Big Bang: Sid Harth
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Meltdown Anniversary Watch
Nocera says: Don’t look there, look here.
By James Ledbetter
Posted Monday, August 31, 2009 - 11:53am
We here at The Big Money are expecting an onslaught of coverage of the
one-year anniversary of the economic meltdown, loosely pegged to Sept.
15 (which also happened to be the day that we launched). So we're
going to start tracking the memes in an occasional series called
"Meltdown Anniversary Watch."
Getting out ahead on the MAW this weekend was New York Times "Talking
Business" columnist Joseph Nocera, who wrote a mildly scolding piece
on the misguided history of money-market funds. If you recall, running
parallel to the collapse of Lehman and the bailout of AIG (AIG) was a
panic that arose when a fairly large money-market fund "broke the
buck"—that is, when its managers determined that they could no longer
promise to pay back $1 for every $1 they'd put in (more like 97
cents).
This scared the heck out of lots of people, most importantly Treasury
Secretary Henry Paulson, who immediately rammed through a taxpayer
backup for money-market funds, because, as Nocera put it, "he wanted
to quell investor panic, which he feared would spread like a contagion
to other money market funds."
Nocera's persuasive argument is that the investor expectation that
money markets should behave like savings accounts is misplaced (and
therefore the Paulson-led backstop creates a moral hazard). Money
markets, he argues, have long provided a better return than bank
accounts, because they involve greater risk. Investors need to
understand that, and any policy that muddies that relationship
probably does more harm than good.
We agree, but tying this development into the Lehman anniversary—as
Nocera does in his opening paragraph—seems more an issue of
coincidence than any real connection. His argument would be just as
valid if the fund collapse in question had occurred in July or
November. Still, we think Nocera's essential MAW meme—Don't look over
there for an understanding of the meltdown, look over here—will recur.
James Ledbetter is editor of The Big Money.
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Meltdown Anniversary Watch, Part 2
Dennis Berman picks up Nocera’s meme.
By James Ledbetter
Posted Tuesday, September 1, 2009 - 11:02am
In today's Wall Street Journal, Dennis Berman offers a variation on
Joe Nocera's Meltdown Anniversary meme: Don't look there for the
meaning of the meltdown, look here. Berman says history will view last
year's economic tsunami differently than we do today: "Decades from
now, the crisis of 2008 mightn't be remembered as the last days of
Bear Stearns and Lehman Brothers, but as the moment the dollar lost
its undisputed No. 1 ranking among world currencies."
This is big-picture stuff. Berman is looking at a decades-long
trajectory, in which non-U.S. players finally get so frustrated with
the instability that comes from the dollar's dominance that they
create some viable alternative. (Recall that earlier this year, China
made some noise about increasing its funding of the International
Monetary Fund, with the goal of creating a different international
currency.)
What does this have to do with last year's meltdown? Says Berman:
"America lost credibility in the financial crisis. That has opened a
path to questioning its primacy." True enough. Then again, if your
event horizon is half a century, will the development of a dollar
alternative really ultimately have much to do with the 2008 meltdown?
There are bound to be a few more catalysts between now and 2058.
James Ledbetter is editor of The Big Money.
...and I am Sid Harth
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Meltdown Anniversary Watch, Part 3
Norris says Bernanke is a genius.
By James Ledbetter
Posted Friday, September 4, 2009 - 11:01am
Floyd Norris’s New York Times column this morning is not exactly
pegged to this month’s anniversary of the meltdown. Nonetheless,
Norris offers up a meme we suspect will recur throughout this month’s
coverage, namely: Ben Bernanke is a genius.
Norris christens Saint Bernanke indirectly, via a historical argument
about a 19th century business and political figure named Elbridge G.
Spaulding. His history lesson is a quiet way of making what is a
fairly heretical argument in economic circles. “Fiat currency,” or
money that is legal tender merely because the government says it is
(as opposed to being guaranteed by gold or other reserves) is not only
okay, it’s actually necessary to rescue the economy every now and
then. We all owe a debt to Spaulding, according to Norris, because he
wrote a law that allowed the Union to continue paying its Civil War
debts, simply by printing up more money.
Many economists, notably Milton Friedman and his acolytes, preach that
artificial increases in the money supply can lead to runaway inflation—
and Norris acknowledges that Weimar Germany and present-day Zimbabwe
are examples of fiat currency gone very, very bad.
Nonetheless, Norris writes, Spaulding’s bill “passed Congress not
because anyone thought it was good policy absent a crisis, but because
most thought it was necessary.” The feared inflation did not occur,
the North won the war, and everything was hunky-dory. The implication
is that history is repeating itself: “Something very similar can be
said about the government’s multiple bailouts during this crisis.”
Woe to the financial journalist who takes on Floyd Norris, but there
was a fairly severe recession in the United States from 1865 to 1867.
But that’s beyond the scope of this item; suffice it to say that the
Bernanke-as-genius meme will recur, along with its heated opposite.
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Meltdown Anniversary Watch, Part 4
Everything has changed, but nothing has changed.
By James Ledbetter
Posted Tuesday, September 8, 2009 - 10:22am
As we approach the anniversary of Lehman Brothers' bankruptcy, new
meltdown memes are entering the media stream. Over the weekend,
Richard Beales of Breakingviews.com assessed the state of the prime
brokerage business (that is, helping hedge funds to manage and trade
against their holdings) and concluded: Everything has changed. Before
the meltdown, Beales notes, more than half of this $12 billion
business went to just two firms: Goldman Sachs (GS) and Morgan Stanley
(MS). The turmoil that began with the near-collapse of Bear Stearns
through the bankruptcy of Lehman caused nervous funds to spread their
business around, particularly to banks—like Deutsche Bank and Credit
Suisse—who'd not been forced to take government aid. Now the Morgan-
Goldman duopoly "is probably gone for good."
Arguing the equally valid opposite point—nothing has changed—is Andrew
Ross Sorkin in today's New York Times. In a column that we suspect is
a preview of his upcoming book Too Big To Fail, Sorkin asserts that
despite all the huffing and puffing, "we appear to be in perhaps no
better position to manage the failure of an investment bank, a hedge
fund or an insurance company than we were before." Wall Street reform
measures have languished in the midst of a relatively improved economy
and stock market and other legislative priorities like health care
reform. Hence, with no change to how big institutions can be fairly
unwound, "we are likely to be forced to continue the practice of ad
hoc bailouts, out of fear that bankruptcy will be a worse outcome,"
Sorkin concludes.
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Meltdown Anniversary Watch, Part 5
A new meme: Lehman was a sacrificial lamb.
By James Ledbetter
Posted Monday, September 14, 2009 - 9:41am
Over the weekend, two remarkably similar articles argued that Lehman's
collapse was a sacrificial lamb. That is, the fourth-largest
investment bank in the United States had to go into bankruptcy in
order to create a sense of crisis strong enough to save the rest.
The first was the Economics focus column in The Economist, which cites
Harvard's Kenneth Rogoff in arguing that the American economy was
headed for a collapse anyway: too much debt supported by an
unsustainable bubble. So if the meltdown was inevitable, better that
it be a bank the size of Lehman than something really big. Here's the
payoff Rogoff quote: "If you look at financial crises, the standard
playbook is to let the fourth or fifth largest bank go under and you
save everybody else."
Now he tells us.
The second piece was Joseph Nocera's Saturday New York Times column,
whose headline says it all: "Lehman Had to Die So Global Finance Could
Live." After establishing that conventional wisdom now follows what
The Big Money wrote on the day that Lehman declared bankruptcy—namely,
that Lehman should have been saved—Nocera declares that he now
concludes that "if Lehman had been saved, the collapse would have
occurred anyway." Indeed, he says that the collapse would have been
worse if Lehman had been rescued.
Nocera notes that without the sense of panic created by Lehman's fall,
there would never have been sufficient political will to bail out the
other banks. It follows from that premise that a bigger firm—such as
AIG (AIG) or Merrill Lynch—might have imploded before the government
could be called upon to intervene. "In retrospect, if you had to
choose one firm to throw under the bus to save everyone else, you
would choose Lehman," says Nocera.
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The Year of Living Hopelessly
As damaging as Lehman's collapse was here, it was worse overseas.
By Daniel Gross
Posted Sunday, September 13, 2009 - 2:59pm
The failure of Lehman Bros. on Sept. 15, 2008, was an epic calamity,
but it may have been more important overseas—where September 2008 is
referred to as "Lehman Shock"—than it was here.
In the United States, the sudden bankruptcy of America's fourth-
largest investment bank was the cathartic culmination of a process
that had been building since subprime lenders began to go bust in
2007. Before Lehman was allowed to fail, we had witnessed the shocking
demise of well-known firms such as Bear Stearns and of much larger
institutions Fannie Mae, Freddie Mac (the two largest U.S. financial
institutions as measured by the size of their balance sheets), and
AIG. Throughout the summer of 2008, Treasury Secretary Henry Paulson
and the Federal Reserve had been dealing with systemic failure. Yes,
Lehman's demise kicked the level of hysteria up several notches and
required unprecedented intervention, particularly in the commercial
paper market. But it wasn't a solitary event. The same day Lehman
failed, Bank of America (BAC) and Merrill Lynch (MER)—a larger firm
than Lehman—merged. The same week, Goldman Sachs (GS) and Morgan
Stanley (MS) converted to bank holding companies so they could access
new sources of credit. Meanwhile, the Bush administration began to
concoct a large-scale bailout and a hot presidential election took a
decisive turn. Our attention quickly shifted from the dead to the
living and wounded.
But for the rest of the world, Lehman's failure stands out, in part
because it marked a beginning rather than an end, and in part because
Lehman's failure triggered a series of events that affected economies
around the world to a much greater degree than the other failures did.
It seemed to be the direct cause of serious problems in a way that
these other events weren't.
Lehman had issued hundreds of billions of dollars in short-term debt,
including commercial paper. Commercial paper is usually a boring and
unsexy market. But it's a vital cog in the global economic engine.
Companies need access to lots of short-term credit (30 days, 90 days,
180 days) to finance production and shipment of goods. Without it,
they're toast. When Lehman filed for Chapter 11, it rendered a lot of
its commercial paper worthless (or worth a lot less) and caused a
panic among the investors and funds that owned it. For all intents and
purposes, the commercial-paper market seized up. If Lehman couldn't
make good on its short-term debt, was it safe to lend money to
anybody? Banks and financial institutions around the world lost trust
in one another, causing short-term lending rates to spike. Since short-
term credit is both the lubricant and fuel of global trade, the effect
of the Lehman failure was a little like sucking the engine oil and gas
out of a race car going 180 miles per hour. The whole machine stalled.
All of a sudden, the world seemed to change. Yes, the United States
had been in recession since the beginning of 2008. But world trade had
held up quite well. But after the Lehman shock, all world trade began
to shrink rapidly. Starting in September 2008, the volume of world
trade began to plummet sharply. As the World Trade Organization
reported in March, "the months since last September have seen
precipitous drops in global production and trade, first in the
developed economies, then in developing ones as well." In late 2008,
world trade was contracting at a 40 percent annual rate. In Japan,
exports, which had held up well in 2008, fell 57 percent between
August 2008 and January 2009. (Go here and click on "exports.")
Through the first half of 2009, they were down nearly 40 percent from
the first half of 2008. In Germany, exports in July 2009 were 25
percent below the level of July 2008. China's exports have fallen,
too, although less dramatically.
This sharp contraction in exports was as much of a shock to these
countries' systems as the sharp fall in housing was to the United
States. The United States had built an economy that was highly
dependent on housing, leverage, and easy credit—and that was unable to
weather stress in any of those sectors. Japan, Germany, and many other
countries, by the same token, had built economies that were highly
dependent on credit-fueled trade. For other economies, the Lehman
shock meant the sudden recognition that what for years had been a
source of jobs and growth was no longer reliable. It's not just that
exports to the United States shriveled after September 2008; the flow
of goods everywhere, in all directions, has fallen.
The real Lehman shock was that the contracting U.S. economy and the
failed U.S. financial system could drag the global economy into its
first recession since World War II. On the first anniversary of the
Lehman collapse, the question is whether the recovering United States
can lead the whole world back to growth.
Daniel Gross is the Moneybox columnist for Slate and the business
columnist for Newsweek. He is the author of Dumb Money: How Our
Greatest Financial Minds Bankrupted the Nation.
Photograph of Lehman Brothers headquarters by Michael Nagle/Getty
Images.
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... Or We'll Blow Your House Down
Getting access when you're an angry business journalist.
By Amy Tennery
Posted Thursday, June 18, 2009 - 10:26am
The housing crisis, Lehman's collapse, the abject failure of American
car companies—over and over, pundits, politicians, and taxpayers have
asked: Isn't there any way we could have predicted this? Of course,
business journalists have made mighty fine punching bags throughout
this crisis—and perhaps rightly so. Who could forget Jon Stewart's
epic takedown of Rick Santelli and the CNBC-ers, who had assured us
all was fine and well?
The industry has answered its critics a handful of ways. Some say we
could never have seen this crisis coming; others claim that the
incisive journalism needed to expose corruption just doesn't sell. But
at Tuesday night's Columbia Journalism Review panel on "post-meltdown"
business journalism, the gathered journalists agreed on one key factor
that contributes to poor reporting: access.
CEOs can be as closed or as open as they want to be—if they don't like
a certain journalist, they're under no obligation to play. And if you
want the splashy interview with the big-shot CEO, you have to be nice
to get access and stay friends with the company, said Gretchen
Morgenson, a panelist at CJR's conference and a Times reporter
covering Wall Street.
"These are extremely powerful people who are not used to being
questioned," said Morgenson. Even worse, this sealed-off access
extends from the private financial sector to the public. "The Treasury
will barely return our phone calls. ... [Y]ou get radio silence. FOIA
is not the answer because you just get long and shaggy dog answers."
So what about business journalism that doesn't depend on CEO access?
The pieces based on data and documents?
"The frames got narrower and narrower, and the room to do stories that
don't rely on access ... got narrower and narrower," said Dean
Starkman, whose criticism of crisis-era coverage graces this month's
cover of CJR. "You had to be a powerful reporter to get away with it."
So their solution?
"Have at least one or two reporters whose entire job is to take the
contrarian view," according to William Ackman, a panelist best known
as the Pershing Square CEO and challenger of MBIA ratings.
This is great advice. As soon as someone in the industry can afford to
hire these contrarian reporters, I'm sure they'll do a lot of good.
Amy Tennery is a proud former intern of The Big Money. She is
currently an editorial assistant at The Real Deal and can be reached
at a...@therealdeal.com.
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Bernanke Bites Back
By Bernhard Warner
Posted Friday, June 26, 2009 - 4:00am
Fed Chairman Ben Bernanke faced down his inquisitors on Capitol Hill
on Thursday, insisting the Fed acted in "the highest integrity" in
counseling Bank of America (BAC) on its tumultuous acquisition of
Merrill Lynch, today's business press report. The Wall Street Journal
notes the testimony wasn't easy on the normally reserved Fed chief.
"Bernanke faced open hostility from lawmakers who barraged him during
a Congressional hearing over his handling of the financial crisis and
the central bank's role in reshaping the banking system," it writes.
The New York Times saw it the same way. "In three hours of grueling
questions from lawmakers armed with e-mail messages and internal
documents, the Fed chairman flatly denied accusations that he had
threatened to oust the bank’s top management if it pulled out of the
deal," the newspaper reported. Business journalists noted they
couldn't recall such a harsh reception for a seated Fed chief since at
least the 1990s. Bernanke's even-toned reassurances that the federal
government did not strong-arm BofA into completing the Merrill deal
still isn't sitting well with some lawmakers. Some Republican
congressmen contend the Fed pushed a private company to the brink,
while the Democrats feel Bernanke and crew were "bamboozled" into
bailing out BofA.
In an analysis piece, Bloomberg wonders about the fallout of
yesterday's grilling of Bernanke. It concludes the lingering harsh
feelings could "reduce the odds" that the central bank will win new
oversight powers as envisioned by the Obama administration. Even
Democrats are concerned about giving the Fed any more authority
following the bullying allegations. "It may be more important for us
to find another systemic risk regulator,” Rep. Paul Kanjorski, a
Pennsylvania Democrat and member of the House oversight committee,
told Bloomberg. Congress should "hesitate to put any more authority on
the back of the Federal Reserve," he said.
Did accused fraudster Allen Stanford tap a $100 million slush fund to
bribe auditors, thus keeping alive his alleged multibillion-dollar
Ponzi scheme? This was just one of the 21 charges federal prosecutors
made yesterday in the U.S. District Court for the Southern District of
Texas, the WSJ reports. Stanford pleaded not guilty to all the charges
and is expected to be released on bail today, Bloomberg reports,
replete with an unflattering photo of a shackled Stanford in orange
jumpsuit.
To China now, where a remarkable development is being reported this
morning on Sichuan Tengzhong Heavy Industrial Machinery's bid to buy
the Hummer car brand off General Motors (GM). According to the BBC,
which cites China National Radio, the Hummer sale will be blocked on
environmental grounds. The Hummer, once a symbol of Wall Street
excess, apparently "is at odds with the country's planning agency's
attempts to decrease pollution from Chinese manufacturers," the BBC
writes. The green rationale, though, may not be the whole story. China
Daily reports a principle concern is that "The National Development
and Reform Commission (NDRC), the nation's top economic planning body,
may reject the deal on the grounds that Tengzhong lacks the expertise
and resources to run Hummer's operations."
A Florida millionaire and client of UBS is the first scalp to plead
guilty in the government's ongoing crackdown against the Swiss bank
for allegedly helping wealthy Americans hide their income overseas,
untaxed. The man is Steven Michael Rubinstein, an accountant involved
in the yacht industry and the first American client of UBS's offshore
private banking services to be arrested, the NYT reports. UBS is
accused of helping America's rich and powerful conceal $20 billion
worth of income offshore, far from the oversight of the IRS.
Rubinstein faces as many as three years in prison plus fines for
filing a false tax return, the WSJ adds. More prosecutions are
expected.
Finally, the music world today may be mourning the death of Michael
Jackson, the King of Pop, but attorneys, accountants, and auditors may
already be lining up to get a piece of his sprawling and tattered
estate. "The King of Pop will likely leave behind one royal estate
battle," BusinessWeek predicts. In recent years, Jackson succeeded in
wooing deep-pocketed financiers, including Los Angeles-based real
estate developer Thomas Barrack and Denver billionaire Philip
Anschutz, to help him pay off "a conga line of creditors." Jackson was
to play 50 nights in Anschultz's O2 Centre in London for $1 million
per show starting next month.
Bernhard Warner is editorial director of Social Media Influence.
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Bernanke, a Machiavellian Schemer?
By Sara Behunek
Posted Thursday, June 25, 2009 - 6:00am
The finger-pointing seems to have just begun in the months-old
acquisition of Merrill Lynch by Bank of America (BAC)—and now in the
spotlight is Federal Reserve Chairman Ben Bernanke. Today, the papers
report, Bernanke will testify in front of the House oversight and
government reform committee on the Fed's role in the messy takeover,
as Republican lawmakers accuse him of orchestrating a cover-up of
Merrill's worsening financial situation. Bernanke has denied any
wrongdoing. "Lawmakers, especially House Republicans increasingly
hostile to the Fed, are expected to ask Mr. Bernanke about [Bank of
America CEO Kenneth] Lewis's previous suggestion that the government
pressured him to not disclose details about the discussions, and that
officials made clear they would consider ousting management," the Wall
Street Journal writes. According to Reuters, former U.S. Treasury
Secretary Henry Paulson has also been called to testify before
Congress next month. No date has been set for his testimony.
Democratic Rep. Edolphus Towns of New York, who heads the committee,
said in a statement. "I am not going to prejudge these issues. We are
not even close to finishing the Bank of America-Merrill Lynch
investigation at this point."
The New York Times zeros in the politics of the matter, saying that
the Republicans' attack on Bernanke, one of their own, has Democrats
coming to his defense. It writes: "A memo written by Republicans,
citing e-mail and internal Fed documents that were subpoenaed from the
central bank, is building a case that Mr. Bernanke was a Machiavellian
autocrat who forced Bank of America to go through with a disastrous
merger that it no longer wanted to complete. But the committee's
Democratic chairman, Representative Edolphus Towns of New York, is
investigating whether Bank of America executives were engaged in an
elaborate shakedown, demanding that the Fed and the Treasury provide
more than $100 billion in fresh capital and guarantees against the
losses that were building up at Merrill Lynch."
In separate Fed news, Bloomberg reports that Federal Reserve
policymakers voted yesterday to "maintain the size and pace of their
$1.75 trillion program to buy mortgage debt and Treasuries" and will
keep its key interest rate near zero. The measure, or lack thereof,
was taken as the central bank cited a more optimistic outlook on the
longevity and breadth of the recession, and a lack of serious concern
for impending inflation. "By buying government bonds and mortgage-
backed securities, the Fed helps raise these instruments' prices and
drive down yields. The moves have lowered the interest rates that
borrowers pay on everything from car loans to home mortgages,
providing a spark for economic recovery," the WSJ explains. According
to Bloomberg, the measure indicates that policymakers "need more time
to assess the prospects for a recovery starting in the second half of
the year before deciding to embark on any exit from their
unprecedented credit programs." However, "complicating their task is
an increase in Treasury yields, which yesterday's message failed to
stem: 10-year rates rose five basis points, the most in almost a week,
and a further two basis points to 3.71 percent today."
In another Bloomberg story, the site takes a look at a massive PR
campaign being mounted by Wall Street's largest trade group, the
Securities Industry and Financial Markets Association, "to counter the
‘populist' backlash against bankers." SIFMA represents about 600
securities firms, brokerages, and asset-management companies,
including Goldman Sachs Group (GS), Citigroup (C), and JPMorgan Chase
(JPM). The campaign will target policymakers and the media in New
York, London, Washington, and Brussels. In the United States, part of
the strategy will be to have regional securities firms and brokers,
"many of which have escaped notoriety in the financial crisis,"
communicate with their local members of Congress the financial
industry's willingness to accept needed change. To spearhead the
effort, two former aides to Treasury Secretary Henry Paulson have
joined the organization, which has also enlisted a number of advisers,
including Democratic polling company Brilliant Corners Research and
Strategies at $5,000 a month.
Lastly, in oil news, Ericsson (ERIC) Chief Executive Carl-Henric
Svanberg has been named chairman of BP (BP) "in a surprise appointment
that ends the oil major's lengthy search for a new chairman," Reuters
writes. He will step down at Ericsson at the end of the year and fill
the post currently held by Peter Sutherland at BP in January.
Replacing Svanberg will be Ericsson's current CFO, Hans Vestberg. "The
surprise appointment ends a fraught recruitment process at BP" that
has delayed Sutherland's departure from the company almost a year, the
article reports. BP initially selected Rio Tinto's (RIO) then-Chairman
Paul Skinner, a former Royal Dutch Shell (RDS.A) executive, to fill
the job, but Skinner withdrew "following investor unease over Rio's
plan to sell $19.5 billion in assets and bonds to Chinese state-owned
aluminum group Chinalco." Skinner has since left his post at Rio, and
earlier this month, Rio dropped the Chinalco deal. Always the
extrapolator, the Journal says that the move "shows how eager western
majors are to position themselves as technology companies rather than
straight-forward oil-and-gas producers, especially at a time when Big
Oil is under pressure to help fight global warming by investing in
green energy and high-tech solutions to climate change such as carbon
capture and storage."
Sara Behunek is a financial blogger for TheDeal.com.
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The Rise of Ben Bernanke
By Heidi N. Moore
Posted Wednesday, August 26, 2009 - 10:40am
The best politician in Washington isn't an elected official. It's
Federal Reserve chairman Ben Bernanke.
Bernanke just miraculously won reappointment to another four-year term
with five months left on his current one — during which time many
people had expected Larry Summers to pick up political steam to take
control of a bigger, more powerful Fed.
In part, Bernanke was in the right place at the right time. His
reappointment coincided with new federal estimates of a $9 trillion
budget deficit, as Slate's Daniel Gross pointed out. This week also
marks the largest sale of Treasury securities in history in order to
finance the bailouts, noted prolific financial tweeter Conrad
Bessemer. Bernanke's reappointment provides a shot of stability.
But he has also demonstrated great political artistry since the height
of the financial crisis. Like the president, Bernanke's academic
detachment and knack for appearing like the least-threatening beta
male in the room is perfectly suited to a time when any show of
testosterone is quickly punished. He has survived several
Congressional panels questioning the bailouts, and lacks the obvious
character flaws that undermined his peers. Former Treasury Secretary
Hank Paulson was too Wall Street-y, too bossy and too Goldman Sachs-
connected; current Treasury Secretary Tim Geithner is a career
bureaucrat who seems more comfortable behind the scenes; Obama
economic adviser Larry Summers is famously short-tempered, made his
fortune at a hedge fund, and can't make his brilliance palatable.
Bernanke, on the other hand, walks between raindrops. He has his
faults: He headed the Fed when Wall Street cowboys ran rampant over
the markets in 2006 and 2007. He has made the Federal Reserve the
single biggest buyer of weak securities bundling troubled Fannie Mae
and Freddie Mac loans, to the tune of $1.25 trillion. He has kept the
federal interest rate at 0%, which discourages consumers from saving
money and is basically a free handout to banks that make far more
interest on loans than they have to pay. But Bernanke still gets to
wear the hero cap, mainly because he just somehow doesn't seem like a
bad guy.
Bernanke cultivates the right people. Last fall he courted Obama's
favor even before the election by endorsing the Democratic version of
fiscal stimulus. His appearance in Martha's Vineyard — tieless, in
imitation of the President — showed his keen eye for mirroring the men
whose support he needs most. The image recalled Bernanke's
Congressional appearance last fall with Tim Geithner, both officials
wearing the same tie like superhero TARP Twins.
Bernanke also draws contrasts where useful, and his loyalties are
malleable. He faced down Congress with some defiance; he doesn't and
won't need them. He managed to leave Hank Paulson holding the bag for
the unpopular bailout program, even though only the Fed chairman has
the power to dole out trillions in government dollars. When the two
men testified before Congress about Bank of America's acquisition of
Merrill Lynch, Paulson was forced to back down from his claim that
he'd only strong-armed Lewis at Bernanke's command (perhaps Bernanke's
ten days of preparation before testimony helped.) And in February he
backed deftly away from the flailing Tim Geithner, quipping that the
pair were "not married, just good friends." Recently, Bernanke and
Geithner scuffled over whether the Fed should get more regulatory
power. That struggle still hasn't been resolved, but only Geithner is
getting grief for it; his quickly publicized, out-of-character profane
tirade against Bernanke and two others lost him some friends and was
openly mocked by members of Congress.
They say that in academia, from whence Bernanke hails, the battles are
so vicious because the stakes are so small. Bernanke has shown he can
fight hard when the stakes are very, very big.
Heidi N. Moore is a business writer in New York City.
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Another Round of Ben Bernanke
By Caitlin McDevitt
Posted Tuesday, August 25, 2009 - 5:16am
The Washington Post and Wall Street Journal lead, while the New York
Times tops its business section, with news that Obama will announce
the reappointment of Ben Bernanke to his second term as chairman of
the Fed. The formal announcement, which is planned for this morning,
will put an end to recent speculation over possible replacement of the
"quiet and often unprepossessing" banker. The move marks the
president's attempt to maintain "continuity" at a time when the nation
seems, at long last, to be pulling out of the recession. While
Bernanke's been in charge, the Fed has cut short-term interest rates
to near zero, put forth nearly $2 trillion to support mortgage lending
and lower long-term interest rates, created innovative lending
programs, and performed stress tests of the nation's largest banks.
Still, he's come under criticism for not preventing the financial
downturn in the first place and for the rescue of big firms like
American International Group (AIG). In remarks obtained by the Post,
Obama—with Bernanke at his side in Martha's Vineyard—plans to say,
"Ben approached a financial system on the verge of collapse with calm
and wisdom; with bold action and outside-the-box thinking that has
helped put the brakes on our economic freefall."
According to the Wall Street Journal, Apple (AAPL) CEO Steve Jobs is
back at it just a few months following a liver-transplant surgery
—"once again managing even the smallest details of his company's
products." He's focusing intently on a new touch-screen tablet device,
the article says. Reportedly, some employees are a bit shook up at the
new level of attention from the big boss. "People have had to
readjust" to Mr. Jobs being back, an unnamed source told the paper.
Jobs, in an e-mail, said that "much of your information is incorrect,"
but didn't elaborate. While Apple keeps mum on upcoming products, many
analysts expect that the new tablet will facilitate watching movies,
playing games, Web surfing, and, potentially, reading electronic books
and newspapers.
China is pushing hard to become the dominant player in green energy—
especially in solar power—even within the United States, the New York
Times reports. "Chinese companies have already played a leading role
in pushing down the price of solar panels by almost half over the last
year," the article says. An executive at China's biggest solar-panel
manufacturer told the paper that "to build market share in the US,"
he's selling solar panels in the American market "for less than the
cost of the materials, assembly and shipping." Despite tax credits
offered to American clean-energy equipment manufacturers, these
companies may still have a tough time competing with Chinese companies
getting "lavish government support" and cheap labor.
According to the Wall Street Journal, regulators are taking a close
look at weekly meetings at Goldman Sachs (GS)—so-called "trading
huddles" in which research analysts give tips to traders and then to
big clients before everyone else. The Journal reported yesterday that
analysts at Goldman "sometimes shared with traders and key clients
short-term trading tips that sometimes differed from the firm's long-
term research." Examiners at the Financial Industry Regulatory
Authority are planning to get more information on the get-togethers.
Still, Goldman has not been accused of violating any securities laws
in the way it distributes of the trading tips. "We believe the
disclosure we have now is entirely appropriate. Analysts are not
allowed to express differing views without publishing that view," a
Goldman spokesman said.
In reference to a widely cited New York Post story revealing that
Bernie Madoff has been dying of cancer in prison, the Washington Post
reports the following statement from the Bureau of Prisons: "While the
NY Post story is full of inaccuracies, and we can't specifically
address all of them, we can tell you that Bernie Madoff is not
terminally ill, and has not been diagnosed with cancer." The
Washington Post's interpretation of this statement says that it allows
for "wiggle room," in that the cancer may not be diagnosed yet and
it's possible that Madoff could have cancer but not a terminal form.
Still, the article says, "of the three subjects mentioned so far in
this story—Madoff, inmates and prison officials—two clearly suffer a
credibility gap."
And, finally: Officials from Wikipedia have announced that that
"within weeks," the English-language version of the free online
encyclopedia "will begin imposing a layer of editorial review on
articles about living people," according to the New York Times. A new
feature called "flagged revisions" will require a volunteer editor for
Wikipedia to "sign off on any change made by the public before it can
go live." Until the change in an entry is approved, it will linger on
Wikipedia's servers, and visitors will see the earlier version. "The
change," the article says, "is part of a growing realization on the
part of Wikipedia's leaders that as the site grows more influential,
they must transform its embrace-the-chaos culture into something more
mature and dependable."
Caitlin McDevitt is an editorial assistant at The Big Money.
bademiyansubhanallah
Lehman One Year On
By Matthew Yeomans
Posted Monday, September 14, 2009 - 5:00am
One year ago, the house of Lehman fell, threatening to take the entire
global financial system with it. For the anniversary, President Barack
Obama will travel to Wall Street today to "argue for sweeping
regulatory changes," reports Reuters; the changes aim to "prevent a
repeat of the excesses that caused the crisis," adds the New York
Times. At the same time, the president will cast himself as a
"reluctant shareholder” in America's hobbled financial and business
institutions (today the U.S. government is the nation’s "biggest
lender, insurer, automaker and guarantor against risk for investors
large and small") and will stress that these Big Government
"intrusions will be temporary." Good luck in fixing the banking
industry, says CNN Money, picking up on themes covered in the WSJ last
week. It observes that "every day that the economy improves and the
health care fight sucks up more congressional energy, momentum to
overhaul the financial system is lost."
Looking back at the debacle, the Wall Street Journal notes that while
plenty of individual institutions remain on life support, the global
recession appears to be over, and "leaders of the world economy are
breathing an audible sigh of relief, and talking about the 'exit
strategy.' " The WSJ concludes world governments and central banks
deserve credit for pulling the financial system back from the brink
but that this success was only achieved through a mix of trial and
error, "a period of tremendous experimentation," as one academic puts
it. Debate rumbles on about what particular government intervention
had the most effect (a learning exercise for the next time we get
ourselves in this mess, no doubt). "Experts say the leading candidates
for most-successful moves are those that leveraged the credit and
credibility of the U.S. government to replace broke and beleaguered
private financial institutions and markets. The moves shored up
rapidly dissipating confidence in the financial system before panic
damaged it irreparably, and kept credit flowing while bankers and
government officials debated how to rebuild banks' depleted capital,"
writes the WSJ.
China escalated its trade dispute with the United States this weekend,
accusing Washington of "rampant protectionism" while slapping tariffs
on American exports of automotive products and chicken meat after
President Obama put tariffs on tires from China. Obama decided to side
with America’s trade unions, which have complained that a "surge" in
imports of Chinese-made tires had caused 7,000 job losses among U.S.
factory workers, writes the Financial Times. Apparently, it's not
really about them slicks and radials. "Both governments are facing
domestic pressure to take a tougher stand against the other on
economic issues. But the trade battle increases political tensions
between the two nations even as they try to work together to revive
the global economy and combat mutual security threats, like the
nuclear ambitions of Iran and North Korea," writes the NYT.
You might want to take this next item with a pinch of salt, because,
apparently, "trust in news media has reached a new low, with record
numbers of Americans saying reporting is inaccurate, biased and shaped
by special interests," according to a NYT report on a new Pew Research
Center study to be released today. "Self-described Republicans
continued to take the dimmest view of news organizations, but
discontent among Democrats was catching up," the paper reports. At
least there's more choice nowadays, even if you don't believe what you
read. Another NYT story reports that even as the news and magazine
business is struggling, ad spending this year on blog networks has
spiked. The niche online publishers "credit their obsessive coverage
of narrow topics, along with business models that reach beyond
advertising," it writes.
Finally, if you haven't had enough Lehman coverage, Business Week
offers up a "Where are they now?" photo feature on the major players
in the crisis. Just in case you see them on the street and want to ask
how their year has gone.
Matthew Yeomans runs Custom Communication
bademiyansubhanallah
Lehman Lessons Not Learned
By Matthew Yeomans
Posted Wednesday, September 9, 2009 - 4:45am
As the media count down the days to the first anniversary of Lehman
Bros.' demise and the financial meltdown that followed, the Wall
Street Journal surveys the transformed global scene and concludes that
to a "surprising degree, there are some big things that Lehman's
demise hasn't changed," including banks getting back into risky
business and politicians' inability to pass meaningful new banking
legislation. "The federal government is locked in a kind of regulatory
limbo," with officials pledging to prevent "history from repeating"
but with "few new options—excepting another bailout—should financial
markets seize up again or a large institution totter," it writes. And
the world will suffer another major financial crisis, warns former
head of the Federal Reserve Alan Greenspan in an interview with the
BBC. Unfortunately Greenspan can't tell us where or when this will
happen, but luckily his power of hindsight is more keenly honed: "He
added that he had predicted the crash would come as a reaction to a
long period of prosperity," the BBC writes, and quotes him as blaming
the cause of all financial crises on "the unquenchable capability of
human beings when confronted with long periods of prosperity to
presume that it will continue."
Of course, the catalyst for the crash and recession was the U.S.
housing market—still considered a toxic property by many large
investors. But not China, apparently, because it's $300 billion
sovereign wealth fund, China Investment Corp. (CIC), "is eyeing big
investments in distressed U.S. real estate," the WSJ reports. CIC
officials have met with U.S. private-equity fund managers about
investing in distressed mortgage securities backed by office
buildings, hotels, strip malls, and other commercial property, and are
even "weighing investing through one of the U.S. government's bailout
programs, the Treasury's Public-Private Investment Program, known as
PPIP." That entity aims to help banks shed toxic mortgage securities
by finding new investors to take on those assets sweetened by
financing from the U.S. government. The Chinese should stick around as
mortgage problems could get a lot worse, according a piece in the New
York Times that looks at the current curse of interest-only mortgages
where homeowners were able to buy a property they couldn't normally
have afforded by only paying off the interest on the loan for a fixed
time, safe in the knowledge (or so they thought) that the housing
market would keep rising. Now "with many of these homes under water—
worth less than the loans against them—many interest-only mortgages
will soon become unaffordable, as the homeowners have to actually
start paying principal. Monthly payments can jump by as much as 75
percent," the NYT writes.
Bank of America (BAC) executives could be hit with securities-fraud
charges in the coming days now that New York State Attorney General
Andrew Cuomo has cited at least four "failures" to tell "shareholders
material information related to the bank's takeover of Merrill Lynch &
Co," the WSJ and NYT report. Cuomo's office is pursuing its
investigation after the Securities and Exchange Commission concluded
recently that BofA had misled investors about $3.6 billion in bonuses
being paid to Merrill employees. The SEC chose not pursue individual
BofA executives, but Cuomo, under New York State statutes, is taking a
harder line. He also wants to know why BofA's general counsel was
unceremoniously fired just four days after the Merrill deal went
through. Timothy Mayopoulos "was let go the day the bank informed its
board that Merrill was bleeding money at an unexpected pace," writes
the NYT, adding: "He was immediately escorted from the building
without being permitted to return to his office, the people with
knowledge of the situation said. His dismissal came six days after Mr.
Mayopoulos spoke with the bank’s chief financial officer about
mounting losses at Merrill Lynch, which were not disclosed to
shareholders before the deal closed."
Kraft (KFT) has increased the pressure on its takeover target Cadbury
by warning the U.K. confectioner that it will "struggle to stay
independent" if it continues to spurn the $17.6 billion offer, the
Financial Times writes. Irene Rosenfeld, Kraft’s chief executive, in a
talk with analysts, refused to be drawn out on whether Kraft would
launch a hostile takeover but did observe, "Given the complexion of
the market and the global landscape, we believe it would be difficult
for them to go it alone.” So why does Kraft want Cadbury? It's all
about gum, writes Business Week. "The global gum market has been
expanding for years, from a $16 billion industry in 2004 to $23
billion in 2008," while other confectionary sectors such as chocolate
have grown at a much slower pace. Cadbury owns 29 percent of the
global gum market—something Kraft is eager to chew on.
Finally, do not hang all your hopes on gold. CNN Money reports that
silver is the hot commodity at the moment. OK, so gold has gone over
$1,000 an ounce, but silver prices hit a 13-month high of about $16.72
an ounce Tuesday—that's a 40 percent gain so far this year. William
Jennings Bryan would approve.
bademiyansubhanallah
A New Path for Morgan Stanley?
By Matthew Yeomans
Posted Friday, September 11, 2009 - 5:50am
Morgan Stanley has a new boss in the shape of James Gorman—an
appointment that ushers "out a tumultuous boom-and-bust period under
its current CEO, John Mack," the Wall Street Journal writes. Gorman, a
51-year old Australian is the "the quiet power behind a new push to
lure ordinary investors to the bank’s blossoming brokerage business,"
adds the New York Times, and the move signals just how cautious Morgan
Stanley's (MS) board remains after its "near-death experience" last
fall. Gorman's background is in selling stocks and bonds to retail
investors. That's far less profitable than outgoing CEO Mack's bond
business specialty but far less risky.
The appointment coincides with more upbeat pronouncements from the
Obama administration over the health of the banking industry.
Yesterday Treasury Secretary Timothy Geithner said the banking system
is showing strong enough vital signs to "begin winding down some of
the extraordinary support we put in place for the financial system,”
the NYT reports. Geithner noted that banks were increasingly able to
raise capital from private investors and so were less reliant on the
government's loan and bailout programs.
General Motors (MTLQQ) wants to make you an offer you'll find hard to
refuse. The NYT reports that the newly restructured automaker has
launched its "May the Best Car Win" campaign that offers customers a
full refund within 60 days on any GM car or truck if they're not
satisfied. To promote the deal, the company has made its new CEO,
Edward Whitacre, the star of a set of TV ads, a la Lee Iaococca. The
offer doesn't extend to Magna, the Canadian auto-parts maker that just
agreed to a major stake in GM's European operations, including the
leading brands Opel and Vauxhall. Under the terms of the deal (which
has been dragging on for months), Magna will invest $726 million, and
the German government has pledged to finance the plan and help fund
Opel with more than $6 billion in loans. The German government's
largesse seems sure to protect domestic jobs at Opel operations, but
it portends mass layoffs for Vauxhall workers in the United Kingdom,
says the Guardian. That's a big story, but the U.K. press is more
interested in another auto tale, the $65 million in pay and pensions
given to five executives for the troubled MG Rover carmaker, even as
it racked up debts of more than $1.5 billion and ultimately declared
bankruptcy with the loss of 6,500 jobs, as the BBC reports.
Time for another Lehman Bros. anniversary-themed story from the NYT,
and this time it reports that small individual investors are flocking
back to the stock market. Some $56 billion has been poured into equity
funds since April as the same investors who were hit by the "rout that
erased fortunes and upended retirement plans,"have continued to stick
with the market and the "gilded promise of profits and wealth."
Certainly China stocks are doing well this morning after the
government released new data showing that "that investment, industrial
output and credit all expanded more rapidly in August," the Financial
Times reports.
There's big goings-on in the land of Big Media, with talk that
Bloomberg is weighing a bid for Business Week magazine, joining a raft
other suitors, including Bruce Wasserstein, chief executive of
investment bank Lazard Ltd., and the private-equity firms OpenGate
Capital and Platinum Equity LLC. But will whoever grabs the faltering
business publication charge for its online content? The NYT reports on
the rush to create a viable system to charge for online content. It
writes that Journalism Online, a collaboration between media veteran
Steve Brill; L. Gordon Crovitz, a former publisher of the Journal; and
Leo Hindery, Jr., another industry veteran, intends within months to
launch "a system operating and in use by hundreds of Web sites." But
what seemed like a pioneering venture just a few months ago now has a
lot of big-name companies—like the News Corp. and tech giants Google
(GOOG), Microsoft (MSFT), and IBM (IBM)—beginning to float like-minded
ideas.
For over a year, the media have been referring to the securitized
mortgage-and-debt packages as "toxic." Now, new documents that are
part of a lawsuit against Swiss bank UBS shed some light on what the
employees actually involved in trading the securities thought about
their worth. As one UBS employee put it in an e-mail to another
colleague: "Still have this vomit?"
bademiyansubhanallah
No Stress Over Stress Tests
By Bernhard Warner and Matthew Yeomans
Posted Monday, May 4, 2009 - 4:20am
Stress-test grades are due this week for the nation's banking sector,
and the New York Times, for one, is tipping positive results. "The
administration seems prepared to argue that, while a few banks may
need additional money, the broad financial system is healthier than
many investors fear," the newspaper writes. Indeed, one unnamed
government official told the NYT, "None of these banks are insolvent."
That's a relief. The full details come Thursday, when the Treasury and
Fed deliver a detailed summary of the sector that's expected to read
like a lengthy analyst report. "In effect, the Treasury Department and
Federal Reserve regulators will be handing over information to
investors so that they can decide which banks they want to invest in—
and which will ultimately need more bailout money," the newspaper
writes. Over the weekend, Warren Buffett said he doesn't need to wait
for the stress-test results to make his investment decisions. Buffett,
no fan of the stress tests, says he's already stockpiling shares of
Wells Fargo (WFC), U.S. Bancorp (USB), and M&T Bank Corp. (MTB) in his
portfolio, Reuters reports.
Meanwhile, the vote of confidence in the banks will come as little
relief to businesses looking to avoid a cash crunch. The Wall Street
Journal reports that "banks are shortening the terms on lines of
credit ... a sign that while lending is reviving, businesses are
facing new hurdles to obtaining credit." The WSJ warns that, yes, the
credit markets have thawed, but "many borrowers are facing tougher
terms" like higher fees, or revolvers, and fluctuating interest
rates.
Fiat's Sergio Marchionne is not finished kicking the tires. After
pulling off the Chrysler coups last week, the Fiat chief has General
Motors' (GM) Opel unit in his sights, the WSJ reports. Marchionne will
be in Berlin today to meet with German government officials, a crucial
piece of support if Marchionne is to build a new auto super-alliance
around Fiat, Chrysler, and Opel. On Sunday, Fiat's board gave the
green light to Marchionne to begin the negotiations, the newspaper
writes. According to the Financial Times, Marchionne plans to build a
publicly traded "European car supergroup," one that's even larger than
the triumvirate described in the WSJ. "Marchionne wants Italy’s
largest industrial group to separate Fiat Auto from its other
divisions, join them with Opel / Vauxhall, Saab, and GM’s other
European operations, and Fiat’s stake in Chrysler to create a company
with about €80bn ($106bn) of revenues and sales of 6m-7m vehicles a
year," the newspaper writes. If he pulls it off, the carmaker would be
second to Toyota and roughly the same size as Volkswagen, the
newspaper writes.
Away from the comparatively transparent world of Italian corporations
and back to the murky land of U.S. banking: New York Fed Chairman
Stephen Friedman is taking flak for his ties to Goldman Sachs (GS)
during the time when the Fed was shoring up Goldman's finances. At
that point, Friedman sat on Goldman's board and held a chunk of
Goldman stock, "which because of Goldman's new status as a bank
holding company was a violation of Federal Reserve policy," writes the
WSJ. Ultimately, the New York Fed received a waiver for Friedman on
that policy—but not before he had bought 37,300 more Goldman shares
(which have increased $1.7 million in value). The situation
demonstrates how a "tangle of overlapping interests can arise at a
hybrid institution like the New York Federal Reserve Bank" as the U.S.
government gets embroiled in day-to-day banking business.
The fate of the Boston Globe remains undecided as we go to press
(well, as we hit the publish button) after New York Times Co. (NYT)
execs and Boston Newspaper Guild representatives failed to agree on
radical concessions before a midnight deadline. Late last night, the
Times Co. said "it would file a notice under federal law stating its
intention of closing The Globe within 60 days," the NYT reports. The
union rebutted what it called "bullying" tactics by saying it had
"made a proposal that exceeded management’s demands." One union, the
Teamsters, agreed to some $2.5 million in concessions, reports the
Boston Globe, and negotiations continue with the guild. One union
official summed up the Times Co.'s blunt negotiating position as, "Do
or die."
And, finally, got a can't-miss flight to Mexico scheduled? Not to
worry. The world's biggest airlines have added a series of in-flight
additions to reassure air passengers during the current H1N1 virus
outbreak. "Lufthansa has placed a doctor on board each of its flights
to Mexico; American Airlines has issued medical kits to cabin crews;
British Airways is distributing face masks; and Alaska Airways is
removing pillows as fears of a flu pandemic rattle the global aviation
industry," the NYT writes.
Bernhard Warner is editorial director of Social Media Influence.
Sid Harth
Sid Harth
Welcome to Lehman Brothers, you're fired!
Tue Sep 15, 2009 10:08am IST
PARIS (Reuters Life!) - French maths and computer science graduate
Edouard d'Archimbaud thought he was about to start a lucrative and
challenging career in finance when he walked through the doors of
Lehman Brothers' London offices a year ago.
Surprised to see crowds of journalists, staff and police in front of
the building as he turned up for his first day on Sept. 15, 2008, it
was only once inside that d'Archimbaud realised he may as well not
have got out of bed.
"I went into the building and then it was looking at the headline of
the Financial Times that I got the news," d'Archimbaud, now 25, told
Reuters Television in an interview.
"I realised that there were some people from PriceWaterhouseCoopers.
They were there to take Lehman Brothers in charge. That's why I
realised that it was the end, that everybody was fired."
D'Archimbaud stayed in London a week while the chaos and shock
surrounding the Lehman bankruptcy started to unfold before returning
home to Paris to find a new job and rejoin the friends he had said
goodbye to just weeks earlier.
D'Archimbaud had worked as an intern in a trading team at Lehman for
three months during the summer, after which Lehman had offered him a
job he was never able to start.
Now, after spending almost a year with Cheuvreux, a unit of French
bank Credit Agricole, in Paris, d'Archimbaud said he is "beginning a
new life" helping companies cut costs and avoid going bankrupt.
He decided to quit Cheuvreux a few weeks ago to work full-time for a
start-up business with friends that provides software to enable
companies to predict sales and save money.
"In a way, we help companies to take fewer risks," said d'Archimbaud,
the experience of Lehman still fresh in his mind.
(For full coverage on Times of Crisis click here)
(For more news on Reuters Money click www.reutersmoney.in)
© Thomson Reuters 2009 All rights reserved
Sid Harth
Fuld says being "dumped on" for Lehman failure
Tue Sep 8, 2009 9:24am IST
By Clare Baldwin, Jui Chakravorty and Jonathan Spicer
NEW YORK/KETCHUM, Idaho (Reuters) - "You don't have a gun; that's
good."
That was how Richard Fuld greeted a Reuters reporter who had tracked
him down to his country house in a bucolic setting beside a river and
amid tree-covered slopes in Ketchum, Idaho last Friday.
The man vilified for the collapse of Lehman Brothers almost a year
ago, a failure that triggered the global economic crisis, seemed
burdened but not crushed by the pressure of the upcoming anniversary.
Standing on his gravelly driveway wearing a black fleece vest, dark
gray shorts and sandals, Fuld indicated he was torn about speaking out
in his own defense, partly because of ongoing litigation but also
because he felt the world was not ready to listen.
"You know what? The anniversary's coming up," he said. "I've been
pummeled, I've been dumped on, and it's all going to happen again. I
can handle it. You know what, let them line up."
Fuld again emphasized his concern about what will be said and written
about him in the days leading up to the Sept. 15 anniversary of the
Lehman collapse but also stressed his ability to see it through.
"They're looking for someone to dump on right now, and that's me,"
Fuld lamented and later added: "You know what they say? 'This too
shall pass.'"
Fuld, 63, took Lehman's reins in 1994 when it was troubled and rebuilt
it into the fourth-largest U.S. investment bank, a Wall Street
powerhouse whose massively profitable mortgage banking machine
inspired rivals' envy. Even Goldman Sachs (GS.N: Quote, Profile,
Research) was nervous.
But it was forced to file the biggest bankruptcy in U.S. history after
it choked under the weight of souring assets and lost investor
confidence, and as the U.S. government and Federal Reserve failed to
find a buyer and decided not to come up with a rescue package.
Fuld was then humiliated before a Congressional panel last October as
stock markets spiraled downwards. He was told by one politician that
he was the designated "villain" of the day and screamed at by
protesters who called for him to be jailed.
Since then, he has mostly ducked the spotlight, allowing an image of
greed, arrogance and failure to cling unchallenged to his name.
In Ketchum on Friday, Fuld said he wanted to speak but didn't see the
point. "Nobody wants to hear it. The facts are out there. Nobody wants
to hear it, especially not from me."
The former CEO, who embraced the "gorilla" nickname that characterized
his fierce and intimidating business style, looked and sounded sad as
he lingered with the surprise visitor outside the house, which is
beside a river in the Rocky Mountains.
Fuld, who said he had hiked up a nearby mountain earlier in the day,
declined to speak about his current work.
But friends and acquaintances say he has started his own consulting
firm named Matrix Advisors LLC, based out of an office on Third Avenue
in New York. He is also doing some work for restructuring firm Alvarez
and Marsal, helping to unwind Lehman free of charge, according to
sources.
He commutes from his Greenwich, Connecticut estate into Manhattan
about three to four times a week, and has been seen at breakfasts and
lunches with former colleagues at top-class restaurants in New York
and Greenwich.
"He's keeping a low profile but doing a lot of power-lunches," a top
executive at a big investment bank said. "He's keeping in touch with
friends on Wall Street."
But behind those power lunches is a man clearly worried about being
slammed all over again.
He used to insist on facing the restaurant door; lately, he's been
seen facing the wall.
"He got such negative press -- they made him out to be this devil,"
said one past associate. "So I think he's embarrassed to be seen in
public, afraid someone is going to throw a pie in his face."
The former CEO has been named in nearly 40 different legal actions
since Lehman went bankrupt, most of which were filed by cities and
pension funds that claim he and other Lehman executives led them into
making bad investments.
More than a dozen suits were filed by former employees of the firm who
claim that Lehman's executives allowed imprudent investments in the
firm's stock for employee savings plans.
Fuld is also one of a dozen Lehman executives subpoenaed for three
different grand jury probes charged with investigating Lehman's
collapse. He declined to comment on the state of those investigations.
SCALING BACK
Fuld was far from immune to the financial impact of the collapse. He
is estimated to have lost more than $1 billion as Lehman's shares
sank, and in the months following the bankruptcy, Fuld and his wife,
Kathy, began selling luxurious property and expensive art.
The Fulds own at least four properties -- an estate in Greenwich; a
mansion on Jupiter Island, Florida; a home in Middlebury; Vermont and
the house in Ketchum.
They sold their apartment on New York's Park Avenue for $25.87 million
in August, having bought it for $21 million in January 2007 and done a
multimillion dollar renovation.
A source close to the couple said Kathy, who was often seen shopping
at places like Hermes, buying items such as bags and shawls that cost
a few thousand dollars each, has not been seen at such stores in the
past few months.
"It could be that they're pulling back the spending or it could be
that she doesn't want to be seen spending, so she could be having
someone else do the shopping for her," the person said.
Kathy, who sits on the board of trustees for the Museum of Modern Art
and is known for her love of drawings, has sold at least 16 drawings
by artists such as Arshile Gorky and Barnett Newman for around $13.5
million.
"I know it's been hard. From what I saw he was a wonderful father and
a great husband," said Paul Assaiante, who through the years played
squash with Richard Fuld and tennis with Kathy.
But they haven't played a single squash game since Lehman's demise,
said Assaiante, who coaches teams at Trinity College.
Over the same period, Fuld, who has two daughters and a son, has
dropped off the boards of the Robin Hood Foundation, which supports
New York City anti-poverty groups; the Partnership for NYC, an
economic development network; and the Blind Brook Country Club in
Purchase, New York.
Meanwhile, he has not been chartering private jets for his trips to
Idaho -- instead flying Delta Air, according to residents of Ketchum,
a little town also known for residents such as actor Tom Hanks, and
the place where Ernest Hemingway is buried.
Indeed, Fuld flew back to New York early Saturday morning on a Delta
flight. He had connected through a SkyWest flight from Hailey, Idaho,
to Salt Lake City, Utah that was also taken by the Reuters reporter.
On the twin turbo-prop jet, he was reading David Wessel's book, "In
Fed We Trust," which looks at the Federal Reserve's role in the
financial crisis, and could be seen underlining various passages.
The book examines, among other things, why the U.S. authorities did
not rescue Lehman while being prepared to bailout floundering
insurance giant AIG.
When asked about his views of the key figures in that decision, former
Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and
current Treasury Secretary Timothy Geithner, he said the reporter
should read that book and "go back to my testimony" before lawmakers.
Fuld had told the Congressional panel that he would wonder "until they
put me in the ground" why the U.S. government did not rescue his firm,
as it helped others.
In the testimony, he blamed a series of developments for Lehman's
downfall, including abusive short selling, false rumors, credit agency
downgrades and loss of confidence by clients and counterparties.
DEVASTATED
Almost to a person, Lehman employees said in interviews they were
still devastated by the demise of the 158-year-old firm. They were
stunned, and now they are bitter, about a federal government that
arranged shotgun weddings for Bear Stearns and Merrill Lynch, propped
up AIG and bailed out Goldman Sachs and Morgan Stanley -- but let
Lehman die.
"They should never have let us go bankrupt. It was just a big, huge
mistake," said one executive who worked closely with Fuld.
While Fuld has his defenders, Lawrence McDonald, a former Lehman vice
president of distressed debt and convertible securities trading, who
wrote a book about the Lehman collapse -- "A Colossal Failure of
Common Sense" -- called him arrogant and irresponsible.
"Fuld has a bunker mentality. He blamed the markets, blamed the short-
sellers. The truth is, qualified people warned him several times and
he wouldn't listen," McDonald told Reuters in an interview. McDonald
said there was still "a lot of anger in the community out there"
toward Fuld.
Others said that Lehman under Fuld certainly helped to create the
conditions for its own demise.
"It was a series of small steps -- rising leverage, retention of risky
positions, delay of raising capital and reliance on 'hot money' for
financing -- that one by one took Lehman to the end of the plank,"
said Brad Hintz, analyst at Sanford C. Bernstein and the CFO of Lehman
in the late 1990s.
Lawrence McCarthy, who was head of distressed bond trading at Lehman
and works for Rafferty Capital now, told Reuters he quit after
warning, several times, that the real estate market was living on
borrowed time and that Lehman was becoming too leveraged.
"Other than six or seven people, no one really knew him. It was like
he was in his own world on the 31st floor," McCarthy said of Fuld. "He
was never in touch with the troops. In my four years there, he never
came down to the trading floor. Not once."
When Lehman's risk committee said "hit the brake pedal, he was hitting
the accelerator," said McCarthy, who was quoted in McDonald's book.
At his house in Ketchum, Fuld bristled at the perception. "What, do
people think I'm an idiot, that suddenly I woke up two months before
and suddenly things were a problem? No. No, the signs were there," he
said.
Speaking with the Reuters reporter the next day at the Salt Lake City
airport, Fuld called McDonald's book "absolutely slanderous," adding:
"You know, 'Dick never left his office.' Well, I left my office, I
left my office plenty."
"I'm not a defeatist," he said. "I do believe at the end of the day
that the good guys do win. I do believe that."
(Additional reporting by Joseph A. Giannone, Paritosh Bansal, Steve
Eder, Emily Chasan)
(For more news on Reuters Money click in.reuters.com/money)
Sid Harth
Sid Harth
World wealth down 11 pct, fewer millionaires - report
Tue Sep 15, 2009 11:05am IST
By Joe Rauch
NEW YORK (Reuters) - The 2008 global recession caused the first
worldwide contraction in assets under management in nearly a decade,
according to a study that found wealth dropped 11.7 percent to $92.4
trillion.
A return to 2007 levels of wealth will take six years, according to a
Boston Consulting Group study that examined assets overseen by the
asset management industry.
North America, particularly the United States, was the hardest hit
region, reporting a 21.8 percent decline in wealth firms' assets under
management to $29.3 trillion, primarily because of the beating U.S.
equities investments took in 2008.
Also hit hard were off-shore wealth centers, like Switzerland and the
Caribbean, where assets declined to $6.7 trillion in 2008 from $7.3
trillion in 2007, an 8 percent drop.
The downturn has "shattered confidence in a way we have not seen in a
long time," said Bruce Holley, senior partner and managing director at
BCG's New York office.
The study forecasts that wealth management firms' assets under
management will not return to 2007 levels, $108.5 trillion, until
2013, a six-year rebound.
Europe posted a slightly higher $32.7 trillion of assets under
management, edging out North America for the wealthiest region, though
the total wealth in region dropped 5.8 percent.
Latin America was the only region to report a gain in assets under
management, posting a 3 percent uptick from $2.4 trillion in 2007 to
$2.5 trillion in 2008.
MILLIONAIRE ... NOT
The economy's retreat also pounded millionaires who made risky
investments during the economic boom.
The number of millionaires worldwide shrank 17.8 percent to 9 million,
the BCG study found.
Europe and North America were hardest hit in that regard, posting 22
percent declines. The United States still boasts 3.9 million
millionaires, the highest population on the globe.
Singapore had the highest density of millionaires at 8.5 percent of
the population. Other countries included Switzerland, at 6.6 percent,
Kuwait, at 5.1 percent, United Arab Emirates, at 4.5 percent, and the
United States, at 3.5 percent.
(For more news on Reuters Money click www.reutersmoney.in)
© Thomson Reuters 2009 All rights reserved
...and I am Sid Harth
Sid Harth
U.S. looking at selling Citi shares - report
Tue Sep 15, 2009 11:32am IST
NEW YORK (Reuters) - The U.S. Treasury Department is talking to
Citigroup Inc about how to sell the roughly one-third stake the
government acquired as part of its bailout of the bank, news agency
Bloomberg reported, citing people familiar with the matter.
The Treasury may start unloading shares as soon as October, and would
aim to sell the holdings over the next six to eight months, the
newswire reported, citing one of the people familiar with the matter.
Shannon Bell, a spokeswoman for Citigroup, declined to comment. There
was no immediate response from the Treasury Department.
The U.S. government has about 7.7 billion Citi shares, representing
33.6 percent of the company's outstanding stock.
Citigroup has recorded more than $100 billion of write-downs and
credit costs since the financial crisis began, as it wrestles with bad
loans to consumers and bad securities on its books.
The government gave the bank $45 billion of rescue money in two
bailouts, and then agreed to convert the preferred shares it bought
from the bank into common stock.
But since that conversion, the bank's shares have rallied some 40
percent, and the government could be sitting on billions of dollars of
profits.
The difficulty will be in selling a large block of shares without
causing the bank's share price to crater, cutting into the
government's profit.
But Switzerland found extensive demand for its 9 percent stake in UBS
last month when it sold $5.1 billion of the bank's shares.
Orders for the shares far exceeded stock on offer, the finance
ministry said. UBS's shares have risen more than 12 percent since that
sale, which investors saw as a sign of the bank's strength.
The U.S. Treasury hasn't developed a formal plan for the sale of Citi
shares, and is considering options such as selling the stock in blocks
to investors over six to eight months, or selling a small amount daily
or weekly, Bloomberg said, citing people who declined to be
identified.
The shares could also be sold at once in a managed offering, Bloomberg
reported.
Citi's shares traded at $4.39 on Monday in after hours trading, down
2.9 percent from their close.
Sid Harth
ANALYSIS - Regulators eye dark corners of U.S. stock market
Mon Sep 14, 2009 9:30am IST
By Jonathan Spicer
NEW YORK (Reuters) - In obscure corners of the U.S. stock market --
where "flash orders," "dark pools" and other controversial practices
thrive -- regulators are trying to shine a light to guard against
unfair dealing.
But a crackdown by the U.S. Securities and Exchange Commission, sought
in recent months by some top lawmakers in Washington, won't come
quickly and may not be as comprehensive as some desire.
The market rule-making process at the SEC is long and time-consuming.
And while some trading practices are under the gun, the overall market
has been sound throughout the financial meltdown, helped, many argue,
by its embrace of the complex electronic trading at the center of the
controversy.
Exchanges, brokerages and other market players have catered in recent
years to so-called high-frequency traders -- firms that use computer
algorithms to make hair-trigger trades in small amounts of stock. This
has spawned other controversial practices, but has also given the U.S.
stock market unrivaled liquidity.
"The tendency is to leave the market alone. As long as it's working,
don't try to play games with it," said Fred Lipman, a partner at
Philadelphia law firm Blank Rome who has written several books on
capital markets.
"These algorithms and computer programs are ... a fact of life," he
said, and regulators "are going to do just enough to keep the
politicians off their backs."
Unlike the high-profile financial regulation overhaul being sought by
the Obama administration, the SEC's market-structure initiative
targets behind-the-scenes Wall Street practices.
Some observers say the next big scandal lurks in this structure, which
has evolved mostly unobstructed since 2004, when sweeping rules
ensured all orders are executed at the best price. That helped seed
the growth of high-frequency traders, which are now involved in an
estimated 70 percent of equity trades.
This summer, Democratic U.S. Senators Charles Schumer and Ted Kaufman
called for a review of high-frequency trading and other practices that
they said could exploit smaller investors and put the stability of
markets at risk.
Banks such as Goldman Sachs, hedge funds like Citadel, and private
marketmakers such as GETCO have been the main target of criticism in
recent months, since high-frequency trading came under the spotlight
after a former Goldman computer programmer was charged with stealing
trading code.
EXPLORING POSSIBILITIES
SEC staffers are exploring possible recommendations to the agency this
fall on market-structure issues, including high-frequency trading,
said SEC spokesman John Nester.
He said the agency is also probing aspects of trading and transparency
at more than 40 U.S. "dark pools," where large block trades are done
away from central exchanges.
Also under SEC scrutiny: "naked access," where a broker allows a
customer to use the broker's name to get direct access to markets; and
"co-location," in which exchanges like NYSE Euronext and Nasdaq OMX
rent space to firms, which put their computers next to the exchanges'
trading engines to shave valuable microseconds from trading time.
Regulators have said little publicly about high-frequency trading,
suggesting they are loath to tamper with a phenomenon that the
industry says makes trading in U.S. markets relatively easy.
"It takes great wisdom to not act. If regulation is wrong, the goose
that laid the golden egg might die," said former Nasdaq Stock Market
President Alfred Berkeley, who is now chairman of block-trading
platform Pipeline Trading.
One high-frequency trader, who wasn't authorized to speak on the
record, said, "It's kind of a witch hunt. High-frequency traders
provide a boatload of liquidity, and that's why the U.S. markets are
the tightest, with the most volume ever."
SCHAPIRO PLEDGES PLAN
SEC Chairman Mary Schapiro has said the investor protection agency is
crafting a plan that would "eliminate the inequity that results" when
exchanges "flash" buy and sell orders to member firms before routing
them to the wider market.
Schumer told Reuters on Thursday, "We continue to believe ... that a
process is under way to end the unfair practice of flash trades."
The SEC is scheduled to meet Sept. 17 to consider restrictions on
"flash orders."
Sid Harth
10:00 September 7th, 2009
Lessons from the credit crisis
By: Reuters Money
Tags: Uncategorized, credit crisis, India, lehman brothers, stock
markets
About a year ago, investment banking giant Lehman Brothers collapsed
into bankruptcy after the U.S. administration refused to support a
bailout. The bust triggered a dangerous domino effect which rocked
world markets as people’s faith in the financial system plummeted and
forced businesses to cut production as recession started taking roots.
The shock waves were felt in India too - the benchmark Sensex fell
more than 50 percent in 2008, exports plunged and companies had to
resort to ruthless down sizing to weather the crisis.
Reuters India plans a series of stories and analyses on how the world
economy has been rebuilding since then. We would like you, our
readers, to use the comments section below to share your experiences
of the past year.
Best Comment
September 8th, 2009
9:00 am EDTIt is the time to deal with stagnation it is not far. It is
the time to suffer lending Crisis. When US banks can start full-
fledged lending is still a ? Reluctance to lend, hiking unemployment
rate (now bigger than worst case scenario) Problem which grabbed us is
not a mild one.QE will be an only a short term remedy for zombie banks
and Economy.
-Posted by Suraj
September 7th, 2009 7:13 pm GMT - Posted by Anoob
The software industry has seen the all time low the last year, where
jobs were slashed down like anything.I fear the worst be yet to come.
September 8th, 2009 9:00 am GMT - Posted by Suraj
It is the time to deal with stagnation it is not far. It is the time
to suffer lending Crisis. When US banks can start full-fledged lending
is still a ? Reluctance to lend, hiking unemployment rate (now bigger
than worst case scenario) Problem which grabbed us is not a mild
one.QE will be an only a short term remedy for zombie banks and
Economy.
September 9th, 2009 7:55 am GMT - Posted by Ramu Krishnan Swani
Well, the year has been tough for my friends, people around me. I have
heard stories of ppl being fired, pay cuts, and those lookiing for a
job are still looking… the scenario has been bad.
Worst of all, there are ppl who have lost huge amount of money in the
stock market.
Biggest Lesson — Stocks market doesn’t love anyone. Play safe.
September 9th, 2009 9:08 am GMT - Posted by vipul
As with most tragedies of this scale, the greed and ambition of few is
being paid for by many. This crisis should mark the final demise of
Homo economicus. Almost everyone i know who entered the job market
around that time is still looking for that dream job.
Sid Harth
Crisis sparks soul-searching at business schools
Tue Sep 15, 2009 10:19am IST
By Claudia Parsons
NEW YORK (Reuters) - A year after the collapse of Lehman Brothers
plunged the world into financial meltdown and jolted the foundations
of capitalism, business students don't just want to learn how to
maximize profit for shareholders and themselves.
Instead, many talk about sustainability, ethical leadership and
managing companies for the benefit of all "stakeholders."
"It's fair to say that 15 or 20 years ago, the vast majority wanted to
find lucrative careers," said Liz Maw, executive director of Net
Impact, a non-profit organization that promotes socially sustainable
business practices.
"Now the great progress is that people see an MBA as a tool to learn
how to be an effective manager of many organizations," she said,
pointing to growing interest in the non-profit sector, government and
entrepreneurship among MBA students.
Maw said the trend started around 7 or 8 years ago, coinciding with
growing awareness of corporate social responsibility and the
environment. But it has accelerated during the financial crisis, which
revealed how a short-term thirst for profits fueled risky business
practices.
Asked to name their role models, a group of MBA students at New York's
Columbia University cite freedom hero Mahatma Gandhi, a CEO known as
an environmentalist and financier-philanthropist Warren Buffett.
"The financial crisis is going to be so deeply associated with our
generation, it will put a sense of responsibility on all of us as
future leaders," said Gary Schueller, 28, who has just started a two-
year MBA at Columbia Business School.
Schueller named Gandhi as his role model, and within the business
world singled out Jeffrey Swartz, chief executive of environmentally
conscious shoemaker Timberland.
"He's a pretty solid example of somebody who's done a good job of
creating a socially friendly company," Schueller said.
Tim Eby, a 28-year-old engineer who worked for IBM before starting his
MBA this month at Columbia, said scandals such as the Ponzi scheme run
by disgraced financier Bernard Madoff had made him nervous about even
naming a role model.
"I'm sure a few years ago somebody would have said Bernie Madoff is my
guy," Eby said.
Second-year MBA Olivia Albrecht, 26, echoed that caution, but made an
exception for financier Warren Buffett, one of the world's richest men
and most generous philanthropists.
Bruce Kogut, director of the Sanford C. Bernstein Center for
Leadership and Ethics at Columbia, said the faculty had been debating
how to learn the lessons of the crisis.
"Some of it is simply 'Why did our models and what we teach fail, and
did they fail?'" Kogut said. "There also is this issue of 'Are we
turning out people who have unrealistic expectations of their worth
and the compensation they should receive?'"
New elements have been introduced to the curriculum this year, and in
the summer, Thomas Russo, former vice chairman of Lehman Brothers,
taught a course.
This year's students will study the collapse of the auto industry.
OATH TO SERVE GREATER GOOD
Students at Harvard Business School have created an MBA Oath and are
encouraging their peers around the world to pledge to act ethically
and "strive to create sustainable economic, social, and environmental
prosperity worldwide."
Launched in May, the oath was taken by more than half the graduating
class of 2009 at Harvard Business School.
The idea of MBA students signing their version of the Hippocratic Oath
was the subject of a satirical sketch on the "The Daily Show with Jon
Stewart," but organizers say it's a start, even if so far there is no
enforcement mechanism.
Larry Estrada, 29, a Harvard MBA student from Seattle, said the oath
stemmed from a desire to professionalize the MBA and restore some
credibility in the face of negative stories about business school
alumni involved in the meltdown.
"I don't think these are necessarily lofty goals, but in the current
state of the industry, they certainly seem like a higher standard,"
Estrada said.
A list of signatories on the web site www.mbaoath.org shows students
from as far afield as Britain, India and Australia.
While many MBA students sound idealistic, their teachers warn that
it's easy to slide down the slippery slope.
Dana Radcliffe, a professor at Cornell University's Johnson School,
taught a course on ethics and corporate culture last semester that he
said focused on "what leads good or decent people to do bad things."
"One of the big areas that needs to be discussed more is ethical
responsibility with regard to risk. What should you do when you don't
know? How diligent should you be in seeking out how risky a situation
is?" he said.
"I'm not optimistic that these lessons will be learned."
Albrecht, one of the Columbia MBA students, said only time would tell
whether the financial crisis proves to be a turning point for this
generation "like a 9/11 pivotal experience."
"Changes from our generation in terms of thinking on leadership and
ethics is not going to shift what jobs you would necessarily go into,
(but) it's going to hopefully shift your perspective when you are in
those jobs," she said.
"The data won't be out there for maybe 15 years until we are in a
decision-making position and our generation really is in the
leadership role in these companies and organizations."
(For more news on Reuters Money click www.reutersmoney.in)
(For full coverage on Times of Crisis click here)
© Thomson Reuters 2009 All rights reserved
...and I am Sid Harth
Sid Harth
Patience needed in post-Lehman deal making
Fri Sep 11, 2009 5:51pm IST
By Megan Davies and Quentin Webb
NEW YORK/LONDON (Reuters) - Dealmakers are not known for their
patience. Yet that's what's needed more than anything else a year
after Lehman's collapse.
It takes months longer to close a deal, the number and size of
transactions has shrunk, and mergers and acquisitions fees have
plummeted. Much of the M&A work now is either advising failed
companies on restructurings or organizing fire sales.
"The nature of M&A has changed fundamentally," said Antonio Weiss,
Lazard global head of M&A. "On one end of the spectrum, there's an
increase in volume of distressed activity and on the other, well-
capitalised corporations have a chance to revisit acquisition ideas at
lower values."
Transformational deals have been few and leveraged buyouts are just
not there -- yet. But there are bright spots, such as this week's
unsolicited bid by U.S. firm Kraft Foods Inc for the UK's Cadbury Plc,
and confidence has started to return.
"Many CEOs feel we've bottomed," said James Stynes, global chairman of
M&A at Deutsche Bank. "We are starting to see a pickup that could make
2010 more positive than people originally thought."
That's a sea change from last year.
"There were certain points over the last year when it was ... so
incomprehensible to go talk to a board about a deal," said one senior
dealmaker who declined to be named. "It was just not a topic that
belonged in the board room."
CEOs had bigger fish to fry -- plummeting share prices, hard-to-get
credit and ballooning inventories.
"Last year was a very significant event that caused everyone to be
very cautious, said Robert Kindler, global head of M&A at Morgan
Stanley. "The real focus that companies have had this year hasn't been
M&A, but looking at their balance sheets."
The transformed deals landscape caused a musical chair dance in the
all-important "league tables" or deal rankings. The four top banks so
far this year are Morgan Stanley, Goldman Sachs, Citigroup and
JPMorgan: the same four as in 2008 but in a different order.
For graphics on the top 20 M&A advisors and fees here and here
BACK TO BASICS
Before the crisis hit, Wall Street was in "product mode," said John
Studzinski, global head of the advisory group at private equity firm
Blackstone.
"There was an M&A product, a convertible product, an equity product, a
debt restructuring product," Studzinski said. "Now ... we have gone
back to the basics of the late '70s and early '80s -- balance sheet
solutions, and that includes buying and selling businesses and debt
restructuring."
That takes time: Boards want more time to check the books, assembling
financing is a challenge and many CEOS prefer to use stock to do
deals. Therefore, it can now take 9-15 months to close a deal, from
6-9 months pre-crisis, Studzinski said.
The M&A business is now book-ended by big deals and bankruptcies, said
Paul Parker, head of global M&A at Barclays Capital. At the trough,
there's an increase in "involuntary M&A" where companies are forced
into transactions, he said, while that at this stage in the cycle it
is typical to see companies with size and scale find a "strategic
imperative" to do a deal despite the lack of visibility into future
earnings. The key is being able to adapt.
"This is an industry that constantly adjusts and adapts and has to,"
said Roy Smith, professor at NYU Stern School of Business, and a
former Goldman Sachs partner. "We had what was a cataclysmic meltdown
in the market .... But we went through it. The industry simply
adapted."
LBO DEARTH
LBO deals are still absent because the cheap financing that greased
the business is no longer there.
"The big question ... is: 'Will private equity ever return?'" said Gar
Bason, global head of the M&A practice at law firm Davis Polk &
Wardwell. "The market won't really be back to normal until those
participants ... return."
Junk bond spreads remain wide at some 900-plus basis points over U.S.
Treasuries. Investment grade bond spreads are down to about 250 basis
points, from more than 650 right after the Lehman collapse, but are
above the historic average.
"With the capital markets thawing there's an expectation that sponsors
(private equity firms) will become more active, both in terms of
making new investments and exits," said Stefan Selig, executive vice
chairman of global corporate and investment banking at Bank of
America. However, the lack of depth in the credit markets means it is
unlikely that buyout firms will pursue very large going-private
transactions, he added.
CONFIDENCE BOOST?
The lubricant for M&A -- confidence -- is coming back.
"We're definitely seeing an increase in phone calls from bankers about
potential deals," said Mario Ponce, a partner at law firm Simpson
Thacher specializing in M&A. "People are starting to pick up the pen
again."
M&A deals so far this year total $1.3 trillion, down from year-to-date
volumes of $2.1 trillion in 2008 and $3.2 trillion in 2007 -- and
deals for troubled financial firms dominate.
M&A fees fell to $8.4 billion for the first half of 2009 from $18.6
billion the same year-ago period.
That's changing now. Aside from Kraft's overture, a recent bright spot
was Walt Disney Co's $4 billion acquisition of Marvel Entertainment.
Private equity firms are also seeing opportunities to cashing in some
chips or "exit." Blackstone and Lion Capital are in talks to sell soft-
drinks maker Orangina to Japan's Suntory, while Kohlberg Kravis
Roberts & Co's portfolio company Dollar General has filed for an IPO.
Capital raisings are another hot spot. It started with secondary
offerings because companies needed capital. Now initial public
offerings have started to pop up -- after just one IPO in the five
months after Lehman's collapse. Six are scheduled to price in the week
of Sept. 21, marking the busiest week for IPOs since December 2007,
according to Thomson Reuters Research
For a graphic on the top 20 banks in global equity capital markets,
please click here
Bankers aren't breaking out the champagne yet, though.
"We're at a trough and we're likely to build slowly out of it," said
Cary Kochman, co-head of Americas M&A at UBS. "It took 7 years to
build back from the last cycle downturn. The cycle times from trough
to peak are not short."
(Additional reporting by Jessica Hall in Philadelphia, Mike Flaherty
in Hong Kong, Mike Erman, Jui Chakravorty, Phil Wahba and Dan Burns in
New York; Editing by Jack Reerink and Richard Chang)
chhotemianinshallah
FRESHENING UP
- The global financial system needs carefully made regulations
Bhaskar Dutta
Almost a year after the collapse of the Lehman Brothers on September
15 last year — Lehman’s filing for bankruptcy triggered the virtual
collapse of the global financial system — finance ministers and heads
of central banks met in London last week to discuss the next steps in
tackling the financial crisis and the associated global economic
slowdown. The meeting, which was a precursor to the meeting of the
heads of government to be held later this month in Pittsburgh, was to
a large extent devoted to what can be done to prevent another global
crisis from occurring.
The focus on prevention of another crisis is in itself a hopeful sign
because it is an assertion that the worst is behind us, that the world
economy is slowly climbing out of the deep recession witnessed during
the course of the last year. Some macroeconomic data support this
optimism. For instance, the International Monetary Fund has, in its
latest World Economic Outlook update, revised upwards its forecast of
economic growth during 2009-10. With the exception of the United
Kingdom economy, most major countries are expected to participate in
the recovery during the course of the current year itself.
Of course, all prudent economists are well aware that the expected
economic recovery is going to be a long-drawn-out process — no one
expects the global economy to grow rapidly at anything like four or
five per cent even by the end of next year. All countries which were
particularly hard-hit by the recession have very large levels of
excess capacities in their economies with the Organisation for
Economic Co-operation and Development estimates ranging from around
five per cent of potential gross domestic product in the United States
of America and the Eurozone, and even higher in Japan. Any large shock
can completely reverse the process of recovery. Also, the slow rate of
recovery almost certainly implies that further jumps in unemployment
cannot be ruled out.
A crucial issue in any discussion of the steps which need to be taken
by groups such as the G20 is agreement about the role of the large
stimulus packages undertaken by countries such as the US, China and
Germany. Although there is some amount of controversy about whether
such massive injection of public money was socially desirable — one
school of thought being that the capitalist system needed to be
“punished” in order to ensure that the same mistakes are not repeated
in the future — there is no doubt that the recession would have been
for a significantly longer duration if governments had refrained from
these steps.
For exactly the same reason, it is important that governments continue
to extend support to their beleaguered economies. Any precipitous
decline would have quite disastrous consequences for the global
economy. Fortunately, this is one of the issues on which there seems
to have been some agreement amongst the G20 finance ministers. In a
press briefing after the meeting, the UK chancellor announced that the
group felt that the stimulatory policies needed to be persevered with
until “recovery was secured”.
However, the sheer size of the government stimulus packages implies
that they cannot be sustained for too long. Public spending has been
financed through deficit financing, resulting is astronomical levels
of public debt in some countries. Whether governments can finance such
high levels of debt remains a cause for concern. One reason for hope
is that the earlier the world economy recovers, the earlier will
governments register increases in tax revenues earned on a larger
income base. Nevertheless, sooner or later, governments will have to
slash the stimulus packages, and it is a pity that the “exit
strategies” were not discussed in detail.
Since it was the collapse of the global financial system which caused
the worldwide meltdown, it is only appropriate that the G20 leaders
spent much of their time discussing measures required to strengthen
the financial system. Although there was some initial disagreement
between different groups, the G20 finally agreed on the broad contours
of a tough regulatory framework for financial institutions. The
proposed framework has three main features, the most important of
which is the stipulation that banks must raise more capital. This was
prompted by the recognition that banks are grossly undercapitalized.
The European banks in particular also face pressure to issue more
shares. Currently, these banks have often met a substantial part of
their existing regulatory requirements on capital buffers by issuing
complicated “hybrid” securities. These are more like debt than equity,
and are likely to suffer huge losses in the event of any systemic
risk. So they offer banks very poor insurance against large losses.
Another component of the new regime would require banks to retain some
portion of the loans they repackage and sell as asset-backed
securities. This will restrain the amount of borrowing that banks
undertake outside the formal banking regime, the motivation behind
such restrictions being the need to reduce the overall level of risk
in the financial system.
Quite predictably, bankers and diehard believers in the capitalist
system have objected to the new regulatory regime. They argue that
these restrictions will limit the level of credit that banks can
advance, this in turn actually harming the prospects of fast recovery.
At a more philosophical level, the banking system is viewed almost as
a fulcrum of the modern capitalist system, so any effort to constrain
the “normal” functioning of the banking system as an attack on
capitalism itself.
However, there is no evidence — either theoretical or empirical — that
an unregulated market mechanism is an ideal system. Markets work best
when there is “some” restriction on how individual players operate in
the economy. Of course, the quantum of appropriate restrictions must
depend on the situation prevailing on the ground.
For instance, the current international scenario allows banks,
particularly the large ones whose possible failure can bring down the
entire financial system, to obtain cash at ridiculously low interest
rates. They can then engage in risky arbitrage activities, knowing
that the government will bail them out if things go wrong. So, if
there are no bad shocks, then they can reap huge profits. In the event
of unfavourable shocks, they can look up to the government to bail
them out of trouble. The effective absence of all downside risk must
surely encourage unduly large risk-taking behaviour.
The absence of controls is a sure prescription for disaster. There may
be scope for discussion of whether the new regulatory regime is too
strict. But no one can deny the sheer necessity of putting in place a
carefully constructed set of regulations governing the operation of
the global financial system.
The author is professor of economics, University of Warwick
chhotemianinshallah
Hear my words, warns Obama
Obama in New York. (Reuters)
New York, Sept. 14 (AP): President Barack Obama sternly warned Wall
Street today against returning to the sort of reckless and unchecked
behaviour that threatened the US with a second Great Depression like
the one in the 1930s.
Even as he noted that the US economy and financial system were pulling
out of a downward spiral, Obama warned financial titans today — the
first anniversary of the Lehman Brothers collapse — that they could
not count on any more bailouts.
He credited his administration and the $787 billion stimulus package
rammed through Congress in the first days of his taking office for
pulling the country back from the brink. “We can be confident that the
storms of the past two years are beginning to break,” he said.
And even as the economy begins a “return to normalcy”, Obama said:
“Normalcy cannot lead to complacency.”
Nevertheless, Obama said: “Instead of learning the lessons of Lehman
and the crisis from which we are still recovering, they are choosing
to ignore them.”
His tough message warned the financial community to “hear my words: We
will not go back to the days of reckless behaviour and unchecked
excess at the heart of this crisis, where too many were motivated only
by the appetite for quick kills and bloated bonuses.”
Obama spoke at the Federal Hall in the heart of Wall Street before an
audience that included members of the financial community, lawmakers
and top administration officials.
He planned to have lunch with former President Bill Clinton after the
speech, before returning to Washington. Administration officials would
not disclose any details of the luncheon discussion.
In marking his determination to prevent a repeat of the crisis that
nearly brought down the global financial system last autumn, Obama
said he was attacking the problem on several broad fronts.
This included new rules to protect consumers and a new Consumer
Financial Protection Agency to enforce those rules and closure of
regulator loopholes and overlap that “were at the heart of the crisis”
because it left key officials without “the authority to take action”.
At the Pittsburgh G-20 economic meeting later this month, the US will
focus on ways “to spur global demand but also to address the
underlying problems that caused such a deep and lasting global
recession”, Obama said.
The President and others seeking ways to better monitor the financial
system and to police the products banks sell to consumers have been
opposed by lobbyists, lawmakers and turf-protecting regulators.
Mergers and sales of banks have consolidated lending power in even
fewer hands. And those large firms still bet far more than the capital
they have on hand. Yet regulations have not moved. Much of the
legislative motivation in Washington has been consumed by the
contentious debate over changes to the health care system.
Government intervention into private automakers such as General Motors
have left lawmakers skittish to move further into corporate board
rooms. And it's not as if another collapse is obviously imminent.
chhotemianinshallah
Slow climb out of morass
Stimulus measures mitigate backlash
JAYANTA ROY CHOWDHURY
New Delhi, Sept. 14: A year ago, when New York’s Lehman Brothers
failed, Debjit Chakravarty lost his job with Hitkari, a firm
specialising in packaging exportware.
Chakravarty, 46, was commercial manager with the fast expanding firm.
Today, after nearly a year of unemployment, he is picking up the
pieces of his life after turning into a language trainer at a Gurgaon-
based BPO. But life isn’t the same for him. “I had to take a huge pay
cut, pick up a different profession altogether ... one big bank crash
in the West and that’s all it takes to make life tough for millions of
Indians,” he said, bitterly.
The Lehman crash — prompted by the failure of toxic bonds, because of
failed mortgages, and with it a string of Wall Street bank failures —
saw the western world tumble into a nightmarish recession. And with
it, India’s export story unravelled rapidly, forcing exporters to take
huge losses and lay off lakhs of employees.
The knock-on effect on India’s firms, engaged in textiles, gems and
jewellery, handicraft and light engineering businesses, which ship
large chunks of their produce to western markets, was beyond what the
country’s economic Czars had imagined.
An official labour ministry report prepared earlier this year said
around 5 lakh jobs were lost in the export sector in October-
December.
India depends on exports for just about 20 per cent of its production,
compared with exports accounting for half of China’s production. Yet,
the impact of the export crash was felt far and wide across industry.
Buyers of houses, cars, television sets, furniture and other big-
ticket goods hesitated, and this spelled a further disaster for the
country’s manufacturing industry.
India’s economic mandarins pressed the panic buttons by December, when
they realised that mere cuts in interest rates and attempts to talk up
the market would not succeed in putting the real economy back into
shape.
Three economic stimulus packages were announced since December,
involving a total tax giveaway of Rs 40,000 crore.
Excise rates, or factory gate taxes, were cut on most goods by at
least 4 per cent and on some by as much as 6 per cent, while service
tax was slashed by a sixth to 10 per cent. Interest subsidy programmes
were announced for small industry and exporters.
The government then started pouring money into its flagship social
programmes —a jobs guarantee scheme that promised 100 days of
employment to farmers. It also started spending big bucks to build
infrastructure, including airports, and create inner city
transportation, sparking a surge in jobs.
The spending programme was topped up by a budget passed in July, which
provided for a Rs 10,20,838-crore expenditure.
“It is this fiscal expansion which will go a long way in reversing the
impact of economic slowdown and accelerate our growth revival,” said
finance minister Pranab Mukherjee.
“India’s economy will stabilise in the next six months,” agreed
planning commission deputy chairman Montek Singh Ahluwalia.
Industrial growth remained strong for the second successive month in
July, clocking 6.8 per cent, following up on an 8.2 per cent growth in
June.
Car sales expanded 31 per cent in July and followed up with an
impressive 25 per cent growth in August.
“Consumer goods output and sales increased sequentially for three
months in succession,” said A. Prasanna, head of research at ICICI
Securities.
“The figures give further evidence of a recovery in the industrial
sector,” added Amit Mitra, secretary-general of the Federation of
Indian Chambers of Commerce and Industry.
But is the growth rate sustainable? Poor monsoon rain has raised the
spectre of a drought for the first time in five years.
Lower farm growth could mean lower overall economic growth as
agriculture accounts for a quarter of India's produce.
A 4 per cent fall in India’s farm output could shave off a percentage
point from the gross domestic product.
More importantly, a poor harvest will mean a lower demand for
manufactures from India's teeming villages where two thirds of the
population live.
Sid Harth
chhotemianinshallah
Prompt RBI takes care of cash need
VIVEK NAIR
Mumbai, Sept. 14: The Reserve Bank of India pumped Rs 5,61,700 crore —
about 7 per cent of India’s GDP — into the financial system through a
cocktail of monetary and credit disbursal measures to keep the
juggernaut going after the Lehman debacle last year.
Bankers and economists reckon the central bank’s quick response to the
crisis ensured that the cash trough didn’t run dry when foreign
investors started pulling their cash out of Indian markets and the
foreign borrowing windows had almost been slammed shut.
“We dealt with the crisis from a position of strength,” says Rupa Rege
Nitsure, chief economist at Bank of Baroda. “The primary credit for
this goes to the government and the RBI.”
Reserve Bank governor Duvvuri Subbarao had three clear objectives:
maintain adequate rupee liquidity, ensure that there was enough
dollars and euros in the kitty to meet demand from importers, and
buttress a policy framework that would keep shovelling credit to all
classes of borrowers.
The central bank had to use conventional and innovative measures to
deal with the situation.
Using conventional tools, the RBI slashed policy interest rates
aggressively and relaxed rules that made it mandatory for banks to
park a certain portion of their deposits with the apex bank. It also
liberalised refinance facilities for export credit.
The non-conventional measures taken by the central bank was to expand
the lendable resources to apex finance institutions to refinance
credit provided to small industries, the housing sector and exporters.
It also opened a refinance window to support non-banking finance
companies.
Bankers agreed that these measures had staved off the crisis.
D.K. Joshi, principal economist at Crisil, says the decision to remain
conservative in opening up the financial sector has paid off. Nitsure
agreed that the tight regulation of the financial sector safeguarded
the financial system. Neither Joshi nor Nitsure is certain whether the
global crisis has blown over.
Joshi says the overseas demand for products is still shrinking. The
export-oriented industries might feel the impact of this though its
intensity might not be same as it was after the Lehman bankruptcy.
Nitsure adds that it will take around three years for the world
economy to return to complete stability.
chhotemianinshallah
Cautious strategy pays off for banks
JAYATI GHOSE
Past tense: The picture shows a Lehman Brothers employee leaving the
company’s European headquarters in the UK. (AFP)
New Delhi, Sept. 14: Indian banks would continue to be prudent and
conservative in their approach towards lending and investment — a
mantra that insulated them from the Lehman debacle.
The domestic financial system remained largely insulated from the
global financial crisis as they almost entirely avoided buying the
mortgage-backed securities and credit default swaps that turned toxic
and felled many western financial institutions.
“For India, the lesson is to discourage short-term (volatile) off-
shore flows and roll out liberalisation measures to attract long-term,
stable foreign funds,” J. Moses Harding, Head — Global Markets Group,
IndusInd Bank, told The Telegraph.
The only impact on Indian markets was the market volatility that
followed the crisis when offshore investors started withdrawing funds,
he said. Foreign institutional investors pulled an estimated $13
billion out of the domestic bourses in 2008.
Bankers said the crisis highlighted the pitfalls of excessive leverage
of capital, overexposure to investment products, financial greed ahead
of investment prudence, poor risk management practices and a lack of
board-level awareness.
“Awareness of prudential norms, maintenance of credit margins and not
lending without security are some of the lessons that the banking
system has taken from the crisis,” said U.S. Bhargava, former
executive director of Punjab National Bank.
More lenders are now relying on data from Credit Information Bureau
(India) Ltd (Cibil) before disbursing any loans. Cibil provides credit
information and repayment record of the loan seeker.
chhotemianinshallah
New-found spring in sensex step
OUR SPECIAL CORRESPONDENT
Mumbai, Sept. 14: The markets are on fire once again. If the sensex is
a barometer of its exuberance, then the Lehman spook has been finally
laid to rest.
Investors, who had seen the value of their equity holdings
disintegrate when the global markets went into a tailspin exactly a
year ago, have finally some reason to rejoice.
The bullish fervour in the markets has dimmed memories of the dog days
of 2008 with the sensex going into a steep decline after hitting a
heady high of 20873 on January 8.
According to the Reserve Bank of India, the turbulence in global
financial markets began to deepen in July when the US guarantors
Fannie Mae and Freddie Mac reported a drop in the value of their
assets. That sent the sensex skidding to 12576 on July 6 last year.
Even though the market recovered a little after that, the Lehman
collapse saw the bellwether index tumble 469 points to 13531 on
September 15 last year.
Bad news for the investing community did not end there as the
disclosure of financial irregularities at Satyam Computer Services —
an unrelated event — also saw shareholder wealth evaporate.
While the BSE sensex hit a low of 8160.40 points on March 9, it has
since recovered to 16214.19.
Stocks have swelled and ebbed along with the tide of cash from
financial institutional investors. In September 2008, FII outflows had
risen $1.80 billion and then rose further to $3.15 billion. But with
investors seeing value in Indian stocks, FII flows turned positive at
$1 billion in August this year.
Market circles aver that there are two reasons responsible for this
two-fold rise in the index and the jump in liquidity. “At that point,
the markets were highly oversold on fears that the world economy would
sink into a depression. But it slowly became clear that this was not
going to be the case. Moreover, central banks across the world
aggressively pumped in money and that boosted the value of all asset
classes including equities,” says Apurva Shah, head of research
(institutional equities) at Prabhudas Lilladher.
But there’s a niggling worry now: some analysts wonder whether the
markets are beginning to show signs of irrational exuberance once
again with the benchmark index having run up over 65 per cent since
March. They worry that this surge may not be warranted with the global
economy not completely out of the woods.
chhotemianinshallah
Export turnaround to take time
R. SURYAMURTHY
New Delhi, Sept. 14: Exports are yet to recover from the Lehman
debacle.
Though there are signs of an improvement, a turnaround will take time.
“There is a glimmer of hope. Some products have registered positive
growth in August,” commerce secretary Rahul Khullar said.
The situation is improving for man-made yarns and fabrics, garments,
iron ore, marine products, and coal and other minerals.
Farm items such as rice, tobacco, and fruits and vegetables, which
registered an increase in exports in the first four months of the
current fiscal till July, continued to grow in August.
“The steep fall in exports has been arrested. The turnaround has
started. However, it will take a while to go back to the earlier
levels of growth,” commerce minister Anand Sharma said.
Industry also expressed optimism. “We may achieve $150-155 billion
this year and the turnaround is expected from January onwards,” A.
Sakthivel, president of the Federation of Indian Export Organisations,
said.
The foreign trade policy for 2009-14 has set an export target of $200
billion for 2010-11 and aims to double exports by 2014. No target has
been set for the current fiscal, with expectations being of flat
growth.
Exports fell in October for the first time in a decade and missed the
$200-billion target of 2008-09. Exports grew by a mere 3.4 per cent to
$168.7 billion from $163.1 billion a year ago.
The contraction in exports was because of a dwindling demand in the
US, the European Union and Japan, which together account for 68 per
cent of the country’s exports.
The trade policy has announced sops to encourage exporters to tap new
markets in Latin America, Oceania and Africa, which have remained
insulated by the global crisis.
bademiyansubhanallah
COLUMN - Wall Street is being judged: Matthew Goldstein
Wed Sep 9, 2009 3:48pm IST
-- Matthew Goldstein is a Reuters columnist. The views expressed are
his own --
By Matthew Goldstein
NEW YORK (Reuters) - Capitol Hill has yet to get its act together on
financial regulatory reform. But another arm of the federal
government, the judiciary, is emerging as the new best friend of
investors.
It started a few weeks ago when Judge Jed Rakoff refused to approve
the Securities and Exchange Commission's wimpy $33 million settlement
with Bank of America over the bank's failure to come clean with
shareholders about its acquisition of Merrill Lynch.
The judge ordered the SEC to explain why it didn't hold anyone at Bank
of America personally accountable for Merrill's decision to pay nearly
$6 billion in bonuses before the merger was completed.
Now Judge Shira Scheindlin, who works in the same federal courthouse
in lower Manhattan as Rakoff, has picked up the torch of investor
rights.
Just before the start of the Labor Day holiday weekend, Scheindlin
issued two decisions that could hold Wall Street accountable for more
of its actions. In separate rulings, the judge sided with investors
bringing lawsuits against a prime broker and two major credit rating
agencies.
The prime broker case stems from the $1 billion hedge fund fraud
perpetrated by Michael Lauer, who once managed money for Britney
Spears, the University of Montreal Pension Plan and Morgan Stanley,
among others.
Scheindlin ruled that the hedge funds' offshore investors can press
ahead with an aiding-and-abetting claim against Bank of America, which
had been the prime broker for Lauer's long defunct Lancer funds
(r.reuters.com/seh55d ).
Bank of America, it appears, just can't catch a break in court.
Scheindlin, in rejecting the bank's summary judgment motion, said the
hedge fund investors had marshaled enough preliminary evidence to
raise "a genuine material issue of fact" about whether Bank of America
"actually knew of, and substantially assisted in, Lancer's fraud."
Scott Berman, a lawyer for the investors, said the decision means that
it is likely that Bank of America will have to defend its actions at
trial. It also raises the possibility that Bank of America may now
choose to try to settle the case, because the damages in this case
could run into the hundreds of millions of dollars.
More significant, the ruling could ultimately spell trouble for
Goldman Sachs, JPMorgan Chase and Morgan Stanley -- the three biggest
prime brokers in the United States. The ruling may cause those firms
to reassess their dealings with hedge funds.
In the other pro-investor ruling, Scheindlin said the First
Amendment's free-speech protection shouldn't serve as a blanket
defense for Standard & Poor's and Moody's Investors Service in a
lawsuit brought by a group of investors suing over now worthless debt
notes.
The judge said that ratings on notes that are sold to a small group of
investors should not be entitled to the same kind of free speech
protection as notes that are widely sold to the public at large.
Historically, rating agencies have said their reports are opinion and
protected by the First Amendment.
Each of these court rulings by Scheindlin represents a significant
break with prior court decisions that generally have shielded prime
brokers and credit rating agencies from legal liability. And that's
potentially bad news for Wall Street firms as investor lawsuits
stemming from the financial crisis mount.
These three rulings are the first indication that the federal courts,
which have not been particularly friendly to investor lawsuits in
recent years, may be emerging as the great equalizer in the often
tense relationship between Wall Street and Main Street.
And that would be some welcome news, as the nation approaches the
first anniversary of the collapse of Lehman Brothers.
(For more news on Reuters Money click www.reutersmoney.in)
© Thomson Reuters 2009 All rights reserved
...and I am Sid Harth
bademiyansubhanallah
RBI won't unwind policy before recovery set
Tue Sep 15, 2009 7:56pm IST
By Rajesh Kumar Singh and Rajkumar Ray
NEW DELHI (Reuters) – The Reserve Bank of India (RBI) will not unwind
its accommodative monetary policy before ensuring recovery, but it
will face the question of when to make its exit sooner than other
countries, Governor Duvvuri Subbarao said.
The benchmark 10-year bond yield fell sharply after the comments to
close at a one-month low of 7.10 percent, having ended at 7.21 percent
on Monday.
"This question of exit will be upon us much sooner than other
countries," Governor, Duvvuri Subbarao said on Tuesday. "We have to
take a call between supporting recovery from the crisis and stemming
inflationary pressures," he said.
Subbarao said the central bank would look at factors including
wholesale price-based inflation and industrial output before making
the call to shift its policy stance.
"The challenge for the Reserve Bank and for the government over the
next few months, and perhaps over the next couple of years, is going
to be withdrawing from the accomodation, and supporting the drivers of
growth," Subbarao said.
The Reserve Bank of India cut its main lending rate by 425 basis
points between October and April and added massive liquidity to
markets as the global downturn hit Asia's third-largest economy harder
than expected.
The first change in policy could come through withdrawing some of this
liquidity, such as by reversing some of the sharp cuts in the cash
reserve ratio for banks, analysts have said.
The economy grew 6.7 percent in 2008/09, slower than rates of 9
percent or more growth clocked in the previous three years, and policy
makers expect it to slow towards 6 percent in 2009/10.
In annual terms, wholesale price inflation turned negative in early
June and has been negative for 13 weeks, but this reflects the sharp
increases in commodity and fuel prices a year ago rather than
deflationary prices.
On a weekly basis, the price index has been rising since March.
Subbarao said wholesale price-based inflation so far in the current
fiscal year was 5.2 percent, and it was a fair bet it would be higher
at the end of the fiscal year in March.
At a policy review in July, the central bank raised its WPI-inflation
forecast for the end of 2009/10 to 5 percent from 4 percent.
Government officials and private-sector economists have said it is
likely to be higher than that.
The central bank's next quarterly review is on October 27, but it can
change policy at any time. Of the six cuts in the repo rate between
October and April, only the last was delivered at a quarterly policy
review although three fell during the period.
(For more news on Reuters Money click www.reutersmoney.in)
...and I am Sid Harth
bademiyansubhanallah
The long and winding road out of Eden
Tue Sep 15, 2009 4:54pm IST
(Amitava Neogi is Executive Director of Morgan Stanley Private Wealth
Management. The views expressed in this column are his own)
By Amitava Neogi
How often have we used the word "sub prime" in the last one and a half
years?
While there were many reasons attributed to the global financial
crisis, in my opinion, the main trigger was the abundance of cheap
credit.
Yes, globalisation, wealth creation, over leveraging and the intense
search for yield enhancement through complex structures created strong
tailwinds that drove the financial industry to steeper heights but
when that liquidity dried up, almost overnight, governments and
central banks had to step in with substantial packages to bail out the
global financial system and the economy.
The first anniversary of the week that reshaped the financial world is
upon us. It seems to have come sooner than later. In hindsight, whilst
the US and most of the global economies were severely affected, India
seems to have weathered it relatively well.
For that, we could well thank the foresight and proactive action by
the Indian Government, the Reserve Bank of India (RBI), the Securities
and Exchange Board of India (SEBI) and the conservative lending by the
Indian banks that did not allow us to sink too deep into the financial
quagmire.
A year later, the Indian economy is paying tribute to their actions.
The financial markets are at a year’s high, the economy is on a stable
growth path, corporates have financially and operationally deleveraged
as visible from the better than expected earnings for Q1 FY 2010 and
liquidity flow is back.
This is quite the contrast to December where the year ended as the
worst in India’s market history. The vicious loop of rising credit
defaults, shrinking risk capital, slowing growth and rising
unemployment was unveiling. Even members of the Planning Commission
were of the view that these were bigger concerns than the rise in
energy prices a few months earlier.
So how badly was India affected by the whole crisis?
There is the argument that the Indian economy was sufficiently
decoupled from the rest of the world and that there was robust
domestic demand and employment creation to cushion the economy from
external shocks.
But the trade dependency of the Indian economy has doubled in the last
five years and the combined impact of slowing domestic consumption,
higher domestic cost of capital, and reduced capital access from
international capital markets were some factors that resulted in a
major slowdown in the investment cycle.
In retrospect, we can conclude that the global economies are not de-
coupled and risks emanating in one country were and are transmitted to
other nations.
Over the past few years, India has periodically faced the problem of
managing the impossible trinity (capital inflows, exchange rate,
interest rates) on account of massive capital inflows into the
country. The RBI had to intervene in the foreign exchange (FX) market
to prevent a sharp appreciation in the rupee and in the money market
to ensure short-term interest rates do not decline.
While the subprime crisis did reverse global risk appetite and slowing
of capital inflows thereby widening the current account deficit, the
RBI’s problems with the impossible trinity did not fade away. The
slowdown in capital inflows now forced RBI to allow exchange rate to
depreciate and interbank liquidity to tighten. So it was the same
impossible trinity only in a new avatar.
The RBI’s proactive easing measures helped reduce systemic risks
arising in the banking system. However, the RBI’s policy statement
clearly stated, “a period of painful adjustment is inevitable”.
In its monetary policy statement of July 29, 2008, the RBI listed
investment spending as one of the factors adding to aggregate demand
pressures.
Over the next 3-4 months as the excess liquidity balance declined
further, the RBI faced the challenge of (a) either allowing currency
depreciation and maintain the current level of interest rates, or (b)
to intervene in the forex market aggressively to prevent depreciation
of rupee against the US dollar but suffer tightening liquidity.
The RBI intervened in the FX markets judiciously but continued to
allow the depreciation of the rupee as tightening rates could hurt
domestic demand, which was slowing sharply.
The initial growth shock caused by the sudden reversal in capital
inflows and contraction in exports caused a vicious loop. The
sequential credit growth trend had deteriorated sharply. During
September and October, 2008, banks dispensed credit of Rs 371 billion
(US$7.6 billion) compared with Rs 613 billion (US$15.5 billion) during
the same prior period.
This is despite the fact that banks had lifted a part of the burden of
mutual funds and NBFCs of providing credit to real economy.
As per Association of Mutual Funds of India (AMFI), during September-
November 2008, the fixed income mutual funds faced redemptions of US
$16.8 billion. The RBI measures helped, but the risk aversion in the
banking system reflected in the credit availability. Banks have
adopted tighter lending standards, which restricted consumer loan
growth and private capex spending.
Moreover, borrowers were also cautious due to fast deteriorating
business sentiment. This led to the deleveraging of the industry and
credit growth cycle falling below the deposit growth to set the stage
for the next credit cycle.
In such a credit crisis environment, monetary policy has a limited
role while fiscal policy is likely to be more effective. The
Government, for its part, has been making moves in the right
direction.
The three most important measures initiated by the government included
1) increase in government expenditure by US$4 billion; 2) reduction in
Central Value Added tax by 4%, and 3) effort to boost infrastructure
spending by allowing government-owned infrastructure finance company
to raise US$2 billion through tax-free bonds.
Macro factors that worked for India
• Liquidity on banks’ balance sheet - Credit growth cycle went below
deposit growth for a sustained period to set the stage for the next
credit cycle
• Improvement in Balance of Payments
• Pump priming: The government’s efforts to boost infrastructure
spending and also cut tax rates.
• A strong election mandate, enabling the new government to pursue
fiscal reforms
• Raise share of Foreign Direct Investment (FDI) in capital flows
• Corporate restructuring, deleveraging operations. Rationalizing cost
structures and capex
Liquidity support from the RBI:
RBI has injected liquidity through various measures, some of which are
reduction of cash reserve ratio, allowing banks to borrow without
placing collateral via special term repo facility, and through early
payment of farm loan waiver related dues to the banks. Raising the
interest rate ceiling on Foreign Currency Non-Resident Account (FCNR)
(B) and Non-Resident (External) Rupee Accounts (NR(E)RA) deposits to
encourage NRI remittances.
In general this seems to be the right agenda and response. Regulators
have proven to be balanced, with pragmatic responses to reduce
systemic risks, and a trade off between addressing weaknesses in the
financial system and encouraging economic recovery.
We believe that policy makers in general have clearly understood the
risks of being too quick to raise capital ratios or too hasty to
encourage hanks to de-lever more aggressively. And they are
appropriately focussed on international harmonization where possible.
Finally the liquidity risks of unsecured funding have driven banks to
shrink business that are demanding on unsecured funds and emphasise
flow businesses amenable to secured funding. This has led to banks re-
balancing their activities where risk – adjusted returns have been
greater.
More questions than answers?
Future banking crises may be inevitable – they may be inherent in an
industry which depends on confidence, which has a structural duration
mismatch and which has un-diversifiable credit risk. If that’s the
case, future intervention by governments to support the banking system
cannot be ruled out.
So what does it mean for the financial industry? Does it mean more
regulatory supervision? Does it mean monetary tightening? Does it mean
stringent risk and credit evaluation?
The answer lies in between creating greater transparency in the
markets, the creation of a systematic risk regulator and improved
regulatory oversight and accountability.
So the question on everyone’s mind is how far are we from the truth?
Well, I can say that we have taken a step in the right direction, but
the journey could quite well be one of a thousand miles….
(You can e-mail Amitava Neogi at Amitav...@MorganStanley.com)
© Thomson Reuters 2009 All rights reserved
...and I am Sid Harth
bademiyansubhanallah
IMF's Lipsky says coordination needed to end crisis
Tue Sep 15, 2009 6:00pm IST
LONDON (Reuters) - Further global coordination is needed to ensure a
lasting recovery from the financial crisis, the International Monetary
Fund's John Lipsky said on Tuesday.
"We've drawn some very clear lessons," Lipsky, the IMF's first deputy
managing director, told BBC World TV in an interview on the
anniversary of the collapse of Lehman Brothers.
"Some changes are under way, of course we remain to see if the global
community can carry through all the changes that are recognised as
necessary but will require political determination and cooperation to
succeed," he added.
"Specifically, I'm thinking of the creation of the Financial Stability
Board and the global efforts to reform global financial regulation and
supervision, the creation of new funds and new forms of funding in the
IMF to support global stability and the G20 leaders' process itself,"
he added.
Leaders from the G20 group of rich and developing nations meet in the
U.S. city of Pittsburgh next week to review progress in tackling a
financial crisis compounded by Lehman's downfall.
G20 leaders have pledged a big increase in funding for the IMF and
asked the FSB to help reform the financial sector.
chhotemianinshallah
Horror of Lehman's fall haunts global M&A space
16 Sep 2009, 1742 hrs IST, PTI
NEW DELHI: The ripple effects of the fall of Lehman Brothers in
September last year is evident in the field of global mergers and
acquisitions
(M&A), which shrank by nearly 40 per cent in the 12-month period since
then.
According to global deal tracking firm Dealogic, in the 12-month
period from October 2008 global announced M&A stood at $2.17 trillion,
down 39 per cent from $3.58 trillion in the previous 12-month period.
Global M&A activities, which reached its nadir on July 2008, witnessed
a huge erosion both in terms of value as well a volume in the year
2009.
The global M&A for August 2009 ($119.8 billion) was the lowest monthly
value since September 2003 ($117.5 billion), Dealogic added.
The report further stated that the deal size, too, has became
significantly small in the last 12 months, thus highlighting the
slowing market for large deals.
"Around 87 per cent of M&A deals since Lehman's collapse were below
$100 million, this is up from 81 per cent in the 12 months prior,"
Dealogic said.
"Financial institution group (FIG) M&A deals valued over $1 billion
accounted for 18 per cent of all deals in this value band in the 12
months prior to Lehman's collapse but jumped to 36 per cent of all the
over billion dollar deals in twelve months following," it said.
The report said the fall of the former financial giant triggered the
global financial turmoil, pursuant to which, there were a large number
of government acquisitions of stakes in banks as well as mergers in
the finance sector.
Besides, the number of distressed M&A transactions has also grown to
record highs across all regions, the report added.
chhotemianinshallah
Bernanke says recession "very likely" over
16 Sep 2009, 0104 hrs IST, REUTERS
WASHINGTON: Federal Reserve Chairman Ben Bernanke said on Tuesday that
the worst US recession since the Great Depression was probably over,
but the 10 most trade-friendly economies...
"Even though from a technical perspective the recession is very likely
over at this point, it's still going to feel like a very weak economy
for some time," Bernanke said after giving a speech at a Brookings
Institution conference.
In declaring the recession over, Bernanke went slightly beyond the
Fed's most recent assessment that the economy was leveling off and
that indications on growth had improved.
However, he cautioned that growth next year would probably be not much
faster than the economy's so-called long-run potential rate, which
meant it would be slow to absorb excess capacity and pare the
unemployment rate.
"The general view of most forecasters is that that pace of growth in
2010 will be moderate, less than you might expect given the depth of
the recession because of ongoing headwinds," Bernanke said.
He spoke on the one-year anniversary of the collapse of Lehman
Brothers, which sparked a global panic that forced the Fed to cut
interest rates to almost zero per cent.
Economists generally estimate US trend potential growth to be in a
range around 2.5 per cent.
Bernanke acknowledged that a recovery could turn out to be either
stronger or weaker than forecasters expect, but warned of ongoing pain
in the labor market under the expected growth rate.
"Of course there are risks on both sides of that forecast - we could
have a stronger recovery, we could have a weaker recovery," he said.
"But if we do in fact see moderate growth, but not growth much more
than the underlying potential growth rate, then unfortunately,
unemployment will be slow to come down."
US unemployment has soared to 9.7 per cent since the recession began
in December 2007, and is forecast to hit 10 per cent in the months
ahead.
Bernanke's comment implicitly acknowledges the possibility of a
stronger-than-expected "V-shaped" US recovery. The latest Blue Chip
survey of economists predicts that growth will expand by a brisk 3 per
cent annual rate in the third quarter.
Fed policy-makers meet next week and are expected to keep rates pegged
between zero and 0.25 per cent when they conclude their two-day
meeting on Wednesday, while maintaining purchases of longer dated US
government and mortgage-related debt.
chhotemianinshallah
Recession could cost 25 million jobs
16 Sep 2009, 2312 hrs IST, REUTERS
The economic downturn will likely cost as many as 25 million people
their jobs by end-2010 as the unemployment rate nears a record 10
percent in
the OECD group of countries, according to a report released on
Wednesday.
The Organization for Economic Co-operation and Development said 15
million jobs were lost between end-2007 and July 2009 and 10 million
more could go by the end of next year despite signs that the economy
is picking up.
"A major risk is that much of this large hike in unemployment becomes
structural in nature," the report said.
The OECD-wide unemployment rate has already hit the highest on records
going back to World War Two, surging to 8.3 percent by June 2009 from
5.6 percent at the end of 2007, the annual report from the Paris-based
OECD said.
The latest aggregate readout, for July, is 8.5 percent.
Spain, Ireland and the United States were worst hit, with unemployment
rates rising by 9.7 percentage points, 7.8 percentage points and 4.5
percentage points respectively between the start of 2007 and mid-2009,
it said.
"The labo market outlook would be even worse if governments has not
pursued expansionary monetary and fiscal policy," said the OECD,
estimating that government spending on anti-recession projects will
raise total employment next year by about 0.8-1.4 percent more than
would otherwise have happened.
This downturn is destroying considerably more jobs than other
recessions since the early 1970s, the report says.
Most of the world's high-income countries and a few others are members
of the OECD but others such as China and India are not.
chhotemianinshallah
Poor face long recovery from recession: World Bank
16 Sep 2009, 2122 hrs IST, REUTERS
WASHINGTON: Poor countries are still feeling the consequences of the
global recession despite signs that industrial and emerging economies
are recovering, the World Bank said in a report on Wednesday.
"The nascent global economic recovery and improving financial market
conditions have yet to provide the impetus needed to lift the
economies of low-income countries from their deep economic downturn
and dire financing challenge," the World Bank said in a report before
a Group of 20 leaders' summit in Pittsburgh next week.
For the poorest countries without adequate fiscal space to respond to
the crisis, core spending may face a funding gap of $11.6 billion in
2009 due to revenue shortfalls and increased demand for social
protection, the Bank said.
chhotemianinshallah
Lehman: Barclays got $8.2 bn 'windfall' from sale
16 Sep 2009, 0411 hrs IST, REUTERS
NEW YORK: Lehman Brothers Holdings Inc said on Tuesday that Barclays
Capital Inc got a $8.2 billion "windfall profit" from excess assets it
took control of in the fire sale of Lehman's US brokerage business a
year ago.
In court papers filed in federal bankruptcy court in Manhattan on
Tuesday, Lehman claimed that "critical changes" were made to the sale
in between the time the sale order was signed and the deal was closed,
resulting in Barclays gaining control of assets that Lehman contends
were not supposed to be part of the sale. Lehman filed for bankruptcy
on Sept 15, 2008, in the largest US bankruptcy in history.
Its flagship US brokerage business was sold to Barclays less than a
week later in a hurriedly-assembled deal. "Certain Lehman executives
agreed to give Barclays an undisclosed $5 billion discount off the
book value of securities transferred to Barclays, and later agreed to
give billions more in so-called "additional value" that Barclays
demanded, but the court never approved," Lehman said in the court
filing.
The charges come after Lehman received approval in June to probe
whether Barclays got "too good of a deal" when it bought Lehman's
brokerage business, as the British bank was able to quickly book a
$4.2 billion gain on its $1.75 billion purchase.
Barclays said at the time that it did not expect the probe to result
in any additional claims. Lehman was allowed to probe Barclays because
of the speed with which the deal with Lehman's was reached. "It's
conceivable that mistakes were made," said Judge James Peck of US
Bankruptcy Court for the Southern District of New York at a hearing in
June.
Lehman alleged in the filing that Barclays had committed to pay former
Lehman employees $2 billion in bonuses but never did and "never
intended to do so" despite factoring them in to the terms of the
sale.
The difficulties with the valuations of assets and liabilities were
"exacerbated the fact that many of the Lehman decision makers who
'negotiated' the transaction with Barclays had at the same time been
offered lucrative" jobs at Barclays on condition the sale be closed,
Lehman said. "This is an opportunistic claim," Barclays said in a
statement on Tuesday.
"Now that the economy has begun to stabilize the Lehman Estate is
trying to re-trade the deal on the basis of a meritless argument."
Lehman is asking the court to amend the deal and a hearing is
scheduled for Oct 15.
The Trustee overseeing the liquidation of Lehman's North American
brokerage business and return of assets to customers also said in a
statement on Tuesday that "billions of dollars in additional assets"
that Barclays claims it owns are "customer property" and were not
authorized by the sale.
"The transfer of these assets to Barclays would create an unfair
windfall for Barclays at the expense of public customers," James
Giddens, the trustee for the Liquidation of Lehman Brothers Inc. under
the Securities Investor Protection Act said in the statement. The case
is In re: Lehman Brothers Holdings Inc, US Bankruptcy Court, Southern
District of New York, No 08-13555.
chhotemianinshallah
US credit card defaults up, signal consumer stress
16 Sep 2009, 0315 hrs IST, REUTERS
NEW YORK: Bank of America Corp and Citigroup Inc customers defaulted
on their credit card debts in August at the highest rates since the
onset of the recession, a sign that the banks' consumer lending woes
are far from over.
The trend was echoed among most other major credit card issuers,
dashing optimism sparked when many banks and specialty finance
companies reported lower default rates for July.
"People have gotten very bullish with the July data, and (the August
data) raises the question about how fast the consumer will get
better," said Scott Valentin, an analyst at FBR Capital Markets.
"People were assuming the pace would be pretty rapid, and this maybe
slows the pace down."
The worse-than-expected August numbers bolstered the contention of
some analysts that the July decline in defaults was due more to
seasonal effects, like tax refunds, then an improvement in consumers'
financial health.
Many analysts expect bad-loan levels will keep rising until later this
year or early 2010.
"The defaults are a wake-up call for those expecting a V-shaped
recovery," said Elliot Spar, options market strategist at Stifel
Nicolaus & Co.
Bank of America said its charge off-rate - loans the company does not
expect to be repaid - rose to 14.54 per cent in August from 13.81 per
cent in July.
Citigroup, the largest issuer of MasterCard-branded credit cards, said
its charge-off rate rose to 12.14 per cent in August from 10.03 per
cent in July.
The charge-off rates for both Citi and Bank of America, two of the
biggest recipients of US government bailouts, were the highest yet
during the financial crisis.
JPMorgan Chase & Co, the largest issuer of Visa-branded credit cards,
said its charge-off rate rose to 8.73 per cent from 7.92 per cent,
while smaller Discover Financial Services said its rate rose to 9.16
per cent from 8.43 per cent.
American Express Co's default rate fell to 8.5 per cent from 8.9 per
cent as the company increased its lending portfolio.
JPMorgan, Discover and Capital One Financial Corp reported late
payments on credit cards - an indicator of future defaults - rose in
August after several monthly declines.
Valentin said the rise in delinquencies at some companies was double
or triple the levels expected.
Not out of the woods yet
Credit card defaults usually track unemployment, which rose to a 26-
year high of 9.7 per cent in August. The jobless rate is expected to
peak at more than 10 per cent by year-end.
Considering the trend of unemployment and the increase in
delinquencies, analysts have estimated credit card losses will keep
rising in coming
Yet analysts have a rosier outlook now than they did a few months ago,
expecting credit-card defaults to bottom out at an average of 11 per
cent to 12 per cent, below earlier estimates of up to 14 per cent.
As credit card losses rose to record highs in recent months, credit
card companies closed millions of accounts, trimmed lending limits and
slashed rewards.
Lenders are also raising fees and interest rates ahead of a new law
that increases protection for consumers. The law is expected to shrink
the industry and limit subprime borrowers' access to plastic money.
Also on Tuesday, MasterCard Inc, the world's second-largest credit
card network, said the volume of payments it processed in the United
States declined less in July and August than in the second quarter, a
sign that the payments industry may be stabilizing.
Shares of Bank of America fell 0.5 per cent to $16.89 in afternoon
trade, JPMorgan declined 0.7 per cent to $43.45, Discover was 0.7 per
cent lower at $14.92, and Citigroup dropped 6.6 per cent to $4.22.
Capital One declined 3 per cent to $37.16, and American Express was up
1.8 per cent to $34.54.
chhotemianinshallah
Buffett says US economy can only go up is on its way up: Buffett
17 Sep 2009, 0117 hrs IST, Bloomberg
NEW YORK: Warren Buffett, the billionaire investor who last year
called the financial crisis an “economic Pearl Harbour”, said the US
economy has
“hit a plateau at bottom”.
“We have not bounced, but we’ve quit going down,” Buffett, the 79-year-
old chief executive officer of Berkshire Hathaway, said on Wednesday
in an interview on CNBC. Signs the worst recession since the 1930s is
over have accumulated in the past two months, with US manufacturing
expanding for the first time in 19 months in August and home sales
rising. Federal Reserve chairman Ben S Bernanke said on Tuesday “the
recession is very likely over”.
“We’re through the worst of it in residential real estate in all
probability,” Buffett said on Wednesday, adding that he doesn’t expect
a “double-dip” recession.
The number of contracts to buy previously-owned homes rose more than
forecast in July and increased for a record sixth consecutive month,
while mortgage buyer Freddie Mac said the average price rose 1.7% in
the second quarter. The remarks from Buffett and Bernanke helped push
stock and commodities prices higher, with futures on the Standard &
Poor’s 500 Index up 0.4%. Lead rose for a third day and copper prices
advanced. Stocks climbed on Tuesday as Buffett, known as the “Oracle
of Omaha”, told a conference in California that his company was buying
equities because “I am getting a lot for my money”.
Kraft Foods
Buffett built an equity portfolio valued at more than $48 billion by
betting on companies including soft-drink maker Coca-Cola and Kraft
Foods that he believes have competitive advantages and enduring brand
popularity.
Buffett told CNBC that, while he’s not opposed to Kraft’s bid for
Cadbury, he thinks the offer is a “pretty full” price. Last week,
Cadbury rejected a takeover proposal from Kraft, valued at about $16
billion, as too low. Buffett said he has confidence in Kraft’s
management. Berkshire is Kraft’s biggest shareholder.
Berkshire is also the top holder in Wells Fargo, the nation’s biggest
home lender, and Buffett has been adding to the stake this year and
saying the bank’s ability to gather deposits at low costs will boost
profits. — Bloomberg
Credit Cards
“We’re gonna have unusual losses in credit cards and in commercial
real estate” in the economy, Buffett said today. “But we’re a lot
better off than we were a year ago. I mean for one thing, some of the
toxic assets have been flushed through. There’s been capital raised.”
JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., the
biggest U.S. credit-card lenders, said yesterday that defaults climbed
in August as the unemployment rate jumped and the impact of tax
refunds waned.
JPMorgan said yesterday that construction and development loans
remained the “greatest area of concern” for its commercial bank
portfolio as net charge-offs will continue to rise.
Berkshire gained $1,250 yesterday to $100,000 on the New York Stock
Exchange. The shares have dropped 20 percent in the past 12 months.
bademiyansubhanallah
http://www.telegraphindia.com/1090917/jsp/opinion/story_11502828.jsp
FORWARD AT BREAKNECK SPEED
Indian scientists have earned a prestigious place in the world’s
scientific community in the effort to recreate the Big Bang, writes
Bikash Sinha
Photon Multiplicity Detector
One has been in the business of science for a little over 40 years —
and one has lived with science in many parts of the world: Cambridge,
London, Copenhagen, California, Germany, Bombay and lately Calcutta.
Most of the early part of one’s life has been spent as an individual
scientist working with a group of scientists, essentially exchanging
ideas and nothing more. At least, in the 1970s, that was the tradition
in Europe. America was different, the telephone was used quite
abundantly and some kind of wireless collaboration started evolving.
What matters, of course, is the kind of people around you. The Neils
Bohr Institute in Copenhagen is very different from, say, London. With
Aage Bohr, the son of Neils Bohr, already a Nobel laureate, and with a
continuous traffic of exciting, extremely bright scientists from all
parts of Europe and America, the atmosphere at Bohr institute was
electric. Thus, as a theoretical physicist one was more dependent on
brain than brawn; the company one kept acted as a spark for new
ideas.
International collaboration, particularly large-scale collaboration of
any kind, just did not exist. In India, except a relatively small but
pioneering effort from Bombay working at CERN (LHC and Big Bang legend
now), international collaboration was an unknown concept. Even
marginal reference to international collaboration met with downright
disgust, disregard, suspicion and ultimately rejection. “We have to
build everything in India,” was the slogan. A fine spirit of
patriotism, surely, but “we cannot build a CERN,” one argued, it is
way beyond the financial resources of one country. “Then forget about
CERN,” the elderly pundits asserted with dismissive gestures.
It was, however, getting abundantly clear that international
collaboration was turning out more the norm than the exception across
the world, particularly so when large scale computing was necessary.
It was not just a coincidence that the concept of so-called
globalization was being debated with a mix of tentative optimism and
violent opposition. That was in the early Eighties of the last
century.
In our anxiety we were faced with two “panic” signals. One is simple —
if we do not take part in the international collaboration we are
surely going to miss out on the high-quality, cutting-edge original
science, on path-breaking discoveries, even the faintest possibility
of a Nobel. The other “panic” signal was that the best will go abroad
and nothing will progress in India.
We took the plunge, nevertheless; our first target was CERN in Geneva
in search of a new state of matter, quark gluon plasma. The most
fundamental particle, to date, is quark, three quarks make either a
neutron or a proton; protons and neutrons with exchanging mesons make
an atomic nucleus, the nucleus is at the centre of an atom; many atoms
make a molecule, many molecules make enzyme protein and ultimately us,
the homo sapiens.
We wanted to “see” the light from the quark gluon plasma. Initial
efforts to get a financial grant got nowhere; the idea was rejected
outright. Nobody had heard of quark gluon plasma and that too at CERN,
within a time frame — impossible, they said. Besides, what about our
enormous efforts in India? — they barked.
It was a heartbreaking, almost no-go situation. After struggling
relentlessly, the government-appointed committee at last conceded us
some “seed” money. The wonderful business of “seed” money is that once
you get some, even a little, nobody can stop you that easily in
future. Bingo! We started to build the now famous Photon Multiplicity
Detector for CERN in collaboration with my good friend, Hans Gutbrod,
already at CERN. In the beginning, even at CERN we were not taken very
seriously — CERN is used to individual scientists coming to work from
India and helping the efforts of CERN; CERN was not used to a whole
group taking over, at that time.
The detector was built and got finished before its schedule. The young
workers from all over India came and finished the job in record time;
initial tests of the detector proved very encouraging.
After the first run at CERN and the discovery of “flow” in quark gluon
plasma, the world and, of course, India, sat up and recognized our
contribution. This was immediately followed by talks in conferences,
awards and the usual laurels. The impossible, so to speak, had been
made possible and the glory goes not to an individual but to the
entire team, a new phenomenon in India, a paradigm shift in our
outlook. The cynics and “no-no” types suddenly disappeared from the
scene.
There was no looking back, we went across the Atlantic to the
Brookhaven National Laboratory and set up a similar but more
sophisticated detector, STAR, at the famous Relativistic Heavy Ion
Collider; new discoveries poured in and the prestige of the group went
up beyond all our expectations.
What about the “panic” on homeground? Curiously enough, the
discipline, commitment and tight schedule that we had to adhere to
flowed over, as it were, to our domestic efforts; performance levels
went up, the desire to do well and do it in time suddenly became the
rule and not the exception. Even the overall efficiency went up. The
international effort helped the national effort and the national
effort became the backbone of the international effort.
Almost overnight India had become a world player in this field, the
incredible synergy between the national and the international effort
tore apart national boundaries. From a cog in the wheel India became
the wheel, from SPS at CERN to ALICE at Large Hadron Collider at CERN,
exploring the wonderland of quarks, from the Relativistic Heavy Ion
Collider at Brookhaven to Anti proton facility at Germany; here at
home, from room temperature cyclotron to superconducting cyclotron to
the medical cyclotron, the wheel turning at breakneck speed to move
forward; at the end, there is very little doubt we shall be at the
top, and have a brilliant peep at the Big Bang of the very beginning
of the universe when the two nuclei collide at the Large Hadron
Collider, very soon. After all we have the brain of five hundred
million young people.
The author is director, Variable Energy Cyclotron Centre, and member,
advisory council to the prime minister
Sid Harth
British unemployment reaches 2.47 mn
Wednesday, September 16, 2009, 18:07
Add a commentLondon, Sep 16 (Inditop.com) The number of people out of
work in Britain has risen to a 14-year-high to hit 2.47 million, the
Office for National Statistics said Wednesday.
Joblessness increased by 210,000 to 2.47 million in the three months
to July, taking the rate of unemployment to 7.9 percent.
Claims for the government-funded unemployment benefit payments in
August grew by 24,400 from July to 1.61 million, the highest since May
1997, when the Labour Party came to power in Britain.
The number of 16- to 24-year-olds who are out of work rose from
928,000 to 947,000, edging closer to the one million landmark adding
to fears of a new “lost generation” of young people.
Opposition Conservative Party leader David Cameron said that
unemployment approaching 2.5 million was “extremely depressing”.
“What we need to do is make sure our welfare system is working in
every way it can, to help people get jobs, to help people get back
into work, to give them the training that they need,” he said.
Sid Harth
At 9.7 percent, US unemployment rate highest in 26 years
Saturday, September 5, 2009, 10:42
Washington, Sep 4 (DPA) The US unemployment rate jumped to 9.7 percent
in August, as employers slashed an additional 216,000 jobs, the Bureau
of Labour Statistics reported Friday.
While employers cut fewer jobs in August than in July – when 276,000
jobs were lost – the unemployment rate soared to a 26-year high.
The rate is up from 9.4 percent in July. The number of unemployed
people increased by 466,000 to 14.9 million, the government said.
The number of unemployed has soared by 7.4 million since the US
recession began in December 2007 and the unemployment rate has grown
by 4.8 percentage points.
The bureau noted that although many of the major industry sectors shed
jobs in August, the declines have moderated in recent months.
The greatest impact was felt in the construction sector, which shed
65,000 jobs in August. The construction industry has contracted by 1.4
million jobs since the start of the recession.
At least 63,000 jobs were cut in the manufacturing sector in August,
while the financial sector lost 28,000 jobs.
The unemployment rate had changed little in June and July, after
increasing 0.4 or 0.5 percentage point each month from December 2008
through May.
The figures do not include those working on farms.
Sid Harth
Eurozone unemployment hits 10-year high
Tuesday, September 1, 2009, 16:25
Berlin, Sep 1 (DPA) Unemployment in the 16-member eurozone hit a 10-
year high in July, data released Tuesday showed.
The European Union’s statistics office Eurostat said that another
167,000 people were unemployed in the eurozone during July, pushing
the jobless rate up to 9.5 percent from 9.4 percent June.
But the data also showed that the pace of the increase in unemployment
as slowing.
At the start of the year, the numbers jumped by more than 500,000 as
the global recession tightened its grip on the currency bloc’s
economy.
However, more recently key economic indicators have pointed to growth
in the eurozone gaining traction in the run-up to the end of the year
with the region’s two biggest economies – Germany and France –
emerging from recession during the second quarter.
chhotemianinshallah
A short history of fast times on Wall Street
18 Sep 2009, 1935 hrs IST, New York Times
WASHINGTON: Many fear that new technology is giving some investors
unfair access to stock market information. Supercomputers allow
certain traders 10 most
to profit by executing trades in milliseconds, a practice known as
high-frequency trading. These traders also use a technique called
flash orders that gives them a sneak peek at other investors’ orders
to buy and sell stock. High-frequency traders are said to have made
$21 billion in profit last year.
This may seem like a 21st-century problem. But in fact, similar
criticisms have been made for over 100 years, since the days when
trades on the New York Stock Exchange were executed by humans using
notepads and pencils. Even back then, critics claimed that the
exchange members who were physically present on the floor could get
trading information and execute their own orders faster than anyone
else. The creation of the Securities and Exchange Commission in 1934
included the power to regulate the buying and selling of securities by
exchange members trading for themselves, rather than for customers.
A Roosevelt administration official testifying in support of the 1934
legislation, Thomas Corcoran, described such floor traders as
"chiselers." This referred to their ability to quickly buy from
sellers at prices lower than they would otherwise get, and promptly
resell to buyers at prices higher than they would otherwise pay.
These complaints were well founded. By being on the exchange floor,
traders could see with their own eyes the prices of completed trades
minutes before they appeared on the exchange tape. Executing their own
orders gave them a head start over ordinary investors, whose orders
could take minutes to reach the floor. As a former Wall Street Journal
editor wrote in 1903, "They know the prices even before they are
recorded on the tape, and they are able to join in every upward
movement the moment it begins, and to abandon it the moment it shows
signs of wavering."
In 1909, a committee created by Gov. Charles Evans Hughes of New York
to study stock market abuses similarly commented that floor traders
"acquire early information concerning the changes which affect the
values of securities," giving them "special advantages" over other
traders.
In 1963 a congressionally mandated report on the securities markets
found that floor trading conferred unfair advantages and should be
abolished. 10 most trade-friendly economies
Consequently the S.E.C. required that the major exchanges ban most
floor trading, an exception being trading to contribute to "orderly"
markets – that is, markets not subject to violent price fluctuations.
This action, however, proved to be a temporary fix. Today, there’s
little need to be on the trading floor: Computer technology creates
new opportunities to acquire and preferentially trade on inside market
information. While these advantages are measured in milliseconds
rather than minutes, both high-frequency trading and flash orders
enable certain investors to chisel a profit between bid and offer –
the same abuse of inside market information and access that the S.E.C.
tried to eliminate four decades ago. Now, traders have simply found
different ways to tilt the playing field, which means that the S.E.C.
will have to update its regulations to preserve equal access to
securities markets. The sooner it does that, the better.
But it would be a mistake to assume that we are facing a new problem.
Today a major defense of high-frequency trading and flash orders is
that they add liquidity to the markets. This was true of floor trading
as well, but as the 1963 report pointed out, added liquidity "cannot
justify trading that in other respects is deleterious."
There are other similarities as well. Today, high-frequency traders
are said to rent space as close as possible to stock exchange
computers in order to pick up an extra millisecond of advantage. In
early 19th-century New York, those seeking inside market information
rented space next to the exchange and bored holes in the wall so they
could eavesdrop.
On Wall Street, someone will always look for a way to be first,
whether it’s fair or not.
chhotemianinshallah
With two more, 2009 US bank failures reach 94: FDIC
19 Sep 2009, 1440 hrs IST, AGENCIES
WASHINGTON: Two more US banks have closed down -- including the sixth
largest bank bankruptcy this year -- to bring the total number of bank
failures this year to 94, according to the government banking
insurer.
The Indiana-based Irwin Union Bank was shuttered with a total of 2.7
billion dollars in assets and total deposits of some 2.1 billion
dollars, the Federal Deposit Insurance Corporation (FDIC) said in a
statement Friday
In the same group, the Kentucky-based Irwin Union Bank failed with
assets of 493 million dollars and total deposits of some 441 million
dollars.
The institutions were banking subsidiaries of the Columbus, Indiana-
based Irwin Financial Corporation.
With 27 branch locations between them, the two banks are set to reopen
under regular business hours Saturday as branches of First Financial
Bank, with deposits continuing to be insured by the FDIC.
After suffering no bank failures at all in 2005 and 2006, the US
banking system saw three banks going under in 2007, followed by 25 in
2008.
With the bankruptcies Friday, the institutions brought the number of
bank failures this year to 94 -- highlighting the extreme stress that
the global financial crisis has placed on US banking institutions.
The FDIC said it estimated the transactions would cost the
government's Deposit Insurance Fund 850 million dollars.
chhotemianinshallah
Crisis hits financial brands; Coca-Cola retains top slot
19 Sep 2009, 1403 hrs IST, PTI
NEW YORK: The financial crisis has wiped out billions of dollars from
the top 100 global brands, especially from the financial services
sector but the top five-- Coca-Cola, IBM, Microsoft, GE and Nokia--
managed to hold on to their positions despite a challenging year, says
a survey.
According to a survey by leading brand consultancy Interbrand, Coca-
Cola retained the top slot for the ninth year in a row.
While, there are no Indian company in the league of top 100 most
valued global brands, most of them have a significant presence and
brand recognition in the country.
The top gainers in this year's BusinessWeek and Interbrand's annual
ranking include -- Google (25 per cent), Amazon (22 per cent), Zara
(14 per cent), Pepsi (3 per cent) have all prospered during a
challenging year for marketing executives.
But the year that was spelt gloom for brands in the financial services
sector, UBS slipped dramatically down the list, falling 31 places to
the 72 position, losing half of its brand value.
Seven brands mainly from the financial services sector fell right off
the list including Merrill Lynch, AIG, ING after huge subprime
losses.
Another major outcome of the survey is that there has been no change
in the top five spots despite difficult times.
bademiyansubhanallah
NSA terms Santhanam's claims on Pokhran II as 'horrific'
PTI
New Delhi, September 20, 2009
National Security Adviser M.K. Narayanan has termed a former DRDO
scientist's claims on Pokhran II nuclear tests as "horrific" and
asserted that India has thermonuclear capabilities which have been
verified by a peer group of researchers.
He said that the Atomic Energy Commission (AEC), which comprises a
peer group of scientists, had last week come out with the "most
authoritative" statement on the efficacy of the 1998 nuclear tests and
no more clarification was required from the government on the matter.
"They (AEC) were satisfied in 1998 and they were satisfied in 2009.
Now what are you going to discuss?" he said to a news channel.
Narayanan said that the AEC, an independent Commission and the highest
body in such matters, was asked to study the data of the 1998 nuclear
tests once again in the wake of the controversy over the efficacy of
the hydrogen bomb following the statements of former DRDO scientist K
Santhanam.
"I think, we have done what we have done. Beyond that I do not know
what we can do," he said.
Eminent scientists like C N R Rao, P Rama Rao and M R Srinivasan were
members of the AEC and the doyen of the nuclear programme Raja Ramanna
was part the apex nuclear body which went into the test results in
1998.
http://indiatoday.intoday.in/site/Story/58655/Top%20Stories/'Indian+hydrogen+bomb+was+a+dud'.html
'Indian hydrogen bomb was a dud'
Manoj Joshi
New Delhi, August 27, 2009
K. Santhanam, the Defence Research and Development Organisation
official who coordinated India's nuclear weapons programme during the
Pokhran nuclear tests in 1998, has thrown a bombshell.
He has declared that the first and most powerful of the three tests
conducted on May 11 that year - a thermonuclear or hydrogen bomb - was
a " fizzle." This is the first time that a topranked figure, directly
associated with the nuclear weapons programme, has acknowledged the
test had not been as successful as was trumpeted at the time.
Prime Minister Atal Bihari Vajpayee himself had acknowledged at the
time that India had tested a " big" bomb among the five tests it had
conducted on May 11 and 13.
This was later confirmed by Department of Atomic Energy ( DAE) chief,
R. Chidambaram, who had said that the bomb's yield was 45 kilotons
( 45,000 tons of conventional explosive).
Santhanam made the remarks at a semipublic seminar on the
Comprehensive Test Ban Treaty at the Institute of Defence Studies and
Analyses on Tuesday that followed off- the- record Chatham House rules
( where the identity of the speaker is not revealed, although what he
or she said can be freely quoted).
However, after reports of his remarks appeared in a section of the
media, he said on Wednesday that his recollection of his statements
was slightly more nuanced. His view was that India should not sign the
CTBT and that it needed to conduct more thermonuclear tests.
"There is no country in the world," he emphasised, " which managed to
get its thermonuclear weapon right in just one test." He said that he
had also pointed to the fact that western seismic experts had doubted
India's claim that the three simultaneous tests on May 11 had a
combined explosives yield of 60 kt.
The Santhanam revelation could have major reverberations in the
country's security policy.
The Indo- US nuclear deal, for instance, rests upon the assumption
that India will not test again.
It is also likely to make it difficult for the Manmohan Singh
government to sign the CTBT, an issue that has gained considerable
salience in the Obama administration's non- proliferation policy.
The doyen of nuclear weapons scientists, P. K. Iyengar, who had
retired by the time the Pokhran tests were conducted, made a similar
statement in scientific language in a newspaper article in 2000. He
noted that " the secondary ( fusion) device burnt only partially,
perhaps less than 10 per cent". Thermonuclear weapons are much more
powerful than atomic weapons and they work in two stages: a normal
plutonium implosion device ( primary) acts as a trigger to set off a
fusion or thermonuclear process ( secondary) that releases a vast
amount of energy.
Thus while the fission bombs that destroyed Hiroshima, or the type
that India tested in Pokhran- I in 1974 had an explosive yield of 12-
15 kt, thermonuclear or hydrogen bombs can be anywhere from 200 kt to
a megaton.
Santhanam's doubts about the hydrogen bomb after the Pokhran tests
were first featured, on an unattributable basis, in security analyst
Bharat Karnad's book India's Nuclear Policy ( 2008) where he pointed
out that " a senior DRDO official involved in the testing" had, some
six months after the tests, " recommended resumption of testing to the
government because he was convinced that the test of the hydrogen bomb
was inadequate". Karnad, a professor at the Centre for Policy
Research, felt that the Indian need to test again " is less a matter
of opinion than of fact." In his view, Santhanam's " extremely
courageous stand" had struck a fatal blow at the foundation of the
Indo- US nuclear deal " predicated on India's never testing again and
at any accommodationist policies the Manmohan Singh regime may be
considering visa- vis the CTBT and the Fissile Material Cutoff
Treaty". At a press conference following the test in May 1998, DAE
chief Chidambaram claimed that they had deliberately kept the
secondary of the thermonuclear Shakti- I explosion low so as not to
damage a nearby village. But this claim was met with scepticism.
The first doubts on the test were cast by western seismic experts who
questioned the 6o kt total yield for the three tests of May 11. US
intelligence sources had also raised questions about whether India's
claim of testing a " thermonuclear device" actually amounted to a
hydrogen bomb. They believed that it could have been a " boosted"
fission device.
Scientists from the Bhabha Atomic Research Centre in Mumbai insisted
all along that all the tests, including the hydrogen bomb or
thermonuclear test, had been successful. They followed this up by
publishing a series of papers arguing that the yields were in
accordance with the design objectives.
Two papers by S. K. Sikka and DAE chief R. Chidambaram had debunked
the western seismic analyses. In various issues of the BARC Newsletter
in 1999, scientists had provided radio- chemical analysis backing up
the official claims that the yields were as expected.
Santhanam's revelation is likely to be like a bucket of cold water on
the security establishment in the country.
India claims that it is second to none as a military power. It is
building a nuclear triad - basing nuclear weapons on land, air and sea
- just like the US, China and Russia.
But the lack of a weapon of adequate explosive yield undermines Indian
claims of possessing world- class strategic capability and damages its
nuclear force posture.
Asked why Santhanam might have decided to go public now, Karnad said
that it was his belief that " as a nuclear scientist who has always
dealt in physical certainties, try as he might Santhanam could not
reconcile the physical facts of deficiencies in the design of the
thermonuclear device evidenced in the test results with the profession
of satisfaction by the government with the same results." He said that
for reasons best known to him, the DAE chief Chidambaram had claimed
success, a position that had undermined the credibility of India's
deterrent posture and brought into question the reliability of the
unproven thermonuclear armaments in the country's arsenal.
Courtesy: Mail Today
chhotemianinshallah
Comment: Spilled Secrets
18 September 2009, 12:12am IST
It seems to be the season for revelations. First came A Q Khan's
admission in a televised interview that he and other administration
officials had acted as enablers for Iran's incipient nuclear
programme, guiding it to the network of suppliers that Khan himself
had used. He also hinted that Pakistan had supplied centrifuges to
North Korea. Implicit in both these admissions was the assertion that
he was no loose cannon but had acted with Islamabad's full knowledge
and cooperation. Then came his bete noire Pervez Musharraf's turn. The
former Pakistani president revealed that much of the financial aid and
military equipment supplied by the US in the wake of 9/11 had been
diverted to Pakistan's eastern border rather than used in the fight
against the Taliban. Neither admission is particularly surprising, but
they highlight yet again the problems of accountability and oversight
when it comes to aid to Pakistan.
To some extent, the laissez-faire attitude of the Bush administration
has been replaced by more stringent accountability norms in
Washington. The Kerry-Lugar Bill that authorises $7.5 billion in non-
military aid to Pakistan over the next five years also imposes checks
and conditions on military aid, including a biannual report on how the
aid is being utilised. But good intentions do not always translate
into concrete action. There are bound to be situations where it will
be convenient to elide certain conditions for the sake of eliciting
cooperation from Islamabad. The challenge now is for the Obama
administration to resist the lure of expediency.
This is in its own best interests. If New Delhi is to soften its
post-26/11 stance, allowing Washington the greater manoeuvring space
it wants with Islamabad, it must have certain assurances. Among these
is certifiable evidence that US aid is not being misused to bolster
Pakistan's anti-India capabilities, as has been the case with the US-
supplied Harpoon missiles and P-3C Orion aircraft. Even more pressing
for Washington is the need to make certain that the aid is not being
diverted to boost Pakistan's nuclear assets, and that they are secure.
This is particularly so in light of Af-Pak special envoy Richard
Holbrooke's statement that al-Qaeda is seeking nuclear secrets from
Pakistan. The issue resonates far beyond the confines of South Asia.
Some of the thorniest problems facing the Obama administration today
Iran and North Korea have direct links to Pakistan.
Islamabad must realise that knee-jerk nationalism and protests about
infringement of its sovereignty will serve little purpose here. It has
no one to blame but its previous administration. Khan's scenario of
government complicity in his dealings is far more plausible than
Musharraf's. And more importantly, Islamabad needs the aid to combat
the militancy that has infected large swathes of the Pakistani state
for its own sake.
Sid Harth
India launches warship 'INS Kochi'
PTI 18 September 2009, 04:00pm IST
MUMBAI: India's latest addition to the Navy - warship INS Kochi, a
Delhi-class destroyer, was inaugurated on Friday. This is the second
warship of Warship INS Kochi, of Indian Naval Service, after its
launch from the Mazagaon Dock in Mumbai on Friday. (PTI Photo)
‘Project 15-A’, built by Mazgaon Dock Limited. ( Watch Video )
Naval Chief Admiral Nirmal Kumar Verma on Friday said a serious relook
at the inefficiencies of Navy is required and an indigenous warship
building system needs to be conceptualised.
Verma said, "Fluctuating funding in the past has compelled the Navy to
resort to (warship) building in abroad, but now there is an urgent
need to emulate worldwide trends in warship building (in the
country)."
The 6,500-tonne INS Kochi, launched by Verma's wife Madulika, is the
second warship in the 'Project 15-A' under which three guided-missile
destroyers with stealth and multi-role features will be built.
"The destroyer has been launched using pontoon-assisted technique,
employed for the first time in the history of indigenous warship
building. The technique helps in overcoming slipway constraints which
hinder heavier vessel movement into deeper waters for fitting its
superstructures such as decks," chairman and managing director of
Mazgaon Dock H S Malhi said.
INS Kochi has advanced stealth features that make it less vulnerable
to detection by enemy radar. Its weapons system include nuclear
capable supersonic BrahMos surface-to-surface missile.
Sid Harth
MOSCOW, September 21, 2009
Russia ready to help India build its own advanced radar
Vladimir Radyuhin
As the race in the Indian Air Force’s $10-billion tender for 126
combat jets reached the crucial stage of flight trials, Russia, on top
of a full technology transfer, is offering India help in building its
own advanced radar. This would put India in the elite league of
manufacturers of some of the most sophisticated defence equipment.
“We are ready to develop a new advanced radar jointly with India,”
said Vyacheslav Tishchenko, head of the Phazotron-NIIR Corporation.
The company has built Russia’s first Active Electronically Scanned
Array (AESA) radar, Zhuk-ME, for the MiG-35 fighter, the Russian
contender in the IAF tender for the Medium Multi-Role Combat Aircraft
(MMRCA). Two planes will go to India next month for flight evaluation
trials.
Also in the fray are the U.S. F-16 and F-18, the French Dassault’s
Rafale, the Swedish Saab Gripen and the Eurofighter Typhoon. Transfer
of technology is a prime requirement in the MMRCA tender, but as far
as the radar is concerned, Russia alone seems prepared to meet the
demand in full. “Out of six-seven countries in the world that have the
know-how to build radars for combat jets, only two -- Russia and the
U.S.-- domestically produce the full range of radar components,”
Phazotron’s chief designer Yuri Guskov said.
Raytheon, the U.S. company that manufactures radars for the F-18
fighter, has already said it would only transfer “limited” technology
“up to the level the U.S. government allows us.”
This means America’s European competitors in the MMRCA tender will
also face restrictions on the transfer of technologies sourced from
U.S. companies.
Russia is the only bidder which does not depend on the U.S. for any
aircraft technologies, including the radar.
Sid Harth
New Delhi, September 21, 2009
NSA terms Santhanam’s claims ‘horrific’
PTI
The Hindu National Security Advisor M.K. Narayanan.
National Security Adviser M.K. Narayanan has termed the claims of the
former DRDO scientist, K. Santhanam, on the Pokhran-II nuclear tests
as “horrific.” He said India has verified thermonuclear capabilities.
He said the Atomic Energy Commission (AEC), which comprises a peer
group of scientists, last week came out with the “most authoritative”
statement on the efficacy of the 1998 nuclear tests and no more
clarification was required from the government.
“They [AEC] were satisfied in 1998 and they were satisfied in 2009.
Now what are you going to discuss?” he told Karan Thapar on the ‘India
Tonight’ programme of CNBC-TV18.
Mr. Narayanan said the AEC, an independent commission and the highest
body in such matters, was asked to study the data of the 1998 nuclear
tests once again in the wake of the controversy over the efficacy of
the hydrogen bomb, following the statements of Mr. Santhanam.
“I think, we have done what we have done. Beyond that I do not know
what we can do,” he said.
Eminent scientists such as C.N.R. Rao, P. Rama Rao and M.R. Srinivasan
were members of the AEC and the doyen of the nuclear programme Raja
Ramanna was part the apex nuclear body which went into the test
results in 1998.
“The thermonuclear device had a yield of 45 kilotons. I have chosen my
words carefully -- 45 kilotons and nobody, including Mr. Santhanam who
has absolutely no idea what he is talking about, can contest what is
proven fact by the data which is there,” Mr. Narayanan said.
The NSA claimed that a “very authoritative piece” about the nature of
the tests written by AEC Chairman Anil Kakodkar and senior scientist
S.K. Sikka was being “examined by physicists all over the world.”
Mr. Narayanan said the former AEC chairman, P.K. Iyengar, had admitted
that the yield of the thermonuclear test “might have been 45 kilotons”
and had raised doubts about the fission and fusion reactions happening
at the same time.
“All the atomic scientists are part of the establishment.”
“Those who are sceptics, the same ones Dr. Iyengar, Dr. A.N. Prasad,
the same ones were sceptical about the civil nuclear initiative,” he
said.
Mr. Narayanan said Mr. Santhanam was not privy to the information on
which the test measurements were taken. “As the NSA, I know what the
DRDO is supposed to do and what it knows. I think he is not merely
exaggerating, I think he is talking something which is horrific,” he
said.
Asked about the doubt the former Army Chief, V.P. Malik, had raised
about the efficacy of the hydrogen bomb, he said: “I think the person
to answer that, is the present chief and not the past chief…”
“We have thermonuclear capabilities. I am absolutely sure. We are very
clear on this point. If you hit a city with one of these you are
talking about 50,000 to 1,00,000 deaths,” the NSA said.
Mr. Narayanan said the “kind of interested propaganda being put out by
various people” in the media was a matter of concern for the
government.
On the U.S. move to press for a UN Security Council resolution calling
upon all countries to sign the Nuclear Non-Proliferation Treaty (NPT),
he said the issue had already been raised with the Americans who have
assured India it would not affect the civil nuclear agreement.
He said India had also talked to countries with whom it had signed
nuclear agreements, against the backdrop of the U.S. bid to get the
G-8 to ban sale of enrichment and reprocessing technologies to non-
nuclear states.
He termed an “old story” ex-Pakistan President Pervez Musharraf’s
admission that Islamabad was deploying American military aid meant for
fighting terrorism against India.
He said Pakistan’s acquisition of sophisticated weaponry from America
in the last three to four years was more worrying than any
modification of Harpoon missiles.
No first use doctrine
Strongly refuting the need to rethink the ‘no first use’ doctrine, he
said: “It is a very well thought out doctrine. We are clear for
various reasons. For us it is only a deterrent. We are committed to
it.”
On reports of Pakistan enhancing its nuclear arsenal, he said: “The
fact that the country which is not particularly friendly to us is
building up its nuclear arsenal is certainly a matter of concern.”
Sid Harth
September 17, 2009
Pokhran-II thermonuclear test, a failure
K. Santhanam
Ashok Parthasarathi
The Hindu A scanned photograph of one of the sites where nuclear test
was conducted on May 11, 1998.
A critical analysis of the technical facts can lead to no other
conclusion. BARC must learn to tell the nation the truth.
Several inaccuracies in the claims made by BARC and in the articles
published in the press, including The Hindu, on Pokhran-II need to be
corrected. We have hard evidence on a purely factual basis, to inform
the nation that not only was the yield of the second fusion (H-bomb)
stage of the thermonuclear (TN) device tested in May 1998 was not only
far below the design prediction made by the Bhabha Atomic Research
Centre (BARC), but that it actually failed.
All the five nuclear tests conducted in May 1998 were undertaken
through a joint BARC and Defence Research and Development Organisation
(DRDO) team. A.P.J. Abdul Kalam and R. Chidambaram assigned the DRDO
team the critical responsibility for all the field instrumentation to
record seismic data from all the tests: this was vital in estimating
the yields. The seismic sensors were placed at many points in the
device shafts and out to a radius of 2.5 km. The sensors and
instrumentation were calibrated several hundred times and perfected.
They fully met international standards and were acknowledged to be so
by BARC.
The DRDO was thus deeply involved in all the seismic measurements and
was fully aware of the BARC-projected readings vis-À-vis its own
measurements. One of the authors, Dr. Santhanam, was personally aware
in detail from key BARC scientists of the core designs and hence the
projected yields. Consequently, the reference in a report published by
The Hindu on August 28 (headlined “’Fizzle’ claim for thermonuclear
test refuted”) attributed to a “former senior official of the Vajpayee
government” that I was “not privy to the actual weapon designs which
are highly classified,” was incorrect.
The DRDO also designed and conducted numerous tests of the High
Explosive (HE) Trigger of the TN test. BARC scientists witnessed these
tests, took copies of test records, and expressed satisfaction with
the DRDO’s work.
Over May-October 1998, DRDO produced a comprehensive report of actual
seismic readings vis-À-vis values predicted by BARC, mentioning why
the former showed considerably lower yields than the latter.
The DRDO report was discussed at a meeting called by National Security
Adviser Brajesh Mishra in late 1998. The meeting was attended by Dr.
Chidambaram and Dr. S.K. Sikka, the scientific head of the BARC team;
Mr. Kalam, the Director-General of the DRDO; Dr. V.K. Aatre, the Chief
Controller of the DRDO, Dr. Santhanam, and the Chiefs of the Defence
Services. Despite a long discussion, largely between the DRDO and
BARC, both stuck to their positions on the TN device yield.
Thereafter, the NSA took a ‘voice vote’! This was highly unusual
because the matter was technically very complex and the services were
ill equipped to give an opinion on yields. Most surprisingly, NSA
concluded saying government would stand by Dr. Chidambaram’s opinion.
Dr. Chidambaram’s claims and those in Atomic Energy Commission
statement reported on September 16 under headline “No reason to doubt
the yield of 1998 nuclear test: AEC” are wrong.
BARC basically argued that the geological structure of Pokhran was
different from test sites elsewhere. However, the DRDO and BARC
utilised the same published information in their calculations of TN
device yield. BARC accepted the DRDO’s yield estimates of the fission
(A) bomb, but not of the TN device, although the latter’s shaft was
situated only a few hundred metres from the former’s shaft. Globally,
geological structures do not change dramatically at such small
separations. So BARC’s argument to “explain” a lower TN yield is
untenable.
Dr. Chidambaram’s statement that “the post-shot radioactivity
measurements on samples extracted from the test site showed
significant activity [levels] of radioisotopes Sodium 22 and Manganese
54, both of which are byproducts of a fusion reaction rather than a
pure fission [device]” is incorrect. He should indicate the exact
level of activity instead of merely saying “significant activity” as
the activity level determines whether a fusion reaction of the
magnitude claimed by BARC actually occurred.
Dr. P.K. Iyengar, a former Chairman of the Atomic Energy Commission
and a former Director of BARC, informed me that trace levels of these
same isotopes were detected in Apsara, a pure fission reactor not
involving any fusion at all. This is the exact opposite of Dr.
Chidambaram’s claim.
Dr. Chidambaram’s statement that “from a study of this radioactivity
and an estimate of the crater radius confirmed by drilling operations
at positions away from the shaft, location, total yield and break-up
of fission and fusion components, could be calculated” is extremely
surprising. First, after the TN test, its shaft remained totally
undamaged: if the fusion stage had worked, the shaft would have been
totally destroyed. Secondly, the A-frame sitting astride the mouth of
the shaft, with winches to lower and raise personnel, materials and so
on, also remained completely intact. If the fusion stage had worked,
the ‘A’ frame would also have been totally destroyed.
As for radioactivity levels, senior BARC radiochemists who undertook
radio-assay of fission products in samples similarly drilled at
Pokhran-I (of May 1974) told Santhanam that the yield announced to the
media was substantially higher than what they had submitted to Dr.
Raja Ramanna. Dr. Chidambaram must publicly substantiate any claim
that it did not occur in the TN test along with justification data.
Dr. Chidambaram states: “BARC scientists worked out total yield of TN
device as 50 +10 kt — consistent with design yield and seismic
estimates.” However, he subsequently asserts: “BARC experts
established DRDO had under-estimated yield due to faulty seismic
instrumentation.” BARC cannot eat the cake and have it too.
The fission bomb yield from the DRDO’s seismic instrumentation was 25
+2 kiloton and left a crater 25 metres in diameter. If the TN device
had really worked with a yield of 50 +2 kt, it should have left a
crater almost 70 metres in diameter. Instead, all that happened was
that sand and mud from the shaft were thrown several metres into the
air and then fell back, forming a small depression in the shaft mouth.
There was no crater.
This factual analysis reveals India’s decade-long, grim predicament
regarding the failed TN bomb and so our Credible Minimum Deterrent
(CMD). No country having undertaken only two weapon related tests of
which the core TN device failed, can claim to have a CMD. This is
corroborated by fact that even after 11 years the TN device has not
been weaponised by BARC while the 25 kiloton fission device has been
fully weaponised and operationally deployed on multiplate weapon
platforms. It would be farcical to use a 3500-km range Agni-3 missile
with a 25 kiloton fission warhead as the core of our CMD. Only a 150 –
350 kiloton if not megaton TN bomb can do so which we do not have.
(K. Santhanam was Project Leader, Pokhran-II. He worked as a physicist
at BARC for 15 years. Later he was Chief Adviser (Technologies) in
DRDO for 14 years and was then also Director General, Institute for
Defence Studies and Analyses, New Delhi. Ashok Parthasarathi, the co-
author of this article, was S&T Adviser to Prime Minister Indira
Gandhi and deeply involved in Pokhran-I, of May.)
Comments:
That various agencies of the Indian government hide crucial facts from
its citizens is obvious. Why, only recently when ISRO was fully aware
of the malfunctioning of Chandrayaan-I, it kept this information from
the public for months. On another note, this controversy needs to be
looked at from the point of view of the transparency, or lack thereof,
of our government. Whether we have a credible deterrent is secondary;
we need to go back to our insistence on a nuclear-weapons-free world.
from: Astitva
Santhanam is correct in his analysis. However, he needs to apologize
for being a party to this cover up operation for over a decade. The
nation now knows that it does not have anything close to a minimum
credible deterence. Those who have been lying for over a decade both
inside and outside parliment need to be brought to book. At least on
this critical issue, the policy must be decided in Delhi and not by
Washington.
from: Viswanath
The armed forces need a light weight FBF warhead to be mounted on our
missiles.The likely adversary targets are cities which have
substantial infrastructure built up above ground.A 'Nagasaki/
Hiroshima' type explosion would cause immense damage today.Both
infrastructure and population obliteration caused by such a
retaliatory strike in Pakistan / China is deemed unacceptable.The
effect of this would be to remove the communist party from governance
in China as the people would revolt.At present we need to concentrate
on numbers of missiles in our arsenal spread over the length& breadth
of our nation.This would ensure second strike capability.INS Arihant&
her sister subs represent our best option after missile firing tests
have been successfully carried out.The subs threaten the coastal
cities of China/PAKISTAN from a range of around 1000kms.Both countries
have nil capability at sea with respect to STRATEGIC ASW.This will
ensure peace for 50 years& we can fine tune our strategic weapons
during this phase.
from: Devindra Sethi
Re: Viswanath
Santhanam has nothing to apologize for. Your response is the typical
one indulged in by most victims where they pick on the one person
willing to stand up and do the right thing. Santhanam voiced his
opposition at the time of the tests and gave the benefit of the doubt
to the BARC team to develop a solution and fix their mistake. With a
decade gone and no solution in sight, and with the Govt ready to sign
the CTBT under a flawed claim that India already has all the
capability it requires, Santhanam was right to speak up and prevent a
total failure of our strategic options. May India have many more
people like Santhanam who have the spine to do the right thing.
from: Venkat
If what Dr Santhanam says is correct- that India doesn't have CMD-
then it is indeed a matter of deep concern. Few countries. certainly
no major countries, have as unsettling and volatile neighbourhood than
India. In the absence of CMD, India would be sitting duck to the
China's ambitious strategic goals. Since India lacks wherewithal to
face a conventional Chinese juggernaut, the absence of a CMD would
encourage the Chinese to be more assertive and even adventurous in its
dealing with India. Another humiliation at the hands of the Chinese
would leave the Indian nation in virtual tatters. No nation with scars
of humiliation and a resultant low-esteem can rise either economically
or militarily to qualify even as a regional power, let alone
superpower. In almost half a century since 1962 India has not been
able to get its act together, to secure its border and provide a sense
of security to its citizens. There can't be a more damning comment on
India's political leadership than this.
from: Ashok
The only way to avoid these kinds of situations spilling over in to
the public domain is to institutionalise checks and balances. There
absolutely MUST be another centre for nuclear weapon design in India
besides BARC, with both centres equally resourced in terms of
personnel and funding, and with access to the same data. That is the
only way to provide secure, meaningful peer review on these complex,
vital and sensitive questions until the much hoped for day of
universal disarmament arrives. It is cheaper and safer than the
alternative.
However until there is an Indian Lawrence Livermore to keep BARC (the
Indian Los Alamos) on its toes, I for one am grateful that there are
members of the technical national security establishment who have
chosen to define national interest in terms of a credible, proven
thermonuclear deterrent instead of a claims that mostly only convinced
Indians. Deterrence must convince all challengers.
from: Jagan Chakravarthi
Mr K. Santhanam should first give a convincing reason as to why he
kept quiet for more than a decade. There is no point in coming clean
now,even if what he is claiming is true.His statements now can have
only one impact-damage India's strategic interests.
from: Kamlesh Singh
Thank you to both Dr K. Santhanam and Ashok Parthasarathi for bringing
out the facts into the open. I am really very angry at the
government's and the Scientists involved in Pokhran II in playing
games with the country's security. Lies and decet cannot and should
not be the instruments of defence of our nation. Dr Chidambaram needs
to explain to the nation about his false statements. We as taxpayers
have the right to know the truth.
Amar Bhuyan
from: Amar Bhuyan
The government needs to come clean on the issue. Already the former
army chief Gen.V.P. Malik has stated that the armed forces need to be
reassured on the issue. The armed forces, the end users are called to
act in case of a war situation. Hence the scientists need to come
clean on the issue. If need be we should go ahead and test again. We
should not care much about the Indo-US nuclear deal, as now our
investment is minimum. Only our country's interest is the guiding
principle. We should not forget that our neighbours have proven TN
devices of yeilds upto 1 mega ton.
from: Jacob Jose K
Unlike DRDO and ISRO which is open to intensive public and user
scrutiny on their projects, BARC still remains an organisation who
hides their extreme inefficient way of functioning under the garb of
secrecy and press conferences tom tomming their non existent
achievements, not visible to the public eye. This organisation needs a
desperate and thorough overhaul. Dr Santhanam needs to be commended by
a grateful nation on his risky exposure of this sinister organisation.
from: Ramu
Deterrence should be all encompassing i.e., the whole world should
believe that you posses it. Given the situation India should test 300
kiloton devices with all possible designs. This will not only assure
the nation that we posses what we claim to posses. We should also
design weapons based on thorium mixed with uranium or plutonium and
these components can be used as a trigger for hydrogen bombs.
from: Shyam Purohit.
Dr. Santhanam, in the days immediately following the tests, is on
record saying that the total yield of the simultaneous explosions S1
and S2 (fusion and fission, respectively) was limited by the need to
avoid damage to the village of Khetolai, where residents could not
even be evacuated because that would have given the secret away. As it
happens, Khetolai suffered significant damage, with houses irreparably
cracked and the water tank also cracked. It is a miracle that there
was no serious venting from the shaft, unlike some American test
disasters (12000 ft radioactive plume), or all the residents of
Khetolai would have died a slow, painful death. So the debate now
appears to be whether the yield was 50+10 KT or 27+33 KT. Per the
above, Santhanam says the fission was 27KT, BARC claims it was only
10, and vice versa for the fusion.
from: Abdul
While Mr K Santhanam may be correct in essential details, it cannot be
ignored that he chose to remain quiet about the low yield of TN test
for all these years...What prompted him to speak out now? Is it the
CTBT issue? How many countries are serious about CTBT anyway? Further
the tacit assumption that the measuring instruments worked perfectly
to provide numbers to calculate the yield is not acceptable. With very
little experience with such instrumentation, I am inclined to think
that the instruments developed and used were either poorly designed or
totally unreliable......There is greater chance that the instruements
to measure the yield were duds and need to be examined.
from: Dr N K Srinivasan
People also need to understand that Thermonuclear [TN] test is not
only required to develop a bigger [say 150 KT] bomb but also to reduce
the size of existing bombs. With TN tech we can make say 50 KT bomb
much smaller and lighter. This will allow our existing missiles to
throw the bomb longer distance. Thereby lesser number of missiles-
>lesser logistics->lesser cost. We can also pack more MIRVs [or
multipe warheads] in the same missile. In summary TN test is not only
for just a BIG Bomb.
from: Vardhan
Sid Harth
New Delhi, September 13, 2009
India, US to talk on reprocessing nuclear fuel next month
PTI
India and the US will hold the second round of discussions on
‘arrangements and procedures’ for reprocessing of spent fuel of
American origin here.
“The talks are scheduled for next month,” Ravi Grover, Director,
Strategic Planning Group in the Department of Atomic Energy told PTI
here.
However, it was not immediately clear whether the talks would be held
in India, the US or Vienna.
A five-member Indian delegation led by Mr. Grover held the first round
of consultations in Vienna in July.
“We made good progress in the first round,” Mr. Grover said without
going into the details of the discussions.
The talks are considered as a significant step to take forward the
operationalisation of the Indo-US nuclear deal.
Asked whether this would be the final round of talks, Grover said he
was not in a position to give any specific timeframe for the
conclusion of the discussion.
The consultations are being strictly based on Article 6 (III) of the
123 agreement between India and the US.
According to the agreement, to bring reprocessing rights into effect,
India has to establish a new national facility dedicated to
reprocessing safeguarded nuclear material under the safeguards of
International Atomic Energy Agency.
Also, India has to reach an agreement with the US on ’arrangements and
procedures’ under which such reprocessing will take place in this new
facility.
Conclusion of the talks is crucial for the US companies to start
nuclear commerce with India.
US energy majors – Westinghouse-Toshiba and GE-Hitachi have inked
pacts with state-run Nuclear Power Corporation for setting up nuclear
parks in India.
Sites have been identified in Andhra Pradesh and Gujarat for setting
up nuclear reactors by American companies though an official
announcement in this regard is pending.
Sid Harth
September 20, 2009
Deterrence and explosive yield
K. SubrahmanyamV. S. Arunachalam
Following the controversy on the success or otherwise of the
thermonuclear test of India on 11th May, 1998, questions have been
raised by some senior ex-service officers and civilian strategists on
the credibility of the Indian deterrent posture and the perceived
mismatch between a 3,500-km missile and a warhead of two digit
explosive yield. It is not the intention here to go into the question
of success or otherwise of the thermonuclear test. Heaven knows so
much has been said about that already. Instead, there is a need to
understand what we mean by deterrence and we shall also discuss
whether Indian nuclear strategic posture is credible in the absence of
thermonuclear warheads.
Nuclear deterrence is essentially a mind game. A potential aggressor
will be deterred if he is persuaded that the nuclear retaliation that
will be delivered by the survivable nuclear force of the victim will
cause unacceptable damage, totally incommensurate with any strategic,
political, economic or any other objective that drives him to go for
the first strike. During the Cold War, the Western assumption was that
Communist ideological expansionism constituted a threat to the very
survival of democratic system. But as George Kennan pointed out, the
Communists while espousing an offensive ideology were also convinced
that history was on their side and were not ready to push it at the
risk of a nuclear conflict. Both sides thus opted for a status-quo and
the world was spared a nuclear war.
In the sixties the U.S. gave serious thought to the possibility of
carrying out a total disarming strike on the Soviet Union when it had
more than ten times the superiority in warheads. The U.S. Chiefs of
Staff could not, however, assure the President that a few Soviet
warheads would not get through to the U.S. and that was enough to
deter Washington from pursuing that idea of a disarming strike.
No doubt Robert McNamara as Defence Secretary came up with very
fanciful calculations of what percentages of Soviet population and
industry should be threatened by assured destruction to become the
deterrent. These calculations were based on the Soviet Union suffering
20 million casualties in the Second World War and enormous damage to
its industry in the European part of Russia. But that happened
incrementally over four years of the war and the Soviet leadership
could not have known there would be such losses when the Nazi
aggression took place. In real world, the Soviets could not accept the
loss of fifteen thousand lives in Afghanistan and pulled out of that
country. In a sense, the U.S. calculations were a misplaced
justification to build an arsenal of several thousand warheads and
engage the Soviet Union in an arms race. Having built 30,000 warheads
at great costs, both sides are now cutting back on their arsenals and
dismantling those weapons, again at great cost.
Robert McNamara in later years of his life changed his views. Writing
in Foreign Policy of May/June 2005 he said that he had never seen any
U.S. or NATO war plan which concluded that initiating the use of
nuclear weapons would yield U.S. or the Alliance any benefit. He added
that his statements to this effect had never been refuted by any NATO
Defence Minister or senior military leaders. Yet it was impossible for
any of them, including the U.S. Presidents, to make such statements
publicly because they were totally contrary to established NATO
policy
War is politics by other means and the aim of a war is to compel the
adversary to accept one’s terms. President Reagan and the Soviet
Union’s General Secretary Gorbachev are on record that a nuclear war
cannot be won. In a nuclear war, once the missiles are launched,
entire countries on both sides become battlefields. It is difficult to
control or regulate the firing of the missiles since both sides are
under compulsion to use the missiles before they are eliminated by the
enemy strike. As soon as the first city is hit, populations of all
cities would attempt to empty out into the countryside since there
will be panic that their own city will be the next target in the next
few minutes. Think of the entire urban population of a country
becoming internally displaced persons in a matter of hours. Can there
be effective governance in the country?
A thermonuclear weapon of 150 kiloton explosive power or three 25
kiloton warheads delivered in a distributed way on a city will perhaps
produce equal magnitudes of casualties and property damage. Can it be
argued that only a 150 kiloton weapon will deter another warhead of a
similar yield? Deterrence is not about the damage one causes to the
adversary. It is about what the aggressive side will consider as
unacceptable. It is irrelevant whether the destruction is caused by
150 kt weapons or 25 kt weapons. Obviously, it is not infra-dig for a
3,500-km range missile to carry a 25 kt warhead. Cost-effectiveness
calculations have no meaning since the nuclear war itself has no
meaning. In a mega-city struck by a couple of 25 kt warheads, apart
from the hundreds of thousands of dead, there will be an equal number
of people wounded and more people affected by radiation; all of whom
will be envying the dead. One of us is revisiting the calculations
involved in predicting the extent of destruction inflicted by nuclear
weapons. Our preliminary results suggest that that even with 25kt
fission bombs, the damages are going to be far more and extensive than
what Hiroshima and Nagasaki suffered given the higher population
densities in the cities of China and South Asia and the urban
development of recent years. Therefore, the Indian deterrent posture
will not lose its credibility if India is compelled to rely on fission
weapons only.
Important determinants
The role of the Indian nuclear weapons is to deter others using
nuclear weapons against us. It can perform that role so long as the
retaliatory force is perceived as survivable and able to inflict
unacceptable damage on the aggressor. That does not depend on the
explosive yield of the individual warheads. Theoretically speaking,
the same unacceptable damage can be inflicted by increasing the number
of delivery vehicles and warheads of lower yield and increasing their
survivability. Reliability, robustness and survivability of weapon
platforms are important determinants in validating the deterrence a
country practices.
In this article we do not propose to sermonise on the need to
eliminate nuclear weapons globally. This was articulated by Rajiv
Gandhi in the United Nations many years ago, but has not been pursued
since then. Along with our deterrence policy, we should once again
pursue the mission for the global elimination of nuclear weapons. Our
world will be better for that and fission or fusion will then lose
their relevance.
( K. Subrahmanyam is a well known strategic analyst and V.S.
Arunachalam, a former Scientific Advisor to Defence Minister, is now
Chairman of CSTEP, a Bangalore-based think-tank.)
chhotemianinshallah
Indian-American lawmaker blasts NYT for anti-India editorial
Press Trust Of India
Washington, July 21, 2009
First Published: 12:10 IST(21/7/2009)
Last Updated: 12:13 IST(21/7/2009)
A powerful Indian-American lawmaker on Tueday blasted The New York
Times for terming India as a "longtime nuclear scofflaw".
In an editorial on the eve of the visit of Secretary of State Hillary
Clinton to India on July 17, NYT had termed New Delhi as a "longtime
nuclear scofflaw" and held India responsible on Kashmir, relations
with Pakistan and also partly blamed it for the nuclear weapons
programme of Iran.
Kumar Barve, the Majority Leader in Maryland House of Delegates, said,
"to me the most troubling aspect of the
article was not to be found in the blatant and unprofessional factual
errors or omissions. It was the tone. How haughty, how condescending,
how arrogant and patronizing. How like the British Raj."
"The Times' editorial contains a factual error in its very first
sentence when it describes the Republic of India as
a "longtime nuclear scofflaw".
"Actually, India never signed the Nuclear Non-Proliferation Treaty
because it felt it discriminated against third-world counties," Barve
wrote in an email to his constituents.
"The Times is free to disagree with this policy, but it ought to at
least agree that one can only be a scofflaw if a law, or in this case
a treaty agreement is violated. India has done nothing of the sort,"
Barve said in a rare email on
international matters.
chhotemianinshallah
AQ Khan admits to Pak nexus in Iran, Libya nuke programme: Report
Press Trust Of India
LondoN, September 20, 2009
First Published: 22:48 IST(20/9/2009)
Last Updated: 03:03 IST(21/9/2009)
In a damning revelation of Pakistan's nuclear proliferation, its
disgraced scientist A Q Khan, the father of the country's nuke weapons
programme, has admitted to the Pakistani nexus in the controversial
atomic programme of Iran and North Korea, a media report said on
Sunday.
The disgraced 74-year-old Khan, who is dubbed as maestro of the
world’s largest nuclear black market, has made the revelation in a
four-page 'secret' letter addressed to his Dutch wife Henny, the
Sunday Times reported today.
The letter was written to his wife after his arrest in 2003.
In numbered paragraphs, the letter outlines Pakistan’s nuclear links
with China and its official support to the atomic programme of Iran
and North Korea. The letter also mentions Libya.
On Iran, the letter says: "Probably with the blessings of BB [Benazir
Bhutto, who became prime minister in 1988] and [a now-retired general]
… General Imtiaz [Benazir’s defence adviser, now dead] asked… me to
give a set of drawings and some components to the Iranians… The names
and addresses of suppliers were also given to the Iranians."
The paper described the December 10, 2003 letter hand written in
apparent haste as as extraordinary and claimed its contents have never
been revealed before. The paper said that one of its journalists
obtained a copy of the letter in 2007.
The newspaper report said the letter is a damning indictment of a
generation of Pakistan’s political and military leadership, who used
Khan’s nuclear and missile skills to enhance Pakistan’s diplomacy.
On North Korea, the letter said "[A now-retired general] took three
million dollars through me from the N. Koreans and asked me to give
some drawings and machines."
The newspaper report said the first customer for one of its enrichment
plants was China — which itself had supplied Pakistan with enough
highly enriched uranium for two nuclear bombs in the summer of 1982.
"We put up a centrifuge plant at Hanzhong (250km southwest of Xian),"
Khan's letter said.
It went on: "The Chinese gave us drawings of the nuclear weapon, gave
us 50kg of enriched uranium, gave us 10 tonnes of UF6 (natural) and 5
tons of UF6 (3%)." (UF6 is uranium hexafluoride, the gaseous feedstock
for an enrichment plant.)
Khan became an idolised figure in Pakistan from the 1980s onwards
because of his success in building a uranium-enrichment plant at
Kahuta, near Islamabad. In February 2004, three years after his
retirement, he was accused of proliferating nuclear secrets to Iran,
Libya and North Korea. A centrifuge enrichment plant to make highly
enriched uranium was the alternative route followed by Khan to an
atomic bomb.
Years earlier, the newspaper said Khan had been warned about the
Pakistan army by Li Chew, the senior minister who ran China’s nuclear-
weapons programme. Visiting Kahuta, Li had said: "As long as they need
the bomb, they will lick your balls. As soon as you have delivered the
bomb, they will kick your balls." In the letter to his wife, Khan
rephrased things: "The bastards first used us and are now playing
dirty games with us."
bademiyansubhanallah
The Z Factor
A year after Lehman
The more things change, the more they remain the same. A year after
Lehman Brothers collapsed, what's surprising on Wall Street is not how
much has changed, but how little has.
To be fair with the Ben Bernankes and Henry Paulsons of the world,
they did the right thing by bailing out the financial industry. If
not, we would've not been referring to the events of the past year as
just a recession. It would've simply been the Great Depression Act 2
Scene 1.
But having said that, what Bernanke & Co didn't do was reform the
system. They just rescued it, that's all. The fundamental flaw of big
banks cutting nine figure paychecks for executives who take irrational
risks for short-term profits still exists. Banks are still rewarding
bad actors. Only worse, these are the same guys who were bailed out by
taxpayer largesse.
Now I don't belong to the Investment Bankers hate club. I think it's
an honourable profession just like anything else. But my problem with
this business is there are too many incentives for irrational risk-
taking and too few punishments, if those risks don't pay off.
And those incentives still exist. At the time of writing this post,
Goldman Sachs was preparing to pay its 30,000 employees an average of
$700,000. That's pretty much what it was before the crash. So if I am
a taxpayer whose hard-earned money has bailed out these fattened
chicken, then what am I to believe?
The impression that's going around is that no matter what happens at
these big banks, the government will always bail them out. So what's
happening is that investors are once again beginning to lend money to
these banks and other financial majors on easy terms. That in turn
will prompt the banks to take on risky loans. (After all, it's
somebody else's money). When the going's good, the banks keep the
profits. When it turns sour, taxpayers will swallow the losses anyway.
Heads I win, tails I still win.
A small case in point. Even today, even after the cataclysm of the
global financial bust, in Goldman Sachs $1 in actual capital supports
$14 in loans and investments. This is the same bloody over-leveraging
which led to the financial bloodbath of last fall.
There's simply no question that there has to be more regulation.
That's daft. The question is: is there the political will to do the
same. Obama is a transformational politician. Can he also be a
transformational President? History will judge his Presidency by what
he did to correct the flaws which led to the catastrophe of September
2008. Or what he could have but didn't do.
September 14, 2009 Posted by Zakka Jacob
Comments (2)
Like the great ocean currents, the flow of money cannot stop or be
destroyed but may change its course. The western world has one of the
most perfect infrastructures and no financial recession will ever lead
to depression only wars could do that. Money keeps flowing and
whichever way it may take it leaves behind some productive/destructive
work.The taxpayers have no ground to lament as the risky bank
operations benefit them in the long run. What is useless investment
today may turn out be gold worth. The worse type of money, the king of
all social cancers, is the black-money and India is full of it but
still the country is prospering and showing a positive growth. Indian
financial markets are recovering faster than anyone in the world.So
every time the banks go broke give them enough so that they can risk
it to build a road to Timbuktu and some taxpayer will be happy driving
on that road.
adesh
September 15, 2009
lucid, well thought-out and sufficiently analytical. Jacob has a nice
style of writing. and it's true investment bankers have become
fattened chicken on taxpayer largeheartedness.
karthik jayaraman
September 15, 2009
About The Z Factor
It's the author's take on life as he sees around him. The routines and
quirks that make India an incredible nation and an imperfect
democracy.
About Zakka Jacob
Calm, collected, with a nose for news and an ability to get to the
heart of the matter. You'll find him on Headlines Tonight every
weeknight and he will bring you face to face with the most important
news developments of the day and then provide you with as wide a
picture as possible. If it's a headline, it's always on Headlines
Tonight.
Sid Harth
A short history of fast times on Wall StreetSeptember 21st, 2009
By David Silver Many fear that new technology is giving some
investors unfair access to stock market information. Supercomputers
allow certain traders to profit by executing trades in milliseconds, a
abolished. Consequently the S.E.C. required that the major exchanges
ban most floor trading, an exception being trading to contribute to
“orderly” markets – that is, markets not subject to violent price
fluctuations. This action, however, proved to be a temporary fix.
Today, there’s little need to be on the trading floor: Computer
technology creates new opportunities to acquire and preferentially
trade on inside market information. While these advantages are
measured in milliseconds rather than minutes, both high-frequency
trading and flash orders enable certain investors to chisel a profit
between bid and offer — the same abuse of inside market information
and access that the S.E.C. tried to eliminate four decades ago. Now,
traders have simply found different ways to tilt the playing field,
which means that the S.E.C. will have to update its regulations to
preserve equal access to securities markets. The sooner it does that,
the better.
But it would be a mistake to assume that we are facing a new problem.
Today a major defense of high-frequency trading and flash orders is
that they add liquidity to the markets. This was true of floor trading
as well, but as the 1963 report pointed out, added liquidity “cannot
justify trading that in other respects is deleterious.”
There are other similarities as well. Today, high-frequency traders
are said to rent space as close as possible to stock exchange
computers in order to pick up an extra millisecond of advantage. In
early 19th-century New York, those seeking inside market information
rented space next to the exchange and bored holes in the wall so they
could eavesdrop.
On Wall Street, someone will always look for a way to be first,
whether it’s fair or not.
n David Silver, a former senior staff lawyer at the Securities and
Exchange Commission, was the president of the Investment Company
Institute, a trade association for mutual funds, from 1977 to 1991
By arrangement with the New York Times
bademiyansubhanallah
Around the world, signs of bust turning to boom
17 September 2009, 12:49am IST
LONDON-SAO PAULO-HOUSTON-DETROIT-TOKYO-DUBAI-LONDON... PLUS THE STOP-
OVERS... “That’s the craziest schedule I’ve ever heard” said Sanjay,
the Reuters Photo
ever-patient flight organiser who was helping me put together my
whistle-stop tour of the globe. I told him I wanted my round-trip to
be east to west so the jet-lag wasn’t as bad. He didn’t sound
convinced: Detroit and Tokyo were half a day apart, whichever way
round you went.
Sao Paulo was my suitably-chaotic first stop — via Madrid for good
measure. If the city’s traffic-choked roads were any guide to how the
economy was doing — Brazil was doing ok. And indeed growth had
returned, spurred by strong commodity prices. I flew out of the
madness to visit a sugar factory in upstate Sao Paulo. Sugarcane can
be turned into either sugar or ethanol, Brazil’s major car fuel, and
producers can choose to make more or less of each depending on prices.
With sugar prices at record highs, that means a lot more sugar next
year.
Next stop, Houston. “I’m afraid it’s a very full flight — we just have
the middle seats in rows of fives available.” This was not good news.
“I can give you one with more leg room”. This was slightly better
news, as I wistfully pictured a solid few hours’ sleep during the red-
eye flight. Alas the check-in guy failed to add: “but it’s right in
front of a giant glowing screen that doesn’t switch off”.
Never mind the sleep, actually doing any work on the flights was
proving a challenge. The battery on my laptop was barely enough for
two hours’ use. And there were no plug sockets in economy. But this
was nothing compared with the problem of working if the passenger in
front decided to recline their chair. Note to self — laptops you can
edit on may not be flight-friendly.
The buzz in Houston was about recovering oil prices — still nothing
like the giddy heights of last summer, but acceptable — and the
growing demand for natural gas. America’s going to need to start using
gas instead of coal if it’s to reduce its CO2 emissions, and everyone
sees a big future in it, even if prices are too low for comfort right
now. The contrast between Houston and my third stop was jaw-dropping.
Thanks to the energy boom of the past few decades, Houston’s now the
fourth biggest city in the States — something Detroit could once
claim. But Detroit’s population is down a quarter since the 80s, and
half what it once was.
Swathes of the city lie virtually derelict, throw-backs to a time not
so long ago when the city built the cars America drives. Now just one
of the big three (not that anyone calls it the big three anymore) can
hold its head up high. Ford has actually increased production of its
more fuel efficient lines, with sales spurred by the Cash-for-Clunkers
scheme. For the company it’s all about convergence: Americans now want
the kind of cars and vans everyone else in the world drives — and
bosses realised its global divisions were already making them.
Next up, Tokyo — leaving at lunchtime on Sunday, arriving teatime on
Monday. Take that, body clock. And thanks to my excellent decision to
fly west, it was perpetually afternoon outside. If Detroit seemed
broken, Tokyo looked brand new. Whether it was the relaxing order of
everything, or the delicious food, I finally started to feel human
again — despite the twelve hour time difference.
Unemployment is at record levels, and the Japanese have just thrown
out pretty much the only post war government they’ve ever had — but
this didn’t feel like a country on the edge. The big grumble for
manufacturers is the strong Yen, and there’s not a lot of optimism the
new government will have any more luck doing anything about it. If it
doesn’t, the country’s fragile recovery could falter, and a lot of
companies will be moving more of their operations overseas.
In Detroit and Tokyo it had been unseasonably cool. That could not be
said of my final stop before heading home — Dubai. But the economy’s
in the deep freeze. Property prices have fallen a full 50% in the past
year — a staggering collapse. Even so there’s optimism amongst some at
least that the worst may now be over, and yet more record-breaking
skyscrapers are in the pipeline. Others though argue it’s more wishful
thinking than anything grounded in reality, and that there could be
more nasty surprises round the corner.
Houston could tell Dubai a thing or two. It had a property boom — and
bust — back in the 80s. Skyscrapers lay empty, and the future looked
grim. But the city roared back, and the skyscrapers are full once
again. It’s easy, though, to be so blasé with the benefit of
hindsight.
The great lesson of my sleep-deprived fortnight is the staggering
uncertainty that’s infected just about every market around the world.
And as the cliché goes, if there’s one thing markets hate, it’s
uncertainty. No uncertainty as far as I’m concerned though — I’m
laying off the flying for a while.
Courtesy ‘Aftershock - markets in turmoil’ as broadcast on BBC World
News
bademiyansubhanallah
Posted: Thu, Sep 17 2009. 5:28 PM IST
Economy and Politics
Decoupled Economies and the global meltdown
One year since the fall of Lehman Brothers and amidst theories about
“decoupled economies,”we look at what this concept involves and if a
decoupled scenario is even a desirable one for India at this
junctureSamanth Subramanian
The one year since the fall of Lehman Brothers has been filled with
discussions of “decoupled economies,” and a couple of days ago, the
Wall Street Journal wrote about how recent Asian growth has now
revived the concept of decoupling. But what exactly does this concept
involve? What is the evidence both for and against decoupling? Is a
decoupled scenario even a desirable one for India at this juncture?
To talk with us today, our guest is V. Anantha Nageswaran, who is
chief investment officer with an international wealth management firm.
Mr. Nageswaran is also the editor of Bare Talk, a Mint column on
finance that is published every Tuesday.
bademiyansubhanallah
Posted: Mon, Sep 21 2009. 10:30 PM IST
Columns
Reform bankers’ pay to avoid another crisis
Yet protecting consumers from financial abuse should be only the
beginning of reform
Compensation Economics | Paul Krugman
In the grim period that followed Lehman Brothers Holdings Inc.’s
failure, it seemed inconceivable that bankers would, just a few months
later, be going right back to the practices that brought the world’s
financial system to the edge of collapse. At the very least, one might
have thought, they would show some restraint for fear of creating a
public backlash.
But now that we’ve stepped back a few paces from the brink—thanks,
let’s not forget, to immense, taxpayer-financed rescue packages—the
financial sector is rapidly returning to business as usual. Even as
the rest of the nation continues to suffer from rising unemployment
and severe hardship, Wall Street pay cheques are heading back to pre-
crisis levels. And the industry is deploying its political clout to
block even the most minimal reforms.
The good news is that senior officials in the Obama administration and
at the US Federal Reserve seem to be losing patience with the
industry’s selfishness. The bad news is that it’s not clear whether
President Barack Obama himself is ready, even now, to take on the
bankers.
Credit where credit is due: I was delighted when Lawrence Summers, the
administration’s ranking economist, lashed out at the campaign the US
Chamber of Commerce, in cooperation with financial-industry lobbyists,
is running against the proposed creation of an agency to protect
consumers against financial abuses, such as loans whose terms they
don’t understand. The chamber’s ads, declared Summers, are “the
financial-regulatory equivalent of the death-panel ads that are being
run with respect to health care”.
Sign of trouble: A Wall Street sign near the New York Stock Exchange.
Bank executives are lavishly rewarded if they deliver big short-term
profits, but aren’t correspondingly punished if they later suffer
bigger losses. Bloomberg
Yet protecting consumers from financial abuse should be only the
beginning of reform. If we really want to stop Wall Street from
creating another bubble, followed by another bust, we need to change
the industry’s incentives— which means, in particular, changing the
way bankers are paid.
What’s wrong with financial industry compensation? In a nutshell, bank
executives are lavishly rewarded if they deliver big short-term profits
—but aren’t correspondingly punished if they later suffer even bigger
losses. This encourages excessive risk-taking: Some of the men most
responsible for the current crisis walked away immensely rich from the
bonuses they earned in the good years, even though the high-risk
strategies that led to those bonuses eventually decimated their
companies, taking down a large part of the financial system in the
process.
The Federal Reserve, awakened from its Greenspan-era slumber,
understands this problem—and proposes doing something about it.
According to recent reports, the Fed’s board is considering imposing
new rules on financial-firm compensation, requiring that banks “claw
back” bonuses in the face of losses and link pay to long-term rather
than short-term performance. The Fed argues that it has the authority
to do this as part of its general mandate to oversee banks’ soundness.
But the industry—supported by nearly all Republicans and some Democrats
—will fight bitterly against these changes. And while the
administration will support some kind of compensation reform, it’s not
clear whether it will fully support the Fed’s efforts.
I was startled last week when Obama, in an interview with Bloomberg ,
questioned the case for limiting financial-sector pay: “Why is it,” he
asked, “that we’re going to cap executive compensation for Wall Street
bankers but not Silicon Valley entrepreneurs or NFL football players?”
That’s an astonishing remark—and not just because the National
Football League does, in fact, have pay caps. Tech firms don’t crash
the whole world’s operating system when they go bankrupt; quarterbacks
who make too many risky passes don’t have to be rescued with hundred-
billion-dollar bailouts. Banking is a special case—and the President
is surely smart enough to know that.
All I can think is that this was another example of something we’ve
seen before: Obama’s visceral reluctance to engage in anything that
resembles populist rhetoric. And that’s something he needs to get
over.
It’s not just that taking a populist stance on bankers’ pay is good
politics—although it is: The administration has suffered more than it
seems to realize from the perception that it’s giving taxpayers’ hard-
earned money away to Wall Street, and it should welcome the chance to
portray the GOP as the party of obscene bonuses.
Equally important, in this case populism is good economics. Indeed,
you can make the case that reforming bankers’ compensation is the
single best thing we can do to prevent another financial crisis a few
years down the road.
It’s time for the President to realize that sometimes populism,
especially populism that makes bankers angry, is exactly what the
economy needs.
©2009/The New York Times
Respond to this column at feed...@livemint.com
bademiyansubhanallah
IMF says estimated crisis losses down by USD 600
STAFF WRITER 13:33 HRS IST
Istanbul (Turkey), Sep 30 (AP) Likely losses from the financial crisis
in the three years to 2010 have been reduced by USD 600 billion to USD
3.4 trillion as the world economy grows faster than previously
expected, the International Monetary Fund said today.
The organization warned however that the impetus for far-reaching
financial reforms risked being lost if the improving situation leads
to complacency.
In its half-yearly Global Financial Stability Report presented in
Istanbul, Turkey, the fund said concerted efforts by governments and
central banks to deal with the crisis and fledgling signs of a global
economic recovery have helped limit the losses.
"Systemic risks have been substantially reduced following
unprecedented policy actions and nascent signs of improvement in the
real economy," the IMF report said.
"There is growing confidence that the global economy has turned the
corner, underpinning the improvements in financial markets,' it added.
Sid Harth
'A recovery has started in the steel industry'
Q&A: Seshagiri Rao,Joint MD and Group CFO, JSW Steel
Ishita Ayan Dutt / New Delhi October 01, 2009, 0:17 IST
The steel industry, especially the flat products segment, is seeing
green shoots after a 60 per cent drop from peak levels last year (till
December). In an interview with Ishita Ayan Dutt, JSW Steel’s Joint
Managing Director and Group Chief Financial Officer Seshagiri Rao
discusses the current demand scenario and the status of the company’s
projects. Excerpts:
Has the steel market bottomed out?
The market has risen from the bottom. Demand has been improving from
April onwards, not only in India but internationally. August saw the
highest ever production across the world. We saw the bottom in October-
December. Now recovery has started.
But long products or construction steel appears to be moving in a
different line...
There is a divergent trend in India. The monsoon season made it
sluggish, but it will recover after the festive season. In the
international market, wire rod prices are increasing, led by the
revival in project demand. In India, flat products are witnessing a
very good demand.
What is the difference in international and domestic hot-rolled coil
(HRC) prices in the flat products group?
International prices went up to $600 a tonne but domestic prices could
not keep pace. Now international prices have come down a little to
$560-$570 a tonne. Indian prices are at the same level or slightly
lower.
Are we likely to see the peak prices of 2008?
I don't think so, unless raw material prices go up. That may not be
sustainable as coking coal was at $300 a tonne, iron ore $200, steel
$1,200 a tonne. I don't see that happening.
If prices are at more or less the same level internationally, then is
there a need for the safeguard duty the industry has been demanding?
Consumption has increased by 6 per cent but production has increased
by 4 per cent. Imports continue to grow. We are continuously making
representations to the government — it has to take a call on that.
In the light of the recovery in demand, will you restart some of the
projects that you had put on hold?
In September, we put the brownfield expansion on hold, which we have
restarted. We are also restarting our iron ore project in Chile. We
will review our greenfield projects next financial year.
What is the investment in the brownfield project?
The brownfield project of expansion to 10 million tonnes at Vijaynagar
would cost around Rs 7,000 crore. We have already achieved financial
closure for the project.
Global meltdown apart, are you apprehensive about the Bengal project,
as the site is close to Lalgarh — the centre of Maoist insurgency?
We are committed to the Bengal project. Timing is the issue. Whether
we start in the middle of next year or in the latter part of next year
— we have to study. We have to commission the brownfield by March
2011.
You were looking at a qualified institutional placement (QIP) of $1
billion. Is that on the back-burner?
That was an enabling resolution. We have not decided the timing. It is
not for financing our capex programme, but reducing leverage.
What is the debt position of the company?
As of March 31, 2009, we had long-term debts of Rs 14,500 crore and
our networth was Rs 8,000 crore. The ratio of debt to networth was
2.05:1 while long-term debt to networth was 1.79:1. We have committed
that we will not exceed the ratios and we desire a ratio of 1.50:1.
From March to September, it has come down to 1.8:1 from 2.05:1 because
the debt has not increased.
What is the capacity utilisation at your US mills?
Current capacity utilisation is at 20 per cent, which has increased
from June levels. Improvement is there, but it's gradual.
What is the status of restructuring of companies across the O P Jindal
group?
Ernst & Young has been working on it for a long time and it will take
some time before the structure is finalised. The informal agreement
between the brothers will get formalised. There are many investment
companies across the group, which will be rationalised.
Sid Harth
External debt rises by $3.7 billion in April-June
BS Reporter / Mumbai October 01, 2009, 0:53 IST
India’s external debt rose by $3.7 billion in the April-June period to
touch $227.7 billion at the end of June, mainly due to increase in
long-term debt, especially non-resident Indian (NRI) deposits.
The share of US dollar-denominated debt in the total external debt
declined to 54.4 per cent as on end-June 2009, from 56.3 per cent as
on end-March 2009, according to Reserve Bank of India (RBI) data.
The stock of the country’s external debt would have declined by $1.3
billion at the end of June 2009, excluding the valuation effects due
to depreciation of the US dollar against other major currencies and
the Indian rupee in the first quarter of the financial year 2009-10.
The share of short-term debt in total debt declined to 17.8 per cent
as on end-June, from 19.5 per cent as on end-March 2009. This
calculation is based on the original maturity.
The share of short debt, based on the residual maturity, in the total
debt accounted was 39 per cent.
The share of non-government debt in the total external debt declined
marginally to 74.8 per cent at the end of June 2009, from 75.5 per
cent as on end-March, RBI said.
The debt-service ratio declined steadily during the last three years
and stood at 4.6 per cent in end-March 2009. The debt-service ratio
for April-June 2009 worked out to 5.5 per cent, it added.
Sid Harth
Arvind Subramanian: The IMF beyond Istanbul
Arvind Subramanian / September 30, 2009, 0:23 IST
Wanted: An Asian Managing Director and new approaches to capital
flows.
The IMF will strike a triumphalist tone at its forthcoming annual
meetings in Istanbul. Some of this will be warranted because the IMF’s
record in responding to the global financial crisis was commendable,
even if its record leading up to it was less stellar (see
http://www.iie.com/realtime/?p=942 for more details).
Beyond Istanbul, two key changes will signal that the leopard has
truly changed its spots. The first will be the selection of a
competent non-European, non-American, preferably Asian, as the next
Managing Director (MD). Favouring an Asian candidate over others would
recognise the growing economic weight of the region; more importantly,
it would allow the IMF to salvage its legitimacy in the region where
it is most eroded. A future Asian MD (potential candidates: Zhou
Xiaochuan of China and Montek Ahluwalia of India) may be the best bet
for transforming what is now essentially a Euro-Atlantic Monetary Fund
to a truly International Monetary Fund. In symbolism and substance,
this change will be more meaningful than the increased voting power of
3-4 per cent that will accrue to Asian countries as a result of the
G-20 agreement at Pittsburgh.
The second key change must be ideological and intellectual, relating
to foreign capital flows.
Some of the countries worst hit by the crisis, especially in Eastern
Europe, were those that succumbed to what might be called the foreign
finance fetish. Thus, Hungary, Latvia and other East European
countries sucked in vast amounts of foreign capital that were clearly
imprudent, and not just retrospectively. And they did so, on the IMF’s
watch. If the global crisis owes in part to a belief system that
unduly elevated the status of finance, the IMF must reflect on its
contribution to deifying, implicitly or explicitly, foreign finance.
Leading up to the Asian financial crisis in the 1990s, the IMF was
complicit in the strong push to get emerging market countries to open
up to foreign capital. After the crisis, the IMF shifted ground. It
backed off an aggressive advocacy of capital account opening. But it
never went on to argue that countries should be cautious towards
foreign capital. Rather its line was that foreign capital remained
fundamentally beneficial and that reaping the benefits required a
series of complementary reforms such as macro-economic stability, good
governance and a well-regulated financial system.
This view precluded the IMF from providing guidance to emerging
markets on the serious and pressing practical question: if these
complementary reforms could not be undertaken, what should countries
do? Should they regulate the inflows, and if so, how? Setting itself
to answer these questions would have legitimised the view that foreign
capital could be potentially harmful, a view with which the IMF did
not want to be associated.
So, how can the IMF make amends? It must lead the charge in evolving a
new, sensible approach to capital flows based on the experience of
this crisis, and indeed previous ones. The Fund must make a key
distinction on capital flows. On the one hand, it should be supportive
of countries in their pursuit of more open capital flows as a medium-
term objective (echoing RBI Governor Subbarao’s recent description of
capital account liberalisation as a “process not an event”). On the
other, it must recognise that surges in capital inflows can pose
serious macroeconomic challenges that may require a different
response.
It is now clear that the policy arsenal against future crises,
especially the build-up of asset bubbles, must include
“macroprudential” measures, which in a domestic context cover measures
to counter-cyclically restrict credit growth and leverage. For
emerging markets, one important source of asset price bubbles is
surging capital flows. Macroprudential measures must, therefore,
encompass the counter-cyclical management of capital flows. Note that
such measures are analytically different from the so-called Tobin tax,
which would be applied to all flows and regardless of the state of the
macroeconomic cycle.
We know little about questions such as: under what circumstances is it
desirable to limit capital inflows? If desirable, what are the best
ways of achieving it? Should there be price-based or quantity-based
measures to limit such flows? What kinds of flows are best addressed—
debt or portfolio? Over what duration are limits most effective? When
should they be withdrawn? These are tough questions. But we know
little about them in part because the IMF has been intellectually
missing in action.
The new macroprudential approach to capital flows can draw upon an
interesting parallel in trade. When countries liberalise trade, they
retain the use of a safety valve in the event that liberalisation
leads to surges in imports. This safety valve takes the form of
safeguards, which are narrowly-specified and time-bound restrictions
on imports. Having a safety valve can actually help further trade
liberalisation by assuring domestic producers of some relief when
competitive pressures are greatest. Macroprudential management can
serve as a similar safety valve against the build-up of potential
bubbles.
At Istanbul, emerging market officials, especially India, should give
the IMF the concrete task of reviewing its approach to capital flows.
For example, it could require the IMF to prepare a best practices
manual for countries on whether, when and how best to deal with flows
that have the potential of creating asset bubbles and financial
crises.
Such a manual would allow the IMF to make a genuine intellectual
contribution to the still nascent area of appropriate
“macroprudential” measures and demonstrate its usefulness to emerging
market countries. India, sooner rather than later, will face yet again
the predicament of surges in capital flows, and the RBI will need to
be intellectually and operationally prepared for effectively dealing
with them to avoid repeating the costly and damaging controversies
over exchange rate management in 2007 and 2008.
There would be a large collateral benefit for the IMF too. An IMF that
is seen to be honestly and disinterestedly engaging on the issue of
capital flows would address its legitimacy problems because in the
eyes of many developing countries the IMF’s support for free capital
flows reflected the belief system of the rich countries and the
interests of their financial sector.
Creating the intellectual climate for sustainable foreign finance
rather than perpetuating the foreign finance fetish is the next
intellectual challenge for the IMF. And it is long overdue.
The author is Senior fellow, Peterson Institute for International
Economics and Center for Global Development, and Senior Research
Professor, Johns Hopkins University.
Sid Harth
Latha Jishnu: Recession and the global patent effect
Latha Jishnu / New Delhi September 30, 2009, 0:10 IST
What happens when the apex patents organisation brings an economist,
sorry, a chief economist, on board? You get a report that links the
impact of the economic crisis to patent filings and seeks to explain a
complex pattern through a fixed prism. You also get a report with a
snappier title even if its conclusions are not entirely convincing.
A little over a week ago, WIPO, the UN intellectual property agency
released the World Intellectual Property Indicators 2009 — earlier it
was just called the annual patent report — which showed that the
global recession has resulted in meltdown in intellectual property
(IP) activity in the developed markets. Patent filings with a total of
1.85 million patents increased 3.7 per cent in 2007 compared with a
5.2 per cent rise in 2006 while trademarks increased at just 1.6 per
cent to 3.3 million trademarks.
The report is based on complete figures for 2007, but owing to the
time-consuming process of gathering information from WIPO member-
states, the report relies on preliminary data to provide a snapshot of
IP trends during 2008. So there are only estimates for the past year
but these indicate clearly that the scramble to register IP has slowed
down rather markedly.
What does the trend mean? According to WIPO Director General Francis
Gurry, it showed a direct correlation between patent applications and
economic cycles. Releasing the report in Geneva, Gurry said that “in
economic crises, there is an interference in the value cycle,” and as
a consequence, investment in innovation declines as profits plummet
which means that fewer patent applications are filed. On hand at the
unveiling of the data was WIPO’s chief economist Carsten Fink, the
first such to be appointed to the organisation.
The sharp decline notwithstanding, the report also documents an
increased level of unprocessed (pending) patent applications, reaching
4.2 million applications in 2007. Could it mean that patent offices
worldwide were simply unable to cope with the rising tide of IP
applications as reports over the past couple of years have been
highlighting, specially in the US where the patents office is facing a
crisis? The report does not appear to consider this point although
Gurry described the global backlog of unprocessed patent applications
as ‘shocking’.
But coming back to World Intellectual Property Indicators 2009, the
report says the impact of the economic crisis which was felt the
hardest in 2008 has been different across the world. Although PCT
applications for the first six months of 2009 are down 14 per cent
from the US, those from China have shot up 19 per cent. As a whole,
the number of patents filed globally this year is expected to decline
5 per cent this year, according to WIPO estimates.
What explains China’s robust record? Gurry’s explanation is that
China’s economy has not taken the kind of knock that the US has. Add
to this, he says, the growing awareness in Chinese universities and
enterprises of the international patent system. Could it be the case
that China is rapidly overtaking catching up with the leaders in
technological innovation and creativity?
International patent applications from China soared nearly 12 per cent
in 2008 to touch 6,089, helping it to improve its ranking by one place
to become the sixth largest even though the US maintained its top
position with 53,521 applications, or 32.7 per cent of the world’s
total, despite a 1 per cent decline over the previous year. Coming
next is Japan with 28,774 filings, or 17.5 per cent of the total,
followed by Germany, Republic of Korea and France.
As with China on patents, there was good news from a clutch of
developing economies on trademarks. From 2003 to 2007, Turkey, the
Russian Federation, Mexico, Indonesia and China all showed an increase
of over 10 per cent in annual filing rates. So it was not a picture of
unalloyed gloom.
However, the gist of the report is that 2007 was a bad year for patent
filings, but in 2008 approximately 163,600 international patent
applications were filed worldwide, representing a 2.3 per cent
increase over 2007. If 2008 was annus horribilis in terms of the
global meltdown, how does one explain the uptrend? Fink throws no
light on the puzzle. At the press briefing on the report he is quotes
as saying “As far as the picture in 2008 is concerned, this was the
year where the crisis really hit, but we still saw healthy growth in
the demand for patent filings around the world.” That is as enigmatic
a pronouncement as one would expect from economists.
Perhaps, the clue to this lies in looking at the overall picture.
Gurry notes that 760,000 patents and 2.2 million trademarks were
issued in 2007, whereas early figures for 2008 indicate “that growth
rates in the numbers of applications for new IP rights (were) tending
towards zero, or declining”.
Did anyone mention India? No, and that’s why the picture is really
bleak for us.
Sid Harth
Deepak Lal: Macaulay's children redux
'Modernisation without Westernisation' is the mantra of the
refurbished Gandhian wing of Macaulay's children.
Deepak Lal / New Delhi September 29, 2009, 0:05 IST
At a recent Engelsberg seminar organised by the Ax:son Johnson
foundation in Sweden, I gave a paper on “The view of America from
India”, revisiting a theme I had written about in the late 1980s, in a
paper entitled “Manners, Morals and Materialism: some Indian
perceptions of America and Great Britain” for a seminar organised by
Nathan and Lochi Glazer at Harvard (reprinted in my Against
Dirigisme). I had then argued that the mutual perceptions of Indians
and Americans were unflattering, if not openly hostile. I had ascribed
this to the attitudes (in part) of the British-educated Indian elite,
who echoed many of the British critiques of American manners, morals
and materialism.
Today, however, there is evidence from the 2005 Pew Global Attitudes
Survey in urban India, which found that 71 per cent of Indians have a
favourable view of the US, which in the 17 countries polled is only
matched by Americans with a more favourable view of their country.
Moreover, the popularity of the US has increased in India (as compared
with other countries) with Indians being “significantly more positive
about the United States now than they were in the summer of 2002, when
54 per cent gave the US favourable marks”. Indians also have a
strongly positive impression of the American people — 71 per cent in
2005 as compared with 58 per cent in 2002 (2005 Pew Global Attitudes
Survey, www.pewglobal.org).
In trying to explain this change in attitudes I harked back to two of
my earliest columns (“Macaulay’s Children” and “Modernisation and
Westernisation”, September 2007), in which I distinguished between the
two wings of the nationalist elite who were children of Macaulay’s
famous 19th-century “Minute on Education”, in which he sought to
create an English-educated middle class. The central problem both
wings faced was how to reconcile modernity with tradition.
The first one, led by Nehru (for whom English became their first
language), sought the reconciliation through the purportedly middle
way provided by Fabian socialism. The other (Gandhian wing for whom
English was an instrumental second language) saw Westernisation as a
grave threat to Indian traditions, and wanted no truck with it. They
adopted the attitude of the clam. They eschewed modernisation to
preserve the ancient Hindu equilibrium.
As it was the Nehruvian wing which inherited the new Indian state, it
was their attitude and that of their children they succeeded in
placing abroad, which determined the Indian attitudes to the US I had
charted in my earlier essay. One of the major outcomes of the 1991
economic liberalisation was that, these children of the Westernised
castes now increasingly find it easier to make a living in India. But
they, by and large, still retain the attitudes to the US of their
parents.
It is the changing attitudes of the Gandhian wing of Macaulay’s
children which is crucial in charting the changing course of the
Indian view of America. Till recently they were against globalisation
and the modernisation it implied, seeing it as a threat to their Hindu
culture as embodied in the BJP’s slogan of Hindutva. But as many of
their progeny came to prosper in the new liberalised economy
(particularly in the new IT and outsourcing industries), without any
changes in their mores, this Gandhian wing of Macaulay’s children came
to realise that there was a third way out of the old dilemma posed by
the Western onslaught on their civilisation. A route pioneered by the
Japanese in the late 19th century: to modernise but not Westernise.
The same BJP which was burning former GATT Director General Arthur
Dunkel’s effigy in Parliament Square in the late 1980s, by 2004 was
fighting an election on a platform of the benefits to “India Shining”
from globalisation.
They have come to appreciate a distinction familiar to readers of this
column, between the material and cosmological beliefs of a
civilisation. There is considerable cross-cultural evidence that
material beliefs are more malleable than cosmological ones. Material
beliefs can alter rapidly with changes in the material environment.
There is greater hysteresis in cosmological beliefs: on how, in
Plato’s words, “one should live.” Moreover, the cross-cultural
evidence shows that, rather than the environment, it is the language
group which influences these world views. This is because linguistic
affiliation is often good evidence that the particular society shares
a common origin which in turn determines their world views which
become part and parcel of the language.
Thus the cosmological beliefs of the fully fledged English-speaking
Nehruvian wing of Macaulay’s children mirror those of their Western
cousins. For the Gandhian wing English has remained purely
instrumental. So their cosmological beliefs continue to be based on
ancient Hindu mores. With economic liberalisation, both wings of
Macaulay’s children have embraced the material beliefs associated with
the processes of globalisation. This makes their former atavistic
attitudes to America, decrying its materialism, redundant. As in the
UK, with Thatcher’s children, Macaulay’s children in India no longer
disdain American materialism and its pursuit of money. The growing
embourgeoisement, with its accompanying erosion of aristocratic
manners, has led to a more positive attitude towards America in both
countries.
This has been strengthened in India by the large skilled migration to
the US, so that there are strong educational and emotional links
between “the best and the brightest” in the two countries. Also the
earlier Indian perception, that the US was thwarting India’s emergence
as a superpower, has also been mitigated by the Indo-US strategic
alliance and the Indo-US nuclear deal.
This also augurs well for the future of the Indian economy, and also
explains the downfall of the Left in the recent elections. With the
growing Indian middle class increasingly comprising the Gandhian wing
of Macaulay’s children, the anti-American and anti-globalisation
rhetoric of the parties of the Left is going to become electorally
unsustainable. The bhadralok are going to find themselves overthrown
by the sons of the soil from the mofussil towns whose material values
are at odds with the various forms of socialism espoused by the Left,
and whose social mores are still traditional. This means that the
young, self-confident refurbished Gandhian wing of Macaulay’s children
should be able to see India through to modernisation without
Westernisation.
bademiyansubhanallah
World out of recession, to grow by 3% in 2010: IMF
Updated on Thursday, October 01, 2009, 13:04 IST Tags:IMF, Recession,
World Growth
Istanbul: The world economy has pulled out of its worst recession
since World War II and will stage a sluggish recovery in the coming
year, the International Monetary Fund (IMF) said in an economic
forecast released Thursday.
But the IMF warned the recovery was largely due to massive public
spending by governments. The underlying economy remains weak,
unemployment will continue rising and the pace of the recovery will be
slower than usual in coming years, according to the IMF's semi-annual
World Economic Outlook.
Overall, the world economy will shrink 1.1 percent this year before
growing 3.1 percent in 2010. That compares to the IMF's July forecast
of a 1.4-percent contraction in 2009 and 2.5-percent growth the
following year.
Growth in the following years will also remain sluggish. The IMF said
the world economy will grow 4 percent on average between 2010 and 2014
- down from about a 5-percent average rate in the years before the
crisis.
The recovery is being led by strong growth in emerging Asian
powerhouses like China and India, while the US, Europe and Japan are
just beginning to emerge from devastating recessions.
The world's advanced economies will grow by 1.3 percent in 2010 - up
from the IMF's forecast of 0.6 percent in July - after shrinking a
massive 3.4 percent this year. Developing countries will grow 4.7
percent in 2010 after their growth slowed to 1.5 percent this year.
Europe could face unemployment of nearly 12 percent by the end of
2011, while the US jobless rate will peak at 10 percent in 2010, the
IMF said.
The IMF report was one of its rosiest since the world economy was
plunged into a deep recession last year with the onset of the
financial crisis.
Related StoriesIMF forecasts 2010 India GDP 6.4%Yet the recovery is
both fragile and somewhat artificial: public spending has propped up
many economies around the world over the past year, instead of private
consumption. The IMF warned governments not to be duped into pulling
back their support measures too early.
"Premature exit from accommodative monetary and fiscal policies seems
a significant risk because the policy-induced rebound might be
mistaken for the beginning of a strong recovery in private demand,"
the IMF report said.
IANS
chhotemianinshallah
US economy enters 23rd month of recession amid recovery hopes
1 Oct 2009, 1930 hrs IST, PTI
WASHINGTON: Amid hopes of economic revival and worries of rising
unemployment, the US economy has been in recession for 23 months, one
of the What is IMF?
Battered by the ravaging financial meltdown, the US has witnessed
steep economic contraction and massive job losses, forcing the Federal
government to come up with unprecedented policy measures.
The US economy officially slipped into recession in December 2007 and
shrank as much as 6.4 per cent in the first three months of this
year.
With the failure of then Wall Street major Lehman Brothers in
September 2009, the economic situation worsened even pushing the
global financial system into a tizzy.
Millions of jobs have also evaporated since the Lehman collapse and
the unemployment rate stood at 9.7 per cent in August.
In addition, the count of bank failures are shooting up by the day,
with a staggering 95 entities going belly up in just nine months.
However, hopes of an early economic turnaround are rising, especially
with the GDP contracting much less than expected in the second quarter
of 2009.
For the three months ended June, the nation's economy shrank 0.7 per
cent, lower than the earlier projection of one per cent contraction.
This was mainly due to smaller fall in non-residential fixed
investment and in exports, among others.
In a reflection of the improving labour market, the pace of job losses
are coming down.
American private sector companies slashed 2,54,000 jobs last month,
the smallest decline since July 2008 and the losses have diminished
significantly over the last two quarters, according to latest ADP
National Employment Report.
However, jobless rate is anticipated to rise in the coming months
before the economy fully stabilises.
The US Federal Reserve while retaining the benchmark interest rates at
near zero recently said that the economy has picked up in recent
months and financial conditions have improved.
To kick start the sagging economy, the US administration has come up
with many initiatives including stimulus packages, bailouts for ailing
banks and funding programmes for the auto sector, among others.
The current-dollar GDP -- the market value of the nation's output of
goods and services -- dropped USD 26.8 billion in the second quarter
to USD 14.15 trillion.
chhotemianinshallah
Agnes Crane
October 2nd, 2009
A reality check that markets may ignore
The ranks of the unemployed have swelled by the millions since the
recession first gripped the United States in December 2007. So what’s
another 263,000?
For investors, it should serve as a kick to the shins, a rude
reminder, to those who had their eyes fixed on the recovery prize,
that we still have a long way to go.
Since the government super-charged its support to financial markets in
March, stocks have rallied and talk of a V-shaped recovery has spread.
Dow 10,000 came back in sight. Through it all, however, there have
been nagging concerns about the persistence of deep job losses.
Yes, an improvement in the labor market typically lags the recovery in
the broader economy by months, if not years. But how strong can any
recovery be without consumers able – or bold enough – to return to
the malls with their old gusto?
Such suspicions have grown after data on manufacturing and auto sales
started poking holes in what had been a bullish narrative for risky
assets.
Today, the magnitude of the jobs decline in September, which
outstripped August’s by more than 62,000, brought an end to the story
that had focused on the steady improvement from “terrible” to “not as
terrible as last month.” The unemployment rate continued its steady
rise, adding another 0.1 percentage point to 9.8 percent, bringing the
dreaded 10 percent into sharper focus.
The average work week continued to shrink to 33.0 hours from 33.1 in
August. It’s hard to see much of a silver lining in data like these.
Then there’s the drop in auto sales. Though largely expected, it
illustrates how much stimulus can juice results; but once it’s taken
away, activity quickly falls off.
It may be a crude comparison, but government intervention has also
been at work in financial markets. Keeping interest rates at rock
bottom levels, backstopping a variety of credit markets and buying
more than $1 trillion of debt securities has helped push up the value
of risky assets over the last six months.
This is where it gets tricky for investors who are desperate to hold
onto the gains they already have and for those who still have to make
up for lost ground because they were reluctant to join the rally at
first.
The government stimulus isn’t going away any time soon. Even the
Federal Reserve’s purchases of mortgage-related securities have been
extended into next year. There could still be plenty of room for even
more gains between now and the end of the year.
That’s a powerful pull, and with improvement in other economic
indicators likely as companies restock their inventories, there’s a
good chance the market could turn back around, much as it did in the
beginning of last month, when investors fled stocks only to pile back
in.
The jobs report should be a wake-up call, but until the stimulus in
the financial markets starts to ebb, it’s likely to be ignored for a
little while longer.
chhotemianinshallah
Christopher Swann
October 2nd, 2009
The perils of long-term unemployment
Alarming as the climb in unemployment is, the growing duration of
joblessness is more worrying still.
America’s army of long-term unemployed — those without work for six
months or more — swelled to 5.4 million, according to today’s figures.
This is roughly equal to the combined populations of Los Angeles, San
Diego and Sacramento. (For the internationally minded, it is slightly
more than the population of Finland.)
More and more workers are exhausting benefits. As of the start of this
month around 400,000 stopped receiving assistance. Another 1.3 million
will use up their entitlement before the end of the year.
This calls for stronger action from the federal government.
A further extension of jobless benefits is now critical. These have
already been stretched out to an unprecedented 79 weeks in some states
with high unemployment. Congress should now press ahead with plans for
an additional 13 weeks.
In addition to preventing large numbers falling into poverty, this is
among the best forms of fiscal stimulus. Money given to the unemployed
is almost certain to be spent quickly.
A recent survey for the National Employment Law Project found that 67
percent of unemployed adults had cut back on basics like food and
groceries. Almost half had fallen behind with rent payments and a
third had been forced to move in with friends or family.
No other form of government spending delivers such an immediate sugar
rush to the economy. Unlike the cash for clunkers program, it is not
merely stealing consumption from the future.
Still, there is a danger in such a stimulus. Allowing Americans the
luxury of being pickier about which job they choose can have costs.
When it comes to unemployment, time matters. Skills atrophy after
extended periods without work. Then, when growth picks up, these
workers are no longer in a position to fill new jobs.
A slew of academic papers suggest that a quick return to the workforce
— even in a humbler capacity — is often a good idea, especially for
the young. Research by Tom Mroz at Clemson University showed that a
six-month spell of unemployment at the age of 22 reduced wages even a
decade later.
So the extra spending on unemployment benefit needs to be combined
with much more assistance with job searching and retraining. According
to the OECD, U.S. funding for retraining and job searching has risen
by less than 20 percent during the crisis.
Failure to do more to retool the long-term unemployed will create
lingering problems for the U.S. economy. Extending benefits is an
important first step, but it is not enough to ensure that the
administration’s stimulus is effective. For the more Americans are
permanently dislocated from the workforce, the less robust any
recovery will be.
chhotemianinshallah
October 2nd, 2009 19:10
A reality check that markets may ignore
Posted by: Agnes Crane
...and I am Sid Harth
chhotemianinshallah
'Impact of global recession to be felt in 2010-11'
STAFF WRITER 15:40 HRS IST
New Delhi Oct 9 (PTI) The Planning Commission today said the impact of
the global meltdown will be felt also in the next fiscal and it would
not be possible to achieve the average growth target of 9 per cent in
the Eleventh Plan.
"The global slowdown is not still over. This slowdown, which has
affected 2008-09 and affect 2009-10, will also affect 2010-11", the
Commission's Deputy Chairman Montek Singh Ahluwalia said, addressing
the annual meet of industry chamber Assocham.
The global financial meltdown has pulled down India's economic growth
to 6.7 per cent during 2008-09 from about 9 per cent a year ago.
During the current fiscal, as per the Planning Commission estimates,
growth rate may fall to 6.3 per cent.
As regards the Eleventh Plan, Ahluwalia said, "it is not going to be
an average of nine per cent.
chhotemianinshallah
More global execs feel economy recovering: survey
STAFF WRITER 15:1 HRS IST
New Delhi, Oct 9 (PTI) Marking a significant improvement in their
attitudes, a higher percentage of global executives feel the economy
is recovering and 71 per cent think the stock market will continue to
improve in the second half of 2009.
According to results of an Executive Quiz released by global talent
management service provider the Korn/Ferry Institute, as much as 40
per cent of respondents said the word "recovering" best described the
state of the global economy.
The percentage of executives saying this has increased 67.5 per cent
over the past six months compared with mere 13 per cent in March.
Moreover, an overwhelming majority of executives (71 per cent) felt
that performance of stocks would continue to improve through the
second half of 2009 as well, the report stated.
However, majority of executives said the labour market would lag the
financial markets in regaining strength.
bademiyansubhanallah
China opposes US antidumping probe of steel pipes
STAFF WRITER 11:36 HRS IST
Beijing, Oct 11 (AP) Beijing is rejecting a move by Washington to
launch an investigation into whether Chinese mills are dumping steel
pipes on the US market or benefiting unfairly from government
subsidies.
The probe comes as the United States and China accuse each other of
protectionism, which both say will hurt efforts to end the global
economic crisis.
"Blind accusations of dumping or subsidies in Chinese imports is
lacking in factual basis, which China strongly opposes," China's
Commerce Ministry said in a statement on its Web site late yesterday.
The statement said the problems in the American steel industry were
brought on by weakened demand and should not be blamed on Chinese
imports.
bademiyansubhanallah
No US bank failures for a week; 1st time in 3 mths
STAFF WRITER 11:42 HRS IST
New York, Oct 11 (PTI) For the first time in more than three months, a
week has passed without any US bank failure.
Ravaged by the financial meltdown, the count of bank collapses were on
the rise, with an average of nearly ten banks going out of business
every month in 2009.
Spurring hopes that signs of stabilisation are on the horizon, no bank
failures were reported for the week ended October 9 as per data
available with the Federal Deposit Insurance Corporation (FDIC).
The Federal agency, which insures deposits of over 8,000 American
banks, is also often appointed as the caretaker of failed entities.
Since June 19 this year, at least one bank has gone belly up every
week and so far this year, a staggering 98 entities have been shut
down.
Sid Harth
US recession over, but employment will lag: Survey
13 Oct 2009, 2119 hrs IST, AGENCIES
WASHINGTON: The recession gripping the United States for nearly two
years is over, but economic growth may be held in check by high
unemployment, a poll of business economists showed Monday.
"The Great Recession is over," according to the consensus
macroeconomic outlook of a panel of 44 professional forecasters of the
National Association of Business Economics (NABE).
"The survey found that the vast majority of business economists
believe that the recession has ended but that the economic recovery is
likely to be more moderate than those typically experienced following
steep declines," NABE president-elect Lynn Reaser said.
More than 80 percent of economists surveyed believed that an expansion
has begun, according to poll conducted during the September 2-24
period.
The study also found that the more-than-three-year downturn in the US
housing market, epicenter of financial turmoil that slammed the brakes
on growth, was very close to ending, with an upturn expected next
year, said Reaser, chief economist at Point Loma Nazarene University.
According to the survey, the key areas of concern were the increasing
federal debt and unemployment rates, "expected to remain very high
through next year."
The unemployment rate was forecast to rise to 10 percent in the first
quarter of next year and edge down to 9.5 percent by the end of 2010
while inflation is expected to remain contained throughout next year.
"The good news is that this deep and long recession appears to be
over, and with improving credit markets, the US economy can return to
solid growth next year without worry about rising inflation," the NABE
said.
The stock market rebound was a point of "strong agreement" among
panelists, with all the forecasters predicting a gain in 2010 on the
back of an increase of 11 percent in corporate profits next year.
They saw the broad S&P 500 stock index climbing 7.5 percent next
year.
The US dollar however will soften further this year and remain weak
into 2010, the survey showed.
The economists felt that the weak dollar will not reduce the trade
deficit further as the relatively stronger US economic rebound
elevated import demand. In fact, the NABE panel expected a modest
deterioration in the trade balance next year.
The panel upgraded the economic outlook for the next several quarters,
compared with the previous survey, Reaser said.
Following a sharp 6.4 percent contraction in the first quarter of this
year and another 0.7 percent drop in the second quarter, NABE
forecasters expect real gross domestic product (GDP) to rise at an
above trend 2.9 percent rate in the second half of 2009.
The NABE also said that lackluster household sector spending was
expected to be a drag on the economy, restraining growth of consumer
spending, a key driver of growth.
However, in contrast to views of some that the US saving rate was set
to rise dramatically over the next few years, slightly more than half
of the NABE panel believed that the rate will average between three
and five percent through 2012.
The poll also found corporate profits to show "strong improvement,"
increasing 11 percent in 2010, characteristic of the early stages of
an economic recovery.
chhotemianinshallah
All hail Dow 10,000 -- but what's next?
The blue chips enter 5-figure territory for the first time since
October 2008. Are the good times really here again?
Posted by Charley Blaine on Wednesday, October 14, 2009 1:27 PM
Updated: 4:41 p.m. ET
Go ahead and cheer. The Dow Jones industrials ($INDU) moved above
10,000 today for the first time in a year.
At 1:21 p.m. ET, the Dow hit 10,001.58, up 130 points, its first time
above 10,000 since Oct. 7, 2008. But as often happens when a key level
is topped, the blue-chip index fell back.
But the index closed at 10,016.
The Standard & Poor's 500 Index ($INX) was up 19 points at 1,092, and
the Nasdaq Composite Index ($COMPX) was up 32 points to 2,172.
The catalysts for the push past 10,000 today were strong results from
JPMorgan Chase (JPM) and semiconductor giant Intel (INTC) that
suggested the economy is recovering.
The run to 10,000 represents an astonishing turnaround from March,
when the economy appeared ready to collapse and take stocks with it.
Instead, a rally erupted on March 10 that's pushed the blue-chip index
up more than 3,400 points from its low, or about 52%.
So, what does a return to 10,000 mean?
It is a huge psychological lift for everyone. There's no denying it.
In March, there was talk that no small investor would buy stocks again
-- ever -- partly out of anger and partly for fear that the economy
might collapse. Now the economy looks like it will recover (if slowly)
and maybe small investors will nibble at stocks again.
Plus, with one exception since 1982, each time the Dow has crossed
above a 1,000-point threshold, it has continued to move higher for
nine months or more. The one exception came after the Dow crossed
9,000 in April 1998. The Long-Term Capital Management crisis erupted
in August, and the Dow fell nearly 20% in about six weeks.
But the Dow at 10,000 does not mean the market is finally edging
ahead; it’s simply catching up to where it was a decade ago. "It’s
been a bad 10 years, a really bad 10 years," David Bianco, chief U.S.
equity strategist at Bank of America/Merrill Lynch, told The New York
Times recently.
People have seen their 401k portfolios improve. Last winter, as the
stock market neared its bottom, people joked about their 401k accounts
becoming 201k accounts.
They can almost talk about 401k's again.
The Employee Benefit Research Institute reported that workers using
401k accounts to save for retirement had absorbed terrible blows,
especially older workers. Workers with 10 years of job tenure or more
and age 35 or older were looking at losses of 20% or more between Jan.
1, 2008, and Jan. 1, 2009.
By August, the losses had been trimmed to 15% or so. By Sept. 15, the
losses had shrunk to less than 10%. Part of the trimming was due to
continued contributions to 401k plans.
Part of it was the improved market.
The Dow at 10,000 is a sign that investors have begun to believe in a
global economic recovery. Banks, especially JPMorgan Chase, and
companies with significant business outside the United States -- such
as IBM (IBM), 3M (MMM), Caterpillar (CAT) and United Technologies
(UTX) -- have powered the Dow higher.
Plus, gains in oil, gold and copper prices this year are signals that
many traders see a global recovery.
There are plenty of signs of strong recoveries going on in China,
Brazil and India. Germany's Dax Index ($DE:DAX) is up 52% since
bottoming in March. Japan's Nikkei 225 Index ($JP:N225) is up 43%. In
fact, the U.S. market has lagged indexes elsewhere. China's Shanghai
Composite Index bottomed in November 2008 and is up 74% since.
Brazil's Bovespa Index bottomed in November as well; it's up 122%
since.
But the recovery is tentative and could easily fall apart. Auto sales
shot up in August thanks to the government's Cash for Clunkers
program. They collapsed in September after the program ended. Housing
activity is still depressed. The U.S. jobless rate is nearing 10%, and
more than 7.2 million jobs have been lost since the recession began in
December 2007.
That's why the Federal Reserve was unwilling to say on Sept. 23 when
it will start to boost interest rates from record low levels.
It's why Jean-Claude Trichet, the head of the European Central Bank,
said he won't be raising rates anytime soon. The Bank of Japan also
declined today to say when it's pulling money out of the Japanese
economy, suggesting it's worried about choking off a recovery.
Moving too fast, as Franklin Roosevelt did in 1937, sent the economy
plunging, and the Dow fell 42% between January 1937 and the bottom in
May 1938.
Stimulus programs are starting to work. Free-market purists are
wringing their hands, but there would be no talk at all about recovery
without stimulus programs put in place by governments and central
banks from Japan and China to Germany and Britain to the United
States.
The bankers may be angry about all the hoops the government has put
them through. But their stocks have bottomed and, in many cases,
roared ahead.
The best performer among the 30 Dow stocks since Sept. 12, 2008, the
Friday before the Lehman Brothers collapse: JPMorgan Chase, up nearly
15%.
The Dow's gain can't tell you when a jobs recovery will come. The big
gain off a major bottom is a pretty good signal that a jobs recovery
will come. But it will be slow.
Here's how we know. Ronald Reagan persuaded Congress to pass a major
tax cut in 1981 that was implemented over several years. The Dow
jumped 62% between the August 1982 bottom and the end of 1983. For 10
months, between September 1982 and the following June, the
unemployment rate was above 10%.
Real job growth didn't really accelerate until mid-1983.
Watcher385 #1
Wednesday, October 14, 2009 5:07:29 PM
I've done extremely well this year!! Like HollyMahDolly, I rode out
the "bad" times. As others stated, the market always goes up and
down. I'm proof that "dollar cost averaging" really works. I'm
sooooo much better off than I was 12 months ago. Thanks, President
Obama!!!!!
James Gray 100#2
Wednesday, October 14, 2009 4:51:16 PM
Interesting that those of you who have made money seem to be hatin' on
those who didn't.
That's weird. The only reason people make money is because some
lose.
EVERYONE can't win.
Bigfoot 62#3
Wednesday, October 14, 2009 4:50:22 PM
No surprise, this is just a reflection of the benefits the fat cats
received from Obama. Will this translate into lower unemployment?
Possibly, but with lower paying jobs. The Executives want to keep as
much of the Corporate charity they received as possible while screwing
over those who are barely making it.
brewtwo62#4
Wednesday, October 14, 2009 4:47:25 PM
Garrettrev is right. The business community is always happy to see a
Republican in office, but the truth about the stock market is this.
It has always performed much better when a Democrat is in office.
That aside, you need to get in this market now, as the Dow will
continue to climb with all the stimulus money being pumped into every
economy at this time. The Fed isn't about to let the economy go south
at this time, and so far Ben Bernanke is doing much better than the
last clown Alan greenspan-Mr Bubbles.
JH.#5
Wednesday, October 14, 2009 4:47:01 PM
I keep hearing about JP Morgan doing well. However, didn't they
receive billions from the Feds to purchaser Bear? I would like to
know about the toxic assets still remaining on their balance sheets.
drew d man 16#6
Wednesday, October 14, 2009 4:45:56 PM
If it was me i would think that this is a great time to invest. The
prices are so low right now and eventually they will get higher.
there's opportunities out there to buy low and sell high. You cant be
negative all the time and jump out the of ride because it is a little
rough. There are a lot of possibility's out to start an investment
that will grow just give it time.
FrEddddd#7
Wednesday, October 14, 2009 4:42:43 PM
10,000 what???
PhantomAceLV#8
Wednesday, October 14, 2009 4:40:07 PM
This is nothing more than a dead cat bounce.
The entire economy right now is based on the ability of individuals,
corporations and the government to go further in debt to support a
ponzi scheme.
Unfortunately, with Unemployment so high (forget the U-3 of 9%, look
at the U-6 numbers) there simply are not enough "consumers" in our
consumer based economy to continue for much longer.
For those that stayed in the game until now, congratulations, you made
a chunk of cash. But, I would get out soon if I were you. This is not
going to end well, and when the crash does occur its going to happen
at breakneck speeds.
To those that may disagree I offer this:
Take a look at tax receipts for the 50 states so far this year. If
people were making money (thereby paying income tax) and spending
money (resulting in paying sales tax), the numbers wouldn't be as
dismal as they are.
The USD is being devalued, which is why Gold has gone up. There is a
plan afoot to remove USD as the trade currency for oil, if that
happens, we will see $200 a barrel overnight and the house of cards
will fall.
Plan accordingly.
drew d man 16#9
Wednesday, October 14, 2009 4:39:18 PM
yeah your ass
go_usa#10
Wednesday, October 14, 2009 4:37:52 PM
@ Holly Mah Dolly, you are absolutely correct. For the people that
stayed in the market, the should have rebounded their losses from last
year.
Just like I learned in Economics, the market will always come back up.
Lostpop #11
Wednesday, October 14, 2009 4:28:43 PM
FABRICATION from the gov't & Wall Street
Lostpop #12
Wednesday, October 14, 2009 4:26:40 PM
Are you a puppet for the rich basterds?
Lostpop #13
Wednesday, October 14, 2009 4:25:58 PM
F*CK all of the rick basterds in the world. If it wasn't for the poor
person busting their a**, the rich basterds wouldn't be cheery....
Holly Mah Dolly#14
Wednesday, October 14, 2009 4:18:50 PM
What a bunch of grumps. How could you guys have lost money in the
market if you didn't remove it? You stay in the market and weather
the highs and lows and win in the end. I'm up 50% this year because I
didn't withdraw my money.
Mr RPM#15
Wednesday, October 14, 2009 4:17:53 PM
Investing 101 = BUY low, sell high.... In Feb/March the market was
"BLOODY". I have NEVER owned bank stock/funds except when I worked
for Bank One. That said I dumped what was left of my 401K into
Fidelity Select Financial because the financials were oversold! I
also bought Fidelity Select Gold (Fidelity because that's what my
company offers in it's 401K plan), funds because right or wrong I knew
this administration was printing money which makes the greenback worth
less (Economics 101). I sold the Financial fund for a 52% profit
rolling it into Inflation protected bond funds and Canada, Brazil and
China funds. All of those continue to do extreemly well and I have
ganed back all of my losses over the last few years and then some.
So, stop complaining about the Wall Steet manipulators and Gov. crooks
and study up on market cycles as well as basic economics and basic
investing. Few if any can pick the exact bottom to buy or the exact
top to sell, but anyone that does ANY homework on investing/economics
should be able to know what to buy, when it's near it's low and when
to get out (so long as you don't get greedy).
Here is a tip, the dollar is and will continue to trend lower.... that
in turn will have comidities going higher (oil, gold, etc..). When
inflation rears it's head, and it will, be ready to understand how
that will effect oil and gold prices as well as any bonds other than
inflation protected.
Instead of wishing you good luck, I'll say, "work hard"!
#16
Wednesday, October 14, 2009 4:17:53 PM
Investing 101 = BUY low, sell high.... In Feb/March the market was
"BLOODY". I have NEVER owned bank stock/funds except when I worked
for Bank One. That said I dumped what was left of my 401K into
Fidelity Select Financial because the financials were oversold! I
also bought Fidelity Select Gold (Fidelity because that's what my
company offers in it's 401K plan), funds because right or wrong I knew
this administration was printing money which makes the greenback worth
less (Economics 101). I sold the Financial fund for a 52% profit
rolling it into Inflation protected bond funds and Canada, Brazil and
China funds. All of those continue to do extreemly well and I have
ganed back all of my losses over the last few years and then some.
So, stop complaining about the Wall Steet manipulators and Gov. crooks
and study up on market cycles as well as basic economics and basic
investing. Few if any can pick the exact bottom to buy or the exact
top to sell, but anyone that does ANY homework on investing/economics
should be able to know what to buy, when it's near it's low and when
to get out (so long as you don't get greedy).
Here is a tip, the dollar is and will continue to trend lower.... that
in turn will have comidities going higher (oil, gold, etc..). When
inflation rears it's head, and it will, be ready to understand how
that will effect oil and gold prices as well as any bonds other than
inflation protected.
Instead of wishing you good luck, I'll say, "work hard"!
GarrettRev#17
Wednesday, October 14, 2009 4:16:50 PM
Only two things you need to know about the market: it always bounces
back and it does well when a democrat is in power. I got back into the
market in January and have done excellent. If you are not in the
market you should be. Dont let the doom and gloomers and hand wringers
fool you, the market is on the upswing and will be for the next few
years. Next year will also be an excellent year also as thats when the
stimulus dollars really kick in. Get out of the market when the
republicans get back in control...its not that hard a formula to
follow and you will make money.
prone2xs#18
Wednesday, October 14, 2009 4:16:31 PM
Screw the stock market. How do I get on the Wall Street bonus train?
ok credit person#19
Wednesday, October 14, 2009 4:15:07 PM
big deal , the time to invest was when it 5000 not now the stocks are
to hight rem buy low sell high , so that the market the next few days
will raise an fall then go back to the way got us in this mess who
cares how many times then history will repeat it self hit rock
bottom it does not get me a better job , besides the people on main
street has not seen a dime of the money . if i had just 1 percent of
the money the government spent i could live like a king for 2 or
three life times
prone2xs#20
Wednesday, October 14, 2009 4:12:38 PM
What does it mean? Really nothing at this time. Even at 10,000 the
market is still of 30% from its high. I expect it to fall back again
before year end. I'll probably not put any money back into the market
until the end of the year.
Filmnutinthemt.#21
Wednesday, October 14, 2009 4:09:27 PM
Most of you are PATHETIC! My God man, if you haven't made a lot of
money this year, your a complete idiot. Intel at $13, GE at $9, come
on folks.
Whiners, the sky is falling, the sky is falling. Run for cover. Go
live in Sweden and be taken care of from the cradle to the grave.
I've never heard such rubbish as on this board. Losers.
thecarguy65#22
Wednesday, October 14, 2009 4:08:20 PM
Market has been manipulated by the government.
DOW is going to crash soon as there is no economic basis for the index
going up 40% in a few months.
Gold price and stocks will rise dramatically as the US dollar
collapses.
I use GoldStockTips.com and Kitco.com for gold stock ideas.
You guys know any other good sites ?
Bronxguy#23
Wednesday, October 14, 2009 4:04:18 PM
All very nice about the Dow-I am not surprised. But I need to get my
pants wowed off about unemployment going down-way down. Keep funding
the Iraq war and send 80K troops to Afghanistan and let America go
down the train. Numbers schumbers to Wall Street-with all the jobs
lost-we wont have to worry about overseas any longer. We'll have a war
in this country!
JobSeeker1#24
Wednesday, October 14, 2009 4:01:03 PM
SuperDeDuper,
Were you one of the whiners who said good for Wall Street, but not
good for Main Street when the Dow hit 14,000 under the last clown?
Ann...#25
Wednesday, October 14, 2009 4:00:34 PM
Sure, Chase Banks was the catalyst to push those results. They are
stealing money from their clients. Killing their customers, charging
$34.00 for .60 cents in over draft fee. Sure they will continue
making billions with those charges, even when customers call to cancel
the "benefit" of overdraft protection, and they fail to do it.
Congratulations Chase, that is why a bill is in congress to stop them
from stealing money out of their most vulnerable clients' pockets.
JoeW#26
Wednesday, October 14, 2009 4:00:33 PM
Any idiot knows what will happen next, now that the DOW has gone over
10,000. It will either go up or down. Even the FED and all the
market experts will tell you, cautiously, that the DOW has no history
of ever staying the same for any period of time. And I do not
begrudge the rich their riches. I too would like more or I wouldn't
be doing similar things. I also don't mind the average guy getting
rich off the stock market, although with more luck than brains. What
i do mind is the super rich getting richer because they have tools to
manipulate the system at my expense. It may just be sour grapes on my
part, but I would cut their balls off just the same.
YOUROUT #27
Wednesday, October 14, 2009 3:56:44 PM
It's just a game, there's no new productivity in this country to
support the stock market + 10% unemployment. This will go on until
the dollar is replaced as the world's reserve currency, then the super
rich will have their money back and the rest of us will be facing a
greatly reduced standard of living. The unemployed will hurt the
worst, they have no good chance to make their lost savings back or
regain home ownership.
SuperDeDuperGuy#28
Wednesday, October 14, 2009 3:56:33 PM
All you whinners should stop sitting in front of your computers
venting all day and instead look into capitalizing on the
markets.... Dow 10,000 baby!!! Or are you going to continue
crying that you shoved all your money under the mattress when we cross
15,000 down the road.... and by the way ... I'll take the market
movements under Obama any day over what that last clown did to
us.....
Michael Schaper#29
Wednesday, October 14, 2009 3:51:25 PM
Of course when you print money out of thin air, we could achieve any
number. Hey why not aim for 20,000 thousand. It can happen, and we
would still be broke because it is an inflation driven economy! Don't
look at the Dow! Look at unemployment and the Dollar! The unemployment
rate continues to rise while the dollar falls. The unemployment rate
is high because we are still suffering from a recession! I know,
technically we are out of a recession by the numbers, but with
inflation of our economy, those numbers have to be compared with the
purchasing power of the dollar and on and on! I will only believe we
are out of a recession when 1. We have an unemployment rate of 7.5
percent and our dollar can buy what it used to!
PaxTerminus#30
Wednesday, October 14, 2009 3:48:36 PM
Wall Street is a scam and you cannot win in it. It is worse than
crooked casino. Here is an example form real life: let's say I have
10k dollars on Wall Street. Let's say I know about a market
fluctuation that can make me some money if I sell all the stock and
buy a foreign currency.
From the time I give the order to sell the stock to the moment I have
the currency purchaced 3 days pass. Three days is an eternity in this
case and the chance is gone.
A Wall Street investment house can make all that for itself
automatically in less than a second with a computer system hooked
directly into the market.
There is no way you can do a darn thing on Wall Street. The system is
set to make you loose - through the delays. Not to say about other
mechanisms. Investing in stocks makes no sense in the USA.
#31
Wednesday, October 14, 2009 3:48:24 PM
There is still a bunch of bad news to come, and this modest "recovery"
is very shaky. I look for a serious sell-off and profit-taking very
soon by those who agree with that. Commercial foreclosures on a large
scale are on the horizon, because they did not occur as quickly as the
housing foreclosures. If a government takeover of healthcare passes,
it will send the market down, as well.
luru25#32
Wednesday, October 14, 2009 3:43:18 PM
I don't know why I am adding my two cents worth (all I have) because
it really doesn't matter, the sheep are being lead again! I see a lot
of comments do agree though. The rich are getting richer on the backs
of the poor schleps, when will they learn, the market is only to make
a few ugly rich and the rest just wait for the slaughter AGAIN!
reformediam#33
Wednesday, October 14, 2009 3:41:13 PM
Arj50: You, sir, are educated beyond your intelligence. Obama is the
worst US president ever. He has achieved in one year the distinction
it took Jimmy Carter to achieve in four years. If you expect
investing under Obama to be the same as investing under Bush, then be
prepared to lose big time.
JobSeeker1#34
Wednesday, October 14, 2009 3:38:52 PM
aRJay50,
I'm happy to see a liberal who believes in Reagan trickle-down
economics. BTW, it did not take a "contender" to beat Jimmy Carter. It
only took the person who lost to Gerald Ford in the previous primary.
reformediam#35
Wednesday, October 14, 2009 3:38:34 PM
This Dow achievement means nothing except that the American investing
public is perhaps smarter than the American voting public. While
there is some overlap between these groups, there are major
differences. As long as Obama is president and the Dems are in
control, I will no longer invest from a "buy and hold" strategy. I
diversify my portfolio regularly, with almost a random process of
diversification. Obama is the worst American president ever,
achieving in one year what it took Jimmy Carter to achieve in four
years. Now, I think I will go and sell some mutual funds just to be
on the safe side.
JobSeeker1#36
Wednesday, October 14, 2009 3:37:08 PM
The price of gold topped $1070 today, a 30% increase since Obama took
office. That means your dollar buys 30% less since January.
aRJay50#37
Wednesday, October 14, 2009 3:35:25 PM
Obama is your president. Get over it. You lost ! ! If the best you
had to offer in '08 was McCain/Palin, no wonder you lost. You'd
better find some "contenders". Bush was my president for 8 years; I
got over it. If you all want is for the US to fail, please leave.
Dow is at 10000; get over it.
JohnUMC#38
Wednesday, October 14, 2009 3:30:10 PM
While this news of the stock trade hitting highs for the first time in
over a year is not overwhelmingly positive for those of us at the
bottom of the recession ladder, I would like to encourage all of the
naysayers that there is work out there for people who want to work.
You may not be able to get a job in your degree field right now, but
take it from me. I have a Master's Degree but if I was waiting for a
job that paid me what I deserved for having earned that degree I might
as well sit back an remain unemployed for the next decade. True, the
stock market isn't going to mean any short term optimism for those of
us who are hungry for good jobs. What I'm saying is if you're
unsatisfied with your lack of work, there are jobs out there. Any job
is only beneath you if you let it be. Any obstacle is only as large
as you let it be.
SAD NEWS DAY#39
Wednesday, October 14, 2009 3:27:35 PM
From a Cathedral in Milan
ALL THAT PLEASES IS BUT FOR A MOMENT
ALL THAT TROUBLES IS BUT FOR A MOMENT
THAT ONLY IS IMPORTANT WHICH IS ETERNAL
GOLD HAS BEEN THE ETERNAL MONEY
joeyfromcali#40
Wednesday, October 14, 2009 3:27:06 PM
What happened in 1929 anyone remember. Do we think it will happen
again. Weak dollar rising gold index and rising stocks?
From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires
were created instantly. Soon stock market trading became America’s
favorite pastime as investors jockeyed to make a quick killing.
Investors mortgaged their homes, and foolishly invested their life
savings in hot stocks, such as Ford and RCA. To the average investor,
stocks were a sure thing. Few people actually studied the fundamentals
of the companies they invested in. Thousands of fraudulent companies
were formed to hoodwink unsavvy investors. Most investors never even
thought a crash was possible. To them, the stock market “always went
up”.
Seems to me history may just repeat itself. The gold markets are
speculating the dollar getting replaced by a basket of currencies. As
the worlds Banking standard if that happens Wall street and the Dow
are done.
Plus why is the government not investing in our own infrastructure?
Jobseeker has it right the true end in sight is not near. Until we as
a country start to invest in ourselves again. All the construction
engineering and support jobs are gone.
No jobs means average Americans hitting the savings just to get by.
The last squeeze of the lemon for sure...
Holden McGroin #41
Wednesday, October 14, 2009 3:23:19 PM
Wall Street loves the fact that the Sheeple are encouraged to put more
money into the market (with the Dow above 10,000.) All logic is
gone. It is about doing whatever it takes to lull the Sheeple into a
sense of security so they will invest (or keep) their money in the
market. And then Wall Street will come up with new ploys to defraud
the Sheeple of their money. If you defraud someone in the real world,
it is a crime. If you do it on Wall Street, it is "creative
financing." Then, when you lose your life savings, see your years of
hard work erased and your children's future hijacked - the Wall Street
elite say "Back to work, workerbee. Stop complaining and get more
honey for the hive."
lancepilot0 #42
Wednesday, October 14, 2009 3:23:08 PM
doesn't anyone realize that the runup is artificial???? no different
than any other bubble we've had the last 10 yrs. All that is
happening is the rich are getting richer until THEY decide to let it
fall again.
DYNAMITE42#43
Wednesday, October 14, 2009 3:20:07 PM
Oh Goodie, The rich are getting richer and the poor are getting
screwed...still!
lionsfan1 #44
Wednesday, October 14, 2009 3:18:30 PM
Rangerdan, were not on our yachts yet cause the dow hasnt hit 12k yet.
lol. but when it does you doomsdayers can run this board as we go to
monaco. now a questin for you. if this is such a conspiracy why dont
you just stay away from wallstreet (and its message boards)? or short
every stock you can think of?
Dr. Jacob Thompson #45
Wednesday, October 14, 2009 3:16:31 PM
THE RISE IS DUE TO THE INVERSE FREEFALL OF THE US DOLLAR.
INFLATION PUSHES THE PRICES OF STOCKS AND BIG MACS ALIKE.
WE ARE ENTERING THE POST OIL WORLD. BUY GOLD OR SILVER.
GOOD LUCK
#46
Wednesday, October 14, 2009 3:14:42 PM
What’s Next?
If history is any predictor, the DOW will probably pass back and forth
through the 10,000 level about 20 times. It does that on average for
every level the index has ever been, so, why not this one - again.. As
the saying goes, the market goes up and down a lot more than it goes
up or down.
What’s next for me? I guess if the DOW falls back to 6000 I might buy
back what I just sold.
MONOEMONO#47
Wednesday, October 14, 2009 3:10:02 PM
Geeez people wake up, the game is simple and we are all loosers no
matter what they tell us. Here is what will happen next - people will
buy into the market cause profits will come again, short term gains
will be all you see for a while, then once they see lower deposits in
checking accounts and higher gains on investment accounts they will
hit the market in the lowest part possible and the last drop will be
squeezed out of the gigantic lemon called Americans. Then they will do
a 6/1 world currency swap leaving the super rich in power and the rest
of us to pilfer over ourselves until we calm down and start working
again. "Don't upset the crack babies they say, otherwise will have to
use our pain ray." LOL! it is only a matter of time, this market watch
stuff is exactly what they need to keep you distracted on the phony
point system while they cash in and out behind the so called RESERVE!
NEW WORLD ORDER remember that tiring phrase cause my friends in the
state department say that is what is talked about, they are even given
reports on commerce change to implement this philosophy LITERALLY!
JobSeeker1#48
Wednesday, October 14, 2009 3:09:39 PM
The best indicator of a recovery is the amount of hiring done by
engineering companies. All work begins with the design phase of any
project. Other work follows, such as welders, pipe fitters,
electricians, carpenters, millwrights, secretaries and steel workers
to put these designs into reality. After the construction is finished,
more jobs are created for people to occupy and run these plants and
buildings. My point is if you talk to any employment agencies which do
hiring for technical personnel, they will tell you it is deader than
hell out there. That means no companies are planning on investing in
capital expansion any time soon. Dark days are ahead regardless of
what the stock market says.
ReplyReport Abuse
Rangerdan#49
Wednesday, October 14, 2009 3:06:40 PM
Idiots? We prefer morons. Morons are near geniuses compared to
idiots.
ReplyReport Abuse
Mr. So Cal#50
Wednesday, October 14, 2009 3:06:23 PM
All it means by the DOW hitting 10K is that the people with the money
to invest (the rich) are starting to make more money again. It leaves
the rest of Americans that do not have the money to invest (a
majority) to wade through the reality that this numeric "milestone"
does not accurately reflect the economic state of things of America as
a whole. I think if they did a nationwide poll, I am almost certain
you would find that just a small percentage of people are actually
pleased by this news, while most of us would be indifferent. Welcome
back to the days where it takes credit to get credit, and money to
make money, because the banks are still tight and the jobs are still
scarce. DOW hits 10K, big deal.
James-of Tacoma#51
Wednesday, October 14, 2009 3:05:29 PM
My concern over this "Rally", is that the "average person"...is not
making any money from it.
Obviously, the governments decision to "give" or "allow the major
banks to steal", the billions in taxpayer money...gave the bank
trading departments lots of cash.
They in turn....did not "lend" the cash out...but..simply used it to
"buy" cheap stocks,...including their own stocks...which basically "re-
inflated" the stock prices. If you give someone 200-300
billion...they have to put it somewhere..and they put it back in the
stock market.
So now the "new money"...has allowed all the bank investment
departments to "look like geniuses"---by basically "creating" a rally
where they are the primary holders of the stock.
(I wish someone would "give me"...say just $ 2,000,000 so I could go
buy some depressed real estate...and watch me "become a genius
investor" too.)--
--NEXT STEP !!----Give (bankers) yourselves "multi-million dollar
bonuses" for .....simply depositing the taxpayer's money into the
stock market....(Ain't Croney Capitalism Great!!???)
Rangerdan#52
Wednesday, October 14, 2009 3:02:55 PM
I love all the people on here that think they are soothsayers. "Mark
my words", "You just watch", it's all a bunch of wishful thinking. If
you guys know so much, why aren't you onboard your yacht on the way to
Monaco?
lionsfan1 #53
Wednesday, October 14, 2009 3:01:41 PM
If this is a conspiracy, why do you all keep checking on the dow and
complaining about it? let us idiots invest.
rmkg0-l#54
Wednesday, October 14, 2009 3:00:25 PM
One phrase TO BIG TO FAIL,where else but here can the gov take money
from the people and give it to the banks that pay out record bonus
checks to its employees while the manufacturing base crumbles we
need more changes
Rangerdan#55
Wednesday, October 14, 2009 2:57:32 PM
The only ones making money on this are the wealthy who had the money
to buy when it was at the bottom. It's just another conspiracy for
the rich getting richer and the poor getting poorer.
AimlessPrissy#56
Wednesday, October 14, 2009 2:57:19 PM
Sounds like Pimpo needs to back off of the current topics and
familiarize himself with history. We didn't have a President
Cheney.................Obama will be our demise...you watch.
douglas252#57
Wednesday, October 14, 2009 2:51:13 PM
dannywilde,
You "guarantee the dow plummets to 5600 by mar 10." That's
laughable. Care to back up that statement up with a wager of some
sort? If you're so sure of your convictions, how about putting a
little money on it. I guaranty that your wrong and not even close to
that 5600 and I'll put my money where my mouth is. How about you?
Just one more example of someone spouting off about something they
know nothing of.
Reality Check Squared#58
Wednesday, October 14, 2009 2:51:13 PM
Pretty aggressive recovery to imply we've just been through a 'quite
serious' recession at all. I would say the rabbit in the hat *was*
stimulus programs. Great. Now that *may* carry some {companies,
corporations; individuals} to rapid-eye-movement and a good night's
sleep. In reality, if *all* people/industries are not in recovery, a
partial recovery seems to serve as....merely a greater divide within
our own people. (Not so great news at all IMHO).
Minnesota Worker#59
Wednesday, October 14, 2009 2:50:52 PM
Let's see. October 11, 2007 the Dow was at 14,198. Today it's at about
10,000. Still down substantially. It's gonna take a long while for the
average Joe to get back to where he was before this meltdown began.
What to do?
FloridaSB #60
Wednesday, October 14, 2009 2:50:30 PM
Dow hits 10,000 mark partly due from JPMorganChase's strong results?
The banks are really socking it to folks. Raising credit card
interest rates and fees, calling in lines of credit, reducing access
to capital. How can that be a result? Its a shame that it is being
permitted to occur in light of the bailout they were provided. An
acquaintance I know who works for Chase gets shear pleasure of calling
folks in on the debt they owe. Its hard for me to celebrate especially
knowing the economy is far from being better or recovering.
#61
Wednesday, October 14, 2009 2:47:58 PM
I remember this kind of excitement about Wall Street in Jimmy Carter's
first year. Hope quickly gave way to the invention of the misery
index.
MartyKammerer#62
Wednesday, October 14, 2009 2:45:47 PM
Fool!
AlphaRoger8#63
Wednesday, October 14, 2009 2:39:35 PM
Come on everyone lets party!!! THe good days are back!!! Buy now while
everything is a bargain......we will probably hit 14,000 by the end of
December......and hit new highs in 2010....A new age of prosperity is
here.....Buy now!!!!!!!
lionsfan1 #64
Wednesday, October 14, 2009 2:39:15 PM
You guys do understand unemployment is always a laggard right? Its
normal for wallstreet to recover before main street. Stocks are about
future prospects, not current. If you think its the otherway around no
wonder you nay sayers cant make a dollar. Future prospects are looking
much better today than they were five months ago. thats why the
markets have risen. Is everything rosey? no far from it, but things
will improve, and already have begun to. Do I like Obama? No not at
all, and even though I dont have faith in him, I have faith in this
country. Oh and one more thing, while I disagree with the fed printing
so much money, and our national debt has skyrocketed, On the bright
side our national debt is still alot lower as percentage of gdp than
alot of other first world countries. China won't cash out on us
because when the notes become worthless, it would screw them over
worse than us. Just thought Id give the glass is half full approach
since you're all convinced the end of the world is here....
Speed Goat#65
Wednesday, October 14, 2009 2:36:54 PM
Nice try, bulding, but you are only going to confuse these people by
stating facts.
Texas retired#66
Wednesday, October 14, 2009 2:35:35 PM
The market is way ahead of itself.....still trillions on the
sidelines....unemployment high and rising....Obama on a mad spending
spree. I wish that the highs we are seeing were warranted but I do not
see how they can stay at this level with how bad things really
are....never mind what Obama and the media tell us. The unemployment
situation is going to keep a real recovery from happening and we have
a president who has lost sight of what he needs to focus on.
AlphaRoger8#67
Wednesday, October 14, 2009 2:35:24 PM
Come on everyone lets party!!! THe good days are back!!! Buy now while
everything is a bargain......we will probably hit 14,000 by the end of
December......and hit new highs in 2010....A new age of prosperity is
here.....Buy now!!!!!!!
P.N. MiPants #68
Wednesday, October 14, 2009 2:35:13 PM
y'all are morons (except Pimpo). You're probably sour because you
didn't get on the train at the bottom...I, on the other hand, never
got off the train, invested more and am very much back in the black.
Long term folks, long term. Sheesh.
bulding#69
Wednesday, October 14, 2009 2:33:05 PM
The market is 6 month in advance to what we are now
JobSeeker1#70
Wednesday, October 14, 2009 2:32:21 PM
If you are a liberal, this is nothing to cheer about and definitely
has nothing to do with anything Obama has done. As we know, liberals
do not believe in trickle-down economics. What’s that liberal saying?
Might be good for Wall Street, but not too good for Main Street. And
since Obama despises Wall Street greed and believes that the economy
works from the bottom up, this latest upsurge in the stock market
cannot possibly be attributed to his policies.
DarrenBuffalo #71
Wednesday, October 14, 2009 2:22:04 PM
Regardless of what the Dow is going to do right now, morale and
confidence are still in the toilet. Most companies are still
ridiculously paranoid about hiring, even if they have the [new] work
to justify it, for fear of everything falling apart. The familiar tune
right now (and will be) from prospective employers is "I need to hire
someone, but my boss says no", and the familiar tune from 90% of the
people I know that are working is "I'm being given additional work
outside of my job description without compensation in lieu of hiring
someone to do said work". Companies are taking advantage of their
employees moreso now than they have in the past 30 years, and the
people at the bottom end of the pole at a business are taking the
brunt of it while the supervisors and owners continue on as if nothing
is happening, collecting the same paycheck they were a year ago and
letting the little people weather the storm. I'm an unemployed
engineer/designer and will continue to be for a lot longer, because
this is the mentality that is going to dominate at least throughout
the 1st quarter of next year.
gt mustang#72
Wednesday, October 14, 2009 2:17:19 PM
watch oil prices. what you see now won't last very long.
Eric S#73
Wednesday, October 14, 2009 2:13:17 PM
This is it. 10,000 is as high as we will see the market go in my
lifetime. 10,000 is what the market SHOULD have been at its high all
along. Now its there artificially Im afraid thanks to the overprinting
of money. We are still in trouble I fear especially when other
countries holding US dollars call in our notes. China can destroy us
now and ironically enough its the same situation that we had the
Soviets in back in the Reagan days.
pimpo#74
Wednesday, October 14, 2009 2:13:05 PM
You sir are an Idiot. If the Dow could not fall to 5600 under
Presiden Cheney, than I highly doubt this could happen.
dannywilde#75
Wednesday, October 14, 2009 2:09:48 PM
I guarantee the dow plummets to 5600 by mar 10 Obungler is still in
office so no one with any money has any faith in anything. So the
economy will continue to fail until the OFAILURE is removed, impeached
or voted out
chhotemianinshallah
Dow 10,000: First close in a year
Blue-chip average ends at key milestone for the first time since Oct.
3, 2008 following better-than-expected results from JPMorgan and
Intel.
By Alexandra Twin, CNNMoney.com senior writer
Last Updated: October 14, 2009: 4:15 PM ET
NEW YORK (CNNMoney.com) -- The Dow industrials closed above 10,000
Wednesday, ending at the key psychological milestone for the first
time in more than a year, following upbeat profit reports from Intel
and JPMorgan Chase.
The Dow Jones industrial average (INDU) rose 145 points or 1.5%,
according to early tallies, finishing at its highest point since Oct.
3, 2008, when it closed at 10,325.38.
The S&P 500 (SPX) index rose 19 points, or 1.8%, and the Nasdaq
composite (COMP) added 32 points, or 1.5%.
The advance was broad-based, with 25 of 30 Dow stocks rising. JPMorgan
Chase (JPM, Fortune 500), Caterpillar (CAT, Fortune 500), Chevron
(CVX, Fortune 500), IBM (IBM, Fortune 500), 3M (MMM, Fortune 500),
United Technologies (UTX, Fortune 500) and Exxon Mobil (XOM, Fortune
500) were the biggest contributors to the Dow's gains.
"Today's market action is all about Intel and JPMorgan and just
earnings in general," said Tom Schrader, managing director at Stifel
Nicolaus.
He said that the weak retail sales report, released Wednesday,
indicates that the economic recovery is not going to be smooth
sailing. Nevertheless, "people are looking forward," Schrader added.
While 10,000 is not a significant milestone on a technical basis, it's
meaningful on a psychological level, analysts say. It could either
usher in more buyers or give investors who think the rally has been
too much, too soon a reason to retreat.
Since bottoming at 12-year lows in March of this year, the S&P 500 has
surged a little less than 59% as of Tuesday's close.
Other than a few modest pullbacks, stocks have mostly managed to keep
moving higher, with investors jumping in to buy the dips on worries
that they are missing the boat. Repeated calls for a correction of 10%
to 15% have gone unmet, and are likely to continue going unmet for the
short term, Schrader said.
"The problem is that it is consensus that we need a selloff and
consensus is rarely right," he said.
In the afternoon, the Fed released the minutes from the last interest-
rate policy meeting. The bankers said that while the economic outlook
has improved, activity is still weak. Additionally, most of the
bankers raised their economic projections for the second half of the
year and for the next two years.
Stocks struggled Tuesday as a weak financial sector and disappointment
about Johnson & Johnson (JNJ, Fortune 500)'s results kept the Dow away
from 10,000.
Earnings: Two Dow issues reported better-than-expected third-quarter
results, following component Alcoa (AA, Fortune 500)'s better-than-
expected profit report last week. The results have fueled hopes that
the third quarter could mark a turning point for corporate profits in
the same way it seems to have marked a turning point for the economy.
JPMorgan Chase (JPM, Fortune 500) said it earned $3.6 billion in the
quarter, as strength in its investment banking business tempered
rising loan losses. The company said that consumer loan delinquencies
are showing signs of stabilization, but that the trend may not
continue.
JP Morgan reported higher quarterly sales and earnings that topped
analysts' estimates, according to tracker Thomson Financial. Shares
gained 3.2% Wednesday.
Late Tuesday, chipmaker Intel (INTC, Fortune 500) said quarterly sales
and earnings fell from a year ago, but topped estimates.
Intel also issued a bullish forecast, saying that it expects fourth-
quarter revenue of between $9.7 billion and $10.5 billion versus the
$9.51 billion consensus. Intel also said it expects gross margins, a
key measure of profitability, in the 59% to 65% range versus the 56.7%
consensus. Shares gained 2.5% Wednesday.
0:00 /4:15Intel blasts through forecasts
Economy: Retail sales fell 1.5% in September, the Commerce Department
said, surprising economists who were expecting sales to fall 2.1%.
Sales rose 2.7% in August thanks partly to the impact of the
government's Cash for Clunkers auto stimulus program.
Sales excluding autos rose 0.5% in the month versus a rise of 1.1% in
August. Sales were expected to rise 0.2%.
Import prices edged up 0.1% in September, the government said, after
climbing 1.6% in August. Export prices fell 0.3% in September versus a
revised 1.6% in August.
World markets: Global markets were mixed. In Europe, London's FTSE 100
rose 2%, France's CAC 40 gained 2.1% and Germany's DAX added 2.5%.
Asian markets ended higher, with the exception of Japan.
Bonds: Treasury prices tumbled, raising the yield on the 10-year note
to 3.38% from 3.35% late Tuesday. Treasury prices and yields move in
opposite directions.
Currency and commodities: The dollar fell versus the euro and the yen,
extending its recent losses.
U.S. light crude oil for November delivery rose $1.03 to settle at
$75.18 a barrel on the New York Mercantile Exchange, the highest level
in a year.
COMEX gold for December delivery fell 30 cents to $1,064.70 an ounce
after ending the previous session at a record close of $1,065. Gold
has been hitting record highs almost daily in response to a weak U.S.
dollar and ongoing concerns about inflationary pressures.
Market breadth was positive. On the New York Stock Exchange, winners
beat losers five to two on volume of 1 billion shares. On the Nasdaq,
advancers topped decliners by nearly three to one on volume of 1.99
billion shares.
First Published: October 14, 2009: 9:41 AM ET
chhotemianinshallah
Don't trust Dow 10,000
The stock market is supposed to be a leading indicator, predicting
what happens next. But the rally doesn't mean the nation's economic
woes are over.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: October 14, 2009: 4:19 PM ET
NEW YORK (CNNMoney.com) -- As the Dow closed above 10,000 for the
first time in more than a year Wednesday, economists cautioned that
the blue-chip average shouldn't be seen as giving a green light to the
economy.
The stock market is what is known as a leading economic indicator, as
investors place bets on how strong they believe company results and
the broader economy will be in the near future.
Lately, there has been a growing consensus among both investors and
economists that the battered U.S. economy hit bottom and turned around
earlier this year, and is now in a recovery.
The Federal Reserve said economic activity has "picked up" in its
statement after its Sept. 23 meeting, and about 80% of leading
economists surveyed by the National Association for Business Economics
agreed in a survey earlier this month that the recovery has begun.
But even economists who agree the economy is in recovery say that
growth will be slow and difficult, with continued job losses, tight
credit and further declines in home prices. And even some who believe
that the current Dow 10,000 level is justified say there's still a
significant risk that the economy will take a step backward.
"One of the great challenges is whether consumers and small businesses
come along with this recovery," said John Silvia, chief economist with
Wells Fargo. "If they don't, you either sit at 10,000 or slip back to
9,500. To sustain another double-digit (percentage) gain to Dow 11,000
is asking too much from this economy and the risks we still see out
there."
0:00 /3:36Earnings don't point to recovery
There are also economists who question whether the economy is truly in
recovery, given that it continues to lose about a quarter-million jobs
a month. They say the more than 50% rally in the Dow since it closed
at a low of 6,594.44 on March 5 is only a reflection that the fear of
the economy toppling into a full-fledged depression has abated.
"We're not at Armageddon anymore, so of course you should have some
kind of rally," said Rich Yamarone, director of economic research at
Argus Research. "But I think there's a bubble-like atmosphere going on
here in the rush back to 10,000. Caution should rule the day. We're
not out of the woods yet."
Several experts point out than many of the relatively strong earnings
reports helping to lift the markets in recent days are being driven by
cost cuts, rather than strong revenue growth that would be a better
indicator of consumers and businesses being willing to spend again. If
businesses keep cutting costs to make the numbers that Wall Street
wants to see, that can only put more downward pressure on jobs and
wages, and result in weaker economic growth or another downturn.
"The companies are cutting fat, and in many cases cutting bone and
muscle. There's no organic economic growth there," said Yamarone.
Barry Ritholtz, CEO and director of equity research at Fusion IQ, said
that despite their reputation as a leading indicator, the stock
markets do a terrible job forecasting the economy.
"Beware of economists pointing to the stock market," he said. "The
rallies tend to be false starts because it's a reaction to what came
before. The sell-offs tend to be overdone because, as they gain
momentum, they lead to panics."
Ritholtz said comparisons of current earnings to those of a year ago
or stock levels to the lows of earlier this year greatly exaggerate
the strength even the market sees in the economic outlook.
"It's like saying the Detroit Lions have better year-over-year
comparisons because they're no longer winless," he said about the
football team that went 0-16 in 2008, but has won one of five games so
far this year. "But they're still in last place and they're not
winning the Super Bowl."
Another reason that comparisons to Dow levels of a year ago are risky
is that two of the more troubled components -- General Motors and
Citigroup (C, Fortune 500) -- were dropped and replaced by stronger
companies such as Cisco Systems (CSCO, Fortune 500) and Travelers Cos.
(TRV, Fortune 500) in June.
Without those changes the Dow would be almost 100 points lower now
than it is with the stronger companies, although precise comparisons
are difficult since GM shares are no longer traded on the New York
Stock Exchange.
"You take out the worst, put in the best, and by definition you'll get
better numbers," said Yamarone.
First Published: October 14, 2009: 1:49 PM ET
Debbie Daugherty Guest1:51 pm
Two comments stand out in this article and are so true: 1) increases
in stock value of companies are from cost cutting and not increased
revenues...economy will most likely weaken in the future as fewer
consumers will have jobs or spendable income. Companies can only cut
so many employees without effecting quantity and quality of
production; and, 2) certainly one of the reasons for topping 10,000
was replacing two weak companies with two strong companies...just like
some of the market/share value loss 2-3 years ago was due to changing
to the international standards of accounting...some of the stock value
change was simply entry/accounting changes to bring American stock
valuation practices more in line with other countries. The stock value
loss from that change won't be recovered without increasing business.
I'm glad to see 10,000, but it is a number which was probably
manipulated to increase consumer confidence in the current still lame
economy.
Facebook User1:42 pm
Matthew: "Our currency has depreciated by at least 25% in 10 years."
Another way to say this is that we have had 25% inflation over 10
years which is equally as bad. We are heading for hyper-inflation with
job losses. More people out of work, means more people willing to do
YOUR job for less. Means wages fall while prices rise.
What causes inflation you ask? Out of control government spending and
fiscally unsustainable policies of the current administration. The
result is that all Americans, rich and poor, are effectively being
taxed more by the day to buy basic necessities simply because the
government cant learn to balance it's checkbook the same way that
regular people have to.
Matthew Wilhelm1:23 pm
Dow at 10k in 1999, dow at 10k in 2009. The difference? A dollar in
1999 buys you 75 cents today.
Our currency has depreciated by at least 25% in 10 years. that means
the dow is around 7,500.
Recovery? Try again.
Facebook User1:18 pm
You would have to be pretty foolish to actually believe that the
markets arent't being propped up by the feds in order to avoid a
sustained panic. Hello; the dollar is tanking and gold is
skyrocketing. Wake up people, the dollar is dead and this economy has
been DOA for some time. The mainstream media just fail to ackknowlege
this fact... We will be a third world country in less than 5 years.
Mark my words...
Marie Frigault Collier Rodela12:18 pm
I won't be fooled. Not charging a thing! Paying off bills and saving.
Deepak Haridas11:04 am
Considering how things are going with GM now even after their
"restructuring", I am sure that there would have been a whole lot of
sell for GM..so I am glad it aint in the Dow though I wouldnt share
the same feeling regarding Citi.
chhotemianinshallah
Recession may be over, but recovery is painful
Survey of top economists by National Association of Business Economics
finds more than 80% believe the worst is over, but recovery will be
slow and painful.
feed://rss.cnn.com/rss/money_topstories.rss
See all CNNMoney.com RSS FEEDS (close) By Chris Isidore, CNNMoney.com
senior writer
October 12, 2009: 10:28 AM ET
Heroes and zeroes of the fallout
Key financial firms received a wide range of assistance during the
past year. But scroll over their stocks and you’ll find few winners –
and plenty of losers. More
NEW YORK (CNNMoney.com) -- More than 80% of top economists believe
that the recession that started almost two years ago is finally over.
But most don't expect meaningful improvement in jobs, credit or
housing for months to come.
That's according to a survey released Monday by the National
Association for Business Economics (NABE). The group asked 43 top
economists last month if they believe the battered U.S. economy has
pulled out of the worst U.S. downturn since World War II. Those
surveyed include economists from leading Wall Street firms and major
corporations, as well as from highly respected universities and
research firms.
Thirty-five respondents, or 81%, believe the recovery has begun. Only
four, or 9%, believe the economy is still in a recession. The other
four say they're uncertain.
Economists in the survey forecast that the U.S. economy grew at an
annual rate of 3% in the three months that ended in September, though
the official reading of gross domestic product won't be out for
weeks.
And all of the economists surveyed expect the recovery to be slow and
painful, leaving many people and businesses feeling the effects of the
downturn for years to come.
The only organization that can officially declare the beginning or the
end of a recession is the National Bureau of Economic Research. But
that group doesn't make any sort of declaration until months after the
fact, in order to take into account final readings of various economic
measures such as employment, income and industrial production. For
example, the NBER didn't declare that the recent recession had begun
in December 2007 until a full year after the fact.
Lingering weakness
The NABE survey results echo comments made by many other prominent
economists who have recently said they think the economy hit bottom at
some point this summer.
0:00 /3:44Roubini: U.S. recovery 'anemic'
Most notably, a recent statement from the Federal Reserve declared
that economic readings "suggest economic activity has picked up
following its severe downturn."
Still, the NABE survey found that economists are forecasting lingering
weakness in the labor and housing markets, and that the tight credit
markets will continue to be a drag on economic growth into next year.
Unemployment, which was at a 26-year high of 9.8% in September, is
forecast to hit 10% during the last three months of this year, and
stay there through the first quarter of 2010. By the end of next year,
it's only expected to fall back down to 9.5%.
About 54% of those surveyed don't expect the economy to regain the
jobs it lost during the recession until 2012, while another 38% expect
that to take even longer. Just three of the economists that the NABE
spoke to expect these jobs to come back in 2010 or 2011.
And many don't think the worst is over yet for housing either. About a
third of economists believe that home prices won't bottom out until
early 2010 or later, while a quarter of them believe the low will come
in the fourth quarter.
Half of those surveyed expect the financial markets to continue to be
a drag on the economy until next year, while 30% of them said that
trend could continue into 2011.
The NABE last surveyed economists in May, and they were far less
optimistic at the time. Only 18% of them thought the economy would
recover in the last quarter of 2009, while 7% saw a turnaround
sometime in 2010.
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Jeff PuderOct 13
Christopher, blaming all of this on subprime and oil was another
horrible byproduct of American media's coverage of this crisis. There
was only $1 Trillion in subprime loans. You really think that poor
people in the inner city somehow led to $13.87 trillion in household
wealth being wiped off the balance sheet?
Subprime was a very small part of the now collapsing debt splurge that
was fueling our expansion and keeping the American economy on life
support for the last decade. Now that both businesses and consumers
are over-leveraged with debt, that life support is being shut off. And
we're now seeing the reality that the fundamentals of the American
economy are actually barely existent when Americans are not spending
money they don't have or extracting $4 Trillion of equity out of their
homes to buy hot tubs, granite counter tops and trips to Vegas like
they did from 00-08.
Our economy must contract significantly to now reflect people actually
living within their means.
Campi Giosue'Oct 13
This is the end of the old capitalism ;it ends like comunism.A new
capitalism is started and itis the EU one.The crisis isn't ended at
all.DJ will join 10200 but then will fall to new absolute lows as also
Pretcher Jr said.$ in the medium-long term is tdestined to become like
brazilian Real.No chances.
Christopher BeushausenOct 13
I believe this recovery has started now, very slowly and will not
fully start to recover till mid 2010 to early 2011 fully. Mark my
words this economy will only recover when Americans start feeling
comfortable about this country again.
Christopher BeushausenOct 13
I agree with none of these economists. I will say that certain areas
of the United States will take years to recover like Florida,
California and Nevada. I believe the Midwest and East Coast will
recover faster than the West and Southern states. More investments are
being made in Illliniois, Wisconsin, Ohio, Indiana and Michigan, so
look for a more quick recovery here. What triggered this recession was
oil and housing prices. We need to get away from Oil and get rid of
adjustable rate mortgages and there you go no more recession again for
awhile. I called this recession back in 2007 when I started to see
many people struggle and to tell you the truth I don't believe we ever
got out of the recession of 2001. I believe the Bush administration
did a horrible job recognizing the recession. Now let's flash forward
to now, maybe if Americans quit getting so many credit cards and save
back some money this won't happen again. Did you here that, Americans
spending smartly ha ha ha.
Mike SchmidtOct 13
Too much debt was the problem. Now we're trying to get back on track
by taking on even more debt. Actually our government is taking on more
debt on our behalf. Our leaders are trying to recreate the exact same
conditions that led to this crash. I fail to see how this can lead to
any meaningful recovery. Housing prices need to fall to levels that
are affordable, bad debts need to be written off and banks that lend
money foolishly need to go out of business.
Over the last decades America did a very poor job voting for competent
politicians (starting with Reagan) , so I supposed we get what we
deserve.
Syed Farhan AhmedOct 12
....WELL, perplexed by the rich and heavy weighted words from the
great economist or people from so called developed world ,i,from
almost unknown world, still don't believe unless the result would be
visible from shrouded blur.
Peter MartinOct 12
Recovery my A$$. They only tell us these things so that we do not
panic and make a mad run to the bank and pull out what money we have
left. Do you know why nothing has changed? Because the same people
that got us in this mess are the same people running the show. Instead
of going to jail, these people are still ruining our lives. Does
anyone on here have any idea how the government measures the
unemployment rates? If not, please click on this link and or cut and
paste:
http://www.bls.gov/cps/cps_htgm.htm
It's based on 60,000 households and translates to 110,000 individuals.
No joke!! So, do you still believe the 9.8% figure we hear about each
day?
Andrea WilliamsOct 12
Boy i sure would like to live in the fairy tale world that WALL STREET
and the ECONOMIST lives in BUT NEWS FLASH in the REAL WORLD it's still
just as BAD as it was so who ever said RECOVERY can take that lie and
stick it no one in the real world believes you any
more......................................
Jeff PuderOct 12
Paul, he should be a street sweeper. But instead he's been promoted to
head of research at Barclays Capital Inc. and is still quoted
consistently in the press. That's my point. Google the names of these
economists cheerleading the recovery and see how moronic they were
only a year ago - when we were already in the thick of a blatant
massive recession.
There have been hundreds of economists that got the predictions right.
They're just not allowed in front of cameras that much. The
blogosphere has gotten it correct pretty much the whole way down the
sewer drain.
Mark KroehlerOct 12
Recovery? What recovery? I keep hearing the term, but I see nothing of
the sort...
Paul SmithOct 12
Mr. Puder:
It would appear that our Mr Kantor was very" long" when he wished he
was very"short"!!
If it wasn't so tragic it would be hilarious~!
You didn't happen to mention which streets he was cleaning these
days.......
Jeff PuderOct 12
I've come up with a very fun game. Whenever you see one of these
economists blabbing about the recovery/end of the recession, google an
article and see what they were saying last summer. The results are
hilarious.
For instance, check today in Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601103&sid=axnCbWZ33aEU.
Larry Kantor is calling for a "vigorous economy", "sustained
recovery", "things are only as bad as in 1992".
Check what this ass hat was saying in July of 2008:
http://www.telegraph.co.uk/finance/economics/2792453/Larry-Kantor-The-one-bullish-American-economist-amid-the-growling-bears.html?state=target#postacomment&postingId=6311215
• large growth in late 2008 through 2009
• housing crisis no biggie
• Bush's stimulus check would have "an enormous impact"
• No empirical evidence for a collapse
• Saw inflation being a near-term risk
• Claims there was no irresponsibility in housing lending
WOW! That piece is real beauty and I hope it's saved for historical
archives.
Facebook UserOct 12
I trust CNN Money, WSJ, and corporate economists in general. After
all, they warned us for years about the dangers looming in our
economy...no, wait, that wasn't these guys! You mean, these guys are
the same ones who talked us into risking our money in their corrupt
schemes, took our money by selling their stock before the actual
crash, then ran?! Gee, I wish SOMEONE had tried to warn us. Oh, that's
right. Anyone who spoke out against the falsely optimistic outlook was
shouted down as a socialist. I see. Lesson learned. On second thought,
I DON'T think I'll be asking the fox for any more advice on how to
manage my hen house. And I shall be looking suspiciously at ANYONE who
screams "socialist" every time anyone tries to halt the corruption.
Dan LundeenOct 12
I only come on Money to see who their advertisers are and put them on
my boycott list. Karl Deninger for Head of Treasury!
Dan LundeenOct 12
THIS IS NOT A RECESSSION!!! It's a depression with a gov't check
keeping people from looting. Unemployment will be 25% by the end of
next year. That's the U-6 number not the U-3. CRE imploding as we
speak...Foreclosures???On the rise...Treasurie???A bubble getting
ready to burst. I challenge someone to show me one chart that tells me
the recession is over. (BANK PROFITS DO NOT COUNT b/c Mark to Market
was lifted in March)
Rolf H. PartaOct 12
[MBA/CPA here; I've been watching recessions since 1973 and booms
since the inflation of the late 1960s].
Raising taxes during a recession is like shooting the economy in the
foot, on purpose.
The Obama administration has on tap:
1. cap-and-tax ... expected to cost the average family $150 a month.
2. health insurance reform ... expected to cost the average family
another $150 a month, increasing to $400 a month in 10 years' time.
3. higher taxes on foreign earnings of US corporations
4. continued restrictions on domestic energy production and,
therefore, continued reliance on foreigners for oil. Can you say $4
gasoline again if the unemployment rate ever gets back below 7%?
5. and higher income taxes on every family making over $250k a year --
which includes many self-employed businesspeople and near everyone who
hires maid service, gardeners, etc. Jobs? There aren't going to be
creating any because they won't have the money.
6. Cuts to MediCare = higher copays by seniors.
Raymond L. BlinnOct 12
The problem with the economic definition of the end of a recession is
that most people are still under water when the end occurs and that is
not good.
If you envision the economy as a roller coaster ride, the end of a
recession is the bottom of a big hill. If the bottom of the hill is
under water like the coaster at Six Flags of Atlanta was a few weeks
ago it is hard to feel good about going up hill again until your head
gets above the water again and that has not happened yet for most
people.
They should redefine the end of a recession as the point when the
majority of the people have recovered not when things have stopped
getting worse.
Bush 41 learned that lesson the hard way when he declared the
recession of '91 was over but the recovery was very slow in
materializing.
If Obama doesn't learn from the past he may repeat the same mistake
and 2010 will be very hard on Democrats.
Gaven SmithOct 12
It has in the past and the trend is likely to continue unless we do
something. We together as a nation caused this great mess. I don't
believe it is right to blame anyone group it was a collaborative
effort. This is truly a great county and I'm sure we will work to dig
ourselves out of this mess. I have been to numerous countries around
the world and we still have it way better than so many people out
their. I just hope in the future people think twice about the
decisions they make and invest in theirselves and making the world a
better place. That's all...
Gaven SmithOct 12
It goes hand in hand with what is the problem with America an all of
us being to greedy. We fall to much into thinking we are entitled to
everything. The "We are Americans and want it now mentality" I see it
all the time in my everyday job and try to explain it to clients and
it seems as we still don't get it. Sure the economy and main street is
in distress. Economic cycles come and go and with every up there is a
down. On the highs the market tends to be overbought and on the down
it's oversold. Companies have laid off the masses and inventories are
beginning to run low eventually we will have to restock and this will
create growth. Always has happened and if you don't believe that look
at every recession people say the same thing over and over again. The
problem in America is the schools and not teaching financial literacy.
Sure we will come out of this eventually, but how many years before
some other bubble or disaster strikes?
Gaven SmithOct 12
I personally believe that economic recovery is on the way. I work in
the financial industry actually a trader specialization in financial
planning. Highly educated in the area undergrad in finance with a
specialization in financial planning and about to graduate with my MBA
from a top MBA school. I think to much hatred is put on the financial
industry and we as Americans need to accept some responsibility for
all this mess. I have only been in the industry for 2005. Would of
been before that but I quit school to join the Marines and serve my
country. I didn't decide to get in this business for greed or money. I
did it just like the reason I joined the Marines to help make the
world a better place. I truly want to help educate people and make
more sound financial decisions. People blame the banks all time how
about the consumer? Sure I could go out tomorrow and buy a 100k dollar
sports car and financed for it, but does this sound like a good idea?
Facebook UserOct 12
Yeah the recession is over if you are on Capitol Hill or a Bank in
Manhattan, perhaps these economist should take a visit to the rest of
the country that they helped to destroy before they start with all the
rosy predictions.
Walter VanOct 12
I am with Emily....The news media and CNN.money are in bed with the
feds. Show me one Economist that has to look for the money to feed his
family/ This is all a crock of horse dung. A year ago unemplynent
figures and foreclosure news was easily found on the news websites.
BUT now that we have spent trillions on some BS stimulas package You
cannot find these articles anymore. The statistics are worse and they/
we all know it. But lets suck that MONEY Market fund right back into
wallstreet so it can crash again and mainstreet America will get
burned once again for whatever is left in your 401K
Paul SmithOct 12
The govt. & Fed must use any initiative at their disposal to stabilize
unemployment & housing. If the economists have identified those two
areas as "unrecoverables" in the short to medium term, maybe those who
pull the purse-strings can act appropriately to address the situation.
Swift & remedial response is required-not inaction & inter-party
arguments.
This recession was the result of the property market crashing due
mainly to the "instruments" invented to "fast-track" & then dissolve
responsibility of debt or purchase.
Holes in the financial sector could be(publicly) plugged to stop the
rot.
Unfortunately, real estate is a slow-moving conveyance which takes
time to unravel from its own mess.
If there is one lesson that's been learned from this housing-induced
downturn, it is that PREVENTION IS THE BEST CURE!!!
Walter VanOct 12
Why would we listen to an Economist from Wachovia. these are the same
rocket scientists that bought Golden West Funding. The largest holder
of Option Arm Loans in the country next to Wamu and Downey...that
Wachovia crashed and burned from and got sucked up by Wells Fargo.
Wells says they are making good business from Wachovia. Really then
why did they go belly up....
Emily ScottOct 12
is it me, ( i will admit i'm an uneducated hillbilly by today's
educational standards) or is all these highly prized ,highly educated,
Economist, stupid????, do any of them every go outside? they believe
there own bullshit, they are simply full of shit, no real knowledge to
the truth of the state of the u.s. economy. let me in my uneducated
best spell it out for you fellows at cnn money, the simple truth known
by most everyone except you people is,
were in ,have been in one, and are still in a DEPRESSION, we may not
be that smart by your consideration cnn money and your economists, but
we aren't afraid of the truth, thats why were saveing agian.
Andrea WilliamsOct 12
I don't trust anything those economists say after some of the stuff
they have said.The truth is on main street it's not getting any better
so i would say greed street is in for a big surprise.
Kacey ArnoldOct 12
These are the same economists who didn't see the crash coming? The
same economists who said we were not in a recession?
Jeff PuderOct 12
September's unemployment numbers were up from Aug, foreclosures hit a
new record, millions of UE benefits have expired, consumer confidence
dipped, energy prices on the rise, Option ARM's starting to recast,
CRE collapse still on the horizon, FDIC has run out of funds, dozens
of state governments on the verge of collapse...
Yeah, the worst is over, lol.
Troy StantonOct 12
It takes a pretty special person to leave corporate and lower
themselves to waiting on tables. And if they are not being hired, no
one is.
Troy StantonOct 12
You can see what you want to see in all of this. Forecasts have
everything to do with where you live, what you do for a living and
where you have your money. So are they the top forecasters or the
biggest gamblers that don’t get out in the real world much? (cyber
travelers).
Because you can travel the entire state of Minnesnowda and see closed
car dealerships, businesses vacant and pages and pages of Foreclosed
houses in the paper in every town, not to mention the lack of
construction and new development waste land. Weren’t the land
developers, realtors and builders considered to be the experts in real
estate? And since they were betting their livelihood and in some cases
millions of dollars they were forecasters/gamblers too.
Here is one way that we can all tell when it is going to turn around,
and you won’t have to go far from cyber Ville. When you can go out to
eat and your server is around collage age.
It takes a pretty special person to leave corporate and lower themsel
Raymond SchierOct 12
I'd like to know the real motivation, behind them spewing such
nonsense. My guess
is it must be quite beneficial for them (Wall St firms, etc), for us
to swallow this
BS. There are simply no positives in any direction; the structural
collapse - resulting
from both a bloated bill for importing so many resources, as well as
the exportation
of all our "real" work - has finally arrived. We need some return to
"protectionism",
to start performing our own work again (mfg, etc), and initiate a
robust effort to
shrink our need to import energy, and other resources.
Orrin JohnstonOct 12
Isn't an economist another word for " Barber". You can get the same BS
when you get your hair cut - if you can afford to get your hair cut
while out of work.
Ling LeeOct 12
I don't know from what perspective or angle do these econo-gurus can
claim this mess is over when the begin threshold recession was better
than today's conditions! Especially in jobs and housing(shadow
distress real estate inventories)???
Campi Giosue'Oct 12
Recovery is a ghost and the next thud of makets(not far in the time),
that are full of debts (they are grown since 2008) and unuseful
paper,will make a new recession worse than the last one.That's sure.
Mark StevensOct 12
If 87% of economists do not see a recovery until 2011/12 then it will
be a long and slow recovery at best with not much improvement in 2010.
I am also looking at a document from the Conference Board dated Jan,
2009 that stated that the economy could lose a max of 2 million jobs
in 09. They underestimated that projection by close to 3 million jobs
so be leary of what you read even from so called experts. In the same
article John Silva, Wachovia's Chief Economist thought that "the worst
may be behind us" because so many companies had "cleared the decks in
08"- Boy was that off the mark.
John WoodOct 12
How long did it take these same economists to admit we WERE in a
Recession? I don't think we will see things get better for YEARS to
come, not months.
chhotemianinshallah
Creeping Up to 5 Digits Yet Again
By JACK HEALY
Published: September 28, 2009
It is only a number — the stock market equivalent of an appliance
chain’s millionth customer, or the gazillionth hamburger served at
McDonald’s.
Skip to next paragraph
Adam Nadel/Associated Press
In 1999, traders at the stock exchange celebrated when the Dow passed
10,000.
Agence France-Presse
The electronic board of the New York Stock Exchange on March 29, 1999,
as the Dow passed 10,000 for the first time.
Still, the Dow, which closed up 124.17 points, at 9,789.36, on Monday,
is within reach of 10,000. Who would have thought?
At the depths of Wall Street’s crisis, when traders were despairing
and shares of Citigroup were trading for just over a dollar, Dow 5,000
seemed a likelier prospect than this.
But now, one of the most-watched measures of the financial world is on
the cusp of jumping back to five-digit territory.
That does not mean the economy’s problems are over, or that 401(k)’s
are going to be made whole anytime soon. In fact, this milestone could
even stall the rally if enough investors use it as an opportunity to
cash in their gains, analysts say.
But a big round number is often seen as a way of assessing the
market’s health, and whether it has enough juice to climb much
higher.
“Will 10,000 make a difference to some people?” said Stuart Freeman,
senior equity strategist at Wells Fargo Advisors. “It’s psychological,
but if enough people act on it, it’s meaningful. The higher a market
goes, the more that those on the sideline sit there and are concerned
they’re missing something. It takes a while for their fear to wear
off.” Indeed, investors who pulled out of the market as Wall Street
crumbled would have missed a Dow that has rebounded more than 3,000
points in seven months. The Nasdaq index is up 35 percent since the
start of the year, and the Standard & Poor’s 500-stock index is up
more than 17 percent.
Some of the recession’s biggest winners are again flying high, with
stocks like Goldman Sachs closing at $182.50 a share. JPMorgan Chase
reported nearly $3 billion in quarterly profits this summer. Shares of
Apple are flirting with record highs.
Much of the run-up has been fueled by signs that some corners of Wall
Street, helped by Washington’s taxpayer lifelines, have returned to
functioning almost normally. Corporate mergers and public stock
offerings appear to have rebounded in recent weeks, pulling the market
higher. Short-term loans are flowing. Companies with better credit can
again raise money without paying huge risk premiums.
Yet the Dow at 10,000 could also herald a pause in the white-knuckle
rally.
Analysts are divided about whether the stock market is overpriced or
underpriced now, but stocks have gotten much more expensive since the
main indexes hit their lowest points in a decade in early March. A
share of Bank of America, which was selling for a little more than $3
in March, now costs $17. Shares of the American International Group,
the corporate image of the financial crisis, have surged sixfold,
although the price is still a small fraction of what it was before the
government rescued the company.
And even if the recession is technically nearing an end, 15 million
people are still unemployed, and stagnant incomes and higher rates of
personal saving could reduce corporate revenue growth to a trickle for
years to come.
Then there are the potential new waves of mortgage foreclosures; fresh
losses in commercial real estate; consumer defaults on credit cards;
and the possibility of another bubble in oil prices, all of which
could prevent markets from enjoying anything like exuberance for a
while.
“The bottom line reality is, it’s still an economy that’s in the midst
of a major change,” said Bill O’Grady, chief market strategist at
Confluence Investment Management. “The real debate that underlies the
Dow 10,000 story is the raging debate about what is going to be the
form of the recovery.”
The enthusiasm over that round figure is now a decade-long phenomenon.
Consider this: President Bill Clinton was in office when the Dow Jones
industrial average first closed above 10,000 in March 1999. It
retreated in the years after the dot-com bubble deflated, then retook
10,000 in late 2003 and peaked at 14,000 in October 2007. We all know
the cataclysm that followed.
So Dow 10,000 does not mean that the market is finally edging ahead;
it is simply catching up to where it was a decade ago. “It’s been a
bad 10 years, a really bad 10 years,” said David Bianco, chief United
States equity strategist at Bank of America/Merrill Lynch.
The constant march of inflation also dilutes the meaning of 10,000.
Prices rose an average of about 2.8 percent each year in the last
decade, meaning the Dow would have to reach about 13,200 in today’s
numbers to equal its value then. If this limbo seems dreary, imagine
spending the next decade talking about Dow 10,000.
The Dow first closed above 100 points in 1906, when Theodore Roosevelt
was president and American Car and Foundry and National Lead were
members of the index. And it did not go much higher from there. It was
still trading close to 100 as the 1920s began, then spiked at the end
of the Roaring Twenties. But it crashed during the Depression, and was
once again hovering around 100 as the United States entered World War
II.
In 1966, the Dow came within 20 points of hitting 1,000, then fell off
sharply. The stock index kept bumping its head against that threshold
for more than 15 years as the American economy endured high inflation,
oil embargoes, price controls and regular swings in the stock markets.
Not until 1982 did the Dow move decisively above 1,000.
“You can spend years around a particular milestone,” said Tobias
Levkovich, chief United States equity strategist at Citigroup. “I’m
not talking about a year or two. I’m talking about way more than 10.
They’re not short-term phenomena.”
The New York Times ran a front-page article about the Dow’s first trip
across the 10,000 marker in 1999. This article is being written in
September 2009. Investors should hope there will not be a similar
article in 2019.
More Articles in Business » A version of this article appeared in
print on September 29, 2009, on page B1 of the New York edition.
bademiyansubhanallah
2009 federal deficit surges to $1.42 trillion
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap
Economics Writer – 7 mins ago
WASHINGTON – What is $1.42 trillion? It's more than the total national
debt for the first 200 years of the Republic, more than the entire
economy of India, almost as much as Canada's, and more than $4,700 for
every man, woman and child in the United States.
It's the federal budget deficit for 2009, more than three times the
most red ink ever amassed in a single year.
And, some economists warn, unless the government makes hard decisions
to cut spending or raise taxes, it could be the seeds of another
economic crisis.
Treasury figures released Friday showed that the government spent
$46.6 billion more in September than it took in, a month that normally
records a surplus. That boosted the shortfall for the full fiscal year
ending Sept. 30 to $1.42 trillion. The previous year's deficit was
$459 billion.
As a percentage of U.S. economic output, it's the biggest deficit
since World War II.
"The rudderless U.S. fiscal policy is the biggest long-term risk to
the U.S. economy," says Kenneth Rogoff, a Harvard professor and former
chief economist for the International Monetary Fund. "As we accumulate
more and more debt, we leave ourselves very vulnerable."
Forecasts of more red ink mean the federal government is heading
toward spending 15 percent of its money by 2019 just to pay interest
on the debt, up from 5 percent this fiscal year.
President Barack Obama has pledged to reduce the deficit once the
Great Recession ends and the unemployment rate starts falling, but
economists worry that the government lacks the will to make the hard
political choices to get control of the imbalances.
Friday's report showed that the government paid $190 billion in
interest over the last 12 months on Treasury securities sold to
finance the federal debt. Experts say this tab could quadruple in a
decade as the size of the government's total debt rises to $17.1
trillion by 2019.
Without significant budget cuts, that would crowd out government
spending in such areas as transportation, law enforcement and
education. Already, interest on the debt is the third-largest category
of government spending, after the government's popular entitlement
programs, including Social Security and Medicare, and the military.
As the biggest borrower in the world, the government has been the
prime beneficiary of today's record low interest rates. The new budget
report showed that interest payments fell by $62 billion this year
even as the debt was soaring. Yields on three-month Treasury bills,
sold every week by the Treasury to raise fresh cash to pay for
maturing government debt, are now at 0.065 percent while six-month
bills have fallen to 0.150 percent, the lowest ever in a half-century
of selling these bills on a weekly basis.
The risk is that any significant increase in the rates at Treasury
auctions could send the government's interest expenses soaring. That
could happen several ways — higher inflation could push the Federal
Reserve to increase the short-term interest rates it controls, or the
dollar could slump in value, or a combination of both.
The Congressional Budget Office projects that the nation's debt held
by investors both at home and abroad will increase by $9.1 trillion
over the next decade, pushing the total to $17.1 trillion decade under
Obama's spending plans.
The biggest factor behind this increase is the anticipated surge in
government spending when the baby boomers retire and start receiving
Social Security and Medicare benefits. Also contributing will be
Obama's plans to extend the Bush tax cuts for everyone except the
wealthy.
The $1.42 trillion deficit for 2009 — which was less than the $1.75
trillion that Obama had projected in February — includes the cost of
the government's financial sector bailout and the economic stimulus
program passed in February. Individual and corporate income taxes
dwindled as a result of the recession. Coupled with the impact of the
Bush tax cuts earlier in the decade, tax revenues fell 16.6 percent,
the biggest decline since 1932.
Immense as it was, many economists say the 2009 deficit was necessary
to fight the financial crisis. But analysts worry about the long-term
trajectory.
The administration estimates that government debt will reach 76.5
percent of gross domestic product — the value of all goods and
services produced in the United States — in 2019. It stood at 41
percent of GDP last year. The record was 113 percent of GDP in 1945.
Much of that debt is in foreign hands. China holds the most — more
than $800 billion. In all, investors — domestic and foreign — hold
close to $8 trillion in what is called publicly held debt. There is
another $4.4 trillion in government debt that is not held by investors
but owed by the government to itself in the Social Security and other
trust funds.
The CBO's 10-year deficit projections already have raised alarms among
big investors such as the Chinese. If those investors started dumping
their holdings, or even buying fewer U.S. Treasurys, the dollar's
value could drop. The government would have to start paying higher
interest rates to try to attract investors and bolster the dollar.
A lower dollar would cause prices of imported goods to rise. Inflation
would surge. And higher interest rates would force consumers and
companies to pay more to borrow to buy a house or a car or expand
their business.
"We should be desperately worried about deficits of this size," says
Mark Zandi, chief economist at Moody's Economy.com. "The economic pain
will be felt much sooner than people think, in the form of much higher
interest rates and much higher rates of inflation."
If all that happened rapidly, it could send stock prices crashing and
the economy tipping into recession. It could revive the pain of the
1970s, when the country battled stagflation — a toxic mix of inflation
and economic stagnation.
Paul Volcker, then the chairman of the Federal Reserve, responded by
raising interest rates to the highest levels since the Civil War in a
determined effort to combat a decade-long bout of inflation. His
campaign pushed banks' prime lending rate above 20 percent in 1981 and
sent the country into what would be the longest post-World War II
downturn before the current slump. Unemployment jumped to a postwar
high of 10.8 percent in December 1982.
The battle against inflation, though, was won.
Most economists say we have time before any crisis hits. In part,
that's because the recession erased worries about inflation for now.
In its effort to stimulate the economy, the Fed cut a key interest
rate to a record low last December and is expected to keep it there
possibly through all of next year. Demand for loans by businesses and
consumers is so weak that low rates are not seen as a recipe for
inflation.
Some hold out hope that Congress and the administration will act
before another crisis erupts.
Robert Reischauer, a former head of CBO, said that in an optimum
scenario, Congress will tackle the deficits next year. A package of
tax increases and spending cuts could be phased in starting in 2013
and gradually grow over the next decade.
The administration has pledged to include a deficit-reduction plan in
its 2011 budget, which will go to Congress in February.
Stanley Collender, a budget expert at Qorvis Communications and a
former staff aide to House and Senate budget committees, cautions that
unless investors show nervousness about the debt, the budget debate
next year could feature more posturing between the two parties than
any real action to fix the problems.
But Alan Greenspan, who led the 1983 commission that made changes to
avert a crisis in Social Security, said in an interview that he was
optimistic that politicians will eventually work out a solution.
"I have always been a great supporter of Winston Churchill's statement
about the United States," Greenspan said. "The United States can be
counted on to do the right thing, after having tried all other
conceivable alternatives."
bademiyansubhanallah
Bank of America loses $2.24B as loan losses rise
AP – In this photo made Wednesday, Sept. 30, 2009, a branch office of
Bank of America is shown in New York.
…
By IEVA M. AUGSTUMS, AP Business Writer Ieva M. Augstums, Ap Business
Writer – 2 hrs 14 mins ago
CHARLOTTE, N.C. – Bank of America Corp. said Friday it lost more than
$2.2 billion in the third quarter as loan losses kept rising,
providing more evidence that consumers are still struggling to pay
their bills.
The nation's second-largest bank said it wrote down loans on its books
by almost $10 billion during the July-September period, up almost $1
billion from the second quarter. The bank also added $2.1 billion to
its reserves to cover bad loans, bringing its provision for credit
losses to $11.7 billion. The bank's total allowance for loan and lease
losses now totals $35.83 billion.
Bank of America's results were aided by profit from its wealth
management business, which includes the bank's Merrill Lynch division.
While theJan. 1 acquisition of Merrill Lynch has brought widespread
criticism and legal problems for Bank of America, the deal was paying
off during the third quarter, when Merrill Lynch's revenue and profit
more than doubled from a year ago.
The bank's earnings follow the pattern set earlier this week by
Citigroup Inc. and JPMorgan Chase & Co., which also reported more loan
losses during the third quarter as consumers struggled to keep up with
their credit card and mortgage payments. And on Friday, General
Electric Co. reported that its GE Capital business, which includes
credit cards, saw an 87 percent drop in profits, although it was also
weighed down by commercial real estate losses.
Together, the reports depict a financial industry that is still deeply
troubled, although the trading operations at companies like Bank of
America, JPMorgan and Goldman Sachs Group Inc. mitigated some of the
bad news.
Banks have predicted for some time that their loan losses would keep
rising. And Bank of America's CEO Ken Lewis, joining his counterparts
at JPMorgan and Chase, confirmed that this trend will continue into
the near future as unemployment rises and consumers keep struggling.
"Based on (the) economic scenario, results in the fourth quarter are
expected to continue to be challenging as we close the year," Lewis
said on a conference call with analysts.
Bank of America said it lost $2.24 billion, or 26 cents per share,
after accounting for the preferred dividends of $1.24 billion. That
compared with earnings of $704 million, or 15 cents per share, a year
earlier.
Revenue in the quarter increased 33 percent to $26.04 billion.
The loss was 5 cents more per share than the 21 cents forecast by
analysts surveyed by Thomson Reuters Inc. Investors sent Bank of
America shares down 84 cents, or 4.6 percent, to $17.26.
"Obviously, credit costs remain high, and that is our major financial
challenge going forward," Lewis said in a statement accompanying the
earnings report. He added, "we are heartened by early positive signs,
such as the leveling of delinquencies among our credit card numbers."
During the analyst call, Lewis said the bank believes it may have
peaked in total credit losses this quarter, "although the levels going
forward will continue to be elevated and certain businesses will still
experience higher losses."
Bank of America is considered particularly vulnerable to unemployment,
which climbed last month to 9.8 percent in the U.S. Economists predict
the jobless rate will pass 10 percent in the coming months.
The bank's massive portfolio of credit-card loans could help investors
determine where the economy is headed and how well the industry at
large will fare, said Doug Dannemiller, senior analyst at Boston-based
research firm Aite Group.
"As unemployment rates are in the 10 percent range, the results on
consumer lending aren't going to improve until that number gets
lower," he said.
The bank has about 53 million consumer and small business customers,
making it vulnerable to delinquencies and defaults, yet also ready to
thrive when the economy recovers.
Bank of America's global card services unit loss widened significantly
to $1.04 billion from $167 million a year ago. During the call with
analysts, CFO Joe Price said the company was modifying delinquent
credit card loans.
"We are trying to help our customers there, and we are modifying and
trying to do various workout strategies with customers," he said.
The loss in the bank's home loans and insurance division grew to $1.6
billion from $54 million a year ago, as credit costs continued to
rise.
Income from the global wealth and investment management division,
including Merrill Lynch, rose to $271 million from $80 million a year
earlier.
"The inclusion Merrill Lynch into the BofA umbrella is a very strong
competitive position in the wealth management market place and will
continue to help their business through the recovery," Dannemiller
said.
The bank, which being investigated by federal and state authorities
for its Merrill Lynch acquisition, has received $45 billion in bailout
funds as part of the Treasury Departments $700 billion financial
rescue package. It's not known when it will repay the government the
money from the Troubled Asset Relief Program, or TARP.
"It's a milestone for banks to repay TARP and the ability to repay
TARP is a sign of your financial health," said Ethan M. Heisler,
Managing Director of Hexagon Securities LLC.
The Securities and Exchange Commission and the New York attorney
general's office have been looking into whether Bank of America
officials misled shareholders about Merrill Lynch's losses and the
billions of dollars in bonuses it awarded before the acquisition
closed on Jan. 1.
Lewis is believed to have decided to retire at this time because of
the strife that has surrounded BofA since the Merrill Lynch deal
closed.
On the analyst call, Lewis said that "there's an appropriate sense of
urgency" about his succession.
"It's the most important decision (the) board can make. So I am
assured that there's an appropriate balance in getting it right and
doing it with a sense of urgency but I can't give you a date," he
said.
Later, he added, "I felt like it was an appropriate time" to retire.
Lewis, who is retiring at year's end, has agreed to give up his salary
and other compensation for 2009 at the suggestion of Kenneth Feinberg,
the U.S. Treasury Department's special master for compensation .
....and I am Sid Harth
bademiyansubhanallah
http://www.reuters.com/article/businessNews/idUSTRE59F07C20091016?feedType=RSS&feedName=businessNews
Soros says U.S. economy will be drag on world growth
Thu Oct 15, 2009 10:32pm EDT
Soros, who runs hedge fund firm Soros Fund Management and has made his
reputation with bold currency bets, said the U.S. dollar ought to be
falling in value against the Chinese currency to allow the United
States to contain its current account deficit.
However, Soros said because the renminbi is tied to the greenback, the
Chinese currency is constantly undervalued leaving the dollar to sink
against the world's other major currencies.
The dollar has lost about 7 percent this year against a basket of the
world's major currencies.
Meanwhile, an undervalued yuan makes Chinese consumer goods cheaper in
foreign markets. Beijing has powered the country's growth by targeting
U.S. and other consumer markets with its exports, putting many
producers in those markets out of business because they cannot
compete.
Soros, who earned $1 billion in 1992 by betting against the British
pound, said current currency arrangements are "fraught with danger."
He said that the globalization of financial markets was built on a
"false pretense" that financial markets could be left to their own
devices and said global regulation was needed.
"That is a tremendous challenge," he said at an event sponsored by the
Economist magazine held at the New York Stock Exchange.
Soros spoke only hours after the U.S. Treasury Department said that
China is not manipulating its currency but is piling up foreign
exchange reserves at a rate that threatens progress in reducing global
economic imbalances.
Turning to the world economy, Soros said "the world economy is going
to have some growth, but we are bound to be flat."
He also said the U.S. is going to be a drag on world growth.
In China, Soros said he also believes there is a something of an asset
bubble.
(Reporting by Phil Wahba and Svea Herbst in New York and Glenn
Somerville in Washington; Editing by Carol Bishopric, Bernard Orr)
© Thomson Reuters 2009 All rights reserved
Sid Harth
Challenges for the next decade
Sanjoy Narayan , Hindustan Times
October 19, 2009
First Published: 01:18 IST(19/10/2009)
Last Updated: 12:54 IST(19/10/2009)
This may be the perfect time to talk about leadership. The world is at
the crossroads. The global economy, bruised badly by a recession, is
on an uncertain cusp. Is a recovery round the corner? Or is there more
pain to come? The world’s most violent hot spots continue to be areas
where war and terrorism stubbornly remain alive. Many other challenges
abound. The impact of global warming and climate change and how this
could affect all of us now and in the future never were as much of a
concern as they are now.
In short, this is the time to talk about leadership.
Closer home in the subcontinent, things aren’t very different from the
global situation. Tensions between India and two of its neighbours are
in a heightened state. Some of the disputes with Pakistan aren’t new.
But relations between the nuclear rivals haven’t recovered after — and
some would say, because of — the terrorist attacks in Mumbai last
November. With China, it is somewhat different. The official line from
both countries notwithstanding, tension between India and China has
been ratcheting up, centred apparently on the five-decade-old border
dispute. For this, too, one requires able leadership.
Things are better for India’s economy. The so-called post-recession
green shoots are arguably greener and more robust in India than
anywhere else in the world. Fortuitously, India remained relatively
unscathed by the global economic slump. While growth rates have slowed
down, they are still higher than most other comparable economies. But
the task at hand is of steering the economy back to the high-growth
zone.
There are other good things going for India -- for one, we have a
stable political leadership, and, of course, a vibrant democracy. But
in recent months, internal security risks in the form of growing
extremist violence across several states pose a serious problem that
requires urgent attention before they assume dangerous proportions.
Damage control and bringing the State back in control of the whole of
India need strong and level-headed leadership skills.
The theme for this year’s Hindustan Times Leadership Summit, ‘Vision
2020: Challenges for the Next Decade’ underlines the importance of
leadership in these times when status quo is less of an option and
choices have to be made. Some of the decisions made now will have
immediate impact, while others will be show results only in the
future. Ten years is a good time to measure the effects of decisions
made. And it is these challenges that the eminent panel of speakers at
this year's Hindustan Times Leadership Summit will deliberate on
during the two-day event later this month.
This year's summit continues the tradition of highlighting the role of
the individual and his or her leadership prowess. Change happens when
change is sought and change is made to happen. Leaders need challenges
to excel. But challenges can be met and overcome only by those who
face them and take them on. Which is exactly what the eminent writers
of the series we kick off today will engage in: how to lead India into
the future.
Sanjoy Narayan is the Editor-in-chief.
chhotemianinshallah
Capitalism: A True Love Story
How is wealth created? Seemingly a strange question for Forbes
readers, but the question is hardly an academic one in the wake of the
credit crisis and ensuing global recession. It has profound political
implications that will affect our economic future.
Clearly, a sizable portion of the assets created in recent years
turned out to be "make believe," the result of an unsustainable,
ephemeral bubble in housing and the churning out of increasingly
exotic, ultimately toxic financial instruments. It's one thing for
folks and institutions that hold suspect paper to lose out, but it's
quite another when the process that created the stuff ends up
undermining the global financial system and battering the lives of
hundreds of millions of other people. The notion that wealth creation,
while desirable for enjoying a higher standard of living, is morally
suspect has thereby gained new ground. Consequently, the critical
foundation of economic growth has become more vulnerable to populist
politicians and expansion-minded governments.
Even those individuals not normally hostile to free markets now hold
suspicions that capitalism is fundamentally based on greed and is
immoral; that it enables the rich to get richer at the expense of the
poor; that free markets are Darwinian places where the most ruthless
operators unfairly crush smaller competitors and where the cost of
vital products and services, such as health care and energy, are
almost beyond the reach of those who need them; and that capitalism
unchecked breeds corruption à la Bernie Madoff and Enron and
encourages obscene bonuses, excessive pay packages and unwarranted
golden parachutes. Capitalism is also being blamed with renewed vigor
for a range of social ills, from air pollution to obesity.
Well before the economic crisis intensified the drumbeat against
"greed" and "free markets" on the part of the media and politicians,
many people, including an astonishing number in business itself,
didn't have a clear understanding of just what constitutes a "free"
market. This is why they blame capitalism for economic disasters, such
as the recent mortgage meltdown and the astronomical cost of health
insurance, when those disasters have in fact been caused by the
government's not allowing markets to function.
Let's set the record straight: Far from having failed, democratic
capitalism is the world's greatest success story. No other system has
improved the lives of so many people. The recent turmoil by no means
mitigates the explosion of prosperity that has taken place since the
early 1980s, when President Ronald Reagan enacted pro-market measures--
low tax rates and less stringent regulation--that unleashed job-
creating capital. The result: a surging economy that produced a flood
of innovation, from personal computers and cellular phones to the
Internet. Not only "the rich" but people at all income levels are
today doing better.
In a world of scarce resources (oil and land)another persons wealth
can make the poor worse off. The price of housing and gasoline is bid
up by those with money. You might argue that there is lots of....
Read All Comments (6)Post a CommentThe success of the U.S. did not go
unnoticed. Free-market economic reforms--especially since the fall of
the Berlin Wall--have brought an unprecedented surge of wealth to
India, China, Brazil and nations in central and eastern Europe as well
as in Latin America and Africa. Capitalism has helped usher in an era
of wealth and economic growth that foreign-aid programs have tried but
failed to do since World War II. The current recession should be seen
historically as an interruption of, not an end to, this extraordinary
expansion.
What's getting lost in the crisis and the political turmoil is that
capitalism is based on trust. Transactions in free markets are about
achieving the greatest possible advantage, but that advantage must be
mutual. To cite Adam Smith's classic example, the baker or the butcher
sells you food in exchange for your money. True, as Smith points out,
this relationship is based on self-interest: They provide your dinner
because they seek your money. However, for a transaction to occur,
each party must benefit.
How does this take place? That's the miracle of the free market--it
just does. Free markets are spontaneous. No central planner or
bureaucrat is needed to determine the needs of others--or how they
must be met. A classic illustration of how the invisible hand
mobilizes people and resources is found in the essay "I, Pencil: My
Family Tree as told to Leonard E. Read," written by Read and often
cited by the late Milton Friedman and other free-market economists. It
should be a part of every school's core reading curriculum.
The pencil narrates the story of how it came to be. It started out as
a tree--"a cedar of straight grain that grows in Northern California
and Oregon." The pencil goes on to describe the countless people and
processes involved in its production--from cutting and transporting
logs to supplying electrical power to mining graphite and extracting
the rapeseed oil from the Dutch East Indies that is used in the
process of making erasers.
Actually, millions of human beings have had a hand in my creation, no
one of whom even knows more than a very few of the others. Each one
wants me less, perhaps, than does a child in the first grade. Indeed,
there are some among this vast multitude who never saw a pencil nor
would they know how to use one. Their motivation is other than me.
Perhaps it is something like this: Each of these millions sees that he
can thus exchange his tiny know-how for the goods and services he
needs or wants. I may or may not be among these items.
There is a fact still more astounding: the absence of a mastermind, of
anyone dictating or forcibly directing these countless actions which
bring me into being. No trace of such a person can be found. Instead,
we find the Invisible Hand at work.
This is how wealth is produced in society: Countless individuals seek
to meet their own needs by meeting the needs and wants of others.
That's indeed the moral basis of capitalism. It is the antithesis of
greed. Forming networks of cooperation, individuals create businesses
that produce innovations--not just pencils but inventions ranging from
laptops to washing machines. In the process of providing for
themselves, people generate the capital and innovations that yield
economic growth, improving living standards and enabling society to
advance.
When there is a need, entrepreneurs--appearing seemingly out of
nowhere--will step in to fill it.
As one of the literally millions of examples, take what happened in
the 1980s, after budget cuts forced the U.S. Coast Guard to scale back
on some of its services. The Coast Guard could no longer provide
nonemergency marine assistance to recreational boaters. Almost
immediately, small entrepreneurs took up the slack. In Southold, N.Y.
Captain Joseph J. Frohnhoefer Jr. founded Sea Tow Services
International Inc., a AAA-like organization for boaters. His small
business grew from a single vessel into a thriving franchise network
with 108 locations throughout the U.S., Australia, Europe and the
Caribbean.
Before Frohnhoefer and other entrepreneurs appeared, government was
thought to be "needed" to ensure recreational boater safety. But
Frohnhoefer's private-sector business filled this need just as well
as, if not better than, the government. The Sea Tow network is now
called in to assist the U.S. Coast Guard in finding lost boaters, with
boating accidents and on major emergencies--it aided in the recovery
of victims in the crash of TWA Flight 800 and on 9/11. But the
business is more than a private version of the Coast Guard and offers
a variety of other services, such as boat financing and insurance.
Even those who hate capitalism are served by it--look at Michael
Moore, who's raking in millions of bucks with his new anticapitalist
propaganda film, Capitalism: A Love Story.
Former U.S. ambassador, noted theologian and author Michael Novak
points out: "The capitalist economy is not characterized, as Marx
thought, by private ownership of the means of production, market
exchange and profit. All these were present in the pre- capitalist
aristocratic age. Rather, the distinctive, defining difference of the
capitalist economy is enterprise: the habit of employing human wit to
invent new goods and services, and to discover new and better ways to
bring them to the broadest possible public."
There will, of course, be criminals and greedy individuals in a free-
market economy, just as there are in all walks of life and at all
times. That is where government is critical to the free market--to
enforce contracts, protect property rights and maintain order, as it
does in the rest of society.
Now, all this will seem self-evident to a lot of you. But make no
mistake, these basics are not understood by many people, certainly not
most politicians and economists. That's why there's a deep belief that
government itself can create wealth. It can't. It can bestow wealth by
taking resources away from others. It can redistribute wealth, but it
can't create it as the private sector can and does. Stimulus programs
à la President Obama's? They have rightly been compared to using a
pail to move water from one end of a pool to another. The exercise
doesn't increase the amount of water in the pool.
The severe credit crisis that hit a year ago enormously damaged the
reputation of entrepreneurial capitalism, even though government
actions brought on the disaster. Wall Street, despite its egregious
behavior, no more caused this debacle than OPEC caused the Great
Inflation of the 1970s.
Whenever the government prints too much money, bad and strange things
will happen. The particulars may change, but the result is always
baleful. The housing bubble could never have grown to the size it did
had the Federal Reserve not printed so much money and kept interest
rates artificially low for so long. The fuel would not have been there
to produce it. Compounding this felony were Fannie Mae ( FNM - news -
people ) and Freddie Mac ( FRE - news - people ), so-called government-
sponsored enterprises that by the end of 2007 held some $1.6 trillion
in low-quality paper. These two entities achieved their monstrous size
and malignant and distorting influence precisely because they had the
implicit guarantee of Uncle Sam and were exempt even from normal,
basic reporting requirements to the SEC.
Mark-to-market accounting rules, which the government imposed in 2007,
forced banks and life insurance companies to write down the value of
their regulatory capital as if it were a day-trading account.
Previously, capital was assessed at book value for regu-latory
purposes, that is, at the price for which the institution bought it.
Thus, most of the hundreds of billions of dollars of losses these
financial institutions reported were not actual cash losses but
artificial book losses. It's no coincidence that when mark-to-market
accounting was modified this spring the equity markets, led by
financial companies, took off like rockets from their lows.
The SEC's removal in 2007 of the uptick rule (which held that a stock
couldn't be shorted unless it had gone up in price), as well as its
failure to enforce the rule against naked short-selling (an investor
is supposed to borrow the shares before he shorts them), increased
pressure on beleaguered banks and insurance company equities.
Thus, what began in August 2007 was not the failure of free markets
but the result of bad government actions: Greed and recklessness
always run rampant during a bubble. In fact, the two biggest economic
disasters of the 20th century--the Great Depression in the 1930s and
the Great Inflation of the 1970s--were both the result of catastrophic
government mistakes, not a sudden failure of free-market capitalism.
The Depression was triggered by the Smoot-Hawley Tariff Act of
1929--30, which imposed enormous taxes on hundreds of imports. This
detonated a global trade war that dried up world commerce and the
flows of capital. President Herbert Hoover deepened the economic slump
with huge tax increases. Franklin Roosevelt's policies, which included
even more tax increases, severely hampered recovery.
The Great Inflation of the 1970s was caused by repeated bouts of
excessive money printing by the Federal Reserve and other central
banks in the mistaken belief that government could eradicate the
normal ups and downs of economic activity.
Apologists for big government make the point, for instance, that in
the 19th century U.S. railroads received massive subsidies from the
federal government in the way of land grants and federal loans. Isn't
that proof that government is a needed catalyst for economic progress?
No, it isn't.
Government-aided railroads all went through one or more bankruptcies.
The workmanship of the construction was often shoddy, and costs always
exceeded estimates. Some historians call the creators of these
railroads "political entrepreneurs," because they weren't the genuine
article. Commercial entrepreneurs, such as James J. Hill, who put
together the mighty Great Northern Railway, never took a dime in
government subsidies and never went broke. The rails were laid, and
the customers were well served. Hill's enterprise was a prodigy of
productivity and innovation. Washington played no role.
Government's task should be to create a stable, hospitable environment
for economic activities--allowing businesses to be businesses and
entrepreneurs to take risks and invest in job creation. The
government's policies should be devoted to ensuring that the following
conditions are present in the economy:
--The rule of law. A vibrant economy requires that the terms of
commercial contracts are respected and enforced and that everyone,
including politicians and government bureaucrats, abide by those
terms. When rights are violated, people and businesses have recourse
in a fair and judicious court of law. The rule of law should guarantee
that officials cannot act arbitrarily, as Argentina's government did
recently when it seized the private 401(k)-style pensions of its
citizens. Arbitrary, capricious government is a major reason that
Argentina has a lagging, perennially troubled economy and that it's no
longer one of the richest nations in the world, as it was 100 years
ago.
The U.S., by contrast, has long been a magnet for foreign investment
because its legal system assures a relatively safe haven for
investors. Government cannot suddenly seize your property or
nationalize your business in the U.S.
--Respect for property rights. Property rights are a critical part of
the rule of law. If you own a business, an object, a piece of land, a
house or a building, you should not have to fear that an envious or
angry government might one day seize it arbitrarily. If a society
doesn't have strong property rights, risk-taking declines.
Entrepreneurs are then forced to protect their property by buying
influence with the political powers that be, wasting time and
resources that would otherwise be devoted to growth-producing
enterprises.
Property rights help create prosperity because they allow people to
use what they own as collateral. Land and buildings become not just
utilitarian items but also sources of capital.
Several years ago noted economist Hernando de Soto calculated that 4
billion people in the Third World and former communist nations owned
real estate worth $9 trillion. But because of weak property-rights
systems, this real estate was, as de Soto put it, "dead capital."
Imagine how much of the world's poverty would be reduced if people
were able to fully mobilize these trillions of dollars in assets.
--Stable money. A strong and stable currency is why the U.S. did
better after achieving independence from England than the nations of
Latin America did after breaking away from Spain and Portugal.
--A pro-growth tax system. Taxes are a price and a burden. Low tax
rates on income, profits and capital gains foster more risk- taking
and higher growth, bringing about a richer economy with a higher
standard of living--along with higher government revenues.
--Ease in starting a business. We, in the U.S., take this for granted.
Starting a legal business here is fairly easy to do, but in numerous
other countries the process is time-consuming and expensive, requiring
multiple licenses and procedures and the involvement of multiple
government agencies.
Several years ago Bulgaria's new prime minister, Simeon Saxe-Coburg-
Gotha, was shocked to discover that an entrepreneur in his country had
to obtain 17 government permits in order to start a business. One of
his goals became making new-business formation easier through "one-
stop shopping" for the necessary permits. Bulgaria simplified the
process of starting a business and helped enlarge its formal economy.
--Few barriers to doing business. Politicians may peddle protectionist
tariffs, quotas or "safety" regulations as "helping the economy," but
these are more often acts of political favoritism, rewarding one or
another special interest. They raise the cost of economic activity and
allow less of it to take place. For decades Japan was notorious for
barring imports of U.S. beef, ostensibly on the grounds of safety, but
everyone knew it was for political purposes.
Barriers also exist within domestic economies. The U.S. is hardly a
paragon of virtue when it comes to states abusing licensing procedures
to protect politically connected incumbent businesses.
So where do we go from here? Free enterprise is temporarily under a
cloud, but remember it's just that--temporary. What we are witnessing
now is an Administration that is doing all it can to expand government
domination of the economy. This is the last stand of 20th-century
statism, the idea that free-market economies are inherently unstable
and thus must be guided or even dominated from the commanding heights
of a powerful government.
The notion that a handful of mandarin-like bureaucrats can
constructively guide the economy; run our health care system; provide
old-age pensions without having accumulated reserves during our
working lives; fine-tune our financial system; dole out student loans;
and engage in tens of thousands of countless other activities is
preposterous. (In the ultimate absurdity the Federal Reserve is even
proposing that some 5,000 banks and other financial firms be regulated
on how to compensate employees and executives so as to avoid
"excessive risk-taking." This is beyond parody.) Experience shows that
in managing or overseeing most things, government is suffocatingly
incompetent. This also flies in the face of the liberating ethos of
the ever-growing World Wide Web.
Washington's actions are generating a severe political reaction. The
statists have overplayed their hand. The ultimate triumph of the
principles of free-market capitalism, however, is not going to come
without serious cost. The statists in Washington and elsewhere are
doing--and will continue to do--immense harm before they are swept
away. In great wars--the American Civil War, the First and Second
World Wars--the largest casualties are suffered just before the
conflicts end. We saw the peacetime economic equivalent in the 1970s
and early 1980s, during which unemployment in the U.S. reached 11% and
short-term interest rates touched 21% before President Reagan
decisively broke the inflationary fever. His policies of stable money,
low tax rates and a muscular military and foreign policy enabled the
U.S. to quickly recover and surge ahead so powerfully that 20 years
later the U.S. share of global GDP had increased.
The White House is continuing the Bush Administration's disastrous
weak-dollar policy. Federal Reserve Chairman Ben Ber-nanke is as blind
on this as are Treasury Chief Timothy Geithner and White House
economic czar Larry Summers. Even Bill Clinton knew that, for
political reasons, a feeble greenback is political poison. Yet the
lessons of the Jimmy Carter years are lost on this crowd.
Rule of law? With GM, Chrysler and home mortgages, the Administration
is trashing it Argentina-style.
Regarding trade, Barack Obama is on his way to becoming maybe the
worst White House occupant since Herbert Hoover. The magnitude of
Obama's transgressions with Mexican trucking and Chinese tires are, in
a narrow way, small. But they signal to the world that the U.S. is
abandoning its 60-year tradition of free-trade leadership. The result
will be lethal: everyone for himself--something the world hasn't
experienced since the 1930s.
Americans are sensing that something is profoundly wrong in all of
this, particularly with regard to the weak dollar. Occasionally I
speak at motivational events that are attended by thousands of people,
and these people respond resoundingly to the call for a strong
greenback. You don't have to grasp the basics of entrepreneurial
capitalism to understand that most of what the Obama Administration
has undertaken will do more harm than good.
The cliché that it's always darkest before the dawn is true. So hold
on. Just as happened under Reagan, a bright, new day is beckoning. But
this time entrepreneurs and others will have to take on an additional
task--making sure that more people learn about the basics of our free-
enterprise system.
This and other themes about capitalism are covered in the forthcoming
book, (Nov. 3), How Capitalism Will Save Us: Why Free People and Free
Markets Are The Best Answer In Today's Economy, by Steve Forbes and
Elizabeth Ames (Crown Business).
Finding Momentum
Look, neither party wants more poor people, inferior schools that turn
out functional illiterates, health care that is too expensive and
inaccessible to many, a weak national defense and a lousy economy. Yet
neither party wants to make tough choices about fiscal responsibility,
either.
[The late Jack Kemp] once told me, "You don't beat a thesis with an
antithesis; you beat it with a better thesis." That "better thesis" is
what we ought to be demanding of our political leadership.
--Cal Thomas, USA Today
The Butcher, the Brewer and the Baker
[Consider] the most quoted passage in all of The Wealth of Nations:
"It is not from the benevolence of the butcher, the brewer or the
baker that we expect our dinner but from their regard to their own
self-interest."
That sentence is always quoted as if it meant greed is good. And that
is not the meaning of The Wealth of Nations. Adam Smith does not urge
us to selfishly pursue wealth in the free enterprise system. He urges
us to give thanks that the butcher, the brewer and the baker do. The
butcher, the brewer and the baker, they may be wonderful people or
they may be greedy pigs. That is not the point. The point that The
Wealth of Nations is making is that the butcher, the brewer and the
baker are endowed by their Creator with certain unalienable rights.
And among these are steak, beer and hoagie rolls.
--P.J. O'Rourke, Cato ( CTR - news - people ) Institute
Real Stimulus
It usually pays to be skeptical about immigration reform, given the
alliance between nativists and labor unions for tighter borders.
Still, an economic downturn is the right time to move on immigration,
one of the few policy tools that could clearly boost growth.
The pace of lower-skilled migration has slowed due to higher
unemployment. This could make it less contentious to ease the path to
legalization for the 12 million undocumented workers and their
families in the U.S. It's also a good time to ask why we turn away
skilled workers, including the ones earning 60% of the advanced
degrees in engineering at U.S. universities. It is worth pointing out
the demographic shortfall: Immigrants are a smaller proportion of the
U.S. population than in periods such as the late 1890s and 1910s, when
immigrants gave the economy a jolt of growth.
Immigrants have had a disproportionate role in innovation and
technology. Companies founded by immigrants include Yahoo ( YHOO -
news - people ), eBay ( EBAY - news - people ) and Google ( GOOG -
news - people ). Half of Silicon Valley startups were founded by
immigrants, up from 25% a decade ago. Some 40% of patents in the U.S.
are awarded to immigrants. And according to the National Venture
Capital Association, immigrants have started one quarter of all U.S.
venture-backed firms.
More open immigration [is] one of the few stimulus packages Washington
can deliver with confidence that it would help.
--L. Gordon Crovitz, Wall Street Journal
Capitalism: A True Love Story
____________________
Other Comments
Forbes Magazine October 19, 2009
Day of Reckoning
As recently as last spring, the Social Security Trustees Report said
outlays will begin to exceed revenues by 2016, one year ahead of
2008's report and three years sooner than many earlier projections.
More recent estimates from the Congressional Budget Office, however,
show deficits in 2010 ($10 billion) and 2011 ($9 billion).
Small surpluses return for the next four years before deficits hit
again in 2016. But who can say if the interim surpluses will
materialize? Until this summer, 2010 and 2011 were seen as surplus
years. No one should be surprised if the program keeps paying out more
than it takes in, especially in an economic climate where the source
of revenues--jobs--is under pressure.
Fiscal 2010 arrives not next year but next month. Many have called
Social Security a Ponzi scheme, and the description is not far off. As
such, the system will ultimately collapse. But unlike private sector
Ponzi schemes, Washington has the power to avoid the crash by either
prying more cash out of today's "investors" or cutting the payouts to
yesterday's "contributors." Instead, Social Security needs to be
shaken from its foundation. Think privatization.
--Investor's Business Daily
Credibility Problem
On the 233rd day of his presidency, Barack Obama grabbed the country's
lapels for the 263rd time--that was the count of his speeches, press
conferences, town halls, interviews and other public remarks. His
speech to Congress [Sept. 9] was the 122nd time he had publicly
discussed health care. Just 14 hours would pass before the 123rd. His
incessant talking cannot combat what it has caused: An increasing
number of Americans do not believe that he believes what he says.
--George F. Will, Newsweek
Contempt for the Common Man
I was surprised when I read that [James] Carville blasted the men and
women at the anti-Obama tea parties as so "classless" that they
shocked him. Wait a minute. I thought the Democrats were the party of
the little guys and those who aren't classy or well-born. Now, the
Democrats' political enemies are the ones without social class? So,
now the Democrats are admitting they're the party of the rich? They
have been getting the lion's share of very large political gifts for
years now. The truth is that the Democrats are the fat cats. I am
impressed that Mr. Carville admitted it.
I was also interested to see that Mr. Carville, a mere lad of sixty-
four, same age I am, has made fun of the age of the tea party
attendees. He mockingly noted that their average age was "what, like
72.4 years?" So, now the Democrats don't think the opinions of senior
citizens are worth anything more than ridicule? That's a change, too,
and not a good one.
What's really amazed me is how the elitist anger of the liberal
Democrats is boiling over as some ordinary citizens show they don't
like being pushed around. The liberal Democrats might want to rethink
this. Contempt for the ordinary citizen is just not American. And it
does not win elections.
--Ben Stein,CBS ( CBS - news - people ) News: Sunday Morning
bademiyansubhanallah
Asian markets drop after Wall Street weakness
By JEREMIAH MARQUEZ (AP) – 1 hour ago
HONG KONG — Asian stock markets dropped Thursday as weakness on Wall
Street and confirmation of China's economic recovery led investors to
take profits from a recent rally.
Major markets were lower by about 1 percent, while oil retreated from
a 2009 high and the dollar recovered modestly against the yen and the
euro.
Investors in Asia were spooked by U.S. markets falling late Wednesday
after a leading analyst downgraded major U.S. bank Wells Fargo & Co,
touching off more fears about the financial sector. That combined with
growing anxiety about the pace of the market's rise to drag the Dow
Jones index below the 10,000 level.
Meanwhile, news China's economy expanded at a heady 8.9 percent in the
third quarter, in line with market expectations, gave investors few
reasons to wade deeper into the markets.
While the figures were seen as mostly encouraging, some analysts said
Chinese exports and private investment were still lagging, suggesting
growth was largely the result of enormous government stimulus
spending.
"The key message is that China's economy is recovering and is on track
to grow at least 8 percent this year, but it's still imbalanced," said
Kelvin Lau, regional economist at Standard Chartered Bank in Hong
Kong. "We're still hoping the rest of the economy will recover as
well. Simply relying on public investment can't last forever."
Japan's Nikkei 225 stock average fell 66.22, or 0.6 percent, to
10,267.17, and Hong Kong's Hang Seng dropped 235.82 points, or 1.1
percent, to 22,082.29.
In China, the Shanghai index lost 14.05 points, or 0.5 percent, to
3,056.53. South Korea's benchmark fell 1.4 percent, Australia's index
was off 0.5 percent and India's market shed 0.3 percent.
Markets have been on a tear in recent weeks, with benchmarks in the
U.S. and Asia hitting new highs for the year, as the ailing dollar and
massive liquidity encourage investors to channel money into stocks.
But some analysts have been warning that investors are increasingly
complacent about the risks facing the market. One closely watched
measure of investor fears about the market, the Chicago Board Options
Exchange's Volatility Index, reached its lowest level in a year on
Wednesday before jumping higher.
The VIX is now around 22, down nearly 45 percent this year. Its
historical average is 18-20, and readings below 25 are often seen as a
sign investors are relaxed or complacent. It hit a record 89.5 a year
ago as the financial crisis deepened.
In New York overnight, the Dow Jones industrial average fell 92.12, or
0.9 percent, to 9,949.36, just above its low of the day. It was the
biggest point and percent drop since Oct. 1.
The broader Standard & Poor's 500 index fell 9.66, or 0.9 percent, to
1,081.40, after reaching 1,101.36, its highest level in the past year.
The Nasdaq composite index fell 12.74, or 0.6 percent, to 2,150.73.
U.S. futures augured a modestly higher open on Wall Street. Dow
futures were up 5 points, or 0.1 percent, at 9,906.
Oil prices slipped below $81 a barrel Thursday as a wobbly U.S. dollar
steadied. Benchmark crude for December delivery fell 74 cents to
$80.63 a barrel. The contract jumped $2.25 overnight as the dollar
fell to its lowest since August 2008.
In currencies, the dollar was stronger at 91.45 yen from 91.00 yen.
The euro fell to $1.4968 from $1.4999.
Photo 1 of 3
An investor look at stock price monitor at a private securities
company Wednesday Oct. 21, 2009 in Shanghai, China. Chinese shares
fell back Wednesday on profit-taking after hitting a two-month high a
day earlier, as resource shares fell after oil prices slipped for two
days straight. The benchmark Shanghai Composite Index lost 13.86
points, or 0.5 percent, to 3,070.59. (APPhoto/Eugene Hoshiko)
Copyright © 2009 The Associated Press. All rights reserved.
bademiyansubhanallah
Poor earnings hit stocks, dollar bounces
Thu Oct 22, 2009 4:16am EDT
1 of 1Full Size
By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - Disappointing corporate results knocked equities
lower on Thursday while the dollar bounced off 14-month lows.
Gold and oil both slipped as the dollar rose. Euro zone government
debt was flat.
Investors in Europe and Asia picked up on overnight weakness on Wall
Street where there was a late sell-off prompted in part by a wider-
than-expected loss from Boeing (BA.N).
After the bell, eBay Inc (EBAY.O), the global e-commerce site,
forecast fourth-quarter profit and revenue at the low end of analysts'
estimates.
The sour mood was compounded in Europe on Thursday when Ericsson
(ERICb.ST) posted lower-than-expected third-quarter core earnings and
said sales in its key mobile networks market were hampered by tough
market conditions.
World stocks as measured by MSCI .MIWD00000PUS were down 0.6 percent
with the emerging market component off around 1 percent .MSCIEF.
Europe's FTSEurofirst 300 .FTEU3 lost 1.1 percent. Earlier Japan's
Nikkei .N225 closed down 0.6 percent.
Earnings results have generally been better than expected so far in
this reporting season, particularly in the United States, but shares
are also around year highs, making them susceptible to a fall if
something disappoints.
"The market was poised for a retreat, but I'm not expecting a major
correction," said Christian Jimenez, president of Imene Investment
partners, in Paris. "At these levels, if all companies would report
satisfying results, that would justify further gains on the market."
DOLLAR BOUNCE
The dollar rose broadly, pulling back from a 14-month low against the
euro and a currency basket as global stocks fell.
The currency has been trading in inverse correlation to equities in
recent months, based on shifting risk appetite among investors.
Analysts said the dollar was still on a downward trend because of
generally positive earnings and the view that U.S. interest rates will
remain low.
"The euro's proximity to $1.50 suggests that the market is not taking
the current correction as too serious," said Michael Klawitter, senior
currency strategist at Commerzbank in Frankfurt.
The euro was down 0.2 percent at $1.4972 after breaking the $1.50
level on Wednesday. The dollar was up half a percent against a basket
of major currencies .DXY.
Euro zone government bonds were little changed.
Longer-dated paper remained close to near four-week lows hit on
Wednesday as the penultimate Federal Reserve purchase of U.S.
Treasuries reminded markets that support for government bond markets
from central bank buying may be nearing an end.
(Additional reporting by Blaise Robinson and Naomi Tajitsu, editing by
Mike Peacock)
© Thomson Reuters 2009 All rights reserved
...and I am Sid Harth
bademiyansubhanallah
http://www.reuters.com/article/Washington09/idUSTRE59K5O120091022
Summers: U.S. economic recovery on track
Wed Oct 21, 2009 8:39pm EDT
By Caren Bohan and Jeff Mason
WASHINGTON (Reuters) - The U.S. economy is firmly poised for a
recovery from its deep recession but growth may be moderate and the
job market will not revive immediately, senior White House aide
Lawrence Summers predicted on Wednesday.
"There's really no doubt that the third quarter registered growth, and
growth at a nontrivial rate, and every expectation that the fourth
quarter will do the same," Summers said in an interview as part of the
Reuters Washington Summit.
Summers, who heads the White House's National Economic Council, also
gave strong backing to the beleaguered U.S. dollar, which has fallen
to a 14-month low against major currencies.
He said he did not think the dollar's status as a global reserve
currency was in jeopardy.
"I think the dollar ... is going to be the world's primary reserve
currency for ... the foreseeable future," Summers said. "I think the
most important thing we can do for the dollar is make sure that it
rests on strong fundamentals."
On the economy, Summers said the $787 billion stimulus package and
inventory rebuilding by businesses were among the "dominant drivers"
lifting the economy.
But he said considerable slack remained in the economy and job growth
would lag behind the broader economic recovery.
"It will be some time before unemployment starts to decline. Once it
declines it will take a long time to return to normal levels, given
how elevated it is," he said.
The jobless rate is now at a 26-year-high of 9.8 percent.
"The question of what will propel growth throughout the expansion is
still a crucial one," Summers added. "But that's always the case at
the beginning of expansions."
Most private economists think the recession, which began in December
2007, ended in the third quarter. But there is much disagreement about
the path of recovery.
Some see above-average growth continuing through next year, arguing
that deep recessions are typically followed by powerful recoveries,
helped along by pent-up demand as consumers and companies resume
spending.
Others worry that heavily indebted households will remain cautious in
their spending, particularly with unemployment near 10 percent and
likely to move higher, restraining a recovery.
CONCERNED ABOUT DEBT
It remains unclear what further steps President Barack Obama's
administration may take to spur job growth.
One serious constraint is the $1.4 trillion budget deficit, which is
equivalent to 10 percent of the economy -- the highest share since the
end of World War Two. Forecasters believe the deficit will remain high
in the coming years.
Summers acknowledged those worries and their possible implications for
the value of the dollar. He said he took "very seriously" longer-term
concerns about indebtedness.
Earlier on Wednesday, Commerce Secretary Gary Locke told Reuters
Television the dollar was a "concern" because its weakness could push
up the price of oil and other imports.
Summers said the oil price, which hit a one-year high above $81 a
barrel on Wednesday, did not risk throwing the U.S. recovery off the
rails.
"I think the increase in oil prices is probably ... more a reflection
of recovery and the expectation of continued recovery than a threat to
recovery," he said.
As the administration considers further steps to give a boost to the
job market and the economy, Summers said the White House was open to
extending the tax credit for home buying, a popular idea on Capitol
Hill.
He said there was a case to be made for extending the credit "in terms
of supporting the housing market." But he added: "At the same time, we
can't afford everything for which there is a case."
In a separate interview, Valerie Jarrett, another senior White House
adviser, said the administration was considering whether to continue
many programs that had been used to boost the economy.
"We have to measure them against how successful have they been. And so
we're in the process of doing that now," she said, adding that she was
not leaning one way or the other on the housing tax credit.
Summers was hopeful that legislation to broadly rewrite U.S. financial
regulations would pass soon. "I don't see any reason why it can't get
done this year," he said.
Analysts have become increasingly skeptical that Obama can meet his
goal of enacting the legislation by year-end. Some say that early next
year might be a more realistic time frame.
Some critics say the bill is not robust enough, but Summers said he
believed the changes would have a chance to make a major impact on
financial stability for years to come.
(For more on the Reuters Washington Summit, see [nN19208783])
(Reporting by Caren Bohan, Jeff Mason and Simon Denyer; Writing by
Caren Bohan and Emily Kaiser; Editing by Anthony Boadle and Chris
Wilson)
(For summit blog: blogs.reuters.com/summits/)
bademiyansubhanallah
Industry Summits
Summit Notebook
Exclusive outtakes from industry leaders
October 21st, 2009
Senator McCain: Republicans in search of message to woo angry voters
Posted by: Tabassum Zakaria
The Republican Party is in search of a message to attract voters who
are angry with just about everything — healthcare, the U.S. deficit,
Wall Street bonuses, increased unemployment and home foreclosures to
mention a few.
“There’s a lot of anger out there and there’s a lot of frustration,”
said Republican Senator John McCain, who was defeated by Democrat
Barack Obama for president last year.
Thousands of people are turning up at townhall meetings and “tea
party” protests against government policies, he noted.
“So there’s something going on out there. And I’d love to sit here and
tell you that we Republicans are attracting all of those unhappy
people but we’re not, we’re not,” McCain said at a Reuters Washington
Summit.
“They’re out there kind of in the middle and they haven’t found a
home. And in fact they haven’t even channeled their anger yet,” he
said.
Many have swung into the Independent category — “They’re leaving the
Democrats but they’re not coming home to Republicans” — because of the
deficit increases during the previous 8 years of a Republican (George
W. Bush) White House, McCain said.
“So they are not finding a message from the Republican Party that
resonates with them, and so I think we’re in one of the most
interesting times politically in Amercia,” he said.
One possible answer would be a return to a formula that worked when
Republicans took control of the House and Senate for the first time in
40 years — “Something like the Contract with America that we gave them
in 1994, portray a far more positive agenda for America,” McCain said.
Photo credit: Reuters/Jonathan Ernst (Senator McCain at Reuters
Washington Summit)
October 21st, 2009
U.S. Senator promotes education equivalent of fuel-efficient car
Posted by: Thomas Ferraro
If cars can be fuel-efficient, why can’t education be time-efficient?
That’s the premise that Republican U.S. Senator Lamar Alexander is
promoting.
Alexander served as U.S. education secretary in the administration of
the first President George Bush and also as president of the
University of Tennessee.
Speaking at the Reuters Washington Summit, Alexander suggested that
more colleges take a look at allowing at least some students to obtain
an undergraduate degree in three years rather than the normal four.
“It’s one way to attract students,” he said.
How does he expect colleges to respond? “Skeptically,” Alexander said.
“Colleges don’t change easily.”
He said that the idea has been tried and worked on a limited basis —
and that the marketplace will likely determine how widespread a three-
year degree becomes.
The United States has the best universities in the world, and they
have been key to developing competitive advantages that help Americans
produce 25 percent of all the world’s wealth, he said.
But Alexander said tuition has soared, leaving students with
unprecedented debt.
Writing in the Oct. 17 issue of Newsweek magazine, Alexander noted
that Hartwick College, a small liberal arts school in upstate New
York, offers three-year degrees to “well prepared-students” —
providing them the opportunity to save $43,000, the amount of one-
year’s tuition and fees.
He said a number of other “innovative colleges” are making the offer,
too.
“The three-year degree could become the higher-education equivalent of
the fuel-efficient car,” wrote Alexander. “And that’s both an
opportunity and a warning for the best higher-education system in the
world.”
Photo credit: Reuters/Jonathan Ernst (Senator Lamar Alexander at
Reuters Washington Summit)
October 21st, 2009
U.S. Commerce Secretary doesn’t like ring of Shanghai Silicon Valley
Posted by: Tabassum Zakaria
U.S. Commerce Secretary Gary Locke says one thing he doesn’t want to
see is a Shanghai Silicon Valley develop from China’s investment in
clean energy.
He warned that if the United States doesn’t move forward on clean
energy, it risks falling behind China where the government is spending
almost $100 billion a year to support renewable energy and clean
energy efficiency.
And China is not doing it just to address climate change issues, but
because it sees an economic opportunity. “They’re really focusing
investing in the clean energy field to serve the needs of the world,”
Locke said at the Reuters Washington Summit.
“And so that’s why it’s very important that we pass clean energy
legislation because there’s so many investors, entrepreneurs, venture
capitalists who are sitting on the sidelines waiting for that
certainty,” he said. “They just want to know what the rules of the
game are, what the tax incentives are, what the tax rules and
regulations are before they commit.”
The longer the U.S. government takes to pass comprehensive energy
legislation, “the farther ahead the Chinese will be and we certainly
do not want 10 years from now Shanghai and other parts of China to be
the Silicon Valley of the clean energy field,” Locke said.
He agreed with President Barack Obama’s equation. “The president has
said that the country that leads in the clean energy sector will lead
the world economy, I believe that’s true,” Locke said.
Photo credit: Reuters/Jonathan Ernst (Commerce Secretary Gary Locke at
Reuters Washington Summit)
October 21st, 2009
The Geithner approach: make the best of bad choices
Posted by: Tabassum Zakaria
Ever wonder how the U.S. Treasury Secretary gets through some of the
most economically stressful times this country has seen in a while —
does he go for long runs? Sleep two hours a night?
Timothy Geithner has been in the job less than a year, and came in
after the economy had slumped into recession. Now unemployment is
approaching 10 percent, he’s had to navigate through an economic
stimulus package, and on top of all that the weakness of the U.S.
dollar has other countries questioning whether it should still be the
reserve currency.
Enough problems, we imagine, to give anyone a big giant headache and
more than a few sleepless nights.
So what does Geithner do under the weight of it all?
“I’ve been in the middle of this for quite a long time,” he said in an
interview at the Reuters Washington Summit on Tuesday. (Remember,
before this job, Geithner was president of the New York Federal
Reserve Bank).
His general approach, Geithner said, is to “focus on trying to make
sure you’re making the best of a bunch of bad choices.”
And to make sure “you are helping the president make sensible
decisions,” he said.
“I think the basic imperative in these things is just to make sure
people understand that we’re not going to debate when there’s a
problem anymore, we’re not going to like hope it takes care of itself,
we’re going to commit to fix it,” Geithner said. “And we’re going to
do what it takes to fix it.”
Photo credit: Reuters/Jonathan Ernst (Geithner at Reuters Washington
Summit)
October 20th, 2009
Democrat: believers of 2010 Republican majority in “la la land”
Posted by: Tabassum Zakaria
Congressman Chris Van Hollen, chairman of the Democratic Congressional
Campaign Committee, says the November 2010 midterm elections will be
difficult, but anyone who believes Republicans will wrest majority
control of the House of Representatives is living in “la la land.”
The midterm elections will be viewed by many as a referendum on the
policies of Democratic President Barack Obama.
“It is going to be a very volatile, political environment,” Van Hollen
said at the Reuters Washington Summit.
He pointed out that since the days of President Abraham Lincoln, only
twice has a new president’s party picked up seats in the first midterm
election — in 1934 (when Franklin D. Roosevelt was president) and 2002
(when George W. Bush was president).
“So other than those two times, the president’s party has lost seats
and the average losses are fairly dramatic,” averaging about 35 seats,
Van Hollen said.
Right now there are 256 Democrats and 177 Republicans, and two
vacancies in the 435-member U.S. House of Representatives.
“So we told our members to be prepared, no one’s going to be
surprised,” Van Hollen said.
“I would say that anyone who thinks this is going to be a 1994 redux
is in la la land. The Democrats are not going to lose control of the
House,” he said.
In the midterm elections in 1994, when Democratic President Bill
Clinton was in the White House, Republicans gained seats and won
control of both the House and Senate for the first time in 40 years.
Van Hollen engaged in a little name-calling, saying the Republican
Party these days was “the party of pessimism” and “the party of no”
that did not want to be part of the solution to America’s problems.
Photo credit: Reuters/Jonathan Ernst (Congressman Chris Van Hollen at
Reuters Washington Summit)
October 20th, 2009
Steven Chu: “I’m an energy efficiency nut”
Posted by: Deborah Zabarenko
He unplugged the extra refrigerator in the basement. He got a tankless
water heater and reduced the heat setting. He turned down the air
conditioning last summer and used fans to keep cool.
Yes, Energy Secretary Steven Chu acknowledged, “I’m an energy
efficiency nut.”
The Nobel physics laureate said he’s slowly weatherizing his home in
the Washington DC area, but “weatherizing” isn’t a word he likes. “I’m
decreasing its energy consumption and making money,” was how he put it
at a Reuters Washington Summit. Chu figures his energy bills are about
half what the home’s previous owners paid.
But he said that he, and most people, could still do more.
“In terms of energy efficiency, it’s what the economists would say is
a market failure … Most people don’t have the knowledge or
inclination, there’s inertia, they just can’t be bothered, they let
some things slip,” Chu said. And he himself is not immune: “We’ve been
living in the house for five months and it’s still a work in progress
— and I’m an energy efficiency nut.”
“Going to the hardware store, getting the foam and putting it around
your hot water pipe, that doesn’t take that long for a homeowner to do
it themselves,” he said. “It’s a no-brainer, but people don’t do it.”
Time for some stepped-up public education about energy efficiency?
“We’re trying, we’re trying!”
Chu bikes around Washington when he can, but said that is mostly to
keep fit rather than save on fuel. Still, he’s working on whittling
down the time it takes to ride his bicycle from his home to the city
center.
Photo credit: REUTERS/Jonathan Ernst (Chu at Reuters Washington
Summit, October 20, 2009)
October 19th, 2009
Napolitano defends bringing Guantanamo detainees to U.S.
Posted by: Jeremy Pelofsky
Department of Homeland Security Secretary Janet Napolitano defended
the Obama administration’s plans to bring terrorism suspects held at
Guantanamo Bay, Cuba, to the United States — countering critics who
questioned whether it would create security risks.
“There’s no question in my mind that those detainees who would be
moved to the United States would be held in such a fashion that they
would not be any threat to public safety, and I say that as a former
prosecutor,” Napolitano said in an interview during the Reuters
Washington Summit. She served as a U.S. attorney in Arizona during the
Clinton administration.
President Barack Obama has pledged to close the controversial prison
by Jan. 22, 2010, including bringing some of the terrorism suspects to
U.S. soil for trial in military commissions or U.S. criminal courts.
There have been questions and doubts about whether his goal can be
achieved because of political, legal and logistical complications.
Napolitano held out hope that the administration could meet the fast-
approaching deadline: “I would hope so.” She declined to comment on
the likely location of where the detainees could be held in the United
States.
But Republicans have criticized the idea of bringing the terrorism
suspects to U.S. soil, arguing that they are not entitled access to
the criminal court system and could pose threats to the communities
where they may be imprisoned.
Her remarks came as former U.S. Attorney General Michael Mukasey
issued a stinging condemnation of the Obama administration plan,
writing in a Wall Street Journal opinion piece that civilian courts
were not the right place to try the terrorism suspects and could make
communities, jurors and courts targets.
“Based on my experience trying such cases, and what I saw as attorney
general, they aren’t. That is not to say that civilian courts cannot
ever handle terrorist prosecutions, but rather that their role in a
war on terror—to use an unfashionably harsh phrase—should be, as the
term ‘war’ would suggest, a supporting and not a principal role,” he
wrote in the Wall Street Journal.
Mukasey served as a federal prosecutor in the 1970s and then as a
federal judge in New York from 1988 to 2006, presiding over terrorism
cases that included the trial of those who plotted to blow up the
World Trade Center in 1993. He was attorney general under former
President George W. Bush.
While Mukasey also argued in his op-ed that imprisoning terrorism
suspects in the United States could expose others in the prison to
their beliefs, many of the individuals convicted like Zacarias
Moussaoui are kept in maximum security facilities isolated from the
general population.
He also warned that U.S. criminal court procedures would risk
revealing too much sensitive information and that the cases against
Guantanamo detainees were not built for civilian court proceedings.
Many of the hearings in U.S. District Court for petitions by prisoners
seeking their release from Guantanamo have been held in closed session
to protect classified information.
So do you believe U.S. criminal courts can handle the terrorism cases
and would communities become targets or should terrorism suspects from
Guantanamo only be tried in military commissions?
For more news from the Reuters Washington Summit, click here.
- Photo credit: Reuters/Jonathan Ernst (Napolitano speaks to the
Reuters Washington Summit)
October 19th, 2009
Senator Levin: partisanship has no place during war
Posted by: Tabassum Zakaria
Tags: Uncategorized, Washington, Afghanistan strategy, Barack Obama,
John Boehner, Senator Carl Levin
A war of words over U.S. policy on Afghanistan is heating up between
Democrats and Republicans on Capitol Hill as they await President
Barack Obama’s new strategy.
“This kind of partisanship in the middle of a war I find to be really
out of place,” Senate Armed Services Committee Chairman Carl Levin, a
Democrat, said.
He was responding to House of Representatives Republican leader John
Boehner’s statement that “the current political uncertainty should not
be used as a pretext for the White House to back away from the counter-
insurgency strategy the president announced in March.”
Levin, at the Reuters Washington Summit, said former Republican
President George W. Bush took three months to decide on the troop
surge in Iraq — “Nobody was saying that President Bush is jeopardizing
anything by taking three months to deliberate on a new strategy.”
Levin said he agrees with much of what General Stanley McChrystal, the
top U.S. commander in Afghanistan, says.
“One of the things he (McChrystal) says is the deliberative process is
useful and healthy. So, I wish Boehner would listen to McChrystal,”
Levin said.
For more news from the Reuters Washington Summit, click here.
Photo credit: Reuters/Jonathan Ernst (Senator Carl Levin at Reuters
Washington Summit)
October 19th, 2009
Beautiful or ugly we’re all in this together - or not
Posted by: Donna Smith
Tags: Washington, healthcare reform, insurance industry, mandates,
senator Baucus, Senator Grassley, Senator Hatch
The massive overhaul of the U.S. healthcare system backed by President
Barack Obama could face a court challenge if it is ever enacted into
law.
Republican Senator Charles Grassley, speaking at the Reuters
Washington Summit, said a number of people, including Republican
Senator Orrin Hatch, have questioned whether it is constitutional for
the government to require U.S. citizens and residents to purchase a
product offered by private, for-profit companies.
The U.S. Constitution gives Congress the power to regulate interstate
commerce.
But many conservatives believe that clause does not allow Congress to
require U.S. residents to purchase a good or service.
Healthcare reform legislation would require U.S. citizens and
residents to purchase healthcare insurance, with the federal
government providing subsidies to help low and moderate income people
afford it.
Grassley said he thought the mandate - which is something health
insurers have insisted on in exchange for dropping many industry
practices such as excluding coverage for preexisting conditions -
would face a court challenge.
But Senate Finance Committee Chairman Max Baucus disagreed. He said
the mandate was constitutional and that all Americans share a “moral”
responsibility in making sure the U.S. health system works.
“Some Americans are rich, some are poor, some are beautiful, some are
ugly, some are tall, some are short, some are fat, some are skinny —
when it comes to healthcare reform, everybody is the same,” Baucus
told reporters on a telephone conference call. “Illness does not care
if you are old or young or beautiful or ugly or whatnot. We are all in
this together as Americans.”
Photo credits: Above: Reuters/Jonathan Ernst. (Grassley at Reuters
summit); Blog thumbnail: Reuters/Jason Reed. (Baucus smiles after
Finance Committee approves healthcare reform bill)
October 19th, 2009
Napolitano: recommendations split on threat color system
Posted by: Tabassum Zakaria
U.S. Homeland Security Secretary Janet Napolitano says she is
reviewing recommendations on the color-coded threat alert system and
experts are evenly split over its usefulness.
She said the committee of experts that made the recommendations to her
were “equally divided, 50-50″ on whether the color-coded threat alert
system developed after the Sept. 11 attacks was useful. It currently
stands at “yellow” for elevated.
One recommendation the experts gave her is when the code becomes
elevated, after a certain number of days it ought to automatically
revert back to the lower level unless a decision is made to
intentionally leave it higher.
“The problem is once you raise the level it is virtually impossible to
reduce it for a number of political and public affairs reasons. So
there would be an automatic revert once it were raised after a certain
number of days,” she said at a Reuters Washington Summit. “I think
that kind of recommendation makes a lot of sense.”
Any decision could impact airlines, and Napolitano said the Department
of Transportation and other agencies would have their say after she
makes her recommendation.
“I have a first go at it and I’m looking at it right now,” she said.
“I would hope to finish my process by no later than the end of next
week.”
“Late night comedians aside, you can really argue color codes a lot of
different ways, a lot of countries use them. The problem is a color
code, or a number, or whatever, without information to people as to
what it means, and what they’re supposed to do, that’s really where
the frustration is,” Napolitano said.
“The code itself, absent a connection with real information, doesn’t
have much utility,” she said.
For more news from the Reuters Washington Summit, click here.
Photo credit: Reuters/Jonathan Ernst (Napolitano at Reuters Washington
Summit)
bademiyansubhanallah
Weak dollar raises talk of alternative world currency
Posted 4h 24m ago
By David J. Lynch, USA TODAY
Just about every day seems to bring more bad news for the dollar.
Recent months have witnessed a steady erosion in the greenback's
value, down 16% since March against the currencies of the top U.S.
trading partners. On Wednesday, the euro broke through the
symbolically important $1.50 barrier for the first time in 14 months.
Depending on whom you believe, a dollar hovering near its 52-week low
represents either the market's devastating verdict on the Obama
administration's profligacy or a salutary rediscovery of risk by newly
emboldened investors.
Maybe it's a bit of both. But the downbeat drumbeat bangs on. Chinese
officials openly worry about taking a bath on their enormous U.S.
Treasury holdings. Foreign bankers talk of promoting an alternative
global currency, such as the euro, yuan or a new synthetic medium of
exchange cooked up by the International Monetary Fund.
In the U.S., some voices on the right, such as Rep. Michele Bachmann,
R-Minn., detect an anti-American conspiracy to scuttle the dollar. But
the roster of those opining on the dollar's woes includes
establishmentarians such as Robert Zoellick, president of the World
Bank and a former top official in Republican administrations. "Looking
forward, there will increasingly be other options to the dollar," he
warned last month.
As the U.S. tries to repair its crisis-battered economy, is the end of
dollar supremacy about to make a tough job even tougher?
Not any time soon. There are "lots of reasons to be concerned about
the dollar. … (But) a weaker dollar is a fantastic boost for the
United States, and it's a problem for the rest of the world," says
Kenneth Rogoff, former IMF chief economist.
A natural monopoly
Since supplanting the British pound more than 60 years ago, the dollar
has reigned supreme in global markets. As of the end of June, the most
recent data available, 62.8% of foreign exchange reserves worldwide
were held in the form of U.S. dollars. An additional 27.5% were
stockpiled in euros, according to the IMF.
The dollar's position has eroded in the past five years. In mid-2004,
it made up 67.9% of world reserves. "A lot of people get excited about
this. But in the 1970s and 1980s, there was even bigger volatility in
the dollar share of reserves," says Stephen Jen, managing director of
BlueGold Capital Management, a London-based hedge fund.
In March, Chinese Central Bank chief Zhou Xiaochuan proposed shifting
global finance to a reliance on a new international reserve currency
rather than the dollar or any other national unit. The aim would be to
avoid the periodic crises that have characterized recent decades. But
Zhou acknowledged that any such change would take "a long time."
The instability of a world economy so dependent on any single national
currency is prompting even some leading American figures to argue for
a gradual move away from the dollar. Fred Bergsten, former assistant
Treasury secretary in the Carter administration, says a major cause of
the current crisis was the destabilizing linkage between the U.S.
trade deficit, enormous capital flows from abroad that financed it and
the global dominance of the U.S. dollar. He argues in a new Foreign
Affairs article that, to avoid a repeat episode, the U.S. should
promote a move to a "multi-currency system" involving the euro and the
yuan.
For now, the dollar's fundamental standing remains what it's been for
decades: a convenient medium of exchange for buyers and sellers around
the world. Just as Chinese merchants speak the global language of
English when trading with Saudi oil barons, they use the global
currency to buy the oil. "The reserve currency is a natural monopoly.
It's so convenient to list prices in a single currency," says Harvard
University's Rogoff, co-author of This Time Is Different, a study of
financial crises.
The U.S. benefits from the dollar's unique role, enjoying what French
President Valery Giscard d'Estaing memorably labeled the "exorbitant
privilege" of being able to borrow abroad in its own currency. That
insulates Americans from the danger of seeing their debts skyrocket in
response to a sharp decline in the dollar's value.
The dollar doesn't owe its global role to international affection for
Americans. Investors relying on the cold logic of the marketplace are
drawn to the greenback by specific advantages that make the rise of a
dollar rival inherently difficult. "There's no equally attractive
alternative," says economist Barry Eichengreen of the University of
California-Berkeley.
In the short run, the only currency that could challenge the dollar is
the euro. It, too, has a continental-size economy behind it, and a
decade after its introduction, the European currency has established
itself as a fully convertible, stable store of value.
But for all its attractions, the euro lacks some essential attributes.
Although the European Union has a central bank, comparable to the
Federal Reserve, there is no European treasury. Instead, there are 27
European treasuries. Investors can't easily track or influence fiscal
policy on the continent.
The dollar is also buoyed by the existence of a massive government
bond market. There's roughly $4 trillion worth of U.S. Treasuries
floating around, and almost $100 billion changes hands each day,
according to investment management firm Pimco. Trading that's carried
on almost 24 hours a day, rolling east to west from Tokyo to London to
New York, makes it easy to move into and out of dollar positions in a
hurry.
Europe, by contrast, has no analogue to the U.S. Treasury market.
Instead there is a fragmented scene with individual sovereign debt
from Germany, Italy, France and other EU members. No individual market
enjoys anything like Treasuries' liquidity and size.
There's another potential dollar rival on the horizon, though its day
likely lies a decade or more in the future. Just as the United States
overtook the British empire, China's economy one day is likely to pass
the U.S.'s. When it does, the yuan would be in position to fill the
dollar's global role.
But before it does, China will have to thoroughly overhaul its
existing financial system. Today, the yuan isn't freely convertible
into other currencies, and there are strict limits on the cross-border
movement of the Chinese currency. Chinese officials publicly have
committed themselves to freeing the yuan to float alongside the
dollar, euro, yen and other major currencies. That change, however,
won't happen overnight.
Even if foreign investors have concerns about having so much of their
national wealth tied up in dollars, there is a limit to what they can
do about it in the short run. The Chinese, for example, have little
choice but to keep recycling into Treasury purchases their dollar
surpluses from trading with the United States. Beijing wants to
prevent the yuan from appreciating against the dollar, to protect
employment in its export sector. Even as it worries about the long-
term prospects for its dollar-denominated investments, it has to keep
buying dollars to do so.
"There's a gap between what's feasible and what central banks would
like to do," said Steven Englander, chief foreign exchange strategist
for Barclays Capital in New York.
Further to fall
The dollar's long-run prognosis is negative. In the wake of the
crisis, a retrenchment in cross-border financial flows will mean less
demand for dollar-denominated assets. And with Uncle Sam's printing
press running overtime to cover the government's trillion-dollar
budget deficits, the currency is expected to be further cheapened,
says Eichengreen.
The decline in the dollar's value in the past seven months largely
reflects an unwinding of the "flight to quality" that occurred during
the most panicked crisis phase. Amid unprecedented levels of
uncertainty late last year, investors flocked to assets denominated in
the largest, most liquid currency. That drove the dollar's value
against the euro, for example, up about 13% over the three months
ended in March.
Since then, the euro has regained the lost ground and then some. A
euro, which settled at $1.50 Wednesday, was at $1.43 in December.
In the political realm, the dollar's weakness is interpreted as a
referendum on American decline. But its steady slippage this year is
in line with economic fundamentals — that is, near-zero U.S. interest
rates.
That said, neither the euro nor Japanese yen have had anything to
celebrate. The biggest beneficiaries of the move out of dollars since
March have been currencies of countries that heavily export raw
materials, such as the Australian dollar (up 33% against the
greenback) and the Canadian loonie (up 21%).
U.S. officials historically repeat mantra-like that they favor a
"strong dollar." That really should be interpreted as a fancy way of
saying "no comment."
So far, the dollar has only retreated back to the level it was at
before the Lehman Bros. bankruptcy filing in September 2008 turned an
economic downturn into a global financial panic. A weak dollar would
be a problem if it contributed to inflation by increasing the cost of
imports, or if it got so low so fast that the Fed felt compelled to
raise interest rates to attract foreign investors. Neither is the case
today.
The shrinking dollar also carries important economic benefits for the
U.S. economy as it tries to climb out of recession. By making U.S.
goods less expensive overseas, a weaker dollar provides a welcome
boost for exports. The Obama administration has said it wants to
rebuild the U.S. economy to rely more on making goods here to sell to
people in other countries instead of depending on buying more and more
stuff made elsewhere.
"The U.S., in the new normal, is going to have to export more because
U.S. households will be saving," said Eichengreen.
For that to happen, the dollar likely has further to fall.
chhotemianinshallah
Dollar Rises as China Stimulus Concern Reduces Demand for Risk
By Lukanyo Mnyanda and Yasuhiko Seki
Oct. 22 (Bloomberg) -- The dollar rose from almost a 14- month low
against the euro on speculation China will withdraw fiscal and
monetary stimulus as economic growth accelerates, reducing demand for
higher-yielding assets.
South Africa’s rand and South Korea’s won were the biggest losers
versus the dollar as stock markets declined worldwide. Sweden’s krona
fell against the dollar and euro after the Riksbank kept the benchmark
interest rate at a record low and repeated its intention not to raise
rates for another year.
China’s data “is consistent with an easing off of the economic
stimulus as we go forward, which you could argue is occurring already
to some extent,” said Steven Barrow, head of Group of 10 research at
Standard Bank Plc in London. “The dollar is taking its cue from
stocks.”
The dollar strengthened 0.3 percent to $1.4974 per euro at 7:24 a.m.
in New York, from $1.5016 yesterday, when it touched $1.5046, the
weakest level since August 2008. The yen slid 0.4 percent to 91.34 per
dollar, from 90.97. Japan’s currency was little changed at 136.58 per
euro, from 136.56 yesterday.
The U.S. currency weakened beyond $1.50 versus the euro yesterday for
the first time since August 2008 as signs of economic recovery
encouraged investors to sell the greenback and buy higher-yielding
assets.
The dollar reached a 2 1/2-year high against the euro on Oct. 28,
2008, as investors sought the safety of U.S. government debt after the
Sept. 15, 2008, bankruptcy of Lehman Brothers Holdings Inc. froze
credit markets.
Fed Rate Outlook
The U.S. currency may remain under pressure as the Federal Reserve
trails other central banks in increasing borrowing costs. The dollar
will trade at $1.50 at year-end, according to the median forecast of
48 analysts in a Bloomberg survey. It tumbled to $1.6038 per euro on
July 15, 2008, the weakest since the 16-nation currency’s 1999 debut.
The rand depreciated 1 percent to 7.4887 versus the dollar and the won
weakened 0.9 percent to 1,189.75 as the drop in stocks discouraged
carry trades, in which investors sell the currency of a nation with
low borrowing costs and buy assets where returns are higher. The Fed’s
target lending rate of zero to 0.25 percent compares with 7 percent in
South Africa and 2 percent in South Korea.
Europe’s Dow Jones Stoxx 600 Index dropped 1.6 percent, after the
Nikkei 225 Stock Average retreated 0.6 percent. U.S. stock index
futures fell.
China reported gross domestic product expanded at the fastest pace in
a year and said that policy makers will increase their focus on
inflation.
China’s Growth
The nation’s economy expanded 8.9 percent in the third quarter,
following a 7.9 percent advance in the previous quarter, China’s
statistics bureau said. The median estimate of 34 economists surveyed
by Bloomberg was for a 9 percent gain.
Inflationary expectations are increasing as prices rise month-on-
month, statistics bureau spokesman Li Xiaochao said today at a press
briefing in Beijing.
Sweden’s currency declined 0.8 percent to 6.9047 against the dollar
and was 0.7 percent weaker at 10.3407 per euro. The Stockholm-based
Riksbank’s decision to keep its seven-day repo rate at 0.25 percent
was predicted by all 26 economists in a Bloomberg survey.
“We expect the krona to stay lower against the euro in the wake of the
Riksbank’s dovish remarks,” said Roberto Mialich, a senior global-
currency strategist in Milan at UniCredit SpA.
German Sentiment
The euro’s losses were tempered before a report tomorrow forecast to
show German business confidence increased. The Munich-based Ifo
institute’s business climate index, based on a survey of 7,000
executives, climbed to 92 in October from 91.3 in the previous month,
according to a survey.
European Central Bank council member Erkki Liikanen said this week on
Finland’s YLE Radio Suomi that the euro area’s economy is no longer
weakening.
Traders maintained bets the ECB will keep its benchmark interest rate
at 1 percent until the end of the first quarter next year. The implied
yield on the three-month Euribor futures contract for March 2010
delivery decreased 0.02 percentage point to 1.05 percent.
South Korea’s won also weakened after Yonhap News said the nation is
studying measures to reduce currency volatility, citing government
officials it didn’t identify.
“Upside in the won to the end of the year is limited because of the
government,” said Dariusz Kowalczyk, chief investment strategist at
SJS Markets Ltd. in Hong Kong.
The currency reached 1,155.05 on Oct. 15, the strongest level since
September 2008.
To contact the reporters on this story: Lukanyo Mnyanda in London at
lmny...@bloomberg.net; Yasuhiko Seki in Tokyo at
yse...@bloomberg.net
Last Updated: October 22, 2009 07:32 EDT
bademiyansubhanallah
Friday, October 23, 2009
Pressure on U.S. administration to support dollar could create
volatility in gold markets
by Lawrence Williams, Mineweb.net
There is increasing global pressure on the U.S. Administration to do
more than just pay lip service to a strong dollar policy. So far the
‘strong dollar policy' has actually been one of benign neglect with
the U.S. letting the world's global currency drift downwards to the
extent that much of the rest of the world is beginning to cry foul as
exports are becoming uncompetitive against U.S. products, while in the
U.S.A. itself the laissez-faire policy remains in place as long as the
Fed sees inflation remains under control.
The worries about dollar weakness are already leading to some
countries making moves to devalue their own currencies in the markets,
and it seems likely that matters will be brought to a head at the G20
meeting due early next month in Scotland, with world leaders likely to
gang up on President Obama to bring to an end the ‘strong dollar'
policy which in reality has actually been a ‘weak dollar' policy.
But, the U.S. seems more than happy to let the dollar drift downwards
as a contributor to ending its own recession through creating a
domestic business climate which will start putting people back into
work as manufacturing drifts back from the developing world.
Indeed it is difficult to see how the U.S. can do otherwise given the
continuing release of fiat money into the economy to try and generate
some stimulus and the effective negative interest rate policy
currently in place. The Administration fears that stopping the flow
and increasing interest rates at a time there is still little sign of
inflation will plunge the economy into an even deeper recession.
One suspects that the likely pressure on the U.S. may lead, at least
temporarily, to the Administration paying a little more than lip
service to its ‘strong dollar' which is likely to lead to a reversal
in the dollar's drift downwards. But as long as the programme of
Quantitative Easing continues, the subsequent dollar recovery is
likely to be shortlived. The markets will see to that.
But what does this mean for gold? With the gold price naturally
moving counter to the value of the dollar there is likely to be
downwards pressure, at least in theory, on the gold price. Indeed we
are already seeing this beginning to occur as the dollar appears
stronger as other countries move to push down their own currencies.
But at the moment there seems to be good buying coming in every time
the gold price dips. If gold can hold its value through this likely
period of pressure and volatility up to the G20 and beyond, then this
has to be extremely positive for the yellow metal and means that it
will again have managed to decouple from the dollar - this has
happened before.
Gold is a special case though and other commodities priced in dollars
may not fare so well. A stronger dollar in the short term will put
pressure on metals prices while unless a subsequently weakening one
proves to be enough to sufficiently stimulate the U.S. domestic
economy to the extent that U.S. commodities demand picks up sharply,
weakness could continue as realisation sets in that the western
economies are not truly recovering after all. And on the other hand
there is the potential impact on China even if U.S industrial usage
does begin to pick up. Exports, to the U.S. in particular, are still
a key part of the Chinese economy and if these continue to fall
further as a result of manufacture relocating back to the U.S. then
Chinese demand, which has been supporting the metals commodities
markets to such a great extent over the past year, could drift away
with a potentially very adverse effect on global metals commodity
prices.
Despite the likely pressure on the U.S. Administration, the consensus
among U.S. economists and analysts suggest that after perhaps a short
period of relative strength over the next month, the dollar will
resume its downwards fall. The still huge amounts of fiat money being
pumped into the U.S. economy, and the country's huge deficit, would
seem to make this inevitable. For gold this suggests a return to a
strong upwards momentum developing again at least by the start of
2010. However if it survives the likely downwards pressures over the
next few weeks without any serious fall-off, this will be a very
bullish signal indeed, and the price could even start to move sharply
upwards before the year-end.
Mineweb is a web-based international mining publication focusing on
mining financial and corporate news and comment.
bademiyansubhanallah
Dollar Drops to 14-Month Low Versus Euro on Recovery Evidence
By Lukanyo Mnyanda and Yasuhiko Seki
Oct. 26 (Bloomberg) --
The dollar fell to a 14-month low versus the euro as stocks advanced
around the world amid confidence that the global economy is
recovering, sapping demand for the U.S. currency as a refuge from the
financial turmoil.
The dollar dropped the most against higher-yielding currencies such as
the Australian dollar as Electrolux AB, the world’s second-biggest
household-appliance maker, almost doubled third-quarter profit on
demand in Europe and North America. The pound traded near the lowest
level in at least a week against the euro and the dollar on
speculation the Bank of England will boost asset purchases at its
policy meeting next month.
“We’re back in the familiar role of the dollar weakening alongside
stocks that are picking up,” said Neil Mellor, a currency strategist
in London at BNY Mellon Corp., the world’s biggest custodian of
financial assets. Currency markets may “be locked and loaded into this
sort of frame of mind where the dollar goes lower as stocks edge up,”
he said.
The U.S. currency weakened to $1.5032 per euro as of 6:38 a.m. in New
York from $1.5008 last week. It earlier dropped to $1.5063, the lowest
level since August 2008. The dollar also declined to 91.78 yen from
92.06 yen. The yen traded at 137.98 per euro from 138.15.
The MSCI World Index of shares climbed 0.2 percent and Standard &
Poor’s 500 Index futures expiring in December added 0.4 percent,
indicating the benchmark for U.S. equities may open higher. Stockholm-
based Electrolux rose as much as 11 percent after reporting earnings
that beat analysts’ forecasts.
Australia’s currency advanced 0.4 percent to 92.59 U.S. cents. The
Norwegian krone advanced 0.3 percent to 5.5429 against the dollar.
Shaking Off Recession
The dollar declined against 12 of its 16 major counterparts on
speculation reports this week will add to evidence that some of the
world’s biggest economies are shaking off the worst of the recession.
A gauge of French household sentiment improved to minus 35 in October
from minus 36 in September, a Bloomberg survey of economists showed
before the Paris-based national statistics office releases the report
tomorrow. The Conference Board’s index of U.S. consumer confidence
increased to 53.5 this month from 53.1 in September, a separate
Bloomberg survey showed before tomorrow’s report.
The pound dropped even as a survey of senior executives by Opinion
Leader Research for KPMG showed confidence rose to the highest level
in 18 months. The currency extended its slump against the euro from
Oct. 23, when a government report showed the economy contracted in the
third quarter, a result forecast by none of the 33 economists in a
Bloomberg News survey.
China Report
Sterling lost as much as 0.4 percent to 92.40 pence per euro, the
lowest level since Oct. 15, and was 0.1 percent weaker at 92.11.
Against the dollar, it traded as low as $1.6252, the least since Oct.
19, and was at $1.6327.
The yen and euro gained after China’s Financial News said the nation
should boost reserves in the currencies. The Beijing- based newspaper,
which is affiliated with China’s central bank, said the nation should
raise the amount of yen and euro while keeping the dollar as the main
component.
“The Chinese article revived concern over the status of the dollar and
triggered knee-jerk selling of the greenback,” said Yuichiro Harada,
senior vice president of the foreign- exchange division at Mizuho
Corporate Bank Ltd., a unit of Japan’s second-largest lender.
Korean Won
China is the biggest international owner of U.S. government debt
followed by Japan. The nation’s foreign-exchange reserves, the world’s
largest, surged in the third quarter as an economic recovery attracted
speculative capital and a weakened dollar boosted valuations of its
yen and euro assets. The holdings climbed about $141 billion to a
record $2.273 trillion, the central bank said this month.
South Korea’s won climbed after a higher-than-forecast expansion in
its economy spurred expectations its central bank will raise borrowing
costs. Gross domestic product increased 2.9 percent in the third
quarter from three months earlier, the central bank said today in
Seoul. That was the fastest since the first quarter of 2002 and
compared with a median estimate of 1.9 percent growth in a Bloomberg
survey.
The won climbed 0.3 percent against the dollar to 1,177.90.
Higher Rates
The dollar traded at the highest level in more than a month versus the
yen earlier on speculation the Federal Reserve will boost interest
rates sooner than some economists forecast. The Wall Street Journal
said Fed officials are likely to discuss next month how and when to
signal the possibility of higher U.S. interest rates.
Members of the U.S. central bank are contemplating the best way to let
the market know that a period of record-low rates will draw to an end,
the Journal reported Oct. 24, without saying where it got the
information. The issue may be “on the table” when the Federal Open
Market Committee meets Nov. 3-4.
The Fed will increase the target rate for overnight bank loans to 0.5
percent in the second quarter of 2010, according to economists
surveyed by Bloomberg. The Bank of Japan is projected to maintain
interest rates at least until the end of the first quarter of 2011.
“We may see a corrective move with the dollar trying to push higher,”
said Ian Stannard, a foreign-exchange strategist in London at BNP
Paribas SA, France’s largest bank. “The Fed may be looking to change
its statement slightly, suggesting that they are not going to have an
open ended statement with regards to interest rates remaining at low
levels.”
Benchmark interest rates are 0.1 percent in Japan and as low as zero
in the U.S., making the yen and dollar favored targets for investors
seeking to fund so-called carry trades. The risk in such transactions
is that currency-market moves will erase profits.
To contact the reporters on this story: Lukanyo Mnyanda in London at
lmny...@bloomberg.net; Yasuhiko Seki in Tokyo at
yse...@bloomberg.net
Last Updated: October 26, 2009 06:48 EDT
bademiyansubhanallah
Japan's factory output rises for 7th month
By TOMOKO A. HOSAKA , 10.29.09, 12:56 AM EDT
TOKYO -- Japan's factory output rose for the seventh straight month in
September, as recovering global trade boosted demand for the country's
cars and electronics.
Industrial production - a key barometer of the country's economic
health - rose 1.4 percent from August and "continues to show an upward
movement," the government said Thursday.
The figure outpaced a 1.0 percent rise forecast in a Kyodo News agency
survey of economists. Strong gains among manufacturers of transport
equipment, electronics parts and electrical machinery contributed to
the gains, according to the Ministry of Economy, Trade and Industry's
monthly report.
The latest numbers offer encouraging signs of growth in the world's
second biggest economy, which fell into its worst recession since
World War II earlier this year.
Stimulus spending by governments around the world, particularly China,
is reviving sales of Japanese products. Exports in September fell by
the smallest margin in 10 months as a result.
At home, consumer incentives are also driving demand for eco-friendly
appliances and cars.
Production is expected to continue expanding for the third straight
quarter in October-December after posting a 7.2 percent rise in the
July-September period. The ministry predicts output will grow 3.1
percent in October and 1.9 percent in November.
Shipments rose 3.4 percent, while inventories slipped 0.5 percent.
Still, some economists tempered their confidence of Japan's prospects
with predictions the current growth may not last. The country's
unemployment rate is stuck at a near-record high of 5.5 percent as
companies remain wary of spending and hiring. Concerns about deflation
are also intensifying after prices in Japan tumbled at a record pace
in August.
"For the time being policy expectations should support production
growth," Goldman Sachs ( GS - news - people ) economist Chiwoong Lee
said in a note to clients. "But we continue to warn of downside risk
for demand in the current employment and income situation when the
policy boost in Japan and overseas starts to fade."
A more complete snapshot of Japan's economy will emerge when the
government on Friday releases unemployment and consumer price index
data for September.
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