Nouriel Roubini's Global EconoMonitor

Seeing Crises Clearly

From the Finance & Development at the IMF:

Prakash Loungani profiles economist Nouriel Roubini

The “Power 50”—that was what Institutional Investor called its 2009 list of the 50 most influential people in the financial world. Many of the names were those of top policymakers and CEOs such as Ben Bernanke and Warren Buffett. Only one professor of economics made the list: at number 44, one notch below Saudi investor Prince Alwaleed bin Talal, was Nouriel Roubini of New York University.

It is a satisfying turn of events for Roubini, who was drawn to economics for its potential to influence public opinion and policies. Two decades ago, Roubini was known primarily in academic circles for influential work on how political conditions affected economic outcomes. A decade ago, he was starting to make his name outside academia as a provider of information and analysis on the Asian financial crisis. Today, he is becoming a household name, lauded in the words of Institutional Investor for “predicting that a U.S. real estate crash would cause banking failures and a deep recession.”

He travels extensively these days to lecture about the effects of the crash he predicted. Ticking off a recent two-week itinerary— “Istanbul, Dubai, Abu Dhabi, London, Moscow”—he pauses: “I’m forgetting some place in between. What is it? Oh yes, Davos!”

Italian influence

Roubini calls himself a “global nomad.” Of Iranian descent, and born in Istanbul, he grew up in Israel and Italy, receiving his bachelor’s education at Bocconi University in Milan in the late 1970s. “There was a lot of social and political turmoil in Italy at this time. And many people like me, even in their teens, were socially conscious and cared about this…. economics offered a way to understand the world and then, hopefully, through good policies, also change it for the better.”

He had a role model in Mario Monti, an economics professor at Bocconi, who went on to become very influential in European policymaking circles (see F&D, June 2005, for a profile of Monti). The Yale-trained Monti was “a charismatic leader and teacher,” says Roubini. “He was a serious academic but he cared about policy.”

When it came time to pick graduate schools, Roubini faced the Cambridge vs. Cambridge choice that confronted many promising students. There was a tradition of Italian students going to the University of Cambridge in the United Kingdom, attracted by the presence there of the noted Italian economist Piero Sraffa. But by the 1980s, students were more likely to turn to Cambridge, Massachusetts, where another great Italian economist, Franco Modigliani, was ensconced at the Massachusetts Institute of Technology (MIT).

Roubini picked Cambridge, Mass., but went to Harvard rather than MIT. Why? “I didn’t get into MIT,” he says. “But please make it clear that I take no offense. These things happen.” In fact, he got the benefits of interactions with both Harvard’s superstars—“Jeff Sachs, Larry Summers, Robert Barro, and Greg Mankiw were around”—and MIT’s. “I would attend classes [at MIT] by Rudi Dornbusch, Stan Fischer, and Olivier Blanchard,” he says. His first job after graduating from Harvard in 1988 was at Yale.

Fiscal follies

Influenced by the saga of Italy’s struggle with large and persistent budget deficits, Roubini was drawn to the study of fiscal policy—how governments decide how much to spend and how to pay for it. It was a time when governments were spending and not paying for it, at least not right away.

“It was quite striking,” says Roubini. “In the 1970s and early 1980s, many countries in Europe had deficits of about 4 percent of GDP, and in some, such as Belgium, Greece, and Italy, deficits were as high as 10 percent of GDP.” As a consequence, government debt increased significantly: the debt of the countries that would later make up the euro area “nearly doubled, from something like 30 percent to 60 percent” of their combined incomes. The United States and Japan also ran persistent deficits.

Two views prevailed in the academic arena of what gave rise to these government deficits and how much to worry about them. One view, put forward by Nobel Prize winner James Buchanan, was that there was a chronic tendency toward budget deficits because warring politicians competed for the votes of special interest groups by promising them a continuous IV drip of government spending.

The other view, whose main proponent was Robert Barro, was that on deficit spending governments tended to do the right thing over the long run: they ran up deficits in times of need, such as during wars and recessions, and paid back the debt—albeit fairly slowly—in tranquil times. This view was supported by the behavior of the U.S. and U.K. governments, which had behaved in roughly this fashion over the long sweep of history.

Roubini’s contribution, in work done in the mid-1980s with Alberto Alesina and Jeffrey Sachs, was to carve a middle passage between these two views. he looked carefully at the political situation in countries to understand when it was more likely that governments would be captured by special interests, but did not downplay the economic factors that also contributed to deficits.

In a series of papers, Roubini demonstrated that when power is dispersed, say across many political partners in a coalition government, there was a greater tendency toward out-of-control budget deficits; the shorter the expected tenure of the coalition government, the greater this tendency. Adverse economic conditions raised the odds that fights would break out among coalition partners, further exacerbating the loss of fiscal control.

This marriage of politics and economics made it possible to explain better the behavior of government deficits across the range of industrial democracies. It explained why Italy, which had decades of short-lived coalition governments, found it difficult to control budget deficits. But it also explained why Japan was able to sustain its plan to reduce budget deficits in the 1980s—the unbroken majority control of the ruling party there, and its expected longevity in office, gave it the political space to pursue such a policy.

Fiscal bondage

Japan was an early mover in a trend toward fiscal correction that was to characterize industrialized economies in the mid-1980s. Roubini thinks it may have been a reaction by voters to the enormous expansion of the public sector during the 1970s. “Around 1985,” he points out, “every G-7 government was headed by a right-of-center party,” and fiscal restraint was in the air. The prevalent feeling was that fiscal rules—explicit benchmarks—were needed to check governments’ tendencies toward unrestrained deficits.

The most noted examples of such rules were those in the 1992 Treaty of Maastricht, which set preconditions on countries wishing to join the European Monetary Union. In the area of fiscal policy, these so-called Maastricht criteria were that budget deficits should not exceed 3 percent of GDP and government debt should not exceed 60 percent of GDP.

In a now famous 1993 paper, “Excessive Deficits: Sense and Nonsense about the Maastricht Treaty” (written with Yale colleague Willem Buiter and then-student Giancarlo Corsetti), Roubini criticized these criteria as a case of “serious fiscal overkill.” The problem with the Maastricht criteria was that they did not make any allowance for the state of the economy. Even in the face of a recession, governments were expected to keep to their plan for reducing deficits and debt until the criteria had been met.

Nor did the criteria recognize that some government spending took the form of investments, say in infrastructure, that could generate revenues in the future. The implementation of the criteria “would require an excessive degree of fiscal retrenchment which would adversely affect the level of economic activity,” Roubini and his coauthors concluded. They recommended that the “criteria should be disregarded or applied quite loosely.”

In any event, some European countries found it difficult to meet the stated criteria but were waved into the union nevertheless. And in 2005, the rules themselves were relaxed, providing more explicit scope for countries to let deficits increase in the face of adverse economic conditions. Roubini supports these changes and feels vindicated: “I think that the amendments go in the direction of what we had been suggesting from early on, in 1993. It took them a while, but what was eventually done was sensible.”

Asian drama

With his work on political business cycles and on fiscal rules, Roubini was becoming quite well known in academic circles. But his name recognition went up measurably during the Asian crisis of 1997–99 as a result of an act of generosity uncommon among academics. He started to maintain a web page, which he made freely available to everyone, on which he posted and catalogued material about the crisis—reports by the IMF and other agencies, newspaper and magazine articles, private sector analysis, and technical papers by academics.

Soon, “Roubini’s page” became the first port of call for those engaged in following or fighting the crisis. In January 1998, The New York Times acknowledged its influence, noting that “Professor Roubini maintains a site . . . that even people without an M.B.A. will find helpful in learning about the crisis. What the site lacks in fancy design it makes up in analysis, extensive links and a detailed chronology.” Today, Roubini laughs that “the reporter was right about the design. In those days I was maintaining the page myself. It was just a wall of links, completely unsophisticated.”

During the Asian crisis, Roubini was not just an aggregator of information but an active analyst. With his students Corsetti and Paolo Pesenti, Roubini offered the most comprehensive analysis of the Asian crisis. By academic standards, it was close to real time. In the November 1998 paper, Roubini and his coauthors wrote that at the root of the Asian crisis was “a long tradition of public guarantees to private projects. even in the absence of explicit promises of bail-out . . . the corporate sector largely overlooked costs and riskiness of the underlying investment projects.”

Roubini accused Asian governments of conducting policies that were “enmeshed within a widespread business sector network of personal and political favoritism” and interventions in favor of troubled firms. In such an environment, markets operated under the assumption that their return on investment was insured against adversity. Banks played along, “channeling funds toward projects that were marginal if not outright unprofitable from a social point of view.”

This view of the crisis was controversial at the time because it appeared to blame the victim. But Roubini stands by his analysis. “I still see it as a moral hazard story,” he says. Economist Paul Krugman “was right to say that this was a game of ‘heads I win, tails the taxpayer loses.’ It was because investors believed that the governments would protect them from most losses that you got the overinvestment, the excessive external borrowing, and the current account deficits.”

Roubini and his coauthors offered nuanced policy advice on what was needed to overcome the crisis. Over the medium term, they argued, fiscal balances would have to improve to absorb the costs of bailing out the financial and corporate sectors. But because “in the short run the crisis led to a sharp fall in investment and output in the Asian region,” the implementation of this adjustment ought to be postponed, “even at the cost of temporarily running large fiscal deficits.” International rescue plans— such as those led by the IMF—can “play a crucial role,” they wrote, “by helping to ease the crunch and avoid an even sharper decrease in investment and consumption.”

More so than many academics, Roubini has been a supporter of the IMF. he thinks this is partly because “he got to know the institution from the inside” at an early age. In 1985, while a second-year graduate student, he interned at the IMF. he has returned to the IMF many times in subsequent years and was an advisor to the U.S. Treasury from 1999 to 2001. During 2001–02 he worked with IMF staff on an approach to spotting vulnerabilities in financial and corporate sectors and wrote (with Brad Setser, now at the Council on Foreign Relations) a book that has become a standard reference on the appropriate policy responses to emerging market crises —entitled Bailout or Bail-ins? Responding to Financial Crises in Emerging Economies.

Emerging problems

Though his work on the Asian and other emerging market crises had made him well known in policymaking circles and among some segments of the media, Roubini’s ascent to fame truly began when he started to sound alarms of a crisis much closer to home. Starting in 2005, and increasingly in 2006, Roubini says the runup in asset prices, the relaxed lending practices of the financial and corporate sectors, and the large current account deficits had him thinking: “hey, wait a moment. The U.S. looks like an emerging market. Why hasn’t it gone belly up?”

Roubini was one of a handful of observers who relayed their warnings to incredulous, often downright hostile, audiences (see box). In 2006, the global economy had just registered its fastest five-year period of growth in 30 years; the U.S. economy was doing well, having shrugged off the effects of the bursting of the dot-com bubble and the 9/11 terror attack. In September 2006, in a now-celebrated speech, Roubini told an audience of IMF staff that there was a more than 50 percent risk of a U.S. recession the following year. Over the past several years, U.S. consumers had gone on a spending binge, with many using their home equity as an “ATM.” Now, he warned, “consumer burnout” is imminent.

Roubini drew a parallel between 2006 and 2001, when the U.S. economy had last slid into a recession: “What is happening today is that, instead of a glut of tech goods, we have a glut of housing stock and also a glut of consumer durables.” The U.S. Federal Reserve Board could not stave off a recession, he said, “for the same reason that Fed easing did not work in 2001.” If you have a glut, “you have to work it out, and interest rates effectively do not matter.” Roubini also predicted that the rest of the world would not “decouple” from developments in the United States.

Charles Collyns, deputy director of the IMF’s Research Department, says that by the time Roubini returned to speak at the IMF a year later he had been proved largely right. In fact, Collyns quipped in 2007, “perhaps Nouriel had not been pessimistic enough” in his year-earlier talk. Collyns also said that Roubini’s views helped persuade the IMF early on to take a concerned view about global prospects.

Finding a balance

These days, Roubini leads a busy life, trying to be as he puts it “a full-time academic, a full-time policy wonk, and a full-time entrepreneur.” He says that he has to find a better balance among these activities but doesn’t know which one to scale back.

Over the past decade, his one-man Asian crisis web page has morphed into a 40-person operation called Roubini Global Economics Monitor, which aggregates and analyzes information on all international economics issues. Roubini says being an entrepreneur has given him insights into business that an academic professor of economics would never have. It’s a sentiment with which his former colleague at Yale Robert Shiller agrees. A successful businessman as well, Shiller says that “for an academic economist, it is a good thing to run a business.”

Perhaps he will be tempted into the Obama administration? Roubini says that’s unlikely, adding that “in the last few years I have become used to being able to write freely and express my views without constraints. It would be a hard adjustment to go into a situation in which every word I say has to be cleared by somebody.” Instead, he says, he is content with having an indirect influence on policy by expressing his views. “I don’t want to overemphasize my influence, but I think that now when I write something, people read it and think about it. I’m happy with that.”

image001_400_03.gifPrakash Loungani is an Advisor in the IMF’s Research Department.

182 Responses to “Seeing Crises Clearly”

theadrMarch 16th, 2009 at 4:07 pm

Talk about manipulation. Yahoo Finance front page still has Dow chart for Friday 3/13 on their cover page at 2:06 PST on 3/16!!!

GuestMarch 16th, 2009 at 4:11 pm

Well, now that I’m second to reach the top of Mt. Everest, all I can say is, Now I gotta get down.

GuestMarch 16th, 2009 at 9:05 pm

And I’ll share it with both of you:-)—“The only statistics you can trust are those you falsified yourself”-Winston Churchill

GuestMarch 16th, 2009 at 4:13 pm

I’m a big Nouriel fan!!! You got’a love this guy. No one is free from bias, but Nouriel is about as close as they come to an informed, unbiased opinion. A national hero of sorts. Go Nouriel!

GuestMarch 16th, 2009 at 4:28 pm

Whatta interview! Whatta man! Whatta economist! And whatta blog!! And whatta good place to be in an economic blizzard!

GuestMarch 16th, 2009 at 5:04 pm

“a full-time academic, a full-time policy wonk, and a full-time entrepreneur”How does he have a personal life?

TobyMarch 16th, 2009 at 4:30 pm

A bit old but interesting report from BIS,Foreign exchange andderivatives market activityin 2007 reportPositions in OTC derivatives grew at an even more rapid pace than turnover.Notional amounts outstanding went up by 135% to $516 trillion at the end ofJune 2007 (Table C.5). This corresponds to an annualised compound rate ofgrowth of 33%, which is higher than the approximately 25% average annualrate of increase since the current format of the triennial survey was establishedin 1998.Growth accelerated in all risk categories. The highest rate of increase wasreported in the credit segment of the OTC derivatives market, where positionsexpanded to $51 trillion, from under $5 trillion in the 2004 survey.

AnonymousMarch 16th, 2009 at 5:03 pm

It seems no one apart me has read a special report published in The Economist in 1995, which predicted the biggest real estate crash in history and its very dire consequences.

subgeniusMarch 16th, 2009 at 5:40 pm

The Fast Money idiots say”EVERYONE SAW THIS COMING”hmmm.A little revisionism going on I think….

Brett in ManhattanMarch 17th, 2009 at 1:26 am

I remember the Najarian guy on Fast Money saying that Citibank was starting to look attractive AT 35!

Little SaverMarch 17th, 2009 at 2:27 am

Looking at those cacklers, I get an impression that the main thing on their mind is to sell their cacklings and how to be the loudest cackler in the group. From there, I think their opinion is as credible as that from any commercial trying to sell no matter what, the only thing being at stake is how much money they can be make out of it (for themselves of course).Poor American public, if that’s what they’re supposed to listen to. Goes very well with their fast food, nevertheless. Sort of same quality. Although one could live on the food, which can’t be said from those cacklings.

GuestMarch 16th, 2009 at 6:39 pm

Has anyone that reads this site read the forecast from GAEB. Could Mr.Roubini comment on their thoughts

GuestMarch 17th, 2009 at 4:18 am

But did this happen ? The blitz started a week before this current rally, where obama and team hit the air ways.But still GEAB 30 seems like it will not happen.Global systemic crisis – New tipping-point in March 2009: ‘When the world becomes aware that this crisis is worse than the 1930s crisis’- Public announcement GEAB N°30 (December 16, 2008) -LEAP/E2020 anticipates than the unfolding global systemic crisis will experience in March 2009 a new tipping point of similar magnitude to the September 2008 one. According to our team, at that period of the year, the general public will become aware of three major destabilizing processes at work in the global economy, i.e.:• the length of the crisis• the explosion of unemployment worldwide• the risk of sudden collapse of all capital-based pension systemsA whole range of psychological factors will contribute to this tipping point: general awareness in Europe, America and Asia that the crisis has escaped from the control of every public authority, whether national or international; that it is severely affecting all regions of the world, even if some are more affected than others (see GEAB N°28); that it is directly hitting hundreds of millions of people in the “developed” world; and that it is only worsening as its consequences reveal throughout the real economy. National governments and international institutions only have three months left to prepare themselves to the next blow, one that could go along severe risks of social chaos. The countries which are not properly equipped to cope with a surge in unemployment and major risks on pensions will be seriously destabilized by this new public awareness

ArchMarch 16th, 2009 at 8:03 pm

‘But his name recognition went up measurably during the Asian crisis of 1997–99 as a result of an act of generosity uncommon among academics.He started to maintain a web page, which he made freely available to everyone..’ and that generosity continues even today through RGE monitor. Thanks Dr.Roubini! We appreciate it.

AnonymousMarch 16th, 2009 at 8:22 pm

Morbid, our previous conversation,—————————————————–off topic, do you guys know about an occurence of a bright new star, its very bright at night, location SSW, some say its venus, im inclined to believe its Venus, but the thing is venus will be around only at dawn and dusk. Ive seen it at 10.0 pm. and its frickin bright, Its quite a discussion in the UK, well among stargazers. At first i thought it was all mumbo jumbo, but a lot of people around the globe have seen it. hmmWell back to my Citi puts…Hide reply Reply to this comment By Anonymous on 2009-03-16 03:33:21A,Do you have a link for the bright new star information – I can’t seem to Google it into existence.Hide reply Reply to this comment By Morbid on 2009-03-16 08:39:58nothing from the “conservative” papers,i know this is more like a conspiracy theorist kinda site, but there are real pics posted by bloggers.. the discussion is fairly good, not a one sided debate. The webpage above will linked you to other sites in the net.I still think its Venus, but it is VERY VERY BRIGHT,i dont recall seeing Venus this bright. Well make up your mind. Some say its Nibiru LOL (nervously laughin)Reply to this comment By Anonymous on 2009-03-16 19:30:50

MorbidMarch 16th, 2009 at 8:56 pm

Thanks,Don’t know what to make out of it. Would have been an interesting Black Swan event though.

GuestMarch 16th, 2009 at 9:07 pm

What are you saying? That the US government is secretly ruled by space aliens bent on destroying humanity?

AnonymousMarch 16th, 2009 at 9:15 pm

WHAT??? LOL….Guest, its just the “star” / “planet” is shining brighter than before. Thats all.Why?? I dont know..The thing is by end of March, you will not be able to see Venus anymore (at night)so if that bright shiny thing is still there, you better pray “bruce willis” still remember his line and is ready to die for Planet Earth.. hahaha

RohelioMarch 16th, 2009 at 9:22 pm

From CR: FASB to propose changes to M2M. Who is the FASB?’Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports. They are officially recognized as authoritative by the Securities and Exchange Commission (Financial Reporting Release No. 1, Section 101 and reaffirmed in its April 2003 Policy Statement. The Securities and Exchange Commission (SEC) has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934.’FASB Board Members ( H. HerzChairmanPreviously, he was a senior partner with PricewaterhouseCoopers. Co-author of The Value Reporting Revolution: Moving Beyond the Earnings Game.Thomas J. LinsmeierHe has served as academic fellow and special consultant to the Office of the Chief Accountant at the U.S. Securities and Exchange Commission (SEC), where he was responsible for developing U.S. financial reporting disclosure rules relating the market risk inherent in derivatives and other financial instruments. particular expertise in financial reporting for derivatives and risk management activities, Dr. Linsmeier was formerly Russell E. Palmer Endowed Professor and Chairperson of the Department of Accounting and Information Systems at Michigan State UniversityLeslie F. SeidmanMs. Seidman was vice president of accounting policy at J.P. Morgan & Company where she was responsible for establishing accounting policies for new financial products and analyzing and implementing new accounting standards.Marc A. SiegelPrior to his appointment to the FASB, he led the Accounting Research and Analysis team at the RiskMetrics Group in Rockville, Maryland.Previously, Mr. Siegel was the Director of Research at the Center for Financial Research & Analysis (CFRA), prior to the firm’s acquisition by RiskMetrics Group. In this capacity, he was responsible for CFRA’s proprietary research methodology for identifying hidden risks of business deterioration through forensic financial statement analysisLawrence W. SmithMr. Smith joined the FASB staff in 2002 after a distinguished 25-year career at KPMG. He was a partner with KPMG from 1988 to 2002, headquartered most recently at its Stamford, Connecticut office. From 1992 to 1996 he served as a partner in the firm’s Department of Professional Practice in New York.FASB.orgBusiness as usual.

Wolf in the WildsMarch 16th, 2009 at 9:38 pm

There is so many things wrong with this. So the government will turn back the clock and take us back to the dark ages when investors cannot analyse the positions of financial institutions, and for what? Remember, these banks and brokers have made a lot of money and got paid a lot of bonuses when the going was good on MTM, and now because they got it wrong on the market, they want to chnage the bloody rules?! How can this EVER introduce confidence back into the system??? And that POLITICIANS are pushing for this says it all. I have seen corruption in many countries but never have it seen it in a G3 country on this scale.MTM is the ONLY WAY to see as close to the truth the true financial condition of a company. Taking it away just reinstates JUMP TO LOSS risk, as well as JUMP TO DEFAULT risk. I remember in days long past when traders used accrual accounting for interbank deposits and swap transactions. Guess what? These guys blew up the books because the real losses were not recognised, and when they had to unwind the positions, all of a sudden, a big hole appeared. So going back to this idiocy is good??? I cannot imagine the level of stupidity that exists in the political arena.What will this do to the US of A?? Well, since it is on the way to becoming the largest banana republic in the world, I suspect everyone will pull their moneys out. What is the point of being invested in a country that is so clearly corrupt and opaque. Waat makes them any different financially from say Argentina? No difference whatsoever.

MorbidMarch 17th, 2009 at 6:50 am

One argument I have heard that makes some sense for temporarily suspending the MTM is that since we are caught in a closed feedback loop it is creating a downward spiral in equities and asset values that does not reflect the true value of those entities at this point. Thus, the only way to stop it is to break the mechanism in the feedback loop and that is the MTM rule.Does that make sense to you?

GuestMarch 17th, 2009 at 9:18 am

No, it doesn’t make sense to me. Denying reality doesn’t change it. Allowing assets to remain on their books at bubble/unrealistic prices is accounting chicanery and a disservice to the investing public. Junk is junk and should be reflected as junk. If they want to reflect another value, let them make a footnote and argue their case there.

Armand de MiloMarch 16th, 2009 at 10:30 pm

r,at this point i don’t even care about trials. i say dress em up in orange jump suitsand let ’em start cutting the grass on the meritparkway. aka wilbur cross parkway. really..,wilbur cross .governor of conn. 1931-1939. His obituary in the Hartford Courant mentioned his favorite quote by Mark Twain, “Always do right. This will gratify some people and astonish the rest.” Cross is buried with his wife Helen in the Evergreen Cemetery in New Haven………………………………..”….The Great Depression rocked the integrity of the accounting profession. The British Steamship Company was just one of the large world giants that went bankrupt just after posting large profits. “How could profitable companies go bankrupt?” Investors asked. Court cases showed that the economic reality was that the companies weren’t profitable after all. The profits were the result of bookkeeping tricks. Moreover the reserve funds that were on the books were non-existent.So far, these events could be chalked up as individuals’ fraud (albeit widespread fraud) and handled through the ordinary course of justice. What made the events historic was when the accountants testified in court that the bookkeeping practices were “generally accepted accounting principles” and then proceeded to prove that they were. This was more serious than just individual malfeasance. If the basic rules of accounting gave false information, then something was wrong with the basic rules of accounting.Worse, followed. Corporate accounting was anything goes. There were no rules, per se. There were just “generally accepted accounting principles”. They were generally accepted because most accountants did certain things……”

2centsMarch 16th, 2009 at 10:05 pm

Congratulation Nouriel on your industry acknowledgement!I think a solution for FASB 157 should be this:Let the Banks/Firms mark to make-believe or whatever they want. However, allow the counterparty to said mark the option to exercise a closeout of the instrument at the marked price! If the bank originated the instrument then the purchasers of said instrument could redeem it at marked value and claim their original investment plus the discounted cash flows built into the marked price. This would clean the slate on both sides of the instrument.If the bank is the purchaser of said instrument, then the originator could hand said instrument over to the bank and receive the discounted cash flows minus the bank’s original investment price. Again, this would clean the slate on both sides of the instrument.If you think about it for a minute, this is a quick way to force everything to reality and have a built in anti-bias system. The key is the option for the counterparty to exercise at the marked price.Anyone thinking the bank has marked to high will immediately exercise and lock in the gain. Anyone thinking the bank has marked too low will again exercise in the opposite direction in order to get the instrument at a bargain price. Anything marked near correct will continue to live on.I know it will never work, because it would force reality, and we know that’s not exactly the reality we live in.

PeteCAMarch 16th, 2009 at 10:41 pm

2cents: If the banks mark their assets to the price of make-believe, then there is no marked price. Nobody knows what these things are worth.I stand by the recent suggestion that all these assets should be traded on a special publicly traded exchange. To h*** with the banks. Settle all this junk out at whatever price it currently trades for.End of story.PeteCA

2centsMarch 16th, 2009 at 11:34 pm

@ Pete,Go back and read what I said. It’s not dissimilar to a market that you suggest, the problem with a market is none of this stuff is standardized. With my suggestion you are giving the counterparty an opportunity to call the bluff and they are a party who should have a more intimate knowledge of the instrument vs. some Joe Blow fund manager looking for a quick buck by trying to drive down the price.

MarkMarch 17th, 2009 at 12:47 am

But could this make it past the big beasts?Maybe this sense (which is a great idea) is lurking and the biggies are trying to get some other “bailout” firmly in place before something like this comes about?Remember: Goldman = The hinge of the world’s financial door.Mark

The AlarmistMarch 17th, 2009 at 8:45 am

Actually, the answer to FASB157 is to let the credit crunch run its natural course with no bailouts and emergency funds … firms that had real profits that translate into real cash won’t have a problem now, will they?

2centsMarch 17th, 2009 at 12:20 pm

@ Pete,I’ve brought your comments back into the thread. I don’t think that it advances the discussion to have it scattered about.

2centsYou’ve argued that we need a special pricing mechanism for banking assets that are esoteric and hard-to-value. Your argument, in essence, is that if these assets are simply out into a free market they could be significantly under-valued because the only buyers are cutthroat vulture funds.Alright. I suggest that we take a look at this issue in more detail.In order to focus the discussion, how about if we talk about a specific example. Can you suggest an example of an esoteric asset, of a type currently held by banks. Then provide some discussion about why you think this asset would be handled badly (in terms of fair value pricing) if it was simply to be traded publicly today?I’m not trying to pull holes in your argument through what I’m suggesting. Let’s work through the debate and see where it takes us. But I think it would be very helpful to take a look at some of these esoteric assets and understand their structure a little better.Other readers with knowledge or opinions about these bank assets are welcome to chime in as well.PeteCAHide replies Reply to this comment By PeteCA on 2009-03-17 10:01:21p,”assets”? i think that needs to be proven first.some people would argue that they are somethingelse!Reply to this comment By blind on 2009-03-17 10:35:04 PeteCA,I’d like to suggest one caveat: any discussion of esoteric assets should not skirt the obvious, due consideration (i.e. proper valuation) of the underlying assets (i.e. debt & collateral).Maybe it’s just me, but I sense a strong desire to ignore that consideration. Perhaps it simply falls into the “too hard” category, but I wonder if there isn’t something more to it.Reply to this comment By TA on 2009-03-17 10:41:28

2centsMarch 17th, 2009 at 12:22 pm

And more comments brought back into the thread.

Why not mark to market AND mark to cash flow. Then let the investor/public decide how they want to weighthe values?Hide reply Reply to this comment By Bentley on 2009-03-16 22:57:56@ Bently,Read my reply to Pete above. Some of this stuff is really esoteric, therefore you need knowledgeable bidders.Hide reply Reply to this comment By 2cents on 2009-03-16 23:37:32I think that’s exactly where they shot themselves in the foot … esoteric assets. They forgot the old trading maxim’s, such as dealing only in assets that are easily liquid. Just one more reason why I believe they should pay the price for their mistakes. Look at any other investor who gets caught with their socks down when a market becomes illiquid … they lose their shirts. There should be no special rules here just for banks.PeteCAHide reply Reply to this comment By PeteCA on 2009-03-16 23:54:19@ Pete,Yes, we can tout all we want about paying for their mistakes, but the reality is that if these things are bid to ridiculously low levels then the winning bidders will turn that into the next bubble! No, the way to do this is let the knowledgeable counterparties have an option to retake or sell the instrument at the marked price. This is not ‘special rules’ for banks. It’s letting parties make financial judgments about the current and future worth of an individual financial instrument. This would be hard to bubblize, and thus get us onto a firmer footing at a level independently agreed on.Hide reply Reply to this comment By 2cents on 2009-03-17 00:04:162cents: Please see separate comments below that continue this discussion. I think it’s worth having a more lengthy examination of the issue you are raising.PeteCA

2centsMarch 17th, 2009 at 12:53 pm

@ Pete,As I’ve stated, this is not a special pricing mechanism. The current choices are:1)price using your best judgment for hard to value or lightly traded securities.2)price using actual sales data for similar instruments.The argument for #1 is that these are largely one of a kind securities that are by definition greatly dissimilar and are not publicly tradeable. The argument for #2 is that the argument for #1 is bullcrap. A mixture of 100 mortgage securities/100 consumer debt securities/100 corporate debt securities is one half of another mixture of 200 of each said securities, while a mixture of 250 mortgage securities/500 foreign obligations/50 local bond issues can ‘obviously’ be derived from said!The truth is that, yes, some of the stuff can be marked to market, but there is clearly a significant portion that is unique enough that it cannot be easily valued based on traded prices.O.K. My solution basically provides an option clause for either side of the security to either take ownership or sell based on which side they originally took. If the party on the other side thinks it’s valued too high or too low then that presents them with an option to capitalize on the disparity. They are free to take the risk or allow the marked price to stand.Let me be clear. The security IS valued and marked at a price. That security IS subject to exercise at that price by the counter party. If you’ve greatly mispriced the security at the marked price then you run the risk of having the security redeemed at said price minus/plus any invested monies and normalized cash flows.It’s like leaving a put/call on the security whereby the put/call can only be bought via actually taking ownership of the security. Furthermore, it is executable only between the parties most knowledgeable about the uniqueness of the underlying security. Fraud would be greatly minimized since there is a disincentive to misprice!

PhilTMarch 17th, 2009 at 7:43 pm

@2centsYour case is well made, and thanks for re-threading the previous remarks to bring it all together. I am not expert in MBS/CDO or in M2M, but I do agree with the succinct comment above made by Mark on 2009-03-17 00:47:30I am wondering if you have offered your solution to Elisa Parisi-Capone of this blog. It would be interesting to read what she thinks of your suggestion.

PhilTMarch 18th, 2009 at 8:46 pm

Just click on the active link that I provided above. Her EMAIL address is there in addition to a list of her articles that you might find useful, specifically the ones regarding valuation of toxic assets.Best …

PeteCAMarch 16th, 2009 at 10:56 pm

Well … I almost really felt a relief watching the market rally this past week. It was a (very transient) break in the otherwise dismal bear action. Not that I did anything about the mystical rally, from an investment point of view.But ohhh well, here we go.Checking the Four Bears chart we see that all this incredible fuss about a market “turnaround” is so far complete nonsense. The gain over the last week or so is completely consistent with normal volatility in the blue curve (current market). See …, we notice the almost-ignored news today that US industrial production dropped 1.4% in Feb, on top of a 1.9% decline in January. Adding, we see that we’ve got a 3.3% drop in just the first two months of 2009. This amounts to a 20% annual rate of decline, if things keep dropping at the same rate. Pretty scary.And a huge dose of reality popped out about the California budget today. See the following article …'s a long article, but worth reading. It’s no surprise that the whole budget process in California is completely out-of-whack. Things are likely to get a lot worse before they get better in the sunshine state.PeteCA

MorbidMarch 17th, 2009 at 7:00 am

Yeah, CA did not take into adequate account tax income shortfalls in their 44 Billion budget agreement – just like I suspected would turn out to be the case. No accountability, just endless cook-the-books and keep dribbling the bad news down the road in order to survive politically it seems. It is shameful to see such a magnitude of irresponsibility. Personal survival trumps all others right to survival.

MM CAMarch 17th, 2009 at 7:18 am

Great post Pete. Right in line with what I have been saying about California. I predicted a 50B budget problem 4 months ago. I am now revising it to 60B. Declining revenue base will across all levels of tax income for the state will lead to this. And as california goes so goes the rest of the country. one cannot minimize the impact of the 8th largest economy in the world on the rest of the US.

BentleyMarch 16th, 2009 at 10:57 pm

Why not mark to market AND mark to cash flow. Then let the investor/public decide how they want to weighthe values?

2centsMarch 16th, 2009 at 11:37 pm

@ Bently,Read my reply to Pete above. Some of this stuff is really esoteric, therefore you need knowledgeable bidders.

PeteCAMarch 16th, 2009 at 11:54 pm

I think that’s exactly where they shot themselves in the foot … esoteric assets. They forgot the old trading maxim’s, such as dealing only in assets that are easily liquid. Just one more reason why I believe they should pay the price for their mistakes. Look at any other investor who gets caught with their socks down when a market becomes illiquid … they lose their shirts. There should be no special rules here just for banks.PeteCA

2centsMarch 17th, 2009 at 12:04 am

@ Pete,Yes, we can tout all we want about paying for their mistakes, but the reality is that if these things are bid to ridiculously low levels then the winning bidders will turn that into the next bubble! No, the way to do this is let the knowledgeable counterparties have an option to retake or sell the instrument at the marked price. This is not ‘special rules’ for banks. It’s letting parties make financial judgments about the current and future worth of an individual financial instrument. This would be hard to bubblize, and thus get us onto a firmer footing at a level independently agreed on.

PeteCAMarch 17th, 2009 at 9:55 am

2cents: Please see separate comments below that continue this discussion. I think it’s worth having a more lengthy examination of the issue you are raising.PeteCA

GuestMarch 16th, 2009 at 11:46 pm

“Perhaps he will be tempted into the Obama administration? Roubini says that’s unlikely, adding that “in the last few years I have become used to being able to write freely and express my views without constraints. It would be a hard adjustment to go into a situation in which every word I say has to be cleared by somebody.” Instead, he says, he is content with having an indirect influence on policy by expressing his views. “I don’t want to overemphasize my influence, but I think that now when I write something, people read it and think about it. I’m happy with that.””Not many economists I trust these days. You, Volcker and a few others. The world needs you, don’t let history decide you let us down.

2centsMarch 16th, 2009 at 11:55 pm

The plan for Geithner to backstop the sale of distressed assets to private investors is undoubtedly the single worst intervention in this financial crisis. This will absolutely lock the economy into a period of extended stagnation ala Japan, or eventually bankrupt the US via the backstop.I understand the reasoning is to put a floor under this thing, but if that floor is not established on a base that can last into the future, then either you’ve got an unstable situation going forward, or you’ve got a situation that will continually need to be shored up until things catch up to the base you created.Folks the sword of Damocles is poised above us. Will it strike a fatal blow?

MarkMarch 17th, 2009 at 1:08 am

Looks like the milking is going to continue…401(k) Plans Need Fixes, Advocates Tell LawmakersThe automatic IRA, as proposed by the Retirement Security Project, a nonpartisan policy research group, would apply to businesses with 10 or more employees that have been in business for at least two years that currently don’t offer a retirement plan. The employer would divert 3 percent of wages to an IRA. The employee could adjust the amount down or up to the current Internal Revenue Service limit of $5,000 per year. I recall there being an old Soviet saying that went like this: They pretend to pay us so we pretend to work. I have a feeling that people will eventually figure out that it’s not worth working for TPTB.It’s time people look to quit using TPTB’s money and use our own (local currencies). This is how we’re going to throw off the yoke.Mark

Jason BMarch 17th, 2009 at 4:20 am“Inbound traffic tumbled 35.3 percent from a year earlier, which is the worst monthly drop since the early 80s, while outbound traffic (representing a much smaller share of the pie) fell 27.6 percent. All told, traffic last month was down 32.7 percent. (Port of Long Beach numbers aren’t in yet.) L.A. and Long Beach account for 40 percent of all container traffic coming into the U.S., so it’s a pretty good indication of how many wide-screen TVs and automobiles are expected to be sold in the coming months. Port officials had warned of serious declines in traffic for the first few months of 2009, but I’m not sure anyone was anticipating a 35.3 percent plummet. Keep in mind that the busiest time of the year is during the summer months when holiday merchandise starts coming in. “

GuestMarch 17th, 2009 at 6:30 am

Roubini was wrong for 10 years before, he is said to be right now … until he is proven dead wrong again very soon ! Life goes on.But somehow the fact that he is considered as one of the most influencial perosn in the financial world these days is very scary. It is a perfect exemple of the herd mentality in difficult time and in a way shows that he already wrong ! difficult time peopl

subgeniusMarch 17th, 2009 at 1:18 pm

No, he wasn’t “wrong”; Roubini was illuminating the idiocy for 10 years and getting ignored. All the “playaz” with vested interests wanted the game to continue to make them rich and screw over the rest of us. It was obvious it was going to fail to anybody with an education in physical science (a.k.a. “reality”) – though obviously not to most practitioners of the “dismal science”.

MM CAMarch 17th, 2009 at 7:28 am

The banks just continue to change the rules, game and are intent on screwing all of us… You wont let me have a bonus, i’ll increase the base pay of workers to valuable to lose and/or I’ll give them no interest loans so they can sustain thier standard of living. What about the standard of living of us 300 million other americans…Again take your money out of the Big banks and move it to local banks or credit unions. F..k the big financial firms… esepcially GS..Card Issuers Choke U.S. Businesses With Rate Hikes, Limit Cuts

Miss ItalyMarch 17th, 2009 at 7:35 am

I find very interesting Prof. Roubini’s work on the short life of a government and the miopic choices of economic policies, making it impossible to run a controlled budget. Can this be applied, with due differencies, to the management of public companies? I think it’s clear that the race to shine on every quarterly report and the bonus linked to these are creating monsters. Should they work for the longer run? Publish and get rewarded every year or two? Any thought on this?

FEDupMarch 17th, 2009 at 8:51 am

BERNANKE’S CIRCUS & GEITHNER’S CARNIVAL: billions of dollars flying out the door at record pace, endless numbers of new programs to fix the mess, multi-million dollar bonuses given by insolvent companies who have received taxpayer money, changing the rules of finance and accounting and cheap talk from our leaders that the recession should end by late 2009 so go out and start spending! The clowns and conmenhave really screwed the public BIG this time!

GuestMarch 17th, 2009 at 9:16 am

America happens to be such a poor and dumb country that it has not yet figured out how to make enough wealth in order to pay for health care for all of its citizens—-Side note: I like Americans, not that “system” of theirs. Not that it does me any harm, just causes problems for its own citizens and randomly selected 3rd world sole-rulers (except those in Saudi Arabia and some places in Africa).—-A funny thing about the stuff the American system feeds to its citizens to excuse its own existence: there’s enough material in it for a career in stand up comedy.Take for example that claim that “nationalized health care would cause increased costs that would eventually have to be borne by the tax payers…blablablaetcblabla”. Oddly enough there is more Germans and other Euro-zone citizens that can afford to buy a second home in Florida than there are Americans. And these Eurozonians can actually take a 5 week PAID vacation to visit their second home – how many Americans can do that?Anyway…my point in posting this was that since Americans have not yet figured out how to cover everyones health insurance needs so that the person(s) affected can actually pay for it, here is one novel idea:Sleazy Health Insurance Covers Any Doctor’s Visit They Can Watch

CHICAGO—Offering low annual deductibles and negotiable premiums for college students and redheads, officials from sleazy medical insurer Vance’s Health Plan announced Tuesday they would begin covering any routine check-up or medical procedure they can sit silently and watch. “VHP offer a range of choices to meet the needs of individuals, couples, two women, two men, a pair of ebon beauties, and families,” president and CEO Vance Shelton said. “Even if you have a preexisting obesity condition, you can still receive full coverage. We got a guy who’s into that.” According to promotional brochures, the plan will also cover any generic medications that will make you loosen up and slip into this


Armand de MiloMarch 17th, 2009 at 4:49 pm

g,ha ha. that is double funny, or double funnycubed, but….ironically tragic. and that too is funny, but, again, tragiccubed. and so forth… on and on, fractal esk….maybe Fibonacci funny/tragic.

PeteCAMarch 17th, 2009 at 10:04 am

I’ll tell you one thing. AIG went down a rocky road when they continued with this executive bonus idea. Pres. Obama took a very big paycut for his current position. That was a strong statement – the folks at AIG should have realized that. Hell hath no fury like a president that is underpaid !!! :-)PeteCA

GuestMarch 17th, 2009 at 11:29 am

I doubt AIG took rocky road when you have willing Geithner dolling bonus money from taxpayer sponsored Trouble Bonus Relieve Program (aka TBRP). Geithner will not stop paying out bonus money to AIG when AIG people ask for it. what is couple Billions or Trillion shared among friends?

PeteCAMarch 17th, 2009 at 10:01 am

2centsYou’ve argued that we need a special pricing mechanism for banking assets that are esoteric and hard-to-value. Your argument, in essence, is that if these assets are simply out into a free market they could be significantly under-valued because the only buyers are cutthroat vulture funds.Alright. I suggest that we take a look at this issue in more detail.In order to focus the discussion, how about if we talk about a specific example. Can you suggest an example of an esoteric asset, of a type currently held by banks. Then provide some discussion about why you think this asset would be handled badly (in terms of fair value pricing) if it was simply to be traded publicly today?I’m not trying to pull holes in your argument through what I’m suggesting. Let’s work through the debate and see where it takes us. But I think it would be very helpful to take a look at some of these esoteric assets and understand their structure a little better.Other readers with knowledge or opinions about these bank assets are welcome to chime in as well.PeteCA

blindMarch 17th, 2009 at 10:35 am

p,”assets”? i think that needs to be proven first.some people would argue that they are somethingelse!

TAMarch 17th, 2009 at 10:41 am

PeteCA,I’d like to suggest one caveat: any discussion of esoteric assets should not skirt the obvious, due consideration (i.e. proper valuation) of the underlying assets (i.e. debt & collateral).Maybe it’s just me, but I sense a strong desire to ignore that consideration. Perhaps it simply falls into the “too hard” category, but I wonder if there isn’t something more to it.

JuniMarch 17th, 2009 at 4:23 pm

Not sure if this really goes along, but CMBS assets on the market have spreads at levels such as S+1200 bps for AAA and S+4000 bps for A. Obviously, these assets are not AAA. Assets underlying these pools , especially the 2006/2007 vintage, are over 100% leveraged and do not meet underwriting standards of most buyers. High level of maturities of some of the worst crap in 2011/2012. There will be A LOT of maturity defaults – no one to take these guys out and there won’t be enough equity to bridge the gap.

GuestMarch 17th, 2009 at 10:03 am

Very disappointing this Obama guy. When some rep congressman pressed him to admit he was a SOCIALIST he should have answered if thats what you like to think, let’s forget about tarp talf home bailouts etc. and you can do it the neo con way. I’ll veto any law using taxpayer money to feed the zombees.

wethepeopleMarch 17th, 2009 at 10:13 am

Bernanke’s recent challenge to our “political will” is akin to neo-conservative’s mantra questioning our patriotism with “if you not with us your against us”. Think America! First, above all else, THINK! The FED is playing a global game of chicken with our futures via the dollar, and funding the gamble using our future tax contributions. It’s an all in bet by the FED/Treasury, pushing current and future American tax payers into the pot. Resistence is our right and duty!

GuestMarch 17th, 2009 at 10:33 am

Why can’t Bernanke share the upside with tax payers for all these bailouts? He looked so scared and worried about Main st. so why not settle the issue and give tax payers ownership? Why do we have to give the banks free money? Bernanke and the banks love to cloud the issue and talk up the risk of systemic failure and crisis but that’s not Americans beef we all know we have to save the banks , we’re just pissed off we get nothing in return. That 60 minutes interview was awfully soft.

GuestMarch 17th, 2009 at 10:51 am

O’s days are numbered. He is a bogus POTUS. His illegitimacy for usurping WH will soon be exposed.

HubbsMarch 17th, 2009 at 11:33 am

I must admit, I am getting a little perturbed seeing Obama talk, talk, talk. He turns his head back and forth. Left teleprompter, right teleprompter, just like a mechanical doll, or a puppet. All being orchestrated by the puppetmasters.

blind de miloMarch 17th, 2009 at 8:23 pm

s,actually, i think it was “america, welcome to yourvery own blair moment.”somehow, that sums it up.

blind de miloMarch 17th, 2009 at 8:43 pm

s,actually, i think it was “america, welcome to yourvery own blair moment.”somehow, that sums it up.

GuestMarch 17th, 2009 at 11:08 am

Push to audit Federal Reserve gains steamLawmakers join call to examine nation’s money controllers________________________________________Posted: March 16, 20099:49 pm EasternBy Drew Zahn© 2009 WorldNetDailyA bill calling for the comptroller general of the United States to audit the private Federal Reserve is gaining momentum in Washington, D.C., as more and more representatives add their names to its bipartisan support.As WND reported, U.S. Rep. Ron Paul, R-Texas, introduced last month H.R. 1207, the Federal Reserve Transparency Act of 2009, a bill requiring that an audit of both the Fed’s Board of Governors and the Federal Reserve Banks be completed and reported to Congress before the end of 2010.Paul was joined at the time of introduction by 11 other Republican and Democratic co-sponsors.Since its introduction, 17 additional U.S. representatives have added their names as co-sponsors, bringing the total to 29 legislators seeking the audit.Rep. Paul has been a harsh critic of the Federal Reserve, even seeking to abolish the private money-control system, arguing that Congress should “reassert its constitutional authority over monetary policy.”The Constitution, Paul said, gives Congress, not the private Federal Reserve, “the authority to coin money and regulate the value of the currency.”

seein is believinMarch 17th, 2009 at 4:57 pm

g,i / we have witnessed just such a thing.have you seen the price of real estate overthe last 10 years, or the bonuses on wall street?pigs flying.?

wethepeopleMarch 17th, 2009 at 11:39 am

IRS rules Madoff victims can deduct 95% of losses immediately. Who pays the rebate checks? The irrepressible American Tax Payer (ATP). Wow, quite the full circle when we back the fraudsters restitutions. Instead of ‘too big to fail’, maybe it should be ‘never fail’. What other sources are there for victim to recover, SIPC, E&O insurance? These victims could be made more than whole potentially.

GuestMarch 17th, 2009 at 12:11 pm

Let’s say these investors paid “full” 28% taxes, that would be an immediate payout of $65 billion X .28 or $18.2 billion to Madoff’s victims (which, of course is taxable income).

GuestMarch 17th, 2009 at 12:18 pm

Banks in USA and Europe are far more affected by this crisis than banks in Asia.The main reason why banks in the Euro zone are affected is because of having invested in US paper. If they would have stayed out of America, this crisis would have been far smaller in Europe.However – the media keeps touting this crisis as some sort of “global crisis”, as if it is larger than USA itself.There are at least two good reasons why we have been constantly touted about the “global” nature of this current crisis:1. It shields the US “system” from criticism by enforcing the idea that “it’s just not us – look over there too they are suffering”.2. More importantly, it fuels the impression that this problem is something “different” than just a logical consequence of US and UK financial mismanagement. It thus serves to shield people who used the laissez-faire system (Gordon Browns expression) to boost their country’s economy.Example of this latter can be seen in this article:

GuestMarch 17th, 2009 at 3:10 pm

i thought it was the coalition of the willing and didn’t mr. brown say in 1997 that he would do something about the off shore tax havens hum…

see this clearlyMarch 17th, 2009 at 12:26 pm

More than 1,300 organizations and individuals have now endorsed the March 21, mass marches to say “Bring the Troops Home NOW!” In Southern California, hundreds have endorsed and are building the Los Angeles protest. Join us at ANSWER Activist Meetings on Saturdays at 11am, at 137 N. Virgil Ave, #201, L.A., to build the protest.The thousands who march will demand “From Iraq to Afghanistan to Palestine, Occupation is a Crime” and “We Need Jobs and Education, Not Wars and Occupation.” We will insist on an end to the war threats and economic sanctions against Iran. We will say no to the illegal U.S. program of detention and torture.While millions of families are losing their homes, jobs and healthcare, the real military budget will be $1.3 trillion. If used to meet people’s needs, that amount could create 10 million new jobs at $60,000 per year, provide healthcare for everyone who does not have it now, rebuild New Orleans, and repair much of the damage done in Iraq, Afghanistan and Palestine. The cost for the occupation of Iraq alone is $400 million each day, or about $12 billion each month.

GuestMarch 17th, 2009 at 2:34 pm

m,not get rid. reduce and redirect.dual use ? rethink. introduce newparadigm, intelligence, peace. servicefor collaboration, education etc……dream.

CahillMarch 17th, 2009 at 5:06 pm

Big words, big ideals, any clue how to put those into practice? I’m guessing not much of one right?

Armand de MiloMarch 17th, 2009 at 7:31 pm

c,it starts with communication concerning the realitiesof the individuals and social structures they survive in.right there you have demand of education and techno logicintegration. the current paradigm is petroleum based becauseinitiating armed conflict is based on petroleum availablility and consumption. if we can get past this insecurity, fear,we can operate on a different level, “high ideal”, level of consciousness. perhaps. become human. wtf. lets go for it!do you think you can bludgeon people into respecting you?caring for you? to watch your back? or do we eat one another?high ideals indeed!you know, principals are aligned with intellect and the heart of man, and high ideals. avoid them, however difficultthe embrace may be, and you invite something else and wander.wander in the desert, no water! we have seen the fruits of that particular tree.high ideals. yes! the rest is details.

GuestMarch 17th, 2009 at 2:49 pm

Canada’s contribution will pay for approximately 3,000 Afghan police salaries for two years – and this is comparable to paying the salaries of all Afghan police forces in Kandahar until 2011,”

GuestMarch 17th, 2009 at 12:30 pm

Is this a protest against B’s policies (Iraq+Afghanistan), or a protest against O’s policies (troop increase in Afghanistan)? They each proved worse than the other. Didn’t the uneducated US masses have a better choice than O and McCain? In a country of 300+million people, we could come up only with these two bozos! Now you elected, now enjoy the ride. But, I did not vote for either O or M, why should I have to suffer under O?

GuestMarch 17th, 2009 at 12:44 pm

there are many good candidates for President, only problem is they are too experienced and thick-skinned and would be reamed politically by the media and the public for a few misdeeds they did 20 years ago… in the US, you end up getting some guy who has never traveled (that way he satisfies the security clearance requirements) and has no clue what is going on out there…

Forensic economistMarch 17th, 2009 at 1:17 pm

Year of the living deadNot just zombie banks, but the buildings containing the zombie banks.From the San Francisco Business Times”… office tenants could lose millions in promised tenant improvements or even face lease terminations if property owners default on their mortgages… while landlords have always forced tenants to prove creditworthiness… these days tenants are holding property owners to the same standards.”

GuestMarch 17th, 2009 at 2:18 pm

This one site exposes O in a biggie, biggie way …More Than A Bad DayWorries grow that Barack Obama & Co. have a competence problem.Not long ago, after a string of especially bad days for the Obama administration, a veteran Democratic pol approached me with a pained look on his face and asked, “Do you think they know what they’re doing?”The question caught me off guard because the man is a well-known Obama supporter. As we talked, I quickly realized his asking suggested his own considerable doubts.Yes, it’s early, but an eerily familiar feeling is spreading across party lines and seeping into the national conversation. It’s a nagging doubt about the competency of the White House.Polls show that most people like Obama, but they increasingly don’t like his policies. The vast spending hikes and plans for more are provoking the most concern, with 82% telling a Gallup survey they are worried about the deficit and 69% worried about the rapid growth of government under Obama. Most expect their own taxes will go up as a result, despite Obama’s promises to the contrary.None other than Warren Buffet, an Obama supporter, has called the administration’s message on the economy “muddled.” Even China says it is worried about its investments in American Treasury bonds. Ouch.Obama has had a free ride his entire life. He has repeatedly taken credit for the work of others, has never met a payroll, has never run a corner store — when he got one job, he spent all his time lobbying or running for the next one. He has spent his entire working life creating his mythology.He’s never done anything except hustle and NOW people begin to worry about his competence. Anyone with half-a-brain knew this guy was an empty suit a year ago.And for many, many other articles, visit:

GuestMarch 17th, 2009 at 3:02 pm

Give me a break. The man hardly has a competence problem (George Bush, on the other hand, certainly did). He has inherited what is probably the worst mess of any president of the U.S. He has only been in office for how long and people expect the economic crisis to be resolved already?

DMHtMarch 17th, 2009 at 3:24 pm

I am not so sure that President Obama has a competence problem. He is undoubtedly a very bright well-educated man. He is, however, not highly experienced in either international affairs or international economics. As a result, I think he is overly dependent on his advisors in those areas and, in my opinion, at least on the economics side of the equation, he has chosen advisors who are biased towards solutions that inordinately benefit Wall Street and the major international banks. Of course, President Obama did receive a huge amount of campaign contributions from those constituencies, so that doesn’t surprise me all that much.

GuestMarch 17th, 2009 at 2:52 pm

Soooooooo, what is new? What do you expect from am empty suit tailored in Chicago Machine Factory.

GuestMarch 17th, 2009 at 3:01 pm

chair Wen gonna weep that his forex managers kept so many USA toxic asset (Treasury and Agency). If FED is not gonna back USA asset, then no body will. Ouch, this gonna hurt for Treasury and Agency holders. Let the blood-letting begin.

GuestMarch 17th, 2009 at 3:04 pm

USA fooled chairman Wen again. Now chairman Wen and his people will be stuck with worthless toxic Treasury and Agency asset. Wonder if that will create civil unrest or anger in China.

GuestMarch 17th, 2009 at 3:37 pm

That’s it! We’re going to debase our own currency as a revolutionary tool for Chinese democratic movement. They will revolt against their government for buying fiat dollar demoniated debt. Brilliant. Kissinger must still be involved. Load up the U.S. deficit for democracy…in China.

GuestMarch 17th, 2009 at 3:05 pm

The root of all of America’s problems are: (1) Corrupt politicians, who seek money all the time for themselves, their families and friends, until they are taken care of by death — oh, no, even beyond death, for they have to bribe the lord as well after death; and (2) The corrupt corporate America, which has deep pockets to buy politicians to have legislations made tailored to suit their business interests. Look at the Madoffs and Sanfords. The poor public doesn’t have a choice: what does it matter whether a politician is a Dem or a Rep? They both are two sides of the same coin — both sides of the coin are debased to the core …. totally immoral, unethical, and corrupt to the deepest core.This is a piece from today’s Morningwatch article (writer: Paul Farrell):OK, Barack Obama’s still new. But we’ve seen how much Congress kowtowed to a GOP president, so villains like Harry Reid and Nancy Pelosi may be like the hapless characters in Becket’s “Waiting for Godot.” No, the Dems congressional record’s full of characters with enormous conflicts of interest: Remember the $5.9 million in campaign donations from Wall Street to Senate Banking Committee boss Chris Dodd in 2007-2008? And the $985 million to House Financial Services chairman chair Barney Frank.Will there ever be an end to corruption duly sanctioned by Congress for politicans? Hope, not in lifetime.

GuestMarch 17th, 2009 at 3:17 pm

Oh, bro .. you forgot … how about $750 million for the pure messiah, and how about $450 million to that Vietnam War veteran … you rightly said … they are all corrupt … it takes only $175 million to take an undeserved oath to usurp an office which the oath-taker is not qualified to occupy … all, all corrupt.

PeterJBMarch 17th, 2009 at 3:20 pm

@ blindman:I think those subtle winds from the butterfly wings have now arrived on US shores – observe carefully nowHo hum

blind de miloMarch 17th, 2009 at 5:34 pm

pjb,could neutrinos really be that important, i mean,shit, i can’t even see not to continue on a related subject, but, i have noticedan odd convergence or “harmonic” , overtone, in the politicaldiscourse. as in, the left and the right have found a common frequency. and it is so strange. so strange.a first. what can it all mean?

blind de miloMarch 18th, 2009 at 7:25 am

pjb,yes, that sounds like the frequency. american “leadership” is finallyhaving it’s very own “american experience”. something the rest of ushave known for quite some and don’t forget the “loathing” that goes with “fear”.

GuestMarch 17th, 2009 at 3:23 pm

Well that’s it ! No depression or even 36 month long recession. All the doomsayers were wrong. Its seems Obama was right. I got to tell you, I went right along with the end of the world group. I knew all along that I was looking for bad news where ever I looked and I found it. But denial has come crashing down and I am back in the light and it feels great. So I advise all of you depressed doomers to step into the light with me.

MarkMarch 17th, 2009 at 3:35 pm

Some headlines for you:Bloomberg: Bernanke Says Massive Asset Purchasing May be NeededBloomberg: Jim Rogers Says Bailouts May Set Off Great DepressionFinancial Times: Foreign Investors Rushing for Exits from TreasuriesCNBC: Roubini Says U.S. Treasurys are a Disaster Waiting to HappenTime Magazine: Fredde Mac the Next Black Hole for Taxpayer MoneyBusiness Week: Should We Have Saved Lehman and Let AIG Fail?Business Week: AIG’s List of Counterparties Includes Goldman, MerrillWashington Post: American Public’s Outrage at AIG Continues to SwellWall Street Journal: Worries Grow Over Woes of Insurance CompaniesWashington Post: Mortgage Fraud Grows as Access to Credit TightensForbes: At AmEx, Elite Customers Are Falling Behind on PaymentsBusiness Week: More and More Auto Loans Going Into DelinquencyBusiness Week: CEO of GM Says Bankruptcy Would Mean LiquidationUK Telegraph: IMF to Print Billions in “Unprecedented” Resuce AttemptUK Telegraph: Bank of England Says 1930s Great Depression LoomingWall Street Journal: Plunging Stocks Creating Pension Crisis for StatesWashington Post: Aided by Crisis, China Buying Up Natrual ResourceYup, sounds like it’s all over alright.Mark

GuestMarch 17th, 2009 at 5:38 pm

“CNBC: Roubini Says U.S. Treasurys are a Disaster Waiting to Happen”Can you please provide source for this? I’m thinking you have mistaken the other “Dr. Doom”, Marc Faber who recently repeated this.hlowe

datadudeMarch 17th, 2009 at 6:10 pm

The headline about taxpayers being upset with AIG over bonuses is the most disturbing to me.Why aren’t they more pissed about billions of OUR “bailout” dollars going to foreign banking institutions!

GuestMarch 17th, 2009 at 3:40 pm

No offense intended, but I’m curious… are you sarcastic or delusional? If the latter, please enlighten us on how you found your way out of the darkness when nothing fundamentally has changed between last week and this week.

GuestMarch 17th, 2009 at 4:01 pm

in reference to: “So I advise all of you depressed doomers to step into the light with me.” If you’re serious, then I think you are mistaking “the light” for a raging fire, so I think I’ll wait to see if you come back from it before I follow you!

PeterJBMarch 17th, 2009 at 4:28 pm

Speaking of reason and reality:”According to LEAP/E2020, there are only two options left for the G20 leaders who gather next April 2nd in London: either they rebuild a new international monetary system, creating the conditions for a new global system that involves all the main global players, and reducing the crisis to a maximum of 3 to 5 years; or they strive to prolong the current system, thrusting the world into a decade long tragic crisis starting at the end of 2009.”〈=enIncludes an interesting graph.Ho hum

GuestMarch 17th, 2009 at 4:56 pm

Isn’t that what the greens want – a tragic crisis? To ‘prove’ the inefficacy of the ‘old system’ and open the door to promises of a new one?

GuestMarch 17th, 2009 at 5:54 pm

How’s about a change….any takers?Divorce agreement:Dear American liberals, leftists, social progressives, socialists,Marxists and Obama supporters, et al: We have stuck together since thelate 1950’s, but the whole of this latest election process has made merealize that I want a divorce. I know we tolerated each other for manyyears for the sake of future generations, but sadly, this relationshiphas run its course. Our two ideological sides of America cannot and willnot ever agree on what is right so let’s just end it on friendly terms.We can smile and chalk it up to irreconcilable differences and go our ownway. Here is a model separation agreement:Our two groups can equitably divide up the country by landmass eachtaking a portion. That will be the difficult part, but I am sure our twosides can come to a friendly agreement. After that, it should berelatively easy! Our respective representatives can effortlessly divideother assets since both sides have such distinct and disparate tastes. Wedon’t like redistributive taxes so you can keep them. You are welcome tothe liberal judges and the ACLU. Since you hate guns and war, we’ll takeour firearms, the cops, the NRA and the military. You can keep Oprah,Michael Moore and Rosie O’Donnell (You are, however, responsible forfinding a bio-diesel vehicle big enough to move all three of them).We’ll keep the capitalism, greedy corporations, pharmaceutical companies,Wal-Mart and Wall Street. You can have your beloved homeless, homeboys,hippies and illegal aliens. We’ll keep the hot Alaskan hockey moms,greedy CEO’s and rednecks. We’ll keep the Bibles and give you NBC andHollywood.You can make nice with Iran and Palestine and we’ll retain the right toinvade and hammer places that threaten us. You can have the peaceniks andwar protesters. When our allies or our way of life are under assault,we’ll help provide them security.We’ll keep our Judeo-Christian values.. You are welcome to Islam,Scientology, Humanism and Shirley McClain. You can also have the U. N..but we will no longer be paying the bill.We’ll keep the SUVs, pickup trucks and oversized luxury cars. You cantake every Subaru station wagon you can find.You can give everyone healthcare if you can find any practicing doctors.We’ll continue to believe healthcare is a luxury and not a right. We’llkeep The Battle Hymn of the Republic and the National Anthem. I’m sureyou’ll be happy to substitute Imagine, I’d Like to Teach the World toSing, Kum Ba Ya or We Are the World.We’ll practice trickle down economics and you can give trickle up povertyyour best shot. Since it often so offends you, we’ll keep our history,our name and our flag.Would you agree to this? If so, please pass it along to other like mindedliberal and conservative patriots and if you do not agree, just hitdelete. In the spirit of friendly parting, I’ll bet you ANWAR which oneof us will need whose help in 15 years.Sincerely,John J. Wall, Law Student and an AmericanP. S. Also, please take Barbara Streisand & Jane Fonda with you.

Armand de MiloMarch 17th, 2009 at 6:08 pm

g,do you want gwb or are you gonna give him to the left too?how bout dick c.? giving him up too? and ray gun.? borrow andspend king of savings and loan fraud!but , what i really want to know is, what do you thinkabout the federal reserve bank, central bank of the usa?ideology. crap! and… you cannot polish shit.john wall, law student and american.

JuniMarch 17th, 2009 at 6:13 pm

You’re not getting it. The problems we face have nothing to do with the 2 parties. We are way beyond that, and to sit and think about things in terms of the parties is a waste of time. You need to catch up. Whether you like it or not, the masses are the masses and include hippies and rednecks alike, and we’re all getting screwed. I will say this though in response to something you said b/c I just have to – Health care should NOT be a luxury item in a developed country such as the USA. A child that is dying of cancer having access to affordable treatment is not the same as you being able to buy a Mercedes.

GuestMarch 17th, 2009 at 6:24 pm

Any chance you’re in law school at The Univ. of AL? I went to school there and you sure do sound like many of the ignorant D Bag’s I came across. I’m neither Democrat or Republican. Just highly irritated at people like you that have their head in the sand.

GuestMarch 17th, 2009 at 6:53 pm

“The argument that the two parties should represent opposed ideals and policies, one, perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can throw the rascals out at any election without leading to any profound or extensive shifts in policy. Then it should be possible to replace it, every four years if necessary, by the other party, which will be none of these things but will still pursue, with new vigor, approximately the same basic policies.” Prof Carrol Quigley, 1965, Georgetown Univ.

MarkMarch 17th, 2009 at 8:23 pm

Jane Fonda capitulated, atoned for her “sins.” Of course, if you were truly informed you would know the real state of the world.Mark

GuestMarch 18th, 2009 at 5:52 am

can we have the section:

“You can make nice with Iran and Palestine and we’ll retain the right toinvade and hammer places that threaten us.”

rewritten as:

“You can make nice with Iran and Palestine and we’ll retain the right toinvade and hammer places that we imagine are threatening us.”

GuestMarch 17th, 2009 at 6:53 pm

AIG Gave Obama $101,332Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to The two biggest Congressional recipients of bonuses from the A.I.G. are — Senators Chris Dodd and Senator Barack Obama.The A.I.G. Financial Products affiliate of A.I.G. gave out $136,928, the most of any AIG affiliate, in the 2008 cycle. I would note that A.I.G.’s financial products division is the unit that wrote trillions of dollars’ worth of credit-default swaps and “misjudged” the risk.With the anger and rage that is being exhibited against A.I.G., perhaps the bonuses Obama received from A.I.G. explain Obama’s A.I.G crocodile tears.Now that the Wall street Journal has revealed that A.I.G. paid bonuses of $1 million or more to 73 employees, it’s time to ask if recipients of A.I.G. “bonuses,” including President Obama, will give what now ought to be taxpayer money back?

GuestMarch 17th, 2009 at 8:18 pm

in return, Obama administration with Geithner is returning the favor by giving AIG endless bonus money? This is outrage. The anger and rage should not be directed at AIG alone. Fire Geithner and give Obama F on economic policy.

GuestMarch 17th, 2009 at 7:40 pm

FDIC, Obama, Geithner are joke. Pathetic jokes. Pathetic bozo and clowns running this country.,2933,509584,00.htmlFDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too CautiousA Massachusetts bank that has defied the odds and remained free of bad loans amid the economic cricis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.

GuestMarch 17th, 2009 at 9:51 pm

And you are moron. why is FDIC bashing this bank that is lending prudently? these bozos are not doing their jobs.

MarkMarch 18th, 2009 at 1:32 am

Did you fail to read the terms of posting?You’re still not offering any solutions. That’s troll-like behavior if you ask me.MarkBTW – Geithner works for the Treasury. Obama is the Executive. Unless you want them to get into micro-managing I doubt that there’s even any awareness by them of this bank. If you’ve got an issue then why don’t you bring it up with your local congress person? (so they can make sure someone addresses your concern)BTW2 – Just because they’re not doing what YOU want them to do (whatever that may be) doesn’t mean that they are clowns. Apparently you don’t know what most here know, and that’s that these people were picked to serve the elite (which they are doing a damn good job of).BTW3 – If you have any balls you’d use something other than “Guest” to post as.

GuestMarch 18th, 2009 at 7:30 am

i must give solution because you say so? you are crazy and lunatic. i merely pointed out FDIC is doing wrong thing. you dont like what i say, then dont reply. move along loser. why you even bother reply to my first comment, you troll. get lost. and you replied with BTW1, 2, 3? LOL, you are lunatic.

MarkMarch 18th, 2009 at 7:48 am

Once again you resort to name calling (against posting policies) while offering nothing. I’ve been around here a LOT longer than you Mr/Mrs no name.i merely pointed out FDIC is doing wrong thingLike this would be the first time… I think that you used it just as an excuse to call people clowns.Go back and read your initial post: your first sentence set the tone. And read my response: which was in response to this.Why do I even bother responding to people who engage in name calling and cannot step out from behind “Guest?”Mark

HubbsMarch 17th, 2009 at 8:14 pm

From Marketwatch comment sectionThese were posted by a couple of good MW individuals, read on and GET P*ISSED!!!!!!!!!!!!!AIG bailout — ?????Remember when this economic crisis hit, and Congress let Bear Sterns go under,pushed a bunch of forced marriages between banks, etc.?Then they bailed out AIG. At the time, I thought: “That’s strange.What does an insurance company have to do with this crisis?”I think I just found the answer. Among other things, AIG INSURES THE PENSION TRUST OF THE UNITED STATES CONGRESS!!No wonder they got bailed out right away!To hell with the people, let’s protect our future, said all ourSenators and Congressmen. Nice to see where their loyalties lie!(I’m from the government and I’m here to help you!)You need to send this to everyone you know!!!!twopackshaker 5 hours ago——————————————————————————————————————————————————————————————–The Dirty DozenTop recipients of AIG bribes:Name Office Total ContributionsDodd, Chris (D-CT) Senate $103,100Obama, Barack (D-IL) Senate $101,332McCain, John (R-AZ) Senate $59,499Clinton, Hillary (D-NY) Senate $35,965Baucus, Max (D-MT) Senate $24,750Romney, Mitt (R) Pres $20,850Biden, Joseph R Jr (D-DE) Senate $19,975Larson, John B (D-CT) House $19,750Sununu, John E (R-NH) Senate $18,500Giuliani, Rudolph W (R) Pres $13,200Kanjorski, Paul E (D-PA) House $12,000Durbin, Dick (D-IL) Senate $11,000

AnonymousMarch 17th, 2009 at 8:28 pm

i wont named names, but apparently after reading/visiting some blogs/webpage including this one, i noticed that some of the bloggers have “pre-knowledge” of what is going to transpire in the stock markets (movement). Some of their predictions is almost 100% correct, to me that is outstanding. They’re like tugboats trying to pull fully loaded supertankers. Well let see if theyre able to steer these supertankers to shore..

London BankerMarch 17th, 2009 at 9:26 pm

This is a great profile of a great man. Professor Roubini has proven the power of the blogs to challenge the orthodoxy of vested interests which enforced a stranglehold on policy options for too long. I was unaware of his earlier work on the political factors underpinning persistent deficits, but it makes sense. His insight into the political drivers of debt expansion may well be the key to understanding how the strongest capitalist system in the world became subverted to subsidising failure.Lately I have been looking at the symbiosis between Wall Street and Washington as the American Keiretsu. As in Japan in the 1970s and 1980s, increasing influence on politics enabled financial/corporate conglomerates to become so huge, so concentrated and so influential that they were beyond legal or regulatory accountability. When they became lawless, they became reckless, using cheap funds supplied by weak politicians and central bankers to fuel property speculation and international expansion. Very much the same thing has happened in the USA and UK.And as in Japan, the concentration of corporate power makes it impossible to address the core problem without political destabilisation. As a result, we cannot hope for a recovery any time soon as any capital that can be seized by an increasingly desperate corporate/state alliance will be hypothecated to subsidising the existing failed elites. Anything healthy and productive will be progressively eroded by the need to supplement the profits of the morbidly obese and unproductive elements holding the levers of power.As I wrote in December, I can’t see any outcome but deflation so long as those who can and would save capital will have it seized and eroded by unaccountable elites. When investment and savings are punished, deflation becomes inevitable as debt expansion hits its limits. Sadly, those in power will use selective regulatory and criminal enforcement (UBS, Lloyds TSB, Shell?) and the military (both the visible threats and unaccountable black ops) to reinforce their increasingly tenuous hold on power and wealth. In this day of blogs, with whistleblowers able to publish instantly and anonymously conclusive evidence of wrongdoings, I do not see them being successful for very long, but I do see change as being very messy.

Average JaneMarch 17th, 2009 at 9:37 pm

LB, your prescience rivals that of Professor Roubini and I am so grateful you choose to share your thoughts here.I like many others on this blog continue to await the trigger event that will shake the people loose from their ennui. The continued volatility in the US stock market (which, by the way, Everyman pays attention to these days, regardless of its disconnect to the reality on Main Street) is an easy way to manipulate the emotions of The Herd.And many of us despair at there ever being a seminal event to Throw All The Bums Out And Start Over. Ranting on high-profile blogs is certainly cathartic but what then? I can find some hope in the fact that when the Great American Consumer shut its collective pocketbook, the world paid attention. So the Power is there. The question is, how to harness it?Please keep stopping in and blessing us with the benefit of your thoughts and ideas. Thank you, always.

PeterJBMarch 18th, 2009 at 4:03 am

@ LBMay I remind you that you haven’t presented the evidence for your new conspiracy statement/position – as yet? Your comments here don’t support conspiracy, au contraire?Ho hum and thanks in anticipation

London BankerMarch 18th, 2009 at 8:48 pm

@ MarkI was on the fence a long time thinking about inflation/deflation. What the central banks are attempting is what Rich Hartmann called “evaporflation” on this blog over a year ago. “Evaporflation”, as Rich described it (rather cryptically) involves the toxic assets that have expanded credit during the bubble years being taken into the central banks’ books at fraudulently mis-priced valuations, further expanding the money supply beyond the former gross levels. This should restart inflation, they hope.I came down on the side of deflation, however, when I realised that the central bank antics wouldn’t fool creditors and savers for long. Creditors and savers (the Chinese, Japanese, Russians and Gulf Arabs) will notice the value of all their assets being eroded, and notice the negative return on lending cash or investing in the USA, UK and other bubble states. They will shift out of bubble states, directing investment inward to support their own growth and regional development. When that happens, the debt collapse in the USA and UK will accelerate, so that debt fails at a faster rate than the central banks can expand money supply through evaporflation to the financial sector.We are seeing the proof of that now with outflows of money from the USA reported in the TIC data for January (see Brad Setser’s blog) at the same time the Fed and Bank of England go full throttle for monetary easing. The central banks will lose in a confrontation with creditors. In fact, we will all lose. The result is inevitably deflation.

GuestMarch 17th, 2009 at 9:47 pm{F6D29347-1059-40F3-B2C4-6C85B41A4FC1}&siteid=YAHOOB”Acknowledging “considerable outrage” about the bonus payments, Geithner said AIG will pay the Treasury an amount equal to the bonuses, and the Treasury will deduct that amount from the $30 billion in government assistance that will soon go to the company.”is it me or this stupid Geithner think American people are stupid??? stupid Geithner will deduct $165 million out of $30 Billion back to taxpayer and call this end of story? I am stupified. And we trust Geithner to fix and bring confidence back to the financial system?

GuestMarch 17th, 2009 at 9:58 pm

Average people are losing all their wealth and all they see is banks being given trillions, people are really angry the political backlash will be fierce.

MarkMarch 18th, 2009 at 1:38 am

Yes, this is all a big distraction from AIG’s “collecting” billions and funneling billions to the likes of Goldman Sachs.There will be capitulation. That’s how the game is. It’ll look like the average person finally won one, and that their “representatives” were on the job. B.S.!MarkDo people demand a really just system? Well, we’ll arrange it so that they’ll be satisfied with one that’s a little less unjust … They want a revolution, and we’ll give them reforms — lots of reforms; we’ll drown them in reforms. Or rather, we’ll drown them in promises of reforms, because we’ll never give them real ones either!!- DARIO FO, Accidental Death of an Anarchist

Miss ItalyMarch 17th, 2009 at 10:10 pm

If I can comment further on Roubini. His story reveals even more profundly the qualities that we have been able to appreciate of him during the latest years.For people in the US, it is very difficult to imagine the years in Italy when Nouriel frequented high school and university. The country was really divided. Ideology was running wild and anyone had to choose which side to stay and I’m not talking about liberal/conservatives, but communism/established power. The verbal and (physical) fight was intense, as strong as to transform the most extreme students in terrorists (yes, real ones): red (communist) and black (fascist) terrorists, each ones guilty of more than one killing and bombing. Actually the whole democracy was at risk of losing the battle. This to illustrate the background and to compare him with a lot of other people that are now in power in Italy. For these, as soon as the chance to grab power appeared, they did 180 degree and their politics now is just the opposite of what they were preaching years ago. Probably their demonstrations and affiliation was just a way to look for a short-cut to power and the left side looked like to bring the most results with the least effort.Don’t misunderstand me: I know nothing of Roubini’s years in Italy and what he stood for, I’m just saying that, given those historical times and the incredible turn that most people did just to grab power, that Roubini was interested in changing things and for this he took the longest route, i.e. he first looked for knowledge and since then he hasn’t been afraid to stick to it, it speaks greatly of this man.

PeteCAMarch 17th, 2009 at 11:10 pm

Charts Worth ConsideringTaking a look at a few key charts at the link below, with special thanks to Eric Janszen for publishing this info. especially charts #1, #7 and #8 from this article.CHART #1: See that the green and blue lines are plunging on this chart. This dramatically demonstrates that consumer debt (debt) and business debt (blue) are being reduced in a major way. Note that the consumer response leads the action – showing that this is a consumer driven pullback. The business contraction is really only just getting started. We’re headed for major cutbacks in capital spending and rising business bankruptcies. Notice also that the red line (Gov’t debt) is exploding upwards. Essentially what is happening is that the US Gov’t is trying to compensate for the reduction in private credit by expanding Gov’t credit. And the key question this time is: will the USA go under because of this behavior? Very possibly we could this time.CHART #7: Private pension funds … dropping dramatically. As one commentator noted recently – it’s not long before they start eating their own seed corn. These funds are on an unsustainable path towards major losses. Will pension funds be covered by the Gov’t? Sheeesh … isn’t everything apparently covered by the Gov’t now? Seriously, it just can’t be done folks. You’re looking at the Baby Boomers losing their American dream here.CHART #8: Wow! I knew that tax revenues were dropping, but are these figures right?? Even if this chart is not completely accurate, it points to a major dilemma (brick wall?) headed straight for state and federal governments. A very large drop in income from taxes. No need to spell out what this means. We are headed for draconian cuts in spending, and serious increases in taxation rates (not necessarily across the board). Governments can pretend that budget shortfalls don’t matter – but this goes out the window when we see these kinds of tax shortfalls.PeteCA

PeteCAMarch 17th, 2009 at 11:12 pm

Misprint above. First line should say … “This dramatically demonstrates that consumer debt (green) … “PeteCA

RalphMarch 18th, 2009 at 12:33 am

Just a small point; Germany lived through the Weimar Republic hyperinflation and is still with us.”will the USA go under because of this…” – I mean things change by nature so what does that mean anyway?

Wolf in the WildsMarch 18th, 2009 at 1:04 am

Ralph,Weimar ended in Hitler and WW2. So, the old Germany IS dead.So what do you think now?

RalphMarch 19th, 2009 at 4:39 pm

I think the nature of things is to change. That’s why I said Germany lived THROUGH the Weimar republic.No government lasts, they all are like clouds. They may seem important when you are standing in their shadow, but they are here today and blown away tomorrow.Sure the Weimar republic died, but the German people are still with us. Which was my point.

GuestMarch 18th, 2009 at 4:43 am

AIG wants to be able to pay bonuses to its workers.The fact that AIG has not been more strongly denounced shows that the company surely still has an amount of good friends in high places. Of course those good friends are also wealthy and not as much affected by the downturn as average Americans.Now we are being told that the AIG workers might either sue or leave that company if the bonuses are not paid.Anyone can clearly see the difference between how these ‘threats’ (ultimately from AIG itself) are treated as opposed to when a regular grassroot American talks about losing their job. For average Americans the message usually is some darwinian “you should get re-trained” type of message.But a financial institution should pay bonuses only for workers that make a profit for the institution, and only if so many of the workers make a profit that the institution as a whole makes a profit.Obviously there have not been enough workers making a profit at AIG.So obviously the competence level is not particularly high at AIG.Ergo therefore we should not concern us about their threats to leave the company. We can probably pull anyone from the street to replace them.As far as the workers suing AIG, this is a small issue. Any US company is always living under the risk of someone suing them, and in most cases companies have a small problem fending off individuals who sue them.Besides the case would likely go under a jury which will unlikely be friendly to the plaintiff (and then there’s also the issue of condemnation by the tax paying public).

datadudeMarch 18th, 2009 at 10:14 am

I still don’t understand why such the uproar over the bonuses vs. the many billions of OUR future dollars that are going to the foreign institutions. I am much more upset over that than I am about the bonuses. Don’t get me wrong I don’t like them either but come on it’s pocket change comparatively.I just hate to see the focus being taken off that and I am sure it is deliberately by TPTB.

AttilaMarch 18th, 2009 at 7:52 am

Methinks it’s time for a Jubilee this crisis will drag forever for lack of radical audacity, Obama obviously doesn’t have the mettle.

seein' is believin'March 18th, 2009 at 8:51 am Vows to Recover AIG Bonuses Amid Outrage….”Geithner, who has come under fire from Republican lawmakers for not doing enough to stop the AIG payments, said in a letter to lawmakers last night the government will recover the money by requiring it be repaid from company operations and deducting the amount from the next $30 billion in aid being provided to the insurer. He also said the government will work to accelerate the “wind down” process of restructuring AIG.”.is this some kind of sick joke? we want these contracts/securities cds etc. disected in public. period. let us know what it is we are paying for.

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