Last night I wrote an article reminding you that downside risk remains in the global economy.  While I have been singing a more bullish tune in regards to the prospect of a technical recovery in 2009, I am concerned about a double dip as a likely outcome.

And for the record, I have said I see a recovery happening probably in Q4 2009 or Q1 2010 (see my post “The Fake Recovery”).

The real question is how robust a recovery are we going to have and this is directly related to why the jobless claims series has been sending a false signal.  Now, initial claims has been sending a recovery signal since January. Yet, continuing claims continued to rise more quickly until last week.  In the past, one had seen these two series as harbingers of imminent recovery.  But, I am talking Q4 here.  Why? Deleveraging.

In the end, consumers are going to be forced to reduce debt and save more in this more cautious financial environment.  Team Obama does seem intent on re-kindling animal spirits but the personal savings rate has gone up nonetheless.  This will be a drag on GDP growth going forward and means that the economy’s rebound will be more tenuous and slower to develop.  In my view, this means recovery will be delayed and once it gets going it will be weak.  The potential for a double dip is very high.

So, to be clear, first derivatives are starting to turn up and since recession is a first derivative event, we are probably going to see an end to this recession soon enough.  But, with structural problems still remaining, the U.S. economy will be weak for a long time to come.

The major reason I see a double dip as more likely than most is the policy response. The Munchau post I highlighted last night certainly should leave you with the impression that policy makers are not taking continued downside risk very seriously.  But, I tend to see this as very much a predictable outcome.  Back in November I wrote a post called “Beware of deficit hawks” in which I argued that a now-we-can-normalize-policy meme was sure to take hold as soon as the first signs of recovery appeared.

Recently, deficit hawks have been pushing a nefarious line of argument that I need to debunk right here and right now. The line goes as follows: we need to spend government monies now to get the economy back on its feet. In a couple of years, we can signal all clear and then raise taxes on the middle class in order to reduce the deficit again, much as we did in 1993.

While I agree that deficits will need to be eliminated, this line of thinking risks a repeat of 1937-38 in the U.S. and 1997 in Japan and must be refuted.

This line of argument, entirely predictable, does seem to be exactly what is taking place right now.  Witness Paul Krugman’s remarks in his most recent post Stay the Course.

The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it’s déjà vu all over again — literally.

or this is the third time in history that a major economy has found itself in a liquidity trap, a situation in which interest-rate cuts, the conventional way to perk up the economy, have reached their limit. When this happens, unconventional measures are the only way to fight recession…

The first example of policy in a liquidity trap comes from the 1930s. The U.S. economy grew rapidly from 1933 to 1937, helped along by New Deal policies. America, however, remained well short of full employment.

Yet policy makers stopped worrying about depression and started worrying about inflation. The Federal Reserve tightened monetary policy, while F.D.R. tried to balance the federal budget. Sure enough, the economy slumped again, and full recovery had to wait for World War II.

The second example is Japan in the 1990s. After slumping early in the decade, Japan experienced a partial recovery, with the economy growing almost 3 percent in 1996. Policy makers responded by shifting their focus to the budget deficit, raising taxes and cutting spending. Japan proceeded to slide back into recession.

And here we go again.

You will notice that Krugman is making the exact point I made seven months ago – testimony to how inevitable this all is.  I suggest you read his post in full because his arguments need to be taken seriously if we are to avoid a repeat of 1937 and 1997.  Quite frankly, I am not particularly optimistic that we are going to see policy makers stay the course.  After all, the budget deficits in the U.K., the U.S., and Ireland (to name three of the four original bubble economies – Spain is the other) are exploding.  Willem Buiter has already warned that the U.K. and the U.S. cannot credibly maintain these deficits (see his U.K. post here and U.S. post here).

Pre-Lehman, I was very much in the deficit hawk camp (see my post “Confessions of an Austrian Economist”).  But, those days are over, Lehman’s bankruptcy was the shock that guaranteed a debt deflationary outcome in the U.S. and for the global financial system.  If we are to deleverage, credit is going to contract and that will mean recession.  The only way to avoid this – and a potentially destabilizing deflationary spiral – is for government to temporarily fill in the gap until we reach a sustainable point of recovery.  We are nowhere near that point now.  I warned in November that

…the Obama administration is going to be beset by parties using the immediate deficit reduction line of argument: Can we really balloon the deficit to $1 trillion and expect business as usual in 4 to 5 years given the precedents and given the low savings and high debt?

My answer is no. The U.S. economy cannot possibly work itself out of the greatest financial crisis in some 70-odd years in a mere 4 years and then expect to raise taxes on the middle class without a major recessionary relapse.

So, when you hear policy makers talking about reducing the deficit as soon as possible, what you should think is 1938 and continued depression. While all of this is still a number of years off, we need to nip this talk in the bud now before it becomes orthodoxy.

Buiter’s view of the U.S. and the U.K. as Banana Republics demonstrates that there really aren’t very many policy options available here.  But, that is the outcome of years of bubbles and unbalanced growth.  Think of the United States as Argentina or Latvia writ large. The U.S. does need to demonstrate a longer-term path to fiscal policy normalization to maintain investor confidence.  This is something that is not happening. (see David Leohardt’s piece from last week).

Going forward, in all likelihood, we are going to see a move toward fiscal prudence and policy normalization.  Stimulus will be seen as irresponsible.  This is already the view amongst many politicians in the U.K., the U.S., and Germany (and the Czechs have been making the same noises in Central Europe).  So, when the U.S. and global economy relapse into depression because we did not stay the course, you will know why.

Related posts:

• Weakest employment market since the Great Depression
• Beware of deficit hawks
• Revisiting employment indicators for signs of recovery
• Some tidbits about stimulus, recovery, and the Great Depression
• Is 2009 tracking a 1930 Great Depression scenario?

On a recent Bloomberg Radio with Tom Keene broadcast, Harvey Pitt and Arthur Levitt, two former SEC Chairman were guests. Levitt made the suggestion that hedge funds had once been given the choice of “regulation-light” or “regulation-heavy.” Now, in the wake of the Madoff scandal, “regulation-heavy” is all but assured. But, isn’t this just?

Listen to what Nobel-winning economist Paul Krugman makes of this:

How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my example wasn’t hypothetical after all.

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

What Mr. Krugman just described is what Kevin Phillips calls the “financialization” of America. The financial services industry is a behemoth unlike the military-industrial complex, which has taken on an ever larger share of U.S. jobs, U.S. GDP, and until recently what we thought was U.S. profits. However, witness the extreme levels of debt used to achieve these phantom profits in the chart below.

The fact is that two decades of deregulation has created a financial services monster, which is both an important lobbying group in Washington and of disproportionate size to the real economy. This allowed fund of fund hedge funds to pyramid fees on top of Madoff’s own fees without doing the necessary due diligence regarding the primary funds. No investor would ever have suspected a thing as they received their statements from the fund of funds and not from Madoff directly.

Moreover, the Madoff scandal reveals the laxity in SEC regulation as multiple warnings had been given about Madoff as far back as 1999. Pitt assured the listeners that Madoff could have happened even in a more regulated environment because this was not systemic regulatory failure but human regulatory failure.

Really? I would label this whole episode systemic regulatory capture. And it all leads back to the lack of regulation. This is a systemic problem that needs a systemic fix. Deregulation is the problem here, not the solution.

Source
If it’s broke, fix it – but how? – Willem Buiter’s Mavercon
The Madoff Economy – Paul Krugman, NY Times

Related posts:

• The FSA signals a need for regulation-heavy
• S.E.C. complicit in Madoff fraud, whistleblower says
• Video: Geithner calls for single agency to oversee systemic risks
• Guest post: Regulation in Defense of Capitalism
• A brief note on the fake reform agenda

Willem Buiter has a very useful and provocative blog at the Financial Times website called Mavercon.  The Dutch-born former Bank of England MPC member is not afraid to take policy makers to task or call a spade a spade.

In his latest post on why banks are refusing to lend to creditworthy customers, he has some useful insights and a very memorable quote:

Banks that don’t lend to the non-financial enterprise sector and to households are completely and utterly useless, like tits on a bull.

Buiter is always interesting, sometimes provocative and often hilarious.

Source
Tits on a bull – Willem Buiter, FT Mavercon

Related posts:

• Willem Buiter to become a bank
• Jamie Dimon: “If You Are Not Fearful, You Are Crazy”
• Quote of the day: Investment Bank Leverage
• Is Ireland the next Iceland?
• Did Tim Geithner blow it?

Politics
As the time for Barack Obama to take office moves ever closer, his policy team is coming into view. Obama has appointed a slew of economic advisors including Tim Geithner, Larry Summers and Paul Volcker. In addition, he looks to have filled out the key positions in his White House staff and to have nominated veterans to other key posts including Hillary Clinton, Bill Richardson, and Tom Daschle. Meanwhile Defense Secretary Robert Gates is likely to stay on. While opinions about the appointments are mixed, reviews about decisiveness and leadership have been favorable.

On the other hand, the reviews about Bush and Paulson’s handling of the economy and credit crisis still suffers with many commentators faulting Paulson for having changed the TARP design multiple times.

Below are the top links to these and other interesting political stories.
Obama to name Volcker to head markets panel | Politics | Reuters

Bloomberg.com: Obama Says Wall Street Executives Should Forgo Holiday Bonuses

Another View: TARP Is an Incipient Disaster — DealBook – New York Times

Karl E. Meyer and Shareen Blair Brysac – Send Bill Clinton to the Senate – washingtonpost.com

John Maynard Keynes: Economic advice for America’s president | Comment is free | guardian.co.uk

The hidden costs of war – Roger Simon – Politico.com

Gates agrees to stay on under Obama – Mike Allen – Politico.com

Is Geithner Up to the Task? – Mergers, Acquisitions, Venture Capital, Hedge Funds — DealBook – New York Times

Real Time Economics : Who Is Christina Romer?

Fed’s consumer ABS liquidity plan spurs confusion | Reuters

FT.com | Willem Buiter’s Maverecon | Tits on a bull

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker

Finance and the Credit Crisis
In the world of finance, despite decent stock market returns, most of the news coming out is fairly grim. And this is a global phenomenon. Toyota had it’s ratings cut. Dividends are shrinking across the board, Canada looks likely to move into recession. BHP Billiton and Rio Tinto is a commodities merger that will never happen. Porsche is going to miss targets. Oh, and house price in the U.S> are still falling. The list goes on. In my view, the most important story is China because they are slowing at a rapid rate and the government is stepping up the stimulus, both fiscal and monetary. Below are the biggest stories out there starting with China.

FT.com / Asia-Pacific – China makes biggest rate cuts for decade

Toyota debt rating cut, Suzuki holds out hope for GM | Reuters

Yahoo!’s five biggest mistakes – Financial Post

Rio Tinto says on track on major asset sales | Reuters

LandAmerica files for Chapter 11 bankruptcy protection | Reuters

Canada in recession and heading for deficit: OECD

‘Production cuts likely’ at Porsche, VW – Breaking News – Business – Breaking News

Real Time Economics : FDIC Says Number of Problem Banks Grows

U.S. home prices plunge record 17.4%

Bloomberg.com: Fed Commits $800 Billion More to Unfreeze Lending

Saving Citi May Create More Fear – NYTimes.com

Bloomberg.com: Skanska to Cut 3,400 Nordic Jobs on 15% Volume Drop

Mayor Michael Bloomberg sees no U.S. bailout | Politics | Reuters

Markets
Obviously, we are in a bear market given that stocks have been cut in half and the news flow continues to be negative. However, Jeremy Grantham and James Montier, two so-called perma bears are loving life because they see a lot of good value amongst the corporate carcasses waylaid by the global downturn. Warren Buffett is bullish and looking good these days as some of his bets seem to be paying off. That said, one must recognize that we are still in a bear market and that means that not all stocks can increase. In fact, Grantham sees the S&P potentially falling to 600 next year amid the grim economic news. Grantham has a must-see interview with Consuelo Mack that I have linked below. I share his views both in terms of the number of values available and the likely fall in broader indices. His most intersting statement was when he said it is times like these that matter in an asset allocator’s performance. Anyone can make money in a bull market. Bear markets separate the men from the boys.

Below are the important links in the markets. Note the lead stories about Middle Eastern investors being more concerned with their own problems than investing in Western markets.

Sovereign wealth funds switch from Western investments – Times Online

Heavily in Debt, Dubai Calls in the Bankers – DealBook – New York Times

Jeremy Grantham: TV Interview – CONSUELO MACK | WEALTHTRACK (Video)

Bloomberg.com: Montier Has ‘Never Been More Bullish’ on Stocks

Bloomberg.com: Buffett Stock Picks Beat Financials Index as He Dodged Subprime

Bloomberg.com: Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash

Angry Citi investors to unveil new court complaint | Reuters

FT.com | Willem Buiter’s Maverecon | Tits on a bull

HSBC declares interest in taking over Citigroup assets as Washington takes control – Times Online

As always, feel free to see all the important news links in the news feed, which you can access here.

I hope to get out an update to my credit crisis timeline before this day ends. However, forgive me if I do not. I am off to a turkey fest this afternoon and foresee me stuffing my face by 4PM.

I wish you all well over Thanksgiving.

Edward

Related posts:

• News round-up: 14 Oct 2008
• News Round-Up: 6 Oct 2008
• News round-up: 8 Sep 2008
• News round-up: 25 Sep 2008
• News round-up: 20 Aug 2008 – financial institutions special edition

Since everyone and his sister can become a bank, why not a central banker cum professor and his wife?  Willem Buiter understands the absurdity of granting any financial institution in America bank holding status.  He understands this is one big handout to financial services.  Therefore, he has decided to become a bank too.

My wife and I are the proud owners of all the common stock in a small company, created originally as a vehicle for supplying consultancy services.  Because we are both U.S. citizens, the company is registered both in the U.S. and in the UK. Over the years since its creation, an awareness has grown inside me, that what we really own is a bank: money goes out (quite a lot) and money comes in (not quite enough).  All we lack to be a proper bank is leverage and a marble atrium.

To remedy this obvious deficiency, I have decided to submit a request to the U.S. banking regulators (cc’d to Hank Paulson) to grant bank holding company status to our enterprise.  If G-Mac can aspire to this status, which gives the qualifying institution access to all the Fed troughs and to what’t left of the TARP, then so can we.

Unlike G-Mac, which provides financing for crappy, environmentally unfriendly vehicles that no-one really wants, our would-be bank holding company is a model of family values at work.  Sure, we don’t make loans.  But show me a bank today that does.   You may wish to point out that the two principals involved have no experience running a bank.  You would be correct. But what really is worse, having no relevant experience or having an extensive track record of running multi-billion enterprises into the ground?  Make a choice between a definite risk and the certainty of abject and costly failure.

If we cannot get bank holding company status for our company, we will fly our (separate) private jets to Washington DC to appeal for congressional support for our business as a quintessential heartland enterprise.  The very fact that we are not systemically important makes us systemically important.  The reason is that if we can get money from the U.S. government, anyone can.  And if anyone can, there is no longer any reason for fear, excessive caution and pessimism.  Consumers will spend again. Banks will lend again.  Companies will invest again.  Just give us the money.

Source
Just give us the money – Willem Buiter’s Mavercon

Related posts:

• Quote of the day: Willem Buiter – Tits on a bull
• Paulson is handing out free money like candy to a baby
• GMAC gets a helping hand
• Countrywide is the real problem at Bank of America
• Stuffing bondholders

Just a few moments ago I caught a very interesting post on Alice Cook’s site UK Bubble. The gist of the post was that things are falling apart in Ireland very quickly. Given what we saw with Iceland, I have to ask: is Ireland next?

I wouldn’t suppose that things are this fragile but we cannot dismiss out of hand talk of Ireland going the way of Iceland. Here is what Alice posted:

Someone left this intriguing comment on one of my posts yesterday:

Alice can you shed any light on what is going on in the Irish Republic?

Last week beef prices collapsed. This week I am unable to sell finished beasts at all.

Last week a police strike in Donegal was narrowly averted when the local authority agreed to stump up accrued overtime.

Bank of Ireland shares are trading for under 90 cents from a one time high of 18 Euro. It looks like the Government’s bluff is about to be called…

Rumour has it that the cashpoint system will stop within 3 days

Can you shed any light?

Is there anyone out there who can help?

Now, Ireland happens to be one of the worst affected bubble economies in Europe. They have seen a massive house price bubble along with huge leverage as their economy leapt forward over the last decade. However, this has all gone pear-shaped in the last year or so and Ireland has a recessionary economy with rising unemployment, collapsing house prices and severe knock-on effects in terms of commercial property. Immigrants, who once flocked to Ireland are no longer coming.

Meanwhile, Ireland was the first country to offer a blanket guarantee to it’s banks’ depositors. I welcomed this move as a necessary step to restore confidence. However, there are two problems associated with it.

1. As Willem Buiter has pointed out, this move was a “beggar thy neighbour” policy which initially sucked deposits out of British institutions. British savers flocked to government-protected Irish institutions in the UK which courted the British savers with higher interest rates — the government had effectively subsidized the banks. Eventually, Europe as a whole got onside, and sweeping deposit guarantees were offered all around.
2. The government must be able to credibly back up its guarantee. And this where Ireland looks a lot like Iceland. The country has an outsized financial sector which could not possibly be guaranteed by the Irish government. Moreover, Ireland is a member of the Eurozone — meaning it can’t print its own money. The UK, which borrows in Sterling can at least print money to finance any guarantees. The Irish are constrained — and, therefore, vulnerable.

It remains to be seen whether there is a sub-current of panic about the fragile Irish banking system that could lead it to Iceland’s fate. In fact, commentators like Wolfgang Munchau have argued that the single currency is a boon to the likes of Ireland because it prevents currency attacks like the one Iceland suffered, leading to its downfall.

However, a run on Irish banks is what would ultimately bring the Irish down. After all, it is the Government bank guarantee which creates the vulnerability. The Irish Government needs to make some contingency planning because an Icelandic fate is not out of the question. It need not worry about a currency run, but a bank run is still possible.

There are two ways to skin a cat.

Sources
Ireland – what is going on? – UK Bubble
Why the British may decide to love the euro – Wolfgang Munchau, FT
The Irish solution: unlawful, beggar-thy-neighbour and short sighted, but apart from that OK – Willem Buiter, FT Mavercon
Iceland, Switzerland, Denmark, Sweden, Jordan and countries with banks that are too big to bail out – Bronte Capital
The first casualty of the crisis: Iceland – VoxEU
Stunned Icelanders Struggle After Economy’s Fall – NYTimes.com

Related posts:

• Ireland guarantees bank deposits at six banks
• Irish government unveils plan to recapitalise banks
• Ireland nationalizes Anglo Irish bank
• Trouble in Ireland as Fitch cuts debt two notches to AA- and deficits soar
• Ireland: Next stop – IMF

Below is a link to an article I wrote about the Bank of England’s aggressive 1.5% interest rate cut that appeared in yesterday’s Guardian newspaper.

The unkindest cut, Guardian

The long and short of it is that I am very skeptical about the need for such a large cut. Many pundits felt the BoE was behind the curve and needed to send a large signal. One such figure is Willem Buiter, a former BoE Monetary Policy Committee member. However, to my mind, the move has the faint whiff of panic to it.

Moreover, while interest rate policy can be beneficial in stimulating demand, it is a blunt instrument, carrying large unintended consequences. Just ask Alan Greenspan. If the UK authorities want to stimulate demand, a smaller cut coupled with increased government spending on infrastructure is preferable to such a massive move.

The ECB demonstrated again that it is more cautious and more prudent by only moving 50 basis points on the same day.

Related posts
The ECB is right and the Fed is wrong

Related posts:

• Federal Reserve’s Fisher says tightening will be aggressive
• Japan’s easy money policy was the trigger for the tech wreck
• Quote of the day – Richard Fisher, head of the Dallas Fed
• Popping bubbles
• Ted Forstmann: the credit crisis will get worse

I have been a bit on edge of late because of the credit crisis that is making headlines. Recently, a lot of people have been duped into believing that the economic crisis we are experiencing is not critical and have their eyes focused elsewhere. However, this event is potentially the most critical event in world history since World War II.

It is not just a U.S. or UK problem — this problem has truly global dimensions. Europe has recently moved center stage in the credit crisis. Consider this turn of events the Europeanisation of the credit crisis.

Belgium, France, the UK, and the Netherlands all have nationalised large domestic banks. Ireland, Greece and now Germany have guaranteed bank deposits. And a Lehman-style bankruptcy in the form of Hypo Real Estate (HRE) is threatening Germany as we speak.

I had hoped we could get out of this with a minimum of fuss, but this thing is metastasizing in unimaginable ways. The major economic powers need to understand that now is not the time for political posturing and sticking your head in the sand. This crisis is reaching dangerous territory where debt deflation and untold economic pain could result. We are truly at a crossroads where economic depression is a very real possibility.

The crux of the matter is that a general crisis of confidence has hit the banking system because too much debt and too many complicated financial products have caused some banks to become effectively insolvent. But, which ones? No one knows and that has caused lending to grind to a halt as everyone is afraid of lending to a bankrupt borrower.

The Paulson Plan is not going to solve this problem by a long shot. And, until a few days ago, the Europeans were acting like this was an Anglo-American problem. It is not. Recently, I wrote a piece in the Guardian where I outlined what needs to be done in the U.S. and Europe. It comes down to four things:

1. Guarantee bank deposits. To halt the decline, The U.S. and European governments should follow Ireland, Greece and Germany and make an explicit guarantee of deposits to end potential distrust among depositors. I believe political will for this already exists and Europe will certainly do it, will the US?

2. Guarantee interbank lending. Governments need to bite the bullet and temporarily guarantee interbank loans taken at Libor (the London interbank offered rate). This would unfreeze the inter-bank market, which is creating liquidity problems in the financial sector.

3. Liquidate insolvent financial institutions. But, as guarantees increase moral hazard, governments must require national regulators to quickly determine which banks are insolvent. The government can then decide on whether to liquidate these insolvent banks or sell their assets to other financial institutions.

4. Re-capitalize the banking system. The private sector should be used to re-capitalize the remaining solvent banks. Many investors are ready to contribute capital under the right circumstances. However, if necessary, the government should contribute through preferred shares or warrants.

   Regulators might also look to separate “good” assets from “bad” assets in the solvent banks to further bolster interbank confidence. Instead of buying assets up at inflated prices, as treasury secretary Hank Paulson has suggested the U.S. government do, they should stick bad assets into a separate “bad bank” controlled by the regulators at market prices.

I am not the only one thinking along these lines. Just today Willem Buiter, a former Bank of England MPC member made comments along the same lines. These fixes are extremely urgent because confidence in the banking systems worldwide are declining. Governments need to act now.

Related posts
The Germans guarantee all savings deposits
Crisis in Europe: an article I wrote in today’s Guardian
The Swedish banking crisis response – a model for the future?
Europe is next

Related article
Getting the interbank market going again: the central bank as counterparty of last resort – Mavercon Blog, FT

Related posts:

• Crisis in Europe: an article I wrote in today’s Guardian
• The Germans guarantee all savings deposits
• Ireland guarantees bank deposits at six banks
• The global economy has crashed: we need a comprehensive credit crisis plan
• Denmark gets on the deposit guarantee train: all aboard!

With the Economic Patriot Act past the Senate – including hundreds of billions in pork barrel – sweeteners, it’s time to focus in a little on politics. I’ll lead off the round-up there, trying to keep it fair despite my obvious anti-McCain-Palin bias.

Then we’ll turn to the usual fare of credit crisis news and financial services reports. The notable report there comes from UBS, which surprised analysts with a nice quarterly profit – hopefully signs of better things to come. I can hope, can’t I.

Enjoy!

Politics
Vice presidential debate: A barrel of gaffes? – Politico
Women ex-governors divided on Palin – Politico
Latest Column on Obama’s Temperament – Swampland
An Open Letter to Sarah Palin – Pat Buchanan (I told you I was trying to be even-handed)
Bush Records Highest Disapproval Rate in History – Political Wire (McCain is getting sucked into the Bush vortex)

Credit Crisis
What should you study in a credit crunch? – Guardian (Not Economics like me, try psychology)
Q&A: The second U.S. bailout explained – Times Online
European summit on finance crisis – BBC News
“Open Letter to European Leaders on Europe’s Banking Crisis”- Mark Thoma (well worth looking at to sign if you’re an economist)
We Chat on Bloggingheads with Megan McArdle on the Credit Crisis – Yves Smith (looking good, Yves. Feeling good, Megan.)
The Irish solution: unlawful, beggar-thy-neighbour and short sighted, but apart from that OK – Willem Buiter, FT (Tell us what you really think)

Finance and Financial Services
UBS to cut jobs despite returning to profit – Times Online
European Central Bank Leaves Rate Unchanged – NY Times
MBIA sues Countrywide Financial – FT Alphaville (Another reason BofA was dumb to buy Countrywide)
National City leads regional-banking shares higher – Market Watch

Technophile’s Corner
Adobe Photoshop CS4 – PC Pro (Fabulous photo software, but it’ll cost ya)
Download Free Task Manager Extension 2.0 to Enhance Built-In Windows Task Manager – My Digital Life (This is a useful tool for your computer)

Related posts:

• News round-up: 7 Aug 2008
• News round-up: 3 Sep 2008
• News round-up: 13 Aug 2008
• News round-up: 30 Sep 2008
• News round-up: 28 Aug 2008 – mini version

The latest government intervention into the capitalist system is the move by the UK and U.S. governments to ban short-selling of all financial stocks outright.

In the wake of the severe market turbulence unleashed by the failure of Lehman Brothers, the government has decided to insert itself into the marketplace and prop up share prices by banning short-selling outright. This is a clear violation of free market principles.

This is quite ironic because the Federal Reserve and the U.S. Treasury allowed Lehman Brothers to fail in order to demonstrate the Governments commitment to the free market. Obviously, their experiment in free market economics has been a disaster, and they are doing a complete 180-turn. The next thing you know, they will ban private citizens from owning gold.

Below is the list of firms which cannot be shorted and links to a number of good commentaries on the issue.

U.S. financial companies whose shares can’t be shorted – Market Watch
The FSA’s endangered species list – FT Alphaville

Commentary
Short Selling Ban: Why is the Bush SEC Scared of the Market? – Beat The Press
SEC tries to bankrupt Wall Street – Bronte Capital
UK Temporarily Ban Short-Selling 18 Sep 2008 – CNBC
FSA bans short-selling of banks – FT
Banking shares rise more than 30% – BBC News
The Next Target: Asset Managers – Market Beat
Fear and loathing in the financial markets – Willem Buiter
SEC: Ban All Short Selling – Barry Ritholtz

Related posts:

• The short-selling rule and unintended consequences
• Australia bans short selling too
• Everyone wants in on the short sell ban list
• Welcome to The United Socialist States of America
• Is the short covering rally over?