Category Archives: Finance

“Meltdown” by Thomas Woods

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“The media tells us that “deregulation” and “unfettered free markets” have wrecked our economy and will continue to make things worse without a heavy dose of federal regulation. But the real blame lies elsewhere. In Meltdown, bestselling author Thomas E. Woods Jr. unearths the real causes behind the collapse of housing values and the stock market – and it turns out the culprits reside more in Washington than on Wall Street.

And the trillions of dollars in federal bailouts? Our politicians’ ham-handed attempts to fix the problems they themselves created will only make things much worse. Woods, a senior fellow at the Ludwig von Mises Institute and winner of the 2006 Templeton Enterprise Award, busts the media myths and government spin. He explains how government intervention in the economy – from the Democratic hobbyhorse called Fannie Mae to affirmative action programs like the Community Redevelopment Act – actually caused the housing bubble.

Most important, Woods, author of the New York Times bestseller The Politically Incorrect Guide to American History, traces this most recent boom-and-bust – and all such booms and busts of the past century – back to one of the most revered government institutions of all: the Federal Reserve System, which allows busy-body bureaucrats and ambitious politicians to pull the strings of our financial sector and manipulate the value of the very money we use…”

Comment:

That’s the blurb to Thomas Woods’ new book, “Meltdown,” which gives a classic Austrian rebuttal of the notion that lack of regulation of the economy is the sole reason for the current economic crisis, rather than the corrupt nexus between government and business in a managed economy. According to his blurb, Wood correctly assesses the current problem as a problem of cheap money, induced by Federal Reserve policies.

I have Woods’ previous book on the US constitution on my desk since I intend to review it.  I thought it was both mostly right at one level and partly wrong at another.*  I wonder if that will be the case with this book too. Still, as a contrarian and critic of establishment propaganda, I have to pull for any book brave enough to fly in the face of  academic orthodoxy. (Judging by Woods’ popularity, though –  a Google search of his name turns up millions of hits – he has a legion in tow to keep up his courage: here’s a link to his  impassioned speech at the Ron Paul Rally for the Republic (September 2008) on The Stupid Party versus the Evil Party)

“IF YOU WANT TO STOP THE WAR MACHINE, YOU HAVE TO GO AFTER THE MONEY MACHINE.”

**********
*In that respect, let me link a piece by Cathy Young of Reason magazine. Young’s conclusions strike me as owing more to ad hominem than logic, but they aren’t without merit if you consider the moral issues at stake. On that, more at another time…

Money From Madoff: Class Action Suits To Recover Investor Losses

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The depth of the SEC’s corruption was the target of vehement attacks by house lawmakers  today, says AP:

“Because of the SEC’s inaction, “I became fearful for the safety of my family,” Markopolos said.

“The SEC is … captive to the industry it regulates and is afraid” to bring big cases against prominent individuals, Markopolos said. The agency “roars like a lion and bites like a flea” and “is busy protecting the big financial predators from investors.”

While the SEC is incompetent, the securities industry’s self-policing organization, the Financial Industry Regulatory Authority, is “very corrupt,” Markopolos charged. That organization was headed until December by Mary Schapiro, President Barack Obama’s new SEC chief.

Markopolos discovered additional funds that funneled money to Madoff — whose managers he said willfully turned a blind eye to his improprieties because they were paid generous fees. Markopolos said he will present his findings to the SEC’s inspector general. If proven, they would substantiate the assertions of many analysts that the alleged fraud was far too large for Madoff to have conducted alone.

In New York, a trustee liquidating Madoff’s investment firm told a federal judge Wednesday that nearly $950 million in cash and securities has been recovered for investors. Trustee Irving Picard said $111.4 million in cash had been recovered from financial institutions and about $300 million in securities were identified although it was unclear what they were worth.

JPMorgan Chase & Co. and Bank of New York Mellon Corp. last week said they would transfer a combined $534.9 million from Madoff’s investment firm accounts to Picard. Investors have until July 2 to place their claims.

European investors who feared they lost millions investing with Madoff have a chance to recoup some or all of their money from the banks that marketed the stricken funds, according to lawyers in Europe who are preparing a possible U.S.-style class-action lawsuit….”

Comment:

That’s a typically American- style solution – class-action lawsuits.  And normally, that would not be a bad thing. But  there is something deeply troubling and suspect about the way the SEC’s actions are being represented as mistakes…as though changing a few rules will improve things.

These people are corrupt…..sell-outs…swindlers…what other words can I muster?

This isn’t about rules. It’s about culture.

We don’t need new laws. We need new people.

Financial Follies: How To Guard The Guardians

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Apropos the Satyam case in India, fund manager Atim Kabra of Frontline Strategy writes: 

“We would be erring if to the cast of Raju brothers, their ‘independent directors’, the infamous auditors, the bestowers of corporate governance awards, we forget to add the collective conscience of the ‘fund managers and brokers’ who, in my opinion, had a fair inking of not all being well at Satyam. Any broker or fund manager worth his salt would have heard not only of the huge real estate parcels said to be owned by the Rajus but also of their extremely close political connections. They would have known of the phoenix like rise of Maytas and the lucrative contracts housed in these ‘Satyam Group Companies’. They would have had an understanding of the nature of real estate transactions in

India and the significant cash component which accompanies these transactions. Yet, they chose to turn a blind eye to the shenanigan, invested and traded in Satyam Computers, contributed to the enhancement of its market capitalization and ironically now profess shock at the lack of corporate governance at Satyam. While the financial community needs to introspect at its own doing and the propensity to turn a blind eye to the going ons in Corporate India, I believe that collectively, the financial community can be one of the most significant agents of change.  However, I worry that by the time change is implemented and percolates down the system, the same Satyam story might have been repeated in many companies in India and Satyam most certainly would not the last one to hit the can due to accounting fraud….”

Atim Kabra, with a blueprint for how to improve corporate governance. 

Global Games: The Shine Is Off the Shining

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“The British economy will shrink by 2.8 per cent this year, says the IMF, with dire implications for jobs, house prices and the public finances. As recently as November, the IMF forecast a relatively mild downturn of 1.3 per cent in the UK.

In its latest World Economic Outlook, the IMF now sees economic activity contracting by around 1.5 per cent in the US, 2 per cent in the eurozone, and 2.5 per cent in Japan. Two of the brightest stars in the economic firmament, China and India, have seen their growth forecasts slashed, to 6.75 per cent and 5 per cent respectively. The global economy as a whole is perilously near to shrinking, with a mere 0.5 per cent growth predicted – the lowest since the 1940s. “We now expect the global economy to come to a virtual halt,” said Olivier Blanchard, the IMF’s chief economist.

The International Labour Organisation said global unemployment and poverty are set for a “dramatic increase” in the coming year. The UN agency added that in a worst-case scenario, recorded unemployment could rise by more than 50 million from the 2007 level to a total of 230 million, or 7.1 per cent of the world’s labour force, by the end of 2009.

The scale of economic decline forecast for Britain by the IMF suggests that the jobless figure would exceed three million within a year, surpassing peaks last experienced in the 1980s.

Yesterday, the Institute for Fiscal Studies said Britain faces a £20bn-a-year “double whammy” of tax rises and spending cuts to restore public finances to order – it will take until 2029 for government debt to recede to levels seen before the credit crunch. It warned taxes would rise and spending would be cut whoever wins the next election….”

And very significantly:

“The IMF says tax cuts and public spending and borrowing boosts all over the world will be useless unless the financial system is rebooted.

Its managing director, Dominique Strauss-Kahn, warned: “If there’s not a restructuring of the banking system, all the money you can put into [monetary and fiscal] stimulus will just go into a black hole.”

More at The Independent.

Comment:

So, think about the dollar’s future prospects this way: sure it’s on the road to hell. But it’s not a one-way road. Not when the euro and the pound are in such bad shape. As for those figures from China and India, after the Satyam fiasco (in which one of India’s most touted and best regarded companies confessed it had been running an Enron type scheme with faked cash flow —  I blogged earlier) do you really think the shine in “Indian Shining” is all that shiny?

Another New Deal?

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“In most discussions of the Great Depression, the macroeconomic profile of the subject is portrayed as follows: steep continuous decline from
1929 to 1933, sharp recovery from 1933 to 1937, severe but short “depression” from 1937 to 1938, and renewed rapid recovery from
1938 onward, with the economy having fully recovered by 1940 or, at latest, 1941. With regard to hours worked, the profile looks somewhat different.
Total hours worked fell substantially from 1929 to 1932. Then, unlike the standard depiction of the economy’s course, they hit bottom and stayed put in a virtually flat-bottomed trough for three years, 1932, 1933, and 1934. They then rose substantially until 1937, dropped by 7 percent in 1938, then rose again thereafter. However, even as late as 1940, total hours remained below the 1929 level by 6 percent, and only in 1941, with the population vigorously engaged in mobilization for war, did total hours exceed the 1929 value, by 3 percent. Meanwhile, of course, the population and the potential labor force had grown substantially, the former by 11.6 million persons, so simply getting back to the 1929 level of hours worked represented something less than a complete triumph.

As the table shows, military employment remained quite low and did not vary substantially from 1929 to 1939. Similarly, farm hours worked varied little, although after remaining fairly steady from 1929 to 1933, they dropped in 1934 and never regained their previous level. This abrupt one-shot drop to a lower level probably represents the effects of the New Deal’s agricultural relief programs, some of which created incentives for farmers to reduce the amount of labor, especially sharecroppers’ labor, they used in their operations. [Update: Note comment below challenging this interpretation and attributing drop in farm hours worked in 1934 to the exodus]

(Whatley 1983).

Because neither military nor farm hours varied much between 1929 and 1939, the changes in total hours worked in that period are attributable
almost entirely to changes in civilian government hours and private nonfarm hours…”

Robert Higgs in Libertarian Papers, Volume I, A Revealing Window On the US Economy In Depression and War: Hours Worked, 1929-1950

Sometimes, It’s NOT the Economy…..

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 “Obama in talking about the Middle East–the Palestine question and beyond–suffers from an acute case of “economism” or economic reductionism. He has the tendency to reduce all Arab and Muslim issues to job and medical care. It is NOT only the economy–stupid. It is also about pride and dignity and Palestine AND about freedom from the severe oppression that people suffer under governments that are coddled and armed by the very same US of A. So the words fall hollow here….”

From the Angry Arab

Timothy Geithner’s Confirmation Hearings

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Questions from the Senate Finance Committee to Timothy Geithner, chief of the New York Federal Reserve and newly appointed Treasury Secretary under President Obama: http://www.cumber.com/special/geithnerquestions2009.pdf.

Good questioning, evasive or uninformative answers, and no mention of the biggest problem of all. Why put the very folks who fell down on the job back in charge? Geithner had supervisory responsibility for the failure of Citigroup – why should he be in this spot to begin with? 

Financial Follies: Dollar Uptrend

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From a trader whose predictions I’ve liked, Nadeem Walayat: 

“U.S. Dollar Forecast 2009

TREND ANALYSIS – The correction following the November peak was more severe than expected this implies a weakness, however the US Dollar did hold above the previous low of 75 before resuming the up trend. Immediate resistance lies at 88, given the violence of the correction this implies choppy volatile trading in the region of between 80 and 90, this is inline with the conclusion of October 2008 with regards trend expectations for 2009.

PRICE TARGETS – The upside price target for USD remains at 90 and then 92. The USD has significant resistance above USD 92 and therefore suggests the USD will find it tough to sustain a breakout above USD 93. This suggests a trading range with an upward bias. The key here is for the USD to continue making higher lows, with the last low being 77.7.

MACD – The MACD was extremely oversold and has helped contribute to the U.S. Dollar turnaround, how-ever the MACD has some way to go before it reaches what could be termed as an overbought state and therefore implies more immediate term U.S. Dollar strength.

SEASONAL TREND – The USD Rally into January is inline with the seasonal tendency, which suggests a corrective February.

ELLIOTT WAVE THEORY – Octobers elliott wave analysis proved accurate, given the power of the corrective wave, this suggests a more complex sideways elliott wave pattern during 2009 rather than a breakout higher.

Madoff With It: Did Bernie Siphon Off Money Through Primex?

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FINRA has found no evidence of trades by Bernie Madoff on behalf of his private investment fund through Bernard L. Madoff Investment Securities, a commercial brokerage founded in 1960.

This appears to be a brick in the wall of ‘rogue trader’ status. He could do it himself because he made no trades at all.

However this was not Bernie’s only commercial operation in the securities business, in addition to his now nefarious private fund.

Primex was registered as Primex Holdings, L.L.C. in NYS in October of 1998. Primex is a joint venture involving a digital trading auction which operates out of Bernie’s 18th floor office at 885 Third Ave.

Madoff’s business partners in the Primex Exchange were Citigroup, Morgan Stanley, Goldman Sachs, and Merrill Lynch.

Did Bernie give any business to this joint venture? Did any of the above brokers have any investments or losses with the Madoff Fund? If not why not? It was one of the most successful funds, on paper, on the Street?

More questions than answers. Let’s hope this one does not disappear down a black hole like the enormous put option positions placed on the airline stocks just prior to 9/11.

See Jesse’s Cafe Americain

Comment:

Haha, Jesse. Did I hear 9/11 put options?  In DC-think that’s, “I am a certifiable loon, a gun-clinging survivalist-creationist with neo-Nazi leanings. Please ignore my ravings and leave me to dribble here in my corner.”

Global Games: Great Apes’ Lives Threatened By Palm Oil Production

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“Hoping to unravel the mysteries of human origin, anthropologist Louis Leakey sent three young women to Africa and Asia to study our closest relatives: It was chimpanzees for Jane Goodall, mountain gorillas for Dian Fossey and the elusive, solitary orangutans for Birute Mary Galdikas.

Nearly four decades later, 62-year-old Galdikas, the least famous of his “angels,” is the only one still at it. And the red apes she studies in Indonesia are on the verge of extinction because forests are being clear-cut and burned to make”There are only an estimated 50,000 to 60,000 orangutans left in the wild, 90 percent of them in Indonesia, said Serge Wich, a scientist at the Great Ape Trust of Iowa. Most live in small, scattered populations that cannot take the onslaught on the forests much longer.

Trees are being cut at a rate of 300 football fields every hour. And massive land-clearing fires have turned the country into one of the top emitters of carbon.

Tanjung Puting, which has 1,600 square miles, clings precariously to the southern tip of Borneo island. Its 6,000 orangutans — one of the two largest populations on the planet, together with the nearby Sebangau National Park — are less vulnerable to diseases and fires.

That has allowed them, to a degree, to live and evolve as they have for millions of years……..”I am not an alarmist,” says Galdikas, speaking calmly but deliberately, her brow slightly furrowed. “But I would say, if nothing is done, orangutan populations outside of national parks have less than 10 years left.”

More from  from AP here.

Comments:

Having often had to face families of aggressive, prowling monkeys on the way home from school, I’m firmly on the side of man when he goes mano a chimpo for survival. But there’s no reason to despoil the sacred heritage of nature when survival is not the issue. Land usage – part of the commons – is something that can be subject to government intervention, in my opinion.

I know this sounds anti-libertarian. It isn’t really, because dogmatic libertarianism in these areas ends up destroying its own foundation.

When land is ravaged by massive unrestricted development and speculation-driven usage (think of the vast over-cultivation of soy in Argentina that’s led to the depletion of its soil), that has to encroach on the liberty…indeed survival… of everyone on the planet.

Again, the problem is size. Libertarianism simply doesn’t work for a one-world society.

The answer to that is not to go collectivist. It’s to get rid of the idea of  a  one-world society. We want as many worlds as possible.

The socialists like to say, a different world is possible.

I like to say, a different world is impossible.

Because there’s no such thing as a world. Once you start thinking of a world you want to change, you’ll end up with the same problems  – only somewhere else.