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Karadzic Arrested in Serbia

UK: Plan Would Allow Banks to Seek Emergency Funding in Secret

Record Decline in U.S. Home Prices in May From a Year Ago

Thumbs up to the Cryptogon creator for an great News Coverage !!

via Cryptogon

Wachovia Has Record $8.9 Billion Loss
July 22nd, 2008

WARNING: This is not a recommendation to buy, sell or hold any financial instrument.

If Wachovia goes down, it would wipe out FDIC liquidity about 16 times over. That calculation is based on the following numbers: Wachovia’s assets, $808 billion, divided by $49 billion, which is roughly what the FDIC may or may not have on hand.

Do you still keep money in a U.S. bank account? Yeah, me too. I have about $89 in mine. * hint *

Via Bloomberg:

Wachovia Corp., the U.S. bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock fell as much as 12 percent in early New York trading.

The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss included a $6.1 billion charge tied to declining asset values.

The writedown, job cuts and second dividend reduction in three months reflect Steel’s response to the worst housing market since the Great Depression, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent in New York Stock Exchange composite trading since it spent $24 billion two years ago to buy Golden West Financial Corp. just as home prices were peaking.

Via The Wall Street Journal

Through history, outrageous financial behavior has been met with outrage. But today Wall Street’s damaging recklessness has been met with near-silence, from a too-tolerant populace, argues James Grant

“Raise less corn and more hell,” Mary Elizabeth Lease harangued Kansas farmers during America’s Populist era, but no such voice cries out today. America’s 21st-century financial victims make no protest against the Federal Reserve’s policy of showering dollars on the people who would seem to need them least.

Long ago and far away, a brilliant man of letters floated an idea. To stop a financial panic cold, he proposed, a central bank should lend freely, though at a high rate of interest. Nonsense, countered a certain hard-headed commercial banker. Such a policy would only instigate more crises by egging on lenders and borrowers to take more risks. The commercial banker wrote clumsily, the man of letters fluently. It was no contest.

The doctrine of activist central banking owes much to its progenitor, the Victorian genius Walter Bagehot. But Bagehot might not recognize his own idea in practice today. Late in the spring of 2007, American banks paid an average of 4.35% on three-month certificates of deposit. Then came the mortgage mess, and the Fed’s crash program of interest-rate therapy. Today, a three-month CD yields just 2.65%, or little more than half the measured rate of inflation. It wasn’t the nation’s small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as “triple-A.” Yet it’s the savers who took a pay cut — and the savers who, today, in the heat of a presidential election year, are holding their tongues.

Possibly, there aren’t enough thrifty voters in the 50 states to constitute a respectable quorum. But what about the rest of us, the uncounted improvident? Have we, too, not suffered at the hands of what used to be called The Interests? Have the stewards of other people’s money not made a hash of high finance? Did they not enrich themselves in boom times, only to pass the cup to us, the taxpayers, in the bust? Where is the people’s wrath?

Read Full Article

via Telegraph.co.uk

It feels like the summer of 1931. The world’s two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a “chance of a global recession”. Plainly, the IMF cannot or will not offer any useful insights.

Its “mean-reversion” model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True “mean-reversion” would imply debt deflation on such a scale that would, if abrupt, threaten democracy.

The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.

The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc.

The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch.

No doubt the rescue of Fannie Mae and Freddie Mac - $5.3 trillion pillars of America’s mortgage market - stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists.

Read full article

via International Herald Tribune

Is America too big to fail?

In the narrative that has governed American commercial life for the last quarter-century, saving companies from their own mistakes was not supposed to be part of the government’s job description. Economic policymakers in the United States took swaggering pride in the cutthroat but lucrative form of capitalism that was supposedly indigenous to their frontier nation.

Through this uniquely American lens, saving businesses from collapse was the sort of thing that happened on other shores, where sentimental commitments to social welfare trumped sharp-edged competition. Weak-kneed European and Asian leaders were too frightened to endure the animal instincts of a real market, the story went. So they intervened time and again, using government largess to lift inefficient firms to safety, sparing jobs and limiting pain but keeping their economies from reaching full potential.

There have been recent interventions in America, of course - the taxpayer-backed bailout of Chrysler in 1979, and the savings and loan rescue of 1989. But the first happened under Jimmy Carter, a year before Americans embraced Ronald Reagan and his passion for unfettered markets. And the second was under George H.W. Bush, who did not share that passion.

So it made for a strange spectacle last weekend as the current Bush administration, which does cast itself in the Reagan mold, hastily prepared a bailout package to offer the government-sponsored mortgage companies, Fannie Mae and Freddie Mac. The reasoning behind this rescue effort - like the reasoning behind the government-induced takeover of Bear Stearns by JPMorgan Chase just a month before - sounded no different from that offered in defense of many a bailout in Japan and Europe:

The mortgage giants were too big to be allowed to fail.

…

The central banks of China and Japan are on the hook for hundreds of billions of dollars worth of Fannie’s and Freddie’s bonds - debts they took on assuming that the two companies enjoyed the backing of the American government, argues Brad Setser, an economist at the Council on Foreign Relations.

Commercial banks from South Korea to Sweden hold investments linked to American mortgages. Their losses would mount if American homeowners suddenly couldn’t borrow. The global financial system could find itself short of capital and paralyzed by fear, hobbling economic growth in many lands.

Nobody with a meaningful office in Washington was in the mood for any of that, so the rescue nets were readied. The U.S. Treasury secretary, Henry Paulson Jr., announced that the government was willing to use taxpayer funds to buy shares in Fannie and Freddie. The chairman of the Federal Reserve, Ben Bernanke, said the central bank would lend them money.

The details were up in the air as the week ended, but some sort of bailout offer was on the table - one that could ultimately cost hundreds of billions of dollars. Whatever the dent to national bravado, or to the free-enterprise ideology, the phrase “too big to fail” suddenly carried an American accent.

Read Full Article

Economic Horror Movie in Britain and Eurozone

Via Mish’s Global Economic Trend Analysis

Things are rapidly deteriorating In the US, UK, and the Eurozone. Let’s take a look a couple top stories starting with Hundreds of thousands face job loss in UK, says top economist.Britain’s economy is tipping headlong into a recession that could last more than a year and cost hundreds of thousands of jobs, warns Professor David Blanchflower, a member of the Bank of England’s interest rate committee, in an interview with the Guardian today.

Blanchflower says the Bank must cut interest rates rapidly to prevent the downturn being too painful, and thinks the UK could be in for a worse time than even the United States, where interest rates have already been slashed and taxes cut to stimulate the economy.

The economist said the recent rises in unemployment are “the tip of the iceberg”. The number of people out of work and claiming benefit is 840,000 but the broader measure of unemployment is 1.6 million, 5.2% of the workforce. Blanchflower said it could climb to more than 7% - a figure that would mean several hundred thousand people losing their jobs.

His warning comes days after the chancellor acknowledged that the slowdown could be “profound” and hinted he would change the Treasury’s fiscal rules as the slowing economy looks set to bust them.

Today a leading thinktank, the Ernst & Young Item Club, says the economic outlook for Britain is like a “horror movie” as a result of the credit crunch and tumbling house prices.

Deflationary Hurricanes In US And UK

I agree Blanchflower having previously stated Deflationary Hurricanes to Hit U.S. and U.K. In fact, I believe the US is in deflation now.

However, Blanchflower is mistaken if he thinks lower rates are going to be some kind of magic bullet. One look at the US should be proof enough.

Ugly Picture In Eurozone

Ambrose Evans-Pritchard is writing European recession looms as Spain crumbles.
The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency.

Industrial production for the EMU bloc fell 1.9pc in May, according to fresh Eurostat data. It is the sharpest one-month decline for the region since the exchange rate crisis in 1992. Officials in Berlin have warned that Germany’s economy could contract by as much as 1.5pc in the second quarter as export orders crumble.

Industrial output in both Italy and Greece has slumped 6.6pc over the past year. Portugal is off 6.2pc. “It is a very ugly picture: we’re on maximum alert,” said Emma Marcegaglia, head of Italy’s business federation Confindustria.

Rome is now lobbying for a “New Deal” to revive Italy’s economy through massive infrastructure projects.

Jacques Cailloux, Europe economist at the Royal Bank of Scotland, said a “reverse decoupling” is now under way as Europe goes down harder than the US - just as it did after the dotcom bust. “There is loss of momentum across the board. We can’t exclude a recession,” he said.

Spain is now spiralling into the worst crisis since the Franco dictatorship. “The economy is in dire straits,” said Dominic Bryant, Spain expert at BNP Paribas.
The global economy has clearly peaked. Clearly the US, UK, and EU are not prepared for it. Is any country?

Mike “Mish” Shedlock

It seems I managed to get back to breakeven with the demonstration account (okay there are some negative open positions ,but this problem should be solved within the next week and End with about 8%+ IFmy plan works out).

It was an hard struggle..especially to loose around 25% in the first weeks ..but i kept it up and will add more gains in the future. I hope this shows anyone interested in trading that u should never judge your performance in days or weeks..u need months of trading ur strategy to see if it works or not..DON’T GIVE UP EARLY BECAUSE U HAD SOME BAD WEEKS as 75% of new traders do! This profession needs years of sweat & blood !

Here my favorite trading quote for such loosing streaks ->

“My centre is collapsing, my right is in retreat. Situation excellent: I attack!”

Marechal Foch, Battle of the Marne

And I KNOW i did not update anything yet on the empty blog pages ;)

Time will come for this!

Have a great weekend!

Analyzing my “watchlist” ( 4 posts ago) I was right on all of them besides aud/cad (which did not go anywhere)..even if i could only squeeze 60pips from the EUR/USD movement..but the longterm trend for gold and eur/usd are up so I am happy with what i got!

The Short squeeze in equitites especially Dow Jones and DAX over the last 4days was VERY tradeable ..gosh..i should start trading those sometime in the future..!

via TheBigPicture

Uh-oh, looks whose invited themselves over to stay for a while . . .

Tom Toles via Yahoo!

From time to time it is a good idea to read something about the basics of austrian economic thaught and this article explains very well why politicians cannot change economic law by fiat and are hindered the same way to circumvent it ,like people who try to defy the laws of gravity.

‘The War the Government Cannot Win
by Llewellyn H. Rockwell, Jr.
This talk was delivered at the Wisconsin Forum in Milwaukee on May 1, 2007.

Ludwig von Mises said that the great accomplishment of economists was to draw attention to the extreme limits on the power of government. His point was not merely that government should be limited, but that it is limited by the very structure of reality. It cannot make all people rich by its own initiative. It cannot provide universal housing, literacy, and health. It cannot raise wages across the board. It cannot ban products. Those who seek to accomplish economic ends such as these are choosing the wrong means. That is because there is something more powerful than government: namely economic law.
And what is economic law? It is a force that operates within the structure of all societies everywhere that governs the production and allocation of material resources and time according to strict bounds of what is possible. Some things are just not possible. It just so happens that this includes most of the demands that are made by the public and pressure groups on the government. This was the great discovery of the modern science of economics. This was not known by the ancients. It was not known by the fathers of the early church. It was the discovery of the medieval schoolmen, and the insight was gradually elaborated upon and systematized over the centuries, culminating in the classical and Austrian traditions of thought.
The power of government to do what we desire is strictly limited. Those who do not understand this point do not understand economics. And the economic teaching has a broader implication that concerns the organization of society itself. Government is not free to make and unmake society as it sees fit. It is not a tool we can use to fulfill our private dreams. Society is too complicated, too far reaching, too much a reflection of the free volition of individual actors, for government to be able to accomplish its ends. Most often, what government attempts to do – whether abolish poverty, end liquor consumption, or make all citizens literate and healthy – ends up backfiring and generating the exact opposite.
With this background, I would like to discuss the broad topic of the war on terror. Terrorism is not something that any of us likes. We would all like to see a world without violence and bloodshed. This hardly distinguishes our generation from any that preceded. What is unique about our moment is that we live under a regime that has come to believe that the government itself can produce this result for us if we only give the government enough power, money, and managerial discretion to accomplish this goal.
We associate this view with the political right. This might be something of a misnomer since the right was very much against the wars of the 1990s. It was the right that made the case against nation building, and it was Bush who earned the support of the American middle class by promising a humble foreign policy. It was the conviction back then that Clinton’s wars had been waged at the expense of the life and liberty of Americans here and abroad, and had failed to accomplish their ends.
A similar critique of left-wing wars was offered by the right in the interwar period. It was clear that World War I had diminished American liberty, regimented the economy, inflated the money, slaughtered many people, and failed to accomplish its goal of bringing about self-determination for all peoples of the world. The right applied its political logic of the need for freedom at home to issues of foreign policy. Small government and non-intervention applied to domestic as well as foreign affairs, for reasons both practical and moral. The left, in contrast, saw war as yet another application of the principle that government can accomplish great things for us, and they saw how war provides the great pretext for expanding the power of the state to do these things.’

Read the whole article