Morning Reads
By Barry Ritholtz - January 5th, 2010, 10:00AM
A few items worth perusing:
• Paul Volcker: The Lion Lets Loose (BusinessWeek)
• A Japanese Rx for the West: Keep Spending AN INTERVIEW WITH RICHARD KOO (Barron’s) America seems to be suffering from the same affliction that has hobbled Japan for so long — a balance-sheet recession.” And no matter how hard the Federal Reserve tries, it won’t end until businesses shake their heavy loads
• China Property Bubble May Lead to U.S.-Style Real Estate Slump (Bloomberg)
• Aughts were a lost decade for U.S. economy, workers (Washington Post)
• NYC tourism down in 2009 but growth seen in 2010 (Reuters)
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January 5th, 2010 at 10:09 am
WOW…just WOW is all I can comment about Mr. Volcker’s last 2 statements in this interview….talk about letting your feelings be known to your boss…
Q: In interviews in the past you said that’s why we needed to change the political process; that’s why you thought that candidate Obama was the best choice for President.
Volcker: True. But has he been able to do that at this point? It doesn’t look that way. I think that’s unfortunate. I wish the Administration would pay more attention to what’s needed to improve the ordinary functioning of government. We can’t even fight a war with our own people any more. We’ve got to hire Blackwater. I think people have lost confidence in government, they’ve lost trust in government, and it shows. This isn’t a question just of this Administration. It’s been kind of a steady, downhill path.
Q: Yes, but this Administration came in and said it would change. That was the mantra of the campaign. So what happened?
Volcker: It shows you it’s not that easy to change.
January 5th, 2010 at 10:11 am
State and local finances are about to implode…this is not a warning anymore.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=4671&updaterx=2010-01-03+17%3A31%3A46
January 5th, 2010 at 10:25 am
financial innovation that we need????
http://baselinescenario.com/2010/01/04/yet-more-financial-innovation/
TBTF???
http://baselinescenario.com/2010/01/04/the-crisis-this-time/
a better way to compensate?
http://baselinescenario.com/2010/01/04/another-approach-to-compensation/
January 5th, 2010 at 10:27 am
Steve, but will the administration bail out the states? How much TARP is “left over”? Why can’t the Fed just start buying state bonds?
What magic tricks can TPTB use to continue to avoid what you (reasonably) think is inevitable?
Remember: you’re in Bizarro World.
January 5th, 2010 at 10:55 am
Q: You have one of the most powerful and persuasive voices in the global financial conversation.
A: You flatter everybody. I am one voice in the conversation, and there are others.
LOL. Charlie Rose and James Lipton are cut from the same cloth. But Charlie works without blue note cards and those pretentious questions written by some French guy.
This exchange is particularly damning:
Q: Is part of the problem that Congress is slow in the process of approving?
A: Slow is too fast a word to describe what’s going on. The Administration is one quarter over, and it hasn’t manned the ramparts of government yet.
January 5th, 2010 at 10:57 am
@investorinpa -
That entire interview is a bombshell – comments on Glass Steagal, the Treasury department (“The Treasury is an outstanding example of a broken system, but it’s not the only one. “), and capital markets regulation. I agree … WOW !
January 5th, 2010 at 11:01 am
@wunsacon:
They could bail out states…a few problems:
1) What about states that were prudent and are not in major difficulty? Will they say it is not fair to bail out the reckless states? (where have I heard similar arguments?)
2) If they do bail out states, what are the reforms that go with that? Or do we just cause the moral hazard now that states can take risks and the rest of us will bail them out?
3) The bailout puts the US govt even more in debt.
What does the author of Bailout Nation think of this potential bailout?
January 5th, 2010 at 11:10 am
@Steve: I hardly think that the Feds care about “moral hazard” anymore (if they ever did). It’s everywhere we look now.
January 5th, 2010 at 11:10 am
Iceland says ‘buzz off we’d like to growl in our own stink hole’, does anyone really care?
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6936239/Icelands-president-blocks-2.3bn-Icesave-deal-to-compensate-the-UK.html
January 5th, 2010 at 11:11 am
Size of the state deficits, per that interview, are 120B this year, and 260B next 2 years. Today’s 16% plunge in pending home slaes won’t help.
January 5th, 2010 at 11:15 am
@Mannwich
Good point on moral hazard…what was I thinking? With no regard to moral hazard though, you are in for more of the same… tremendous boom-bust cycles and tremendous wealth gaps. Not a stable situation.
January 5th, 2010 at 11:47 am
Is there even ONE thing that “Tall Paul” said that was irrefutable?
To me, every utterence is filled with common sense and logic, yet he can make no headway at all…amazing…
It’s no wonder people feel so helpless…If Volcker can’t make a difference, what chance do the rest of us have?
B
January 5th, 2010 at 12:22 pm
Here is some good news for you. More cities are raising a stink about their trash……They are doing it the right way and actually converting that stink to something useful
Trash to gas: Landfill energy projects increasing
January 5th, 2010 at 12:24 pm
Uncertainty and a Slow Recovery
Mrrss. Becker, Murphy and Davis
http://online.wsj.com/article/SB10001424052748703278604574624711732528426.html
January 5th, 2010 at 12:28 pm
Speaking of people taking a stand against moral hazard, or against becoming debt slaves to pay off other’s debts. Take your pick. Iceland’s president has refused to sign a bill to pay off the British and Dutch for the losses suffered when people went chasing returns in risky banks outside their own country and outside the EU:
http://www.chron.com/disp/story.mpl/business/6799057.html
One would hope that this is the beginning of a trend.
It appears that the Greeks need to borrow a zillion dollars to keep their deficit schemes going, but are scared to sell bonds at auction:
http://www.bloomberg.com/apps/news?pid=20601087&sid=awv6HplzLa5M&pos=2
I agree with Manny and Wunsacon that Steve is being idealistic. Politically important states will get bailed out, or “an investment” as the Californians put it. The idea of Ben buying new debt will be particularly appealing as a way around a nasty fight in the senate by Republicans from other states who have no skin in the game.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/04/MNCJ1B84N3.DTL
Obama and Bernanke will spend as much as necessary to avert major collapses; it will be one crisis at a time.
January 5th, 2010 at 12:55 pm
“I agree with Manny and Wunsacon that Steve is being idealistic. Politically important states will get bailed out, or “an investment” as the Californians put it. ”
They can call it STRAP…STate Relief of Assets Program…and they can assure us all that the taxpayer will make a profit on it.
January 5th, 2010 at 1:27 pm
”…we have to do a better job at the new industries that are coming along—the so-called green economy…
I do think that the pull of Wall Street on bright young people, ambitious young people, has been tremendous.”
The excesses of deregulation gave TBTF banks and Wall Street cesars powers similar to those of monopolies and trusts of a hundred years ago. There’s always leaders in a country and the most powerful should always be at the central government. Washington surrendered a lot of power to the financial elite. This elite is not elected by the people, their concerns are to survive and enrich themselves. They will do their best to go around any laws and regulations to make more money.
Excessive decentralisation of powers doesn’t work, the pool guard was removed, explosive huge bubbles began drowning U.S. economy, lot of struggling now to revive it, oxygen is hard to find or is
corrupted with CO2/ex nihilo money.
Add to that the U.S. problem of military/security industrial complex also pulling in lots of bright minds and workforce. Peace all over the world would be great, but what to do then with all the workforce involved in the armies and industries.
What will happen when more and more countries default, when China starts having trouble sustaining growth. Will it be a devastating boomerang on the U.S., or will U.S. domestic market, NAFT zone and other healthy enough partners countries shield it against more economic troubles.
January 5th, 2010 at 1:30 pm
speaking of Ben buying new debt. from Zero Hedge:
http://www.zerohedge.com/article/fed-preparing-qe-20-mbs-only-edition
January 5th, 2010 at 1:36 pm
The wife and I plan on helping the NYC tourism industry recover in ’10 with a visit there next month. Of course, we’ll be staying with family in the city, so the hotels won’t get any help from us. Theater, restaurants, museums, and bars will though.
January 5th, 2010 at 1:48 pm
Steve: Good name. Email Geithner.
January 5th, 2010 at 1:56 pm
heinz says: So in boom times, the states and local governments are cutting taxes under political pressure, and then in lean times, in a deep recession, they’re cutting jobs and freezing wages and such, which, I guess, must play a factor in actually exaggerating the extent of the crisis.
please show me where in the ‘boom times’ my lovely state of NJ was cutting taxes? never happened this is an untrue statement of most states.
January 5th, 2010 at 2:08 pm
Michelle Caruso-Cabrera’s conservatism repulses Alec Baldwin….
http://gawker.com/5439841/alec-baldwin-thinks-of-cnbc-as-a-dating-service?skyline=true&s=i
January 5th, 2010 at 3:35 pm
Matt Taibbi no longer feasting on squid, goes for whole eco system:
“The abiding mutual hatred the red/blue groups shared consistently prevented any kind of collective realization about the structure of the overall scheme. What worries me is that we’re now reverting to the same old pattern with the financial crisis story. We’re starting to see fault lines develop, where one side blames the government while another side blames Wall Street for the messes of the last two decades.”
“It has to be looked at as an important part of a diabolical whole, a symbiotic scheme in which the banks and the state were irreversibly intertwined in an enterprise that on both sides was never about market economics, but crime. Because otherwise… the diversionary notion that one side or the other is wholly to blame is part of what makes the whole scam possible.”
http://trueslant.com/matttaibbi/2010/01/04/fannie-freddie-and-the-new-red-and-blue/
January 5th, 2010 at 6:52 pm
Barry
what would you say about Richard koo’s contention
that you can’t use sweedish model to fix the banking
system because the troubled banks are too big to fail
and there no buyers for the assets of these big banks.
Essentially he was saying, what Japan did was correct
and you can’t apply the sweedish model in the case of
balance sheet recession. Only solution is hard slog of 5
to 10 years.
Richard koo’s suggested solution is exact opposite of
what you recommend.
Your comments are appreciated.
Thanks
~~~
BR: Totally disagree — we could have done a WAMU with Citi or BofA or AIG.
I linked to the Koo interview because I thought it was an interesting read.
January 6th, 2010 at 10:51 am
Michael M, I occasionally call the ecosystem “the GoverBiz”, though I don’t think it’s catchy.
We need a better term for the…”swamp”.