naked capitalism

I came up with this in revising an article.

The US circa 1929 and China now:

Alpha creditor.

Readers no doubt recall that the Fed announced the creation of the Term Asset-Backed Securities Loan Facility, which will lend as much as $200 billion against new or recent vintage asset backed securities collateralized by “student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.” One wonders if the order reflects the Fed’s priorities.

Most commentators saw this as part of an effort to jump start consumer spending. But this may all come too late to help an important and neglected target, small businesses.

Even though the Fed’s press release gave lip service to assisting small enterprises, they may have meant the SBA component. However, credit cards are an important source of funding for small businesses. Indeed, Amar Bhide, in his landmark book, The Origin and Evolution of New Businesses, found that savings, friends and family, and credit cards were the most important sources of funding for startups. And they are also important on an ongoing basis. For instance, a friend who had a 100 person company with some outside investors, nevertheless maxed out on his credit cards more than once to keep the enterprise afloat. So it isn’t just teeny operations that find credit cards a valuable source of funding.

I’ve been told that American Express, which aggressively courted small business owners, has turned of the spigot on some important products. I don’t know the full scope of Amex’s credit business offerings, but it had at least two types of credit lines, one a free standing program “Business Capital Line” which had an annual fee, and one attached to the Corporate Optima card.

The particularly useful feature of both was that they provided checks, and offered better rates than bank overdraft lines and reasonably high credit limits. They were good for businesses of that awkward size where they might not be big enough to capture the attention of the business lending area of a bank (and based on some tales I have heard, I would never have unsecured borrowings with the same bank where I carried significant balances, which is precisely what the banks want you to do. Banks have been known to grab all the deposits, business and personal, of an indebted business that looks to be in a terminal decline. And even though they do not have the right to seize the assets willy-nilly, guess what? It’s kind of hard to fight them when they have all your dough).

Even a well managed business with with reasonably stable revenue has unexpected events. Shit happens. An owner can dig into his own pocket, but access to credit can not only tide over short-term cash needs, but also provide expansion capital.

So what has Amex done? it has effectively closed down both products. Business Capital Line credit for checks has been cut to 1/10th the available credit for the moment, with no new checkwriting at all as of the new year; the Optima Credit line has ended all checkwriting (customer can use the card for purchases, where Amex earns a fee from the merchant).

Now those customers who used the Amex products in lieu of a bank credit line are stranded. Think a bank is going to give a small business owner new to them a meaningful level of credit in this environment? Doubtful.

While banks are cutting credit exposures fast and hard, this move is dramatic, particularly in light of Amex’s previous efforts to target this market.

OPEC’s meeting over the weekend, which held off from making further cuts despite oil prices hovering in the low $50s per barrel, a level that is causing distress among the cartels’ members.

What was eyecatching, however, was not the failure to act per se but the byplay. As we noted earlier, OPEC members tend to cheat even in good times and pump in excess of quotas. The incentive to exceed limits is even greater when national budgets are strained by a plunge in oil revenues, the mainstay of these economies. We had posted on the fact that Nigeria, which had conformed to the latest production cut, would not implement an additional reduction until other OPEC members lived up to their recent commitment.

OPEC members said they would like to reduce production a further million to million and a half barrels in December, but the Saudis, backing Nigeria’s position, are apparently asking for proof that other members are indeed living up to quotas.

This could get interesting.

Note some further novel moves, again signs of strain:

1. OPEC has set a target price of $75 a barrel (note they had abandoned targets four years ago). A lot of oil stock analysts have their targets at $90.

2. OPEC is now calling for non cartel-members to help. This is further evidence of the producer group’s diminished power. Consider this bit from Bloomberg:

[OPEC Secretary General] El-Badri called for outside help to halt the plunge in prices. “All non-OPEC should come and help, it is a big burden for OPEC,” he told reporters. As well as Russia, “the ones we know that have the capability to cut are Norway and Mexico.”

Russia’s energy minister is expected to attend the Algeria meeting, El-Badri said. His plea for help elsewhere may fall on deaf ears after Norway, the world’s fifth-biggest oil exporter, ruled out production cuts earlier this month. “I don’t see any scenarios with regards to that,” Norwegian Oil Minister Terje Riis-Johansen said in a Nov. 18 interview.

Russia also seems unlikely to cooperate, given its dependence on oil revenues and the fact that it has already spent a fifth of its FX reserves defending its currency.

Some analysts also seem newly-skeptical of the likelihood of oil reaching higher levels any time soon. From Reuters:

$75 a barrel doesn’t look doable in the short term,” said Raja Kiwan of consultancy PFC Energy. “Given the fractious nature of OPEC on quota compliance, they may have some problems.”

Sorry for the short list tonight, but I need to get on a more normal schedule.

Protection boost for rare gorilla BBC

Obama Team Seeks Possible Change to Aries, Orion Space News

Another View: How to Save the U.S. Auto Industry J. Ronald Trost (who negotiated the Chrysler rescue), DealBook (hat tip Credit Slips). The problem with all these clever financial strategies is that they ignore the consumer. Surveys have found that as many as 80% of carbuyers would not buy a vehicle from a bankrupt manufacturer. Ask people you know. So far, I have gotten a 100% negative response. And failing dealers, who provide service, is also a deterrent.

Why Did TARP Change Course? Roger Ehrenberg. A new line of thought.

Credit-Card Fees Targeted by Retailers Who Say Banks Overcharge Bloomberg, The issue is merchant charges, not those to the consumer.

Do We Overrate Basic Research? Steve Lohr, New York Times. FYI, the author of the research, Amar Bhide, is a friend of mine, and also unfailingly smart and provocative.

Antidote du jour:

You simply cannot make this up. I found a section of this priceless commentary from the Reserve Bank of Zimbabwe via Marc Faber’s latest newsletter (hat tip reader Dean), and had to verify it. The original provides an even richer mine of material.

From the Reserve Bank of Zimbabwe (boldface theirs):

As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.

That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.

Yet there are telling examples of the path we have…For instance, when the USA economy was recently confronted by the devastating effects of Hurricanes Katrina and Rita, as well as the Iraq war, their Central Bank stepped in and injected life-boat schemes in the form of billions of dollars that were printed and pumped into the American economy.

Yves here. The authorities here would counter that the Katrina-related stimulus was appropriate in light of the macro shock, while Zimbabwe has taken a good construct beyond the breaking point. Billions, after all, are not a big deal in a $14 trillion economy. A difference in degree is a difference in kind.

Back to the Reserve Bank:

….the USA economy confronted a severe mortgage crisis… The USA Central Bank again responded by injecting over US$160 billion between December, 2007 and March, 2008…. leading central banks in the global economy are bailing out troubled economic sectors to achieve macroeconomic and financial stability….the Bank of England… providing a £50 billion lifeline to the UK’s banking sector.

Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander….

As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances.

The operating assumption behind US policy now is seeing the US situation as parallel to that of the US in the Depression, and taking the view, based on the fact that the US seemed to finally shake off the slump with the demands of wartime production and the unprecedented budget deficits that accompanied them. But there were considerable worries in 1946 that the US would fall back into Depression. The conventional view is that pent-up demand carried the US through, after a sharp but very short downturn in 1946.

However, would this strategy have worked in a peacetime setting? The US also emerged from its slump to a world with a tremendous amount of industrial production destroyed by the war. Thus, the US, whose problem in the late 1920s (which didn’t look like a problem at the time) was that it was a huge exporter, to the point where it sucked up so much gold as to be destabilizing to the financial system, could with 50% of world GDP, revert to its preferred old role with less damaging side effects. Had the rest of the world gone into wartime levels of stimulus along with the US, without the loss of productive capacity, would there ever have been an end of the beggar-thy-neighbor trade policies of the 1930s? International trade didn’t just fall, “collapsed” is not an uncommon characterization of the degree of contraction.

I am not saying my line of thinking is right, but the US remedy worked (or appeared to work) in a particular set of circumstances very different from the ones on offer (we hope, at least, I don’t think anyone outside the Rapture crowd would advocate another world war as a remedy to the slowdown).

Similarly, as we have said before, the US was a world-dominating exporter, as China is now, and had the biggest gold reserves, as China now had the largest FX reserves. Thus it is China that needs to undergo a huge-scale stimulus program to make up for the loss of demand from the US. Keynes, in the 1930s, advocated that the US make up for the demand loss rather than expecting the US’s overindebted European trade partners to continue overconsuming. (Note that China’s recently announced $500 billion plus stimulus package is less than meets the eye. Analysts have estimated that 1/3, some say as little as 1/6, is spending not already planned, and most of that occurs in the second year of this two-year program).

Yet what is being advocated as a Keynesian remedy is in fact the opposite of what Keynes called for in his day. Keynes’ prescription then would lead to a global rebalancing, with the US depending more on internally generated demand and less on its foreign partners (who were defaulting on their government debt). But if it were successfully deployed in the US now, it wold lead to a continuation, of our excessive consumption and China’s underdevelopment of its internal demand.

So why don’t we lean on China harder? A few quick thoughts:

1. China does not take well to being told what to do, particularly when we their biggest borrower is looking a tad wobbly and not a particularly good model of fiscal and economic management

2. China becoming a consumer-led economy will not come about via a big stimulus program, no matter how much money is thrown at it. This is a twenty-year transformation.

First, China’s leaders are afraid of giving up its wage differential advantage, Workers would need to be paid a lot more to be able to consume more (recall this was Henry Ford’s great insight” by paying factor workers well, he was creating buyers for his products). I don’t have a ready citation, but the wage share of China’s economic expansion is very low.

Second, China needs much more extensive social safety nets for workers to be willing to save less. With a one-child policy, no health care insurance, no unemployment or welfare, savings are the old good fallback.

Third, because of the great wage differential, China’s present manufacturing capacity in many cases cannot easily be repurposed to make goods that would appeal to domestic workers (even with China’s low by Western standards capital intensity of manufacturing, production today in general is more specialized than in the 1930s. Think of the long supply chains, for instance).

So having the US engage in stimulus instead is arguably a best-available option, but it looks perilously like a desperate attempt to create status quo ante, but with more debt and credit risk sitting on government balance sheets.

And those who would dispute the claims of Dr. G. Gono, chairman of the Zimbabwe Reserve Banks’ claims of comradeship can also point to this factoid:

….the monetary base… increased by 72 percent from September 10 to November 19 of this year. We should also note that the money supply – whether measured by M1 or by MZM – has increased by less than 1 percent.

One can characterize this pattern as either that the Fed has done the right thing by combatting deleveraging or that the Fed is pushing on a string. But either way, the assumption is that all of the central bank’s efforts to pump prime will finally take hold and we’ll get some good old fashioned reflation, and the Fed can mop up the excess liquidity. But will it be able to move fast enough? How bad might the overshoot be? The Fed is presumably going to be reluctant to put the brakes on too quickly for fear of putting the economy back into a contraction, so the worry about inflation when the upswing kicks in, particularly with more countries on the stimulus program than in the 1930s, is not nuts.

Dr. Gono is glad to have company. We can only hope that his comparison is erroneous.

This ought to be a celebratory event, the scrutiny of a powerful player in the financial system who heretofore seemed immune to criticism. And what is interesting about the spotlight on Citigroup consigliere and board member Robert Rubin is that, unlike Greenspan, the reassessment is starting while he would still appear to have his hands on the reins of power. After all, he is still on Citi’s board; his protege Timothy Geithner is slotted to become Treasury Secretary, his buddy Larry Summer is head-of-the-National-Economic-Council-in-waiting.

Yet if the reaction in New York is any indication, the outrage about the speed and size of the second Citigroup rescue is considerable, and a recent Wall Street Journal piece fingered Rubin as a moving force behind Citi’s disastrous strategy to take on more risk in debt markets in pursuit of profit and better competitive rankings. And the only consequences to Rubin will be (hopefully) lasting damage to his reputation. But he gets to keep his cash and prizes.

Rubin refuses to take an iota of responsibility for the bank’s tsuris (and that also comes from the Goldman playbook. The firm always circles the wagons and admits nothing). Get a load of this:

Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank’s main operations even though he was one of its highest-paid officials.

“Nobody was prepared for this,” Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.

Yves here. Unfairly damaged? Is this what leadership amount to in America? You have the power, you get the perks, but you only take credit for the good stuff?

A very simple psychological construct places people on a spectrum of internalizing versus externalizing (boldface ours):

When something goes wrong, we look for answers as to why-what caused this? How we deal with setbacks has enormous implications for how we feel about ourselves during these difficult times. Some people take the responsibility onto themselves-”it must have been because of something I did or didn’t do.” We can call these people internalizers because they internalize the responsibility. This can lead to feelings of depression if one’s self-esteem takes too much of a beating. However, sometimes there is also the promise of a brighter future-”maybe I can do this differently next time so it turns out better.” Other people are more likely to place the controlling factor outside of themselves-”it must have been someone else.” We can call these people externalizers. In some cases, they will act out in anger over a bad situation. Externalizing frees them of any feelings of self-criticism or guilt, but it also leaves them powerless over the situation unless circumstances change. So, the price they pay is that they don’t learn anything new.

Salesmen are typically externalizers.

Note the uncanny parallel in word choice with Rubin in this tidbit:

The self-talk of the Externalizer is all about the defectiveness of others and the “unfairness of it all.”

Back to the Journal:

Its [Citi's] troubles have put the former Treasury secretary in the awkward position of having to justify $115 million in pay since 1999…

Yves again. Please, his pay should have been questioned long before now. He did not have his name on any deals, and he claims not to have gotten his hands dirty. Indeed, he contends the problem was not the strategy, but the execution, and by implication he had nothing to do with that.

Are we expected to buy that? Did any firm that went out on the risk curve do well? The only reason Goldman was less damaged for a while was that two traders told the management committee that they thought subprime was way overvalued and the firm put on shorts that exceeded its long position. That was serendipity (combined with some intellectual flexibility in the top ranks).

Back to the Journal:

Mr. Rubin said his pay was justified and that there were higher-paying opportunities available to him. “I bet there’s not a single year where I couldn’t have gone somewhere else and made more,” he said…..

Yves again. Yes, and I could make a lot more money dealing drugs, or better yet, providing financing to terrorists (one of my buddies says they make an absolute fortune). The issue is did you deliver value to Citi that bore any relationship to what you were paid? What you could have made elsewhere doing something different is a distraction from the question at hand.

To Rubin again:

Mr. Rubin said it is a company’s risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. “The board can’t run the risk book of a company,” he said. “The board as a whole is not going to have a granular knowledge” of operations…..

They do at Sandater, in fact, they consider that to be the board’s most important responsibility. They meet twice weekly. Investment banks, when they were private, had management committees that similarly watched risks like a hawk. So “can’t” is counterfactual. “Generally don’t” is more accurate. The wipeout in the banking industry strongly suggests that this deliberate inattention to one of the most important determinants of profits and long-term survival was a fatally flawed policy.

Back to the Journal:

The decision has been blamed in part for Citigroup’s problems, including the growth of its CDO holdings amid signs the mortgage market was unraveling. Mr. Rubin doubts that’s true. “It was not an inflection point,” he said, but “I just don’t know what would have happened” if the decision had been different.

At the time, Mr. Rubin was saying in speeches that most assets were overvalued. He would quote a noted investor he knew as saying that “the only undervalued asset class in the world is risk.”

Yves again. So he denies that the CDOs or the assumption of more risk had anything to do with Citi’s near death experience, despite the evidence in the form of huge writewdown on recent positions. And at the same time he was supporting Citi’s bigger bets, he was saying externally, in public, that assets were overpriced and investors were not getting paid enough for risk assumption? It will never happen, but I would love to see a great litigator like David Boies have a go at Rubin under oath.

There is much more in this article, but it illustrates a pathology operative in our society. Why have we gravitated to leaders and advisors who built Potemkin villages and tell us that is progress, and then deny that they have any responsibility? This pattern has become widespread in Teflon CEOs and public officials. And the converse delivers better results. Jim Collins, in his book Good to Great, found that the CEOs of the very best performing companies were modest, shared credit for what went right and took blame for failures, the opposite of the Rubin/prevailing US pattern. And they also paid themselves modestly by modern standards.

Read the entire article, if you have the stomach for it.

I am puzzled by some recent market anomalies, which are breakdowns of established patterns:

1. Long dated Treasuries rising (a deflation signal) as stocks stage a dramatic rally

2. Dollar weakening while long dated Treasuries rise (the dollar and bonds usually go together)

3. Oil stocks rallying more than the S&P (28% versus 18%) when oil prices continue to weaken and heating oil looks primed to fall

Now there are explanations for the appreciation in long-dated Treasuries that do not reflect just deflation worries. When the drop in CPI for October appeared to send a deflationary signal (and some analysts disputed this reading), Treasuries rallied disproportionately due not just routine short covering (ie. by point of view speculators), but the fact that the alchemists of certain complex products had used Treasury shorts to lower the cost of the product. The additional rally this week was due the announcement of the program for the Fed to buy GSE paper directly. That bond investors who held MBS assume that the duration of their MBS would shorten due to increased refis and they bought long maturity bonds to maintain duration.

The outlook for the dollar is very much in dispute. Macro Man thinks we are years away from serious dollar weakness:

So in Macro Man’s view, any dollars “created” by the Fed to expand its balance sheet (and let’s not forget, they have yet to really crack out the printing presses by not sterilizing their asset purchases) will merely partially offset dollars lost through de-leveraging and the implosion of the shadow banking system, rather than finding their way into new the purchase of fresh turds.

This comment from EconoSpeak supports MacroMan’s point:

Paul [Krugman] graphs the monetary base, which increased by 72 percent from September 10 to November 19 of this year. We should also note that the money supply – whether measured by M1 or by MZM – has increased by less than 1 percent. Over the same period, this has been a very substantial increase in bank reserves. Much of what the Fed has been doing has been to accommodate this increase in bank reserves so as to avoid a fall in the money supply..

The concern I have is the authorities keep saying the objective of this exercise is to get banks lending again….now….which presumably means on top of all the loans already made. Their aims are bigger than what Macro Man suggests, at least as far as I can tell (the latest example: an economist I know who has the ear of some policy makers suggested that PE firms buy banks, to shore up the leveraged loan market. Guess every underwater credit gets a rescue.)
And Jesse does a particularly brutal takedown of the Krugman argument (a specific illustration of one of our pet observations, “persisting in a failed course of action is not a sign of intelligence”):

However, to try and make the case that the Fed can “only” control reserves and the currency base, the monetary base, is an old canard trotted out by the likes of Greenspan and his ilk when they wish to make the case that things are happening, like enormous bubbles, that are beyond the Fed’s control. This is a Clintonian use of the word ‘control’ and is always and everywhere rubbish.

The Fed’s power, its influence, is profound, and ever moreso in this era of aggressive financial engineering. Krugman uses that narrow argument to point to the Adjusted Monetary Base as his sole metric and say, “See the monetary base went up in the Depression in his Chart 1, just as it is today in Chart 2. Therefore there was no error from the Fed at that time because it was all that they could do.”

We have noted that the devaluation of the dollar (1934) was key to getting the stricken US back on its feet: Jesse makes the same obsersation. But getting the dollar cheap enough to restore our trade balance is a fraught exercise. Too precipitous a decline risk a currency crisis and much higher dollar funding costs. And worse, the dollar has to be perceived to be likely to stay at a lower level on a sustained basis to lead to increased investment and skill building in export oriented industries (we have ceded entire industries, like shoe manufacturing, when we ought to have been able to retain some of it. However, executives at manufacturers have told me that Wall Street pushed hard for offshoring, seeing it as a plus for the bottom line, when the calculus was often not so straightforward).
The counterargument comes from Chris Watling via the Financial Times:

The outlook for the dollar is poor.

In the short term an expected equity market rally, quite plausibly the beginning of a cyclical, although not secular, bull market should bring an end to the dollar’s recent “repatriation rally”. The inverse correlation of the dollar and the S&P 500 is well established and not expected to break any time soon, given the global macroeconomic backdrop. The short term trend should be further reinforced by the broken financial system which impairs the US economy’s ability to releverage and mutes the strength of its cyclical recovery. The inability to releverage precludes the US from leading the global economy out of this recession. That also reinforces the dollar’s short term unattractiveness.

In the medium term, the US economy faces significant, albeit not insurmountable, structural problems. In particular the interaction of a heavily indebted economy with a broken financial system suggests a decade of poor domestic economic growth as savings are rebuilt and trust in the system restored. The US is a debtor nation and owes the rest of the world more than $2,000bn (up from $750bn as recently as 2000). Indeed both the household and the government sectors have been dis-saving in recent years – a trend that now needs to reverse. All of which suggests an extended period of sub-par domestic economic growth….

A failure of the initial set of policies to reflate the economy is likely to lead to the next, more risky, set of policy choices – those involving unsterilised intervention. Given the breakdown of trust in the financial system, the lack of savings by the US and the continued deleveraging of balance sheets, however, those initial policies, aimed mostly at supporting the economy through creating credit (rather than increasing savings) seem destined to fail.

On the energy shares front, one could attribute that to the stock market looking further out than commodity markets and anticipating recovery. But that contradicts the deflation reaction in bonds. And in the Great Depression, commodities was the first asset class to recover, rebounding before stocks did.

A possible culprit is Wall Street analysts being slow to cut earnings forecasts in light of deteriorating fundamentals (and perhaps reluctance to reverse uber bullish calls of last summer so quickly). Reader Michael provides the latest forecast from Merrill Lynch (click to enlarge):

I don’t pretend to have answers here…..but some of these trends are not going to hold.

As we have noted before, when oil prices are as low as they are now, OPEC members are in a classic prisoners’ dilemma. If they all adhere to production cuts, oil prices will be stronger as a result. But with governments badly dependent on oil revenues, the temptation to cheat is high. But if everyone cheats, the potential benefit of any cut is eroded.

Hopes for further production cuts at the next OPEC session appear to be fading. Nigeria has said they will not cut production further unless other members comply with October cuts. Are the two events related? Note the Nigerian oil minister took some pains to said that its statements did not indicate “a house divided.”

From Platts (hat tip reader Michael):

Nigeria would not reduce its oil output unless OPEC members implement the agreement for cuts made in October, Oil Minister Odein Ajumogobia said, state radio reported Thursday.

“At the last meeting, when there was a cut, we found out that a lot of countries did not comply, so,before we look at any further cut, we first want to be sure that everybody has complied,” Ajumogobia told reporters in Abuja Wednesday just before the weekly cabinet meeting.

From Reuters:

“Our primary concern at the consultative meeting will be the compliance of all members with previously agreed production allocation ceilings and to review market supply conditions,” [Nigerian] Oil Minister Odein Ajumogobia said on Thursday.

There is a rather odd article up on Reuters with the headline, “Short selling declines as U.S. stocks scrape new lows” It is mainly concerned with the issue of whether shorts are culprits in the recent price declines of automaker and certain financial shares. The declining short interest says the attempts to implicate them are most decidedly misguided. That part it does well, But some of its omissions are striking.

We’ve commented before that financial short interest is down, in the context of Citi. So that part is not news. And shorts on the automakers being down is no surprise.

But even though as the article indicates, financial shares are well off their July levels, they have also rebounded further off the recent bottom than most other shares. If you use, say, XLF as a proxy, financials have bounced 35% versus 18% for the market as a whole.

A big issue not mentioned in the Reuters piece is that, aside from the fact that the stocks are well down from their peak, is that both financials and auto companies are subject to government intention (the capital injections, the , making a short call much tricker than at other times.

And the article also neglects to mention that short interest is actually a bullish sign, since any short sale will eventually have to be covered with a purchase of the shares.

From Reuters:

…..since July 10, short interest on financial companies has fallen nearly 40 percent to an average of 3.68 percent on November 14, according to Short Alert Research data released this week.

Among brokerages, the decline in short interest – the ratio of stocks sold short to overall shares – was an even greater 43.5 percent.

Short interest in automakers has declined 32 percent in the past five months to roughly 11.5 percent,

And he was not the only casualty. From the New York Daily News:

A worker died after being trampled and a woman miscarried when hundreds of shoppers smashed through the doors of a Long Island Wal-Mart Friday morning….

“He was bum-rushed by 200 people,” said Jimmy Overby, 43, a co-worker. “They took the doors off the hinges. He was trampled and killed in front of me. They took me down too…I literally had to fight people off my back.”

Wild Boar Storms Frankfurt Church Der Spiegel

Potentially Universal Mechanism Of Aging Identified Science Daily

Wall Street drowns its sorrows Financial Times

Farm subsidies – a necessary evil? BBC

KPMG In The News – Not The Good Kind Re: The Auditors

Business leaders warn of Christmas sales meltdown The Independent

Pharmaceutical companies “delaying cheaper drugs” Telegraph. Quelle surprise.

Americans Have Lost Their Appetite for Spending Floyd Norris, New York Times

Library-like silence in the stores as Thanksgiving sales fail to draw crowds Times Online. This story is more unvarnished than the Black Friday coverage I see in the US.

If the Fed were a commercial bank, it might be declared insolvent Ed Harrison

The Condo Crunch Washington Post (hat tip Bubble Meter)

What to Do Paul Krugman, New York Review of Books

The REAL Maverick: Present Economy worse than Depression Barry Ritholtz

Antidote du jour (hat tip reader Buzz):

Rocketman Crosses Colorado Gorge InfoPackets

Can the US Do An IMF On Itself? Sudden Debt (hat tip reader Scott)

Rescue Plan Strained by Lack of Staff Wall Street Journal

GM asks government to block public tracking of jet Reuters

Fall in house prices may be slowing, say analysts Independent. However, the source is the Nationwide Building Society (um, nominal sales prices often fail to reflect builder concessions). And even though consumer sentiment also improved a tad, some consider the response underwhelming given an unexpected 1.5% interest rate cut.

Too many cooks in Obama’s economics kitchen Willem Buiter. ” My first impression is that, with Geithner, Summers, Romer, Goolsbee, Volcker, Orszag and Furman, we have too high a ratio of ego to team spirit.”

Support for Gordon Brown plummets over economic rescue Times Online. Note very high propensity to save among respondents (paying down debt is a form of savings):

More than half the public (54 per cent) say that they would save any money they end up with as a result of Mr Darling’s measures. But 28 per cent say they would use any money to “catch up on bills” that they have fallen behind with. Middle-class people are much more inclined to save and working-class voters to catch up on bills. Just under a fifth (18 per cent), evenly spread across the classes, would spend any money on “things you might not otherwise have bought”.

This is very similar to the results of the US stimulus package (Gary Shilling concluded 80% was saved) and says any stimulus needs to be well designed to be effective.

C Bailout Scurvon Investing

A time for humility Martin Wolf (hat tip Mark Thoma)

‘Shadow ECB’ calls for immediate and drastic rates cuts Ambrose Evans-Pritchard, Telegraph

Financial markets and a lender of last resort Eric Hughson and Marc Weidenmier, VoxEU

Antidote du jour (hat tip reader Rolfe):

Survival of the firmest Vancouver Sun

Why dogs have have wet noses Telegraph

Atlas Shrugged Updated for the Current Financial Crisis (hat tip reader Scott) Jeremiah Tucker

The Obama Letdown Michael Hudson (hat tip Crocodile Chuck). Note Obama also got questioned in his press conference about having so many Clinton operatives on his team when he said he stood for change. The answer, that he would drive change, was not convincing.

The Parable of the Troubled Assets Relief Program Credit Bubble Stocks

Porsche chief savages US rivals over self-inflicted wounds Guardian. Of course, he is an interested party, but his comments about parts markers are interesting.

Food Prices Expected to Keep Going Up New York Times

Japan engulfed Financial Times

Property asking prices tumble as reality sets in Times Online

Call to Let Tax Breaks Cover Banks Outside U.S. New York Times

Motor City Meltdown Thomas Palley

US debt puts strain on dollar Financial Times

Antidote du Jour:

How can you give cash compensation to an executive, yet claim it is not a salary or bonus? You call it a “retention bonus,” No, I am not making this up.

Note that AIG chose to make this disclosure the day before Thanksgiving, clearly choosing a time when it would attract the least notice. Not that it really matters. The talk about restricting executive compensation to bailout recipients has been just that, talk.

From the Financial Times:

One day after announcing strict limits on salaries and bonuses for its top tier of executives, AIG revealed that some of those executives will receive millions in “retention bonuses” next year…

The retention bonuses for 130 key executives were disclosed by AIG in September, after the US government rescued the firm from bankruptcy by purchasing 79.9 per cent of the company for $85bn. After the government takeover, Edward Liddy, the former Allstate chairman, was named chief executive and AIG offered retention bonuses to Mr Wintrob, head of AIG’s retirement services division, among others….

The company announced on Tuesday that Mr Liddy would be paid a salary of $1 for 2008 and 2009, and that Paula Rosput Reynolds, who joined AIG as chief restructuring officer in October, would receive no salary or bonus for 2008.

The company said the other five members of AIG’s seven-member leadership group would not receive annual bonuses for 2008 or salary increases through 2009.

AIG also said that the company’s senior partners, about 60 executives, would not earn long-term performance awards in 2008, not earn salary increases in 2009, and that the group’s annual bonuses would be limited.

An AIG spokesman said on Wednesday that retention bonuses were different from the annual bonuses included in Tuesday’s statement. In September, Mr Liddy pledged to sell off significant portions of AIG’s international operations in order to pay back the government loan. The company said at the time that retention bonuses would be necessary to maintain continuity and value at various AIG units.

“Retention bonuses are a better alternative for the repricing of option awards so long as they are reasonable, fully disclosed and truly needed to retain talent,” said Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County and Municipal Employees union.

“But in this market we don’t see much clamour for executives who made big bets, cannot make risk and were paid more than they are worth,” he added.

Do you really believe, with massive deleveraging and all sorts of big financial firms, including insurers, teetering, that AIG executives have great employment prospects these days? But the bigger issue, as far as I am concerned, is the misrepresentation, trying to claim that AIG was forgoing significant senior level comp, only to learn that they define terms a bit differently than the rest of the world does.

Even though the markets took cheer from China’s rate cut today, the move appears to be in response to an intensification of its economic woes. From Bloomberg:

Some economic indicators in China showed a “faster decline” in November, the nation’s top economic planner said, underlining the urgency of government measures to support growth and employment.

“Some economic indicators weakened further in November, showing a faster decline,” Zhang Ping, chairman of the National Development and Reform Commission, told a briefing in Beijing today. “Employment is being impacted by factory closures and many migrant workers are returning to their home towns.”

The central bank yesterday cut borrowing costs by the most in over a decade to encourage lending and ease the financial burden on thousands of companies that are laying off workers as they struggle to cope with falling orders. Premier Wen Jiabao wants consumers at home to spend more to offset the impact of slowing demand from overseas and prevent unemployment spiraling.

The government will take more measures to boost domestic consumption and bolster growth, the commission, the nation’s top economic planning agency, said in a statement yesterday. Farmers’ incomes must be raised and small businesses facing difficulties must be helped, the statement said.

Reader Michael forwarded a piece from Newsweek that provides a grim forecast for China:

Notwithstanding all the hoopla about the rise of China’s billion consumers, the body blow that’s now landing in the industrial heartland will debunk the notion that China has already begun transitioning toward a new growth model based less on exports and investment and more on household consumption. “We would love to believe it too, but it just ain’t so,” wrote Standard Chartered bank’s highly respected China economist, Stephen Green, last month. He says expecting Chinese spending to save the world from recession is “a pipe dream.”

With China at the vanguard, Asia as a whole stands dangerously exposed to external shock. Since the late 1990s, household consumption as a share of China’s GDP has fallen from roughly half to 35 percent. On the flip side, the share of Asia ex-Japan’s output devoted to exports is now more than 45 percent, or roughly 10 points higher than it was on the eve of the 1997–98 Asian financial crisis….”We are where we are because of massive imbalances that policymakers and politicians have allowed to build up over the last decade,” argues Stephen Roach, chairman of Morgan Stanley Asia. “Those imbalances were never sustainable, but the longer they went on the more they seduced people. And now we’re paying the ultimate price for that seduction.”…

China’s rebalancing act is actually much tougher than America’s…in China, where total household consumption is just 5 percent of America’s by value, the challenge is to sustain an economy that’s largely investment- and export-driven, which means finding ways to perpetuate industrial overproduction. Michael Pettis, a professor of finance at Peking University, says America found itself in the same bind back in 1929. “The U.S. in the 1920s ran a huge trade surplus and had the largest reserves in history to that point,” he says. “So was the U.S. immune to the global crisis? No. It was the country that suffered the most. In that sense it is exactly like China today.”

Beijing realizes the growth trap it’s in. Why else would it unveil on Nov. 10 a $590 billion stimulus plan—a package nearly as large as Washington’s $700 billion financial bailout—just days after it announced that China’s economy expanded by 9 percent in the July–September quarter?…

Beijing’s stimulus plan has won plaudits internationally not least because it indicates that Chinese leaders won’t stand idly by as the crisis deepens….

America’s self-defeating mistake was to cut off world trade, particularly in the Smoot-Hawley Tariff Act…. the mistake Beijing must avoid is moving too hard to sell more manufactured exports at the risk of flooding an already weak market, and triggering a protectionist backlash…..

The doubts about China’s stimulus plan arise in part because it’s all broad strokes with no fine print….. Economists estimate that only a quarter of the $590 billion is new money as opposed to previously announced spending, future tax cuts and unfunded mandates passed down to local governments. There’s reason to expect that much of the promised social spending—and the consumer empowerment it represents—may not materialize. One warning signal is that Beijing has entrusted much of the safety net stuff to the provinces, which historically have put a low priority on building schools, unless the order to do so comes with earmarked funding from Beijing…

To understand the linkage between social services and household consumption, visit a Chinese hospital. At check-in, patients are required to deposit money up-front, and when that funding runs dry they’re tossed out onto the street….Likewise, poor kids can’t attend school without paying fees, and most migrants are uninsured against job-site accidents at any price. Families cope by saving an estimated 25 percent of their disposable income, just in case….

The prescription for change has been obvious since the late 1990s. It includes balanced growth between booming east and lagging west; efforts to narrow the yawning income gap between China’s superrich and everyone else; and policies that channel the massive earnings logged by the state-owned conglomerates that dominate China Inc. back into government coffers to fund social spending. Yet campaigns with names like Go West meant to spur investment in the hinterland never amounted to more than propaganda exercises, and a long-mulled plan for the government to charge state companies dividend on their huge profits remains a small-scale experiment. In October, Standard Chartered noted a “gulf between aspirations and actual policies” illustrated by Beijing’s long-standing bias toward investment and exports, and support for “state-protected oligopolies.” Pettis argues that Beijing’s persistent mercantilism has prepared it for the wrong crisis—specifically, an external debt shock akin to the one that ravaged Asia in 1997-98, against which China’s huge savings and foreign reserve pools would make it “superbly protected.” Yet as with America in 1929, China is the nation most exposed in the world to a collapse in global demand today.

As such, Beijing finds itself in a fix as 2008 winds to an ignominious close. Export promotion offers a viable short-term means of keeping the factories of China running—yet grabbing more market share amid a global downturn is the surest way to incite protectionism. During the recent gathering of G20 leaders in Washington, much public emphasis was placed on shoring up the global financial architecture and defending free trade. Yet former New Zealand prime minister Mike Moore, who headed the World Trade Organization from 1999 to 2002, believes the backroom talks focused on the imperative that Asia not try to export its way out of today’s crisis. It was “the elephant in the room; how China, and to a lesser extent India and the Southeast Asians, must become consuming countries,” he says. “It’s overwhelmingly in [their] interest to become a lot less reliant on exports, and it also does right by the people they represent. Not to do it could trigger something that’s very, very unpleasant.” Global trade slumped 70 percent in the 1930s, and any return to the virulent economic nationalism of that era “would turn crisis into catastrophe,” warns Moore.

That presents Beijing with a leadership challenge very different from the one it confronted with tanks and soldiers in 1989. Today, it must work to maintain enough harmony in the global trade arena so as not to lose access to vital overseas markets, while telling the Chinese people that fast growth isn’t their birthright. In essence, Beijing must offer a new social contract in which consumption bolstered with a social safety net replaces the export-driven growth engine that has powered China’s economy for 30 years. FDR did that in America in the 1930s, but it took a decade. Might China’s leaders fare any better? In the late 1990s, then Premier Zhu Rongji refrained from devaluing China’s currency when many of its neighbors did so; the decision lost China some export momentum but gained its leadership a reputation for responsible global action. Today’s leaders have maintained that reputation, but given the enormity of the economic challenges at hand, the only safe bet is that their helmsmanship will be tested to the extreme in 2009. Especially if the pessimists are correct and China’s economy grinds to a halt.