Hypocrite Geithner Says Private Sector Must Drive Economy
by ilene - July 26th, 2010 7:30 pm
Hypocrite Geithner Says Private Sector Must Drive Economy
Courtesy of Mish
Like most politicians, Treasury Secretary Tim Geithner likes to talk out of both sides of his mouth, generally saying contradictory things in sound bites that may sound reasonable at first glance, but look idiotic upon closer inspection.
For example please consider Private sector must drive economy: Geithner
During an interview on NBC’s "Meet the Press," Geithner also said the government has big plans for reforming Fannie Mae and Freddie Mac, the housing finance giants that now stand behind most of the mortgages in the U.S. after being bailed out by taxpayers during the 2008 financial crisis.
Geithner said Sunday that he doesn’t expect a double-dip recession, citing encouraging signs in the economy. "The most likely thing is you see an economy that gradually strengthens over the next year or two," he said. Watch Geithner on Meet the Press.
Businesses are still "very cautious" and are trying to get as much productivity from current employees as possible, Geithner explained.
"They are in a very strong financial condition though. I think that’s very promising because there’s a lot of pent-up demand and there’s a lot of capacity still for them to step up and start to invest and hire again," he added. "The government can help but we need to make this transition now to a recovery led by private investment."
There’s a "good case" for the government to support small businesses, the unemployed and help states keep teachers in classrooms, but the transition to growth led by the private sector must happen, Geithner said.
Still, he stressed that the current system of housing finance has to change.
"We’re not going to preserve Fannie and Freddie in anything like their current form. We’re going to have to bring fundamental change to that market," Geithner said.
There’s still a good case for the government preserving some type of guarantee to make sure that people can finance a house even in a very damaging recession, he explained.
"We’re also going to have to take a look at the broad set of policies we put in place to help encourage home ownership and particularly help low income Americans get access to affordable housing," Geithner said. "We’re going to take a very broad look at how best to do that."
No Pent Up Demand
For starters Geithner is wrong about pent…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggShadow Banking Makes a Comeback
by ilene - July 23rd, 2010 9:25 pm
Shadow Banking Makes a Comeback
Courtesy of MIKE WHITNEY writing at CounterPunch
Credit conditions are improving for speculators and bubblemakers, but they continue to worsen for households, consumers and small businesses. An article in the Wall Street Journal confirms that the Fed’s efforts to revive the so-called shadow banking system is showing signs of progress. Financial intermediaries have been taking advantage of low rates and easy terms to fund corporate bonds, stocks and mortgage-backed securities. Thus, the reflating of high-risk financial assets has resumed, thanks to the Fed’s crisis-engendering monetary policy and extraordinary rescue operations.
Here’s an excerpt from the Wall Street Journal:
"A new quarterly survey of lending by the Federal Reserve found that hedge funds and private-equity funds are getting better terms from lenders and that big banks have loosened lending standards generally in recent months. The survey, called the Senior Credit Officer Opinion Survey, focuses on wholesale credit markets, which the Fed said functioned better over the past quarter." ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)
In contrast, bank lending and consumer loans continue to shrink at a rate of nearly 5 per cent per year. According to economist John Makin, there was a "sharp drop in credit growth, to a negative 9.7 per cent annual rate over the three months ending in May." Bottom line; the real economy is being strangled while unregulated shadow banks are re-leveraging their portfolios and skimming profits. Here’s more from the WSJ:
"Two-thirds of dealers said hedge funds in particular pushed harder for better rates and looser nonprice terms, and they said some of the funds got better deals as a result….(while) The funding market for key consumer loans remained under stress, with a quarter of dealers reporting that liquidity and functioning in the market had deteriorated in recent months." ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)
As the policymaking arm of the nation’s biggest banks, the Fed’s job is to enhance the profit-generating activities of its constituents. That’s why Fed chair Ben Bernanke has worked tirelessly to restore the crisis-prone shadow banking system. As inequality grows and the depression deepens for working people, securitization and derivatives offer a viable way to increase earnings and drive up shares for financial institutions. The banks continue to post record profits even while the underlying economy is…
Bernanke Says Economic Outlook is “Unusually Uncertain”, Fed Prepared for “Actions as Needed”
by ilene - July 21st, 2010 5:32 pm
Bernanke Says Economic Outlook is "Unusually Uncertain", Fed Prepared for "Actions as Needed"
Courtesy of Mish
Be prepared for Quantitative Easing Round 2 (QE2) and/or other misguided Fed policy decisions because Bernanke Says Fed Ready to Take Action.
Treasuries rose, pushing two-year yields to the fourth record low in five days, as Federal Reserve Chairman Ben S. Bernanke said the economic outlook is “unusually uncertain” and policy makers are prepared “to take further policy actions as needed.”
Ten-year note yields touched a three-week low as Bernanke said central bankers are ready to act to aid growth even as they prepare to eventually raise interest rates from almost zero and shrink a record balance sheet.
“An unusual outlook may call for unusual measures, and that means the Fed may take more action as needed, which would lead to lower rates,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas, one of the 18 primary dealers that trade with the central bank.
The Fed chief didn’t elaborate on steps the Fed might take as he affirmed the Fed’s policy of keeping rates low for an “extended period.” Economic data over the past month that were weaker than analysts projected have prompted investor speculation the Fed may increase monetary stimulus in a bid to keep the economy growing and reduce a jobless rate from close to a 26-year high.
“Bernanke acknowledged that things weren’t very strong economically and left action on the table without going into details, and that’s sending investors from stocks into bonds,” said James Combias, New York-based head of Treasury trading at primary dealer Mizuho Financial Group Inc.
Monetary Policy Report to the Congress July 2010
Inquiring minds are slogging through the 56 page Monetary Policy Report to the Congress July 2010. Here are a few key snips.
Summary of Economic Projections
Participants generally made modest downward revisions to their projections for real GDP growth for the years 2010 to 2012, as well as modest upward revisions to their projections for the unemployment rate for the same period.
Participants also revised down a little their projections for inflation over the forecast period. Several participants noted that these revisions were largely the result of the incoming economic data and the anticipated effects of developments abroad on U.S. financial markets and the economy. Overall, participants continued to expect the pace of the economic recovery to
…
Bernanke Reiterates the Fed’s “Whatever It Takes” Pledge for the Thousandth Time
by ilene - July 21st, 2010 5:27 pm
To summarize and save you time, Jr. Deputy Accountant writes:
Bernanke Reiterates the Fed’s "Whatever It Takes" Pledge for the Thousandth Time
I won’t call Bernanke a one trick pony since he’s got more tricks than a Hollywood madam but I will say this: the man is nothing if not consistent.
Federal Reserve Chairman Ben Bernanke told Congress Wednesday the economic outlook remains "unusually uncertain," and the central bank is ready to take new steps to keep the recovery alive if the economy worsens.
Testifying before the Senate Banking Committee, Bernanke also said record low interest rates are still needed to bolster the U.S. economy. He repeated a pledge to keep them there for an "extended period."
Whatever it takes!
Full text of Bernanke’s semi-annual monetary policy check-in with Congress may be found via the Board of Governors.
Frugality the New Reality in Australia; Predatory Customers Addicted to Discounts
by ilene - July 21st, 2010 4:11 pm
Frugality the New Reality in Australia; Predatory Customers Addicted to Discounts
Courtesy of Mish
I have commented many times on US Consumer and Corporate Frugality but inquiring minds might be interested in happenings down under. Frugality has gone global.
Predatory Customers Addicted to Discounts
The Herald Sun reports Retailers could take years to recover because customers addicted to discounts.
A bargain frenzy since the global financial crisis has led consumers to expect and accept only slashed prices.
The dire forecast, from market research company TNS director Chris Kirby, comes as bored staff in some stores are put to work cleaning, tidying and changing window displays because of a lack of customers.
At some sites, especially fashion outlets, stock is discounted by up to 70 per cent as soon as it hits shelves to attract shopper interest.
"Consumers are no longer willing to accept the first price they find. They know there’s a good chance of finding it cheaper somewhere else," Mr Kirby said. "In essence the industry is training us to become professional, if not predatory, consumers."
The caution came as a Commonwealth Bank economic index that tracks credit and debit card transaction value trends across a wide range of industries reported the weakest spending since the height of the global financial crisis in early 2008.
Desperate Retailers Slashing Prices by 75 Percent
Please consider Retailers slashing prices by 75% as Queensland sales slow
One retail organisation, the United Retail Federation, said the slump was at its worst in Queensland, where small retailers were struggling to move stock, even after heavily discounting items.
The bleak picture is at odds with scenes of hundreds of shoppers queuing at lay-by counters to take advantage of major toy sales.
Thousands of bargain hunters queued at Big W stores for the start of its two-week toy sale, which ended last week.
One Gold Coast shopper complained of a four-hour wait at her local Big W store, and of being hit in the ankles with shopping trolleys in the stampede.
Target will follow with its toy sale from July 22 to August 4, having already released its 72-page catalogue offering 120 half-price bargains.
But Australian Retailers Association director Russell Zimmerman said retailers generally were finding it difficult to clear stock, even at hefty discounts. "It’s tough out there and retailers are finding it harder
…
Time for a Dollar Bounce
by ilene - July 16th, 2010 8:56 pm
Time for a Dollar Bounce
Courtesy of Mish
The time for a dollar bounce is at hand. One reason I make that statement is the single best contrarian indicator on the US dollar has spoken.
Please consider Dollar Rout by Peter Schiff, July 15, 2010.
Peter Schiff has proven to be a huge contrarian indicator on commodities, on China, on foreign investments, and on the US dollar. I suspect this video will be no different.
In the video, Schiff makes a case that it was impossible to see these bounces coming. I disagree and have called for several of them.
Political Alignment vs. Investment Decisions
Politically I align with Peter Schiff. The financial sector bailouts were obscene, as are all of the stimulus efforts. There will be hell to pay for both.
However, investment-wise I cannot and do not agree with Schiff. His hyperinflationary rants are simply unfounded. The reason he cannot see the forest for the trees is he fails to consider the role of credit in a fiat-based credit world.
Credit dwarfs money supply. Much of that credit cannot and will not be paid back. Schiff got that part correct, in spades, predicting as many others did a collapse in housing. His mistake was in assuming the dollar would crash with it.
Think about that for a second. If the dollar crashed to zero, the number of dollars it would take to buy a house would be infinite. There has never been a hyperinflation in history where home prices crashed and barring some war-zone anomaly, I doubt it ever happens.
If hyperinflation was in the cards, the correct response would be to buy as much real estate as possible given real estate only requires 5% down. That amount of margin is hard to come by in any other play except derivatives.
Are we "Trending Towards Deflation" or in It?
For a recap on the inflation-deflation debate, please see Are we "Trending Towards Deflation" or in It?
One of us took into consideration the role of credit, one of us didn’t.
Technical Euro Bounce
The reason for the recent bounce in the Euro is without a doubt a pledge by European governments to adhere to various austerity measures. Another reason is purely technical.
The Euro plunged nonstop, nearly straight down from 1.50 to 1.18. For currencies that is an enormous move in a short period…
Goodbye, Free Checking?
by ilene - July 16th, 2010 6:31 pm
Goodbye, Free Checking?
Courtesy of Jr. Deputy Accountant
As some of you already know, I’m a pretty content Chase customer. I don’t care what Jamie Dimon does in his downtime or which government is suing them over shady investment practices this week, all I know is my money’s safe and they never screw with me. EVER. I know what you’re thinking: "But JDA! They’re evil!" Sure they’re evil but they’re also the guys who own the Fed so who do you think will have money when everything goes terribly awry? The guys who own the Fed, duh. Am I promoting Chase’s bad behavior by entrusting them with my deposits? Please, we’re talking pennies to their bazillions. They aren’t looking to the starving writer to fund their misadventures, they’ve got the Dirty Fed and free money for that.
I managed to avoid banking completely for nearly 5 years. It’s not easy and you end up losing quite a bit in time and effort to trot across town cashing your paychecks at whichever bank they are drawn on (that’s usually free, something most Western Union check-cashers don’t realize) and my paycard (direct deposit to a MasterCard) ended up costing me $1.50 every time I withdrew money and $.50 for each POS transaction. Not good. I gave up quite a few pumpkin spice lattes in fees just so I could say I was bank-free.
Of course I realized that this was just stubbornness on my part and gave in to Chase’s promise of $150 to open an account. It’s been several months now and I still have no major issues to report except for initially opening the account online and never getting my account number via mail. Online banking is convenient, Chase has completely taken over so ATMs are everywhere and they generally process transactions quickly. All good. Sure they have their Overdraft Nazi standing outside of the branch trying to catch me at the ATM and ask if I’ve made a decision on overdraft protection ("No thanks I’ve already declined it. Twice.") but other than that, I’m happy.
Now let’s talk about the death of free checking.
Remember back in the day when banks would offer you a toaster to open a new checking or …
A Frightening Build-Up
by ilene - July 12th, 2010 4:02 am
A Frightening Build-Up
Courtesy of Michael Panzner at Financial Armageddon
Although there are many reasons why it was not a good idea to keep dead and dying businesses alive, to spend and borrow hundreds of billions of dollars for ill-conceived stimulus programs and other boondoggles, to keep interest rates at record lows for an extended period of time, and to encourage people to hang on in hope that a recovery was just around the corner, the biggest issue with not facing the music early on is how daunting the problems have now become. As the New York Times notes in "Crisis Awaits World’s Banks as Trillions Come Due," the scale of short-term obligations that have built-up as a result of the decision to extend and pretend — or delay and pray — is frightening, to say the least.
FRANKFURT— The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.
Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
“There is a cliff we are racing toward — it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”
Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.
U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up
…
Seattle’s “Actuarial Valuation” of City Pension Plan Sinks to 62% Funded; I say it’s Far Wors
by ilene - July 12th, 2010 3:34 am
Seattle’s "Actuarial Valuation" of City Pension Plan Sinks to 62% Funded; I say it’s Far Worse
Courtesy of Mish
A new Seattle report says the city will have to increase pension contributions to keep its plan solvent. Please consider Seattle’s retirement investments plunge deeply.
The City of Seattle will have to substantially increase the amount of money it pays into its employees’ retirement system to cover future obligations because its related investments took big hits during the economic meltdown, according to a report presented to the City Council Friday.
This situation will put further pressure on a city budget that is already fracturing.
As of Jan. 1, 2008, the city’s retirement "actuarial valuation" funding ratio was 92.4 percent, the report said. That’s the ratio of the assets the city had compared to what it owes for benefits earned by employees. As of Jan. 1 of this year, the funding ratio had dropped to 62 percent – mainly because the city’s stock market holdings tied to retirement accounts dropped 20 percent and other factors.
The study prepared for Seattle by Milliman says the city will have to increase its retirement contribution rates make sure its retirement plans are fully funded. Workers and the city contribute to the plan, but rate hikes for employees are limited to 2 percent, said the report.
City Councilman Mike O’Brien said it’s unrealistic to wait and hope that a Wall Street surge solves the city’s retirement funding problem.
O’Brien said City Councilmembers, who will consider the matter in earnest during fall budget talks, will have to determine whether 1 percent bumps are enough to right the retirement ship.
City of Seattle Pension Results
Inquiring minds are digging into the City of Seattle Pension Plan Funding Report.
An increase in contribution rates is needed to maintain actuarial balance.
- Employees and employer share rate increases, but rate increase for employees is limited to 2.00% (10.03% total).
- As of January 1, 2011, employer rate increase needed is 6.97% of payroll.
- Total employer portion would increase from 8.03% to 15.00% of payroll.
Worse Than It Looks
Note the huge increase in payroll funding. Also note that the study was done on January 1, 2010. The stock market is now down on the year. Thus, it is highly likely that 62% is actuarially overstated .
Is the city going to raise
…
Tim Geithner Has Completely Forgotten the Point of TARP, Calls it a Success
by ilene - June 22nd, 2010 6:23 pm
Tim Geithner Has Completely Forgotten the Point of TARP, Calls it a Success
Courtesy of Jr. Deputy Accountant
Maybe Tim Geithner was too busy scheming on backroom bailouts running the NY Fed around the time TARP was passed but it appears as though he has forgotten that its original intention was to foster improved credit conditions for US consumers. OK wait, its truly original intention was to buy up crap assets but that got ditched shortly after it was passed so let’s go with "bank lending" instead. Either way, he seems to be confused as to the definition of "working".
CNN Money:
Treasury Secretary Tim Geithner defended the government’s bailout of the financial system on Tuesday, saying it has been a "critical" part of the economic recovery and will ultimately cost less than expected.
Geithner is testifying before the Congressional Oversight Panel, the main watchdog for the Troubled Asset Relief Program, or TARP. The government enacted TARP in 2008 at the height of the financial crisis. The program is due to expire in October.
While the economy remains challenged, Geithner said TARP and other "extraordinary actions" taken to combat the financial meltdown "have helped stabilize the financial system and restore economic growth."
So what WAS the goal, exactly, Timmy? Free money for the bankers? Some kind of sick money laundering operation using the sick banks to buy up Treasury debt? You tell me since you’re the one who seemed to think it worked out the way it was supposed to.
I’ll be over here waiting for credit markets to unfreeze whenever you’re ready to talk.
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(