What is wrong with the US economy? Part 2

[Astronuc]

And this all stopped under Executive Club Spitzer and now Patterson?

Spitzer didn't last long enough. When comes to corporate inducements (and deficit spending), it's hard to tell a difference between dems and reps.

I certainly would like to learn more about Dodd and others who benefitted from loans from corporations in which they are supposed to be regulating. I wonder if it is possible for Congress to investigate itself. At the time Dodd took the loan, the republicans controlled both houses and the executive branch. AFAIK, the dems were locked out of the legislative process. Dodd didn't become chair of the Senate Banking committee until Jan. 2007. By then, the damage had been done. The government should take a look at benefits received by Lott, Frist, Hastert and others, as well.


Hosed by Hank: The Bailout's Seven Biggest Victims
http://finance.yahoo.com/tech-ticker/article/97631/Hosed-by-Hank%3A-The-Bailouts-Seven-Biggest-Victims

While it's too soon to declare who the bailouts' winners might be, Portfolio.com has already compiled a list of its seven biggest losers. In the accompanying video, Portfolio.com managing editor Dan Colarusso joins Henry and me to discuss why and how the following people and constituencies got hosed by Hank (Paulson, that is):

Jamie Dimon
John Thain
Lloyd Blankfein
Dick Kovacevich
Dick Fuld
American homeowners
Short sellers

 

[mheslep]

Spitzer didn't last long enough. When comes to corporate inducements (and deficit spending), it's hard to tell a difference between dems and reps.

Amen

I certainly would like to learn more about Dodd and others who benefitted from loans from corporations in which they are supposed to be regulating. I wonder if it is possible for Congress to investigate itself. At the time Dodd took the loan, the republicans controlled both houses and the executive branch. AFAIK, the dems were locked out of the legislative process. Dodd didn't become chair of the Senate Banking committee until Jan. 2007. By then, the damage had been done

They were not locked out in the Senate, where the sill D's had the power to kill things. S. 190 went to the banking committee where Dodd, the ranking member at the time, and fellow D's unanimously voted against the bill in committee. A pure partisan committee vote effectively kills a bill in a non-super majority Senate. So Dodd and crew own the GSE side of the mortgage bust, they owned the entire GSE philosophy. I still fault the Senate Republicans for not raising more of a fuss, perhaps even forcing a doomed floor vote just to highlight the issue.

 

[Astronuc]

Amen

They were not locked out in the Senate, where the sill D's had the power to kill things. S. 190 went to the banking committee where Dodd, the ranking member at the time, and fellow D's unanimously voted against the bill in committee. A pure partisan committee vote effectively kills a bill in a non-super majority Senate. So Dodd and crew own the GSE side of the mortgage bust, they owned the entire GSE philosophy. I still fault the Senate Republicans for not raising more of a fuss, perhaps even forcing a doomed floor vote just to highlight the issue.

I'd like to see the record of that. Based on Elizabeth Dole's website and the fact that McCain, who was not on the banking committee, became a co-sponsor, it seemed to me that the bill went to the floor. I wondering why it is so difficult to find out what happened to a specific bill, when or whodunit!

What's puzzling when it came back as S.1100 in 2007, McCain didn't jump on it, but Mel Martinez (R - FL) did. The House apparently introduced their own bill.

Nevertheless, I hope someone like Bob Woodward gets to the bottom of this mess.


Meanwhile - back at the farm:

Bush says successor must overhaul finance rules
http://news.yahoo.com/s/afp/20081017/pl_afp/financebankinguspoliticsbush

WASHINGTON (AFP) – US President George W. Bush said Friday that "it's going to take a while" for his economic rescue plan to bear fruit and charged his successor with carrying out an overhaul of US financial rules.

"The actions will take more time to have their full impact. It took a while for the credit system to freeze up; it's going to take a while for the credit system to thaw," he said in a speech to the US Chamber of Commerce.

With just 18 days before the November 4 elections, Bush said whoever enters the White House in late January will have to "ensure that this situation never happens again" by updating US regulations on banking.

Citing US Treasury Secretary Henry Paulson's overhaul proposal and "good suggestions" from others, Bush declared: "Enacting these ideas into law must be a top priority for the next president and the next Congress."

Amid deep unease over the US government buying stakes in US banks -- notably on the right flank of his Republican party -- Bush defended the move as a "last resort" and denied that he had taken "a step toward nationalizing banks."

"This is simply not the case. This program is designed with strong protections to ensure the government's involvement in individual banks is limited in size, limited in scope, and limited in duration," he said.
. . . .

All I can do now is wonder - how the heck did we get into this mess? Why weren't reforms done prior to this point - as early as 1998, or even sooner? I imagine in the late 90's it was the desire 'not to regulate' and folks were giddy with the stock market run up - irrational exhuberance - and Clinton and Gingrich/Delay/Hastert and Lott/Frist were not inclined to regulate. Then when the bubble burst - wel that would have been a good time to look into the financial industry. But Bush and the reps in Congress were not inclined to regulate - and then we had 9/11 and the invasion of Iraq.

I would like to see some reasonable regulation - something without a lot of loopholes - and something which is fair. Is that too much to ask for?

 

[OmCheeto]

Hosed by Hank: The Bailout's Seven Biggest Victims
http://finance.yahoo.com/tech-ticker/article/97631/Hosed-by-Hank%3A-The-Bailouts-Seven-Biggest-Victims

Good video.

to quote the guest:

http://finance.yahoo.com/tech-ticker/article/97631/Hosed-by-Hank%3A-The-Bailouts-Seven-Biggest-Victims
Dan Colarusso's (managing editor portfolio.com) comments:

... the American people have learned a valuable lesson; use other peoples money until the government steps in...

re: short sellers:
..they were bringing balance and rationality to the market
...their business was pulled out from under them
... there wasn't that play in the market

so it was just a game after all.

and all the while a smirk on his face.

I'm sorry. But as an old person, I don't think playing games with peoples retirement funds is funny.

 

[mheslep]

I'd like to see the record of that. Based on Elizabeth Dole's website and the fact that McCain, who was not on the banking committee, became a co-sponsor, it seemed to me that the bill went to the floor. I wondering why it is so difficult to find out what happened to a specific bill, when or whodunit!...

I can not quickly find direct link to the CR, but have this
http://www.allbusiness.com/government/532756-1.html

 

[Astronuc]

F.B.I. Struggles to Handle Financial Fraud Cases
http://www.nytimes.com/2008/10/19/washington/19fbi.html
By ERIC LICHTBLAU, DAVID JOHNSTON and RON NIXON, October 19, 2008

WASHINGTON — The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

The pressure on the F.B.I. has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The F.B.I. is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the F.B.I.’s white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible frauds of millions of dollars.

Since 2004, F.B.I. officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policy makers focused on counterterrorism.

According to previously undisclosed internal F.B.I. data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Over all, the number of criminal cases that the F.B.I. has brought to federal prosecutors — including a wide range of crimes like drug trafficking and violent crime — dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.
. . . .
But Justice Department data, which include cases from other agencies, like the Secret Service and Postal Service, illustrate the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance fraud cases plummeted 75 percent, and securities fraud cases dropped 17 percent.

Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the F.B.I., show an even steeper decline of nearly 50 percent in overall white-collar crime prosecutions in the same period.

In addition to the investigations into Fannie Mae and Freddie Mac, the F.B.I. is carrying out investigations of American International Group and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations. Some F.B.I. officials worry privately that the trillion-dollar federal bailout of the financial industry may itself become a problem because it contains inadequate controls to deter fraud.
. . . .

 

[Astronuc]

AP IMPACT: Mortgage giant, GOP firm targeted Republican senators for defeat of regulatory bill
http://biz.yahoo.com/ap/081019/the_influence_game_housing.html

WASHINGTON (AP) -- Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

"If effective regulatory reform legislation ... is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole," the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.

In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.

McCain, R-Ariz., was not a target of the DCI campaign. He signed Hagel's letter and three weeks later signed on as a co-sponsor of the bill.

By the time McCain did so, however, DCI's effort had gone on for nine months and was on its way toward killing the bill.
. . .

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel's bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

. . . .

Yes some Democrats opposed it, but Frist didn't allow it on the floor, and "DCI was undermining support for the bill in a campaign targeting 17 Republican senators."

And McCain's campaign hired Doug Goodyear to manage the GOP convention.

Hmmmm.

 

[Astronuc]

What are you getting for your bonus this year?

Wall Street banks in $70bn staff payout
Pay and bonus deals equivalent to 10% of US government bail-out package
http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking
Simon Bowers The Guardian, Saturday October 18 2008

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.
. . .
At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.
. . . .

Hmmm. I wonder if Congress is paying attention.

 

[OmCheeto]

What are you getting for your bonus this year?

I haven't been laid off yet.

Wall Street banks in $70bn staff payout
Pay and bonus deals equivalent to 10% of US government bail-out package
http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking
Simon Bowers The Guardian, Saturday October 18 2008

Hmmm. I wonder if Congress is paying attention.

Astro... you need to stop pointing fingers. That's not polite.

http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking
Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

Christmas is just around the corner. We wouldn't want to spoil if for the grinchs by not letting them steal all the money we just handed them.

Actually, if the article is factual, I may want to write my two senators.

Btw, do you think Fox news will pick up the story?

 

[Astronuc]

Possible scenario for 2009 - Rolling Layoffs could hit millions (AOL)
http://money.aol.com/investing/rolling-layoffs-could-hit-millions

Where Things Look Bleakest
The unemployment rate was 6.1% in September. If unemployment rises to nearly 10%, another six million or more people would be out of work. There are already signs that industries well beyond autos and airlines (two typical early victims of a slowdown) have begun to take out jobs.

http://www.247wallst.com/2008/10/credit-crisis-i.html

The early victims of a slowdown, especially when there has been inflation in fuel and other energy costs are almost always the auto and airline industries. Virtually every carrier has already cut its flights by 10% or more and laid-off thousands of people. Detroit has been going through a systematic downsizing for more than two years, cutting tens of thousands of positions. Daimler laid off more people this week and a GM (GM) merger with Chrysler could cost more jobs.

The unemployment rate was 6.1% in September. In the deep recession of 1973/1974, the unemployment rate reached almost 9%. There are currently about 148 million people in the US civilian workforce. If unemployment rises to nearly 10%, another six million or more people would be out of work.

There are already signs that industries well beyond autos and airlines have begun to take out jobs. Pepsi (PEP), which is supposed to be in the "recession proof" consumer goods sector, reported weak earnings and said it would cut 3,300. SAP (SAP), the No. 2 enterprise software company in the world, said it would miss numbers and cut staff. Global conglomerate Philips is lowering its headcount after its medical systems business hit a bad patch. Supermarket chain Supervalu (SVU) cuts its estimates again. It did not mention pushing out employees, but as a $40 billion business, it will not be able to keep all of its people as earnings fall. Even white shoe law firms are letting people go. Clifford Chance just fired a number of lawyers in its M&A operations.
. . . .
The layoffs are still coming at parts of Lehman, Washington Mutual, Wachovia (WM), and Merrill Lynch (MER). The head of Citigroup has pledged to cut operating costs. Citi could easily cut another 20,000 jobs. The Wachovia and Merrill deals merging them into larger partners could cause closer to 30,000 lay-offs
. . . .
Supermarkets and Fast Food - Food retail, both at the supermarket and restaurant level, is extremely vulnerable to cuts. Food prices are up. Add that to tight credit and concerns about employment and people will cut back on eating out and buying anything more than the essentials for eating at home. Aside from Supervalu, which has already said it is struggling, Kroger (KR) and Safeway (SWY) could be affected as well. These three largest chains have more than 750,000 workers. If same store sales drop sharply and a large number of outlets are closed watch for as many as 50,000 people being out of work.This does not take into account the scores of smaller chains and tens of thousands of individual food retailers around the country.

Serious unemployment always affects the ability of people to spend money on eating out. Starbucks (SBUX) has already let more than 10,000 people go.
. . . .

Internet - Google, Yahoo!, Ebay (EBAY), and Amazon (AMZN) employ 75,000 people among them. Rumors are that Yahoo! could take out 20% of its people, about 3,000 jobs. Ebay just let go 1,000 workers, 10% of its staff.
. . . .

Software - The other part of the tech business which has had very few job cuts over the last half decade is software. Microsoft (MSFT), Oracle (ORCL), SAP, and IBM (IBM) have done consistently well.

In the closely related hardware business, HP (HPQ) just fired almost 25,000 workers. This is a disease which will spread.
. . . .

Oil - Oil prices have fallen from just over $147/bbl to about $70/bbl, which cuts into profits of the oil development companies. The number of energy workers could contract just as fast as it expanded. In an industry with several million workers even a 5% cut across the sector would be especially painful. Among them, the ten largest oil and oil-related companies could let 100,000 people go.
. . . .

Media - Another stable industry over the last several years has been big media companies. Advertising revenue has been good. Now, it is not just bad, it is getting very bad, very fast. Both CBS (CBS) and Viacom (VIA) warned about earnings last week. These stocks and peers like Disney (DIS) and News Corp (NWS) are off to multi-year lows. . . . Papers are already chopping staff levels by 15% to 20%. If the recession spreads broadly across the sector it is not hard to image 100,000 or 200,000 people being out of work by the end of 2009.
. . . .

 

[Astronuc]

http://news.yahoo.com/s/nm/20081021/bs_nm/us_nationalcity

NEW YORK (Reuters) – National City Corp, the U.S. Midwest regional bank, posted its fifth straight quarterly loss on Tuesday, hurt by increased reserves for mortgage and real estate construction loan losses.

The Cleveland-based lender also plans to reduce 4,000 jobs, or 14 percent of its workforce, over three years to save $500 million to $600 million annually by 2011.

National City's third-quarter net loss was $729 million, or $5.86 per share, and compared with a loss of $19 million, or 3 cents, a year earlier.

This is becoming reminiscent of the S&L crisis. Of course, they could revise that plan if the economy turns around. On the other hand, large losses will be felt for years.

I'd like to know the reality of the losses. Presumably some folks are not paying off their debt, and there seems to be an awful lot of that.

Somewhere the needs to be accountability.

 

[Astronuc]

Merrill exec to leave with big payout; others stay
http://news.yahoo.com/s/nm/20081021/bs_nm/us_merrill_kraus

NEW YORK (Reuters) – Merrill Lynch & Co's (MER.N) head of strategy will likely leave the bank with as much as $25 million in compensation, while three other top executives are set to stay at the firm once it combines with Bank of America Corp (BAC.N), according to media reports.

The Wall Street Journal reported on Tuesday that Merrill's global strategy head, former Goldman Sachs executive Peter Kraus, will not stay on. Instead, he will pick up a paycheck worth $10 million to $25 million, the newspaper said.

. . . .

Must be nice.

How many 'average' Americans get that kind of bonus after running a company into the ground?

If a person worked for 50 years (ages 20-70), at an average $100k/yr, they'd earn $5 million. In one fell swoop, this guy could make 5 times that.

 

[Astronuc]

Wachovia reports $23.9B loss for 3Q

Merck 3Q net drops 28 percent, to cut 7,200 jobs

Boeing's 3Q profit dives 38 percent - I understand Caterpillar is hurting because of high cost of raw materials. The slow down in the global economy is hurting Boeing (because airlines are making little money, and more people cannot afford to fly), and slower growth means less exports for heavy equipment, which hurts Caterpillar. It will be interesting to see the magnitude of the trade deficit in September and October.

http://biz.yahoo.com/ap/081022/earns_wellpoint.html
Health insurer WellPoint Inc. posted a 5.4 percent decline in third-quarter net income, mostly because of losses on its investments, but the results topped analyst estimates.

Report: Toyota to post first sales drop in decade
http://news.yahoo.com/s/ap/20081022/ap_on_bi_ge/as_japan_toyota_2

Asian and European markets are down, and Dow futures fall 165 on more recession fears

 

[Astronuc]

Job losses could fuel foreclosure problem
MBA projects negative economic growth until mid-2009, another hit to housing

SAN FRANCISCO (MarketWatch) -- If 2008 was a record year for mortgages entering foreclosure, 2009 could look even worse: While home-price declines have been driving foreclosure starts recently, mounting job losses could add another layer of stress on American homeowners, the chief economist of the Mortgage Bankers Association said on Tuesday.

A recession appears to be underway, according to the MBA's annual economic forecast, which projects negative economic growth through the middle of next year. The MBA presented its forecast to reporters Tuesday at its annual convention, being held in San Francisco.
. . . .
Unemployment also will likely accelerate, perhaps reaching 7.7% by the end of next year, making it tougher for some people to stay in their homes, said Jay Brinkmann, chief economist of the MBA. He doesn't expect a rapid recovery in the jobs market, either: Unemployment won't decline until late 2010, according to MBA projections.
. . . .
No surprise, then, that he also doesn't expect home building to ramp up again soon: New-home sales will be down by 36% this year, compared with last year. Next year, new-home sales will be down by 12% -- though perhaps reaching a bottom in 2009. Sales are expected to rise 25% in 2010.

Meanwhile, existing-home sales will be down by 13% this year compared with 2007, but should increase 3% in 2009. According to MBA projections, existing-home sales could be up 6% in 2010.
. . . .

Well - we'll see.

Wall Street's 'Disaster Capitalism for Dummies'
14 reasons Main Street loses big while Wall Street sabotages democracy

ARROYO GRANDE, Calif. (MarketWatch) -- Yes, we're dummies. You. Me. All 300 million of us. Clueless. We should be ashamed. We're obsessed about the slogans and rituals of "democracy," distracted by the campaign, polls, debates, rhetoric, half-truths and outright lies. McCain? Obama? Sorry to pop your bubble folks, but it no longer matters who's president.

Why? The real "game changer" already happened. Democracy has been replaced by Wall Street's new "disaster capitalism." That's the big game-changer historians will remember about 2008, masterminded by Wall Street's ultimate "Trojan Horse," Hank Paulson. Imagine: Greed, arrogance and incompetence create a massive bubble, cost trillions, and still Wall Street comes out smelling like roses, richer and more powerful!

I don't necessarily agree with Farrell, but he does make some interesting points.

 

[fuzzyfelt]

http://www.bloomberg.com/apps/news?pid=20601087&sid=agkwnN_rOMyg&refer=home

Not good, but 2003 wasn't all that long ago.

 

[Astronuc]

Goldman Sachs to cut 10 percent of jobs: report
http://news.yahoo.com/s/afp/20081023/ts_alt_afp/useconomycompanygoldmansachslayoffs

WASHINGTON, Oct 23, 2008 (AFP) – Goldman Sachs Group Inc. plans to slash 10 percent of its workforce of 32,500 employees, in the latest sign of US economic woes resulting from the credit crisis, the Wall Street Journal said Thursday.

The cuts were expected "throughout the New York-based company," the newspaper said citing people familiar with the matter.

In September, tycoon Warren Buffett's Berkshire Hathaway agreed to buy five billion dollars of stock in the Wall Street bank which, along with investment bank rival Morgan Stanley, has converted to a bank-holding company amid the worsening financial crisis.
. . .
Among the planned job cuts are Barclays PLC, which plans to eliminate at least 3,000 US jobs, and thousands of jobs at Merrill Lynch & Co. due to the firm's impending takeover by Bank of America Corp.
. . . .

Not looking good.


Wave of job cuts sweeps across corporate America
http://news.yahoo.com/s/nm/20081023/bs_nm/us_jobs_unitedstates

NEW YORK (Reuters) – Corporate America is bleeding jobs and wielding the ax well beyond the financial sector.

As companies look at their prospects for the final quarter of the year and begin to see increasingly grim outlooks for 2009, they are cutting jobs from many different parts of their businesses. They are also slashing capital spending and, in some cases, dividends and even wages.
. . . .
* Goldman Sachs Group Inc plans to cut 10 percent of its staff, or almost 3,300 jobs after laying off hundreds of support staff and junior bankers in June.

* Money manager Janus Capital Group Inc said it would cut 9 percent of its staff a day after rival AllianceBernstein Holding Holding LP said it would make unprecedented job cuts.

* Xerox Corp announced job cuts of 5 percent, or 3,000 positions, due to a "tough business environment."

* United Parcel Service Inc sees layoffs in 2009 as customers need less shipping due to cutbacks on holiday gift purchases.

* Merck & Co Inc announced plans on Wednesday to cut 12 percent of its workforce, citing a need to change its business model in order to survive.

* Fidelity National Financial Inc, which controls one of the largest U.S. title insurers, announced 1,000 job cuts, office closings, a 10 percent pay cut and a 50 percent dividend cut

Wall Street layoffs could surge past 200,000
http://news.yahoo.com/s/ap/20081023/ap_on_bi_ge/wall_street_layoffs

. . . .
The fallout from this year's global credit crisis has claimed jobs on all corners of Wall Street, from hedge fund managers to floor traders and beyond. More than 110,000 have lost their jobs so far this year, and some industry experts forecast it could come close to 200,000 before the year is over.
. . .

 

[mgb_phys]

So when industial companies take over their competitors and eliminate jobs they are praised and their share price rises since they are becoming more competitive in a dynamic market. When banks do it - it's the sign of an impendign apocalypse?

 

[Astronuc]

Greenspan "shocked" at credit system breakdown
http://news.yahoo.com/s/nm/20081023/bs_nm/us_financial_greenspan

WASHINGTON (Reuters) – Former U.S. Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and that he expects the unemployment rate to jump.

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief," he said.

Banks and other financial institutions need public support, such as the recently approved $700 billion bailout package, to avoid serious retrenchment, he said.
. . . .
Greenspan was hailed as one of the most accomplished central bankers in U.S. history when he retired in January 2006. However, his decision to keep interest rates low during his final years at the Fed has been blamed in part for the housing bubble and crash that has led to the current deep financial crisis.
. . . .

It's partly those with bad credit, and it's partly bad investment/financial practices by those who should have known better.

 

[Astronuc]

So when industial companies take over their competitors and eliminate jobs they are praised and their share price rises since they are becoming more competitive in a dynamic market. When banks do it - it's the sign of an impendign apocalypse?

Regarding 'bigness', Robert Reich had an interesting commentary about - Maybe 'too big to fail' is just too big

http://marketplace.publicradio.org/display/web/2008/10/22/too_big_reich/

According to Treasury Secretary Hank Paulson, the biggest Wall Street banks now getting money from the government are just "too big to fail."

Fed Chairman Ben Bernanke uses a different euphemism -- he calls them "systemically critical." The point is that if anyone of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.

We're hearing the same argument elsewhere in Washington for saving General Motors. It's just "too big to fail." So Congress is considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.

Pardon me for asking, but if a company is too big to fail, maybe -- just maybe -- it's too big, period.

We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.

We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them and so many consumers or investors or depositors needed them, that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence of a sort that might gain them extra favors from Washington.

Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They've prodded Bank of America to take over Merrill Lynch and Countrywide. JPMorgan to acquire Washington Mutual and Bear Stearns. And now they're urging General Motors to absorb Chrysler.

So we're ending up with even bigger giants, with even more power over the economy and politics, subsidized by taxpayers and guaranteed never to fail because they're just -- too big!
. . . .

The government intervention is pretty bizarre, IMO. They bailout the irresponsible banks, but they don't seem inclined to bailout irresponsible lenders.

It's not clear to me that there are reasonable conditions on the bailout, so the banks seem pretty much free to continue being irresponsible, or perhaps they'll be responsible until the attention subsides and then go about their merry way the way they have been these last two years. Separately though, the congress is considering legislation for improved regulatory oversight.

 

[turbo]

Chrysler is in talks with GM AND with Nissan. Nissan might do a stock-swap of some kind, but they won't buy stock in Chrysler with cash - too risky. I've misplaced the link, but it should pop back up.

Chrysler and Nissan had (have?) arrangements to build trucks for one another, and Chrysler and Mistubishi have shared some manufacturing lines (notably Diamond Star plant in Indiana), but buying into US car makers with models that no longer thrill the consumer, and having to pay for re-tooling, re-engineering, etc doesn't seem to appeal to Japanese car makers. They would be better off to let some US companies cut back, merge, or fail outright, then snap up the production facilities.

 

[edward]

According to Moody CEO in regards to AAA credit ratings on subprime packages: "They drank the kool aid." In essence they gave their customers the ratings they wanted, and made millions doing it.

He then turns to a topic that he calls "Rating Erosion by Persuasion." According to Mr. McDaniel, "Analysts and MDs [managing directors] are continually 'pitched' by bankers, issuers, investors" and sometimes "we 'drink the kool-aid."

http://www.usnews.com/blogs/the-hom...n-digs-into-moodys-sp-with-internal-docs.html

"It could be structured by cows and we would rate it," one analyst said.

In another internal exchange, a Standard & Poor's analyst in 2006 told a co-worker, "Let's hope we are all wealthy and retired by the time this house of cards falters."

http://ap.google.com/article/ALeqM5j6i103m1hb5IKV4nnM2yThIBvX_wD93VQ2CO1

 

[Astronuc]

Here's an interesting discussion on GE's situation.

GE under siege
http://money.cnn.com/2008/10/09/news/companies/colvin_ge.fortune/index.htm

For years GE Capital's profits powered its parent's earnings and helped finance its vast array of businesses. Now GE's biggest asset has turned into a liability that puts the future of the entire company at risk.

By Geoffrey Colvin, senior editor at large, and Katie Benner, writer
Last Updated: October 15, 2008: 10:27 AM ET

 

[Astronuc]

Death Watch in a Mill Town
High oil prices may be the final blow for a legendary paper plant
By Alex Kingsbury
Posted August 5, 2008

MILLINOCKET, MAINE—The name Millinocket comes from the Abenaki Indian expression for the "many islands," a fitting description of the region near the geographic center of th e state. It was the thousands of acres of timberland and the rivers, on which logs could be floated, that attracted the paper makers a century ago. But mention Millinocket in New England, and it's never clear if you're speaking about the town itself or its old industrial anchor, the Katahdin paper mill, once the world's largest paper producing facility. In fact, there was a time when most phone books on the East Coast came from the Millinocket mill.

The mill no longer holds that title, but its No. 11 machine still spins out more than a thousand miles of paper a day in rolls wider than a two-lane road, mostly for glossy circulars and magazines (including in the past U.S. News). That's more than enough to paper a highway from Boston to Chicago. It has been a mild summer and a relatively good one for making paper, with orders for the high-quality "supercalendared" stock flowing in. But the mill and the town are facing a hard winter. The abrupt jump in fuel oil prices has made paper production dauntingly expensive, perhaps too expensive to keep the mill going, while the soaring cost of home heating oil has made living here equally challenging for anxious millworkers and other residents.

Sitting in a conference room in the mill's ivy-covered, brick administrative building, located at one end of the town's main street, mill manager Serge Sorokin outlines the problem on a whiteboard. "This is what oil prices means for Millinocket," he says, writing with a red felt marker. "We use about 400,000 barrels of fuel oil per year, and 18 months ago, we bought it at around $40 per barrel." He writes the numbers on the board. "Now, the price per barrel is $110." Sorokin, who studied paper engineering at the State University of New York College of Environmental Science and Forestry, does the arithmetic and underlines the corporate bottom line: The annual cost of making paper went up here by $28 million.

. . . .

http://www.usnews.com/articles/news/national/2008/08/05/death-watch-in-a-mill-town.html

Oil is down about $70/gal.

 

[turbo]

Old news here, Astronuc, and it's problematic because the price of oil can go up and down in very short time-frames, while re-investment in a mill such as this needs to yield both a long-term payout, and short-term profitability sufficient to make payroll, cover insurances, utilities, etc. We're losing more mills, too, but few are so crucial to the survival of the town in which they are located. Millinocket is in a very remote location. The mill was sited there because of water power and access to wood, and the town grew up around the mill. Aside from tourism, fishing, snowmobiling, etc, there is nothing that would draw people to this area, so businesses are dropping like flies and property values are in the cellar. If you want to own a second residence in a very pretty part of Maine (on the southern edge of Baxter State Park), you can buy one VERY cheaply.

 

[mgb_phys]

and having to pay for re-tooling, re-engineering, etc doesn't seem to appeal to Japanese car makers

I think it's having to pay for pensions and health insurance for the workforce that's a bigger worry.

They only thing a Japanese maker would get is a suitably rugged sounding American name and a network of underperforming dealers.
The alternative is to either convince american buyers that your truck is better, even with a Japanese name on the hood = toyota. Or simply invent an american name for your brand and promote it like crazy without saying who owns it = Lexus.

 

[turbo]

GM and the other big boys negotiated contracts with the trade unions when they had the US auto market by the tail, and when US protectionism allowed them to stay fat and happy and keep their competition at a disadvantage. Now, their short-sightedness is coming back to bite them.

GM can't cut contracted benefits, so their salaried workers will feel the pinch. They will no longer get matching 401K contributions, educational reimbursements and other benefits. Voluntary retirements are hitting GM's targets, either, so pink slips will fly.

http://news.yahoo.com/s/ap/20081023/ap_on_bi_ge/automakers;_ylt=Aq_uU43A9ytG0A_jolo6p06s0NUE

 

[Astronuc]

October 24, 2008 - Global equities markets got hammered this morning!
Wall Street futures down 5 pct, echo global rout

ATX    ATX                1,742.81 6:06AM ET    -181.87 ( -9.45%) 
BFX    BEL-20             1,855.49 6:21AM ET    -127.65 ( -6.44%) 
FCHI   CAC 40             3,038.23 6:21AM ET    -272.64 ( -8.23%) 
GDAXI  DAX                4,112.31 6:06AM ET    -407.39 ( -9.01%) 
AEX    AEX General          237.19 6:21AM ET     -20.66 ( -8.01%) 
OSEAX  OSE All Share        270.80 6:06AM ET     -23.72 ( -8.05%) 
MIBTEL MIBTel            15,120.00 6:21AM ET  -1,073.00 ( -6.63%) 
IXX    ISE National-100      77.76 Sep 22          0.00  (0.00%) 
SMSI   Madrid General       873.31 6:20AM ET     -71.62 ( -7.58%) 
OMXSPI Stockholm General    182.28 6:21AM ET     -16.50 ( -8.30%) 
SSMI   Swiss Market       5,518.42 6:21AM ET    -375.31 ( -6.37%) 
FTSE   FTSE 100           3,790.20 6:06AM ET    -297.63 ( -7.28%) 


AORD   All Ordinaries     3,831.60 1:10AM ET    -107.70 ( -2.73%) 
SSEC   Shanghai Composite 1,839.62 3:00AM ET     -35.94 ( -1.92%)
HSI    Hang Seng         12,618.38 5:27AM ET  -1,142.11 ( -8.30%)  
BSESN  BSE 30             8,701.07 6:00AM ET  -1,070.63 (-10.96%) 
JKSE   Jakarta Composite  1,244.86 6:24AM ET     -92.34 ( -6.91%)  
KLSE   KLSE Composite N/A                           0.00 (0.00%)
N225   Nikkei 225         7,649.08 3:00AM ET    -811.90 ( -9.60%) 
NZ50   NZSE 50            2,778.55 12:31AM ET    -28.79 ( -1.03%)  
STI    Straits Times      1,600.28 5:10AM ET    -145.39 ( -8.33%) 
KS11   Seoul Composite      938.75 5:03AM ET    -110.96 (-10.57%) 
TWII   Taiwan Weighted    4,579.62 1:46AM ET    -150.89 ( -3.19%)

--------------------------------------------------------------------
Oil powerhouse Venezuela struggles to keep lights on
http://www.reuters.com/article/newsOne/idUSTRE49M0BW20081023

SAN FELIX, Venezuela (Reuters) - Despite having some of the world's largest energy reserves, Venezuela is increasingly struggling to maintain basic electrical service, a growing challenge for leftist President Hugo Chavez.

The OPEC nation has suffered three nationwide blackouts this year, and chronic power shortages have sparked protests from the western Andean highlands to San Felix, a city of mostly poor industrial workers in the sweltering south.

Shoddy electrical service is now one of Venezuelans' top concerns, according to a recent poll, and may be a factor in elections next month for governors and mayors in which Chavez allies are expected to lose key posts, in part on complaints of poor services.

The problem suggests that Chavez, with his ambitious international alliances and promises to end capitalism, risks alienating supporters by failing to focus on basic issues like electricity, trash collection and law enforcement.

Stock futures freeze as tumble worsens
http://news.yahoo.com/s/nm/20081024/bs_nm/us_markets_stocks

LONDON (Reuters) – Stock index futures tumbled so sharply in European trade on Friday, they had to be frozen at several points in the morning.

By 6:27 a.m. EDT December Dow Jones futures were down 6.2 percent, Standard & Poor's 500 futures were off 6.6 percent and Nasdaq 100 futures were down 6.6 percent.

All three contracts lost the maximum amount permissible before the start of futures trading in the United States.

"We are in a panic mode, I don't know how else to describe it and when you're in panic mode, all rational thought goes out of the window," said City Index chief market strategist Tom Hougaard.

"We've just got to let this thing rage. I think we'll see the Dow below 8,000 today."

According to Reuters data, December S&P futures hit a low of 855.20, while Dow Jones futures touched a low of 8,224 -- the lowest levels at which both contracts could trade in a session.

Jeremy Hughes, a spokesman for the Chicago Mercantile Exchange in London, said both contracts were "limit down."

"The limit is calculated at roughly 5 percent down. At that point it can't go any further down but it is still accessible and can go up again," he said.

"When the U.S. futures open in Chicago, the contract becomes available again, so (it could go) further down another 5 percent down, so 10 percent in total," he added.

Ukraine in for tough times amid global crisis
http://news.yahoo.com/s/ap/20081024/ap_on_re_eu/eu_ukraine_tough_times

KIEV, Ukraine – Construction cranes have stopped swinging and thousands of steel workers face layoffs as Ukraine braces for a severe economic downturn.

Lacking the large foreign currency reserves of China and Russia, more integrated into the world economy than some smaller countries, Ukraine is being hit harder than other former Soviet states by the global financial crisis.

"Ukraine has been exposed as the most vulnerable," said Jan Randolph, an emerging markets analyst at Global Insight.

On Thursday, the Ukrainian currency plunged against the dollar to a historic low amid a run on banks and a frantic rush to convert savings into U.S. currency. Ukraine's hryvna plummeted to 6.01 hryvna per U.S dollar in trading at Ukraine's currency exchange.

Jittery customers lined up to buy dollars at exchange offices across the capital, some of which ran out of cash. The country was already short on foreign currency as demand for steel, its main export commodity, plunged. The Ukrainian currency has lost more than 20 percent since September.

Four years of robust economic growth left Kiev clogged with shiny imported automobiles and dotted with upscale fashion outlets. Real estate prices exceeded those of Rome for a time and the stock market gained an astonishing 130 percent in 2007.

But today, experts agree, Ukraine is in for tough times.

Falling demand for steel was widening the external trade deficit to a hefty $12.5 billion so far this year, compared to $5.9 billion last year. After excessive reliance on foreign credit to feed its vast consumer boom, which sent Ukrainians rushing to buy mobile phones, cars and apartments on credit, the economy was hit hard when panicked foreign investors abandoned emerging markets and European banks slashed lending, crippled by their own liquidity crunch. Inflation soared to 31 percent in May, year over year, and cooled to 16 percent in September.

The government spent $2.9 billion buying hryvnas to support the currency this month alone, bringing its reserves down to $34.2 billion, according to the central bank. One global rating agency after another has downgraded Ukraine's creditworthiness.

Today Ukraine is pinning its hopes on a loan of up to $14 billion from the International Monetary Fund. But unlike Hungary, which has also turned to the IMF for money, Ukraine does not benefit from European Union aid.
. . . .
Ukraine exports steel and cast iron to the Middle East, Europe and former Soviet Union countries, where they are used in housing construction, machine and ship building. But production by the country's metal industry, which represents 6 percent of the GDP and accounts for 40 percent of the country's exports, was down by 30 percent.

Steel magnate Serhyi Taruta, chairman of the Industrial Union of Donbas, told the newspaper Kommerstant Ukraine that his company plans to lay off as many as 20,000 people.
. . . .

UK economy officially on the brink of recession
http://news.yahoo.com/s/ap/20081024/ap_on_bi_ge/eu_britain_economy

LONDON – Britain's economy shrank between July and September, official figures showed Friday — confirming that the country is on the brink of recession and sending the pound into a dive against the U.S. dollar.

Britain's economic output declined by 0.5 percent last quarter, according to the Office for National Statistics.

It was the first time since 1992 that Britain's economy has contracted, and the fall was greater than analysts' prediction of a 0.2 percent drop.

The figures put Britain halfway into a technical recession — defined as two or more consecutive quarters of negative economic growth.

. . . .

The economic contraction was led by steep declines in the hotel and restaurant and manufacturing industries, the statistics office said.

The manufacturing sector, which has been hit hard by a decline in consumer spending, is already in its own recession according to the figures. Industry growth shrank by 1 percent in the third quarter following a decline of 0.9 percent in the second quarter.
. . . .

 

[mgb_phys]

Strange how recession is the new terror, the UK economy has been growing by 1-2% a year for 16 years since the last recession andnow looks to fall by 0.5% for a couple of quarters - that still leaves you 20% ahead.

There is an excellent graph on the BBC showing each years GDP change through the last few recession and then the cumulative growth over the same time.

 

[Art]

It can be argued that the only real need for growth is to alleviate poverty without needing to redistribute the wealth of the rich, but seeing as how most of the extra wealth created goes to the rich anyway the real benefits of growth for the greater part of the population of most western countries have been limited.

 

[Astronuc]

The UK has been over-leveraged for a couple of years. I noticed that last year when I was there. They are in much the same boat as the US.

This afternoon, I was listening to an interview with a person from a German Church. They had been receiving declining donations from the congregation while their operating costs where steadily increasing, so they decided to invest some money in the equities market to get a source of increased income. They invested in Lehman Brothers - and they lost their income and investment. So the collapse of the US financial industry has had a global reach.

 

[edward]

Half of Chinese toy factories have closed. That casts a heavy shadow on the global situation, especially the USA.

"Last year was the most difficult time in decades for the Chinese toy industry," said the vice-chairman of the China Toy Association, Liang Mei.

A total of 3,631 toy exporters, or 52.7% of the industry's businesses, shut down in 2008, according to figures from the Chinese General Administration of Customs reported by the official Xinhua news agency.

http://news.bbc.co.uk/2/hi/asia-pacific/7670351.stm

In other areas of production Chinese companies are moving their factories to Laos, Cambodia, and Vietnam. The reason is claimed to be excess government regulation and cheaper labor elsewhere.

Where have I heard that before? Has Walmart pushed the ever lower prices a bit too far??

http://www.clipser.com/watch_video/124913

 

[Astronuc]

5 Reasons the Market Could Fall Further
http://www.usnews.com/articles/busi.../5-reasons-the-market-could-fall-further.html
Credit's still weak, and so is the global economy
By Kirk Shinkle
Posted October 24, 2008

The beatings are likely to continue on Wall Street after one of the most frightening trading days in a long, bearish season.

Today's shudder started with early-morning fright when premarket trading was halted on the New York Stock Exchange following a drop of 550 points—6.5 percent—in Dow futures. Stocks opened down about 450 but staged a modest comeback after what analysts were calling "Black Friday" in equity markets around the globe.

Stocks are still bouncing around their lows for the year—a dangerous place to be until markets get some confirmation that it really is a bottom. Unfortunately, the coming days don't appear to offer much in the way of hope for a quick recovery, even given what has become one of the worst trading months in decades.

The problem is this: Equity traders are still largely blinded by problems in the credit markets even as weakness in the economy and corporate America continues to creep into an already chaotic scene. That's nothing new. However, the longer heightened levels of uncertainty continue, the greater the damage. When the smoke clears, traders could be disappointed even further.
. . . .

 

[jal]

Warning of approaching disasters were made and were ignored.
-------
http://johncbogle.com/wordpress/wp-content/uploads/2007/10/risk_mgmt.pdf
Black Monday and Black Swans
Remarks by John C. Bogle
Founder and former chief executive, The Vanguard Group
before the Risk Management Association
Boca Raton, Florida
October 11, 2007
When investors—individual and institutional alike—engage in far more trading—inevitably with one another—than is necessary for market efficiency and ample liquidity, they become, collectively, their own worst enemies.
While the owners of business enjoy the dividend yields and earnings growth that our capitalistic system creates, those who play in the financial markets capture those investment gains only after the costs of financial intermediation are deducted. Thus, while investing in American business is a winner’s game, beating the stock market—for all of us as a group—is a zero-sum game before those costs are deducted. After intermediation costs are deducted, beating the market becomes, by definition, a loser’s game.
We’re merely trading pieces of paper, swapping stocks and bonds back and forth with one another, and paying our financial croupiers a veritable fortune. We’re also adding even more costs by creating ever more complex financial derivatives in which huge and unfathomable risks have been built into our financial system.
The Soaring Costs of our Financial System
Turning first to the costs of our system, they have soared to staggering proportions. Led by Wall
Street bankers and brokers and mutual funds, followed by hedge funds and pension fund managers, plus advisor fees and all the other costs incurred by financial market participants have risen from an estimated $2.5 billion as recently as 1988 to something like $528 billion this year, or some 20 times over. (Chart 9)
But don’t forget that these costs recur year after year. If the present level holds for the next decade (I’m guessing that it will grow), total intermediation costs would come to a staggering $5 trillion.
Then think about these cumulative costs relative to the $16 trillion value of the U.S. stock market and the $12 trillion value of our bond market. Those costs would represent an astonishing 18 percent of that value.
Does this explosion in intermediation costs create an opportunity for money managers?
You better believe it does! Does it create a problem for investors? You better recognize that too. For as long as our financial system delivers to our investors in the aggregate whatever returns our stock and bond markets are generous enough to deliver, but only after the costs of financial intermediation are deducted, these enormous costs seriously undermine the odds in favor of success for our citizens who are accumulating savings for retirement. Alas, as we all know, the investor feeds at the bottom of the costly food chain of investing.
-----
jal

 

[Astronuc]

After intermediation costs are deducted, beating the market becomes, by definition, a loser’s game.

That's a big part of the problem.

 

[Art]

Perhaps it is time the US and other world gov'ts took even more ownership of the finance industry.

The bail out, deposit guarantees and huge injections of money to improve liquidity seem to have stopped the collapse of the banking industry but given the tiny reductions in the LIbor rate it seems the banks aren't keeping to their side of the deal with credit remaining as tight as ever. The spread difference between 3 month T-bills and the 3 month Libor rate should be around 0.2% but currently stands at 3.5% which in plain language means borrowers are being ripped off as interest reductions by the central banks are not being passed on.

It would seem the banks are soaking up the extra cash to improve their balance sheets whilst eyeing their fellow bankers looking for signs of renewed weakness ready to pounce. In some cases in the UK at least incredibly the banks are actually putting the cheap money the gov't injected into the system on deposit with the central bank and earning interest on it!

It seems to me it is impossible for the current batch of finance executives and managers to change the predatory way they think and the way they have operated for the past 20+ years as evidenced by the huge bonuses they are still paying themselves at even this critical time and so if the banks will not voluntarily perform their vital role in oiling the gears of the economy then the gov'ts should put their own people in charge of them who will.