Wednesday, July 4, 2012

Today's Links

1--European crisis sets off slide to global slump, WSWS

The latest trends in the world economy confirm the analysis made by the World Socialist Web Site that global capitalism is not experiencing a downturn from which there will be a “recovery,” but has entered a breakdown.

In this situation, nothing is of greater political importance for the ruling classes than the maintenance of the poisonous fiction that there is some alternative to mass unemployment and depression if only the right policies are adopted. This is the significance of “A Manifesto for Economic Sense” issued by New York Times columnist and leading Keynesian economist Paul Krugman and published in the Financial Times last week.

According to Krugman, the “world’s advanced economies remain deeply depressed in a scene all too reminiscent of the 1930s”. The reason for this terrible state of affairs is that the wrong policies of that decade are being employed again. “As a result of their mistaken ideas,” Krugman writes, “many western policy makers are inflicting massive suffering on their peoples.”

This is an economic version of the “bad man” theory of history always employed by the ideologists of the ruling elite whenever the historic crises and contradictions of the capitalist system, which they defend, threaten to plunge mankind into a catastrophe.

The idea that the world economy could be rescued if only governments and the financial powers-that-be would listen to the wise counsel of Mr. Krugman is quickly refuted if we consider what would happen if his proposals were adopted.

Any reversion to real stimulus spending measures—not bank bailouts—in the US or in another advanced capitalist economy would see the immediate eruption of a currency and financial crisis, leading to further mass unemployment and a deepening of the attacks on the working class. In the 1930s, the Roosevelt “New Deal” did not bring about a “recovery”—that began only with the outbreak of World War II. But today, even Roosevelt’s limited economic experiments are ruled out because of the historic decline in the global economic position of the United States.

2--Libor manipulation scandal engulfs 16 top banks, WSWS
The Libor scandal, thus far focused on British-based Barclays bank, has revealed that global capitalism functions not as a free market, but as a rigged market controlled by contending groups of corporations, cartels and multi-billionaire speculators....

A legal case in the United States is seeking damages of £70 billion ($110 billion) from Barclays and almost £80 billion ($126 billion) from the UK government-owned Royal Bank of Scotland (RBS)—figures far in excess of the banks’ market valuations.

This alone would make it the financial crime of the century. Yet after investigations going back to 2007 in at least three countries, no one has been prosecuted. Instead, those responsible have earned millions upon millions...

Far more than a few dozen traders are involved. The 16 banks cited in the class action taken by the City of Baltimore, Charles Schwab Corp. and others include Barclays, RBS, HSBC, Bank of America, Citigroup, JPMorgan Chase, UBS and Deutsche Bank

3--What if Barclays hadn’t lowered Libor submissions?, IFR

What if Barclays hadn’t lowered Libor submissions? The bank certainly reduced its vulnerability by submitting lower rates in the midst of the crisis. But what would honesty have cost? Would Barclays have secured funds from Middle East investors, avoided nationalisation and protected its bosses’ bonuses? No one knows, but the timeline is suggestive.
4--Arafat's widow calls to exhume his body ---A nine-month investigation suggests that the late Palestinian leader may have been poisoned with polonium, Aljazeera
5--Disposable income, consumer sentiment, consumer spending, The Big Picture (all bleak)
6--Dark economic clouds gather anew over Obama campaign, Reuters

After a month in which his re-election campaign picked up momentum, hard economic realities are about to hit President Barack Obama as he takes to the road on a campaign bus trip through the Rust Belt.

Poor manufacturing data earlier this week followed by a likely weak jobless report on Friday are reminding Obama that he has a lot of work to do to convince voters he is bringing the economy back to full health....
"I think the debate on Friday will be whether the economy is still growing or whether we've hit a brick wall," he said.

7--The euro's latest reprieve, Joseph Stiglitz, Project Syndicate

What is now proposed is recapitalization of the European Investment Bank, part of a growth package of some $150 billion. But politicians are good at repackaging, and, by some accounts, the new money is a small fraction of that amount, and even that will not get into the system immediately. In short: the remedies – far too little and too late – are based on a misdiagnosis of the problem and flawed economics.

The hope is that markets will reward virtue, which is definedas austerity. But markets are more pragmatic: if, as is almost surely the case, austerity weakens economic growth, and thus undermines the capacity to service debt, interest rates will not fall. In fact, investment will decline – a vicious downward spiral on which Greece and Spain have already embarked.

Germany seems surprised by this. Like medieval blood-letters, the country’s leaders refuse to see that the medicine does not work, and insist on more of it – until the patient finally dies....

Matters are worse in the banking sector. Each country’s banking system is backed by its own government; if the government’s ability to support the banks erodes, so will confidence in the banks. Even well-managed banking systems would face problems in an economic downturn of Greek and Spanish magnitude; with the collapse of Spain’s real-estate bubble, its banks are even more at risk.

In their enthusiasm for creating a “single market,” European leaders did not recognize that governments provide an implicit subsidy to their banking systems. It is confidence that if trouble arises the government will support the banks that gives confidence in the banks; and, when some governments are in a much stronger position than others, the implicit subsidy is larger for those countries

8--Numbers Tell of Failure in Drug War, NY Times

9--Demand for gasoline is at 2002 levels, Mish

10--Keith Jurow: House prices in New England crashing, OC Housing

...One of the most astounding revelations that came from his research is how much larger the shadow inventory is than is widely reported. Lenders don’t have to file a Notice of Default when a borrower becomes delinquent on their payments. They have the right to do so, and prior to the housing bust, they always did as quickly as possible to begin the foreclosure proceedings and get their money back. However, as the housing bust worsened, lenders began delaying their NOD filings because they already had more than they wanted to process because the foreclosures were hurting house prices. The borrowers who were delinquent but not yet served notice became shadow inventory.

CoreLogic is the most widely reported measure of shadow inventory, but they rely on lenders to voluntarily report their delinquencies. Lenders are under no obligation to report, and no obligation to tell the truth if they do. However, the State of New York requires lenders to notify the state and the borrower when they become delinquent that they may be subject to a foreclosure. It’s like a pre-notice prior to the actual Notice of Default. In New York, the shadow inventory is visible to those who know where to look for it. These numbers used to be published, but for some unknown reason (likely industry pressure), these numbers have not been published for quite some time. The data is public information, and Keith Jurow found the bureaucrat responsible for tallying this information and obtained it. The numbers in New York are astonishingly large. Keith’s outlook on prices in New England is rightfully bleak.

From Business insider

In November 2011, posted my 30-page New York City Housing Market Report. The report included never-seen-before charts, graphs and data that revealed what has been going on there. The banks have not been foreclosing for the past three years. This started well before the robo-signing mess. On February 7, 2012 there were a total of only 242 repossessed properties on the active MLS in Queens according to This is a borough with a population of 2.2 million.

Because of this, the number of seriously delinquent properties throughout NYC has been soaring. Based on individual charts for each borough from the NY Federal Reserve Bank which I included in my report, there were roughly 80,000 properties where the mortgage had not been paid in more than 90 days as of June 2011.

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