Tuesday, May 3, 2011

Today's links

1--Springtime for bankers, Paul Krugman, New York Times via Economists View

Excerpt: Last year Congressional Democrats enacted a financial reform bill that ... extended regulation in a number of ways: consumer protection, higher capital standards..., greater transparency for complex financial instruments. And it created new powers — “resolution authority” — to help officials drive a harder bargain in future crises....

But Republicans are trying to undermine the whole thing.

Back in February G.O.P. legislators admitted frankly that they were trying to cripple financial reform by cutting off funding. And the recent House budget proposal, which calls for privatizing and voucherizing Medicare, also calls for eliminating resolution authority, in effect setting things up so that the bankers will get as good a deal in the next crisis as they got in 2008. ...

And one more thing: by standing in the way of regulations that would limit future financial crises, Republicans are giving further evidence that they don’t really care about budget deficits.

For our current deficit is overwhelmingly the result of the 2008 financial crisis, which devastated revenue and increased the cost of programs like unemployment insurance.

2--Sleepwalking through America’s Unemployment Crisis, Mohamed A. El-Erian, Project Syndicate

Excerpt: Let us start with the facts:

· At 8.8% almost three years after the onset of the global financial crisis, America’s unemployment rate remains stubbornly (and unusually) high;

· Rather than reflecting job creation, much of the improvement in recent months (from 9.8% in November last year) is due to workers exiting the labor force, thus driving workforce participation to a multi-year low of 64.2%;

· If part-time workers eager to work full time are included, almost one in six workers in America are either under- or unemployed;

· More than six million workers have been unemployed for more than six months, and four million for over a year;

· Unemployment among 16-19 year olds is at a staggering 24%;

· With virtually no earned income and dwindling savings, the unemployed are least able to manage the current surge in gasoline and food prices, they are effectively shut off from credit, and many have mortgage debt that exceed the value of their homes......

Left to its own devices, America’s unemployment problem will deepen. This will widen the already-large gap between the country’s haves and have-nots. It will undermine labor’s skills and productivity. It will accentuate the burden imposed on the gradually declining number of people who remain in the labor force and have jobs. And it will make it even harder to find a medium-term solution to America’s worsening public-debt and deficit dynamics.

3--It’s Not Listed. But It’s Definitely for Sale., New York Times

Excerpt: Ms Ball is one of a small group of owners, who, often working closely with brokers they know from past deals, try to avoid the hassle of showing their homes by letting it be known that for the right price, they would be ready to move on. For Ms. Ball, the right price is anywhere from $3.5 million to $4 million.

Among brokers, such a transaction — in which a seller informally engages a broker but doesn’t sign a contract — is referred to as a “pocket deal.” If the broker finds a buyer, he or she will be paid a commission, but there will be no online listings, open houses or advertising of the property.

What the seller wants from the arrangement is a buyer who can meet the asking price, ideally in cash, and be ready to act quickly. Brokers say these deals — happening all across Manhattan, on multimillion-dollar Park Avenue co-ops as well as chic TriBeCa lofts — are interesting more sellers these days.

There are many reasons a seller might take the pocket-deal route. Some are afraid that if they list the apartment and it does not sell for weeks or even months, it will be considered tarnished. Others fear that with buyers expecting bargains, they will be besieged with low-ball offers. Some do not want to keep their homes primped and primed for constant showings. Still others know that potential buyers often fail to get financing at the last minute, thus wasting months.

4--'Israeli jets prepare in Iraq to strike Iran, Press TV

Excerpt: Israeli jet fighters have reportedly conducted drills at a military base in Iraq in order to strike targets inside Iran.

A considerable number of Israeli warplanes were seen at al-Asad base in Iraq, reported a source close to prominent Iraqi cleric Muqtada al-Sader's group.
The aircraft reportedly included F-15, F-16, F-18, F-22, and KC-10 jet fighters.
The warplanes carried out their week-long exercises at nights, the same source added.

The drills were reportedly aimed at preparing to strike Iran's air defense systems, disrupt Iran's radars and attack targets deep inside Iran. Iraqi officials had not been notified of the exercises, which were conducted in collaboration with the US military.

5--Financial Martial Law in Michigan, Businessweek

Excerpt: Rick Snyder, a former technology executive and venture capitalist, campaigned for governor of Michigan as a moderate Republican not in thrall to Tea Party politicking. He called himself "one tough nerd." He appointed another nerd, Democrat Andy Dillon, the former speaker of the Michigan House of Representatives and a former corporate turnaround expert, as treasurer. In their four months in office, they have overseen the passage of a law that's as radical an experiment as any in the country. It dramatically speeds up the process by which financially troubled cities, towns, and school districts can be taken over by state-appointed emergency managers.

The law gives those managers—often former politicians or civil servants—broad and controversial powers, including the authority to void union contracts and remove elected officials. It has also given other outsiders, namely private consultants and restructuring experts, an opportunity to do to distressed places what they've done to distressed companies. "Ninety percent of the law is an early warning system," says Representative Al Pscholka, who sponsored it. "The fundamental point is that if the municipality had made the hard choices there would be no need for an emergency manager."

Michigan is the perfect petri dish for experimental cures in crisis management. Michigan State University economist Eric Scorsone says half the state's communities are under financial stress; unemployment has been above 10 percent for the past three years; of nearly 5 million taxpayers, 200,000 are in arrears; and it's the only state to experience a decline in population since 2000. Still, when the Michigan legislature passed Public Act 4 on Mar. 15, protesters were outside the Capitol in Lansing waving signs that read "Privatize Snyder" and "Recall the Ricktator."

6--Treasury Blocks Regulation Of Market That Sparked $5.4 Trillion Fed Bailout, Zach Carter, Huffington Post

Excerpt: The Treasury Department plans to exempt foreign exchange derivatives from new Wall Street reform regulations, a Treasury official said Friday, dismissing concerns that the market prompted $5.4 trillion of emergency support from the Federal Reserve in late 2008.

Assistant Secretary for Financial Markets Mary Miller told reporters on Friday that the foreign exchange market already functions effectively and would not benefit from new rules. Subjecting the market to new rules, she claimed, would introduce a new and unnecessary “process” into “a very well-functioning market.”

But a 2009 study by Naohiko Baba and Frank Packer of the Bank for International Settlements concluded that there were major "dislocations” in the foreign exchange market in the aftermath of the Lehman Brothers bankruptcy -- problems that were only resolved after the Fed pumped money into foreign central banks in order to ensure that global banks had access to dollars.

“After the bankruptcy of Lehman Brothers, the turmoil in many markets became much more pronounced,” wrote Baba and Packer. “In FX and money markets, what had principally been a dollar liquidity problem for European financial institutions deepened into a phenomenon of global dollar shortage.”

7--Obama's lax dollar is to blame for oil's spike, not bankers, Gary White - Telegraph

Excerpt: The US has continued to devalue its currency by allowing the Federal Reserve to print dollars like they are going out of fashion. This has boosted the price of all commodities – and the trend is likely to continue for the rest of this year.

Commodities such as oil are priced in dollars. When the dollar falls, these commodities – be they copper, wheat or oil – become cheaper in other currencies. This prompts "speculators" to buy. Prices of raw materials have therefore risen on a sea of dollar liquidity – fuelled by cheap money and quantitative easing.

This is the reason that the gold price keeps hitting all-time highs, as US policy causes faith in "fiat money" to crumble. No country in the world has its currency backed by gold – and the plan to spend America out of the downturn is making a mockery of the country's "strong dollar" policy.

The President must also remember that it's not only "evil" bankers who are involved in the oil derivatives markets – airlines and other large consumers have to hedge their businesses against fluctuations in prices. Oil companies also use derivatives to hedge positions. The proportion of speculators in the market is really quite small – it's just that they are an easy target for politicians wishing to deflect opinion away from their own shortcomings.

"Speculation only makes up a small portion of the market," according to Andrew Moorfield, Global Head of Oil & Gas at Lloyds Banking Group Corporate Markets.

8--America's reckless money-printing could put the world back into crisis, Liam Halligan - Telegraph

Excerpt: Last week, Ben Bernanke suggested that the US base interest rate will stay close to zero for an "extended period". It's been there since December 2008. Traders took these words to mean that the Federal Reserve won't hike rates until the first few months of 2012 at the earliest.

Bernanke also pledged to do whatever is required to keep America's economic recovery on track – confirming that the second programme of "quantitative easing", or QE2, would be completed. These two related announcements – the "reprieve" and the "sugar rush" – sent Wall Street into renewed spasms of synthetic joy.

In the real world, US growth is slowing sharply. Annualized GDP rose just 1.8pc during the first three months of 2011, down from 3.1pc the quarter before. America remains mired in sovereign, commercial and household debt. Yet as the Fed chairman spoke, US stocks hit their highest level since before the sub-prime crisis. The tech-heavy Nasdaq, incredibly, closed at a 10-year peak. So the Fed will keep on "printing" virtual money – at least for now. By the end of June, it will have purchased $600bn (£363bn) of longer-term Treasuries, with the US government effectively buying its own debt from funds created ex nihilo. That's on top of the original $1,750bn (£1,048bn) QE scheme, launched in late 2008.

America's base money supply – the bedrock of the world's reserve currency – has doubled in little more than two years. Despite consternation among many US voters, and dismay – rapidly turning to anger – across the world, most of America's political elite refuse even to debate QE. Such is the state of democracy in the "land of the free and the home of the brave". And America is not alone.

9--Libya: Son of Gaddafi Killed in NATO Strike, Preschool for Down Syndrome Children Bombed, Democracy Now

Excerpt: In news from Libya, NATO forces bombed Col. Muammar Gaddafi’s compound on Saturday, killing his 29-year-old son Saif al-Arab and three of his grandchildren, all of whom were under the age of 12. Gaddafi was reportedly inside the compound at the time of the attack.

Democratic Rep. Dennis Kucinich of Ohio condemned the NATO attack, saying, “NATO’s leaders have blood on their hands. NATO’s air strike seems to have been intended to carry out an illegal policy of assassination."

Another NATO air strike damaged a Libyan preschool for children with Down syndrome and two government buildings. Hours after the attack, backers of the Libyan government set fire to the vacant British and Italian embassies in Tripoli as well as the U.S. commercial and consular affairs department.

Following the fires, the United Nations evacuated its international staff from Tripoli. Meanwhile, the Libyan city of Misurata remains under siege. There are reports that Gaddafi has ordered Libyan naval vessels to mine Misurata harbor and has threatened to attack any ships that brought food or medicine to the residents of the besieged city.

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