Its been quite a while since our last edition of Blog Spotlight: Tonite, I am pleased to present Yves Smith’s naked capitalism.
Yves is a refugee from a big Wall Street iBank, and has put serious time into a well known consulting firm. I have been particularly impressed with Yves coverage of the monoline insurers (Ambac (ABK), MBIA, FGIC). As you will see, her thoughtful post below reflects both his sharp wit, worldly banking experience and insight into this sector.
This is part of our ongoing short list of excellent but somewhat overlooked
blogs that deserves a greater audience. I hope you find it as illuminating as I have . . .
Posted by Yves Smith at 8:55 AM, Feb 19, 2008
Ever since Eliot Spitzer threatened the troubled monoline insurers
that he’d break them up, everyone has acted as if that’s a viable
But this talk of a split reminds me of movies about Hollywood, where someone buttonholes a producer with his pet idea:
it’s like Flashdance, except you reverse it: the girl is a Hispanic
ballerina who started stripping to pay her student loans…."
Like the film proposal, the break up notion is still at the high
concept stage, little more than, "let’s separate the muni operations
from the rest."
And while admittedly Ambac has had only the long weekend to work on its plan, the update as of Monday evening via the Wall Street Journal suggested that the group is flailing around.
Category: Blog Spotlight
One of the misunderstandings about recessions is what actually happens in the real world. A recession is where economic growth stops, and you are left with flat to contracting sales.
Note that economic activity does not grind to a halt — the year-over-year growth rate merely slips into the negative. This is often misstated, in some variation of "Gee, how it can it be a recession — I was out shopping and the stores were pretty crowded." Whenever you see that, the speaker is either technically misunderstanding what a recession is — or alternatively, is painfully long and hoping for the best.
Of course, Growth may falter, not total economic activity. With the $13 trillion US economy, economic
activity certainly won’t fall to zero dollars. Everyone is still
eating, driving to work, using electricity, phones, buying iPods, etc. If economic activity were to fall to an annual run rate of below $13 trillion dollars for a few quarters, well then there’s your mild recession. If it drops much below the $12.75 – 13 trillion dollar range, that’s a bit more serious contraction. Indeed, the greater the year over year contraction in economic activity, the deeper the recession.
Consider Housing: Sales don’t drop from ~7m homes sold to
zero; rather, the number drops significantly (i.e., 4.5m sold). It only
seems like nothing after ther boom years.
But even if US activity were to drop a huge trillion dollars in a year — thats still a $12 trillion of economic activity, and that typically involves one or two people still going shopping and out to eat occasionally.
So far, we are only at the point where Real Sales have slipped into negative year-over-year territory. High food and energy prices, as well as health care, are keeping nominal sales positive. Outside of that, we see clothing, autos, homes all negative. Consumer Technology spending, and business CapEx spending remain positive.
Indeed, while many aspects of the economy are revealing marked weakness, select areas are still hanging on. We are just as likely to be in a recession — as not — as of February 19th, 2008.
Real GDP Growth, Annualized Year over Year
Q1 1990 – Q3 2007
Note: We were out and about this past 3 day weekend (its not all linkfests); Our anecdotal expeiences are after the jump…