Money "worthless beyond its shores"

The Isle That Rattled the World

Excerpts:

.... housands of Icelanders were protesting one of the strangest economic failures of the global financial crisis. This past fall, every bank that matters in this tiny nation -- that is, all three of them -- failed. Iceland's currency, the krona, became worthless beyond its shores. The country's financial system stopped working.

...

Iceland is an extreme casualty of an era in which it became extraordinarily easy to borrow money. But it was more than that: An examination of the nation's banking system, which collapsed over about 10 days this autumn, reveals the degree to which Iceland was one of the international financial bubble's most enthusiastic players. Home to fewer people than Wichita, Kan., Iceland became so leveraged and so deeply intertwined with the global financial infrastructure that its collapse has rattled the world from Tokyo to California to the Middle East.

...
Like Americans who rode a housing bubble thanks to the U.S. Federal Reserve's maintaining low interest rates for years, Icelanders had found a cheap source of borrowing to finance their consumption.

As long as foreign money kept flowing into Iceland, everything remained fine. But an outflow would dangerously reverse the equation, and set the stage for calamity.

Iceland isn't the only small country to be whipsawed by foreign money flooding in, then gushing out. Hungary and Latvia were similarly hit.

What makes Iceland different: It tried to build a global banking center on top of a tiny currency. So when foreign investors tried to pull out -- converting kronur back into dollars or euros en masse -- its currency fell like a rock, spurring more withdrawals.

Amid Iceland's euphoria, there were warnings. In 2006, analysts at Danske Bank wrote a paper titled "Geyser Crisis" saying that Iceland's banks had grown too much, and the country was dangerously reliant on the willingness of foreigners to keep sending money.

Comment: Americans (US citizens) should carefully consider the fate of the Krona and the Zimbabwean dollar. Their fate could be ours!

"the poor country lending to the rich.”

Dollar Shift: Chinese Pockets Filled as Americans’ Emptied

Excerpt:

The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.

This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, “we probably have little choice except to be patient.”

Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences, having been promoted to chairman of the Fed in 2006, as these cross-border money flows were reaching stratospheric levels.

In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

Comment: This can't last forever!

God's Christmas Card

On a day some 2000 years ago, God entered time and space.

"Behold, a virgin shall conceive and bear a son, and shall call His name Immanuel" Isaiah 7:14

"For unto us a child is born, unto us a son is given, and the government shall be upon His shoulder; and His name shall be called Wonderful, Counselor, the mighty God, everlasting Father, the Prince of Peace" Isaiah 9: 6

"In the beginning was the Word, and the Word was with God and the Word was God...And the Word became flesh and dwelt among us, and we beheld His glory, glory as of the only begotten of the Father, full of grace and truth" John 1:1, 14

The following from a Christmas card expounds on John 3:16:

For God (the greatest Person)
So loved (the greatest degree)
The world (the greatest company)

That He gave (the greatest act)
His only begotten Son (the greatest gift)
That whosoever (the greatest opportunity)
Believeth (the greatest simplicity)
in Him (the greatest attraction)

Should not perish (the greatest promise)
But have (the greatest difference)
Everlasting life (the greatest possession)

JP: Image from an antique Christmas card in my Sister-in-law's collection.

It is a cold (minus 4) white Christmas in Minnesota. We are awaiting (expected at 9) the arrival of our children.

More:

"For unto you is born this day in the city of David a Savior, which is Christ the Lord." (Luke 2:11)

A quote that captures the importance of this truth.

• If our greatest need had been information, God would have sent us an educator;
  
• If our greatest need had been technology, God would have sent us a scientist;
  
• If our greatest need had been money, God would have sent us an economist;
  
• If our greatest need had been pleasure, God would have sent us an entertainer;
  
• But our greatest need was forgiveness, so God sent us a Savior.

HT: Frank Sansone

The Father of "Pick-A-Pay"

Once Trusted Mortgage Pioneers, Now Pariahs

Excerpt:

Known as an option ARM — and named “Pick-A-Pay” by World Savings — it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.

Pick-A-Pay allowed homeowners to make monthly mortgage payments that were so small they did not cover their interest charges. That meant the total principal owed would actually grow over time, not shrink as is normally the case.

Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.

The Wachovia Corporation, which bought the Sandlers’ bank two years ago, was so battered by the souring portfolio of World Savings that it began writing off losses now projected at tens of billions of dollars and eventually stopped offering option ARMs.

Through it all, the Sandlers have maintained they did nothing wrong beyond misjudging the real estate bubble.

“I didn’t mislead anybody, and to the best of my knowledge, our company didn’t, though there may have been an isolated case here and there,” Mr. Sandler said. “If home prices hadn’t declined by 50 percent, nobody would be raising these questions.”

Mr. Sandler also finds it incredible that borrowers feel victimized by Pick-A-Pay. “All of a sudden their home is worth half of what it was, and they say they didn’t know.”

Yet the Sandlers embraced practices like the use of independent brokers who used questionable methods to reel in borrowers. These and other practices, critics contend, undermined the conservative lending practices that the Sandlers built their reputations upon.

“This product is the most destructive financial weapon ever deployed against the American middle class,” said William J. Purdy III, a housing lawyer in California who is representing elderly World Savings customers struggling to repay their loans. “People who have this loan are now trapped, and they can’t get another loan.”

Comment: Sounded like a good idea at the time

Wachovia "what ifs"

Wachovia shareholders OK Wells deal

Excerpt:

Wachovia Corp.’s shareholders approved the company’s merger with Wells Fargo & Co. at a relatively sedate shareholder meeting Tuesday morning, clearing the way for the deal to close next week.

The proposal passed overwhelmingly, with 76 percent of the votes cast in favor of the deal. That included preferred stock that Wachovia issued to Wells as part of the deal, giving the San Francisco company 39.9 percent of Wachovia’s voting power.

Security was tight at the meeting, held in a packed ballroom at the Hilton hotel next door to Wachovia’s Charlotte headquarters. Most of the company’s board of directors was absent, however, and Chief Executive Bob Steel told the audience that the day was one of a “variety of emotions,” including disappointment that Wachovia (NYSE:WB) won’t survive as an independent company. He expressed some excitement about the combination, along with some relief that employees could move forward and focus on their jobs “without the overhanging pressure of balance-sheet challenges.”

What ifs: Could sale have been avoided?

Excerpt:

Golden West Financial: Wachovia bought this nontraditional California lender in 2006 at the top of the housing boom. The deal exposed the bank to the faltering housing market and caused investors to worry about mounting losses. Wells now estimates losses of $36 billion, or 29 percent, on Golden West's $122 billion option adjustable rate mortgage portfolio.

Comment: The biggest misstep was Golden West Financial.

Excerpt:

While Wachovia Chairman and CEO G. Kennedy "Ken" Thompson had described Golden West as a "crown jewel", investors did not react positively to the deal at the time. Analysts have since said that Wachovia purchased Golden West at the peak of the US housing boom, and its mortage-related problems would in turn bring down Wachovia

The Biggest Ponzi Scheme Ever?

Social Security: The Biggest Ponzi Scheme Ever?

Excerpt:

Jim Cramer of CNBC points out that Social Security is really nothing but a big Ponzi scheme.

Comment: HT Darrell Dow

Will the economy suddenly "go poof"?

Wells Fargo so confident recession will end in '09

Excerpt:

The second half of '09 is going to be "better than expected," said Jim Paulsen, chief investment strategist for Wells Fargo Capital Management:

"It's like you're at a cookout and you're trying and trying to get your charcoal going and you keep squirting lighter fluid and all of a sudden it goes 'poof!' "

Comment: Quote from the 2008 Economics Conference.

Al Sicherman's NASTY index

How cold is it? It's so cold…

Excerpt:

So here is the New Al Sicherman Temperature Yardstick (NASTY).

NASTY Level 0: "Brisk," 32 to 20 degrees: Barely visible layer of ice forms overnight; you almost slip getting into car. You regret not wearing gloves.

NASTY Level 1: "Uncomfortable," 20 to 10 degrees: Frost on windshield too firm to come off just by running wipers; requires scraping (if you can find scraper). You really regret not wearing gloves. And hat.

NASTY Level 2: "Frosty," 10 to 0 degrees: After briefly removing glove while walking dog, to put newspaper bag to its highest use, your hand remains ice-cold inside glove all the way home.

NASTY Level 3: "Frigid," 0 to -10 degrees: Sound of car starter changes from rettita-rettita-VROOM to wuoh-wuoh-wuoh-wuoh-VROOM.

NASTY Level 4: "Awful," -10 to -15 degrees: Remote door-unlock button produces only strangled hum.

NASTY Level 5: "Terrible," -15 to -20 degrees: Inside of windshield frosts over from your breath; protruding lower lip, to force breath up instead of out, causes your glasses to frost over.

NASTY Level 6: "Dreadful," -20 to -25 degrees: Sound of car starter changes from wuoh-wuoh-wuoh-wuoh-VROOM to wuoh wuoh wuoh wuoh wuh.

NASTY Level 7: "Horrible," -25 to -30 degrees: Pressing button to turn on car radio causes crack to open across entire dashboard. (Radio doesn't come on.)

NASTY Level 8: "Unspeakable," -30 to -35 degrees: After leaving car all evening in unheated ramp, car window has frozen up and can't be lowered to pay the attendant; you have to open the door, but there's no room because you're right next to attendant's booth, and you can't pull forward because attendant has crossing arm down (and through closed window you can't make him understand you need to pull forward so you can open door to pay him) and you can't back up because there's somebody behind you.

NASTY Level 9: "Ghastly," -35 to -40 degrees: When you try to open car door, handle breaks off.

NASTY Level 10: "Evil," colder than -40 degrees: When you try to open car door, hand breaks off.

Comment: Nasty level 3 today (-6). We took the car through the car wash which is very interesting (car wash foggy) at this temp!

Stocking stuffer - a life's lesson

Comment: I am giving each of my kids 100 Billion (Zimbabwean) dollars. Found on Ebay. When released on July 1st, 2008, a $ 100 Billion would by 3 eggs!

Liberals are cheapskates!

Bleeding Heart Tightwads

Excerpt:

Liberals show tremendous compassion in pushing for generous government spending to help the neediest people at home and abroad. Yet when it comes to individual contributions to charitable causes, liberals are cheapskates.

Arthur Brooks, the author of a book on donors to charity, “Who Really Cares,” cites data that households headed by conservatives give 30 percent more to charity than households headed by liberals. A study by Google found an even greater disproportion: average annual contributions reported by conservatives were almost double those of liberals.

Other research has reached similar conclusions. The “generosity index” from the Catalogue for Philanthropy typically finds that red states are the most likely to give to nonprofits, while Northeastern states are least likely to do so.

The upshot is that Democrats, who speak passionately about the hungry and homeless, personally fork over less money to charity than Republicans — the ones who try to cut health insurance for children.

...

Americans give sums to charity equivalent to 1.67 percent of G.N.P., according to a terrific new book, “Philanthrocapitalism,” by Matthew Bishop and Michael Green. The British are second, with 0.73 percent, while the stingiest people on the list are the French, at 0.14 percent.

...

Conservatives also appear to be more generous than liberals in nonfinancial ways. People in red states are considerably more likely to volunteer for good causes, and conservatives give blood more often. If liberals and moderates gave blood as often as conservatives, Mr. Brooks said, the American blood supply would increase by 45 percent.

Comment: Interesting.

Teamwork in Russia

Comment: Sent to me by my brother

Have we started down "the Zimbabwean path"?

Is the Medicine Worse Than the Illness?

Excerpts:

... Federal Reserve's announcement last Tuesday that it intends to debase its own paper money. The year just ending has been a time of confusion as much as it has been of loss. But here, at least, was the bright beam of clarity. Specifically, the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero. Nor would it rest on its laurels even at an interest rate low enough to drive the creditor class back to work. It would, on the contrary, "continue to consider ways of using its balance sheet to further support credit markets and economic activity."

....

One market, only, registered a protest. The Fed's declaration of inflationary intent knocked the dollar for a loop against gold and foreign currencies. In many different languages and from many time zones came the question, "Tell me, again, now that the dollar yields so little, why do we own it?"

...

If the Fed is going to create boatloads of depreciating, non-yielding dollar bills, who will absorb them? Who will finance the Obama administration's looming titanic fiscal deficits? Who will finance America's annual surplus of consumption over production (after 25 more or less continuous years, almost a national trait)? Inflation is a kind of governmentally sanctioned white-collar crime.

...

In ages past, it was so simple. A central banker had one job only, and that was to assure that the currency under his care was exchangeable into gold at the lawfully stipulated rate. It was his office to make the public indifferent between currency or gold. In a crisis, the banker's job description expanded to permit emergency lending against good collateral at a high rate of interest. But no self-respecting central banker did much more. Certainly, none arrogated to himself the job of steering the economy by fixing an interest rate. None, I believe, had an economist on the payroll. None facilitated deficit spending by buying up his government's bonds. None cared about the average level of prices, which rose in wartime and sank in peacetime. It sank in peacetime because technological progress and the opening of new regions to agricultural production made merchandise and commodities cheaper and more abundant.

...

Gold is a hard master, and a capricious one, too, insofar as growth in the world's monetary base depends on the enterprise of mining engineers. But, as we have seen lately, there is no caprice like the caprice of sleep-deprived Mandarins improvising a monetary solution to a credit crisis (or, for that matter, of fully rested Mandarins setting interest rates by the lights of their econometric models).

The times were hard in the 1870s and, for that matter, again in the 1890s, but Americans repeatedly spurned the Populist cries for a dollar you didn't have to dig out of the ground but could rather print up by the job lot. "If the Government can create money," as a hard-money propagandist put it in an 1892 broadside entitled "Cheap Money," "why should not it create all that everybody wants? Why should anybody work for a living?" And -- in a most prescient rhetorical question -- he went on to ask, "Why should we have any limit put to the volume of our currency?"

...

starting in 1971, there would be nothing behind it more than the good intentions of the U.S. government and (somewhat more substantively) the demonstrated strength of the U.S. economy. Still less could he have guessed that the world would nonetheless fall in love with that uncollateralized piece of paper or -- even more astoundingly -- that the United States would enjoy so great a reservoir of good will that it would be allowed to borrow its way to a net international investment position of minus $2.44 trillion ($17.64 trillion of foreign assets held by Americans vs. $20.08 trillion of American assets held by foreigners). "It goes up and up," Mr. Root said of the inflationary cycle, but just how high he could not have dreamt.

Knowledge of the precepts of classical central banking prepared no one to understand, much less to anticipate, the Fed's conduct in this credit crackup. The central bank is lending freely, all right, but not at the stipulated "high" interest rate. As a matter of fact, it is starting to lend at a rate below which there is no positive rate. The gold standard was objective. Modern monetary management is subjective (under Alan Greenspan, it was intuitive). The gold standard was rules-based. The 21st century Fed goes with what works -- or seems to work. What it hopes is going to work for the fellow who fell off the stepladder is more debt and more dollars. Just how much of each can be found every Thursday evening on the Fed's own Web site. Open up form H4.1 and prepare to be amazed. Since Labor Day, the Fed's assets have zoomed to $2.31 trillion from $905.7 billion. And what is the significance of this stunning rate of asset growth? Simply this: The Fed pays for its assets with freshly made dollars. It conjures them into existence on a computer; "printing" is a figure of speech.

Excerpt:

Thatcher Wouldn't Have Gone Wobbly on Detroit - Keynsianism is proof you shouldn't 'leave economics to economists.'Thatcherite principles remain as valid as ever. The freedom of the marketplace is still the only effective mechanism for eliminating poor business practices, identifying productive investment, and providing long-term growth.

...

President-elect Barack Obama has said that he expects things to get worse before they get better. If the experience of the first Thatcher administration is anything to go by, that will certainly be the case. For one thing, some "hidden unemployment," as Mrs. Thatcher called it, will be flushed out into the open. This will be the case with the expected closure of the Big Three's "job banks," which pay almost full wages and benefits to several thousand auto workers for doing nothing.

Comments: Easy money created our credit crisis and yet we continue to make it EZ'r. Buy yourselves some real money: http://www.apmex.com/

Carpocalypse

After Lifeline, Big 3 Are Still in Deep

Excerpts:

... the auto companies’ challenges came down to four C’s: cash, cost reduction, cars and culture.

The cash and cost reduction will come through the federal aid and the revamping plans they submitted in return for the help. “But they quite obviously need to get a different management culture ...

...

Detroit still depends heavily on pickups, and S.U.V.’s, as well as crossover vehicles, which are sport utilities built on car underpinnings.

Through November, light trucks made up 58 percent of G.M.’s sales; they account for 63.5 percent of Ford’s sales and 72.2 percent for Chrysler.

In fact, Toyota has sold more Camry models alone this year than Chrysler has sold of all its cars, according to Motorintelligence.com, a firm that follows industry statistics.

...

Comment: It's like they are primarily TRUCK companies! I doubt Chrysler will make it - my Dad is "rolling in his grave"! Chrysler's best option is merger with someone - Nissan? GM? But perhaps no one wants them.

New Zimbabwean $ 10 Billion note introduced

New Zimbabwe $10B note buys bread

Excerpt:

Zimbabwe's central bank introduced a $10 billion note worth less than 20 U.S. dollars, as the once-prosperous southern African nation battles against spiraling hyperinflation.

The new note, expected to buy just 20 loaves of bread, comes just a week after Zimbabwe issued a $500 million note to ease a cash shortage.

Reserve Bank of Zimbabwe Governor Gideon Gono said the $10 billion note was being introduced for the "convenience of the public ahead of the festive season."

On Thursday, the U.S. dollar traded for about 600 million Zimbabwe dollars, and the hyperinflation was expected to continue.

People slept overnight at the bank doors, hoping to get money for the next day.

Comment: Search Ebay for Zimbabwe notes. Above is a $ 50 Billion note

That's what they all say!

Obama says he'll address growing deficit _ later

Excerpt:

But he says it'll be easier to tackle that deficit when the economy is up and running.

Obama told reporters in Chicago on Friday that every economist he's spoken to has told him that the most important thing to do—even for the deficit—is to fix the economy. Otherwise, he says, the government will have to spend more on services for out-of-work Americans, and the deficit will grow even faster.

He says the deficit is not a problem that he's simply going to leave for a future president.

As for the infrastructure projects that will be part of his plan to reinvigorate the economy, Obama says none of them will represent wasteful spending.

Comments:

Re: "the deficit is not a problem that he's simply going to leave for a future president". Don't take this one to the bank!

Re: "the infrastructure projects ... [will not] will represent wasteful spending" - doubt it!

Far from the “holy huddle”

For Evangelical College, Home Is Where the Sin Is

Excerpt:

The King’s College was founded in the seaside town of Belmar, N.J., 70 years ago, before moving to Briarcliff Manor, N.Y., in 1955. The college closed after going bankrupt in 1994, and reopened five years later with 17 students after its backers raised enough funds.

Its setting, college leaders say, was a deliberate move. They wanted students to be exposed to new ideas and hone their intellectual chops far from the “holy huddle,” places that are religiously and ideologically sealed off from the rest of the world.

Comment: Better to have a Christian College in an urban center rather than deep in the woods!

The Book of Human Troubles

Psychiatrists Revise the Book of Human Troubles

Excerpt:

“This is not cardiology or nephrology, where the basic diseases are well known,” said Edward Shorter, a leading historian of psychiatry whose latest book, “Before Prozac,” is critical of the manual. “In psychiatry no one knows the causes of anything, so classification can be driven by all sorts of factors” — political, social and financial.

“What you have in the end,” Mr. Shorter said, “is this process of sorting the deck of symptoms into syndromes, and the outcome all depends on how the cards fall.”

Psychiatrists involved in preparing the new manual contend that it is too early to say for sure which cards will be added and which dropped.

The current edition of the manual, which was published in 2000, describes 283 disorders — about triple the number in the first edition, published in 1952.

Comment: I predict that the number of "disorders" will again trible (job security). Want to read the real book of human troubles ... read the book of Job!

Wells Fargo economics conference

Wells Fargo Economists Predict Worst Recession Since 1930s

Excerpt:

What is shaping up as the deepest and longest recession since the 1930s will end in the second half of 2009, Wells Fargo’s senior economists predicted during the company’s annual economic forecast teleconference yesterday.

The ongoing impact of $2 trillion in government stimulus, with other factors such as pent-up consumer demand and returning consumer confidence, will finally lead to a turnaround, and the third quarter of next year will be "better than expected” by many, said Dr. Jim Paulsen, chief investment strategist of Wells Capital Management. "It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid and all of a sudden it goes ‘poof!’” Paulsen said.

....

Reporters can hear a recording of the December 18th teleconference until January 17, 2009, by dialing 1-866-837-8032(domestic) or 1-703-925-2474. The conference ID is 1303927.

Comment: More from conference I attended yesterday

Kathee's a Calvinist

Comment: I know because I did not choose her, she chose me!

Will Harry Reid override Minnesota voters?

Paul Weyrich: Uncertainty in Minnesota’s U.S. Senate Race

Excerpt:

... if Mr. Franken can’t prevail in federal court, he may turn to Senate Majority Leader Harry Reid, D-Nev. Sen. Reid could have the U.S. Senate wade into the disputed ballots, as Democrats did in a disputed election for a House seat some years ago.

More likely, however, Sen. Reid would have the seat declared vacant, forcing candidates Sen. Coleman and Mr. Franken into another election.

Democrats naturally hope to achieve a 60-40 filibuster-proof majority in the U.S. Senate, so it would not be surprising to see them concentrate their resources in Minnesota and deliver the state for Mr. Franken.

As the former Director of the Senate Republican Conference said to me the other day, “Nothing could demean the Senate as an institution more than to have Franken as a member.” Perhaps, but that will be up to the citizens of Minnesota to decide.

Comment: One of Paul Weyrich's last columns - he died Thursday: Architect of Religious Right Dies. Latest looks like Franken will win: Franken pushes his lead over Coleman past 250