Wednesday, September 9, 2009

Assorted Economic History Highlights Since June 2009

2009 – September 8th. Option ARM Disaster Arrival: Mortgages More Problematic than Originally Thought. $134 Billion Recasting in Next Two Years. As of today, 46 percent of option ARM loans are 30 days late! Nearly half the entire batch of these loans. 75 percent of all outstanding option ARMs are in California, Arizona, Nevada and Florida. 94 Percent opted to make only minimum payment. In the recent report put out by Fitch Ratings, only 3.5% of the approximately 1 million option ARM loans have been modified; of the modified option ARMs 24 percent re-default after 90 days while the untouched loans default at a rate of 37 percent after 90 days. These numbers will increase. Modification means for the most part, all that is done is the term is extended, or interest is cut, but the bank is still able to claim the home is worth the bubble price and therefore allows the bank to keep the “asset” on the books for full face value.

2009 – September 7th. US Senate must raise federal debt limit beyond $12T. Bruce Josten (lobbyist for the US Chamber of Commerce) said that the high level of debt is a reality during the recession, but it's unsustainable and needs to be reduced by reforming Medicare and Social Security.

2009 – September 2nd. Krugman: It may be that Greenspan and Bernanke also wanted to celebrate the Fed’s success in pulling the economy out of the 2001 recession; conceding that much of that success rested on the creation of a monstrous bubble would have placed a damper on the festivities...

2009 – September 1st. Go to Pittsburgh, and defy the G20 heads of state, bankers and finance ministers meeting there on 25th and 26th September 2009. The longer we speak in the language of global capitalism, the longer we utter platitudes about the free market—even as we funnel hundreds of billions of taxpayer dollars into the accounts of large corporations—the longer we live in a state of collective self-delusion.

2009 – August 23rd. Steve Keene says we’re living in the biggest financial bubble in global history. We’ve got to cope with the process of deleveraging. Neoclassical economists use models that ignore almost completely time and credit and they treat money as ‘neutral’. Money is not neutral. We need to redefine assets (eg house valuations no more than 10 times annual rent, time-limited shares that expire after 25 years). In Australia there is $2 trillion dollars of aggregate private debt. If 5% deleveraging occurs that takes out $100 million from the economy. We can only solve this crisis by reducing the debt by ‘fiat’.

2009 – July 31st. James Galbraith on the disastrous US approach to the global economic crisis. “In the economic sphere, that problem lies essentially with the transfer of resources and power to the top and the dismantling of effective taxing power over those at the top of the system. (The speaker noted that the effective corporate tax rate for the top twenty corporations in the US is under two percent.) The effect of this is to create a “trained professional class of retainers,” who devote themselves to preserving the existing, unstable system… Fundamental reform, and “bottom-up” recovery strategies based on social insurance and public investment are therefore blocked from the outset…”

2009 – July 2nd. US: “we’ve had 1 million foreclosures since January 1, 2009”

2009 – July 2nd. Daily highlights for the US. Private sector jobs fell 473,000 in June. Chrysler June sales down 42%. SEC approved a proposal that takes power away from stock brokers in deciding who sits on corporate boards. Credit Card Companies raising interest rates and fees.

2009 – July 1st. Australia's trade deficit doubles in May (MarketWatch)

2009 – July 1st. Lending to emerging markets in crisis. “even a blind orangutangs can see that the European currency crisis is days if not hours away.”

2009 – July 1st. In Europe souring loans and festering portfolios of securitised mortgages still plague a number of national banks. Belgium’s third-largest bank, KBC, has had three successive rounds of aid, and they still can’t target the problem. Moody’s, the rating agency that recently issued a warning about the credit risk at 30 Spanish banks, is expected to lower its outlook for the Greek banking sector because of a sharp rise in non-performing loans. In Ireland, the nationalized Anglo-Irish Bank still has a contaminated loan book that has emerged as threat to the country’s sovereign credit rating. Nonperforming loans at Russian banks are even more worrisome… in Sweden, the imploding Latvian economy has hobbled Swedbank, a huge provider of loans in the Baltics.

Overview of the problems as of July 2009. The US has committed $23.7 trillion in “total peotential federal government support”. It represents about half of annual world GDP. the $23.7 trillion recently committed for U.S. bailouts and loan guarantees represents about $80,000 for each man, woman, and child in America. A level of investment even a substantial fraction that size could pay for all needed job training while ensuring universal provision of basic necessities during the transition. What would we be getting for our money? A collective sense that, in a time of crisis, no one is being left behind. Without the feeling of cooperative buy-in that such a safety net would help engender, similar to what was achieved with the New Deal but on an even larger scale, economic contraction could devolve into a horrific fight over the scraps of the waning industrial period.

2009 – June 15th. Washington Post Op-Ed by Timothy Geithner and Larry Summers. It “emphasizes what is plainly true: the crisis arose from failures of regulation and the remedies will require fundamental change.” *A Consumer Financial Safety Commission, *bring over-the-counter derivatives under control *institute clearing houses (implying standardization of contracts). These proposals are meeting opposition from the bank lobbies.


Myrtle Blackwood said...

1. Option ARM Disaster Arrival: Mortgages More Problematic than Originally Thought. $134 Billion Recasting in Next Two Years. 94 Percent Made only Minimum Payment. Only 35,000 of the 1 million Option ARM loans Modified. Accessed on 8th September 2009

Senate must raise debt ceiling above $12T
By Walter Alarkon - 09/07/09 12:11 PM ET

Krugman in the NY Times this week

Go to Pittsburgh, Young Man, and Defy Your Empire
Posted on Aug 31, 2009

Australian Economist: Steve Keene
Source: ABC Radio. From 5:05pm on 23rd August 2009

James Galbraith link as yet unidentified.

1 million foreclosures since 1st Jan 09:
By Mandelman - Last updated: Thursday, June 11, 2009 –

US Daily Highlights
Thursday, July 2, 2009
Daily Highlights: 7.2.09
Posted by Tyler Durden at 9:19 AM

AU trade deficit doubles in May 09
Wednesday, July 1, 2009
Overalottment: July 1
Posted by Tyler Durden at 10:56 PM

Lending To Emerging Markets In Crisis
Posted by Tyler Durden at 2:37 PM

July 1, 2009
Bank Woes Deepening in Europe

Temporary Recession or the End of Growth?
by Richard Heinberg
Published Aug 6 2009 by, Archived Aug 6 2009

From: James K. Galbraith
To: All Interested Parties
Subject: Financial and Monetary Issues as the Crisis Unfolds
Date: July 31, 2009

Shag from Brookline said...

After reading your post, I came across (at Truthout) Walden Bello's 9/3/09 article "The Virtues of Deglobalization." Since the recent financial/banking crises, there has been very little focus on Globalization, at least in the popular press. Is Globalization waning or is it on temporary hold? Your litany of events suggests that this may be a long hold, if it is to survive. But can Globalization, as sold by Tom Friedman and others in recent times, survive without recognition of the need for drastic changes? Is it a zero sum game? Note that in his article Bello references Keynes in support.

Myrtle Blackwood said...

Shag, the form of 'globalisation' that has taken place over the last century could be described as simply the manifestations of capitalism’s expansionary nature. It recognizes no limits.

['Capitalism' being an economic and social system that entails the commodofication of people, the environment and other things. Central to it is the notion of private property and the use of money and credit. It involves the artificial sustaining of demand for products from large and extensive markets through a mechanism of unequal exchange. Good are exchanged using an artificial pricing system "fueled by the virtues and vices of private property" and unregulated common property and cultural perceptions of the natural world as commodified and limitless. A culture that excludes biology and nature from the social sciences.]

Globalisation in the above form is coming to an end because nothing on earth can carry on without hitting limits of one sort or another. In the case of globalisation there are many, many scarcities and excesses that can't be addressed with this form of so-called 'organisation'. (Oil, electricity, minerals, global warming, ozone hole, ocean acidification and over-fishing, food and nutrient shortages etc).

I think that 'capitalism' by its nature is a 'zero sum game'. It deeply concerns me that Keynes' warning about the entanglement of nations has not been heeded.