Our favorite astute political observer (and curmudgeon) Tom Ferguson weighs in on the debt deal. The bottom line is that the deflationary impact starts relatively soon, what appears to be $300 billion starting in October.
Read more...By Delusional Economics, who is unhappy with the current dumbed-down vested interest economic reporting. Cross posted from MacroBusiness
With the economic world firmly focussed on the US debt debacle this week it is likely that Europe will slip off the radar a little. I suspect, as many people do, that for the US there will be an eleventh hour resolution followed by a short lived bounce in the world markets. Once that bounce heads back to earth again it is likely that the world’s eyes will turn back to Europe. There is much to see.
Read more...By Scarecrow and Jane Hamsher. Cross posted from FireDogLake
The Politico headline says it all: U.S. credit downgrade worries Obama, Congress more than default
It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade
As Robert Reich notes, Standard and Poors is the “biggest driver in the deficit battle.” Why would anyone care what the corrupt and disgraced organizations who quite nearly brought down the world economy think about anything at this point? And yet, that is where elite opinion is focused right now:
[W]hat really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating.
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Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.
This rumbling has been coming from Capitol Hill for a while, which made us start asking questions about what was really going on with Standard and Poors. It felt like there’s a story-behind-the-story driving S&P’s actions in the debt ceiling debate, which appear inexplicable at face value and go way beyond what Moody’s or Fitch have done. And the more we looked at the timeline of events, the more we wondered how the intertwining dramas of a) S&P downgrade threats, b) the liability that the ratings agencies may have for their role in the 2008 financial meltdown, and c) the GOP’s attempts to insulate the ratings agencies from b) are all impacting each other.
Read more...Yves here. In comments, a reader recently expressed skepticism that bank bailout represented a massive looting of the public purse. Since the bank PR efforts have been more successful than I realized, it’s important to keep shining a bright light on this issue.
This post by business school professor Harald Hau not only discusses how this transfer from the many to the few works in the Eurozone rescue context, but also illustrates that the banksters have improved their game. And his observation that this bailout favors bondholders, and those constitute the top 5% of the population, is a generous estimate. Remember that the prime objective of this exercise is to spare big Eurobanks any pain, which means the highly paid professionals and executives in their employ are the biggest beneficiaries.
By Harald Hau, Associate Professor of Finance, INSEAD. Cross posted from VoxEU
Last week, the European heads of government added €109 billion to the existing €110 billion rescue plan for Greece. As Europe’s financial sector would have otherwise taken a huge hit, this column address the question: How did the financial sector manage to negotiate such a gigantic wealth transfer from the Eurozone taxpayer and the IMF to the richest 5% of people in the world?
Read more...It is one thing to suspect that something is rotten in Denmark, quite another to have proof. Ever since Obama appointed his Rubinite economics team, it was blindingly obvious that he was aligning himself with Wall Street. The strength of the connection became even more evident in March 2009, when Team Obama embarked on its “stress test” charade and bank stock cheerleading. Rather than bring vested banking interests to heel, the administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff.
But now we see evidence in a new paper by the think tank Third Way of an even deeper commitment to pro-financier policies. The Democratic party has made clear that it supports institutionalized looting by banks, via the innocuous-seemeing device of rejecting the idea of writedowns on bonds they hold.
Read more...Some historical accounts of the Great Fire of Rome, which destroyed three of the city’s fourteen districts and damaged seven others, depict it as an urban redevelopment project gone bad. Emperor Nero allegedly torched the district where he wanted to build his Domus Aurea. Hence any lyre-playing was not a sign of imperial madness, but a badly-informed leader not knowing his plans had spun badly out of control.
President Obama’s plan at social and economic engineering, of rolling back core elements of the Great Deal out of a misguided effort to cut spending in a weak economy, is similarly blazing out of control. The debt ceiling crisis was meant to be a scare to provide an excuse for measures that are opposed by broad swathes of the public. Polls predictably show that voters want five contradictory things before noon: they are against cutting Social Security and care much more about more jobs than about less deficit, but yeah, they’d like that too if they can have it.
While members of the administration may dimly recognize what a firestorm they have unleashed, their crisis responses look to be no better than Nero’s.
Read more...n the through the looking glass world of reality according to banks, tearing down foreclosed houses is a good thing. Really.
The spin that Bank of America is using to justify the notion of bulldozing buildings is that the houses in question are worth bupkis, say $10,000 or less. There’s a wee omission in their discussion. Many if not most of the houses in question have fallen in value because the bank failed to maintain them on behalf of investors
Read more...Until recently, no one in the UK dared cross Rupert Murdoch thanks to his influence on the political process.And although Murdoch is going down the same path in the US, of using political power to increase his economic power, the rating agencies seem to have easily trumped him on this one.
Jane Hamsher chronicles the brazen way in which Standard & Poor’s is throwing its weight around in the budget negotiations:
Read more...For months, it has looked as if Iowa state attorney general Tom Miller and the Department of Justice has been effectively negotiating on behalf of the banks to try to secure a broad settlement to give the banks a talking point and create the perception that the mortgage mess is on the mend. In fact, it would not stop the train wreck in local courts, since a deal would not restrict the rights of borrowers. However, getting the AGs out of the equation would still be of benefit to the banks, since their investigations typically unearth information that assist private litigants.
But we have long thought that the settlement talks have been a weird PR exercise, in that if the talks were perceived to be getting momentum, they’d actually get momentum.
Read more...If you doubt the public need to be protected from their local mob bosses banks, their latest hissy fit is an admission that they can’t make what they deem to be enough profits unless they take advantage of their customers.
This object lesson is IRAs. Bloomberg reports that if brokerage firms who manage IRAs were required to act as a fiduciary, as in put their customers’ interests first, many would exit the business.
Read more...By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College
You know that the debt kerfuffle is as staged as melodramatically as a World Wrestling Federation exhibition when Mr. Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”
This is not remotely true. But it has become the scare theme for over a week now.
Read more...The market-moving stories, namely the US debt ceiling drama and the rolling Greek/Eurozone mess, are crowding out anything other than tragedies (the Norway bombing, Chinese train wrecks) and good old fashioned high profile prurient interest (DSK and the Murdochs).
Let’s briefly cover an important development in the US mortgage saga. I’m told that the Department of Justice is putting the thumbscrews on state attorneys general to sign a mortgage settlement deal this week.
Read more...By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Economic Perspectives.
It’s actually a bit over the top and unfair to compare Barack Obama with Herbert Hoover – unfair that is, to the memory of Herbert Hoover. The received image of the latter is the dour, technocrat who looked on with indifference while the country went to pieces. This is actually an exaggeration. As Kevin Baker convincingly argued in his Harper’s Magazine piece, “Barack Hoover Obama”, President Hoover did try to organize national, voluntary efforts to hire the unemployed, provide charity, and sought to create a private banking pool. When these efforts collapsed or fell short, he started a dozen Home Loan Discount Banks to help individuals refinance their mortgages and save their homes. Indeed, the Reconstruction Finance Corporation, which became famous for its exploits under FDR and Jesse Jones, was actually created by Hoover. Often tarred with the liquidationist philosophy of his Treasury Secretary, the establishment of the RFC was, as Baker suggested, “a direct rebuttal to Andrew Mellon’s prescription of creative destruction. Rather than liquidating banks, railroads, and agricultural cooperatives, the RFC would lend them money to stay afloat.”
Hoover’s tragedy lay in the fact that whilst he recognized the deficiencies of the prevailing neo-classical laissez-faire nostrums of his day, he could not ultimately break with them and accept that the economic tenets which he had grown up with were deficient in terms of dealing with the huge unemployment challenges posed by the Great Depression.
Read more...We had thought the authorities and the banks (no doubt with winks and nods from the Fed) would work to make sure that haircuts on collateral were maintained while the Washington game of debt ceiling chicken played itself out.
Either the Merc (more formally, the Chicago Mercantile Exchange) wasn’t on the distribution list or it decided not to play ball. <
Read more...Hope you enjoy this chat. I’m pretty sure I corrected saying “House” rather than “Senate” at the time but that appeared not to have made the edits. The peril of this medium is low/no tolerance for flubs.
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