Greenspan Concedes to `Flaw' in His Market Ideology

Greenspan Concedes to `Flaw' in His Market Ideology (Update2)

By Scott Lanman and Steve Matthews Oct. 23 (Bloomberg) --

Highlights:

Former Federal Reserve Chairman Alan Greenspan: said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed. He stated I was ``partially'' wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. Forecasting is an inexact science.

Greenspan opposed increasing financial supervision: as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and losses tied to U.S. subprime mortgages.

``What went wrong": former chairman wondered, with global economic policies that had worked so effectively for nearly four decades?''Greenspan reiterated his ``shocked disbelief'' that financial companies failed to execute sufficient ``surveillance'' on their trading counterparties to prevent surging losses.

Greenspan Revised Recommendations: Firms that bundle loans into securities for sale should be required to keep part of those securities and other rules should address fraud and settlement of trades.


Commentary

Falling Giant: Alan Greenspan, was once considered the most powerful and well respected man in finance has now lived long enough to see it turn around. We cheered him on when he helped us and now sneer because he failed us.


New Deal Regulation: It appears we are on the verge of a paradigm shift in free market regulations and oversight. Stay tune for a litany of new laws and oversight after the new administration comes into power in 2009.



Jim

Freddie & Fannie Resurrection

COMMENTARY

Freddie & Fannie Resurrection

The Bailout ($$$ Trillion plus) is running wild. The danger is we have an administration who is writing the checks knowing that they won't be around to justify all the additional next generation taxes they are creating in the form of interest and principle payout.

One last hurrah for the Darwinian Capitalism, survival of the fittest - - Only the strongest and most influential corporations will dine for free at the taxpayers table. This is self selection in a manner that rewards privilege and resource.

How can this be? Upon selection, let's examine the new collection of Wallstreet retreads Treasury Secretary Paulson will chose to work with.

It will be interesting to see the teams that are chosen and if they had a past role they had in creating the original problem we are trying to solve. In additional, none of them work cheap. Their skills are worth millions of dollars in compensation so taxpayers pay again. No new regulation, rules, limits, or compensation caps, business as usual one more time.

Another Way ---

Since the American tax payer has all ready bailed out Freddie and Fannie I would like to suggest that Secretary of Treasurer Henry Paulson consider working more predominately through these two agencies.

A handful of executives got excessive compensation bonuses but the rest of the organization did not. For decades these organizations did what they were charactered to do. Adjust the mandate, monitor the compensation, and regulate their leverage and let them propose some programs.

Recommendation: Freddie and Fannie submit a joint draft detailing how they would mop up the targeted toxic mortgages along with additional suggests on how to stabilize the real estate market by Thanksgiving.

Why? Having worked with these two agencies in various capacities, I can tell you most of the employees don't have a rip and tear mentality often found on the Wallstreet.

In Addition:
* They have a corporate infrastructure in place to handle the size that will be necessary.
* They have the ability to drill down to the loan level and help stabilize the underlining problem of price erosion of real estate properties.
* They have the ability to quickly launch a series of new origination products that can mop up the toxic mortgages.
* They are a known an accepted International Organizations.
* Untied States Tax payer is the primary owner of these two GSA's and deserve to benefit of any profit, if there is one.

Finally, Regulation, Oversight, and Compensation controls can be monitored and adjusted to reflect fair value for all employees and participates.

Obviously there is more, but this project can work and within the confines of the existing financial platforms.

Jim

Congress Pushes for Changes to Paulson Bailout Plan (Update2)

By Laura Litvan and James Rowley

HIGHLIGHTS

Sept. 24 (Bloomberg) --

• Congressional leaders are weighing new ways: to revise a $700 billion Wall Street rescue plan after it became clear that U.S. Treasury Secretary Henry Paulson's proposal faces resistance from both Democrats and Republicans.
• House and Senate Democratic leaders: huddled late yesterday to consider new strategies, including the possibility of approving only a $150 billion initial installment for the government to purchase troubled assets from financial firms. Senator Charles Schumer of New York, the No. 3 Senate Democratic leader, said Paulson wouldn't have time to use the full $700 billion before the Bush administration left office on Jan. 20.
• House Republican leaders: told Paulson that his proposal is facing resistance in their party and invited him to speak to all Republicans at a closed-door meeting this morning, said Michael Steel, a spokesman for House Republican leader John Boehner.
• Bloomberg/Los Angeles Times poll: found that by a margin of 55 percent to 31 percent, Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, even if their collapse could damage the economy.
• Senate Majority Leader Harry Reid: said after a weekly meeting of Democrats that Congress may need more time.``It's important that we get it right, not get it done fast''.

COMMENTS:

History in the Making: Watch, listen, and participate in a manner that you can even if it means sending; email, fax, letter, or telephone calls to your Senator or Representative describing what you think.
What is the Big Hurry?: For years the Federal Government was focused on free market deregulation now they want to buy out all the bad debt in the country. In the stroke of a pen transfer all the problems and fiscal burdens from what was some of the wealthiest corporate owners in the country to the United States taxpayer.
What's Wrong with this Picture: Hurry, Hurry, Hurry, if we don't do it quickly and the way Treasury is proposing something terrible will happen, " the world and the USA could see their economies begin to shrink". Please note, to date we have yet to recognize officially that US economy is in recession. Maybe it is time to revise and update some of the indicators which are suppose to guide Main Street and Wallstreet to be more reflective of current economic trends.
Status Quo: $700 billion plus dollars seems like a steep price to pay to preserve the status quo. We as a country don't have enough money to bail everyone out who has a problem loan.

Finally, who is accountable for all of this. Enron occurred and we seemed to learn very little. I suggest that we serious look at the meaning of accountability and regulations with some bite to protect society and the business world from an overly focus emphasis on blind profit.

Jim

Person Harry Reid

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Retail Sales in U.S. Unexpectedly Dropped in August (Update1)

Sept. 12 (Bloomberg) Retail Sales in U.S. Unexpectedly Dropped in August (Update1) By Timothy R. Homan

Highlights

• Retail Sales dropped in August: The 0.3 percent fall followed a 0.5 percent drop in July, the Commerce Department said today in Washington. Excluding automobiles, purchases were down 0.7 percent, the most this year.
• Producer Prices: fell 0.9 percent, more than forecast, in August. So-called core producer prices, which strip out fuel and food costs, rose 0.2 percent.
• Seamus Smyth Economist at Goldman Sachs Group Inc.: ``By July, essentially all the rebates had already been distributed, and so were no longer providing support to incomes.'' In a note to clients on Sept. 2. ``Combined with weak job growth and tight credit, consumers had no way to fund additional consumption.''
• Ford Motor Co.'s Chief Executive Officer Alan Mulally: said in a speech this week. ``I've never seen anything quite like it.'' ``Not only is the U.S. in a recession, but the rest of the world is slowing down,''
• Consumer spending: will stall from July to September, three months earlier than predicted last month, according to the median estimate of economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter's pace.

Comments

White Christmas: While the Farmers Almanac is calling for a cold white Christmas, it doesn't look like we will have a green Christmas for retailers.

Deflation at the Wholesale Level: Yes, a .9 drop in the PPI August numbers appeared - - a nice start for what I believe will continue into the Winter of 2008.

Interest Rates: Look for World Wide interest rates (Including the US) to continue to sag lower due to falling International demand and De-Leveraging of International Banking & Institutional Finance Portfolios resulting in tighter credit constrains for business and consumers.

Housing Crisis: Near term look for more of the same; higher foreclosure numbers as banks learn how to process and liquidate properties quicker and prices to continue to erode. This is all part of the multi-year readjustment process.

Jim

U.S. Payrolls Fell 84,000; Jobless Rate Jumps to 6.1% (Update3)

Sept. 5 (Bloomberg) -- By Shobhana Chandra

Highlights

• Jobless Rate: jumped to 6.1 percent, from 5.7 percent the prior month raising the unemployment rate to a five- year high.
• Payrolls Fell: "by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months."
• William Poole, former president of the Federal Reserve Bank of St. Louis: ``It certainly increases the probability that we really are in a recession,'' `It is a weak number, including the revisions.''
• Effects of the housing slump and the credit crisis: Can be seen in payrolls as builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
• Today's Report: brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.

Comments

CRB Commodity Cash Index: is now trading below 500. Look for continued decline in a slow saw tooth price pattern. Why? Because global demand is dropping for goods reflecting falling demand for commodity products - - Big time. Similar to a canary in a mineshaft the commodity markets are foreshadowing troubled times ahead.

The Perfect Financial Storm is now coming Ashore
Resulting in:

* Rising unemployment.
* Falling real wages in the middle and working class sector of the economy.
* Continued Eroding Families net worth, creating downward pressure on consumer confidence.
* De-Leveraging of Banks and Large Financial Institutions resulting in tightening of domestic and International credit which will have a negative impact on consumer spending and business growth.
* Contracting profit margins along with rising bankruptcies.
* Elevated Deficient spending in Government and Private sectors will exacerbate recovery as Businesses and State, Local, and Federal Government begin to try and balance their books.

Deflation is the flip side of Inflation: Few people really understand it and what it means to their pocket book let alone the International Economy. But we will find out as this economic cycle continues to unfold.

Jim

Data Points to Downturn in Germany, With a Ripple Effect Feared

By CARTER DOUGHERTY Published: August 26, 2008

Adam Berry/Bloomberg News
Shoppers at a Filippa K clothing store in Berlin

Highlights

"FRANKFURT: The odds of a mild recession in Germany rose significantly Tuesday, 8/26/08. "

"German Statistical Office: said that private consumption shrank 0.5 percent in the second quarter, the third consecutive contraction. (lowest level since a downturn in 1993.)"

"Julian Callow, chief Europe economist at Barclays Capital in London: said that the reading raised recession warnings for the entire euro zone. “This is a bombshell,” “because in one fell swoop it went down far more than we would have expected.”"

"German Ifo index: compiled by the Ifo Institute in Munich, showed the lowest reading for business confidence in the last three years. A crucial component of the index, which measures expectations for the future, showed a level not seen since Germany tumbled into recession in the early 1990s, after reunification."

"Euro fell to $1.465 against the dollar: On Tuesday 8/26/08 the Euro fell to its lowest point since February, while oil prices were around $116, far off their summer peaks."

Comments

Why Germany: in a Subprime Solutions Blog - because it is my belief that we are in the first phase of a world wide deflationary cycle. Look for more of the same to continue to appear in Europe and Asia.

World Wide Slow Down: It is clear that Europe is beginning to catch the business slow down virus. It is now beginning to show up in it's numbers.

CRB Cash Commodity Index: is bouncing off the resistance at the 500 point level but look for it to continue downward in a saw tooth pattern into Fall and Winter of 2008.

Interest Rates: Global slow down will be putting downward pressure on interest rates World Wide and in a perverse sort of way result in stabilizing the dollar with a slight upward bias.

Jim

No more need for Freddie and Fannie Published: August 20 2008 19:53

No more need for Freddie and Fannie

Published: August 20 2008 19:53 - Financial Times: Editorial Comments

Freddie Mac and Fannie Mae are the platypuses of the financial world. As shareholder-owned companies which rely on state guarantees, the two government-sponsored enterprises are neither public fish nor private fowl. They are also evolutionary relics from another time. The US Treasury looks increasingly likely to bail out the two mortgage giants. But before it does so, Hank Paulson, the Treasury secretary, must think about an intelligent design for what he would like the GSEs to evolve into.

Fannie and Freddie are vast institutions, guaranteeing $5,300bn of US mortgages, of which 15 per cent are from riskier categories of lender. The credit squeeze and the housing slump mean borrowers are defaulting and Fannie and Freddie have run up significant losses.

Last month, responding to fears about their solvency and liquidity, the Federal Reserve gave the GSEs permission to borrow from the Fed’s discount window. Mr Paulson sought powers from Congress to allow him to, one day, bail out Fannie and Freddie, making their implicit state guarantee explicit. It had been hoped this would be enough to save them and that action would not be necessary. This bluff, alas, does not seem to be working.

Indeed, Freddie and Fannie are now finding it hard to raise new capital precisely because investors are worried about losing out in the event of a public bail-out.

The lumbering GSEs are too big to fail several times over. If Mr Paulson needs to save them, he may need to act very quickly. But he should not be thinking about simply keeping them as they are but on tighter regulatory leashes. The GSEs are set up to socialise losses and privatise profits. This is clearly ridiculous. In the short term it would be better to nationalise them to align risk and reward. In the long run, the government should get rid of Fannie and Freddie.

There is no need for the government to engage in the secondary mortgage market, not least because doing so provides perverse incentives for the state to prop up US house prices. The GSEs should be cut into small-enough-to-fail pieces before a real privatisation. Winding down the GSEs as we know them need not be immediate or rapid, but it should begin now, when it is easier to gather the will for reform.

The Federal Reserve and the Treasury are right to try to prevent the collapse of the GSEs. But they must now work to get rid of them. Conservation efforts have kept the duck-billed platypus alive. Freddie and Fannie do not deserve the same protection.

The Financial Times Limited 2008

Comments

Another Point of View: I printed the entire article because a variety of points are being raised about what to do with Freddie Mac and Fannie Mae. It appears some individuals think the two agencies should be dismantled and fade away due to the dramatic readjustment in the mortgage markets. Because they are the biggest, they are stuck with alot of Monday Morning Quarterbacks who are ready to throw them off the plane.

Workingman's Mortgages: For decades the two agencies have been the pulse of the workingman's mortgage either directly or indirectly. This never agreed well with many of their competitors (Large Banks, Mortgage Companies, and later financial Institutions who got into the game). Narrowed their profit margins. Certainly a big success for the average homeowner trying to purchase a home and the envy of the World.

Large Size: Is the reason why many or Freddie Mac and Fannie Mae competitors want to take them apart. It is also the reason why they have been so successful in the past. They could and did make a difference in the market.

Countrywide /Bank of America Merger: Not sure the consolidation of; Private Banking, Mortgage Banking, and Failing Financial Investment firms (JP Morgan/Bear Stearns) solves any problems or just kick's the can down the road another 12 to 18 months. But I do understand the global strategies which keep on growing market share and lowering execution costs/ overhead.

Merging Frannie Mae and Freddie Mac: Rather than dismantling, I believe, we should be talking about merging the two agencies together. Understanding that as stated above "In the short term it would be better to nationalise them to align risk and reward."

In an age of Global Consolidations: and mega size Corporations someone has to look out for the best interests of the working class citizens. I am sorry to say I don't trust the private sector to regulate themselves. We are experiencing world wide financial contagion and solutions will not be accomplished only though mergers or break ups.

Law of the Jungle: Works well for the animal kingdom but not so well in an evolved society. Without oversight/regulations in the financial markets we find an easy exit for the guilty parties and huge debt burden for the citizens in the end.

Jim