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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (107623)	2/1/2010 12:39:56 AM
From: maxncompany	2 Recommendations Read Replies (1) \| Respond to of 116555

Classic moment in Washington several years ago when they wanted to count making hamburgers as manufacturing so they could show bigger manufacturing numbers than really existed.

To: mishedlo who wrote (107623)	2/1/2010 2:21:08 AM
From: Hawkmoon	3 Recommendations Respond to of 116555

Still no action by Congress on credit default swaps "Every civilization," Swiss historian Jacob Burkhardt once wrote, "carries within itself the seeds of its own destruction." We believe the financial crisis of 2008 exposes a seed that can destroy Western-style free-market capitalism. The name of that seed is the credit default swap, or CDS. A CDS is an investment tool for managing risk. Generally speaking, return varies inversely with risk. Riskier investments pay higher returns. An investor who makes a risky investment can reduce the risk (hedge the bet) through a CDS that promises, for a small fee, to pay the investor should the original investment go bad. Let's be honest and call a CDS as what it is: insurance. We rarely think about it, but insurance is a highly regulated industry, and for good reason. For instance, the administrator of a hospice-care facility would not be allowed to buy life insurance on its residents. A surgeon could not take out a life policy on a patient he or she was about to operate on. You could not take out a fire policy on a home you did not own, and you could not take out more than one policy on a home you did own. The term in the industry is "insurable interest." You cannot insure someone or something when you have no financial connection to them or it, and you can only buy enough insurance to cover that interest, or to make you whole, in case of a loss. That's how that system works, and it's the only way it can survive. On the other side of the issue, insurers are required to hold a specified percentage of their total potential liabilities as capital reserves so that they can pay off when catastrophe strikes one of the insured parties. Unregulated insurance Understanding those limits in regular insurance -- and that a CDS is an insurance policy in the financial markets -- explains much or most of their abuse by Wall Street. There are no such limitations on either side of the issue with CDSs. And that is precisely what caused the problem. It was, and still is, possible to buy an unlimited number of CDSs against any financial instrument, whether one owns that instrument or not. Imagine someone taking out 20 fire policies on his neighbor's home. Common sense tells you the odds just went up that that house is going to burn, and you have just created a perverse appetite for the homes most likely to burn. The riskier, the better The distortion of markets caused by CDSs is clearest in the secondary mortgage markets. Soon after CDSs became legal in 2000, Wall Street firms began paying more for subprime mortgages with poor or no documentation of a family's ability to pay them back than for those with traditional proof of income and ability to repay. Why? Because the riskier, and even riskiest, subprime mortgages offered a greater likelihood that the borrowers would default. Since the very firms that sought out these bad mortgages had taken out multiple insurance policies that they would fail (getting paid 100:1 on each of those bets), that's where the real money was to be made. Eventually, the highest risk mortgages were repackaged as collateralized debt obligations (CDOs) vouched for by large Wall Street firms thus earning totally unjustified AAA bond ratings. The total amount of subprime mortgages written soon rose to $2 trillion. The total value of the CDSs written against CDOs rose to $65 trillion. That's right: $65 trillion of insurance against $2 trillion worth of high-risk mortgages. Those who profited the most sought out the worst of the worst mortgages to bet against. One big winner was a hedge fund manager named John Paulson. In 2006, Paulson convinced Goldman Sachs and Deutsche Bank to create extremely high-risk CDOs and sell them to others, so both he and they could bet against them. Paulson picked the mortgages. He made $15 billion. His friend George Soros (who later said "I'm having a very good crisis") made $5 billion. Deutsche Bank made $25 billion doing this. Goldman Sachs made much, much more. In 2006, Goldman Sachs and Deutsche Bank underwrote 352 fraudulent mortgages in Sikeston, Mo. In 2009, Goldman Sachs paid Massachusetts $60 million to close an investigation into its role in creating "mortgages designed to fail at the inception." Since CDSs are totally unregulated, the companies offering the insurance had nowhere near the funds necessary to pay off when the real estate bubble burst. There were many sellers of CDSs, but AIG was the largest. By October 2008, AIG had written $2.7 trillion worth of CDSs, and it couldn't pay. Congress bailed out AIG with $180 billion of taxpayer money so it could pay off these bets. Taxpayer money ended up in the pockets of Goldman Sachs and Deutsche Bank because they bought CDS side-bets from AIG against the very CDOs they created. Indifference? Corruption? To date -- either as a sign of incompetence, indifference or corruption -- Congress has done nothing since writing bailout checks in 2008. Each and every law that allowed this to happen is still on the books. When Illinois Sen. Dick Durbin said of Congress, "The big banks own this place," it may have been more than hyperbole. This is not a conservative versus liberal issue. It's not a Republican versus Democrat issue (we are one of each). This is not populism. It's a matter of right and wrong. We hope the Massachusetts message of outrage will be repeated from all over the country, but on this specific issue we hope it will read: "It's the credit default swaps, stupid!" semissourian.com Jim Message 26289327

To: mishedlo who wrote (107623)	2/1/2010 2:36:19 AM
From: Proud Deplorable	5 Recommendations Read Replies (4) \| Respond to of 116555

Mish, this would make a great piece for you Vancouver's Olympics head for disaster Two weeks before the games and with police officers on every corner, Vancouver is far from an Olympic wonderland guardian.co.uk It's now two weeks until the start of the Vancouver 2010 Winter Olympic games, a city-defining event that is a decade in the making. But a decade is a very long time. Much of what seemed sensible in the early 2000s has proven to be the opposite: for instance, allowing investment bankers to pursue profits willy-nilly was acceptable when Vancouver won the bid in 2003, but is now viewed as idiotic. So it comes as no surprise that just days before the opening ceremony, Vancouver is gripped by dread. Not the typical attitude for a host city, but understandable when you consider that everything that could go wrong, is in the process of going wrong. Vancouver has been continually ranked as the world's most livable city. An Olympic sized-dose of gentrification would only serve to speed up Vancouver's transformation from a livable yet expensive city into a glitzy hotel for international capital. But these neoliberal dreams are now little more than fantasy. In the mid-2000s the games were originally slated to cost a pittance of $660m and bring in a profit of $10bn. This ludicrous projection was made before the market crash – an event that the Vancouver's Olympic committee failed to anticipate. "The Bailout Games" have already been labelled a staggering financial disaster. While the complete costs are still unknown, the Vancouver and British Columbian governments have hinted at what's to come by cancelling 24,000 surgeries, laying off 233 government employees, 800 teachers and recommending the closure of 14 schools. It might be enough to make one cynical, but luckily every inch of the city is now coated with advertisements that feature smiley people enjoying the products of the event's gracious sponsors. Conservative estimates now speculate that the games will cost upwards of $6bn, with little chance of a return. This titanic act of fiscal malfeasance includes a security force that was originally budgeted at $175m, but has since inflated to $900m. With more than 15,000 members, it's the largest military presence seen in western Canada since the end of the second world war, an appropriate measure only if one imagines al-Qaida are set to descend from the slopes on C2-strapped snowboards. With a police officer on every corner and military helicopters buzzing overhead, Vancouver looks more like post-war Berlin than an Olympic wonderland. Whole sections of the city are off-limits, scores of roads have been shut down, small businesses have been told to close shop and citizens have been instructed to either leave the city or stay indoors to make way for the projected influx of 300,000 visitors. Vancouver's Olympic committee has also assumed the role of logo police. Librarians are being commanded to feed McDonald's to children while unauthorised brands have been banned from Olympic venues. Worse yet, they've begun to casually slip clips from Leni Riefenstahl films into their Coldplay-soundtracked promotional videos. This manic mix of hype and gloom is a byproduct of the games' utter pointlessness. For those who have been planning their resistance since 2003, Vancouver is about to become the world's premier political stage. It will be the best chance yet for the Olympics to be derailed and exposed as what they are: a corrupt relic of the 20th century that does little more than gut city coffers and line the pockets of developers and investors. If things go pear-shaped and Vancouverites resort to their riotious ways, at least the city will get its money's worth out of that bloated security force and the ensuing spectacle will boost NBC's slumping ratings. After all, the Olympics are primarily a patriotic event, and in the words of the late Howard Zinn, "Dissent is the highest form of patriotism"

To: mishedlo who wrote (107623)	2/1/2010 10:22:09 AM
From: Jim McMannis	1 Recommendation Respond to of 116555

USA will not recover "real" manufacturing until the cost of labor drops. Had our chance with the autos but O threw it to the unions. The other problem is the government guarantee of pensions.