the visible hand

it is the theory which decides what can be observed – einstein

Archive for October, 2008

The final pillage

Posted by ecoshift on October 31, 2008

The Bailout: Bush’s Final Pillage | Naomi Klein
By Naomi Klein – October 29th, 2008

In the final days of the election, many Republicans seem to have given up the fight for power. But don’t be fooled: that doesn’t mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700 billion bailout out the door. At a recent Senate Banking Committee hearing, Republican Senator Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. “How much of it do you think may be actually spent by January 20 or so?” Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bailout.

When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.

Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as “distressed asset” auctions and the “equity purchase program.” But make no mistake: the goal is the same as it was for the defeated Portuguese—a final frantic looting of the public wealth before they hand over the keys to the safe.

Please keep reading…

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Bailout swindle revealed…

Posted by ecoshift on October 29, 2008

Paulson’s Swindle Revealed
By William Greider
The Nation

October 29, 2008

The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson’s transaction, the taxpayers were taken for a ride–a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public’s money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

read more…

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Saving the market from itself

Posted by ecoshift on October 29, 2008

Hi. We’re from the government and we’re here to help…

If you’re tired of all subsidies and no solutions government responses to the financial crisis then now’s the time to step up and help Hank and Ben provide a real safety net by clicking on the link below.

Saving the market from itself:
The Stock Market Suicide Game


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Shocked disbelief: Greenspan concedes flaw in his free-market ideology

Posted by ecoshift on October 23, 2008

hoo cuda knode?

Bloomberg.com: Worldwide
Greenspan Concedes He `Found a Flaw’ in His Free-Market Ideology
By Scott Lanman and Steve Matthews

Oct. 23 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan, under a grilling from lawmakers at a congressional hearing today, conceded a flaw in his free-market ideology that contributed to a “once-in-a-century credit tsunami.”

“Yes, I found a flaw,” Greenspan said in response to questions from to the House Committee on Oversight and Government Reform. “That is precisely the reason I was shocked because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Greenspan said he was “partially” wrong in his opposition in recent years to the regulation of derivatives. He said in a May 2005 speech that “private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.”

Committee Chairman Henry Waxman, a California Democrat, said Greenspan had “the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.”

“You were advised to do so by many others,” he told Greenspan. “And now our whole economy is paying the price.”

Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony. Other rules should address fraud and settlement of trades, he said.

Greenspan reiterated his “shocked disbelief” that financial companies failed to execute sufficient “surveillance” on their trading counterparties to prevent surging losses. The “breakdown” was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said.

“As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,” Greenspan said. That would give the companies an incentive to ensure the assets are properly priced for their risk, advocates say.

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Why Wells Fargo Really Wanted Wachovia

Posted by ecoshift on October 23, 2008

Why Wells Fargo Really Wanted Wachovia
By Morgan Housel
October 21, 2008

For Wachovia (NYSE: WB) shareholders, it may have seemed too good to be true. But it wasn’t.

Just days after it essentially collapsed and Citigroup (NYSE: C) made an offer to buy its banking assets for $1 per share, Wells Fargo (NYSE: WFC) came out of nowhere, offering to buy the entire company for $7 per share with no help from the government. No backstop from the FDIC. No taxpayer intervention. Nothing. Just a good ol’ fashioned buyout.

But why?

Why was Wells Fargo so eager to ante up a deal that was leaps and bounds sweeter than Citi was willing to pay? After all, Wells Fargo has a stellar reputation of keeping underwriting standards in check, so why would it want anything to do with a shoddy bank drowning in subprime mortgages?

Taxes. It was all about the taxes.

The day after Citigroup made its bid, the Treasury changed a tax rule that lets banks accelerate the losses and writedowns on banks they acquire against their own net income, offsetting the charges as tax write-offs.

Wells plans on writing off some $74 billion of Wachovia’s $498 billion loan portfolio — an insanely large amount that reflects just how poisoned Wachovia’s books really were. With the new tax rules, it gets to use all of that $74 billion as a charge against its own net income, which means one thing: Wells Fargo’s going to be a tax-write-off machine for years to come.

Just how much will it save? The Wall Street Journal, citing an independent tax analyst, estimates Wells Fargo could reap a tax savings of about $19.4 billion. To put that in perspective, the 0.1991 shares of its own stock Wells Fargo is offering Wachovia comes out to around $6.24 per share, or roughly $13.8 billion. Yes, Wells Fargo gets a $19.4 billion tax break for a company it’ll pay just under $14 billion for (if the deal closed today).

In other words, Wells Fargo didn’t pay anything for Wachovia: The IRS paid it more than $5 billion to take it. Who ever said you have to fear the taxman?

A couple implications of this: One, it’s a good thing that at least some benefits are granted to companies willing to buy failed banks. After all, had Wells Fargo not stepped up to the plate, the existing deal with Citigroup could have stuck taxpayers with tens of billions of dollars in losses.

Nonetheless, let’s keep in mind what these tax advantages are: yet another page in the bailout book. You might as well add these tax breaks as a stealth entry to the nearly $3.9 trillion or so already laid out to right the banking industry.

When will it ever end?

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FDIC seeking office space in Southern California

Posted by ecoshift on October 22, 2008

FDIC seeking office space in Southern California – Los Angeles Times
The agency needs office space while it liquidates the assets of failed banks and thrifts. The search is focused on Orange County, a source says.
By E. Scott Reckard and Roger Vincent
October 22, 2008

The Federal Deposit Insurance Corp. plans soon to sign a major lease of office space in Orange County, probably in Irvine, where as many as 600 people would liquidate the assets of troubled banks and thrifts based in California and other Western states.

The agency needs 200,000 square feet of space and has looked at locations across Southern California, FDIC spokesman David Barr said.

“It’s a temporary office — three to five years is what we’re looking at,” Barr said Tuesday. “We hope to find the space within the next few weeks.”

Thanks largely to the housing bubble, not a single U.S. bank or thrift failed from June 2004 through February 2007, the longest collapse-free stretch in the FDIC’s 75-year history. But three banks went under last year, 15 have folded this year, and the FDIC has warned of more failures in coming years.

A contingent of FDIC officials has been occupying the Pasadena headquarters of IndyMac Bank, a giant mortgage lender that failed in July. Barr said the FDIC wanted its new office to be reasonably close to IndyMac. The first 100 or so employees could be in the new office by December.

If no buyer emerges for all of IndyMac, the FDIC could wind up with billions of dollars in high-risk IndyMac mortgages — loans that the agency, as the current operator of IndyMac, has been trying to modify en masse to stem foreclosures.

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Consumer confidence plunges

Posted by ecoshift on October 17, 2008

Confidence plunges among US consumers FT.com / World / US & Canada
By Krishna Guha in Washington and Anuj Gangahar, Saskia Scholtes, Jonathan Birchall and Daniel Pimlott in New York
Published: October 17 2008 19:57 | Last updated: October 17 2008 21:35

US consumer confidence has fallen more sharply this month than in any month since records began in 1978, a widely followed survey showed on Friday, raising fresh fears about consumer spending.

The University of Michigan consumer sentiment index fell from 70.3 in September to 57.5 in October, well below economists’ expectations.

The sharp deterioration raises the danger that US households, scared by the extraordinary events of recent weeks and weighed down by the fall in stock and house prices, will retrench, sending the economy into what could be a deep recesssion.

“People are really terrified and this has the potential to have a big impact on spending,” Frederic Mishkin, a professor at Columbia University and former governor of the Federal Reserve, told the Financial Times prior to the release of the Michigan figures.

The poor sentiment comes as banks and finance companies cut back on consumer credit – in particular car loans – amid growing evidence that people are struggling to meet their payments.

Underlining the grim mood, Linens N Things, once the second largest US home furnishings chain, launched liquidation sales at its 371 remaining stores on Friday. VF Corporation, owner of clothing brands including Wrangler and The North Face, also slashed fourth-quarter revenue forecasts, saying the financial crisis and economy had taken “a heavy toll on consumer confidence and spending in many markets around the world”.

The company, which supplies retailers such as Wal-Mart and Nordstrom, said the second half of September had been a “turning point” for sentiment.

Separate data showed that US housing starts fell again in September to their lowest level in nearly half a century, indicating that the housing sector is still far from bottoming out.

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Foreclosed homes for sale, cheap

Posted by ecoshift on October 17, 2008

Is this a bottom?

Foreclosures, Falling Prices Spur Pr. William Home Sales – washingtonpost.com
By Nick Miroff
Washington Post Staff Writer
Friday, October 17, 2008; Page A01

Freewheeling American capitalism may be falling out of fashion on Wall Street, but in the western suburbs of Northern Virginia, it is driving one of the greatest home-buying sprees the region has ever seen.

The epicenter of the boom is Prince William County, where enterprising investors are scavenging the wreckage of the housing bust at a furious pace. Last month, 1,116 homes were sold in the county, a 235 percent increase from the same period last year and more than in any other September on record, according to the Northern Virginia Association of Realtors.

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Banks Are Likely to Hold Tight

Posted by ecoshift on October 16, 2008

Banks Are Likely to Hold Tight to Bailout Money – NYTimes.com
October 17, 2008
By LOUISE STORY and ERIC DASH

Even as the government moves to plug holes in the nation’s banks, new gaps keep appearing.

As two financial giants, Citigroup and Merrill Lynch, reported fresh multibillion-dollar losses on Thursday, the industry passed a grim milestone: All of the combined profits that major banks earned in recent years have vanished.

Since mid-2007, when the credit crisis erupted, the country’s nine largest banks have written down the value of their troubled assets by a combined $323 billion. With a recession looming, the pain is unlikely to end there. The problems that began with home mortgages, analysts say, are migrating to auto, credit card and commercial real estate loans.

The deepening red ink underscores a crucial question about the government’s plan: Will lenders deploy their new-found capital quickly, as the Treasury hopes, and unlock the flow of credit through the economy? Or will they hoard the money to protect themselves?

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constanza: the other forms of capital…

Posted by ecoshift on October 14, 2008

The Oil Drum | The Long Term Solution to Our Financial Crisis: The Other Forms of Capital
Posted by Nate Hagens on October 14, 2008 – 10:09am
Topic: Economics/Finance

As the world slowly awakens to the concept that all wealth perhaps can’t be measured by digits in the bank, the global economic and political elite have been meeting to potentially form a “new Bretton Woods,” kick started by global guarantees of banking deposits, direct government investment in banks, and global rate cuts. Though the markets have so far reacted with glee (or short covering), pumping fiat money into the system with no biophysical linkage to the real economy has (at least) two major problems. First, it accelerates the growing gap between financial capital and real capital, and second, it tacitly acknowledges our current “ends” as acceptable, and that all forms of capital can and should continue to be directed towards the positional consumption of “stuff” that our culture currently advocates (perhaps via momentum alone). In crisis times such as these, our leaders would do well to recognize that the human economy is a subset of a larger, finite system, and is subject to the natural laws forthwith. Furthermore, a plethora of new economic, psycholgic, and neuroscience research also suggests that “more” does not equate with “better”…

Below the fold is a guest commentary explaining these themes written by my thesis co-advisor, Robert Costanza, director of the Gund Institute for Ecological Economics at the University of Vermont.


We now live in a world relatively full of humans and their built capital infrastructure. In this new context, we have to reconceptualize what the economy is and what it is for. We have to first remember that the goal of the economy is to sustainably improve human well-being and quality of life. We have to remember that material consumption and GDP are merely means to that end, not ends in themselves. We have to recognize, as both ancient wisdom and new psychological research tell us, that material consumption beyond real need can actually reduce our well-being. We have to better understand what really does contribute to sustainable human well-being, and recognize the substantial contributions of natural and social capital, which are now the limiting factors in many countries. We have to be able to distinguish between real poverty in terms of low quality of life, and merely low monetary income. Ultimately we have to create a new model of the economy and development that acknowledges this new full world context and vision.

This new model of development would be based clearly on the goal of sustainable human well-being. It would use measures of progress that clearly acknowledge this goal. It would acknowledge the importance of ecological sustainability, social fairness, and real economic efficiency. Ecological sustainability implies recognizing that natural and social capital are not infinitely substitutable for built and human capital, and that real biophysical limits exist to the expansion of the market economy.

Social fairness implies recognizing that the distribution of wealth is an important determinant of social capital and quality of life. The conventional model has bought into the assumption that the best way to improve welfare is through growth in marketed consumption as measured by GDP. This focus on growth has not improved overall societal welfare and explicit attention to distribution issues is sorely needed. As Robert Frank has argued in his latest book: Falling Behind: How Rising Inequality Harms the Middle Class, economic growth beyond a certain point sets up a “positional arms race” that changes the consumption context and forces everyone to consume too much of positional goods (like houses and cars) at the expense of non-marketed, non-positional goods and services from natural and social capital. Fore example, this drive to consume more positional goods leads people to reach beyond their means to purchase ever larger and more expensive houses, fueling the housing bubble. It also fuels increasing inequality of income which actually reduces overall societal well-being, not just for the poor, but across the income spectrum.

Real economic efficiency implies including all resources that affect sustainable human well-being in the allocation system, not just marketed goods and services. Our current market allocation system excludes most non-marketed natural and social capital assets and services that are huge contributors to human well-being. The current economic model ignores this and therefore does not achieve real economic efficiency. A new, sustainable ecological economic model would measure and include the contributions of natural and social capital and could better approximate real economic efficiency.

The new model would also acknowledge that a complex range of property rights regimes are necessary to adequately manage the full range of resources that contribute to human well-being. For example, most natural and social capital assets are public goods. Making them private property does not work well. On the other hand, leaving them as open access resources (with no property rights) does not work well either. What is needed is a third way to propertize these resources without privatizing them. Several new (and old) common property rights systems have been proposed to achieve this goal, including various forms of common property trusts.

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