TIM GEITHNER GETS TREASURY DEPARTMENT, RICHARDSON, COMMERCE

November 21st, 2008 - by: danny

FRIDAY AFTERNOON: President-elect Barack Obama is preparing to name Timothy Geithner, president of the Federal Reserve Bank of New York, as secretary of the Treasury, according to NBC News.

Bill Richardson offered Commerce

BREAKING FRIDAY MORNING: CLOSE AIDE SAYS OBAMA WILL PICK HILLARY

MARKET DROPS AGAIN, ANOTHER 5 %
WHERE DID THE TRILLIONS GO?
CITIGROUP BLUES

I began the day on Thursday in snowy Rochester for an academic conference on the role of credit unions which seem poised to present themselves as a real alternative to failing banks and discredited financial institutions. Robert Manning of RIT explained why this is a consumer-led recession and showed how more and more Americans have fallen into the debt trap. He is launching a new, responsible, debt relief initiative. Check out their new website: debtrelief.org

I will be writing more about this but on a day of more financial distress, where the whole debate over help for the auto industry went off the rails because it was revealed that the execs flew to DC on private planes–a sidebar and distraction–when it seemed clearer than ever that Congress is paralyzed, and Paulson is useless, I was impressed to find a whole industry making sense and working on behalf of the consumer. More to come. In the meantime, check out the publications of the Filene Research Institute,which offers many reports and studies on credit unions and their innovative initiatives.

ANOTHER MARKET MELTDOWN

Market drops another 5% on reports of a rejection Auto bailoutÃ¢â‚¬Â¦.earlier

LONDON/WASHINGTON (Reuters) – Fears of a deep, long global recession intensified on Thursday as markets hit new lows in alarm at reports of record U.S. job losses, oil prices plunging below $50 a barrel and worry that U.S. automakers would not get a bailout from Washington

FT: Fear of severe downturn grips world markets

Fears of a severe global recession gripped financial markets on Thursday, sending interest rates to record lows and driving down US stock prices to their worst close in more than a decade.

ROUBINI’S RGE MONITOR: “As consumption provides 71% of U.S. GDP, a consumer recession could result in the worst recession since World War II, starting with a minimum 5% GDP contraction in Q4 2008 and ending at least 3 times as long and deep as the previous two recessions. To make matters worse, the market’s loss of confidence in policymakers despite aggressive policy actions will keep financial losses mounting. ”

PAUL KRUGMAN NYT:

How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds – which reflect investor fears of default – are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.”

WHERE DID THE MONEY GO?

Nick Van Hoffman, The Nation: $2 Trillion Handed out by Paulson and Bernanke, But Who Got It, Nobody Knows

With his latest policy switch to buying stock in banks and other companies, Henry Paulson has more zigs and zags to his credit than a fox trying to escape a pack of hounds.

The fox and the hounds, of course, have a clear idea of what they want to do and how they want to do it, which is more than you can say of Paulson. Sums of incalculable size are being spent or pledged by Paulson and his playmate, Ben Bernanke, chairman of the Federal Reserve Board, and nobody outside their organizations, or maybe inside them either, knows who got what, how much they got, and under what conditions they got it.

In the past couple of months Bernanke has loaned out $2 trillion to unnamed companies under eleven different programs and all but three of them were slapped together in the past fifteen months of financial crisis.

To repeat, we do not know who got this money or what collateral was put up in return for the loans or what conditions were attached to them.

The sums involved are almost three times as large as Paulson’s $700 billion muddled bailout efforts that Congress voted for last month. Bernanke does have the legal authority to pass out these trillions without Congressional authorization and without explanation, but secrecy breeds suspicion and loss of confidence.

NAOMI KLEIN: “ITS BORDERLINE CRIMINAL

MY ANALYSIS ON THE REAL NEWS

GOOD READ: MICHAEL LEWIS, THE DEATH OF WALL STREET

DEBT MAN WALKING

iTulip’s Eric Jantzen: A “DEPRESSION ALL BUT CERTAIN

Unemployment by industry: Recession or depression?

Friday the Labor Department disgorged a mountain of ugly unemployment data. Another”surprising” jump in joblessness made headlines..

iTulip has observed and analyzed changes in the US economy for over ten years. In the current economic cycle, since 2006 we have focused on median duration of unemployment to give us early warning of rising unemployment.

Here we extend that analysis to point us to where unemployment is headed overall and also delve into 14 major industry sectors, including one you work in, to fine tune our forecast. There is no doubt in our minds that this is The Big One – a depression is all but certain unless the US develops and executes a post WWII scale stimulus plan starting in 2009, but the structure of that stimulus is critical to avoid turning the US into a sclerotic economy dominated by large corporations and big government. In any case, we forecast 10 million jobs lost by the end of next year

WHY THE GOP OPPOSED THE AUTO BAILOUT

Dr. J.’s Commentary: Why the Republicans Want to Kill GM

Remember the original bailout package? Yes, that one was some years ago for some hedge fund or funds. The Republicans were all for that one. Several billions. Then there was the bailout/buyout package for Bear Stearns. Billions more. Lehman Bros. wasn’t so lucky (but then again it’s primarily Goldman Sachs folks who populate this Treasury Dept., not Lehman folks). Then came the broader financial sector $700 billion bailout, the first draft of which was essentially written on the back of a paper napkin. (OK, that’s an exaggeration. It was actually two-and-a-half typed pages long.) That package eventually got into a very long bill. It was eventually passed to help the investment banking sector recover from its excesses of greed in the process of securitizing mortgage loans.

The process was enabled, courtesy of McCain’s Treasury Secretary-designate Phil Gramm and the repeal of the New Deal Era Glass-Steagal Act. It had separated investment and commercial banking to forestall exactly the kind of financial meltdown that has occurred over the past six months, courtesy of investment banks not being required to have the reserves to back up mortgage loans at anywhere near the level commercial banks are still required to hold. And then there is AIG, running through government funds at a great rate, currently around $150 billion. Boy those resort/spa costs are high, aren’t they? No problem there for the Republicans.

And so comes along the U.S. auto industry, especially General Motors. As a result of really bad management, focusing on immediate profitability and not caring much about the long run until very recently, it’s in a very bad way, with both GM and Chrysler facing possible bankruptcy without Federal government assistance. AIG, an insurance company, mind you, that made some very bad decisions on what to insure, gets $150 billion. The U.S. auto industry, which directly and indirectly employs an estimated 3 million people wants an extra (and paltry) $25 billion beyond the loan it is already getting to help it retool for fuel-efficient cars, wants $25 billion more to help it get to the time when it can start producing modern cars in significant numbers. And all of a sudden the Republicans are saying no. So why, you might ask?

Part of the answer does lie in the standard reasons given. Many U.S. automaker workers live in Ohio, Indiana, and Michigan and those states seem to be gone from the red group to the blue for quite some time to come, the racist messages that the Republicans used to win over those “Reagan Democrats” for the last 30 years to the contrary notwithstanding. That may be true in part, but there are U.S. automaker plants in other parts of the country, and certainly the suppliers and especially the dealers are all over the country. So that one doesn’t hold much water.

The Republicans’ own answer is, well if you bail out one industry, how do you pick and choose among the others that might/will start lining up. So let’s just let the auto industry go. Anyway, the free market should just be allowed to work, and the companies, well actually just Chrysler and GM, apparently, should just be allowed to go bankrupt and they will come out of it just fine. Well, they picked and chose among the financial sector companies, so that one doesn’t hold much water either.

CONGRESIONAL RESEARCH SERVICE: THE GLOBAL DIMENSIONS OF CRISIS

INVESTMENT NEWS: CITIGROUP: GOING DOWN?

Citigroup Inc.’s stock price nose-dived 23% yesterday in the steepest percentage decline ever for the Wall Street giant, which has lost a third of its market value in the past three days.

The New York-based bank’s dismal performance yesterday came after it announced that it will buy the remaining $17.4 billion in assets held by its structured investment vehicles, which were casualities of the global credit crunch

Despite the negative state of Citigroup, which is coming off four straight quarterly losses (InvestmentNews, Oct. 16), Saudi Arabian Prince Alwaleed bin Talal expressed confidence in the bank today by announcing plans to increase his stake in the company from less than 4% to 5%.

NAKED CAPITALISM ON CITI:

“Citigroup’s stock price fell another 26% today to $4.71, bringing the week’s decline to 50%. The Wall Street Journal reports that the sudden decay is driving management to consider a radical restructuring of the company or an outright sale, moves that were deemed by management to be off the table as of a mere week ago.

There are apparently rumors circulating that Citi is on the verge of bankruptcy.

Moreover, as AIG, which unlike Citi, has lot of desirable assets, found that there were no buyers. Financial institutions are too capital starved to be sticking their necks out now, and private equity firms cannot meet their target returns without leverage, which they cannot get right now. And who, pray tell, would buy the entire bank? Citi is so large that any acquirer runs the risk of at least a partial reverse takeover. And do not say JP Morgan. That bank is already too large to fail, and merging with Citi would greatly increase systemic risk in the long term.

The Journal also notes that Citi contends that evil shorts are behind the fall in the stock. It’s blindingly obvious that the latest deterioration in financial stocks was kicked off by Henry Paulson’s statement last week that the TARP would, in fact, not be used to buy troubled assets, which in turn led to a plunge in mortgage-related instruments.

The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact – that the defect was inherent in the system – contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work.

The News Dissector