Core Dump

Indeed, this period of economic weakness may reinforce class divides, and decrease opportunities to cross them—especially for young people. The research of Till Von Wachter, the economist at Columbia University, suggests that not all people graduating into a recession see their life chances dimmed: those with degrees from elite universities catch up fairly quickly to where they otherwise would have been if they’d graduated in better times; it’s the masses beneath them that are left behind. Princeton’s 2009 graduating class found more jobs in financial services than in any other industry. According to Princeton’s career-services director, Beverly Hamilton-Chandler, campus visits and hiring by the big investment banks have been down, but that decline has been partly offset by an uptick in recruiting by hedge funds and boutique financial firms.

In the Internet age, it is particularly easy to see the bile that has always lurked within American society. More difficult, in the moment, is discerning precisely how these lean times are affecting society’s character. In many respects, the U.S. was more socially tolerant entering this recession than at any time in its history, and a variety of national polls on social conflict since then have shown mixed results. Signs of looming class warfare or racial conflagration are not much in evidence. But some seeds of discontent are slowly germinating. The town-hall meetings last summer and fall were contentious, often uncivil, and at times given over to inchoate outrage. One National Journal poll in October showed that whites (especially white men) were feeling particularly anxious about their future and alienated by the government. We will have to wait and see exactly how these hard times will reshape our social fabric. But they certainly will reshape it, and all the more so the longer they extend.

Labels: economics and finance, politics, society

Labels: economics and finance, science, SF, society

THE DECLINE OF THE AMERICAN EMPIRE

MEDIAN HOUSEHOLD INCOME (2008 dollars)
2000: $52,500
2009: $50,303

PROPORTION OF AMERICANS LIVING IN POVERTY
2000: 11.3%
2009: 13.2%

AMERICANS WITHOUT HEALTH INSURANCE:
2001: 39.7 M (14.1 per cent of population)
2008: 46.2 M (15.4 per cent)

UN HUMAN DEVELOPMENT INDEX
(a measure of life expectancy, literacy, school enrolment and per capital GDP)
WORLD RANK
2000: No. 3
2009: No. 13

PUBLIC DEBT AS PERCENTAGE OF GDP
2000: 35%
2010: 62%

CONSUMER CREDIT OUTSTANDING AS A PERCENTAGE OF GDP
2000: 16%
2009: 17.3%

HOUSING STARTS
Oct. 2000: 1.5 M
Oct. 2009: 529,000

JOBLESS RATE
Nov. 2000: 3.5%
Nov. 2009: 10%

Labels: economics and finance, society

For instance, most have fallen for the “preexisting conditions” bit, that the new plan is better because it forces insurers to cover those with preexisting conditinos. Well first, if you recall, insurers have used the failure to report ANY preexisting condition, no matter how trivial, as a reason to deny coverage when someone gets a costly illness. So health insurers will be permitted to charge those with “preexisting conditions,” again even if trivial, a 50% premium to the rest of the population. This not only defeats the idea of enlarging the pool, but also continues the abusive use of the notion of “preexsiting condition”. And before you argue that including all those people is costly and needs to be recouped somehow, every other advanced economy has a form of government-supported medicine that covers all citizens, is cheaper than ours, and delivers no worse, and in many cases, better health outcomes. Covering these people is not the problem; the problem is the system we now have.

Labels: economics and finance, health

Labels: economics and finance, language

For 31 years, the IMO has operated a policy agreed by the 169 governments that make up the organisation which allows most ships to burn bunker fuel.

Christian Eyde Moller, boss of the DK shipping company in Rotterdam, recently described this as ‘just waste oil, basically what is left over after all the cleaner fuels have been extracted from crude oil. It’s tar, the same as asphalt. It’s the cheapest and dirtiest fuel in the world’.

Bunker fuel is also thick with sulphur. IMO rules allow ships to burn fuel containing up to 4.5 per cent sulphur. That is 4,500 times more than is allowed in car fuel in
the European Union. The sulphur comes out of ship funnels as tiny particles, and it is these that get deep into lungs.

Thanks to the IMO’s rules, the largest ships can each emit as much as 5,000 tons of sulphur in a year – the same as 50million typical cars, each emitting an average of 100 grams of sulphur a year.

With an estimated 800million cars driving around the planet, that means 16 super-ships can emit as much sulphur as the world fleet of cars.

Labels: Another thing to worry about, economics and finance, environment

Predatory pricing is a means of driving other booksellers out of business. When this happens, the choice of books is one of the first things to suffer. Some readers think that if their favorite store closes they can always buy the book they want somewhere else. But that's a dangerous delusion -- the books they want may not be there at all. In fact, these types of disruptions in how books are sold or distributed has a profound effect on what publishers decide to publish in the first place.

Think of the book business as a giant funnel, in which millions of authors are trying to reach tens of millions of readers. The image is a telling one, because the literary life of America has to go through two very narrow choke points: publishing and bookselling. Both of these choke points have become more and more constricted in recent years as a result of economic concentration and market manipulation.

Publishing is now consolidated in the hands of a few large conglomerates that control most of what is published in America. There are, to be sure, many booklovers in the publishing divisions of these giant corporations, but they are outnumbered and out-maneuvered by the bean-counters. Sadly, many of these publishing divisions could probably be shutdown entirely without having any significant affect on the bottom-line of the parent corporations. It is not an atmosphere that favors innovation or literary discoveries. In many cases the attitude seems to be to hold on and hope that declining sales and stagnant readership doesn't cost you your job.

Labels: books, economics and finance

I know that Larry Summers and Tim Geithner seem cool and calm. I know that Harry Reid, Mitch McConnell, Nancy Pelosi and John Boehner don’t really believe we are still in a financial crisis. Either they are good fakers for the camera or somehow they think the good old American consumer is going to go back to their old ways, max out their credit card and get the mall economy rolling again. This is a fantasy and until we face facts that we have to rebuild an American manufacturing and exporting economy that can put America back to work we will remain prisoners of the globalization fantasy.

Labels: economics and finance

Labels: economics and finance, environment, photography, places

We can talk all we want about building a better future full of “Green Jobs”, but on the current trajectory, that future will arrive in China long before it reaches our shores. The “chicken and egg” problem described by the Wall Street Journal won’t be solved until the government starts aggressively seeding the Green Tech Business, because alternative energy is the only place where we have undercapacity. And this can be a “bottoms-up” strategy simply by requiring every utility company to buy excess solar and wind capacity from consumers at some sort of fixed rate. Consumers in California could easily afford to shift to solar if they knew they could make a profit from their excess capacity. The second thing the government could do would be to designate certain less scenic parts of the millions of acres of government land as open for solar and wind development in a public private partnership.

Labels: Another thing to worry about, economics and finance, politics

Readers will likely enjoy his treatment of the TARP and its aftermath. Moore provides evidence well known to finance blog readers, such as Goldman penetration of key policy positions, an obligatory Phil Gramm saying something heinous shot, and the role of financial services contributions (he managed to interview the fellow at Countrywide in charge of the “Friends of Angelo” cheap mortgage as bribe program, who sees nothing wrong in what he did). He also makes good use of Bill Black and Elizabeth Warren. Congressmen and women, agitated even now, describe how the process of getting the TARP through despite overwhelming popular opposition was masterfully orchestrated, carefully timed to prey on re-election fears “like an intelligence operation”. The clips are simply damning, and dispel any doubts of who is really in charge in DC.

Labels: economics and finance, movies and television, politics

PK: And yet, let me press on. What I kind of expected. Let me show my age here. What you came out believing if you went to the New York’s World Fair in 1964 was that we were going to have this enormously enhanced mastery of the physical universe. That we were going to have undersea cities and supersonic transports everywhere. And there hasn’t been that kind of dramatic change. It’s not just that airplanes are no faster. My favorite test, which shows something about me, is the kitchen. If you walked into a kitchen from the 1950’s it would look a little pokey, but you’d know what to do. It wouldn’t be that difficult. If someone from the 1950’s walked into a kitchen from 1909 they’d be pretty unhappy – they might just be able to manage. If someone from 1909 went to one from 1859, you would actually be hopeless. The big change was really between 1840 and the 1920’s, in terms of what the physical nature of modern life is like. There’s been nothing like that since. So we can do fancy information searches in a way that no one envisioned 30 years ago – as one of my colleagues at the Times, Gail Collins, likes to say all the time where are the flying cars?

CS: Yeah, where is my food pill, where are my jetpacks. Actually, flying cars are really bad idea, if I can just go off on a tangent. Your flying car is great, what about your neighbors flying car when his 15 year old son gets into it and tries to impress his girlfriend in it. Normal cars have a simple failure mode; they stop moving, hopefully at the side of a road. Flying cars, if they have a failure mode, they stop moving and then they move very rapidly straight down.

Labels: economics and finance, SF

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.

Labels: Another thing to worry about, economics and finance, politics

Geopolitical instability—The question is not whether Iran develops the Bomb, but when. When they do demonstrate a device, will they be attacked? If their weapons capability is not destroyed, will they nuke someone in retaliation (forcing Washington to make a decision)? If their capability is destroyed, will they retaliate by closing the Straits of Hormuz and 40% of the world’s oil supply? If the world does nothing, will that provoke the Saudis and Egyptians to get the bomb? When several other nations in the region get the bomb, deterrence will be a fond memory because no one will be sure enough of who originated an attack to retaliate.

–Sideline money..The sideline money is waiting for an excuse to jump back in. I don’t think speculators can change the direction of the market, but they can and do make the move more violent. Once it breaks out, it will run.

Labels: economics and finance, politics

The exploration into cardholders’ minds hit a breakthrough in 2002, when J. P. Martin, a math-loving executive at Canadian Tire, decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year. Canadian Tire’s stores sold electronics, sporting equipment, kitchen supplies and automotive goods and issued a credit card that could be used almost anywhere. Martin could often see precisely what cardholders were purchasing, and he discovered that the brands we buy are the windows into our souls — or at least into our willingness to make good on our debts. His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.

Martin’s measurements were so precise that he could tell you the “riskiest” drinking establishment in Canada — Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. He could also tell you the “safest” products — premium birdseed and a device called a “snow roof rake” that homeowners use to remove high-up snowdrifts so they don’t fall on pedestrians.

Testing indicated that Martin’s predictions, when paired with other commonly used data like cardholders’ credit histories and incomes, were often much more precise than what the industry traditionally used to forecast cardholder riskiness. By the time he publicized his findings, a small industry of math fanatics — many of them former credit-card executives — had started consulting for the major banks that issued cards, and they began using Martin’s findings and other research to build psychological profiles. Why did birdseed and snow-rake buyers pay off their debts? The answer, research indicated, was that those consumers felt a sense of responsibility toward the world, manifested in their spending on birds they didn’t own and pedestrians they might not know. Why were felt-pad buyers so upstanding? Because they wanted to protect their belongings, be they hardwood floors or credit scores. Why did chrome-skull owners skip out on their debts? “The person who buys a skull for their car, they are like people who go to a bar named Sharx,” Martin told me. “Would you give them a loan?”

Labels: economics and finance, society

Asian stock markets retreated Monday as investors worried the outbreak of swine flu in North America could grow into a worldwide pandemic that deepens the global recession.

Fears over a virus that has already sickened hundreds, and possibly killed more than 100 in Mexico, led investors to buy drug makers and dump airlines like Qantas Airways and Cathay Pacific. Oil prices and the dollar both fell.

Labels: economics and finance, health

Sahinal Monir, a slim 24-year-old from the deltas of Bangladesh. "To get you here, they tell you Dubai is heaven. Then you get here and realise it is hell," he says. Four years ago, an employment agent arrived in Sahinal's village in Southern Bangladesh. He told the men of the village that there was a place where they could earn 40,000 takka a month (£400) just for working nine-to-five on construction projects. It was a place where they would be given great accommodation, great food, and treated well. All they had to do was pay an up-front fee of 220,000 takka (£2,300) for the work visa – a fee they'd pay off in the first six months, easy. So Sahinal sold his family land, and took out a loan from the local lender, to head to this paradise.

As soon as he arrived at Dubai airport, his passport was taken from him by his construction company. He has not seen it since. He was told brusquely that from now on he would be working 14-hour days in the desert heat – where western tourists are advised not to stay outside for even five minutes in summer, when it hits 55 degrees – for 500 dirhams a month (£90), less than a quarter of the wage he was promised. If you don't like it, the company told him, go home. "But how can I go home? You have my passport, and I have no money for the ticket," he said. "Well, then you'd better get to work," they replied.

Sahinal was in a panic. His family back home – his son, daughter, wife and parents – were waiting for money, excited that their boy had finally made it. But he was going to have to work for more than two years just to pay for the cost of getting here – and all to earn less than he did in Bangladesh.

I don't want to sound too defensive about Dubai or the Middle East in general, but one thing I've learned from my still brief time is that it's much more complicated than it appears. Just calling Muslim law and governance "medieval" and writing it off is ignorant. It's very different and isn't in sync with what many of us might think is "fair". They treat bounced checks and drug smuggling very seriously. Moving to the Middle East casually and assuming that everything should be just like home is dangerous and I wouldn't recommend it. However, I knew about the drug thing even before I visited and I learned about the "bounced checks land you in jail" thing on my first day.

In summary, I think that if you're looking for fast money or a "rags to riches" dream, I would recommend against going to Dubai. On the other hand, if you're looking for a safe place to park while you explore opportunities or culture in the Middle East, I think Dubai is fine, for now. The food is good, there are great people, the culture is diverse, most of the infrastructure works and the laws are, relatively speaking, friendly to foreigners compared to the rest of the region. That's why I moved there and so far I'm not regretting my decision.

Labels: economics and finance, places, politics

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimize this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline.

Labels: Another thing to worry about, economics and finance, politics

As early as 2000, a handful of public officials led by the county treasurer, Jim Rokakis, went to the Federal Reserve Bank of Cleveland and pleaded with it to take some action. In 2002, the city passed an ordinance meant to discourage predatory lending by, among other things, requiring prospective borrowers to get premortgage counseling. In response, the banking industry threatened to stop making loans in the city and then lobbied state legislators to prohibit cities in Ohio from imposing local antipredatory lending laws.

In the ensuing years, the city’s real estate was transformed into an Alice-in-Wonderland-like landscape. Local officials began keeping track of foreclosed homes by placing red dots on large wall maps. Some corners of the map, like Slavic Village, are now so packed with red dots they look like puddles of blood. The first question outsiders now ask is, Where has everyone gone? The homeless numbers have not increased much over the past couple of years, and it appears that most of the people who lost their homes have moved in with relatives, found a rental or moved out of the city altogether. The county has lost nearly 100,000 people over the past seven years, the largest exodus in recent memory outside of New Orleans.

Banks are now selling properties at such low prices — many below what they sold for in the 1920s — you have to wonder why they bother to foreclose at all. (The F.D.I.C. estimates that each foreclosure costs a bank on average $50,000, more than if they were to do a loan modification.) All of this leaves Brancatelli in a constant state of exasperation. When asked how he’s doing, he often takes a breath and replies, “Another day in paradise.”

Labels: Another thing to worry about, economics and finance, society

By the end of 2009, the critical question will be whether the White House or Congress will have driven most of the lasting domestic economic policy agenda. In even the most optimistic assessment, a combination of economic crisis and a stronger Congress means that the balance is likely to tilt considerably from where it has been over the past decade, making the rise of the US Congress the world’s top risk in 2009.

Labels: Another thing to worry about, economics and finance, politics

High culture aside, charities and institutions such as the Mosaic Youth Theatre, a beacon for poor, inner-city teens, are also worried about their budgets. The city’s two newspapers, The Detroit News and the Detroit Free Press, are clinging together for survival under a joint operating agreement that allows them to skirt antitrust law and pool costs on areas such as printing and back-office functions. From this month, they are cutting home delivery – standard for newspapers in the US – to just three days a week.

Detroiters also speak of a fraying of the city’s social fabric. For much of the 20th century, the car industry was a ticket to the middle class for poor whites from Appalachia and blacks from the deep south, lured north by Henry Ford’s famous $5-a-day jobs. Public sector unions, in turn, negotiated benefits modelled on the UAW’s – which are now straining city and state budgets. For some, social mobility is now in reverse. In Detroit’s predominantly black North End, there are blocks of ramshackle houses, many up for auction after being abandoned by owners no longer able to meet higher payments on their adjustable-rate mortgages. Again, this is the stuff of Detroit dispatches of past; the difference is that this neighbourhood always had middle-class residents alongside its poor majority. All are now bearing the brunt of the sub-prime crisis and its ripple effect on jobs, the economy and confidence.

Labels: economics and finance, places, politics, society

Labels: economics and finance

BCE acquired the bankrupt retail chain on Monday as part of a move to win more wireless clients. RBC Dominion Securities Jonathan Allen said in a report Tuesday: “Bell Mobility has steadily lost market share in the last 5 years and a key reason, in our view, has been Bell's distribution gap versus Telus and Rogers Communications."

BCE can now flog more of its own products through The Source outlets - satellite TV and Internet, along with cellphones - and at the same time, eliminate a sales channel that accounted for 5 per cent of Rogers wireless sales. When the dust settles, BCE will have a total of 1,479 outlets, compared to 1,100 at Rogers and 800 at Telus.

Labels: economics and finance

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.

Labels: economics and finance

The consequences of Wall Street’s reckless brilliance in many ways parallel modern-day engineering disasters. If you travel through Italy, you can’t help but notice the many Roman bridges that still stretch across that nation’s waterways. How is it that the Romans could build bridges that would last thousands of years, while the ones we build today collapse after a few decades?

The answer is simple. Back then, they did not have the fancy computers required to calculate exactly how strong a bridge must be. So an architect made a bridge very, very strong. Today, engineers can calculate exactly how much steel they need to incorporate into a bridge to bear the expected load. The result is, they are free to make them weaker.

Room for Error

Another result is less wiggle room for design error. Hence, modern bridge’s predilection for collapsing.

The same is true of the financial sector. Back when Wall Street was run by individuals without fancy degrees, they had a proper skepticism toward fancy models and managed their risks with a great deal more humility and caution. Only when failed models became canon did catastrophe strike.

Wall Street didn’t die in spite of being run by our best and brightest. It died

Labels: economics and finance

The average income for Chinese farmers is about $690 a year — less than a third of what is paid in urban areas. The shortage of well-paying jobs explains why as many as half of the laborers in Bamboo Pole, population 50,000, decided to seek factory jobs — and why their return is so problematic now.

"It'll be a troubling year," predicts Victor Shih, a Northwestern University professor who researches China's economy.

Many of the jobless migrant workers will stay in cities to try their luck, possibly at smaller salaries.

For those who go home and stay, Shih says, rural life will come as a shock. "These young people were farmers, but they have lived in big cities, and their expectations are now a lot higher."

Labels: Another thing to worry about, economics and finance

Labels: Another thing to worry about, economics and finance

Trinkets for $1 were an early sign of trouble. Early last year, garage sales and estate auctions became more common in Lehigh Acres as families sold what they could to survive. No one seemed interested in buying whole houses, and foreclosures soon gave way to empty homes that became magnets for crime.

Thieves stole air conditioner parts for scrap. And on distant roads with only a few new homes and faded blue street signs from the ’50s — on Narcissus Boulevard, on Prospect Avenue — drug dealers moved in.

In 2007 and 2008, the Lee County Sheriff’s Department shut down more than 100 houses in Lehigh Acres where marijuana was being grown. In 2008, the police confiscated nearly 3,000 plants valued at nearly $7 million.

Labels: economics and finance, society

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

The research was conducted for The Sunday Times over the last two months in three provinces vital to Chinese trade – Guangdong, Zhejiang and Jiangsu. It found that the global economic crisis has scythed through exports and set off dozens of protests that are never mentioned by the state media.

While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands.

Even security guards and teachers have staged protests as disorder sweeps through the industrial zones that were built on cheap manufacturing for multinational companies. Worker dormitory suburbs already resemble ghost towns.

In the southern province of Guangdong, three jobless men detonated a bomb in a business travellers’ hotel in the commercial city of Foshan to extort money from the management.

The Communist party is so concerned to buy off trouble that in one case, confirmed by a local government official in Foshan, armed police forced a factory owner to withdraw cash from the bank to pay his workers.

Labels: Another thing to worry about, economics and finance, politics

Labels: Another thing to worry about, economics and finance

For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.

The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.

The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)

Labels: Another thing to worry about, economics and finance

Labels: economics and finance

Beyond regulating the most anti-social and greedy members of the business society for the common good, the government will have to be like a venture capital investor in the same way that DARPA built the first Internet. We are now about to embark on an experiment in how this kind of investment in “Public Goods” can raise productivity for the private sector as well as the society as a whole. Universal Broadband, 21st Century schoolrooms, massive solar and wind farms, a smart electricity grid–these are the foundations of a Green New Deal.

I am well aware that questioning the “Growth Imperative” is heresy in America, but the huge investments we make in the next twelve months will help determine whether we are truly willing to give up our dependence on disposable products that keep people coming back to the mall (Planned Obsolescence) and invest to be the high quality innovator in durable goods that last for years.

Labels: economics and finance, politics

If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn’t go to the refinery, there is no plate steel. If the plate steel doesn’t get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don’t buy. If the consumers don’t buy, there is no Christmas.

Everyone along the supply chain should worry about their jobs. Many will lose their jobs sooner rather than later.

If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall.

Everyone along the supply chain should worry about their children going hungry.

When that happens, everyone in governments should worry about the riots.

Controlling access to trade finance determines who loses their jobs, whose children go hungry, who riots, which governments fall. Without dedicated focus on the issue of trade finance and liquidity from those in the emerging world most interested in sustaining the growth of recent years, little progress can be expected.Trade finance is rapidly communicating the stress on bank liquidity to the real economy. It presents a systemic risk much more frightening than the collapsing value of bits of paper traded electronically in London and New York. It could collapse the employment, the well being and the political stability of most of the world’s population.

Labels: Another thing to worry about, economics and finance

See if any of this sounds familiar: As soon as the bailout was announced, it became clear that Treasury officials would hire outsiders to perform their jobs for them — at a profit. Private companies wanting to help manage the bailout were given just two days to apply for massive, multiyear contracts. Since it was such a mad rush — after all, the entire economy was about to implode — there was no time for an open bidding process. Nor was there time to draft rigorous rules to make sure that those applying don't have serious conflicts of interest. Instead, applicants were asked to disclose their conflicts and to explain — and this is not a joke — their "philosophy in fulfilling your duty to the Treasury and the U.S. taxpayer in light of your proprietary interests and those of other clients." In other words, an open invitation to bullshit about how much they love their country and how they can be trusted to regulate themselves.

The first major contract to be awarded in the bailout was for legal advice — and the choice Treasury made was Halliburton-esque in its audacity. Six law firms were invited to bid, but four declined, either because they didn't want the contract or because they had too many conflicts of interest. Rep. Barney Frank, chairman of the House Financial Services Committee, said the fact that so many law firms chose not to bid "shows that the guidelines are sufficiently rigorous."

Or it may just show that the bidder who won the contract — Simpson Thacher & Bartlett — takes a more relaxed approach to conflicts than its colleagues. The law firm is a Wall Street heavy hitter, having brokered some of the biggest bank mergers in recent years. It also provided legal support to companies trading mortgage-backed securities — the "financial weapons of mass destruction," as Warren Buffett called them, that detonated the banking industry. More to the point, it was hired to provide legal services to the Treasury in its negotiations to spend $250 billion of the bailout money purchasing equity in America's banks

Labels: economics and finance, politics

We have been writing for a few weeks that the credit crisis had engulfed letters of credit, a crucial instrument in international trade, particularly of commodities (ex oil) and other raw materials. With banks hesitating to extend credit to each other much beyond overnight (finally changing only by virtue of massive liquidity measures and recapitalizations), they are leery of taking each other's letters of credit (when used to facilitate a sale, an L/C from a buyer must be accepted by the seller's bank of title to the goods to pass hands).

However, despite its importance, letters of credit are a low-margin, operationally intensive banking business that seldom gets the attention of senior management. With so many trouble areas competing for attention, this one has been largely neglected.

Labels: Another thing to worry about, economics and finance

However, as has been discussed in gruesome detail, banks are reluctant to take credit exposures to other banks on the most plain vanilla. short term exposures, namely interbank lending. It has been a struggle for central banks to get banks to lend to each other for longer than overnight. Trade financing is a backwater, operationally intensive, low profit area that simply does not register on senior managements' or regulators' radars. And problems in this area would have virtually no impact on banks, so even acute problems here would simply not register, particularly in comparison to all the other fires that central banks are struggling to smother.

Further confirmation of our theories came from a UBS Equity Derivatives Macro Sales note from last week (hat tip reader Scott). The article indicates that one reason the scarcity of finance has not yet led to manufacturing shutdowns is that users are running down inventories.

Labels: Another thing to worry about, economics and finance

Dry bulk shippers are going the way of the global economy: under water. Among the shippers, DryShips and Excel Maritime Carriers have been hit particularly hard because of their large debtloads and significant spot market exposure. For the 13th straight day, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, tumbled Wednesday, falling 71 points to 1,221.

The BDI began its slide over the summer, and it has been taking shipping stocks down with it...

“Day rates have fallen below costs for some ship owners,” Landsberg said. “Rather than take inadequate fixtures, they are anchoring their vessels and letting them sit idle.”

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said....

``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.....

Labels: Another thing to worry about, economics and finance

The Toronto exchange, which recently merged with its counterpart in Montreal, regularly conducts surveys with its users and a separate portal for investors has been a common request, she says.

The website also offers many new features that visitors to the site have asked for.

Users can now find quotes on all 4,200 Canadian securities -- as well as every U.S. security covered by the New York Stock

Exchange, NASDAQ, Amex and other exchanges -- on the website.

There is also a comprehensive stock screener that can sort listings by price, volume, market capitalization and exchange.

Labels: economics and finance

At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today.

When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.

Labels: Another thing to worry about, economics and finance

Hedge fund redemptions are particularly damaging because, if they rise beyond a modest level, they force manager to sell positions at a time not of their choosing. Worse, at this juncture, they are forced to liquidate in weak markets, depressing prices further, If redemptions go beyond a certain threshold, funds can go into a death spiral. And the price-lowering effects of hedge fund sales force others carrying similar paper to mark them at lower values increasing the likekihood that they in short order will face investor withdrawals. Plus, as a result of falling prices, if a fund used leverage, they may be required, independent of investor action, to sell assets to meet margin calls.

Reader Saboor provided a list of sightings this evening. The fact that so many papers are running pieces on the same topic says conditions are getting acute.

One thing to keep in mind: just like any sort of new business, a lot of new hedge funds fail. But the discussion here focuses on established, larger funds that are hitting the wall.

Labels: economics and finance

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

Labels: economics and finance

Labels: economics and finance