more than I can say

[solarbird]

Good afternoon. Look for trillion dollar annual US deficits for the next 10 years, says the CBO. Last Friday was a busy day for the FDIC, shutting down three banks and two corporate credit unions. Commercial real estate prices fell 5.5% in January. The jump in existing home sales is more indicative of foreclosures moving upmarket than returning health. (More on that here, at Calculated Risk.)

Both the UN and a Russo-Chinese consortum want to ditch the US dollar as a reserve currency. The Fed's plan to buy treasuries now includes the 30-year. This is still an extremely bad thing. Buying starts tomorrow. See if you can spot when the announcement hit the floor in these charts. C'mon, guess. (Charts good only for today, Tuesday, 24 March 2009.)

Matt Taibbi at Rolling Stone discusses the regulatory capture of the US government by the financial system:

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity....

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

It's long, but a pretty good article, you should check it out.

A few reactions to Geithner's plan for bad bank assets: Mish at Global Economic Analysis doesn't like it, saying that the "Government has agreed to finance 93% of the loan, and it is a no recourse loan. This provision is in place for one reason only: To insure that investors overpay for bad bank assets, at taxpayer expense." Paul Krugman and James Galbraith are both displeased, with similar commentary from Mr. Galbraith. Karl Denninger has severe reservations, but does not hate it, and thinks with the right tight restrictions, it could work. Here's the kind of looting hook he wants not to be in the actual implementation. Joseph Mason at RGE Monitor this it's a good start, but "not a 'toxic' asset program, per se, but really just an asset program" and he wants to see it expanded.

All I have time for right now; everything else is music. Good luck.

eta: who puts quotes in URLs? Seriously, wtf?

Comments

[silussa.livejournal.com]

When I heard about the Fed plans to buy long-term government bonds, I started looking at options for defense against inflation....between the CBO estimates and the Fed trying to fight the market (the Fed does NOT always win), it's almost a given what a mess is coming.

The future portends

[pierres.livejournal.com]

Dara, I love reading your posts on the economy since I'm rather unfamiliar with the machinations of the economy. But ultimately, I'm always left with the question, "What does this really mean long term?"

So let me ask you a question. How do you think the average American's life will be different 5, 10, and 20 years from now due to the economic decisions that we've made for the past two decades?

P

Re: The future portends

[solarbird]

Well. In 20 years this is either over, or oil production collapsed and replacement has been... shall we say... iffy. In which case we'll all be starting by then to get used to a new, low-energy normal. But leaving that aside, this will have been dealt with in one way or another by then, possibly via a big ol' war. (When Mr. Obama talks about Mr. Lincoln, people react to that as talking about race and history. And that's fair. But I don't make quite the same assumption. Oh, sure, he's talking about that, but I also think he's maybe talking about something else.) Regardless, I don't think this can stagger on for 20 years.

In shorter timeframes, it's all going to depend upon really, really big questions. Will the bond market say "no"? It could. If it does, the US is just fucked - even going to a balanced budget would leave the interest on current debt at something like 40% of tax revenues, and even that's assuming tax revenues don't fall more than, aheh, expected. So then you're looking at big tax hikes - a VAT is already being floated in various think-tanks - and budget impacts of scale. I think it's far more likely there'll be monetisation of that debt instead, which is currently being priced (on CDS-style markets) at around a 10% probability.

If it doesn't say no, then until the bad debt is flushed out and actual confidence and transparency is restored, you're looking at a Japan-like scenario, I don't care what Foreign Affairs says - their "the US is different" article in the latest issue is full of the American Exceptionalist bullshit centred around blindness to reality in favour of the usual mythos of better government behaviour, which is so far simply not justifiable on the ground now or in recent history.

Regardless, though, I think the energy situation trumps everything else. I don't like what oil is doing these last couple of months. I really don't.

[whip-lash.livejournal.com]

Matt Taibbi at Rolling Stone discusses the regulatory capture of the US government by the financial system

It kills me how peopl project their politics onto the blank slate of the financial crisis. My libertarian friends are all convinced that there's been a socialist conspiracy among the bureaucrats since the 90s to prolong the artifical boom with monetary easing, then use the inevitable crash as an excuse to nationalize the banks which are naturally all innocent victims of being involuntarily flooded with money and told to lend it to minorities, or somesuch.

Me, I think most people are ascribing to malice what can adequately be explained by stupidity on the part of all concerned, public and private sector.

[solarbird]

I am a libertarian (small l, libertarian-left) and I personally haven't seen a lot of that in my circles. I'm not even seeing that in Republican circles - tho' I am seeing a lot of attempts to blame everything on Mr. Obama, of course.