PAULSON SAYS CRISIS DONE; DAS SAYS ITS JUST STARTING

Credit crisis over? Not likely

Short-term rallies and wishful thinking have buyers ready to pounce, but the end of the credit mess isn’t yet here. In the meantime, here’s some speculation on bank stocks.

By Jon Markman

The major stock indexes blasted to two-month highs last week in defiance of wretched news on the economy, one of those reverso-world moves that the market gods use to keep the public wrong-footed. It seems negative sentiment is so pronounced right now that every time the news is one lumen brighter than total blackness, buyers emerge from their foxholes to nibble.

Yet Satyajit Das, an independent debt derivatives expert who for years has warned of an impending disaster in credit markets, doesn’t buy it. I caught him at his Sydney, Australia, office a few days after he emerged from a three-month back country trek, and he leapt at the chance to scoff at U.S. bank presidents’ vows that the worst of the credit crisis is over.

Paraphrasing Winston Churchill, in a voice dripping with Aussie irony, he quipped, “This is not the end or even the beginning of the end, though it may be the end of the beginning.”

FELDSTEIN FUMING WITH PHONY OPTIMISTS OF RECOVERY

Martin Feldstein, who as a Chairman of the Council of Economic Advisers under Reagan and an advocate of Social Security reform, has been a surprisingly open critic of the Fed’s and Bush Administration’s responses to our current economic woes. Feldstein has been regularly writing op eds opposed to some of the viewpoints and actions of those in the driver’s seat. For instance, last month he wrote in the Wall Street Journal against further rate cuts, arguing they’d do little to stimulate growth but would be effective fuel for inflation. Feldstein, who now chairs the National Bureau of Economic Research, has said that the economy started into recession around the start of the year and expects it to last longer than the normal slowdown, a view which no doubt endears him to the officialdom in DC.

Today, in a comment in the Financial Times, “Misleading Growth Statistics Give False Comfort” (and a pointed contrast to Edward Lazear’s whopper, that the ‘data are clear” that the US is still in growth mode), Feldstein goes through the stats in more granular detail to demonstrate that the downturn is in progress (and gives a useful side lesson in how certain figures are derived).

He also urges more aggressive action and suggests an elegant-sounding solution: let borrowers refinance out of their mortgages into lower-interest, secured, but full recourse loans. The problem with this idea is that in most states, only purchase money mortgages are non-recourse. Refis (and half the subprimes were cash-out refis) are recourse loans. They are de facto non recourse because the costs of going after deadbeats are high (or higher) than recoveries, so pursing them isn’t a very attractive economic proposition. Making new loans full recourse thus is an illusory improvement.

IS IT TIME FOR THE BIG WALK-AWAY

The Big Walk Away is coming.

It’s only a matter of time before the Big Walk Away becomes even bigger. That’s right, when you get right down to it, why does anyone have to meet their obligations? Just take the Big Walk Away. Why should homeowners try to make payments on over valued property? Just walk away and all your troubles will be over.

In fact your Government is telling you not to worry, Uncle Sam will bail you out. Your government is bailing out huge corporate institutions at time when the Federal government can’t meet its obligations. So why not walk? You have nothing to lose. If leveraged buyouts were rewarded and are now backstopped by your tax dollars, then why not get some of your tax money back?
Now thousands of individuals are taking the Big Walk Away. But wait, is it limited to just the consumer? No. Every institution will take the Big Walk Away - everything from Corporations to Cities to States.

THE SCARIEST NEWS SO FAR–PENSIONS OF 44 MILLION WORKERS MAY BE GONE VERY SOON

http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheYearsScariestInvestingNews.aspx?GT1=33002&ref=patrick.net

“The Pension Benefit Guaranty Corp., the government agency that protects the pensions of 44 million workers in case their employers can’t (or won’t) pay promised benefits, has announced that to avoid going bust it will double the percentage of its portfolio — to 45% — that it puts into stocks. An additional 10% will go into alternative investments, including hedge funds.

In other words, facing a $14 billion deficit and even larger projected shortfalls, the Pension Benefit Guaranty Corp., or PBGC, decided not to save (by raising premiums) or to live within its means (by cutting benefits) but to gamble in the financial markets by taking on more risk. The PBGC was so proud of its new strategy that it announced it on Presidents Day, when the U.S. financial markets were closed and almost no one was paying attention.”

Mike Kisselstein writes about The Nexus of Systemic Excess

Global economies have been rocked by interrelated sector meltdowns. Home prices continue to fall, home building remains down, foreclosures and home vacancies are up. What began in the residential real estate sector has spread to the financial, commercial real estate, municipal bond and retail sectors. Unemployment has begun to inch up as consumers draw on credit cards and 401Ks to cover income shortfalls. The days of cheap and easy credit appear to be over for the foreseeable future. Clearly we are in the process of unwinding the perfect storm of systemic excesses which have permeated the global economy.

It’s been called the sub prime mess, a credit crisis and a housing bubble. It’s introduced Americans to terms like mark to market, mark to model, kitchen sink quarter, jingle mail, write downs, Alt A, SIVs and LBOs. Where is the center of this universe? It’s at the corner of a rust belt dream and systemic excess at a former toxic waste dump on the shore of America’s most polluted lake directly adjacent to the municipal sewage treatment plant in Syracuse, NY. And this nexus has been prophetically named, DestiNY USA =…

FIGURES LIE, LIARS FIGURE

From the Financial Times:

Prepositions matter. The recent government report that US gross domestic product increased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.

Private sector payroll employment peaked last November and has fallen five months in a row, shedding more than 300,000 jobs. Industrial production was lower in March than in December and January. Real personal income net of taxes and transfers is also lower than in January. Real retail sales have fallen since the start of the year. Private housing starts are down 13 per cent in just the two months since January and 36 per cent from a year ago.

Although the government does not provide monthly estimates of GDP, Macroeconomic Advisers…estimates real GDP based on the price level of the year 2000. Its most recent estimates (revised figures to be published this month) show that real GDP rose from an annual $11,649bn last October to $11,701bn in December and $11,777bn in January but fell to $11,686bn in March, a decline of about $100bn in two months. Although GDP declined during the first quarter, the average of the monthly figures in the first quarter ($11,711bn) is higher than the average of the monthly figures for the final quarter of 2007 ($11,675bn).

The misstatement that the economy expanded in the first quarter creates an inappropriately sanguine view of the months ahead and therefore reduces the prospect of strong action to prevent

the deep decline that may otherwise occur…

POLITICS

OTHER VIEWS ON INDIANA (by TexasDarlin at MyDD)

Why did Barack Obama lose the state of Indiana, a state his own campaign predicted he would win in February, a state he declared would be a “tie breaker,” a state in which 25% of the electorate lives in Obama’s hometown media market?… Clinton is the one who out-performed expectations [on Tuesday]. Clinton’s core base grew, and Obama did not cut into it. Obama lost ground in Indiana. A big Rezko-sized lot full of ground. A net 9-point loss from his own projections. Despite massive advertising expenditures and a hometown advantage with 25% of the electorate, Obama could not close the deal in Indiana.

Aha! It’s Rush Limbaugh’s Fault that Obama Lost Indiana! (by SusanUnPC at No Quarter)

Kerry, political genius — and Obama campaign manager David Pfouffe — have blamed Rush Limbaugh for Barack Obama’s failure to win Indiana last night, reports Politico.com’s Ben Smith. “Rush Limbaugh was tampering with the primary,” Kerry said “If it was not for Republicans taking Democratic ballots, he would have won,” he said of Obama… But what the two geniuses Pfouffe and Kerry do not realize is that Rush has given them a BIG boost towards victory! Pouty Poofy and Jawin’ John should NOT look this gift horse in the mouth!

TERROR DRILLS THIS MONTH

I ran a piece that warned of nationwide terror drills, The qualifications of the authors was questioned as was my credibility for running it. I then checked on line and could not find sources to verify what seemed like a very draconian, sweeping story. Score one for the critics but then this came in from CLG-Citizens for Limited Government in Florida

http://www.legitgov.org/#breaking_news

Feds Practice Evacuation From D.C. to Test ‘Continuity of Government’ –In Big National Drill, Executive Branch ‘Runs’ Government From Outside D.C. as Mock Crises Mount

A national disaster exercise that began last week involves the evacuation of thousands of federal personnel from Washington, D.C., the Washington Post reported [Buried in the ‘Metro’ section, Page B08]. In National Exercise 2-08, which continues through Saturday, [Bush bin Laden’s] terrorists release a poisonous gas from a tanker in Washington state while Oregon authorities must handle the unintentional escape of nerve agent from the Umatilla Chemical Depot. Meanwhile, the capital region is faced with a terrorist threat and a major hurricane making its way up the East Coast. Over three days this week, the federal government is using cars and helicopters to move large numbers of employees to temporary sites in Maryland, Virginia and West Virginia. The drill is intended to test the ability to maintain “continuity of government” in the face of a crisis. This is among the largest such drills since the terrorist attacks of Sept. 11, 2001, officials said. President [sic] George W. Bush was not expected to be among the evacuees, but some White House personnel would be sent out of town, said spokesman Scott Stanzel.

Cheney aide subpoenaed to testify to Congress 07 May 2008 U.S. Vice President [sic] Dick Cheney’s chief of staff was subpoenaed on Wednesday to testiLIE in a congressional probe of the administration’s treatment and possible torture of enemy combatants. House of Representatives Judiciary Committee Chairman John Conyers (D-Mich.) issued the subpoena to David Addington a day after it was authorized by a House panel.

MEDIA

CONGRATS TO JASON LEOPOLD ON THE LAUNCH OF HIS NEW INVESTIGATIVE PUBLICATION: THE PUBLIC RECORD

News From Scotland: Harry Potter author wins privacy case

HARRY POTTER author JK Rowling today won a landmark privacy ruling in her battle to ban publication of covert long lens pictures taken of her son when he was 18 months old.
The Edinburgh author was unaware the photograph – which was taken in 2004 in a street in the Capital – was being taken and did not consent to it.

In a key finding, the Master of the Rolls, Sir Anthony Clarke, said: “If a child of parents who are not in the public eye could reasonably expect not to have photographs of him published in the media, so too should the child of a famous parent.”

The case was brought by the writer under her real name, Joanne Murray, with husband Dr Neil Murray on behalf of their son, David, who is now aged five.

BBC: PROTEST AT GOOGLE

Google - whose shares currently trade at almost $600 (£300), more than $100 above its level a year ago - is facing two shareholder motions at its annual general meeting on Thursday.
Both insist the company needs to do more to fight censorship and support human rights.

The top three executives at Google control about two-thirds of the voting shares, so neither motion will get a majority.

But that is not the point of the exercise, according to Amnesty International, which will be proposing the first motion at the meeting.

“A lot of shareholders vote and don’t attend the meeting but they may pay attention to what happens,” says Amy O’Meara, director of business and human rights at Amnesty International USA.

WATCH FOR THE NEW QUARTERLY DISPATCHES IN AMERICA

Beautifully designed. Book sized, timeless photos and textured reporting. Its all edited by one of my media heroes Mort Rosenblum, a long time Associated Press correspondent and International Herald Trib editor. He has been outspoken against the cutbacks and dumbing down of media as a critic. Now he turning to his first love, journalism, to show us how it should and could be done.

Check out their website: http://www.rethink-dispatches.com

AND SPEAKING OF READING—THE MOST OBJECTED TO BOOK IN AMERICA IS…

INDIA AT 60

Went to a luncheon at the Asia Society to hear Kamal Nath, the Minister or Commerce and Industry who was boostering India’s dynamic economy. Among his points was that Indian businesses are actually creating more jobs in the US than are being outsourced to India….He also said, in response to my question that there were virtually NO subprime write downs there because India’s banking system is sounder than ours. He was critical of the subsidies US farmers receive….

Impressive…..

I am in Boston Friday and then heading to Berlin for an event with the Public Interest Registry, the company that oversees all the .org registrations on the web like ours. My blogging might be jet lagged next week.

Comments to Dissector@mediachannel.org