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Links: 2008-12-10

So we have gotten our auto sector bailout. Let’s see how this shakes out. I am already hearing rumblings that this will not be easy as bondholders are not playing nice. See the link to Felix Salmon’s comments below. My own view is that bond holders will need to take a haircut here, if we are to have any measure of success.

Meanwhile, you will have noticed my post on VW demonstrating that any bailout solutions need to be well crafted and comprehensive in order to avoid the more unpalatable of unintended consequences. We shall see soon whether this auto bailout invites a response from the Germans and Japanese.

I still need to address the Treasury Bubble issue as well despite the fact that government bonds have traded off. My worry here is that, if and when the economy responds to stimulus, we will get a large, uncontrollable selloff, the consequences of which are unknown. In my view, we should always fear unintended consequences.

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Confessions of an Austrian economist

My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.

And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.

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Volkswagen: if the American carmakers can get bailout funds, so can we

It seems that the bailouts are now turning into a “Beggar Thy Neighbor” policy of aid for specific sectors of the global economy. First, it was finance as the banks were savaged by massive writedowns to their property and derivative holdings — with each nation competing with the next for the largest handouts to this vital sector of the economy.

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Irish equities suffer largest losses in 215 years

You think things are bad where you were. Well, then, take a look at Ireland. Irish punters are really taking it on the chin. Stocks are down 75% from their peak in February 2007. This makes 2008 the worst year for Irish equities since 1793, according to a report from Bloxham Stockbrokers.

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Links: 2008-12-09

On the financial scene, I see the biggest news as being the fact that the yield on 3-month treasuries have now gone negative. This is an absolute first. This means the U.S. government is being paid by investors to borrow. Given the fact that the U.S. government is about to go on a borrowing binge of historic proportions, it sees a bit odd that yields are below zero. It seems to me that the liquidity being produced by central banks is finding its way into the U.S. government bond market, NOT into loans which will restart the global economy. This is another demonstration as to why low interest rates cannot solve what ails us. It also demonstrates for the first time that the zero bound is not a hard constraint. Does this mean the liquidity trap is a fiction?

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Treasury yields go below zero

The yield on he three-month U.S. treasury bill went below zero for the first time ever. This seems to be an unprecedented move where investors are actually paying the U.S. Government to borrow money. In my estimation, this is not just a flight to a safe haven in turbulent times. Negative interest rates in U.S. treasuries reveal a bubble that will pop and end badly for all concerned.

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Illinois governor Blagojevich’s dumb press conference

This video is a good laugh given what we now know about the alleged criminal activity going on in Illinois Governor Blagojevich’s office. Here is Blogojevich yesterday at a press conference. The man is smug and obnoxious. Now, he is going to jail. The question is what impact will this have on President-elect Obama.

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Illinois governor in custody for trying to sell Obama’s Senate seat

I have seen this all over the political blogosphere.  Blagojevich is reputed to have been under investigation for corruption and wire-tapping charges for quite a while.  They finally decided to pull the trigger and arrest him over this. Here is a very good account by Michael Scherer from Swampland. Note the reference to a story I covered regarding the Tribune […]

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Martinsa Fadesa: Asset value drops 30%, liabilities much larger

FT Alphaville is reporting that Martinsa Fadesa, the bankrupt Spanish property developer, has seen the value of its drop 30% this year alone. Spain has largely slipped from view as the credit crisis has reached global dimensions. However, it bears remembering that Spain, along with the U.S., the U.K. and Ireland have been at the forefront of residential property price falls.

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Holiday season cinema: The Dark Knight released on DVD

The holiday season is the second most important for the movie studios and many of their academy-award nominees are released in the time after Thanksgiving (the 4th Thursday of November) to take advantage of the holiday cheer. One film released this summer, the Dark Knight, is talked about, not because of Chrstian Bale, its star, but because of Heath Ledger, […]

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Australia: 40% chance of recession? Try 95%

This is the absurd thinking of economists. Australia has a 40% chance of recession next year. What does that even mean? If you asked me, I would say the chances of recession in Australia are 100%. You have a slowing property market, financial sector turmoil, a falling currency, plunging commodity prices and a global credit crunch. How do Australian economists […]

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The Tribune files for bankruptcy

The Tribune files for bankruptcy

The Tribune was simply over-leveraged with a balance sheet made for this age of debt, leverage and bubbles. Note the lack of equity and the enormous debt load. Why would anyone, especially someone as savvy as Sam Zell load up a declining business with this much debt? Was it greed, hubris? It seems inexplicable to me.

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