Swiss Franc Surges 30% Against the Euro In 13 Minutes

This is not a typo, the EURCHF has collapse 30% in a matter of minutes, moves unseen in European FX markets:

All the way from 1.20 down to 0.86, the fall of the EUR following the SNB decision to halt their peg. The peg had been put in place back in September 2011, which had caused a 10% move in the currency (Swiss Franc Collapses as Central Bank Announces Pseudo-Peg)

Central banks are once again creating chaos, after failing to achieve their unrealistic control of markets. It will be interesting to see which players of the markets will get wiped out by such a move, as casualties there will be after such a move.

It will be interesting for the SNB to announce what they intend to do with the dozens and dozens of billions of Euros it's been accumulating of the last 3 years.

US Government Alternative Energy Bankruptcies

CNN Money reports:

a spokesman for the Energy Department said that agency has dozens of programs that funded over 1,300 companies in the renewable energy space.

Amazing number right? How much money was wasted? How many other companies went bust and other energy sources were ignored because of this unfair competition?

Surprised that the government is wasting your money and investing in the worst possible assets? You shouldn't. The aim is not to return any money on the investment, is to buy votes and enrich the select few who are close to those corrupt politicians running these programs.

Here are some of the companies that went bust or made negative headlines:

• A123: The battery maker received a $249 million Department of Energy stimulus grant to build two factories in Michigan to manufacture batteries for electric cars.
  The company drew down $132 million of that grant, and the factories are up and running, according to the DOE.
  As part of A123's bankruptcy announced earlier this week, the factories were sold to Johnson Controls, which is expected to keep them open. Since the investment was a grant, the government got no money back. It's unclear whether Johnson will be eligible to draw down the remaining grant funds. 
• Abound Solar: The manufacturer of thin-film solar panels received a $400 million DOE stimulus loan guarantee to build two factories -- one outside Kokomo, Indiana and another outside of Denver.
  Abound drew down $70 million of the grant to build the Denver factory. Abound declared bankruptcy in June amid strong competition and the collapsing price of solar panels.
  Its assets are being auctioned off, and DOE is expected to lose to $40 to $60 million on the deal. 
• Beacon Power: The company received a $43 million DOE stimulus loan guarantee to build a facility in upstate New York that uses flywheels to store extra energy from the power grid, and then release it when needed. Such technology is seen as essential to integrate wind and solar into the grid, as those sources don't produce energy 24/7.
  The company spent $39 million to build the project, which consists of wheels inside vacuum tubes that can spin at near perpetual motion. Beacon went bankrupt amid low prices for natural gas, which can be burned to produce electricity.
  The flywheel plant was sold to a competitor, and DOE is slated to receive at least $27 million in the deal. 
• Ener1: A subsidiary of the company, EnerDel, received an $118.5 million grant to build two plants outside Indianapolis to manufacture batteries for electric cars and other uses.
  Ener1 declared bankruptcy in January, and the company was bought by a Russian investor. The plants in Indianapolis continue to make batteries. 
• Solyndra: The manufacturer of advanced solar panels received a $535 million loan guarantee to build a factory outside of San Francisco.
  Solyndra went bankrupt in 2011 amid falling prices for solar panels, and has since served as the poster child for well-meaning government policy gone bad.
  Its assets are being auctioned off, and DOE is not expected to recover any meaningful amount of money.
• Fisker Automotive: The electric car maker received a $529 million DOE-backed stimulus loan to design a mid-priced model and build a factory to manufacture the vehicle in Delaware.
  In February, Fisker put the manufacture of the sedan on hold amid lower than expected demand for electric cars and announced layoffs, though still says it plans on building the car in 2014. The company has drawn down about $200 million of the loan. 
• Nevada Geothermal Power: The firm received a $98 million DOE-backed loan to build a geothermal power plant north of Reno. According to the House Committee on Energy and Commerce, an internal audit of the firm revealed $98 million in net losses and significant debt. DOE says the power plant the loan built has a long-term agreement to sell electricity, and its investment will be protected no matter what happens to the parent company. 

In addition to these, OregonLive reports:

Another publicly subsidized green company is going under, this one -- called ReVolt Technology -- backed in Portland by city and state taxpayers.

Losses on ReVolt are tiny compared to those at Solyndra Inc., the notorious California solar company that tanked after receiving a $535 million federal loan guarantee. Portland and the state of Oregon had committed $6.8 million to ReVolt, which also landed a $5 million federal grant.

But the timing of ReVolt's demise is awkward ahead of the Nov. 6 election for Democrats, who have plugged renewable-energy companies in the face of Republican criticism.

Oregon Democrats who lavished praise on ReVolt as it acquired funds and chose a site in 2010 include U.S. Sen. Jeff Merkley, U.S. Sen. Ron Wyden, U.S. Rep. Earl Blumenauer, Rep. Tobias Read, of Beaverton, former U.S. Rep. David Wu and former  Gov. Ted Kulongoski. Portland Mayor Sam Adams was also a strong supporter.

Swiss Franc Collapses as Central Bank Announces Pseudo-Peg

Another day, and another historical event: today the Swiss Central Bank announced they will put a ceiling  above the EUR/CHF against the Euro, at the maximum rate of 1.2 CHF per EUR.

(Bloomberg) — The Swiss central bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.” 

The Swiss National Bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an e-mailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.”

The market's reaction was brutal and immediate: about 10% drop for the CHF of probably historical proportions for yet another historical move. See for yourself:

The kinds of move are big enough to make speculators billionaires, or to wipe them out. It also means they are very unwelcome and shows again the destructive power of Central Bankers — they cannot create wealth, but they can destroy it through inflation.

Interestingly, gold made a new all time high at around $1,920 but couldn't sustain it and dropped back to below $1,890.

My forecast so far seems to have been accurate (or lucky, or maybe more realistically a bit of both!) and it might be time to initiate a short position. I'll make a post when I do so, as I haven't made my mind yet.

Car Czar Says Auto Bailouts a “Great Deal” for Taxpayers

First of all, apologies for the long delays since my last post. I am moving into my new home in Singapore, and it's been keeping me busy, along with day to day job and hanging out with some new and some old friends of mine.

Anyway, back to business, here's another amazing outcome and statement from the US Gov: the Car Czar is saying that the auto industry bailout was a "great deal" for Taxpayers. One can wonder how bailing out union workers and incompetent lenders with money taken out of the pockets of the tax-payers children can be a good thing. But now, it's better than good, it's great. And of course, pro-government and self-congratulating politicians will never admit an mistake, not even Afghanistan's or Irak's invasion...

Here's a quote from Yahoo Daily Ticker:

Based on GM's current share price, the entire auto industry bailout will end up costing U.S. taxpayers $10 to $12 billion; that's money well spent, according to Steven Rattner, the former head of the government's automotive task force and author of Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry.

"As an economic recovery matter, the $10 billion plus or minus the auto intervention will cost was a great deal for American taxpayers and a critical part of the economic recovery," Rattner says. "We saved 2 or 3 million jobs, at least in the short run, because the entire industry would have shut down had we not helped these two companies because of the interlocking nature of the suppliers."

This deservers some very easy, yet very needed debunking:

1. A $10-$12 billion loss in an over-optimistic forecast is not a great deal. Loss making investments are not good investments, even if lunatics at the government think the opposite.
2. Economic recovery? Which economic recovery?
3. They didn't save 2-3 million jobs and the entire industry wouldn't have shut down. Quite the opposite. The bankruptcy process is quite effective in the sense that creditors and shareholders most often get wiped out, but buyers comme and take parts of the company and restart with a new blank sheet and no debt on the balance sheet. Moreover, union contracts and pensions would have disappeared, so the companies would have more competitive and might have survived on the long run.

Bank of Japan Prints another 3.5 Trillion Yen, more than 26 Trillion printed in 3 days

While I am still wondering what the BoJ is trying to achieve by printing money, and wonder also what kind of liquidity issues the madmen at the board are seeing ($250 billion in 3 days?), I am getting worried.

Worried about that? Worried that Bernanke and Trichet, the two challengers for the gold medal of money printers, might find the challenge interesting, and also find a new source of inspiration in Governor Masaaki Shirakawa, who by the way, seem to be worshiping Gideon Gono, The Reserve Bank of Zimbabwe Governor.

One difference there is that Gideon has won: their fiat currency system has collapsed, probably because there were no sovereign bond market to restrain the printing at all.

March 16 (Bloomberg) -- The Bank of Japan added 3.5 trillion yen ($43 billion) to the financial system in a one-day operation today to help ease liquidity.

March 15 (Bloomberg) -- [...] The Bank of Japan added 8 trillion yen ($98 billion) into money markets today, adding to yesterday’s record cash injection [...]

March 14 (Bloomberg) -- The Bank of Japan poured a record 15 trillion yen ($183 billion) into the world’s third-biggest economy today [...]

Bank of Japan Discovers Nuclear Reactors Cannot be Cooled by Liquidity Injections — Nikkei/Topix Down More than 10%, Have Biggest Two-Day Drop Since 1987 — Two More Explosions at the Nuclear Plant in Fukushima — Bloomberg Exposes Institutionalized Neglect Leading to This Tragedy

This morning, Tokyo time, the BoJ decided to almost double the size of their "liquidity injection" they announced yesterday: another $100 billion.

Yet, markets in Japan had a very sharp decline, closing with more than 10% losses, after reaching -14% intraday. This is the worst two day decline since the 1987 crash.

Financial analysts and economists are at it yet again, asking for the BoJ to do more, because they are not doing enough. Basically, they are asking the BoJ to provide to help them keep a floor under equity prices, a sort of Greenspan or Bernanke Put, but Japanese style. They are trying to protect their profits, by socialising the losses to the public, at the same time where an environmental and humanitarian catastrophe is unfolding.This is utterly disgusting. According to the various economists and analysts, the role of the BoJ has shifted from whatever economic mischiefs it was conducting, to include also making the equities market rise, continuously.

March 15 (Bloomberg) -- Japanese stocks dropped, with the Topix index completing its worst two-day plunge since 1987, and default risk jumped as Prime Minister Naoto Kan said the danger of further leaks from a nuclear power plant damaged by the nation’s biggest earthquake was increasing. Commodities fell.

The MSCI Asia Pacific Index slumped 5.4 percent at 3:05 p.m. in Tokyo. The Topix sank 9.5 percent and the cost of protecting Japan’s sovereign debt surged to a record. [...]

The Bank of Japan added 8 trillion yen ($98 billion) into money markets today, adding to yesterday’s record cash injection, to secure the nation’s financial stability following the March 11 temblor -- updated to a magnitude of 9, from 8.9, by the U.S. Geological Survey -- and subsequent tsunami. Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant was today rocked by two explosions and a fire.
[...]
Kansai Electric Power Co. tumbled 12 percent, pacing losses among utilities. Paladin Energy Ltd., a Perth-based company producing uranium in Africa, slumped 17 percent, extending yesterday’s 16 percent decline.

Tokyo Electric Power, whose shares plunged 25 percent, experienced a hydrogen blast at the Fukushima Dai-Ichi plant’s No. 4 reactor, where the company earlier reported a blaze, Japan’s Chief Cabinet Secretary Yukio Edano said at a briefing. Four of the complex’s six reactors have been damaged by explosions. Citizens living within a 30-kilometer (19 mile) radius of the plant should stay indoors, Kan said.
[...]

March 15 (Bloomberg) -- Tokyo Electric Power Co.’s stricken nuclear power plant was today rocked by two further explosions and a fire as workers struggled to avert the risk of a meltdown.

A hydrogen blast hit the Fukushima Dai-Ichi plant’s No. 4 reactor, where Tokyo Electric earlier reported a blaze, Japan’s Chief Cabinet Secretary Yukio Edano said at a briefing. Four of the complex’s six reactors have been damaged by explosions.

Prime Minister Naoto Kan appealed for calm as he said the danger of further radiation leaks was rising at the crippled nuclear facility, 135 miles (220 kilometers) north of Tokyo. Sea water is being pumped to cool the reactors and prevent the uncontrolled release of radioactive material.

March 15 (Bloomberg) -- [...] BOJ Governor Masaaki Shirakawa’s pledge yesterday to secure financial stability and prevent investors from becoming more risk averse was overwhelmed today, with the Topix index of stocks suffering its worst two-day drop since the 1987 crash. [...] 

“The market’s chaos won’t calm down unless the BOJ will take more bold actions,” said Susumu Kato, chief economist for Japan at Credit Agricole CIB and CLSA in Tokyo. “A further plunge in stocks will pressure the BOJ into additional easing.”
[...]
“The Bank of Japan is missing the chance of doing something more aggressive,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase in Tokyo, who used to work at the central bank, said yesterday. “What the BOJ should do now is to anchor investors’ sentiment” with accelerated purchases in its program, he said.
[...]
Should the equity market keep tumbling, Japan’s central bank may increase its purchases of risk assets under its asset- buying program, said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo.

“If stocks continue to drop more and the yen gains further, it will probably have an adverse effect on corporate sentiment and household consumption,” Miyagawa said. “So the BOJ may need to take further action.”

Jim O’Neill, the London-based chairman of Goldman Sachs Asset Management, said the yen remains overvalued, giving the BOJ cause for more robust monetary stimulus.

“There is now clearly a case for being bold to ensure a speedy recovery from this tragedy,” O’Neill wrote in a note to clients yesterday. “Events certainly require it.”

Last, here's William Pesek's column on Bloomberg, doing a very good job at summerizing all the neglect that led to such a nuclear disaster:

March 15 (Bloomberg) -- In high-tech, hypermodern Tokyo the most sought-after items are decidedly primitive: candles, flashlights, surgical masks and duct tape.

For that, we have more than just Friday’s deadly earthquake and tsunami to blame but also the nation’s shameful nuclear-safety record. It is boomeranging on all of us 126 million Japan residents. 

[...] Yet Japanese have been put at risk by years of institutionalized neglect.

Neither has the information flow inspired much trust. Government officials say don’t worry, radiation risks are “containable” and at the same time they tell people to evacuate. If we learned anything from the subprime-loan crisis, it’s that anytime a public official uses the C-word it’s time to run for the hills.
[...]
Here, Tokyo Electric Power Co.[...] is the poster child of distrust. In 2002, whistleblowers revealed abuses that forced it to say it had faked reports on repairs since the 1980s. Its chairman and president resigned and all 17 of its reactors were temporarily shut by government inspectors.

Amidst the latest accident, in Fukushima, Tokyo Electric is facing criticism for responding slowly. What a shock! This latest fiasco further damages the industry’s reputation after a string of embarrassments over the last 12 years.

Tokyo Electric is flushing three reactors at the plant with water after cooling systems failed and a blast tore through a containment building. It comes less than four years after a quake shut another plant run by the utility and in the wake of industry scandals involving faked reports and fatal accidents.

In 1999, two workers were killed by radiation exposure at a fuel processing plant. They actually used buckets to estimate a uranium mixture that caused a blue flash of light and a chain reaction that went unchecked for 20 hours.
[...]
In 2004, a burst pipe at a reactor run by Kansai Electric Power Co. killed five workers. The burst-pipe section had been omitted from safety checklists and hadn’t been inspected for 28 years. Then 2007 brought fresh revelations that utilities had regularly doctored safety records.

Unfolding events at Fukushima aren’t the first quake- related accident for Tokyo Electric. In July 2007, a 6.8 magnitude temblor caused a fire and radiation leaks that shut down the Kashiwazaki Kariwa nuclear plant, the world’s biggest. The government had failed to conduct sufficient checks for seismic faults at the site.
[...]
Lacking oil and natural resources, Japan relies on 54 nuclear reactors to supply 30 percent of its power. Prime Minister Naoto Kan says exports of nuclear technology from Toshiba Corp. and Hitachi Ltd. could help revitalize the economy and meet greenhouse-gas emissions targets.
[...]

Please note that William is asking, as a solution, for more government intervention, regulation, and action which are not ideas that I embrace.

US Gov brags about TARP's 8.2% Profit to Taxpayers, the reality is different

The fact that TARP is making money is counter-intuitive (read: unbelievable) to me, as I cannot believe that any initiative from the government can actually have a positive return. Consequently, I was happy to run into a report discussing these magical returns, and giving some sense of the reality behind these numbers. Well done, Bloomberg!

Oct. 20 (Bloomberg) -- The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than they could have made buying 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.
[...]
“From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

[...] The suppression of interest rates at close to zero for most of the last two years has also boosted banks’ income, enabling them to borrow money at almost no cost and lend at higher rates. Those low rates drove down returns on instruments used by American savers. [...] Average rates for high-yield savings accounts, which generally have at least $10,000 in deposits and are insured by the Federal Deposit Insurance Corp., have ranged from 0.36 percent to 0.92 percent over the past two years, based on data from research firm Market Rates Insight in San Anselmo, California. A two-year CD purchased in October 2008 returned 2.8 percent annually, according to Bankrate.com, the North Palm Beach, Florida-based website that tracks bank products.
[...]
One of those subsidies is the $350 billion that savers forgo each year because the Fed keeps interest rates near zero, according to Petzel’s calculations. While banks can borrow at close to zero from the Fed, they lend to consumers and corporations at almost 5 percent, or to the Treasury at 2.5 percent, and they get to keep the difference.

“The huge wealth transfer from fixed-income pensioners to the banks has helped the banks repay TARP,” Petzel said.

The government and the Fed took on more risk than just TARP during the crisis, which isn’t reflected in the program’s cost, said Nomi Prins, a former Goldman Sachs managing director and author of the 2009 book, “It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.”

According to Prins’s tally, the money plowed into the financial system to prop it up peaked at $19.4 trillion. Banks have benefited from that cash, which helped keep prices of mortgage securities, house prices and other assets overvalued, Prins said in an interview. Even though some of the support has been withdrawn, part of it will likely be lost, such as the hundreds of billions of dollars put into Fannie Mae and Freddie Mac, she said.

“These are all indirect subsidies the banks got,” Prins said. “So the TARP gains touted by the Treasury are only true if you ignore all the other costs.”

So the conclusion is now clear: TARP is only making money because all the hidden subsidies and wealth transfers orchestrated by the US Government and the Fed from US tax payers and US Dollar bearers are ignored. One more mystery resolved!

Treasury Hid A.I.G. Loss, SIGTARP Report Says

ZeroHedge has an interesting post on the SIGTARP report. The full report is available from this Congress' web link. I will just quote here from ZeroHedge:

Finally, the most specific of TARP's Main Street goals, "preserving homeownership" has so far fallen woefully short, with TARP's portion of the Administration's mortgage modification program yielding only approximately 207,000 ongoing permanent modifications since TARP's inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.
[...]
While SIGTARP offers no opinion on the appropriateness or accuracy of the valuation contained in the Retrospective, we believe that the Retrospective fails to meet basic transparency standards by failing to disclose: (1) that the new lower estimate followed a change in the methodology that Treasury previously used to calculate expected losses on its AIG investment; and (2) that Treasury would be required by its auditors to use the older, and presumably less favorable, methodology in the official audited financials statements. To avoid potential confusion, Treasury should have disclosed that it had changed its valuation methodology and should have published a side-by-side comparison of its new numbers with what the projected losses would be under the auditor-approved methodology that Treasury had used previously and will use in the future. This conduct has left the Treasury vulnerable to charges it has manipulated its methodology for calculating losses to present two different numbers depending on its audience: one designed for release in early October as part of a multifaceted publicity campaign touting the positive aspects of TARP and emphasizing the reduction in anticipated losses, and one, audited by the GAO for release in November as part of a larger audited financial statement. Here again, Treasury's unfortunate insensitivity to the values of transparency has led it to engage in conduct that risks further damaging public trust in the Government.
[...]
Increased moral hazard and concentration in the financial industry continue to be a TARP legacy. The biggest banks are bigger than ever, fueled by the Government support and taxpayer-assisted mergers and acquisitions. And the repeated statement that the Government would stand by these banks during the financial crisis has given a significant advantage to the larger "too big to fail" banks, as reflected in their enhanced credit ratings borner from a market perception the Government will still not let these institutions fails, although the impact of this cost may be blunted by recently enacted regulatory reform.
[...]
While it may be true that many homeowners may benefit from temporarily reduced payments even though the modification ultimately fails, Treasury's claim that "every single person" who participated in HAMP gets a "significant benefit" is either hopelessly out of touch with the real harm that has been inflicted on many families or a cynical attempt to define success as failure. Worse, Treasury's apparent belief that all failed trial modifications are successes may preclude it from seeking to make the meaningful changes necessary to provide the "sustainable" mortgage relief for struggling families it first promised. What Treasury deems a universal benefit, many homeowners, members of Congress, and a growing number of commentators describe as "cruel" and offering little more than "false hope."
[...]
At a time when the country was experiencing the worst economic downturn in generations and the Government was asking its taxpayers to support a $787 billion stimulus package designed primarily to preserve jobs, Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of more than 2,000 small businesses, thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls -all without sufficient consideration of the decisions' broader economic impact...That the automakers have offered reinstatement to hundreds of terminated dealerships in response to Congressional action without any apparent sacrifice of their ongoing viability further demonstrates the possibility that such dramatic and accelerated dealership closings may not have been necessary and underscores the need for Treasury to tread very carefully when considering such decisions in the future.

At least these documents are available publicly. Are there going to be any prosecutions, Mr Attorney General?

NYTimes also published a report about the SIGTARP report: Treasury Hid A.I.G. Loss, Report Says.

Keynesians say Germany is the problem. I say: setting aside its socialist policies, Germany is what looks the most like a solution and an example to follow

This is probably one of the most nonsensical I have read in the past several years, and god knows how economists, politicians and journalists parroting the two former have been spreading nonsense during the past many years...

Yet again, the beneficial and good sides of the economy are being blamed by Keynesians bouffons and Monetarist clowns, and of course by ignorant socialists at the government.

Let me put a few bullet points to clarify things before we dive into this absurd report:

• Savings (underconsumption) is the base of any investment.
• Investment, not consumption helps the economy become more productive.
• When an economy is growing, prices fall due to improved productivity.
• When an economy export a lot more than it imports, the balance of payment creates a higher demand of the currency of that economy, which then leads that currency to become more expansive than the ones which are only importing.
• If the trend continues, the exporting country becomes less competitive due to a higher currency, and a new balance is created.
• This currently doesn't happen because central banks prevent exporting countries from having their currencies re-evaluated (like China and Germany).

Conclusion:

• Germany is a great country, and its competitiveness is a major benefit for itself and the rest of the world: the whole planet can enjoy German quality, for low price.
• The issue are Central Bankers and politicians, as usual.
• Another issue is the government educating people with nonsensical theories, and journalists reporting absurd and completely wrong news.

Here the quotes from the infamous Bloomberg report:

Aug. 18 (Bloomberg) -- Germany may have become too competitive for its own good.

How is that possible? How twisted must the mind of the person writing this line be?

With exports driving the fastest economic growth since reunification, consumers are failing to respond in kind as companies from Siemens AG to Daimler AG hold fast to the wage restraint that’s given them an international edge. The result: Europe’s largest economy, four times more reliant on exports than the U.S., is firing on only one cylinder.

There are no issues at all with that: Germans are benefiting from falling prices, and they don't need to have their wages increased, due to productivity growth, and a deflationary environment.

That’s unlikely to change as Germany spearheads a push for European fiscal prudence and ignores calls from investors and the Obama administration to do more to help rebalance the global economy by reviving domestic demand. While Chancellor Angela Merkel’s plan to cut 80 billion euros ($103 billion) of spending helps make government bonds attractive to Pacific Investment Management Co., retail stocks may suffer, and the country’s dependence on exports leaves it vulnerable to a global slowdown.

Thank god they ignore Obama. Obama is an ignorant man and his policies are dangerous and destructive.

“Germany has got to work on its domestic demand,” said Andrew Bosomworth, Munich-based head of portfolio management at Pimco, which oversees the world’s largest mutual fund. “Not everybody can export. Somebody has to import.”

So just let the economy find its new balance instead of interfering with it!

French Finance Minister Christine Lagarde, the U.S. Treasury and billionaire George Soros have already urged Germany to do more to smooth out trade flows they say are still too lopsided and pose an obstacle to a global recovery.

Lagarde and Soros are both socialists. The best thing one can do is follow a path exactly opposing their advices.

“Anybody who believes China is a problem has to believe Germany is a problem,” Nobel Prize-winning economist Joseph Stiglitz said in an interview in Sydney on Aug. 5. Germany should consider more stimulus measures to encourage spending and investment at home, he said.

Stiglitz is a Keynesian Bouffon. The best thing one can do is do the opposite of what he suggests.

Exports are driving Germany’s recovery. The economy grew 2.2 percent in the second quarter from the first, yielding an annualized growth rate of about 9 percent that puts it on a footing with emerging markets like China and India.

The benchmark DAX share index has gained 4.2 percent this year compared with a 0.2 percent decline in the Dow Jones Industrial Average. The DAX was little changed at 6207.71 points today. The yield on the German 30-year bund fell to a record 2.978 percent.

Things are going just fine for Germany. Yet, Socialiasts and Keynesians want to fix it...

Merkel has defended Germany’s right to engage as competitively as possible in international trade.

“We won’t surrender our strengths just because our exports are perhaps purchased more than those of other countries,” she said in parliament in Berlin on March 17. “That would be the wrong European answer to the competitiveness of our continent.”

Of course you shouldn't surrender your strengths!

At the same time, wage restraint and fears over pension security are taking their toll on the aging German consumer.

Since Germany’s reunification in 1990, private consumption has risen 21 percent, reflecting a 21-percent increase in real disposable income. In the U.S., by contrast, income surged 71 percent in the same period and private consumption jumped 75 percent.

Where do they get this? Common sense just makes this statement ridiculous. Who is crumbling under debt? Who cannot afford to pay their mortgage, car loan, credit cards, home equity loans? Is that because they are so rich?

“Private consumption will remain sluggish because Germany hasn’t allowed real disposable income to grow more strongly,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt, who co-authored a book on the 100 most important global economic indicators. “Income and consumption walk hand-in-hand.”

How do you allow real disposable to grow? By decree maybe? Andreas Scheuerle seems to have been enjoying German's strong economy for many years without even knowing it and he's now trying to destroy it.

[...] 

Germany’s critics say Merkel’s refusal to bolster the domestic economy is strangling other countries’ export prospects by damping demand for their goods in a country with 82 million people. Those missives are unfair, said Thomas Mayer, chief economist at Deutsche Bank AG in London.

“We were successful in building one of the most competitive economies in the world, why should we ruin that by pumping up wages now?” he said. “That would increase unemployment. And we shouldn’t punish our exporters, that’s idiotic, they’re our crown jewels.”

Germany’s export strength has its roots in the country’s efforts to rebuild its economy through foreign trade after World War II. While consumer demand soared in the U.S. after troops returned home and the economy boomed, spending in poverty- stricken Germany was weak.

Thank god someone is getting it!

In the 1970s, when Germany’s post-war recovery had faded and unemployment increased, the country responded by cutting costs instead of building a stronger domestic services sector. That approach set the tone for future reforms.

Germany once again squeezed labor costs and boosted productivity when it adopted the euro in 1999, attempting to redress the competitive disadvantage its overvalued Mark had left it with after the reunification boom of the early 1990s.

Meanwhile, economies from Spain to Greece allowed employment costs to rise. Today, those nations are grappling with the biggest budget deficits in the region while Germany enjoys a trade advantage.

The country became 13 percent more competitive against its neighbors in the 11 years through 2009, mirroring similar declines in Spain and Greece, according to a wages-based indicator designed by the European Central Bank. Germany is also reaping the benefits internationally of the euro’s 10 percent decline against the dollar this year.

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

“By cutting its budget deficit and resisting a rise in wages to compensate for a decline in the purchasing power of the euro, Germany is actually making it more difficult for other countries to regain competitiveness,” Soros said in a speech on June 23 at Berlin’s Humboldt University. Germany is “the main protagonist” for Europe’s debt crisis, he added.

Merkel’s four-year plan to cut German spending from next year contrasts with U.S. President Barack Obama, who is urging his Group of 20 counterparts to focus on economic growth, saying restoring order to public finances should come in the “medium term.”

Obama and Soros are both socialists. The best thing one can do is follow a path exactly opposing their advices.

Pimco’s Bosomworth said Germany’s propensity to save, both at a state and household level, make the country’s bonds “attractive in the sense that they’re a safe place to be in a world not so friendly to risky assets.”

“We will see still lower yields on German bunds,” he said. The yield on Germany’s 10-year bund fell to 2.33 percent this week, a record low. U.S. 10-year bonds yield 2.63 percent.

German policy makers say Europe’s debt crisis shows why it would be a mistake to stimulate domestic spending again, and ask why Germany should pick up the bill for other nations’ profligacy.

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

“Attempts to blame Germany for problems in those countries and policy recommendations of symmetrical adjustment needs are questionable,” Bundesbank President Axel Weber said on April 26. “Rather, the adjustment process that Germany underwent in the decade preceding the financial crisis may serve as an example.”

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

Update: I just found another article I had saved a while ago, containing the same nonsensical rubbish:

July 28 (Bloomberg) -- Germany’s “short-work” policy showed the world how to survive a recession without losing jobs. Now it’s time to pay the price.

The country’s social welfare-driven economic model, which the International Monetary Fund says is helping to preserve labor-market rigidity, has sheltered it from the worst of the financial crisis. The cost is that as the economy recovers, hiring won’t pick up as much as it does in countries such as the U.S. or the U.K., posing a risk to growth in a nation that needs to ignite household spending.

Remains to see any "hiring" in the UK and US. There's still a lot of "firing" going on and these economies are still falling toward the abyss. Yet, it seems like they are praised for their greatness...

[...]
Under the so-called short-work plan, or Kurzarbeit in German, companies can temporarily move employees onto shorter working weeks to reduce costs during periods of weak demand. They pay only for the hours worked and the government provides up to 67 percent of the remaining wage.

The program supported up to 1.5 million employees at some 63,000 companies and saved as many as 478,251 jobs last year, according to the Federal Labor Agency. In March this year, the latest month for which data are available, some 693,000 people worked fewer hours. The government extended the payment of short-work benefits to a maximum of two years in May 2009. Before the crisis, it was limited to six months.

The idea dates back to 1910, when the government compensated workers who were put on shorter hours in the potash and fertilizer industry during an earnings slump. In 1924, when unemployment climbed to 11 percent, the government introduced nationwide short-work policies similar to those used today. A quarter of the German workforce was enrolled in the program at the time.

This is obviously a bad idea. But it's way better than what we see in France... And it's direct subsidies to the industry, so less interfering with the economy than when the government decides which sector needs to expand or what banks and industries have to do...

[...]
“Companies have replaced rigidly agreed working hours with flexible labor schemes that allow them to breathe with the economy,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Germany’s labor market is less inflexible than commonly thought.”

Yes, indeed.

“It was our top priority to keep our core workforce and preserve knowledge and experience for the next upswing,” said Trumpf Executive Vice President Gerhard Ruebling. “We had layoffs in foreign markets with less flexibility, such as Spain, Japan, Poland and partly also in the U.S.”

This is a safe and sound policy.

[...] 

“Gross domestic product in Germany can expand by more than 7 percent without any increase in employment, if hours worked per employee and hourly productivity were to rise back to their pre-crisis levels,” OECD economists said in a report on July 7. “Achieving GDP growth on this scale is expected to take several years, and thus it is unlikely that the steady decline in the unemployment rate during recent months will continue through the second half of 2010.”

That’s a challenge for Germany, whose economic Achilles Heel has long been the reticence of its consumers to spend. Even as exports boom, the Bundesbank forecasts GDP will rise 1.9 percent this year and 1.4 percent next.

 When there's no firing, there's far less need for hiring. And we'll see what the future holds for Germany. Odds are highly biases in favor of Germany: as usual, the IMF and OECD are proven wrong. Of course, one has first to believe that the economy will improve on the short term. That's highly unlikely.

Obama says "I want to help small business". Small Businesses say: "Obama, get the hell out of the way"

It's seems like everybody is getting the fact that Obama's disastrous policies (to be completely fair, they are just the continuation of George W. Bush's, which were the continuation of his predecessor and so forth and so on) are the root cause of the current depression and also the reason why the economy is still sinking, more than 3 years after the beginning of the collapse.

Everybody but Obama and his crew, of course. Here are the proof:

Aug. 19 (Bloomberg) -- President Barack Obama said the jump in unemployment claims shows the urgent need for congressional action on legislation to cut taxes and ease credit for small businesses.
[...]
“Small businesses and community banks that loan to small businesses have been lagging behind,” Obama said at the White House before he and his family leave for a holiday on Martha’s Vineyard in Massachusetts. “If we want this economy to create more jobs more quickly, we need to help them.”
[...]
His remarks today, which lasted just under 4 minutes, repeated points he made during the trip, including criticizing opponents for acting out of political interests.

“There will be plenty of time between now and November to play politics,” Obama said. “Let’s put aside the partisanship for a while and work together.”

The legislation Obama is promoting would ease the terms for loans guaranteed by the Small Business Administration and provide $12 billion in tax breaks to small businesses. It would also provide $30 billion to banks with less than $10 billion in assets to encourage lending to small businesses.

Here is this month's Small Business Economic Trends published by the National Federation of Independent Business (NFIB)

The U.S. economy faces hurricane force headwinds and the government is at the center of the storm, making an economic recovery very difficult. While political leaders trumpet their ideological attempts to remake the economy and save “small business”, more and more ordinary folks are wondering what in the world are they are thinking. Either policymakers have no idea how to help the economy or they are intentionally committing it to unsustainable expenditure growth and deficits so large that there will be no alternative but to raise taxes, a slow suicide for a dynamic economy.

Fear is growing that the “lame duck” session is not so lame and could produce legislation that permanently paralyzes the economy. Cities, states and even sovereign countries are teetering on the brink of bankruptcy while government workers and favored union workers reap benefits and wages far better than their private sector counterparts. With an unemployment rate of nearly 10 percent, the President travels the country touting the health care bill that few like, selling wealth redistribution and the need for more taxes. What should ordinary citizens and small businesses owners expect from all this? A growing and more dynamic economy? Not likely.

In six months, the so-called “Bush Tax Cuts” expire which will trigger one of the largest tax increases in history. The worst financial fiascos including Fannie, Freddie, AIG, GM and others, have not yet been addressed exposing taxpayers to hundreds of billions in losses. Instead, Congress is trying to tax successful businesses. Taxing “success” is a terrible path to growth and real investment. And adding to the misery and pessimism, massive government deficits threaten future capital availability for the private sector.

Paul Krugman in his N.Y. Times op-ed July 9 said, “If we want stronger business spending, we need to give businesses a reason to spend. And to do that, the government needs to start doing more, not less, to promote overall economic activity.” Krugman’s view seems to be shared by Washington, looks like he as well as Congress still don’t get it.

And here is a quote from the Credit Market's section:

Overall, 90 percent of the owners reported all their credit needs met (or they did not want to borrow). Six percent of the owners reported “finance” as their top business problem (up three points).

So, let me phrase all this in one short sentence, since it seems like our leaders are leading the economy into the abyss: Obama, Bernanke, and Congress: please get out of the way or better, if you really want to help the economy, please hand over your resignations.



Update: I just found this other report from Bloomberg that I had saved down. Same lame policies, same people, same results...

Obama’s $300 Billion Small-Business Loan Plan Faces Senate Test

July 28 (Bloomberg) -- President Barack Obama visited a New Jersey sandwich shop to bolster support for his plan to create $300 billion of small-business loans and more jobs as the Senate neared a vote on the package.

“When you listen to the struggles that small business owners are still facing, it is obvious we need to do more,” Obama said today at the Tastee Sub Shop in Edison, where he met with business owners.

What's obvious is that you should get out of the way. Even better: resign.

[...]
“There’s nothing more important to our economic expansion now than getting small businesses and entrepreneurs in a position where they are investing and hiring,” Gene Sperling, counselor to Treasury Secretary Timothy Geithner, told reporters on a conference call yesterday.

Yes, since Geithner and crew were so visionary and clairvoyant about the whole thing, it's now the time for them to interfere even more with the healing economy and destroy the little hope that remains...

Channel Tunnel: a typical example of European crony capitalism and corruption

For those of you who have the joy of leaving in London and go and forth to Paris, it's not going to be news. EuroTunnel is the company which built and currently operates the Channel Tunnel, while Eurostar is the train operator that has a monopoly on the passenger trains that cross the tunnel.

It's not unusual to have to pay £400 ($600) for a day return ticket, and an average return ticket price for a  week-end from London to Paris is usually £200 — I often compared the price I would have paid for a flight to NY from London, and most of the time, flights to NY seem to be about the same price as train tickets to Paris. How ridiculous is that?

One obvious issue could be that Eurotunnel charges a very high price for the crossing. That seems to not be true, as they will charge you about £40 for a car and its passenger, one way. So it must be coming from somewhere else... I knew the reasons, but it's good that voices are now raising and that changes might be on the way.

See how crony capitalism as granted a monopoly to Eurostar, and that stupid rules are preventing any competition. One obvious issue is then that Eurostar must have greased some hands in order to obtain such stupid regulatory rules and its monopoly, for a service that is very often subpar compared to other train operators.

Please see this interview from Eurotunnel's CEO on the German newspaper Frankfurter Allgemeine. I happen to have read it in German and French, but I'm pasting from the Google translation that I have tried to improve:

So far only drive trains of the operator "Euro Star" by the Euro Tunnel. Jacques Gounon tunnel boss wants to break this monopoly and force the competition under the Channel.

23rd July 2010
Why the Euro Star is the only operator of high-speed drive trains through the tunnel?

Euro Tunnel does not determine the rules. France and Britain but have been defined before the opening of the tunnel, these provisions so that the trains must be 400 feet long. This is connected with the passages to the service tunnel in case of evacuation. Only the company € Star today has such features. The trains of the competitors are usually half as long.

What do you think about it?

This requirement is outdated and has three major disadvantages: Today such long trains are not standard, and thus extremely expensive. Second, it would allow more train connections with shorter intervals, as for example between Brussels and Paris every half hour, instead of the three-to four-hour gap in the Euro Star. But you would need shorter trains like the ICE, the TGV or Thalys. The third point is a weakness in security, we want to improve: The 350 passengers of a normal train, you can much more easily than evacuate the 700 people in the Euro Star. The approximately € Star Snow breakdown showed last December. The head of Deutsche Bahn is right in his criticism that his trains can go through all the tunnels, not only through the Channel Tunnel. There is no reasonable justification for it.

Find ear of the politicians?

We have already made some progress. In the past year has been to - not least through our insistence repealed - the requirement that each train can be divided in the middle so that one half to the UK and the others back to France. But one must also know that Euro Star is a company that belongs to the French majority state-owned SNCF and the British government. The shareholders are therefore those that determine the safety regulations.

So if there are competitors, is € Star then sit on his long face?

No, for new providers, such as the German railways will be focused on regions that are processed does not yet exist. There are about a market for the connection between the City of London, Amsterdam and Frankfurt. All providers can attract new customers because people will find favor and give up on the train is increasingly the plane.

Is there enough "slots", ie the time window for new trains?

The Channel Tunnel is indeed the busiest train line in the world: 300 different convoys pass through daily. However, the tunnel is only busy half. So you could simultaneously increase the number of trains, safety and convenience for passengers.

Euro Tunnel of course deserves more, if more trains pass through your tunnel.

Of course. It is also important so that the high return on investment in the tunnel at last. The shareholders have lost about 3 billion euros, the banks in the wake of the financial restructuring around five billion euros.

The new UK gov abolishes the FSA (Financial Services Authority)

This is big news in the UK, where the FSA is the equivalent of the SEC in every respect: responsibilities, but also failure to achieve its duties, and general uselessness as it interferes with the investors duties to perform their own due diligence.

Unfortunately, this seems to be more a political move than anything else: let's just put the failure on Gordon Brown's back (he created the FSA) by abolishing this agency, but keep the responsibilities and duties and transfer them to the Bank of England.

June 16 (Bloomberg) -- Chancellor of the Exchequer George Osborne said he will abolish the Financial Services Authority and give most of its power to the Bank of England, in the most sweeping changes to Britain’s financial regulatory system in more than a decade.

The financial watchdog will be wound down and replaced by three bodies over the next two years, the chancellor said. A Prudential Regulatory Authority will be created as a subsidiary of the central bank. Osborne will also set up a Financial Policy Committee at the bank and establish a consumer protection and markets agency.

US banks making trading profits every single days of Q1

There's been a lot of noise around the fact that the statistically improbable has been happening for almost every one of the major US investment banks: GS, JPM, and also BofA ML and even Citi (yes, even these losers!).

Bloomberg columnist Jon Weil has written a good report on that, and raises the questions that needed to be raised:

May 13 (Bloomberg) -- Score another triumph for the rigged-market theory.

In a feat that would seem to defy the odds, Goldman Sachs, JPMorgan Chase and Bank of America this week each said its trading desk made money every day of the first quarter. Goldman said its daily net trading revenue topped $100 million 35 times last quarter out of 63 trading days. JPMorgan and Bank of America disclosed similar eye-popping stats. Citigroup, too, recorded a profit on each trading day, Bloomberg News reported, citing unnamed people who knew the results.

The intrigue is high. If a too-big-to-fail bank’s traders were able to make money every day of a quarter, were they really trading in any normal sense of the word? Or would vacuuming be a more accurate term? What kinds of risks do such incredible profits entail, for the banks and the rest of us taxpayers? And are results such as these too good to be true?
[...]
The odds that you would post a daily net gain 63 times in a row, though, would be about one in 5.7 billion. The formula for calculating this is: 1/(0.70 to the 63rd power). Even if you had a 95 percent likelihood of a winning day, you would have only a 3.9 percent chance of doing it 63 trading sessions in a row.

Now consider that four of the biggest U.S. banks just pulled off a quarter-long win streak -- all in the same quarter. Why would any of them even want to? Do they think the public doesn’t despise them enough? Surely it would have been easy to tweak the values of some illiquid “Level 3” assets lower for a day if they had been so inclined, just enough to avoid looking perfect. Yet none of them did.

These banks have the advantage of an unlevel playing field, of course. They can borrow money for next to nothing at current rates and lend it for more, simply by buying longer-term Treasuries. They have access to information that their clients lack. They have computer-trading platforms that operate in milliseconds. There’s less competition now that Lehman Brothers and Bear Stearns are gone. Yet even taken together, these factors don’t offer a satisfactory explanation for last quarter’s amazing streaks.

Asking how these four banks did it may even be the wrong question. A better question might be: How did Morgan Stanley’s traders somehow manage to lose money on four days last quarter? Or perhaps the winning streaks were a sign of a perfect calm, just before another perfect storm. It turns out Morgan Stanley posted net trading gains every day during the second quarter of 2007, right before the credit crisis began to hit full-steam.

Goldman’s chief operating officer, Gary Cohn, this week said his bank’s infrequent trading losses -- 11 losing days in the past 12 months -- are evidence that Goldman’s traders don’t depend on proprietary trading to generate revenue. The simple answer, he said, is that Goldman’s trading operations “are largely global market-making businesses.”
[...]
So let’s forget about the how and focus on the why. Why were these banks able to make so much money with such uncanny consistency? One logical answer is that America’s political leaders obviously want it this way.

Otherwise, for example, the government already would have begun to liquidate Fannie Mae and Freddie Mac and let the crash in housing prices and mortgage-backed securities run its course. To encourage personal savings, the Federal Reserve would have raised interest rates and turned off the banking industry’s easy-money spigot. And the White House would be throwing a fit over the International Monetary Fund’s use of U.S. taxpayer dollars to help bail out Greece and its ilk, along with the European banks that own their debt.
[...]
What nobody knows yet is how long the government can keep up the rig.

Fannie Mae loses $13billion in Q1, doesn't expect to earn profits for the indefinite future

After Freddie Mac's nice quarter, I was highly anticipating Fannie Mae's, and it's not disappointing!

Without too much fuss, here's the quote direct from Fannie Mae (via CalculatedRisk):

Fannie Mae (FNM/NYSE) reported a net loss of $11.5 billion in the first quarter of 2010, compared with a net loss of $15.2 billion in the fourth quarter of 2009. Including $1.5 billion of dividends on our senior preferred stock held by the U.S. Department of Treasury, the net loss attributable to common stockholders was $13.1 billion ...

We acquired 61,929 single-family real estate-owned properties through foreclosure in the first quarter of 2010, compared with 47,189 in the fourth quarter of 2009. As of March 31, 2010, our inventory of single-family real estate owned properties was 109,989, compared with 86,155 as of December 31, 2009.

From MarketWatch:

"Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future," Fannie said.

Another sweet piece of news, about REO (from CalculatedRisk):

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased by 22% in Q1 2010 from Q4 2009. The REO inventory (foreclosed homes) increased 59% compared to Q1 2009 (year-over-year comparison).

Government backed 96.5% of all home loans in Q1

A friend of mine sent me two interesting links from the WSJ. The first one is about the Role in Mortgage Market Grows Even Larger of the US Government:

The U.S. government's massive share of the nation's mortgage market grew even larger during the first quarter.

Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants

90% was already an unbelievable number, but 96.5%? It really means that due a combination of insolvency and unwillingness to take on risk, the banks are not lending anymore and that the only lender remaining in the market is the government. Unfortunately, the government is distorting the markets and is willing to lend money for rates that are not adequate with the level of risk taken. This means probable further losses, and longer time for the housing market to reach its normal level, with a lot of pain all the way down.

Bloomberg wins against the Fed

More than a year ago, Bloomberg sued the Fed in order to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

A few days, Bloomberg published this report (which I missed, but some friends sharper than me forwarded it to me):

March 19 (Bloomberg) -- The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.
[...]
“This money does not belong to the Federal Reserve,” Sanders said in a statement. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”
[...]
“Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Golden wrote in court filings.

Let's be honest, I don't think the Fed is going to release this information that easily. They will fight, and delay as much as they can, and we might still be at the same point in several months or maybe years. But it seems like there is light at the end of the tunnel and I hope it's a train that's going to wreck the Fed.

The UK: Deathbed of Keynesian Economics

Many friends sent me a link to this is a fantastic report by Matthew Lynn, on Bloomberg:

Feb. 23 (Bloomberg) -- The U.K. has produced notable economists over the years, but John Maynard Keynes, the guru of government intervention, was one of truly global significance.

So it may be fitting that the U.K. will also become the deathbed of Keynesian economics.

Britain has been following the mainstream prescriptions of his followers more than any developed nation. It has cut interest rates, pumped up government spending, printed money like crazy, and nationalized almost half the banking industry.

Short of digging Karl Marx out of his London grave, and putting him in charge, it is hard to see how the state could get more involved in the economy.

The results will be dire. The economy is flat on its back, unemployment is rising, the pound is sinking, and the bond markets are bracketing the country with Greece and Portugal in the category marked “bankruptcy imminent.” At some point soon, even the most loyal disciples of Keynes will have to admit defeat, and accept that a radical change of direction is needed.

The public debate about the state of the British economy was enlivened last week by a brawl between economists.

On Feb. 14, a group that included the former Bank of England policy makers Tim Besley, Howard Davies, Charles Goodhart and John Vickers published a letter to the Sunday Times calling on the government of Prime Minister Gordon Brown to control the ballooning deficit. If it didn’t, the stability of the economic recovery would be threatened, and there would be a run on the pound, they warned.

That brought a stinging response from the Keynesians, who are urging the U.K. to spend its way out of recession. Nobel laureates Joseph Stiglitz and Robert Solow were among the signatories to letters written by a group of 67 economists insisting that deficit spending was the only way to salvage the economy. The letters, published in the Financial Times, argued that a “a sharp shock” now “would be positively dangerous.”

So who is right, and who is wrong? It’s a debate that matters to the rest of the world. After all, if demand management doesn’t work here, it won’t work anywhere.

The U.K. has some experience of mass letter writing from Keynes’s devotees. In 1981, a group of 364 economists wrote an open letter ripping into the policies of then Prime Minister Margaret Thatcher. They turned out to be totally wrong, of course. With hindsight, no one can now dispute that her policies led to a long and durable economic revival.

And just as the Keynesians were wrong three decades ago, they are wrong now.

The U.K. has been in Keynes overdrive for the past 18 months. The budget deficit is already more than 12 percent of gross domestic product, on a par with Greece. And while the Greeks are cutting spending, the British deficit is widening. Figures for January showed another fiscal blowout. At the same time, interest rates have been slashed to 0.5 percent. And the pound has slumped in value, which is supposed to boost demand for British goods, and help close the trade gap.

Just about everything possible has been done to encourage consumption. The results have been miserable.

Retail sales excluding gasoline in January fell 1.2 percent from the previous month, twice as much as economists forecast. The number of people receiving unemployment benefits jumped to 1.64 million in January, the highest level since April 1997. The yield on U.K. government debt is now higher than on Spanish or Italian bonds, a sure sign that investors are losing faith in the country’s ability to pay its debts. The inflation rate has also accelerated to 3.5 percent.

In reality, Britain has the worst of all possible worlds: a stagnant economy, a crippling budget deficit and rising prices.


The Keynesian consensus is that things would have been far worse without the stimulus provided by government. And if the economy isn’t pumped up with inflated demand, it will collapse back into recession. If it’s not working, that just proves the stimulus should be even larger.


It is the argument quacks always push: If the medicine isn’t working, increase the dosage.


And yet, reality has to intrude into this debate at some point. The deficit can’t get much bigger, interest rates can’t be cut much lower, and sterling can’t lose much more value.


Stimulating the economy isn’t working.

In fact, it’s only making it worse. Consumers and businesses don’t want rising taxes. A falling currency pushes up the cost of everything the U.K. imports, stoking inflation. Savers get decimated, and yet the banks remain reluctant to lend because they rightly believe the economy is in the doldrums.

What’s needed is a total change of direction. Get the deficit under control. Raise interest rates to restore confidence in the pound, and reward saving. Cut taxes to stimulate enterprise and investment.

And yet the real lesson of the U.K. in 2010 will be of wider significance. A country can’t spend its way out of a recession. And it can’t fix what was at root a problem of too much debt by just borrowing more and more.

In the country of its birth, Keynesian economics is being tested. If the economy isn’t growing at a healthy clip again by the end of 2010, its failure will be obvious to everyone.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

Fannie Mae loses $19b in Q3, requests another $15b from Treasury and offers to buy back your home with tax-payer's money

You can see that things are improving... the US Government via the companies they created (Fed, Fannie, Freddie, FHA, etc.) managed to create the biggest credit bubble in the history of mankind.

The goal of Fannie and Freddie was to create "affordable housing". Not only was that a big failure with housing reaching historically high prices, but now, their unofficial role is to prevent house prices from declining.

From the financial results press release:

Fannie Mae reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. [...] As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency submitted a request for $15.0 billion from Treasury on the company’s behalf.
[...]
Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008.

From the Deed for Lease Program press release:

Fannie Mae is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.
[...]
The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

Yet again, the government sponsored agency is tapping into the savings of people who behaved rationally and didn't take part in this credit binge to reward those who didn't. Here, they are rewarding the least possible category of people : those who do not even qualify for any other loan-workout solutions, such as modifications.

Also, old news, but still noteworthy:FHA Delays Fiscal Report

Obama and GM

USA or USsAr?

WASHINGTON (AP) -- President Barack Obama pushed General Motors Corp. into bankruptcy on Monday and said it was part of a "viable, achievable plan that will give this iconic company a chance to rise again."
[Why does the president has the power to push a private company into bankruptcy? Or plan for the recovery of the same company?]

Obama said he hoped the firm would emerge quickly from bankruptcy court, and said the government was ready to commit an additional $30 billion to help the company get on its feet.
[Why send $30 billion more into the whole? And at that time??]

He said the government would own 60 percent of the new GM -- much as it has taken part ownership of Chrysler, banks and other corporations in recent months -- and acknowledged that could prove controversial with some.
[USsAr]

Seeking to ease those concerns, Obama said, "What I am not doing, what I have no interest in doing, is running GM."

The president said auto executives "will call the shots and make the decisions about turning this company around." He said the government would refrain from playing a management role in all but the most critical areas.
[Yes, because they have a very good track record of doing the right thing. They have been able to do anything about it for the past many years, and I don't see how the same people would be able to now become competent all of the sudden]

"Our goal is to help GM get back on its feet ... and get out quickly," he said of the federal government.

Obama spoke as GM entered bankruptcy court at the same time Chrysler was looking to emerge after a two-month reorganization. Over the weekend, a bankruptcy judge gave the No. 3 automaker approval to sell most of its assets to Italy's Fiat, part of a plan under which the U.S. government will own somewhat less than 10 percent of the firm.

Ford Motor Co., the other large U.S. automaker, has said it can weather the current economic and industry crises on its own.

Under the GM plan envisioned by Obama's auto industry task force, the federal government will wind up with 60 percent ownership in the one-time pillar of American capitalism.

That comes in addition to its smaller stake in Chrysler, as well as significant interests in banks, insurance giant AIG and two mortgage industry giants, Fannie Mae and Freddie Mac.

Speaking at the White House, where he was flanked by Cabinet secretaries and economic advisers, Obama said the coming restructuring will "take a painful toll on many Americans" with the closure of additional plants and the loss of jobs.

The president did not pause to answer questions, but Republicans had plenty.

"The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars," said House Republican Leader John Boehner of Ohio.

"Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability? It's time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all," Boehner said.

Obama cited Chrysler's experience in bankruptcy court as a model of how GM could fare.

"Some said a quick bankruptcy was impossible ... they were wrong," he said.

He added that unnamed critics predicted car sales would "fall off a cliff," and added, "they were wrong." Chrysler sold more cars in May than it did in April.
[Obviously, he's lying. If he's not, he might just be insane]

The outcome, he said, is "dramatically better than the one we found when we began."

Looking ahead, he said, GM will be prodded at every juncture by the administration's top officials.

The announcement marked the latest step in a series of measures Obama has taken since he became president to salvage an industry that has been part of the American landscape for a century.

Earlier in the year, he rejected a restructuring plan submitted by GM's ownership, and ordered its leaders to try again. They did, under the direction of administration officials, and the result is a blueprint in which hundreds of dealerships will be closed and familiar model names jettisoned. Officials have estimated the new GM should be profitable at a level of 10 million vehicle sales a year. The company that entered bankruptcy court had to sell an estimated 16 million units to make a profit.
[10 million a year is still a huge number, specially in the current economic environment and when you produce car that nobody actually want]

Obama stressed that GM's workers and its investors had both made sacrifices. The United Autoworkers Union agreed in recent days to numerous concessions, and a majority of investors agreed to accept less than the paper value of their holdings. The administration, sensitive to charges that it favored the UAW, said the terms accepted by the unions were harsher than what had been proposed by the Bush administration.

NEW YORK (AP) -- General Motors CEO Fritz Henderson says the new GM will be a leaner and quicker company that's more focused on its customers and its products.
[Yes, because he has a very good track record of doing the right thing. They have been able to do anything about it for the past many years, and I don't see how the same people would be able to now become competent all of the sudden]

Henderson spoke Monday at a news conference in New York after the fallen icon of American industry filed for bankruptcy protection. President Barack Obama says it is part of a "viable achievable plan" that will give the company "a chance to rise again."

Henderson says the new GM will be built from the strongest parts of its business, including its best brands and best products.
[Obviously, if you believe in fairy tales... I can't do much for you]

The company plans to focus on four core brands -- Chevrolet, Buick, Cadillac and GMC -- and get rid of four others -- Pontiac, Saturn, Hummer and Saab.

BofA's Lewis Threatened Over Merrill By Bernanke And Paulson

What was already obvious back in October 2008 when I wrote in BofA Merrill Lynch - The creature of Bernankenstein is now being confirmed true by the WSJ (Thank you Mr Denninger):

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.
[...]
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.

Obviously, hoping that these criminals will ever be brought to justice is just wishful thinking...