in inflation.

The sudden demise of Bear Stearns had filled the nostrils of the famously competitive Wall Street banks with the scent of blood. In what’s a dog-eat-dog world even in the boom times, who would be next to fall? September gave us the answer. In the singularly most dramatic day of the financial year, Bank of America swallowed Merrill Lynch and Lehman Brothers went under. The giddying decline in Lehman’s shares in August and September fuelled a vicious spiral which saw an increasing number of banks refuse to do business with the lender, which like Bear Stearns had grown rich selling US mortgage loans. With potential buyer Barclays getting cold feet, the US government let Lehman go bust. That decision by US Treasury Secretary Hank Paulson, a former chief executive of Goldman Sachs, would unleash six weeks worth of mayhem in financial markets.

If Lehman Brothers staff thought life was getting tough, they could always look to Iceland for consolation. By the end of October, the country’s prime minister Geir Haarde was forced to reassure its citizens that at least they could fish for food. In fairness the embattled leader did have a point. In the space of a month the month the country’s economy effectively vanished. Built on a mountain of cheap debt borrowed in the good times, Iceland’s financial sector imploded as the crisis in financial markets left the cost of refinancing that debt prohibitive. Britain did not prove immune from the downturn. Customers of Icelandic banks Kaupthing and Landsbanki struggled to get their savings back and Premier League football West Ham club lost its sponsor. And it wasn’t just Icelanders whose thoughts were turning to new and less financially sophisticated ways of making a living.

On October 8, Gordon Brown and Chancellor Alistair wrote a cheque for £500bn to make sure Britain avoided its own, Icelandic-style banking crash. Taxpayers’ money would be pumped into HBOS, Lloyds TSB, Royal Bank of Scotland and a host of other lenders; billions of pounds worth of guarantees would be given; new loans would be underwritten and the Government would take stakes in many major banks. The dramatic move, which would be followed across Europe and in the US, provided some relief to shell-shocked Britons who had spent the past two weeks seeing the share prices of Britain’s major banks behave like penny stocks. Bradford & Bingley’s shares collapsed, and the once-mighty RBS plunged almost 50pc in a day. Halifax owner HBOS looked poised for a run on its shares to eclipse even that before the dramatic news broke that Lloyds TSB was riding to the rescue. The bail-out also put Brown on the front foot politically for the first time since he was tackling floods in the early days of his premiership. As 2008 draws to an end, the question now is whether the bail-out will work.

Sub-prime found its way into the Oxford English Dictionary last year, might it be the turn of libor in 2009? Libor - or the cost at which banks are prepared to lend to each other - assumed an increasingly prominent role in the media’s coverage as the crisis deepened. The stubborn refusal of libor to go down for much of the year also forced the Bank of England into its most radical series of interest rate cuts since World War II. In what was widely seen as a humiliating U-turn for the Bank of England Governor Mervyn King, the Monetary Policy Committee slashed rates by 1.5pc in November and lopped another 1pc off this month. A traumatic year for the MPC ended with member David Blanchflower, who had been urging the Bank to recognise the seriousness of the recession for months, deciding he had had enough.

Planning some Christmas shopping in New York? It’s likely to be expensive because the pound is coming down with something far worse than a winter cold. December has seen sterling slide against the dollar and reach new lows against the euro on an almost daily basis. You now need about 90p to buy one euro compared with just 74p at the start of the year and the pound is struggling to stay above $1.50. The fact that the pound has now become the proverbial ugly duckling of the world’s major currencies provides a fitting summary of a year of economic woe for the UK. Sterling’s shine - it was trading at $2 back less than six months ago - was hit hard by Alistair Darling’s Pre-Budget Report . The Chancellor Alistair Darling’s plan to borrow Britain out of recession will leave the country’s deficit at 8pc of gross domestic product - the highest level in post-war history. Experts remain divided on whether the government’s gamble on the public finances will crucify the currency next year or help limit the pain.

A Reeling City Is a Snapshot of Economic Woes
Even before the job fair opens, the line snakes into the parking lot of the state fairground, a muted parade of lives derailed by layoffs. “It kills me, it eats me up inside,” said Raymond Vaughn, who has been out of work for seven months, since he lost his job as a window installer. His fiancée now pays the bills. “I go into this fantasy world where I’m like, I’m in the wrong life and I’m actually a millionaire. It really bothers me I can’t do the things I’d like for her. Sometimes you get where you feel less than a man.” As the American economy sinks deeper into one of the more punishing recessions since the Depression, frustration and fear color the national conversation.

This city in the center of South Carolina is an ideal listening post. According to a range of indicators assembled by Moody’s — from job growth to change in household worth — this metropolitan area came closer than any other to being a microcosm of the nation over the last decade. This is now an unfortunate distinction. Some 533,000 jobs disappeared from the economy in November, the worst month since 1974. In South Carolina, a government panel is predicting that the state’s unemployment rate could reach 14 percent by the middle of next year. No speculative real estate bubble can explain what is happening in this metropolitan area of roughly 700,000 people. Neither the brick Georgian homes in the city’s core nor the ranch-style houses on the suburban fringes rose or fell much in value. The financial wizards of Wall Street seem far from the palmetto-dotted campus of the University of South Carolina and the domed state capitol downtown.

Yet as the toll continues to mount from an era of financial recklessness — as banks cut credit from households and businesses, reinforcing austerity — the damage has spread here, choking economic activity at places ranging from shopping malls to factories. “This was not of our doing,” said Doug Woodward, an economist at the University of South Carolina. “We just got swept up in the crisis of confidence.” The Carolinas may conjure thoughts of textile mills and tobacco fields, but Columbia has a diverse economy. The state is a major employer. So is the university, along with hospitals and banks. The Fort Jackson Army base employs 9,200 people. United Parcel Service has a regional hub here. Michelin operates a tire factory next door in Lexington County. The Computer Science Corporation develops software north of the city. Early in the year, layoffs were concentrated among factory and warehouse workers. “Now, they run the gamut,” said Jessica Horsely, a case manager at the local employment office. “You see a heightened sense of desperation. People are just grasping for anything.”

President-elect Barack Obama has pledged to spend as much as $775 billion on his economic plan, including infrastructure projects like bridges, roads and classrooms, to put people back to work. Columbia’s mayor, Bob Coble, is consumed with capturing some of those dollars for his city. He has assembled a list of ready-to-go projects totaling $140 million that he said could generate construction jobs and propel further economic development. Mr. Coble, a Democrat who has been mayor for 18 years, has in mind the redevelopment of North Main Street, a bedraggled corridor of hard-luck retailers that lacks sidewalks in many spots, with exposed power lines dipping down to cracked pavement. That project is already under way, putting down sidewalks and burying power lines in a $19 million first phase. An additional $54 million could complete it. Similar projects have restored shine to Columbia’s downtown, which was in a similar state of decay a decade ago, and nurtured the Vista neighborhood, a collection of brick warehouses transformed into trendy eateries.

The mayor has also been focused on expanding the so-called Innovista project, a campus developed by the university centered on research in areas like hydrogen-powered fuel cells and biotechnology. The aim is to cluster research labs, private companies and condominiums. “This will be a once in a generation opportunity to transform a city with projects that have been on the books,” the mayor said over breakfast at a newly opened downtown Sheraton hotel set in an old bank whose original vault has become a cozy martini bar. “These are not bridges to nowhere.” Yet questions confront the notion of putting people to work through federal largess. South Carolina’s governor, Mark Sanford, a Republican, has been an ardent opponent of federal aid for states, branding it pork barrel spending. If the money is delivered to state agencies like the Department of Transportation, which has its own list of priorities, Columbia might be disappointed.

Despite the attractiveness of Main Street, new sidewalks have drawn few retailers. North Main Street runs through a largely poor area, making it even less likely that improvements will attract business. Meanwhile, the recession intensifies. At the state fairgrounds, Lori Harris, 47, waited for the job fair to open. A year has passed since she graduated from college with an associate degree in medical assisting, yet she has been unable to find a decent job. Ms. Harris previously ran her own house-painting company, but opted for a more stable career in a growing field. She saw an ad for the degree program on television: “Come become a medical assistant!” Now, such talk seems farcical. She is paying $95 a month toward $23,000 in student loan debt. She is living with her boyfriend, who is supporting her, not always cheerfully. She has no health insurance and cannot see a specialist for a torn rotator cuff and recently applied for food stamps. “I tried to better myself,” she said, “and I’m getting nowhere.” She was offered one job, as a medical technician dispensing pills to patients. The pay was $7.50 an hour. “Forget it,” she said. “I was like, ‘Is it worth going to college? Did I waste my time?’” She wondered if her age explains the rejections. Or her Boston accent. Or the smell of her cigarette smoking. “It’s getting really discouraging,” she said.

As the doors opened, people filed in quietly, entering a dark warehouselike space with concrete floors. “You want a job that makes you smile,” proclaimed a placard at a booth for Wendy’s, the fast food chain. Another sign advertised the benefits for counter workers, among them: “free uniforms.” A Border Patrol officer stood in his olive green uniform, his laptop running video footage of Latinos running frantically through garbage strewn patches of desert, chased by helicopters and jeeps. Raymond Vaughn stopped and inquired about a job. “You will have to relocate to the southwest border,” said the recruiter, Michael Day. The entry level pay was $36,000 a year. But the Border Patrol was looking for people no older than 40. Mr. Vaughn was 43. At the window install job, Mr. Vaughn made $11.50 an hour. Since his layoff, he has been living on an unemployment check of $221 a week, and on the wages his fiancée brings home from her job as a hospital receptionist. He has applied for more jobs than he can recall. “They always say they’ll call me,” he said. “They never do.” A former high school track star, Mr. Vaughn carried himself with pride. Yet as the months passed and his car deteriorated without any cash for repairs, as his loose-handled cooking pots went unreplaced, he was sinking. Among African-Americans, the national unemployment rate is above 11 percent, with Mr. Vaughn now part of that number.

“Inside of me, I always felt like I was going to be greater than I am now,” he said. The job fair brought more disappointment. Only one job seemed possible, a technician position at an air-conditioning company. The starting salaries were less than $10 an hour. “Even if I work for this, I’m taking a cut in pay,” he said. “But something’s better than nothing.” At a booth for Amcol, a collection service that specializes in overdue medical bills, a recruiter made an aggressive pitch. “The more you do in collections,” he said, “the more you make.” Mary Bamou waited in line, holding copies of her résumé. She has been out of work for three months, ever since she was briefly hospitalized, ending her minimum wage job as a food service worker at the university. Now, she is getting by on an unemployment check of less than $100 a week. Ms. Bamou, 50, has experience in medical billing, a skill she figured may translate to medical collections.
“Calling people up in these times is not going to be an easy task,” she said. “It’s a job. Worst thing they can do to me after cussing me out is to hang up.”
Frank Kelly, 52, surveyed the booths and wondered how much further this slide would go.

In the 1990s, he wrote computer manuals for I.B.M. in upstate New York, earning $65,000 a year. After he lost that job, he spent a dozen years supervising a lab that tested raw materials at a brake pad factory in nearby Orangeburg, S.C., where he made more than $55,000 a year. In October, amid the rapid deterioration of the Detroit automakers, Mr. Kelly was laid off. At the job fair, he was standing in line in a suit and tie, waiting to apply for a position at a pet food processor. He and his wife have been living off her income as an accountant for a food distributor. One of her duties is to check the creditworthiness of customers, which gives her an uncomfortable view. “She gets to see everybody going downhill,” Mr. Kelly said.

Financial meltdown slowing wind-power boom
Grain farmer Mike Doyle has grown to love the big, spindly wind turbines that rise from his central Illinois prairie.   Their blades, many more than 100 feet, cut the wind with a low, rhythmic whooshing noise. Not too long ago, he admired a rainbow arching over them.  Doyle's a little embarrassed when he describes the scene, but he's sincere. "If that wasn't the most beautiful sight I've ever seen."   The money's not bad either.  Doyle is paid just over $35,000 a month for the seven wind turbines in his soybean and corn fields. Those turbines and thousands others across the Midwest the past few years were part of an unprecedented build-out for the wind-power industry.

That expansion is now drastically slowing as financing dries up for many projects because of the global economic crisis. Companies that bankrolled much of the boom -- the insurer AIG, now-bankrupt financial service company Lehman Brothers and Wachovia Corp. -- are among the meltdown's biggest losers. "There's definitely a lot of, obviously, upheaval," said Ric O'Connell, a renewable energy consultant with Black & Veatch Corp., an Overland Park, Kan.-based engineering and construction company. "I would definitely think in 2009 there are going to be projects that are going to be delayed." Already some developers are scaling back. Noble Environmental Power, an Essex, Conn.-based developer with projects from Maine to Michigan, Wyoming and Texas, said last month it is cutting back development next year and laying off workers.

Florida Power and Light, another major developer, has said it will slow down in 2009, too. And last month oil tycoon T. Boone Pickens famously delayed his massive Texas wind-farm plans, alternately blaming a lack of financing and declining petroleum prices. The country's wind-power capacity has increased by 500 percent in the past 10 years, to just over 21,000 megawatts, according to the American Wind Industry Association. A one-megawatt wind turbine can generate enough electricity in a year to power up to 300 homes for a year.  Even now, there are 86 wind-farm projects under construction around the country, the association said. Fifty-seven are in the windy states in country's midsection from Texas to the Dakotas, Minnesota and Illinois.  About 60 percent of the new capacity has been built since the beginning of 2005 and driven by factors ranging from renewable energy to, until recently, high oil and natural gas prices.

But the most important of those factors are federal tax credits and state mandates requiring that some power be generated by sources such as wind or the sun. The mandates, which exist in 28 states, are responsible for about two-thirds of the market for wind energy, according to Hans Detweiler, director of state policy for the American Wind Energy Association. And the tax credits generate much of the money to build.  Firms like American International Group Inc., Lehman and Wachovia helped finance many projects by taking short-term ownership in exchange for the credits to help offset their own income. Those three were among the biggest investors in the industry. Now, AIG is trying to survive the financial meltdown, Wachovia is being bought by Citigroup and Lehman Brothers filed for bankruptcy this year before being sold.  Even healthier companies that have helped finance the wind boom are being weighed down by the economy, meaning they aren't making as much money so they don't need the tax credits, said Peter Maloney, chief editor at Platts Global Power Report, an energy-industry magazine.

The investment money flowing into the wind-energy business flattened this year for the first time in several years, at about $5.5 billion dollars, said industry analyst Joshua Magee of Emerging Energy Research. And J.P. Morgan, another of those major investors, is predicting that flow will fall by more than 20 percent in 2009, to about $4 billion. The projects most in jeopardy are those that are in their infancy -- the ones in which developers were looking for sites and financing when the economic tsunami started.  "If you're talking about a project that's planning to enter construction in 2009, there has been a very slow deal flow ... since the financial crisis began," said Magee, adding that situation for many smaller developers is "fairly dire."  No one tracks just how many projects are in the development stages, between planning and building, but industry analysts say there are many.

One company, Chicago-based Midwest Wind Energy has one project under construction in Illinois and another it hopes to start building next year, president and founder Stefan Noe said.  He's optimistic that those and other projects will happen, in part because the company works with a financially healthy subsidiary of Edison International, the utility giant, to finance its projects.  And, with President-elect Barack Obama pledging financial support for renewable energy, Noe thinks wind power could be on the verge of significant growth, but only if the country's faltering economy doesn't get in the way.  "If there's any concern I have, it's that the capital markets don't open up quickly enough, because there are certainly plenty of projects in development," he said. "Eventually, those markets need to free up for anybody to continue to successfully develop these projects because they are capital intensive."

Illinois has at least a dozen or so projects that haven't started construction. The state is the country's eighth biggest wind-power producer with 11 wind farms generating about 744 megawatts of power, according to the Wind Energy Association.  Texas is tops, with 6,300 megawatts of existing capacity spread over dozens of wind farms.  Farms that are built mean mini windfalls for land owners like Doyle, and for local governments.  McLean County, where Doyle lives, will be paid $288,000 next year in taxes for the turbines, county administrator John Zeunik said.  "Then obviously for the school districts, there's more," he said.  That money may be harder to come by as building slows.  But O'Connel, from Black & Veatch, is optimistic that the hurdles will be worked out, but not necessarily in the next year. The companies that were pushing wind-energy development, he said, are no longer able to do so.  "Some of those financial institutions have gone bankrupt," he said, "and none of those people are making money. "So it's going to be much more difficult to get financing in 2009."

Promoters overstated the environmental benefit of wind farms
The wind farm industry has been forced to admit that the environmental benefit of wind power in reducing carbon emissions is only half as big as it had previously claimed. The British Wind Energy Association (BWEA) has agreed to scale down its calculation for the amount of harmful carbon dioxide emission that can be eliminated by using wind turbines to generate electricity instead of burning fossil fuels such as coal or gas. The move is a serious setback for the advocates of wind power, as it will be regarded as a concession that twice as many wind turbines as previously calculated will be needed to provide the same degree of reduction in Britain's carbon emissions. A wind farm industry source admitted: "It's not ideal for us. It's the result of pressure by the anti-wind farm lobby."

For several years the BWEA – which lobbies on behalf of wind power firms – claimed that electricity from wind turbines 'displaces' 860 grams of carbon dioxide emission for every kilowatt hour of electricity generated. However it has now halved that figure to 430 grams, following discussions with the Advertising Standards Authority (ASA). Hundreds of wind farms are being planned across the country, adding to the 198 onshore and offshore farms - a total of 2,389 turbines - already in operation. Another 40 farms are currently under construction. Experts have previously calculated that to help achieve the Government's aim of saving around 200 million tons of CO2 emissions by 2020 - through generating 15 per cent of the country's electricity from wind power - would require 50,000 wind turbines. But the new figure for carbon displacement means that twice as many turbines would now be needed to save the same amount of CO2 emissions. While their advocates regard wind farms as a key part of Britain's fight against climate change, opponents argue they blight the landscape at great financial cost while bringing little environmental benefit.

Dr Mike Hall, an anti-wind farm campaigner from the Friends of Eden, Lakeland and Lunesdale Scenery group in the Lake District, said: "Every wind farm application says it will lead to a big saving in the amount of carbon dioxide produced. This has been greatly exaggerated and the reduction in the carbon displacement figure is a significant admission of this. "As we get cleaner power stations on line, the figure will get even lower. It further backs the argument that wind farms are one of the most inefficient and expensive ways of lowering carbon emissions." Because wind farms burn no fuel, they emit no carbon dioxide during regular running. The revised calculation for the amount of carbon emission they save has come about because the BWEA's earlier figure did not take account of recent improvements to the technology used in conventional, fossil-fuel-burning power stations. The figure of 860 grams dates back to the days of old-style coal-fired power stations. However, since the early 1990s, many of the dirty coal-fired stations have been replaced by cleaner-burning stations, with a consequent reduction in what the industry calls the "grid average mix" figure for carbon dioxide displacement.

As a result, a modern 100MW coal or gas power station is now calculated to produce half as many tonnes of carbon dioxide as its predecessor would have done. The BWEA's move follows a number of rulings by the ASA against claims made by individual wind farm promoters about the benefits their schemes would have in reducing carbon emissions. In one key adjudication, the ASA ruled that a claim by Npower Renewables that a wind farm planned for the southern edge of Exmoor National Park, in Devon, would help prevent the release of 33,000 tonnes of carbon dioxide into the atmosphere was "inaccurate and likely to mislead". This claim was based on the 860-gram figure. The watchdog concluded: "We told Npower to ensure that future carbon savings claims were based on a more representative and rigorous carbon emissions factor." The ASA has now recommended that the BWEA and generating companies use the far lower figure of 430 grams.

In a letter to its members, the BWEA's head of onshore, Jan Matthiesen, said: "It was agreed to recommend to all BWEA members to use the single static figure of 430 g CO2/kWh for the time being. The advantage is that it is well accepted and presents little risk as it understates the true figure." This is now the figure given on the BWEA's website. The organisation will also be forced to lower its claim for the total amount of carbon dioxide emission saved by the 2,389 wind turbines currently operating around Britain. Nick Medic, spokesman for the BWEA, said: "Wind farms are still eliminating emissions. The fact is that fossil fuel burning power stations belch out CO2 and wind farms don't. That has not changed. "The fact is we need to reduce carbon emissions, however you account for them. But there are people who just don't like wind farms and will use any argument against them."

Archbishop of Canterbury warns recession Britain must learn lessons from Nazi Germany
The Archbishop of Canterbury warns today that Britain must learn the lessons of Nazi Germany in dealing with the effects of the recession. Dr Rowan Williams risks causing a new controversy by inviting a comparison between Gordon Brown's response to the economic downturn and the Third Reich.
In an article for The Daily Telegraph, he claims Germany in the 1930s pursued a "principle" that worked consistently but only on the basis that "quite a lot of people that you might have thought mattered as human beings actually didn't". Dr Williams, the most senior cleric in the Church of England, then appears to draw a parallel between the Nazis and the UK Government's policies for tackling the downturn, which he says fails to take account of the "particular human costs" to the most vulnerable in society.

"What about the unique concerns and crises of the pensioner whose savings have disappeared, the Woolworth's employee, the hopeful young executive, let alone the helpless producer of goods in some Third-world environment where prices are determined thousands of miles away?" he asks. In an apparent reference to the Prime Minister, who has claimed to be guided by a moral compass, the Archbishop also observes "without these anxieties about the specific costs, we've lost the essential moral compass". It follows a disagreement with the Prime Minister last week in which the Archbishop likened Government policy on spending to "an addict returning to a drug". This prompted Mr Brown to allude to the Biblical parable of the Good Samaritan by claiming he could not "walk by on the other side" as people suffered. The Prime Minister has pledged to spend his way out of the economic downturn, increasing public borrowing to a record £200m a day. The Government has pledged £500billion of taxpayers' money to bail out the banking system, and cut VAT by 2.5 per cent to get consumers spending again. But unemployment is predicted to top 2 million by the New Year as high street names such as Woolworths and MFI go under. Thousands have fallen into negative equity as the property market has fallen by 15 per cent. Millions of prudent savers are also suffering as interest rates have been cut to 2 per cent.

Dr Williams' comments may be perceived as a further attack on Mr Brown's efforts to boost the economy, and risk damaging the relationship between Lambeth Palace and Downing Street. It threatens a return to the 1980s, when the Conservative Government came under fierce attack from the Church over its social policies which were said to exclude the poor deliberately. This summer, the Archbishop invited the Prime Minister to speak at a rally by Anglian bishops and hailed his commitment to ending world poverty. But after the collapse of banks around the world in September, Dr Williams called for governments to increase regulation of the financial sector and claimed Karl Marx had been right in his analysis of the dangers of capitalism. Last week, the Archbishop admitted it would not be "the end of the world" if the Church's links with the state were severed, as it would no longer have to rely on ministers' approval for changes to canon law.

He also claimed he did not take account of MPs' opinions before making public pronouncements, saying: "While there might be many reasons for watching what I say, being a nuisance to the people across the river [Thames] is not a big consideration." He then denounced Mr Brown's plans to increase debt, saying: "I worry about that because it seems a little bit like the addict returning to the drug. "When the Bible uses the word 'repentance', it doesn't just mean beating your breast, it means getting a new perspective, and that is perhaps what we are shrinking away from." In response, the Prime Minister defended his "fiscal stimulus" policies by alluding to the Biblical parable of the Good Samaritan. Mr Brown said: "I think the Archbishop would also agree with me that every time someone becomes unemployed or loses their home or a small business fails it is our duty to act and we should not walk by on the other side when people are facing problems." However, Dr Williams has continued his criticisms of current economic policy in this newspaper.

In his article he warns of the dangers of "unconditional loyalty to a system" that turned into a "nightmare" in Germany under Hitler, in which only certain groups and ideas were valued, while others were deemed dispensable and suffering was ignored. He cites the lectures given by Karl Barth, a theologian who was driven into exile by Hitler, who had claimed that one of the benefits of Christianity is that believers are able to live without the "principles" that drive politics. The Archbishop concedes some of the "principles" now being put forward are not as destructive as the 20th century ideologies of Fascism or Communism.
But he goes on to suggest that some "principled" defences of the economy "block out actual human faces and stories", and defends the right of religious leaders to raise questions about the social implications of financial plans. Dr Williams concludes that the message of the Christmas story is one of unconditional love, and the idea that every human life must be valued. Meanwhile, a member of his staff has been sacked for making an offensive comment about a senior bishop in an official document that was sent to 10 Downing Street as well as other clergy. The obscene word was written next to the name of the Bishop of Rochester, the Rt Rev Michael Nazir-Ali, in a confidential job application sent from Lambeth Palace.

Church attendance 'to fall by 90%'
In one of the most holy weeks in the Christian calendar, a report says that in just over a generation the number of people attending Church of England Sunday services will fall to less than a tenth of what they are now. Christian Research, the statistical arm of the Bible Society, claimed that by 2050 Sunday attendance will fall below 88,000, compared with just under a million now. The controversial forecast, based on a "snapshot" census of church attendances, has been seized upon by secular groups as proof that the established church is in decline. But the Church of England has rejected the figures, saying they were incomplete and ignored new ways of worshipping outside the church network. According to Dr Peter Brierley, former executive director of Christian Research, by 2030 just under 419,000 people will attend an Anglican Sunday service. By 2040 the number will be down to 217,200, falling to 153,800 five years later. By 2050, if the trend prediction is correct, only 87,800 will be attending.

The figures stand in contrast to the picture of faith described by the prime minister earlier this month. In a preface to a new report, Faith in the Nation, Gordon Brown said: "Faith in Britain today is very much alive and well. At the last census, more than three-quarters of the population said they belonged to a faith ... people's religious identities go right to the heart of their sense of themselves and their place in society and the world."
Keith Porteous-Wood of the National Secular Society said: "Church attendance has already been in decline for over 60 years, all over Britain, in all major denominations and across all age groups, except the over-65s. Independent statisticians now have enough data to predict confidently that the decline will continue until Christianity becomes a minority sect of largely elderly people, in little more than a generation."

The forecast was made by Christian Research in its annual statistical publication, Religious Trends. Benita Hewitt, the organisation's new executive director, said she accepted that the figures were disputed and stressed she did not believe they showed people were turning away from religion. "As with all forecasting, we are living in rapidly changing times at the moment and it is very difficult to predict what things will look like in the coming years," she said. The Reverend Lynda Barley, head of research and statistics for the Archbishops' Council, said the figures represented only a "partial picture" of religious trends, adding: "Church life has significantly diversified so these traditional statistics are less and less meaningful in isolation." Studies suggest figures for Sunday attendance represent only 58 per cent of the number of people who attend in an average month. Attendance at Church of England cathedral services has been growing , while church groups have attracted new congregations by holding meetings in venues such as pubs or at car boot sales.

As economy falters, more people giving up pets
A growing number of Americans are giving up their dogs and cats to animal shelters as the emotional bonds between people and pets get tested by economic ones. From the Malvern, Pa., man who turned his two dogs over in order to help pay for his mother's cancer treatments, to the New York woman who euthanized her cat rather than keeping it alive with expensive medications, rising economic anxieties make it increasingly difficult for some pet owners to justify spending $1,000 a year or more on pet food, veterinary services and other costs.The population growth at animal shelters in Connecticut, Nebraska, Texas, Utah and other states shows how the weak economy is also shrinking the pool of potential adopters. And it coincides with a drop-off in government funding and charitable donations.

The effect has been cramped quarters for dogs and cats, a faster rate of shelters euthanizing animals and some shelters turning away people looking to surrender pets, according to interviews with several shelters and animal advocates. Of the estimated 6 million to 8 million dogs and cats sent to animal shelters every year, half are euthanized and the rest adopted, according to the Humane Society of the United States.  "It's definitely discouraging for us," said Adam Goldfarb, a Humane Society spokesman. "One of our major goals is to develop and celebrate the bond between people and animals. It's so tragic when families reach a point when they can't afford to care for their pets."  With two children, a husband on disability and a difficult job search of her own, 23-year-old Mel Bail of Worcester, Mass., had begun feeding leftovers from family meals to her three cats -- Rory, Ozzy and Mudpie -- before recently deciding to give them up.  "When I couldn't pay my gas bill, I knew I had to find another home for the cats," Bail said.  But it wasn't easy to find a shelter that would accept them. "They're completely full," said Bail, who ultimately turned to online classified ads to find homes for Rory, Ozzy and Mudpie.

There is no nationwide data being collected on the reasons dogs and cats are being abandoned by their owners, but shelter managers and advocates for animals say the trend is undeniable -- and probably a bigger phenomenon than they are aware of.  "People are embarrassed to admit that's why they're giving up their pets," said Betsy McFarland, the Humane Society's director of communications for companion animals.  An Associated poll found that one in seven owners nationwide reported reduced spending on their pets during the past year's recession. Of those cutting back, more than a quarter said they have seriously considered giving up their pet.   The average annual cost of owning a dog is about $1,400, while the average annual cost of a cat is about $1,000, according to a survey conducted by the American Pet Products Association. The survey suggests there are some 231 million pets -- excluding fish -- in more than 71 million homes in America.

In Omaha, Neb., the Nebraska Humane Society's shelter began tracking for the first time this year those pets given up because of financial constraints. Through mid-November, more than 275 pets were given up because their owners said they couldn't afford to keep them. Among them are two 9-year-old miniature schnauzers, dropped off anonymously with a note that said their owners could no longer afford to keep them. Humane Society spokeswoman Pam Wiese said the obedience-trained purebreds came into the shelter up-to-date on vaccinations and dental care and were well-groomed. "It is really sad, because for these people, it is not an excuse. They are absolutely stuck, and they need to downsize and there is no one to take the pets," she said. "You can tell these have been much-loved pets."

In New York, Erin Farrell-Talbot recently made the decision to euthanize her 15-year-old cat, Buki, when she was told within days of losing her job that he would need thousands of dollars in treatment and medications costing $65 a month to live.  "When it came down to whether I was going to charge food for the month of September or give medicine to my cat, that was a clear decision for me," Farrell-Talbot said. "It was horrible. It killed us." The Animal Humane Association in Albuquerque, N.M., saw 69 dogs and cats turned over through September because the owners couldn't afford to keep them. That compares with 48 in the same period in 2007 -- a 44 percent increase, said executive director Peggy Weigle.  In response, Weigle's shelter began a program to open its emergency pet shelter -- normally reserved for battered women needing a place to keep their pets for a while -- to those suffering financially.

So far this year 45 pets have been taken in through the emergency program, compared with eight the previous year. The Society for the Prevention of Cruelty to Animals in Virginia Beach, Va., recently began a program called Help Out Pets Everywhere (HOPE) to provide food, medical care and temporary homes for pets belonging to families with financial difficulties. Eighteen applications were received within the first week.  The program received 18 applications within its first week. Some of those people have never experienced hardship until now, and therefore, neither have their pets, McNally said.  "It's been devastating," said Amy McNally, a spokeswoman for the program. "For somebody to say, 'I can't afford to feed my dog' -- it's a humbling time."

Arizona police say they are prepared as War College warns military must prep for unrest; IMF warns of economic riots
A new report by the U.S. Army War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks. "Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security," said the War College report. The study says economic collapse, terrorism and loss of legal order are among possible domestic shocks that might require military action within the U.S.

International Monetary Fund Managing Director Dominique Strauss-Kahn warned Wednesday of economy-related riots and unrest in various global markets if the financial crisis is not addressed and lower-income households are hurt by credit constraints and rising unemployment. U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., both said U.S. Treasury Secretary Henry Paulson brought up a worst-case scenario as he pushed for the Wall Street bailout in September. Paulson, former Goldman Sachs CEO, said that might even require a declaration of martial law, the two noted.

State and local police in Arizona say they have broad plans to deal with social unrest, including trouble resulting from economic distress. The security and police agencies declined to give specifics, but said they would employ existing and generalized emergency responses to civil unrest that arises for any reason. "The Phoenix Police Department is not expecting any civil unrest at this time, but we always train to prepare for any civil unrest issue. We have a Tactical Response Unit that trains continually and has deployed on many occasions for any potential civil unrest issue," said Phoenix Police spokesman Andy Hill. "We have well established plans in place for such civil unrest," said Scottsdale Police spokesman Mark Clark.

Clark, Hill and other local police officials said the region did plenty of planning and emergency management training for the Super Bowl in February in Glendale. "We’re prepared," said Maricopa County Sheriff Deputy Chief Dave Trombi citing his office’s past dealings with immigration marches and major events. Super Bowl security efforts included personnel and resources from the U.S. Department of Homeland Security and U.S. military’s Northern Command, which coordinated with Arizona officials. The Northern Command was created after 9/11 to have troops and Defense Department resources ready to respond to security problems, terrorism and natural disasters. Northern Command spokesman Michael Kucharek and Arizona Army National Guard Major. Paul Aguirre said they are not aware of any new planning for domestic situations related to the economy.

Nick Dranias, director of constitutional government at the libertarian Goldwater Institute, said a declaration of marital law would be an extraordinary event and give military control over civilian authorities and institutions. Dranias said the Posse Comitatus Act restricts the U.S. military’s role in domestic law enforcement. But he points to a 1994 U.S. Defense Department Directive (DODD 3025) he says allows military commanders to take emergency actions in domestic situations to save lives, prevent suffering or mitigate great property damage. Dranias said such an emergency declaration could worsen the economic situation and doubts extreme measures will been taken. "I don’t think it’s likely. But it’s not impossible," he said.

The economy is in recession. Consumer spending is down, foreclosures are up and a host of businesses are laying off workers and struggling with tight credit and the troubled housing and financial markets. The U.S. Federal Reserve Bank and U.S. Treasury Department have pumped more than $8.5 trillion into the economy via equity purchases of bank stocks, liquidity infusions, Wall Street and bank bailouts and taxpayer rebates. U.S. automakers are seeking more than $14 billion in federal loans with fears they could fall into bankruptcy without a bailout. The U.S. housing and subprime lending-induced recession also has hit economies in Europe, Japan and China.

Gov. Janet Napolitano’s office declined comment on emergency planning and possible civil unrest. Napolitano is president-elect Barack Obama’s pick for secretary of Homeland Security, an agency that oversees airport security, disaster response, border security, customs and anti-terrorism efforts. As governor, Napolitano sent National Guard troops to Palo Verde Nuclear Generating Station in 2003 in response to terrorism threats.

Glendale Police spokesman Jim Toomey said the West Valley suburb developed new emergency plans with the approach of Y2K computer changeovers leading up to the year 2000 and police have updated those plans several times including after 9/11. Toomey said strategies to deal with public unrest usually involve deploying personnel and equipment to deal with specific incidents while still providing usual services.

What liberalisation really means
You might think that WTO trade agreements affect only developing countries, and the chatter in Geneva will mostly be about agriculture and manufactured goods. The service-based economy in the UK won't be affected, right? Wrong. It is the General Agreement on Trade in Services (Gats) that is most relevant for a services economy like that of the UK – a deregulatory agreement, which forces economies to open up to multinationals while preventing governments from regulating them. And 'services' underpin all other forms of trade. Three years ago, the then-EU trade commissioner Peter Mandelson tabled the EU's revised Gats offer, which includes offering all 152 countries of the WTO temporary skilled migrant labour entry into the EU. While India has requested this, under WTO rules offers are made to all member states. The change will enable transnational companies to bring in cheap skilled worker teams. Least developed countries have also been offered unskilled temporary labour entry.

While the labour liberalisation offer – "Mode 4" in Gats-speak – has effectively been been kept secret here, expectations among developing countries are very high. Those expectations are likely to be a Gats deal breaker, with developing countries agreeing to liberalise and deregulate their services in exchange for labour "service export" opportunities. In the negotiations next week, agriculture and manufactured goods will be centre stage, with "services" hidden, as was the case in the July talks. With agreement on these, Gats will slip through as part of the Doha "single undertaking". If they are not agreed, the Gats can still be signed separately.

When the EU offer becomes a commitment, possibly before Christmas, it will be effectively irreversible. It may not be spelt out explicitly, but a Gats deal would also prohibit nationalisation and renationalisation, even while "all options are supposed to be on the table". All public service privatisations will become irreversible. Liberalisation – the opening of investment opportunities to transnational corporations – has invariably occurred along with privatisations. When a commitment is made to maintain liberalisation, privatisations become permanent too. Brussels lobbying on Gats, on behalf of the world's big money corporations, is done through the European Services Forum. The ESF has lobbied for both global investor access, prioritising financial services, as well as for the movement of cheap labour.

Meanwhile, now the business secretary, Mandelson has failed to inform the UK public of the true implications of the Gats. For a long time, he emphasised the "development" aspect of trade negotiations. Now, apparently hedging, he is starting to focus on UK manufacturing, while still avoiding "services". The corporate-funded think tank of which he is the honorary chair, the Policy Network, is presenting a seminar this week on "rethinking migration". Does this mean opening countries up to cheap labour migration without telling those affected? Gats, which was initiated by corporations such as American Express, Citicorp and AIG, is the legal straitjacket for a world effectively run by transnational corporations, with governments facilitating their business. Mandelson should explain exactly what he has offered on our behalf, and the implications for labour movement, nationalisation and public service privatisations - before any Gats deal is signed.


Anonymous said...

As usual ... very insightfull ...
A short comment on ..

Money market funds reel as yields near zero

The cost of running money market funds is greater than the fees charged. Usually, the difference is not great, and the funds are able to pick up profit on excess yield.

“Interest-rate sensitive investors will start to look for alternatives . . . the Fed is trying to force investors out of a low-risk environment.”
I did my own calculations and found that the end of the month interest paid to me on my money market was less than what I could get in a 2 year GIC.

So, .... I switched!
I expect that the intend of the power that be is to force me into the market. hehehe

Bigelow said...


This is not meant to be rude...
you should have a break. You are putting out an issue a day --most for-fee newsletters can't manage as much. Put up a sigh, come back in a week. Take a Break or Burn Out.

With respect.

Bigelow said...

Put up a sigN, come back in a week.

Anonymous said...

I agree with Bigelow. Everybody needs a Christmas break. The markets are going to be slow from now until Jan 5. We need you rested when the Christmas sales receipts start dribbling in and the consumers start defaulting on their credit card bills.

Anonymous said...

Ilargi and Stoneleigh, Thank you for everything you do. You have been eye opening to me. I have to agree with Bigelow, please take a break if you can. Come back after the 1st of the year. 2009 should be some ride and we will need you more than ever.

Anonymous said...

Bottom Already dropped out of real estate?

Decided to try to sell my house now while i could still get any equity out whatsoever.

Live in southeast Pa where there has be no real speculation, where supposedly houses have declined " only" 8-9%

Too Late! The house appraised for a refi in 2007 at $535k ( yes a Lender's "appraisal"), still in line with actual sales in the area.

went to list at $505-515 now, and realtor seemed to think ok to list.

however- got an appraisal before listing. An admitedly conservative appraisal but 25% lower at $430!.

The worst part is the now " official" appraisal methodology is to discount all previous sales aggressively downward and forecast continuous, rapid decline into the value.

If that's whats going on in established, non- turnover areas, there must be zero value in all the hot markets already.

we may still try to get out of this house at 0 equity and lose whatever used to be there. maybe can't even do that by spring?
comments welcome.

Anonymous said...

I support the break time vote ...
It will give a chance for the readers to review the blogs

Phil said...

"UK Idol"? No, it's the "X-Factor".

Tut, and to think I relied on TAE's accuracy up till now.

Leonard Cohen's own version off the song made it to number 36 in the UK charts this week too. Praise the Lord!

el gallinazo said...


I agree with the others. Besides, I told my email group that I wouldn't forward any doom and gloom until Jan 5, so I am already stuck with your excellent piece from yesterday.


"Put up a sigh" works better anyway.

Anonymous said...

Yes, please take a break. Next year will be very trying for all of us.

Anonymous said...

Ilargi, I also so appreciate all you have done and continue to do for all of us, but you sound tired and you deserve at least three or four days just to enjoy life and to recharge. We'll be here when you get back. Please consider, everyone needs to take a breather.

Anonymous said...

I appreciate the hard work it takes to have this site available each day. And,I suspect there is a huge amount of Wash. DC influence over the MSM that keeps the truth from being revealed as it should be. But, if such truth was "allowed" to be revealed to the masses, we too would have riots in the street that others are experiencing and the global meltdown would have already taken place. I suspect things would be very "different" right now as well. 50% off sales? Hell, there would be no sales at all. That being said, I understand the frustration of hard work and little compensation. I agree with other folks. Do take some time off. Will the world stop going around? No. Will we miss our daily cup of TAE? Sure, but we will be OK for the time being. The info here is priceless and my wife is finally seeing that I am not the total whack job she has thought I have been for the last several years that I have being reading the Oil Drum and TAE. Am I as prepared as I would like? No. Am I more prepared because of the truth I have been able to find here? You bet Ya. So, yes your work is greatly appreciated and I am happy I have the extra resources to donate to the Christmas fund as well. Be the one thing to learn from all what is happening and will happen is that we have to take care of ourselves first if we are going to be able to take of the other around us. Het, it's why they tell you to put YOUR oxygen mask on first before you put one on the person next to you when you are on the plane. Well, back to ordering seeds and getting ready for spring, because spring will come despite what Wash DC or anyone else does. John

el gallinazo said...

Some of us take our Leonard Cohen neat.

Anonymous said...

"I did my own calculations and found that the end of the month interest paid to me on my money market was less than what I could get in a 2 year GIC. So, .... I switched!"

You're putting your money at risk with a 2 yr GIC. The risk is high that the bond market will crash, as investor dump bonds. Sooner or later some Overseas Central bank is going to place large sell order of US gov't debt. When that happens your expensive 2 Yr bond will tumble and the value of the dollar will also take a tumble. The reason why people are piling into the short term treasuries is because the fear both for the short term (deflation) and the long term (high inflation).

Consider that during the fall of the Soviet Empire, At the Start 1000 Rubles bought a 2 week vacation at a high end resort. two months later, that same 1000 Rubles bought a small loft of bread.

Seems rather silly to lock up your money for two years to earn less than 1% on your capital.

jewishfarmer said...

If you aren't going to watch Leonard himself, or listen to Tom Waits do the song, the best youtube version is KD Lang's - no one does bitter lust for Batsheva like KD Lang. No one sings the single world "Hallelujah" so many ways.

Anonymous said...

Yeah, love the MSM. Here's "news" from on the 10 worst housing markets for 2009. The best part is the predictions for 2010. After dropping 20 to 25% in 2009, they'll only drop around 5% in 2010. And why not another 25%?

Ilargi said...

Yikes, sharon

k d rapes the tune, she does not get it du tout, she goes through motions.

I wanted to go for John Cale, who first taught me the song many years ago, but Rufus is the man. I know he may take getting used to, but believe me, he's the one. When Rufus signed as the first recording artist with Dreamworks (Spielberg, Geffen), 12 years ago, his one, first and only condition was that he wouldn't be required to hide the fact that he is very gay. I wondered for a while why a movie label would sign him to a ten year deal, and then I saw the movies coming out that feature Rufus songs. They only have to pay him once: smart business, smart deal. Hallelujah is in Shrek, I think.

Anyway, he may be an acquired taste, but please don't write him off at first sight. I sang opera for years, I sang rock for more, and I saw more rock concerts than I care to remember, but Rufus is special. He's Leonard Cohen and Tom Waits combined, and still just him, and today. Don't worry, I know how much credibility I'm losing here. But ah feel what ah feel.

He's today's voice, but then for me his mother was last generation's voice, in the McGarrigle Sisters. I was a child when they reached Europe in the 70's, and the harmonies cut right through my dainty little heart..

The CD "The McGarrigle Hour" is stunning.

And so are Rufus's and Jeff Buckley's, and certainly John Cale's (look him up on YouTube) and Bob Dylan's -it is a very Jewish tune, (you don't really care for music, do you?)- renditions of the song. And even Sad Kermit does it better than k d.

Anonymous said...

Hey, Sharon, you're not supposed to be checking out blogs. Go back to working on your book!!!


jewishfarmer said...

Ilargi, I like Rufus fine, and John Cale is ok, if you don't mind the heavy hand of the strings (wow, this part is really meaningful, let's make sure everyone gets it...), but I don't think that either one has enough sheer grit in their voice to do this tune really well - this is one of the songs where Leonard Cohen actually wrote to his own singing strengths.

I don't think Rufus takes getting used to - for cripes sake, every pop radio station has been playing it all the time since Shrek - for all that, it is pretty good. But we've all had time to get used to him. Part of the problem with it isn't his fault, of course, but there's the danger of the most commercial version become a kind of background muzak - I don't think that performance is that, but the performance does have an underlying shrek-ness ;-).

But the thing that Waits and Cohen get is that the song isn't just evocative, but beautifully, ambivallently, angrily smutty (and Jewish of course - it is Jewish sex ;-)). The great thing about Cohen's statement that all his songs are poems first (even the ones with a thousand verses, some apocryphal) is that they are - and that it isn't just a matter of voice, but of narrative. KD Lang plays more interestingly with the narrative than Wainwright does.

Lang's version does, I think a fascinating version of inserting a third person into the song and its erotics. I think she's a bit heavy handed with this, but there isn't a youtube version I can find that isn't - that is, the song would be best if someone could sing it (besides Dylan, who is good, of course, but who carries the heavy weight of Dylanness into everything) straight without background choruses, heavy string flourishes, ogres or fake smoke as Tom Waits does. But no one can resist tarting it up, not even Leonard.

The more interesting party game would be "who should sing it." I'm voting Aaron Baron-Cohen on his next Jewish CD ;-). Or Richard Julian perhaps.

Of course, you sang, therefor, your taste is definitive ;-).


Sharon, a lowly choral tenor

Anonymous said...

Maybe I and S could take a break but still allow a daily comment section. Not having Ilargi and Stoneleigh daily would be hard but I could maybe muddle through with just comments from AutomaticEarthers.

Anonymous said...

I've become hooked on your site.
I don't do credit cards or paypal.
Can you supply a snail mail address to which I can send a few bucks for your Kitty?
Hope you don't burn out. Your news, bad as it may be, is helping to keep me sane.

Starcade said...

The answer is simple:

Truth = Riot.

Once people find out the truth, blood will run like rivers.

Bigelow said...

“Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.

Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.”
Card companies adjusting credit limits

Starcade said...

Bigelow: People are just going to have to accept that credit is a thing of the past. That's it. The way some of these bastards act, I'm not surprised everyone just doesn't walk away, knowing the party is over anyway.

scandia said...

I came rushing home close to having a heart attack from the news with a need to talk to the TAE community. I haven't even read the posting for the day as I am in a rage. PM Harper has appointed 18 pigs to the trough, for Americans here he has appointed 18 new Senators, all Conservative Party " bagmen"! Parliament has been shut down, people out of work, losing their homes and 18 new pigs at the trough!!!!What will be the tab for that? Anyone out there know what a Senator gets paid? Add in benefits, perks, offices and staff!I'd like to do the math. But hey,hard working people shouldn't expect to keep their benefits. What gets right up my nose is Harper ran on a platform of elected members to the Senate, not crony appointees!How many days a year does a Senator work? I've heard 7 days a year!!!Ilargi, this must really get up your nose too as one of the new Senators is Mike Duffy, a newsman. I am very disappointed that he sold his soul for this seat!
As if that is not enough to drive me mad I caught a headline in my local paper quoting our newly elected MP( Home on paid leave as the House is shut down) saying we didn't give GM enough money!!!! Oh my god! I'm losing it! These people living in the bubble on the Hill have not a clue as to what dark days are before us. I hope those 18 new Senators choke on their nosh in the private dining room while the line up at the food bank grows ever longer!Shame on them!
Thanks for listening to my rant, now back to the day's postings..
By the way, I agree that Ilargi and Stoneleigh should take the time off suggested until the New Year. I would like the comment section to remain open so we can continue to converse. Perhaps I should take a break from the news too as I really lost it to-day.

Wyote said...

Bernanke: “Sahib, tell me again the Christmas story of 2008.”
Paulson: “Sure, Benny. Look, Santa brought us the big present from Lehman Brothers and we decided to open it early. And just like that! our plan got the traction it needed to launch the good ship Darwin. Since that bad black man was angling to bring about progressive reforms - and you know what that would mean for all of us around the world – we seized the opportunity to tip the domino."
B: “I love that, “Tip the domino”. What a feeling of power.”
P: “It really was, Ben. But better was watching the big cascade begin. And then going to Congress and telling all the weasels to put up or watch as the people began measuring them for coffins. I swear, Barney Frank almost wet his pants at the mention of using the military. They practically threw the money at us. “
B: “Well there was some opposition, to be fair.”
P: “ Right, but we were ready. We made the plan a page longer and twice as obscure. Heh, heh!”
B: “And just 350.”
P: “This is where our Detroit buddies really greased the wheels for us Ben, and cheaply too. I have to say the pleasure of bringing union labor to its knees was never so reasonable. Nail numero uno in the O- Mans’ agenda. “
B: “ HO, HO, HO!”
P: “I look forward to meeting with the rodents one more time after the holidays too. We’re gonna need a second helping of that pie. It sure tastes good.”
B: “Who-who, sweet, Hank, sweet!”

Ilargi said...

jeg 43, and all others, you can send your donations here:

N.M. Foss
PO Box 486
Stittsville, Ontario
K2S 1A6

thank you!!

Ilargi said...

I ain't taking no time off

I'll go Xmas though

bore ya stupid with silly tunes and all that

lineup32 said...

jz in pa said...
Bottom Already dropped out of real estate?

Good luck on selling your house best to look at Zillow and find out what is forsale nearby and what price levels are @ the bid.
Also can give you good info by Zip and also tells you what property has a contingent offer or is still active in the details section, which is good info as it lets you know what is selling for what. All RE is local and much depends on local
employment and of course funding. My guess is that the sooner you put up your house at a low price the better as cheaper interest rates will spur some buying but generally those spike's up in volume quickly die, best to panic early as they say.

Bigelow said...

Starcade, now from Leviathan said...

Bigelow: People are just going to have to accept that credit is a thing of the past. That's it. The way some of these bastards act, I'm not surprised everyone just doesn't walk away, knowing the party is over anyway.
Have to agree with you there.

AMEX could have invented any reason too. They don't even need a reason. What twinkled me is AMEX didn't like where the man spent the "money". They will try to tell us all what we can put money into. The foodshelf, the dairy and the community supported gardener nearby won't be on their list.

Anonymous said...

Can the IMF come in and do a bail out for a state?
California Broke in 70 Days, Warns Controller
Check out the comments ... hard spot to be in ...

Submit your advice said...
This comment has been removed by the author.
Anonymous said...

Re: Liberalisation

Metatone opened a diary on this article last week over at;sid=2008/12/13/111536/92

Today's news on Doha speaks of trade barriers such as Russia's decision to raise tariffs which, while labeled 'protectionist' by those in favor of trade liberalisation, can really only be viewed as Russia acknowledging its own social obligation to its own people. Easy for a transnational to come in and exploit the economy, the people and the resources given it doesn't have to answer for them in any real sense.

What is a disturbing point in Linda Kaucher's article is the irreversibility of transnational privitization.

For all we know, this is what the bankers are holding onto their cash for.

el gallinazo said...

Re Hallelujah,

Gotta go with Sharon. In general Lang's style is too "pop" for me, but the control and virtuosity of her voice is amazing. Like Robin Hood with his bow, Lang could split an arrow at 70 paces with her voice. Perhaps we should have a Canadian Idol run-off with the Rufus, Lang, and Cohen renditions.

If I could just finish the last damn chapter of Kunstler's book, I have Sharon's sitting under it on the bed table.


Perhaps we should greet the reintroduction of Social Darwinism with the announcement, "The Beagle has landed!"


Could you recommend an Austrian academic author for my edification that doesn't take a Social Darwinism approach? For example, who actually states that single payer government guaranteed health care is a good thing?

Anonymous said...

Kaixo Ilargi.

Zuk aukeratu duzu doan lana egitea eta izengoitiz lan egitea.

Merkatu librea? Free market?

Translating it, ilargi (in bask whatever i before an l, makes the l a double l (ll) while pronouncing it, but not in writing language (Euskaltzaindia modern's one); you have chosen to spread your obsession among all of us.

But you have to realize that we still are far from making the P90X program because of age or lack of appetite, to tell it politely.

Maybe, you haven't considered that at certain moment suicide could be much easier than P90X.

Your webpage is widely known as a porno-doom.

I don't think so, but so hard has been your change from TOD to TAE that it's a bit suspicious.

Lan asko eta esker gutxi. Ez kexatu! Ez al datoz oso edo benetan garai txarrak ondoren?

Best regards,


ExRanger said...

I don't know if you have seen it but there is an article about the problems of getting paid for online content and some things that people are doing to cope with it. It is in the Dec 2008 issue of Wired magazine page 52.

el gallinazo said...


Klaatu barada nikto

el gallinazo said...

Re Promoters overstated the environmental benefit of wind farms

Somethings smells really bad about this article, and it ain't the sulfur in the coal. Coal is basically carbon. When you burn it completely you get CO2. Any high school kid who got a 70% on his final exam knows that. The carbon you don't burn turns into mainly soot particulates. So a perfectly clean power plant operation would produce the most CO2 for each gram of coal.

What the reporter may have been too ignorant to express is the possibility that the new plants are not cleaner, but more efficient, so you get more MW out of a given amount of coal. There is also the newer NG power station factor, where much of the energy released is from the hydrogen, originally bonded to a central carbon atom, is being oxidized to water, which of course creates no CO2. I suspect that this is the major factor behind the quasi bogus claims put forth in this article.

I suspect it was sponsored by the industrial disinformation complex which originally grew up around the wonderful health benefit claims from tobacco and has now moved on to Global Warming. Of course, in a few years we will have used up all the natural gas and will be back to particularly nasty, high sulfur, bituminous coal.

Anonymous said...

i / s

do take a break: I also work 80 hour weeks ... these last few have aged me a month per day, you as well, I suspect.


post monty python skits, invite comparisons of the finer points of lord buckley tunes, debate the absolute number of angels on pins ... anything, to relieve the stress.

we are all close enough to the event horizon: perhaps you are the closest of us all.

in the coming months, we will need your clarity of vision.


Cyndy said...

I ain't taking no time off

I'll go Xmas though

bore ya stupid with silly tunes and all that


FWIW I had never heard Rufus' version but the harmonizing was stunningly gorgeous.

I knew where your post title came from and was delighted when you expanded on it in your commentary.

Anonymous said...


Re pigs at the trough. Yes it is infuriating. Prime Minister Harper..... dead man walking. Reminds me of a quote from Churchill. He never misses an opportunity to miss an opportunity. It is similar to these banksters awarding themselves bonuses while receiving handouts from the tax payer (not the government). Do they not get it?


scandia said...

Wyote, I enjoy your perverse scripts! I imagine them written as the captions of comic book dialogue. do you know an illustrator who could match up your script with drawings. Certainly no shortage of story line! It would be a money maker,
would get the facts out to the millions of semi-literate amongst us. You know, the ones left behind.
I am easing my rage and pain harmlessly by drawing snouts and little curly tails on 18 new Senators.

Anonymous said...

Anonymous 11:26 said...

It is similar to these banksters awarding themselves bonuses while receiving handouts from the tax payer (not the government). Do they not get it?
They get it. They get all of it. We don't get any.

Anonymous said...

This song made me cry for a night and set me right ... maybe:

Sheryl Crow-Hallelujah

Anonymous said...

Using Zillow for pricing real estate takes a little work. It turns out that their valuations ("zestimates") are based on both recent sales AND current listing prices.

This means they're averaging in the prices people are asking together with the prices that are actually being paid. In the town we were looking at last week, there was a 30% - 50% difference between the prices for which homes actually sold and the prices that people were asking.

Our old house is "zestimated" to be above the price for which we sold it, even though the much larger, much nicer house, in better condition, on more land immediately next door has recently sold for significantly less than the amount for which we sold. If you take only the comps that have actually been sold in the last 12 months, the picture is much bleaker than the "zestimate" values.

Anonymous said...

Regarding the fall of the MSM, honestly, is it any wonder? One of the things which the Internet has shown is the value in building up of communities online, where information flows both ways. People participate in the stories; in the submission of them and in the discussions and debates. And in the moderation.

People get actively involved. And that's what makes a community.

All of the MSM sites that I have seen have completely failed in this regard. It's still the old paradigm of one-way information flow. Or rather, advertising with some information wrapped around it. Their efforts to get user participation are generally pathetic (and always censored).

Is it any wonder then that MSM is failing? Who wants to be a part of a community like that? Especially when there are other alternatives available.

People have woken up to expect more. They want to actively be a part of what's happening.

There are certain characteristics of successful modern information sites. And I'd be willing to bet that there isn't a Newspaper around which couldn't reverse its financial decline if it stopped catering just to advertisers, and instead got their local community involved with the news.

This, btw, applies to TAE. You folks have done an absolutely superlative job. But in order to expand, IMHO, a needed step is to expand the participation of the user community. Stories, moderation (and meta moderation) and continued anonymous postings.

In short, allow your user community to grow by making it easier for them to participate. is a great example (or was, before their cutover to emphasize Javascript).

Managing your assets wisely is always a good move; I submit that one of your key assets is your user base.

Unfortunately, this requires technical effort beyond what blogspot seems to offer. I would submit that, in order to grow, there is little choice.

Sorry for the lengthy rant, but it was intended as a small part in making TAE even better, and getting the message here out.

Anonymous said...

I was in London this weekend, for the first time in ages. The last Friday before xmas but it felt really empty.

We stayed with friends, one of whom is still developing property "pouring concrete as we speak", for a restricted use plot, ready in a years time.

His kids and my boy have been friends since he was three. He's totally in denial, even optimistic about next year, though after 30mins of a TAE debrief, funnily enough he didn't want to discuss "the credit crunch" with me anymore.

I wish I could convey to him what I've finally managed to internalise and act upon, through weeks of patient inculcation by Ilargi and Stoneleigh, to save his kids from hunger, heartache, fear.

To get out now, or in the next six months, cut your losses, quit while you're less behind than others.

But what makes me really sad is that we are still relying on the 'greater fool' to minimise the personal impact of the mess we're in - that, when we stop to put on trainers, not to out run the lion, but to out run our fellow runners, we impoverish ourselves and will, eventually, cease to recognise ourselves in others.

Wishing people a 'merry xmas' seems a little gauche this year.
I'd just like to thank I+S for their generosity, their appraisal and their clarity.

Anonymous said...

Wishing the team ( whoever you are) at TAE a merry christmas and a New Year not as bad as your predictions.

I am very grateful for the wisdom, wit, humanity, information and deep insight in these pages.
May you prosper.

Anonymous said...

Ilargi no member of the ruling class has started a successful revolution. These people are drowning if you threw them a crowbar they would grag it. Take a break let the jungle cure itself.

el gallinazo said...

For an interesting article as to how the bankstas are starting to be effected by their scams exploding check out:

Vanity Fair - Profiles in Panic

Anonymous said...

Drive home NPR had a segment on the "next crisis: Commercial RE." Reading this site is like having ESP.

Hallelujah popping up on our Household shuffle elicits squeals of, "Daddy, it's the Shrek song!" from my 4-year old. Here in NH we keep it straight and haunting, Jeff Buckley style.

Rufus' "Poses" album is in constant rotation though.

Anonymous said...


Here's some John Cale that I thought of, given our conversation yesterday:

Nothing frightens me more
Than religion at my door.
I never answer, panic, knocking,
Falling down the stairs upon the law:
What law?

Warm wishes to everyone here at TAE. Hope you enjoy time with those close to you in the next few weeks.


Anonymous said...

Seems everyone is showing signs of fear.....fear of feeling, as living, as knowing, what it feels like, to be a Palestinian in Gaza.
Unemployed, assaulted by bad news, occupied, helpless, controlled by powers both foreign and domestic, beyond the individuals control.

And being true to humanity, each manifests that hope beyond all hope, holding out, protecting the smallest single remaining ember, whispering even unto the last breath, trying to coax a flame of warmth from the despair, finding not, they embrace each other communally, and will be found clutching each other, a strange last repose, as if from some ash buried ancient grave of Pompei.


Submit your advice said...
This comment has been removed by the author.
Stoneleigh said...


I agree that the user base is one of TAE's greatest assets and that the two-way communication is what makes it what it is. The community we are developing here is a special group of people, each of whom adds their unique perspective. The whole is then greater than the sum of its parts.

I don't know whether we could expand our format in the ways you suggest, as I know nothing at all about how such things work technically. Very basic html is about my limit when it comes to computers. Ilargi is the resident computer wizard, but for him it would be very difficult to find the time on top of everything else he does.

I want to wish everyone here a very merry Christmas. Enjoy the good times while they last.

The Lizard said...

Scandia:"I am easing my rage and pain harmlessly by drawing snouts and little curly tails on 18 new Senators."

I'm waiting for Mike Duffy to resign from his political show on CTV.
Upon being named a senator, he lost the last of whatever real credibility he might have had with viewers.
He's no longer an analyst - he's a (large) warm body that votes for Harper's crap.

Anonymous said...


Long time lurker via Garth's Greater Fool. First time poster.

Since some comments have been made regarding the failure of the MSM, I thought I would post 2 links.

The first is the 1961 speech where Eisenhower Warns us of New World Order

The socond is President John F Kennedy Secret Society Speech

My argument is that the decline of western society picked up speed under Kennedy although the seeds were planted with the creation of the military complex during WWII. The decline in the credibility of the MSM also started during that time frame.


Anonymous said...

S&P up .5% and SDS down 14%
tell us what this means


Anonymous said...

**Bail Out Explained**** **

Young Bob in Montana bought a horse from a farmer for $100. The farmer agreed to deliver the horse the next day. The next day he drove up and said, 'Sorry son, but I have some bad news, the horse died.'
Bob replied, 'Well, then just give me my money back.'

The farmer said, 'Can't do that. I went and spent it already'
Bob said, 'Ok, then, just bring me the dead horse.'
The farmer asked, 'What ya gonna do with him?
Bob said, 'I'm going to raffle him off.'

The farmer said, 'You can't raffle off a dead horse!'
Bob said, 'Sure I can, Watch me. I just won't tell any body he's dead.'
A month later, the farmer met up with Bob and asked,'What happened with that dead horse?'
Bob said, 'I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $998..'
The farmer said, 'Didn't anyone
Bob said, 'Just the guy who won. So I gave him his two dollars back.'

Bob grew up and works now for the government. He was the one who figured out how to "bail us out".

Bigelow said...

Anonymous 11:27 said...

S&P up .5% and SDS down 14%
tell us what this means

A couple of days ago S&P was up, so was SDS. Taxes and capital gain distributions for SDS maybe, fleeing or buying? I don't have faith in the 'efficient market' I'm with El Vulture looking for a little profit.

Anonymous said...

Wyote, I also greatly enjoy your,
erhm, vignettes.

Also, could one of our Canadian readers explain the recent political events in your country? Is this tantamount to a coup, or merely an ussurpation of representative democracy (or am I repeating meself?).

D. Benton Smith said...

So my DSL Internet access went down yesterday for 3 or 4 hours and my very first thought was, “So, is this it? Will it come back on... ever?”

I live in a miniscule hamlet of a river settlement dating back to the American Civil War, when riverboats were the backbone of transportation. They still go past, but they haven’t stopped in half a century. The landings were swept away several massive floods ago, and now we just sit here, deteriorating in a picturesque, genteel fashion.

Calhoun County is a 6 mile wide, 50 mile long peninsular ridge of limestone bluffs and bottomland between the Illinois and Mississippi rivers. The conjoining rivers form our border. Calhoun’s physical link to the world is a single two-lane bridge to the Illinois side. Hamburg, our village, is on the Mississippi side.

When any utility goes down (water, power, gas, telephone, or road for that matter) we are the last ones to get attention. Hell, there’s only 75 people in the whole town (and I think they fudged the number upwards in the last census.)

So my momentary alarm was not entirely paranoiac in nature. Us Hamburgers will be among the first to lose the niceties of civilization, and the last to find out whether that power outage is a routine glitch or a permanent new paradigm of poverty.

And you know what? I don’t give that big of a damn.

To be completely honest, I look forward to the day.

I admit that the situation makes me nervous, but I'm willing to take my lumps, and I do not even WANT to have more than I produce. I know from a lifetime of experience that I can produce more than I consume, and that any surplus helps ease the strain on others who I may need to call upon for help sometime.

I’ve known from the age of 12 or so (I’m 60 now) that our lives of pampered luxury were neither earned nor deserved but simply taken because no one could stop us.

Well, now we have stopped ourselves (albeit by stupidly accidental means) and my only comment is, “Well, it’s about time.”

We will survive as well as we are able to work and take care of each other. It is neither more nor less than we deserve, and I’m just fine with that.

I submit, with all due respect, that people who expect more than that have been living on their ancestors’ spoils of war and empire.

You don't REALLY want things to go back to what was passing for normal, do you? First of all, it obviously was not normal in the first place (else it would not have spontaneously combusted.) And besides, you know it was headed nowhere anyone in their right mind would ever want to be.

You are WAY more capable than you have been coddled into believing, and you are going to be a lot happier about life and living when you are actually doing some. (Trading abstract symbols of pretended wealth was not life. It was delirium, and thank god we are awakening from the fever dream.)

If you’re ever out this way, stop by for the annual cat fish festival and some peach pie.

Wyote said...

Scandia and Oarwell:
Thank you. If my musing have entertained or even stimulated, I have succeeded in my goal as provocateur. Currently, you are the illustrators, and while I haven’t seen your work, if you dwell here I’m sure it is deft. Writing these at work during spare moments helps me digest the corrupt bolus delivered by the Invisible Hand each day. When I get home, I read Ilargi’s prescient take (as well as all the illuminating comments) and try to keep calm.
So being holiday and all, I’ll follow Hank’s lead and take a bit of time off.

Paulson: “Tim (Geithner), Hank Paulson here. Hey buddy, you must be staying late. I thought you’d be out on holiday. But now that I got ya on the line, tell me how the plans are coming together.”
G: “Look, Hank, we sent over some drafts to your office a week ago. We’re tracking along just fine. Did you want to make some adjustments? You knew that Sheila was digging in her nails on the foreclosure piece. The Boss says it’s gonna happen. Can’t help it.”
P: “Of course, I’ve thought all along she was right but you know, the car don’t go unless the wheels are on and the wheels don’t go unless they’re greased. I’ve got Ben working the demand side and I’m trying to keep the road ahead clear so we can get back to the Game. The big players are still fidgety though.”
T: “Well we’ve got our work cut out for us.”
P: “ Right. But looking ahead, everyone over there knows that Beijing needs some smoothing over. Not tryin’ to insinuate myself into the next phase but, I would be available to make a few trips on behalf of the new administration. To, you know, assuage the feelings as it were. Partners can always be better partners.”
T: “We could use your expertise there, no doubt.
P: “Have a great holiday, Tim. Get your rest. See you on the Hill next month.”

Anonymous said...

Oarwell said...

... could one of our Canadian readers explain the recent political events in your country? Is this tantamount to a coup, or merely an ussurpation of representative democracy (or am I repeating meself?).

Sorry for the delay in responding, I just saw this last night and had no time to reply then.

Firstly, not many in Canada have got too excited about the precedent set by this, very early in term, suspension of parliament. It is largely seen as a cooling off period and parliament will reconvene in late January when a budget is presented.

There is virtually no doubt that without the suspension of the current sitting of the House, the Government would have lost a scheduled vote of non-confidence on December 8 and would have fallen, and the current opposition parties would have created a new coalition government immediately.

Most Canadians, including the MSM, and probably half of the MP's, don't really understand the system of British Parliamentary democracy, in which the House of Commons is virtually supreme, and where no party can form a government or continue to govern without the confidence of the House.

The current minority Conservative government under PM Stephen Harper, had previously taken a strategic decision to act as if it had a majority, without any effort to achieve a consensus in the House.

Harper's previous government, also a minority, was only able to pass legislation with the passive support of the opposition Liberals in Parliament who, having just lost their own minority government, were not inclined to try to either form a minority government, to form a coalition with support of the other smaller parties, or to force an early General Election.

The current threat to defeat the Harper Government, and replace it with a coalition, was born out of two situations, first a common instinct for survival among the opposition parties, due to the proposed elimination of election expense subsidies, as well as the total obtuseness shown by the Harper government with regard to the global economic crisis. A third factor is that the opposition parties were probably fed up with the PM's nasty partisanship and bullying tactics over the past 2 plus years.

The first of the above factors is quite significant, as there are very strict dollar limits on fund-raising to a political party by any individual, and no financial donations from corporations or from labour unions or other organisations or lobby groups are allowed. The current government subsidies (currently $1.75 for each vote received?) are quite important to the Liberal Party and to the smaller parties.

With regard to the second item, the government had just announced three weeks ago that they were forecasting a budget surplus in the current fiscal year, and were not contemplating any special spending measures to buoy up the Canadian economy, which they did not believe would necessarily drift into recession, in spite of the overwhelming opinion of private-sector economists that we were already in one.

The finance minister, Jim Flaherty, has now pledged to consult the opposition parties, and has in fact already met with the opposition parties regarding the upcoming budget. It remains to be seen whether or not sufficient compromises will be made to include the opposition parties' concerns.

Be aware that the current PM is a control freak who views compromise as weakness, but he may have no choice, as if he is defeated, it is unlikely that a new General Election would be called so soon after the last one in October 2008. The only choice would be a Liberal minority government (unlikely as they only have about 30% of the seats in Parliament), or a Liberal-led coalition government with the left-wing NDP.

The new Liberal party leader, Michael Ignatieff is not thought to be committed to throwing out the Harper government, recognising the difficulties in maintaining an effective governing strategy, and in marshalling and building sufficient public support before the next General Election (which must by law occur within the next 58 months, but which is thought likely to occur much sooner).

So, barring an immediate defeat of the Government following presentation of the budget, we are likely to see a Mexican stand-off for the next three to six months. The threat of a Liberal-led coalition will likely force PM Harper to accede to the wishes of Parliament in the early months. The threat of an early election (which could possibly give the Conservatives a majority) may dissuade the opposition from defeating the government in the later months.

There is not currently strong public support for a Liberal-led coalition government and if the coalition went ahead, it could result in a backlash in the polls at the next General Election against the coalition partners.

The decision whether to dissolve parliament and call a General Election, in the event of a defeat of the sitting government on a motion of non-confidence, is that of the appointed Governor-General, the Queen's representative in Canada. In actuality, the G-G is not really using her/his own judgment but must examine whether any other party or parties can gain the confidence of Parliament in order to form a government.

There is an appointed Upper House (The Senate) but it has very limited powers and is used primarily for political patronage appointments, as shown by the PM this week in his appointment of a variety of Conservative bagmen ex-politicians and former and current media personalities to fill all current Senate vacancies.

Voting is not compulsory in Canada, and although voter registration is not a cumbersome process, voter turn-out at election time is quite low, ranging from +/-40% in Municipal elections, to +/-50% in Provincial elections, and +/-60% in Federal elections, with generally weakening turnout in each subsequent election.

The current Conservative government received the votes of approximately 22% of Canadians eligible to vote (37% of actual votes cast) in the October 2008 election.

The Canadian political situation continues to evolve behind the scenes, but not much will change publicly until the end of January.

Hope this helps.