"debtus> .... CR is being very short-sighted with this post and he is painting himself into a corner." I think CR is just being cautious. But I'll admit, I've been more pessimistic that CR for a while.

"...what will drive the recovery?"

The stimulus is supposed to drive the H2 growth spurt. LOL.

I was just trying to make this point on the last thread. You can look at credit tightening in terms of where rates are at now versus Q408, but the real issue is that they are creeping up in spite of all of this intervention that was not even conceived of back then.

The Swiss politician(s) suggesting Switzerland retaliate by withdrawing gold domiciled in the US is in my estimation someone out of the loop, and happy to play to the home crowd

Thanks, I was hoping for a link because it would explain some of Levin's forceful statements regarding distrusting Switzerland.

As to the quoted point, I actually see it quite differently. Yes, it is playing to the home crowd but it has much more of a sense of desperation about it. I actually believe that the center/right parties, who are extremely heavily involved in the crony capitalism game, view this as essential to their cushy survival. And, in fact, I agree.

This is being sold domestically as an economic war on Switzerland and if you are familiar with Swiss history then you are aware that they played for centuries significantly above their pay grade. It is no accident that the pope has a Swiss guard. This riles up the base and pushes popular opinion in the wrong direction. Note that in a recent poll, 78% said that the bank secrecy law is non negotiable.

IMO, this is very dangerous because it limits the politicians' negotiation leeway. Switzerland is a direct democracy with a frequent referendums. The far right party (SVP) has already submitted one which would enshrine the Bank Secrecy into the constitution.

Given this resistance, the U.S. and Germany may decide to become much more forceful and bring about change in a very abrupt way. This could have a devastating effect on the Swiss economy.

Incremental deterioration in the credit markets with massive federal intervention should be perceived on the same level as panic without massive intervention. Both suggest an absence of real order.

Geithner is being interviewed tonight by Charlie Rose....sample quote..."this crisis is the result of some very irresponsible decision by the financial system" and "we inherited this crisis".

I'm interested to know that the "system" made decisions...not individuals, certainly no one who Geithner would identify...clearly then, no one is to blame, but the system". As to having "inherited" this mess...was Geithner head of the NYFed or not...did he not see any problems arising from Paulson's actions, let alone from loose credit, cheap money and negligible oversight? Once again, no one can be blamed. Sorry, no link yet to the interview, but worth catching.

I knew it. I hate reading over 200 comments and then replying only to find a new post.

CR, can you cut it down to 3 or 4 a day so I can get a post in a long thread.

Okay, just kidding.

one thing that's going to be different about this recession is the number of 22-27 year old students that are graduating with 100-250K in student loans and a totally useless education. Santelli's going to go nuts when the USG begins modifying student loans.

by the way EHP during "normal times" I use similar approach when I try to fish out value. I adjust a company P/E & Earning Growth vs. (S & P) P/E & Earning growth. The problem in similar valuation during the bear cycle is that the total market /economic risk is not necessary constant. So even if a company has the same earnings the risk premium demanded in such economic conditions might be higher.

p.s. most models assume it is constant & use probabilities to figure out "at risk value"
rofl O:-)

Latest figures on export decline (Jan-2009 vs. Jan-2008) - press releases
Taiwan \t48%
Japan \t46%
Indonesia 36%
Korea \t34%
Singapore 35%

If you're willing to trust six guys who have dinner together every week to set the rate on your ARM, that's your business.

They'll just stay in school. Forever. Like in France.

re: US Student loans
Is there are harder category of debt to default on? At least with mortgages you have the choice of bankruptcy

No Worries MP!!!
U.S. "in a deep mess" but we will fix it: Geithner
U.S. in a deep mess but we will fix it: Geithner
| Reuters

The Emperor Knute
Knute was a great and mighty emperor. he was ruler over the three kingdoms of England,Norway,and Denmark. He was a great and mighty Lord with a court filled with men of great riches, and power.He had begun to suspect, however, that his courtiers were NOT giving him good advice and were trying to fill his head with empty praise and flattery to gain rank,wealth, and position. His fears were proved true when one day his courtiers, and advisers were gathered together,and one of them said "Why great king you are so powerful, the sea itself must obey your commands!"

In fact, the tide did continue to rise. When the water had risen to the emperor's knees, he called for his bodyguards to have all his advisors and courtiers beheaded. He then filled his court with men whom he knew would never lie to him , no matter how harsh the truth was.

I hope that no one goes all medieval on Big Bazooka Hank, Helicopter Ben or Timmy TurboTax

I thought people skipped alimony all the time by changing states. Student loans are federal jurisdiction, no?

@krish

Thanks for the link to the Reuters article, which I just read.

Would you believe me if I told you that it made me feel all warm and fuzzy?

That implies they can find a job

It's gonna be a make-work decade

I graduated with a BS in Finance, Dec. 08.

I found a job. For 32k/year, investment accounting. F my ass. I hate my life. Would rather move to the mountains, snowboard and do drugs for 3 years until this crap sorts out.

I made that much working part-time, selling cars. Now I can't even sell cars to make money, because no one is buying.

Now deal with it.

I am. By getting a second degree in something worth my time.

My room mate just accepted his first job, with Halliburton, 65k/year.
Engineering, because they actually need those people.

Garnishment on a massive scale. It's the house arrest version of debtors prison.

If they have jobs... that's the Catch 22 - what do you garnish from the unemployed???

Squeeze those stones harder dammit.

mp ecritIf you're willing to trust six guys who have dinner together every week to set the rate on your ARM, that's your business.

Pisses me off even more that the Prime Rate is exactly 3.000% above the FFR "target." That's become an excuse to scrape a few hundred extra basis points from the skin of qualified borrowers.

PIMPCO's Gross knows something we don't know about.
Gross also boosted the world’s biggest bond fund’s holdings in mortgage-backed securities to 86 percent of total assets, up from 83 percent last month, according to the Newport Beach, California-based company’s Web site.
Bloomberg.com

The boom in student loans produced the tuition boom. Colleges realize that people will borrow unlimited amounts for school and they build shrines to athletics.

Student loans were always affordable considering the risks involved. The federal government subsidizes both private and public lenders. These lenders cannot borrow in the market because investors are shunning ABS - even federally guaranteed ABS. Rather than looking at restructuring the programs, the administration wants to absorb the obligations. You may have been a student, but you are a taxpayer too (I assume).

Tom:

One of the real dilemmas is that the borrower in student loan cases in bankruptcy has to file an "adversary" -- or lawsuit -- and has the burden of proof. So many of those borrowers in chapter 7 or 13 -- who are already destitute -- now have to go an extra mile to prove they can't pay the debt back.

This is the problem that we have created by replacing better wages with debt. The amount of debt we have is unsustainable.

There is no real easy solution to this in that determining who in the future can repay the debt will be about as accurate as determining where the stock market will be in the future. There will be some cases that are pretty clear, but many will not.

We need a couple words to describe distrust. One for when you have no reason to trust, and one for when you have some damn good reasons not to trust.

Re USSR Prices - the typical engineer salary was 120-150 rbls so don't get too excited
(yes, housing was provided by the state at a low cost and many grown-ups had to stay with their parents for decades)

I was just joking/being sarcastic. The observation was King Knute, great story I hadn't heard btw, had an equity stake in the performance of his kingdom. My response was to suggest that in order for the US executive to act less like doofuses and more like Knute, was that a restructuring of compensation would justify increases in compensation like any self-serving bureaucrat would.

Good night, everyone.

Dryfly (and others):

RE: student loans and bankruptcy

I forgot to mention that this is all part of the Great Risk Shift that has shifted the risk of loss from those who can afford it to those who can't. The end result is that we end up with more people who become "losers" and the cumulative effect is more despair among the population. On an individual basis, this may not seem like much of a loss.

Think about this: we keep telling ourselves that people need to just "pull themselves up by their bootstraps;" but what if their boots have been taken away (or stolen)?

The result is she doesn't [can't] pay and they don't collect but won't discharge the debt.

Great result . . . a lifetime of involuntary servitude.

Tell your sister to cite the 13th Amendment.

FairEconomist, your impression of Obama's first 50 days considering his ability to prioritize and propose initiatives that seem to reflect the current economic climate. Still beaming with joy?

Charlie Rose Interview Timothy Geithner:

"CAPITALISM WILL BE DIFFERNT" (video)
Charlie Rose Interviews Timothy Geithner: "Capitalism Will Be Different" (VIDEO)

Treasury Secretary Timothy Geithner offered a vigorous defense of the administration's fiscal policies and his own personal performance, in a lengthy interview with Charlie Rose on Tuesday night.

Rob Dawg,
You want to set up a Credit Counselling Boutique specializing in Regulatory Arbitrage?

It actually sounds like an attractive business.

If the lawyers ever come after you, you could argue that home ownership had a lower interest rate and reduced cost of living with the owner's mortgage tax deduction

Am I crazy, or is this not the easiest small business to setup? The one problem that I see would be working with people remotely while ensuring you get paid

How about High-Grade Structured Enhanced Credit Arbitrage Strategies Advisors

A couple of months ago, I joke that we would get a stimulus-price spiral since wages wouldn't be increasing.

Lawmakers Weigh Need for Second Stimulus to Spur Job Growth - WSJ.com

The ink is barely dry on the $787 billion economic stimulus package enacted by Congress, and talk is already beginning on Capitol Hill of the need for a second measure to spur job growth.

Here's a bright ray of sunshine, currency depreciation is not so bad
According to data released Monday by the BC Film Commission, total motion picture production spending and numbers of projects in British Columbia in 2008 are up almost 30 per cent over 2007, with the majority of the increase in foreign feature film activity.http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20090309/bc_movie_industry_090309/20090309/?hub=BritishColumbiaHome

So exchange rate vs the USD fell ~30%, but total film production also went up 30% despite the Writer's strike

Economically, when it comes to currency devaluation it is better to be earlier than later. Wealth-wise, these currency shifts don't affect things "in the long run"

"Is there anything that won't be bailed out in the next 4 years?"

us.

Is there anything that won't be bailed out in the next 4 years?

USD

Vick is getting out of jail quite soon, if not already.

Suppose you were 60-something, had your life savings with Madoff. If you got to vote for

plan A: Madoff gets prosecuted full extent of law, justice dept goes after everybody they can get their hands on, and does the best they can to recover assets.

plan B: Madoff gets 10 years in "club fed," no parole. Nobody else prosecuted. Investors get .20 cents on the dollar of their actual investment, not counting fictitious returns. Evidence provided that no more money is out there as part of deal.

Which would you pick?

ECONOMIC SCENE; The Looting Of America's Coffers - NY Times
NYT
Banks Counted on Looting America’s Coffers

Agreed. I know somebody going to China soon on biz - can hardly wait to hear what they see there. It won't be a rose colored view I'm sure.

Did you see this?

China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic consumption to prop up the world’s third-biggest economy.

The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent.

sportsfan,
"in the long run" has a meaning unto itself within economics

I used it in quotations to avoid discussing the topic of currency distortions (I saw a paper on that very recently, reconciling trade balances with currency valuation... only holds true for 'small' countries. countries home to dominant financial centres seem to bet with a hometown bias, it's why the Aussies took their devaluation in stride but British bankers were packing the pews in preparation for the end of days)

What I meant by in the long run is that if a currency is fairly traded, and then happens to devalue by 10% people will just earn 11% more. It's not so bad, because from experience if your currency rapidly appreciates you do not see price cuts materialize while if the currency depreciates prices rise much slower than the one for incomes.

However illogical credit changes everything, so do look out for your own best interests without regard for subsets of economic theory

FFDIC says:
Today, 21:41:07
“http://www.nytimes.com/2009/03/11/business/economy/11leonhardt.html?ref=business
NYT
Banks Counted on Looting America’s Coffers

Thank you for the link. I read the paper years ago. It's conclusions stuck with me. It has shaped my views on the various bailout attempts and why we need some sort of punitive "clawback" of previous compensation paid to executives and employees of bailed out firms.

if you don't mind, would you tell me you are based geographically?

I am at present in the Pacific Northwest. However, I spend a lot of time in Europe (Switzerland and Germany primarily). I read the news, watch TV from there quite diligently and am very familiar with the culture.

Philosophical question:

a) The financial sector exists to support and facilitate activity in the real economy.

or

b) The real economy exists to generate wealth to fund the activity of the financial sector.

How you answer this question will determine the policies you favor to get us out of our Balance Sheet recsssion.

The Obama administration, or at least Geither, Bernake, and Summers, appear to think that the real economy exists solely to generate rents/privileges for the financial sector.

Philosophical question:

the way you asked the question polarizes the issue
can't it be a little of 'a' and a little of 'b'
so....... my answer is 'c' both of the above

I meant it to polarize or at least force people to think about where they stand on the spectrum of all (a) or all (b).

I assume that most sane people would choose (c), somewhere in the middle. Personally, I would choose the middle (c), but with a bias in favor of the real economy at the expense of the financial sector.

Has anyone ventured a guess how long the UK can keep up their quantitative easing?

what happens where investors crowded out of gilts decide to leave the currency altogether instead of accepting an additional thick layer of risk on any UK investment?

. . . a bias in favor of the real economy at the expense of the financial sector.

I suspect most of us would agree with this. The issue that I keep hearing being phrased by the Administration (and the MSM to some degree) is that the availability of credit is the lifeblood of business.

In that sense they are inextricably intertwined, aka we're stuck with them.

Interesting development in gold:

Gold holdings fell as sale of gold by one euro zone central bbank outweighed purchase by another euro zone central bank, consistent with the 2004 Central Bank Gold Agreement, the ECB said.

It looks like an EU central bank is buying gold and I haven't seen that in years and years.

ille.vir,

121,000 completed foreclosures in February is pretty serious considering:

February's increase occurred despite the fact that several major banks along with government mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have imposed temporary halts on foreclosures.

I don't want to see 1.8 or 2.0 million FCs this year.

"I would express it differently. IMO the Obama Administration doesn't believe the real economy continues to exist without a smoothly functioning financial sector."

But which parts of the financial sector need to keep functioning? All of it? Or just parts of it?

Do we continue to prop up all parts of the financial sector? Can we afford it?

If we cannot afford it, then using triage which parts of the financial sectors must be saved, which parts can wither and die because we have "good enough" replacements, which parts are an unnecessary luxury that we can no longer afford?

Neither the Bush nor the Obama administrations seem to have faced, made, or communicated these choices.

Our resources are not unlimited.

Neither the Bush nor the Obama administrations seem to have faced, made, or communicated these choices.

I wouldn't pretend to defend Paulson seeking no controls or oversight while he just wrote checks to banks and AIG (especially given Elizabeth Warren's reports to the effect that $78 billion was just gifted).

My opinion is that the Obama administration has not been clear enough (on an 8th grade level) for the American people to understand their plan, but that they actually have a plan for the parts of the financial sector that are not currently functioning well. I have no opinion on their chances of success at this time.

There are, however, parts of the financial sector that are performing well now, i.e., credit unions, community banks, vendor financing on vehicles and so on. The economy has not ground to a halt, as we often see reported here concerning full restaurants and trips to Disneyland.

I don't like Geithner very much, but I don't want that to color my opinion concerning whether what he is doing will eventually prove to work well.

I also wish Obama had a retribution streak in him, but he apparently doesn't and I can't fault him for being a better man than I.

So I wait and watch and provision for the future and hope the Earth keeps spinning on its current axis.