Thursday, January 24, 2013

Today's links

1--Joseph Stiglitz video Davos, Bloomberg (great)

2--Financial Crisis Suit Suggests Bad Behavior at Morgan Stanley, propublica

On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members’ suggestions: “Subprime Meltdown,” “Hitman,” “Nuclear Holocaust” and “Mike Tyson’s Punchout,” as well a simple yet direct reference to a bag of excrement.
Ha ha. Those hilarious investment bankers.
Then they gave it its real name and sold it to a Chinese bank....

While investors and taxpayers all over the world continue to choke on Wall Street’s toxic subprime products, to this day not a single major Wall Street executive has been held accountable for misconduct relating to those products,” said Jason C. Davis, a lawyer at Robbins Geller who is representing the plaintiff in the lawsuit. “They are generally untouchable, but we are pleased that the court in this case is ordering Morgan Stanley to turn over damning evidence, so that the jury will get to see what Morgan Stanley really knew about the troubled nature of its supposedly ‘higher-than-AAA’ quality product.”...

In one e-mail from Oct. 21, 2005, a Morgan Stanley employee warned a banker that the mortgages Morgan Stanley was buying from loan originators were troubled. “The real issue is that the loan requests do not make sense,” he wrote. As an example, he cited “a borrower that makes $12K a month as an operation manger (sic) of an unknown company — after research on my part I reveal it is a tarot reading house. Compound these issues with the fact that we are seeing what I would call a lot of this type of profile.”

3---Rising House Prices, Not Stocks, Make People Feel Wealthy, WSJ

To that end, the Federal Reserve is pursing a policy course deliberately aimed at driving up all manner of asset prices in hopes its actions will boost household spending to power better overall growth.

In the paper, the economists update their decade-old work, drawing on a wider and more up-to-date set of data ranging from 1975 to the second quarter of 2012. The broader information changes and clarifies what was once thought about the wealth effect’s influence.

There is “at best weak evidence of a link between stock market wealth and consumption,” the economists wrote. “In contrast, we do find strong evidence that variations in housing market wealth have important effects upon consumption,” they said.

“An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%,” the paper stated. Meanwhile, “a decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%.”

This finding upends the old understanding that housing gains tended to push spending higher by a wider margin that home price declines depressed spending, the economists wrote.

4--Money Cannot Buy Growth, Andy Xie, Big Picture

The combination led to Greenspan’s monetary policy and financial supervision at the Fed for nearly two decades. He created possibly the greatest man-made economic catastrophe in human history. The world still lives under his shadow.

The real world has turned to be opposite to the favored positions of the economics profession: the financial market is not only inefficient but systematically bubble-prone, and monetary stimulus has abetted in bubble creation and its growth impact is merely the bubble spillover. Greenspan managed the U.S. economy largely through building up asset bubbles, even though he may have believed otherwise. As the U.S. dollar is the reserve currency for the global economy, Greenspan’s policy was responsible for bubbles around the world.

Is Bernanke Greenspan II?

When the subprime crisis hit in 2007, the Bernanke Fed cut interest rates to ease the pressure. The policy triggered a massive increase in commodity prices, which depressed the U.S. and other developed economies and increased the pressure for the debt bubbles to burst. By mid-2008, it became apparent that the U.S.’s financial system was bankrupt because its underlying assets were hugely overpriced. The Fed turned its focus to saving the financial system through direct loans and cutting interest rates aggressively to ease the pressure on asset deflation. It has been successful at saving the financial system. Of course, a central bank can always print money to save its financial system, if it doesn’t mind depreciating its currency. The unique status of the dollar as the sole global reserve currency gave the Fed plenty of room to increase money supply

5---.Russia to US: We told you not to topple Qaddafi, Info clearinghouse

6---Hamptons Average Home Price Hits Record on Luxury Surge, Bloomberg

7---It's Official: Worst. Recovery. EVER, zero hedge

8---Gallup Poll: Americans Most Negative On the Nation And Economy In 30 Years, zero hedge

PRINCETON, NJ — U.S. President Barack Obama begins his second term at a time when Americans are as negative about the state of the country and its prospects going forward as they have been in more than three decades. Fewer than four in 10 Americans (39%) rate the current status of the U.S. at the positive end of a zero to 10 scale. This is about the same as in 2010, but it is fewer than have said so at any point since 1979. As they usually are, Americans are more upbeat in their predictions of where the U.S. will be in five years (48% positive), but this is also lower than at any time since 1979.

 The 39% of Americans who give a six to 10 rating when asked to evaluate the nation’s current status is similar to the 37% who said the same three years ago. Prior to that, however, assessments were generally more positive, including a 73% six to 10 rating in January 2001 — the highest on record. The three previous points in time when ratings were as low as or lower than the 2013 rating were in August 1979 (34%), April 1974 (33%), and January 1971 (39%). The 1979 measure came at a time when the economy was in bad shape and inflation was rampant, while the 1974 measure came in the midst of the Watergate scandal. When Gallup first asked the question in August 1959, 68% of Americans rated the state of the nation in the six to 10 range.

9---The looming currency war, Reuters

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