Links 11/8/08

Blind pilot guided to land by RAF BBC (hat tip reader Paul)

Lack of clarity undermines TARP, firms say Investment News. A remarkably high percentage are reluctant to participate.

Prosperity Bank Acquires All the Deposits of Franklin Bank, S.S.B., Houston, Texas FDIC. Reader Steve points out that Franklin Bank was owned by Lew Ranieri, who created the mortgage backed securities market.

Moody’s Cuts MBIA Ratings Wall Street Journal. As foretold here and elsewhere.

The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005 Richard Koo, Nomura. Very informative (hat tip reader Bjornar via FT Alphaville)

“Fibonacci, Fermat, and Finance” Mark Thoma

Will Obama Bail Out GM, Chrysler and Ford? Deal Journal, Wall Street Journal

Can you resist financial globalization? Dani Rodrik

The Uses of Adversity Malcolm Gladwell, The New Yorker

Antidote du jour:

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  1. Anonymous

    News item from Indianapolis, made me wonder if Obama bought the election?


    “I want my money today! It’s my money. I want it right now!” yelled one former campaign worker.

    A former spokesman for the Obama campaign said 375 people were hired as part of the Vote Corps program and said people signed up to work three-hour shifts at a time. Three hours of canvassing got workers a $30 pre-paid Visa card.

    The workers showed up to get their cards Wednesday morning at 10:00 am.

    “There was a note on the door saying 1:00 pm and then at 1:20 pm everybody was like why is nobody here. They just got here and they’re trying to get it organized,” said Heather Richards, a former campaign worker.

    The large gathering of around 375 people prompted police to call in extra officers and set up temporary barricades. The barricades helped keep the crowd from spilling out onto Meridian Street. Police say the several hundred people in line were for the most part orderly.

    “No arrests. Some of the people were upset at first because the line wasn’t moving as fast as they thought it should. But we really haven’t had any problems,” said Major Darryl Pierce, Metro Police.

    Eventually people did start getting paid, but some said they were missing hours and told to fill in paperwork making their claim and that eventually they would get a check in the mail.

    “Still that’s not right. I’m disappointed. I’m glad for the president, but I’m disappointed in this system,” said Diane Jefferson, temporary campaign worker.

    “It should have been $480. It’s $230,” said Imani Sankofa.

    “They gave us $10 an hour. So we added it. I added up all the hours so it was supposed to be at least $120. All I get is $90,” said Charles Martin.

    “I worked nine hours a day for 4 days and got paid half of what I should have earned,” said Randall Waldon.

    Some people weren’t satisfied with filling out a claim form for money they felt was still due to them.

    “They say that they gonna call you or they going to mail it to you, but I don’t know. We’ll see what happens,” said Antron Grose.

    “Talking about they’ll mail it to us. I ain’t worried about that, man. They’re not going to mail nothin’,” said Martin.

    Note: The comments tool has been disabled for this story. It is’s policy to approve all comments before they are posted because we aim to maintain a civil dialogue on our site. However, because of the large volume of comments generated by this story, we do not have the time to approve them – therefore they have been turned off. We are sorry for any inconvenience. While our goal is to encourage interactivity on our site, in this case, we simply do not have the staff to devote the time to approving comments.

    In response to a visitor who asked how many comments this story received, the number was in the hundreds.


    Too funny.

  2. River

    RE: ‘The Age Of Balance Sheet Recessions’

    Excellent charts and data that leave little doubt about where we are and where we might be going based on fiscal and monetary choices by US Government.

    Exhibit 20 clearly depicts that monetary easing prior to homes falling to their discounted cash flow values is ineffective. The same exhibit depict that a weaker dollar created by monetary easing carry the following risks?

    1)May trigger foreign capital outflow leading to higher interest rates.

    2)Accelerate imported inflation.

    3)Oil price denomination in US Dollar may be jeopardized, which may lead to a dollar collapse.

    I have been harping on the possibility of 3) above for some time. There is scant possibility that the US could see 3) occur without dire consequences for the US economy and political system.

    I believe it is far more important to save the dollar than to save some banks, insurers, and large corporations that have been mismanaged. Nothing can be repaired until home prices fall to meet salaries or salaries rise to meet home prices. I know that the process of letting businesses fail will be painful…but, letting the dollar fail will be a hell of a lot more painful.

  3. Anonymous

    anon of 7:59 AM…

    As far as I know this is not a blog to air your political bias.

    What does the Obama campaign staff have to do with the possible depression that the world faces?

    IMO, Shrub stole two elections outright…Do Shrubs actions compare to anything that Obama has done?

    Your time would be better spent figuring out your personal financial situation and what you might do to protect yourself in the current slow motion train wreck…Leave the soap opera for others to ponder.

  4. Anonymous

    This is not a blog to air your political bias. Therefore I will counter you by airing my political bias. Sorry, not seeing the logic there.

  5. Don

    We Should Move Away From Foreclosure System
    I want to propose a thesis. The cause of this crisis was the foreclosure system itself. The crisis could have been avoided had a system been set in place that renegotiated mortgages immediately upon delinquent payments.

    The cause of the crisis in the housing sector was a misallocation of resources by individual homeowners. The borrowers took mortgages that were eventually too high for them to afford. The loans/mortgages were based upon terms that were much more likely to lead to default/foreclosure.

    But what if foreclosure had not been the option? What if the first option had been to renegotiate the mortgage/loan to a payment affordable to the borrower? The level of payment that the borrower could afford would then trigger a set of possible options:

    1) Increase the price of the house
    2) Increase the length of the mortgage
    3) Base payments on percentage of income, so that they will rise as borrower’s income rises.

    Now, however it would be done, wouldn’t this have been a better situation than the one we currently face? The reason to try a mortgage renegotiation plan now is to try and see if we can move away from the foreclosure system and devise one that keeps borrowers in their houses. Isn’t that a sensible proposal?

    Don the libertarian Democrat

  6. River

    ‘The cause of the crisis was a misallocation of resources by the homeowners.’ Not!

    The cause of the crisis was too low interest rates for too long which always causes economic bubbles to form. In addition, loans were being made to anyone that could fog a mirror because mortgage originators could bundle the mortgages and move them off their books. The people originating the loans have far more financial saavy than the home buyers…So, why again is it all the homeowners fault?

    Just as there is no reason to believe that there will be high earnings for equities going forward, there is no reason to believe that in a depression that homeowners can pay mortgages that are extended. For one reason, interest rates will be increasing going forward, not decreasing. If you are the holder of some of these mortgages why would you want to offer extended terms to the homeowners? Your solution sounds more socialistic than any I have heard so far.

    Once again…There are two ways to fix this mess. Increase wages or decrease home prices. There is no third way.

    How would lengthening the time frame of a mortgage help if interest rates will be rising and homeowners are worried about losing their jobs (rightly so) and taxes will be increasing?

  7. Don

    River,Thanks for your comment. What got me thinking about this was a better way of deleveraging. I’m not suggesting mandating anything, by the way. Some people will definitely default. Obviously, also, many loans shouldn’t have been made. I’m trying to suggest a process that will ease the misallocation of housing by saving as many borrowers as possible. Where mortgages are bundled, having a system of possible solutions already in place might overcome the problem of how to deal with such foreclosures. The reason a lender would want to do such a thing would be to avoid defaults, deeply depressed housing prices, and negative effects on the economy.

    But, again, thanks for the comments. I’ll consider them.

    Take care,

    Don the libertarian Democrat

  8. Don

    River, By the way, your comment taught me a lesson. In trying to be a little provocative to get a few comments, I didn’t clearly express myself. Thanks, Take care, Don

  9. Finance Guy

    “Lack of clarity undermines TARP”
    There is an element of spin here. 91% are reluctant to participate. Sounds dire? Below it then says 70% of large, 50% of small, plan to participate. So it looks like 41 to 61 percentage points of reluctees aren’t all THAT reluctant to dump their junk on U.S. taxpayer.

  10. Anonymous

    gladwell’s conclusions are pretty unsurprising, don’t you think?

    only thing is, the ivy league schools gave up their legacy programs a long time ago and the folks who went on that dizzying trip of greed indifferent to their actions were weinbergs more than caldwills.

  11. River

    Don, thanks for your reply. The biggest problem with the deleveraging process is the speed at which it is occuring. Gearing up happened over many years, deleveraging is happening fast because everyone is rushing for the exits at once. I see no way to slow the process that is fair to those holding the homes and those holding the paper on the homes.

    To award ‘homeowners’ more time to pay and/or lower their interest rates would be unfair to those holding the paper. If the government intervenes and backs the mortgages it will be unfair to all that didn’t buy homes that they couldnt afford. In addition, to find in favor of home owners at the expense of taxpayers or those holding paper sets a poor example for future would-be home owners.

    The government cannot continue to intervene in all facets of financial markets without total failure of those markets. Markets are supposed to be price finding mechanisims and setters of interest rates. The government has replaced the ‘invisible hand’ with it’s own. Sooner or later the pool of available fools will be used up and insiders will be trading against other insiders. In other words, no market at all. Will we then return to the barter system?

    The safeguards that were in the system and were removed should be replaced. Permanently. The financial sector needs to be relegated to it’s traditional role of providing finance for goods and services. The financial system should not be the center of the economy of any country.

    Of course, these are my opinions and you know what they say about opinions… :)

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